Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2024 Rates; Quality Programs and Medicare Promoting Interoperability Program Requirements for Eligible Hospitals and Critical Access Hospitals; Rural Emergency Hospital and Physician-Owned Hospital Requirements; and Provider and Supplier Disclosure of Ownership; and Medicare Disproportionate Share Hospital (DSH) Payments: Counting Certain Days Associated With Section 1115 Demonstrations in the Medicaid Fraction

AGENCY:

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

ACTION:

Final rules.

SUMMARY:

This final rule will: 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. This final rule also revises our regulations on the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's disproportionate patient percentage (DPP) used in the disproportionate share hospital (DSH) calculation.

DATES:

This final rule is effective October 1, 2023. The amendments to 42 CFR 488.18(d), published at 59 FR 32120, June 22, 1994, is effective August 1, 2023.

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.

Adina Hersko, NewTech@cms.hhs.gov, New Technology Add-On Payments and New COVID–19 Treatments 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.

Ariel Cress, ariel.cress@cms.hhs.gov, Lorraine Wickiser, Lorraine, Wickiser@cms.hhs.gov, Long-Term Care Hospital Quality Reporting Program—Data Reporting Issues.

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

Jennifer Milby, jennifer.milby@cms.hhs.gov and Sara Brice-Payne, sara.brice-payne@cms.hhs.gov, Special Requirements for Rural Emergency Hospitals (REHs).

Lisa O. Wilson, Lisa.Wilson2@cms.hhs.gov, Physician-Owned Hospital Issues.

Frank Whelan, Frank.Whelan@cms.hhs.gov, Disclosure of Ownership.

SUPPLEMENTARY INFORMATION:

Tables Available on the CMS Website

The IPPS tables for this fiscal year (FY) 2024 final 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 2024 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2024 final 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–1785–F. For further details on the contents of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this FY 2024 IPPS/LTCH PPS final 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.

Table of Contents

I. Executive Summary and Background

A. Executive Summary

B. Background Summary

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

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

E. Use of the Best Available Data in the FY 2024 IPPS and LTCH PPS Ratesetting

F. Potential Payment Under the IPPS for Establishing and Maintaining Access to Essential Medicines

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

A. Background

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

C. Changes to Specific MS–DRG Classifications

D. Recalibration of the FY 2024 MS–DRG Relative Weights

E. Add-On Payments for New Services and Technologies for FY 2024

III. Changes to the Hospital Wage Index for Acute Care Hospitals

A. Background

B. Worksheet S–3 Wage Data for the FY 2024 Wage Index

C. Verification of Worksheet S–3 Wage Data

D. Method for Computing the FY 2024 Unadjusted Wage Index

E. Occupational Mix Adjustment to the FY 2024 Wage Index

F. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2024 Occupational Mix Adjusted Wage Index

G. Application of the Rural Floor, Application of the State Frontier Floor, Continuation of the Low Wage Index Hospital Policy, and Permanent Transition to Cap Wage Index Losses

H. FY 2024 Wage Index Tables

I. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

J. Out-Migration Adjustment Based on Commuting Patterns of Hospital Employees

K. Reclassification From Urban to Rural Under Section 1886(d)(8)(E) of the Act Implemented at 42 CFR 412.103

L. Process for Requests for Wage Index Data Corrections

M. Labor-Related Share for the FY 2024 Wage Index

IV. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2024 (§ 412.106)

A. General Discussion

B. Eligibility for Empirically Justified Medicare DSH Payments and Uncompensated Care Payments

C. Empirically Justified Medicare DSH Payments

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

E. Uncompensated Care Payments

F. Counting Certain Days Associated With Section 1115 Demonstration in the Medicaid Fraction

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)

B. Changes in the Inpatient Hospital Update for FY 2024 (§ 412.64(d))

C. Sole Community Hospitals—Effective Date of Status in the Case of a Merger (§ 412.92)

D. Rural Referral Centers (RRCs) Annual Updates (§ 412.96)

E. Payment Adjustment for Low-Volume Hospitals (§ 412.101)

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

G. Payments for Indirect and Direct Graduate Medical Education Costs (§§ 412.105 and 413.75 through 413.83)

H. Reasonable Cost Payment for Nursing and Allied Health Education Programs (§§ 413.85 and 413.87)

I. Payment Adjustment for Certain Clinical Trial and Expanded Access Use Immunotherapy Cases (§§ 412.85 and 412.312)

J. Hospital Readmissions Reduction Program (§§ 412.150 Through 412.154)

K. Hospital Value-Based Purchasing (VBP) Program: Policy Changes (§§ 412.160 Through 412.167)

L. Hospital-Acquired Condition (HAC) Reduction Program

M. Rural Community Hospital Demonstration Program

VI. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

C. Annual Update for FY 2024

D. Treatment of Rural Reclassifications for Capital DSH Payments

VII. Changes for Hospitals Excluded From the IPPS

A. Rate-of-Increase in Payments to Excluded Hospitals for FY 2024

B. Report on Adjustment (Exception) Payments

C. Critical Access Hospitals (CAHs)

VIII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2024

A. Background of the LTCH PPS

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS–LTC–DRG) Classifications and Relative Weights for FY 2024

C. Changes to the LTCH PPS Payment Rates and Other Changes to the LTCH PPS for FY 2024

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Overview

B. Crosscutting Quality Program Proposal To Adopt the Up-to-Date COVID–19 Vaccination Coverage Among Healthcare Personnel Measure

C. Changes to the Hospital Inpatient Quality Reporting (IQR) Program

D. Changes to the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

E. Changes to the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

F. Changes to the Medicare Promoting Interoperability Program

X. Other Provisions Included in This Final Rule

A. Rural Emergency Hospitals (REHs)

B. Physician Self-Referral and Physician-Owned Hospitals

C. Technical Corrections to 42 CFR 411.353 and 411.357

D. Safety Net Hospitals RFI

E. Disclosures of Ownership and Additional Disclosable Parties Information

XI. MedPAC Recommendations and Publicly Available Files

A. MedPAC Recommendations

B. Publicly Available Files

XII. Collection of Information Requirements

A. Statutory Requirements for Solicitation of Comments

B. Collection of Information Requirements

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This FY 2024 IPPS/LTCH PPS final rule makes 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 makes payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This final rule also makes policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. In this FY 2024 final rule, we are finalizing our proposal to continue policies to address wage index disparities impacting low wage index hospitals. We are also finalizing our proposed changes relating to Medicare graduate medical education (GME) for teaching hospitals and new technology add-on payments.

In this FY 2024 final rule, we are finalizing our changes to the regulation governing the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's DPP that were proposed in CMS 1788–P, Medicare Program; Medicare Disproportionate Share Hospital (DSH) Payments: Counting Certain Days Associated With Section 1115 Demonstrations in the Medicaid Fraction (88 FR 12623).

We are finalizing our proposals to establish new requirements and revise existing requirements for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

In the Hospital VBP Program, we are finalizing our proposals to add one new measure, substantively modify two existing measures, add technical changes to the administration of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey, change the scoring policy to include a health equity scoring adjustment, and modify the Total Performance Score (TPS) maximum to be 110, resulting in a numeric score range of 0 to 110. We are also providing estimated and newly established performance standards for the FY 2026 through FY 2029 program years for the Hospital VBP Program.

In the HAC Reduction Program, we are finalizing our proposals to establish a validation reconsideration process for data validation and to add an additional targeting criterion for validation. We did not propose any changes and are not finalizing any changes for the Hospital Readmissions Reduction Program.

In the Hospital IQR Program, we are finalizing our proposals to add three new measures, to modify three existing measures, and to remove three measures. We are also finalizing our proposed changes to add technical changes to the administration of the HCAHPS Survey and to add an additional targeting criterion for validation.

In the PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR), we are finalizing our proposals to add four new measures and to modify an existing measure. We are also finalizing our proposed changes to add technical changes to the administration of the HCAHPS Survey and to begin public reporting of one measure.

In the LTCH QRP, we are finalizing our proposals to add two new measures, modify an existing measure, remove two measures, and increase the LTCH QRP data completion thresholds for LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) items. Additionally, we provide a summary of the comments received to our request for information on principles for selecting and prioritizing LTCH QRP quality measures and concepts under consideration for future years and our update on CMS' continued efforts to close the health equity gap.

Under various statutory authorities, we either discuss continued program implementation or make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2024 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 payment for a payment adjustment year.
• Section 1814(l)(4) of the Act, which 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 electronic health record (EHR) reporting payment 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 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 meeting performance standards 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 (“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 two 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 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, as added by section 2(a) of the Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) (Pub. L. 113–185), which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs.
• Section 1861(kkk) of the Act requires the Secretary to establish the conditions REHs must meet in order to participate in the Medicare program and which are considered necessary to ensure the health and safety of patients receiving services at these entities.
• Section 1877(i) of the Act, as added by section 6001(a)(3) of the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act) (Pub. L. 111–148) and amended by section 1106 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (Pub. L. 111–152), which requires the Secretary to establish and implement a process under which a hospital that is an “applicable hospital” or a “high Medicaid facility” may apply for an exception from the prohibition on expansion of facility capacity.

2. Summary of the Major Provisions

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

a. Modification to the Rural Wage Index Calculation Methodology

As discussed in section III.G.1. of this final rule, CMS has taken the opportunity to revisit the case law, prior public comments, and the relevant statutory language with regard to its policies involving the treatment of hospitals that have reclassified as rural under section 1886(d)(8)(E) of the Act, as implemented in the regulations under 42 CFR 412.103. After doing so, CMS now agrees that the best reading of section 1886(d)(8)(E) is that it instructs CMS to treat § 412.103 hospitals the same as geographically rural hospitals. Therefore, we believe it is proper to include these hospitals in all iterations of the rural wage index calculation methodology included in section 1886(d) of the Act, including all hold harmless calculations in that provision. Beginning with FY 2024, we will include hospitals with § 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations and only exclude “dual reclass” hospitals (hospitals with simultaneous § 412.103 and Medicare Geographic Classification Review Board (MGCRB) reclassifications) in accordance with the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act.

b. 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 also 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.4. of the preamble of this final rule, as we only have 1 year of relevant data at this time that we could use to evaluate any potential impacts of this policy, we believe it is necessary to wait until we have useable data from additional fiscal years before making any decision to modify or discontinue the policy. Therefore, for FY 2024, we are finalizing our proposal to continue the low wage index hospital policy and the related budget neutrality adjustment.

c. DSH Payment Adjustment and Additional Payment for Uncompensated Care

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 otherwise would have been paid as Medicare DSH payments, is paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH 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.

In this final rule, we are finalizing our proposal to update our estimates of the three factors used to determine uncompensated care payments for FY 2024. We are also finalizing our proposal 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 2024, we will use the 3 most recent years of audited data on uncompensated care costs from Worksheet S–10 of the FY 2018, FY 2019, and FY 2020 cost reports to calculate Factor 3 in the uncompensated care payment methodology for all eligible hospitals.

Beginning with FY 2023, we established a supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico, to help prevent undue long-term financial disruption to these hospitals due to the decision to discontinue use of the low-income insured days proxy in the uncompensated care payment methodology for these providers.

In this final rule we are also finalizing our proposal (88 FR 12623) on counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's disproportionate patient percentage for the purposes of determining Medicare DSH payments to subsection (d) hospitals under section 1886(d)(5)(F) of the Act. Specifically, under our finalized policy, for purposes of the Medicare DSH calculation in section 1886(d)(5)(F)(vi) of the Act we will “regard as” “eligible for medical assistance under a State plan approved under title XIX” patients who (1) receive health insurance authorized by a section 1115 demonstration or (2) buy health insurance with premium assistance provided to them under a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance is matched with funds from title XIX. Furthermore, of these expansion groups we regard as eligible for Medicaid, we include in the disproportionate patient percentage (DPP) Medicaid fraction numerator only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A. Finally, patients whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration will not be patients “regarded as” eligible for Medicaid, and the days of such patients may not be included in the DPP Medicaid fraction numerator.

d. Hospital Readmissions Reduction Program

We did not propose any changes to the Hospital Readmissions Reduction Program. We note that all previously finalized policies under this program will continue to apply and refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49081 through 49094) for information on these policies.

e. 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 final rule, we are finalizing our proposal to adopt modified versions of: (1) the Medicare Spending Per Beneficiary (MSPB) Hospital measure beginning with the FY 2028 program year; and (2) the Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measure beginning with the FY 2030 program year. In addition, we are finalizing our proposal to adopt the Severe Sepsis and Septic Shock: Management Bundle measure in the Safety Domain beginning with the FY 2026 program year.

We are finalizing our proposal to make technical changes to the form and manner of the administration of the HCAHPS Survey measure under the Hospital VBP Program beginning with the FY 2027 program year in alignment with the Hospital IQR Program. Additionally, we are finalizing our proposal to adopt a health equity scoring change for rewarding excellent care in underserved populations beginning with the FY 2026 program year, as well as the proposal to modify the Total Performance Score (TPS) maximum to be 110, such that the TPS numeric score range would be 0 to 110 in order to afford even top-performing hospitals the opportunity to receive the additional health equity bonus points under the health equity scoring change.

f. Hospital-Acquired Condition Reduction Program

Section 1886(p) of the Act establishes the HAC Reduction Program under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions. In this final rule, we are finalizing our proposal to establish a validation reconsideration process for hospitals who fail data validation beginning with the FY 2025 program year, affecting calendar year 2022 discharges. We are also finalizing modification of the validation targeting criteria to include hospitals granted an extraordinary circumstances exceptions (ECEs) beginning with the FY 2027 program year, affecting calendar year 2024 discharges.

g. Modification of the COVID–19 Vaccination Coverage Among Healthcare Personnel (HCP) Measure in the Hospital IQR Program, PCHQR Program, and LTCH QRP

In the FY 2024 IPPS/LTCH PPS final rule, we are finalizing our proposal to modify the COVID–19 Vaccination Coverage among HCP measure to replace the term “complete vaccination course” with the term “up to date” with regard to recommended COVID–19 vaccines beginning with the Quarter 4 (Q4) calendar year (CY) 2023 reporting period/FY 2025 payment determination for the Hospital IQR Program, and the FY 2025 program year for the LTCH QRP and the PCHQR Program.

h. 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 2024 IPPS/LTCH PPS final rule, we are finalizing several changes to the Hospital IQR Program. We are finalizing the adoption of three new measures: (1) Hospital Harm—Pressure Injury electronic clinical quality measure (eCQM) beginning with the CY 2025 reporting period/FY 2027 payment determination; (2) Hospital Harm—Acute Kidney Injury eCQM beginning with the CY 2025 reporting period/FY 2027 payment determination; and (3) Excessive Radiation eCQM beginning with the CY 2025 reporting period/FY 2027 payment determination. We are also finalizing the modification of three current measures: (1) Hybrid Hospital-Wide All-Cause Risk Standardized Mortality (HWM) measure beginning with the FY 2027 payment determination; (2) Hybrid Hospital-Wide All-Cause Readmission (HWR) measure beginning with the FY 2027 payment determination; and (3) COVID–19 Vaccination Coverage among HCP measure beginning with the Q4 CY 2023 reporting period/FY 2025 payment determination. We are also finalizing the removal of three current measures: (1) Hospital-level Risk-standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measure beginning with the April 1, 2025-March 31, 2028 reporting period/FY 2030 payment determination pursuant to Removal Factor 8; (2) Medicare Spending Per Beneficiary (MSPB) Hospital measure beginning with the CY 2026 reporting period/FY 2028 payment determination pursuant to Removal Factor 8; and (3) Elective Delivery (PC–01) measure beginning with the CY 2024 reporting period/FY 2026 payment determination pursuant to Removal Factor 1. We are finalizing the codification of our Measure Removal Factors.

We are also finalizing two changes to current policies related to data submission, reporting, and validation: (1) Technical changes to the form and manner of the administration of the HCAHPS Survey Measure beginning with the CY 2025 reporting period/FY 2027 payment determination; and (2) Modification of the targeting criteria for hospital validation for extraordinary circumstances exceptions (ECEs) beginning with the FY 2027 payment determination.

i. PPS-Exempt Cancer Hospital Quality Reporting 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. There is no financial impact to PCH Medicare payment if a PCH does not participate.

In the FY 2024 IPPS/LTCH PPS final rule, we are finalizing our proposals to adopt four new measures for the PCHQR Program: (i) three health equity-focused measures: the Facility Commitment to Health Equity measure, the Screening for Social Drivers of Health measure, and the Screen Positive Rate for Social Drivers of Health measure; and (ii) a patient preference-focused measure, the Documentation of Goals of Care Discussions Among Cancer Patients measure. We are also finalizing our proposal to adopt a modified version of the COVID–19 Vaccination Coverage among HCP measure beginning with the FY 2025 program year. We are also finalizing our proposals to publicly report the Surgical Treatment Complications for Localized Prostate Cancer (PCH–37) measure beginning with data from the FY 2025 program year, and technical changes to the form and manner of the administration of the HCAHPS survey measure beginning with the FY 2027 program year.

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

We are finalizing several changes to the LTCH QRP. Specifically, we are: (1) adopting a modified version of the COVID–19 Vaccination Coverage among HCP measure beginning with the FY 2025 LTCH QRP; (2) adopting the Discharge Function Score measure beginning with the FY 2025 LTCH QRP; (3) removing the Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function measure beginning with the FY 2025 LTCH QRP; (4) removing the Application of Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function measure beginning with the FY 2025 LTCH QRP; (5) adopting the COVID–19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure beginning with the FY 2026 LTCH QRP; (6) increasing the LTCH QRP data completion thresholds for the LCDS beginning with the FY 2026 LTCH QRP; and (7) beginning public reporting of the Transfer of Health (TOH) Information to the Patient-Post-Acute Care (PAC) and TOH Information to the Provider-PAC measures.

k. Medicare Promoting Interoperability Program

In this final rule, we are finalizing several changes to the Medicare Promoting Interoperability Program. Specifically, we are finalizing our proposals to: (1) amend the definition of “EHR reporting period for a payment adjustment year” at 42 CFR 495.4 for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program, to define the electronic health record (EHR) reporting period in CY 2025 as a minimum of any continuous 180-day period within CY 2025; (2) update the definition of “EHR reporting period for a payment adjustment year” at § 495.4 for eligible hospitals such that, beginning in CY 2025, those hospitals that have not successfully demonstrated meaningful use in a prior year will not be required to attest to meaningful use by October 1st of the year prior to the payment adjustment year; (3) modify our requirements for the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure beginning with the EHR reporting period in CY 2024, to require eligible hospitals and CAHs to attest “yes” to having conducted an annual self-assessment of all nine SAFER Guides at any point during the calendar year in which the EHR reporting period occurs; (4) modify the way we refer to the calculation considerations related to unique patients or actions for Medicare Promoting Interoperability Program objectives and measures for which there is no numerator and denominator; and (5) adopt three new eCQMs beginning with the CY 2025 reporting period for eligible hospitals and CAHs to select as one of their three self-selected eCQMs: the Hospital Harm—Pressure Injury eCQM, the Hospital Harm—Acute Kidney Injury eCQM, and the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults (Hospital Level—Inpatient) eCQM.

l. Changes to the Severity Level Designation for Z Codes Describing Homelessness

As discussed in section II.C. of the preamble of this final rule, we are finalizing the proposed change the severity level designation for social determinants of health (SDOH) diagnosis codes describing homelessness from non-complication or comorbidity (NonCC) to complication or comorbidity (CC) for FY 2024. Consistent with our annual updates to account for changes in resource consumption, treatment patterns, and the clinical characteristics of patients, CMS is recognizing homelessness as an indicator 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 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.

3. Summary of Costs and Benefits

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

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.

Under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through FY 2024. For discharges occurring on or after October 1, 2007, but before October 1, 2024, 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).

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 (DGME) 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 Will Be Implemented in This Final Rule

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

Section 4101 of the CAA 2023 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. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2024, 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 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 4102 of the CAA 2023 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 FY 2024.

Section 4143 of the CAA 2023 amended section 1886(l)(2)(B) of the Act to specify that for portions of cost reporting periods occurring in each of calendar years (CYs) 2010 through 2019, the $60 million payment limit specified in that subparagraph is not to apply to the total amount of additional payments for nursing and allied health education to be distributed to hospitals that, as of December 29, 2022, were operating a school of nursing, a school of allied health, or a school of nursing and allied health. In addition, section 4143 of the CAA 2023 provides that in addition to not applying the $60 million limit for each of years 2010 through 2019, the Secretary shall not reduce direct GME payments by such additional payment amounts for such nursing and allied health education for portions of cost reporting periods occurring in the year.

D. Issuance of the Notices of Proposed Rulemaking and Summary of the Proposed Provisions

1. FY 2024 IPPS/LTCH PPS Proposed Rule

In the proposed rule that appeared in the Federal Register on May 1, 2023 (88 FR 26658), we set forth proposed payment and policy changes to the Medicare IPPS for FY 2024 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 2024.

The following is a general summary of the changes that we proposed to make.

a. Proposed Changes to MS–DRG Classifications and Recalibrations of Relative Weights

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

• Proposed changes to MS–DRG classifications based on our yearly review for FY 2024.
• Proposed recalibration of the MS–DRG relative weights.

• A discussion of the proposed FY 2024 status of new technologies approved for add-on payments for FY 2023, a presentation of our evaluation and analysis of the FY 2024 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by 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 2024 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.

• Proposed modifications to the new technology add-on payment application eligibility requirements for technologies that are not already Food and Drug Administration (FDA) market authorized to require such applicants to have a complete and active FDA market authorization request at the time of new technology add-on payment application submission, to provide documentation of FDA acceptance or filing, and to move the deadline for FDA marketing authorization from July 1 to May 1 of the year before the fiscal year for which the applicant applied for new technology add-on payments, beginning with applications for FY 2025 (as discussed in section II.E.9. of the preamble of the proposed rule).

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

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

• The proposed FY 2024 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 2024 based on the 2019 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 2024 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 proposed FY 2024 wage index.

c. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2024

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

• Proposed calculation of Factor 1 and Factor 2 of the uncompensated care payment methodology.
• Proposed methodological approach for determining the additional payments for uncompensated care for FY 2024, which is the same overall approach as was for FY 2023.

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

In section V. of the preamble of the 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 2024.
• Proposed change related to the effective date of sole community hospital (SCH) classification in cases that involve a merger.
• Proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
• Proposed payment adjustment for low-volume hospitals for FY 2024.
• Discussion of statutory extension of the MDH program through FY 2024.
• Proposed to establish a validation reconsideration process and update the data validation targeting criteria under the HAC Reduction Program for FY 2024.
• Proposed to update the MSPB Hospital and THA/TKA Complications measures, to adopt the new Severe Sepsis and Septic Shock: Management Bundle measure, to update the changes to the data collection and submission requirements for the HCAHPS Survey measure, to revise the scoring methodology to include a health equity scoring adjustment, to modify the Total Performance Score numeric score range to be 0–110, and to codify the measure removal factors, the revised scoring methodology and TPS numeric score range, and the minimum numbers of cases.
• Proposed changes to the regulations for GME payments when training occurs in REHs.
• Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2024.
• Proposed nursing and allied health education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2022.
• Proposal to implement section 4143 of the CAA 2023 which waives the $60 million limit on annual nursing and allied health education program MA payments.
• Proposed update to the payment adjustment for certain clinical trial and expanded access use immunotherapy cases.

e. Proposed FY 2024 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 2024. In addition, we discuss a proposed change to how hospitals with a rural reclassification are treated for capital DSH payments.

f. 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 2024.
• Proposed continued implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration.

g. Proposed Changes to the LTCH PPS

In section VIII. of the preamble of the proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2024.

h. 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:

• Proposed adoption of a modified version of the COVID–19 Vaccination Coverage among Healthcare Personnel Measure in the Hospital IQR Program, PCHQR Program, and LTCH QRP.
• Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program.
• Proposed changes to the requirements for the PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR Program).
• Proposed changes to the requirements for the Long-Term Care Hospital Quality Reporting Program (LTCH QRP), and a request for information on principles for selecting and prioritizing LTCH QRP quality measures and concepts under consideration for future years. We also provide an update on health equity.

• Proposed changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

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

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

• Proposals to establish requirements for additional information that an eligible facility would be required to submit when applying for enrollment as an REH.
• Proposed changes pertaining to the process for hospitals requesting an exception from the prohibition against facility expansion and program integrity restrictions on approved facility expansion.
• Solicitation of comments on potential approaches to address the challenges faced by safety-net hospitals, including an appropriate mechanism for identifying safety-net hospitals for Medicare policy purposes.

• Proposals to apply certain definitions included in the Disclosures of Ownership and Additional Disclosable Parties Information for Skilled Nursing Facilities proposed rule published in the February 15, 2023 Federal Register (88 FR 9820) to all provider types that complete the Form CMS–855–A enrollment application.

j. Other Provisions of the Proposed Rule

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

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

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

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

k. 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 2024 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We proposed 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 2024 for certain hospitals excluded from the IPPS.

l. 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 2024 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 2024. We are proposing to establish the adjustments for the wage index, labor-related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates.

m. 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.

n. 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 2024 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.

o. 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 2023 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 2023 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.

2. Section 1115 Demonstration Disproportionate Share Hospital Proposed Rule

In addition, in the proposed rule that appeared in the Federal Register on February 28, 2023 (88 FR 12623), we set forth proposed revisions to the regulations on the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's disproportionate patient percentage for the purposes of determining Medicare DSH payments to subsection (d) hospitals under section 1886(d)(5)(F) of the Act. Specifically, we proposed for purposes of the Medicare DSH calculation in section 1886(d)(5)(F)(vi) of the Act to “regard as” “eligible for medical assistance under a State plan approved under title XIX” patients who (1) receive health insurance authorized by a section 1115 demonstration or (2) buy health insurance with premium assistance provided to them under a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance is matched with funds from title XIX. Furthermore, of these expansion groups we proposed to regard as eligible for Medicaid, we proposed to include in the disproportionate patient percentage (DPP) Medicaid fraction numerator only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A. Finally, we proposed specifically that patients whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration would not be patients “regarded as” eligible for Medicaid, and the days of such patients may not be included in the DPP Medicaid fraction numerator.

E. Use of the Best Available Data for the FY 2024 IPPS and LTCH PPS Ratesetting

We primarily use two data sources in the IPPS and LTCH PPS ratesetting: claims data and cost report data. The claims data source is the Medicare Provider Analysis and Review (MedPAR) file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills for discharges in a fiscal year. The cost report data source is the Medicare hospital cost report data files from the most recent quarterly Healthcare Cost Report Information System (HCRIS) release. Our goal is always to use the best available data overall for ratesetting. Ordinarily, the best available MedPAR data is the most recent MedPAR file that contains claims from discharges for the fiscal year that is 2 years prior to the fiscal year that is the subject of the rulemaking. Ordinarily, the best available cost report data is based on the cost reports beginning 3 fiscal years prior to the fiscal year that is the subject of the rulemaking. However, due to the impact of the COVID–19 public health emergency (PHE) on our ordinary ratesetting data, we finalized modifications to our usual ratesetting procedures in the FY 2022 and FY 2023 IPPS/LTCH PPS final rules.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44789 through 44793), we discussed that the FY 2020 MedPAR claims file and the FY 2019 HCRIS dataset (the most recently available data at the time of rulemaking) both contained data that was significantly impacted by the COVID–19 PHE, primarily in that the utilization of services at IPPS hospitals and LTCHs was generally markedly different for certain types of services in FY 2020 than would have been expected in the absence of the PHE. We stated that the most recent vaccination and hospitalization data from the Centers for Disease Control and Prevention (CDC) available at the time of development of that rule supported our belief at the time that the risk of COVID–19 in FY 2022 would be significantly lower than the risk of COVID–19 in FY 2020 and there would be fewer COVID–19 hospitalizations for Medicare beneficiaries in FY 2022 than there were in FY 2020. Therefore, we finalized our proposal to use FY 2019 data for the FY 2022 ratesetting for circumstances where the FY 2020 data was significantly impacted by the COVID–19 PHE, based on the belief that FY 2019 data from before the COVID–19 PHE would be a better overall approximation of the FY 2022 inpatient experience at both IPPS hospitals and LTCHs.

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48795 through 48798), we discussed that the FY 2021 MedPAR claims file and the FY 2020 HCRIS dataset (the most recently available data at the time of rulemaking) both contain data that was significantly impacted by the COVID–19 PHE, primarily in that the utilization of services at IPPS hospitals and LTCHs was again generally markedly different for certain types of services in FY 2021 than would have been expected in the absence of the virus that causes COVID–19. Based on review of the most recent hospitalization data and information available from the CDC at the time of development of that rule, we stated our belief that it was reasonable to assume that some Medicare beneficiaries would continue to be hospitalized with COVID–19 at IPPS hospitals and LTCHs in FY 2023. However, we also stated our belief that it would be reasonable to assume based on the information available at the time that there would be fewer COVID–19 hospitalizations in FY 2023 than in FY 2021. Accordingly, because we anticipated Medicare inpatient hospitalizations for COVID–19 would continue in FY 2023 but at a lower level, we finalized our proposal to use FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting but with several modifications to our usual ratesetting methodologies to account for the anticipated decline in COVID–19 hospitalizations of Medicare beneficiaries at IPPS hospitals and LTCHs as compared to FY 2021.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26671), we analyzed the FY 2022 MedPAR claims file and the FY 2021 HCRIS dataset, which are the most recently available data for FY 2024 ratesetting. We observed that certain shifts in inpatient utilization and costs that occurred in FY 2020 continued to persist in FY 2022. Specifically, the share of admissions at IPPS hospitals and LTCHs for MS–DRGs and MS–LTC–DRGs that are associated with the treatment of COVID–19 continued to remain at levels higher than those observed in the pre-pandemic data.

For example, in FY 2019, the share of IPPS cases grouped to MS–DRG 177 (Respiratory Infections and Inflammations with major complication or comorbidity (MCC)) was approximately 1 percent, while in FY 2022 the share of IPPS cases grouped to MS–DRG 177 was approximately 4 percent. Similarly, in FY 2019, the share of LTCH PPS standard Federal payment rate cases grouped to MS–LTC–DRG 207 (Respiratory System Diagnosis with Ventilator Support >96 Hours) was approximately 18 percent, while in FY 2022 the share of LTCH PPS standard Federal payment rate cases grouped to MS–LTC–DRG 207 was approximately 22 percent.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26671), we also reviewed the most recent COVID–19 related data and information released by the CDC. We presented this CDC graph which illustrates new inpatient hospital admissions of patients with confirmed COVID–19 from August 1, 2020 through January 20, 2023. ( https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/01202023/images/hospitalizations.PNG?_=24630, accessed January 20, 2023).

We stated that the graph shows that in the United States, patients continue to be hospitalized with the virus that causes COVID–19. We also noted that the CDC has stated that new variants will continue to emerge. Viruses constantly change through mutation and sometimes these mutations result in a new variant of the virus. Some variants spread more easily and quickly than other variants, which may lead to more cases of COVID–19. Even if a variant causes less severe disease in general, an increase in the overall number of cases could cause an increase in hospitalizations. In the proposed rule, we concluded that based on the information available at the time, we believe there will continue to be COVID–19 cases treated at IPPS hospitals and LTCHs in FY 2024, such that it is appropriate to use the FY 2022 data, as the most recent available data, for purposes of the FY 2024 IPPS and LTCH PPS ratesetting. We also stated that based on the information available at the time, we do not believe there is a reasonable basis for us to assume that there will be a meaningful difference in the number of COVID–19 cases treated at IPPS hospitals and LTCHs in FY 2024 relative to FY 2022 to the extent that modifications to our usual ratesetting methodologies would be warranted.

As such, we stated our belief that FY 2022 data, as the most recent available data, is the best available data for approximating the inpatient experience at IPPS hospitals and LTCHs in FY 2024. Therefore, we proposed to use the FY 2022 MedPAR claims file and the FY 2021 HCRIS dataset (which contains data from many cost reports ending in FY 2022 based on each hospital's cost reporting period) for purposes of the FY 2024 IPPS and LTCH PPS ratesetting. For the reasons discussed, we did not propose any modifications to our usual ratesetting methodologies to account for the impact of COVID–19 on the ratesetting data.

The comments we received on our proposal to use FY 2022 data for purposes of the FY 2024 IPPS and LTCH PPS ratesetting were focused on the specific use of FY 2022 data when determining the FY 2024 outlier fixed-loss amounts. Therefore, we refer the reader to section II.A.4. of the addendum to this final rule for our summary and response to comments received on our proposal to use FY 2022 data and our usual methodology when determining the FY 2024 outlier fixed-loss amounts for IPPS cases. We refer the reader to section V.D.3. of the Addendum to this final rule for our summary and response to comments received on our proposal to use FY 2022 data and our usual methodology when determining the FY 2024 outlier fixed-loss amounts for LTCH PPS standard Federal payment rate cases.

For the reasons discussed in those sections, we are finalizing our proposal to use FY 2022 data for purposes of the FY 2024 IPPS and LTCH PPS ratesetting. (That is, the FY 2022 MedPAR claims file and the FY 2021 HCRIS dataset (which contains data from many cost reports ending in FY 2022 based on each hospital's cost reporting period).) We also are finalizing, with modification, our proposal to use our usual ratesetting methodologies for purposes of the FY 2024 IPPS and LTCH PPS ratesetting. As discussed in section V.D.3. of the addendum to this final rule, after consideration of the comments received, we are modifying our proposed methodology for establishing the FY 2024 outlier fixed-loss amount for LTCH PPS standard Federal payment rate cases.

F. Potential Payment Under the IPPS for Establishing and Maintaining Access to Essential Medicines

In the CY 2024 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Proposed Rule (CMS 1786–P) issued on July 13, 2023, we included a request for public comments on potential payment under the IPPS for establishing and maintaining access to essential medicines. As discussed in that rule, we are seeking comment on, and may consider finalizing based on the review of comments received, as early as for cost reporting periods beginning on or after January 1, 2024, separate payment under IPPS, for establishing and maintaining access to a buffer stock of essential medicines to foster a more reliable, resilient supply of these medicines. Public comments are being accepted through September 11, 2023.

II. 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/rate year (RY) 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2023 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; and 87 FR 48800 through 48891, respectively).

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

Comment: Several commenters requested that CMS make a positive adjustment to restore the full amount of the documentation and coding recoupment adjustments in the FY 2024 IPPS final rule which they asserted is required under section (7)(B)(2) and (4) of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110–90). Commenters stated that the statute is explicit that CMS may not carry forward any documentation and coding adjustments applied in fiscal years 2010 through 2017 into IPPS rates after FY 2023. Commenters contended that CMS, by its own admission, has restored only 2.9588 percentage points of a total 3.9 percentage point reduction. By not fully restoring the total reductions, commenters believe that CMS is improperly extending payment adjustments beyond the FY 2023 statutory limit. A commenter stated that, even if CMS disputes it is required to make such an adjustment, CMS should use its special exceptions and adjustments authority to address the shortfall.

Response: As of FY 2023, CMS completed the statutory requirements of section 7(b)(1)(B) of Pub. L. 110–90 as amended by section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112– 240), section 404 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), and section 15005 of the 21st Century Cures Act (Pub. L. 114–255). As we discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794 through 44795), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58444 through 58445) and in prior rules, we believe section 414 of the MACRA and section 15005 of the 21st Century Cures Act set forth the levels of positive adjustments for FYs 2018 through 2023. We are not convinced that the adjustments prescribed by MACRA were predicated on a specific adjustment level estimated or implemented by CMS in previous rulemaking. We see no evidence that Congress enacted these adjustments with the intent that CMS would make an additional +0.7 percentage point adjustment in FY 2018 to compensate for the higher than expected final ATRA adjustment made in FY 2017, nor are we persuaded that it would be appropriate to use the Secretary's exceptions and adjustments authority under section 1886(d)(5)(I) of the Act to adjust payments in FY 2024 restore any additional amount of the original 3.9 percentage point reduction, given Congress' directive regarding prescriptive adjustment levels under section 414 of the MACRA and section 15005 of the 21st Century Cures Act. Accordingly, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38009), we implemented the required +0.4588 percentage point adjustment to the standardized amount for FY 2018. In the FY 2019 IPPS/LTCH PPS final rule (FY 2019 final rule) (83 FR 41157), the FY 2020 IPPS/LTCH PPS final rule (FY 2020 final rule) (84 FR 42057), the FY 2021 IPPS/LTCH PPS final rule (FY 2021 final rule) (85 FR 58444 and 58445), the FY 2022 IPPS/LTCH PPS final rule (FY 2022 final rule) (86 FR 44794 and 44795), and the FY 2023 IPPS/LTCH PPS final rule (FY 2023 final rule) (87 FR 48800), consistent with the requirements of section 414 of the MACRA, we implemented 0.5 percentage point positive adjustments to the standardized amount for FY 2019, FY 2020, FY 2021, FY 2022 and FY 2023, respectively. As discussed in the FY 2023 final rule, the finalized 0.5 percentage point positive adjustment for FY 2023 is the final adjustment prescribed by section 414 of the MACRA.

C. Changes to Specific MS–DRG Classifications

1. Discussion of Changes to Coding System and Basis for FY 2024 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 FY 2024 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 beginning 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.

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 Office of Management and Budget (OMB) control number 0938–1431 and has an expiration date of 09/30/2025.

As noted previously, interested parties had to submit MS–DRG classification change requests for FY 2024 by October 20, 2022. 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. Interested parties should submit any comments and suggestions for FY 2025 by October 20, 2023 via MEARIS^TM at: https://mearis.cms.gov/public/home.

As we did for the FY 2023 IPPS/LTCH PPS proposed rule, for the FY 2024 IPPS/LTCH PPS proposed rule we provided a test version of the ICD–10 MS–DRG GROUPER Software, Version 41, so that the public can better analyze and understand the impact of the proposals included in the proposed rule. We noted that this test software reflected the proposed GROUPER logic for FY 2024. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2024 as reflected in Table 6A.—New Diagnosis Codes—FY 2024 and Table 6B.—New Procedure Codes—FY 2024 that were associated with the proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2024 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2024 associated with the proposed rule. We noted that at the time of the development of the proposed rule there were no procedure codes designated as invalid for FY 2024, and therefore, there was no Table 6D– Invalid Procedure Codes—FY 2024 associated with the proposed rule. Those tables were not published in the Addendum to the proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to the proposed rule. Because the diagnosis codes no longer valid for FY 2024 are not reflected in the test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 41 FY 2024 ICD–10–CM codes and the deleted Version 40.1 FY 2023 ICD–10–CM codes that should be used for testing purposes with users' available claims data. Therefore, users had access to the test software allowing them to build case examples that reflect the proposals that were included in the proposed rule. In addition, users were able to view the draft version of the ICD–10 MS–DRG Definitions Manual, Version 41.

The test version of the ICD–10 MS–DRG GROUPER Software, Version 41, the draft version of the ICD–10 MS–DRG Definitions Manual, Version 41, and the supplemental mapping files in Table 6P.1a of the FY 2023 and FY 2024 ICD–10–CM diagnosis codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MSDRG-Classifications-and-Software.

Following are the changes that we proposed to the MS–DRGs for FY 2024. We invited public comments on each of the MS–DRG classification proposed changes, as well as our proposals to maintain certain existing MS–DRG classifications discussed in the proposed rule. In some cases, we proposed changes to the MS–DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we proposed to maintain the existing MS–DRG classifications based on our analysis of claims data and clinical appropriateness. As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, our initial MS–DRG analysis was based on ICD–10 claims data from the September 2022 update of the FY 2022 MedPAR file, which contains hospital bills received from October 1, 2021, through September 30, 2022. In our discussion of the proposed MS–DRG reclassification changes, we referred to those claims data as the “September 2022 update of the FY 2022 MedPAR file.” Separately, where otherwise indicated, additional analysis was based on ICD–10 claims data from the December 2022 update of the FY 2022 MedPAR file, which contains hospital bills received by CMS through December 31, 2022, for discharges occurring from October 1, 2021, through September 30, 2022. In our discussion of the proposed MS–DRG reclassification changes, we referred to those claims data as the “December 2022 update of the FY 2022 MedPAR file.” Specifically, as discussed further in the proposed rule and in this section, we used the additional claims data available in the December 2022 update of the FY 2022 MedPAR file to assess the application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split, as well as to simulate restructuring of any proposed MS–DRGs, to assess the case counts and other criteria for determining whether a proposed new base MS–DRG would satisfy the criteria to create subgroups.

As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS–DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS–DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS–DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS–DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS–DRG unless it would include a substantial number of cases.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS–DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we believed that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS–DRGs. We noted that in our analysis of MS–DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. 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.—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 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 our analysis of the MS–DRG classification requests for FY 2024 that we received by October 20, 2022, 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 the FY 2024 IPPS/LTCH PPS proposed rule, our initial MS–DRG analysis was generally based on ICD–10 claims data from the September 2022 update of the FY 2022 MedPAR file, with the additional claims data available in the December 2022 update of the FY 2022 MedPAR file used to assess the case counts and other criteria for determining whether a proposed new base MS–DRG would satisfy the criteria to create subgroups. However, in our evaluation of requests to split an existing base MS–DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent two years of data. This analysis includes 2 years of MedPAR claims data to compare the data results from 1 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.

As previously noted, to validate whether the established severity levels within a base MS–DRG are supported, we typically analyze the most recent two years of MedPAR claims data. For the FY 2024 IPPS/LTCH PPS proposed rule, using the December 2022 update of the FY 2022 MedPAR file and the March 2022 update of the FY 2021 MedPAR file, we also analyzed how applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would potentially affect the MS–DRG structure in connection with the proposed FY 2024 MS–DRG classification changes. While, as previously noted, our MS–DRG analysis for the FY 2024 IPPS/LTCH PPS proposed rule was otherwise based on ICD–10 claims data from the September 2022 update of the FY 2022 MedPAR file, we utilized the additional claims data available from the December 2022 update of the FY 2022 MedPAR file for purposes of assessing the application of the NonCC subgroup criteria to these existing MS–DRGs as well as to determine whether a proposed new base MS–DRG satisfies the criteria to create subgroups. In the FY 2024 IPPS/LTCH PPS proposed rule, we noted that findings from our analysis indicated that approximately 45 base MS–DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. Specifically, we found that applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would result in the potential deletion of 135 MS–DRGs (45 MS–DRGs × 3 severity levels =135) and the potential creation of 86 new MS–DRGs. We referred the reader to Table 6P.10—Potential MS–DRG Changes with Application of the NonCC Subgroup Criteria and Detailed Data Analysis- FY 2024 associated with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS for detailed information, including the criteria to create subgroups in Table 6P.10a (as also set forth in the preceding table) and the list of the 135 MS–DRGs that would potentially be subject to deletion and the list of the 86 MS–DRGs that would potentially be created in Table 6P.10b. We noted that we also identified an additional 12 obstetric MS–DRGs (4 base MS–DRGs × 3 severity levels=12) that would be subject to change based on the application of the three-way severity level split criterion, as reflected in our data analysis in Table 6P.10c associated with the proposed rule. However, in response to prior public comments expressing concern about the historical low volume of the obstetric related MS–DRGs being subject to application of the NonCC subgroup criteria and consistent with our discussion in prior rulemaking regarding this population in our Medicare claims data and the development of these MS–DRGs (83 FR 41210), we stated we believed it may be appropriate to exclude these MS–DRGs from application of the NonCC subgroup criteria. The list of 12 obstetric MS–DRGs is shown in the following table.

We also referred the reader to Table 6P.10d for the data analysis of all 49 base MS–DRGs that would be subject to change based on the application of the three-way severity level split criterion and to Table 6P.10e for the corresponding data dictionary that describes the meaning of the data elements and assists with interpretation of the data related to our analysis with application of the NonCC subgroup criteria. We noted, in our analysis of the claims data and as reflected in Table 6P.10d, we identified four base MS–DRGs currently subdivided with a three-way severity level split (4 base MS–DRGs × 3 severity levels=12 MS–DRGs) that result in the potential creation of a single, base MS–DRG when grouped under the proposed V41 GROUPER software with application of the NonCC subgroup criteria. As shown in Table 6P.10d, the four current base MS–DRGs (excluding the 4 obstetric related base DRGs) are base MS–DRGs 283, 296, 411, and 799. In addition to not satisfying the criterion that there be at least 500 cases in the NonCC subgroup for a three-way severity level split, these four base MS–DRGs also failed one or more of the other criteria to create subgroups. For example, our review of base MS–DRGs 283 and 296 showed they failed the criterion that there be at least 5% or more of the patient cases in the NonCC subgroup. For base MS–DRG 411, we found the criterion that there be at least 500 cases in each subgroup for a three-way severity level split, as well as in each subgroup for both of the two-way severity level splits, was not met. Lastly, for base MS–DRG 799, we found less than 500 cases in at least two of three subgroups for a three-way severity level split, as well as for at least one of the two subgroups for a two-way severity level split, and the R2 value was less than 3.0 for the two-way severity level split.

We also referred the reader to Table 6P.10f for the alternate cost weight analysis with application of the NonCC subgroup criteria that includes transfer-adjusted cases from the December 2022 update of the FY 2022 MedPAR file under the proposed V41 ICD–10 MS–DRG GROUPER Software, the MS–DRG relative weights calculated under the proposed V41 ICD–10 MS–DRG GROUPER Software, the alternate MS–DRG relative weights calculated with application of the NonCC subgroup criteria using an alternate version of the ICD–10 MS–DRG GROUPER Software, Version 41.A (discussed in more detail in this section of the proposed rule), and the change in MS–DRG relative weights between those calculated under the proposed V41 GROUPER Software and those calculated under the alternate V41.A GROUPER Software. We noted that to facilitate the structural comparison between the proposed V41 GROUPER and the alternate V41.A GROUPER, the relative weights calculated using the proposed V41 GROUPER Software (column F) did not reflect application of the 10-percent cap. We further noted that changes in the status for transfer adjusted cases were reflected for the relative weights calculated using the proposed V41 GROUPER Software only and were not reflected for the alternate MS–DRG weights with application of the NonCC subgroup criteria. We noted, as shown in Table 6P.10f, that we found five MS–DRGs for which there appears to be a greater than negative 10% change between the relative weight calculated under the proposed V41 GROUPER Software and the calculated alternate relative weight under the V41.A GROUPER Software with application of the NonCC subgroup criteria. As shown in Table 6P.10f, the five MS–DRGs are existing MS–DRG 021 (potential new MS–DRG 105), existing MS–DRG 411 (potential new MS–DRG 426), existing MS–DRG 573 (potential new MS–DRG 529), existing MS–DRG 574 (potential new MS–DRG 530), and existing MS–DRG 799 (potential new MS–DRG 649). Of the five existing MS–DRGs, two of the MS–DRGs are those for which a new single, base MS–DRG would potentially be created from the current three-way split, as previously described: MS–DRG 411 (potential new MS–DRG 426) and MS–DRG 799 (potential new MS–DRG 649). In the proposed rule, we stated that the findings were consistent with what we would expect given the low volume of cases in the NonCC subgroups compared to the volume of cases in the CC subgroups for these MS–DRGs.

As noted in prior rulemaking, any potential MS–DRG updates to be considered for a future proposal in connection with application of the NonCC subgroup criteria would also involve a redistribution of cases, which would impact the relative weights, and, thus, the payment rates proposed for particular types of cases. As such, and in response to prior public comments requesting that further analysis of the application of the NonCC subgroup criteria be made available, in addition to Table 6P.10f, we made available additional files reflecting application of the NonCC subgroup criteria in connection with the proposed FY 2024 MS–DRG changes, using the December 2022 update of the FY 2022 MedPAR file. These additional files included 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 proposed rule on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

For the FY 2024 IPPS/LTCH PPS proposed rule we also provided an alternate test version of the ICD–10 MS–DRG GROUPER Software, Version 41.A, so that the public can 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 noted that this alternate test software reflected the proposed GROUPER logic for FY 2024 as modified by the application of the NonCC subgroup criteria. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2024 as reflected in Table 6A.—New Diagnosis Codes—FY 2024 and Table 6B.—New Procedure Codes—FY 2024 associated with the proposed rule and did not include the diagnosis codes that are invalid beginning in FY 2024 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2024 associated with the proposed rule. As previously noted, at the time of the development of the proposed rule there were no procedure codes designated as invalid for FY 2024, and therefore, there was no Table 6D– Invalid Procedure Codes—FY 2024 associated with the proposed rule. These tables were not published in the Addendum to the proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to the proposed rule. Because the diagnosis codes no longer valid for FY 2024 are not reflected in the alternate test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 41 FY 2024 ICD–10–CM codes and the deleted Version 40.1 FY 2023 ICD–10–CM codes that should be used for testing purposes with users' available claims data. 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. Because the potential MS–DRG changes with application of the NonCC subgroup criteria are available in Table 6P.10b associated with the proposed rule, an alternate version of the ICD–10 MS–DRG Definitions Manual was not developed.

The alternate test version of the ICD–10 MS–DRG GROUPER Software, Version 41.A, and the supplemental mapping files in Table 6P.1a of the FY 2023 and FY 2024 ICD–10–CM diagnosis codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

After delaying the application of the NonCC subgroup criteria for two years, and in response to prior public comments, we made available these additional analyses reflecting application of the criteria in connection with the proposed FY 2024 MS–DRG changes for public review and comment, to inform application of the NonCC subgroup criteria for FY 2025 rulemaking.

We proposed to continue to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024. We stated that we were interested in hearing feedback regarding the experience of large urban hospitals, rural hospitals, and other hospital types and will take commenters' feedback into consideration for our development of the FY 2025 proposed rule.

Comment: Commenters expressed appreciation that CMS provided additional files for review and consideration that reflect application of the NonCC subgroup criteria in connection with the FY 2024 proposed MS–DRG changes.

Response: We thank the commenters for their feedback.

Comment: Commenters supported the proposal to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024 and to maintain the current structure of the 45 MS–DRGs that currently have a three-way split (total of 135 MS–DRGs). The commenters also expressed support for the proposal to exclude the 12 obstetric related MS–DRGs from application of the NonCC subgroup criteria in the future. Some commenters stated they agreed with the methodology for creating subgroups and viewed the consolidation as a positive change, however, the commenters also recommended that CMS continue to collect data and identify any unintended impacts to the MS–DRG relative weights because of the redistribution of cases from application of the NonCC subgroup criteria. Other commenters stated that although the COVID–19 PHE has ended, several hospitals are still recovering and further assessment of the impacts for low volume procedures in connection with the potential MS–DRG changes with application of the NonCC subgroup criteria is needed.

A couple commenters specifically requested that CMS provide data analysis by hospital type for FY 2025 rulemaking to afford organizations additional time to review and forecast impacts, as well as to facilitate more informed comments in response to the CMS request for comments related to experiences of large urban hospitals, rural hospitals, and other hospital types.

Response: We appreciate the commenters' support. We will continue to review and consider the feedback we have received for our development of the FY 2025 proposed rule.

Comment: A couple commenters who expressed support for the proposed delay in application of the NonCC subgroup criteria for FY 2024 and appreciation for the additional analysis files that were made available stated that deleting and adding a large volume of MS–DRGs may create additional administrative burden. The commenters stated providers will need more time than is typically provided for implementation of finalized policies under the IPPS. The commenters urged CMS to work with interested parties in developing an appropriate implementation timeline. A commenter suggested that CMS consider implementing application of the NonCC subgroup criteria using a phased approach, over several years, to assist in the transition. This commenter encouraged CMS to continue to provide additional analysis files as was done with the proposed rule and to include the potential effects of a multi-year implementation plan.

Response: We thank the commenters for their support and feedback. We will continue to review and consider the feedback we have received for our development of the FY 2025 proposed rule.

Comment: A commenter who agreed it is appropriate to defer implementation of MS–DRG consolidation based on the three-way severity criteria specifically expressed concern that the policy may result in additional reductions to relative weights for important procedures, including intracranial vascular procedures. According to the commenter, intracranial vascular procedures have already experienced significant cuts in recent years. The commenter stated that based on the data that was made available in connection with the proposed rule, the estimates show that consolidation for five MS–DRGs, including potential new MS–DRG 105 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage without MCC) would result in a more than 10 percent relative weight reduction (prior to the application of the current 10-percent cap). To the extent that CMS does adopt such MS–DRG consolidation in the future, the commenter recommended that CMS limit the single-year relative weight reductions resulting from cumulative policy changes to 5 percent.

The commenter also suggested that CMS consider building more flexibility into its assessment of severity level subdivisions for both new and existing MS–DRGs. According to the commenter, the requirement to meet multiple, rigid cost and volume cut-offs may detract from the assessment of important clinical and resource distinctions in patient populations within the MS–DRGs.

A few commenters expressed concern that the criterion of a 500-case volume may be too high, particularly for low volume services and MS–DRGs. The commenters stated that there has been tremendous growth in Medicare Advantage claims with a decrease in fee-for-service (FFS) claims flowing into rate-setting. The commenters stated additional analysis of this criterion is warranted and requested that CMS provide further information about the benefits.

Response: We appreciate the commenters' feedback. We acknowledge the growth in Medicare Advantage claims and will continue to review and consider the feedback we have received for our development of the FY 2025 proposed rule.

In response to the commenter's recommendation that CMS limit the single-year relative weight reductions to 5 percent, we note that there was extensive discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48897 through 48900) regarding the cap for relative weight reductions and refer the reader to that discussion for detailed information. We also refer the reader to the additional discussion in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26774 through 26775) and in section II.D.2.c. of the preamble of this final rule.

With regard to the commenter's suggestion that more flexibility should be built into CMS' assessment of severity level subdivisions for both new and existing MS–DRGs, we note that currently, the minimum case volume requirements were established to avoid overly fragmenting the MS–DRG classification system. With smaller volumes they will be subject to stochastic (unpredictable) effects that may indicate a cost difference within the data sample. Reevaluation in subsequent years may result in those cost differences being insufficient to support the split.

We do not believe it is in the interest of the Medicare program or providers to establish and then remove MS–DRG splits. We believe that stability of MS–DRG payment is an important objective and therefore, that a volume requirement is a necessary adjunct to cost differentiation. We established a 500-case limit to meet this stability requirement. With this case limit, an MS–DRG split not meeting this minimum volume threshold will have fewer than 0.007% cases from which the MS–DRG RW is constructed. Under application of the NonCC subgroup criteria, hospitals would receive a payment weight that averages the two comorbidity split levels (CC and NonCC) and will thus only experience any potential negative impact to the extent that their case mix is comprised of cases with the (potentially) higher weight. We note, as discussed in prior rulemaking (86 FR 44878), the MS–DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We also provide outlier payments to mitigate extreme loss on individual cases.

Comment: A couple commenters requested clarification on how the policy to cap the reductions for MS–DRG relative weights to 10-percent would apply as CMS considers implementation of the NonCC subgroup criteria.

Response: As stated in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48900), the 10- percent cap on reductions to an MS–DRG's relative weight applies to new or modified MS–DRGs after the first fiscal year that the new or modified MS–DRGs take effect. Therefore, the 10-percent cap would not apply to the relative weight for any new or renumbered MS–DRGs for the first fiscal year. However, we recognize that application of the NonCC subgroup criteria may warrant special consideration with respect to the 10-percent cap on reductions to an MS–DRG's relative weight and will continue to consider this issue in connection with our efforts to promote predictability and mitigate financial impacts resulting from significant fluctuations in the relative weights.

Comment: A couple commenters expressed concern that the additional files made available in connection with the proposed rule did not demonstrate how the explanatory power of the potential new MS–DRGs with application of the NonCC subgroup criteria is an improvement over the current MS–DRGs. The commenters expressed concern that the impact of the presence of a CC for MS–DRG assignment appears to be declining because the application of the NonCC subgroup criteria is resulting in fewer MS–DRGs split by the presence of a CC. Specifically, the commenters stated that when the NonCC subgroup criteria were applied to existing MS–DRGs currently split into three severity levels, as well as when the criteria were applied to proposed new MS–DRG classification requests, none of the proposed new MS–DRGs with a two-way severity level split involved a “with CC/MCC” and “without CC/MCC” split.

Response: As discussed in the FY 2024 IPPS/LTCH proposed rule, we provided both a test version of the ICD–10 MS–DRG GROUPER Software, Version 41 and an alternate version of the ICD–10 MS–DRG GROUPER Software, Version 41.A 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 noted that this alternate test software reflected the proposed GROUPER logic for FY 2024 as modified by the application of the NonCC subgroup criteria. Overall, we believe the explanatory power (R2) for the V41.A alternate GROUPER yields similar results to the proposed V41 GROUPER. Based on our review, the explanatory power (R2) goes down by 0.04 percent with the V41.A alternate GROUPER, explaining less variation when compared to the V41 notice of proposed rulemaking (NPRM) GROUPER, however this result is as we would expect since the MS–DRGs subject to the NonCC subgroup criteria considered for potential adjustment are low volume to begin with.

In response to the concerns expressed that application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split appears to result in fewer MS–DRGs split by the presence of a CC, we note that the criteria for the two-way split of “with CC/MCC” and “without CC/MCC” requires that there be at least 500 cases in the NonCC group, and as discussed in the proposed rule, in applying the criteria for proposed new MS–DRGs, that volume requirement was not met. Alternatively, the criteria for the two-way split of “with MCC” and “without MCC” was met for specific proposals, and therefore, proposed.

We recognize and acknowledge the concerns raised by the commenters regarding the impact the application of the NonCC subgroup criteria to existing MS–DRGs with a three-way split appears to have on the presence of a CC for MS–DRG assignment. We will continue to examine this issue with respect to the criteria and how it also relates to the comprehensive CC/MCC analysis. We refer the reader to section II.C.12.b. of the preamble of this final rule for additional discussion related to the comprehensive CC/MCC analysis.

Comment: Some commenters requested additional insight and rationale as to why CMS applied the NonCC subgroup criteria to the proposed MS–DRG changes for FY 2024 if the intent is to delay application of the NonCC subgroup criteria until future rulemaking.

Response: As discussed in prior rulemaking, in general, 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 must be met for the base MS–DRG to be split (or subdivided) by a CC subgroup. We note that we have applied the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of the MS–DRG classification requests effective FY 2021 (85 FR 58446 through 58448). For example, we applied the criteria to create subgroups, including application of the NonCC subgroup criteria, for a proposed new base MS–DRG as discussed in our finalization of new base MS–DRG 018 (Chimeric Antigen Receptor (CAR) T-cell Immunotherapy), new base MS–DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis), new base MS–DRG 140 (Major Head and Neck Procedures), new base MS–DRG 143 (Other Ear, Nose, Mouth and Throat O.R. Procedures), new base MS–DRG 521 (Hip Replacement with Principal Diagnosis of Hip Fracture) and new base MS–DRG 650 (Kidney Transplant with Hemodialysis) for FY 2021. 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 CC or 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.

Similarly, we applied the criteria to create subgroups including application of the NonCC subgroup criteria for MS–DRG classification requests for FY 2022 that we received by November 1, 2020 (86 FR 44796 through 44798), for MS–DRG classification requests for FY 2023 that we received by November 1, 2021 (87 FR 48801 through 48804), and for MS–DRG classification requests for FY 2024 that we received by October 20, 2022 (88 FR 26673 through 26676), as well as any additional analyses that were conducted in connection with those requests.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798) and FY 2023 IPPS/LTCH PPS final rule (87 FR 48803), we finalized a delay in applying this technical criterion to existing MS–DRGs in light of the PHE. We take this opportunity to clarify that the delay referenced was in applying this technical criterion to existing MS–DRGs with a three-way severity level split. Therefore, while we have made analyses for potential MS–DRG changes with application of the NonCC subgroup criteria publicly available, we have not yet proposed application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split. We note that we will 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.

Comment: A few commenters expressed concerns about the fluctuations in potential MS–DRG restructuring with application of the NonCC subgroup criteria from FY 2021 through FY 2024 based on different sets of claims data.

Response: We note that we addressed similar comments in detail in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48803 through 48804) and refer the reader to that discussion.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to delay the application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split until FY 2025 or later, and are finalizing for FY 2024 our proposal to maintain the current structure of the 45 MS–DRGs that currently have a three-way severity level split.

We are making the FY 2024 ICD–10 MS–DRG GROUPER and Medicare Code Editor (MCE) Software Version 41, the ICD–10 MS–DRG Definitions Manual files Version 41 and the Definitions of Medicare Code Edits Manual Version 41 available to the public on our CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software .

2. Major Diagnostic Category (MDC) 01: (Diseases and Disorders of the Nervous System): Epilepsy With Neurostimulator

The Responsive Neurostimulator (RNS®) System is a cranially implanted neurostimulator and is a treatment option for persons diagnosed with medically intractable epilepsy, a brain disorder characterized by persistent seizure activity which despite maximal medical treatment, remains sufficiently debilitating. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26676 through 26681), we stated that cases involving the use of the RNS® System are identified by the reporting of an ICD–10–PCS code combination capturing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain and the cases are assigned to MS–DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator) when reported with a principal diagnosis of epilepsy. We referred the reader to the ICD–10 MS–DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRG 023.

As discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38015 through 38019), we finalized our proposal to reassign all cases with a principal diagnosis of epilepsy and one of the following ICD–10–PCS code combinations capturing cases with a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) to MS–DRG 023 even if there is no MCC reported:

• 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach);
• 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach); and
• 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H04MZ (Insertion of neurostimulator lead into brain, percutaneous endoscopic approach).

We also finalized our proposed change to the title of MS–DRG 023 from “Craniotomy with Major Device Implant or Acute Complex Central Nervous System (CNS) Principal Diagnosis (PDX) with MCC or Chemo Implant” to “Craniotomy with Major Device Implant or Acute Complex Central Nervous System (CNS) Principal Diagnosis (PDX) with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator” to reflect the modifications to the MS–DRG structure.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58459 through 58462), 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 to MS–DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with CC) or to reassign these cases to another MS–DRG for more appropriate payment. We stated that while the results of our claims analysis indicated that the average costs of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), and a principal diagnosis of epilepsy are higher compared to the average costs for all cases in their assigned MS–DRG, we could not ascertain from the claims data the resource use specifically attributable to the procedure during a hospital stay. We stated that we believed that further analysis of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), and a principal diagnosis of epilepsy was needed prior to proposing any further reassignment of these cases to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped and therefore did not propose to reassign cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) from MS–DRG 023 to MS–DRG 021. We also did not propose to reassign Responsive Neurostimulator (RNS®) System cases to another MS–DRG. We stated we expected that, in future years, we would have additional data that could be used to evaluate the potential reassignment of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), and a principal diagnosis of epilepsy.

In the FY 2024 IPPS/LTCH PPS proposed rule, we stated we received a similar 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 to MS–DRG 021 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. The requestor acknowledged both the refinements made to MS–DRG 023 effective for FY 2018 and the discussion in FY 2021 rulemaking, but stated that cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) are negatively impacted from a payment perspective in their current MS–DRG assignment due to the large number of cases, with a wide range of principal diagnoses, procedures, and procedure approaches, also assigned to MS–DRG 023 and MS–DRG 024 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC) and therefore continue to be underpaid. We stated in the FY 2024 IPPS/LTCH PPS proposed rule that the requestor performed its own analysis of Medicare claims data and stated that it found that the average costs of cases describing the insertion of the RNS® neurostimulator were significantly higher than the average costs of all cases in their current assignment to MS–DRG 023, and as a result, cases describing the insertion of the RNS® neurostimulator are not being adequately reimbursed.

The requestor suggested the following two options for MS–DRG assignment updates: (1) reassign cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) from MS–DRG 023 to MS–DRG 021 with a change in title to “Intracranial Vascular Procedures with PDX Hemorrhage with CC or Craniectomy with Neurostimulator;” or (2) extract all cases from MS–DRG 023 involving a craniectomy/craniotomy with device implant and create a new MS–DRG for these cases.

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 is 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 believe that MS–DRG 021 is the most logical fit in terms of average costs and clinical coherence for reassignment of RNS® System cases 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.

As another option, the requestor identified procedures involving a craniectomy or craniotomy by searching for ICD–10–PCS codes that describe the root operations “Destruction”, “Division”, “Drainage”, “Excision”, Extirpation”, or “Insertion” performed related to the brain or specific brain anatomy (for example, cerebral ventricle, cerebellum) with an “Open Approach” in the claims data. The requestor also said they identified claims involving a device implant by searching for ICD–10–PCS codes that describe the root operation “Insertion” and stated that they found that the claims they identified had average costs comparable to the average costs of RNS® cases and therefore creating a new MS–DRG for all cases involving a craniectomy/craniotomy with device implant was a reasonable alternative option.

We stated in the proposed rule that to begin our analysis, we identified the ICD–10–CM diagnosis codes that describe a diagnosis of epilepsy. We referred the reader to Table 6P.2a associated with the proposed rule (and available at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps ) for the list of the ICD–10–CM codes that we identified.

We stated in the proposed rule that we then examined the claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRG 023 and compared the results to cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) that had a principal diagnosis of epilepsy in MS–DRG 023. The following table shows our findings:

As shown in the table, for MS–DRG 023, we identified a total of 11,602 cases, with an average length of stay of 10.4 days and average costs of $47,321. Of those 11,602 cases in MS–DRG 023, there were 57 cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) that had a principal diagnosis of epilepsy. We noted that the 57 cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) and a principal diagnosis of epilepsy had an average length of stay of 3.1 days and average costs of $58,676, as compared to the average length of stay of 10.4 days and average costs of $47,321 for all cases in MS–DRG 023. We stated that while these neurostimulator cases had average costs that were $11,355 higher than the average costs of all cases in MS–DRG 023, there were only a total of 57 cases. We stated we reviewed these data, and agreed with the requestor that the number of cases continued to be too small to warrant the creation of a new MS–DRG for these cases, for the reasons discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38015 through 38019) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58459 through 58462).

As stated in the proposed rule, we examined the reassignment of cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) to MS–DRGs 020, 021, and 022 (Intracranial Vascular Procedures with PDX Hemorrhage with MCC, with CC, and without CC/MCC, respectively). While the request was to reassign these cases to MS–DRG 021, we noted that MS–DRG 021 is specifically differentiated according to the presence of a secondary diagnosis with a severity level designation of a complication or comorbidity (CC). Cases with a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) do not always involve the presence of a secondary diagnosis with a severity level designation of a complication or comorbidity (CC), and therefore we reviewed data for all three MS–DRGs. The following table shows our findings:

As shown in the table, for MS–DRG 020, there were a total of 2,016 cases with an average length of stay of 13.9 days and average costs of $72,776. For MS–DRG 021, there were a total of 548 cases with an average length of stay of 9.1 days and average costs of $53,973. For MS–DRG 022, there were a total of 270 cases with an average length of stay of 3.9 days and average costs of $31,248.

Because all cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) with a principal diagnosis of epilepsy are assigned MS–DRG 023 even if there is no MCC reported and there is a three-way split within MS–DRGs 020, 021, and 022, in the proposed rule we stated we also analyzed the cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) with a principal diagnosis of epilepsy for the presence or absence of a secondary diagnosis designated as a complication or comorbidity (CC) or a major complication or comorbidity (MCC). The following table shows our findings:

As noted in the proposed rule, this data analysis shows that, similar to our findings as summarized in the FY 2018 and FY 2021 IPPS/LTCH PPS final rules, on average, the cases in MS–DRG 023 describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) and a principal diagnosis of epilepsy have average costs that are relatively more similar to the average costs of cases in MS–DRG 021 ($58,676 compared to $53,973), while the average length of stay is shorter (3.1 days compared to 9.1 days). However, when distributed based on the presence or absence of a secondary diagnosis designated as a CC or an MCC, the 57 cases in MS–DRG 023 reporting a principal diagnosis of epilepsy with a neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain have higher average costs and shorter lengths of stay than the cases in the FY 2022 MedPAR file for MS–DRGs 021 and 022 while having lower average costs and shorter lengths of stay than the cases in MS–DRG 020. We stated we reviewed the clinical issues and the claims data and continued to not support reassigning the cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) and a principal diagnosis of epilepsy from MS–DRG 023 to MS–DRGs 020, 021, or 022. We noted in the proposed rule that as also discussed in the FY 2018 and FY 2021 IPPS/LTCH PPS final rules, the cases in MS–DRGs 020, 021, and 022 have a principal diagnosis of a hemorrhage. The RNS® neurostimulator generators are not used to treat patients with diagnosis of a hemorrhage. We stated we continued to believe that it is inappropriate to reassign cases representing a principal diagnosis of epilepsy to a MS–DRG that contains cases that represent the treatment of intracranial hemorrhage, as discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38015 through 38019) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58459 through 58462). We noted that the differences in average length of stay and average costs based on the more recent data continued to support this recommendation.

We noted, as discussed in section II.C.1.b of the proposed rule, using the December 2022 update of the FY 2022 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would affect the MS–DRG structure beginning in FY 2024. As stated in the proposed rule, findings from our analysis indicated that MS–DRGs 020, 021, and 022 as well as approximately 44 other base MS–DRGs would potentially be subject to change based on the three-way severity level split criterion finalized in FY 2021. We referred the reader to Table 6P.10b associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the list of the 135 MS–DRGs that would be subject to deletion and the list of the 86 new MS–DRGs that would potentially be created if the NonCC subgroup criteria were applied.

We stated that we then explored alternative options, as was requested. As stated in the proposed rule, we did not agree that searching for ICD–10–PCS codes that describe the root operations “Destruction”, “Division”, “Drainage”, “Excision”, Extirpation”, or “Insertion” performed related to the brain or specific brain anatomy as suggested by the requestor was a reasonable approach to find cases comparable to cases involving the use of the RNS® System as these root operations all describe procedures performed for distinct and differing objectives. Instead, to review for similar utilization of resources, we stated we further analyzed the data to identify those cases currently reporting a procedure code combination representing neurostimulator generator and lead code combinations that are captured under the list referred to as “Major Device Implant” in the GROUPER logic for MS–DRGs 023 and 024 since the ICD–10–PCS code combinations that capture the use of the RNS® neurostimulator generator and leads that would determine an assignment of a case to MS–DRGs 023 are also found on the “Major Device Implant” list. The neurostimulator generators on this list are inserted into the skull, as well as into the subcutaneous areas of the chest, back, or abdomen. The leads are all inserted into the brain. The following table shows our findings:

We noted that the 90 Major Device Implant list cases involving a neurostimulator generator (including cases involving the use of the RNS® neurostimulator and a principal diagnosis of epilepsy) have an average length of stay of 7.3 days and average costs of $59,733 as compared to all 11,602 cases in MS–DRG 023, which have an average length of stay of 10.4 days and average costs of $47,321. In MS–DRG 024, we noted that the 395 Major Device Implant list cases involving a neurostimulator generator have an average length of stay of 1.6 days and average costs of $36,147 as compared to all 4,378 cases in MS–DRG 024, which have an average length of stay of 5.2 days and average costs of $32,613. In the proposed rule, we stated that while these neurostimulator cases have average costs that are higher than the average costs of all cases in their respective MS–DRGs, it was difficult to detect patterns of complexity and resource intensity. Moreover, we stated we were unable to identify another MS–DRG in MDC 01 that would be a more appropriate MS–DRG assignment for these cases based on the indication for and complexity of the procedure.

We noted that while our data findings demonstrated the average costs are higher for the 57 cases with a principal diagnosis of epilepsy with 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 represent 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 believe 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 discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48808 through 48820), in connection with our analysis of cases reporting LITT procedures performed on the brain or brain stem in MDC 01, 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. In the proposed rule, we stated that specifically, we are 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 are 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 proposed rule, we have begun to analyze the ICD–10 coded claims data from the September 2022 update of the FY 2022 MedPAR file 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 refer the reader to Tables 6P.2b through 6P.2f associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for data analysis findings of cases assigned to MS–DRGs 023 through 027 as we continue to look for patterns of complexity and resource intensity.

In summary, in the proposed rule, we stated we believe that further analysis of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) and a principal diagnosis of epilepsy is needed in connection with our analysis of the claims data for MS–DRGs 023 through 027 prior to proposing any further reassignment of these cases, to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped. Therefore, we did not propose to reassign cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) from MS–DRG 023 to MS–DRG 021. We also did not propose to create a new MS–DRG for cases involving a craniectomy/craniotomy with device implant at this time.

Comment: Some commenters expressed support for CMS' proposal to maintain the assignment of cases reporting procedure codes that describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) in MS–DRG 023 and to not propose to create a new MS–DRG for cases involving a craniectomy/craniotomy with device implant. A commenter stated they agreed that it was inappropriate to reassign cases that involve craniectomy or craniotomy with the insertion of neurostimulator 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). This commenter also stated that due to the low volume of total cases, they agreed that creation of a new MS–DRG was not warranted.

Response: We appreciate the commenters' support.

Comment: Another commenter opposed CMS' proposal. The commenter stated CMS' data analysis demonstrated that the average costs of RNS® System cases continue to be substantially higher than the average costs of all cases in their assigned MS–DRG 023. This commenter further stated that they believed the data analysis supports extracting cases reporting procedure codes that describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) ( e.g., Major Device Implant list cases) from MS–DRGs 023 and 024 and creating two new MS–DRGs with logic maintained for cases with a principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain. The commenter stated this refinement would result in a much better alignment of the average costs of these cases compared to their current MS–DRG assignment.

Response: We thank the commenter for their feedback. We continue to be receptive to concerns about payment for cases reporting procedure codes that describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator). While we agree these 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. As discussed in the proposed rule and earlier in this section, to review for similar utilization of resources, we analyzed the data to identify those cases currently reporting a procedure code combination representing neurostimulator generator and lead code combinations that are captured under the list referred to as “Major Device Implant” in the GROUPER logic for MS–DRGs 023 and 024 since the ICD–10–PCS code combinations that capture the use of the RNS® neurostimulator generator and leads that would determine an assignment of a case to MS–DRGs 023 are also found on the “Major Device Implant” list. In our analysis in MS–DRG 023, we found 90 cases reporting a procedure code combination representing neurostimulator generator and lead code combination captured under the list referred to as “Major Device Implant” with the average length of stay ranging from 1 day to 249 days and average costs ranging from $22,717 to $250,272 for these cases. In MS–DRG 024, we found 395 cases reporting a procedure code combination representing neurostimulator generator and lead code combination captured under the list referred to as “Major Device Implant” with the average length of stay ranging from 1 day to 12 days and average costs ranging from $16,359 to $70,949 for these cases. 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 will continue to explore mechanisms to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped.

Therefore, after consideration of the public comments we received, and for the reasons stated earlier, we are finalizing 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 (including cases involving the use of the RNS® neurostimulator), without modification, for FY 2024.

As noted in the proposed rule, as we continue this 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 previously described, we are examining procedures by their approach (open versus percutaneous), clinical indications, and procedures that involve the insertion or implantation of a device. 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 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRGs 023 through 027. Feedback and other suggestions may be submitted by October 20, 2023 and directed to the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM), discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule at: https://mearis.cms.gov/public/home .

Comment: In response to CMS' request for public comment and feedback on the potential restructuring of the craniotomy MS–DRGs for future consideration, a commenter stated they do not believe there is a need for CMS to re-evaluate the assignment of neurosurgical procedures within the craniotomy MS–DRGs 023 through 027. This commenter stated that the procedures in these MS–DRGs have been well established from a clinical homogeneity perspective, as well as a resource utilization perspective, and the procedures costs have been stable. Another commenter stated they appreciate CMS' willingness to review the craniotomy/craniectomy MS–DRGs to ensure proper alignment of procedures, indications, technical complexity, and resource utilization. This commenter further noted there are a wide array of diagnoses and procedures that fall within this range of MS–DRG and stated they believe there are a variety of ways these MS–DRGs can be classified.

A commenter mentioned that CMS referred the reader to Tables 6P.2b through 6P.2f associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the data analysis findings of cases assigned to MS–DRGs 023 through 027 and expressed concern that there was no discussion of these findings or their significance in the proposed rule. This commenter suggested that CMS comment on the following:

• How is CMS defining technical complexity and what factors are being considered in the analysis?
• Are there other data not included in Tables 6P.2b through 6P.2f that CMS is analyzing?
• What is the timing for completion of the full analysis of MS–DRGs 023–027?

Response: We thank the commenters for their feedback and will take these recommendations into consideration as we further examine the logic for case assignment. The data analysis as displayed in Tables 6P.2b through 6P.2f associated with the 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 welcome 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.

As discussed in the proposed rule, and earlier in this section, as we continue the analysis of the claims data with respect to MS–DRGs 023 through 027, 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. Feedback and other suggestions may be submitted by October 20, 2023 and directed to the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at https://mearis.cms.gov/public/home. We note that we would address any proposed modifications to the existing logic in future rulemaking.

3. MDC 02 (Diseases and Disorders of the Eye): Retinal Artery Occlusion

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48830 through 48835), we discussed a request we received to reassign cases reporting diagnosis codes describing central retinal artery occlusion, and the closely allied condition, branch retinal artery occlusion, from MS–DRG 123 (Neurological Eye Disorders) in MDC 02 (Diseases and Disorders of the Eye) to MS–DRGs 061, 062, and 063 (Ischemic Stroke Precerebral Occlusion or Transient Ischemia with Thrombolytic Agent with MCC, with CC, and without CC/MCC, respectively) in MDC 01 (Diseases and Disorders of the Nervous System).

Retinal artery occlusion refers to blockage of the retinal artery that carries oxygen to the nerve cells in the retina at the back of the eye, often by an embolus or thrombus. A blockage in the main artery in the retina is called central retinal artery occlusion (CRAO). A blockage in a smaller artery is called branch retinal artery occlusion (BRAO).

Based on the various data analyses we performed to explore the possible reassignment of cases with a principal diagnosis of CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent or a procedure code describing hyperbaric oxygen therapy, and the clinical analysis discussed, for FY 2023 we did not propose any MS–DRG changes for cases with a principal diagnosis of CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent or a procedure code describing hyperbaric oxygen therapy.

In response to this final policy, as discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26681 through 26684), we received a request to again review the MS–DRG assignment of cases involving CRAO. According to the requestor, CRAO is a form of acute ischemic stroke which occurs when a vessel supplying blood to the brain is obstructed and there is growing recognition of this diagnosis as a vascular neurological problem. The requestor stated new evidence outlines treatment of patients with CRAO with acute stroke protocols, specifically with intravenous thrombolysis (IV tPA) or hyperbaric oxygen therapy (HBOT), to improve outcomes. We stated in the proposed rule that the requestor stated they performed an internal analysis of their claims data and found that the average costs of cases reporting a procedure code describing the administration of a thrombolytic agent with a principal diagnosis of CRAO were 2.5 times higher than the average costs of cases with a principal diagnosis of CRAO that did not report the administration of a thrombolytic agent. The requestor further stated the increased utilization of resources of these cases was isolated to be almost entirely due to the cost of the tPA itself based on this review of their internal cost level data. Consequently, the requestor stated the continued assignment of these conditions to MS–DRG 123 does not properly recognize disease complexity and understates the resource utilization associated with administering critical (potentially vision-saving) treatments for these cases.

The requestor suggested that the following three MS–DRGs be created to reflect current standard of care for these patients:

• Suggested New MS–DRG XXX—Neurological Eye Disorders with Thrombolytic Agent with MCC.

• Suggested New MS–DRG XXX—Neurological Eye Disorders with Thrombolytic Agent with CC.

• Suggested New MS–DRG XXX—Neurological Eye Disorders with Thrombolytic Agent without CC/MCC.

We stated in the proposed rule that in reviewing this issue, it was unclear why the requestor did not include branch retinal artery occlusion (BRAO) in their request for FY 2024 rulemaking. As discussed in the FY 2023 IPPS/LTCH PPS final rule, BRAO is a closely allied condition. Therefore, we identified the ICD–10–CM codes found in the following table that describe CRAO and BRAO.

We stated in the proposed rule that thrombolytic therapy is identified with the following ICD–10–PCS procedure codes.

In this final rule, we would like to correct the statement in the proposed rule and add that thrombolytic therapy is also identified with the following two ICD–10–PCS procedure codes.

We stated in the proposed rule that our analysis of this grouping issue again confirmed that, when a procedure code describing the administration of a thrombolytic agent is reported with principal diagnosis code describing CRAO or BRAO, these cases group to medical MS–DRG 123. We refer the reader to the ICD–10 MS–DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRG 123.

To begin our analysis, as discussed in the proposed rule, we examined claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRG 123 to (1) identify cases reporting a principal diagnosis code describing CRAO or BRAO without a procedure code describing the administration of a thrombolytic agent and (2) identify cases reporting diagnosis codes describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent. Our findings are shown in the following table:

As shown in the table, we identified a total of 2,771 cases within MS–DRG 123 with an average length of stay of 2.5 days and average costs of $6,720. Of these 2,771 cases, there are 839 cases that reported a principal diagnosis code describing CRAO or BRAO without a procedure code describing the administration of a thrombolytic agent with an average length of stay of 2.2 days and average costs of $5,842. There are 38 cases that reported a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent with an average length of stay of 3.3 days and average costs of $13,302.

We stated in the proposed rule that the data analysis showed that the 839 cases in MS–DRG 123 reporting a principal diagnosis code describing CRAO or BRAO without a procedure code describing the administration of a thrombolytic agent have lower average costs as compared to all cases in MS–DRG 123 ($5,842 compared to $6,720), and a shorter average length of stay (2.2 days compared to 2.5 days). For the 38 cases in MS–DRG 123 reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent, however, the average length of stay is longer (3.3 days compared to 2.5 days) and the average costs are higher ($13,302 compared to $6,720) than the average length of stay and average costs compared to all cases in that MS–DRG.

We stated in the proposed rule that we reviewed these data and did not believe that the small subset of cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent warranted the creation of new MS–DRGs at this time. As stated in prior rulemaking, the MS–DRGs are a classification system intended to group together diagnoses and procedures with similar clinical characteristics and utilization of resources. We generally seek to identify sufficiently large sets of claims data with a resource/cost similarity and clinical similarity in developing diagnostic-related groups rather than smaller subsets. Moreover, in response to the specific request to create new MS–DRGs subdivided into severity levels for the cases reporting a principal diagnosis code describing CRAO with a procedure code describing the administration of a thrombolytic agent, we only identified a total of 38 cases, so the criterion that there are at least 500 or more cases in each subgroup cannot be met. Therefore, for FY 2024, we did not propose to create new MS–DRGs subdivided into severity levels for cases reporting a principal diagnosis code describing CRAO with a procedure code describing the administration of a thrombolytic agent.

We noted in the proposed rule that we recognized however, that the average costs of the small number of cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent are greater when compared to the average costs of all cases in MS–DRG 123. To explore other mechanisms to address this request, we then reexamined the MS–DRGs within MDC 02 to consider the possibility of reassigning the cases with a principal diagnosis of CRAO or BRAO that receive the administration of a thrombolytic agent to other MS–DRGs within MDC 02. As discussed in the proposed rule, after further consideration, in reviewing the claims data from the September 2022 update of the FY 2022 MedPAR file and examining the clinical considerations, we stated that we believe that the cases reporting a principal diagnosis code describing CRAO or BRAO could more suitably group to MS–DRGs 124 and 125 (Other Disorders of the Eye with MCC, and without MCC, respectively), which contain diagnoses other than neurological conditions that affect the eye, noting the vascular involvement inherent to a diagnosis of CRAO or BRAO. We refer the reader to the ICD–10 MS–DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRGs 124 and 125.

To determine how the resources for this subset of cases compared to cases in MS–DRGs 124 and 125 as a whole, we stated we examined the average costs and length of stay for cases in MS–DRGs 124 and 125. Our findings are shown in this table.

For this subset of cases, the average costs of the 38 cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent are slightly higher ($13,302 compared to $11,922) and the average length of stay is shorter (3.3 days compared to 5.4 days) than for all cases in MS–DRGs 124. The 839 cases reporting a principal diagnosis code describing CRAO or BRAO without a procedure code describing the administration of a thrombolytic agent have lower average costs ($5,842 compared to $7,425) and a shorter average length of stay (2.2 compared to 3.3 days) than for cases in MS–DRG 125.

We stated in the proposed rule that our analysis demonstrated that while the volume of cases is small, the average costs for the cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent currently grouping to MS–DRG 123 are more aligned with the average costs of the cases currently grouping to MS–DRG 124. We stated we reviewed these data and supported the addition of the ten diagnosis codes listed previously to the GROUPER logic list for MS–DRGs 124 and 125. While the cases reporting a principal diagnosis code describing CRAO or BRAO without a procedure code describing the administration of a thrombolytic agent have lower costs and a shorter average length of stay than for cases in MS–DRG 125, we stated we believed reassigning these diagnosis codes to MS–DRGs 124 and 125 would better account for the subset of patients who are treated with a thrombolytic agent, and would more appropriately reflect the resources involved in evaluating and treating these patients. We also stated we supported the assignment of the cases reporting procedure codes describing the administration of a thrombolytic agent to the higher (MCC) severity level MS–DRG 124 as an enhancement to better reflect the clinical severity and resource use involved in these cases.

Therefore, we proposed to reassign ICD–10–CM diagnosis codes H34.10, H34.11, H34.12, H34.13, H34.231, H34.232, H34.233, and H34.239 from MDC 02 MS–DRG 123 to MS–DRGs 124 and 125, effective October 1, 2023, for FY 2024. We also proposed to add the procedure codes describing the administration of a thrombolytic agent listed previously to MS–DRG 124. In the proposed rule, we noted that the procedure codes describing the administration of a thrombolytic agent are not designated as operating room procedures for purposes of MS–DRG assignment (“non-O.R. procedures”), therefore, as part of the logic for MS–DRG 124, we also proposed to designate these codes as non-O.R. procedures affecting the MS–DRG. Lastly, for consistency, we also proposed to change the titles of MS–DRGs 124 and 125 from “Other Disorders of the Eye, with and without MCC, respectively” to “Other Disorders of the Eye with MCC or Thrombolytic Agent, and without MCC, respectively” to better reflect the assigned procedures.

Comment: Commenters agreed with our proposal to reassign ICD–10–CM diagnosis codes H34.10, H34.11, H34.12, H34.13, H34.231, H34.232, H34.233, and H34.239 from MDC 02 MS–DRG 123 to MS–DRGs 124 and 125. A commenter stated that this proposal better aligns with the resource consumption of these cases. Another commenter stated that the proposed MS–DRG assignment of cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent would more accurately capture the complexity of the condition and the necessary resources associated with administering critical treatments.

Response: We thank the commenters for their support.

After consideration of the public comments we received, we are finalizing our proposal to reassign ICD–10–CM diagnosis codes H34.10, H34.11, H34.12, H34.13, H34.231, H34.232, H34.233, and H34.239 from MDC 02 MS–DRG 123 to MS–DRGs 124 and 125, without modification, effective October 1, 2023, for FY 2024. In addition, we are finalizing our proposal to add the procedure codes describing the administration of a thrombolytic agent listed previously to MS–DRG 124. As part of the logic for MS–DRG 124, we are also finalizing our proposal to designate the 10 ICD–10–PCS procedure codes describing the administration of a thrombolytic agent listed previously as non-O.R. procedures affecting the MS–DRG. Lastly, we are finalizing our proposal to change the titles of MS–DRGs 124 and 125 from “Other Disorders of the Eye, with and without MCC, respectively” to “Other Disorders of the Eye with MCC or Thrombolytic Agent, and without MCC, respectively” to better reflect the assigned procedures for FY 2024.

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

a. Ultrasound Accelerated Thrombolysis for Pulmonary Embolism

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26684 through 26691), we received a request to reassign cases reporting ultrasound accelerated thrombolysis (USAT) with the administration of thrombolytic(s) for the treatment of pulmonary embolism (PE) from MS–DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) to MS–DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively).

A pulmonary embolism is an obstruction of pulmonary vasculature most commonly caused by a venous thrombus, and less commonly by fat or tumor tissue or air bubbles or both. Risk factors for a pulmonary embolism include prolonged immobilization from any cause, obesity, cancer, fractured hip or leg, use of certain medications such as oral contraceptives, presence of certain medical conditions such as heart failure, sickle cell anemia, or certain congenital heart defects. Common symptoms of pulmonary embolism include shortness of breath with or without chest pain, tachycardia, hemoptysis, low grade fever, pleural effusion, and depending on the etiology of the embolus, might include lower extremity pain or swelling, syncope, jugular venous distention. Alternatively, a pulmonary embolus could be asymptomatic.

Thrombolysis is a type of treatment where the infusion of thrombolytics (fibrinolytic or “clot-busting” drugs) is used to dissolve blood clots that form in the arteries or veins with the goal of improving blood flow and preventing long-term damage to tissues and organs. When a clot forms in the arteries of the lungs it is known as a pulmonary embolism. In addition, clots in the veins of the legs causing deep venous thrombosis (DVT) may also result in pulmonary embolism if a piece of the clot breaks off and travels to an artery in the lungs. Conventional catheter-directed thrombolysis (CDT) procedures generally rely on a multi-sidehole catheter placed adjacent to the thrombus through which thrombolytics are delivered directly to the thrombus, however, the EKOS^TM EkoSonic® Endovascular System (EKOS^TM System) employs ultrasound to assist in thrombolysis. The ultrasound does not itself dissolve the thrombus, but pulses of ultrasonic energy temporarily make the fibrin in the thrombus more porous and increase fluid flow within the thrombus. High frequency, low-intensity ultrasonic waves create a pressure gradient that drives the thrombolytic into the thrombus and keeps it in close proximity to the binding sites. USAT is also referred to as ultrasound-assisted thrombolysis or ultrasound-enhanced thrombolysis.

As discussed in the proposed rule, according to the requestor (the manufacturer of the EKOS^TM device), USAT with the administration of thrombolytic(s) for the treatment of PE performed using the EKOS^TM device utilizes more resources in comparison to other procedures that are currently assigned to MS–DRGs 166, 167, and 168 and is not clinically coherent with the other procedures assigned to those MS–DRGs. The requestor stated that the cases reporting USAT with the administration of thrombolytic(s) for PE are more comparable with and more clinically aligned with the procedures assigned to MS–DRGs 163, 164, and 165. The requestor stated they performed an analysis of cases reporting USAT for PE with the following ICD–10–PCS procedure codes.

We noted in the proposed rule that the requestor did not include a list of diagnosis codes describing PE or a list of procedure codes describing the administration of thrombolytic(s) in connection with its analysis.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58561 through 85 FR 58579), we summarized and responded to public comments expressing concern with the proposed MS–DRG assignments for the newly created procedure codes describing USAT of several anatomic sites that were effective with discharges on and after October 1, 2020 (FY 2021). We noted in the proposed rule that similar to the current request for FY 2024, for FY 2021, the commenters recommended that USAT procedures performed with the EKOS^TM device for the treatment of pulmonary embolism be assigned to MS–DRGs 163, 164, and 165 instead of MS–DRGs 166, 167, and 168. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58561 through 85 FR 58579), available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS for the detailed discussion.

As discussed in the proposed rule, we analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 166, 167, and 168 for all cases reporting a principal diagnosis of PE and USAT procedure with and without the administration of thrombolytic(s). We identified claims reporting an USAT procedure, the administration of thrombolytic(s), and a diagnosis of PE with the listed codes shown in the following tables.

We noted that the listed procedure codes describing USAT identified for our claims analysis differ from the procedure codes identified by the requestor for its analysis. Clinically, we did not agree that thrombolysis of non-pulmonary anatomic sites (for example, subclavian artery, axillary artery, etc.) would be performed for the treatment of a PE. We also noted that the procedure codes describing thrombolysis of non-pulmonary anatomic sites provided by the requestor are assigned to MDC 05 (Diseases and Disorders of the Circulatory System) and not to MDC 04 (Diseases and Disorders of the Respiratory System) where MS–DRGs 163, 164, 165, 166, 167, and 168 are assigned. The findings from our analysis are shown in the following table.

As shown in the table, we identified a total of 8,318 cases in MS–DRG 166 with an average length of stay of 11 days and average costs of $31,910. Of the 8,318 cases, we found 826 cases reporting a principal diagnosis of PE and USAT with thrombolytic(s) with an average length of stay of 5.4 days and average costs of $28,912 and 161 cases reporting a principal diagnosis of PE and USAT without thrombolytic(s) with an average length of stay of 5.4 days and average costs of $27,897. The data demonstrate that the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) have a shorter average length of stay compared to the average length of stay of all the cases in MS–DRG 166 (5.4 days and 5.4 days, respectively versus 11 days). Similarly, the average costs for the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) are lower than the average costs of all the cases in MS–DRG 166 ($28,912 and $27,897, respectively versus $31,910). The data indicate that the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) appear to be grouped and paid appropriately, despite the fact the logic for case assignment to MS–DRG 166 requires the reporting of at least one or more secondary MCC diagnoses, and it would not be unreasonable to expect these cases to be more expensive in comparison to all the cases in MS–DRG 166. As the average costs for these cases are lower than the average costs of all the cases in MS–DRG 166, the data appear to reflect that the reporting of at least one or more secondary MCC diagnoses and use of the EKOS^TM device technology did not impact consumption of resources for these cases in MS–DRG 166.

For MS–DRG 167, we identified a total of 4,306 cases with an average length of stay of 4.7 days and average costs of $16,290. Of the 4,306 cases, we found 316 cases reporting a principal diagnosis of PE and USAT with thrombolytic(s) with an average length of stay of 3.9 days and average costs of $23,240 and 52 cases reporting a principal diagnosis of PE and USAT without thrombolytic(s) with an average length of stay of 3.7 days and average costs of $23,608. The data demonstrate that the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) have a shorter average length of stay compared to the average length of stay of all the cases in MS–DRG 167 (3.9 days and 3.7 days, respectively versus 4.7 days). Conversely, the average costs for the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) are higher than the average costs of all the cases in MS–DRG 167 ($23,240 and $23,608, respectively versus $16,290) with a corresponding difference in average costs of $6,950 and $7,318, respectively. The data indicate the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) appear to consume more resources in comparison to the other cases in MS–DRG 167, although it is unclear if the higher resource consumption is a direct result of the EKOS^TM device technology utilized in the performance of the thrombolysis procedure, or the fact that these cases also include the reporting of at least one or more secondary CC diagnoses, or a combination of both factors.

For MS–DRG 168, we identified a total of 1,441 cases with an average length of stay of 2.3 days and average costs of $12,379. Of the 1,441 cases, we found 65 cases reporting a principal diagnosis of PE and USAT with thrombolytic(s) with an average length of stay of 2.8 days and average costs of $20,156 and 15 cases reporting a principal diagnosis of PE and USAT without thrombolytic(s) with an average length of stay of 2.7 days and average costs of $20,112. The data demonstrate that the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) have a longer average length of stay compared to the average length of stay of all the cases in MS–DRG 168 (2.8 days and 2.7 days, respectively versus 2.3 days). Additionally, the average costs for the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) are higher than the average costs of all the cases in MS–DRG 168 ($20,156 and $20,112, respectively versus $12,379) with a corresponding difference in average costs of $7,777 and $7,733, respectively. Similar to our findings for MS–DRG 167, the data for MS–DRG 168 indicate the cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) appear to consume more resources in comparison to the other cases in MS–DRG 168. However, it is unclear if the higher resource consumption is a direct result of the EKOS^TM device technology utilized in the performance of the thrombolysis procedure alone, or if there are other contributing factors, since cases grouping to MS–DRG 168 do not include the reporting of at least one or more secondary CC or MCC diagnoses.

We stated in the proposed rule that based on our review of the data for MS–DRGs 166, 167, and 168 and our initial analysis for cases reporting a principal diagnosis of PE and USAT procedure with and without the administration of thrombolytic(s), the findings also suggest that the administration of thrombolytic(s) is not a significant factor in the consumption of resources for these cases in MS–DRGs 166, 167, and 168 where USAT is performed in the treatment of a PE. For example, in MS–DRG 166, there are 826 cases reporting a principal diagnosis of PE and USAT procedure with the administration of thrombolytic(s) and 161 cases reporting a principal diagnosis of PE and USAT procedure without the administration of thrombolytic(s), however, both subsets of cases have an equivalent average length of stay of 5.4 days and a difference in average costs of $1,015 ($28,912−$27,897 = $1,015). For MS–DRG 167, there are 316 cases reporting a principal diagnosis of PE and USAT procedure with the administration of thrombolytic(s) and 52 cases reporting a principal diagnosis of PE and USAT procedure without the administration of thrombolytic(s), however, both subsets of cases have a similar average length of stay (3.9 days and 3.7 days, respectively) with a difference in average costs of $368 ($23,608−$23,240 = $368). For MS–DRG 168, there are 65 cases reporting a principal diagnosis of PE and USAT procedure with the administration of thrombolytic(s) and 15 cases reporting a principal diagnosis of PE and USAT procedure without the administration of thrombolytic(s), however, both subsets of cases have a similar average length of stay (2.8 days and 2.7 days, respectively) with a difference in average costs of $44 ($20,156−$20,112 = $44). Because the administration of thrombolytic(s) would be expected to increase resource consumption, the small difference in average costs between these two sets of cases could also suggest that the administration of thrombolytic(s) was not consistently reported.

We noted in the proposed rule that while the request we received was to reassign cases reporting ultrasound accelerated thrombolysis (USAT) with the administration of thrombolytic(s) for the treatment of pulmonary embolism (PE) from MS–DRGs 166, 167, and 168 to MS–DRGs 163, 164, and 165, based on our findings that suggest the administration of thrombolytic(s) is not a significant factor in the consumption of resources for those cases or that a code describing the administration of thrombolytic(s) may not have been consistently reported on a subset of claims that also reported a code identifying USAT was performed, we then analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRGs 163, 164, and 165 and compared it to the cases reporting a principal diagnosis of PE and USAT procedure with or without thrombolytic(s) in MS–DRGs 166, 167, and 168. The findings from our analysis are shown in the following tables.

The average costs of the 987 cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) in MS–DRG 166 are $10,380 less than the average costs of all cases in MS–DRG 163 ($39,126-$28,746=$10,380) and have an average length of stay that is approximately half the average length of stay of all cases in MS–DRG 163 (5.4 days versus 10.3 days). As stated previously, our analysis of these cases demonstrate they appear to be grouped and paid appropriately in MS–DRG 166. The 368 cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) in MS–DRG 167 have a shorter average length of stay (3.9 days versus 4.7 days) in comparison to all the cases in MS–DRG 164, however, the average costs of the 368 cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) in MS–DRG 167 are more comparable to the average costs of all the cases in MS–DRG 164 ($23,292 versus $22,040). Finally, the 80 cases reporting a principal diagnosis of PE and USAT with or without thrombolytic(s) in MS–DRG 168 have an average length of stay that is more comparable to all the cases in the MS–DRG 165 (2.8 days versus 2.7 days), however, the average costs for the 80 cases continue to be higher in comparison to all the cases in MS–DRG 165 ($20,148 versus $16,404).

We stated in the proposed rule that upon analysis of the claims data and our review of the request, we do not agree with reassigning cases reporting an USAT procedure with the administration of thrombolytic(s) and a principal diagnosis of PE from MS–DRGs 166, 167, and 168 to MS–DRGs 163, 164, and 165. As previously noted, the data do not support that cases reporting USAT (with or without thrombolytic(s)) for PE utilize similar resources when compared to other procedures currently assigned to MS–DRGs 163 and 165. Costs were only comparable with procedures currently assigned to MS–DRG 164. Further, we stated we do not agree that cases reporting USAT (with or without thrombolytic(s)) are more comparable with and more clinically aligned with the procedures assigned to MS–DRGs 163, 164, and 165. The vast majority of procedures in these MS–DRGs describe procedures performed on the trachea, bronchus or lungs with either an open approach or a percutaneous endoscopic approach in contrast to the USAT endovascular (percutaneous) procedure performed on the pulmonary trunk, arteries or veins. In addition, the majority of procedures in MS–DRGs 163, 164, and 165 are performed on patients who are not clinically similar to patients who undergo USAT for PE since they describe procedures such as destruction (ablation) or excision performed for patients with conditions other than a PE, such as malignant neoplasm, pneumonia, or pulmonary fibrosis. Lastly, a number of procedures in these MS–DRGs also involve the use of a permanently implanted device while the procedures utilizing USAT do not. Therefore, we stated in the proposed rule that we do not consider USAT procedures to be major chest procedures, nor do we believe the cases reporting USAT with (or without thrombolytic(s)) for PE utilize similar resources when compared to other procedures currently assigned to MS–DRGs 163, 164, and 165.

As stated in the proposed rule, the findings from our analysis suggest that the administration of thrombolytic(s) is not a significant factor in the consumption of resources for cases in MS–DRGs 166, 167, and 168 reporting an USAT procedure performed for the treatment of a PE or that a code describing the administration of thrombolytic(s) may not have been consistently reported on a subset of claims that also reported a code identifying USAT was performed, or a combination of both factors. Based on these findings related to the administration of thrombolytic(s), we stated we believed it would also be beneficial to examine cases reporting standard CDT procedures with or without thrombolytic(s) for the treatment of PE in MS–DRGs 166, 167, and 168, and compare the findings to the cases reporting USAT with or without thrombolytic(s) for the treatment of PE.

Therefore, as discussed in the proposed rule, we conducted additional analyses to determine if there were significant differences in resource utilization for cases reporting standard CDT with or without thrombolytic(s) versus USAT procedures with or without thrombolytic(s) in the treatment of PE, since claims data to compare the two modalities is now available and studies have reported similar clinical outcomes in reducing PE regardless of which thrombolysis modality is utilized.

In the proposed rule, we stated that we analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRGs 166, 167, and 168 and cases reporting a standard CDT procedure with or without the administration of thrombolytic(s) and a principal diagnosis of PE. We utilized the previously listed procedure codes for the administration of thrombolytic(s) and the previously listed diagnosis codes for a principal diagnosis of PE. We identified cases describing standard CDT procedures performed in the treatment of PE with the following procedure codes.

The findings from our analysis are shown in the following table. We noted that there were no cases found to report a principal diagnosis of PE and standard CDT with or without thrombolytic(s) in MS–DRGs 168.

The data shows that the 7 cases reporting a principal diagnosis of PE and standard CDT with or without thrombolytic(s) in MS–DRG 166 have a shorter average length of stay compared to all cases in MS–DRG 166 (3.3 days versus 11 days) and lower average costs ($18,472 versus $31,910). For MS–DRG 167, the data shows that the 6 cases reporting a principal diagnosis of PE and CDT with or without thrombolytic(s) have a shorter average length of stay compared to all cases in MS–DRG 167 (3.5 days versus 4.7 days), however the average costs are higher ($30,928 versus $16,290).

As discussed in the proposed rule, based on our review and the claims data analysis for cases in MS–DRGs 163, 164, and 165, and for MS–DRGs 166, 167, and 168 and cases reporting standard CDT or USAT with or without thrombolytic(s) and a principal diagnosis of PE, we believe that while this subset of cases for patients undergoing a thrombolysis (CDT or USAT) procedure for PE does not clinically align with patients undergoing surgery for malignancy or treatment for infection and does not involve the same level of complexity, monitoring or support as cases grouping to MS–DRGs 163, 164, and 165, the differences in resource consumption warrant proposed reassignment of these cases. Specifically, we believe the clinical and data analyses support creating a new base MS–DRG to distinguish cases reporting a principal diagnosis of PE and USAT or standard CDT procedure with or without thrombolytic(s) from other cases currently grouping to MS–DRGs 166, 167, and 168. We believe a new MS–DRG would reflect more appropriate payment for USAT and standard CDT procedures in the treatment of PE.

We stated in the proposed rule that to compare and analyze the impact of our suggested modifications, we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 1,534 cases reporting procedure codes describing an USAT or CDT procedure with a principal diagnosis of PE.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, once the decision has been made to propose to make further modifications to the MS–DRGs, such as creating a new base MS–DRG, all five criteria to create subgroups must be met for the base MS–DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS–DRG. We noted that, as shown in the table that follows, a three-way split of this base MS–DRG failed to meet the criterion that there be at least 500 cases in both the CC and the NonCC (without CC/MCC) subgroup and it also failed to meet the criterion that there be a 20% difference in average costs between the CC and NonCC subgroup.

As also discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We therefore applied the criteria for a two-way split for the “with MCC and without MCC” subgroups. We noted 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 500 cases in the without MCC (CC+NonCC) subgroup. The following table illustrates our findings.

We then applied the criteria for a two-way split for the “with CC/MCC and without CC/MCC” subgroups. As with the analysis of the three-way severity split as described previously, and 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 500 cases in the without CC/MCC (NonCC) subgroup.

We noted 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 2024, we proposed to create new base MS–DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism). The following table reflects a simulation of the proposed new base MS–DRG.

We stated we believed the resulting proposed MS–DRG better recognizes the consumption of resources and maintains clinical coherence for both USAT and CDT procedures performed for the treatment of PE.

We proposed to define the logic for the proposed new MS–DRG using the previously listed diagnosis codes for PE and the previously listed procedure codes for USAT and CDT, as identified and discussed in our analysis of the claims data in the proposed rule and in this final rule.

Comment: Commenters supported the proposal to create new MS–DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism) given the data and information provided. A commenter expressed appreciation that CMS has acted to correct payment disparities for these procedures and recommended that CMS also utilize this approach to address other, similar MS–DRG reassignment requests that may involve a component with a lower volume of cases. Another commenter stated the proposal aligns more closely with the resources used, as opposed to the current MS–DRGs 166, 167, and 168. The commenter requested that CMS continue to analyze the data for these cases and consider creating an additional MS–DRG to reflect major complications and comorbidities, if warranted by further analysis. Other commenters who supported the proposal to reassign the cases from their current MS–DRG assignment expressed concern about the proposed single base MS–DRG. Specifically, the commenters stated the proposal does not acknowledge the secondary diagnosis impact that the CMS analysis recognized may or may not be a contributing factor for the higher average costs of the cases reporting USAT procedures. The commenters also stated that the proposal demonstrates that application of the NonCC Subgroup may not be appropriate for some MS–DRGs since the result in this instance is for a base MS–DRG with a lower relative weight because severity of illness is unable to be recognized.

Response: We thank the commenters for their support. In response to the concerns raised by the commenters regarding the impact application of the NonCC subgroup criteria has on proposed new MS–DRG 173, we note that, as discussed in the proposed rule and in this final rule, we apply the NonCC subgroup criteria once the decision is made to propose to make further modifications to the MS–DRGs. While application of the criteria did not support a severity level split for proposed MS–DRG 173 for FY 2024, we intend to reevaluate for future rulemaking whether the criteria for a potential “with MCC” and “without MCC” two-way split would be met.

Comment: A couple commenters suggested that the proposal to create new MS–DRG 173 should be delayed until more data can be collected. The commenters stated their belief that it is premature to create this new MS–DRG at this time and that in developing this proposed MS–DRG, CMS relied on recently implemented ICD–10–PCS data. According to the commenters, due to the lengthy processes for hospitals to adopt and accurately implement new coding, and conflicting coding advice for utilization of the ICD–10–PCS procedure codes for CDT and USAT, the number of cases is currently insufficient to support development of a new MS–DRG. The commenters stated that the low volume of cases and related data selected by CMS for analysis, CDT for the treatment of PE, cannot adequately compare to the costs, complexity, and utilization of USAT with a high confidence interval.

Response: We appreciate the commenters' feedback. We disagree with the commenters that it is premature to propose the creation of new MS–DRG 173 based on our review and claims data analysis as discussed in the proposed rule. In response to the commenters' statement that CMS relied on recently implemented ICD–10–PCS data, it is not clear to us what specific ICD–10–PCS data the commenters are referring to since a specific list was not provided, however, we believe the commenters may be suggesting the codes for USAT that were finalized October 1, 2020 (FY 2021), and listed previously in connection with the analysis discussed in the proposed rule. As discussed in the proposed rule and prior rulemaking, our goal is always to use the best available data. We noted in the proposed rule that our initial MS–DRG analysis was based on ICD–10 claims data from the September 2022 update of the FY 2022 MedPAR file, which contains hospital bills received from October 1, 2021, through September 30, 2022, and where otherwise indicated, additional analysis was based on ICD–10 claims data from the December 2022 update of the FY 2022 MedPAR file, which contains hospital bills received by CMS through December 31, 2022, for discharges occurring from October 1, 2021, through September 30, 2022. Therefore, we believe our analysis of claims data in consideration of the MS–DRG request to reassign cases reporting USAT procedures for PE is consistent with our standard process, regardless of the effective date of the coded claims data. We also do not agree with the commenters' assertion that it is a lengthy process for hospitals to adopt and accurately implement new coding. We note that procedure code proposals discussed at the September ICD–10 Coordination and Maintenance Committee meeting and subsequently finalized are typically included in Table 6B.—New Procedure Codes in association with the proposed rule that is made publicly available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS . This table (Table 6B) lists the new procedure codes that have been approved to date that will be effective with discharges on and after October 1 of the upcoming fiscal year. Therefore, information regarding the finalized codes from the September meeting is made publicly available approximately 4–5 months in advance of the implementation date, affording the ability for users of the code set to gain familiarity with the updates. In addition, there are extensive industry-sponsored educational opportunities through various professional associations that introduce and discuss the annual code updates. For example, the American Hospital Association (AHA), American Health Information Management Association (AHIMA), and the American Academy of Professional Coders (AAPC) generally take lead roles in developing detailed technical training materials for coders and other users of the ICD–10 code set. The AHA also includes updates to ICD–10 in its Coding Clinic® for ICD–10–CM/ICD–10–PCS publication. Because the codes describing USAT were finalized for implementation October 1, 2020 (FY 2021), we believe sufficient time has elapsed and that providers are successfully coding and reporting the procedure as demonstrated in our claims analysis.

It is also not clear what conflicting coding advice for utilization of the ICD–10–PCS procedure codes for CDT and USAT the commenters are referring to since the commenters did not provide examples or supplemental information for what they believed to be conflicting advice to enable further evaluation.

Comment: A few commenters expressed concern that the inclusion of both conventional CDT, also known as “standard infusion catheters,” and USAT in the proposed new MS–DRG disregards fundamental clinical differences between the procedures. According to the commenters, CDT generally relies on a multi-sidehole infusion catheter placed adjacent to the thrombus through which thrombolytics are delivered, typically over the course of 24 hours with the catheter in-dwelling, whereas USAT employs ultrasound to assist in thrombolysis, and the pulses of ultrasonic energy temporarily make the fibrin in the thrombus more porous and increase fluid flow within the thrombus. The commenters stated standard CDT is the simple infusion of liquids into the vessel and should not map to the same root operation fragmentation codes as does USAT. The commenters also stated CDT procedures are generally less complex clinically and consume significantly lower level of hospital resources as a result. The commenters recommended CMS should delay implementation, not finalize the proposed MS–DRG at this time and reconsider at a later date when utilization volumes reach a threshold of significance.

A commenter also indicated that an analysis of cost data was being submitted to CMS to demonstrate that USAT PE cases have total costs that are more than three times the cost of CDT procedures for the sickest patients.

Response: We disagree with the commenters that inclusion of both conventional CDT and USAT in the proposed new MS–DRG disregards fundamental clinical differences between the procedures. We note that while USAT procedures performed utilizing the EKOS^TM device employ ultrasound, the objective of both CDT and USAT procedures is to effectuate thrombolysis and reduce clot burden. In response to the commenters' statement that standard CDT is the simple infusion of liquids into the vessel and should not map to the same root operation fragmentation codes as does USAT, we note that under ICD–10–PCS, both USAT and CDT are reported with the root operation fragmentation, defined as breaking solid matter in a body part into pieces. The procedure may be accomplished by physical force ( e.g., manual, ultrasonic) applied directly or indirectly that is used to break the solid matter into pieces. The solid matter may be an abnormal byproduct of a biological function or a foreign body. The pieces of solid matter are not taken out. With respect to the commenters' statement that CDT procedures are generally less complex clinically and consume significantly lower level of hospital resources, we note that any procedure that places a catheter inside a blood vessel carries certain risks, including damage to the blood vessel, bruising or bleeding at the puncture site, and infection. In the treatment of a significant pulmonary embolism, both procedures (USAT and CDT) require a right heart catheterization by either an interventional cardiologist or an interventional radiologist, utilizing the same level of facility resources. In response to the commenters' recommendation that CMS should delay finalization for the proposed MS–DRG and reconsider in the future when utilization volumes reach a threshold of significance, as discussed in the proposed rule, once the decision was made to propose a new base MS–DRG, we applied the criteria to create subgroups and the criteria for both a three-way split and for a two-way split failed, however, we believe the simulated volume of 1,534 cases is sufficient for creation of the proposed new MS–DRG for these procedures.

Finally, in response to the cost data that was submitted by a commenter, we note that it was the same data analysis as reflected and discussed in the proposed rule, and therefore we refer readers to that prior discussion.

Comment: A commenter stated they agreed that fragmentation procedures with or without USAT do not belong in the requested MS–DRGs 163, 164, and 165, and suggested they remain in their current MS–DRGs 166, 167, and 168 based on clinical coherence and resource utilization.

Response: We appreciate the commenter's feedback and agree that fragmentation procedures with or without USAT do not belong in the requested MS–DRGs 163, 164, and 165. However, for reasons discussed in the proposed rule, we believe our review of these procedures and data analysis findings support the proposal to create new MS–DRG 173 for grouping cases reporting the performance of USAT or CDT with a principal diagnosis of pulmonary embolism.

Comment: A couple commenters disagreed with the proposal to create new MS–DRG 173. A commenter stated USAT procedures have been receiving appropriate payment since FY 2021 and the proposed new MS–DRG would create unnecessary administrative burden for established procedure codes that already have appropriate payment. Another commenter stated that fragmentation procedures, with or without ultrasonic assistance to break up blood clots, should stay assigned to the current MS–DRGs 166, 167, and 168 respectively. The commenter stated that the costs and resources for these procedures are consistent with current payment levels when compared to the rest of the procedures assigned to the current MS–DRGs, that the change is not needed or necessary, and that over time may result in overall reduced payment, given that such a low number of procedures would be assigned to their own MS–DRGs.

Response: We appreciate the commenters' feedback, however, based on our review of the procedures and claims data analysis as discussed in the proposed rule, we believe that USAT and CDT procedures performed for PE are clinically distinct and utilize a different pattern of resources than the other procedures in MS–DRGs 166, 167, and 168. We stated in the proposed rule that while we did not agree with the request to reassign cases reporting USAT or CDT for PE from MS–DRGs 166, 167, and 168 to MS–DRGs 163, 164, and 165, we believed the findings from our analysis warranted proposed reassignment of these cases. While we described the findings from our review of the procedures currently assigned to MS–DRGs 163, 164, and 165 to specifically address the MS–DRG request (88 FR 26689), we note that in our review of cases assigned to MS–DRGs 166, 167, and 168, we identified similar findings; the majority of procedures reported are for malignant neoplasms of the trachea, bronchus, and lung, as well as for pneumonia and respiratory failure with either an open or percutaneous endoscopic approach in contrast to the USAT endovascular (percutaneous) procedure performed on the pulmonary trunk, arteries or veins. In addition, the majority of procedures in MS–DRGs 166, 167, and 168 are performed on patients who are not clinically similar to patients who undergo USAT or CDT for PE since they describe procedures such as destruction (ablation) or excision performed for patients with conditions other than a PE, such as malignant neoplasm, pneumonia, or pulmonary fibrosis. Lastly, a number of procedures in these MS–DRGs also involve the use of a permanently implanted device while the procedures utilizing USAT or CDT do not.

As we have also stated in prior rulemaking (86 FR 44808), the “other” surgical category contains surgical procedures which, while infrequent, could still reasonably be expected to be performed for a patient in the particular MDC. We note that because MS–DRGs 166, 167, and 168 are classified as an “other” surgical category, they are not as precisely defined from a clinical perspective and contain surgical procedures that are not based on any particular organizing principle ( e.g. anatomy, surgical approach, diagnostic approach, pathology, etiology, or treatment process). However, we also note that the classification of patient cases into the MS–DRGs is a constantly evolving process, therefore, as coding, medical technologies or treatments change and more comprehensive data is collected, the MS–DRG definitions are reviewed, and revisions are proposed. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44820), we stated we believed further analysis of the procedures assigned to MS–DRGs 163, 164, 165, 166, 167, and 168 was warranted based on the creation of new procedure codes that have been assigned to these MS–DRGs in recent years for which claims data were not yet available and the need for additional time to examine the procedures currently assigned to those MS–DRGs by clinical intensity, complexity of service and resource utilization. We stated we would continue to evaluate the procedures assigned to these MS–DRGs as additional claims data became available.

We also do not agree that the proposed new MS–DRG would create an unnecessary administrative burden for the established procedure codes since providers are accustomed to proposed and finalized changes to the MS–DRG classifications each fiscal year and software vendors incorporate the finalized changes into their products. With respect to the commenter's assertion that a low volume of procedures would be assigned to their own MS–DRG based on the proposal, as previously discussed, once the decision was made to propose a new base MS–DRG, we applied the criteria to create subgroups and the criteria for both a three-way split and for a two-way split failed, however, we believe the simulated volume of 1,534 cases is sufficient for creation of the proposed new MS–DRG.

Comment: A commenter stated they could not fully understand or evaluate CMS' proposal for proposed new MS–DRG 173 or determine how the data presented in the preamble of the proposed rule related to the proposed reassignment of cases because of inconsistencies in the materials supporting the proposed rule. According to the commenter, CMS referred to one set of ICD–10–PCS codes in the proposed rule and cited a different set of ICD–10–PCS codes mapping to proposed MS–DRG 173 in the proposed ICD–10 MS–DRG V41 Definitions Manual. The commenter stated interested parties are unable to evaluate and comment on proposals complicated by such an important inconsistency.

Response: We appreciate the commenter's feedback, however, it is not clear what inconsistencies in the materials the commenter is specifically referring to since the commenter did not provide a list of codes for evaluation. Upon review of the proposed rule and the proposed ICD–10 MS–DRG V41 Definitions Manual, we did not find discrepancies.

After consideration of the public comments we received, we are finalizing our proposal to create new MS–DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism), without modification, for FY 2024. We are also finalizing our proposal to define the logic for the new MS–DRG using the previously listed diagnosis codes for PE and the previously listed procedure codes for USAT and CDT, as identified and discussed in our analysis of the claims data in association with the proposed rule. We will continue to monitor the claims data for this new MS–DRG after implementation to determine if additional refinements are warranted.

b. Respiratory Infections and Inflammations Logic

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26691), we stated that the logic for case assignment to MS–DRGs 177, 178, and 179 (Respiratory Infections and Inflammations with MCC, with CC, and without CC/MCC, respectively) as displayed in the ICD–10 MS–DRG V40.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software ) is comprised of two logic lists. The first logic list is entitled “Principal Diagnosis with Secondary Diagnosis” and is defined by a list of five ICD–10–CM diagnosis codes describing influenza due to other or unidentified influenza virus with pneumonia in combination with a separate list of ten diagnosis codes describing the specific pneumonia infection. When any one of the five listed diagnosis codes from the “Principal Diagnosis” logic list is reported as a principal diagnosis in combination with any one of the ten listed diagnosis code from the “with Secondary Diagnosis” logic list as a secondary diagnosis, the case results in assignment to MS–DRG 177, 178, or 179 depending on the presence of any additional MCC or CC secondary diagnoses. All 15 of the diagnosis codes included on the first logic list “Principal Diagnosis with Secondary Diagnosis” are designated as MCCs.

The second logic list is entitled “or Principal Diagnosis” and is defined by a list of 57 diagnosis codes describing various pulmonary infections. When any one of the 57 diagnosis codes from this list is reported as a principal diagnosis, the case results in assignment to MS–DRG 177, 178, or 179 depending on the presence of any additional MCC or CC secondary diagnoses.

We noted in the proposed rule that currently, when a diagnosis code from the second logic list “or Principal Diagnosis” is reported as the principal diagnosis and a diagnosis code from the first logic list “Principal Diagnosis with Secondary Diagnosis” is reported as a secondary diagnosis, the case is grouping to MS–DRG 177 (Respiratory Infections and Inflammations with MCC). Consistent with how other similar logic lists function in the ICD–10 Grouper software for case assignment to the “with MCC” MS–DRG, the logic for case assignment to MS–DRG 177 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.

Therefore, for FY 2024, we proposed to correct the logic for case assignment to MS–DRG 177 by excluding the 15 diagnosis codes from the first logic list “Principal Diagnosis with Secondary Diagnosis” from acting as an MCC when any one of the listed codes is reported as a secondary diagnosis with a diagnosis code from the second logic list “or Principal Diagnosis” reported as the principal diagnosis.

Comment: Several commenters expressed support for the proposal to correct the logic for case assignment to MS–DRG 177. However, some commenters stated it was not specifically clear what was changing and requested that CMS provide more transparency with examples.

A couple commenters recommended that when any one of the five influenza codes (J10.00, J10.01, J10.08, J11.00, or J11.08) from the first logic list entitled “Principal Diagnosis” in MS–DRGs 177, 178, and 179 is reported as a secondary diagnosis with a principal diagnosis from the second logic list (“or Principal Diagnosis”), that the influenza diagnosis code continue to be allowed to act as an MCC for assignment to MS–DRG 177. According to the commenters, influenza is not inherently related to the principal diagnoses on the second logic list, and, in combination, they have the potential to be more complicated and resource intensive to treat than any of the diagnoses occurring alone. The commenters supported excluding the 10 secondary diagnoses from the first logic list entitled “with Secondary Diagnosis” from acting as an MCC when any one of the codes is reported as a secondary diagnosis with a principal diagnosis code from the second logic list.

Response: We thank the commenters for their support. In response to the commenters who requested additional clarification for the proposed changes, we are providing the following case example to demonstrate the intent of the proposed logic changes with application of the V41 ICD–10 MS–DRG test GROUPER that was made publicly available in association with the proposed rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software .

Case Example: A patient who is admitted with COVID–19 develops influenza due to an unidentified flu virus along with an unspecified type of pneumonia. The principal diagnosis in this case is reported as the COVID–19 (diagnosis code U07.1) and the secondary diagnosis in this case is reported as influenza due to an unidentified flu virus with unspecified type of pneumonia (diagnosis code J11.00). The diagnosis code for COVID–19 (U07.1) is listed as one of the 58 diagnoses in the second logic list entitled “or Principal Diagnosis” and the diagnosis code for influenza due to an unidentified flu virus with unspecified type of pneumonia (J11.00) is listed as one of the five diagnoses in the first logic list entitled “Principal Diagnosis”. When these diagnoses are entered in the V41 ICD–10 MS–DRG test GROUPER, the resulting MS–DRG is 177 (Respiratory infections and inflammations with MCC).

Principal Diagnosis: U07.1 COVID–19 (DRG)

Secondary Diagnoses: J11.00 Flu due to unidentified flu virus w unsp type of pneumonia (MCC)

Additionally, when any one of the other four influenza diagnosis codes (J10.00, J10.01, J10.08, or J11.08) in that first logic list is reported as a secondary diagnosis with a principal diagnosis of U07.1, the resulting MS–DRG is also MS–DRG 177. Therefore, we agree with the commenters that the five influenza codes (J10.00, J10.01, J10.08, J11.00, or J11.08) should continue to be allowed to act as a MCC with a principal diagnosis from the second logic list in specific clinical scenarios.

The following tables illustrate additional examples when the reporting of any one of the five influenza codes (J10.00, J10.01, J10.08, J11.00, or J11.08) from the first logic list entitled “Principal Diagnosis” in MS–DRGs 177, 178, and 179 continues to act as an MCC when reported as a secondary diagnosis with certain principal diagnoses from the second logic list (“or Principal Diagnosis”) and to illustrate when any one of the five influenza diagnosis codes is excluded from acting as an MCC when reported as a secondary diagnosis with certain principal diagnoses from the second logic list.

We note that in the preamble of the proposed rule we stated that we were proposing to exclude the 15 diagnosis codes from the first logic list “Principal Diagnosis with Secondary Diagnosis” from acting as an MCC when any one of the listed codes is reported as a secondary diagnosis with a diagnosis code from the second logic list “or Principal Diagnosis” reported as the principal diagnosis, however, the proposal was intended to exclude the 11 secondary diagnoses from the first logic list entitled “with Secondary Diagnosis” when one of the codes is reported as a secondary diagnosis with a principal diagnosis code from the second logic list, (as reflected in the case example when a diagnosis from each logic list is entered in the V41 ICD–10 MS–DRG test GROUPER).

After consideration of the public comments we received, we are finalizing our proposal to correct the logic for case assignment to MS–DRG 177, with modification, for FY 2024. We are finalizing the exclusion of the following 11 diagnosis codes listed in the first logic list entitled “with Secondary Diagnosis” from acting as an MCC when any one of the listed codes is reported as a secondary diagnosis with a diagnosis code from the second logic list entitled “or Principal Diagnosis” when reported as the principal diagnosis.

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

a. Surgical Ablation

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44836 through 44848), we discussed a two-part request we received to review the MS–DRG assignments for cases involving the surgical ablation procedure for atrial fibrillation. The first part of the request was to create a new classification of surgical ablation MS–DRGs to better accommodate the costs of open concomitant surgical ablations. The second part of the request was to reassign cases describing standalone percutaneous endoscopic surgical ablation. In the part of the request relating to the costs of open concomitant surgical ablations, the requestor identified the following potential procedure combinations that would comprise an “open concomitant surgical ablation” procedure.

• Open CABG + open surgical ablation
• Open MVR + open surgical ablation
• Open AVR + open surgical ablation
• Open MVR + open AVR + open surgical ablation
• Open MVR + open CABG + open surgical ablation
• Open MVR + open AVR + open CABG + open surgical ablation
• Open AVR + open CABG + open surgical ablation

As discussed in the FY 2022 IPPS/LTCH PPS final rule, we examined claims data from the March 2020 update of the FY 2019 MedPAR file and the September 2020 update of the FY 2020 MedPAR file for cases reporting procedure code combinations describing open concomitant surgical ablations. We refer the reader to Table 6P.1o associated with the FY 2022 final rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for data analysis findings of cases reporting procedure code combinations describing open concomitant surgical ablations. We stated our analysis showed while the average lengths of stay and average costs of cases reporting procedure code combinations describing open concomitant surgical ablations are higher than all cases in their respective MS–DRG, we found variation in the volume, length of stay, and average costs of the cases. We also stated findings from our analysis indicated that 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) as well as approximately 31 other MS–DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021.

In the FY 2022 final rule, we finalized our proposal to revise the surgical hierarchy for the MS–DRGs in MDC 05 (Diseases and Disorders of the Circulatory System) to sequence MS–DRGs 231–236 (Coronary Bypass, with or without PTCA, with or without Cardiac Catheterization or Open Ablation, with and without MCC, respectively) above MS–DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively), effective October 1, 2021. In addition, we also finalized the assignment of cases with a procedure code describing coronary bypass and a procedure code describing open ablation to MS–DRGs 233 and 234 and changed the titles of these MS–DRGs to “Coronary Bypass with Cardiac Catheterization or Open Ablation with and without MCC, respectively” to reflect this reassignment for FY 2022.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48845 through 48849), we discussed a request we received to again review the MS–DRG assignment of cases involving open concomitant surgical ablation procedures. The requestor stated they continue to believe that the average hospital costs for surgical ablation for atrial fibrillation demonstrates a cost disparity compared to all procedures within their respective MS–DRGs. The requestor suggested that when open surgical ablation is performed with MVR, or AVR or MVR/AVR + CABG that these procedures are either (1) assigned to a different family of MS–DRGs or (2) assigned to MS–DRGs 216 and 217 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC and with CC, respectively) similar to what CMS did with CABG and open ablation procedures in the FY 2022 rulemaking to better accommodate the added cost of open concomitant surgical ablation.

We stated our analysis using the September 2021 update of the FY 2021 MedPAR file reflected that the cases reporting an open concomitant surgical ablation code combination are predominately found in the higher (CC or MCC) severity level MS–DRGs of their current base MS–DRG assignment, suggesting that the patient's co-morbid conditions may also be contributing to the higher costs of these cases. Secondly, for the numerous procedure combinations that would comprise an “open concomitant surgical ablation” procedure, the increase in average costs appeared to directly correlate with the number of procedures performed. For example, cases that describe “Open MVR + Open surgical ablation” generally demonstrated costs that were lower than cases that describe “Open MVR + Open AVR + Open CABG + Open surgical ablation.” We also noted using the September 2021 update of the FY 2021 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would affect the MS–DRG structure beginning in FY 2022. Similar to our findings discussed in the FY 2022 IPPS/LTCH final rule, findings from our analysis using the September 2021 update of the FY 2021 MedPAR file indicated that MS–DRGs 216, 217, 218 as well as approximately 40 other MS–DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021.

Therefore, we stated we believe that additional time was needed to allow for further analysis of the claims data to determine to what extent the patient's co-morbid conditions are also contributing to higher costs and to identify other contributing factors that might exist with respect to the increased length of stay and costs of these cases in these MS–DRGs. For the reasons summarized, and after consideration of the public comments we received, we did not make any MS–DRG changes for cases involving the open concomitant surgical ablation procedures for FY 2023.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26691 through 26695), we again received a request to review the MS–DRG assignment of cases involving open concomitant surgical ablation procedures. The requestor recommended that CMS reassign open concomitant surgical ablation procedures for atrial fibrillation (AF) from 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) to MS–DRGs 216, 217, and 218. The requestor further recommended that if CMS does not reassign cases involving open concomitant surgical ablation procedures to MS–DRGs 216, 217, and 218, in the alternative, CMS should create new MS–DRGs for all open mitral or aortic valve repair or replacement procedures with concomitant surgical ablation for AF to improve clinical coherence when three to four open heart procedures are performed in one setting.

The requestor suggested that the following three MS–DRGs be created to reflect current standard of care for these patients:

• Suggested New MS–DRG XXX—2 procedures;
• Suggested New MS–DRG XXX—3 procedures; and
• Suggested New MS–DRG XXX—4+ procedures.

The requestor stated that cases reporting open surgical ablation procedures for AF performed during open valve repair/replacement procedures are typically assigned to MS–DRGs 216, 217, 218, 219, 220, and 221, with the majority of the cases being assigned to MS–DRGs 219, 220 and 221 because of the surgical hierarchy in MDC 05 and because there is less of a need for cardiac catheterization in these cases. We stated in the proposed rule that the requestor performed its own data analysis, and stated their analysis showed that the data continues to demonstrate that claims with open surgical ablation procedures for AF are not clinically similar to the remaining cases in MS–DRGs 219, 220, and 221, and there are significant differences in resource utilization that reflect those clinical differences.

To explore mechanisms to address this request, we stated in the proposed rule we began our analysis by examining claims data from the September 2022 update of the FY 2022 MedPAR file for cases reporting procedure code combinations describing open concomitant surgical ablations assigned to MS–DRGs 216, 217, 218, 219, 220, and 221. We referred readers to Tables 6P.3a and 6P.3b associated with the proposed rule (which are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the data analysis of cases reporting procedure code combinations describing open concomitant surgical ablations in the September 2022 update of the FY 2022 MedPAR file. Table 6P.3a associated with the proposed rule sets forth the list of ICD–10–PCS procedure codes reflecting mitral valve repair or replacement (MVR), aortic valve repair or replacement (AVR), coronary artery bypass grafting (CABG) and surgical ablation procedures that we examined in this analysis. Table 6P.3b associated with the proposed rule shows the data analysis findings of cases reporting procedure code combinations describing open concomitant surgical ablations assigned to MS–DRGs 216, 217, 218, 219, 220, and 221 from the September 2022 update of the FY 2022 MedPAR file.

As shown in Table 6P.3b associated with the proposed rule, while the average lengths of stay and average costs of cases reporting procedure code combinations describing open concomitant surgical ablations are higher than all cases in their respective MS–DRG, we found there is variation in the volume, length of stay, and average costs of the cases. For MS–DRG 216, we found 439 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 16.7 days to 20.3 days and average costs ranging from $78,586 to $111,439 for these cases. For MS–DRG 217, we found 92 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 8.5 days to 14 days and average costs ranging from $43,221 to $98,001 for these cases. For MS–DRG 218, we found 2 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay of 6.5 days and average cost of $38,519 for these cases. For MS–DRG 219, we found 1,136 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 9.5 days to 13.6 days and average costs ranging from $60,495 to $94,572 for these cases. For MS–DRG 220, we found 770 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 6.7 days to 9.6 days and average costs ranging from $49,900 to $84,293 for these cases. For MS–DRG 221, we found 38 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 4.5 days to 5.8 days and average costs ranging from $30,725 to $59,024 for these cases.

We stated in the proposed rule that similar to our analysis of the data as discussed in the FY 2023 IPPS/LTCH PPS final rule, this data analysis also shows for the numerous procedure combinations that would comprise an “open concomitant surgical ablation” procedure, the increase in average costs appears to directly correlate with the number of procedures performed. We stated the data analysis reflects that cases that describe “Open MVR + Open AVR” in addition to other concomitant procedures generally demonstrate higher average costs in their respective MS–DRGs. In MS–DRG 216, we identified a total of 439 cases reporting procedure code combinations describing open concomitant surgical ablations with an average length of stay of 17.7 days and average costs of $89,877. Of those 439 cases, there were 40 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $106,301 and an average length of stay of 17.9 days. In MS–DRG 217, we identified a total of 92 cases reporting procedure code combinations describing open concomitant surgical ablations with an average length of stay of 10 days and average costs of $60,975. Of those 92 cases, there were 9 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/ replacement procedure, and another concomitant procedure with average costs of $82,514 and an average length of stay of 12.5 days. In MS–DRG 219, we identified a total of 1,136 cases reporting procedure code combinations describing open concomitant surgical ablations with an average length of stay of 11.2 days and average costs of $70,693. Of those 1,136 cases, there were 102 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $85,537 and an average length of stay of 12.8 days. In MS–DRG 220, we identified a total of 770 cases reporting procedure code combinations describing open concomitant surgical ablations with an average length of stay of 7.3 days and average costs of $52,456. Of those 770 cases, there were 48 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $67,344 and an average length of stay of 8.4 days. For MS–DRG 218 and MS–DRG 221, we did not identify any cases reporting procedure code combinations describing open concomitant surgical ablations with an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure.

In examining this request, we noted in the proposed rule that the requestor suggested that CMS reassign open concomitant surgical ablation procedures for atrial fibrillation (AF) from 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) to MS–DRGs 216, 217 and 218 for FY 2024, however, as discussed in the FY 2023 IPPS/LTCH PPS final rule, MS–DRGs 216, 217 and 218 are defined by the performance of cardiac catheterization. We stated we continue to be concerned about the effect on clinical coherence of assigning cases reporting procedure code combinations describing open concomitant surgical ablations that do not also have a cardiac catheterization procedure reported to MS–DRGs that are defined by the performance of that procedure. We also noted, as discussed in section II.C.1.b of the proposed rule, using the December 2022 update of the FY 2022 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would affect the MS–DRG structure beginning in FY 2024. Similar to our findings discussed in the FY 2022 and FY 2023 IPPS/LTCH PPS final rules, findings from our analysis indicate that MS–DRGs 216, 217, 218 as well as approximately 44 other base MS–DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. Specifically, we noted that the total number of cases in MS–DRG 218 is again below 500. We refer the reader to Table 6P.10b associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the list of the 135 MS–DRGs that would potentially be subject to deletion and the list of the 86 new MS–DRGs that would potentially be created under this policy if the NonCC subgroup criteria was applied.

As discussed in the proposed rule, to further analyze the claims data to determine to what extent the performance of multiple procedures is contributing to higher costs and to identify other contributing factors that might exist with respect to the increased length of stay and costs of these cases in these MS–DRGs, we analyzed the cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation assigned to MS–DRGs 216, 217, 218, 219, 220, and 221. We refer readers to Tables 6P.3c associated with the proposed rule (which are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the data analysis of cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation assigned to MS–DRGs 216, 217, 218, 219, 220, and 221 from the September 2022 update of the FY 2022 MedPAR file.

We stated that the data analysis as shown in Table 6P.3c associated with the proposed rule, similarly, reflects that cases that report “Open MVR + Open AVR” in addition to other concomitant procedures generally demonstrate higher average costs in their respective MS–DRGs, even in instances where an open surgical ablation was not reported. In MS–DRG 216, we identified a total of 2,759 cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation with an average length of stay of 17.5 days and average costs of $89,334. Of those 2,759 cases, there were 240 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $116,611 and an average length of stay of 22.7 days. In MS–DRG 217, we identified a total of 852 cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation with an average length of stay of 10.7 days and average costs of $56,208. Of those 852 cases, there were 31 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $70,831 and an average length of stay of 12.6 days. In MS–DRG 218, we identified a total of 64 cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation with an average length of stay of 6.5 days and average costs of $39,924, none of which reported an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure. In MS–DRG 219, we identified a total of 7,604 cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation with an average length of stay of 11.1 days and average costs of $66,412. Of those 7,604 cases, there were 579 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $85,890 and an average length of stay of 13.7 days. In MS–DRG 220, we identified a total of 6,430 cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation with an average length of stay of 6.5 days and average costs of $45,472. Of those 6,430 cases, there were 260 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $63,761 and an average length of stay of 7.8 days. In MS–DRG 221, we identified a total of 666 cases reporting a concomitant procedure code combination without reporting a procedure code describing open surgical ablation with an average length of stay of 5.0 days and average costs of $39,777. Of those 666 cases, there were 9 cases reporting an aortic valve repair/replacement procedure, a mitral valve repair/replacement procedure, and another concomitant procedure with average costs of $38,156 and an average length of stay of 5.6 days.

We noted in the proposed rule that analysis of the claims data suggested that it is the performance of an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure plus another concomitant procedure that is associated with increased hospital resource utilization, not solely the performance of open surgical ablation as suggested by the requestor, when compared to other cases in their respective MS–DRGs. We stated we reviewed these data and noted, clinically, the management of mixed valve disease is challenging because patients with mixed valve disease are often frail, elderly, and present with multiple comorbidities. The combination of conditions in mixed valve disease, such as aortic stenosis and mitral stenosis, can result in a greater reduction of cardiac output than in isolated valvular stenosis. Patients requiring an aortic valve procedure and a mitral valve procedure in the same operative session are more complex cases and can be at significant risk for adverse events if there is moderate or severe disease of one or more cardiac valves. In the proposed rule, we stated that the data analysis clearly showed that cases reporting aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure and another concomitant procedure have higher average costs and generally longer lengths of stay compared to all the cases in their assigned MS–DRG. For these reasons, we proposed to create a new MS–DRG for cases reporting an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure.

As discussed in the proposed rule, to compare and analyze the impact of our suggested modifications, we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 892 cases reporting procedure codes describing an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure. We stated we believed that 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 the FY 2024 IPPS/LTCH PPS proposed rule. As shown in the table that follows, a three-way split of the proposed new MS–DRG failed to meet the criterion that there be at least 500 or more cases in each subgroup.

We then applied the criteria for a two-way split for the “with CC/MCC” and “without CC/MCC” subgroups and again found that the criterion that there be at least 500 or more cases in each subgroup could also 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 following table illustrates our findings.

Therefore, for FY 2024, we did not propose to subdivide the proposed new MS–DRG for cases reporting procedure codes describing an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure into severity levels.

In summary, for FY 2024, taking into consideration that it clinically requires greater resources to perform an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure, we proposed to create a new base MS–DRG for cases reporting an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure in MDC 05. The proposed new MS–DRG is proposed new MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures). We referred the reader to Table 6P.4a associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index for the list of procedure codes we proposed to define in the logic for the proposed new MS–DRG. We refer the reader to section II.C.15. of the preamble of this final rule for the discussion of the surgical hierarchy and the complete list of our proposed modifications to the surgical hierarchy as well as our finalization of those proposals.

Comment: Commenters expressed support for the proposal to create new base MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures) for cases reporting an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure in MDC 05. Many commenters stated finalization of this proposal would provide the resources necessary to continue offering these concomitant procedures to Medicare patients with extremely serious, complicated heart conditions, which avoids a future additional surgery down the line. Other commenters stated they agreed with CMS that this proposal would result in more clinically homogenous assignments that better reflect hospital resources. A commenter stated they thank CMS for recognizing the importance of adequate payment for multiple concomitant open valvular procedures. Another commenter stated that without an MS–DRG reflecting the additional costs of performing concomitant procedures, hospitals will continue to be incentivized for multiple admissions for separate cardiac procedures in order to cover the cost of care.

Response: We appreciate the commenters' support.

Comment: Many commenters stated that the proposal to create MS–DRG 212 is a good first step, but urged CMS go a step further and also assign cases reporting a single AVR or MVR procedure and another concomitant procedure in MDC 05 to the proposed new MS–DRG. Commenters stated that this modification to the proposal would better align with the clinical literature and the clinical needs of Medicare beneficiaries by allowing patients to receive lifesaving therapies in one visit, while not incentivizing hospitals to send patients with AF home to return for future procedures. Some commenters stated, based on their analysis, more patients require an open concomitant single AVR or MVR procedure than multiple open valvular procedures with open surgical ablation. These commenters stated that new MS–DRG 212 would only apply to roughly 10 percent of Medicare beneficiaries, while excluding the majority of Medicare beneficiaries who require open heart valve procedures in combination with open surgical ablation treatment for AF. A commenter stated that AF is a complex arrythmia that is present in more than 40 percent of patients undergoing open single or multiple valve procedures and stated that these patients have a two to three times greater risk for hospitalizations and multiple admissions if their AF goes untreated. Commenters stated that treating atrial fibrillation during the same surgical session as a single open valve procedure requires significant device costs, additional operating room time, and specialized staff. Some commenters expressed concern that given the added costs of performing multiple procedures at the same time, hospitals may more likely schedule the patient for separate procedures even though guidelines of the Society for Thoracic Surgeons and the Heart Rhythm Society recommend performing surgical ablation for atrial fibrillation at the time of open-heart procedures when indicated. These commenters further stated a delay in addressing the biggest patient segment with single open valve replacement (MVR or AVR) and other concomitant procedures risks limiting lifesaving access to therapies for CMS beneficiaries. Many commenters stated the proposal would be even more impactful for patients if cases reporting single open valve procedures were included.

Some commenters urged CMS to either (1) assign all cases reporting a single AVR or MVR procedure and another concomitant procedure for the treatment of atrial fibrillation to new proposed MS–DRG 212, (2) create a new MS–DRG for cases reporting a single AVR or MVR procedure for the treatment of atrial fibrillation, or (3) assign cases reporting a single AVR or MVR procedure and a concomitant surgical ablation procedure for the treatment of atrial fibrillation to 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) and change the title of the MS–DRGs, while maintaining the relative weight, and then monitor the claims data for two years.

However, other commenters were not supportive of assigning cases reporting a single AVR or MVR procedure and another concomitant procedure to the proposed new MS–DRG 212. These commenters noted that the focus and clinical rationale for CMS' proposal was based on the complex, multiple valve procedures. Commenters stated that assigning cases reporting a single AVR or MVR procedure and another concomitant procedure to new MS–DRG 212 would have a significant negative impact on the remaining MS–DRGs, notably MS–DRG 216. The commenters recommended that CMS continue to carefully review the impacts on the relative weights in these MS–DRGs if CMS finalizes the proposal to move approximately 900 cases out of MS–DRGs 216, 217, 218, 219, 220, and 221. Another commenter requested that CMS delay implementation of proposed new MS–DRG 212 for a year to allow interested parties to fully assess the impact of the proposed changes to MS–DRGs 216, 217, 218, 219, 220, and 221 and to analyze other options to address payment adequacy more broadly across concomitant procedures, particularly given that findings from CMS' analysis indicate that MS–DRGs 216, 217, and 218 as well as approximately 44 other base MS–DRGs would be subject to change based on the NonCC subgroup criteria finalized in FY 2021. This commenter further stated given the relatively small number of cases impacted by the newly proposed MS–DRG 212, additional time would give CMS an opportunity to work with interested parties to consider other concomitant procedures that have similar clinical and cost coherence as the procedures currently proposed for MS–DRG 212, such as concomitant procedures involving the tricuspid and pulmonary valves.

Response: We appreciate the commenters sharing their concerns and feedback on this proposal. To examine the recommendation that CMS expand MS–DRG 212 to allow cases reporting a single aortic valve repair or replacement procedure or a mitral valve repair or replacement procedure with an open concomitant surgical ablation to be grouped into the proposed new MS–DRG, we further analyzed the September 2022 update of the FY 2022 MedPAR file for cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure assigned to MS–DRGs 216, 217, 218, 219, 220 and 221. We also analyzed the September 2022 update of the FY 2022 MedPAR file for cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure and a diagnosis of AF. We identified cases reporting AF as a principal or secondary diagnosis with the following ICD–10–CM codes.

As shown in the table, in MS–DRG 216, we identified a total of 2,590 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with an average length of stay of 17.1 days and average costs of $87,374. Of those 2,590 cases, there were 1,511 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure, with a diagnosis of AF with average costs of $85,840 and an average length of stay of 17 days. The data analysis performed indicates that the 1,511 cases in MS–DRG 216 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with a diagnosis of AF have an average length of stay that is longer than the average length of stay for all the cases in MS–DRG 216 (17.1 days versus 14.9 days) and slightly higher average costs when compared to all the cases in MS–DRG 216 ($85,840 versus $84,327).

In MS–DRG 217, we identified a total of 808 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with an average length of stay of 9.4 days and average costs of $55,593. Of those 808 cases, there were 462 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure, with a diagnosis of AF with average costs of $56,104 and an average length of stay of 9.8 days. The data analysis performed indicates that the 462 cases in MS–DRG 217 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with a diagnosis of AF have an average length of stay that is longer than the average length of stay for all the cases in MS–DRG 217 (9.8 days versus 7.3 days) and similar average costs when compared to all the cases in MS–DRG 217 ($56,104 versus $56,143).

In MS–DRG 218, we identified a total of 62 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with an average length of stay of 6.6 days and average costs of $38,013. Of those 62 cases, there were 18 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure, with a diagnosis of AF with average costs of $37,053 and an average length of stay of 6.2 days. The data analysis performed indicates that the 18 cases in MS–DRG 218 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with a diagnosis of AF have an average length of stay that is longer than the average length of stay for all the cases in MS–DRG 218 (6.2 days versus 3.1 days) and lower average costs when compared to all the cases in MS–DRG 218 ($37,053 versus $50,208).

In MS–DRG 219, we identified a total of 7,400 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with an average length of stay of 10.9 days and average costs of $65,489. Of those 7,400 cases, there were 4,485 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure, with a diagnosis of AF with average costs of $66,912 and an average length of stay of 11.1 days. The data analysis performed indicates that the 4,485 cases in MS–DRG 219 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with a diagnosis of AF have an average length of stay that is slightly longer than the average length of stay for all the cases in MS–DRG 219 (11.1 days versus 10.8 days) and slightly higher average costs when compared to all the cases in MS–DRG 219 ($66,912 versus $65,911).

In MS–DRG 220, we identified a total of 6,496 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with an average length of stay of 6.5 days and average costs of $45,455. Of those 6,496 cases, there were 3,645 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure, with a diagnosis of AF with average costs of $47,560 and an average length of stay of 7 days. The data analysis performed indicates that the 3,645 cases in MS–DRG 220 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with a diagnosis of AF have an average length of stay that is slightly longer than the average length of stay for all the cases in MS–DRG 220 (7 days versus 6.4 days) and slightly higher average costs when compared to all the cases in MS–DRG 220 ($47,560 versus $45,839).

In MS–DRG 221, we identified a total of 650 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with an average length of stay of 5 days and average costs of $39,688. Of those 650 cases, there were 239 cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure, with a diagnosis of AF with average costs of $41,903 and an average length of stay of 5.6 days. The data analysis performed indicates that the 239 cases in MS–DRG 221 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure with a diagnosis of AF have an average length of stay that is longer than the average length of stay for all the cases in MS–DRG 221 (5.6 days versus 4 days) and slightly higher average costs when compared to all the cases in MS–DRG 221 ($41,903 versus $40,694).

The data analysis performed also indicates that the cases in MS–DRGs 219, 220, and 221 reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure have a similar average length of stay and generally lower average costs when compared to all cases in MS–DRGs 216, 217, and 218. As discussed in the proposed rule, to compare and analyze the impact of our suggested modifications, we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. We stated we found 892 cases reporting procedure codes describing an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure with an average length of stay of 15.7 days and average costs of $93,764. Our additional analysis performed in response to public comments also indicates that the cases reporting procedure code combinations describing a single AVR or MVR procedure and a concomitant procedure have a much shorter average length of stay and much lower average costs when compared to these 892 cases.

Upon analysis of the claims data using our current analytical framework, review of the original request, and review of the public comments, while we agree that there are more cases reporting a single AVR or MVR procedure and another concomitant procedure than cases reporting concomitant aortic and mitral valve procedures, we do not agree with assigning cases reporting a single AVR or MVR procedure and another concomitant procedure for the treatment of atrial fibrillation to new proposed MS–DRG 212. As previously noted, the data do not indicate cases reporting a single AVR or MVR procedure and another concomitant procedure (with or without a diagnosis of AF) utilize similar resources when compared to the cases proposed to be assigned to new MS–DRG 212. The cases are not clinically coherent with regard to resource utilization as reflected in the differences in average costs. Further, the data do not support creating a new MS–DRG for cases reporting a single AVR or MVR procedure for the treatment of atrial fibrillation and instead suggest that cases reporting a single AVR or MVR procedure for the treatment of atrial fibrillation are suitably grouped to MS–DRGs 216, 217, 218, 219, 220, and 221 where they are currently assigned based on the similarities in resource utilization compared to all the cases in their respective MS–DRG.

In response to comments that urged CMS to assign cases reporting procedure code combinations describing open concomitant surgical ablations currently assigned to MS–DRGs 216, 217, 218, 219, 220, and 221 to MS–DRGs 216, 217, and 218, as noted in prior rulemaking, MS–DRGs 216, 217, and 218 are defined by the performance of cardiac catheterization. We continue to express concern about the effect on clinical coherence of assigning cases reporting procedure code combinations describing open concomitant surgical ablations that do not also have a cardiac catheterization procedure reported to MS–DRGs that are defined by the performance of that procedure.

In response to the suggestion that CMS delay implementation of proposed new MS–DRG 212 for a year to allow interested parties to fully assess the impact of the proposed changes to MS–DRGs 216, 217, 218, 219, 220, and 221 and to analyze other options to address payment adequacy more broadly across concomitant procedures, we reviewed the commenters' concern and do not agree that a delay would be prudent. We believe that the data we currently have available is sufficient to create a new MS–DRG for cases reporting an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure. As discussed in the proposed rule, and earlier in this section, the data demonstrate that cases reporting aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure and another concomitant procedure have higher average costs and generally longer lengths of stay compared to all the cases in their assigned MS–DRG.

We appreciate the public comments we received and will continue to monitor for impacts in MDC 05 and across the MS–DRGs to avoid unintended consequences or missed opportunities in most appropriately capturing the resource utilization and clinical coherence for this subset of procedures.

Comment: Some commenters stated the title of proposed new MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures) is not clear. These commenters stated it was not clear if the logic intent is for cases reporting both a mitral and aortic valve procedure with a concomitant procedure to be assigned to new MS–DRG 212 or if the logic intent is to have cases reporting a mitral valve or an aortic valve procedure with a concomitant procedure to be assigned to new MS–DRG 212. A few commenters suggested that consideration be given to revising the title of the proposed new MS–DRG as it is not intuitive that the list of concomitant procedures in the GROUPER logic list for MS–DRG 212 includes both surgical ablation and CABG procedures. Another commenter stated that the display in the draft Definition Manual, Version 41, for MS–DRG 212 is unclear and observed there are no instructional notes included in the draft Definition Manual to explain the intent of the various lists of procedures.

Response: We appreciate the commenters' feedback. As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26691 through 26695), analysis of the claims data suggests that it is the performance of an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure plus another concomitant procedure that is associated with increased hospital resource utilization (88 FR 26694). For these reasons, we proposed to create a new MS–DRG for cases reporting an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure, and another concomitant procedure.

In response to commenters who stated that it was not clear if the logic intent is for cases reporting both a mitral and aortic valve procedure with a concomitant procedure to be assigned to new MS–DRG 212 or if the logic intent is to have cases reporting a mitral valve or an aortic valve procedure with a concomitant procedure to be assigned to new MS–DRG 212, we wish to clarify cases reporting: (1) an aortic valve repair or replacement procedure; (2) a mitral valve repair or replacement procedure; and (3) at least one other concomitant procedure, as defined in the GROUPER logic, would be assigned to proposed new MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures).

In response to the suggestion that the title of MS–DRG 212 be revised, we reviewed the commenters' concerns and do not believe a modification is warranted. As our analysis of the claims data suggests that it is the performance of an aortic valve repair or replacement procedure, a mitral valve repair or replacement procedure plus another concomitant procedure that is associated with increased hospital resource utilization, we believe the proposed title of the new MS–DRG appropriately characterizes these findings.

In reviewing the comment regarding the draft version of the ICD–10 MS–DRG Definitions Manual, Version 41, (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software ), that was provided so the public can better analyze and understand the impact of the proposals included in the FY 2024 IPPS/LTCH PPS proposed rule, we agree refinements to the display would be helpful to clarify the GROUPER logic for MS–DRG 212. In the final ICD–10 MS–DRG Definitions Manual, Version 41, we will refine the display by adding headers above each of the respective logic lists as follows:

• Select ONE procedure from aortic valve procedures
• Select ONE procedure from mitral valve procedures
• Select at least ONE procedure from concomitant procedures

Comment: Some commenters noted that the list of procedure codes we proposed to define aortic valve procedures and mitral valve procedures in the logic for the proposed new MS–DRG is limited to the root operations “Repair” and “Replacement,” however there are other valve procedures listed under the “Concomitant Procedure” logic list. These commenters suggested that CMS consider moving the aortic and mitral valve procedure codes with the root operations of “Creation”, “Release”, “Restriction”, and “Supplement,” that are currently listed under the Concomitant Procedures list in Table 6P.4a and in the draft version of the ICD–10 MS–DRG Definitions Manual to the appropriate logic list of aortic valve or mitral valve procedures. The commenters stated that procedure codes with these other root operations also represent types of valvular repairs and should be included on the aortic valve procedures and mitral valve procedures logic lists rather than the “Concomitant Procedure” logic list. A commenter stated that this change would ensure that all of the aortic valve and mitral valve procedures codes are captured as valve procedures instead of concomitant procedures when performed.

Response: We appreciate the feedback and will take these suggestions under consideration. We note that the requestor originally requested that CMS review the MS–DRG assignments for cases involving open surgical ablation performed during another open heart surgical procedure such as mitral valve repair or replacement (MVR), aortic valve repair or replacement (AVR), or coronary artery bypass grafting (CABG). Table 6P.3a associated with the proposed rule sets forth the list of ICD–10–PCS procedure codes reflecting MVR, AVR, CABG, and surgical ablation procedures that we examined in our analysis. We agree with the commenters that there are other valve procedures listed under the “Concomitant Procedure” logic list in Table 6P.3a, however, each of these procedures are defined by clinically distinct definitions and objectives, which is why there are separate and unique ICD–10–PCS procedure codes within the classification for reporting purposes. Additional claims analysis is needed to determine if the technical complexity and resource utilization of all, or a subset, of the aortic and mitral valve procedure codes with the root operations of “Creation”, “Release”, “Restriction”, and “Supplement” in the “Concomitant Procedures” logic list warrant any modifications to the GROUPER logic of proposed new MS–DRGs 212. We believe there may be an opportunity to further refine this MS–DRG as we continue to monitor the claims data and perform additional analysis. We note that we would address any proposed modifications to the logic in future rulemaking.

Comment: Commenters stated they appreciated CMS' willingness to examine how the performance of multiple procedures during the same operative session contributes to higher hospital costs and patient length of stay. Commenters encouraged CMS to continue to consider options in the MS–DRGs for concomitant procedures with higher hospital resource utilization, given the important patient care benefits and efficiencies associated with performing certain procedures concomitantly in a single encounter rather than staging separate procedures. A commenter stated they recognize that clinical services across many medical specialties may be performed concomitantly to optimize patient outcomes and noted, for example, studies indicate when left atrial appendage closure (LAAC) is performed concomitantly with ablation, the outcomes are at least as comparable as for patients who have undergone these procedures separately. This commenter suggested that CMS conduct comprehensive analysis of all concomitant procedures, similar to the analysis of concomitant aortic and mitral valve procedures, to inform whether CMS should establish a more holistic policy to provide adequate payment for clinical practices that lead to better efficiency and patient outcomes. Another commenter recommended that CMS devise a broader, more inclusive, supplemental mechanism to facilitate incremental payment when two major procedures are performed during the same hospital admission and urged CMS to ensure that the incurred costs are adequately addressed so as to not disincentivize concomitant procedures which can be more cost efficient, more convenient, and provide a better prognosis for the patient than the procedures being performed during different hospital stays.

Response: We appreciate the commenters' support. We also thank the commenters for their recommendations to conduct comprehensive analysis of all concomitant procedures as we agree that the performance of “concomitant procedures” may affect the consumption of resources in other clinical scenarios, especially when the use of devices is involved. We continue to be interested in receiving feedback on possible mechanisms through which we can address concomitant procedures. We are also interested in receiving feedback on how CMS can mitigate any unintended negative payment impacts to providers providing concomitant procedures. Commenters can continue to submit their recommendations via the Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

Comment: While supporting the proposal, a commenter suggested that proposed new MS–DRG 212 be split into two severity levels (with and without MCC). The commenter stated they believe it is mathematically impossible for the proposed new MS–DRG to ever be more than a base MS–DRG, however in their opinion, a base MS–DRG does not take into account the variation in the average costs between cases reporting a secondary diagnosis designated as a MCC compared to cases reporting a secondary diagnosis designated as a CC.

Response: We thank the commenter for their feedback. In response to the suggestion that proposed new MS–DRG 212 for cases describing concomitant aortic and mitral valve procedures be subdivided with a two-way severity level split, we note as discussed in the proposed rule and earlier in this section, in the analysis of the cases describing concomitant aortic and mitral valve procedures, we 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 could not be met and therefore did not propose to subdivide the proposed new MS–DRG for concomitant aortic and mitral valve procedures into severity levels for FY 2024. In response to the concern about variation of costs between cases reporting a secondary diagnosis designated as a MCC compared to cases reporting a secondary diagnosis designated as a CC in a base MS–DRG, we note the MS–DRG system is a system of averages, and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to create a new MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures) in MDC 05, without modification, effective October 1, 2023, for FY 2024. We are also finalizing the list of procedure codes to define the logic for the new MS–DRGs as displayed in Table 6P.4a associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index ).

b. External Heart Assist Device

Impella® Ventricular Support Systems are temporary heart assist devices intended to support blood pressure and provide increased blood flow to critical organs in patients with cardiogenic shock, by drawing blood out of the heart and pumping it into the aorta, partially or fully bypassing the left ventricle to provide adequate circulation of blood (replace or supplement left ventricle pumping) while also allowing damaged heart muscle the opportunity to rest and recover in patients who need short-term support.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44820 through 44831), we discussed a request to reassign certain cases reporting procedure codes describing the insertion of a percutaneous short-term external heart assist device from MS–DRG 215 (Other Heart Assist System Implant) to 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). We stated that our clinical advisors reviewed the clinical issues and the claims data and agreed that cases reporting a procedure code that describes the intraoperative insertion of a short-term external heart assist device are generally less resource intensive and are clinically distinct from other cases reporting procedure codes describing the insertion of other types of heart assist devices currently assigned to MS–DRG 215. We also stated that critically ill patients who are experiencing or at risk for cardiogenic shock from an emergent event such as heart attack or virus that impacts the functioning of the heart and requires longer heart pump support are different from those patients who require intraoperative support only. Patients receiving a short-term external heart assist device intraoperatively during coronary interventions often have an underlying disease pathology such as heart failure related to occluded coronary vessels that is broadly similar in kind to other patients also receiving these interventions without the need for an insertion of a short-term external heart assist device. In the post-operative period, these patients can recover and can be sufficiently rehabilitated prior to discharge. For these reasons, we finalized our proposal to assign ICD–10–PCS codes 02HA0RJ, 02HA3RJ, or 02HA4RJ that describe the intraoperative insertion of a short-term external heart assist device to MS–DRGs 216, 217, 218, 219, 220, and 221.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26695 through 26700), we received a request to reassign certain cases reporting procedure codes describing the insertion of a short-term external heart assist device using an axillary artery conduit from MS–DRG 215 to MS–DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist System with MCC and without MCC, respectively) and MS–DRG 003 (ECMO or Tracheostomy with MV 96 Hours or Principal Diagnosis Except Face, Mouth and Neck with Major O.R. Procedures).

We noted in the proposed rule that the Impella 5.5® with SmartAssist® System is designed for longer-duration support (up to 14 days) than other femoral access percutaneous ventricular assist devices (pVADs) that treat cardiogenic shock (up to 4 days) providing full cardiac and hemodynamic support with 5.5 liters of blood flow per minute. The Impella 5.5® with SmartAssist® System is considered a hybrid procedure of an open vascular exposure and an endovascular procedure. The Impella 5.5® with SmartAssist® System surgical pump can be inserted through an open chest for direct aortic access or a surgical incision that exposes the axillary artery. In the axillary artery approach, a surgical graft conduit is anastomosed to the axillary artery by a surgeon in the operating room. The device is positioned across the aortic valve, with the inlet located in the left ventricle and the outlet in the ascending aorta to allow the device to directly unload via the native pathway and to support coronary perfusion. According to the requestor, the Impella 5.5® with SmartAssist® System is indicated for more complex patients than other femoral artery access pVADs, however the insertion of a short-term external heart assist device using an axillary artery conduit (such as the Impella 5.5® with SmartAssist® System) is reported with the same ICD–10–PCS code that describes insertion of a percutaneous short-term external heart assist device and are therefore also assigned to MS–DRG 215. According to the requestor, Impella 5.5® with SmartAssist® System is more clinically comparable to implantable heart assist systems, such as left ventricular assist devices (LVADs), and like LVADs, the insertion of a short-term external heart assist device using an axillary artery conduit must be performed by a surgeon in the operating room. We stated in the proposed rule that the requestor performed its own data analysis, and stated their analysis showed a significant variation in the resource utilization for patients treated with the Impella 5.5® with SmartAssist® System compared to patients treated with other femoral access pVADs assigned to MS–DRG 215.

In the proposed rule, we also noted that following the submission of the FY 2024 MS–DRG classification change request for certain cases reporting procedure codes describing the insertion of a short-term external heart assist device using an axillary artery conduit, this same requestor (the manufacturer of the Impella® Ventricular Support Systems) submitted a code proposal requesting a new ICD–10–PCS procedure code to describe the Impella 5.5® with SmartAssist® System for consideration as an agenda topic to be discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting. The proposal was presented and discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting. We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-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 were due by April 7, 2023.

In reviewing this MS–DRG reclassification request, in the proposed rule we noted that we agreed with the requestor that the insertion of a short-term external heart assist device using an axillary artery conduit (such as the Impella 5.5® with SmartAssist® System) is not separately identifiable in the claims data. Therefore, in this section, we address the assignment of the existing procedure codes describing the insertion of short-term external heart assist devices, including our proposed reassignment of a subset of these cases for FY 2024.

The following ICD–10–PCS procedure codes describe the insertion of a short-term external heart assist device.

In the ICD–10 MS–DRG Definitions Manual Version 40.1, procedure codes 02HA0RZ, 02HA3RZ, and 02HA4RZ are currently recognized as extensive O.R. procedures assigned to MS–DRG 215 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 05.

As stated previously and discussed in the proposed rule, the request for FY 2024 rulemaking was to reassign certain cases reporting procedure codes describing the insertion of a short-term external heart assist device using an axillary artery conduit from MS–DRG 215 to MS–DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist System with MCC and without MCC, respectively) and MS–DRG 003 (ECMO or Tracheostomy with MV 96 Hours or Principal Diagnosis Except Face, Mouth and Neck with Major O.R. Procedures). During our review of this request, we noted in the proposed rule that the current GROUPER logic for MS–DRGs 001 and 002 is comprised of two lists. The first list includes procedure codes identifying a heart transplant procedure, and the second list includes procedure codes identifying the implantation of a heart assist system (including short-term external heart assist systems) and includes code combinations or procedure code “clusters” that, when reported together, satisfy the logic for assignment to MS–DRGs 001 and 002. The code combinations are represented by two procedure codes and include either one code for the insertion of the device with one code for removal of the device or one code for the revision of the device with one code for the removal of the device.

We also noted in the proposed rule that the GROUPER logic for MS–DRG 003 is defined by (1) a procedure code for extracorporeal oxygenation (ECMO), (2) a procedure code for tracheostomy, mechanical ventilation and a procedure code further classified as extensive, or (3) a procedure code for tracheostomy with a procedure code further classified as extensive and a principal diagnosis not assigned to MS–DRGs 011, 012 or 013 as reflected in the logic table:

As procedure codes describing the insertion of a short-term external heart assist device are classified as extensive procedures in Version 40.1, specific assignment of these procedure codes to MS–DRG 003 is not required. When the other parameters of the GROUPER logic are met and procedure codes describing the insertion of a short-term external heart assist device are also reported, MS–DRG 003 will be assigned, therefore in the proposed rule we stated we did not include MS–DRG 003 in our analysis. We refer the reader to the ICD–10 MS–DRG Version 40.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for the listed MS–DRGs and for Appendix E—Operating Room Procedures and Procedure Code/MS–DRG Index.

In the proposed rule, we stated that to begin our analysis, we examined claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRG 215 to identify cases reporting ICD–10–PCS codes 02HA0RZ, 02HA3RZ, and 02HA4RZ. Our findings are shown in the following table:

As shown in the table, we identified a total of 3,587 cases within MS–DRG 215 with an average length of stay of 9 days and average costs of $86,774. Of these 3,587 cases, there are 60 cases reporting a procedure code describing the open insertion of a short-term external heart assist device with an average length of stay of 9.2 days and average costs of $130,153. There are 3,424 cases reporting a procedure code describing a percutaneous insertion of a short-term external heart assist device with an average length of stay of 8.9 days and average costs of $86,640. There are 6 cases reporting a procedure code describing a percutaneous endoscopic insertion of a short-term external heart assist device with an average length of stay of 6.7 days and average costs of $63,923. The data analysis shows that the average length of stay is longer and the average costs are higher for the cases reporting a procedure code describing the open insertion of a short-term external heart assist device compared to all cases in MS–DRG 215, while the average length of stay is shorter and the average costs are lower for the cases reporting a procedure code describing the percutaneous or percutaneous endoscopic insertion of a short-term external heart assist device compared to all cases in that MS–DRG.

We stated in the proposed rule that we then examined claims data from the September 2022 update of the FY 2022 MedPAR for MS–DRGs 001 and 002. Our findings are shown in the following table.

We stated that while the average costs for all cases in MS–DRG 001 are higher than the average costs of the cases reporting a procedure code describing the open insertion of a short-term external heart assist device, the data suggested that overall, cases reporting a procedure code describing the open insertion of a short-term external heart assist device may be more appropriately aligned with the average costs of the cases in MS–DRGs 001 and 002 in comparison to MS–DRG 215, even though the average length of stay is shorter.

In the proposed rule, we stated that we then reviewed the clinical considerations along with this data analysis and agreed that cases reporting a procedure code that describes the open insertion of a short-term external heart assist device are generally more resource intensive and are clinically distinct from other cases reporting procedure codes describing the insertion of short-term external heart devices by other approaches currently assigned to MS–DRG 215. The availability of mechanical circulatory support devices to provide acute hemodynamic support for cardiogenic shock or to support percutaneous coronary intervention (PCI) has expanded over the past decade. We noted that there is now a portfolio of short-term external heart assist devices available that each have different indications for use and techniques for implantation.

We also noted that the percutaneous or percutaneous endoscopic insertion of a short-term external heart assist device involves standard catheterization techniques except for the requirement of a large-bore 13 or 14 Fr sheath. Short-term external heart assist devices inserted in this manner generally provide blood flow up to 2.5 L/min for systemic perfusion and are intended for temporary (≤4 days) use to maintain stable heart function. In contrast, the open insertion of a short-term external heart assist device or the insertion of short-term external heart assist devices using an axillary artery conduit requires a surgical cutdown of the axillary artery to place the larger 23 Fr sheaths of these devices. Short-term external heart assist devices that are inserted via an open approach or using an axillary artery conduit can provide blood flow up to 5.5 L/min for systemic perfusion and are intended for longer use (≤14 days). They are indicated for the treatment of ongoing cardiogenic shock that occurs less than 48 hours following acute myocardial infarction or open-heart surgery or in the setting of cardiomyopathy, including peripartum cardiomyopathy, or myocarditis as a result of isolated left ventricular failure that is not responsive to medical management and conventional treatment measures. We noted in the proposed rule that the indications for the open insertion of a short-term external heart assist device or the insertion of short-term external heart assist devices using an axillary artery conduit are more closely aligned with MS–DRGs 001 and 002 as compared to MS–DRG 215. For these reasons, we stated we believed reassigning ICD–10–PCS code 02HA0RZ that describes the open insertion of a short-term external heart assist device to Pre-MDC MS–DRGs 001 and 002 would improve clinical coherence in these MS–DRGs.

As discussed in the proposed rule, to compare and analyze the impact of these potential modifications, we ran a simulation using the claims data from the September 2022 update of the FY 2022 MedPAR file. The following table reflects our simulation for ICD–10–PCS procedure code 02HA0RZ that describes the open insertion of a short-term external heart assist device if it was moved to MS–DRGs 001 and 002.

We stated in the proposed rule that we believed that this simulation supports that the resulting MS–DRG assignments would be more clinically homogeneous, coherent and better reflect hospital resource use. A review of this simulation shows that this distribution of ICD–10–PCS code 02HA0RZ that describes the open insertion of a short-term external heart assist device if moved to MS–DRGs 001 and 002, slightly decreases the average costs of the cases remaining in MS–DRG 215 by about $3,000, while similarly having a limited effect on the average costs of MS–DRGS 001 and 002. Therefore, for FY 2024, we proposed to reassign ICD–10–PCS code 02HA0RZ when reported as a standalone procedure from MDC 05 in MS–DRG 215 to Pre-MDC MS–DRGs 001 and 002. We noted that under this proposal, procedure code 02HA0RZ would no longer need to be reported as part of a procedure code combination or procedure code “cluster” to satisfy the logic for assignment to MS–DRGs 001 and 002.

As discussed in the proposed rule, we will continue to monitor the clinical cohesiveness of the procedures assigned to MS–DRGs 001 and 002 to assess whether they continue to be aligned on resource use, as well as current shifts in treatment practices, to determine if additional refinements may be warranted in the future. The increased availability of short-term external heart assist devices and their development into low profile, high output pumps has shifted the management of cardiogenic shock that is unresponsive to other interventions in the years since these MS–DRGs were created. These short-term devices can now be used as a bridge to provide the time needed for clinical decision making, native heart recovery, or until another procedure can be performed, such as the insertion of a left ventricular assist device (LVAD) or cardiac transplantation.

As noted previously, this same requestor (the manufacturer of the Impella® Ventricular Support Systems) submitted a code proposal to be discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting to request a change to how the Impella 5.5® with SmartAssist® System is coded within the ICD–10–PCS classification as there are no unique ICD–10–PCS codes to describe the insertion of a short-term external heart assist system using an axillary artery conduit. In the proposed rule, we noted that because the decisions on the diagnosis and procedure code proposals that were presented at the March 7–8, 2023 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 FY 2024 IPPS/LTCH PPS proposed rule, as we have noted in prior rulemaking (86 FR 44805), 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.

We noted in the proposed rule that under this established process, the MS–DRG assignment for any new procedure codes describing the Impella 5.5® with SmartAssist® System, if finalized following the March meeting, would be reflected in Table 6B.—New Procedure Codes associated with the final rule for FY 2024. In the event there is not support for the new procedure code as presented at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting to describe the insertion of a short-term external heart assist system using an axillary artery conduit, the procedure will be reported with current coding that is applicable within the classification as displayed in the ICD–10 Coordination and Maintenance Committee meeting materials (available on the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials ). We refer the reader to section II.C.13. of the preamble of the proposed rule and this final rule for further information regarding Table 6B.

As discussed in prior rulemaking, interested parties may use current coding information to consider the potential MS–DRG assignments for procedure codes that may be finalized after the March meeting and submit public comments for consideration. Specifically, in the ICD–10 Coordination and Maintenance Committee meeting materials (available on the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials ), for each procedure code proposal we provide the current coding that is applicable within the classification and that should be reported in the absence of a more unique code, or until such time a new code is created and becomes effective. The procedure code(s) listed in current coding are generally, but not always, the same code(s) that are considered as the predecessor code(s) for purposes of MS–DRG assignment. As previously noted, our process for determining the MS–DRG assignment for a new procedure code does not automatically result in the new procedure code being assigned to the same MS–DRG or having the same designation (O.R. versus Non-O.R.) as the predecessor code. However, this current coding information can be used in conjunction with the GROUPER logic, as set forth in the ICD–10 MS–DRG Definitions Manual and publicly available on our CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software to review the MS–DRG assignment of the current code(s) and examine the potential MS–DRG assignment of the proposed code(s), to assist in formulating any public comments for submission to CMS for consideration.

In summary, we proposed to reassign ICD–10–PCS code 02HA0RZ (Insertion of short-term external heart assist system into heart, open approach) from MDC 05 in MS–DRG 215 to Pre-MDC MS–DRGs 001 and 002 for FY 2024. Separately, and as previously discussed, a code proposal was discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting to request a change to how the Impella 5.5® with SmartAssist® System is coded within the ICD–10–PCS classification. In the proposed rule, we noted that if finalized, the new procedure code would be included in the FY 2024 code update files that are made available in late May/early June on the CMS website at: https://www.cms.gov/medicare/coding/icd10. In addition, using our established process, if finalized, the MS–DRG assignment for any new procedure codes describing the Impella 5.5® with SmartAssist® System will be displayed in Table 6B.—New Procedure Codes in association with this FY 2024 IPPS/LTCH PPS final rule that will be made publicly available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

Comment: Many commenters expressed support for CMS' proposal to reassign ICD–10–PCS code 02HA0RZ from MDC 05 in MS–DRG 215 to Pre-MDC MS–DRGs 001 and 002 when reported as a standalone procedure. These commenters stated they agreed with the proposal and believed reassigning this procedure to MS–DRGs 001 and 002 aligns more accurately with, and reflects resources used for, these more complex patients and more complex procedures. Commenters stated that they appreciate CMS' continued efforts to ensure appropriate code assignments of surgical approaches for short-term heart assist devices and to improve clinical consistency and predictability for providers as short-term heart assist devices have evolved with different access procedures to treat hemodynamically compromised patients. Some commenters also stated that streamlining the GROUPER logic so that ICD–10–PCS code 02HA0RZ will no longer need to be reported as part of a procedure code combination or procedure code “cluster” to satisfy the logic for assignment to MS–DRGs 001 and 002 will ensure that the cases in these MS–DRGs are more clinically homogeneous and better reflect hospital resource use.

Response: We thank the commenters for their support.

After consideration of the public comments we received, we are finalizing our proposal to reassign ICD–10–PCS code 02HA0RZ (Insertion of short-term external heart assist system into heart, open approach) from MDC 05 in MS–DRG 215 to Pre-MDC MS–DRGs 001 and 002 when reported as a standalone procedure, without modification, effective October 1, 2023, for FY 2024. Under this finalization, procedure code 02HA0RZ will no longer need to be reported as part of a procedure code combination or procedure code “cluster” to satisfy the logic for assignment to MS–DRGs 001 and 002.

Comment: Many commenters stated that if new ICD–10–PCS procedure codes describing the Impella 5.5® with SmartAssist® System were finalized following the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting, they recommend CMS assign the new codes to MS–DRGs 001 and 002. Some commenters stated that patients treated with the Impella 5.5® with SmartAssist® System have a very similar clinical presentation as patients treated with short-term external heart assist systems inserted via the open approach and utilize approximately the same resources. These commenters stated that they believed that both procedures are clinically coherent with cases currently assigned to MS–DRGs 001 and 002, so it is reasonable that cases reporting the insertion of the Impella 5.5® with SmartAssist® System group to the same MS–DRG as ICD–10–PCS code 02HA0RZ. A commenter further stated that this adjustment would help ensure adequate payment for the resources invested, allowing institutions to maintain high-quality care, and would incentivize the advancement of innovative interventions in the field of cardiovascular medicine.

Response: We thank the commenters for their feedback.

We note that the proposal to change how the Impella® 5.5 with SmartAssist® System is coded within the ICD–10–PCS classification that was discussed at the March 7–8 2023 ICD–10 Coordination and Maintenance Committee meeting was approved and new procedure codes to identify the insertion of a short-term external heart assist system using a conduit attached to the right axillary artery or to the ascending aorta were finalized as reflected in the FY 2024 ICD–10–PCS Code Update files that were made publicly available on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 on June 6, 2023. In addition to the new procedure codes describing the Impella 5.5® with SmartAssist® System being made publicly available in the FY 2024 ICD–10–PCS Code Update files on the CMS website, we note that the new procedure codes are also reflected in Table 6B.—New Procedure Codes, in association with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS, including the MS–DRG assignments for these new codes for FY 2024. We refer the reader to section II.C.13. of the preamble of this final rule for further information regarding the table.

Specifically, using our established process, we examined the MS–DRG assignment for the predecessor code to determine the most appropriate MS–DRG assignment. We reviewed the predecessor code and MS–DRG assignment most closely associated with the new procedure codes, and in the absence of claims data, we considered other factors that may be relevant to the MS–DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. ICD–10–PCS procedure code 03HY0YZ (Insertion of other device into upper artery, open approach) is the predecessor code that we utilized to inform this analysis.

The MS–DRG assignment for the predecessor code 03HY0YZ and the new procedure codes describing the insertion of a short-term external heart assist system using a conduit attached to the right axillary artery or to the ascending aorta under MDC 05 are identified as follows.

While the new procedure codes are being assigned to the same MS–DRG as the predecessor code in this instance, as we have noted in prior rulemaking, and earlier in this section, 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.

We also note that the finalized procedure codes describing the Impella 5.5® with SmartAssist® System identify the insertion of short-term external heart assist system using a conduit attached to the right axillary artery or to the ascending aorta. To fully describe the procedure, a separate code will continue to be reported for the insertion of the external heart assist system. In addition to the MDC and MS–DRG assignments as reflected in the previous table and in Table 6B.—New Procedure Codes, in association with this final rule, we note the procedure code combinations reflected in the table that follows are assigned to MS–DRGs 001 and 002, for FY 2024. This assignment is also reflected in the final Version 41 ICD–10 MS–DRG GROUPER logic.

The public may provide feedback on these MS–DRG assignments for FY 2024, which will then be taken into consideration for the following fiscal year.

c. Ultrasound Accelerated Thrombolysis for Deep Venous Thrombosis

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27000 through 26706), we received a request to reassign cases reporting ultrasound accelerated thrombolysis (USAT) of peripheral vascular structures procedures with the administration of thrombolytic(s) for deep venous thrombosis from MS–DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) to MS–DRGs 270, 271, and 272 (Other Major Cardiovascular Procedures with MCC, with CC, and without CC/MCC, respectively).

Deep venous thrombosis (DVT) is caused when a blood clot (or thrombus) forms in a vein, primarily in large veins of the lower leg and thigh, but may also occur in the deep veins of the pelvis and less commonly, in the upper extremities. Risk factors for DVT are similar to those of pulmonary embolism as discussed in section II.C.4.a. of the proposed rule and this final rule, and include prolonged immobilization from any cause, obesity, cancer, fractured hip or leg, use of certain medications such as oral contraceptives, and the presence of certain medical conditions such as heart failure. Common symptoms of DVT include leg (or arm) swelling, pain, cramping, or heaviness, skin discoloration, the feeling of warmth in the affected area, or there may not be any noticeable symptoms.

Thrombolysis is a type of treatment where the infusion of thrombolytics (fibrinolytic or “clot-busting” drugs) is used to dissolve blood clots that form in the arteries or veins with the goal of improving blood flow and preventing long-term damage to tissues and organs. Conventional catheter-directed thrombolysis (CDT) procedures generally rely on a multi-sidehole catheter placed adjacent to the thrombus through which thrombolytics are delivered directly to the thrombus, however, the EKOS^TM EkoSonic® Endovascular System (EKOS^TM System) employs ultrasound to assist in thrombolysis. The ultrasound does not itself dissolve the thrombus, but pulses of ultrasonic energy temporarily make the fibrin in the thrombus more porous and increase fluid flow within the thrombus. High frequency, low-intensity ultrasonic waves create a pressure gradient that drives the thrombolytic into the thrombus and keeps it in close proximity to the binding sites. USAT is also referred to as ultrasound-assisted thrombolysis or ultrasound-enhanced thrombolysis.

We stated in the proposed rule that, according to the requestor (the manufacturer of the EKOS^TM device), USAT of peripheral vascular structures with the administration of thrombolytic(s) for the treatment of DVT performed using the EKOS^TM device utilizes more resources in comparison to other procedures that are currently assigned to MS–DRGs 252, 253, and 254 and is not clinically coherent with the other procedures assigned to those MS–DRGs. The requestor stated that the cases reporting USAT of peripheral vascular structures with the administration of thrombolytic(s) for DVT are more comparable with and more clinically aligned with the procedures assigned to MS–DRGs 270, 271, and 272. The requestor stated they performed an analysis of cases reporting USAT of peripheral vascular structures for DVT with the following ICD–10–PCS procedure codes.

We noted in the proposed rule that the requestor did not include a list of diagnosis codes describing DVT or a list of procedure codes describing the administration of thrombolytic(s) in connection with its analysis.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58561 through 85 FR 58579), we summarized and responded to public comments expressing concern with the proposed MS–DRG assignments for the newly created procedure codes describing USAT of several anatomic sites that were effective with discharges on and after October 1, 2020 (FY 2021). Similar to the current request for FY 2024, for FY 2021, the commenters recommended that USAT procedures performed with the EKOS^TM device for the treatment of DVT be assigned to MS–DRGs 270, 271, and 272 instead of MS–DRGs 252, 253, and 254. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58561 through 85 FR 58579), available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS for the detailed discussion.

In the proposed rule, we stated that we analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 252, 253, and 254 and cases reporting a principal diagnosis of DVT and USAT of peripheral vascular structures procedure with and without the administration of thrombolytic(s). We noted that we identified claims reporting an USAT of peripheral vascular structures procedure, the administration of thrombolytic(s), and a diagnosis of DVT with the listed codes as shown in Table 6P.5a associated with the proposed rule (and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ). The findings from our analysis are shown in the following table.

As shown in the table, we identified a total of 20,939 cases in MS–DRG 252 with an average length of stay of 8 days and average costs of $29,307. Of the 20,939 cases, we found 51 cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) with an average length of stay of 6.4 days and average costs of $36,660 and 10 cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) with an average length of stay of 6.7 days and average costs of $21,538. The data demonstrate that the cases reporting a principal diagnosis of DVT and USAT with or without thrombolytic(s) have a shorter average length of stay compared to the average length of stay of all the cases in MS–DRG 252 (6.4 days and 6.7 days, respectively versus 8 days). However, the average costs for the cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) are higher than the average costs of all the cases in MS–DRG 252 ($36,660 versus $29,307) and the average costs for the cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) are lower than the average costs of all the cases in MS–DRG 252 ($21,538 versus $29,307). The data indicate that the cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) appear to consume more resources in comparison to the other cases in MS–DRG 252, although it is unclear if the higher resource consumption is a direct result of the EKOS^TM device technology utilized in the performance of the thrombolysis procedure, or the fact that these cases also include the reporting of at least one or more secondary MCC diagnoses, or a combination of both factors. Conversely, the data indicate that the cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) appear to be less resource intensive with a difference in average costs of $7,769 ($29,307−$21,538 = $7,769). Accordingly, the data appear to reflect that the cases reporting use of the EKOS^TM device technology with thrombolytic(s) may have an impact on the consumption of resources when compared to all the cases in MS–DRG 252.

For MS–DRG 253, we identified a total of 16,650 cases with an average length of stay of 5.2 days and average costs of $22,685. Of the 16,650 cases, we found 80 cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) with an average length of stay of 5.2 days and average costs of $26,471 and 11 cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) with an average length of stay of 3.8 days and average costs of $20,126. The data demonstrate that the average length of stay for cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) is the same as the average length of stay for all the cases in MS–DRG 253 (5.2 days). Conversely, the average length of stay for the cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) is shorter than the average length of stay of all the cases in MS–DRG 253 (3.8 days versus 5.2 days). Similar to MS–DRG 252, the average costs for the cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) are higher than the average costs of all the cases in MS–DRG 253 ($26,471 versus $22,685) and the average costs for the cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) are lower than the average costs of all the cases in MS–DRG 253 ($20,126 versus $22,685). The data indicate that the cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) appear to consume more resources in comparison to the other cases in MS–DRG 253, although it is unclear if the higher resource consumption is a direct result of the EKOS^TM device technology utilized in the performance of the thrombolysis procedure, or the fact that these cases also include the reporting of at least one or more secondary CC diagnoses, or a combination of both factors.

For MS–DRG 254, we identified a total of 6,707 cases with an average length of stay of 2.4 days and average costs of $15,438. Of the 6,707 cases, we found 22 cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) with an average length of stay of 3 days and average costs of $21,867 and 9 cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) with an average length of stay of 2 days and average costs of $17,750. The data demonstrate that the cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) have a longer average length of stay compared to the average length of stay of all the cases in MS–DRG 254 (3 days versus 2.4 days), however, the cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) have a shorter but comparable average length of stay compared to the average length of stay of all the cases in MS–DRG 254 (2 days versus 2.4 days). Additionally, the average costs for the cases reporting a principal diagnosis of DVT and USAT with or without thrombolytic(s) are higher than the average costs of all the cases in MS–DRG 254 ($21,867 and $17,750 respectively versus $15,438) with a corresponding difference in average costs of $6,429 and $2,312 respectively. Similar to our findings for MS–DRGs 252 and 253, the data for MS–DRG 254 indicate the cases reporting a principal diagnosis of DVT and USAT with thrombolytic(s) appear to consume more resources in comparison to the other cases in their respective MS–DRG. In addition, as noted, for MS–DRG 254, the average costs of cases reporting a principal diagnosis of DVT and USAT without thrombolytic(s) are also higher than the average costs of all the cases in MS–DRG 254. However, it is unclear if the higher resource consumption is a direct result of the EKOS^TM device technology utilized in the performance of the thrombolysis procedure alone, or if there are other contributing factors, since cases grouping to MS–DRG 254 do not include the reporting of at least one or more secondary CC or MCC diagnoses.

We stated in the proposed rule that our review of the data for MS–DRGs 252, 253, and 254 and our initial analysis for cases reporting a principal diagnosis of DVT and USAT procedure with and without the administration of thrombolytic(s) suggests that the administration of thrombolytic(s) may be considered a factor in the consumption of resources for these cases in MS–DRGs 252, 253, and 254 where USAT is performed in the treatment of a DVT. For example, in MS–DRG 252, there are 51 cases reporting a principal diagnosis of DVT and USAT procedure with the administration of thrombolytic(s) and 10 cases reporting a principal diagnosis of DVT and USAT procedure without the administration of thrombolytic(s), with both subsets of cases showing a comparable average length of stay of 6.4 and 6.7 days, respectively, however, the difference in average costs for cases with and without thrombolytic(s) is $15,122 ($36,660−$21,538 = $15,122). For MS–DRG 253, there are 80 cases reporting a principal diagnosis of DVT and USAT procedure with the administration of thrombolytic(s) and 11 cases reporting a principal diagnosis of DVT and USAT procedure without the administration of thrombolytic(s), with both subsets of cases showing a difference in the average length of stay (5.2 days and 3.8 days, respectively) and a difference in average costs of $6,345 ($26,471−$20,126 = $6,345). For MS–DRG 254, there are 22 cases reporting a principal diagnosis of DVT and USAT procedure with the administration of thrombolytic(s) and 9 cases reporting a principal diagnosis of DVT and USAT procedure without the administration of thrombolytic(s), however, both subsets of cases have a similar average length of stay (3 days and 2 days, respectively) with a difference in average costs of $4,117 ($21,867−$17,750 = $4,117).

In the proposed rule, we noted that since the request we received was to reassign cases reporting ultrasound accelerated thrombolysis (USAT) with the administration of thrombolytic(s) for the treatment of deep venous thrombosis (DVT) from MS–DRGs 252, 253, and 254 to MS–DRGs 270, 271, and 272, based on our approach utilized in our initial analysis of claims reporting USAT with a principal diagnosis for DVT in MS–DRGs 252, 253, and 254, we then analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRGs 270, 271, and 272 and compared it to the cases reporting a principal diagnosis of DVT and USAT procedure with or without thrombolytic(s) in MS–DRGs 252, 253, and 254. The findings from our analysis are shown in the following tables.

The claims data show that the 61 cases reporting a principal diagnosis of DVT and USAT with or without thrombolytic(s) in MS–DRG 252 have average costs that are lower than the average costs of all cases in MS–DRG 270 ($34,181 versus $42,517) and have a shorter average length of stay compared to all the cases in MS–DRG 270 (6.4 days versus 9.5 days). The 91 cases reporting a principal diagnosis of DVT and USAT with or without thrombolytic(s) in MS–DRG 253 have a comparable average length of stay (5 days versus 5.4 days) in comparison to all the cases in MS–DRG 271 and lower average costs in comparison to all the cases in MS–DRG 271 ($25,704 versus $30,030) with a difference of $4,326. Finally, the 31 cases reporting a principal diagnosis of DVT and USAT with or without thrombolytic(s) in MS–DRG 254 have an average length of stay that is comparable to all the cases in the MS–DRG 272 (2.7 days versus 2.4 days) and comparable average costs ($20,672 versus $21,556) with a difference of $884.

We stated in the proposed rule that upon analysis of the claims data and our review of the request, we do not agree with reassigning cases reporting an USAT procedure with the administration of thrombolytic(s) and a principal diagnosis of DVT from MS–DRGs 252, 253, and 254 to MS–DRGs 270, 271, and 272. As stated in the proposed rule, the data do not support that cases reporting USAT (with or without thrombolytic(s)) for DVT utilize similar resources when compared to other procedures currently assigned to MS–DRGs 270, 271, and 272. We do not agree that cases reporting USAT (with or without thrombolytic(s)) are more comparable with and more clinically aligned with the procedures assigned to MS–DRGs 270, 271, and 272 because the majority of procedures in these MS–DRGs describe procedures performed on the heart and great vessels with either an open or an endoscopic approach in contrast to the USAT endovascular (percutaneous) procedure performed on the peripheral vascular structures. In addition, the majority of procedures in MS–DRGs 270, 271, and 272 are performed on patients who are not clinically similar to patients who undergo USAT for DVT since they describe procedures such as bypass, occlusion, and restriction that are typically performed for patients with conditions other than a DVT, such as atherosclerosis, aneurysm, and acute myocardial infarction (AMI). Lastly, a number of procedures in these MS–DRGs also involve the use of a permanently implanted device while the procedures utilizing USAT do not. Therefore, we do not consider USAT procedures to be major cardiovascular procedures, nor do we believe the cases reporting USAT with (or without thrombolytic(s)) for DVT demonstrate a similar level of technical complexity when compared to other procedures currently assigned to MS–DRGs 270, 271, and 272.

As noted in the proposed rule, while the average costs are higher for cases reporting the administration of a thrombolytic, we questioned whether the higher average costs may also reflect other factors, such as the use of the EKOS^TM device or the performance of other O.R. procedures that also group to MS–DRGs 252, 253, and 254. Consistent with the analysis discussed in section II.C.4.a. of the proposed rule and this final rule for a similar, but separate request related to thrombolysis procedures, we believed it would also be beneficial to examine cases reporting standard CDT procedures with or without thrombolytic(s) for the treatment of DVT in MS–DRGs 252, 253, and 254, and compare the findings to the cases reporting USAT with or without thrombolytic(s) for the treatment of DVT.

Therefore, as discussed in the proposed rule, we conducted additional analyses to determine if there were significant differences in resource utilization for cases reporting standard CDT with or without thrombolytic(s) versus USAT procedures with or without thrombolytic(s) in the treatment of DVT, since claims data to compare the two modalities is now available and studies have reported similar clinical outcomes in reducing DVT regardless of which thrombolysis modality is utilized.

We analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRGs 252, 253, and 254 and cases reporting a standard CDT procedure with or without the administration of thrombolytic(s) and a principal diagnosis of DVT. We utilized the previously listed procedure codes for the administration of thrombolytic(s) and the previously listed diagnosis codes for a principal diagnosis of DVT. We identified cases describing standard CDT procedures performed in the treatment of DVT with the procedure codes listed in Table 6P.5a. associated with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS . The findings from our analysis are shown in the following table. We note there were no cases found to report a standard CDT procedure with or without thrombolytic(s) and a principal diagnosis of DVT in MS–DRGs 253 or 254.

The data shows that the 3 cases reporting a principal diagnosis of DVT and standard CDT with or without thrombolytic(s) in MS–DRG 252 have a shorter average length of stay compared to all cases in MS–DRG 252 (2.3 days versus 8 days) and lower average costs ($10,603 versus $29,307).

We noted in the proposed rule that, overall, our analysis of the claims data for cases reporting a principal diagnosis of DVT and USAT or standard CDT, with or without thrombolytic(s), demonstrate a low volume of cases, however, the average costs of the cases reporting USAT with thrombolytic(s) reflect a significantly higher consumption of resources than all cases in MS–DRGs 252, 253, and 254. We further noted that because it is also possible that a patient may be admitted to a hospital and receive thrombolysis (USAT or CDT) with a principal diagnosis other than a DVT or the DVT condition may be reported as a secondary diagnosis, we believed additional analysis for cases reporting either USAT or CDT, regardless of the principal diagnosis, would provide us with more beneficial information in our review of these cases.

Therefore, using the September 2022 update of the FY 2022 MedPAR file, we conducted an analysis of MS–DRGs 252, 253, and 254 for cases reporting either USAT or CDT with and without thrombolytic(s) with any principal diagnosis from MDC 5. Our findings are shown in the following table.

The findings from our analysis show a larger volume of cases for each respective MS–DRG (252, 253, and 254) for cases reporting USAT or CDT procedures with any MDC 05 principal diagnosis versus the findings from our earlier analysis involving cases specifically reporting a principal diagnosis of DVT. The claims data also show that the 468 cases reporting any principal diagnosis from MDC 05 and USAT or CDT with or without thrombolytic(s) in MS–DRG 252 have average costs that are higher than the average costs of all cases in MS–DRG 252 ($39,181 versus $29,307) and have a comparable average length of stay (8.6 days versus 8.0 days). The 722 cases reporting any principal diagnosis from MDC 05 and USAT or CDT with or without thrombolytic(s) in MS–DRG 253 have a shorter average length of stay (4.9 days versus 5.2 days) in comparison to all the cases in MS–DRG 253 and higher average costs ($29,663 versus $22,685) with a difference of $6,978. Finally, the 195 cases reporting any principal diagnosis from MDC 05 and USAT or CDT with or without thrombolytic(s) in MS–DRG 254 have an average length of stay that is comparable to all the cases in the MS–DRG 272 (2.6 days versus 2.4 days) and higher average costs ($22,487 versus $15,438) with a difference of $7,049.

As discussed in the proposed rule, based on our review and the claims data analysis for cases in MS–DRGs 252, 253, and 254 and MS–DRGs 270, 271, and 272, and for cases reporting standard CDT or USAT with or without thrombolytic(s) regardless of the principal diagnosis reported from MDC 05, we believe that while the subset of cases for patients undergoing a thrombolysis (CDT or USAT) procedure for DVT does not clinically align with patients undergoing surgery for acute myocardial infarction (AMI) and does not involve the same level of complexity as cases grouping to MS–DRGs 270, 271, and 272, the differences in resource consumption warrant reassignment of these cases. Specifically, we believed the clinical and data analyses support creating a new base MS–DRG to distinguish cases reporting USAT or standard CDT procedure of peripheral vascular structures with or without thrombolytic(s) from other cases currently grouping to MS–DRGs 252, 253, and 254. We stated we believe a new MS–DRG would reflect more appropriate payment for USAT and standard CDT procedures of peripheral vascular structures.

In the proposed rule, we also noted that to compare and analyze the impact of our suggested modifications, we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 1,487 cases reporting procedure codes describing an USAT or CDT procedure with any principal diagnosis from MDC 05.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, once the decision has been made to propose to make further modifications to the MS–DRGs, such as creating a new base MS–DRG, all five criteria to create subgroups must be met for the base MS–DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS–DRG. We noted in the proposed rule that, as shown in the table that follows, a three-way split of this base MS–DRG failed to meet the criterion that there be at least 500 cases in the NonCC (without CC/MCC) subgroup.

As discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, if the criteria for a three-way split fail, the next step is to determine if the criteria are satisfied for a two-way split. We applied the criteria for a two-way split for the “with MCC and without MCC” subgroups. We noted that, as shown in the table that follows, a two-way split of this base MS–DRG met all five criteria. 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 stated we believed a split (or CC subgroup) is warranted for the proposed new base MS–DRG. As a result, for FY 2024, we proposed to create new MS–DRG 278 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures with MCC) and new MS–DRG 279 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures without MCC).

We proposed to define the logic for the proposed new MS–DRGs using the previously listed procedure codes for USAT and CDT, as identified and discussed in our analysis of the claims data in Table 6P.5a associated with the proposed rule.

Comment: Commenters supported the proposal to create new MS–DRGs 278 and 279 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures with and without MCC, respectively) given the data and information provided. A commenter stated the new MS–DRGs will generate more appropriate payment for cases reporting these procedures.

Response: We thank the commenters for their support.

Comment: A couple commenters suggested that the proposal to create the two new MS–DRGs should be delayed until more data can be collected. The commenters stated their belief that it is premature to create these new MS–DRGs at this time and that in developing these proposed MS–DRGs, CMS relied on recently implemented ICD–10–PCS data. According to the commenters, due to the lengthy processes for hospitals to adopt and accurately implement new coding, and conflicting coding advice for utilization of the ICD–10–PCS procedure codes for CDT and USAT, the number of cases is currently insufficient to support development of new MS–DRGs. The commenter stated that the low volume of cases and related data selected by CMS for analysis, CDT for the treatment of DVT, cannot adequately compare to the costs, complexity, and utilization of USAT with a high confidence interval.

Response: We appreciate the commenters' feedback. We disagree with the commenters that it is premature to propose the creation of new MS–DRGs 278 and 279 based on our review and claims data analysis as discussed in the proposed rule. In response to the commenters' statement that CMS relied on recently implemented ICD–10–PCS data, it is not clear to us what specific ICD–10–PCS data the commenters are referring to since a specific list was not provided, however, we believe the commenters may be suggesting the codes for USAT that were finalized October 1, 2020 (FY 2021), and listed previously in connection with the analysis discussed in the proposed rule. As discussed in the proposed rule and prior rulemaking, our goal is always to use the best available data. We noted in the proposed rule that our initial MS–DRG analysis was based on ICD–10 claims data from the September 2022 update of the FY 2022 MedPAR file, which contains hospital bills received from October 1, 2021, through September 30, 2022, and where otherwise indicated, additional analysis was based on ICD–10 claims data from the December 2022 update of the FY 2022 MedPAR file, which contains hospital bills received by CMS through December 31, 2022, for discharges occurring from October 1, 2021, through September 30, 2022. Therefore, we believe our analysis of claims data in consideration of the MS–DRG request to reassign cases reporting USAT of peripheral vascular structures procedures with the administration of thrombolytic(s) for DVT is consistent with our standard process, regardless of the effective date of the coded claims data. We also do not agree with the commenters' assertion that it is a lengthy process for hospitals to adopt and accurately implement new coding. We note that procedure code proposals discussed at the September ICD–10 Coordination and Maintenance Committee meeting and subsequently finalized are typically included in Table 6B.—New Procedure Codes in association with the proposed rule that is made publicly available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS . This table (Table 6B) lists the new procedure codes that have been approved to date that will be effective with discharges on and after October 1 of the upcoming fiscal year. Therefore, information regarding the finalized codes from the September meeting is made publicly available approximately 4–5 months in advance of the implementation date, affording the ability for users of the code set to gain familiarity with the updates. In addition, there are extensive industry-sponsored educational opportunities through various professional associations that introduce and discuss the annual code updates. For example, the American Hospital Association (AHA), American Health Information Management Association (AHIMA), and the American Academy of Professional Coders (AAPC) generally take lead roles in developing detailed technical training materials for coders and other users of the ICD–10 code set. The AHA also includes updates to ICD–10 in its Coding Clinic® for ICD–10–CM/ICD–10–PCS publication. Because the codes describing USAT were finalized for implementation October 1, 2020 (FY 2021), we believe sufficient time has elapsed and that providers are successfully coding and reporting the procedure as demonstrated in our claims analysis.

It is also not clear what conflicting coding advice for utilization of the ICD–10–PCS procedure codes for CDT and USAT the commenters are referring to since the commenters did not provide examples or supplemental information for what they believed to be conflicting advice to enable further evaluation.

Comment: A couple commenters expressed concern that the inclusion of both conventional CDT, also known as “standard infusion catheters,” and USAT in the proposed new MS–DRGs disregards fundamental clinical differences between the procedures. According to the commenters, CDT generally relies on a multi-sidehole infusion catheter placed adjacent to the thrombus through which thrombolytics are delivered, typically over the course of 24 hours with the catheter in-dwelling, whereas USAT employs ultrasound to assist in thrombolysis, and the pulses of ultrasonic energy temporarily make the fibrin in the thrombus more porous and increase fluid flow within the thrombus. The commenters stated standard CDT is the simple infusion of liquids into the vessel and should not map to the same root operation fragmentation codes as does USAT. The commenters also stated CDT procedures are generally less complex clinically and consume significantly lower level of hospital resources as a result. The commenters recommended CMS should delay implementation, not finalize the proposed MS–DRGs at this time and reconsider at a later date when utilization volumes reach a threshold of significance.

A commenter also indicated that an analysis of cost data was being submitted to CMS to demonstrate that USAT DVT cases have total costs that are more than three times the cost of CDT procedures for the sickest patients.

Response: We disagree with the commenters that inclusion of both conventional CDT and USAT in the proposed new MS–DRGs disregards fundamental clinical differences between the procedures. We note that while USAT procedures performed utilizing the EKOS^TM device employ ultrasound, the objective of both CDT and USAT procedures is to effectuate thrombolysis and reduce clot burden. In response to the commenters' statement that standard CDT is the simple infusion of liquids into the vessel and should not map to the same root operation fragmentation codes as does USAT, we note that under ICD–10–PCS, both USAT and CDT are reported with the root operation fragmentation, defined as breaking solid matter in a body part into pieces. The procedure may be accomplished by physical force ( e.g., manual, ultrasonic) applied directly or indirectly that is used to break the solid matter into pieces. The solid matter may be an abnormal byproduct of a biological function or a foreign body. The pieces of solid matter are not taken out. With respect to the commenters' statement that CDT procedures are generally less complex clinically and consume significantly lower level of hospital resources, we note that any procedure that places a catheter inside a blood vessel carries certain risks, including damage to the blood vessel, bruising or bleeding at the puncture site, and infection. In response to the commenters' recommendation that CMS should delay finalization for the proposed MS–DRGs and reconsider in the future when utilization volumes reach a threshold of significance, as discussed in the proposed rule, once the decision was made to propose a new base MS–DRG, we applied the criteria to create subgroups and the criteria for a two-way split was met, therefore, we believe sufficient volume does exist for the proposed new MS–DRGs.

Finally, in response to the cost data that was submitted by a commenter, we note that it was the same data analysis as reflected and discussed in the proposed rule, therefore we refer readers to that prior discussion.

Comment: A commenter stated they agreed that fragmentation procedures with or without USAT do not belong in the requested MS–DRGs 270, 271, and 272, and suggested they remain in their current MS–DRGs 252, 253, and 254 based on clinical coherence and resource utilization.

Response: We appreciate the commenter's feedback and agree that fragmentation procedures with or without USAT do not belong in the requested MS–DRGs 270, 271, and 272. However, for reasons discussed in the proposed rule, we believe our review of these procedures and data analysis findings support the proposal to create new MS–DRGs 278 and 279 for grouping cases reporting the performance of USAT or CDT with any principal diagnosis from MDC 05.

Comment: A couple commenters disagreed with the proposal to create new MS–DRGs 278 and 279. A commenter stated USAT procedures have been receiving appropriate payment since FY 2021 and the proposed new MS–DRGs would create unnecessary administrative burden for established procedure codes that already have appropriate payment. Another commenter stated that fragmentation procedures, with or without ultrasonic assistance to break up blood clots in the peripheral vasculature, should stay assigned to the current MS–DRGs 252, 253, and 254, respectively. The commenter stated that the costs and resources for these procedures are consistent with current payment levels when compared to the rest of the procedures assigned to the current MS–DRGs, that the change is not needed or necessary, and that over time may result in overall reduced payment, given that such a low number of procedures would be assigned to their own MS–DRGs.

Response: We appreciate the commenters' feedback, however, based on our review of the procedures and claims data analysis as discussed in the proposed rule, we believe that USAT and CDT procedures performed on peripheral vascular structures are clinically distinct and utilize a different pattern of resources than other procedures in MS–DRGs 252, 253, and 254. We stated in the proposed rule that while we did not agree with the request to reassign cases reporting USAT or CDT for peripheral vascular structures from MS–DRGs 252, 253, and 254 to MS–DRGs 270, 271, and 272, we believed the findings from our analysis warranted proposed reassignment of these cases. While we described the findings from our review of the procedures currently assigned to MS–DRGs 270, 271, and 272 to specifically address the MS–DRG request (88 FR 26704), we note that in our review of cases assigned to MS–DRGs 252, 253, and 254 we identified the majority of procedures reported are for procedures that involve a bypass or dilation procedure that alters the diameter or route of a tubular body part with either an open or percutaneous endoscopic approach in contrast to the USAT endovascular (percutaneous) procedure performed on the peripheral vascular structures. In addition, a number of procedures in these MS–DRGs also involve the use of a permanently implanted device while the procedures utilizing USAT or CDT do not. We also do not agree that the proposed new MS–DRGs would create an unnecessary administrative burden for the established procedure codes since providers are accustomed to proposed and finalized changes to the MS–DRG classifications each fiscal year and software vendors incorporate the finalized changes into their products. With respect to the commenter's assertion that a low volume of procedures would be assigned to their own MS–DRGs based on the proposal, as previously discussed, once the decision was made to propose a new base MS–DRG, we applied the criteria to create subgroups and the criteria for a two-way split was met, therefore, we believe sufficient volume does exist for the proposed new MS–DRGs.

After consideration of the public comments we received, we are finalizing our proposal to create new MS–DRG 278 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures with MCC) and new MS–DRG 279 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures without MCC), without modification, for FY 2024. We are also finalizing our proposal to define the logic for the new MS–DRGs using the previously listed procedure codes for USAT and CDT, as identified and discussed in our analysis of the claims data in Table 6P.5a associated with the proposed rule. We will continue to monitor the claims data for these new MS–DRGs after implementation to determine if additional refinements are warranted.

d. Coronary Intravascular Lithotripsy

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26706 through 26712), we discussed a request we received to review the MS–DRG assignment of cases describing percutaneous coronary intravascular lithotripsy (IVL) involving the insertion of a coronary drug-eluting stent. Coronary IVL is utilized in a subset of percutaneous coronary interventions (PCI) procedures when the artery is severely calcified. The presence of calcium can create various challenges in PCI procedures as it can prevent the optimal deployment of coronary stents and can negatively impact patient outcomes. To fully optimize the PCI for severely calcified arteries, advanced techniques, such as coronary IVL, that utilize specialty devices are often required. In coronary IVL, a lithotripsy device catheter is delivered from a small incision in the patient's arm or leg through to the coronary arterial system of the heart to reach the site of a severely calcified lesion. The lithotripsy emitters at the end of the catheter create acoustic pressure waves that are intended to break up the calcification that is restricting the blood flow in the vessels of the heart to help open the blood vessels when an angioplasty balloon is inflated. After the lithotripsy is performed, the provider can implant an intraluminal device, also called a stent, to keep the vessel open.

According to the requestor, PCIs involving coronary IVL are clinically more complex because coronary IVL is a therapy deployed exclusively in severely calcified coronary lesions, and these lesion types are associated with longer procedure times and increased utilization of hospital resources. The requestor performed its own analysis of claims data for cases reporting procedure codes describing coronary IVL in MS–DRGs 246 and 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ Arteries or Stents and without MCC, respectively) and stated that their findings showed a significant disparity in total standardized costs for cases in MS–DRG 247. Therefore, according to the requestor, the reassignment of all cases reporting procedure codes describing percutaneous coronary IVL involving the insertion of a drug-eluting intraluminal device from the lower severity level MS–DRG 247 to the higher severity level MS–DRG 246 would be reasonable. The requestor also asked that CMS analyze the cases reporting procedure codes describing percutaneous coronary IVL involving the insertion of a non-drug-eluting intraluminal device to determine if reclassifying cases from the lower severity level MS–DRG 249 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent without MCC) to the higher severity level MS–DRG 248 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ Arteries or Stents) would be warranted.

The four ICD–10–PCS procedure codes that describe percutaneous coronary IVL are shown in the following table.

We stated in the proposed rule that the Shockwave C2 Intravascular Lithotripsy System, indicated for lithotripsy-enabled, low-pressure dilation of calcified, stenotic de novo coronary arteries prior to stenting, is identified by the reporting of an ICD–10–PCS code that describes percutaneous coronary IVL shown in the previous table. The Shockwave C2 Intravascular Lithotripsy System was approved for new technology add-on payments for FY 2022 (86 FR 45151 through 45153) and FY 2023 (87 FR 48913). We refer readers to section II.E.5 of the preamble of the proposed rule and this final rule for a discussion regarding the FY 2024 status of technologies approved for FY 2023 new technology add-on payments, including the Shockwave C2 Intravascular Lithotripsy System.

We stated in the proposed rule that the requestor is correct that cases reporting procedure codes that describe percutaneous coronary IVL involving the insertion of a drug-eluting intraluminal device group to MS–DRGs 246 and 247. We also stated the requestor is correct that cases reporting procedure codes that describe percutaneous coronary IVL involving the insertion of a non-drug-eluting intraluminal device group to MS–DRGs 248 and 249. We referred the reader to the ICD–10 MS–DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRGs 246, 247, 248, and 249.

In analyzing this request, we noted in the proposed rule that coronary IVL is a vessel preparation technique and that there may be instances where an intraluminal device is unable to be inserted after the application of the IVL pulses. Therefore, in our analysis of cases reporting procedure codes describing percutaneous coronary IVL involving the insertion of a drug-eluting intraluminal device and non-drug-eluting intraluminal device that group to MS–DRGs 246, 247, 248, and 249, we stated that we included cases reporting percutaneous coronary IVL without procedure codes describing the insertion of a intraluminal device that group to MS–DRGs 250 and 251 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC and without MCC, respectively) in our examination of claims data from the September 2022 update of the FY 2022 MedPAR file for cases reporting percutaneous coronary IVL and compared the results to all cases in their respective MS–DRG.

The following table shows our findings:

As shown by the table, in MS–DRG 246, we identified a total of 40,647 cases, with an average length of stay of 5.2 days and average costs of $25,630. Of those 40,647 cases, there were 2,359 cases reporting percutaneous coronary IVL, with higher average costs as compared to all cases in MS–DRG 246 ($35,503 compared to $25,630), and a longer average length of stay (5.7 days compared to 5.2 days). In MS–DRG 247, we identified a total of 54,671 cases with an average length of stay of 2.4 days and average costs of $16,241. Of those 54,671 cases, there were 1,505 cases reporting percutaneous coronary IVL, with higher average costs as compared to all cases in MS–DRG 247 ($24,141 compared to $16,241), and a longer average length of stay (2.7 days compared to 2.4 days). In MS–DRG 248, we identified a total of 555 cases with an average length of stay of 5.9 days and average costs of $25,740. Of those 555 cases, there were 13 cases reporting percutaneous coronary IVL, with higher average costs as compared to all cases in MS–DRG 248 ($34,492 compared to $25,740), and a longer average length of stay (7.2 days compared to 5.9 days). In MS–DRG 249, we identified a total of 604 cases with an average length of stay of 2.5 days and average costs of $14,909. Of those 604 cases, there were 11 cases reporting percutaneous coronary IVL, with higher average costs as compared to all cases in MS–DRG 249 ($18,648 compared to $14,909), and a longer average length of stay (2.8 days compared to 2.5 days). In MS–DRG 250, we identified a total of 3,483 cases with an average length of stay of 4.8 days and average costs of $20,634. Of those 3,483 cases, there were 201 cases reporting percutaneous coronary IVL, with higher average costs as compared to all cases in MS–DRG 250 ($25,628 compared to $20,634), and a shorter average length of stay (4.4 days compared to 4.8 days). In MS–DRG 251, we identified a total of 3,199 cases with an average length of stay of 2.5 days and average costs of $14,273. Of those 3,199 cases, there were 185 cases reporting percutaneous coronary IVL, with higher average costs as compared to all cases in MS–DRG 251 ($20,289 compared to $14,273), and a shorter average length of stay (2.4 days compared to 2.5 days). We stated in the proposed rule that the data analysis shows that the average costs of cases reporting percutaneous coronary IVL, with or without involving the insertion of intraluminal device, are higher than for all cases in their respective MS–DRG.

We also stated that the data analysis also shows that when the insertion of an intraluminal device was reported with percutaneous coronary IVL, average costs are generally similar without regard as to whether a drug-eluting or a non-drug-eluting intraluminal device was placed. In MS–DRG 246, there were 2,359 cases reporting percutaneous coronary IVL involving the insertion of a drug-eluting intraluminal device with average costs of $35,503 compared to 13 cases reporting percutaneous coronary IVL involving the insertion of a non-drug-eluting intraluminal device with average costs of $34,492 in MS–DRG 248. In MS–DRG 247, there were 1,505 cases reporting percutaneous coronary IVL involving the insertion of a drug-eluting intraluminal device with average costs of $24,141 compared to 11 cases reporting percutaneous coronary IVL involving the insertion of a non-drug-eluting intraluminal device with average costs of $18,648 in MS–DRG 249.

In the proposed rule, we stated we reviewed this data analysis and agreed that the performance of percutaneous coronary IVL contributes to increased resource consumption for these PCI procedures. We also stated that we agreed that clinically, the presence of severe calcification can increase the treatment difficulty and complexity of service. The data analysis clearly shows that cases reporting percutaneous coronary IVL, with or without involving the insertion of intraluminal device, have higher average costs and generally longer lengths of stay compared to all the cases in their assigned MS–DRG. For these reasons, we proposed to create new MS–DRGs for percutaneous coronary IVL involving the insertion of an intraluminal device. While there is not a large number of cases reporting percutaneous coronary IVL without the insertion of an intraluminal device represented in the Medicare data, and we generally prefer not to create a new MS–DRG unless it would include a substantial number of cases, we stated in the proposed rule that we believed creating a separate MS–DRG for these cases as well would appropriately address the differential in resource consumption. Therefore, we also proposed to create a new MS–DRG for cases describing percutaneous coronary IVL without the insertion of an intraluminal device.

To compare and analyze the impact of our suggested modifications, we noted that we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 4,238 cases reporting procedure codes describing percutaneous coronary IVL involving the insertion of an intraluminal device.

We stated we applied the criteria to create subgroups in a base MS–DRG as discussed in section II.C.1.b. of the proposed rule and this FY 2024 IPPS/LTCH PPS final rule. As shown, a three-way split of the proposed new MS–DRG failed to meet the criterion that there be at least a 20% difference in average costs between the CC and NonCC subgroup and also failed to meet the criterion that there be at least a $2,000 difference in average costs between the CC and NonCC subgroup.

We then applied the criteria for a two-way split for the “with MCC” and “without MCC” subgroups and found that all five criteria were met. The following table illustrates our findings.

As discussed in the proposed rule, for the proposed new MS–DRGs for cases reporting procedure codes describing percutaneous coronary IVL involving the insertion of an intraluminal device, there is at least (1) 500 cases in the MCC subgroup and 500 cases in the without MCC subgroup; (2) 5 percent of the cases in the MCC group and 5 percent 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.

For the cases describing coronary intravascular lithotripsy without the insertion of an intraluminal device, we identified a total of 404 cases using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file, so the criterion that there are at least 500 or more cases in each subgroup could not be met. Therefore, for FY 2024, we did not propose to subdivide the proposed new MS–DRG for coronary intravascular lithotripsy without an intraluminal device into severity levels.

In summary, for FY 2024, taking into consideration that it clinically requires greater resources to perform coronary intravascular lithotripsy, we proposed to create two new MS–DRGs with a two-way severity level split for cases describing coronary intravascular lithotripsy involving the insertion of an intraluminal device in MDC 05. We also proposed to create a new MS–DRG for cases describing coronary intravascular lithotripsy without an intraluminal device. These proposed new MS–DRGs are proposed new MS–DRG 323 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC), proposed new MS–DRG 324 (Coronary Intravascular Lithotripsy with Intraluminal Device without MCC) and proposed new MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device). We refer the reader to Table 6P.6a associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index for the list of procedure codes we proposed to define in the logic for each of the proposed new MS–DRGs. We refer the reader to section II.C.15. of the preamble of this final rule for the discussion of the surgical hierarchy and the complete list of our proposed modifications to the surgical hierarchy as well as our finalization of those proposals.

Comment: Many commenters expressed support for CMS' proposal to create new MS–DRGs for cases describing coronary intravascular lithotripsy. A commenter stated that CMS' proposal highlights the resources consumed when performing the procedure with or without the insertion of an intraluminal device. This commenter further stated the proposal also takes into consideration the challenges associated with coronary arteries that are severely calcified while simultaneously providing better outcomes with the optimal deployment of intraluminal devices, when necessary. A commenter stated they appreciate CMS' willingness to periodically review hospital resources associated with the MS–DRGs for percutaneous coronary intervention procedures. Another commenter applauded CMS' proposal and stated this adjustment should provide for greater access to this new technology and should contribute to better outcomes for Medicare patients with severely calcified arteries.

Response: We appreciate the commenters' support.

Comment: While supporting the proposal, some commenters suggested that proposed new MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) be split into two severity levels (with and without MCC) to recognize the increased resource utilization when a secondary diagnosis designated as an MCC is present. Another commenter stated that CMS proposed to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024 and questioned CMS' application of the methodology to the proposed new MS–DRGs. This commenter stated that the presence of a secondary diagnosis designated as CC and a MCC impacts the length of stay and costs and therefore distinct tiers within these proposed MS–DRGs are necessary to reflect the differences in resource utilization.

Response: We thank the commenters for their feedback.

In response to the suggestion that proposed new MS–DRG 325 for cases describing coronary intravascular lithotripsy without intraluminal device be subdivided with a two-way severity level split, as discussed in the proposed rule and earlier in this section, in the analysis of the cases describing coronary intravascular lithotripsy without the insertion of an intraluminal device, we note we identified a total of 404 cases using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. Therefore, the criterion that there are at least 500 or more cases in each subgroup could not be met so we did not propose to subdivide the proposed new MS–DRG for coronary intravascular lithotripsy without an intraluminal device into severity levels for FY 2024.

In response to the concern regarding the application of the NonCC subgroup criteria to the proposed new MS–DRGs, we note 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 CC or 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. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798) and FY 2023 IPPS/LTCH PPS final rule (87 FR 48803), we finalized a delay in applying this technical criterion to existing MS–DRGs in light of the PHE. We note that this delay relates to applying this technical criterion to existing MS–DRGs with a three-way severity level split. As discussed in prior rulemaking, in general, 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 must be met for the base MS–DRG to be split (or subdivided) by a CC subgroup. We note that we have applied the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of the MS–DRG classification requests effective FY 2021 (85 FR 58446 through 58448). For example, we applied the criteria to create subgroups, including application of the NonCC subgroup criteria, for a proposed new base MS–DRG as discussed in our finalization of new base MS–DRG 018 (Chimeric Antigen Receptor (CAR) T-cell Immunotherapy), new base MS–DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis), new base MS–DRG 140 (Major Head and Neck Procedures), new base MS–DRG 143 (Other Ear, Nose, Mouth and Throat O.R. Procedures), new base MS–DRG 521 (Hip Replacement with Principal Diagnosis of Hip Fracture) and new base MS–DRG 650 (Kidney Transplant with Hemodialysis) for FY 2021. Similarly, we applied the criteria to create subgroups including application of the NonCC subgroup criteria for MS–DRG classification requests for FY 2022 that we received by November 1, 2020 (86 FR 44796 through 44798), for MS–DRG classification requests for FY 2023 that we received by November 1, 2021 (87 FR 48801 through 48804), and for MS–DRG classification requests for FY 2024 that we received by October 20, 2022 (88 FR 26673 through 26676), as well as any additional analyses that were conducted in connection with those requests. We refer the reader to section II.C.1.b. of the preamble of this final rule for related discussion regarding our finalization of the expansion of the criteria to include the NonCC subgroup in the FY 2021 final rule and our finalization of the proposal to continue to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024.

Comment: Some commenters expressed concern with CMS' proposal and stated that the proposed MS–DRGs may not reflect the full range of treatment options for severely calcified coronary lesions that may demonstrate similar increased costs and acuity. These commenters stated that the presence of severe calcification can increase treatment difficulty and complexity of service, which lead to higher average costs and generally longer lengths of stay. These commenters stated that CMS should consider other well-established advanced vessel preparation techniques, such as percutaneous coronary rotational and orbital atherectomy, that also use specialty devices to fully optimize PCI for severely calcified arteries. A commenter stated that they agreed that there is a subset of clinically complex PCI cases with higher average costs however, they do not believe it serves the integrity of the IPPS to create new MS–DRGs for a single technology serving a relatively low volume of patient cases and suggested that CMS refine the proposed new MS–DRGs 323, 324 and 325 to include coronary atherectomy procedures. Another commenter stated that its own analysis demonstrated that resource requirements for orbital atherectomy are virtually the same as those for coronary IVL. This commenter noted CMS proposed to create MS–DRG 325 for cases describing coronary intravascular lithotripsy without intraluminal device and stated that this is inconsistent with the labeled indications for use of these high-resource devices. The commenter stated that coronary IVL and other complex vessel preparation technologies focus on treating severe calcium to facilitate placement and technical success of intraluminal devices and expressed concern with the precedent of establishing a device-specific MS–DRG that is inconsistent with a technology's indications for use.

Other commenters opposed these recommendations and stated they believed that CMS' proposal correctly differentiates coronary IVL from other PCI procedures, given the significant resource variance when IVL is utilized, and the more clinically complex patients being treated. A commenter stated that atherectomy is distinct from coronary IVL in terms of mechanism of action and technique, and further noted that, the clinical utilization is different in that atherectomy is not a therapy that is exclusively utilized in heavily calcified lesions. This commenter stated that in its own analysis of the claims data, the costs of atherectomy cases are half the costs of coronary IVL cases.

These commenters all encouraged CMS to evaluate these and any other PCI-related procedures in future rulemaking to allow for all options to be considered appropriately.

Response: We thank the commenters for their feedback. Although we note that the initial request was to review the MS–DRG assignment of cases describing percutaneous coronary intravascular lithotripsy, and not cases describing other PCI techniques, the commenters are correct in that there are different types of treatment options available in the treatment of calcified coronary lesions. Under the ICD–10–PCS procedure classification system there are two root operations, Extirpation and Fragmentation, specifically defined as:

Extirpation: Taking or cutting out solid matter from a body part; and

Fragmentation: Breaking solid matter in a body part into pieces that are reported to describe the respective procedure that was performed.

In coronary IVL, emitters at the end of the catheter create acoustic pressure waves that are intended to break up the calcification that is restricting the blood flow in the vessels of the heart to help open the blood vessels when an angioplasty balloon is inflated. Because the technique fragments matter, procedures performed utilizing devices such as the Shockwave C2 Intravascular Lithotripsy System are identified and described by the root operation Fragmentation. In contrast, procedures such as rotational and orbital atherectomy are reported with the root operation Extirpation because both techniques cut up the calcified material into small particles that are removed from the blood stream by the normal hemofiltration process.

In response to the commenter's statement that both coronary IVL and coronary atherectomy are procedures intended to treat calcified coronary arteries, we agree, however, as shown, each of these procedures are defined by clinically distinct definitions and objectives, and there are separate and unique ICD–10–PCS procedure codes within the classification for reporting purposes. We do not believe it is appropriate to specifically compare the devices being utilized in the performance of these distinct procedures in consideration of MS–DRG assignment, rather, the emphasis is on the fragmentation and extirpation procedures performed and evaluating the treatment difficulty, resource utilization, and complexity of service.

In response to the commenter's statement regarding the labeled indications for coronary IVL, as discussed in the proposed rule, there may be instances where an intraluminal device is unable to be inserted after the application of the IVL pulses. Accordingly, we identified a total of 386 cases describing coronary intravascular lithotripsy without the insertion of an intraluminal device using the September 2022 update of the FY 2022 MedPAR file and 404 cases describing coronary intravascular lithotripsy without the insertion of an intraluminal device using the more recent claims data from the December 2022 update of the FY 2022 MedPAR file. We continue to we believe creating a MS–DRG for these cases as well would appropriately address the differential in resource consumption.

As discussed in the proposed rule, the data analysis clearly shows that cases reporting percutaneous coronary IVL, with or without involving the insertion of intraluminal device, have higher average costs and generally longer lengths of stay compared to all the cases in their assigned MS–DRG. We appreciate the commenters' feedback and suggestions, however, we believe that continued monitoring of the data and further analysis is needed prior to proposing any modifications to the proposed new MS–DRGs for percutaneous coronary IVL. We will continue to evaluate the claims data to determine if further modifications to the MS–DRG assignment of cases reporting percutaneous coronary intervention procedures are warranted and address any proposed modifications to the existing logic in future rulemaking.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to create new MS–DRG 323 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC), new MS–DRG 324 (Coronary Intravascular Lithotripsy with Intraluminal Device without MCC) and new MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) in MDC 05, without modification, effective October 1, 2023 for FY 2024. We are also finalizing the list of procedure codes to define the logic for each of the new MS–DRGs as displayed in Table 6P.6a associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.

In reviewing this issue, we noted in the FY 2024 proposed rule that we received a separate but related request in FY 2022 rulemaking. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44848 through 44850), we discussed a request to review the MS–DRG assignments of claims involving the insertion of coronary stents in PCIs. The requestor suggested that CMS eliminate the distinction between drug-eluting and bare-metal coronary stents in the MS–DRG classification. According to the requestor, coated stents have a clinical performance comparable to drug-eluting stents, however, they are grouped with bare-metal stents because they do not contain a drug. The requestor asserted that this comingling muddies the clinical coherence of the MS–DRG structure, as one cannot infer distinctions in clinical performance or benefits among the groups and potentially creates a barrier (based on hospital decision-making) to patient access to modern coated stents. In response, we stated that based on a review of the procedure codes that are currently assigned to MS–DRGs 246, 247, 248, and 249, our clinical advisors agreed that further refinement of these MS–DRGs may be warranted. We noted that in the FY 2003 IPPS/LTCH PPS final rule (67 FR 50003 through 50005), although the FDA had not yet approved the technology for use, we created two new temporary CMS DRGs to reflect cases involving the insertion of a drug-eluting coronary artery stent as signified by the presence of ICD–9–CM procedure code 36.07 (Insertion of drug-eluting coronary artery stent) in recognition of the potentially significant impact this technology may conceivably have on the treatment of coronary artery blockages, the predictions of its rapid, widespread use, and that the higher costs of this technology could create undue financial hardships for hospitals due to the high volume of stent cases. In the FY 2022 final rule, we noted that the distinction between drug-eluting and non-drug-eluting stents is found elsewhere in the ICD–10–PCS procedure code classification and stated evaluating this request required a more extensive analysis to assess potential impacts across the MS–DRGs. We also stated that we believed it would be more appropriate to consider this request further in future rulemaking.

As discussed in the proposed rule and this section of the final rule, our analysis of claims data from the September 2022 update of the FY 2022 MedPAR file indicates that in cases reporting percutaneous coronary IVL involving the insertion of an intraluminal device, average costs are generally similar without regard as to whether a drug-eluting or non-drug-eluting intraluminal device was inserted. Therefore, in consideration of the prior request discussed in FY 2022 rulemaking and to further explore this current finding, we stated we examined claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 246, 247, 248, and 249 for “all other cases” assigned to MS–DRGs 246, 247, 248, and 249 that did not report percutaneous coronary IVL as reflected in the previous table.

In the proposed rule, we again noted that the data analysis shows that in percutaneous cardiovascular procedures involving the insertion of an intraluminal device, the average costs are generally similar without regard as to whether a drug-eluting or non-drug-eluting intraluminal device(s) was inserted. In MS–DRG 246, there were 38,288 cases reporting percutaneous cardiovascular procedures involving the insertion of a drug-eluting intraluminal device with an MCC or procedures involving four or more arteries or intraluminal devices with average costs of $25,022 compared to 542 cases reporting percutaneous cardiovascular procedures involving the insertion of a non-drug-eluting intraluminal device with an MCC or procedures involving four or more arteries or intraluminal devices with average costs of $25,530 in MS–DRG 248. In MS–DRG 247, there were 53,166 cases reporting percutaneous cardiovascular procedures involving the insertion of a drug-eluting intraluminal device without an MCC with average costs of $16,017 compared to 593 cases reporting percutaneous coronary IVL involving the insertion of a non-drug-eluting intraluminal device without an MCC with average costs of $14,840 in MS–DRG 249.

We stated we reviewed these findings and believed that it may no longer be necessary to subdivide the MS–DRGs based on the type of coronary intraluminal device inserted. Drug-eluting intraluminal devices consist of a standard metallic stent, a polymer coating, and an anti-restenotic drug that is mixed within the polymer and released over time. In current practice, drug-eluting intraluminal devices are generally viewed as the default type of intraluminal device considered for patients undergoing PCI, although non-drug-eluting stents such as bare-metal coronary artery stents can also be used in PCI procedures for a range of indications, including stable and unstable angina, acute myocardial infarction (MI), and multiple-vessel disease. We noted the related data analysis clearly showed that in the years since the MS–DRGs for cases involving the insertion of a drug-eluting coronary artery stent were created, cases reporting percutaneous cardiovascular procedures involving the insertion of a drug-eluting intraluminal device now demonstrate average costs and lengths of stays comparable to cases reporting percutaneous cardiovascular procedures involving the insertion of a non-drug-eluting intraluminal device. For these reasons, we proposed the deletion of MS–DRGs 246, 247, 248, and 249, and the creation of new MS–DRGs.

We noted that in the FY 2008 IPPS/LTCH PPS final rule (72 FR 47259 through 47260) we stated we found that percutaneous transluminal coronary angioplasties (PTCAs) with four or more vessels or four or more stents were more comparable in average charges to the higher weighted DRG in the group and made changes to the GROUPER logic. Claims containing ICD–9–CM procedure code 00.66 for PTCA, and code 36.07 (Insertion of drug-eluting coronary artery stent(s)), and code 00.43 (Procedure on four or more vessels) or code 00.48 (Insertion of four or more vascular stents) were assigned to MS–DRG 246. In addition, claims containing ICD–9–CM procedure code 00.66 for PTCA, and code 36.06 (Insertion of non-drug-eluting coronary artery stent(s)), and code 00.43 or code 00.48 were assigned to MS–DRG 248. We also made conforming changes to the MS–DRG titles as follows: MS–DRG 246 was titled “Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) with MCC or 4 or more Vessels/Stents”. MS–DRG 248 was titled “Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) with MCC or 4 or more Vessels/Stents”. In FY 2018 IPPS/LTCH PPS final rule (82 FR 38024), we finalized our proposal to revise the title of MS–DRG 246 to “Percutaneous Cardiovascular Procedures with Drug- Eluting Stent with MCC or 4+ Arteries or Stents” and the title of MS–DRG 248 to “Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ Arteries or Stents” to better reflect the ICD–10–PCS terminology of “arteries” versus “vessels” as used in the procedure code titles within the classification.

Recognizing that the current GROUPER logic for case assignment to MS–DRGs 246 or 248 continues to require at least one secondary diagnosis designated as an MCC or procedures involving four or more arteries or intraluminal devices, we examined claims data from the September 2022 update of the FY 2022 MedPAR file for cases reporting percutaneous cardiovascular procedures involving four or more arteries or intraluminal devices and compared these data to all cases in MS–DRGs 246 and 248.

As discussed in the proposed rule, in MS–DRG 246, we identified a total of 40,647 cases with an average length of stay of 5.2 days and average costs of $25,630. Of those 40,647 cases, there were 3,430 cases reporting percutaneous cardiovascular procedures involving four or more arteries or intraluminal devices, with higher average costs as compared to all cases in MS–DRG 246 ($27,397 compared to $25,630), and a shorter average length of stay (3.2 days compared to 5.2 days). In MS–DRG 248, we identified a total of 555 cases with an average length of stay of 5.9 days and average costs of $25,740. Of those 555 cases, there were 21 cases reporting percutaneous cardiovascular procedures involving four or more arteries or intraluminal devices, with higher average costs as compared to all cases in MS–DRG 248 ($28,251 compared to $25,740), and a shorter average length of stay (3.4 days compared to 5.9 days). We stated this analysis demonstrates that cases reporting percutaneous procedures involving four or more arteries or intraluminal devices continue to be more comparable in average costs and resource consumption to the cases in the higher weighted MS–DRG in the group and indicates that maintaining the logic that recognizes the performance of percutaneous cardiovascular procedures involving four or more arteries or intraluminal devices that exists currently in MS–DRGs 246 and 248 in the proposed new MS–DRGs was warranted.

We noted presently, MS–DRGs 246 and 248 are defined as base MS–DRGs, each of which is split by a two-way severity level subgroup. Our proposal includes the creation of one base MS–DRG split also by a two-way severity level subgroup. To compare and analyze the impact of our suggested modifications, we stated we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 97,338 cases reporting percutaneous cardiovascular procedures involving intraluminal devices.

We applied the criteria to create subgroups in a base MS–DRG as discussed in section II.C.1.b. of the proposed rule and this FY 2024 IPPS/LTCH PPS final rule. As shown in the table that follows, a three-way split of the proposed new MS–DRGs failed to meet the criterion that there be at least a 20% difference in average costs between the CC and NonCC subgroup and also failed to meet the criterion that there be at least a $2,000 difference in average costs between the CC and NonCC subgroup.

We then applied the criteria for a two-way split for the “with MCC” and “without MCC” subgroups for the proposed new MS–DRGs and found that all five criteria were met. The following table illustrates our findings.

For the proposed new MS–DRGs, there is (1) at least 500 cases in the MCC subgroup and in the without MCC subgroup; (2) at least 5 percent of the cases are in the MCC subgroup and in the without MCC subgroup; (3) at least a 20 percent difference in average costs between the MCC subgroup and the without MCC subgroup; (4) at least a $2,000 difference in average costs between the MCC subgroup and the without MCC 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.

We noted in that proposed rule that proposed refinements for cases reporting percutaneous cardiovascular procedures with intraluminal devices represented the first step in investigating how we may evaluate the distinctions between drug-eluting and non-drug-eluting intraluminal devices found elsewhere in the ICD–10–PCS procedure code classification. We stated we are making concerted efforts to continue refining the ICD–10 MS–DRGs and we believed the resulting MS–DRG assignments in our current proposal would be more clinically homogeneous, coherent and better reflect current trends and hospital resource use.

In summary, for FY 2024, taking into consideration it appears to no longer be necessary to subdivide the MS–DRGs for percutaneous cardiovascular procedures based on the type of coronary intraluminal device inserted, we proposed to delete MS–DRGs 246, 247, 248, and 249, and create a new base MS–DRG with a two-way severity level split for cases describing percutaneous cardiovascular procedures with intraluminal device in MDC 05. These proposed new MS–DRGs are proposed new MS–DRG 321 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices) and proposed new MS–DRG 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device without MCC). We proposed to add the procedure codes from current MS–DRGs 246, 247, 248, and 249 to the proposed new MS–DRGs 321 and 322. We also proposed to revise the titles for MS–DRGs 250 and 251 from “Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC, and without MCC, respectively” to “Percutaneous Cardiovascular Procedures without Intraluminal Device with MCC, and without MCC, respectively” to better reflect the ICD–10–PCS terminology of “intraluminal devices” versus “stents” as used in the procedure code titles within the classification.

We refer the reader to section II.C.15. of the preamble of this final rule for the discussion of the surgical hierarchy and the complete list of our proposed modifications to the surgical hierarchy as well as our finalization of those proposals.

Comment: Commenters supported CMS' proposals. These commenters stated that they agreed with CMS that the distinction between drug-eluting and bare metal stents is no longer required given the evolution of these technologies. A commenter stated they appreciated the simplification of MS–DRGs involving percutaneous intraluminal devices by omitting the distinction between drug-eluting versus non-drug-eluting devices with the proposed creation of MS–DRGs 321 and 322. Another commenter stated that they appreciate CMS periodically reviewing the MS–DRGs for percutaneous coronary interventions to ensure they appropriately reflect current clinical practice and appropriately reflect the hospital resources associated with these procedures. A commenter supported the proposal, but suggested that there be consideration to split the new base MS–DRG for cases describing percutaneous cardiovascular procedures with intraluminal device with a three-way severity level split, instead of a two-way severity level split as proposed.

Response: We appreciate the commenters' support. In response to the suggestion to split the new base MS–DRG for cases describing percutaneous cardiovascular procedures with intraluminal device with a three-way severity level split, as discussed in the proposed rule and earlier in this section, we note we applied the criteria to create subgroups in a base MS–DRG as discussed in section II.C.1.b. of the proposed rule and this FY 2024 IPPS/LTCH PPS final rule. We note that a three-way split of the proposed new MS–DRGs failed to meet the criterion that there be at least a 20% difference in average costs between the CC and NonCC subgroup and also failed to meet the criterion that there be at least a $2,000 difference in average costs between the CC and NonCC subgroup.

Comment: Other commenters stated that while they agreed with CMS' rationale that it is no longer necessary to subdivide the MS–DRGs based on the type of coronary intraluminal device inserted and supported the proposal to delete MS–DRGs 246, 247, 248, and 249 and create a new base MS–DRG with a two-way severity level split for cases describing percutaneous cardiovascular procedures with intraluminal device in MDC 05, they did not agree with the proposed relative weights for these new MS–DRGs and requested that CMS review the proposed weights for these MS–DRGs with the weight decline to ensure it adequately captures the resources for the complex treatment of these patients. These commenters stated a decrease in the relative weight for the proposed new MS–DRGs would cause inadequate payment for the medical care and treatment provided to the patient.

Response: We appreciate the commenters' feedback and concern. We note that each year, we calculate the relative weights by dividing the average cost for cases within each MS–DRG by the average cost for cases across all MS–DRGs. It is to be expected that when MS–DRGs are restructured, such as when procedure codes are reassigned or the hierarchy within an MDC is revised, resulting in a different case-mix within the MS–DRGs, the relative weights of the MS–DRGs will change as a result. As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, and earlier in this section, upon application of the criteria to create subgroups, we proposed to create a base MS–DRG split by a two-way severity level subgroup for cases describing coronary intravascular lithotripsy involving the insertion of an intraluminal device in MDC 05 for FY 2024. Therefore, the data appear to reflect that the difference in the relative weights reflected in Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS–DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2024, associated with the proposed rule, can be attributed to the fact that these proposals resulted in a different case-mix within the MS–DRGs which is then being reflected in the relative weights. We refer the reader to section II.D. of the preamble of this FY 2024 IPPS/LTCH PPS final rule for a complete discussion of the relative weight calculations.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal, without modification, to delete MS–DRGs 246, 247, 248, and 249 for FY 2024. We are also finalizing our proposal to create new MS–DRG 321 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices) and new MS–DRG 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device without MCC). Accordingly, we are finalizing our proposal to reassign the procedure codes from current MS–DRGs 246, 247, 248, and 249 to the new MS–DRGs 321 and 322. Lastly, we are also finalizing our proposal to revise the titles of MS–DRGs 250 and 251 from “Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC, and without MCC, respectively” to “Percutaneous Cardiovascular Procedures without Intraluminal Device with MCC, and without MCC, respectively” effective October 1, 2023 for FY 2024.

e. Shock

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44831 through 44833), we discussed a request we received to review the MS–DRG assignment of ICD–10–CM diagnosis code I21.A1 (Myocardial infarction type 2). The requestor stated that when a type 2 myocardial infarction is documented, per coding guidelines, it is to be coded as a secondary diagnosis since it is due to an underlying cause. This requestor also noted that when a type 2 myocardial infarction is coded with a principal diagnosis in MDC 05 (Diseases and Disorders of the Circulatory System), the GROUPER logic assigns MS–DRGs 280 through 282 (Acute Myocardial Infarction, Discharged Alive with MCC, with CC, and without CC/MCC, respectively). The requestor questioned if this GROUPER logic was correct or if the logic should be changed so that a type 2 myocardial infarction, coded as a secondary diagnosis, does not result in the assignment of a MS–DRG that describes an acute myocardial infarction. During our review of this issue, we also noted that ICD–10–CM diagnosis code I21.A1 (Myocardial infarction type 2) was one of the listed principal diagnoses in the GROUPER logic for 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). However, code I21.A1 was not recognized in these same MS–DRGs when coded as a secondary diagnosis. Acknowledging that coding guidelines instruct to code I21.A1 after the diagnosis code that describes the underlying cause, we indicated our clinical advisors recommended adding special logic in MS–DRGs 222 and 223 to have code I21.A1 also qualify when coded as a secondary diagnosis in combination with a principal diagnosis in MDC 05 since these diagnosis code combinations also describe acute myocardial infarctions. In the FY 2022 final rule, after consideration of the public comments, we finalized our proposal to maintain the structure of MS–DRGs 280 through 285, without modification, for FY 2022. We also finalized our proposal to modify the GROUPER logic to allow cases reporting diagnosis code I21.A1 (Myocardial infarction type 2) as a secondary diagnosis to group to MS–DRGs 222 and 223 when reported with qualifying procedures, effective October 1, 2021. Under this finalization, code I21.A1, as a secondary diagnosis, is used in the definition of the logic for assignment to MS–DRGs 222 and 223, and therefore does not act as an MCC in these MS–DRGs.

In response to this final policy, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26712 through 26717), we discussed a related request we received to also add ICD–10–CM diagnosis code R57.0 (Cardiogenic shock) to the list of “secondary diagnoses” that group to MS–DRGs 222 and 223. Cardiogenic shock occurs when the heart cannot pump enough oxygen-rich blood to the brain and other vital organs resulting in inadequate tissue perfusion. The most common cause of cardiogenic shock is acute myocardial infarction. Other causes include myocarditis, endocarditis, papillary muscle rupture, left ventricular free wall rupture, acute ventricular septal defect, severe congestive heart failure, end-stage cardiomyopathy, severe valvular dysfunction, acute cardiac tamponade, cardiac contusion, massive pulmonary embolus, or the overdose of drugs such as beta blockers or calcium channel blockers.

As discussed in the proposed rule, since the MS–DRG titles contain the word “shock”, the requestor indicated that it seemed reasonable for the GROUPER logic to recognize cardiogenic shock when coded as a secondary diagnosis because, according to the requestor, the specific underlying cardiac condition responsible for causing the cardiogenic shock must always be sequenced first. The requestor further asserted that ICD–10–CM coding guidelines require codes from Chapter 18 (Symptoms, Signs, and Abnormal Clinical and Laboratory Findings) to be sequenced first, therefore when coding guidelines are followed, this code can never be an appropriate principal diagnosis. The requestor acknowledged that if code R57.0 were to be added to the list of “secondary diagnoses” that group to MS–DRGs 222 and 223, and therefore used in the definition of the logic for assignment, the code would no longer act as an MCC in MS–DRGs 222 and 223.

To begin our analysis, we stated we reviewed the GROUPER logic. In the proposed rule, we noted that ICD–10–CM diagnosis code R57.0 (Cardiogenic shock) is currently one of the listed principal diagnoses in the GROUPER logic for MS–DRGs 222 and 223. We stated that requestor was correct that diagnosis code R57.0 is not currently recognized in these same MS–DRGs when coded as a secondary diagnosis. We refer the reader to the ICD–10 MS–DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRGs 222 and 223.

We also stated that the requestor was also correct that the diagnosis code R57.0 is found in Chapter 18 (Symptoms, Signs and Abnormal Clinical and Laboratory Findings) of ICD–10–CM and that diagnosis code R57.0 has a current severity designation of MCC when reported as a secondary diagnosis. We disagreed, however, that this code can never be an appropriate principal diagnosis. We noted that according to the ICD–10–CM Official Guidelines for Coding and Reporting, diagnoses described by codes from Chapter 18 of ICD–10–CM, such as R57.0, are acceptable for reporting when a related definitive diagnosis has not been established (confirmed) by the provider. We also pointed out that a “code first” note appears at ICD–10–CM diagnosis code I21.A1 (Myocardial infarction type 2). The “code first” note is an etiology/manifestation coding convention (additional detail can be found in the ICD–10–CM Official Guidelines for Coding and Reporting), indicating that the condition has both an underlying etiology and manifestation due to the underlying etiology. No such “code first” notes appear at ICD–10–CM diagnosis code R57.0 (Cardiogenic shock). If providers have cases involving cardiogenic shock which they need ICD–10 coding assistance, we encourage them to submit their questions to the American Hospital Association's Central Office on ICD–10 at https://www.codingclinicadvisor.com/.

As discussed in the proposed rule, we then examined claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRGs 222 and 223 (Cardiac Defibrillator Implant with Cardiac Catheterization with AMI, HF or Shock, with and without MCC, respectively) and compared the results to cases that had a principal diagnosis or a secondary diagnosis of cardiogenic shock in these MS–DRGs. We also included MS–DRGs 224 and 225 (Cardiac Defibrillator Implant with Cardiac Catheterization without AMI, HF or Shock with and without MCC, respectively) and MS–DRGs 226 and 227 (Cardiac Defibrillator Implant without Cardiac Catheterization with and without MCC, respectively) in our analysis as the logic for these MS–DRGs is similar, differing only in the reporting of a diagnosis that describes acute myocardial infarction, heart failure or shock, or the performance of cardiac catheterization. The following table shows our findings:

In MS–DRG 222, we identified a total of 1,488 cases with an average length of stay of 11 days and average costs of $64,794. Of those 1,488 cases, there were six cases reporting a principal diagnosis of R57.0, with higher average costs as compared to all cases in MS–DRG 222 ($88,486 compared to $64,794), and a longer average length of stay (13.5 days compared to 11 days). There were 322 cases reporting a secondary diagnosis of R57.0, with higher average costs as compared to all cases in MS–DRG 222 ($77,451 compared to $64,794), and a longer average length of stay (15.1 days compared to 11 days). In MS–DRG 224, we identified a total of 1,606 cases with an average length of stay of 9.4 days and average costs of $60,583. Of those 1,606 cases, there were zero cases reporting a principal diagnosis of R57.0. There were 268 cases reporting a secondary diagnosis of R57.0, with higher average costs as compared to all cases in MS–DRG 224 ($77,334 compared to $60,583), and a longer average length of stay (12.9 days compared to 9.4 days). In MS–DRG 226, we identified a total of 3,595 cases with an average length of stay of 8.3 days and average costs of $53,706. Of those 3,595 cases, there were four cases reporting a principal diagnosis of R57.0, with higher average costs as compared to all cases in MS–DRG 226 ($72,349 compared to $53,706), and a longer average length of stay (14.3 days compared to 8.3 days). There were 325 cases reporting a secondary diagnosis of R57.0, with higher average costs as compared to all cases in MS–DRG 226 ($65,266 compared to $53,706), and a longer average length of stay (12.5 days compared to 8.3 days). We found zero cases across MS–DRGs 223, 225, and 227 reporting R57.0 as principal or as a secondary diagnosis. Our analysis clearly shows that the cases reporting a secondary diagnosis of cardiogenic shock in MS–DRGs 222, 224 and 226 had higher average costs and longer average length of stay compared to all cases in their respective MS–DRGs.

We stated in the proposed rule that we reviewed these data and did not recommend modifying the GROUPER logic to allow cases reporting diagnosis code R57.0 (Cardiogenic shock) as a secondary diagnosis to group to MS–DRGs 222 and 223 when reported with qualifying procedures. As noted by the requestor, and as discussed in FY 2022 IPPS/LTCH PPS final rule, (86 FR 44831 through 44833), a diagnosis code may define the logic for a specific MS–DRG assignment in three different ways. Whenever there is a secondary diagnosis component to the MS–DRG logic, the diagnosis code can either be used in the logic for assignment to the MS–DRG or to act as a CC/MCC.

We stated we believed that patients with cardiogenic shock as a secondary diagnosis tend to be more severely ill and these inpatient admissions are associated with greater resource utilization. Cardiogenic shock represents a life-threatening emergency that requires urgent treatment that focuses on getting blood flowing properly to prevent, and protect against, organ failure, brain injury or death. For clinical consistency, we stated it was more appropriate for ICD–10–CM diagnosis code R57.0 to act as an MCC when cardiogenic shock is documented in the medical record and coded as a secondary diagnosis. Therefore, we did not propose to modify the GROUPER logic to allow cases reporting diagnosis code R57.0 (Cardiogenic shock) as a secondary diagnosis to group to MS–DRGs 222 and 223 when reported with qualifying procedures.

Comment: Commenters expressed support for CMS' proposal to not modify the GROUPER logic to allow cases reporting diagnosis code R57.0 (Cardiogenic shock) as a secondary diagnosis to group to MS–DRGs 222 and 223 when reported with qualifying procedures.

Response: We thank the commenters for their support.

During our review of this issue, we noted in the proposed rule that the data analysis showed that in procedures involving a cardiac defibrillator implant, the average costs and length of stay are generally similar without regard to the presence of diagnosis codes describing AMI, HF or shock. In MS–DRG 222, there were 1,488 cases reporting cardiac defibrillator implant with cardiac catheterization with AMI, HF, or Shock with an MCC with average costs of $64,794 and an average length of stay of 11 days compared to 1,606 cases reporting cardiac defibrillator implant with cardiac catheterization without AMI, HF, or Shock with an MCC with average costs of $60,583 and an average length of stay of 9.4 days in MS–DRG 224. In MS–DRG 223, there were 270 cases reporting cardiac defibrillator implant with cardiac catheterization with AMI, HF or Shock without an MCC with average costs of $43,500 and an average length of stay of 5.7 days compared to 1,167 cases reporting cardiac defibrillator implant with cardiac catheterization without AMI, HF, or Shock without an MCC with average costs of $42,442 and an average length of stay of 4.6 days in MS–DRG 225.

We stated that the analysis of MS–DRGs 222, 223, 224, 225, 226, and 227 further demonstrated that the average length of stay and average costs for all cases are similar for each of the “without MCC” subgroups. As stated previously, for all of the cases in MS–DRG 223, we found that the average length of stay was 5.7 days with average costs of $43,500, and for all of the cases in MS–DRG 225, the average length of stay was 4.6 days with average costs of $42,442. Likewise, for all of the cases in MS–DRG 227, we found that the average length of stay was 3.9 days with average costs of $41,636.

We reviewed these findings and stated we believed that it may no longer be necessary to subdivide these MS–DRGs based on the diagnosis codes reported. We noted that in the FY 2004 IPPS/LTCH PPS final rule (68 FR 45356 through 45358) we stated we found that patients who are admitted with acute myocardial infarction, heart failure, or shock and have a cardiac catheterization are generally acute patients who require emergency implantation of the defibrillator. Thus, we stated there were very high costs associated with these patients. Therefore, we finalized the creation of new DRGs for patients receiving a cardiac defibrillator implant with cardiac catheterization and with a principal diagnosis of acute myocardial infarction, heart failure, or shock.

As discussed in the proposed rule, our analysis of claims data from the September 2022 update of the FY 2022 MedPAR file clearly shows that in the 20 years since the DRGs for cases involving a cardiac defibrillator implant with cardiac catheterization split based on the presence or absence of diagnosis codes describing acute myocardial infarction, heart failure, or shock were created, cases reporting a cardiac defibrillator implant with cardiac catheterization continue to demonstrate higher average costs and longer lengths of stays, however these increased costs appear to be more related to the procedures performed than to the diagnoses reported on the claim, and therefore we stated that we believed it was time to restructure these MS–DRGs accordingly.

In the proposed rule, we did note that when reviewing consumption of hospital resources for the cases reporting cardiac defibrillator implant with cardiac catheterization during a hospital stay, the claims data clearly shows that the cases reporting secondary diagnoses designated as MCCs are more resource intensive as compared to other cases reporting cardiac defibrillator implant. As noted previously, in MS–DRG 222, there were 1,488 cases reporting cardiac defibrillator implant with cardiac catheterization with AMI, HF, or Shock with an MCC with average costs of $64,794 and an average length of stay of 11 days. Similarly, in MS–DRG 224, there were 1,606 cases reporting cardiac defibrillator implant with cardiac catheterization without AMI, HF, or Shock with an MCC with average costs of $60,583 and an average length of stay of 9.4 days in MS–DRG 224. In comparison, there were 270 cases reporting cardiac defibrillator implant with cardiac catheterization with AMI, HF, or Shock without an MCC with average costs of $43,500 and an average length of stay of 5.7 days in MS–DRG 223, 1,167 cases reporting cardiac defibrillator implant with cardiac catheterization without AMI, HF, or Shock without an MCC with average costs of $42,442 and an average length of stay of 4.6 days in MS–DRG 225, 3,595 cases reporting cardiac defibrillator implant without cardiac catheterization with an MCC with average costs of $53,706 and an average length of stay of 8.3 days in MS–DRG 226, and 2,522 cases reporting cardiac defibrillator implant without cardiac catheterization without an MCC with average costs of $41,636 and an average length of stay of 3.9 days in MS–DRG 227.

Therefore, we stated we supported the removal of the special logic defined as “Principal Diagnosis AMI/HF/SHOCK” from the definition for assignment to any proposed modifications to the MS–DRGs, noting the cases can be appropriately grouped along with cases reporting any MDC 05 diagnosis when reported with qualifying procedures, in any restructured proposed MS–DRGs. For these reasons, we proposed the deletion of MS–DRGs 222, 223, 224, 225, 226, and 227, and the creation of three new MS–DRGs. Our proposal included the creation of one new base MS–DRG for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC and another new base MS–DRG split by a two-way severity level subgroup for cases reporting a cardiac defibrillator implant without cardiac catheterization.

We stated in the proposed rule that to compare and analyze the impact of our suggested modifications, we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 3,467 cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC. We note that as discussed in prior rulemaking (86 FR 44831 through 44833), a diagnosis code may define the logic for a specific MS–DRG assignment in three different ways. The diagnosis code may be listed as principal or as any one of the secondary diagnoses, as a secondary diagnosis, or only as a secondary diagnosis. For this specific scenario, we proposed that secondary diagnosis codes with a severity designation of MCC be used in the definition of the logic for assignment to the proposed base MS–DRG for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC. Therefore, we did not apply the criteria to create further subgroups in a base MS–DRG for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC as discussed in section II.C.1.b. of the FY 2024 IPPS/LTCH PPS proposed rule. We stated that we believed the resulting proposed MS–DRG assignment is more clinically homogeneous, coherent and better reflects hospital resource use.

To further compare and analyze the impact of our suggested modifications, we stated we then ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file for cases reporting a cardiac defibrillator implant without additionally reporting both a cardiac catheterization and a secondary diagnosis designated as an MCC. The following table illustrates our findings for all 7,935 cases.

We applied the criteria to create subgroups in a base MS–DRG as discussed in section II.C.1.b. of the FY 2024 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 “without CC/MCC” (NonCC) split, there were only 452 cases in the subgroup. The criterion that there be at least a 20% difference in average costs between the CC and NonCC subgroup also failed to be met.

We then applied the criteria for a two-way split for the “with MCC” and “without MCC” subgroups for the proposed new MS–DRGs and found that all five criteria were met. The following table illustrates our findings.

For the proposed new MS–DRGs, there is (1) at least 500 cases in the MCC subgroup and in the without MCC subgroup; (2) at least 5 percent of the cases are in the MCC subgroup and in the without MCC subgroup; (3) at least a 20 percent difference in average costs between the MCC subgroup and the without MCC subgroup; (4) at least a $2,000 difference in average costs between the MCC subgroup and the without MCC 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.

In summary, for FY 2024, taking into consideration that it appears to no longer be necessary to subdivide the MS–DRGs for cases reporting a cardiac defibrillator implant based on the diagnosis code reported, we proposed to delete MS–DRGs 222, 223, 224, 225, 226, and 227, and create a new MS–DRG for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC in MDC 05. We also proposed to create two new MS–DRGs with a two-way severity level split for cases reporting a cardiac defibrillator implant without additionally reporting both a cardiac catheterization and a secondary diagnosis designated as an MCC. These proposed new MS–DRGs are proposed new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC), proposed new MS–DRG 276 (Cardiac Defibrillator Implant with MCC) and proposed new MS–DRG 277 (Cardiac Defibrillator Implant without MCC).

In the proposed rule, we noted that the procedure codes describing cardiac catheterization are designated as non-O.R. procedures, therefore, as part of the logic for MS–DRG 275, we also proposed to designate these codes as non-O.R. procedures affecting the MS–DRG. We referred the reader to Table 6P.7a and Table 6P.7b associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index ) for the list of procedure codes we proposed to define in the logic for each of the proposed new MS–DRGs. We refer the reader to section II.C.15. of the preamble of this final rule for the discussion of the surgical hierarchy and the complete list of our proposed modifications to the surgical hierarchy as well as our finalization of those proposals.

Comment: Most commenters supported the proposal to delete MS–DRGs 222, 223, 224, 225, 226, and 227, and to create three new MS–DRGs in MDC 05. These commenters stated that they agreed with CMS that it is no longer necessary to subdivide the MS–DRGs for cases reporting a cardiac defibrillator implant based on the diagnosis code reported. A few commenters stated that while they found the proposal reasonable based on the data and rationale provided, they urged CMS to monitor for any unintended consequences. However, a commenter opposed the proposal. This commenter stated that the proposed change will have a notable negative impact based on its own analysis of claims data at its organization. The commenter further noted claims at its organization demonstrate significant length of stay and cost variations across the current MS–DRGs which they asserted further supports that revising the MS–DRGs is not appropriate from a resource utilization perspective.

Response: We appreciate the commenters' support and appreciate the additional feedback. With regard to the commenter's concern that the proposal might have a negative impact based on its own analysis of claims data at its organization, the examination of claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 222, 223, 224, 225, 226, and 227 showed that in procedures involving a cardiac defibrillator implant, the average costs and length of stay are generally similar without regard to the presence of diagnosis codes describing AMI, HF or shock. We note that the commenter did not provide any clinical rationale as to why the distinction based on the presence of diagnosis codes should be maintained in these MS–DRGs. As noted in prior rulemaking, the goals of reviewing the MS–DRG assignments of particular procedures are to better clinically represent the resources involved in caring for these patients and to enhance the overall accuracy of the system. Our analysis of the claims data demonstrated that for cases involving a cardiac defibrillator implant the increased costs appear to be more related to the procedures performed than to the diagnoses reported on the claim, and we continue to believe it is time to restructure these MS–DRGs accordingly, noting that cases reporting any MDC 05 diagnosis when reported with qualifying procedures will group to the proposed new MS–DRGs. CMS will continue to monitor the claims data for these procedures for unintended consequences as a result of the deletion of the six MS–DRGs from the GROUPER logic as we continue our comprehensive analysis in future rulemaking.

Comment: While supporting the proposal, other commenters noted that CMS proposed to create new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC in MDC 05. These commenters recommended that an additional MS–DRG be created for cardiac defibrillator implant with cardiac catheterization without MCC. A few commenters stated that it was not clear where cases reporting a cardiac defibrillator implant with a cardiac catheterization without MCC would be assigned. A commenter noted that the draft HTML version of the ICD–10 MS–DRG Definitions Manual for Version 41 available on the CMS website does not show “MCC” as part of the logic for MS–DRGs 275 and 276. Another commenter noted that CMS proposed to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024 and questioned CMS' application of the methodology to the proposed new MS–DRGs.

Response: We thank the commenters for their feedback. We note to commenters that when reviewing consumption of hospital resources for the cases reporting cardiac defibrillator implant with cardiac catheterization during a hospital stay, as discussed earlier in this section, the claims data clearly showed that the cases reporting secondary diagnoses designated as MCCs are more resource intensive as compared to other cases reporting cardiac defibrillator implant. Accordingly, our proposal included the creation of one base MS–DRG for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC and another base MS–DRG split by a two-way severity level subgroup for cases reporting a cardiac defibrillator implant without cardiac catheterization.

As discussed in the proposed rule, we examined claims data from the September 2022 update of the FY 2022 MedPAR file for all cases in MS–DRGs 222, 223, 224, 225, 226, and 227. In MS–DRGs 222 and 224, there were 3,094 cases reporting cardiac defibrillator implant with cardiac catheterization, with or without a diagnosis of AMI, HF, or Shock, and a secondary diagnosis designated as an MCC with average costs of $62,608 and an average length of stay of 10.2 days. In comparison, there were 3,959 cases reporting cardiac defibrillator implant, with or without cardiac catheterization, with or without a diagnosis of AMI, HF, or Shock, without an MCC with average costs of $42,001 and an average length of stay of 4.2 days in MS–DRG 223, 225 and 227. We did not propose to subdivide the proposed new base MS–DRG 275 for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC into severity levels as the cases reporting a cardiac defibrillator implant with cardiac catheterization without a secondary diagnosis designated as an MCC (that are currently assigned to MS–DRGs 223 and 225) have average costs and an average lengths of stay comparable to other cases reporting cardiac defibrillator implant, without cardiac catheterization, with or without a diagnosis of AMI, HF, or Shock, also without a secondary diagnosis designated as an MCC. Instead, for this specific scenario, we proposed that secondary diagnosis codes with a severity designation of MCC be used in the definition of the logic for assignment to the proposed base MS–DRG for cases reporting a cardiac defibrillator implant with cardiac catheterization and a secondary diagnosis designated as an MCC. We continue to believe the resulting proposed MS–DRG assignment is more clinically homogeneous, coherent and better reflects hospital resource use.

In response to commenters who stated that it was not clear where cases reporting a cardiac defibrillator implant with a cardiac catheterization without a secondary diagnosis designated as an MCC would be assigned, we note that these cases would be assigned to proposed new MS–DRG 277 (Cardiac Defibrillator Implant without MCC), as reflected in the test version of the ICD–10 MS–DRG GROUPER Software, Version 41.

In response to the comment regarding the draft version of the ICD–10 MS–DRG Definitions Manual, Version 41, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software , we agree there was an inadvertent error in the logic table for MS–DRGs 275, 276 and 277. We are correcting the display as reflected in the following logic table:

This correction will also be reflected in the final ICD–10 MS–DRG Definitions Manual, Version 41.

In response to the concern regarding the application of the NonCC subgroup criteria to the proposed new MS–DRGs, we note that 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. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798) and FY 2023 IPPS/LTCH PPS final rule (87 FR 48803), we finalized a delay in applying this technical criterion to existing MS–DRGs in light of the PHE. We note that this delay relates to applying this technical criterion to existing MS–DRGs with a three-way severity level split. As discussed in prior rulemaking, in general, 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 must be met for the base MS–DRG to be split (or subdivided) by a CC subgroup. We note that we have applied the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of the MS–DRG classification requests effective FY 2021 (85 FR 58446 through 58448). For example, we applied the criteria to create subgroups, including application of the NonCC subgroup criteria, for a proposed new base MS–DRG as discussed in our finalization of new base MS–DRG 018 (Chimeric Antigen Receptor (CAR) T-cell Immunotherapy), new base MS–DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis), new base MS–DRG 140 (Major Head and Neck Procedures), new base MS–DRG 143 (Other Ear, Nose, Mouth and Throat O.R. Procedures), new base MS–DRG 521 (Hip Replacement with Principal Diagnosis of Hip Fracture), and new base MS–DRG 650 (Kidney Transplant with Hemodialysis) for FY 2021. Similarly, we applied the criteria to create subgroups including application of the NonCC subgroup criteria for MS–DRG classification requests for FY 2022 that we received by November 1, 2020 (86 FR 44796 through 44798), for MS–DRG classification requests for FY 2023 (87 FR 48801 through 48804) that we received by November 1, 2021, and for MS–DRG classification requests for FY 2024 that we received by October 20, 2022 (88 FR 26673 through 26676), as well as any additional analyses that were conducted in connection with those requests. We refer the reader to section II.C.1.b. of the preamble of this final rule for related discussion regarding our finalization of the expansion of the criteria to include the NonCC subgroup in the FY 2021 final rule and our finalization of the proposal to continue to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024.

Comment: A commenter stated that while they agreed that it appears to no longer be necessary to subdivide the MS–DRGs for cases reporting a cardiac defibrillator implant based on the diagnosis code reported, they did not think it was necessary to delete MS–DRGs 226 and 227 (Cardiac Defibrillator Implant without Cardiac Catheterization with and without MCC, respectively) and create new MS–DRGs 276 and 277 (Cardiac Defibrillator Implant with and without MCC, respectively). This commenter stated that the proposed new MS–DRG 276 has the same GROUPER logic as the existing MS–DRG 226 and therefore will capture the same cases. This commenter further stated they believed that the current title of MS–DRG 226 better identifies the cases assigned. This commenter also suggested keeping existing MS–DRG 227 and revising the title to “Cardiac Defibrillator Implant with or without Cardiac Catheterization without MCC” instead of creating new MS–DRG 277.

Response: We appreciate the commenter's feedback. The commenter is correct that proposed new MS–DRG 276 has the same GROUPER logic as current MS–DRG 226. In response to the commenter's concern regarding why new MS–DRG numbers would be considered, as discussed in prior rulemaking (87 FR 48804), we note that new MS–DRG numbers are preferred because we anticipate that individuals, payers, and organizations conducting analysis would need to be aware if proposed changes to base DRG concepts are made to allow them time to adjust their programs, analyses, or queries that may have hard coded the DRG numbers. To minimize confusion for those who rely on MS–DRG concepts year to year and to avoid unintended consequences from maintaining the existing MS–DRG number, we believe it is appropriate to finalize the revision to both the MS–DRG number and corresponding description for cases reporting a cardiac defibrillator implant without cardiac catheterization with a secondary diagnosis designated as an MCC.

Therefore, after consideration of the public comments received, and for the reasons previously stated, we are finalizing our proposal to delete MS–DRGs 222, 223, 224, 225, 226, and 227. We are also finalizing 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, without modification, effective October 1, 2023, for FY 2024. Accordingly, we are also finalizing our proposal to designate the procedure codes describing cardiac catheterization as non-O.R. procedures affecting the MS–DRG.

Comment: Another commenter stated that a code proposal requesting new procedure codes to describe the implantation, removal and revision of extravascular implantable defibrillator (EV ICD) leads was presented and discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting. The commenter further stated that CMS has proposed to create new MS–DRGs 275, 276, and 277 for cases reporting cardiac defibrillator implant procedures, which includes procedures describing the insertion of implantable cardioverter-defibrillators (ICDs) for FY 2024, while cases reporting cardiac defibrillator lead removal and revision procedures are assigned to MS–DRG 265 (AICD Lead Procedures). This commenter suggested that any new procedure codes finalized after the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting that describe EV ICD procedures should be assigned to MS–DRG 265 and MS–DRGs 275–277 as well and stated that alignment of these new ICD–10–PCS codes with existing defibrillator procedure codes in terms of MS–DRG assignment will ensure clinical coherence and facilitate patient access and provider choice among ICD technologies.

Response: We thank the commenter for their feedback. We note that the proposal requesting new procedure codes to identify procedures involving extravascular implantable defibrillator leads that was discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting was approved and 11 new procedure codes to identify procedures involving EV ICD leads were finalized as reflected in the FY 2024 ICD–10–PCS Code Update files that were made publicly available on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 on June 6, 2023. We also note that the new procedure codes are also reflected in Table 6B.—New Procedure Codes, in association with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS , including the MS–DRG assignments for these new codes for FY 2024. We refer the reader to section II.C.13. of the preamble of this final rule for further information regarding the table.

As we have noted in prior rulemaking (86 FR 44805), we used our established process to determine the most appropriate MS–DRG assignment for the new procedure codes approved after March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting to identify procedures involving EV ICD leads. Specifically, we reviewed the predecessor codes and MS–DRG assignments most closely associated with the new procedure codes, and in the absence of claims data, we considered other factors that may be relevant to the MS–DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. The MS–DRG assignments for the predecessor codes that we utilized to inform this analysis and the new procedure codes to identify procedures involving extravascular implantable defibrillator leads under MDC 05 are identified as follows.

While the new procedure codes are being assigned to the same MS–DRG as the predecessor codes in this instance, as we have noted in prior rulemaking, and earlier in this section, 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.

In addition to the MDC and MS–DRG assignments as reflected in Table 6B.— New Procedure Codes, in association with this final rule, we note that the procedure code combinations describing the insertion of an EV ICD lead with the insertion of a defibrillator generator, are assigned to new MS–DRGs 275, 276, and 277 for FY 2024. This assignment is reflected in the final V41 GROUPER logic. The public may provide feedback on the MS–DRG assignments for FY 2024, which will then be taken into consideration for the following fiscal year.

6. MDC 06 (Diseases and Disorders of the Digestive System): Appendicitis

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28163 through 87 FR 28165) and final rule (87 FR 48849 through 87 FR 48850), we discussed a request related to the MS–DRG assignment of diagnosis codes describing acute appendicitis with generalized peritonitis, with and without perforation or abscess when reported with an appendectomy procedure. In that discussion, we stated that any future proposed changes to the MS–DRGs for appendectomy procedures would be dependent on the diagnosis code revisions that are finalized by the CDC/National Center for Health Statistics (NCHS) since the CDC/NCHS staff presented a proposal for further revisions to the diagnosis codes describing acute appendicitis with generalized peritonitis at the March 8–9, 2022 ICD–10 Coordination and Maintenance Committee meeting. Specifically, the CDC/NCHS staff proposed to expand diagnosis codes K35.20 (Acute appendicitis with generalized peritonitis, without abscess) and K35.21 (Acute appendicitis with generalized peritonitis, with abscess), making them sub-categories and creating new diagnosis codes to identify and describe acute appendicitis with generalized peritonitis, with perforation and without perforation, and unspecified as to perforation. We noted that the deadline for submitting public comments on the diagnosis code proposals discussed at the March 8–9, 2022 ICD–10 Coordination and Maintenance Committee meeting was May 9, 2022, and according to the CDC/NCHS staff, the diagnosis code proposals were being considered for an October 1, 2023, implementation (FY 2024). We refer the reader to the CDC website at https://www.cdc.gov/nchs/icd/icd10cm_maintenance.htm for additional detailed information regarding the proposal, including a recording of the discussion and the related meeting materials.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26717), we stated that, as shown in Appendix B—Diagnosis Code/MDC/MS–DRG Index of the ICD–10 MS–DRG Definitions Manual V40.1 (available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software ), diagnosis codes K35.20 and K35.21 are currently assigned to medical MS–DRGs 371, 372, and 373 (Major Gastrointestinal Disorders and Peritoneal Infections with MCC, with CC, and without CC/MCC, respectively) in MDC 06. Diagnosis code K35.21 is also assigned to surgical MS–DRGs 338, 339, and 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) in MDC 06 because diagnosis code K35.21 is defined as a complicated diagnosis in the GROUPER logic. Therefore, when a procedure code describing an appendectomy is reported with principal diagnosis code K35.21, the logic for case assignment to MS–DRGs 338, 339, or 340 is satisfied.

As discussed in section II.C.13. of the preamble of the proposed rule, Table 6C—Invalid Diagnosis Codes (available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps ) lists the diagnosis codes that are no longer effective starting October 1, 2023. Included in this table are diagnosis codes K35.20 and K35.21. In addition, we noted that as shown in the following table and in Table 6A—New Diagnosis Codes associated with the proposed rule (and available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps ), six new diagnosis codes describing acute appendicitis with generalized peritonitis, with and without perforation or abscess were finalized and are effective with discharges on and after October 1, 2023. We stated in the proposed rule that consistent with our established process for assigning new diagnosis and procedure codes, we reviewed the predecessor codes (K35.20 and K35.21) to determine the MS–DRG assignment most closely associated with the new diagnosis codes. In addition, we noted that the proposed severity level designations for the new diagnosis codes are set forth in Table 6A. As shown, the new codes are proposed for assignment to medical MS–DRGs 371, 372, and 373 (Major Gastrointestinal Disorders and Peritoneal Infections with MCC, with CC, and without CC/MCC, respectively), in accordance with the assignment of predecessor codes K35.20 and K35.21.

We stated in the proposed rule that because the acute appendicitis diagnosis code revisions have been finalized by the CDC/NCHS, we believed it is now appropriate to address the MS–DRG request for diagnosis code K35.20 describing acute appendicitis with generalized peritonitis when an appendectomy procedure is performed. We referred the reader to the ICD–10 MS-DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRGs 338, 339, and 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) and MS–DRGs 341, 342, and 343 (Appendectomy without Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) that includes the procedure codes defined in the logic for an appendectomy.

As stated in the proposed rule, we first analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 338, 339, and 340 and cases reporting any one of the following diagnosis codes currently defined in the logic as a complicated principal diagnosis when reported as a principal diagnosis.

Our findings are shown in the following table. We note that if a diagnosis is not listed it is because there were no cases found.

The data shows that overall, each of the “complicated” diagnoses appears to have a comparable average length of stay and similar average costs when compared to the average length of stay and average costs of all the cases in the respective MS–DRG, as well as, to each other.

Next, we analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 341, 342, and 343 and cases reporting any one of the following diagnosis codes describing acute appendicitis.

Our findings are shown in the following table.

Similar to the findings for the “complicated” diagnoses, the “uncomplicated” diagnoses also have a comparable average length of stay and similar average costs when compared to the average length of stay and average costs of all the cases in the respective MS–DRG.

We stated in the proposed rule that based on our analysis for both the “complicated” and “uncomplicated” diagnoses combined with our review of all the cases in the MS–DRGs, we believed the findings support a prior comment, as summarized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48849), that clinically, both localized and generalized peritonitis in association with an appendectomy require the same level of patient care, including extensive intraoperative irrigation at the surgical site, direct inspection or imaging of the abdomen to identify possible abscess, use of intravenous antibiotics, and prolonged monitoring. In addition, localized peritonitis progresses to generalized peritonitis. In our direct comparison of the “complicated” versus “uncomplicated” MS–DRGs, we believe the distinction is no longer meaningful with regard to resource consumption. As shown in the following table, we found the “with MCC” MS–DRGs, the “with CC” MS–DRGs, and the “without CC/MCC” MS–DRGs all have a comparable average length of stay and similar average costs. For example, MS–DRG 338 has an average length of stay of 7 days with average costs of $20,311 and MS–DRG 341 has an average length of stay of 5.8 days and average costs of $19,080. The volume of cases for this MS–DRG pair is also similar with 579 cases in MS–DRG 338 and 533 cases in MS–DRG 341.

As a result of our analysis and review of this issue, we stated in the proposed rule that we believed the findings support eliminating the logic for “complicated” and “uncomplicated” diagnoses and restructuring the six MS–DRGs. We also noted that in our review of the logic for the appendectomy procedures, we identified procedures listed in the current logic that we did not agree reflect an actual appendectomy as suggested in the title of the current MS–DRGs, rather the logic describes various procedures performed on the appendix.

To compare and analyze the impact of our suggested modifications, we ran a simulation using the most recent claims data from the December 2022 update of the FY 2022 MedPAR file. The following table illustrates our findings for all 8,060 cases reporting procedure codes describing a procedure performed on the appendix.

Consistent with our established process as discussed in section II.C.1.b. of the preamble of the proposed rule, once the decision has been made to propose to make further modifications to the MS–DRGs, all five criteria to create subgroups must be met for the base MS–DRG to be split (or subdivided) by a CC subgroup. Therefore, we applied the criteria to create subgroups in a base MS–DRG. We noted 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 cases in the MCC subgroup, the CC subgroup, and the without CC/MCC subgroup; (2) at least 5 percent of the cases are in the MCC subgroup, the CC subgroup, and 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 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.

Therefore, we proposed to delete MS–DRGs 338, 339, 340, 341, 342, and 343 and proposed to create new MS–DRG 397 Appendix Procedures with MCC, MS–DRG 398 Appendix Procedures with CC, and MS–DRG 399 Appendix Procedures without CC/MCC for FY 2024. These proposed new MS–DRGs would no longer require a diagnosis in the definition of the logic for case assignment. We also proposed to include the current list of appendectomy procedures in the logic for case assignment of appendix procedures for the proposed new MS–DRGs.

Comment: Several commenters expressed support for the proposed changes to the MS–DRGs for appendectomy with and without a complicated principal diagnosis. A commenter who agreed with CMS that the average length of stay and average costs were comparable among the appendectomy MS–DRGs with and without a complicated principal diagnosis stated that the data for diagnosis code K35.21 (Acute appendicitis with generalized peritonitis, with abscess) specifically reflected a longer length of stay and higher average costs among all the MS–DRGs for appendectomy with complicated principal diagnosis (MS–DRGs 338, 339, and 340). The commenter requested that CMS continue to monitor this diagnosis code.

Response: We appreciate the commenters' support and feedback. CMS will continue to monitor and analyze the claims data for diagnosis code K35.21.

Comment: A commenter expressed concerns about the proposed new MS–DRGs 397, 398, and 399 no longer reflecting the differences in complexity and costs associated with treating appendicitis, including concerns about the potential decrease in case weight. The commenter stated tertiary care centers may have up to 30% of patients with complicated appendicitis and that the treatment of appendicitis with a complicated principal diagnosis utilizes substantially more resources. This commenter also stated specifically, patients with more complicated disease frequently have perforated disease which contaminates the peritoneal cavity and wounds. According to the commenter, as a result, these patients face significantly higher risk of surgical site infections and require longer hospitalizations in order to a receive longer duration IV antibiotics. Finally, the commenter stated that operations on complex patients take much longer and suggested there is little parity with regard to these populations between major referral centers and smaller centers of care.

Another commenter stated their belief that CMS failed to recognize clinical best practice for treatment of patients with complicated disease including perforation. The commenter stated that the proposed MS–DRG changes demonstrated a lack of understanding about the complexities of appendectomy procedures and urged CMS to maintain the existing MS–DRGs and reassign code K35.20 to MS–DRGs 338, 339, and 340, due to the risk of postoperative abscess formation and extended length of hospital stay, thereby warranting classification as a complicated diagnosis.

Another commenter who disagreed with CMS' proposal agreed that clinically, both localized and generalized peritonitis in association with an appendectomy requires increased levels of care, inclusive of extensive intraoperative irrigation at the surgical site, direct inspection or imaging of the abdomen, use of antibiotics and prolonged monitoring, however, the commenter stated both localized and general peritonitis are complicated appendicitis diagnoses and are clinically different than uncomplicated appendicitis, therefore, complicated appendicitis diagnoses should group to a complicated appendicitis MS–DRG. The commenter recommended retaining MS–DRGs 338, 339, and 340. Additionally, the commenter suggested CMS add four diagnoses currently considered uncomplicated principal diagnoses: K35.20 (Acute appendicitis with generalized peritonitis, without abscess); K35.30 (Acute appendicitis with localized peritonitis, without perforation or gangrene); K35.31 (Acute appendicitis with localized peritonitis and gangrene, without perforation); and K35.891 (Other acute appendicitis without perforation, with gangrene) to MS–DRGs 338, 339, and 340 to reflect the complicated appendectomy. The commenter further suggested that MS–DRGs 341, 342, and 343 (Appendectomy without Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) only reflect the principal diagnoses of K35.80 (Unspecified acute appendicitis), K35.890 (Other acute appendicitis without perforation or gangrene), and K36 (Other appendicitis) as they would clinically be considered an uncomplicated appendectomy.

Response: We thank the commenters for their feedback. In response to the commenter who expressed concerns about the potential decrease in case weight for the proposed new MS–DRGs, we note that the relative weights (RW) and geometric mean length of stay (GMLOS) for existing MS–DRGs 338, 339, 340, 341, 342, and 343 have been trending downward over the past few years as shown in the following table.

In association with the proposed rule, we made available the proposed FY 2024 relative weights and GMLOS for proposed new MS–DRGs 397, 398, and 399 as reflected in Table 5—List of Medicare Severity Diagnosis-Related Groups (MS–DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2024 Proposed Rule available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS .

We believe the proposed relative weight and GMLOS for the proposed new MS–DRGs appear to be appropriately driven by the underlying data.

While we recognize the commenter's statement that tertiary care centers may provide treatment for up to 30% of patients with complicated appendicitis, we note that we do not propose MS–DRG modifications based on provider type. We also do not agree with the commenter's statement that complicated appendicitis utilizes substantially more resources since, as discussed in the proposed rule, our findings reflect that cases in the complicated appendectomy MS–DRGs are comparable to cases in the uncomplicated MS–DRGs with regard to volume, average length of stay, and average costs.

In response to the commenter who indicated that CMS failed to recognize clinical best practice for treatment of patients with complicated disease including perforation, we note that our proposed MS–DRG classification changes are not a reflection of, nor intended to define, how providers render care for patients diagnosed with acute appendicitis, rather, our proposals are based on a combination of data analysis and clinical judgement. With respect to the commenter's request that CMS reassign diagnosis code K35.20 (Acute appendicitis with generalized peritonitis, without abscess), we note that, as discussed in the preamble of the proposed rule and this final rule, diagnosis code K35.20 has been expanded and is no longer valid effective October 1, 2023, as reflected in Table 6C.—Invalid Diagnosis Codes.

In response to the commenter who disagreed with CMS' proposal but agreed that clinically, both localized and generalized peritonitis in association with an appendectomy are complicated appendicitis diagnoses and should group to a complicated appendicitis MS–DRG, we note that our proposal reflects that both localized and generalized peritonitis in association with an appendectomy are comparable, clinically coherent diagnoses and should be grouped together. The MS–DRGs are a classification system intended to group together those diagnoses and procedures with similar clinical characteristics and utilization of resources. Our proposal also essentially reflects the commenter's suggestion to group the four diagnoses (K35.20, K35.30, K35.31, and K35.891) that are currently assigned to the appendectomy without complicated principal diagnosis MS–DRGs (MS–DRGs 341, 342, and 342) together with the diagnoses that are currently assigned to the appendectomy with complicated principal diagnosis MS–DRGs (MS–DRGs 338, 338, and 340). Additionally, as previously discussed, we believe our data findings and clinical review no longer support the distinction of complicated versus uncomplicated MS–DRGs with respect to resource utilization for acute appendicitis and therefore, disagree with the commenter's suggestion to retain the existing MS–DRGs and to only reflect diagnosis codes K35.80, K35.890, and K36 in an uncomplicated MS–DRG. We note that diagnosis code K36 (Other appendicitis) is currently assigned to MS–DRGs 393, 394, and 395 (Other Digestive System Diagnoses with MCC, with CC, and without CC/MCC, respectively), and was not specifically included or addressed in our analysis, nor our proposal.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to delete MS–DRGs 338, 339, 340, 341, 342, and 343 and to create MS–DRGs 397, 398, and 399 (Appendix Procedures with MCC, with CC, and without CC/MCCC, respectively), without modification, for FY 2024. These finalized new MS–DRGs no longer require a diagnosis in the definition of the logic for case assignment. We are also finalizing our proposal to include the current list of appendectomy procedures in the logic for case assignment of appendix procedures for the finalized new MS–DRGs.

7. MDC 07 (Diseases and Disorders of the Hepatobiliary System and Pancreas): Alcoholic Hepatitis

As stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26721 through 26726), we received a request to create new MS–DRGs with a two-way split (with MCC and without MCC) for cases reporting alcoholic hepatitis. Alcoholic hepatitis is identified with ICD–10–CM diagnosis codes K70.10 (Alcoholic hepatitis without ascites) and K70.11 (Alcoholic hepatitis with ascites) which are currently assigned to MS–DRGs 432, 433, and 434 (Cirrhosis and Alcoholic Hepatitis with MCC, with CC, and without CC/MCC, respectively) when reported as a principal diagnosis.

Alcoholic hepatitis is characterized as an inflammatory condition due to chronic, excessive alcohol use and is considered an acute form of alcohol-associated liver disease (ALD). Data suggests that ALD was responsible for over 100,000 hospitalizations in 2017 and admissions for ALD continued to increase during the COVID–19 public health emergency. Data also suggest that ALD may be one of the leading causes of liver transplants in the U.S.

As discussed in the proposed rule, the requestor stated that currently there are no effective therapies available to treat alcoholic hepatitis and current treatment guidelines suggest corticosteroids, despite increased risk of infection and minimal impact on survival beyond 28 days. However, the requestor (manufacturer of Larsucosterol) also indicated that epigenetic therapy is currently being studied to address various types of acute and chronic organ injury and provided information related to its AHFIRM ( A lcohol-associated H epatitis to evaluate sa F ety and eff I cacy of La R sucosterol (DUR–928) treat M ent) Phase 2b study for patients diagnosed with alcoholic hepatitis. The FDA granted Fast Track Designation to DUR–928 for the treatment of alcoholic hepatitis in 2020.

The requestor stated it performed its own analysis using 2 years of claims data, (calendar years 2018 and 2019), and its findings showed that the patients with alcoholic hepatitis are distinct from the typical Medicare beneficiary and that the condition disproportionately affects younger patients that represent a small proportion of the cases currently grouping to MS–DRGs 432, 433, and 434. According to the requestor, the low volume of cases reporting alcoholic hepatitis have little to no impact on the annual recalibration of the MS–DRG relative payment weights for MS–DRGs 432, 433, and 434, resulting in underpayments. The requestor stated its analysis of cases reporting alcoholic hepatitis showed higher resource utilization and a longer length of stay when compared to all cases in MS–DRGs 432, 433, and 434. The requestor stated it applied the criteria to create subgroups for the cases reporting alcoholic hepatitis currently grouping to MS–DRGs 432, 433, and 434 and found that the criteria for a two-way split (with MCC and without MCC) was met. The requestor further stated that splitting out the cases reporting alcoholic hepatitis from MS–DRGs 432, 433, and 434 would enable more accurate payment of these cases and support research that is specific to alcoholic hepatitis distinct from cirrhosis.

The logic for case assignment to MS–DRGs 432, 433, and 434 is comprised of the following diagnosis codes.

As stated in the proposed rule, we analyzed claims data from the September 2022 update of the FY 2022 MedPAR file for MS–DRGs 432, 433, and 434 and cases reporting any one of the listed diagnoses as a principal diagnosis. We noted that if a diagnosis code is not listed it is because there were no cases found reporting that code in the respective MS–DRG. The findings from our analysis are shown in the following table.

Based on our initial analysis for cases in MS–DRGs 432, 433, and 434, the data clearly demonstrate that there are several diagnoses, other than the two diagnoses identified by the requestor (codes K70.10 and K70.11) with increased resource utilization when compared to the average length of stay and average costs of all cases in MS–DRGs 432, 433, and 434.

We stated in the proposed rule that the data show cases in MS–DRG 432 reporting diagnosis codes K70.11, K70.31, K70.40, K70.41, K74.3, or K74.5 as a principal diagnosis have a longer average length of stay (9.1 days, 7.5 days, 8.1 days, 8.7 days, 7.3 days, and 8.2 days, respectively versus 6.8 days) and higher average costs ($20,727, $17,694, $19,277, $22,530, $18,020, and $16,569, respectively versus $16,532) compared to the average length of stay and the average costs for all the cases in MS–DRG 432. We noted that the cases reporting diagnosis codes K70.10, K74.4, or K74.69 as a principal diagnosis also have a longer average length of stay (7.4 days, 7.5 days, and 6.9 days, respectively versus 6.8 days) compared to all the cases in MS–DRG 432, however, the average costs of these cases are lower ($14,710, $15,324 and $16,501, respectively versus $16,532) compared to the average costs for all the cases.

For MS–DRG 433, the cases reporting diagnosis codes K70.11, K70.30, K70.31, K70.40, or K70.9 as a principal diagnosis have a longer average length of stay (5.0 days, 4.5 days, 4.4 days, 4.6 days, and 4.8 days, respectively versus 4.3 days) and comparable average costs ($10,085, $9,343, $9,548, $9,066, and $11,893, respectively versus $9,007) compared to the average length of stay and the average costs for all the cases in MS–DRG 433. We noted that the cases reporting diagnosis code K70.10 as a principal diagnosis also have a longer average length of stay (4.8 days versus 4.3 days) compared to all the cases in MS–DRG 433, however, the average costs of these cases are lower ($8,436 versus $9,007) compared to the average costs for all the cases in the MS–DRG.

Lastly, for MS–DRG 434, the cases reporting diagnosis codes K70.31, K74.3, or K74.60 as a principal diagnosis have a longer average length of stay (3 days, 4.2 days, and 2.6 days, respectively versus 2.8 days) and higher average costs ($6,348, $8,485, and $5,862, respectively versus $5,825) compared to the average length of stay and the average costs for all the cases in MS–DRG 434.

The data also show that there is significantly more case volume for several of the other diagnoses compared to the case volume of the two diagnoses (K70.10 and K70.11) associated with the request to create new MS–DRGs. We identified diagnosis code K70.31 (Alcoholic cirrhosis of liver with ascites) to be the most prevalent diagnosis with respect to case volume reported across MS–DRGs 432, 433, and 434. For example, as shown in the table, we found 5,687 cases in MS–DRG 432 reporting diagnosis code K70.31 as a principal diagnosis compared to 269 cases reporting diagnosis code K70.10 and 244 cases reporting diagnosis code K70.11. For MS–DRG 433, we found 2,825 cases reporting diagnosis code K70.31 as a principal diagnosis compared to 309 cases reporting diagnosis code K70.10 and 173 cases reporting diagnosis code K70.11. Lastly, for MS–DRG 434, we found 179 cases reporting diagnosis code K70.31 as a principal diagnosis compared to 41 cases reporting diagnosis code K70.10 and 8 cases reporting diagnosis code K70.11.

As discussed in the proposed rule, following our initial review of the claims data for the cases reporting any one of the listed diagnoses as a principal diagnosis that are included in the logic for case assignment to MS–DRGs 432, 433, and 434, we performed additional analyses to focus on the cases specifically reporting diagnosis code K70.10 or K70.11 as a principal diagnosis in response to the request to create new MS–DRGs with a two-way split (with and without MCC, respectively). The findings from our analysis are shown in the following table.

The data show that the 513 cases reporting alcoholic hepatitis without or with ascites in MS–DRG 432 have a longer average length of stay (8.2 days versus 6.8 days) and higher average costs ($17,572 versus $16,532). For MS–DRG 433, the data show that the 482 cases reporting alcoholic hepatitis without or with ascites have a longer average length of stay (4.9 days versus 4.3 days) and a difference in average costs of $21 ($9,028 versus $9,007). For MS–DRG 434, the 49 cases reporting alcoholic hepatitis without or with ascites have a shorter length of stay (2.4 days versus 2.8 days) and lower average costs ($5,544 versus $5,825).

We stated in the proposed rule that, based on the results of our review and our analysis of the claims data for cases reporting a principal diagnosis of alcoholic hepatitis without or with ascites (codes K70.10 or K70.11), we believe the cases demonstrate similar patterns of resource intensity in comparison to the other cases in MS–DRGs 432, 433, and 434. We also stated we believed that these diagnoses are clinically coherent with the other diagnoses currently assigned to MS–DRGs 432, 433, and 434. In addition, we stated that while we recognize the concerns expressed by the requestor for this subset of patients with respect to the younger population and the lower volume of cases, we noted that the logic for case assignment to MS–DRGs 432, 433, and 434 includes clinically related diagnoses that differ in severity and resource intensity with alcoholic hepatitis being at the lowest end of the severity spectrum. Therefore, we proposed to maintain the structure of MS–DRGs 432, 433, and 434 for FY 2024.

Comment: The majority of commenters agreed with the proposal to maintain the structure of MS–DRGs 432, 433, and 434 for FY 2024 given the data and information provided.

Response: We thank the commenters for their support.

Comment: A commenter (the requestor) who disagreed with the proposal stated that alcoholic hepatitis (AH) is a distinct clinical pathological entity that is different from common forms of alcoholic‐liver disease (ALD) and that liver failure in severe AH is driven by loss of hepatocyte nuclear factor 4 alpha (HNF4α) function and liver‐specific changes distinct from those seen in other forms of ALD. The commenter expressed concerns regarding both the analysis conducted by CMS and the interpretation of the findings. Specifically, the commenter stated that analyses by principal diagnoses comparing average length of stay and average costs should not be used as the primary determinant in assessing resource use differences, although the commenter acknowledged some principal diagnoses findings will be above, and some will be below, when compared to an average. According to the commenter, the CMS analyses also did not account for the differences between AH and non-AH cases and masked resource use differences. Using data from calendar years 2018 through 2022, the commenter provided an updated analysis for MS–DRG 432 while combining its analyses for MS–DRGs 433 and 434, separating AH cases from non-AH and comparing average length of stay among the cases.

Response: The MS–DRGs were developed as a patient classification scheme consisting of patients who are similar clinically and with regard to their consumption of hospital resources. The concept of clinical coherence requires that the patient characteristics included in the definition of each MS–DRG relate to a common organ system or etiology and that a specific medical specialty should typically provide care to the patients in the MS–DRG. While all patients are unique, groups of patients have diagnostic and therapeutic attributes in common that determine their level of resource intensity. Similar resource intensity means that the resources used are relatively consistent across the patients in each MS–DRG. However, some variation in resource intensity will remain among the patients in each MS–DRG. In other words, the definition of a MS–DRG will not be so specific that every patient is identical, rather the level of variation is relatively understood and predictable. We continue to believe, as stated previously, that AH diagnoses are clinically coherent with the other diagnoses currently assigned to MS–DRGs 432, 433, and 434.

With respect to the updated analyses that was submitted, we appreciate the commenter's feedback. However, we note that the commenter did not uniquely identify and distinguish the AH cases from non-AH cases with specific ICD–10–CM codes that it was considering under its analyses, nor did the analysis include any case counts. As such, it was not clear specifically what diagnoses were included in the commenter's data analysis.

With respect to the commenter's assertion that the CMS analyses by principal diagnoses comparing average length of stay and average costs was used as the primary determinant in assessing resource use differences, we note that while the logic for case assignment to MS–DRGs 432, 433, and 434 is driven by the reporting of any one of the listed diagnoses as a principal diagnosis, we also consider other factors in deciding whether to propose to make further modifications to the MS–DRGs for particular circumstances brought to our attention, as described in the preamble of the proposed rule (88 FR 26673) and discussed in prior rulemaking (for example, severity of illness, treatment difficulty, complexity of service, etc.).

In response to the commenter's statement that the CMS analyses did not account for the differences between AH and non-AH cases masking resource use differences, we note that the analysis we performed and made available in the proposed rule to address the MS–DRG request listed the number of cases (volume), average length of stay and average costs of all cases, as well as detailed data for each diagnosis code defined in the logic for case assignment to MS–DRGs 432, 433, and 434 when reported as the principal diagnosis. Therefore, the data findings for what we believe the commenter is referring to as non-AH cases were reflected and the ability to perform a comparison between AH and non-AH was made available. Specifically, in review of the findings for MS–DRG 432, as displayed in the proposed rule and this final rule, the number of non-AH cases ( e.g., cases reporting a principal diagnosis other than diagnosis code K70.10 or K70.11) can be calculated by subtracting the total number of cases reporting AH from the total number of all cases in the MS–DRG. For example, the total number of cases found in MS–DRG 432 is 16,836 and the total number of cases reporting AH is 513, therefore, the number of non-AH cases is 16,323 (16,836−513 = 16,323), with an average length of stay of 6.8 days and average costs of $16,499, resulting in a difference of 1.4 days for the average length of stay and a difference in average costs of $1,073 for AH and non-AH cases. For MS–DRG 433, the number of non-AH cases can be calculated as 7,954 (8,436−482 = 7,954) with an average length of stay of 4.3 days and average costs of $9,006, resulting in a difference of .6 days for the average length of stay and a difference in average costs of $22 for AH and non-AH cases. Lastly, for MS–DRG 434, the number of non-AH cases can be calculated as 309 (358−49 = 309) with an average length of stay of 2.9 days and average costs of $5,870, resulting in a difference of .5 days for the average length of stay and a difference in average costs of $326 for AH and non-AH cases. We illustrate these findings in the following table.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to maintain the structure of MS–DRGs 432, 433, and 434, without modification, for FY 2024.

We also note, as discussed in section II.C.1.b. of the preamble of proposed rule, using the December 2022 update of the FY 2022 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would affect the MS–DRG structure beginning in FY 2024. Findings from our analysis indicated that MS–DRGs 432, 433, and 434, as well as approximately 44 other base MS–DRGs, would potentially be subject to change based on the three-way severity level split criterion finalized in FY 2021. We referred the reader to Table 6P.10b associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the list of the 135 MS–DRGs that would potentially be subject to deletion and the list of the 86 new MS–DRGs that would potentially be created under this policy if the NonCC subgroup criteria was applied.

Comment: A commenter expressed support for the analysis CMS performed to determine how applying the NonCC subgroup criteria would potentially impact MS–DRGs currently split into three severity levels. Specifically, the commenter stated application of the NonCC subgroup criteria for MS–DRGs 432, 433, and 434 is reflective of the MS–DRG structure that was requested for AH.

Response: We thank the commenter for their support. We refer the reader to section II.C.1.b. of the preamble of this final rule for related discussion regarding our finalization of the expansion of the criteria to include the NonCC subgroup and our finalization of the proposal to continue to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split for FY 2024.

8. MDC 08 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Spinal Fusion

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26726 through 26729), we received a request to reassign cases reporting spinal fusion procedures utilizing 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 noted that the Aprevo^TM Intervertebral Body Fusion Device technology was discussed in the FY 2022 IPPS/LTCH PPS proposed (86 FR 25361 through 25365) and final rules (86 FR 45127 through 45133) with respect to a new technology add-on payment application and was approved for add-on payments for FY 2022. We also 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 support of the new technology add-on payment application that was submitted for FY 2022 consideration, we received a request and proposal to create new ICD–10–PCS codes to differentiate spinal fusion procedures that utilize an aprevo^TM customized interbody fusion device, which was discussed at the March 9–10, 2021 ICD–10 Coordination and Maintenance Committee meeting. As a result, effective October 1, 2021 (FY 2022), we implemented 12 new ICD–10–PCS procedure codes to identify and describe spinal fusion procedures utilizing the aprevo^TM customized interbody fusion device as shown in the following table.

Each of the listed procedure codes are assigned to MDC 01 (Diseases and Disorders of the Nervous System) in MS–DRGs 028, 029, and 030 (Spinal Procedures with MCC, with CC or Spinal Neurostimulators, and without CC/MCC, respectively) and to MDC 08 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) in MS–DRGs 453, 454, and 455 (Combined Anterior and Posterior Spinal Fusion with MCC, with CC, and without CC/MCC, respectively), 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 MS–DRGs 459 and 460 (Spinal Fusion Except Cervical with MCC and without MCC, respectively).

As stated in the proposed rule, the requestor (the manufacturer of aprevo^TM customized interbody spinal fusion devices) expressed concerns that findings from its analysis of claims data for spinal fusion MS–DRGs 453, 454, 455, 456, 457, 458, 459, and 460 from the first half of FY 2022 indicate there may be unintentional miscoded claims from providers with whom they do not have an explicit relationship. Specifically, the requestor stated that a subset of the facilities identified in its analysis are not customers to whom the aprevo^TM custom-made device was provided. The volume of cases initially identified by the requestor in its analysis totaled 89 cases, however, upon eliminating the provider claims from the facilities that are not a current client, the resulting volume was 14 cases. The requestor stated that subsequently, after another quarter's data became available from current clients for cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device, they identified an additional 16 cases for a total of 30 cases, all of which were assigned to MS–DRGs 453, 454, and 455.

Upon further review of the data, the requestor stated it found that cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device had higher average costs in comparison to the average costs of all the cases in the highest severity level “with MCC” MS–DRGs 453 and 456. According to the requestor, this finding suggested that the use of the device impacts intensity of resources such that the cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device merit reassignment to the highest severity level “with MCC” MS–DRGs (MS–DRGs 453 and 456). The requestor asserted that while spinal disorders impact approximately 65 million patients in the U.S., the patients undergoing spine surgery with an aprevo^TM customized interbody spinal fusion device are those with irreversible, debilitating conditions. In addition, the requestor stated that since the cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device already appear to map to the most resource intensive MS–DRGs for spinal procedures, there is no other alternative assignment for these procedures, with the exception of a new MS–DRG. Lastly, the requestor maintained that reassigning cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device to the “with MCC” level aligns with CMS's factors that are considered in review of MS–DRG classification change requests, including treatment difficulty, complexity of service, and utilization of resources.

As discussed in the proposed rule, we analyzed 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 previously listed procedure codes describing utilization of an aprevo^TM customized interbody spinal fusion device. Our findings are shown in the following table.

We found the majority of cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device in MS–DRGs 453, 454, and 455 with a total of 159 cases (17 + 75 + 67 = 159) with an average length of stay of 4.1 days and average costs of $66,847. The 17 cases identified in MS–DRG 453 appear to have a comparable average length of stay and comparable average costs compared to all the cases in MS–DRG 453 with a difference of 1.0 day and a difference in average costs of $1,383 for the cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device. The 75 cases found in MS–DRG 454 have an identical average length of stay of 4.4 days in comparison to all the cases in MS–DRG 454, however, the difference in average costs is $21,067 ($75,294−$54,227 = $21,067) for the cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device. The 67 cases found in MS–DRG 455 also have an identical average length of stay of 2.7 days in comparison to all the cases in MS–DRG 455, however, the difference in average costs is $13,604 ($54,287−$40,683 = $13,604) for the cases reporting the performance of a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device. As shown in the table, there were no cases found to report utilization of an aprevo^TM customized interbody spinal fusion device in MS–DRG 456. For MS–DRG 457, the 2 cases found to report utilization of an aprevo^TM customized interbody spinal fusion device appear to be outliers with a difference in average costs of $105,032 ($158,782−$53,750 = $105,032) and a shorter average length of stay (3.5 days versus 6.4 days) in comparison to all the cases in MS–DRG 457. For MS–DRG 458, we found 1 case reporting utilization of an aprevo^TM customized interbody spinal fusion device with an average length of stay almost three times the average length of stay of all the cases in MS–DRG 458 (12 days versus 3.5 days) and average costs that are twice as high ($91,672 versus $40,343) compared to the average costs of all the cases in MS–DRG 458. For MS–DRG 459, the 2 cases reporting utilization of an aprevo^TM customized interbody spinal fusion device had a shorter average length of stay (5 days versus 9.8 days) compared to the average length of stay of all the cases in MS–DRG 459 with a difference in average costs of $3,697 ($57,039−$53,342 = $3,697). For MS–DRG 460, the 30 cases reporting utilization of an aprevo^TM customized interbody spinal fusion device had a longer average length of stay (4.5 days versus 3.5 days) compared to the average length of stay of all the cases in MS–DRG 460 with a difference in average costs of $14,762 ($46,683−$31,921 = $14,762).

As discussed in the proposed rule, the requestor expressed concerns that there may be unintentional miscoded claims from providers with whom they do not have an explicit relationship. In the proposed rule, we noted 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, this same requestor (the manufacturer of aprevo^TM customized interbody spinal fusion devices) submitted a code proposal requesting a revision to the title of the current procedure codes that identify and describe a spinal fusion procedure utilizing an aprevo^TM customized interbody spinal fusion device for consideration as an agenda topic to be discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting. The requestor stated its belief that the term “customizable” as currently reflected in each of the 12 procedure code descriptions is potentially misunderstood by providers to encompass expandable interbody fusion cages that have been available for several years and which were not approved for new technology add-on payment as was the aprevo^TM customized interbody spinal fusion device. According to the requestor, these other interbody fusion devices do not require the same patient specific surgical plan coordination as the aprevo^TM customized interbody spinal fusion device and do not offer the personalized fit that matches the topography of a patient's bone. Therefore, in an effort to encourage appropriate reporting for cases where an aprevo^TM customized interbody spinal fusion device has been utilized in the performance of a spinal fusion procedure, the requestor provided alternative terminology for consideration.

We stated in the proposed rule that the proposal to revise the code title was presented and discussed as an Addenda item at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting. We referred the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-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 were due by April 7, 2023.

We noted in the proposed rule that 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, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, Table 6E.—Revised Diagnosis Code Titles or Table 6F.—Revised Procedure Code Titles in association with the proposed rule. Accordingly, we stated that any update to the title of the procedure codes describing utilization of an aprevo^TM customized interbody spinal fusion device, if finalized following the March meeting, would be reflected in Table 6F.—Revised Procedure Code Titles associated with the final rule for FY 2024.

As discussed in the proposed rule, based on our review of this issue and our analysis of the claims data, we agreed that the findings appear to indicate that cases reporting the performance of a procedure utilizing an aprevo^TM customized interbody spinal fusion device reflect a higher consumption of resources. However, due to the concerns expressed with respect to suspected inaccuracies of the coding and therefore, reliability of the claims data, we stated we believed further review is warranted. In addition, as previously discussed in the proposed rule and this final rule, the proposal to revise the current code descriptions was presented at the March 2023 ICD–10 Coordination and Maintenance Committee meeting and if finalized, the revised coding may improve the reporting of procedures where an aprevo^TM customized interbody spinal fusion device is utilized. In the proposed rule, we also stated we believed that because this technology is currently receiving new technology add-on payments, it would be advantageous to allow for more claims data to be analyzed under the application of the policy in consideration of any future modifications to the MS–DRGs for which the technology is utilized in the performance of a spinal fusion procedure.

In the proposed rule, we noted that with regard to possible future action, we will continue to monitor the claims data for resolution of the potential coding issues identified by the requestor. We also noted that because the procedure codes that we analyzed and presented findings for in the FY 2024 IPPS/LTCH PPS proposed rule may be revised based on the proposal as discussed at the March 2023 ICD–10 Coordination and Maintenance Committee meeting, the claims data that we examine in the future may change. Additionally, we stated that we will continue to collaborate with the AHA as one of the four Cooperating Parties through the AHA's Coding Clinic for ICD–10–CM/PCS and provide further education on spinal fusion procedures utilizing an aprevo^TM customized interbody spinal fusion device and the proper reporting of the ICD–10–PCS spinal fusion procedure codes. Until these potential coding inaccuracies are addressed and additional, future analysis of the procedures being reported in the claims data can occur, we stated we believed it would be premature to propose any MS–DRG modifications for spinal fusion procedures utilizing an aprevo^TM customized interbody spinal fusion device at this time. For these reasons, we proposed to maintain the current structure of MS–DRGs 453, 454, 455, 456, 457, 458, 459, and 460 for FY 2024.

Comment: Commenters supported our proposal to maintain the current structure of MS–DRGs 453, 454, 455, 456, 457, 458, 459, and 460 for FY 2024.

Response: We thank the commenters for their support.

Comment: Several commenters (orthopedic surgeons) who expressed support for the requested reassignment of cases reporting the utilization of an aprevo^TM customized interbody spinal fusion device stated how important these devices are for their patients because it optimizes patient alignment, is patient-specific, and therefore, beneficial for situations where a patient's normal anatomy does not allow for traditional implants. These commenters stated that without reassignment to the higher severity MS–DRGs their facilities would not allow use of the technology on the population of Medicare patients they serve.

Response: We appreciate the commenters' feedback. As discussed in the proposed rule, based on our review and analysis of the claims data, we agreed that the findings appear to indicate that cases reporting the performance of a procedure utilizing an aprevo^TM customized interbody spinal fusion device reflect a higher consumption of resources. We also note that the proposal to revise the current code descriptions that was presented at the March 2023 ICD–10 Coordination and Maintenance Committee meeting was finalized, as reflected in the FY 2024 ICD–10–PCS Code Update files available via the CMS website at: https://www.cms.gov/medicare/icd-10/2024-icd-10-pcs as well as in Table 6F.—Revised Procedure Code Titles—FY 2024 associated with this final rule and available via the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

As also previously discussed, because of the concerns with respect to suspected inaccuracies of the current coding, we continue to believe additional review of claims data is warranted and would be informative as we continue to consider this technology for future rulemaking. Accurate and complete documentation within the medical record is important for patient management, outcome measurement, and quality improvement, as well as payment accuracy. We anticipate that the revisions to the code title for the aprevo^TM customized interbody spinal fusion device will encourage more accurate reporting of procedures and improve the quality and reliability of the data. We also continue to believe that because this technology is currently receiving new technology add-on payments and will continue to receive new technology add-on payments, additional claims data analysis of the cases under the application of the policy in consideration of any future modifications to the MS–DRGs for which the technology is utilized in the performance of a spinal fusion procedure would be beneficial.

As we have stated in prior rulemaking, we rely on providers to assess the needs of their patients and provide the most appropriate treatment. It is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that potentially involves increased costs (86 FR 44847). It would also not be appropriate to consider modifications to the MS–DRG assignment of cases reporting the performance of a procedure that identifies and describes a specific technology solely as an incentive for providers to purchase and utilize one technology over another.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to maintain the structure of MS–DRGs 453, 454, 455, 456, 457, 458, 459, and 460, without modification, for FY 2024.

9. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract): Complications of Arteriovenous Fistulas and Shunts

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26729 through 26733), we discussed a request we received to add eight ICD–10–CM diagnosis codes to the list of principal diagnoses assigned to 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) when reported with procedure codes describing the insertion of totally implantable vascular access devices (TIVADs) and tunneled vascular access devices. The list of eight ICD–10–CM diagnosis codes submitted by the requestor, as well as their current MDC assignments, are found in the table:

As noted in the proposed rule, in order to be treated with dialysis, a procedure that replaces kidney function when the organs fail, a connection must be established between the dialysis equipment and the patient's bloodstream. To establish long-term hemodialysis access, an arteriovenous (AV) fistula or an AV shunt can be surgically created. An AV fistula is created by suturing an artery directly to a vein, generally in the wrist, forearm, inner elbow or upper arm. AV fistulas usually require from 8 to 12 weeks for maturation prior to initial use. AV shunts, also called AV grafts, are created by connecting an artery and a vein using a graft made of synthetic material. AV shunts do not require maturation, as AV fistulas do, and they can be used for hemodialysis in as little as 24 hours after creation depending upon the type of graft that is used. The requestor noted that diagnosis codes that describe complications of dialysis catheters currently are in the list of qualifying principal diagnoses in MS–DRGs 673, 674, and 675 when reported with procedure codes describing the insertion of TIVADs or tunneled vascular access devices; therefore, according to the requestor, diagnosis codes that describe complications of arteriovenous fistulas and shunts should reasonably be added.

We stated in the proposed rule that to begin our analysis, we reviewed the GROUPER logic for MS–DRGs 673, 674, and 675 including 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. We refer the reader to the ICD–10 MS–DRG Definitions Manual Version 40.1, which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete documentation of the GROUPER logic for MS–DRGs 673, 674, and 675.

As discussed in the FY 2003 IPPS/LTCH PPS final rule (67 FR 49993 through 49994), the procedure code for the insertion of totally implantable vascular access devices was added to the GROUPER logic of DRG 315 (Other Kidney and Urinary Tract O.R. Procedures), the predecessor DRG of MS–DRGs 673, 674, and 675, when combined with principal diagnoses specifically describing renal failure, recognizing that inserting these devices as an inpatient procedure for the purposes of hemodialysis can lead to higher average charges and longer lengths of stay for those cases. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58511 through 58517), we discussed a similar request to add 29 ICD–10–CM diagnosis codes to the list of principal diagnoses assigned to MS–DRGs 673, 674, and 675. In the FY 2021 IPPS/LTCH PPS final rule, we finalized the assignment of diagnosis codes that describe diabetes mellitus with diabetic chronic kidney disease, codes that describe complications of kidney transplant and codes that describe mechanical complications of vascular dialysis catheters to the list of qualifying principal diagnoses in MS–DRGs 673, 674, and 675 and stated that we believed the insertion of TIVADs or tunneled vascular access devices for the purposes of hemodialysis was clinically related to these diagnosis codes. We stated that for clinical coherence, the cases reporting these diagnoses should be grouped with the subset of cases that report the insertion of totally implantable vascular access devices or tunneled vascular access devices as an inpatient procedure for the purposes of hemodialysis for renal failure.

As discussed in the FY 2024 IPPS/LTCH proposed rule, we reviewed the eight diagnosis codes submitted by the requestor. Diagnosis codes T82.510A, T82.511A, T82.520A, T82.521A, T82.530A, T82.531A, T82.590A, and T82.591A describe mechanical complications of arteriovenous fistulas and shunts and are currently assigned to MDC 05 (Diseases and Disorders of the Circulatory System). The eight diagnosis codes would require reassignment to MDC 11 in MS–DRGs 673, 674, and 675 to group with the subset of cases that report the insertion of totally implantable vascular access devices or tunneled vascular access devices as an inpatient procedure for the purposes of hemodialysis for renal failure. We examined claims data from the September 2022 update of the FY 2022 MedPAR file for all cases reporting procedures describing the insertion of TIVADs or tunneled vascular access devices with a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts and compared these data to cases in MS–DRGs 673, 674 and 675. The following table shows our findings:

As shown in the table, there were 13,904 cases in MS–DRG 673 with an average length of stay of 12.1 days and average costs of $31,946. There were 748 cases reporting a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts, with a secondary diagnosis of MCC, and a procedure code for the insertion of a TIVAD or tunneled vascular access device with an average length of stay of 6 days and average costs of $24,467. There were 5,532 cases in MS–DRG 674 with an average length of stay of 7.8 days and average costs of $20,702. There was one case reporting a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts, with a secondary diagnosis of CC, and a procedure code for the insertion of a TIVAD or tunneled vascular access device with a length of stay of 3 days and costs of $6,418. There were 303 cases in MS–DRG 675 with an average length of stay of 3.6 days and average costs of $13,343. There were zero cases reporting a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts, without a secondary diagnosis of CC or MCC, and a procedure code for the insertion of a TIVAD or tunneled vascular access device. We note that the average length of stay and average costs of cases reporting a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts and the insertion of a TIVAD or a tunneled vascular access device are lower than for all cases in MS–DRGs 673 and 674, respectively.

To further examine the impact of moving the eight MDC 05 diagnoses into MDC 11, in the proposed rule, we stated we analyzed claims data for cases reporting an O.R. procedure assigned to MDC 05 and a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts. Our findings are reflected in the following table:

We noted in the proposed rule that whenever there is a surgical procedure reported on the claim that is unrelated to the MDC to which the case was assigned based on the principal diagnosis, it results in an MS–DRG assignment to a surgical class referred to as “unrelated operating room procedures”. As shown in the table, if we were to move the eight diagnosis codes describing mechanical complications of arteriovenous fistulas and shunts from MDC 05 to MDC 11, 1,581 cases would be assigned to the surgical class referred to as “unrelated operating room procedures” as an unintended consequence. We stated that the data also indicates that there were more cases that reported an O.R. procedure assigned to MDC 05 with a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts than there were cases reporting a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts and a procedure code for the insertion of a TIVAD or tunneled vascular access device (1,581 cases versus 749 cases) demonstrating that inpatient admissions for mechanical complications of arteriovenous fistulas and shunts more typically have an O.R. procedure assigned to MDC 05 performed.

We further stated we also reviewed the cases reporting an O.R. procedure assigned to MDC 05 and a principal diagnosis describing mechanical complications of arteriovenous fistulas and shunts to identify the top 10 O.R. procedures assigned to MDC 05 that were reported within the claims data for these cases. Our findings are shown in the following table:

As noted previously, if we were to move the eight diagnosis codes describing mechanical complications of arteriovenous fistulas and shunts to MDC 11, cases reporting one of the O.R. procedures assigned to MDC 05 shown in the table would be assigned to the surgical class referred to as “unrelated operating room procedures” as an unintended consequence.

Based on the results of our analysis, we stated we did not support adding the eight diagnosis codes that describe mechanical complications of arteriovenous fistulas and shunts to the special logic in MS–DRGs 673, 674, and 675. As discussed previously, these diagnosis codes are assigned to MDC 05 (Diseases and Disorders of the Circulatory System). In the proposed rule, we noted that patients can sometimes require the insertion of tunneled or totally implantable vascular access devices for hemodialysis while surgically created AV fistulas or AV shunts are unable to be accessed due to mechanical complications, however more often these mechanical complications related to AV fistulas or AV shunts require inpatient admission for vascular surgery to be effectively treated. We stated we believed that the eight diagnosis codes describing mechanical complications of arteriovenous fistulas and shunts are most clinically aligned with the diagnosis codes assigned to MDC 05 (where they are currently assigned). We also stated we believed it would not be appropriate to move these diagnoses into MDC 11 because it would inadvertently cause cases reporting the eight diagnosis codes that describe mechanical complications of arteriovenous fistulas and shunts with O.R. procedures assigned to MDC 05 to be assigned to an unrelated MS–DRG.

Therefore, for the reasons discussed, we did not propose to add the following eight ICD–10–CM codes to the list of principal diagnosis codes for MS–DRGs 673, 674, and 675 when reported with a procedure code describing the insertion of a TIVAD or a tunneled vascular access device: T82.510A, T82.511A, T82.520A, T82.521A, T82.530A, T82.531A, T82.590A, and T82.591A.

Comment: Commenters supported the proposal to maintain the current assignment of the eight diagnosis codes in MDC 05 and expressed appreciation for CMS' analysis of clinical best practice and claims data. A commenter stated that while they recognize that the insertion of TIVADS and tunneled vascular access devices may be performed to treat renal failure, the resources used for such treatment—including surgical equipment, interventional radiology services, clinical staff, among others—are more consistent with vascular disease than the primary diagnosis (that is, kidney disease) that led to the procedure.

Response: We thank the commenters for their support and appreciate the feedback. After consideration of the public comments we received, we are finalizing for FY 2024, without modification, our proposal to not add the following eight ICD–10–CM codes to the list of principal diagnosis codes for MS–DRGs 673, 674, and 675 when reported with a procedure code describing the insertion of a TIVAD or a tunneled vascular access device: T82.510A, T82.511A, T82.520A, T82.521A, T82.530A, T82.531A, T82.590A, and T82.591A.

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 2022 update of the FY 2022 MedPAR file of cases found to group to MS–DRGs 981 through 983 or MS–DRGs 987 through 989, we proposed to move the cases reporting the procedures and/or principal diagnosis codes described in this section of this rule from MS–DRGs 981 through 983 or MS–DRGs 987 through 989 into one of the surgical MS–DRGs for the MDC into which the principal diagnosis or procedure is assigned.

a. Percutaneous Endoscopic Resection of Colon

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26733 through 26735), during our review of the cases that group to MS–DRGs 981 through 983, we noted that when ICD–10–PCS procedure code 0DTN4ZZ (Resection of sigmoid colon, percutaneous endoscopic approach) is reported with a principal diagnosis in MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract), the cases group to MS–DRGs 981 through 983. We stated in the proposed rule that the principal diagnosis most frequently reported with ICD–10–PCS procedure code 0DTN4ZZ in MDC 11 is ICD–10–CM code N32.1 (Vesicointestinal fistula). ICD–10–PCS procedure code 0DTN4ZZ currently groups to several MDCs, which are listed in the following table.

As noted in the proposed rule, we examined claims data from the September 2022 update of the FY 2022 MedPAR file to identify the average length of stay and average costs for cases reporting procedure code 0DTN4ZZ with a principal diagnosis in MDC 11, which are currently grouping to MS–DRGs 981 through 983, as well as all cases in MS–DRGs 981 through 983. Our findings are shown in the following table.

We then examined the MS–DRGs within MDC 11 and determined that the cases reporting procedure code 0DTN4ZZ with a principal diagnosis in MDC 11 would most suitably group to MS–DRGs 673, 674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with CC, and without CC/MCC, respectively), which contain procedures performed on structures other than kidney and urinary tract anatomy.

To determine how the resources for this subset of cases compared to cases in MS–DRGs 673, 674, and 675 as a whole, we stated in the proposed rule we examined the average costs and length of stay for cases in MS–DRGs 673, 674, and 675. Our findings are shown in this table.

We reviewed the data and noted in the proposed rule that for this subset of cases, the average costs are higher and the average length of stays are shorter than for cases in MS–DRGs 673, 674, and 675. However, we stated we believed that when ICD–10–PCS procedure code 0DTN4ZZ is reported with a principal diagnosis in MDC 11 (typically vesicointestinal fistula), the procedure is related to the principal diagnosis. Because vesicointestinal fistulas involve both the bladder and the bowel, we stated some procedures in both MDC 06 (Diseases and Disorders of the Digestive System) and MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract) would be expected to be related to a principal diagnosis of vesicointestinal fistula (ICD–10–CM code N32.1). Therefore, we proposed to add ICD–10–PCS procedure code 0DTN4ZZ to MDC 11. Under this proposal, cases reporting procedure code 0DTN4ZZ with a principal diagnosis of vesicointestinal fistula (diagnosis code N32.1) in MDC 11 would group to MS–DRGs 673, 674, and 675.

Comment: Commenters supported the proposal to add ICD–10–PCS procedure code 0DTN4ZZ (Resection of sigmoid colon, percutaneous endoscopic approach) to MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract).

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add ICD–10–PCS procedure code 0DTN4ZZ to MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract), without modification, effective October 1, 2023 for FY 2024.

b. Open Excision of Muscle

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26735 through 26737), during the review of the cases that group to MS–DRGs 981 through 983, we noted that when ICD–10–PCS procedure codes describing the open excision of muscle are reported in conjunction with ICD–10–CM diagnosis codes in MDC 05 (Diseases and Disorders of the Circulatory System), the cases group to MS–DRGs 981 through 983. The list of 28 ICD–10–CM procedure codes reviewed, as well as their current MDC assignments, are found in the table:

We refer the reader to Appendix E of the ICD–10 MS–DRG Version 40.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/AcuteInpatientPPS/MS-DRGClassifications-and-Software ) for the MS–DRG assignment for each procedure code listed and further discussion of how each procedure code may be assigned to multiple MDCs and MS–DRGs under the IPPS.

As discussed in the proposed rule, the principal diagnosis most frequently reported with the 28 ICD–10–PCS procedure codes describing the open excision of muscle in MDC 05 is ICD–10–CM code I96 (Gangrene, not elsewhere classified). Gangrene is a condition in which body tissue dies from not getting enough blood. It can cause changes in skin color, numbness or pain, swelling, and other symptoms. The combination of a procedure code describing the open excision of muscle and ICD–10–CM diagnosis code I96 indicates open debridement of muscle for gangrene was performed.

We stated we examined claims data from the September 2022 update of the FY 2022 MedPAR file to identify the average length of stay and average costs for cases reporting a procedure code describing the open excision of muscle with a principal diagnosis in MDC 05, which are currently grouping to MS–DRGs 981 through 983, as well as all cases in MS–DRGs 981 through 983. Our findings are shown in the following table.

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We then examined the MS–DRGs within MDC 05 and stated we determined that the cases reporting procedure codes describing the open excision of muscle with a principal diagnosis in MDC 05 would most suitably group to MS–DRG 264 (Other Circulatory System O.R. Procedures), which contains procedures performed on structures other than circulatory anatomy.

To determine how the resources for this subset of cases compared to cases in MS–DRG 264 as a whole, we examined the average costs and length of stay for cases in MS–DRG 264. Our findings are shown in this table.

As discussed in the proposed rule, we reviewed the data and noted for this subset of cases, in the “with MCC” subgroup the average costs of the cases reporting procedure codes describing the open excision of muscle with a principal diagnosis in MDC 05 are slightly higher ($27,392 compared to $27,237) and the average length of stay is longer (11.7 days compared to 9.9 days) than for all cases in MS–DRGs 264, while the cases in the “with CC” and the “without CC/MCC” subgroups have lower average costs ($16,989 and $7,140 respectively compared to $27,237) and a shorter average length of stay (7.9 days and 4.7 days respectively compared to 9.9 days) than for cases in MS–DRG 264. However, we stated we believed that when a procedure code describing the open excision of muscle is reported with a principal diagnosis in MDC 05 (typically gangrene, not elsewhere classified), the procedure is related to the principal diagnosis. Because debridement, or the cutting away of dead and dying tissue, can be performed to keep gangrene from spreading, we stated a procedure code describing the open excision of muscle would be expected to be related to a principal diagnosis of gangrene, not elsewhere classified (diagnosis code I96), and it would be clinically appropriate for the procedures to group to the same MS–DRGs as the principal diagnoses. Therefore, we proposed to add the 28 procedure codes listed previously to MDC 05. Under this proposal, cases reporting a procedure code describing the open excision of muscle with a principal diagnosis of gangrene, not elsewhere classified (diagnosis code I96) in MDC 05 would group to MS–DRG 264.

Comment: Commenters supported the proposal to add the 28 ICD–10–PCS codes that describe the open excision of muscle to MDC 05 (Diseases and Disorders of the Circulatory System).

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the 28 ICD–10–PCS codes that describe the open excision of muscle listed previously to MDC 05 (Diseases and Disorders of the Circulatory System), without modification, effective October 1, 2023, for FY 2024.

c. Open Replacement of Skull With Synthetic Substitute

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26737 through 26739), during our review of the cases that group to MS–DRGs 981 through 983, we noted that when ICD–10–PCS procedure code 0NR00JZ (Replacement of skull with synthetic substitute, open approach) is reported with a principal diagnosis in MDC 09 (Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast), the cases group to MS–DRGs 981 through 983. The principal diagnosis most frequently reported with ICD–10–PCS procedure code 0NR00JZ in MDC 09 is ICD–10–CM code Z42.8 (Encounter for other plastic and reconstructive surgery following medical procedure or healed injury).

ICD–10–PCS procedure code 0NR00JZ currently groups to several MDCs, which are listed in the following table.

As discussed in the proposed rule, we examined claims data from the September 2022 update of the FY 2022 MedPAR file to identify the average length of stay and average costs for cases reporting procedure code 0NR00JZ with a principal diagnosis in MDC 09, which are currently grouping to MS–DRGs 981 through 983, as well as all cases in MS–DRGs 981 through 983. Our findings are shown in the following table.

We then examined the MS–DRGs within MDC 09 and determined that the cases reporting procedure code 0NR00JZ with a principal diagnosis in MDC 09 would most suitably group to MS–DRGs 579, 580, and 581 (Other Skin, Subcutaneous Tissue and Breast Procedures with MCC, with CC, and without CC/MCC, respectively) given the nature of the procedure. MS–DRGs 579, 580, and 581 contain procedures assigned to MDC 09 that do not fit within the specific surgical MS–DRGs in MDC 09, which are: skin graft; skin debridement; mastectomy for malignancy; and breast biopsy, local excision, and other breast procedures.

To determine how the resources for this subset of cases compared to cases in MS–DRGs 579, 580, and 581 as a whole, we stated we examined the average costs and length of stay for cases in MS–DRGs 579, 580, and 581. Our findings are shown in this table.

We reviewed the data and noted for this subset of cases, the average costs are higher and the average length of stays are shorter than for cases in MS–DRGs 579, 580, and 581. However, we stated we believed that when ICD–10–PCS procedure code 0NR00JZ is reported with a principal diagnosis in MDC 09 (typically encounter for other plastic and reconstructive surgery following medical procedure or healed injury), the procedure is related to the principal diagnosis.

We noted in the proposed rule that open brain surgeries that require removing a portion of the skull, for indications such as brain tumor resection, hydrocephalus shunt implantation, cerebral aneurysm clipping, evacuation of a brain hemorrhage, microvascular decompression, and lobectomy, can sometimes result in a residual cranial defect. We stated we believed that would be clinically appropriate for the procedure to group to the same MS–DRGs as the principal diagnosis as procedure code 0NR00JZ can be used to describe cranial reconstruction procedures that involve applying a cranial prosthetic device to address the residual bony void and/or defect to restore the natural contours of the skull.

Therefore, we proposed to add ICD–10–PCS procedure code 0NR00JZ to MDC 09. Under this proposal, cases reporting procedure code 0NR00JZ with a principal diagnosis in MDC 09 (such as encounter for other plastic and reconstructive surgery following medical procedure or healed injury) would group to MS–DRGs 579, 580, and 581.

Comment: Most commenters supported the proposal to add ICD–10–PCS procedure code 0NR00JZ to MDC 09 (Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast). However, a commenter opposed CMS' proposal. The commenter stated they did not agree and stated MS–DRGs 579, 580, and 581 are not reflective of the clinical nature of skull procedures which are more in line with cranial procedures in MDC 01 (Diseases and Disorders of the Nervous System). This commenter further requested the creation of new MS–DRGs in MDC 01 to reflect the resources utilized in the performance of these procedures.

Response: We thank the commenters for their support and feedback.

In response to the commenter that opposed the proposal, we note that ICD–10–PCS procedure code 0NR00JZ currently groups to several MDCs, which are listed in the previous table. In MDC 01 specifically, ICD–10–PCS procedure code 0NR00JZ is assigned to MS–DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator), 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). When ICD–10–PCS procedure code 0NR00JZ is reported with an ICD–10–CM diagnosis code assigned to MDC 01, the cases group MS–DRGs 023 through 027 depending on the circumstances of the admission. ICD–10–CM diagnosis code Z42.8 (Encounter for other plastic and reconstructive surgery following medical procedure or healed injury), however, is currently assigned to MDC 09 and would require reassignment to MDC 01 in order for these cases to group to MS–DRGs in MDC 01 as suggested by the commenter. We believe that diagnosis code Z42.8 is appropriately assigned to MDC 09 (Diseases and Disorders of the Circulatory System) as it describes encounters for other plastic and reconstructive surgery following medical procedure or healed injury. In reviewing the commenter's concerns, we note that diagnosis code Z42.8 does not describe a diagnosis or circumstance limited to affecting the nervous system. It would not be appropriate to move this diagnosis code into another MDC because it could inadvertently cause cases reporting this MDC 09 diagnosis with reconstructive procedures to be assigned to an unrelated MS–DRG. We note that whenever there is a surgical procedure reported on the claim that is unrelated to the MDC to which the case was assigned based on the principal diagnosis, it results in a MS–DRG assignment to a surgical class referred to as “unrelated operating room procedures”.

As discussed in the proposed rule, we note that MS–DRGs 579, 580, and 581 contain procedures assigned to MDC 09 that do not fit within the specific surgical MS–DRGs in MDC 09. We continue to believe that when ICD–10–PCS procedure code 0NR00JZ is reported with a principal diagnosis in MDC 09 (typically encounter for other plastic and reconstructive surgery following medical procedure or healed injury), the procedure is related to the principal diagnosis and that it would be clinically appropriate for the procedure to group to the same MS–DRGs as the principal diagnosis. We also continue to believe that cases reporting procedure code 0NR00JZ with a principal diagnosis in MDC 09 would most suitably group to MS–DRGs 579, 580, and 581 (Other Skin, Subcutaneous Tissue and Breast Procedures with MCC, with CC, and without CC/MCC, respectively) given the nature of the procedure.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to add ICD–10–PCS procedure code 0NR00JZ to MDC 09 (Diseases and Disorders of the Circulatory System), without modification, effective October 1, 2023 for FY 2024.

d. Endoscopic Dilation of Ureters With Intraluminal Device

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26739 through 26740), during the review of the cases that group to MS–DRGs 987 through 989, we noted that when ICD–10–PCS procedure codes describing the endoscopic dilation of ureters with an intraluminal device are reported in conjunction with ICD–10–CM diagnosis codes in MDC 05 (Diseases and Disorders of the Circulatory System), the cases group to MS–DRGs 987 through 989. The principal diagnosis most frequently reported with ICD–10–PCS procedure codes describing the endoscopic dilation of ureters with an intraluminal device in MDC 05 is ICD–10–CM code I13.0 (Hypertensive heart and chronic kidney disease with heart failure and stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease).

In the following tables, the ICD–10–PCS procedure codes describing the endoscopic dilation of ureters with an intraluminal device are listed, as well as their MDC and MS–DRG assignments.

As discussed in the proposed rule, we examined claims data from the September 2022 update of the FY 2022 MedPAR file to identify the average length of stay and average costs for cases reporting procedure code 0T768DZ, 0T778DZ, or 0T788DZ with a principal diagnosis in MDC 05, which are currently grouping to MS–DRGs 987 through 989, as well as all cases in MS–DRGs 987 through 989. Our findings are shown in the following table.

We stated we then examined the MS–DRGs within MDC 05 and determined that the cases reporting procedure codes describing the endoscopic dilation of ureters with an intraluminal device with a principal diagnosis in MDC 05 would most suitably group to MS–DRG 264 (Other Circulatory System O.R. Procedures), which contains procedures performed on structures other than circulatory anatomy.

To determine how the resources for this subset of cases compared to cases in MS–DRG 264 as a whole, we stated we examined the average costs and length of stay for cases in MS–DRG 264. Our findings are shown in this table.

As discussed in the proposed rule, we reviewed these data and noted that the average costs for this subset of cases, most of which group to MS–DRG 987, are lower than the average costs than for cases in MS–DRG 264. However, we stated we believed that when a procedure code describing the endoscopic dilation of ureters with an intraluminal device is reported with a principal diagnosis in MDC 05 (typically hypertensive heart and chronic kidney disease with heart failure and stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease), the procedure is related to the principal diagnosis. We noted in the proposed rule that ureteral intraluminal devices are used to relieve ureteral obstruction by passively dilating the ureter to allow urine to drain through the center of the hollow intraluminal device as well as around the device. Indications for endoscopic ureteral intraluminal device placement include the uncomplicated ureteral obstruction due to causes such as nephrolithiasis, tumor, or retroperitoneal fibrosis, or obstruction complicated by urinary tract infection, renal insufficiency, or renal failure. As the endoscopic dilation of ureters with an intraluminal device would be expected to be related to a principal diagnosis of hypertensive heart and chronic kidney disease with heart failure and stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease, not elsewhere classified (diagnosis code I13.0), we stated it would be clinically appropriate for the procedures to group to the same MS–DRGs as the principal diagnoses.

Therefore, we proposed to add ICD–10–PCS procedure codes 0T768DZ, 0T778DZ, and 0T788DZ to MDC 05. Under this proposal, cases reporting procedure code 0T768DZ, 0T778DZ, or 0T788DZ with a principal diagnosis of hypertensive heart and chronic kidney disease with heart failure and stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease (I13.0) in MDC 05 would group to MS–DRG 264.

Comment: Most commenters supported the proposal to add ICD–10–PCS procedure codes 0T768DZ, 0T778DZ and 0T788DZ to MDC 05 (Diseases and Disorders of the Circulatory System). However, a commenter opposed CMS' proposal. The commenter stated they did not agree and stated these cases would most appropriately group to MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract).

Response: We thank the commenters for their support and feedback. In response to the commenter that opposed the proposal, we note that ICD–10–CM diagnosis code I13.0 (Hypertensive heart and chronic kidney disease with heart failure and stage 1 through stage 4 chronic kidney disease, or unspecified chronic kidney disease) is currently assigned to MDC 05 and would require reassignment to MDC 11 in order for these cases to group to MDC 11 as suggested by the commenter. As discussed in prior rulemaking (85 FR 58504), we believe that this diagnosis code is appropriately assigned to MDC 05 (Diseases and Disorders of the Circulatory System) as it describes heart failure. We continue to believe it would not be appropriate to move this diagnosis into another MDC because it could inadvertently cause cases reporting this MDC 05 diagnosis with a circulatory system procedure to be assigned to an unrelated MS–DRG. We note that whenever there is a surgical procedure reported on the claim that is unrelated to the MDC to which the case was assigned based on the principal diagnosis, it results in a MS–DRG assignment to a surgical class referred to as “unrelated operating room procedures”.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to add ICD–10–PCS procedure codes 0T768DZ, 0T778DZ, and 0T788DZ to MDC 05 (Diseases and Disorders of the Circulatory System), without modification, effective October 1, 2023, for FY 2024.

e. Occlusion of Splenic Artery

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26740 through 26742), during our review of the cases currently grouping to MS–DRGs 987 through 989, we noted that when ICD–10–PCS procedure codes describing the occlusion of the splenic artery are reported in conjunction with ICD–10–CM diagnosis codes in MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs and Immunologic Disorders), the cases group to MS–DRGs 987 through 989. The principal diagnosis most frequently reported with ICD–10–PCS procedure codes describing the occlusion of the splenic artery in MDC 16 is ICD–10–CM code S36.032A (Major laceration of spleen, initial encounter).

In the following tables, the ICD–10–PCS procedure codes describing the occlusion of the splenic artery are listed, as well as their MDC and MS–DRG assignments.

As discussed in the proposed rule, we examined claims data from the September 2022 update of the FY 2022 MedPAR file to identify the average length of stay and average costs for cases reporting procedure codes describing the occlusion of the splenic artery with a principal diagnosis in MDC 16, which are currently grouping to MS–DRGs 987 through 989, as well as all cases in MS–DRGs 987 through 989. Our findings are shown in the following table.

We stated we then examined the MS–DRGs within MDC 16 and determined that the cases reporting a procedure code describing the occlusion of the splenic artery with a principal diagnosis in MDC 16 would most suitably group to MS–DRGs 799, 800, and 801 (Splenectomy with MCC, with CC, and without CC/MCC, respectively) given the nature of the procedure.

We note, as discussed in section II.C.1.b of the proposed rule and this final rule, using the December 2022 update of the FY 2022 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS–DRGs currently split into three severity levels would affect the MS–DRG structure beginning in FY 2024. Findings from our analysis indicate that MS–DRGs 799, 800, and 801 as well as approximately 44 other base MS–DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. We refer the reader to Table 6P.10b associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the list of the 135 MS–DRGs that would potentially be subject to deletion and the list of the 86 new MS–DRGs that would potentially be created if the NonCC subgroup criteria was applied.

To determine how the resources for this subset of cases compared to cases in MS–DRGs 799, 800, and 801 as a whole, we stated we examined the average costs and length of stay for cases in MS–DRGs 799, 800, and 801. Our findings are shown in this table.

We reviewed these data and noted that the average length of stay and average costs of the subset of cases reporting a procedure code describing the occlusion of the splenic artery with a principal diagnosis in MDC 16 are more similar to those of cases in MS–DRGs 799, 800, and 801. In the proposed rule, we also noted that in cases of splenic injury, the diagnosis and prompt management of potentially life-threatening hemorrhage is the primary goal. Procedures to occlude the splenic artery, such as splenic embolization, can be performed for spleen injuries, such as lacerations, in order to manage bleeding prior to or instead of more invasive splenic procedures. We stated a procedure code describing the occlusion of the splenic artery would be expected to be related to a principal diagnosis of a major laceration of spleen, initial encounter (diagnosis code S36.032A) and would be clinically appropriate for the procedures to group to the same MS–DRGs as the principal diagnoses.

Given the similarity in resource use between this subset of cases and cases in MS–DRGs 799, 800, and 801, and that we believed that procedure codes describing the occlusion of the splenic artery are related to principal diagnoses in MDC 16 (typically major laceration of spleen, initial encounter), we stated these cases would be more appropriately assigned to MS–DRGs 799, 800, and 801 in MDC 16 than their current assignment in MS–DRGs 987 through 989. Therefore, we proposed to add the nine procedure codes listed in the previous table that describe the occlusion of the splenic artery to MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs and Immunologic Disorders) in MS–DRGs 799, 800, and 801. Under this proposal, cases reporting a principal diagnosis of a major laceration of spleen, initial encounter (S36.032A) with a procedure describing the occlusion of the splenic artery would group to MS–DRGs 799, 800, and 801.

As discussed in the proposed rule, during the review of this issue, we noted that a splenectomy is a surgical operation involving removal of the spleen, however the GROUPER logic list for MS–DRGs 799, 800, and 801 does not exclusively contain procedure codes that describe the removal of the spleen. We refer the reader to the ICD–10 MS–DRG Version 40.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/AcuteInpatientPPS/MS-DRGClassifications-and-Software ) for complete documentation of the GROUPER logic for MS–DRGs 799, 800, and 801. Therefore, we also proposed to revise the titles of MDC 16 MS–DRGs 799, 800, and 801 from “Splenectomy with MCC, with CC, and without CC/MCC, respectively” to “Splenic Procedures with MCC, with CC, and without CC/MCC, respectively” to better reflect the assigned procedures.

Comment: Commenters supported the proposal to add the nine ICD–10–PCS codes that describe the occlusion of the splenic artery to MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs and Immunologic Disorders) and to revise the titles of MDC 16 MS–DRGs 799, 800, and 801. A commenter stated they appreciated CMS' analysis and requested that CMS provide ongoing analysis of other splenic diseases and disorders that group to MS–DRGs 987, 988, and 989 when reported with ICD–10–PCS procedure codes.

Response: We appreciate the commenters' support. We note that consistent with our process as described previously in this section, we do conduct an annual 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.

After consideration of the public comments we received, we are finalizing our proposal to add the nine procedure codes listed in the previous table that describe the occlusion of the splenic artery to MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs and Immunologic Disorders) in MS–DRGs 799, 800, and 801, without modification, effective October 1, 2023, for FY 2024. We are also finalizing our proposal to revise the titles of MDC 16 MS–DRGs 799, 800, and 801 from “Splenectomy with MCC, with CC, and without CC/MCC, respectively” to “Splenic Procedures with MCC, with CC, and without CC/MCC, respectively” to better reflect the assigned procedures for FY 2024.

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

We also review the list of ICD–10–PCS 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.

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. In the proposed rule, we stated that based on the results of our review of the claims data from the September 2022 update of the FY 2022 MedPAR file we did not identify any cases for reassignment. We also stated we did not receive any requests suggesting reassignment. Therefore, for FY 2024 we did not propose to move any cases reporting procedure codes from MS–DRGs 981 through 983 to MS–DRGs 987 through 989 or vice versa.

Comment: Commenters expressed support for CMS' proposal to not move any cases reporting procedure codes from MS–DRGs 981 through 983 to MS–DRGs 987 through 989 or vice versa.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing, without modification, our proposal to not move any cases reporting procedure codes from MS–DRGs 981 through 983 to MS–DRGs 987 through 989 or vice versa.

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

a. Background

Under the IPPS MS–DRGs (and former CMS 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 final rule, we are making Table 6B.—New Procedure Codes—FY 2024 available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. We also refer readers to the ICD–10 MS–DRG Version 40.1 Definitions Manual at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/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. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25158) and final rule (86 FR 44891), and FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28174) and final rule (87 FR 48862), we stated that in consideration of the ongoing 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 proposed rule, 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.

Comment: Commenters supported CMS' plan to continue to conduct the comprehensive, systematic review of the ICD–10–PCS codes and to evaluate their current O.R. and non-O.R. designations. These commenters expressed that they were supportive of CMS' decision to continue to develop the processes and methodology over the upcoming years and to allow the claims data to become more stable. Other commenters stated they agreed that a restructuring of these designations may be warranted as a result of the expanded detail in the ICD–10–PCS classification and changes in medical practice and that they look forward to commenting on CMS' data analysis and methodology in the future.

Response: We thank the commenters for their support.

Comment: Other commenters stated that designation of O.R. versus non-O.R. may no longer be the most critical differentiator between resource-intensive procedures for MS–DRG purposes. These commenters stated presently, there are increasingly complex and resource-intensive procedures performed by hospitals that do not involve the use of an operating room. A commenter stated that the administration of certain complex biologics or radiotherapies are not surgical procedures at all, yet these procedures represent significant resource utilization by hospitals. Another commenter stated that biplane radiology interventional suites and cardiac catheterization labs used for procedures such as mechanical thrombectomy or endovascular coiling for aneurysms can utilize more advanced equipment and supplies than a basic operating room with minimal installed equipment. This commenter encouraged CMS to recognize that the revolution in medical procedures in recent years may render O.R. vs. non-O.R. a less critical distinction in driving payment policy.

As part of the broader and continuing conversation about future MS–DRG assignments and designations for these procedures and therapies, a commenter encouraged CMS to consider how other factors influence resource utilization, and recommended CMS consider questions such as whether:

• Certain types of procedures and therapies make up a substantial percentage of the costs within a particular MS–DRG?
• There is an average amount of cost within the relative weight of a MS–DRG that represents significant resource utilization and complexity?
• Certain types of interventions, such as the administration of certain complex drugs/biologics or therapies (for example, radiation therapy), that demonstrate higher costs and resource utilization, warrant consideration of a designation as an O.R. procedure or another equivalent designation? Should these therapies be considered for another type of distinction apart from medical and surgical MS–DRGs—for example, a third category, or be treated like CCs/MCCs?
• What percentage of cases within an MS–DRG receive outlier payment?

Response: CMS appreciates the commenters' feedback and recommendations as to what factors to consider in evaluating O.R. versus non-O.R. designations. As stated previously, we have typically evaluated procedures on the basis of whether or not they would be performed in an operating room. We agree with commenters and believe that there may be other factors to consider with regard to resource utilization, particularly with the implementation of ICD–10. As discussed in the proposed rule, we are exploring alternatives on how we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is available in the ICD–10 claims data. As we continue to consider the feedback we have received to help inform the development of our process and methodology, we will provide more detail 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.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26744 through 26746), we received the following requests regarding changing the designation of specific ICD–10–PCS procedure codes from non-O.R. to O.R. procedures. In this section of this rule, as we did in the proposed rule, we summarize these requests and address why we are not considering a change to the designation of these codes at this time and, further, respond to the public comments we received regarding these requests.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48863), we discussed a request we received to change the designation of all ICD–10–PCS codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs, from non-O.R. to O.R. In the FY 2023 final rule, we stated that we believed additional time was needed to fully examine the numerous ICD–10–PCS codes in the classification that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs. We stated that rather than evaluating the procedure codes describing diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs in isolation, analysis should be performed for this subset of procedure codes across the MS–DRGs, as part of the comprehensive procedure code review. We also stated that as a component of our broader comprehensive procedure code review, we are also reviewing the process for determining when a procedure is considered an operating room procedure.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, we again received a request to change the designation of all ICD–10–PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs, from non-O.R. to O.R from the same requestor. According to the requestor, diagnostic and therapeutic thoracoscopic and laparoscopic procedures on thoracic and abdominal organs are always performed in the operating room under complex general anesthesia. The requestor did not provide a specific list of the procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs and are currently designated as non-O.R. for CMS for review, to narrow the scope of this repeat request.

As we have signaled in prior rulemaking, the designation of an O.R. procedure encompasses more than the physical location of the hospital in which the procedure may be performed; in other words, the performance of a procedure in an operating room is not the sole determining factor we consider as we examine the designation of a procedure in the ICD–10–PCS classification system. We also examine if, and in what way, the performance of the procedure affects the resource expenditure in those admissions in the inpatient setting, in addition to examining other clinical factors such as procedure complexity, and need for anesthesia administration as well as other types of sedation. As also stated in prior rulemaking, we plan to conduct a comprehensive, systematic review of the ICD–10–PCS procedure codes. We stated in the proposed rule that rather than evaluating this subset of procedure codes in isolation, as any potential change to the designation of these codes requires significant review, we continue to believe that analysis of the designation of the procedure codes describing diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs should be performed across the MS–DRGs, as part of the comprehensive procedure code review. Therefore, for the reasons discussed, we did not propose any changes to the designation of all ICD–10–PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs, from non-O.R. to O.R. for FY 2024. As diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs differ greatly in terms of clinical factors such as procedure complexity and resource utilization, we invited feedback on what factors or criteria to consider in determining whether a procedure should be designated as an O.R. procedure in the ICD–10–PCS classification system when evaluating this subset of procedure codes as part of the comprehensive procedure code review. Feedback and other suggestions may be submitted by October 20, 2023, and directed to the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM), discussed in section II.C.1.b of the preamble of the proposed rule at: https://mearis.cms.gov/public/home.

We will provide more detail on the comprehensive procedure code review and the methodology for conducting this review in future rulemaking.

Comment: Most commenters agreed with CMS' proposal to maintain the designation of all ICD–10–PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs for FY 2024.

Response: We appreciate the commenters' support.

Comment: A commenter stated that while they did not dispute that there may be numerous ICD–10–PCS codes that describe procedures performed using a percutaneous endoscopic approach, they believed that this list could be narrowed down substantially by considering only codes describing procedures performed on thoracic and abdominal organs. This commenter stated that even with a smaller list utilizing the criteria they suggested, they were unable to envision a thoracoscopic or laparoscopic procedure that would not require general anesthesia and be performed in an operating room and urged CMS to designate any ICD–10–PCS procedure code that describes a thoracic or abdominal procedure using a percutaneous endoscopic approach as an operating room procedure.

Response: We thank the commenter for their feedback. We also appreciate the commenter's suggestion, however, as stated in the proposed rule, and in prior rulemaking, we plan to conduct a comprehensive, systematic review of the ICD–10–PCS procedure codes. We continue to believe that rather than evaluating the procedure codes describing diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs in isolation, analysis should be performed for this subset of procedure codes across the MS–DRGs, as part of the comprehensive procedure code review. As a component of our broader comprehensive procedure code review, we are also reviewing 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 available in the ICD–10 claims data. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are not making changes in this final rule to the designation of all ICD–10–PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs, from non-O.R. to O.R.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44892 through 44895), CMS finalized the proposal to remove the 22 codes that describe the open drainage of subcutaneous tissue and fascia listed in the following table from the ICD–10 MS–DRGs Version 39 Definitions Manual in Appendix E—Operating Room Procedures and Procedure Code/MS–DRG Index as O.R. procedures. Under this finalization, these procedures no longer impact MS–DRG assignment.

In the FY 2022 final rule, we noted that the designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as O.R. procedures was a result of a replication error in transitioning to ICD–10. This replication error led to ICD–10–PCS procedure codes that describe the open drainage of subcutaneous tissue and fascia being listed as comparable translations for ICD–9–CM code 83.09 (Other incision of soft tissue), which was designated as a non-extensive O.R. procedure under the ICD–9–CM MS–DRGs Version 32, as opposed to being listed as comparable translations for ICD–9–CM code 86.04 (Other incision with drainage of skin and subcutaneous tissue), which was designated as a non-O.R. procedure under the ICD–9–CM MS–DRGs Version 32. We stated in the FY 2022 final rule that designating the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as non-O.R. procedures would result in a more accurate replication of the comparable procedure, under the ICD–9–CM MS–DRGs Version 32 which was 86.04, not 83.09 and is more aligned with current shifts in treatment practices.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48863 through 48865), we discussed a request we received to re-examine this change in designation. In the FY 2023 final rule, we did not make changes to the designation of these codes and stated that procedure codes that describe the open drainage of subcutaneous tissue and fascia do not reflect the technical complexity or resource intensity in comparison to other procedures that are designated as O.R. procedures. We stated that our analysis of the September 2021 update of the FY 2021 MedPAR file reflected that when the procedure codes that describe the open drainage of the subcutaneous tissue and fascia are reported, approximately 70% of the MS–DRGs assigned are classified as surgical MS–DRGs which indicated at least one procedure code designated as an O.R. procedure was also reported in these cases. We also stated that the non-O.R. designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as finalized in the FY 2022 final rule better reflects the associated technical complexity and hospital resource use of these procedures.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, we again received a request to re-examine the designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as non-O.R. procedures from the same requestor. The requestor stated that CMS should return the designation of these procedure codes to O.R. procedures to reflect the operating room resources utilized in the performance of these procedures and suggested that CMS analyze claims containing the 22 ICD–10–PCS codes to determine the percentage that contained timed O.R. charges billed under revenue code 360. The requestor also indicated there was confusion about the coded claims data as presented in the FY 2023 final rule. The requestor noted that the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia were designated as O.R. procedures in FY 2021 so it was unclear to the requestor why the table displayed by CMS associated with the FY 2023 final rule contained assignment to medical MS–DRGs.

First, in response to the question about the coded claims data as presented in the FY 2023 final rule, in the proposed rule we noted as generally stated in the preamble of the proposed rule each year, the diagnosis and procedure codes from the specified FY MedPAR claims data are grouped through the applicable version of the proposed FY GROUPER. The FY 2021 MedPAR claims data presented in the FY 2023 final rule were regrouped using the proposed FY 2023 MS–DRG classifications. In the proposed FY 2023 GROUPER, the procedure codes that describe the open drainage of subcutaneous tissue and fascia no longer impacted MS–DRG assignment and that is the reason why assignments to medical DRGs were displayed in Table 6P.1f associated with the FY 2023 final rule.

Next, we referred the reader to Table 6P.8a associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the data analysis of cases reporting the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia in the September 2022 update of the FY 2022 MedPAR file. We noted that within each MDC, the MS–DRGs are divided into medical and surgical categories. In general, surgical MS–DRGs are further defined based on the precise surgical procedure performed while the medical MS–DRGs are further defined based on the precise principal diagnosis for which a patient was admitted to the hospital. In Table 6P.8a associated with the proposed rule, column B displays the category of each MS–DRG in MS–DRG GROUPER Version 40.1. The letter M is used to designate a medical MS–DRG and the letter P is used to designate a surgical MS–DRG. In the proposed rule, we stated that overall, the data continues to indicate that the open drainage of subcutaneous tissue and fascia was not the underlying reason for, or main driver of, resource utilization for those cases. As shown in the table, when the procedure codes that describe the open drainage of the subcutaneous tissue and fascia are reported, approximately 55% of the MS–DRGs assigned are classified as surgical MS–DRGs, which indicates at least one procedure code designated as an O.R. procedure was also reported in these cases. We referred the reader to the ICD–10 MS–DRG Version 40.1 Definitions Manual (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRGClassifications-and-Software ) for complete documentation of the GROUPER logic for the listed MS–DRGs.

We stated we reviewed these data and continued to believe that procedure codes that describe the open drainage of subcutaneous tissue and fascia do not reflect the technical complexity or resource intensity in comparison to other procedures that are designated as O.R. procedures. As stated in prior rulemaking, procedures describing the open drainage of subcutaneous tissue and fascia can now be safely performed in the outpatient setting and when performed during a hospitalization, it is typically in conjunction with another O.R. procedure. In cases where procedures describing open drainage of subcutaneous tissue and fascia are the only procedures performed in an admission, the admission is quite likely due to need for IV antibiotics as opposed to the need for operating room resources in an inpatient setting.

We also noted that, as stated in prior rulemaking (84 FR 42069), in deciding whether to propose to make further modifications to the MS–DRGs for particular circumstances brought to our attention, we do not consider the reported revenue codes. Rather, as stated previously, 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 stated we do this by evaluating the ICD–10–CM diagnosis and/or ICD–10–PCS procedure codes that identify the patient conditions, procedures, and the relevant MS–DRG(s) that are the subject of a request. Specifically, for this request, we analyzed the cases reporting the ICD–10–PCS procedure codes that describe the open drainage of subcutaneous tissue and fascia. We then evaluated patient care costs using average costs and average lengths of stay (based on the MedPAR data) to detect if, and in what way, the performance of these procedures affects the resource expenditure in those admissions in the inpatient setting, in addition to examining other clinical factors such as procedure complexity and need for anesthesia administration as well as other types of sedation.

We stated in the proposed rule, we continue to believe that the non-O.R. designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as finalized in the FY 2022 final rule better reflects the associated technical complexity and hospital resource use of these procedures. Therefore, for the reasons discussed, we did not propose changes to the designation of the 22 codes that describe the open drainage of subcutaneous tissue and fascia listed in the previous table for FY 2024.

Comment: Most commenters agreed with CMS' proposal to maintain the designation of the 22 codes that describe the open drainage of subcutaneous tissue and fascia for FY 2024.

Response: We appreciate the commenters' support.

Comment: A commenter opposed the non-O.R. designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as finalized in the FY 2022 final rule. This commenter stated that they disagree that these 22 ICD–10–PCS procedures do not typically require the resources of an O.R. when occurring in the inpatient setting and stated they do not believe these procedures can be safely performed in a non-O.R. setting. The commenter stated in the FY 2018 IPPS proposed rule, these same 22 ICD–10–PCS codes were identified, and a commenter opposed the proposal to re-designate these codes at that time. In response to the issues raised by this commenter, CMS determined in the FY 2018 IPPS final rule that it was appropriate to maintain the designation of the 22 procedure codes. This commenter further stated they find CMS' rulemaking on this issue between FY 2018 and FY 2024 to be contradictory and believe that the rationale to maintain these 22 codes as O.R. procedures remains the same and that there is no safe way to effectively drain an infection involving the subfascial plane without the resources of an operating room.

Response: We thank the commenter for their feedback. We reviewed the commenters' concerns and continue to state that treatment practices have continued to shift since FY 2018 rulemaking. As stated in the proposed rule, and in prior rulemaking, in response to similar comments, we believe procedures describing the open drainage of subcutaneous tissue and fascia can now be safely performed in the outpatient setting and when performed during a hospitalization, it is typically in conjunction with another O.R. procedure. In cases where procedures describing open drainage of subcutaneous tissue and fascia are the only procedures performed in an admission, the admission is quite likely due to need for IV antibiotics as opposed to the need for operating room resources in an inpatient setting. As shown in Table 6P.8a associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ), when the procedure codes that describe the open drainage of the subcutaneous tissue and fascia are reported, approximately 55% of the MS–DRGs assigned are classified as surgical MS–DRGs which indicates at least one procedure code designated as an O.R. procedure was also reported in these cases.

As discussed in the proposed rule and earlier in this section, 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 consider as we examine the designation of a procedure in the ICD–10–PCS classification system. We continue to believe that procedure codes that describe the open drainage of subcutaneous tissue and fascia do not reflect the technical complexity or resource intensity in comparison to other procedures that are designated as O.R. procedures. The non-O.R. designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as finalized in the FY 2022 final rule better reflects the associated technical complexity and hospital resource use of these procedures.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are not making changes in this final rule to the designation of the 22 codes that describe the open drainage of subcutaneous tissue and fascia listed in the previous table for FY 2024.

12. Changes to the MS–DRG Diagnosis Codes for FY 2024

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 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/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html for the supplementary file containing the mathematical data generated using claims from the FY 2018 MedPAR file describing the impact on resource use of specific ICD–10–CM diagnosis codes when reported as a secondary diagnosis that was made available for the listening session.

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

• Represents end of life/near death or has reached an advanced stage associated with systemic physiologic decompensation and debility.
• Denotes organ system instability or failure.
• Involves a chronic illness with susceptibility to exacerbations or abrupt decline.
• Serves as a marker for advanced disease states across multiple different comorbid conditions.
• 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 discussion of our response to public comments regarding 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 code 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 well as the following section of this final rule for our proposed changes to the severity level designation for certain diagnosis codes that describe homelessness for FY 2024, as well as our finalization of that proposal.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, we continue to solicit feedback regarding the guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We have made available on the CMS website updated impact on resource use files 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 2022 MedPAR files. The link to these files is posted on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. When providing additional feedback or comments, we encourage 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. We also continue to be interested in receiving feedback on how we might otherwise 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.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26748), for new diagnosis codes approved for FY 2024, 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 noted 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 final rule for the discussion of the finalized changes to the ICD–10–CM and ICD–10–PCS coding systems for FY 2024.

c. Changes to Severity Levels

As discussed earlier in this section, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28177 through 28181), we requested public comments on how the reporting of diagnosis codes in categories Z55–Z65 might improve our ability to recognize severity of illness, complexity of illness, and/or utilization of resources under the MS–DRGs. We sought comment on which specific SDOH Z codes were most likely to influence (that is, increase) hospital resource utilization related to inpatient care, including any supporting information that correlates inpatient hospital resource use to specific SDOH Z codes. In the FY 2023 proposed rule, we stated CMS believed a potential starting point for discussion was consideration of the SDOH Z diagnosis codes describing homelessness as homelessness can be reasonably expected to have an impact on hospital utilization.

To further examine the diagnosis codes that describe SDOH, in the FY 2023 proposed rule, we stated we reviewed the data on the impact on resource use for diagnosis code Z59.0 (Homelessness) when reported as a secondary diagnosis to facilitate discussion for the purposes of the comment solicitation. We noted that prior to FY 2022, homelessness was one of the more frequently reported codes that describe social determinants of health. We also noted that effective FY 2022, the subcategory was expanded and now included codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and code Z59.02 (Unsheltered homelessness).

We also displayed the impact on resource use data generated using claims from the FY 2019 MedPAR file, FY 2020 MedPAR file and the FY 2021 MedPAR file, respectively, for the diagnosis code that describes homelessness as a NonCC. We noted there was no data for codes Z59.01 (Sheltered homelessness) and code Z59.02 (Unsheltered homelessness) as these codes became effective on October 1, 2021. We stated that when examining diagnosis code Z59.0 (Homelessness) in FY 2019 and FY 2020, the data suggested that when homelessness is reported as a secondary diagnosis, the resources involved in caring for these patients are more aligned with a CC than a NonCC or an MCC. However, in FY 2021, the data suggested that the resources involved in caring for patients experiencing homelessness are more aligned with a NonCC severity level than a CC or an MCC severity level. We stated we were uncertain if the data from FY 2021, in particular, reflected fluctuations that may be a result of the public health emergency or even reduced hospitalizations of certain conditions. We also stated we were uncertain if homelessness may be underreported when there is not an available field on the claim when other diagnoses are reported instead.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, we again reviewed the data on the impact on resource use for the ICD–10–CM SDOH Z codes that describe homelessness, currently designated as NonCC, when reported as a secondary diagnosis. The following table reflects the impact on resource use data generated using claims from the September 2022 update of the FY 2022 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 the explanation of the columns in the table.

The table shows that the C1 is 1.75 for ICD–10–CM diagnosis code Z59.00, 2.00 for ICD–10–CM diagnosis code Z59.01, and 2.12 for ICD–10–CM diagnosis code Z59.02. 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 three SDOH Z codes are reported as a secondary diagnosis, the resources involved in caring for a patient experiencing homelessness support increasing the severity level from a NonCC to a CC. In the proposed rule, we noted the table also shows that the C2 finding was 2.19 for ICD–10–CM diagnosis code Z59.00, 2.24 for ICD–10–CM diagnosis code Z59.01, and 2.35 for ICD–10–CM diagnosis code Z59.02. A C2 value close to 2.0 suggests the condition is more like a CC than a NonCC, but not as significant in resource usage as an MCC when there is at least one other secondary diagnosis that is a CC but none that is an MCC. Because the C2 values in the table are generally close to 2, we stated that the data again suggested that when these three SDOH Z codes are reported as a secondary diagnosis, the resources involved in caring for a patient experiencing homelessness support increasing the severity level from a NonCC to a CC.

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, to illustrate how they might be applied in evaluating changes to the severity designations of diagnosis codes, in the FY 2024 IPPS/LTCH PPS proposed rule we noted that homelessness is a circumstance that can impede patient cooperation or management of care or both. In addition, patients experiencing homelessness can require a higher level of care by needing an extended length of stay. As discussed in the FY 2023 proposed rule, healthcare needs for patients experiencing homelessness (sheltered, unsheltered, or unspecified) may be associated with increased resource utilization. Healthcare needs for patients experiencing homelessness may be associated with increased resource utilization compared to other patients due to difficulty finding discharge destinations to meet the patient's multifaceted needs which can result in longer inpatient stays and can have financial impacts for hospitals. Longer hospital stays for these patients can also be associated with increased costs because patients experiencing homelessness are less able to access care at early stages of illness, and also may be exposed to communicable disease and harsh climate conditions, resulting in more severe and complex symptoms by the time they are admitted to hospitals, potentially leading to worse health outcomes. Patients experiencing homelessness can also be disproportionately affected by mental health diagnoses and issues with substance use disorders. In addition, patients experiencing homelessness 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 studies have shown difficulties adhering to medication regimens among persons experiencing homelessness.

Therefore, after considering the C1 and C2 ratings of the three ICD–10–CM diagnosis codes that describe homelessness and consideration of the nine guiding principles, we proposed to change the severity level designation for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness) from NonCC to CC for FY 2024. As discussed in the FY 2023 IPPS/LTCH PPS final rule, 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. In the proposed rule, we stated we also expect that SDOH Z code reporting may continue to increase for a number of reasons, for example, newer SDOH screening performed as a result of new quality measures in the Hospital Inpatient Quality Reporting program. We may consider proposed 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 further stated 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.

Feedback and other suggestions may be submitted by October 20, 2023 and directed to the electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home.

Comment: Commenters expressed overwhelming support for our proposal to change the severity level designation for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness) from NonCC to CC for FY 2024. These commenters stated this proposal acknowledges the impact of homelessness as a social determinant of health, its implications for resource utilization, and its costs to healthcare providers in effectively addressing the healthcare needs of Medicare beneficiaries experiencing homelessness. A commenter stated they especially appreciate thoughtful policies that are data-driven and intended to bridge the gap of compensation for providers who have been tirelessly caring for underserved populations. Another commenter stated that this change will confer enhanced financial resources to safety net hospitals, which care for a disproportionate number of patients impacted by health-related social risk factors. A commenter specifically stated that they see this proposal as a watershed moment as it is the first time CMS will be linking social determinants of health to payment in traditional Medicare. Commenters stated that a change to the severity level designation of the three diagnosis codes that describe homelessness from NonCC to CC may increase voluntary reporting of these circumstances, incentivize treating the whole patient, while enabling CMS to assess homelessness-related impacts on illness severity, care complexity, and hospital utilization to drive meaningful evaluation of the association between these Z codes and outcomes. A few commenters stated that based on their own analysis, homelessness has an effect on resource utilization on par with other diagnoses currently designated as MCCs but stated changing the designation to a CC is a logical and necessary step.

Response: We thank the commenters for their support.

Comment: While commending CMS' efforts, many commenters noted an operational concern in that currently only 25 diagnoses are captured on the institutional claim form. Commenters stated that documenting and reporting the social and economic circumstances patients may be experiencing may require a substantial number of SDOH Z codes and stated that this could lead to the crowding out of other diagnosis codes that also need to be captured on the institutional claim form for both payment and quality measures. A commenter stated that 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, finalized in the FY 2023 IPPS/LTCH final rule, will result in the need to include additional Z codes on the claim to represent the findings of the SDOH screenings, further limiting the space available. Commenters stated that given the number of fields available to report diagnosis codes, it would be helpful if CMS would instruct hospitals on how to prioritize the use of SDOH diagnosis codes to ensure that all the medical diagnoses that govern mortality and readmission rates are also captured. A few commenters suggested that CMS evaluate the potential to expand the number of diagnosis codes that can be submitted, or alternatively, design a separate way to report the Z codes on the claim form, separate and distinct from the fields for the diagnosis codes.

Response: We thank the commenters for their feedback. We note that any proposed changes to the institutional claim form would need to be submitted to the National Uniform Billing Committee (NUBC) for consideration as the NUBC develops and maintains the Uniform Billing (UB) 04 data set and form. The NUBC is a Data Content Committee named in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and is composed of a diverse group of interested parties representing providers, health plans, designated standards maintenance organizations, public health organizations, and vendors.

Comment: Some commenters requested that CMS further explore other SDOH diagnosis codes that could impact hospital resource use. These commenters encouraged CMS to examine other SDOH Z codes that describe circumstances such as food insecurity, lack of adequate food and drinking water, extreme poverty, lack of transportation, inadequate housing environmental temperature, and problems related to employment, physical environment, social environment, upbringing, primary support group, literacy, economic circumstances, and psychosocial circumstances to determine the hospital resource utilization related to addressing these factors and to analyze whether these SDOH Z codes should be considered for severity designation changes in future rulemaking as well. Other commenters also pointed to conditions outside of the SDOH Z codes in categories Z55–Z65 such as: medical debt, malnutrition, delirium due to a known physiological condition, elder abuse and neglect, contact with and (suspected) exposure to hazards in the physical environment, personal history of falling, personal history of adult physical and sexual abuse, awaiting organ transplant status, and underdosing of medication regimens as examples of other areas where fostering better documentation and reporting, and considering severity designation changes in future rulemaking, could improve health outcomes.

Response: We appreciate the feedback. We will examine these suggestions and determine if there are other diagnoses codes, including diagnosis codes that describe SDOH, that should also be considered further. We will consider these diagnosis codes for changes to severity level designations, using a combination of mathematical analysis of claims data and the application of nine guiding principles, as we continue our comprehensive CC/MCC analysis and will provide more detail in future rulemaking.

Comment: While supporting the proposal to designate the three ICD–10–CM diagnosis codes describing homelessness as CCs, some commenters expressed concern with the perceived diminished value that designating homelessness as a CC when reported as a secondary diagnosis may have, due to the expansion of the criteria for subdividing a base MS–DRG into a three-way split. These commenters stated the application of the NonCC subgroup criteria as demonstrated by the MS–DRG changes associated with Table 6P.10—Potential MS–DRG Changes with Application of the NonCC Subgroup Criteria and Detailed Data Analysis—FY 2024, associated with the proposed rule, appears to frequently not recognize the need for a severity level of CC by eliminating many “with CC” and “without CC/MCC” MS–DRGs, meaning there is a potential for fewer MS–DRGs to be impacted by the presence of homelessness as a CC. The commenters further stated that if there are a limited number of MS–DRGs impacted by the presence of a CC, the change of the severity designation of these three diagnosis codes will not accomplish the desired documentation and reporting goals.

Response: We appreciate the commenters' feedback and concern. We concur with commenters that the application of the NonCC subgroup criteria to existing MS–DRGs currently subdivided by a three-way severity level split going forward may result in modifications to certain MS–DRGs that are currently split into three severity levels and potentially result in MS–DRGs that are proposed to be split into two severity levels. As discussed in section II.C.1.b of the proposed rule, we identified four base MS–DRGs currently subdivided with a three-way severity level split that result in the potential creation of a single, base MS–DRG. We refer the reader to Table 6P.10b associated with the proposed rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ) for the list of the 135 MS–DRGs that would be subject to deletion and the list of the 86 new MS–DRGs that would potentially be created if the NonCC subgroup criteria were applied.

In response to the commenters who expressed concern that changes to the underlying MS–DRG structure would have the greatest impacts with respect to particular MS–DRGs, as noted in prior rulemaking, we note that generally, changes to the MS–DRG classifications and related policies under the IPPS that are implemented on an annual basis, including any potential MS–DRG updates to be considered for a future proposal in connection with application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split, would also involve a redistribution of cases, which would impact the relative weights, and, thus, the payment rates proposed for particular types of cases. As discussed in the FY 2021 final rule (85 FR 58446), we believe that applying these criteria to the NonCC subgroup of existing MS–DRGs with a three-way severity level split would better reflect resource stratification and also promote stability in the relative weights by avoiding low volume counts for the NonCC level MS–DRGs. We refer the reader to section II.C.1.b. of the preamble of this final rule for related discussion regarding our finalization of the expansion of the criteria to include the NonCC subgroup and our finalization of the proposal to continue to delay application of the NonCC subgroup criteria to existing MS–DRGs with a three-way severity level split.

Comment: A commenter stated that even though they applaud CMS' efforts to recognize the underreporting of SDOH, they recommended only changing the designation of diagnosis codes Z59.01 (Sheltered homelessness) and Z59.02 (Unsheltered homelessness) from NonCC to CC. This commenter stated that if the proposed change to the severity designation of diagnosis code Z59.00 (Homelessness, unspecified) is finalized, they envisioned payment oversight agencies would question its significance and effect on resource utilization due to the “unspecified” code description, especially if code Z59.00 is the only secondary diagnosis code designated as a CC on the claim.

Response: We thank the commenter for their feedback. We reviewed the commenter's concern and note that whether the patient is experiencing sheltered, unsheltered, or unspecified homelessness, the patient may still 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. We continue to believe that patients experiencing homelessness (regardless of type) may be less able to access care at early stages of illness, and also may be exposed to communicable disease and harsh climate conditions, resulting in more severe and complex symptoms by the time they are admitted to hospitals, potentially leading to worse health outcomes. If SDOH Z codes are consistently reported in inpatient claims data, our methodology utilized to mathematically measure the impact on resource use may more 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 and we can reexamine these severity designations in future rulemaking.

Comment: Some commenters thanked CMS for its continued interest in receiving feedback on documentation and reporting of the ICD–10–CM diagnosis SDOH Z codes, yet stated there continue to be many challenges for clinicians in documenting SDOH, such as the lack of knowledge surrounding these codes, the time and burden associated with adding them to a patient's problem list, and the perceived inability to do anything with the information. Other commenters stated assigning codes for SDOH can be a time-consuming and labor-intensive process, as many electronic health records (EHRs) do not have pathways to add a Z code to the problem or diagnosis list. These commenters stated prioritizing provider education on the reporting of Z codes and offering support mechanisms, including the use of incentives, would significantly improve the acquisition of SDOH data, as such data is essential in helping health systems better anticipate needs and help vulnerable patients receive support at both the individual and population levels. Another commenter stated that given the administrative and operational challenges for providers associated with capturing SDOH data, they recommended CMS delay implementation of the change in severity level designation of diagnosis codes Z59.00, Z59.01, and Z59.02 by one year so that providers may continue to adapt their processes and workflows to properly capture the homelessness Z codes. This commenter stated that although the proposed change would not require additional work for providers beyond reporting the codes, the act of reporting itself is still a broad change to hospital coding practices and electronic health record (EHR) use that they believe deserves additional time for provider adoption.

Response: We appreciate the feedback. We note that the ICD–10–CM Official Guidelines for Coding and Reporting have been regularly revised to provide additional guidance as it relates to diagnosis codes describing social determinants of health diagnosis. Specifically, Section I.C.21.c.17 of the ICD–10–CM Official Guidelines for Coding and Reporting were updated:

• Effective October 1, 2021, to clarify that code assignment may be based on medical record documentation from clinicians involved in the care of the patient who are not the patient's provider and that patient self-reported documentation may be used to assign codes for social determinants of health, as long as the patient self-reported information is signed-off by and incorporated into the medical record by either a clinician or provider;
• Effective October 1, 2022, to clarify that SDOH codes should be assigned only when the documentation specifies that the patient has an associated problem or risk factor; and
• Effective April 1, 2023, to provide more guidance on reporting SDOH and to provide more examples to facilitate the capture of these data.

We encourage the commenters to review the Official ICD–10–CM Coding Guidelines, which can be found on the CDC website at: https://www.cdc.gov/nchs/icd/icd10.htm . The American Hospital Association (AHA)'s Coding Clinic for ICD–10–CM/PCS publication has provided further clarification on the appropriate documentation and use of Z codes to enable hospitals to incorporate them into their processes. The AHA also offers a range of tools and resources for hospitals, health systems and clinicians to address the social needs of their patients. We believe these updates and resources will help alleviate the concerns expressed by these commenters. As one of the four Cooperating Parties for ICD–10, we will continue to collaborate with the AHA to provide guidance for coding problems or risk factors related to SDOH through the AHA's Coding Clinic for ICD–10–CM/PCS publication and to review the ICD–10–CM Coding Guidelines to determine where further clarifications may be made.

In response to commenters that state there continue to be many challenges for clinicians in documenting SDOH, such as the time and burden associated with adding them to a patient's problem list, and state that many electronic health records (EHRs) do not have pathways to add a Z code to the problem or diagnosis list, the Office of the Assistant Secretary for Planning and Evaluation (ASPE), the principal advisor to the Secretary of the U.S. Department of Health and Human Services, conducted interviews with six electronic health records (EHRs) vendors with large market shares in both ambulatory and inpatient settings to investigate the development of software products that allow health care providers to identify and address patients SDOH in health care settings. The findings of the study indicate commercial vendors appear to be ready to collaboratively discuss policy solutions, such as standards or guidelines with each other, health care systems, and government agencies in order to further promote integration of SDOH data into the standard of care for all health systems. We further note that on April 18, 2023, the Office of the National Coordinator proposed updated certification standards (USCDI v3) that would, if finalized, require certified EHR vendors to include four SDOH data elements: SDOH Assessment, Goals, Interventions, Problems/Health Concerns.

In response to the suggestion that CMS delay implementation of the change to the severity level designation of diagnosis codes Z59.00, Z59.01, and Z59.02 by one year so that providers may continue to adapt their processes and workflows to properly capture the diagnosis codes describing homelessness, we reviewed the commenters' concern and do not agree that a delay is necessary or appropriate. As discussed in the proposed rule, and previously in this section, when examining the data on the impact on resource use for the ICD–10–CM SDOH Z codes that describe homelessness from the FY 2019, FY 2020, and FY 2022 MedPAR files, the data suggested that when homelessness is reported as a secondary diagnosis, the resources involved in caring for these patients are more aligned with a CC than a NonCC. After considering the C1 and C2 ratings of the three ICD–10–CM diagnosis codes that describe homelessness and consideration of the nine guiding principles, we believe changing the severity level designation for diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness) from NonCC to CC at this time to be prudent, without the need for further delay.

Therefore, after consideration of the public comments received, we are finalizing 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 for FY 2024, without modification. In addition, these diagnosis codes are reflected in Table 6J.1—Additions to the CC List—FY 2024 associated with this final rule and available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS . We refer the reader to section II.C.13 of the preamble of the proposed rule and this final rule for further information regarding Table 6J.1.

We again thank commenters for sharing their views and their willingness to support CMS in these efforts. We will take the commenters' feedback into consideration in future policy development. We hope and expect that this finalization will foster 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 Z codes, CMS can further examine the claims data and consider future changes to the designation of these codes when reported as a secondary diagnoses. CMS will continue to monitor and evaluate the reporting of the diagnosis codes describing social and economic circumstances, including diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and Z59.02 (Unsheltered homelessness).

Additionally, as discussed in the FY 2024 IPPS/LTCH PPS proposed rule, we received a request to change the severity level designations of three ICD–10–CM diagnosis codes. The requestor suggested the severity level of ICD–10–CM diagnosis code K76.72 (Hepatic encephalopathy) be changed from NonCC to CC or MCC; N14.11 (Contrast-induced nephropathy) be changed from NonCC to CC; and S06.2XAA (Diffuse traumatic brain injury with loss of consciousness status unknown, initial encounter) be changed from CC to MCC.

In the proposed rule, we noted that these three diagnosis codes became effective with discharges on and after October 1, 2022 (FY 2023), and the current claims data from the September 2022 update of the FY 2022 MedPAR file did not yet reflect these new diagnosis codes. The proposed and finalized severity level designations for these ICD–10–CM diagnosis codes were displayed in Table 6A- New Diagnosis Codes (associated with the FY 2023 proposed rule and final rule and are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ). As discussed earlier in this section, for new diagnosis codes approved for each fiscal year, consistent with our annual process for designating a severity level (MCC, CC, or NonCC) for new diagnosis codes, in establishing the severity level of these codes, we first reviewed 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.

Specifically, the predecessor code for K76.72 (Hepatic encephalopathy) was diagnosis code K72.90 (Hepatic failure, unspecified without coma), which is designated as a NonCC. We stated when we reviewed and considered the factors as described previously, we did not believe that the resources required for hepatic encephalopathy exceeded the resources required for patients with hepatic failure, unspecified without coma as both conditions require treatment to rid the body of toxins. Therefore, our proposed and finalized severity level designation for hepatic encephalopathy was also a NonCC for FY 2023. Similarly, the predecessor code for N14.11 (Contrast-induced nephropathy) was diagnosis code N14.1 (Nephropathy induced by other drugs, medicaments and biological substances), which was designated as a NonCC. After review and consideration of the factors as described previously, we did not believe that the resources required for contrast-induced nephropathy exceeded the resources required for patients with nephropathy induced by other drugs, medicaments and biological substances, as code N14.11 was created as an expansion of the subcategory to identify contrast dyes as the substance causing nephropathy. Before the implementation of N14.11, the diagnosis was identified with code N14.1. Therefore, our proposed and finalized severity level designation for contrast-induced nephropathy was also a NonCC. Lastly, the predecessor code for S06.2XAA (Diffuse traumatic brain injury with loss of consciousness status unknown, initial encounter) was diagnosis code S06.2X9A (Diffuse traumatic brain injury with loss of consciousness of unspecified duration, initial encounter), which is designated as a CC. When we reviewed and considered the factors as described previously, we did not believe that the resources required for diffuse traumatic brain injury with loss of consciousness status unknown, initial encounter exceeded the resources required for diffuse traumatic brain injury with loss of consciousness of unspecified duration, initial encounter, therefore our proposed and finalized severity level designation for diffuse traumatic brain injury with loss of consciousness status unknown, initial encounter was also a CC.

As stated in prior rulemaking (85 FR 58560), generally, the proposed severity level ultimately depends on clinical judgement and, where the data is available, the empirical analysis of the additional resources associated with the secondary diagnosis. The impact of the secondary diagnosis is dependent on the principal diagnosis reported, with which it is associated. If the secondary diagnosis is reported primarily with a principal diagnosis that reflects serious illness with treatment complexity, then the marginal contribution of the secondary diagnosis to the overall resource use may actually be relatively small. We stated in the proposed rule we continue to believe that in the absence of claims data, the severity designation of these three codes as established in FY 2023 rulemaking is appropriate.

We further stated we believed that claims data reflecting the reporting of these new diagnosis codes are needed for analysis prior to proposing changes to these three diagnosis codes. As stated earlier in this section, we plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data and the application of nine guiding principles. We stated we believed it was appropriate to consider these requests in connection with our continued comprehensive CC/MCC analysis in future rulemaking, using the available claims data, rather than proposing to change the designation of these individual ICD–10–CM diagnosis codes in the absence of such data at this time. We will consider these individual requests received for changes to severity level designations as we continue our comprehensive CC/MCC analysis and will provide more detail in future rulemaking.

Comment: Commenters stated that they support CMS' decision not to propose to change the severity level designation of diagnosis codes K76.72 (Hepatic encephalopathy), N14.11 (Contrast-induced nephropathy) and S06.2XAA (Diffuse traumatic brain injury with loss of consciousness status unknown, initial encounter) at this time and to consider these requests in connection with our continued comprehensive CC/MCC analysis in future rulemaking. A commenter specifically stated they appreciate CMS moving cautiously with changes that could cause considerable upheaval during this time of unprecedented stress on hospitals and encouraged CMS to continue careful assessment of significant changes in the future. However, another commenter expressed concern that CMS continues to not be able to undertake a comprehensive analysis of the severity designation of the diagnosis codes in the ICD–10–CM classification. The commenter stated they believed that the nation is being negatively impacted since, in their opinion, some diagnoses currently designated as an MCC (for example severe malnutrition) do not require the resources inherent to a MCC whereas others that do (for example cardiac tamponade) are not designated as such. This commenter further stated it would be helpful if CMS made a proposed list of severity level designation changes available along with the impact on resource use files generated using claims from the FY 2019 through the FY 2022 MedPAR files that have been made publicly available on the CMS website.

Response: We thank the commenters for their support and appreciate the feedback. With respect to CMS not being able to undertake a comprehensive analysis, we note that in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235 through 19246) we stated 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 and therefore proposed changes to the severity level designations for 1,492 ICD–10–CM diagnosis codes. As summarized in the FY 2020 IPPS/LTCH PPS final rule, after careful consideration of the public comments we received in response, 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.

Since that time, CMS has taken interval steps to continue a comprehensive CC/MCC analysis. First, CMS hosted a listening session on October 8, 2019, to review the methodology utilized to mathematically measure the impact on resource use. 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 and the application of 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. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44940 through 44943), instead of changing the severity level designations of the “unspecified” ICD–10–CM diagnosis codes identified, 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 believed finalizing this new edit would provide additional time for providers to be educated while not affecting the payment the provider is eligible to receive. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48866), 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, 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 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. In addition, we have provided updated impact on resource use files so that the public can review the mathematical data for the impact on resource use generated using claims from the FY 2018, FY 2019, FY 2020, FY 2021 and the FY 2022 MedPAR files, respectively at https://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html .

Considering the potential impact of implementing a significant number of severity designation changes, and in light of the public health emergency (PHE) that was occurring concurrently during much of this timeframe, we believe these interval steps were appropriate as we plan to continue a comprehensive CC/MCC analysis, using a combination of mathematical analysis of claims data and the application of nine guiding principles. We continue to solicit comments regarding the nine guiding principles, as well as other possible ways we can incorporate meaningful indicators of clinical severity. We encourage commenters to provide a detailed explanation of how applying a suggested concept or principle would ensure that the severity designation appropriately reflects resource use for ICD–10–CM codes when reported as secondary diagnoses. Commenters should submit their recommendations by October 20, 2023 via the electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home . With respect to the suggestion that CMS make a proposed list of severity level designation changes available along with the impact on resource use files generated using claims from the fiscal year MedPAR files, we appreciate the feedback and will take this suggestion under consideration.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal, without modification, to maintain the current severity level designation of diagnosis codes K76.72 (Hepatic encephalopathy), N14.11 (Contrast-induced nephropathy), and S06.2XAA (Diffuse traumatic brain injury with loss of consciousness status unknown, initial encounter) for FY 2024.

d. Additions and Deletions to the Diagnosis Code Severity Levels for FY 2024

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26750), we noted 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 2024 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 2024;

Table 6I.2—Proposed Deletions to the MCC List FY 2024;

Table 6J.1—Proposed Additions to the CC List FY 2024; and

Table 6J.2—Proposed Deletions to the CC List FY 2024.

Comment: Commenters agreed with the proposed additions and deletions to the MCC and CC lists as shown in tables 6I.1, 6I.2, 6J.1, and 6J.2 associated with the proposed rule.

Response: We appreciate the commenters' support.

The following tables associated with this final rule reflect the finalized severity levels under Version 41 of the ICD–10 MS–DRGs for FY 2024 and are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ; Table 6I. —Complete MCC List—FY 2024; Table 6I.1—Additions to the MCC List—FY 2024; Table 6I.2—Deletions to the MCC List—FY 2024; Table 6J.—Complete CC List—FY 2024; Table 6J.1—Additions to the CC List—FY 2024; and Table 6J.2—Deletions to the CC List—FY 2024.

e. CC Exclusions List for FY 2024

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 40.1 CC Exclusion List is included as Appendix C in the ICD–10 MS–DRG Definitions Manual, which is 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.

In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed additional changes to the ICD–10 MS–DRGs Version 41 CC Exclusion List based on the diagnosis and procedure code updates as discussed in section II.C.13. of the proposed rule and set forth in Tables 6G.1, 6G.2, 6H.1, and 6H.2 associated with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS .

As discussed in section II.C.13 of the preamble of this final rule, we are finalizing, without modification, the proposed assignments and designations for the diagnosis codes after consideration of the public comments received. Therefore, the finalized CC Exclusions List as displayed in Tables 6G.1, 6G.2, 6H.1, 6H.2, and 6K, associated with this final rule reflect the severity levels under V41 of the ICD–10 MS–DRGs. We have developed Table 6G.1.—Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2024; Table 6G.2.—Principal Diagnosis Order Additions to the CC Exclusions List—FY 2024; Table 6H.1.—Secondary Diagnosis Order Deletions to the CC Exclusions List—FY 2024; and Table 6H.2.—Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2024; and Table 6K. Complete List of CC Exclusions—FY 2024.

For Table 6G.1, each secondary diagnosis code finalized for addition to the CC Exclusion List is shown with an asterisk and the principal diagnoses finalized 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 finalized for addition to the CC Exclusion List that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. For Table 6H.1, each secondary diagnosis code finalized for deletion from the CC Exclusion List is shown with an asterisk followed by the principal diagnosis codes that currently exclude it. For Table 6H.2, each of the principal diagnosis codes is shown with an asterisk and the finalized deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. Tables 6G.1., 6G.2., 6H.1., and 6H.2. associated with this final rule are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html .

As discussed in the proposed rule, we also noted that in our review of the CC Exclusion List that we identified a total of 668 diagnosis codes currently listed on various principal diagnosis collection lists that are not able to be reported as a principal diagnosis based on the ICD–10–CM Official Guidelines for Coding and Reporting. In addition, these codes are listed on the Medicare Code Editor (MCE) code edit lists for Unacceptable Principal Diagnosis or Manifestations not allowed as Principal Diagnosis. Therefore, we stated we believed it was appropriate to remove these codes from the affected principal diagnosis collection lists for V41 of the GROUPER. Because we were unable to reflect these changes in Table 6G.1., 6G.2., 6H.1., or 6H.2 at the time of the development of the proposed rule, we provided a supplementary table, Table 6H.3—Principal Diagnosis Codes for Removal from CC Exclusion List—FY 2024 listing each of these 668 diagnosis codes, including the code descriptions, the applicable MCE edit, and the current principal diagnosis collection list(s) where each code is currently listed and from which the code would be removed for the final FY 2024 V41 GROUPER. Table 6H.3 associated with the proposed rule is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html .

The ICD–10 MS–DRGs Version 41 CC Exclusion List is included as Appendix C of the Definitions Manual (available in two formats; text and HTML). The manuals are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software and each format 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 (HTML version) is provided to a collection of diagnosis codes which, when used 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 a MCC only for patients discharged alive; otherwise, they are assigned as a NonCC.

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

To identify new, revised and deleted diagnosis and procedure codes, for FY 2024, we have developed Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, Table 6E.—Revised Diagnosis Code Titles and Table 6F.—Revised Procedure Code Titles for this final rule.

These tables are not published in the Addendum to the proposed rule or final rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this final rule. As discussed in section II.C.16. of the preamble of the proposed rule and this final rule, the code titles are adopted as part of the ICD–10 Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26752), we proposed the MDC and MS–DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes. We also stated that the proposed severity level designations for the new diagnosis codes are set forth in Table 6A. and the proposed O.R. status for the new procedure codes are set forth in Table 6B. Consistent with our established process, we examined the MS–DRG assignment and the attributes (severity level and O.R. status) of the predecessor diagnosis or procedure code, as applicable, to inform our proposed assignments and designations.

Specifically, we reviewed the predecessor code and MS–DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we considered other factors that may be relevant to the MS–DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We noted that this process does not automatically result in the new diagnosis or procedure code being proposed for assignment to the same MS–DRG or to have the same designation as the predecessor code.

In this section of this rule, we summarize the public comments received for Table 6A and Table 6B and provide our responses.

Comment: A commenter applauded the addition of diagnosis code Z29.81 (Encounter for HIV pre-exposure prophylaxis) (PrEP) and encouraged ongoing monitoring of the code to ensure appropriate billing. The commenter stated a diagnostic code for PrEP has the opportunity to improve HIV prevention efforts for patients at the point of care. According to the commenter, HIV remains an issue in every region of the United States (U.S.) and significant gaps persist in ongoing HIV preventive care in clinical practice, including early detection of HIV and linking patients to appropriate prevention services, such as PrEP.

Response: We thank the commenter for their feedback.

Comment: A commenter stated that CMS proposed the severity level designation for diagnosis code O90.41 (Hepatorenal syndrome following labor and delivery) to the MCC list, proposed the removal of diagnosis code O90.4 (Postpartum acute kidney failure) from the MCC list (since the code will no longer be valid), and proposed to add several diagnosis codes describing osteoporosis and intrahepatic cholestasis of pregnancy codes to the CC list. However, according to the commenter, CMS did not include a proposal to add diagnosis code O26.649 (Intrahepatic cholestasis of pregnancy, unspecified trimester) to the CC list. The commenter stated that in FY 2022, CMS finalized maintaining the severity level designation of “unspecified” diagnosis codes as CC or MCC where there are other codes available in the code subcategory that further specify the anatomic site for purposes of a new Medicare Code Editor (MCE) “Unspecified code edit” effective with discharges on or after April 1, 2022. As such, the commenter requested consideration for the addition of diagnosis code O26.649 (Intrahepatic cholestasis of pregnancy, unspecified trimester) to the CC list to be in alignment with the other diagnosis codes describing intrahepatic cholestasis of pregnancy first trimester, second trimester, and third trimester (codes O26.641, O26.642, and O26.643, respectively) or to consider adding as a diagnosis subject to the “unspecified” code edit.

Response: We appreciate the commenters' feedback. We are providing clarification that the Unspecified code edit is only applicable to diagnosis codes that are (1) defined as an unspecified code in the classification by the title description, (2) currently designated as a CC or MCC, and (3) able to be further specified by laterality (right, left, or bilateral) for the anatomic site by other codes in the code subcategory. Because the other intrahepatic cholestasis of pregnancy codes do not include laterality in their code title descriptions, and code O26.649 is not a CC or MCC, the intrahepatic cholestasis of pregnancy, unspecified trimester code (O26.649) is unable to be considered for addition to the Unspecified code edit. We also note that consistent with our established process, we examined the severity level for the predecessor code to determine the most appropriate severity level designation. The predecessor code for code O26.649 is diagnosis code O26.619 (Liver and biliary tract disorders in pregnancy, unspecified trimester), as reflected in the FY 2024 ICD–10–CM Conversion Table (available on the CMS web page at: https://www.cms.gov/medicare/icd-10/2024-icd-10-cm ) and is designated as a NonCC. Therefore, consistent with the designation of that predecessor code, we proposed to designate code O26.649 as a NonCC.

Comment: A couple commenters requested that CMS change the MS–DRG assignment for new procedure codes X2H03R9 (Insertion of intraluminal device, bioprosthetic valve into inferior vena cava, percutaneous approach, new technology group (9) and X2H13R9 (Insertion of intraluminal device, bioprosthetic valve into superior vena cava, percutaneous approach, new technology group 9) that describe insertion of the TricValve® Bicaval Valve System from MS–DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) to MS–DRGs 266 and 267 (Endovascular Cardiac Valve Replacement and Supplement Procedures with and without MCC, respectively). According to the commenters, these procedures describe bioprostheses that replace the function of the diseased tricuspid valve while leaving the native valve in place. A commenter stated that while the ICD–10–PCS codes are new and do not yet have cost data associated with them, cases reporting use of the devices will require resources and work similar to other endovascular cardiac valve replacement procedures, such as placement within the major vessels and heart to treat valve disease. The commenter urged CMS to consider moving procedure codes X2H03R9 and X2H13R9 to MS–DRGs 266 and 267 and to monitor the costs of these procedures going forward to ensure appropriate assignment. Another commenter stated the TricValve® replaces the function of the tricuspid valve and should be described as a replacement procedure with assignment to MS–DRGs 266 and 267.

Response: We appreciate the commenters' feedback. We note that as reflected in Table 6B.—New Procedure Codes, associated with the FY 2024 IPPS/LTCH PPS proposed rule, we finalized the two procedure codes (X2H03R9 and X2H13R9) after consideration of public comments from the September 13, 2022 ICD–10 Coordination and Maintenance (CM) Committee meeting. We note that under the ICD–10–PCS classification, the root operation Replacement is defined as: Putting in or on biological or synthetic material that physically takes the place and/or function of all or a portion of a body part. As such, the TricValve® technology is not literally replacing the tricuspid valve as defined under ICD–10–PCS and the body part is not the tricuspid valve, rather, the site of the procedure is the superior vena cava (SVC) and inferior vena cava (IVC). Therefore, while the intent of the technology is to replace the function of the tricuspid valve, the procedure to place the bicaval valve system is not literally doing that and the native tricuspid valve is left in place. Using our established process, we proposed the Operating Room (O.R.) designations, MDC and MS–DRG assignments based on the predecessor code assignments. The predecessor code for procedure code X2H03R9 is procedure code 06H03DZ (Insertion of intraluminal device into inferior vena cava, percutaneous approach) and the predecessor code for procedure code X2H13R9 is procedure code 02HV3DZ (Insertion of intraluminal device into superior vena cava, percutaneous approach), as reflected in the FY 2024 ICD–10–PCS Conversion Table (available on the CMS web page at: https://www.cms.gov/medicare/icd-10/2024-icd-10-pcs ). The predecessor code 06H03DZ is designated as non-O.R. while the predecessor code 02HV3DZ is designated as an O.R. procedure and is assigned to MS–DRGs 252, 253, and 254. Therefore, we proposed that code X2H03R9 also be designated as non-O.R. and code 02HV3DZ be designated as O.R. and assigned to MS–DRGs 252, 253, and 254. Because the TricValve® technology requires the reporting of both procedure codes (X2H03R9 and X2H13R9) as a “pair”, cases reporting the procedure were proposed for assignment to MS–DRGs 252, 253, and 254.

For the reasons discussed, we are maintaining the severity level assignment for diagnosis code O26.649 as NonCC and finalizing the MS–DRG assignment for procedure codes X2H03R9 and X2H13R9 to MS–DRGs 252, 253, and 254. We will continue to monitor the claims data when it becomes available to determine if additional modifications are warranted.

After consideration of the public comments received, we are finalizing the MDC and MS–DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes associated with this final rule. In addition, the finalized severity level designations for the new diagnosis codes are set forth in Table 6A. and the finalized O.R. status for the new procedure codes are set forth in Table 6B associated with this final rule.

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 final rule:

• Table 6A.—New Diagnosis Codes—FY 2024.
• Table 6B.—New Procedure Codes—FY 2024.
• Table 6C.—Invalid Diagnosis Codes—FY 2024.
• Table 6D.—Invalid Procedure Codes—FY 2024;
• Table 6E.—Revised Diagnosis Code Titles—FY 2024.
• Table 6F.—Revised Procedure Code Titles—FY 2024.
• Table 6G.1.—Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2024.
• Table 6G.2.—Principal Diagnosis Order Additions to the CC Exclusions List—FY 2024.
• Table 6H.1.—Secondary Diagnosis Order Deletions to the CC Exclusions List—FY 2024.
• Table 6H.2.—Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2024.
• Table 6 I. —Complete MCC List—FY 2024.
• Table 6I.1.—Additions to the MCC List—FY 2024.
• Table 6I.2.–Deletions to the MCC List—FY 2024.
• Table 6J.—Complete CC List—FY 2024.
• Table 6J.1.—Additions to the CC List—FY 2024.
• Table 6J.2.—Deletions to the CC List—FY 2024.
• Table 6K.—Complete List of CC Exclusions—FY 2024.

14. Changes to the Medicare Code Editor (MCE)

The Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into an MS–DRG.

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48874), we made available the FY 2023 ICD–10 MCE Version 40 manual file. The manual contains the definitions of the Medicare code edits, including a description of each coding edit with the corresponding diagnosis and procedure code edit lists. The link to this MCE manual file, along with the link to the mainframe and computer software for the MCE Version 40 (and ICD–10 MS–DRGs) are posted on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software .

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26755), we discussed an MCE request we received related to the Sex Conflict edit by the October 20, 2022, deadline, as discussed further in this section of the preamble of this final rule. Additionally, we discussed the proposals we were making based on our internal review and analysis. In this FY 2024 IPPS/LTCH PPS final rule, we present a summation of the comments we received in response to the MCE proposals presented based on internal review and analyses in the proposed rule, our responses to those comments, and our finalized policies.

In addition, as a result of new and modified code updates approved after the annual spring ICD–10 Coordination and Maintenance Committee meeting, we routinely make changes to the MCE. In the past, in both the IPPS proposed and final rules, we have only provided the list of changes to the MCE that were brought to our attention after the prior year's final rule. We historically have not listed the changes we have made to the MCE as a result of the new and modified codes approved after the annual spring ICD–10 Coordination and Maintenance Committee meeting. These changes are approved too late in the rulemaking schedule for inclusion in the proposed rule. Furthermore, although our MCE policies have been described in our proposed and final rules, we have not provided the detail of each new or modified diagnosis and procedure code edit in the final rule. However, we make available the finalized Definitions of Medicare Code Edits (MCE) file. Therefore, we are making available the FY 2024 ICD–10 MCE Version 41 Manual file, along with the link to the mainframe and computer software for the MCE Version 41 (and ICD–10 MS–DRGs), on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software .

We also note 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 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 encourage 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.

a. External Causes of Morbidity Codes as Principal Diagnosis

In the MCE, the external cause codes (V, W, X, or Y codes) describe the circumstance causing an injury, not the nature of the injury, and therefore should not be used as a principal diagnosis.

As discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. We proposed to add the ICD–10–CM diagnosis codes shown in Table 6P.9a associated with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS to the edit code list for the External causes of morbidity codes as principal diagnosis edit.

Comment: Commenters agreed with CMS' proposal to add the diagnosis codes listed in Table 6P.9a to the External causes of morbidity codes as principal diagnosis edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in Table 6P.9a associated with the proposed rule to the External causes of morbidity codes as principal diagnosis edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

b. Age Conflict Edit

In the MCE, the Age conflict edit exists to detect inconsistencies between a patient's age and any diagnosis on the patient's record; for example, a 5-year-old patient with benign prostatic hypertrophy or a 78-year-old patient coded with a delivery. In these cases, the diagnosis is clinically and virtually impossible for a patient of the stated age. Therefore, either the diagnosis or the age is presumed to be incorrect. Currently, in the MCE, the following four age diagnosis categories appear under the Age conflict edit and are listed in the manual and written in the software program:

• Perinatal/Newborn—Age 0 years only; a subset of diagnoses which will only occur during the perinatal or newborn period of age 0 (for example, tetanus neonatorum, health examination for newborn under 8 days old).
• Pediatric—Age is 0–17 years inclusive (for example, Reye's syndrome, routine child health exam).
• Maternity—Age range is 9–64 years inclusive (for example, diabetes in pregnancy, antepartum pulmonary complication).
• Adult—Age range is 15–124 years inclusive (for example, senile delirium, mature cataract).

Comment: A commenter requested that we provide clarification regarding the overlapping age ranges (0 to 17 years and 15 to 124 years) in the Pediatric and Adult categories under the Age Conflict edit.

Response: As stated in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38045), the age ranges defined within the Age Conflict edits were established with the implementation of the IPPS. The adult age range includes the minimum age of 15 years to account for those patients who are declared emancipated minors.

(1) Perinatal/Newborn Diagnosis Category

Under the ICD–10 MCE, the Perinatal/Newborn diagnoses category for the Age conflict edit considers the age range of 0 years only. For that reason, the diagnosis codes on this Age conflict edit list would be expected to apply to conditions or disorders which will only occur during the perinatal or newborn period of age 0.

As discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. We proposed to add new ICD–10–CM diagnosis codes Z05.81 (Observation and evaluation of newborn for suspected condition related to home physiologic monitoring device ruled out) and Z05.89 (Observation and evaluation of newborn for other specified suspected condition ruled out) to the edit code list for the Perinatal/Newborn diagnoses category under the Age conflict edit.

Comment: Commenters agreed with CMS' proposal to add diagnosis codes Z05.81and Z05.89 to the edit code list for the Perinatal/Newborn diagnoses category under the Age conflict edit.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add diagnosis codes Z05.81and Z05.89 to the edit code list for the Perinatal/Newborn diagnoses category under the Age conflict edit for the ICD–10 MCE Version 41, effective October 1, 2023.

In addition, as discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2023. Included in this table is ICD–10–CM diagnosis code Z05.8 (Observation and evaluation of newborn for other specified suspected condition ruled out) that is currently listed on the edit code list for the Perinatal/Newborn diagnoses category under the Age conflict edit. We proposed to delete this code from the Perinatal/Newborn diagnoses edit code list.

Comment: Commenters agreed with CMS' proposal to delete diagnosis code Z05.8 from the edit code list for the Perinatal/Newborn diagnoses category since it is no longer valid.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to delete diagnosis code Z05.8 from the edit code list for the Perinatal/Newborn diagnoses category under the Age conflict edit for the ICD–10 MCE Version 41, effective October 1, 2023.

(2) Maternity Diagnoses

Under the ICD–10 MCE, the Maternity diagnoses category for the Age conflict edit considers the age range of 9 to 64 years inclusive. For that reason, the diagnosis codes on this Age conflict edit list would be expected to apply to conditions or disorders specific to that age group only.

As discussed in section II.C.13. of the preamble of the proposed rule, Table 6A.—New Diagnosis Codes, lists the diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. We proposed to add new ICD–10–CM diagnosis codes to the edit code list for the Maternity diagnoses category under the Age conflict edit.

Comment: Commenters agreed with CMS' proposal to add the diagnosis codes listed in the previous table to the Maternity diagnoses edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Maternity diagnoses edit code list under the Age conflict edit for the ICD–10 MCE Version 41, effective October 1, 2023.

In addition, as discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2023. Included in this table is ICD–10–CM diagnosis code O90.4 (Postpartum acute kidney failure) that is currently listed on the edit code list for the Maternity diagnoses category under the Age conflict edit. We proposed to delete this code from the Maternity diagnoses edit code list.

Comment: Commenters agreed with CMS' proposal to remove diagnosis code O90.4 from the Maternity diagnoses edit code list since it is no longer valid.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove diagnosis code O90.4 from the Maternity diagnoses edit code list under the Age conflict edit for the ICD–10 MCE Version 41, effective October 1, 2023.

(3) Adult Diagnoses

Under the ICD–10 MCE, the Adult diagnoses category for the Age conflict edit considers the age range of 15 to 124 years inclusive. For that reason, the diagnosis codes on this Age conflict edit list would be expected to apply to conditions or disorders specific to that age group only.

As discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. We proposed to add the following new ICD–10–CM diagnosis codes to the edit code list for the Adult diagnoses category under the Age conflict edit.

Comment: Commenters agreed with CMS' proposal to add the diagnosis codes listed in the previous table to the Adult diagnoses edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Adult diagnoses edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

c. Sex Conflict Edit

As discussed in the proposed rule, we received a request to reconsider sex conflict edits in connection with concerns related to claims processing for transgender individuals. The requestor raised concerns that the current edit is not clinically accurate and is inconsistent with equitable documentation of gender at the time of service. The requestor expressed concerns that automated systems are contributing to administrative burden for obstetrician-gynecologists because the sex conflict edit requires physicians to choose the sex assigned at birth only and that hospitals must include condition code 45 to override the edit for appropriate payment for certain surgeries or procedures. The requestor described that claims are inappropriately denied due to the edit singling out transgender individuals, contributing to continued alienation of transgender patients. The requestor further shared that obstetrician-gynecologists have indicated that to provide high-quality, patient-centered care, they need to be able to document a patient's gender identity along with their sex. We note that the requestor raises a number of issues that are related to multiple prospective payment systems and broader aspects of health care, such as the electronic health record.

We share the requestor's concern that the original design of the sex conflict edits is descriptive of a patient's sex assigned at birth as submitted on a claim, which may not be fully reflective of the practice of medicine and patient-doctor interactions, as well as that CMS policy and communications about the use of condition code 45 for institutional claims has not been re-examined in some time. As we state in the CMS Framework for Health Equity, 2022–2032, we strive to identify and remedy systemic barriers to equity so that every one of the people we serve has a fair and just opportunity to attain their optimal health regardless of race, ethnicity, disability, sexual orientation, gender identity, socioeconomic status, geography, preferred language, or other factors that affect access to care and health outcomes. CMS is committed to looking holistically at the concerns raised by the commenter across settings of care and will consider how to address for future rulemaking or guidance, and we thank the commenter for continuing to share firsthand experiences.

Comment: Commenters expressed their appreciation that CMS stated it is committed to looking holistically at the concerns raised with respect to the sex conflict edit and claims processing of transgender individuals across settings of care. A commenter who expressed support for the continued application of the sex conflict edit stated that while the edit plays an important role in coding error detection and condition code 45 is intended to ensure claims submission accuracy, coding and MS–DRG assignment remain challenging as a result of the edit.

Response: We appreciate the commenters' feedback. We also note that following publication of the FY 2024 IPPS/LTCH PPS proposed rule, in further consideration of the concerns expressed by the requestor and recognizing that communication about the use of condition code 45 for institutional claims had not been re-examined in some time, we issued guidance via a Medicare Learning Network® (MLN Connects) article on June 8, 2023 that is intended to provide clarification on the proper billing and usage of condition code 45 and modifier KX. This guidance also informed providers that effective July 1, 2023, the National Uniform Billing Committee (NUBC) revised the terminology and definition for Condition Code 45 to Gender Incongruence, defined as “characterized by a marked and persistent incongruence between an individual's experienced gender and sex at birth.” We refer the reader to the CMS website at: https://www.cms.gov/outreach-and-education/outreach/ffsprovpartprog/provider-partnership-email-archive/2023-06-08-mlnc for additional information regarding this guidance.

d. Manifestation Code as Principal Diagnosis Edit

In the ICD–10–CM classification system, manifestation codes describe the manifestation of an underlying disease, not the disease itself, and therefore should not be used as a principal diagnosis.

As discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. Included in this table are the following new ICD–10–CM diagnosis codes that we proposed to add to the edit code list for the Manifestation code as principal diagnosis edit, because the disease itself would be required to be reported first.

Comment: Commenters agreed with CMS' proposal to add the diagnosis codes listed in the previous table to the Manifestation code as principal diagnosis edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Manifestation code as principal diagnosis edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

In addition, as discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2023. Included in this table is ICD–10–CM diagnosis code H36 (Retinal disorders in diseases classified elsewhere) that is currently listed on the edit code list for the Manifestation code as principal diagnosis edit. We proposed to delete this code from the Manifestation code as principal diagnosis edit code list.

Comment: Commenters agreed with CMS' proposal to remove diagnosis code H36 from the Manifestation code as principal diagnosis edit code list since it is no longer valid.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove diagnosis code H36 from the Manifestation code as principal diagnosis edit code list under the ICD– 10 MCE Version 41, effective October 1, 2023.

e. Unacceptable Principal Diagnosis Edit

In the MCE, there are select codes that describe a circumstance which influences an individual's health status but does not actually describe a current illness or injury. There also are codes that are not specific manifestations but may be due to an underlying cause. These codes are considered unacceptable as a principal diagnosis. In limited situations, there are a few codes on the MCE Unacceptable Principal Diagnosis edit code list that are considered “acceptable” when a specified secondary diagnosis is also coded and reported on the claim.

As discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. We proposed to add the following new ICD–10–CM diagnosis codes to the Unacceptable Principal Diagnosis edit code list.

Comment: Commenters agreed with our proposal to add the diagnosis codes listed in the previous table to the Unacceptable Principal Diagnosis edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Unacceptable Principal Diagnosis edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

In addition, as discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2023. Included in this table are the following ICD–10–CM diagnosis codes that are currently listed on the Unacceptable Principal Diagnosis edit code list. We proposed to delete these codes from the Unacceptable Principal Diagnosis edit code list.

Comment: Commenters agreed with CMS' proposal to remove the diagnosis codes listed in the previous table from the Unacceptable principal diagnosis edit code list since they are no longer valid.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove the diagnosis codes listed in the previous table from the Unacceptable Principal Diagnosis edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

f. Unspecified Code

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44940 through 44943), we finalized the implementation of a new Unspecified code edit, effective with discharges on and after April 1, 2022. Unspecified codes exist in the ICD–10–CM classification for circumstances when documentation in the medical record does not provide the level of detail needed to support reporting a more specific code. However, in the inpatient setting, there should generally be very limited and rare circumstances for which the laterality (right, left, bilateral) of a condition is unable to be documented and reported.

As discussed in section II.C.13. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2023. We proposed to add the following new ICD–10–CM diagnosis codes to the Unspecified code edit list.

Comment: Commenters agreed with our proposal to add the diagnosis codes listed in the previous table to the Unspecified code edit code list.

Response: We thank the commenters for their support. We also note that we erroneously included the following diagnosis codes in our proposal that are not designated as a CC or MCC, and are therefore excluded from being subject to the Unspecified code edit. Specifically, Table 6A. associated with the proposed rule and this final rule lists the severity level designation for these six new diagnosis codes as NonCC.

After consideration of the public comments we received, we are finalizing our proposal to add the following diagnosis codes that are designated as CC to the Unspecified code edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

In addition, as stated in the proposed rule, we identified four diagnosis codes that were inadvertently omitted from the Unspecified code edit list effective with discharges on and after April 1, 2022. We therefore proposed to also add the following ICD–10–CM diagnosis codes to the Unspecified code edit list effective with discharges on and after October 1, 2023.

Comment: Commenters agreed with our proposal to add the diagnosis codes listed in the previous table to the Unspecified code edit code list.

Response: We thank the commenters for their support.

After consideration of the public comments we received, we are finalizing our proposal to add the previously listed diagnosis codes that are designated as MCC to the Unspecified code edit code list under the ICD–10 MCE Version 41, effective October 1, 2023.

g. Future Enhancement

As discussed previously in this section of this final rule, we have continued to evaluate the purpose and function of the MCE with respect to ICD–10, and encouraged public input for future discussion. As we have also discussed in prior rulemaking, we recognize a need to further examine the current list of edits and the definitions of those edits. We refer the reader to our discussion in the CY 2024 Outpatient Prospective Payment System and Ambulatory Surgical Center (OPPS/ASC) proposed rule (88 FR 49552, July 31, 2023), where we proposed to address any future revisions to the IPPS 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.

We continue to encourage public comments on whether there are additional concerns with the current edits, including specific edits or language that should be removed or revised, edits that should be combined, or new edits that should be added to assist in detecting errors or inaccuracies in the coded data. Comments should be directed to the new electronic intake system, Medicare Electronic Application Request Information System (MEARIS^TM), discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule, at: https://mearis.cms.gov/public/home by October 20, 2023.

15. Changes to 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 final rule.

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

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

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

Based on the changes that we proposed to make for FY 2024, as discussed in section II.C. of the preamble of the proposed rule and this final rule, we proposed to modify the existing surgical hierarchy for FY 2024 as follows.

We proposed to revise the surgical hierarchy for the MDC 04 (Diseases and Disorders of the Respiratory System) MS–DRGs as follows: In the MDC 04 MS–DRGs, we proposed to sequence proposed new MS–DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism) above MDC 04 MS–DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and below MS–DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively).

As discussed in section II.C.2.b. of the preamble of the proposed rule and this final rule, we proposed 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 proposed to sequence proposed new MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures) above MS–DRGs 216, 217, 218, 219, 220, and 221 (Cardiac Valve Other Major Cardiothoracic Procedure with and without Cardiac Catheterization, with MCC, with CC, without CC/MCC, respectively) and below MS–DRG 215 (Other Heart Assist System Implant). As discussed in section II.C.4. of the preamble of the proposed rule and this final rule, we proposed to delete 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). Based on the changes we proposed to make for those MS–DRGs in MDC 05, we proposed to sequence proposed new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) above proposed new MS–DRG 276 (Cardiac Defibrillator Implant with 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). We proposed to sequence proposed new MS–DRG 276 (Cardiac Defibrillator Implant with MCC) above proposed new MS–DRG 277 (Cardiac Defibrillator Implant without MCC) and below proposed new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC). We proposed to sequence proposed new MS–DRG 277 (Cardiac Defibrillator Implant without MCC) above MS–DRGs 266 and 267 (Endovascular Cardiac Valve Replacement and Supplement Procedures with MCC and without MCC, respectively) and below proposed new MS–DRG 276 (Cardiac Defibrillator Implant with MCC).

As discussed in section II.C.4. of the preamble of the proposed rule and this final rule, we proposed to delete MDC 05 MS–DRGs 246 and 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ Arteries or Stents and without MCC, respectively). We also proposed to delete MDC 05 MS–DRGs 248 and 249 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ Arteries or Stents and without MCC, respectively). We proposed to revise the titles for MS–DRGs 250 and 251 from “Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC and without MCC, respectively” to “Percutaneous Cardiovascular Procedures without Intraluminal Device with MCC and without MCC, respectively.” Based on the changes we proposed to make for those MS–DRGs in MDC 05, we proposed to sequence proposed new MS–DRGs 323 and 324 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC and without MCC, respectively) above proposed new MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) and below MS–DRGs 273 and 274 (Percutaneous and Other Intracardiac Procedures with MCC and without MCC, respectively). We proposed to sequence proposed new MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) above proposed new MS–DRGs 321 and 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device, with MCC or 4+ Arteries/Intraluminal Devices and without MCC, respectively) and below proposed new MS–DRGs 323 and 324 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC and without MCC, respectively). We proposed to sequence proposed new MS–DRGs 321 and 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices and without MCC, respectively), above MS–DRGs 250 and 251 (Percutaneous Cardiovascular Procedures without Intraluminal Device with MCC and without MCC, respectively) and below proposed new MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device).

In addition, based on the changes that we proposed to make as discussed in section II.C.8.a. of the preamble of the proposed rule and this final rule, we also proposed to sequence proposed new MDC 05 MS–DRGs 278 and 279 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures with MCC and without MCC, respectively) above MDC 05 MS–DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) and below MS–DRGs 250 and 251 (Percutaneous Cardiovascular Procedures without Intraluminal Device with and without MCC, respectively).

As discussed in section II.C.4. of the preamble of the proposed rule and this final rule, we proposed to delete MS–DRGs 338, 339, and 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) and MS–DRGs 341, 342, and 343 (Appendectomy without Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). Based on the changes we proposed to make for those MS–DRGs in MDC 06 (Diseases and Disorders of the Digestive System), we proposed to revise the surgical hierarchy for MDC 06 as follows: In MDC 06, we proposed to sequence proposed new MS–DRGs 397, 398, and 399 (Appendix Procedures with MCC, with CC, and without CC/MCC, respectively) above MS–DRGs 344, 345, and 346 (Minor Small and Large Bowel Procedures with MCC, with CC, and without CC/MCC, respectively) and below MS–DRGs 335, 336, and 337 (Peritoneal Adhesiolysis with MCC, with CC, and without CC/MCC, respectively).

Lastly, as discussed in section II.C.2.b. of the preamble of the proposed rule and this final rule, we proposed to revise the title for MDC 16 (Diseases and Disorders of Blood, Blood Forming Organs and Immunologic Disorders) MS–DRGs 799, 800, and 801 from “Splenectomy with MCC, with CC, and without CC/MCC, respectively” to “Splenic 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 41 is illustrated in the following tables.

Comment: Commenters supported the proposed additions, deletions, and sequencing for the surgical hierarchy under MDCs 04, 05, 06, and 16. In response to the changes we proposed to make for MS–DRGs in MDC 05, a commenter stated this hierarchy is the most logical order given the clinical complexity associated with cases requiring coronary intravascular lithotripsy followed by the MS–DRGs for percutaneous cardiovascular procedures with or without intraluminal device.

We received a few public comments recommending that CMS consider an alternate option for the surgical hierarchy in MDC 05. Specifically, these commenters requested CMS consider switching—

• MS–DRGs 270, 271, and 272 and MS–DRG 319 and 320 in the surgical hierarchy so that MS–DRGs 270, 271, and 272 are sequenced before MS–DRGs 319 and 320;
• MS–DRG 245 with MS–DRGs 266 and 267 so that MS–DRG 245 is sequenced before MS–DRGs 266 and 267; and
• MS–DRGs 323, 324, and 325 to be sequenced after MS–DRGs 319 and 320 after these MS–DRGs are sequenced after MS–DRGs 270, 271, and 272 as shown in the following table.

A commenter displayed the proposed relative weights of MS–DRGs 245, MS–DRGs 266–267, MS–DRGs 270–272, MS–DRGs 319–320, proposed new MS–DRGs 323–324 and proposed new MS–DRG 325 from Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS–DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2024, associated with the proposed rule, in listing this alternative option. However, these commenters did not provide any rationale for their alternate recommendations.

Response: We appreciate the commenters' support of our proposal. We also thank the commenters for their feedback. In response to the commenters that provided an alternate recommendation for the surgical hierarchy for MDC 05, we reviewed the suggestions from the commenters. In the absence of additional information to support the suggested modifications to our proposal, we continue to believe our proposed revisions to the surgical hierarchy account for the resources expended to address these complex procedures and do not believe any modifications are warranted at this time. We believe sequencing as discussed in the proposed rule more appropriately reflects resource utilization when the assigned cardiac procedures are performed and will result in the most suitable MS–DRG assignments. We will continue to review the surgical hierarchy, consistent with our annual rulemaking, to determine if other modifications are warranted in the future.

Therefore, after consideration of the public comments we received, and based on the changes that we are finalizing for FY 2024, as discussed in section II.C. of the preamble of the proposed rule and this final rule, we are finalizing our proposals to modify the existing surgical hierarchy, effective with the ICD–10 MS–DRGs Version 41, without modification.

For issues pertaining to the surgical hierarchy, as with other MS–DRG related requests, we encourage interested parties to submit comments no later than October 20, 2023 via the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at https://mearis.cms.gov/public/home so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

16. 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://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html . The official list of ICD–10–CM and ICD–10–PCS codes can be found on the CMS website at: https://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 ICD–10 Coordination and Maintenance Committee holds its meetings in the spring and fall to update the codes and the applicable payment and reporting systems by October 1 or April 1 of each year. Items are placed on the agenda for the Committee meeting if the request is received at least 3 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS website.

The Committee encourages participation in the previously mentioned process by health-related organizations and other interested parties. 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. A complete addendum describing details of all diagnosis and procedure coding changes, both tabular and index, is published on the CMS and NCHS websites in June of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers.

The Committee presented proposals for coding changes for implementation in FY 2024 at a public meeting held on September 13–14, 2022, and finalized the coding changes after consideration of comments received at the meetings and in writing by November 14, 2022.

The Committee held its 2023 meeting on March 7–8, 2023. The deadline for submitting comments on these code proposals was April 7, 2023. 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 2023 would be included in the October 1, 2023, update to the ICD–10–CM diagnosis and ICD–10–PCS procedure code sets.

As discussed in earlier sections of the preamble of this final rule, there are new, revised, and deleted ICD–10–CM diagnosis codes and ICD–10–PCS procedure codes that are captured in Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, Table 6E.—Revised Diagnosis Code Titles and Table 6F.–Revised Procedure Code Titles for this final rule, which are available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps . The code titles are adopted as part of the ICD–10 Coordination and Maintenance Committee process. Therefore, although we make the code titles available in these tables for the IPPS proposed and final rules, they are not subject to comment in the proposed or final rule. Because of the length of these tables, they are not published in the Addendum to the proposed or final rule. Rather, they are available via the CMS website as discussed in section VI. of the Addendum to the proposed rule and this final rule.

Recordings for the virtual meeting discussions of the procedure codes at the Committee's September 13–14, 2022, meeting and the March 7–8, 2023, 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 13–14, 2022, meeting and March 7–8, 2023, 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.

We stated in the proposed rule that in an effort to better enable the collection of health-related social needs (HRSNs), defined as individual-level, adverse social conditions that negatively impact a person's health or healthcare, are significant risk factors associated with worse health outcomes as well as increased healthcare utilization, the Centers for Disease Control and Prevention's (CDC) National Center for Health Statistics (NCHS) implemented 42 new diagnosis codes into the ICD–10–CM classification, for reporting effective April 1, 2023. The diagnosis codes are as follows:

We refer the reader to the CDC web page at https://www.cdc.gov/nchs/icd/Comprehensive-Listing-of-ICD-10-CM-Files.htm for additional details regarding the implementation of these new diagnosis codes.

As discussed in the proposed rule, we provided the MS–DRG assignments for the 42 diagnosis codes effective with discharges on and after April 1, 2023, consistent with our established process for assigning new diagnosis codes. Specifically, we review the predecessor diagnosis code and MS–DRG assignment most closely associated with the new diagnosis code and consider other factors that may be relevant to the MS–DRG assignment, including the severity of illness, treatment difficulty, and the resources utilized for the specific condition/diagnosis. We note that this process does not automatically result in the new diagnosis code being assigned to the same MS–DRG as the predecessor code. The assignments for the previously listed diagnosis codes are reflected in Table 6A.—New Diagnosis Codes associated with the proposed rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS . As with the other new diagnosis codes and MS–DRG assignments included in Table 6A in association with the proposed rule, we solicited public comments on the most appropriate MDC, MS–DRG, and severity level assignments for these codes for FY 2024, as well as any other options for the GROUPER logic.

We did not receive any comments opposing the MDC, MS–DRG, and severity level assignments for the listed codes and are therefore, finalizing, without modification, the assignments as reflected in Table 6A.—New Diagnosis Codes in association with this final rule.

In addition, we noted in the proposed rule that CMS implemented 34 new procedure codes including laser interstitial thermal therapy (LITT) of various vertebral body sites, bone marrow transfusions, and the introduction or infusion of therapeutics, into the ICD–10–PCS classification effective with discharges on and after April 1, 2023. The procedure codes are as follows:

The 34 procedure codes are also reflected in Table 6B—New Procedure Codes in association with the proposed rule and available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS . As with the other new procedure codes and MS–DRG assignments included in Table 6B in association with the proposed rule, we solicited public comments on the most appropriate MDC, MS–DRG, and operating room status assignments for these codes for FY 2024, as well as any other options for the GROUPER logic.

We did not receive any comments opposing the MDC, MS–DRG, and operating room status assignments for the listed codes and are therefore, finalizing, without modification, the assignments as reflected in Table 6B.—New Procedure Codes in association with this final rule.

In the proposed rule, we also noted that Change Request (CR) 13034, Transmittal 11746, titled “April 2023 Update to the Medicare Severity—Diagnosis Related Group (MS–DRG) Grouper and Medicare Code Editor (MCE) Version 40.1 for the International Classification of Diseases, Tenth Revision (ICD–10) Diagnosis Codes for Collection of Health-Related Social Needs (HRSNs) and New ICD–10 Procedure Coding System (PCS) Codes”, was issued on December 15, 2022 (available on the CMS website at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r11746cp ), regarding the release of an updated version of the ICD–10 MS–DRG GROUPER and Medicare Code Editor software, Version 40.1, effective with discharges on and after April 1, 2023, reflecting the new diagnosis and procedure codes. The updated software, along with the updated ICD–10 MS–DRG V40.1 Definitions Manual and the Definitions of Medicare Code Edits V40.1 manual is available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software .

In the September 7, 2001 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 Public Law 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 final rule, there were code proposals presented for an April 1, 2023, implementation at the September 13–14, 2022, Committee meetings. Following the receipt of public comments, the code proposals were approved and finalized, therefore, there were new codes implemented April 1, 2023.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule, consistent with the process we outlined for the April 1 implementation date, we announced the new codes in November 2022 and provided the updated code files and ICD–10–CM Official Guidelines for Coding and Reporting in January 2023. On January 30, 2023, the Federal Register (88 FR 5882) notice for the March 7–8, 2023 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, 2023, we made available the updated V40.1 ICD–10 MS–DRG Grouper software and related materials on the CMS web page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software .

ICD–9–CM addendum and code title information is published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum . ICD–10–CM and ICD–10–PCS addendum and code title information is published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 . CMS also sends electronic files containing all ICD–10–CM and ICD–10–PCS coding changes to its Medicare contractors for use in updating their 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.

In the proposed rule, we noted that for FY 2023, there are currently 73,674 diagnosis codes and 78,530 procedure codes. We also noted that as displayed in Table 6A.—New Diagnosis Codes and in Table 6B.—New Procedure Codes associated with the proposed rule (and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ), there are 395 new diagnosis codes and 10 new procedure codes that had been finalized for FY 2024 at the time of the development of the proposed rule. As discussed in section II.C.13 of the preamble of this final rule, we are making Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, Table 6E.—Revised Diagnosis Code Titles and Table 6F.—Revised Procedure Code Titles available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps in association with this final rule. As shown in Table 6B.—New Procedure Codes, there were procedure codes discussed at the March 7–8, 2023 ICD–10 Coordination and Maintenance Committee meeting that were not finalized in time to include in the proposed rule and are identified with an asterisk. We refer the reader to Table 6B.—New Procedure Codes associated with this final rule and available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps for the detailed list of these additional 68 new procedure codes. The addition of these 68 new procedure codes to the 10 procedure codes that had been finalized at the time of the development of the proposed rule results in a total of 78 (10 + 68 = 78) new procedure codes for FY 2024.

We also note, as reflected in Table 6C.—Invalid Diagnosis Codes and in Table 6D.—Invalid Procedure Codes, there are a total of 25 diagnosis codes and 5 procedure codes that will become invalid effective October 1, 2023. Based on these code updates, effective October 1, 2023, there are a total of 74,044 ICD–10–CM diagnosis codes and 78,603 ICD–10–PCS procedure codes for FY 2024 as shown in the following table.

As stated previously, the public is provided the opportunity to comment on any requests for new diagnosis or procedure codes discussed at the ICD–10 Coordination and Maintenance Committee meeting. 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.

17. Replaced Devices Offered Without Cost or With a Credit

a. Background

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

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

b. Changes for FY 2024

As discussed in section II.C.5. of the preamble of the proposed rule and this final rule, for FY 2024, we proposed to delete MS–DRGs 222, 223, 224, 225, 226, and 227, add new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) and new MS–DRGs 276 and 277 (Cardiac Defibrillator Implant with MCC, and without MCC, respectively), and to reassign a subset of the procedures currently assigned to MS–DRGs 222 through 227 to proposed new MS–DRGs 275, 276, and 277.

As stated in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24409), we generally map new MS–DRGs onto the list when they are formed from procedures previously assigned to MS–DRGs that are already on the list. Currently, MS–DRGs 222 through 227 are on the list of MS–DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit as shown in the following table. A subset of the procedures currently assigned to MS–DRGs 222 through 227 was proposed for assignment to proposed new MS–DRGs 275, 276, and 277. Therefore, we proposed that if the applicable proposed MS–DRG changes are finalized, we also would add proposed new MS–DRGs 275, 276, and 277 to the list of MS–DRGs subject to the policy for payment under the IPPS for replaced devices offered without cost or with a credit and make conforming changes to delete MS–DRGs 222 through 227 from the list of MS–DRGs subject to the policy. We also proposed to continue to include the existing MS–DRGs currently subject to the policy.

As discussed in section II.C.5. of the preamble of this final rule, we are finalizing our proposal to delete MS–DRGs 222, 223, 224, 225, 226, and 227. Additionally, we are finalizing our proposal to create new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) and new MS–DRGs 276 and 277 (Cardiac Defibrillator Implant with MCC, and without MCC, respectively), and to reassign a subset of the procedures currently assigned to MS–DRGs 222 through 227 to proposed new MS–DRGs 275, 276, and 277. We did not receive any public comments opposing our proposal to delete MS–DRGs 222, 223, 224, 225, 226, and 227 from the list of MS–DRGs that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2023. Additionally, we did not receive any public comments opposing our proposal to add MS–DRGs 275, 276, and 277 to the list of MS–DRGs that will be subject to the policy for replaced devices offered without cost or with credit or to continue to include the existing MS–DRGs currently subject to the policy. Therefore, we are finalizing the list of MS–DRGs in the following table that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2023.

The final list of MS–DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be issued to providers in the form of a Change Request (CR).

18. Out of Scope Public Comments Received

We received public comments on MS–DRG related issues that were outside the scope of the proposals included in the FY 2024 IPPS/LTCH PPS proposed rule.

Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.D.1.b. of the preamble of this final rule, we encourage individuals with comments about MS–DRG classifications to submit these comments no later than October 20, 2023, via the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home , so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

D. Recalibration of the FY 2024 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 2024, we proposed to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2022 MedPAR data used in this final rule include discharges occurring on October 1, 2021, through September 30, 2022, based on bills received by CMS through March 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 2022 MedPAR file used in calculating the relative weights includes data for approximately 6,991,373 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 2022 update of the FY 2022 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2024 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. We note that the FY 2024 relative weights are based on the ICD–10–CM diagnosis codes and ICD–10–PCS procedure codes from the FY 2022 MedPAR claims data, grouped through the ICD–10 version of the FY 2024 GROUPER (Version 41).

The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the HCRIS. In general, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, for this final rule, we used the March 2023 update of the FY 2021 HCRIS for calculating the FY 2024 cost-based relative weights. Consistent with our historical practice, for this FY 2024 final 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 2024 IPPS Proposed Rule Home Page” or “Acute Inpatient Files for Download.”

2. Methodology for Calculation of the Relative Weights

a. General

We calculated the FY 2024 relative weights based on 19 CCRs. The methodology we proposed to use to calculate the FY 2024 MS–DRG cost-based relative weights based on claims data in the FY 2022 MedPAR file and data from the FY 2021 Medicare cost reports is as follows:

• To the extent possible, all the claims were regrouped using the FY 2024 MS–DRG classifications discussed in sections II.B. and II.C. of the preamble of this final rule.
• The transplant cases that were used to establish the relative weights for heart and 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 2022 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, computed tomography (CT) scan charges, and magnetic resonance imaging (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 POA indicator 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 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 2023, and consistent with how we have treated hospitals that participated in the BPCI Initiative, for FY 2024, 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 2023 IPPS/LTCH PPS final rule, we also proposed 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 2021 cost report data.

The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this final rule and available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. We stated in the proposed rule that if we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy. However, we did not receive any comments on the groupings in this table, and therefore, we are finalizing the groupings as proposed.

Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS–DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS–DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS–DRGs, combining the cases across those two MS–DRGs results in the same relative weight for both MS–DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. For the FY 2024 proposed rule, this calculation was applied to address non-monotonicity for cases that grouped to MS–DRG 016 and MS–DRG 017. In the supplemental file titled AOR/BOR File associated with the proposed rule, we included statistics for the affected MS–DRGs both separately and with cases combined.

We invited public comments on our proposals related to recalibration of the proposed FY 2024 relative weights and the changes in relative weights from FY 2023.

Comment: A commenter stated that CMS erred in calculating the relative weights for MS–DRG 016 and MS–DRG 017. The commenter stated that if the relative weight is going to be kept the same, the MS–DRGs should be combined, as they are for allogenic bone marrow transplants.

Response: As discussed in the proposed rule, we intentionally combined the cases across the two MS–DRGs because the mean cost in the higher severity level is less than the mean cost in the lower severity level, consistent with our historical practice for accounting for situations of non-monotonicity in a base MS–DRG and its severity levels. We may consider the suggestion to combine these two MS–DRGs for future rulemaking.

Accordingly, for this FY 2024 final rule, this calculation was applied to address non-monotonicity for cases that grouped to MS–DRG 016 and MS–DRG 017. In the supplemental file titled AOR/BOR File associated with this final rule, we include statistics for the affected MS–DRGs both separately and with cases combined.

Comment: A commenter requested that CMS implement an edit for claims that group to MS–DRG 014, that would reject claims when an inpatient type of bill 11X claim is received without charges mapped to revenue code 0815. The commenter stated that this edit would help ensure accurate claims reporting, ensure the accuracy of CMS' budget neutrality calculations, and help ensure that CMS does not inappropriately generate outlier payment on MS–DRG 014 claims (given that CMS removes costs associated with revenue code 0815 from its outlier calculation).

Response: We expect providers to appropriately report charges associated with revenue code 0815 and do not believe that a novel claims processing edit such as this is necessary at this time. We may consider provider education materials regarding reporting Allogeneic Stem Cell Acquisition/Donor Services in the future.

After consideration of the comments received, we are finalizing our proposals related to the recalibration of the FY 2024 relative weights. We summarize and respond to comments relating to the methodology for calculating the relative weight for MS–DRG 018 in the next section of this final rule.

b. Relative Weight Calculation for MS–DRG 018

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through 58453), we created MS–DRG 018 for cases that include procedures describing Chimeric Antigen Receptor (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 will 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 Medicare administrative contractor (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.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894), we once again finalized our policy to use a proxy of standardized drug charges of less than $373,000. We also stated that we will continue to monitor the data with respect to the clinical trial threshold. As in prior years, we stated that we continue to believe to the best of our knowledge there were no claims in the historical data (FY 2021 MedPAR) used in the calculation of the 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. We also stated, in response to comments, that we agreed that the availability of condition code 90 obviates the need for the use of the remarks field to identify expanded access claims that group to MS–DRG 018 for the purposes of applying the clinical trial adjustment. We stated that effective October 1, 2022, providers should submit condition code 90 to identify expanded access claims that group to MS–DRG 018, rather than the remarks field, and that the MACs will no longer flag cases as expanded access claims based on information submitted in the remarks field for claims submitted on or after October 1, 2022 (87 FR 48896). We also noted that we were in the process of making modifications to the MedPAR files to include information for claims with the payer-only condition code “ZC” in the future, 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 (87 FR 49080).

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.

We stated in the proposed rule that while we have applied a proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases under our special methodology for the calculation of the relative weight for MS–DRG 018 to date, we believe that because of changes that have occurred since CMS initially adopted this policy, it may no longer be necessary to apply this proxy to identify these claims. In the FY 2021 IPPS/LTCH PPS final rule, we stated that because ICD–10–CM diagnosis code Z00.6 is required to be included with clinical trial cases, we expect hospitals to include this code for such cases grouping to MS–DRG 018 for FY 2021 and all subsequent years, and we believe that providers have continued to gain experience with the use of ICD–10–CM diagnosis code Z00.6 to report cases involving a clinical trial of CAR T-cell therapy. This is supported by our observation that the percentage of claims reporting standardized drug charges of less than $373,000 that do not report ICD–10–CM code Z00.6 relative to all claims that group to MS–DRG 018 fell significantly from the FY 2019 data (used in the FY 2021 ratesetting) to the FY 2022 data (used in the FY 2024 ratesetting). For example, in the FY 2019 MedPAR data used for the FY 2021 IPPS/LTCH PPS final rule, cases that we identified as clinical trial cases (using our proxy of standardized drug charges of less than $373,000) that did not contain ICD–10–CM diagnosis code Z00.6 comprised 18 percent of all cases that grouped to MS–DRG 018. In the FY 2022 MedPAR data used for the FY 2024 IPPS/LTCH PPS proposed rule, cases that we identified as clinical trial cases using our proxy that did not contain ICD–10–CM diagnosis code Z00.6 comprised 4 percent of all cases that grouped to MS–DRG 018. In addition, prior to FY 2022, we were unable to identify cases in the MedPAR claims data that were provided as part of expanded access use in developing the relative weights. The December update of the FY 2022 MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. For the FY 2022 MedPAR claims data, this field identifies whether or not the claim includes condition code ZB. For the FY 2023 MedPAR data and for subsequent years, this field will identify whether or not the claim includes condition code 90. This allows us to exclude these claims, similar to our methodology for clinical trial cases, in the calculation of the relative weight for MS–DRG 018, without relying on a proxy. (We noted that because the expanded access indicator was not available prior to the FY 2022 MedPAR, the comparison of cases identified using the proxy, as described previously, did not include the cases in the FY 2022 MedPAR data used for the FY 2024 IPPS/LTCH PPS proposed rule with an expanded access indicator on the claim, as including these cases would mean we were not comparing the same group of cases). We further note 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.

Therefore, in the FY 2024 IPPS/LTCH PPS proposed rule, we proposed two changes to our methodology for identifying clinical trial claims and expanded access use claims in MS–DRG 018. First, we proposed to exclude claims with the presence of condition code “90” (or, for FY 2024 ratesetting, which is 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, for the reasons described previously, we proposed 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 proposed 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 proposal, we also proposed to modify 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:

• 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 (or, for FY 2024 ratesetting, condition code “ZB”).
• 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.

Applying this proposed methodology, based on the December 2022 update of the FY 2022 MedPAR file used for the proposed rule, we estimated that the average costs of cases assigned to MS–DRG 018 that are identified as clinical trial cases ($89,379) were 28 percent of the average costs of the cases assigned to MS–DRG 018 that are identified as nonclinical trial cases ($323,903). Accordingly, as we did for FY 2023, we proposed to adjust the transfer-adjusted case count for MS–DRG 018 by applying the proposed adjustor of 0.28 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 the proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by 0.28. As we did for FY 2023, we are applied this same adjustor for the applicable cases that group to MS–DRG 018 for purposes of budget neutrality and outlier simulations. We also proposed to update the value of the adjustor based on more recent data for the final rule.

Comment: Some commenters supported our proposal to remove the use of the proxy of excluding cases with standardized drug charges of less than $373,000, stating that it is consistent with existing hospital billing practices and would simplify the reimbursement for chimeric antigen receptor therapy (CAR–T) services. Many commenters opposed our proposal, stating that it was premature to remove this trim. While these commenters stated that provider charging practices are improving, they expressed concern that some providers have limited experience properly reporting claims for clinical trial and expanded access use cases and some providers do not appear to have fully complied with CMS guidance. A commenter requested that CMS maintain this trim for at least one additional fiscal year.

A commenter also requested that CMS publish information on cases included in the rate-setting methodology that are below the $373,000 threshold in the interest of transparency given the likely impact of those cases on the base DRG payment. A commenter expressed concern that 4 percent of cases are still reporting standardized drug charges of less than $373,000, given the relatively low volume of cases assigned to MS–DRG 018. A commenter stated that the inclusion of the 4 percent of cases would result in a potentially meaningful reduction in the base DRG payment for CAR–T cases. Another commenter modeled the inclusion of the 4 percent of cases and indicated that excluding them resulted in a $3,100 reduction in the base payment for MS–DRG 018. Commenters recommended that CMS monitor the impact of including these cases in ratesetting to ensure base payments for DRG 018 remain stable prior to removing the $373,000 low-cost threshold.

Response: We agree that removing the trim of excluding cases with standardized drug charges of less than $373,000 would be consistent with existing hospital billing practices. As discussed in the proposed rule, we believe providers have continued to gain experience with the use of ICD–10–CM diagnosis code Z00.6 to report cases involving a clinical trial of CAR T-cell therapy, as well as coding of expanded access use immunotherapy cases. This is supported by our observation that the percentage of claims reporting standardized drug charges of less than $373,000 that do not report ICD–10–CM code Z00.6 relative to all claims that group to MS–DRG 018 fell significantly from the FY 2019 data (used in the FY 2021 ratesetting) to the FY 2022 data (used in the FY 2024 ratesetting). While there continue to be a small percentage of claims that report standardized drug charges of less than $373,000 and do not report ICD–10–CM code Z00.6, we do not believe it is necessary to continue to use the proxy until the number of these claims reaches zero. We note that there is now only a very small percentage variation in the relative weight with and without this proxy, unlike in prior years. The $3,100 reduction referenced by the commenter in the range of 1 percent of the base DRG payment. With respect to the commenter who requested that CMS publish the details regarding specific cases, we note that information on obtaining the MedPAR Limited Data Set is available on the CMS website, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/MEDPARLDSHospitalNational .

After consideration of the public comments we received, we are finalizing our proposals regarding the calculation of the relative weight for MS–DRG 018. Applying this finalized methodology, based on the March 2023 update of the FY 2022 MedPAR file used for this final rule, we estimated that the average costs of cases assigned to MS–DRG 018 that are identified as clinical trial cases ($84,883) were 27 percent of the average costs of the cases assigned to MS–DRG 018 that are identified as non-clinical trial cases ($314,862). Accordingly, as we did for FY 2023, we are finalizing our proposal to adjust the transfer-adjusted case count for MS–DRG 018 by applying the adjustor of 0.27 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 final rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by 0.27. As we did for FY 2023, we are applying this same adjustor for the applicable cases that group to MS–DRG 018 for purposes of budget neutrality and outlier simulations.

c. Cap for Relative Weight Reductions

In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent 10-percent cap on the reduction in an MS–DRG's relative weight in a given fiscal year, beginning in FY 2023. We also finalized a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the permanent 10-percent cap does not result in an increase or decrease of estimated aggregate payments. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule for further discussion of this policy. In the Addendum to this IPPS/LTCH PPS final rule, we present the budget neutrality adjustment for reclassification and recalibration of the FY 2024 MS–DRG relative weights with application of this cap. Table 5 contains the FY 2024 MS–DRG relative weights with and without the application of this cap. For a further discussion of the budget neutrality adjustment for FY 2024, we refer readers to the Addendum of this final rule.

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 2021 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 relative weight. The FY 2024 cost-based relative weights were then normalized by an adjustment factor of 1.941198 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 2023 relative weight, we set the FY 2024 relative weight equal to 90 percent of the FY 2023 relative weight. The relative weights for FY 2024 as set forth in Table 5 associated with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this cap.

The 19 national average CCRs for FY 2024 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 proposed to use that same case threshold in recalibrating the proposed MS–DRG relative weights for FY 2024. Using data from the FY 2022 MedPAR file, there were 7 MS–DRGs that contain fewer than 10 cases. For FY 2024, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS–DRGs, we proposed to compute relative weights for the low-volume MS–DRGs by adjusting their final FY 2023 relative weights by the percentage change in the average weight of the cases in other MS–DRGs from FY 2023 to FY 2024. The crosswalk table is as follows.

Comment: A commenter requested that CMS utilize the “other” CCR for CAR–T product charges associated with revenue code 0891 to mitigate charge compression problems until CMS data is available for cost center 0078. The commenter stated that this would result in a more appropriate case cost and a higher relative weight for MS–DRG 018.

Response: We do not believe it would be appropriate to utilize the “other” CCR for CART product charges associated with revenue code 0891. The categories assigned to the “other” cost center are categorically not described by another cost center. This is not the case for CAR–T product charges, as the drug cost center describes the same type of product. Therefore, we do not believe it is necessary to make changes to the CCR used for CAR T-cell product charges.

After consideration of the public comments we received, we are finalizing our proposals without modification.

E. Add-On Payments for New Services and Technologies for FY 2024

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for 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 2024 are presented in a data file that is available, along with the other data files associated with the FY 2023 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 2025 were presented in a data file that is available on the CMS website, along with the other data files associated with the FY 2024 proposed rule, by clicking on the FY 2024 IPPS Proposed Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index . We noted that, for the reasons discussed in section I.F. of the preamble of the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26777) and this final rule, we proposed to use the FY 2022 MedPAR claims data for FY 2024 ratesetting. Consistent with this proposal, for the FY 2025 proposed threshold values, we proposed to use the FY 2022 claims data to set the proposed thresholds for applications for new technology add-on payments for FY 2025.

As discussed in section I.E. of the preamble of this final rule, we are finalizing our proposal to use the FY 2022 MedPAR claims data for FY 2024 ratesetting. Accordingly, in this final rule, we are finalizing that we will use FY 2022 claims data to set the thresholds for applications for new technology add-on payments for FY 2025. The finalized thresholds for applications for new technology add-on payments for FY 2025 are presented in a data file that is available on the CMS website, along with the other data files associated with this FY 2024 final rule, by clicking on the FY 2024 IPPS Final Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index .

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed that applicants should submit a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Specifically, applicants should submit a sample of sufficient size to enable us to undertake an initial validation and analysis of the data. We also discussed in the September 7, 2001 final rule (66 FR 46917) the issue of whether the Health Insurance Portability and Accountability Act (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 the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable, or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, and there must also be evidence that use of the new medical service or technology to make a diagnosis affects the management of the patient;

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

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

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

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

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

b. Alternative Inpatient New Technology Add-on Payment Pathway

Beginning with applications for FY 2021 new technology add-on payments, under the regulations at § 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 a technology is not required to have the specified FDA designation at the time the new technology add-on payment application is submitted. 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. However, 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 for the following fiscal year.

Section 503(d)(2) of Public Law 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 Public Law 108–173, 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 under § 412.87(e)(2) (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 the July 1 deadline specified in § 412.87(e)(2), 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 by July 1 of the particular fiscal year for which the applicant applied for new technology add-on payments.

As discussed in more detail in section II.E.9. of the preamble of this final rule, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26779 through 26780), beginning with the new technology add-on payment applications for FY 2025, we proposed, for technologies that are not already FDA market authorized, to require applicants to have a complete and active FDA market authorization request at the time of new technology add-on payment application submission, and to provide documentation of FDA acceptance or filing to CMS at the time of application submission. We also proposed 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). Please refer to section II.E.9. of the preamble of this final rule for a full discussion of these proposals, the comments we received on these proposals, and our final policies.

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 about Medicare's coverage, coding, and payment processes, and about how they can navigate these processes, whether for new technology add-on payments or otherwise, can 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 2025 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 2025, 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 November 30, 2023.

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 Public Law 108–173, 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 2024 prior to publication of the FY 2024 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on October 3, 2022 (87 FR 59793), and held a virtual town hall meeting on December 14, 2022. 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 2024 new medical service and technology add-on payment applications before the publication of the FY 2024 IPPS/LTCH IPPS proposed rule.

Approximately 180 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 22, 2022, deadline, in our evaluation of the new technology add-on payment applications for FY 2024 in the development of the FY 2024 IPPS/LTCH PPS proposed rule. In response to the published notice and the December 14, 2022 New Technology Town Hall meeting, we received written comments regarding the applications for FY 2024 new technology add on payments. As explained earlier and in the Federal Register notice announcing the New Technology Town Hall meeting (87 FR 59793 through 59795), 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 2024. Therefore, we did not summarize any written comments in the proposed rule that were unrelated to the substantial clinical improvement criterion. In section II.E.6. of the preamble of the proposed rule, we summarized 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. New COVID–19 Treatments Add-On Payment (NCTAP)

In response to the COVID–19 public health emergency (PHE), we established the New COVID–19 Treatments Add-on Payment (NCTAP) under the IPPS for COVID–19 cases that meet certain criteria (85 FR 71157 through 71158). We believe that as drugs and biological products are authorized for emergency use or approved by FDA for the treatment of COVID–19 in the inpatient setting, it is appropriate to increase the current IPPS payment amounts to mitigate any potential financial disincentives for hospitals to provide new COVID–19 treatments during the PHE. Therefore, effective for discharges occurring on or after November 2, 2020 and until the end of the PHE for COVID–19, we established the NCTAP to pay hospitals the lesser of (1) 65 percent of the operating outlier threshold for the claim or (2) 65 percent of the amount by which the costs of the case exceed the standard DRG payment, including the adjustment to the relative weight under section 3710 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, for certain cases that include the use of a drug or biological product currently authorized for emergency use or approved for treating COVID–19.

In the FY 2022 IPPS/LTCH PPS final rule, we finalized a change to our policy to extend NCTAP through the end of the FY in which the PHE ends for all eligible products in order to continue to mitigate potential financial disincentives for hospitals to provide these new treatments, and to minimize any potential payment disruption immediately following the end of the PHE. We also finalized that, for a drug or biological product eligible for NCTAP that is also approved for new technology add-on payments, we will reduce the NCTAP for an eligible case by the amount of any new technology add-on payments so that we do not create a financial disincentive between technologies eligible for both the new technology add-on payment and NCTAP compared to technologies eligible for NCTAP only (86 FR 45162). As the PHE ended on May 11, 2023, as planned by the Department of Health and Human Services (HHS), discharges involving eligible products will continue to be eligible for the NCTAP through September 30, 2023 (that is, through the end of FY 2023). The NCTAP will expire at the end of FY 2023 and no NCTAP will be made beginning in FY 2024 (that is, for discharges on or after October 1, 2023).

Further information about NCTAP, including updates and a list of currently eligible drugs and biologicals, is available on the CMS website at https://www.cms.gov/medicare/covid-19/new-covid-19-treatments-add-payment-nctap.

Comment: We received public comments related to NCTAP. A commenter expressed appreciation for continued NCTAP through Sept. 30, 2023. A few commenters recommended that CMS continue NCTAP, including a commenter who recommended that CMS continue NCTAP through December 31, 2023, in order to provide financial assistance for COVID–19 treatments as hospitals navigate the public health emergency (PHE) unwinding. A commenter also recommended that when NCTAP does end, that CMS automatically add any newly developed COVID–19 treatments to the new technology add-on payment list without application. Some commenters recommended that CMS monitor Medicare beneficiaries' access to COVID–19 treatments in the hospital inpatient setting after NCTAP expires to determine whether there is a reduction in beneficiaries' access to treatment, with a commenter further recommending that CMS take steps to minimize any barriers that could restrict the ability of Medicare beneficiaries to receive lifesaving treatments after the sunsetting of the NCTAP and other COVID–19 payment adjustments.

Response: We thank the commenters for their input. In the FY 2022 IPPS/LTCH PPS final rule, we finalized a change to our policy to extend NCTAP through the end of the FY in which the PHE ends for all eligible products in order to continue to mitigate potential financial disincentives for hospitals to provide these new treatments, and to minimize any potential payment disruption immediately following the end of the PHE. We did not make any proposals to extend or modify NCTAP in this year's proposed rule, and NCTAP will end on September 30, 2023, as previously finalized in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45160 through 45162). Further information about NCTAP, including updates and a list of currently eligible drugs and biologicals, is available on the CMS website at https://www.cms.gov/medicare/covid-19/new-covid-19-treatments-add-payment-nctap .

5. FY 2024 Status of Technologies Receiving New Technology Add-On Payments for FY 2023

In this section of the final rule, we discuss the FY 2024 status of 24 technologies approved for FY 2023 new technology add-on payments, as set forth in the tables that follow. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26781 through 26785) we presented our proposals to continue the new technology add-on payments for FY 2024 for those technologies that were approved for the new technology add-on payment for FY 2023 and which would still be considered “new” for purposes of new technology add-on payments for FY 2024. We also presented our proposals to discontinue new technology add-on payments for FY 2024 for those technologies that were approved for the new technology add-on payment for FY 2023 and which would no longer be considered “new” for purposes of new technology add-on payments for FY 2024.

Additionally, we noted that we conditionally approved DefenCath^TM (a formulation of taurolidine/heparin) for FY 2023 new technology add-on payments under the alternative pathway for certain antimicrobial products (87 FR 26955 through 26957), subject to the technology receiving FDA marketing authorization by July 1, 2023. In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed that if DefenCath^TM receives FDA marketing authorization before July 1, 2023, we would continue making new technology add-on payments for DefenCath^TM for FY 2024. We proposed that if DefenCath^TM does not receive FDA marketing authorization by July 1, 2023, then it would not be eligible for new technology add-on payments for FY 2023, and therefore would not be eligible for the continuation of new technology add-on payments for FY 2024. Because DefenCath^TM did not receive FDA approval by July 1, 2023, no new technology add-on payments will be made for cases involving the use of DefenCath^TM for FY 2023, and DefenCath^TM is therefore not eligible for the continuation of new technology add-on payments for FY 2024. We note that the applicant for DefenCath^TM also submitted an application for new technology add-on payments for FY 2024 under the name taurolidine/heparin, and we refer the reader to section II.E.7.b.(1). of the preamble of this final rule for discussion of our conditional approval of the FY 2024 application for new technology add on payments for taurolidine/heparin.

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).

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26783), we provided a table listing the technologies for which we proposed to continue making new technology add-on payments for FY 2024 because they are still considered “new” for purposes of new technology add-on payments. This table also presented the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We referred readers to the cited final rules in the 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 invited public comments on our proposals to continue new technology add-on payments for FY 2024 for the technologies listed in the table in the proposed rule.

Comment: We received multiple comments in support of our proposed continuation of new technology add-on payments for FY 2024 for those technologies that were approved for the new technology add-on payment for FY 2023 and which would still be considered “new” for purposes of new technology add-on payments for FY 2024.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposals to continue new technology add-on payments for FY 2024 for the technologies that were approved for new technology add-on payment for FY 2023 and would still be considered “new” for purposes of new technology add-on payments for FY 2024, as listed in the proposed rule and in the following Table II.F.-01 in this section of this final rule.

Table II.F.-01 in this final rule presents the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, maximum add-on payment amount, and coding assignments. We refer readers to the final rules cited 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.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26785), we provided Table II.P.-02 listing the technologies for which we proposed to discontinue making new technology add-on payments for FY 2024 because they are no longer “new” for purposes of new technology add-on payments. This table also presented the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We referred readers to the cited final rules in the table for a complete discussion of each new technology add-on payment application and the coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26784), we noted, as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48939) and in previous rulemaking, 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 MS–DRG weights (69 FR 49002). While our policy is, generally, to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market, as discussed in prior rulemaking (77 FR 53348), we have noted that data reflecting the costs of products that have received an emergency use authorization (EUA) could become available as soon as the date of the EUA issuance and prior to receiving FDA approval or clearance (86 FR 45159). With respect to the Hemolung RAS, which received an EUA on April 22, 2020, when used for patients with COVID–19, we discussed whether the newness period for the use of the Hemolung RAS for patients with COVID–19 should begin on the date of its EUA (April 22, 2020), when the product became available on the market for this indication. We described a public comment submitted by the applicant for Hemolung RAS which stated that the newness period for COVID–19 Hemolung RAS cases should begin on November 15, 2021 (the date of commercial availability of the De Novo classified device), instead of April 22, 2020 (the date of the Hemolung RAS EUA). The applicant indicated that it provided the Hemolung RAS to hospitals free or at cost to swiftly respond to the global pandemic, and that it did not profit from EUA therapies. The applicant stated that additionally, during the EUA period, hospitals were not seeking payment for Hemolung RAS therapy. The applicant stated that, therefore, cost data collected during the EUA period and prior to FDA clearance do not accurately reflect the added cost of Hemolung RAS therapy. In our response, we noted that, while the commenter stated that it provided the Hemolung RAS to hospitals free or at cost, and that hospitals were not seeking payment for the Hemolung RAS therapy during the EUA period, additional information regarding whether hospitals charged for use of the Hemolung RAS therapy between the date of its EUA and the date of commercial availability of the De Novo classified device, and how it impacts whether use of the technology may be reflected in the data, would be helpful in determining that data reflecting the cost of the product did not become available until the date of commercial availability of the De Novo classified device.

We stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26784), that in the absence of additional information to support a conclusion that data reflecting the cost of the Hemolung RAS when used for patients with COVID–19 did not begin to become available as of the issuance of the EUA on April 22, 2020, we were proposing to discontinue new technology add-on payments for FY 2024 for Hemolung RAS patients with hypercapnic respiratory failure related to COVID–19, as the technology will no longer be considered new for this indication. We further stated that, as discussed in the FY 2023 IPPS/LTCH PPS final rule, we continued to welcome additional information regarding whether hospitals charged for use of the Hemolung RAS therapy between the date of its EUA and the date of commercial availability of the De Novo classified device, and how it impacts whether use of the technology may be reflected in the data. We further noted, as set forth in Table II.P.-01 of the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26783), that we were proposing to continue the new technology add-on payment in FY 2024 for the use of the Hemolung RAS for patients with other causes of hypercapnic respiratory failure unrelated to COVID–19, for which we considered the beginning of the newness period to commence on the date of commercial availability of the De Novo classified device (November 15, 2021), as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48939). In order to identify use of Hemolung RAS unrelated to COVID–19, we proposed to identify cases eligible for new technology add-on payment with ICD–10–PCS code 5A0920Z without ICD–10–CM diagnosis code U07.1 (COVID–19).

We invited public comments on our proposals to discontinue new technology add-on payments for FY 2024 for the technologies listed in Table II.P.-02 in the proposed rule.

Comment: A commenter disagreed with defining the newness start date as the date of commercial availability/FDA approval date for cell and gene therapies, and requested that CMS extend new technology add-on payments into FY 2024 for both ABECMA® and CARVYKTI^TM as the newness start date being utilized is extremely close to the mid-year benchmark and also likely to be functionally inaccurate. The commenter stated that while it does not have sales or ordering information for ABECMA® and CARVYKTI^TM, it believes that it is likely that the first commercial shipment of ABECMA® took place weeks after FDA approval (which occurred March 26, 2021) and would have crossed the April 1 threshold date, enabling these technologies to be eligible for a third year of add-on payments. The commenter explained that this delay is due to the fact that CAR T-cell products take weeks to manufacture, in addition to the certification of treatment sites as required under a product's REMS. The commenter stated that it is far more logical to use the definition of “market date” described in the May 2023 Medicaid proposed rule with regard to covered outpatient drugs, which is the date on which the drug was first sold (88 FR 34257), for cell and gene therapies due to their unique manufacturing parameters. The commenter also requested that CMS consider a standard third-year extension of new technology add-on payments for cell and gene therapies in general, due to the unique manufacturing process and low volume nature of the diseases treated.

Response: We thank the commenter for its input. We note that the timeframe that a new technology can be eligible to receive new technology add-on payments begins when data become available (69 FR 49003, 85 FR 58610). Consistent with the statute, a technology no longer qualifies as “new” once it is more than 2 to 3 years old, irrespective of how frequently it has been used in the Medicare population. Therefore, if a product is more than 2 to 3 years old, we consider its costs to be included in the MS–DRG relative weights whether its use in the Medicare population has been frequent or infrequent. In addition, while CMS may consider a documented delay in the technology's market availability in our determination of newness, our policy for determining whether to extend new technology add-on payments for an additional year generally applies regardless of the volume of claims for the technology after the beginning of the newness period (83 FR 41280). We do not consider the date of first sale of a product, or first shipment of a product, as an indicator of the entry of a product onto the U.S. market; neither of these dates indicate when a technology in fact became available for sale. Similarly, our policy for determining whether to extend new technology add-on payments for a third year generally applies regardless of the claims volume for the technology after the start of the newness period (85 FR 58610). We further note that, as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48911), in response to a comment from the applicant for Abecma® stating that the date of first sale for this technology was May 10, 2021, and that add-on payments for Abecma® should therefore extend past FY 2023, we requested additional information from the applicant for Abecma® on when the technology first became available for sale. We stated that, absent such additional information from the applicant, we cannot determine a newness date based on a documented delay in the technology's availability on the U.S. market. The applicant did not submit further information related to the availability of Abecma® for this final rule, nor did the commenter provide such information. Accordingly, we are finalizing that we consider March 26, 2021, to be the date the technology became available on the market and the beginning of its newness period. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48925), because we determined that CARVYKTI^TM is substantially similar to ABECMA®, we consider the beginning of the newness period for CARVYKTI^TM to be March 26, 2021 as well.

Comment: A commenter requested that CMS consider at least another year of new technology add-on payments for aprevo^TM, which has a newness start date of December 3, 2020 for its ALIF and LLIF indications, as many surgeries were not performed in 2020 due to the COVID–19 pandemic. The commenter stated that with hospital revenue trending negatively, this is an opportunity for hospitals to provide exceptional care with appropriate reimbursement due to the clinical benefits of this technology.

Response: We thank the commenter for its input. Consistent with the statute and our implementing regulations, a technology is no longer considered as “new” once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349, 85 FR 58610). As such, once a technology has been available on the U.S. market for more than 2 to 3 years, we consider the costs to be included in the MS–DRG relative weights regardless of whether the technology's use in the Medicare population has been frequent or infrequent. We further note that we are renewing the TLIF indication for aprevo^TM, which has a newness start date of June 30, 2021, for FY 2024 as noted in the previous table, as this indication will still be considered “new”.

After consideration of the public comments we received, we are finalizing our proposal to discontinue new technology add-on payments for the technologies as listed in the proposed rule and in the following Table II.F.-02 of this final rule for FY 2024 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 also refer readers to the final rules cited 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 dates.

6. FY 2024 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 stated in the proposed rule that we are continuing to summarize each application in the proposed rule. However, we stated that 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 2024 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). In addition, we noted that we made available separate 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 2024 new technology add-on payment applications in Table 10 associated with the FY 2024 IPPS/LTCH PPS proposed rule, available via the internet 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 2024 IPPS Proposed Rule Home Page” or “Acute Inpatient—Files for Download.” Please see section VI of the Addendum of the proposed rule for additional information regarding tables associated with the proposed rule.

We received 27 applications for new technology add-on payments for FY 2024 under the traditional new technology add-on payment pathway. In accordance with the regulations under § 412.87(e), applicants for new technology add-on payments must have received 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. Eight applicants withdrew their applications prior to the issuance of the proposed rule. Subsequently, four applicants withdrew their respective applications for sabizabulin, DuraGraft, VEST, and omidubicel prior to the issuance of this FY 2024 IPPS/LTCH PPS final rule. In addition, two applicants, Daiichi Sankyo and Pfizer, for Vanflyta and elranatamab respectively, did not receive FDA approval for their technologies by July 1, 2023. Therefore, Vanflyta and elranatamab are not eligible for consideration for new technology add-on payments for FY 2024. Consistent with our standard approach, we are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for consideration for FY 2024 due to not meeting the July 1 deadline, described previously, which were included in the FY 2024 IPPS/LTCH PPS proposed rule. We are also not summarizing nor responding to public comments received regarding these withdrawn or ineligible applications in this final rule. Of the remaining 13 applications, we are not approving the applications for NexoBrid^TM, SeptiCyte® RAPID, and XENOVIEW^TM for the reasons discussed in the following sections. We are approving the remaining 10 applications, with 4 of the applications considered as 2 technologies due to substantial similarity, for a total of 8 new approvals for new technology add-on payments for FY 2024. A discussion of these 13 applications is presented in the following sections.

a. CYTALUX® (Pafolacianine), First Indication

On Target Laboratories submitted an application for new technology add-on payments for CYTALUX® for use in ovarian cancer for FY 2024. The applicant stated that CYTALUX® is the first targeted intraoperative molecular imaging agent that illuminates ovarian cancer in real time, enabling the detection of more cancer for resection. CYTALUX® is an optical imaging agent comprised of a folic acid analog conjugated with a fluorescent dye which binds to folate receptor positive cancer cells and illuminates malignant lesions during surgery. Per the applicant, CYTALUX® is used in adult patients with ovarian cancer as an adjunct for intraoperative identification of malignant lesions. CYTALUX® is to be used with a near-infrared imaging system (NIR) cleared by the FDA for specific use with CYTALUX®. We note that On Target Laboratories also submitted a second application for new technology add-on payments for CYTALUX® for FY 2024 for use in lung cancer, as discussed separately in this section.

Please refer to the online application posting for CYTALUX®, available at https://mearis.cms.gov/public/publications/ntap/NTP221017X8NAN , for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, the applicant stated that a new drug application (NDA) for CYTALUX® was approved by FDA on November 29, 2021, as an optical imaging agent indicated in adult patients with ovarian cancer as an adjunct for intraoperative identification of malignant lesions. According to the applicant, CYTALUX® had market availability delayed until April 15, 2022, due to supply/product availability. The recommended dose of CYTALUX® is a single intravenous infusion of 0.025 mg/kg diluted in 250 mL of 5% Dextrose Injection, administered prior to surgery over 60 minutes using a dedicated infusion line.

The applicant submitted a request for a unique ICD–10–PCS procedure codes for CYTALUX® and was granted approval to use the following procedure codes effective October 1, 2023: 8E0U0EN (Fluorescence guided procedure of female reproductive system using pafolacianine, open approach), 8E0U3EN (Fluorescence guided procedure of female reproductive system using pafolacianine, percutaneous approach), 8E0U4EN (Fluorescence guided procedure of female reproductive system using pafolacianine, percutaneous endoscopic approach), 8E0U7EN (Fluorescence guided procedure of female reproductive system using pafolacianine, via natural or artificial opening), and 8E0U8EN (Fluorescence guided procedure of female reproductive system using pafolacianine, via natural or artificial opening endoscopic). The applicant provided a list of diagnosis codes that may be used to currently identify this indication for CYTALUX®, and differentiate it from the lung cancer indication, 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 believed that CYTALUX® is not substantially similar to other currently available technologies because there are no other optical imaging agents with the same active ingredient, nor the same mechanism of action for the same indication of ovarian cancer, 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 CYTALUX® for the applicant's complete statements in support of its assertion that CYTALUX® is not substantially similar to other currently available technologies.

We invited public comments on whether CYTALUX® is substantially similar to existing technologies and whether CYTALUX® meets the newness criterion.

Comment: The applicant reiterated that there are no existing FDA-approved drugs/biological products that are used as an adjunct for intraoperative identification of malignant lesions in adults with ovarian cancer other than CYTALUX®. The applicant also reiterated that there is no other drug marketed under the same active ingredient category or generic name, nor which has the same mechanism of action to target the folate receptor to illuminate cancerous lesions. In terms of newness, the applicant asserted that the appropriate newness date for CYTALUX® for ovarian cancer is April 15, 2022, the date on which a supply of CYTALUX® was first made available for sale. The applicant stated that CYTALUX® experienced a documented and verifiable delay in market entry, as CYTALUX® was approved for ovarian cancer in November 2021 but experienced a delay in commercialization primarily due to external circumstances. The applicant further explained that as CYTALUX® was not available before April 15, 2022, and there were no clinical uses of CYTALUX® between the date of FDA approval and its market entry, the newness period for the technology should begin on April 15, 2022.

In addition, the applicant noted that initial clinical use of CYTALUX® involved 20 cases that were performed at only three select centers between May and June 2022 during a small commercial pilot with remaining product lots manufactured specifically to support planned clinical development. The applicant explained that the batch of CYTALUX® expired at the end of June 2022, thereby rendering it impossible to perform additional cases. The applicant further explained that due to the removal of the FDA cleared imaging system for use with CYTALUX® from the market, a commercial lot was not initiated again until there was strong confidence that the FDA would approve CYTALUX® for lung cancer, and that therefore, the first full commercial lot was released in June 2023, coinciding with the newness date for CYTALUX® for lung cancer, as discussed separately in this section.

Response: We thank the applicant for its comment. Based on our review of comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for CYTALUX®, we agree with the applicant that CYTALUX® is the only adjunct for intraoperative identification of malignant lesions in adults with ovarian cancer with a mechanism of action to target the folate receptor to illuminate cancerous lesions. Therefore, we believe that CYTALUX® is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence when CYTALUX® became commercially available on April 15, 2022.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for CYTALUX®, the applicant searched the FY 2021 Inpatient Standard Analytic File (IPSAF) for cases reporting a combination of ICD–10–CM/PCS codes for ovarian cancer that may require an adjunct for intraoperative identification of malignant lesions. Using the inclusion/exclusion criteria described in the following table, the applicant identified 3,281 claims mapping to five MS–DRGs. The applicant noted that it limited its search to these five MS–DRGs as 99 percent of cases map to these MS–DRGs. Please see Table 10.8.A.—CYTALUX® (ovarian) Codes—FY 2024 associated with the proposed rule for the complete list of codes that the applicant indicated were included in its cost analysis. 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 $133,657, which exceeded the average case-weighted threshold amount of $93,649. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that CYTALUX® meets the cost criterion.

We invited public comments on whether CYTALUX® meets the cost criterion.

Comment: The applicant submitted a public comment reiterating that because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, CYTALUX® meets the cost criterion.

Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, CYTALUX® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that CYTALUX® represents a substantial clinical improvement over existing technologies because CYTALUX® enables the surgeon to identify cancer intraoperatively in real time that otherwise would have been missed, enabling the surgeon to achieve more complete resection in cytoreductive surgery for ovarian cancer. Per the applicant, the results of the Phase 3 study confirm that CYTALUX® serves as an adjunct to the surgeon, helping them to identify additional cancer which otherwise would not have been identified, enabling the surgeon to achieve more complete resection, which is the goal of cytoreductive surgery. The applicant provided two studies to support these claims as well as 11 background articles. The background articles included studies to demonstrate the importance of removing all residual disease (lesions) to improve patients' survival; studies that showed that lesions can be diffuse and numerous, of various sizes, and often not readily visible in the surgical field; a study that showed, when CYTALUX® was used in a murine tumor model and in early clinical studies, that it enabled identifying occult tumor nodules and showed potential to eliminate positive tumor margins; a study demonstrating that the folate receptor was expressed in most ovarian cancers; and a study and a review supporting the use of fluorescence in real-time to improve cancer surgery. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for CYTALUX® for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH proposed rule (88 FR 26789 through 26790), after review of the information provided by the applicant, we stated we had the following concerns regarding whether CYTALUX® meets the substantial clinical improvement criterion. We noted that CYTALUX® showed a false positive rate of 24.8 percent that led to resections in the Phase 3, randomized, multicenter, single-dose, open-label study of this technology. While the applicant submitted a separate comment stating there was no worsening in the safety profile for patients with false positive results, we continued to question the impact on patient outcomes when taking additional tissues that were false positives. In addition, while the applicant provided background citations to support the assertion that optimal or improved cytoreduction of tumor results in improved survival in ovarian adenocarcinoma, we noted that the Phase 3 study of CYTALUX® appears to have been designed to assess the efficacy of the technology rather than clinical outcomes such as survival, recurrence, or rate of additional procedures. We noted that we would be interested in additional or longer-term data demonstrating that CYTALUX® results in improved outcomes such as improved survival or a reduced rate of recurrence to support an assessment of whether CYTALUX® represents a substantial clinical improvement.

We invited public comments on whether CYTALUX® meets the substantial clinical improvement criterion.

Comment: Several commenters supported the application for CYTALUX®. A commenter explained that ovarian cancer remains the most lethal gynecologic cancer, and that complete surgical cytoreduction is the single most important prognostic indicator for survival. The commenter explained that although bulky disease can be easily recognized, sub-centimeter implants are often difficult to discriminate from adjacent normal tissue and may not be recognized and resected. The commenter further noted that intraoperatively, a surgeon has only two tools to improve the outcome of the tumor resections: visual inspection and palpation, and thus, surgeons need tools to augment these approaches. The commenter explained that the Phase 3 study of CYTALUX® demonstrates that the technology provides an important real-time adjunct to current surgical approaches for ovarian cancer, identifying malignant lesions that would not have been resected without CYTALUX®.

Another commenter stated that CYTALUX® allowed discovery of more lesions which were not seen with the naked eye and these lesions were removed safely to achieve the surgical goal of removal of all visible tumor. The commenter asserted that during interval debulking surgery after chemotherapy, as CYTALUX® improved detection of viable tumor from scar tissue, lesions were removed and sent for quick pathology evaluation, leading to efficiency of the surgical procedure, reducing operative time and less surgical morbidity. The commenter stated that additional removal of lesions discovered by CYTALUX® use did not lead to an increase of surgical morbidities.

Response: We thank the commenters for their input and have taken it into consideration in determining whether CYTALUX® meets the substantial clinical improvement criterion, discussed later in this section.

Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion, and provided responses to concerns raised by CMS in the proposed rule. In response to concerns on how CYTALUX® improves health outcomes and changes patient management, the applicant asserted that CYTALUX® helps surgeons detect ovarian cancer that is currently undetectable during surgery, allowing them to diagnose and treat additional cancer lesions earlier. The applicant stated that in the CYTALUX® Phase 3 trial, the use of CYTALUX® identified additional ovarian cancer on tissue that was not part of the preoperative surgical plan and not otherwise planned for resection in 27 percent of imaged patients. The applicant stated that the surgeons involved in the Phase 3 study responded that use of CYTALUX® led to a revision in their surgical plan for 56 percent of patients and more complete debulking was achieved in 51 percent of patients. The applicant stated that identifying additional cancer on tissue not planned for resection in the preoperative plan led to a change in the management of the patient, allowing the surgeon to treat additional cancer which otherwise would have been left behind and may not have been discovered and treated until the patient presented with a recurrence. Therefore, the applicant believes that CYTALUX® not only allowed identification of cancerous lesions that would have otherwise remained undetected, but that it also may potentially shorten the amount of treatment time for a given patient by potentially reducing the risk of recurrence of ovarian cancer. The applicant asserted that CYTALUX® improves health outcomes through the more complete resection of residual disease. The applicant added that, consistent with the goal of achieving R0 (no remaining visible disease after surgery), following what surgeons deemed to be complete (R0) resection with conventional methods of identifying cancer during surgery, the surgeons indicated that intraoperative imaging with CYTALUX® enabled them to achieve “R(-1),” having found additional disease that they otherwise would not have found.

In addition, the applicant asserted that CYTALUX® improves health outcomes through the more complete resections of residual disease, which is supported by a wealth of peer-reviewed literature and longstanding bedrock principles relating to the treatment of cancer. The applicant stated that in the CYTALUX® Phase 3 trial, in 70 percent of patients in which additional ovarian cancer was detected by CYTALUX® and not by white light palpation, the specimen size of malignant lesions plus the tissue margin was greater than 1cm. The applicant stated that in its Phase 3 trial, CYTALUX® demonstrated the ability to aid surgeons by identifying additional cancer intraoperatively otherwise unknown to the surgeon and on tissue not planned for resection, in real time, enabling the surgeon to achieve a more complete resection in cytoreductive surgery for ovarian cancer and therefore improving clinical outcomes for these patients. According to the applicant, substantial clinical literature demonstrates that complete resections are associated with improved survival in ovarian cancer, with a steep drop in survival with residual tumors greater than 1 cm remaining following cytoreductive surgery. The applicant asserted that CYTALUX® is not a therapeutic agent, and stated that it therefore believes that long-term survival studies are not necessary to prove the clinical improvement CYTALUX® can add to help surgeons identify and diagnose additional cancer they may have otherwise missed, thus supporting them in achieving the surgical goal.

With regard to the false positive rates, the applicant asserted that CYTALUX®'s false positive rates do not meaningfully alter CYTALUX®'s significant clinical improvement analysis. The applicant conducted an analysis to compare false positives under white light palpation and CYTALUX® with NIR imaging. The applicant stated that rates and specimen size of false positives are comparable between those identified and removed by the surgeon under standard methods of white light and palpation and those identified and removed by the surgeon under NIR imaging with CYTALUX®. The applicant stated that, for CYTALUX® the presence of false positive results did not cause negative patient outcomes or additional unnecessary treatments as the removal of benign tissue is often a consequence of standard surgical resection. Additionally, the applicant stated that the false positive results after use of CYTALUX® were comparable to those following standard treatment; and the false positive results from use of CYTALUX® led to only a small amount of noncancerous tissue being removed.

Response: We thank the applicant for its comment and the additional information provided regarding the substantial clinical improvement criterion.

Based on the additional information received, we agree with the applicant and commenters that CYTALUX® represents a substantial clinical improvement over existing technology because CYTALUX® can detect ovarian cancer that is currently undetectable during surgery, which enables the surgeon to diagnose and treat additional cancer earlier, and affects the management of the patient by identifying additional ovarian cancer not otherwise planned for resection, leading to revisions in the surgical plan that result in more complete resection of the cancer.

After consideration of the information included in the applicant's new technology add-on payment application and the comments received, we have determined that CYTALUX® meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2024. Cases involving the use of CYTALUX® that are eligible for new technology add-on payments will be identified by ICD–10–PCS codes: 8E0U0EN (Fluorescence guided procedure of female reproductive system using pafolacianine, open approach), 8E0U3EN (Fluorescence guided procedure of female reproductive system using pafolacianine, percutaneous approach), 8E0U4EN (Fluorescence guided procedure of female reproductive system using pafolacianine, percutaneous endoscopic approach), 8E0U7EN (Fluorescence guided procedure of female reproductive system using pafolacianine, via natural or artificial opening), or 8E0U8EN (Fluorescence guided procedure of female reproductive system using pafolacianine, via natural or artificial opening endoscopic).

In its application, the applicant estimated that the cost of CYTALUX® is $4,250 per single-use vial (one vial is used per patient). Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of CYTALUX® is $2,762.50 for FY 2024.

b. CYTALUX® (Pafolacianine), Second Indication

On Target Laboratories submitted an application for new technology add-on payments for CYTALUX® for use in lung cancer for FY 2024. The applicant stated that CYTALUX® is the first targeted intraoperative molecular imaging agent that illuminates lung cancer in real time, enabling the detection of more cancer for resection. CYTALUX® is an optical imaging agent comprised of a folic acid analog conjugated with a fluorescent dye which binds to folate receptor positive cancer cells and illuminates malignant lesions during surgery. Per the applicant, CYTALUX® is used in adult patients with known or suspected cancer in the lung as an adjunct for intraoperative identification of pulmonary lesions. CYTALUX® is to be used with a NIR cleared by the FDA for specific use with CYTALUX®. CYTALUX® is used by surgeons to illuminate cancer in real time during surgery. We note that On Target Laboratories also submitted a separate application for new technology add-on payments for CYTALUX® for FY 2024 for use in ovarian cancer, as discussed previously in this section.

Please refer to the online application posting for CYTALUX®, available at https://mearis.cms.gov/public/publications/ntap/NTP221017ED6BY , for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, the applicant stated that CYTALUX® received FDA approval in a supplemental new drug application (sNDA), effective December 16, 2022, to include an additional indication for lung cancer, following approval of the original NDA for use in ovarian cancer. CYTALUX® is indicated as an adjunct for intraoperative identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected cancer in the lung. According to the applicant, CYTALUX® will have market availability delayed until approximately the middle of 2023 due to supply/product availability. The recommended dose of CYTALUX® is a single intravenous infusion of 0.025 mg/kg diluted in 250 mL of 5% Dextrose Injection, administered prior to surgery over 60 minutes using a dedicated infusion line. We noted that, as discussed previously, the applicant stated that CYTALUX® for ovarian cancer became commercially available on April 15, 2022. We were interested in additional information regarding whether the versions or formulations for CYTALUX® for use in lung cancer and ovarian cancer are different, or further explanation regarding the longer delay for the market availability for CYTALUX® for lung cancer.

The applicant submitted a request for unique ICD–10–PCS procedure codes for CYTALUX® and was granted approval to use the following procedure codes effective October 1, 2023: 8E0W0EN (Fluorescence guided procedure of trunk region using pafolacianine, open approach), 8E0W3EN (Fluorescence guided procedure of trunk region using pafolacianine, percutaneous approach), 8E0W4EN (Fluorescence guided procedure of trunk region using pafolacianine, percutaneous endoscopic approach), 8E0W7EN (Fluorescence guided procedure of trunk region using pafolacianine, via natural or artificial opening), and 8E0W8EN (Fluorescence guided procedure of trunk region using pafolacianine, via natural or artificial opening endoscopic). The applicant provided a list of diagnosis codes that may be used to currently identify this indication for CYTALUX®, and differentiate it from the ovarian cancer indication, 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 believed that CYTALUX® is not substantially similar to other currently available technologies because there are no other optical imaging agents with the same active ingredient, nor same mechanism of action, for the same indication, 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 CYTALUX® for the applicant's complete statements in support of its assertion that CYTALUX® is not substantially similar to other currently available technologies.

We invited public comments on whether CYTALUX® is substantially similar to existing technologies and whether CYTALUX® meets the newness criterion.

Comment: The applicant submitted a public comment regarding the newness criterion. The applicant reiterated that there are no existing FDA approved drugs/biological products that are used as an adjunct for intraoperative identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected cancer in the lung other than CYTALUX®. The applicant also reiterated that there is no other drug marketed under the same active ingredient category or generic name, nor which has the same mechanism of action to target the folate receptor to illuminate cancerous lesions in the lung. In terms of newness, the applicant asserted that the appropriate newness date for CYTALUX® for lung cancer is June 5, 2023, the date CYTALUX® became available for purchase. The applicant explained that while CYTALUX® was approved in December 2022 to assist surgeons in identifying lung lesions in adult patients with known or suspected lung cancer, the product has never been sold or made available to the market after its approval for use in lung cancer. As discussed previously in this section, the applicant explained that although the use of CYTALUX® for ovarian cancer was briefly available on the market for a small limited pilot of 20 cases from April through June 2022 at three select centers, the technology was subsequently taken off the market due to the market withdrawal of the necessary imaging system, and therefore a commercial lot of CYTALUX® was not initiated again until there was strong confidence that the FDA would approve CYTALUX® for use in lung cancer. The applicant further stated that on June 5, 2023, the first commercial lot of CYTALUX® became available for use in lung cancer. The applicant asserted that therefore, because CYTALUX® was not available on the market following FDA approval of CYTALUX® for lung cancer, the appropriate newness date for CYTALUX® for lung cancer would be June 5, 2023, the market availability of the product.

Response: We thank the applicant for its comments. Based on our review of comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for CYTALUX®, we agree with the applicant that CYTALUX® is the only adjunct for intraoperative identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected cancer in the lung with a mechanism of action to target the folate receptor to illuminate cancerous lesions in the lung. Therefore, we believe that CYTALUX® is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence when CYTALUX® became commercially available on June 5, 2023.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for CYTALUX®, the applicant searched the FY 2021 IPSAF for cases reporting a combination of ICD–10–CM/PCS codes for malignant or suspected lung lesions. Using the inclusion/exclusion criteria described in the following table, the applicant identified 15,033 claims mapping to three MS–DRGs. The applicant noted that it limited its search to these three MS–DRGs as 99 percent of cases map to these MS–DRGs. Please see Table 10.9.A.—CYTALUX® (lung) Codes—FY 2024 associated with the proposed rule for the complete list of codes that the applicant included in its cost analysis. 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 $122,700, which exceeded the average case-weighted threshold amount of $101,584. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that CYTALUX® meets the cost criterion.

We invited public comments on whether CYTALUX® meets the cost criterion.

Comment: The applicant submitted a comment reiterating that because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, CYTALUX® meets the cost criterion.

Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, CYTALUX® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that CYTALUX® represents a substantial clinical improvement over existing technologies because CYTALUX® enables the surgeon to visualize cancer intraoperatively, in real time, that otherwise may have gone undetected. Per the applicant, the use of the CYTALUX® during pulmonary resection for lung cancer represents a significant potential advancement over current standards of surgery by enhancing the intraoperative localization of pulmonary nodules, improving the ability to remove them with clean margins, and reducing the probability of leaving otherwise undetected malignant synchronous lesions behind. The applicant provided six studies to support these claims and nine background articles. The background articles included studies about the importance of complete cancer tissue resection to overall survival, the limitations of thoracoscopic surgery by localizing the exact location of a pulmonary nodule for resection, the low 5-year survival for lung cancer patients, and the high rates of local recurrence after lung cancer surgery; one study demonstrating that contrasted chest computed tomography (CT) scan is not sufficient to identify pulmonary nodules that need resection; one study supporting the need for cleaner margins during resection to reduce local recurrence of lung cancer; one study supporting the use of the folate receptor as an appropriate tumor specific marker; one study indicating that folate-targeted agents may have a place in cancer treatment before, as well as, after chemotherapy; and a study showing that the folate receptor is expressed in the majority of lung cancers and that CYTALUX® targets and binds to folate receptors and thus the mechanism of action is a viable target for lung cancer. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for CYTALUX® for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH proposed rule (88 FR 26795), after review of the information provided by the applicant, we stated we had the following concerns regarding whether CYTALUX® meets the substantial clinical improvement criterion. We noted that CYTALUX® showed a false positive rate of 25.8 percent that led to resections in the Phase 3, multicenter study of this technology. While the applicant submitted a separate comment stating there was no worsening in the safety profile for patients with false positive results, we continued to question the impact on patient outcomes when taking additional tissues that were false positive. We noted that the authors discussed in the results of the Phase 3 trial that there was a decreased rate of subsequent diagnostic intervention. We questioned if they were referring to fewer resections in future surgical procedure, and/or if this also implied a subsequent positive outcome of reduced mortality. While the studies provided in support of CYTALUX® measure identification of lesions and changes in the scope of the surgical procedure, we noted that the applicant did not provide data indicating that these endpoints directly lead to improved clinical outcomes (for example, reduction in mortality, hospitalizations, subsequent procedures, and/or rate of recurrence) based on use of CYTALUX®. Rather, we stated that improved outcomes were inferred by relying on the assumption that increased or decreased scope of resection results in better outcomes. We noted that we were interested in additional information or long-term data measuring the impact of the technology on treatment outcomes or the management of the patient to support that CYTALUX® results in an improvement over the standard of care.

We invited public comments on whether CYTALUX® meets the substantial clinical improvement criterion.

Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to CMS's concerns from the proposed rule. With regard to improvement of patient management, the applicant asserted that CYTALUX® objectively improves surgeons' management of the patient through enabling use of tissue-sparing procedures and by helping surgeons to identify and more completely resect undetected cancerous lesions during surgery. The applicant stated that as demonstrated in the Phase 3 ELUCIDATE trial, use of CYTALUX® allowed surgeons to localize the primary lesion in 19 percent of patients whose lesion could not be seen by white light and otherwise localized by the surgeon using standard techniques and a positive/close margin (10mm from the resection line) in 38 percent of patients.

In addition, the applicant asserted that the surgeon was able to identify the lesion more quickly with CYTALUX® as compared to preoperative localization techniques, thus improving the management of the patient through reducing the amount of time the patient is under anesthesia. The applicant stated that in the Phase 3 ELUCIDATE trial, the median time to localize the primary nodule was 1 minute (range 1–23), compared with another study showing that the mean procedural time for robotic navigational bronchoscopy, which is a preferred method for preoperative localization, was 67 minutes (range 37–97).

Moreover, the applicant asserted that CYTALUX® aids surgeons' ability to perform tissue-sparing procedures by providing visualization of the precise location and borders of the tumor, which helps surgeons determine where to resect tissue while ensuring a proper margin. The applicant stated that results from the Phase 3 ELUCIDATE trial indicated the maximum depth of lesions detected by CYTALUX® alone was 27.9mm increasing to 37.7mm with both CYTALUX® and white light while the minimum size of lesions identified by CYTALUX® and not by standard white light was as small as 2mm for synchronous lesions and 5mm for primary lesions. The applicant stated that Phase 2 and Phase 2 clinical trial date showed CYTALUX® increased the surgeon's ability to detect the primary lesion intraoperatively from 72 percent to 94 percent of patients. The applicant stated that across all lesions in the Phase 2 and Phase 3 trials, 94 percent were folate receptor alpha or beta positive, demonstrating the efficacy of CYTALUX®'s mechanism of action across a multitude of cancer histologies in both primary lung cancer and metastatic disease.

Additionally, the applicant asserted that appropriate staging is a critical area to guide long-term treatment plans adjuvant to surgery, since correct staging ensures improved patient care, enabling earlier notification of the extent of disease and faster time to optimal treatment. According to the applicant, in clinical trials, CYTALUX® detected additional synchronous malignant lesions which were not identified on preoperative imaging. The applicant stated that one trial, the detection of 9 synchronous lesions in 8 percent of patients (n = 7 out of 92) resulted in each of the 7 patients being upstaged, enabling alterations to adjuvant treatment plans to reflect the greater extent of disease. The applicant stated that in the Phase 3 ELUCIDATE trial, CYTALUX® allowed the surgeon to identify one more or additional synchronous malignant lesions that were previously unidentified on preoperative scans nor intraoperatively in 8 percent of patients, with the majority outside the planned field of resection.

In response to concerns on improvement of patient outcomes, the applicant claimed that CYTALUX® improves health outcomes through the more complete resection of otherwise undetected cancer, which is supported by substantial peer-reviewed literature and longstanding bedrock principles relating to the treatment of cancer. According to the applicant, CYTALUX® improves surgeons' ability to treat the disease more completely via resection, which thereby may reduce the risk of recurrence and has the potential to increase the likelihood of patient survival by assisting the surgeon to overcome each of these established surgical challenges. The applicant stated that among the Phase 3 ELUCIDATE participants, 53 percent had a clinically significant event from use of CYTALUX®: in 19 percent of patients, CYTALUX® was able to localize the primary lesion otherwise not found by the surgeon using standard techniques; in 8 percent of patients, CYTALUX® identified an unknown occult synchronous lesions; and in 38 percent of patients, CYTALUX® was able to identify a close resection margin less than or equal to 10 mm. The applicant stated that use of CYTALUX® led to a change in the overall scope of surgical procedure for 29 percent of patients.

In response to CMS's questioning if the noted CYTALUX® “decreased rate of subsequent diagnostic intervention” refers to “fewer resections in future surgical procedure, and/or if this also implies a subsequent positive outcome of reduced mortality”, the applicant stated that the ELUCIDATE trial was not designed to follow patients long term to determine reduction in additional procedures, oncologic outcomes, nor mortality rates. According to the applicant, considering existing preoperative procedures commonly utilized today to provide localization aides to surgeons, CYTALUX® has the potential to reduce preoperative localization procedures, including endobrochial dye marking, microcoil placement, fiducial marker placement, and transthoracic percutaneous hook wire placement. The applicant stated that the ELUCIDATE phase 3 trial demonstrated that, without the use of CYTALUX, synchronous malignant lesions would have been left behind in 8 percent of patients, confirming similar findings from the phase 2 trial. The applicant stated that as the synchronous lesions increased in size, they would have been identified on follow up scans, and additional surgeries are likely to have been required to remove these lesions increasing the risk of complications and mortality in these patients. The applicant stated that the ability to perform a more complete resection during the initial procedure using a targeted imaging agent has the potential to reduce the need for future intervention (for example, additional surgery) and the associated morbidity risks thus addressing the goal of the surgeon and patients.

With regards to CMS's concerns about false positives, the applicant stated that false positive rates for CYTALUX® do not meaningfully alter the substantial clinical improvement analysis presented in the application. The applicant stated that in the Phase 3 trial, the false positive rate for primary lesions in patients with confirmed cancer was low, at 1.4 percent, demonstrating the ability of CYTALUX® to correctly identify malignant lesions with multiple histologies in the lung, and that in patients with suspected or confirmed cancer in the lung, the false positive rate was 12.7 percent. Per the applicant, the difference between 1.4 percent and the 12.7 percent accounts for situations in which the patient did not have a confirmed diagnosis prior to surgery. Additionally, the applicant stated that clinical trial results across 769 patients from multiple clinical trials with CYTALUX® showed there were no drug-related serious adverse events among participants. The applicant stated that patients who had false positive lesions removed showed no associated increase in respiratory or pulmonary adverse events as compared to events occurring during standard of care resections. The applicant also asserted that the presence of false positive results did not cause negative patient outcomes. The applicant stated that additionally, the false-positive results after use of CYTALUX® were comparable to those following standard treatment without CYTALUX®.

We also received several additional comments in support of the application for CYTALUX®, stating that the technology represents a substantial clinical improvement over existing technologies. These commenters stated that the Phase 3 trial presented in the application for CYTALUX® highlighted key challenges in the operative landscape namely localization of lesions, margin control and occult synchronous lesions. Commenters stated that CYTALUX® facilitates minimally invasive lung cancer surgery, improves the ability to detect smaller than 1 cm tumors and otherwise undetectable lesions without unreliable procedurally placed surrogates (for example, percutaneous wires, dye-marking, or coils) or larger procedures to locate lesions. Commenters asserted that CYTALUX® is easy for patients because they just undergo intravenous safe infusion of a medication preoperatively. Commenters asserted that CYTALUX® demonstrated a better option to visualize occult disease compared to advanced imaging or standard visualization techniques that fail to reveal occult lesions during initial operative intervention. Commenters stated that CYTALUX® allowed the discovery of synchronous adenocarcinomas that were not identified by standard CT scan procedures, aided in confirming the location of a metastatic renal cell carcinoma lesion in the lung of a patient and allowed more precise detection and localization of lesions both for primary lung cancer and metastatic disease to the lung (pancreatic adenocarcinoma and pleomorphic liposarcoma). Commenters stated that CYTALUX® provided surgeons the ability to visually assess margin distance to ensure an adequate margin was obtained in real time. A commenter asserted that CYTALUX® allows the surgeon to see the tumor during stapler firing to visualize the margin prior to a point that could leave an inadequate margin or require moving to a full lobectomy procedure. Commenters believed that CYTALUX® can transform surgical techniques, increase operative efficiency, and decrease risk for local recurrence or inaccurate staging. Commenters believed that CYTALUX® offers the possibility to improve cancer surgery outcomes by enabling surgeons to better identify primary tumors, detect occult synchronous lesions, ensure adequate margins of resection, and ensure resection of a related lesion that will upstage the cancer and likely necessitate adjuvant systemic therapy. A commenter stated that CYTALUX® will impact patient outcomes now that more sublobar resections are occurring as a result of earlier diagnosis of lung lesions. Another commenter encouraged CMS to assign new technology add-on payment status for new technologies like CYTALUX® supporting personalized medicine; stating this will remove barriers to accessing innovative tools that advance this approach to care. Another commenter believed that false positives are not significantly impactful, as very little tissue is removed to determine histology, and added that as more experience is gained with CYTALUX®, surgeons will learn how to better interpret the intraoperative imaging.

Response: We thank the applicant and other commenters for their comments regarding the substantial clinical improvement criterion.

Based on the additional information received, we agree with the applicant that CYTALUX® represents a substantial clinical improvement over existing technology because CYTALUX® can identify lung cancer that is otherwise undetectable using standard methods, which enables more precise removal of the cancer by the surgeon and affects patient management, as the detection of synchronous lesions using CYTALUX® results in the upstaging of patient care, enabling alterations to adjuvant treatment plans to reflect the greater extent of disease.

After consideration of the information included in the applicant's new technology add-on payment application, we have determined that CYTALUX® meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2024. Cases involving the use of CYTALUX® that are eligible for new technology add-on payments will be identified by ICD–10–PCS codes: 8E0W0EN (Fluorescence guided procedure of trunk region using pafolacianine, open approach), 8E0W3EN (Fluorescence guided procedure of trunk region using pafolacianine, percutaneous approach), 8E0W4EN (Fluorescence guided procedure of trunk region using pafolacianine, percutaneous endoscopic approach), 8E0W7EN (Fluorescence guided procedure of trunk region using pafolacianine, via natural or artificial opening), or 8E0W8EN (Fluorescence guided procedure of trunk region using pafolacianine, via natural or artificial opening endoscopic).

In its application, the applicant estimated that the cost of CYTALUX® is $4,250 per single-use vial (one vial is used per patient). Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of CYTALUX® is $2,762.50 for FY 2024.

c. EPKINLY^TM (Epcoritamab-bysp) and COLUMVI^TM (Glofitamab-gxbm)

Two manufacturers, Genmab US and Genentech, Inc., submitted separate applications for new technology add-on payments for FY 2024 for EPKINLY^TM (epcoritamab-bysp) and COLUMVI^TM (glofitamab-gxbm), respectively. We note that we discussed both of these technologies in the proposed rule at 88 FR 26809 and 26816 using their generic names, epcoritamab and glofitamab, respectively, which received FDA Marketing Authorization after the proposed rule and are updated to EPKINLY^TM (epcoritamab-bysp) and COLUMVI^TM (glofitamab-gxbm), respectively in this final rule. Both of these technologies are bispecific antibodies used for the treatment of patients with relapsed/refractory (R/R) large B-cell lymphoma (LBCL) after two or more prior therapies, with COLUMVI^TM specifically targeting the largest subset of LBCL, diffuse LBCL (DLBCL). The bispecific antibodies directly bind two types of clusters of differentiation CD simultaneously, CD20 expressing B-cells and CD3 expressing T-cells, to induce activation, proliferation and cytotoxic activity of the T-cells against the malignant B-cells. In the FY 2024 IPPS/LTCH PPS proposed rule we discussed these applications as two separate technologies. After further consideration and as discussed later in this section, we believe EPKINLY^TM and COLUMVI^TM are substantially similar to each other and that it is appropriate to evaluate both technologies as one application for new technology add-on payments under the IPPS. We refer the reader below for a complete discussion regarding our analysis of the substantial similarity of EPKINLY^TM and COLUMVI^TM.

Please refer to the online application postings for EPKINLY^TM available at https://mearis.cms.gov/public/publications/ntap/NTP221012JQM0G , and for COLUMVI^TM available at https://mearis.cms.gov/public/publications/ntap/NTP221017RK2RD , for additional detail describing the technologies and the disease treated by the technologies.

With respect to the newness criterion, the applicant for EPKINLY^TM stated that it was seeking Biologic License Application (BLA) approval from FDA for the indication of treatment of adult patients with R/R LBCL after two or more lines of systemic therapy. The applicant for EPKINLY^TM stated that EPKINLY^TM is intended for subcutaneous administration with patients receiving 0.16 milligram (mg) priming and 0.87 mg intermediate dose before the first full dose of 48 mg. This is administered weekly in cycles one through three, every 2 weeks in cycles four through nine, and every 4 weeks in cycles 10 and onward until disease progression. According to the applicant, in the EPCORE NHL–1 study, all patients were required per protocol to be hospitalized for 24 hours on the third dose, which was the first full dose of 48 mg. According to the applicant, the mean per patient dose, including when provided during or related to inpatient stays across all 28 injection visits, is 44.61 mg. The applicant subsequently received BLA approval from FDA for EPKINLY^TM on May 19, 2023, for the indication of treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL), not otherwise specified, including DLBCL arising from indolent lymphoma, and high-grade B-cell lymphoma after two or more lines of systemic therapy.

With regard to COLUMVI^TM, the applicant received BLA approval from FDA on June 15, 2023, for the indication of treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL), not otherwise specified, including DLBCL arising from follicular lymphoma after two or more lines of systemic therapy. The applicant for COLUMVI^TM stated that COLUMVI^TM is administered as an intravenous infusion through a dedicated infusion line according to a dose step-up schedule leading to the recommended dosage of 30 mg, after completion of pre-treatment with obinutuzumab on cycle day 1, where each cycle is 21 days. The applicant recommends treatment for a maximum of 12 cycles or until the disease progresses to unmanageable toxicity. According to the applicant, the administration of COLUMVI^TM will be treated as part of an inpatient stay and reimbursed through the DRG when a patient is admitted within 72 hours of the outpatient administration to treat a condition that results from the administration such as developing grade two or higher cytokine release syndrome (CRS). The applicant stated that, in clinical trials, when Grade 2, 3, or 4 CRS developed, 69 percent of the time it occurred after a 2.5 mg dose, 27 percent of the time it developed after a 10 mg dose, and 4 percent after a 30 mg dose. Therefore, according to the applicant, the expected average dose of COLUMVI^TM associated with an inpatient hospital stay is ((2.5 mg * 0.69) + (10 mg * 0.27) + (30mg * 0.04)) = 5.625 mg.

The applicant for EPKINLY^TM submitted a request for a unique ICD–10–PCS code for EPKINLY^TM beginning in FY 2024 and was granted approval for the following procedure code effective October 1, 2023: XW013S9 (Introduction of epcoritamab monoclonal antibody into subcutaneous tissue, percutaneous approach, new technology group 9). The applicant for COLUMVI^TM submitted a request for a unique ICD–10–PCS code for COLUMVI^TM beginning in FY 2024 and was granted approval for the following procedure codes effective October 1, 2023: XW033P9 (Introduction of glofitamab antineoplastic into peripheral vein, percutaneous approach, new technology group 9 and XW043P9 (Introduction of glofitamab antineoplastic into central vein, percutaneous approach, new technology group 9). The applicants provided lists of diagnosis codes that may be used to currently identify the indication for EPKINLY^TM and COLUMVI^TM under the ICD–10–CM coding system. Please refer to the online application postings for the complete list of ICD–10–CM codes provided by each applicant.

As stated earlier and for the reasons discussed further later in this section, we believe that EPKINLY^TM and COLUMVI^TM are substantially similar to each other such that it is appropriate to analyze these two applications as one technology for purposes of new technology add-on payments, in accordance with our policy. We discuss the information provided by the applicants, as summarized in the proposed rule, regarding whether EPKINLY^TM and COLUMVI^TM are substantially similar to existing technologies prior to their approval by the FDA and their release onto the U.S. market. As discussed earlier, if a technology meets all three of the substantial similarity 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.

With respect to the substantial similarity criteria, whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, the applicant for EPKINLY^TM asserted that the mechanism of action of EPKINLY^TM is not the same as or similar to an existing technology. The applicant described EPKINLY^TM as an anti-CD3xCD20 bispecific antibody with a unique mechanism of action that will be the first of its kind for the treatment of R/R LBCL. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for EPKINLY^TM for the applicant's complete statements in support of its assertion that EPKINLY^TM is not substantially similar to other currently available technologies.

The applicant for COLUMVI^TM asserted that COLUMVI^TM offers a novel mechanism of action for the treatment of R/R DLBCL with two or more prior lines of therapy patients and is not substantially similar to other currently available technologies because the mechanism of action of COLUMVI^TM is distinct from other available DLBCL therapies because COLUMVI^TM does not treat the same or similar type of disease or patient population, and that therefore, the technology meets the newness criterion. The applicant's assertions regarding substantial similarity are summarized briefly in the following table. Please see the online application posting for COLUMVI^TM for the applicant's complete statements in support of its assertion that COLUMVI^TM is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26811 and 88 FR 26817), we noted that EPKINLY^TM and COLUMVI^TM may have a similar mechanism of action, for the treatment of adult patients with R/R LBCL/DLBCL after three or more prior lines of therapy. We noted that COLUMVI^TM 's mechanism of action is described as bivalent binding of CD20 on malignant B-cells and CD3 on T-cells, bringing them into close proximity inducing proliferation and targeted killing of B-cells. According to COLUMVI^TM 's application, the 2:1 structure of COLUMVI^TM enables high-avidity, bivalent binding to CD20 that can result in activity against malignant B-cells even under low effector-to-target cells. Because of the potential similarity with the mechanism of binding of the CD3xCD20 bispecific antibody and other actions, we stated our belief that the mechanism of action for EPKINLY^TM may be the same or similar to that of COLUMVI^TM . While the applicant for COLUMVI^TM stated that the use of COLUMVI^TM does not involve treatment of the same or similar patient population when compared to existing technology, there are existing therapies approved for LBCL/DLBCL patients with three or more lines of therapy including CAR–T-cell therapies and others such as POLIVY®, XPOVIO®, and ZYNLONTA®. We therefore stated our belief that COLUMVI^TM may treat the same or similar patient population as these existing FDA-approved treatments.

We further stated our belief that EPKINLY^TM and COLUMVI^TM may treat the same or similar disease (LBCL/DLBCL) in the same or similar patient population (R/R patients who have previously received two or more lines of therapy), which is also the same disease and population as existing treatments for R/R LBCL. Accordingly, we stated that as it appears that EPKINLY^TM and COLUMVI^TM are purposed to achieve the same therapeutic outcome using the same or similar mechanism of action and would be assigned to the same MS–DRG, we believed 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 were 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 EPKINLY^TM and COLUMVI^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 invited public comment on whether EPKINLY^TM and COLUMVI^TM meet the newness criterion, including whether EPKINLY^TM and COLUMVI^TM are substantially similar to each other and therefore should be evaluated as a single technology for purposes of new technology add-on payments.

Comment: The applicant for EPKINLY^TM submitted a letter maintaining that EPKINLY^TM meets the newness criterion. The applicant stated that EPKINLY^TM is an IgG1-bispecific antibody created using Genmab's proprietary DuoBody® technology platform and is administered subcutaneously, designed to simultaneously bind to CD3 on T-cells and CD20 on B-cells to induce T-cell mediated killing of CD20+ B-cells. The applicant stated that the DuoBody® platform enables controlled Fab-arm exchange to generate whole IgG1 monoclonal antibodies employing specific point mutations while preserving the natural architecture. The applicant stated that EPKINLY^TM 's mechanism of action differs from CAR T-cell therapy as well as chemotherapy or conventional CD20-targeting monoclonal antibodies as these therapies primarily affect either cellular processes or functions of rapidly dividing cells through interference with DNA, RNA, or protein synthesis. We note that the applicant did not discuss whether it believed EPKINLY^TM is substantially similar to COLUMVI^TM in its comment.

The applicant for COLUMVI^TM submitted a letter maintaining that COLUMVI^TM meets the newness criterion. With respect to whether COLUMVI^TM uses the same or a similar mechanism or action when compared to an existing technology, the applicant commented that COLUMVI^TM is a novel bispecific antibody that binds to the target B-cell antigen CD20 bivalently, eliciting a complete response in heavily pre-treated patients with R/R DLBCL in the third line setting.

With respect to the request for comment on whether COLUMVI^TM is substantially similar to EPKINLY^TM and whether these technologies should be evaluated as a single technology for the purposes of new technology add-on payments, the applicant for COLUMVI^TM, while recognizing the COLUMVI^TM and EPKINLY^TM have similarities, stated that there are key distinctions between the two bispecific antibodies and compared the two CD20 binding domains in COLUMVI^TM as substantially different than a single CD20 binding domain in EPKINLY^TM . Specifically, the applicant for COLUMVI^TM stated that COLUMVI^TM is a bispecific antibody with a unique 2:1 configuration, which enables bivalent binding of CD20 on B cells and monovalent binding of CD3 on T cells, making COLUMVI^TM the only bivalent bispecific antibody available for patients with R/R DLBCL, whereas EPKINLY^TM includes a 1:1 configuration with monovalent binding of CD20 and CD3, a configuration common to other bispecific antibodies. Furthermore, the applicant for COLUMVI^TM stated that COLUMVI^TM elicits complete responses (CRs) faster than EPKINLY^TM (citing a median of 1.4 months to CR versus 2.7 months) and is administered with a dosing schedule that requires fewer total treatment visits for patients compared with EPKINLY^TM . The applicant for COLUMVI^TM also stated that COLUMVI^TM is administered as a fixed-duration treatment, allowing patients the benefit of time off therapy while EPKINLY^TM requires continuous administration until disease progression or intolerability.

With respect to CMS's concern regarding existing FDA-approved therapies that are used to treat R/R DLBCL patients with 3 or more lines of therapy including CAR T-cell therapies, POLIVY®, XPOVIO®, and ZYNLONTA®, the applicant stated that there are significant limitations that render patients ineligible for or unable to benefit from these therapies. For CAR T-cell therapy, the applicant stated that despite promising response rates, they have adverse effect profiles that may not be manageable for some patients with R/R DLBCL, especially those with comorbidities and who are older. For POLIVY®, the applicant stated that limitations include serious adverse effects, such as peripheral neuropathy (40% all grades and 2.3% grades 3 or higher), which is reflected in the 31 percent discontinuation rate reported in the U.S. prescribing information. For XPOVIO®, the applicant stated that XPOVIO® has shown low responses (29% ORR and 13% CR) and high toxicity rates, including 80 percent patients that experienced any-grade gastrointestinal events (13% grade 3 or higher). Lastly, for ZYNLONTA®, the applicant stated that challenges with ZYNLONTA® include a low CR rate in patients (24%) and limited durability in responses (median duration of response was 10.3 months). Additionally, the applicant stated that the CD19-targeting MOA of ZYNLONTA® may impact how the treatment is sequenced for patients considering CAR T-cell therapy or who have relapsed after treatment. Lastly, the applicant stated that ZYNLONTA® has adverse effects of edema and skin reactions (including grade 3 or higher).

Response: We thank the applicants for their comments. After consideration of the public comments we received, although we recognize that there may be slight molecular differences, we believe EPKINLY^TM and COLUMVI^TM both fall into the same class of IG1 bispecific antibodies and are therefore substantially similar to one another. While COLUMVI^TM has bivalent binding domains as opposed to monovalent binding domains for EPKINLY^TM, we do not believe number of domains meaningfully differentiate the mechanism of action, as discussed in prior rulemaking (87 FR 48924), and we instead believe that the technologies are purposed to achieve the same therapeutic outcome using the same or similar mechanism of action using bispecific CD20 and CD3 binding antibodies. Further, while COLUMVI^TM may have a different administration schedule, we do not believe the administration schedule affects or substantiates a new mechanism of action. In addition, while COLUMVI^TM may elicit a faster time to CR in comparison to EPKINLY^TM, we believe that these differences relate to an assessment of whether the technologies meet the substantial clinical improvement criterion, rather than the newness criterion. For these reasons, while the applicant for COLUMVI^TM highlighted differences between COLUMVI^TM and EPKINLY^TM, we are not convinced that these differences result in the use of a different mechanism of action, therefore, we believe that the two technologies' mechanisms of action are the same. Furthermore, we believe that EPKINLY^TM and COLUMVI^TM are substantially similar to one another because the technologies are intended to treat the same or similar disease in the same or similar patient population—patients with R/R LBCL/DLBCL with two or more prior lines of therapy, and that potential cases representing patients who may be eligible for treatment would be assigned to the same MS–DRGs.

We also believe EPKINLY^TM and COLUMVI^TM are not substantially similar to any other existing technologies because, as both applicants asserted in their FY 2024 new technology add-on payment applications and in their comments that they are anti-CD3xCD20 bispecific antibodies with a unique mechanism of action that will be the first of its kind for the treatment of R/R DLBCL after two or more lines of prior therapy, the technologies do not use the same or similar mechanism of action to achieve a therapeutic outcome as any other existing drug or therapy assigned to the same or different MS–DRG. Based on the information described in this section, we believe EPKINLY^TM and COLUMVI^TM meet the newness criterion.

Based on the previous discussion, we are making one determination regarding approval for new technology add-on payments that will apply to both applications, and in accordance with our policy, we use the earliest market availability date submitted as the beginning of the newness period for both EPKINLY^TM and COLUMVI^TM.

We believe our current policy for evaluating new technology payment applications for two technologies that are substantially similar to each other is consistent with the authority and criteria in section 1886(d)(5)(K) of the Act. We note that CMS is authorized by the Act to develop criteria for the purposes of evaluating new technology add-on payment applications. For the purposes of new technology add-on payments, when technologies are substantially similar to each other, we believe it is appropriate to evaluate both technologies as one application for new technology add-on payments under the IPPS, for the reasons we discussed earlier and consistent with our evaluation of substantially similar technologies in prior rulemaking (82 FR 38120).

With respect to the newness criterion, as previously stated, EPKINLY^TM received FDA approval on May 19, 2023, and COLUMVI^TM received FDA approval on June 15, 2023. In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date submitted as the beginning of the newness period for both technologies. Therefore, based on our policy, with regard to both technologies, if the technologies are approved for new technology add-on payments, we believe that the beginning of the newness period would be the date on which EPKINLY^TM received FDA approval, which is May 19, 2023.

The applicants submitted separate cost and clinical data, and in the proposed rule, we reviewed and discussed each set of data separately. However, as stated previously, for this final rule, we will make one determination regarding new technology add-on payments that will apply to both applications. We believe that this is consistent with our policy statements in the past regarding substantial similarity (85 FR 58679).

If substantially similar technologies are submitted for review in different (and subsequent) years, rather than the same year, we evaluate and make a determination on the first application and apply that same determination to the second application. However, because the technologies have been submitted for review in the same year, and because we believe they are substantially similar to each other, we consider both sets of cost data and clinical data in making a determination, and we do not believe that it is possible to choose one set of data over another set of data in an objective manner.

As we discussed in the proposed rule and as stated previously, each applicant submitted separate analyses regarding the cost criterion for each of their products, and both applicants maintained that their product meets the cost criterion. We summarize each analysis in this section.

With respect to the cost criterion, the applicant for EPKINLY^TM provided multiple analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2021 MedPAR file using different ICD–10–CM codes to identify potential cases representing patients who may be eligible for EPKINLY^TM. Each analysis followed the order of operations described in the following table.

For the first analysis, the applicant searched for cases that represent potential patients who are being treated for CRS arising from the administration of EPKINLY^TM with a diagnosis code for DLBCL. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 33 claims mapping to two MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $114,027, which exceeded the average case-weighted threshold amount of $59,550.

For the second analysis, the applicant searched for cases reporting diagnosis codes for CRS. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 101 claims mapping to three MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $88,482, which exceeded the average case-weighted threshold amount of $56,682. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both scenarios, the applicant maintained that EPKINLY^TM meets the cost criterion.

With respect to the cost criterion, the COLUMVI^TM applicant searched the FY 2021 MedPAR file for potential cases representing patients who may be eligible for COLUMVI^TM, defining two cohorts of patients who may be eligible for treatment and merging the cases for the cost criterion analysis.

For the first cohort, the applicant searched for cases representing potential patients who, as a result of developing CRS following outpatient administration of COLUMVI^TM, require an inpatient admission within the 3-day payment window following the outpatient administration. Using the inclusion/exclusion criteria described in the following table, the applicant identified 101 claims mapping to 3 MS–DRGs.

For the second cohort, the applicant searched for cases representing a potential subset of patients who are admitted as inpatients for the purposes of being administered COLUMVI^TM based on the clinical judgment of their provider. Using the inclusion/exclusion criteria described in the following table, the applicant identified 4,705 claims mapping to 9 MS–DRGs.

The applicant combined these two cohorts as there was no overlap between the MS–DRGs of the two cohorts (see the table that follows for a list of MS–DRGs for each cohort). 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 $134,690 which exceeded the average case-weighted threshold amount of $96,417. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that COLUMVI^TM meets the cost criterion.

We invited public comment on whether EPKINLY^TM or COLUMVI^TM meet the cost criterion.

Comment: The applicant for EPKINLY^TM submitted a comment referring to the two cost analyses submitted with the application; one scenario using DLBCL diagnosis codes for patients who are being treated for cytokine release syndrome arising from the outpatient administration of EPKINLY^TM that would require inpatient admission within the 3-day payment window and the other scenario of cases reporting diagnosis codes for cytokine release syndrome. Given the availability of the wholesale acquisition cost (WAC) of EPINKLY, the applicant re-calculated the cost threshold analyses using the cost of $11,463.61 ($317.20/mg * 36.14 mg) for EPKINLY^TM per patient to the hospital. The applicant reiterated that EPKINLY^TM meets the cost criterion under both scenarios where the final inflated case weighted standardized charge per case of $176,329 exceeds the case weighted threshold of $59,550 by $116,779 in the first scenario and where the final inflated case weighted standardized charge per case of $150,780 exceeds the case weighted threshold of $56,682 by $94,103 in the second scenario.

The applicant for COLUMVI^TM submitted a comment reiterating that COLUMVI^TM meets the cost criterion because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in the cost criterion analysis submitted in its new technology add-on payment application.

Response: We thank the applicants for their comments. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount for both technologies. Therefore, both EPKINLY^TM and COLUMVI^TM meet the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that EPKINLY^TM represents a substantial clinical improvement over existing technologies because it offers a treatment option with improved efficacy and safety for R/R LBCL patients unresponsive to currently available treatments (for example, CAR T-cell therapies such as KYMRIAH®, YESCARTA®, and Breyanzi®, and non-CAR T-cell therapies such as POLIVY®, ADCETRIS®, XPOVIO®, and ZYNLONTA®); and it significantly improves clinical outcomes among R/R LBCL patients as they progress through lines of therapy. The applicant provided two studies to support these claims, and nine background articles about other treatments available for R/R DLBCL patients and clinical outcomes for patients treated with other therapies such as Breyanzi®, ZYNLONTA®, YESCARTA®, XPOVIO®, KYMRIAH®, and POLIVY®. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26816), after review of the information provided by the applicant, we had the following concerns regarding whether EPKINLY^TM meets the substantial clinical improvement criterion. With respect to whether the technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, the applicant described EPKINLY^TM as having stronger efficacy data in comparison to other 3L+ treatment options available. We noted that the applicant provided many background studies regarding R/R DLBCL treatment options. However, they were unable to provide the complete study of EPKINLY^TM (EPCORE NHL–1) in support of its claim of EPKINLY^TM 's stronger efficacy data in comparison to other 3L+ treatment options, providing only the presentation of partial results used for the European Hematology Association meeting of 2022. Therefore, we stated we were limited in our ability to fully evaluate and assess the supporting evidence for this claim. Furthermore, we noted that there may be other available treatments for this specific population, including CAR T-cell therapies. We also noted that it is unclear which patient population is ineligible for these available treatment options. With respect to whether the technology improves clinical outcomes relative to services or technologies previously available, the applicant described EPKINLY^TM as having better safety profiles and efficacy than existing treatments. However, the comparisons are not matched cases within a comparative study, and we questioned whether there are differences between the trials, such as differences in the patient populations included and the way outcomes are defined, that should be considered in assessing the comparison of clinical outcomes across these studies. We were interested in additional information to demonstrate that EPKINLY^TM has significantly better efficacy and safety profiles than other available treatments.

With regard to the substantial clinical improvement criterion, the applicant asserted that COLUMVI^TM represents a substantial clinical improvement over existing technologies because it offers a treatment option for R/R DLBCL patients who have progressed after three or more lines of therapy that engages T-cells in its mechanism of action with off-the-shelf access and a fixed-treatment duration; and it significantly improves clinical outcomes among R/R DLBCL patients with three or more lines of therapy as compared to placebo. The applicant provided two studies to support these claims, as well as 41 background articles about current therapies for R/R DLBCL patients including access and clinical outcomes for this patient population. The following table summarizes the applicant's assertions regarding the substantial clinical improvement. Please see the online posting for COLUMVI^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26823), after review of the information provided by the applicant, we stated we had the following concerns regarding whether COLUMVI^TM meets the substantial clinical improvement criterion. To support its assertion that COLUMVI^TM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, the applicant asserted that COLUMVI^TM expands treatment options for R/R DLBCL patients who have progressed after other 2L or 3L+ therapies. However, we noted that there are other technologies and treatments approved for this specific population, as mentioned earlier, such that it is not clear that this would represent a patient population unresponsive to, or ineligible for, currently available treatments. With respect to the applicant's claim that COLUMVI^TM reduces mortality of patients who had progressed after ASCT or CAR T-cell therapy, we noted that the applicant provided several background studies regarding other existing treatments for R/R DLBCL as well as the main COLUMVI^TM study, however, as this conclusion was based on the comparison of results across these independent studies, we stated we would be interested in additional information regarding the comparability of these findings regarding mortality reduction for each respective technology. With respect to the applicant's claims that COLUMVI^TM is an off-the-shelf therapy without any delay due to personalized manufacturing, such as CAR T-cell therapy, and that COLUMVI^TM can be made available across various geographies for patients with DLBCL, we questioned whether other available therapies, such as POLIVY®, XPOVIO®, and ZYNLONTA®, that may be used to treat patients with multiple relapses or who are refractory to other therapies, also would not have those limitations.

With respect to the applicant's claims that COLUMVI^TM improves outcomes as compared to existing treatments, including safety and rate of treatment discontinuations, we noted that only one single arm trial with no comparators was provided in support of this claim. We further noted that the comparisons of the supporting evidence provided for other existing technologies to the main COLUMVI^TM study are not matched cases; for example, the studies do not adjust for type and severity of AEs. Therefore, we questioned whether these comparisons can be used to demonstrate a significant difference in safety or efficacy.

With respect to the applicant's claim that COLUMVI^TM is a fixed-treatment duration therapy, providing patients with time off treatment and the potential to improve patient quality of life, we noted that this appears to be an inference, as the applicant did not provide any evidence that a fixed-treatment improves quality of life. According to the applicant, during the first cycle (each cycle is 21 days), the patient is required to receive the drug infusion once a week. After cycle 1, the frequency of infusion is reduced to once a month. While COLUMVI^TM provides a fixed-treatment, it requires weekly up to monthly infusions in comparison to CAR–T cell therapy, which is a one-time treatment. We were interested in additional information regarding the association between treatment type and duration and quality of life, particularly how COLUMVI^TM 's treatment type and duration results in higher quality of life as compared to the treatment type and duration of existing technologies.

We invited public comments on whether EPKINLY^TM or COLUMVI^TM meet the substantial clinical improvement criterion.

Comment: The applicant for EPKINLY^TM submitted a comment regarding the substantial improvement criterion and provided responses to concerns raised by CMS in the proposed rule. In response to CMS's request for additional support of the claim that EPKINLY^TM has stronger efficacy in comparison to other 3L+ treatment options available, the applicant for EPKINLY^TM stated EPKINLY^TM was shown to have significantly better clinical outcomes compared to chemoimmunotherapy in two indirect treatment comparisons. The applicant stated that R/R DLBCL patients face significant disease burden and poor clinical outcomes. The applicant further stated that for patients who have failed two or more prior lines of therapy (LOT), there is no standard of care; although chemoimmunotherapy (CIT) regimens are commonly used, they do not provide optimal outcomes. The applicant also stated that while direct treatment comparisons have not yet been made, real world indirect comparisons have shown that compared to chemoimmunotherapy, EPKINLY^TM offers a substantially higher chance of response and significantly lower risks of progression and mortality. The applicant also stated that EPKINLY^TM demonstrated clinically meaningful outcomes compared to polatuzumab vedotin and tafasitamab plus lenalidomide in a matched cohort comparative analysis. Furthermore, the applicant stated that two indirect treatment comparison studies have been conducted comparing EPKINLY^TM and CAR T-cell therapy in patients with R/R LBCL, and that in both studies, EPKINLY^TM was shown to have no statistically significant difference in efficacy compared to CAR T-cell therapy. The applicant stated that EPKINLY^TM is an off-the-shelf therapy that may be effective for patients who cannot easily access CAR T-cell therapy, who are ineligible for CAR T-cell therapy, or who have progressed from CAR T-cell therapy. The applicant indicated that access to CAR T-cell therapy is limited due to its availability only at approximately 200 centers in specialized medical centers to which older adults may be unable to travel to. In addition, the applicant indicated that an estimated 35 percent to 50 percent of patients would not be eligible for second line CAR T-cell therapy and that this number likely increases in third and subsequent lines of therapy. The applicant stated that in a real-world analysis of patients who received CAR T-cell therapy, ~60 percent of patients never respond to treatment with a median failure at only 49 days. For these patients, who relapse or who are refractory to CAR T-cell therapy, a standard of care has not been established. The applicant concluded that EPKINLY^TM would be effective for those patients who are either ineligible or have progressed from CAR T-cell therapy, and that because EPKINLY is an off-the-shelf therapy, it is not constrained by the same individualized manufacturing timelines and associated challenges that can delay patient starts on CAR T-cell therapy.

Another commenter submitted a comment in support of the approval of the new technology add-on payment application for EPKINLY^TM , citing its efficacy in the third line setting in patients with R/R LBCL with an overall response rate of 63.1 percent and a complete response rate of 39 percent based on Lugano criteria and a manageable safety profile. Furthermore, the commenter stated that despite recent approval and expanded utilization of CAR T-cell therapy, there remains no clear standard of care for treatment of many patients with R/R LBCL due to issues surrounding access. The commenter stated that CAR T-cell therapy is offered at only ~210 centers in the U.S, often concentrated in major metropolitan areas, creating significant barriers for patients living in remote or rural areas. The commenter further stated that even when CAR T-cell therapy is accessible, CAR T-cell therapy poses several challenges for patients, starting with the potentially lengthy manufacturing process that includes pre-treatment procedures like leukapheresis, to collect T-cells, and then genetically modifying T-cells to express CARs, which can take up to several weeks. Lastly, the commenter stated that approximately 40 percent of DLBCL patients were ineligible for CAR T-cell therapy due to factors such as organ dysfunction, active infections or prior stem cell transplantation, while around 18–20 percent of those that were eligible underwent leukapheresis but did not receive CAR T-cells due to disease progression, adverse events, or clinical deterioration. The commenter concluded that, in summary, the significant challenges associated with CAR T-cell therapy including limited access, lengthy manufacturing processes, eligibility restrictions, and risk of treatment failure, underscore the need for effective treatments with comparable clinical benefits and broader patient reach.

The applicant for COLUMVI^TM submitted comments in response to CMS's concerns in the FY 2024 IPPS/LTCH PPS proposed rule regarding whether COLUMVI^TM meets the substantial clinical improvement criterion. The applicant reiterated its support for COLUMVI^TM stating that COLUMVI^TM significantly improves clinical outcomes of patients with R/R DLBCL after at least two prior systemic therapies.

With respect to CMS's concern that the existence of other technologies and treatments approved for the R/R DLBCL patients with two or more lines of therapy made it unclear that this would represent a patient population unresponsive to or ineligible for currently available treatments, the applicant stated that COLUMVI^TM expands treatment options for three key subsets of patients in the R/R/DLBCL setting receiving and inadequately treated by existing therapies, including: patients who are ineligible for or who cannot access ASCT or CAR T-cell therapy, patients who have progressed after ASCT or CAR T-cell therapy, and patients who have progressed after two or more other lines of approved therapies. The applicant stated that COLUMVI^TM is a treatment option for patients who are ineligible for or cannot access ASCT or CAR T-cell therapy, indicating that about half of patients with R/R DLBCL with three or more lines of therapies are ineligible for ASCT or CAR T-cell therapies because of treatment-related toxicities. The applicant stated that this patient population is further vulnerable to accessing ASCT or CAR T-cell therapy as there are limited treatment sites and manufacturing delays. The applicant cited a retrospective study which showed that in patients with R/R DLBCL receiving three or more lines of treatment (3L) post CAR T-cell therapy approval, less than 20 percent of patients received CAR T-cell therapy in 3L between October 2017 and March 2020. The applicant further stated COLUMVI^TM is a new option for patients who have progressed after ASCT or CAR T-cell therapy, stating that about two-thirds of patients with R/R DLBCL relapse after ASCT, and about half of patients receiving CAR T-cell therapies experience disease progression. The applicant stated that many patients in the 3L+ setting have low response rates to available therapies, and that tolerability of approved treatments can be poor with a range of potential adverse events (AEs) associated with these therapies. The applicant stated that tolerability of COLUMVI^TM was demonstrated by low rates of treatment discontinuation and an overall favorable safety profile with AEs that are more tolerable than those associated with other treatment options in the 3L+ setting.

With respect to CMS's concern that the applicant provided several background studies regarding other existing treatments for R/R DLBCL as well as the main COLUMVI^TM study to support the applicant's claim that COLUMVI^TM reduces mortality of patients who had progressed after ASCT or CAR T-cell therapy, the applicant for COLUMVI^TM stated that while ASCT can produce long-term remissions in about one-third of patients who undergo the procedure, the remaining patients who experience disease progression have poor outcomes. The applicant stated that effective treatments for patients who progress after ASCT is an unmet need in R/R DLBCL and cited the CORAL study where patients who relapsed after ASCT had a median overall survival (OS) of 10 months and an estimated 1-year OS of 39 percent whereas for patients who relapse within 6 months the median OS was 5.7 months. The applicant further stated that about half of patients receiving CAR T-cell therapy experience disease progression with 48 percent of patients who receive CAR T-cell therapy in 3L began a 4L treatment within 4 months. The applicant stated there is limited data on how patients progress after CAR T-cell therapy progression and patient response to salvage treatment given the recent introduction of commercial CAR T-cell therapy. The applicant indicated the outcomes from limited data are poor and cited a recent analysis of 298 patients who received CAR T-cells in the United Kingdom, 54 percent experienced disease with a median of 2.4 months to progression and had a median OS of 4.4 months. The applicant further stated that patients who went on to additional therapies had a median OS of 8.8 months with only 22 percent achieving a CR whereas patients who did not receive further treatment had a median OS of 1.7 months. The applicant stated that among currently approved 3L+ options, there is either no data or a lack of efficacy for patients after CAR T-cell therapy, indicating that in a trial of one therapy, enrolled patients with prior ASCT and CAR T-cell therapy 29 percent and 15 percent respectively achieved CRs. The applicant indicated that COLUMVI^TM study patients with prior ASCT and CAR T-cell therapy achieved CRs at rates of 67 percent and 35 percent respectively indicating that this is a substantial clinical improvement for a patient population with an unmet need.

With respect to CMS's concerns as to whether other available therapies, such as POLIVY®, XPOVIO®, and ZYNLONTA®, may be used to treat patients with multiple relapses and do not require personalized manufacturing such as CAR T-cell therapy, the applicant for COLUMVI^TM stated that although these therapies are available off the shelf, COLUMVI^TM is an off-the-shelf therapy that provides a substantial clinical improvement via efficacy, durability, and low toxicity in a heavily pretreated, highly refractory patient population.

With respect to CMS's concerns as to whether COLUMVI^TM improves outcomes as compared to existing treatments, including safety and rate of treatment discontinuations, the applicant for COLUMVI^TM stated that head-to-head data of therapies in 3L+ are not available and that while direct comparisons across different trials are subject to confounding and bias because of systematic differences, consideration of outcomes in clinical trials for currently approved therapies indicate the outcomes are in line with historical rates of response in the 3L+ setting where typically less than half of patients respond to conventional 3L therapies and the median OS of patients in the 3L setting is 4–10 months. The applicant further stated that single-arm studies are an important mechanism to facilitate faster access to novel therapies, particularly for patients who have exhausted other approved options.

With respect to our request for additional information regarding the association between treatment type and the applicant for COLUMVI^TM 's claim that COLUMVI^TM is a fixed-treatment duration therapy that provides patients with time off treatment and the potential to improve patient quality of life, the applicant responded that while there is no data available on this subject in 3L+ DLBCLs yet, fixed-duration versus continuous therapy have been studied in other therapeutic areas and a range of benefits have been associated with fixed-duration therapies. The applicant indicated that the time off treatment may be associated with improvement in quality of life based on a nonrandomized study of patients with chronic myeloid leukemia whose patient-reported outcomes included improvement in treatment-related adverse effects when discontinuing a tyrosine kinase inhibitor treatment. The applicant indicated that patients prefer fixed-duration therapies to continuous therapies citing surveys of patients with chronic lymphocytic leukemia and Waldenstrom's macroglobulinemia identified fixed duration therapy as a positive attribute when compared to continuous therapy. The applicant for COLUMVI^TM further stated that fixed-duration therapy can reduce costs as compared to continuous treatment options.

Response: We thank the commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree that EPKINLY^TM and COLUMVI^TM represent a substantial clinical improvement over existing technologies because these technologies offer treatment options for patients with R/R DLBCL after two or more prior therapies who are unresponsive to, or ineligible for, currently available treatments, who are ineligible due to factors such as organ dysfunction, active infection, or prior stem cell transplantation, or for whom CAR T-cell therapy is not an available treatment option.

After consideration of the public comments we received, and the information included in both the applicants' new technology add-on payment applications, we have determined that EPKINLY^TM and COLUMVI^TM meet all of the criteria for approval of new technology add-on payments. Therefore, we are approving new technology add-on payments for EPKINLY^TM and COLUMVI^TM for FY 2024. As previously stated, cases involving EPKINLY^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XW013S9 (Introduction of epcoritamab monoclonal antibody into subcutaneous tissue, percutaneous approach, new technology group 9). Cases involving COLUMVI^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XW033P9 (Introduction of glofitamab antineoplastic into peripheral vein, percutaneous approach, new technology group 9) or XW043P9 (Introduction of glofitamab antineoplastic into central vein, percutaneous approach, new technology group 9).

Each of the applicants submitted cost information for its application. The manufacturer of EPKINLY^TM stated that the cost of its technology is $11,463.61 per patient. The applicant projected that 117 cases will involve the use of EPKINLY^TM in FY 2024. The manufacturer of COLUMVI^TM stated that the cost of its technology is $5,748.53. The applicant projected that 40 cases will involve the use of COLUMVI^TM in FY 2024. Because the technologies are substantially similar to each other, we believe using a single cost for purposes of determining the new technology add-on payment amount is appropriate for EPKINLY^TM and COLUMVI^TM even though each applicant has its own set of codes. We also believe using a single cost provides predictability regarding the add on payment when using EPKINLY^TM or COLUMVI^TM for the treatment of patients with R/R DLBCL. As such, consistent with prior rulemaking (85 FR 58684), we believe that the use of a weighted average of the cost of EPKINLY^TM and COLUMVI^TM based on the projected number of cases involving each technology to determine the maximum new technology add-on payment would be most appropriate. To compute the weighted cost average, we summed the total number of projected cases for each of the applicants, which equaled 157 cases (117 plus 40). We then divided the number of projected cases for each of the applicants by the total number of cases, which resulted in the following case-weighted percentages: 74.5 percent for EPKINLY^TM and 25.5 percent for COLUMVI^TM . We then multiplied the cost per case for the manufacturer specific drug by the case-weighted percentage (0.745 * $11,463.61 = $8,540.39 for EPKINLY^TM and 0.255 * $5,748.53 = $1,465.87 for COLUMVI^TM). This resulted in a case-weighted average cost of $10,006.26 for the technology. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of EPKINLY^TM or COLUMVI^TM is $6,504.07 for FY 2024.

d. Lunsumio^TM (Mosunetuzumab)

Genentech, Inc. submitted an application for new technology add-on payments for Lunsumio^TM for FY 2024. Per the applicant, Lunsumio^TM is a novel, full-length, humanized, immunoglobulin G1 (IgG1) bispecific antibody that is designed to concomitantly bind CD3 on T cells and CD20 on B cells, in the treatment of adults with relapsed/refractory (R/R) follicular lymphoma (FL) who have received at least 2 (≥2) prior systemic therapies (also referred to herein as 3L+FL). The applicant further stated that target B cell killing occurs only upon simultaneous binding to both targets, as it is a conditional agonist. We note that Genentech, Inc submitted an application for new technology add-on payments for Lunsumio^TM for FY 2023 under the name mosunetuzumab, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28261 through 28274), 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 Lunsumio^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP221017LJLDM , for additional detail describing the drug and the disease treated by the technology.

With respect to the newness criterion, Lunsumio^TM was granted accelerated approval of its BLA from FDA on December 22, 2022, for the treatment of adult patients with relapsed or refractory follicular lymphoma after two or more lines of systemic therapy. According to the applicant, Lunsumio^TM was not commercially available immediately after FDA approval. The applicant stated that Lunsumio^TM was made available for sale after the new year with the first order occurring on January 6, 2023, due to a companywide holiday shutdown and to provide manufacturing time. We noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26824), for the purposes of new technology add-on payments, we do not consider the date of first sale as an indicator of the entry of a product onto the U.S. market. According to the applicant, Lunsumio^TM is sold in a 1 mg and 30 mg single dose vial and is administered for eight cycles according to the dosage schedule in the following table unless patients experience unacceptable toxicity or disease progression. Per the applicant, most of the inpatient usage of Lunsumio^TM will occur as the result of adverse events, mainly CRS, that develop after outpatient administration of the drug. The applicant stated that clinical protocols require that inpatient hospitalization occur for most Grade 2 CRS patients, and for all patients with Grade 3 or 4 CRS. In clinical trials, when Grade 2, 3, or 4 CRS developed, 75 percent of the time it occurred after a 60 mg dose, 20 percent of the time it developed after a 1 mg dose, and 5 percent after a 2 mg dose. Based on this information, it seems that the weighted average inpatient dose would be 45.3 mg.

According to the applicant, effective October 1, 2022, the following ICD–10–PCS procedure codes may be used to distinctly identify administration of Lunsumio^TM: XW03358 (Introduction of mosunetuzumab antineoplastic into peripheral vein, percutaneous approach, new technology group 8) or XW04358 (Introduction of mosunetuzumab antineoplastic into central vein, percutaneous approach, new technology group 8). The applicant stated that diagnosis code C82 (Follicular lymphoma) may be used to currently identify the indication for Lunsumio^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 Lunsumio^TM is not substantially similar to other currently available technologies because it does not use the same or a similar mechanism of action compared to any existing technology approved for treatment of 3L+ FL and because the use of Lunsumio^TM in 3L+ FL does not involve the treatment of the same or a similar type of disease or the same or similar patient population when compared to an existing technology. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for Lunsumio^TM for the applicant's complete statements in support of its assertion that Lunsumio^TM is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26825), we stated that while the applicant indicated that the technology does not involve the treatment of the same or similar patient population as compared to existing technology, we noted that FL in 3L+ settings is not a new population because there are FDA approved therapies indicated in the treatment of patients with r/r FL after two or more lines of systemic therapy. We stated our belief that Lunsumio^TM would be used for the same disease and patient population when compared to other therapies approved to treat FL in 3L+ settings.

We invited public comments on whether Lunsumio^TM is substantially similar to existing technologies and whether Lunsumio^TM meets the newness criterion.

Comment: The applicant submitted a public comment regarding the newness criterion. In response to CMS's questions related to newness, the applicant stated that although several treatment regimens have been developed and approved for R/R FL in the U.S., there are no preferred treatment options for patients in the 3L+ setting. The applicant further stated that although currently available therapies for patients with R/R FL who have had two or more prior therapies may be appropriate for certain patients, substantial clinical factors impact whether a patient can benefit from these 3L+ treatment options (for example, copanlisib, tazemetostat, axicabtagene ciloleucel, and tisagenlecleucel). The applicant noted these include high-risk features such as refractoriness to prior therapy, double refractoriness to prior alkylator and anti-CD20 monoclonal antibody therapy, POD24 of 1L chemoimmunotherapy, FLIPI score of 3–5, or older age. The applicant further stated that certain treatment options for patients with R/R FL who have had two or more prior therapies have their own limitations that may restrict the eligible patient population. The applicant used copanlisib, tazemetosib, and CAR T-cell therapy as examples. According to the applicant, copanlisib is associated with severe toxicities and suboptimal responses that limit its use in patients with R/R FL who have received 2+ prior systemic therapies. With regard to tazemetostat, the applicant stated that it offers limited efficacy to patients with R/R FL who have received ≥2 prior systemic therapies and do not have an EZH2 mutation. The applicant stated that while tazemetostat is still approved for patients with wildtype EZH2, the label includes language that tazemetostat is indicated for the treatment of “Adult patients with relapsed or refractory follicular lymphoma who have no satisfactory alternative treatment options,” and that because EZH2 mutations are found in less than 30 percent of FL cases, 70 percent of the patients who progress after 2+ prior systemic treatments can benefit from additional options. With regard to CAR T-cell therapy, the applicant maintained that benefits of this treatment in patients with R/R FL who have received 2+ prior systemic therapies are limited by tolerability and accessibility. The applicant stated that patients aged 65 years or older make up about 35 percent of CAR T-cell recipients (25%–41%) and may experience higher rates of CRS and neurological AEs than patients under 65 years of age, and that unlike treatment-emergent AEs with other therapies, CAR T cells cannot be dose-reduced or delayed managing these AEs, nor can treatment be discontinued once administered.

According to the applicant, additional treatment options are needed for patients who may not be candidates for CAR T-cell therapies or who cannot access the therapy. The applicant argued that even for patients who are fit enough to tolerate CAR T-cell therapy toxicities, access to treatment remains a significant barrier. The applicant noted that twelve states currently have no available CAR T-cell therapy sites. The applicant stated that even for those with access to a treatment center, additional barriers limit the number of patients who can receive CAR T-cell therapy, such as with ensuring that a manufacturing slot is available when a patient's cells are collected (if frozen cells are not an option), or obtaining necessary reagents.

The applicant asserted that Lunsumio^TM is efficacious in patients with R/R FL who have received 2+ lines of systemic therapy. According to the applicant, Lunsumio^TM is efficacious across all subgroups, including those who are heavily pretreated and highly refractory, and those who aged 65 years or older, and has a generally manageable safety profile. In addition, the applicant maintained that the tolerability of Lunsumio^TM compared with currently approved 3L+ treatment options is a substantial clinical improvement. Per the applicant, Lunsumio^TM is anticipated to be a reasonable treatment option for patients who have progressed after CAR T-cell therapy, substantially improving access to 3L+ treatment for these patients. According to the applicant, as an off-the-shelf therapy that does not require patient-specific manufacturing, Lunsumio^TM will be widely available at hospitals and clinics across the country, substantially improving access to treatment compared with CAR T-cell therapies. The applicant expected that Lunsumio^TM will fill an unmet need left by other approved 3L+ therapies and therefore does not treat the same or similar type of disease in the same or similar patient population when compared with existing technologies.

Another commenter submitted a public comment supporting the newness of Lunsumio^TM in the treatment of multiply relapsed FL, as the first approved CD20xCD3 bispecific antibody. According to the commenter, while there are other agents approved for the treatment of multiply relapsed FL, they have clinical limitations that significantly constrain their utility, such as lower response rates, inferior durability of response, treatment schedules that limit routine use, and key toxicities. The commenter also explained that the use of CAR–T cell therapies for FL are limited by toxicity and by access to centers of excellence with the resources to administer such treatment. The commenter asserted that Lunsumio^TM represents a critical innovation for patients with multiply relapsed FL, offers a potent immunotherapy appropriate for outpatient and community-based use, and has a new and unique mechanism of action.

Response: We thank the applicant and commenter for their comments. We disagree with the commenter and continue to believe that Lunsumio^TM would be used for the same disease in a similar patient population when compared to other therapies approved to treat FL in 3L+ settings. We note that according to the applicant, treatment options are available for R/R FL patients, though limitations impact which patients can benefit from these available 3L+ treatment options. However, we believe that these limitations relate to an assessment of whether the technology meets the substantial clinical improvement criterion rather than the newness criterion. As a result, we believe that Lunsumio^TM treats the same or similar disease in the same or similar patient population when compared to existing treatments for FL in 3L+ settings. Based on our review of the comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for Lunsumio^TM, we agree with the applicant that Lunsumio^TM has a unique mechanism of action as a CD20xCD3 bispecific monoclonal antibody for the treatment of 3L+ FL. Therefore, we believe that Lunsumio^TM is not substantially similar to existing treatment options and meets the newness criterion. As we have discussed in prior rulemaking (77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant stated that Lunsumio^TM was FDA approved for 3L+ treatment of adult patients with R/R FL on December 22, 2022, and became available for sale after the new year with a date of first sale on January 6, 2023. However, it is unclear from the information provided whether the technology would have been available for sale prior to January 6, 2023. Nonetheless, we note that using either the FDA approval date of December 22, 2022, or the date suggested by manufacturer of January 6, 2023, Lunsumio^TM is still new for FY 2024 because the 3-year anniversary date (December 22, 2025, or January 6, 2026, respectively) would occur after FY 2024. Because we did not receive any additional information about whether the technology was available for sale before January 6, 2023, we therefore consider the beginning of the newness period to commence on December 22, 2022.

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 2021 MedPAR file using different ICD–10–CM codes to identify potential cases representing patients who may be eligible for Lunsumio^TM. The applicant explained that it used different codes to identify different cohorts that may be eligible for the technology. Each analysis followed the order of operations described in the following table.

For the first analysis, the applicant searched for cases reporting ICD–10–CM diagnosis codes for follicular lymphoma without a corresponding chemotherapy administration code. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 704 claims mapping to 12 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 $104,824, which exceeded the average case-weighted threshold amount of $96,820.

For the second analysis, the applicant searched for cases reporting ICD–10–CM diagnosis codes for follicular lymphoma excluding follicular lymphoma grade 3B (FL3B) without a corresponding chemotherapy administration code. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 687 claims mapping to 12 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 $103,171, which exceeded the average case-weighted threshold amount of $96,578.

For the third analysis, the applicant searched for cases reporting ICD–10–CM diagnosis codes for follicular lymphoma with accompanying chemotherapy administration codes. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 844 claims mapping to 13 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 $101,992, which exceeded the average case-weighted threshold amount of $98,198.

For the fourth analysis, the applicant searched for cases reporting ICD–10–CM diagnosis codes for follicular lymphoma excluding FL3B with accompanying chemotherapy administration codes. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 813 claims mapping to 13 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 $99,322, which exceeded the average case-weighted threshold amount of $97,505.

We invited public comments on whether Lunsumio^TM meets the cost criterion.

Comment: The applicant submitted a comment that summarized the results of the four analyses discussed in the proposed rule, and reiterated that regardless of the criteria for selecting the cases for the analysis, the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount.

Response: We thank the applicant for their comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, Lunsumio^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that Lunsumio^TM represents a substantial clinical improvement over existing technologies because it will expand access to patients for whom existing therapies are not adequate and because it offers patients with 3L+ FL multiple substantial clinical benefits, including high efficacy with significant tolerability; broad efficacy across patients with 3L+; and the opportunity to achieve sustained remission without continuous treatment. The applicant provided 13 studies to support these claims as well as 34 background articles. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for Lunsumio^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26830), after review of the information provided by the applicant, we stated that we had the following concerns regarding whether Lunsumio^TM meets the substantial clinical improvement criterion. We noted that the applicant provided a single-arm, phase II trial of 90 patients, sub-study analysis, and another single-arm phase I/II trial of 15 patients to support its claims of substantial clinical improvement. As noted in the previous table, the studies evaluated complete response rates or indicators of safety, but did not evaluate survival as a primary outcome. They were also single-arm, without comparison to other existing treatments for the patient population. The applicant compared outcomes of the phase II trial with Lunsumio^TM to outcomes, including QOL and AE from background studies of other technologies. However, we noted limitations in comparing to rates found in other clinical trials that were conducted in earlier time periods and under different circumstances of patient enrollment and treatment options. Additionally, the historical rates were compared directly to those from Lunsumio^TM without more detailed adjustment for patient characteristics. Without a direct comparison of outcomes between these therapies, we were concerned as to whether the differences in outcomes identified by the applicant translate to clinically meaningful differences or improvements for patients treated with Lunsumio^TM as compared to historical rates for other treatments.

We invited public comments on whether Lunsumio^TM meets the substantial clinical improvement criterion.

Comment: The applicant submitted a public comment in response to CMS's concerns regarding substantial clinical improvement. In response to the issue of study design, the applicant responded that there are benefits and limitations to single-arm studies in the 3L+ FL setting. The applicant noted that single-arm studies are an important mechanism to facilitate faster access to novel therapies, especially for patients who have exhausted other approved options. According to the applicant, investigating Lunsumio^TM for patients in the 3L+ FL setting is an example of using a single-arm clinical trial strategy to bring a novel treatment to patients who have an unmet need. Other benefits of single-arm trials are smaller sample size requirements, shorter completion time, and the ability to identify signs of efficacy early in drug development. At the same time, the applicant acknowledged that single-arm studies are most appropriate for assessing response rates and since they lack a comparator arm, time-to-event endpoints, such as progression-free survival and overall survival, can only be understood in the context of a historical control. The applicant also noted that evaluation of safety outcomes is likewise limited by a lack of a comparator arm. Nonetheless, the applicant maintained that despite these limitations, single-arm trials are a valuable tool for drug discovery.

With regard to the use of historical control without adjusting for potential confounders, the applicant stated that head-to-head data comparing Lunsumio^TM to other approved 3L+ treatments are not available. The applicant acknowledged that direct comparisons across different trials are subject to confounding and bias because of systematic differences including study population, comparators, and outcomes between or among trials being compared. Nonetheless, the applicant argued that information regarding how pivotal studies of other therapies were carried out may still be useful when considering clinical trial outcomes.

With regard to the absence of endpoints related to survival, the applicant asserted that the response criteria used to assess responses in Lunsumio^TM were similar to those in pivotal clinical trials for other currently available therapies. The applicant noted that for instance, the response rates for Lunsumio^TM in patients with R/R FL who have received 2+ prior therapies were assessed using the International Working Group Revised Response Criteria for Malignant Lymphoma, for which a response was defined as a CR (that is, positron emission tomography [PET]-negative response) even if a mass of any size is persistent, and a PR was defined as a regression of measurable disease via at least a 50 percent decrease in sum of the product of the diameters (SPD) of up to six of the largest dominant nodes or nodal masses and no new sites. The applicant also argued that the response rates for copanlisib and tazemetostat in patients with R/R indolent lymphoma and patients with mutated or wild type EZH2 R/R FL, respectively, were assessed using the same International Working Group Revised Response Criteria for Malignant Lymphoma. The applicant added that the response rates for axicabtagene ciloleucel in adult patients with indolent NHL after 2+ lines of prior therapy and tisagenlecleucel in adult patients with R/R FL after 2+ lines of prior therapy were assessed using the 2014 Lugano classification, which defines CR as a complete metabolic response even with a persistent mass, and defines PR as a decrease by more than 50 percent in the SPD of up to six representative nodes or extranodal lesions, which are consistent with the definitions from the International Working Group Revised Response Criteria for Malignant Lymphoma. The applicant asserted that therefore, the criteria used to assess response in patients with R/R FL who had 2+ prior systemic therapies across all pivotal trials reflects a similar approach to assessing antitumor activity for each therapeutic option.

In addition, the applicant included results of an updated analysis of the pivotal Lunsumio^TM study (that is, Budde et al. 2022) in their comments. According to the applicant, the median duration of complete response (DOCR) was not reached (median time on study was 28.6 months). The 24-month DOCR rate after first CR was 65 percent (95% CI, 39–90). Also, the applicant stated that median Physician Fee Schedule (PFS) was not reached; 24-month PFS rate was 77 percent (95% CI, 63–91). Per the applicant, two years after the end of fixed-duration treatment, 67 percent of these 49 patients remained free of progressive disease or death. The applicant maintained that these outcomes approached the best ORRs and CRs reported with axicabtagene ciloleucel and tisagenlecleucel (ORRs of 91% and 86% and CRs of 60% and 68%, respectively) and were substantially better than the best outcomes with copanlisib (ORR of 59% and CR 14%) and tazemetostat (mutant EZH2 was 69% ORR and 12% CR; wild-type EZH2 was 34% ORR and 4% CR). The applicant stated that in addition, at 22.8 months, the median DOR with Lunsumio^TM was longer than both copanlisib (DOR: 12.2 months) and tazemetostat (mutant EZH2 DOR of 10.9 months, wild-type EZH2 was 10.9 months).

Response: We thank the applicant for their comment regarding the substantial clinical improvement criterion. Based on the additional information received, we agree that Lunsumio^TM represents a substantial clinical improvement over existing technologies for the treatment of patients with 3L+FL because Lunsumio^TM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, in particular: R/R FL patients who have undergone 2+ prior treatments, but cannot access any of the four PI3K inhibitors or EZH2 inhibitor approved by FDA for 3L+ treatment of R/R FL; patients with EZH2 mutation, who are contra-indicated for tazemetostat, an EZH2 inhibitor approved for R/R FL; and patients who were unable to tolerate CAR T-cell therapy.

After consideration of the public comments received and the information included in the applicant's new technology add-on payment application, we have determined that Lunsumio^TM meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2024. Cases involving the use of Lunsumio^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS codes: XW03358 (Introduction of mosunetuzumab antineoplastic into peripheral vein, percutaneous approach, new technology group 8), or XW04358 (Introduction of mosunetuzumab antineoplastic into central vein, percutaneous approach, new technology group 8).

Per the applicant, the WAC of Lunsumio^TM is $594.06 for a 1 mg single dose vial. As stated previously, according to the applicant, Lunsumio^TM is sold in a 1 mg and 30 mg single dose vial (we note, a 30 mg single dose vial is priced at the 1 mg single dose vial × 30 = $17,821.80). According to the applicant, most of the inpatient usage would occur as the result of adverse events, mainly CRS, that develop after outpatient administration of the drug, and that in clinical trials, when Grade 2, 3, or 4 CRS developed, 75 percent of the time it occurred after a 60 mg dose, 20 percent of the time it developed after a 1 mg dose, and 5 percent after a 2 mg dose. Based on this information, we determined a weighted average inpatient dose of 45.3 mg. Therefore, the average cost per patient for Lunsumio^TM is $26,910.92 (45.3 mg * $594.06 per 1 mg vial). Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of Lunsumio^TM is $17,492.10 for FY 2024.

e. NexoBrid^TM (Anacaulase-bcdb)

Vericel Corporation submitted an application for new technology add-on payments for NexoBrid^TM for FY 2024. According to the applicant, NexoBrid^TM is a novel, non-surgical option for eschar removal (debridement) in adult patients with deep partial thickness (DPT) and/or full thickness (FT) thermal burns. Per the applicant, NexoBrid^TM is a botanical and biologic product for topical use consisting of a concentrate of proteolytic enzymes enriched in bromelain extracted from pineapple stems. We note that Vericel Corporation submitted an application for new technology add-on payments for NexoBrid^TM for FY 2022, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25286 through 25291), that it withdrew prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44774).

Please refer to the online application posting for NexoBrid^TM , available at https://mearis.cms.gov/public/publications/ntap/NTP221017WGWTP , for additional detail describing the technology and the condition treated by the technology.

With respect to the newness criterion, according to the applicant, NexoBrid^TM was granted BLA approval from FDA on December 28, 2022, for eschar removal (debridement) in adults with DPT and/or FT thermal burns. According to the applicant, NexoBrid^TM is expected to be commercially available the end of June or beginning of July 2023 in the U.S. market as manufacturing preparations are currently underway. NexoBrid^TM is applied topically to the wound at 2-gram lyophilized powder with 20-gram gel vehicle per 1% total body surface area (TBSA), or 5-gram lyophilized powder with 50-gram gel vehicle per 2.5% TBSA, up to an area of up to 15% TBSA in one application. The applicant estimated that the average U.S. patient will receive approximately 2.8 5-gram packs of NexoBrid^TM per inpatient stay, based upon the average NexoBrid^TM -treated area of 6.28% TBSA in the DETECT clinical trial with an expected wastage assumption of approximately 10 percent, as well as commercial use of the technology in Europe.

The applicant stated that effective October 1, 2021, the following ICD–10–PCS codes may be used to uniquely describe procedures involving the use of NexoBrid^TM : XW00X27 (Introduction of bromelain-enriched proteolytic enzyme into skin, external approach, new technology group 7) and XW01X27 (Introduction of bromelain-enriched proteolytic enzyme into subcutaneous tissue, external approach, new technology group 7).

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 NexoBrid^TM is not substantially similar to other currently available technologies because NexoBrid^TM has a novel mechanism of action and is the first enzymatic technology to achieve rapid, consistent eschar removal; the applicant further asserted that the active ingredient in NexoBrid^TM has never been approved in any application under section 505(b)(1) of the Federal Food, Drug, and Cosmetic Act (FDC Act) of 1938 or section 351(a) of the Public Health Service (PHS) Act; and no existing technology under the existing burn DRGs is similar to NexoBrid^TM , 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 NexoBrid^TM for the applicant's complete statements in support of its assertion that NexoBrid^TM is not substantially similar to other currently available technologies.

However, we had the following concerns with regard to the newness criterion. We noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26831) that as discussed in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25288), while the applicant discussed the differences between NexoBrid^TM and collagenase-based products, we did not receive enough information regarding the specific composition of the proteolytic enzymes used within the NexoBrid^TM active pharmaceutical ingredient and its mechanism of action. Specifically, it was unclear whether the proteolytic enzymes act similarly to existing collagenase-based enzymatic debridement products since the applicant claimed that NexoBrid^TM debrides denatured collagen in the wound. We also noted that the applicant asserted that NexoBrid^TM is not assigned to the same MS–DRGs as existing technologies used for burns, although it seemed that NexoBrid^TM would be assigned to the same burn MS–DRGs as other enzymatic and surgical debridement technologies.

We invited public comments on whether NexoBrid^TM is substantially similar to existing technologies and whether NexoBrid^TM meets the newness criterion.

Comment: A commenter stated that NexoBrid^TM does not meet the newness criterion because it has been commercially available in the European Union for a decade. Additionally, the commenter noted fruit-based enzymatic debridement products have been utilized for decades and marketed under various trade names, including Accuzyme®, Allanzyme, Ethezyme, Gladase^TM, Kovia, and Panafil. The commenter explained that these enzymatic debridement products utilize papain extract from papaya fruit ( Carica papaya ) and exhibit identical activation catalytic mechanisms as NexoBrid^TM 's pineapple-derived enzymes. The commenter further explained that papain and bromelain are fruit-derived cysteine proteases, also known as thiol proteases, with non-specific degradation profiles and proteolytic mechanisms of action. The commenter added that in addition to the fruit-based enzymatic debridement products mentioned, SANTYL® Collagenase Ointment is an enzymatic debridement product that has been commercially available since its approval in 1965 and is utilized to treat chronic dermal ulcers and severe burns.

Response: We thank the commenter and have taken it into consideration in determining whether NexoBrid^TM meets the newness criterion, discussed later in this section.

Comment: The applicant submitted a comment reiterating its assertion that NexoBrid has a novel mechanism of action that satisfies the newness criterion. The applicant stated that the active pharmaceutical ingredient in NexoBrid , anacaulase-bcbd, is a mixture of proteolytic enzymes extracted from the stems of pineapple plants and is composed mainly (80% to 95% weight by weight [w/w]) of stem bromelain, ananain, jacalin-like lectin, bromelain inhibitors, phytocystatin inhibitor, small molecule metabolites, and saccharides, as both free monosaccharides and the N-linked glycan of stem bromelain. The applicant further explained that bromelain is a combination of thiol endopeptidases and other components, such as phosphatases, glucosidases, peroxidases, cellulases, glycoproteins, carbohydrates, and several protease inhibitors.

In response to CMS's concern regarding NexoBrid 's mechanism of action, the applicant stated that NexoBrid degrades collagen by bromelain via a combination of endopeptidases and other enzymes. The applicant further explained that this degradation by bromelain results in a wide range of reactions beyond hydrolysis, such as peroxidases catalyze oxidation reactions, and acts on a group of substrates, including gelatin, chromogenic tripeptides, and casein. Additionally, the applicant noted, in the context of eschar removal, it has been hypothesized that the presence of multiple proteolytic enzymes likely results in the degradation of multiple substrates contained within the eschar in addition to denatured collagen. The applicant stated that NexoBrid 's combination of enzymes is unique and distinct from collagenase-based debridement agents, which are primarily composed of collagenase derived from Clostridium histolyticum in petrolatum USP. The applicant explained that clostridial collagenase-based debridement agents are based on proteolysis of a collagen substrate through hydrolysis reactions and result in cleavage of necrotic tissue at seven specific sites along the denatured collagen strand.

The applicant also asserted that since the mechanism of action of NexoBrid^TM differs significantly from collagenase-based debridement agents, the dosage and administration, as well as resulting clinical outcome, is also different. The applicant explained that NexoBrid^TM is applied to the burn wound once (in some cases twice, for a four-hour period) and was shown in clinical studies to achieve complete eschar removal (≥95% eschar removal) in 93 percent of patients, while on the other hand, collagenase-based debridement agents are typically used daily, as a continuous application for multiple days with varying results.

In response to CMS's concern regarding the MS–DRG assignment for procedures in which NexoBrid^TM is administered, the applicant stated that it may be appropriate for NexoBrid^TM administration to be assigned to existing burn MS–DRGs (for example, 927, 928, 929, 933, 934, 935); however, the payment associated with these MS–DRGs would not adequately account for NexoBrid^TM 's cost.

Response: We appreciate the additional information from the applicant and commenters with respect to whether NexoBrid^TM is substantially similar to existing technologies.

As stated in the preamble of this section, 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. Therefore, we disagree with the commenter that NexoBrid^TM would not be considered new because it was launched a decade ago in the European Union, as the available data to reflect the cost of the technology would not have been available for CMS to recalibrate the MS–DRGs for those administrations.

We also disagree with the commenter that fruit-based enzymatic debridement products that have not received FDA marketing authorization are appropriate existing technology comparators for evaluating whether a new technology is substantially similar to an existing technology. As stated in the preamble of this section, 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. We believe that technologies that receive FDA marketing authorization have met regulatory standards that provide a reasonable assurance of safety and efficacy. We maintain that our intent in requiring applicants to receive FDA marketing authorization was to exclude technologies that lack FDA marketing authorization. Therefore, we do not believe that medical products that have not received FDA marketing authorization are appropriate comparators for evaluating if a new technology 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 regard to the first criterion, whether a technology uses the same or similar mechanism of action to achieve a therapeutic outcome, we agree with the commenter that there is an existing enzymatic debrider, the SANTYL Collagenase Ointment, that is commercially available for the treatment of burn and chronic wounds. We note that the applicant asserted that NexoBrid^TM has a novel composition because it contains a unique pharmaceutical ingredient derived from pineapple and therefore has a unique combination of proteolytic enzymes as compared to collagenase-based debridement agents that are derived from Clostridium histolyticum. However, we note that the composition/ingredients of a technology does not represent the mechanism of action. Further, while the applicant asserted that NexoBrid^TM degrades collagen via multiple reactions beyond hydrolysis, while clostridial collagenase degradation is based on hydrolysis reactions, we note that the applicant hypothesizes, but does not demonstrate that the presence of multiple proteolytic enzymes by NexoBrid^TM results in the degradation of multiple substrates contained within the eschar in addition to denatured collagen. In addition, although we recognize that NexoBrid^TM has a different use case than collagenase-based debridement agents with respect to the dosage and administration, these differences do not result in a substantially different therapeutic mechanism of action, and in our view, any differences in the resulting clinical outcome relate to an assessment of whether NexoBrid^TM meets the substantial clinical improvement criterion. Therefore, even though there may be differences in composition between bromelain and clostridial collagenase, resulting in collagen degradation through hydrolysis and other reactions, these two technologies use a similar mechanism of action to achieve the same therapeutic outcome: the enzymatic degradation of collagen to debride eschar for the treatment of burns.

In regard to the second criterion, whether a technology is assigned to the same or a different MS–DRG, we note that the applicant acknowledged that the use of NexoBrid^TM may be assigned under the existing MS–DRGs (for example, 927, 928, 929, 933, 934, 935), but stated the payment associated with these MS–DRGs does not adequately account for the cost of NexoBrid^TM . We agree with the applicant that NexoBrid^TM would be assigned to these same burn MS–DRGs as other enzymatic and surgical debridement technologies used in the treatment of burns. However, we believe that inadequate payment for the technology associated with these MS–DRGs relates to an assessment of whether NexoBrid^TM meets the cost criterion, rather than an assessment of substantial similarity.

In regard to the third criterion, whether a technology treats the same or similar type of disease and patient populations, we agree with the applicant's assertion in its application that use of the technology would involve the treatment of a similar type of disease and a similar patient population when compared to existing approaches for eschar removal.

Because NexoBrid^TM meets all three of the substantial similarity criteria, we believe the NexoBrid^TM is substantially similar to an existing collagenase-based debridement agent, SANTYL Collagenase Ointment. Therefore, we consider the beginning of the newness period for NexoBrid^TM to begin on the date on which SANTYL Collagenase Ointment received FDA approval for the treatment of burns. Since SANTYL Collagenase Ointment has been on the U.S. market for many years, the 3-year anniversary date of its entry onto the market occurred prior to FY 2024, and therefore, NexoBrid^TM does not meet the newness criterion and is not eligible for new technology add-on payments for FY 2024. We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because we have determined that the technology does not meet the newness criterion and therefore is not eligible for approval for new technology add-on payments for FY 2024, we are not summarizing comments received or making a determination on those criteria in this final rule.

f. REBYOTA^TM (Fecal Microbiota, Live-jslm) and VOWST^TM (Fecal Microbiota Spores, Live-brpk)

Two manufacturers, Ferring Pharmaceuticals, Inc., an affiliate of the manufacturer, Rebiotix Inc., and Seres Therapeutics, Inc., submitted separate applications for new technology add-on payments for FY 2024 for REBYOTA^TM (fecal microbiota, live-jslm, referred to as `RBX2660' in the proposed rule) and VOWST<sup>TM</sup> (fecal microbiota spores, live-brpk, referred to as `SER–109' in the proposed rule), respectively. Both of these technologies are microbiota-based treatments indicated for the reduction or prevention of recurrence of Clostridioides difficile infection (CDI) in individuals 18 years of age and older, following antibiotic treatment for recurrent CDI (rCDI). In the FY 2024 IPPS/LTCH PPS proposed rule, we discussed these applications as two separate technologies. After further consideration, and as discussed elsewhere, we believe REBYOTA^TM and VOWST^TM are substantially similar to each other and that it is appropriate to evaluate both technologies as one application for new technology add-on payments under the IPPS. We refer the reader elsewhere for a complete discussion regarding our analysis of the substantial similarly of REBYOTA^TM and VOWST^TM.

Please refer to the online application posting for REBYOTA^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP221017WUDXM , and the online application posting for VOWST^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP221016VHL8B , for additional detail describing the technologies and the disease treated by the technologies.

With respect to the newness criterion, the applicant for REBYOTA^TM received BLA approval from FDA on November 30, 2022, for the prevention of rCDI in individuals 18 years of age and older, following antibiotic treatment for rCDI. According to the applicant, REBYOTA^TM is a broad consortium microbiota-based live biotherapeutic suspension indicated for the prevention of recurrence of CDI in individuals 18 years of age and older, following antibiotic treatment for rCDI. Per the applicant, REBYOTA^TM is administered rectally, 24 to approximately 72 hours after the last dose of antibiotics for CDI. The applicant stated that each 150mL dose of REBYOTA^TM contains between 1x10⁸ and 5x10¹⁰ colony forming units (CFU) per mL of fecal microbes including more than 1x10⁵ CFU/mL of Bacteroides and contains not greater than 5.97 grams of PEG3350 in saline. Per the applicant, REBYOTA^TM first became commercially available on January 23, 2023, as the process to create packaging components and then start the packaging process could not start until FDA approval was received.

The applicant for VOWST^TM stated that it received BLA approval from FDA on April 26, 2023, for the prevention of the recurrence of CDI in individuals 18 years of age and older following antibacterial treatment for rCDI. The applicant stated that the dose is four capsules taken orally once daily on an empty stomach before the first meal of the day for 3 consecutive days. The applicant stated that VOWST^TM is an oral microbiome therapeutic administered to reduce CDI recurrence as part of a two-pronged treatment approach of (1) antibiotics to kill vegetative C. diff bacteria, followed by (2) VOWST^TM to repair the microbiome to manage CDI and prevent its recurrence. According to the applicant, VOWST^TM is a consortium of purified Firmicutes bacteria spores collected from healthy stool donors. The applicant stated that engraftment of spore producing Firmicutes bacteria is a necessary first step in microbiome repair, as Firmicutes bacteria produce metabolites, such as secondary bile acids, which inhibit C. diff spore germination and vegetative growth.

The applicant for REBYOTA^TM stated that, effective October 1, 2022, the following ICD–10–PCS code may be used to uniquely describe procedures involving the use of REBYOTA^TM: XW0H7X8 (Introduction of broad consortium microbiota-based live biotherapeutic suspension into lower GI, via natural or artificial opening, new tech. group 8). The applicant for VOWST^TM submitted a request for approval for a unique ICD–10–PCS code for VOWST^TM beginning in FY 2024 and was granted approval for the following ICD–10–PCS procedure code, effective October 1, 2023: XW0DXN9 (Introduction of SER–109 into mouth and pharynx, external approach, new technology group 9). Both applicants stated that diagnosis codes A04.71 (Enterocolitis due to Clostridium difficile, recurrent) and A04.72 (Enterocolitis due to Clostridium difficile, not otherwise specified as recurrent) may be used to currently identify the indication for their technologies under the ICD–10–CM coding system.

As stated earlier and for the reasons discussed later in this section, we believe that REBYOTA^TM and VOWST^TM are substantially similar to each other such that it is appropriate to analyze these two applications as one technology for the purposes of new technology add-on payments, in accordance with our policy. We discuss the information provided by the applicants, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule, regarding whether REBYOTA^TM and VOWST^TM are substantially similar to existing technologies. As discussed earlier, if a technology meets all three of the substantial similarity 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.

With respect to the substantial similarity criteria, whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26853 through 26854), the applicant for REBYOTA^TM stated that REBYOTA^TM is not substantially similar to other currently available technologies to reduce rCDI because REBYOTA^TM has a new mechanism of action and is approved to treat a broader patient population than existing therapies (including standard of care antibiotics (for example, DIFICID®, FIRVANQ®), Fecal Microbiota Transplantation (FMT), and ZINPLAVA^TM), 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 REBYOTA^TM for the applicant's complete statements in support of its assertion that REBYOTA^TM is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26854), we noted the following concern with regard to the newness criterion for REBYOTA^TM . We noted that the applicant stated that ZINPLAVA^TM is restricted to high-risk patients, and we questioned whether these high-risk patients were the same or a similar patient population as that treated with REBYOTA^TM, which is indicated for patients who have already had at least one recurrence of rCDI. In addition, we noted that the indication for ZINPLAVA^TM does not exclude patients with a history of CHF and the labeling has no listed contraindications. Therefore, we sought clarification from the applicant regarding the differences in patient populations for ZINPLAVA^TM and REBYOTA^TM.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26874 through 26875), according to the applicant for VOWST^TM, VOWST^TM is not substantially similar to other currently available technologies because VOWST^TM does not have the same or a similar mechanism of action as any currently FDA-approved CDI treatment and does not involve treatment of the same or similar type of disease or patient population as there are currently no approved therapies indicated to repair a disrupted microbiome as a treatment intervention to prevent recurrence in patients with rCDI. Therefore, the applicant asserted that VOWST^TM meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for VOWST^TM for the applicant's complete statements in support of its assertion that VOWST^TM is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26875 through 26876), we noted the following concern with regard to the newness criterion for VOWST^TM . The applicant asserted that VOWST^TM can be administered to patients with CHF and stated that the use of ZINPLAVA^TM (bezlotoxumab) should be reserved in this patient population. We noted that the indication for ZINPLAVA^TM does not exclude patients with a history of CHF and the labeling has no listed contraindications. We sought clarification from the applicant regarding the differences in patient populations for ZINPLAVA^TM and VOWST^TM.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26854 through 26855 and 26875 through 26876), we noted that REBYOTA^TM and VOWST^TM may have similar mechanism of actions, and both are microbiome therapeutic agents for which we received an application for new technology add-on payments for FY 2024 to reduce the recurrence of rCDI in adults following antibiotic treatment for rCDI, inclusive of the first recurrence. We stated that notably, the exact mechanism of action for each biological product was not yet known; however, both appeared to act on the gut microbiome to suppress C.diff. and thereby prevent rCDI. Both REBYOTA^TM and VOWST^TM appeared to lead to compositional changes in the gastrointestinal microbiome that restore the diversity of gut flora which enabled each of these therapeutics to suppress outgrowth of C.diff. and rCDI, following standard-of-care treatment with antibiotics for rCDI. Further, we stated that both technologies appeared to map to the same MS–DRGs as each other and as existing technologies, and to treat the same or similar disease (rCDI) in the same or similar patient population (patients who have previously received standard-of-care antibiotics for CDI or rCDI). Accordingly, since it appeared that REBYOTA^TM and VOWST^TM were purposed to achieve the same therapeutic outcome using a similar mechanism of action and would be assigned to the same MS–DRG, we stated we believed 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 stated that we believe that if these technologies are substantially similar to each other, it is appropriate to use the earliest market availability date submitted as the beginning of the newness period for both technologies (83 FR 41286 through 41287). Therefore, with regard to both technologies, we believed that the beginning of the newness period would be the date on which REBYOTA^TM became commercially available, January 23, 2023. We noted that although our policy is generally to begin the newness period on the date of FDA approval or clearance, we may consider a documented delay in the technology's market availability in our determination of newness (87 FR 48977 and 77 FR 53348).

We invited public comment on whether REBYOTA^TM or VOWST^TM is substantially similar to existing technologies and whether it meets the newness criterion, including whether REBYOTA^TM and VOWST^TM are substantially similar to each other and therefore should be evaluated as a single technology for purposes of new technology add-on payments.

Comment: The applicant for REBYOTA^TM submitted a comment in response to our question as to whether REBYOTA^TM is substantially similar to VOWST^TM. The applicant stated that VOWST^TM is an oral microbiome therapeutic consisting of gram-positive Firmicutes, and that administration of VOWST^TM cannot begin until at least 8 hours after bowel prep and after 2 to 4 days of completing antibacterial treatment for rCDI. The applicant also noted that administration requirements may be burdensome on both patients and hospitals since patients must take 4 capsules daily on an empty stomach prior to the first meal of the day for 3 consecutive days, and that oral administration issues should be a consideration in older patients. The applicant stated that in comparison, REBYOTA^TM is a microbiota suspension that is delivered via rectal administration, contains both gram-positive and gram-negative bacteria, can be administered 24 to 72 hours following the last dose of antibiotics for recurrent CDI, and does not have pretreatment requirements. The applicant also noted that REBYOTA^TM studies reported safety and efficacy in older adult (age ≥65 years) patients with comorbid conditions, such as CHF, and that therefore, REBYOTA^TM is safe and effective for a broader population of patients.

The applicant for REBYOTA^TM also stated that REBYOTA^TM is not substantially similar to ZINPLAVA^TM because it is available to a broader patient population than those considered high risk for recurrence of CDI, as unlike ZINPLAVA^TM, REBYOTA^TM use is not restricted to high-risk patients and can be administered after the first recurrence of CDI. The applicant noted the different mechanism of action of ZINPLAVA^TM, which is a human monoclonal antibody that is administered through intravenous infusion and that neutralizes the effect of the C.diff toxin by binding to it. The applicant also acknowledged that although the mechanism of action of REBYOTA^TM has not been established, in comparison, REBYOTA^TM consists of live fecal microbes, including Bacteroidia and Clostridia classes, which in studies, results in clinically significant changes in patients' gut microbiome associated with restorative microbiome changes that may help resist C. diff colonization and recurrence.

The applicant for VOWST^TM also submitted a comment maintaining that CMS should not evaluate VOWST^TM and REBYOTA^TM as a single applicant because the technologies are not substantially similar, arguing that since the mechanism of action for both therapies is unknown, it is not possible to state that the mechanism for both products is the same. The applicant for VOWST^TM argued that there is reason to believe its mechanism of action differs from REBYOTA^TM 's in terms of therapeutic composition, manufacturing process, route of administration, dosage, and storage, stating that in contrast to REBYOTA^TM , VOWST^TM has a low pill burden, containing ~1 percent residual mass comprised of defined consortia of Firmicutes bacterial spores recovered from healthy donor stool. The applicant further stated that the manufacturing process mitigates risk of transmission of agents of infection by including ethanolic inactivation of potential pathogens and removal of non-spore biomass. The applicant also provided an overview of the clinical and scientific evidence for VOWST^TM, noting differences in effectiveness, safety, and patient care in contrast to REBYOTA^TM.

The applicant for VOWST^TM also stated that VOWST^TM is not substantially similar to ZINPLAVA^TM because the FDA labeling for VOWST^TM does not include a warning or precaution for heart failure, nor a contraindication for any patient population; and that in contrast, the FDA-approved labeling for ZINPLAVA^TM concludes that, in patients with a history of CHF, ZINPLAVA^TM “should be reserved for use when the benefit outweighs the risk.”

Response: We appreciate the additional information from both applicants with respect to whether their products are substantially similar to one another or to existing technologies. After consideration of the public comments we received, although we recognize that the exact mechanism of action for each technology is not fully defined, and that the technologies may not be completely the same in terms of their manufacturing process, route of administration, dosage, and storage, we are not convinced that these differences result in a substantially different therapeutic mechanism of action. Both applicants provide sufficient data to suggest that their mechanisms of action relate to repopulation of the gastrointestinal microbiome. We believe that differences in the clinical and scientific evidence on effectiveness, safety, tolerability, and patient care between REBYOTA^TM and VOWST^TM relate to an assessment of whether the technologies meet the substantial clinical improvement criterion rather than the newness criterion.

With regard to the commenters noting differences in therapeutic composition, as both technologies are derived from donor human stool, where REBYOTA^TM contains both gram-positive and gram-negative bacteria including Bacteroidia and Clostridia classes, and VOWST^TM consists of a defined consortia of gram-positive Firmicutes bacteria, we also believe that there is, in fact, an overlap, and that the Firmicutes contained in VOWST^TM would also exist in the broad consortium of microorganisms contained in the REBYOTA^TM suspension. Although there might be slight differences in their proportional contributions to specific downstream molecular pathways, we believe that these two technologies achieve the same therapeutic outcome and overall clinical mechanism of action, as each restores the gut microbiome and resolves dysbiosis to prevent the recurrence of CDI in patients following antibacterial treatment for rCDI by restoring the diversity and composition to one that resembles a healthy microbiome. Furthermore, we believe REBYOTA^TM and VOWST^TM are substantially similar to one another because the technologies are intended to treat the same or similar disease in the same or similar patient population—indicated for individuals 18 years of age and older, for the prevention of recurrence of CDI, following antibiotic treatment for rCDI, and that potential cases representing patients who may be eligible for treatment would be assigned to the same MS–DRGs.

We also believe REBYOTA^TM and VOWST^TM are not substantially similar to any other existing technologies because, as both applicants asserted in their FY 2024 new technology add-on payment applications and in their comments, the technologies do not use the same or similar mechanism of action to achieve a therapeutic outcome as any other existing drug or therapy assigned to the same or different MS–DRG. Based on the information described in this section, we believe REBYOTA^TM and VOWST^TM meet the newness criterion.

Based on the previous discussion, we are making one determination regarding approval for new technology add-on payments that will apply to both applications, and in accordance with our policy, we use the earliest market availability date submitted as the beginning of the newness period for both REBYOTA^TM and VOWST^TM.

We believe our current policy for evaluating new technology payment applications for two technologies that are substantially similar to each other is consistent with the authority and criteria in section 1886(d)(5)(K) of the Act. We note that CMS is authorized by the Act to develop criteria for the purposes of evaluating new technology add-on payment applications. For the purposes of new technology add-on payments, when technologies are substantially similar to each other, we believe it is appropriate to evaluate both technologies as one application for new technology add-on payments under the IPPS, for the reasons we discussed previously and consistent with our evaluation of substantially similar technologies in prior rulemaking (85 FR 58679 and 82 FR 38120).

With respect to the newness criterion, as previously stated, REBYOTA^TM received BLA approval from FDA on November 30, 2022, and became commercially available on January 23, 2023. VOWST^TM received BLA approval from FDA on April 26, 2023. In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date submitted as the beginning of the newness period for both technologies. Therefore, with regard to both technologies, we believe that the beginning of the newness period would be the date on which REBYOTA^TM became commercially available: January 23, 2023. We note that although our policy is generally to begin the newness period on the date of FDA approval or clearance, we may consider a documented delay in the technology's market availability in our determination of newness (87 FR 48977 and 77 FR 53348).

The applicants submitted separate cost and clinical data, and in the proposed rule, we reviewed and discussed each set of data separately. However, as stated previously, for this final rule, we will make one determination regarding new technology add-on payments that will apply to both applications. We believe that this is consistent with our policy statements in the past regarding substantial similarity (85 FR 58679).

If substantially similar technologies are submitted for review in different (and subsequent) years, rather than the same year, we evaluate and make a determination on the first application and apply that same determination to the second application. However, because these technologies have been submitted for review in the same year, and because we believe they are substantially similar to each other, we consider both sets of cost data and clinical data in making a determination, and we do not believe that it is possible to choose one set of data over another set of data in an objective manner. As we discussed in the proposed rule and as stated previously, each applicant submitted separate analyses regarding the cost criterion for each of their products, and both applicants maintained that their product meets the cost criterion.

With respect to the cost criterion, to identify cases that may be eligible for REBYOTA^TM, the applicant searched the FY 2021 MedPAR file for claims using ICD–10–CM code A04.71 (Enterocolitis due to Clostridium difficile, recurrent). Using the inclusion/exclusion criteria described in the following table, the applicant identified 14,653 claims mapping to 398 MS–DRGs. Please see Table 10.17.A.—REBYOTA^TM Codes—FY 2024 associated with the proposed rule for the complete list of MS–DRGs that the applicant indicated were included in its cost analysis. 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 $156,292, which exceeded the average case-weighted threshold amount of $71,397. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that REBYOTA^TM meets the cost criterion.

With respect to the cost criterion, the applicant for VOWST^TM conducted the following analysis to demonstrate that VOWST^TM meets the cost criterion. To identify cases that may be eligible for the use of VOWST^TM, the applicant searched the FY 2021 MedPAR file for cases reporting ICD–10–CM code A04.71 (Enterocolitis due to Clostridium difficile, recurrent). Using the inclusion/exclusion criteria described in the following table, the applicant identified 14,497 claims mapping to 392 MS–DRGs. Please see Table 10.22.A.—SER–109 Codes—FY 2024 associated with the proposed rule for the complete list of MS–DRGs the applicant indicated were included in its cost analysis. 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 $175,157, which exceeded the average case-weighted threshold amount of $69,830. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that VOWST^TM meets the cost criterion.

We invited public comment on whether VOWST^TM or REBYOTA^TM meet the cost criterion.

Comment: The applicant for REBYOTA^TM submitted a comment regarding an updated cost analysis utilizing its updated final wholesale acquisition cost (WAC). The applicant stated that in the new cost analysis, the final inflated case-weighted average standardized charge per case of $153,574 exceeded the case-weighted threshold of $71,397, demonstrating that the applicant continued to meet the cost criterion.

The applicant for VOWST^TM submitted a comment regarding an updated cost analysis utilizing its updated final WAC to confirm their belief that VOWST^TM meets the cost criterion because cost threshold analysis demonstrated the final inflated case-weighted standardized charge per case of $329,947 exceeded the case weighted threshold of $95,859, therefore the applicant met the cost criterion.

Response: We thank the applicants for their comments and appreciate the updated cost analyses. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount for both REBYOTA^TM and VOWST^TM. Therefore, both REBYOTA^TM and VOWST^TM meet the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant for REBYOTA^TM asserted that REBYOTA^TM represents a substantial clinical improvement over existing technologies because it offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, and because the use of REBYOTA significantly improves clinical outcomes relative to the treatment options previously available. The applicant provided eight studies to support these claims, as well as background articles about occurrence and treatment of CDI and rCDI. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for REBYOTA^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26859 through 26860), we stated that we had the following concerns regarding whether REBYOTA^TM meets the substantial clinical improvement criterion. Regarding the assertion that REBYOTA^TM is an FDA-approved therapeutic option for some patients who may not be eligible for treatment with ZINPLAVA due to patient population restrictions (for example, high-risk patients) or contraindications (for example, history of congestive heart failure [CHF]), and that there is no evidence that REBYOTA^TM poses an increased risk of serious AEs in patients with a history of CHF, the applicant cited a retrospective study of REBYOTA^TM reported by Feuerstadt et al. in which 94 participants with comorbid conditions commonly found in people with rCDI were treated with REBYOTA^TM . The analysis showed a treatment success rate of 82.8 percent, with no observable difference between participants who received one dose (83.3%) vs. two doses (82.5%). We noted that the comorbid conditions represented in this population included: gastroesophageal reflux disease (47.9%); irritable bowel syndrome (17%); gastritis (11.7%); constipation (8.5%); microscopic colitis (7.4%); diverticulitis (6.4%); Crohn's disease (5.3%); and ulcerative colitis (4.3%) but did not include patients with CHF as a comorbidity. We believed additional information regarding whether REBYOTA^TM was tested in patients with CHF to determine clinical outcomes would be helpful to evaluate the applicant's assertion. The applicant also referenced a poster presentation by Braun et al. that presents the safety data from five prospective studies in which 749 pooled participants received at least one dose of REBYOTA^TM, and 83 participants received placebo only to support its assertion. We stated that additional information demonstrating whether REBYOTA^TM is safe for the patient population with CHF would help inform our assessment of whether REBYOTA^TM demonstrates substantial clinical improvement over existing technologies.

Regarding the claim of sustained clinical response, the applicant referenced an abstract of an open-label trial of REBYOTA^TM by Orenstein et al. This trial was a Phase 2 open-label trial where participants with multiple rCDI received two doses of REBYOTA^TM administered 7 + 2 days apart. Researchers conducted a 2-year analysis of the clinical safety, efficacy, and durability of REBYOTA^TM . The absence of rCDI was compared between the REBYOTA^TM and a historical control cohort that received standard-of-care antibiotic therapy. Durability was defined as continued absence of CDI episodes beyond 8 weeks, and was assessed at 3, 6, 12, and 24 months by assessing changes in stool samples. While the applicant submitted results from both a phase 2 trial of REBYOTA^TM , and the PUNCH CD3 phase 3 trial to demonstrate the superiority of REBYOTA^TM over placebo, we questioned whether other treatment options indicated to prevent rCDI, such as ZINPLAVA^TM, would be a more appropriate comparator. We noted that additional information regarding clinical outcomes as a result of treatment with REBYOTA^TM compared to ZINPLAVA^TM would be helpful to assess the substantial clinical improvement criterion. In summary, while we understood that there were no head-to-head trials comparing REBYOTA^TM to ZINPLAVA^TM, we indicated that additional information would help inform our assessment of whether REBYOTA^TM demonstrated a substantial clinical improvement over existing technologies.

With regard to the substantial clinical improvement criterion, the applicant for VOWST^TM asserted that VOWST^TM represents a substantial clinical improvement over existing technologies because VOWST^TM treats patients unresponsive to antibiotic treatment for rCDI and can be used in patients ineligible for ZINPLAVA^TM due to CHF. The applicant also asserted that it improves clinical outcomes by reducing rCDI, increasing resolution of the disease process by expediting microbiome repair, and reducing carriage of antimicrobial resistance genes. The applicant provided five studies to support these claims, as well as 11 background articles about CDI recurrence and risks of increased exposure to antibiotic therapies in a hospital setting for rCDI and cardiac risk of prescribing existing treatments, such as ZINPLAVA^TM , to patients with pre-existing heart failure. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for VOWST^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH proposed rule (88 FR 26881 through 26882), after reviewing the information provided by the applicant, we noted that we had the following concerns regarding whether VOWST^TM meets the substantial clinical improvement criterion. We stated that to demonstrate that VOWST^TM reduces rates of CDI recurrence compared to standard of care therapies, the application primarily cited to the ECOSPOR phase II trial and ECOSPOR III phase III trial. The application also cited an abstract of the open-label single-arm ECOSPOR IV trial which did not appear to provide a comparison against currently available therapies. We stated that the major limitation of these data was that patients who received ZINPLAVA^TM in the prior 3 months were excluded. We stated that while the study provided data comparing the effectiveness of VOWST^TM to antibiotics alone, no data comparing the treatment of rCDI utilizing antibiotics plus ZINPLAVA^TM, as was recommended for rCDI, against antibiotics plus VOWST^TM (with or without ZINPLAVA^TM) was provided. Without a comparison against such currently available therapies, we questioned whether the information provided by the applicant was sufficient to support the applicant's statements that VOWST^TM is well-tolerated and mitigates the safety concerns of other alternative therapies, and that VOWST^TM can be used in patients ineligible for ZINPLAVA^TM due to diagnosis of CHF.

With regard to the claim that VOWST^TM can be used safely in patients with CHF, the cited trials either did not identify or document effects on participants with comorbid CHF to support this conclusion. The ECOSPOR trial specifically excluded patients with poor concurrent medical risks or clinically significant co-morbid disease such that, in the opinion of the investigator, the subject should not be enrolled. We stated that it was not clear whether this criterion necessarily excluded individuals with known pre-existing CHF from the study group and that it was also not clear how many individuals diagnosed with CHF prior to or during the study were identified in the study populations. We considered whether a lack of participants with CHF could potentially account for the low incidence of adverse effects, rather than being attributable to the safety of VOWST^TM relative to ZINPLAVA^TM for patients with CHF. Absent additional information, we stated that it was difficult to confirm that VOWST^TM offers a treatment option for patients ineligible for ZINPLAVA^TM due to CHF.

The applicant stated that there is an increased resolution of the disease process because VOWST^TM expedites microbiome repair during the window of vulnerability, identified as 1–4 weeks after antibiotic discontinuation, by ensuring more rapid engraftment of beneficial Firmicutes bacteria needed to decrease germination of C. diff. spores and prevent recurrence. For this claim, the applicant cited three articles: two randomized controlled trials and one unpublished abstract. While the results of the Phase III randomized controlled trial demonstrated the superiority of VOWST^TM over placebo, we questioned whether other treatment options indicated to prevent rCDI, such as ZINPLAVA^TM, would have been a more appropriate comparator. We stated that additional information regarding clinical outcomes as a result of treatment with VOWST^TM compared to such treatment options, instead of placebo, would have been helpful in our assessment of the substantial clinical improvement criterion. With respect to the applicant's claim that VOWST^TM may reduce the number of future hospitalizations or physician visits for patients diagnosed with rCDI, the applicant cited the Feuerstadt study to suggest that reduced rates of rCDI shown in Phase III clinical trials would likely lead to fewer days in hospital. However, we stated that the study did not address this measure directly; rather, this was an inference by the applicant. We welcomed additional data to support the claim VOWST^TM may reduce the number of future hospitalizations or physician visits for patients with rCDI.

With respect to the claim that VOWST^TM reduces the abundance of antimicrobial resistance genes (ARGs) and associated taxa compared to placebo, which accelerates microbiome recovery from antibiotics, we stated that the applicant cited one unpublished study showing treatment with VOWST^TM led to a significant decrease in ARG abundance versus placebo, which was both rapid and sustained through week eight. However, the authors stated that further studies were needed to determine if the significant reduction of ARGs is associated with prevention of subsequent infections with drug resistant bacteria in CDI patients.

We invited public comments on whether REBYOTA^TM or VOWST^TM meet the substantial clinical improvement criterion.

Comment: The applicants for REBYOTA^TM and VOWST^TM each submitted comments in response to CMS's concerns in the FY 2024 IPPS/LTCH PPS proposed rule regarding whether REBYOTA^TM and VOWST^TM meet the substantial clinical improvement criterion.

In the applicant for VOWST^TM 's comment regarding substantial clinical improvement, it asserted that VOWST^TM significantly improves clinical outcomes relative to services or technologies previously available as most CDI recurrences occur within 2 weeks of antibiotic discontinuation, and VOWST^TM expedites microbiome repair during the “window of vulnerability.” The applicant further stated that reduction of CDI recurrence as a result of VOWST^TM may potentially lessen future healthcare costs, morbidity, and rCDI-related hospitalizations. The applicant also asserted that VOWST^TM offers a therapeutic option to a patient population with a suboptimal response to, or ineligible for, currently available treatments, specifically, patients who developed rCDI following antibiotic treatment due to continued disruption of the gut microbiome by antibiotics themselves. The applicant noted that ZINPLAVA^TM does not address the underlying gut microbiome dysbiosis, and that no data suggest that VOWST^TM cannot be used in patients diagnosed with CHF, who may be at an increased risk of heart failure associated with treatment with ZINPLAVA^TM . The applicant noted that its oral administration process may enhance the patient experience, in part, because the product can be taken at home compared to REBYOTA^TM.

The applicant for VOWST^TM further stated, with regard to the concerns whether the information provided by the applicant is sufficient to support the applicant's statements that VOWST^TM is well-tolerated and mitigates the safety concerns of other alternative therapies, and whether VOWST^TM can be used in patients ineligible for ZINPLAVA^TM due to CHF, that treatment with VOWST^TM did not result in adverse events, nor deaths, in patients with CHF. The applicant noted that in the ECOSPOR III (SERES–012) and IV (SERES–013) Phase 3 clinical trials, 109 of 349 (31%) participants had cardiac disease as a concomitant illness, and 24 subjects with CHF who received VOWST^TM. The applicant stated that adverse event profile of VOWST in subjects with cardiac disease was consistent with that observed in the overall subject population.

With regard to our question about whether other treatment options indicated to prevent rCDI, such as ZINPLAVA^TM, would have been a more appropriate comparator for VOWST^TM, rather than a placebo, the applicant for VOWST^TM stated that it consulted with the FDA on the design of the Phase 3 studies and was required to evaluate VOWST^TM against placebo. The applicant anticipated capability of collecting real world evidence of VOWST^TM against other preventative modalities as VOWST^TM becomes standard of care.

With regard to CMS's concern that one unpublished study was used as evidence to show treatment with VOWST^TM led to a significant decrease in ARG abundance versus placebo, the applicant for VOWST^TM stated that a manuscript is in final redaction with the authors with an anticipated June 30 submission to an infectious diseases journal for publication.

In the applicant for REBYOTA^TM 's comment regarding substantial clinical improvement, with regard to the request for additional information demonstrating the safety of REBYOTA^TM in the patient population with CHF, the applicant presented results from a post hoc subgroup analysis of the PUNCH CD3 trial by Tillotson et al. that was published in January 2023. The applicant stated that the subgroup of patients with cardiac disorders included patients with CHF, described as “Cardiac failure congestive.” Per the applicant, results from the Tillotson et al. subgroup analysis showed that REBYOTA^TM treatment success was better than placebo in older adults with cardiac disorders (69% [n = 25/36]), and that overall treatment success of older adults with comorbidities was similar to the total REBYOTA^TM -treated population (70.6%). The applicant also stated that the subgroup analysis of adverse events further supports REBYOTA^TM is safe for CHF patients, and that, unlike the CHF warning included with ZINPLAVA®, the FDA did not issue a warning about CHF on the approved label for REBYOTA^TM.

The applicant for REBYOTA^TM also provided additional details regarding the absence of comparative data using ZINPLAVA^TM . The applicant stated that due to the limited use of ZINPLAVA^TM in real-world practice, it was not considered in a recent cost-effective analysis comparing REBYOTA^TM with standard-of-care. The applicant also noted that the different routes of administration for each of ZINPLAVA^TM (given by IV infusion) and REBYOTA^TM (via rectal administration) would make it difficult to blind the study and would require that the study sites be equipped to accommodate infusion administration, in addition to being overly burdensome to the study participants.

Response: We thank the applicants for their comments regarding the substantial clinical improvement criterion. After consideration of the information previously submitted in the applications for REBYOTA^TM and VOWST^TM and summarized in this final rule, and after review of the comments we received, we agree that both REBYOTA^TM and VOWST^TM represent a substantial clinical improvement over existing technologies because the technologies improve clinical outcomes by increasing resolution of the disease process over placebo without serious adverse effects for patients who have previously received standard of care antibiotics for rCDI. We believe that these two technologies restore the gut microbiome and resolve dysbiosis to prevent the recurrence of CDI in patients following antibacterial treatment for rCDI. In summary, we have determined that REBYOTA^TM and VOWST^TM meet all of the criteria for approval of new technology add-on payments. Therefore, we are approving new technology add-on payments for REBYOTA^TM and VOWST^TM for FY 2024. As previously stated, cases involving REBYOTA^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XW0H7X8 (Introduction of broad consortium microbiota-based live biotherapeutic suspension into lower GI, via natural or artificial opening, new technology group 8). Cases involving VOWST^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XW0DXN9 (Introduction of SER–109 into mouth and pharynx, external approach, new technology group 9).

Each of the applicants submitted cost information for its technology. The applicant for REBYOTA^TM stated that the cost of its technology is $9,000.00 per patient, and projected that 2,180 cases will involve the use of REBYOTA^TM in FY 2024. The manufacturer of VOWST^TM stated that the cost of its technology is $17,500.00 and projected that 448 cases will involve the use of VOWST^TM in FY 2024. Because the technologies are substantially similar to each other, we believe using a single cost for purposes of determining the new technology add-on payment amount is appropriate for REBYOTA^TM and VOWST^TM even though each applicant has its own set of codes. We also believe using a single cost provides predictability regarding the add-on payment when using REBYOTA^TM or VOWST^TM for the prevention of recurrence of CDI following antibiotic treatment for rCDI. As such, consistent with prior rulemaking (85 FR 58684), we believe that the use of a weighted average of the cost of REBYOTA^TM and VOWST^TM based on the projected number of cases involving each technology to determine the maximum new technology add-on payment would be most appropriate. To compute the weighted cost average, we summed the total number of projected cases for each of the applicants, which equaled 2,628 cases (2,180 plus 448). We then divided the number of projected cases for each of the applicants by the total number of cases, which resulted in the following case-weighted percentages: 83 percent for REBYOTA^TM and 17 percent for VOWST^TM . We then multiplied the cost per case for the specific drug by the case-weighted percentage (0.83 * $9,000 = $7,470 for REBYOTA^TM and 0.17 * $17,500 = $2,975 for VOWST^TM). This resulted in a case-weighted average cost of $10,445 for the technology. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of REBYOTA^TM or VOWST^TM is $6,789.25 for FY 2024.

g. SeptiCyte® RAPID

Immunexpress, Inc. submitted an application for new technology add-on payments for SeptiCyte® RAPID for FY 2024. Per the applicant, SeptiCyte® RAPID is a gene expression assay used in conjunction with clinical assessments and other laboratory findings as an aid to differentiate infection-positive (sepsis) from infection-negative systemic inflammatory response syndrome (SIRS) in patients suspected of sepsis on their first day of intensive care unit (ICU) admission. According to the applicant, the test is performed in a fully integrated cartridge, which runs on the Biocartis Idylla system, with sample to answer turnaround time of approximately 60 minutes. The applicant stated that SeptiCyte® RAPID generates a score (SeptiScore®) ranging from 0 to 15 that falls within one of four discrete Interpretation Bands based on the increasing likelihood of infection-positive systemic inflammation, also known as sepsis.

Please refer to the online application posting for SeptiCyte® RAPID, available at https://mearis.cms.gov/public/publications/ntap/NTP2210170WWBT , for additional detail describing the technology and diagnostic indications.

With respect to the newness criterion, according to the applicant, SeptiCyte® RAPID received 510(k) clearance (K203748) from FDA on November 29, 2021, for the following indication: SeptiCyte® RAPID is indicated as a gene expression assay using reverse transcription polymerase chain reaction to quantify the relative expression levels of host response genes isolated from whole blood collected in the PAXgene® Blood RNA Tube. The SeptiCyte® RAPID test is used in conjunction with clinical assessments and other laboratory findings as an aid to differentiate infection-positive (sepsis) from infection-negative systemic inflammation in patients suspected of sepsis on their first day of ICU admission. The SeptiCyte® RAPID test generates a score (SeptiScore®) that falls within one of four discrete Interpretation Bands based on the increasing likelihood of infection-positive systematic inflammation. SeptiCyte® RAPID is intended for in-vitro diagnostic use on the Biocartis Idylla^TM System. The applicant stated the SeptiCyte® RAPID was commercially available immediately after FDA clearance. Per the applicant, Septicyte® RAPID was cleared based on substantial equivalency to the predicate device SeptiCyte® LAB (K163260), which received 510(k) clearance from the FDA on April 6, 2017. The applicant described differences between the two versions of the technology including: the automatic extraction of material from SeptiCyte® RAPID versus the manual extraction for SeptiCyte® LAB; reverse transcription polymerase chain reaction (RT–PCR) and dry format for SeptiCyte® RAPID versus reverse transcription-quantitative polymerase chain reaction (RT-qPCR) and wet format for SeptiCyte® LAB; use of the Biocartis Idylla^TM System for SeptiCyte® RAPID versus ABI 7500 Fast Dx for SeptiCyte® LAB; different fluorescent probes and quenchers between SeptiCyte® RAPID and SeptiCyte® LAB; and use of MS2 phage internal sample processing control for SeptiCyte® RAPID versus three external controls for SeptiCyte® LAB.

The applicant stated that effective October 1, 2022, the following ICD–10–PCS code may be used to uniquely describe procedures involving the use of SeptiCyte® RAPID: XXE5X38 (Measurement of infection, whole blood nucleic acid-base microbial detection, new technology group 5). We note that the correct descriptor for this code appears to be (Measurement of infection, whole blood reverse transcription and quantitative real-time polymerase chain reaction, new technology group 8).

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 SeptiCyte® RAPID is not substantially similar to other currently available technologies because SeptiCyte® RAPID differs in mechanism, performance, and turnaround time from all current sepsis diagnostic tools by leveraging the host's immune response to systemic inflammation of infectious origin via measurement of the gene expression ratio between upregulated and downregulated genes, 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 SeptiCyte® RAPID for the applicant's complete statements in support of its assertion that SeptiCyte® RAPID is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26867 through 26868), after reviewing of the information provided by the applicant, we stated that we had the following concerns with regard to the newness criterion. We noted that the applicant did not include SeptiCyte® LAB, the predicate device for SeptiCyte® RAPID which was cleared by FDA on April 6, 2017, in its discussion of existing technologies. While the applicant described differences between the two versions of the technology, we explained that it does not appear that these differences materially affect the mechanism of action of the technology. We noted that both devices utilize a gene expression assay using reverse transcription polymerase chain reaction to quantify the relative expression levels of host response genes. We further noted that the applicant also appears to consider the devices as similar, as they rely on studies conducted using the SeptiCyte® LAB to demonstrate substantial clinical improvement.

We also noted that the applicant did not explain how SeptiCyte® RAPID targets a different disease or patient population compared to existing sepsis diagnostic testing. Instead, the applicant stated that SeptiCyte® RAPID does not diagnose the same patient population compared to existing technology, because it allows for early diagnosis, guides treatment decisions, and has high accuracy. While this may be relevant to the assessment of substantial clinical improvement, it did not appear to be related to newness, and it was unclear how the patient population tested with Septicyte® RAPID differs from other patients tested for sepsis, including those tested with Septicyte® LAB. As the applicant stated that Septicyte® RAPID maps to the same MS–DRG as existing technologies, and it appears to have a similar mechanism of action and is used in the same patient population as SeptiCyte® LAB, we stated our belief these technologies may be substantially similar to each other. We noted that if Septicyte® RAPID is substantially similar to SeptiCyte® LAB, we believe the newness period for this technology would begin on April 6, 2017, with the 510(k) clearance date for SeptiCyte® LAB and, therefore, because the 3-year anniversary date of the technology's entry onto the U.S. market (April 6, 2020) occurred in FY 2020, the technology would no longer be considered new and would not be eligible for new technology add-on payments for FY 2024.

We invited public comments on whether SeptiCyte® RAPID is substantially similar to existing technologies and whether SeptiCyte® RAPID meets the newness criterion.

Comment: The applicant submitted a comment in response to CMS's concerns pertaining to the newness criterion. Regarding our concern whether SeptiCyte® RAPID uses the same or similar mechanism of action as existing technology, the applicant clarified that SeptiCyte® LAB, the predicate device to SeptiCyte® RAPID, was never manufactured, commercialized, or sold in the U.S. The applicant stated that it does not believe SeptiCyte® RAPID is substantially similar to SeptiCyte® LAB, because SeptiCyte® RAPID applies the technology to an improved, streamlined methodology consisting of fewer steps that result in a 1-hour turnaround time. However, the applicant also noted that SeptiCyte® RAPID demonstrates a high correlation (r² = 0.94) to SeptiCyte® LAB, which were developed and validated using the same underlying polymerase chain reaction technology.

The applicant stated its belief that even if CMS considers SeptiCyte® RAPID to be substantially similar to SeptiCyte® LAB, SeptiCyte® RAPID should be considered new because SeptiCyte® LAB was never commercially available in the U.S. The applicant explained that FDA cleared SeptiCyte® LAB on April 6, 2017, but Immunexpress Inc. never manufactured or sold the device in the U.S. due to the market access impediment of a 6-hour test turnaround time, when clinical management of sepsis needs to meet a 3-hour sepsis bundle of care, according to the CMS Severe Sepsis and Septic Shock Management Bundle core measure. The applicant stated that while FDA subsequently granted 510(k) clearance to SeptiCyte® RAPID on November 29, 2021, it believes the newness date for SeptiCyte® RAPID should begin on the date of the device's first sale, which was April 20, 2022. The applicant noted that it provided SeptiCyte® RAPID free of charge for evaluations and quality improvement initiatives between its FDA clearance on November 29, 2021, and April 20, 2022, the date of first sale. The applicant stated its belief because the date of first sale occurred after a substantial delay from the date of FDA clearance on November 29, 2021, it should therefore be the newness date for the purposes of new technology add-on payments.

Regarding our concern that SeptiCyte® RAPID targets the same disease or patient population as existing sepsis diagnostic testing, the applicant stated that all sepsis diagnostic tools target the same population. The applicant stated that no existing diagnostic technology can accurately or rapidly differentiate sepsis from non-infectious systemic inflammation as SeptiCyte® RAPID does.

Response: We thank the applicant for its comment and the additional information provided.

Based on our review of comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for SeptiCyte® RAPID, we agree with the applicant that SeptiCyte® RAPID has a unique mechanism of action as the first commercially available gene expression assay using reverse transcription polymerase chain reaction to aid in differentiating infection-positive (sepsis) from infection-negative systemic inflammation. Therefore, we believe that SeptiCyte® RAPID is not substantially similar to existing diagnostic options and meets the newness criterion.

In regard to the first criterion, whether a technology uses the same or similar mechanism of action to achieve a therapeutic outcome, we continue to believe that SeptiCyte® RAPID uses the same or similar mechanism of action as the predicate device, SeptiCyte® LAB, as gene expression assays using reverse transcription polymerase chain reaction to aid in differentiating infection-positive (sepsis) from infection-negative systemic inflammation. Although the applicant states that SeptiCyte® RAPID applies the technology to an improved methodology, which impacts clinical utility for rapid results to aid the clinician in suspected sepsis, we believe that improvements in clinical utility do not result in a substantially different mechanism of action, and these differences instead relate to an assessment of whether SeptiCyte® RAPID meets the substantial clinical improvement criterion. We also believe that regardless of whether the procedural steps have changed, the manner in which SeptiCyte® RAPID functions is unchanged from SeptiCyte® LAB. For example, we note that the applicant stated that SeptiCyte® RAPID was developed and validated using the same underlying PCR technology as SeptiCyte® LAB (RT–PCR). In addition, we note that the analytes assessed by SeptiCyte® RAPID (PLAC8; PLA2G7) are a subset of those assessed by SeptiCyte® LAB (PLAC8; PLA2G7; LAMP1; CEACAM4); and as noted previously, studies conducted using SeptiCyte® LAB were used to demonstrate substantial clinical improvement for SeptiCyte® RAPID. Therefore, we believe that the SeptiScore® results obtained by SeptiCyte® RAPID are the same or similar as to those that would have been obtained with SeptiCyte® LAB, and that differences in methodology between the two technologies do not represent a new mechanism of action.

Furthermore, we agree with the applicant that the two versions of the technology map to the same MS–DRGs and are intended to treat the same or similar disease in the same or similar patient population—patients tested for sepsis to differentiate sepsis from infection-negative systemic inflammation. Because SeptiCyte® RAPID meets all three of the substantial similarity criteria, we believe SeptiCyte® RAPID is substantially similar to the predicate technology, SeptiCyte® LAB.

In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date submitted as the beginning of the newness period for both technologies. However, we note that the applicant stated that SeptiCyte® LAB, although FDA cleared, was never manufactured, commercialized or sold in the U.S. market due to the market access impediment of a 6-hour test turnaround time. As we have discussed in prior rulemaking, generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market, and we may consider a documented delay in the technology's market availability in our determination of newness (77 FR 53348 and 70 FR 47341). Since SeptiCyte® LAB has not been available for sale on the U.S. market, we are unable to establish the beginning of the newness period for SeptiCyte® LAB. Therefore, we believe it is appropriate to use the earliest market availability date submitted for SeptiCyte® RAPID as the beginning of the newness period for both technologies.

We note that, as stated previously, while CMS may consider a documented delay in the technology's market availability in our determination of newness, our policy for determining whether to extend new technology add-on payments for an additional year generally applies regardless of the volume of claims for the technology after the beginning of the newness period (83 FR 41280). We do not consider the date of first sale of a product as an indicator of its entry onto the U.S. market. The applicant stated that the date of first sale of SeptiCyte® RAPID was April 20, 2022, but it is unclear from the information provided when the technology first became available for sale and, absent additional information from the applicant, we cannot determine a newness date based on a documented delay in the technology's availability on the U.S. market. Therefore, we consider the beginning of the newness period for SeptiCyte® RAPID to commence on November 29, 2021, when SeptiCyte® RAPID received FDA marketing authorization.

With respect to the cost criterion, the applicant searched the FY 2021 MedPAR file for potential cases representing patients who may be eligible for SeptiCyte® RAPID. The applicant identified three different types of patient cases where SeptiCyte® RAPID could be used: patients with sepsis as an admission diagnosis; patients who develop sepsis after hospital admission; and patients with symptoms similar to sepsis patients. To identify these patients, the applicant used MS–DRGs and ICD–10–CM codes. These three groups were combined into one analysis with no overlap in cases between the three groups. Please see Table 10.21.A.—SeptiCyte® RAPID Codes—FY 2024 associated with the proposed rule for the complete list of MS–DRGs and codes provided by the applicant. Using the inclusion/exclusion criteria described in the following table, the applicant identified 3,460,256 claims mapping to 691 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 $88,326, which exceeded the average case-weighted threshold amount of $72,992. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that SeptiCyte® RAPID meets the cost criterion.

We invited public comments on whether SeptiCyte® RAPID meets the cost criterion.

Comment: The applicant submitted a comment reiterating that SeptiCyte® RAPID meets the cost criterion because the inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount.

Response: We thank the applicant for its comment. We agree the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, SeptiCyte® RAPID meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that SeptiCyte® RAPID represents a substantial clinical improvement over existing technologies because SeptiCyte® RAPID is the only technology to accurately differentiate sepsis versus non-infectious systemic inflammation in 1 hour, allowing for early, appropriate intervention in suspected sepsis patients and driving prompt source control investigation, while outperforming currently used sepsis diagnostic tools. The applicant asserted that for these reasons, SeptiCyte® RAPID offers the ability to diagnose sepsis earlier than allowed by currently available diagnostic methods and significantly improves clinical outcomes relative to current technologies. The applicant provided eight studies to support these claims, as well as 12 background articles about sepsis clinical guidelines, screening criteria, and treatment. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for SeptiCyte® RAPID for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26873), after reviewing the information provided by the applicant, we stated that we had the following concerns regarding whether SeptiCyte® RAPID meets the substantial clinical improvement criterion. First, we noted that the applicant submitted two studies of SeptiCyte® LAB, the predicate device, to support its assertions as to why SeptiCyte® RAPID represents a substantial clinical improvement. The applicant did not present any clinical data to compare SeptiCyte® RAPID to SeptiCyte® LAB. Second, the studies provided showed that SeptiCyte® RAPID is not a definitive test and that resulting SeptiScores® in Bands 2 and 3 are inconclusive. We noted that the applicant stated that SeptiCyte® RAPID should be used in conjunction with clinical assessments and other laboratory findings. If additional diagnostic tests are needed in conjunction with SeptiCyte® RAPID to determine a diagnosis of sepsis or SIRS, we questioned whether SeptiCyte® RAPID can provide an earlier diagnosis and affect the management of the patient. In addition, we stated that the applicant did not provide evidence for this claim other than the 1-hour turnaround time for SeptiCyte® RAPID to provide test results. Additionally, we noted that the applicant did not provide any clinical data demonstrating that the SeptiCyte® RAPID affects the management of the patient, or that it improves clinical outcomes.

We invited public comments on whether SeptiCyte® RAPID meets the substantial clinical improvement criterion.

Comment: We received several comments in support of new technology add-on payments for SeptiCyte® RAPID. A few of the commenters stated their belief that SeptiCyte® RAPID has the potential to greatly improve patient care because of its high level of sensitivity, short turnaround time, and advantages over existing sepsis diagnostic tools. A commenter who recently evaluated SeptiCyte® RAPID's impact on sepsis bundle compliancy at their community hospital emergency department stated they had very encouraging findings and believe SeptiCyte® RAPID has the potential for clinical utility in the care of its sepsis patients, as well as the potential for improved antibiotic stewardship and reduced costs. A few commenters also explained that SeptiCyte® RAPID provides clinicians with the probability of sepsis to facilitate real-time decision making in patients with suspected sepsis. One commenter noted that SeptiCyte® RAPID has the potential to impact the morbidity and mortality of critically ill patients. A few commenters stated their support for approval of SeptiCyte® RAPID's new technology add-on payment application because approval for the payments would encourage adoption of the technology by hospitals and health systems who may otherwise delay usage of SeptiCyte® RAPID.

Response: We thank the commenters for their input and have taken it into consideration in our determination of whether SeptiCyte® RAPID meets the substantial clinical improvement criterion, discussed later in this section.

Comment: The applicant submitted a public comment regarding the substantial clinical improvement criterion and provided responses to concerns raised in the proposed rule. With respect to whether studies of SeptiCyte® LAB accurately represent clinical data from SeptiCyte® RAPID, the applicant stated that SeptiCyte® RAPID was compared to SeptiCyte® LAB and the two devices had a high correlation (r² = 0.94), which measured the linear association between the two tests.

With respect to CMS's concern about whether SeptiCyte® RAPID is a definitive test and that SeptiScores® in Bands 2 and 3 are inconclusive, the applicant stated that SeptiCyte® RAPID scores indicate the sepsis likelihood ratios based upon its four bands with high specificity and sensitivity for 80 percent of all patients. The applicant explained that for the remaining 20 percent of patients, whose SeptiScores® fall into Band 3, probability can be derived in conjunction with other lab variables. The applicant further explained that the high sensitivity of Band 1 and the high specificity of the test in Band 4 provides clinicians with rule-in or rule-out information, which is strong patient management information that is unavailable with current technologies.

With respect to whether SeptiCyte® RAPID should be used in conjunction with clinical assessments and other laboratory findings, the applicant stated that with the lack of a “Gold Standard” to effectively define sepsis, currently available diagnostic tools for suspected sepsis are inadequate, with high false positivity rates due to limited specificity (for example, C-reactive protein (CRP)), lengthy turnaround time for actionable results, and low sensitivity (for example, blood cultures). The applicant further stated that when used in conjunction with clinical assessments, vital signs, and laboratory findings, SeptiCyte® RAPID alone, or in combination with typically used biomarkers, is superior to existing technologies in differentiating sepsis from non-infectious systemic inflammation. The applicant also asserted that SeptiCyte® RAPID significantly differentiated between sepsis and non-infectious systematic inflammation in 143 patients where an expert panel of sepsis physicians was unable to retroactively diagnose sepsis or non-infectious systemic inflammation. In addition, the applicant noted that SeptiCyte® RAPID has been independently clinically validated for its role in triage and risk stratification of patients with severe COVID, which according to the applicant is a proxy for sepsis.

With respect to whether SeptiCyte® RAPID can provide an earlier diagnosis and affect the management of the patient, the applicant reasserted that SeptiCyte® RAPID allows for earlier differentiation of sepsis from non-infectious systematic inflammation, thereby impacting the management of patients by allowing for earlier therapeutic intervention as well as antibiotic and diagnostic stewardship. The applicant stated that literature provides well documented evidence that patient management aligned with Surviving Sepsis Campaign guidelines and meeting CMS quality metrics of 1- or 3-hour bundles improves care and clinical outcomes for sepsis patients. The applicant explained that this evidence supports its belief that the 1-hour turnaround time and significant likelihood ratios of SeptiCyte® RAPID for differentiating sepsis versus non-infectious systemic inflammation can impact sepsis bundle compliance and clinical outcomes.

With respect to CMS's concern about the absence of clinical data demonstrating that the SeptiCyte® RAPID affects the management of the patient or that it improves clinical outcomes, the applicant reiterated its belief that by providing early and accurate differentiation between sepsis and non-infectious systemic inflammation, SeptiCyte® can decrease the time to diagnoses and treat sepsis resulting in improved outcomes and reduced mortality. To support this claim, the applicant included eight case studies which they stated demonstrate SeptiCyte® RAPID's impact on the care process, antibiotic stewardship, and diagnostic stewardship. More specifically, the applicant provided a case study to demonstrate SeptiCyte® RAPID's utility in each of the following: (1) monitoring patients post-operatively for secondary hospital acquired sepsis; (2) monitoring severe burn patients to differentiate infection negative systemic inflammation from infection positive systemic inflammation and sepsis; (3) diagnosing sepsis in an immunocompromised patient admitted with neutropenia and a recurrence of cancer who received chemotherapy; (4) confirming the presence of sepsis despite negative blood cultures; (5) evaluating the probability of sepsis in a patient with a change in clinical status and determining whether a de-escalation of antibiotics was appropriate; (6) differentiating infection negative systemic inflammation from infection positive systemic inflammation and sepsis; and (7/8) aiding the diagnosis of secondary sepsis following a central nervous system bleed and surgical procedure.

The first case study provided by the applicant pertains to a 64-year-old female admitted for a right hemi hepatectomy for hepatobiliary carcinoma. After 19 days in the hospital, the patient exhibited clinical deterioration and an altered mental status. The patient was transferred to the intensive care unit (ICU), where the patient underwent blood cultures, SeptiCyte® RAPID, and an abdominal computed (CT) scan. The SeptiScore® was 7.5, within Band 4, indicating a high probability of sepsis. The CT showed a perihepatic abscess, which was drained, and the fluid was cultured. As a result of these tests, the patient started antibiotics. After 24 hours, SeptiCyte® RAPID showed a SeptiScore® of 8.8, within Band 4, and blood cultures showed Escherichia coli and Candida, confirming sepsis. The patient received treatment for 7 days and was transferred from the ICU to the ward with a SeptiScore® of 7.1, within Band 3, indicating an intermediate risk of sepsis. The applicant stated that the patient developed a post-operative infection and an abscess, and SeptiCyte® RAPID was used to confirm sepsis and to monitor the patient for evidence of secondary hospital acquired sepsis.

The second case study included in the applicant's comment pertains to a 40-year-old male admitted to the burn unit with thermal burns covering 30 percent of his total body surface area (TBSA), with 10 percent of his TBSA deeply burned. At admission, SeptiCyte® RAPID was administered showing a SeptiScore® of 4, within Band 1, indicating a low probability of sepsis. During day 3 of admittance, the patient developed increased respiratory distress and another SeptiCyte® RAPID was administered. The SeptiScore® was 12.8, within Band 4, indicating a high probability of sepsis. The patient's sputum sample showed great Haemophilus influenzae and blood cultures were negative. As a result, the patient started antibiotics. On day 10, the patient developed fever, tachycardia, and leukocytosis. As a result, blood, urine, and cutaneous cultures were drawn and SeptiCyte® RAPID was administered. The SeptiScore® was 10.1, within Band 4, indicating a high probability of sepsis. The cutaneous cultures showed Enterococcus faecalis and Pseudomonas aeruginosa. The patient received antibiotics. The applicant stated that severe burn patients frequently develop an inflammatory response due to repeated surgeries, debridement, thrombotic complications, and other treatments. The applicant also stated that this case study demonstrates the use of SeptiCyte® RAPID to monitor the patient following a baseline low SeptiScore® on admission and repeating the SeptiCyte® RAPID test at the time of developing SIRS and possible infection. The applicant explained that the high SeptiScore® in the presence of SIRS supports the early diagnosis of a hospital acquired infection and sepsis.

The applicant stated that the third case study is intended to demonstrate the role of SeptiCyte® RAPID in the diagnosis of sepsis in an immunocompromised patient with neutropenia and recurrence of cancer who was receiving chemotherapy. A 47-year-old patient with a history of cervical cancer considered to be in remission was admitted with a hemorrhagic stroke. An examination revealed recurrence of the cancer with hepatic and cerebral metastatic lesions. As a result, the patient began chemotherapy. On day 7, the patient developed a fever and had an absolute neutrophil count of 200 per microliter. Blood and urine cultures were negative, and the patient was treated with antibiotics for seven days, after which chemotherapy was restarted. On day 30, the patient developed fever, tachycardia, anuria, and hypotension. The patient received blood tests and a clinical assessment that showed a decrease in neutrophils to 0 per microliter, down from 170 two days prior; a c-reactive protein 0 of 166 mg/L; and a blood pressure of 70/40 mmHg. The patient was admitted to the ICU where volume and vasopressors were started, and blood and urine cultures obtained. In addition, the patient's SeptiScore® was 9, within Band 4, representing a high probability of sepsis. These clinical tests also showed growth of Enterococcus faecalis in the urine, and the patient started triple antibiotics and discontinued chemotherapy. The applicant stated that this case demonstrates SeptiCyte® RAPID's diagnostic capability of detecting sepsis much earlier in a patient with severe neutropenia and immunosuppression, confirming sepsis and prompting initiation of antibiotics and cessation of chemotherapeutics.

The applicant explained that the fourth case study represented an example of how SeptiCyte® RAPID is used to confirm the presence of sepsis despite negative blood cultures. A 79-year-old male with diabetes mellitus and chronic obstructive pulmonary disease was admitted for endoscopic devolvulation of a sigmoid volvulus. The patient developed dyspnea and productive cough with decreasing consciousness and increasing work of breathing. The patient was intubated and admitted to the ICU where he was placed on vasopressors and intermittent mandatory ventilation. The patient had a Sequential Organ Failure Assessment (SOFA) score of 9, a white blood cell count of 14,000, a lactate of 1.6 mm/L, a negative urine antigen test, and a chest x-ray that showed diffuse bilateral infiltrates. The patient's SeptiScore® was 7.7, within Band 4, indicating a high probability of sepsis. Blood and urine cultures were also obtained. The patient started triple antibiotics. The applicant stated that the SeptiScore® confirmed a high probability of sepsis resulting in early initiation of appropriate antibiotics and early source investigation and control.

The applicant explained that the fifth case study is an example of how SeptiCyte® RAPID was used to evaluate an in-hospital change in clinical status and de-escalation of antibiotic therapy. A 63-year-old male with a history of diabetes mellitus and non-dialysis chronic renal failure was admitted to the ICU with bilateral SARS–CoV–2 pneumonia and respiratory failure. The patient's 78 day stay in the ICU included mechanical ventilation, tracheostomy, dialysis for acute renal failure, ventilator-associated pneumonia from Enterobacter cloacae, and two episodes of hospital-acquired bacteremia with Enterococcus faecalis and Staphylococcus aureus. Once the patient was transferred to the ward, his tracheostomy was removed, and dialysis was discontinued. Five days later, the patient presented a low-grade fever, shortness of breath, purulent sputum, and tachypnea and was readmitted to the ICU with hypoxic respiratory failure and intubated. At this time, the patient had a blood pressure of 70/50 mmHg, a SOFA score of 8, a white blood cell count of 9.800 with 89 percent neutrophils, and a chest x-ray that showed bilateral infiltrates and pulmonary edema. Blood and sputum cultures were also obtained, and the patient began antibiotics. The patient's SeptiScore® was 3.7, within Band 1, representing a low probability of sepsis. Considering prompt clinical improvement with ventilation and diuresis, no culture growth after 24 hours, and a SeptiScore® of 3.7, antibiotics were discontinued. The applicant explained that this case study shows how SeptiCyte® RAPID confirms low probability of sepsis in the presence of negative cultures and clinical improvement allowed for the appropriate discontinuation of antibiotics, driving antibiotic stewardship and de-escalation of unnecessary therapy.

The applicant described in the sixth case study how SeptiCyte® RAPID was used to differentiate infection negative systemic inflammation from infection positive systemic inflammation or sepsis in a 74-year-old patient with deteriorating mental status, loss of consciousness and tachypnea. The patient had normal initial diagnostic and laboratory studies and blood, sputum, urine cultures were ordered, and results were pending. The patient had SeptiCyte® RAPID which showed a SeptiScore® of 5, Band 1 which is a low risk of sepsis. The care team discontinued antibiotics due to SeptiCyte® RAPID in conjunction with negative cultures after 3 days. Further evaluation showed mass in left upper lobe of the lung with metastases in adrenal gland.

The applicant stated that, in the seventh and eighth case studies, SeptiCyte® RAPID aided in the diagnosis of sepsis after CNS bleed and surgical procedure. There were two patients who were both admitted to the ICU post subarachnoid hemorrhage with complicating secondary hydrocephalus requiring external ventricular drain placement. During the ICU stay, both patients developed fever and delirium, and both received CSF analysis with results that came back after 3 hours that showed high WBC count and protein but was gram stain negative. The patients received SeptiCyte® RAPID SeptiScore®'s of 8.8 and 7, respectively, both elevated with high probability of sepsis with a 1-hour turnaround. The CSF culture grew Klebsiella pneumoniae 24 hours after collection. The applicant stated that SeptiCyte® RAPID's 1-hour turnaround time confirmed the presence of systemic infection in both patients, prompting early appropriate antibiotic therapy pending bacterial confirmation and sensitivity testing.

Response: We thank the applicant and other commenters for their input. After further review, we continue to have concerns as to whether SeptiCyte® RAPID meets the substantial clinical improvement criterion to be approved for new technology add-on payments. Based on the additional information we received, we remain unclear whether SeptiCyte® RAPID offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods or that it changes the management of patients. While the applicant asserted that the technology allows for earlier differentiation of sepsis from SIRS, and thereby impacts the management of patients, it has not demonstrated that Septicyte® RAPID actually leads to changes in the management of patients such as initiating or discontinuing antibiotics. We note that the applicant stated it believes that the 1-hour time to results with SeptiCyte® RAPID can impact sepsis bundle compliance, and cited literature that meeting sepsis guidelines and quality metrics improves outcomes for sepsis patients. However, no evidence was presented to demonstrate that the technology improves compliance with guidelines or improves outcomes; this is only inferred. Although the applicant asserted that SeptiCyte® RAPID was independently clinically validated for its role in triage and risk stratification of patients with severe COVID–19, we could not determine that this is a proxy for sepsis. The applicant included case studies in support of SeptiCyte® RAPID's ability to improve monitoring of patients at risk of sepsis, or as a confirmation test, and a diagnostic aid. We are unable to determine, based on these case studies, that the clinical data demonstrates that SeptiCyte® RAPID itself directly affects management of patients or improves clinical outcomes. For example, we believe that in the clinical scenarios presented, antibiotics would have been started or stopped based on clinical presentation alone in some cases, and with the additional diagnostic tests in other cases. The case studies did not describe when SeptiCyte® RAPID was performed or when results were received in relation to the other tests performed, and also did not describe at what point during the timeline of tests the antibiotics were started/discontinued (that is, before or after the results of the SeptiCyte® RAPID test or other tests were received. Therefore, it did not appear that any change in management was initiated directly as a result of receiving the SeptiCyte® RAPID test results in any of the scenarios, despite the 1-hour turnaround time. Instead, it appears that, in these scenarios, SeptiCyte® RAPID was used to confirm results from standard of care procedures, rather than providing actionable results resulting in a change in patient antibiotic use before blood culture or molecular pathogen detection results. For example, with regards to Case Study #1, it appears that patient clinical deterioration and altered mental status following high risk abdominal surgery prompted standard of care procedures, and that antibiotics were started after an abdominal CT noted a perihepatic abscess, with results confirmed by blood and abscess cultures and SeptiCyte® RAPID results. Further, it is unclear how substantial clinical improvement based on these scenarios can be demonstrated without a comparison to diagnosis and management of these patients using standard of care (SOC) methods alone. While other commenters stated that SeptiCyte® RAPID has the potential to improve health outcomes and patient management, clinical evidence to support those statements was not provided.

After review of the information submitted by the applicant as part of its FY 2024 new technology add-on payment application for SeptiCyte® RAPID and consideration of the comments received, we are unable to determine that SeptiCyte® RAPID meets the substantial clinical improvement criteria for the reasons discussed in the proposed rule and in this final rule, and therefore we are not approving new technology add-on payments for SeptiCyte® RAPID for FY 2024.

h. SPEVIGO® (Spesolimab)

Boehringer Ingelheim Pharmaceuticals, Inc. (BIPI), submitted an application for new technology add-on payments for SPEVIGO® for FY 2024. SPEVIGO® is a humanized antagonistic monoclonal immunoglobulin G1 antibody blocking human IL36R signaling for the treatment of flares in adult patients with generalized pustular psoriasis (GPP). We noted that the applicant submitted an application for new technology add-on payments for SPEVIGO® for FY 2023, under the name spesolimab, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28108 through 28746), but the technology did not meet the deadline of July 1, 2022, for FDA approval or clearance of the technology and, therefore, was not eligible for consideration for new technology add-on payments for FY 2023 (87 FR 48920).

Please refer to the online application posting for SPEVIGO®, available at https://mearis.cms.gov/public/publications/ntap/NTP2210146275W , for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, the BLA for SPEVIGO® was approved by FDA on September 1, 2022, for the treatment of GPP flares in adults. According to the applicant, SPEVIGO® is administered as a single 900 mg (2 × 450 mg/7.5 mL vials) intravenous infusion over 90 minutes, and an additional intravenous 900 mg dose may be administered 1 week after the initial dose if flare symptoms persist. The applicant indicated that, while there may be cases where a second dose is needed, there is insufficient frequency to impact the reported weighted average of one dose per patient.

The applicant stated that effective October 1, 2022, the following ICD–10–PCS code may be used to uniquely describe procedures involving the use of SPEVIGO®: XW03308 (Introduction of spesolimab monoclonal antibody into peripheral vein, percutaneous approach, new technology group 8). The applicant stated that L40.1 (Generalized pustular psoriasis) may be used to currently identify the indication for SPEVIGO® 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 purposes of new technology add-on payments.

With respect to the substantial similarity criteria, the applicant asserted that SPEVIGO® is not substantially similar to other currently available technologies because, in the absence of an FDA-approved therapy specifically indicated for GPP, immunomodulatory therapies, including biologic products, are used in the treatment of GPP despite these medications being approved for plaque psoriasis, which is a different subtype of psoriasis. Additionally, there is limited evidence on the efficacy and safety of these therapies in the treatment of GPP. Due to the rarity of the disease, there are no high-quality clinical trials providing evidence for treatment options in GPP. Therefore, the applicant asserts that 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 SPEVIGO® for the applicant's complete statements in support of its assertion that SPEVIGO® is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26882), we stated the following concerns with regard to the newness criterion, similar to concerns raised in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28280). First, we noted that, when describing current treatments for the disease, the applicant stated that there are no FDA-approved therapies specifically indicated for GPP. However, we questioned whether there are any treatments that may be indicated for psoriasis generally that may therefore be considered an on-label use for subtypes of psoriasis such as GPP, and requested additional information on any such treatments and how they compare to SPEVIGO® with regard to substantial similarity. We also noted that while the applicant stated that SPEVIGO® has no DRG to which it maps, the applicant also provided a list of four MS–DRGs that cases eligible for the use of the technology would map to, and we believed these are the same MS–DRGs to which other treatments for GPP would map.

We invited public comments on whether SPEVIGO® is substantially similar to existing technologies and whether SPEVIGO® meets the newness criterion.

Comment: The applicant submitted a comment to address CMS's concerns regarding the newness criterion. With respect to the request for additional information on currently available treatments and how they compare to SPEVIGO®, the applicant stated that SPEVIGO® is the only FDA approved therapy for the treatment of GPP flares in adults. The applicant noted that prior to SPEVIGO®, there was no consensus standard of care for GPP flares. Per the applicant, due to historical lack of robust clinical trial evidence or previously approved therapies for GPP flares, systemic agents were experimented with clinically in patients with GPP flares, based mainly on clinical experience in patients with plaque psoriasis (PSO). The applicant stated that even with treatment with these agents, many patients still had residual symptoms. Patients with GPP report a poorer quality of life compared with those with PSO, with greater severity of itch, pain, and fatigue, and a greater impact on work and daily activities. Per the applicant, treatments approved for PSO, including oral systemic therapies and biologic products, may have a slow time to response in patients with GPP flares. Regarding currently available treatments indicated for PSO and their on-label use for GPP, the applicant stated that aside from SPEVIGO®, there are no FDA-approved therapies indicated for the treatment of GPP flares in adults. The applicant noted that GPP flares have acute systemic presentation, with unpredictable and rapid periods of worsening disease and complications resulting from systemic inflammation and neutrophilic influx, often requiring hospitalization; PSO, on the other hand, is a chronic disease affecting mainly the skin, and is typically managed in an outpatient setting. The applicant noted that although historically considered a variant of PSO, GPP is a phenotypically, genetically, and histopathologically distinct entity from PSO. According to the applicant, GPP is characterized clinically by widespread eruption of neutrophilic, non-infectious pustules, while PSO is characterized by localized discrete plaques with excess scale resulting from abnormal differentiation of keratinocytes. The applicant stated that the pathways driving GPP and PSO are distinct. This is relevant to specifically targeting GPP. Specifically, GPP results from dysregulation of the innate immune system involving disruption of the interleukin IL–36 signaling pathway leading to uncontrolled systemic inflammation and a large influx of neutrophils. On the other hand, PSO is driven by the adaptive immune system, with dysregulation of the IL–17/IL–23 pathway being a key characteristic, leading to an inflammatory impact that is mainly observed on the skin. The applicant maintained that because of its extreme systemic impact, GPP has a considerable clinical burden, and symptoms related to GPP have been reported to affect everyday tasks such as walking and sleeping. Patients with GPP report a poorer quality of life compared with patients with PSO with greater severity of itch, pain, and fatigue, and a greater impact on work and daily activities). Per the applicant, without a consensus standard of care for GPP flares (prior to SPEVIGO), various off-label PSO treatments have been used in an attempt to control flare symptoms. Due to the historical lack of robust clinical trial evidence and no previously approved therapies for GPP flares, systemic agents have been experimented with clinically in patients with GPP flares, based mainly on clinical experience in patients with PSO. According to the applicant, an important result of this is that, even with treatment with these agents, many patients still have residual symptoms. Treatments approved for PSO, including oral systemic therapies and biologic products, may have a slow time to response in patients with GPP flares. The applicant stated that in a recently published consensus, a panel of international dermatology experts agreed that rapid response was critical to alleviate systemic and potentially life-threatening symptoms of GPP flares. In addition, there are well-documented safety concerns with long-term use of some of these systemic agents, making them inappropriate for continuous use. To name a few examples, retinoids are associated with teratogenic effects, liver toxicity, and skeletal abnormalities; cyclosporine has been associated with systemic hypertension and nephrotoxicity; and respiratory complications, myelosuppression, and hepatic impairment have reported with methotrexate. The applicant noted that with respect to biologic products used for treating PSO, many are specifically indicated for and tested in randomized, controlled trials of patients with PSO; however, there have been no results from randomized, placebo-controlled trials of any agent other than SPEVIGO® in patients with GPP flares; therefore, comparisons (even cross-trial) cannot be made, nor can assumptions that PSO agents would benefit patients with GPP flares. Per the applicant, some of these agents approved for the treatment of PSO have been studied in patients with GPP in Japan; however, none of the studies were randomized, controlled trials, most of the patient populations were mixed and included a small number of patients with GPP, and all of the trials used endpoints that were not specific to GPP. The applicant also stated that no study, aside from those of SPEVIGO®, has specifically reported the outcome of pustular clearance, and there are limited data on systemic improvements with these agents. With regard to whether SPEVIGO® may be mapped to the same MS–DRGs as other current treatments for GPP, the applicant maintained that since SPEVIGO® is the only FDA approved treatment for GPP flares, it would be the only therapy to be mapped for patients with GPP flares. The applicant also argued that once approved, other off-label therapies would not be expected to be used for treating GPP flares.

Response: We thank the applicant for its comment regarding the newness criterion. Based on our review of comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for SPEVIGO®, we agree with the applicant that SPEVIGO® has a new mechanism of action because it is a humanized anti-interleukin-36 (IL–36) receptor monoclonal antibody that targets the IL–36 pathogenetic pathway in the treatment of GPP. Therefore, we agree with the applicant that SPEVIGO® is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on September 1, 2022, when SPEVIGO® was FDA approved for the treatment of GPP flares in adults.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for SPEVIGO®, the applicant searched the FY 2021 MedPAR file for cases reporting ICD–10–CM diagnosis code L40.1 (Generalized pustular psoriasis). Using the inclusion/exclusion criteria described in the following table, the applicant identified 64 cases mapping to 4 MS–DRGs listed in the table in this section. 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 $387,414, which exceeded the average case-weighted threshold amount of $46,244. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that SPEVIGO® meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26825), we noted the applicant stated that removing charges for prior technology was not applicable to SPEVIGO®; however, to the extent patients were treated with other treatments before SPEVIGO®, we questioned whether it may be appropriate to remove some portion of these charges to avoid inappropriately inflating the average charge per case. We invited public comments on whether it may be appropriate to remove charges for the prior technology and whether SPEVIGO® meets the cost criterion.

Comment: The applicant submitted a comment in response to our concerns pertaining to cost criterion. With respect to the appropriateness of not removing charges for prior technologies SPEVIGO®, the applicant responded that because there are no approved therapies specifically indicated for the treatment of GPP flares, and due to the severe condition of patients with GPP flares, off-label treatments may be experimented with, including those indicated for PSO. As a result, patients receiving SPEVIGO® may have altered utilization of the first- or second-line off-label therapies historically used to treat GPP flares. The applicant maintained that SPEVIGO® will replace the off-label PSO treatments as the primary standard of care based on the substantial clinical improvement demonstrated by SPEVIGO® in a robust clinical trial. The applicant stated that while removal of charges can be difficult with no consensus off-label standard of care previously, they provided an updated cost analysis in which they have removed all drug cost center charges (one of the 19 cost centers defined by CMS as part of the relative weight calculation process) to avoid any concern of costs from prior off-label therapies. According to the applicant's updated cost analysis, the final inflated case-weighted average standardized charge per case of $361,189 exceeded the case-weighted threshold of $46,244, and the applicant therefore maintained that SPEVIGO® meets the cost criterion.

Response: We thank the applicant for the updated cost analysis. Based on the additional information received, we agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, SPEVIGO® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that SPEVIGO® represents a substantial clinical improvement over existing technologies by being the first FDA approved drug for GPP, and existing treatments were associated with slow resolution of GPP flares and complete clearance of pustules and skin was not always achieved. The applicant further stated that in clinical trials, SPEVIGO® was associated with clinically significant improvements in patient-reported psoriasis symptoms, including fatigue, and significant decreases in markers of systemic inflammation. The applicant provided one study to support these claims. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for SPEVIGO® for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26886), after review of the information provided by the applicant, we stated that we had the following concerns regarding whether SPEVIGO® meets the substantial clinical improvement criterion. With regard to the Effisayil-1 study, we noted that it is not designed to compare SPEVIGO® to current treatment options. While the applicant stated that SPEVIGO® will be the first GPP treatment targeting the IL–36 pathway, we noted that per the applicant, other treatments are available, and we therefore questioned whether placebo was the most appropriate comparator. In particular, we noted that the Effisayil-1 trial primarily assessed clearance of skin manifestations, not systemic symptoms which the applicant noted differentiates GPP from other forms of psoriasis. We noted the applicant has stated in its application that existing treatments for GPP are not specifically indicated for GPP and that it would not be appropriate to consider these treatments on-label for GPP. However, we noted that there are treatments that are indicated for psoriasis generally, such as methotrexate or retinoids, which may be considered an on-label use for subtypes of psoriasis such as GPP. Therefore, it was unclear whether there is a patient population ineligible for or unresponsive to existing technologies that could be treated with SPEVIGO®. In addition, although the applicant stated that SPEVIGO® represents a substantial clinical improvement over existing technologies where complete clearances were not always achieved, it seemed that complete clearance is also not always achieved with SPEVIGO®. As demonstrated in the Effisayil-1 study cited by the applicant, 54.3 percent of the patients achieved complete pustular clearance in the SPEVIGO® arm.

We noted that GPP occurs most frequently between the ages of 15–20 years with a smaller peak occurring at 55–60 years. The mean age in the Effisayil-1 study was 43.2 years for the SPEVIGO® arm and 42.6 years for the placebo group. Given the age range of patients, we questioned the generalizability of the outcomes demonstrated in a study of otherwise generally healthy patients with GPP to patients with GPP in the Medicare population who would likely be eligible for Medicare based on disabilities that could potentially present comorbidities for which SPEVIGO® would not be appropriate or effective. In addition, the study administered SPEVIGO® to the placebo group after one week, after which only outcomes with SPEVIGO® were assessed, and the study concluded at 12 weeks. Given that the applicant did not provide any comparative data on existing technologies to demonstrate improved outcomes with SPEVIGO®, in addition to the short duration of the single study provided and the often variable, remitting, and intermittent course of the disease in which most flares last between 2 and 5 weeks, we questioned whether the information we had supports a finding of substantial clinical improvement. We stated that additional information to support the applicant's assertion of superiority over existing technologies would be helpful in better informing our assessment of this criterion.

We invited public comments on whether SPEVIGO® meets the substantial clinical improvement criterion.

Comment: The applicant submitted a comment in response to CMS's concerns pertaining to the substantial clinical improvement criterion. With respect to the appropriateness of comparing SPEVIGO® to placebo instead of other current treatment options and of the sparsity of systemic end points, the applicant maintained that because there has been no established standard of care for GPP flares prior to the approval of SPEVIGO®, numerous biologic and oral systemic agents indicated for PSO have been used anecdotally in clinical practice in attempts to treat GPP flares. The applicant stated that no other treatment approved for PSO has been tested in a randomized controlled trial in GPP flares, and evidence for these treatments come from small, single-arm, uncontrolled studies of mixed patient populations that did not evaluate clinically robust endpoints specific to GPP. The applicant further noted that because these treatments have variable efficacy and safety profiles, it becomes challenging to propose one of them as an active comparator for a trial in GPP flares. According to the applicant, due to the lack of FDA-approved treatments as well as consensus on standard of care for GPP flares, placebo can be considered an appropriate comparator. Per the applicant, FDA also considered placebo to be appropriate and requested the inclusion of the placebo arm for a robust and well controlled study. Regarding the selection of endpoints, the applicant mentioned that while the primary endpoint of the Effisayil-1 trial was complete pustular clearance, the trial also examined the impact of SPEVIGO® on additional endpoints, including measures of systemic inflammation like C-reactive protein (CRP) levels and neutrophil count over time. Per the applicant, both the CRP levels and neutrophil count over time were shown, in conjunction with skin clearance, to improve to normal levels in the trial and were maintained throughout the course of the trial. With regard to whether there is a patient population ineligible for or responsive to existing technologies that could be treated with SPEVIGO®, the applicant noted that there are distinct differences in the dysregulation of IL pathways between GPP and PSO. As the only GPP-indicated therapy, SPEVIGO® offers patients an effective therapy targeting the GPP-specific IL–36 pathway. According to the applicant, it has been well-documented that GPP and psoriasis vulgaris (PV, also called plaque psoriasis) are separate clinical conditions, requiring specific treatment approaches. The applicant cited a recent longitudinal case series of patients with GPP as an example of the limited efficacy of the nontargeted immunomodulatory therapies (for example, methotrexate, retinoids) to treat GPP flares. Per the applicant, the result of these studies showed that despite the use of methotrexate and retinoids, which were among the most frequently used agents for treating GPP flares, the rates of emergency department visits and hospitalizations among GPP patients during the follow-up period remained at approximately 40 percent. Per the applicant, this suggested that these systemic agents are inadequate for controlling GPP flares. With regard to the result of the Effisayil-1 study that 54.3 percent of the patients achieved complete pustular clearance in the SPEVIGO® arm, the applicant cited recent guidance, based on global expert consensus, that the goals of treatment of GPP flares are to achieve rapid and sustained clearance of pustules, inflammatory erythema, scaling, crust, and skin lesions; and to rapidly alleviate systemic symptoms and reduce pain while maintaining a favorable safety profile. According to the applicant, the primary endpoint was a Generalized Pustular Psoriasis Physician Global Assessment (GPPGA) pustulation subscore of zero at week 1, a highly stringent endpoint, according to many international dermatology experts. According to the applicant, 54.3 percent of the patients from the Effisayil-1 study achieved the GPPGA pustulation subscore of zero (complete pustular clearance) in the SPEVIGO® arm after one dose. Moreover, in patients who received up to 2 doses of SPEVIGO®, 66 percent achieved a GPPGA pustulation subscore of zero at week 2. The applicant added that of the patients randomized to placebo and who received a dose of SPEVIGO® at week 1, 73 percent had a GPPGA pustulation score of zero at week 2 (one week after receiving their first dose of SPEVIGO®) and 60 percent of patients maintained a GPPGA pustulation subscore of 0 out to week 12. The applicant asserted that, based upon the data from Effisayil-1, SPEVIGO® treatment of GPP flares was associated with rapid pustular clearance within 1 week with clinically significant and prolonged normalizations in inflammatory markers, like CRP and neutrophil count in a robust, randomized clinical trial. The applicant maintained that these results were consistent with some of the treatment goals set forth by international dermatology experts and demonstrated substantial clinical improvement in this extremely burdensome and potentially life-threatening disease for which no standard of care previously existed. With regard to the generalizability of Effisayil-1 study results to the Medicare population, the applicant stated that the median onset of GPP is between 40 to 60 years of age, and while it is true that the average patient age was younger than the Medicare population in the Effisayil-1 study, most patients with GPP are not considered by dermatology experts to be generally healthy, particularly during a flare. The applicant stated that patients with GPP often have multiple comorbidities, including hyperlipidemia, type 2 diabetes, chronic obstructive pulmonary disease (COPD), chronic kidney disease, and obesity²⁸, making these patients not so dissimilar to the Medicare population. The applicant also noted that patients with these comorbidities were not excluded from the Effisayil-1 trial. According to the applicant, based on their internal data, 30 percent of treated patients since launch were Medicare beneficiaries. The applicant also stated that Medicare beneficiaries, including those with disabilities or comorbidities, are not excluded per the FDA label. With regard to the adequacy of the study length, the applicant argued that despite the short duration of the placebo-controlled portion of the Effisayil-1 trial, it was compelling that 54 percent of patients in the SPEVIGO® arm experienced complete pustule resolution at week 1, and 60 percent of these patients maintained pustule resolution out to 12 weeks, given the disease burden of GPP and its negative impact on daily activities. Per the applicant, these results demonstrated a stark clinical improvement, compared to the residual symptoms that many GPP patients experienced on the current off-label treatments. The applicant also noted that both the placebo and SPEVIGO® arms were eligible to receive a single, open-label, dose of SPEVIGO® at week 1 if a patient had prolonged symptoms, since it would be unethical to prevent GPP patients from receiving treatment after prolonged GPP flare symptoms.

Response: We thank the applicant for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree that SPEVIGO® represents a substantial clinical improvement because the technology offers a treatment option for generalized pustular psoriasis (GPP) flares in adults, for which it is the first FDA approved treatment.

After consideration of the public comments, we have determined that SPEVIGO® meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2024. Cases involving the use of SPEVIGO® that are eligible for new technology add-on payments will be identified by ICD–10–PCS code XW03308 (Introduction of spesolimab monoclonal antibody into peripheral vein, percutaneous approach, new technology group 8).

In its application, the applicant estimated that the average inpatient cost of SPEVIGO® is $51,133 for one 900 mg dose, comprised of two 450 mg/7.5 mL (60 mg/mL) vials. Therefore, the average cost per patient for SPEVIGO® is $51,133. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of SPEVIGO® is $33,236.45 for FY 2024.

i. TECVAYLI^TM (Teclistamab-cqyv)

Johnson Johnson Health Care Systems, Inc. submitted an application for new technology add-on payments for TECVAYLI^TM for FY 2024. According to the applicant, TECVAYLI^TM is the only bispecific antibody approved for the treatment of multiple myeloma (MM), specifically adult patients with relapsed or refractory multiple myeloma (RRMM) who have received at least four prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-cluster of differentiation (CD)38 monoclonal antibody. The applicant stated that the structure of TECVAYLI^TM is advantageous versus other bispecific platforms since its full size is designed to mimic naturally-occurring immunoglobulin G (IgG) antibodies. We note that Johnson Johnson Health Care Systems, Inc. submitted an application for new technology add-on payments for TECVAYLI^TM for FY 2023 under the name teclistamab, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28283 through 28287) and withdrew it prior to the issuance of the FY 2023 IPPS/LTCH PPS final rule (87 FR 48920).

Please refer to the online application posting for TECVAYLI^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP221017MFYGL , for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, TECVAYLI^TM was granted BLA approval from FDA on October 25, 2022, for the treatment of adult patients with RRMM who have received at least four prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. According to the applicant, the product became commercially available on November 9, 2022. Commercial availability was delayed because of the need to complete final supply chain readiness activities. Per the applicant, patients in the hospital for their initial TECVAYLI^TM treatment will receive three doses subcutaneously—a 0.06 mg/kg loading dose, a 0.30 mg/kg loading dose, and the first 1.5 mg/kg treatment dose—during the hospital stay. The applicant stated that patients who are under 102 kgs will use two 30 mg and one 153 mg vials during their hospitalization. Patients over 102 kg will use three 30 mg and two 153 mg vials during their hospitalization. According to real world evidence and clinical studies, 89 percent of TECVAYLI^TM patients will be less than 102 kg. Due to the risk of CRS and neurologic toxicity, patients should be hospitalized for 48 hours after administration of all doses within the step-up dosing schedule. Therefore, according to the applicant, all three doses will be administered in a single inpatient hospitalization.

The applicant stated that effective October 1, 2022, the following ICD–10–PCS code may be used to uniquely describe procedures involving the use of TECVAYLI^TM: XW01348 (Introduction of teclistamab antineoplastic into subcutaneous tissue, percutaneous approach, new technology group 8).

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 TECVAYLI^TM is not substantially similar to other currently available technologies because it has a distinct mechanism of action, with a novel approach to engage a patient's own T-cells to generate a myeloma-specific immune response and is the first therapy of its type for the treatment of RRMM, and therefore meets the newness criterion. The following table summarizes the applicant's assertions regarding the substantial similarity criteria. Please see the online application posting for TECVAYLI^TM for the applicant's complete statements in support of its assertion that TECVAYLI^TM is not substantially similar to other currently available technologies.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26887), we noted that TECVAYLI^TM may have a similar mechanism of action to that of elranatamab, for which we received an application for new technology add-on payments for FY 2024 for the treatment of adult patients with relapsed or refractory multiple myeloma after three or more prior therapies, including an immunomodulatory agent, a proteasome inhibitor, and an anti-CD38 monoclonal antibody. Per the application for elranatamab, elranatamab is substantially similar to TECVAYLI^TM . Elranatamab's mechanism of action is described as a bispecific antibody, meaning it has two parts, one that recognizes the cancer cell and one that recognizes and engages the T-cell, and brings them together to facilitate T-cell killing of the MM cell. For elranatamab, the two targets are barcoded medication administration (BCMA) (which has high specific expression on normal plasma cells and on MM cells) and CD3 (which is expressed on T-cells). Elranatamab binds to the CD3 on the T-cells and binds to the BCMA on the MM cells thereby bringing the cells in close proximity. The engagement of the CD3 on the T-cell activates the T-cell, leading to the T-cells releasing cytokines that result in the killing of the close-proximity MM cell. Because of the apparent similarity with the bispecific antibody that uses binding domains that simultaneously bind the BCMA target on tumor cells and the CD3 T cell receptor, we believed that the mechanism of action for TECVAYLI^TM may be the same or similar to that of elranatamab.

We believed that TECVAYLI^TM and elranatamab may also treat the same or similar disease (RRMM) in the same or similar patient population (patients who have previously received a proteasome inhibitor (PI), an immunomodulatory agent (IMiD), and an anti-CD38 antibody). Accordingly, as it appears that TECVAYLI^TM and elranatamab are purposed to achieve the same therapeutic outcome using the same or similar mechanism of action and would be assigned to the same MS–DRG, we believed 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 if elranatamab receives FDA approval by July 1, 2023. We stated that we were 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 TECVAYLI^TM and elranatamab are substantially similar to each other and therefore should be considered as a single application for purposes of new technology add-on payments.

We invited public comment on whether TECVAYLI^TM meets the newness criterion, including whether TECVAYLI^TM is substantially similar to elranatamab and whether these technologies should be evaluated as a single technology for purposes of new technology add-on payments.

Comment: The applicant submitted a comment regarding the newness criterion, reiterating that TECVAYLI® meets the overall requirements of the newness criterion as it does not meet all three criteria required to be deemed substantially similar to existing technology. With regard to whether TECVAYLI^TM and elranatamab are substantially similar and should be treated as a single technology for the purposes of new technology add-on payments, the applicant stated that while elranatamab and TECVAYLI^TM are both bispecific antibodies, the antibody for each product is meaningfully different, and therefore the mechanism of action for these two products should be considered distinct. The applicant explained that TECVAYLI^TM is a humanized IgG4 antibody, whereas elranatamab is a humanized IgG2a antibody, and IgG4 antibodies have a high affinity for Fc gamma receptor subtype I (FcγRI) but weak affinities for all other Fc gamma receptor subtypes and are poor inducers of Fc-mediated effector functions, while IgG2 antibodies have a high affinity for the H131 form of Fc gamma receptor subtype IIA (FcγRIIA) but no measurable or weak affinity for FcγRI and all other Fc gamma receptors. The applicant agreed that both TECVAYLI^TM and elranatamab are bispecific T-cell engaging antibodies that exert their efficacy primarily by re-directing the patient's own T-cells to BCMA-expressing multiple myeloma cells, but stated they are distinctly and importantly different in regards to the whether the binding of the bispecific antibodies to Fc gamma receptors may activate immune effector cells that may lead to a pro-inflammatory state and contribute to cytokine release syndrome and other toxicities. The applicant asserted that the biological difference between TECVAYLI^TM and elranatamab may result in meaningful clinical differences, and that therefore, CMS should consider these technologies separately for new technology add-on payments. The applicant added that elranatamab is not yet FDA-approved and therefore should not be considered as an existing technology for inclusion in meeting the substantial similarity criteria.

Another commenter, the manufacturer for elranatamab, stated that it believed that TECVAYLI^TM and elranatamab are substantially similar and should be considered under a single application on the basis of (1) the mechanism of action (BCMA-directed bispecific antibody), (2) the patient population and disease intended to be treated (RRMM in patients who have received four or more prior lines of therapy including a proteasome inhibitor (PI), immunomodulatory drug (IMiD), and anti-CD38 monoclonal antibody), and (3) MS–DRG assignment.

Response: We thank the applicant and other commenter for their comments regarding newness. As discussed previously, elranatamab has not been FDA approved as of the July 1 deadline and is therefore no longer eligible for consideration for new technology add-on payments for FY 2024, and we further note that the technology has not yet been FDA approved as of the time of the development of this final rule. Therefore, we agree with the applicant that elranatamab is not considered an existing technology for the purposes of the substantial similarity determination at this time.

Based on our review of comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for TECVAYLI^TM, we agree with the applicant that TECVAYLI^TM has a unique mechanism of action as a bispecific antibody containing 2 distinct binding domains that simultaneously bind the BCMA target on myeloma cells and the CD3 T-cell receptor to treat RRMM. Therefore, we believe that TECVAYLI^TM is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on the date the product became commercially available, on November 9, 2022.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for TECVAYLI^TM, the applicant searched the FY 2021 MedPAR file for cases reporting one of the following ICD–10–CM codes in one of the first five diagnosis code positions: C90.00 (Multiple myeloma not having achieved remission), C90.01 (Multiple myeloma in remission), or C90.02 (Multiple myeloma in relapse). The applicant provided calculations for 2 cohorts. Based on the clinical advice of experts, for the first cohort, the applicant limited the analysis to cases assigned to MS–DRGs 846 (Chemotherapy Without Acute Leukemia as Secondary Diagnosis with MCC), 847 (Chemotherapy Without Acute Leukemia as Secondary Diagnosis with CC) and 848 (Chemotherapy Without Acute Leukemia as Secondary Diagnosis without CC/MCC), because the experts believed that TECVAYLI^TM would mostly likely be administered in cases assigned to these MS–DRGs. This analysis was completed prior to the drug being available. Based on additional information gathered since TECVAYLI^TM was FDA approved, the applicant included in the second cohort the following MS–DRGs in addition to the MS–DRGs included in the first cohort: 840 (Lymphoma and Non-Acute Leukemia with MCC), 841 (Lymphoma and Non-Acute Leukemia with CC), and 842 (Lymphoma and Non-Acute Leukemia without CC/MCC). For both cohorts, no cases were identified for MS–DRG 848 (Chemotherapy Without Acute Leukemia as Secondary Diagnosis without CC/MCC). Using the inclusion/exclusion criteria described in the following table, the applicant identified 600 claims for cohort 1 and 4,335 claims for cohort 2. 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 $119,279 for cohort 1 and $145,374 for cohort 2, both of which exceeded the average case-weighted threshold amount of $58,291 and $73,551, respectively. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both scenarios, the applicant asserted that TECVAYLI^TM meets the cost criterion.

We invited public comments on whether TECVAYLI^TM meets the cost criterion.

Comment: The applicant submitted a comment describing the analyses provided in the proposed rule and reiterating that, because the average charge per case for cases eligible for TECVAYLI® exceeded the threshold in both analyses, TECVAYLI® meets the cost criterion.

Response: We thank the applicant for its comment. We agree that the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, TECVAYLI^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that TECVAYLI^TM represents a substantial clinical improvement over existing technologies because its indication is less restrictive than some other treatments, making it available to patients who do not qualify for the other drugs that treat RRMM. In addition, the applicant stated that TECVAYLI^TM may be more immediately accessible than the BCMA CAR T-cell therapies due to restrictions in site of care, manufacturing complexities, and other concerns with respect to the BCMA CAR T-cell therapies. Finally, the applicant stated that TECVAYLI^TM improves clinical outcomes and results in less serious side effects than other off the shelf RRMM therapies. The applicant provided one study to support these claims, as well as 11 background articles about other available treatments for RRMM. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for TECVAYLI^TM for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26890 through 26891), after review of the information provided by the applicant, we had the following concerns regarding whether TECVALI^TM meets the substantial clinical improvement criterion. The applicant claimed that other therapies have indications and side effects that restrict the treatment population and TECVAYLI^TM is available to some of these restricted patient populations. Regarding this claim, the applicant discussed restrictions for two other treatment options for RRMM in its application, XPOVIO® (selinexor) and BLENREP (belantamab mafodotin-blmf). However, there are two other therapies for RRMM, ciltacabtagene autoleucel and idecabtagene vicleucel, that the applicant did not discuss that have a similar indication to TECVAYLI^TM and appear to target a similar population. Therefore, we questioned the basis for the applicant's assertion that TECVAYLI^TM will fill a gap for patients unresponsive to or ineligible for current treatments.

With regard to the claim that TECVAYLI^TM may be a preferred treatment for patients unable to access CAR T-cell therapy, the applicant provided data on the number of patients who received CAR T-cell therapy from studies for CD19 CAR T-cell therapies used for B-cell lymphomas. For example, the applicant provided data from a survey of CAR T-cell treatment centers across the U.S. indicating only 25 percent of potential patients were reported to receive CD19 CAR T-cell

therapy, with a median wait time of 6 months. The applicant noted that the data was for CAR T-cell therapy used to treat B-cell lymphoma, because these treatments were approved prior to approvals for CAR T-cell therapies for MM, so there is more accumulated evidence for the former. However, given that B-cell lymphoma is a different disease than MM and the T-cell therapies used to treat these two diseases are different, we questioned whether the evidence related to B-cell lymphoma is applicable to T-cell therapies used to treat MM.

The applicant claimed that CRS is less serious and less frequent for patients treated with TECVAYLI^TM than with BCMA CAR T-cell therapies. Notably, the applicant compared data from separate, single-arm, open-label studies of these technologies. In review, CRS occurrence rates were 72.1 percent, 95 percent and 84 percent for TECVAYLI^TM, ciltacabtagene autoleucel, and idecabtagene vicleucel, respectively. In addition, only 0.6 percent of the CRS events for TECVAYLI^TM were of grade 3 or higher, compared to 4 percent for ciltacabtagene autoleucel and 5 percent for idecabtagene vicleucel. This improved safety claim, however, focused on only a single metric in the studies' overall assessment of the safety and efficacy of these three drugs. The overall response rates reported in the studies were 63 percent, 97 percent and 73 percent for TECVAYLI^TM, ciltacabtagene autoleucel, and idecabtagene vicleucel respectively. When comparing across studies, other metrics of efficacy noted in these studies also appeared to support a superiority of the CAR T-cell therapies compared to TECVAYLI^TM in the treatment of patients with RRMM. However, we also noted these comparisons are not matched cases within a comparative study. Therefore, we questioned the conclusions drawn by the applicant regarding the relative efficacy and safety profiles across these studies.

The applicant claimed that TECVAYLI^TM improves clinical outcomes relative to other off-the-shelf therapies. The applicant stated the overall response rate (ORR) for XPOVIO® and BLENREP were 25 percent and 31 percent, while the ORR for TECVAYLI^TM was 63 percent. However, this claim did not consider the higher ORR for CAR T-cell therapies compared to TECVAYLI^TM when comparing across studies, as previously mentioned. While this claim compared TECVAYLI^TM only to other off-the-shelf therapies, which would not include CAR T-cell therapies, we questioned whether there is significant clinical improvement compared to existing therapies, which include CAR T-cell therapies.

We invited public comments on whether TECVAYLI^TM meets the substantial clinical improvement criterion.

Comment: We received a public comment stating that BCMA-directed bispecific antibody therapies indicated for the treatment of RRMM represent a substantial clinical improvement over existing treatment options. Specifically, the commenter stated while XPOVIO® may be an option for late-line patients with RRMM who are ineligible for or unable to access CAR T-cell therapies, they are unlikely to be treated with XPOVIO® due to the unfavorable benefit/risk ratio. Additionally, the commenter pointed out that BLENREP is no longer available on the U.S. market and is therefore not a treatment option for these patients. Furthermore, the commenter stated many patients do not have access to CAR T-cell therapies because of general access issues or because the disease is progressing quickly, and they are unable to wait for CAR T-cell therapy. Thus, the commenter continued that for nearly all RRMM patients, the choice will not be CAR T-cell therapy or a BCMA-directed bispecific antibody, it will be a BCMA-directed bispecific antibody therapy or potentially nothing.

Response: We thank the commenter for its input and have taken it into consideration in our determination of whether TECVAYLI® meets the substantial clinical improvement criterion, discussed later in this section.

Comment: The applicant submitted a comment reiterating that TECVAYLI® meets the substantial clinical improvement criterion because the technology demonstrates improved clinical outcomes for patients with RRMM and plays an important role in addressing an unmet need for patients, including Medicare beneficiaries, who are otherwise ineligible for, or unable to access, other treatments for RRMM. The applicant also responded to the concerns raised by CMS in the proposed rule. With respect to whether CAR T-cell therapies are also options for patients ineligible for XPOVIO® and BLENREP, the applicant claimed certain beneficiaries are ineligible to receive CAR T-cell therapies based on their clinical profile. Specifically, the applicant stated beneficiaries that are not clinically fit, including those with poor performance status and inadequate organ function, are not always appropriate candidates for CAR T-cell therapy and its related safety profile. Based on CAR T-cell therapy clinical trials and their labeling, the applicant noted that some of the medically significant factors that might limit a patient's ability to receive a BCMA CAR T-cell therapy include any cardiac conditions (that is, upper limit of normal and left ventricular ejection fraction 45%), pre-existing cytopenias prior to the start of therapy (that is, absolute neutrophil count 1000 cells/mm3 and platelet count 50,000/mm3), or impaired renal function (that is, creatinine clearance 40–45 mL/min).

With respect to whether CAR T-cell therapy availability data was in reference to B-cell lymphoma, the applicant stated that, in contrast with TECVAYLI^TM, even with very strong CAR T-cell therapy patient support programs, the requirements on the patient and their family can be both financially and logistically challenging. For example, the applicant stated patients are required to have a personal caregiver present for several weeks following dosing, and such caregiver requirements may not be possible for some beneficiaries. The applicant added, unlike TECVAYLI^TM, CAR T-cell therapies require a specialized healthcare setting certification necessary for the collection and handling of patient cells prior to and after the engineering of the product. The applicant stated while steadily increasing, only a limited number of institutions in the U.S. have the necessary requirements to obtain this certification, and it will take time for additional centers to ramp up, therefore limiting the availability of CAR T-cell therapies to those patients who can access the certified centers. The applicant noted this growth has increased demand for certified CAR T-cell therapy centers and has further compounded the access issues, with the certified CAR T-cell therapy centers experiencing limited availability and waitlists. Since the approvals of the CAR T-cell technologies in the MM space, the applicant stated studies have highlighted the lack of accessibility of CAR T-cell products to MM patients. The applicant specified one study published this year showed that out of 20 centers with MM CAR T-cell therapies that were surveyed, 17 have a median allotment of one patient slot per month (per center), and the median number of patients per center on the waitlist since the FDA's approval of idecabtagene vicleucel (ABECMA®) is 20 (range, 5 to 100). Furthermore, the applicant noted patients remain on the waitlist for a median of six months (range, 2 to 8 months) prior to leukapheresis, which is the first step in the CAR T-cell manufacturing process, and the centers participating in the study estimated that only 25 percent of waitlisted patients eventually receive a slot for commercial CAR T-cell therapy, approximately 25 percent die or enroll in hospice, and the remaining 50 percent of patients are enrolled in clinical trials. According to the applicant, certain patients do not have a realistic chance of receiving a CAR T-cell product, and a percentage of these patients may not have access to an appropriate clinical trial due to eligibility criteria or distance from a large academic center with available studies, whereas these beneficiaries are eligible for TECVAYLI^TM . The applicant asserted for these patients starting their fifth line of therapy who may be on waitlists or otherwise unable to access CAR T-cell therapy, TECVAYLI^TM provides a more readily available option that does not require the complex T-cell collection, genetic engineering, and cell manufacturing, or lymphodepleting chemotherapy prior to administration of therapy.

In response to CMS's concerns pertaining to the lack of comparative safety data with CAR T-cell therapies, the applicant stated that there is not direct comparison data available, but that TECVAYLI^TM has a strong safety profile concerning cytokine release syndrome (CRS) and immune effector cell-associated neurotoxicity syndrome (ICANS) compared with the BCMA CAR T-cell products. The applicant stated in the pivotal study of TECVAYLI^TM , CRS occurred in 72 percent of patients, including 50 percent in Grade 1, 21 percent in Grade 2, and 0.6 percent in Grade 3. ICANS occurred in 6 percent of patients. CRS occurred in 85 percent (108/127) of patients receiving ABECMA® Grade 3 or higher CRS (Lee grading system 1) occurred in 9 percent (12/127) of patients, with Grade 5 CRS reported in one (0.8%) patient. The applicant added that CAR T-cell-associated neurotoxicity occurred in 28 percent (36/127) of patients receiving ABECMA®, including Grade 3 in 4 percent (5/127) of patients. CARVYKTI® was associated with CRS in 95 percent of patients, including 5 percent Grade 3–5 CRS and 1 percent Grade 5 CRS. ICANS occurred in 23 percent of patients, including Grade 3/4 ICANS in 3 percent of all patients and Grade 5 ICANS in 2 percent of patients. The applicant noted Hemophagocytic Lymphohistiocytosis (HLH)/Macrophage Activation Syndrome (MAS) occurred in the pivotal studies of both ABECMA® and CARVYKTI® but was not observed in the pivotal study of TECVAYLI^TM . Concerning non-CAR T-cell therapies, the applicant stated fewer than 1 percent of TECVAYLI^TM patients discontinued therapy due to adverse events, while this was 27 percent of selinexor patients. The applicant claimed TECVAYLI^TM is an important treatment alternative to CAR T-cell therapies, with a median DOR of 21.6 months (ABECMA® is 11.0 months, and CARVYKTI® is 21.8 months). Additionally, the applicant stated the incidence and severity of both CRS and ICANS are less for TECVAYLI^TM compared to the BCMA CAR T-cell products, and severe and potentially fatal HLH/MAS was not observed in the pivotal study of TECVAYLI^TM.

Response: We thank the applicant and commenters for their statements regarding the substantial clinical improvement criterion. Based on the additional information received and the information submitted in the application, we agree with the applicant that TECVAYLI^TM represents a substantial clinical improvement over existing technologies because TECVAYLI^TM offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments. We agreed with the commenters that TECVAYLI^TM offers a treatment option for patients ineligible for CAR T-cell therapy or for who CAR T-cell therapy is not an available therapy and who are ineligible for XPOVIO®.

After consideration of the public comments we received, and the information included in the applicant's new technology add-on payment application, we have determined that TECVAYLI^TM meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2024. Cases involving the use of TECVAYLI^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS code XW01348.

In its application, the applicant estimated that the cost of TECVAYLI is $13,754.67 per patient, as discussed previously. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of TECVAYLI^TM is $8,940.54 for FY 2024.

j. TERLIVAZ® (Terlipressin)

Mallinckrodt Hospital Products, Inc. submitted an application for new technology add-on payments for TERLIVAZ® for FY 2024. Per the applicant, TERLIVAZ® is a pharmacologic therapy administered via IV bolus for the treatment of hepatorenal syndrome (HRS) with rapid reduction in kidney function. The applicant stated that TERLIVAZ® is a V1-receptor synthetic vasopressin analogue that acts as a pro-drug of lysine-vasopressin and has pharmacologic activity on its own. According to the applicant, TERLIVAZ® is the first and only FDA-approved treatment indicated to improve kidney function in adults with hepatorenal syndrome with rapid reduction in kidney function. We note that Mallinckrodt Hospital Products, Inc. submitted an application for new technology add-on payments for TERLIVAZ® for FY 2022 under the name Mallinckrodt Pharmaceuticals, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25339 through 25344), that it withdrew prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44979). We note that the applicant also submitted an application for new technology add-on payments for FY 2023 under the name Mallinckrodt Pharmaceuticals, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28287 through 28296), 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 TERLIVAZ®, available at https://mearis.cms.gov/public/publications/ntap/NTP221014UR3R2 , for additional detail describing the technology and the disease treated by the technology.

With respect to the newness criterion, according to the applicant, TERLIVAZ®'s NDA was approved by FDA on September 14, 2022, for the improvement of kidney function in adults with hepatorenal syndrome with rapid reduction in kidney function. According to the applicant, TERLIVAZ® became commercially available on October 14, 2022. Per the applicant, there was a delay in market availability because TERLIVAZ® received FDA approval three months earlier than expected, and the company needed additional time to conduct market commercialization, including labeling and packaging. Per the applicant, TERLIVAZ® is administered as an IV bolus injection. The applicant stated that for the first 3 days, the recommended dosage is 0.85 mg (1 vial) TERLIVAZ® every 6 hours by slow IV bolus injection. The applicant stated that on day 4, the serum creatinine level is assessed against the baseline level obtained prior to initiating the treatment. The applicant noted that if the serum creatinine has decreased by 30 percent or more from the baseline, then 0.85 mg TERLIVAZ® can continue to be administered every 6 hours. The applicant stated that if the serum creatinine has decreased by less than 30 percent from the baseline, then TERLIVAZ® may be increased to 1.7 mg (2 vials) every 6 hours. According to the applicant, TERLIVAZ® can continue to be administered until 24 hours after the patient achieves a second consecutive serum creatinine value of ≤1.5mg/dL at least 2 hours apart or for a maximum of 14 days. The applicant also stated that if, on day 4, serum creatine is at or above the baseline serum creatinine level, then TERLIVAZ® should be discontinued. According to the applicant, the mean treatment duration with TERLIVAZ® in the CONFIRM trial was 6.2 days, using 27 vials.

The applicant stated that, effective October 1, 2021, the following ICD–10–PCS codes may be used to uniquely describe procedures involving the administration of TERLIVAZ®: XW03367 (Introduction of terlipressin into peripheral vein, percutaneous approach, new technology group 7), or XW04367 (Introduction of terlipressin into central vein, percutaneous approach, new technology group 7). The applicant stated that diagnosis code K76.7 (Hepatorenal syndrome) may be used to currently identify the indication for TERLIVAZ® 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 TERLIVAZ® is not substantially similar to other currently available technologies because it offers a novel mechanism of action that allows for selective vasoconstrictive effects on the splanchnic vasculature via activation of V1 vasopressin receptors. The applicant also stated that TERLIVAZ® is the first and only FDA-approved pharmacologic therapy to satisfactorily treat patients with HRS and offers efficacy among patients who fail previous treatment. Therefore, the applicant asserted that 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 TERLIVAZ® for the applicant's complete statements in support of its assertion that TERLIVAZ® is not substantially similar to other currently available technologies.

Similar to our discussion in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25340), and the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28290), in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26892) we noted that while TERLIVAZ® may address an unmet need because it is the first treatment indicated specifically for the treatment of HRS, the applicant's assertion that TERLIVAZ® does not involve the treatment of the same/similar type of disease and the same/similar patient population when compared to an existing technology, on the basis that there is a subset of patients for whom current treatments are ineffective and for whom TERLIVAZ® will offer a new treatment option, did not necessarily speak to the treatment of a new patient population for HRS.

We invited public comments on whether TERLIVAZ® is substantially similar to existing technologies and whether TERLIVAZ® meets the newness criterion.

Comment: Several commenters provided support for TERLIVAZ®'s eligibility for new technology add-on payments, indicating that there are currently no FDA-approved medications indicated specifically for the treatment of HRS–1.

Response: We thank the commenters for their input and have taken it into consideration, as discussed later in this section.

Comment: The applicant submitted a comment regarding the newness criterion. With regard to whether TERLIVAZ® involves treatment of the same/similar type of disease and the same/similar type of patient population when compared to an existing technology, the applicant stated that TERLIVAZ® offers an effective treatment for patients with HRS with rapid reduction in kidney function who are unresponsive to existing off-label therapies. The applicant noted that a large proportion of patients in the CONFIRM trial had failed prior therapy for HRS, and had received combination midrodrine and octreotide before enrollment. The applicant further stated that in this subgroup of patients, treatment with TERLIVAZ® was associated with a greater rate of verified HRS reversal compared to placebo, leading to improved renal function in a population who did not respond to existing standard of care. The applicant also stated that TERLIVAZ® is listed as the preferred therapy for HRS by several U.S. and international guidelines, and these clinical recommendations provide greater support for the use of TERLIVAZ® compared to existing off-label therapies, suggesting that TERLIVAZ® may offer a treatment option for patients who would not respond to other available treatments.

Response: We thank the applicant for its comment. Based on our review of comments, we agree with the applicant and commenters that TERLIVAZ® has a unique mechanism of action for selective vasoconstrictive effects on the splanchnic vasculature via activation of V1 vasopressin receptors as the first and only FDA-approved treatment for HRS. Therefore, we believe that TERLIVAZ® is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence on the date TERLIVAZ® became commercially available: October 14, 2022.

With respect to the cost criterion, the applicant provided multiple analyses to demonstrate that it meets the cost criterion. To identify potential cases representing patients who may be eligible for TERLIVAZ®, the applicant searched the FY 2021 MedPAR file for cases reporting ICD–10–CM code K76.7 (Hepatorenal syndrome). The applicant used the inclusion/exclusion criteria described in the following table. Each analysis differed with respect to the position of the ICD–10–CM code on the claim (that is, whether the ICD–10–CM code was the primary and/or admitting diagnosis code, or was in any position on the claim). Each analysis also differed with respect to requirements for the presence or absence of ICU-related charges (identified with the ICU indicator in the MedPAR with each analysis either including claims with ICU charges or claims without ICU charges), or whether ICU usage was not a consideration (the analysis included both claims with and without ICU charges). The applicant then presented six defined cohort analyses, and used the factors in the following table to define the cohorts. Please see Table 10.24.A.—TERLIVAZ® Codes (Analyses 1–6)—FY 2024 associated with the proposed rule for the complete list of MS–DRGs that the applicant included in its cost analysis for each cohort. The applicant followed the order of operations described in the following table.

For the first cohort analysis, the applicant identified 471 claims mapping to nine MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $279,135, which exceeded the average case-weighted threshold amount of $77,358.

For the second cohort analysis, the applicant identified 7,273 claims mapping to 183 MS–DRGs. The applicant then calculated a final inflated average case-weighted standardized charge per case of $319,685, which exceeded the average case-weighted threshold amount of $90,714.

For the third cohort analysis, the applicant identified 480 claims mapping to five MS–DRGs. The applicant then calculated a final inflated average case-weighted standardized charge per case of $189,783, which exceeded the average case-weighted threshold amount of $66,195.

For the fourth cohort analysis, the applicant identified 6,497 claims mapping to 173 MS–DRGs. The applicant then calculated a final inflated average case-weighted standardized charge per case of $211,960, which exceeded the average case-weighted threshold amount of $76,483.

For the fifth cohort analysis, the applicant identified 918 claims mapping to nine MS–DRGs. The applicant then calculated a final inflated average case-weighted standardized charge per case of $233,361, which exceeded the average case-weighted threshold amount of $69,919.

For the sixth cohort analysis, the applicant identified 12,801 claims mapping to 217 MS–DRGs. The applicant then calculated a final inflated average case-weighted standardized charge per case of $265,448, which exceeded the average case-weighted threshold amount of $81,949.

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

We are invited public comments on whether TERLIVAZ® meets the cost criterion.

We did not receive any comments on whether TERLIVAZ® meets cost criterion. Based on the information submitted by the applicant as part of its FY 2024 new technology add-on payment application for TERLIVAZ®, as previously summarized, the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, TERLIVAZ® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that TERLIVAZ® represents a substantial clinical improvement over existing technologies because among HRS patients who failed previous therapy with available off-label treatments, TERLIVAZ® has been shown to significantly improve renal function. Additionally, the applicant stated that TERLIVAZ® remains the preferred treatment for HRS-acute kidney injury (AKI) according to several guidelines and guidance based on its significant efficacy, as shown by randomized clinical trials. The applicant asserted that for these reasons TERLIVAZ® offers a treatment option for HRS patients unresponsive to currently available treatments (for example, norepinephrine, midodrine, and octreotide), and it significantly improves clinical outcomes among HRS patients as compared to placebo as well as currently available treatments (for example, norepinephrine, midodrine and octreotide). The applicant provided 14 studies to support these claims. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for TERLIVAZ® for the applicant's complete statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

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In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26903 through 26904), after review of the information provided by the applicant, we stated that we had the following concerns regarding whether TERLIVAZ® meets the substantial clinical improvement criterion. With respect to the applicant's assertion that TERLIVAZ® offers a treatment option for a patient population unresponsive to currently available treatments because among patients in the CONFIRM trial, patients that had failed prior therapy with available options achieved a statistically significant improvement in renal function with TERLIVAZ®, we noted that the applicant provided evidence from data on file for the clinical study report of the CONFIRM trial. We noted that this data on file appears to be a post-hoc analysis of the trial. As this was a post-hoc analysis, we stated we were cautious about drawing conclusions from this analysis alone without additional outcome data.

We also noted that the applicant asserts that the primary endpoint of the CONFIRM trial, verified HRS reversal, is a clinically significant and appropriate measure of improvement in renal function. However, as we noted in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25344) and FY 2023 IPPS/LTCH proposed rule (87 FR 28295), in the CONFIRM trial, while the proportion of patients with verified HRS reversal without HRS recurrence by Day 30 was numerically greater in the TERLIVAZ® group than placebo, the difference between groups was not statistically significant (26% vs 17%, p=0.08). We also noted that the potential for HRS recurrence among patients treated with TERLIVAZ® after 30 days is unclear. We questioned whether a statistically significant difference in verified HRS reversal in the TERLIVAZ® group at 14 days was sufficient to provide evidence of the durability of improvement in renal function.

With respect to the applicant's assertion that TERLIVAZ® significantly improves clinical outcomes, we noted that the applicant provided evidence from data on file for the clinical study report of the CONFIRM trial that appear to consist of post-hoc analyses of patient subgroups, for example, improvement in renal function for patients with alcoholic hepatitis at baseline, and reduction in RRT requirements in patients who received a liver transplant. Similar to our earlier concern, we questioned if we were able to draw conclusions from these post-hoc analyses alone without additional outcome data.

We also noted that the poster presentation for Mujtaba et al. is a post-hoc analysis of a subpopulation of patients aged ≥65 years from the CONFIRM trial, which was not powered to assess differences in clinical outcomes between the TERLIVAZ® and placebo groups in this subpopulation. As such, we noted that differences between the TERLIVAZ® and placebo groups in verified HRS reversal, HRS reversal, durability of HRS reversal, verified HRS reversal without HRS recurrence by Day 30, and length of study site hospital stay in days were not statistically significant. We also noted that the difference in RRT requirements through 90 days in the CONFIRM study among surviving patients aged ≥65 years was not statistically significant. Although the results numerically favored the TERLIVAZ® group, for those reasons, we questioned whether this analysis provided sufficient evidence of improved clinical outcomes in the Medicare population.

Finally, regarding the study conducted by Arora et al., we noted in the FY 2022 IPPS/LTCH PPS (86 FR 25344) and FY 2023 IPPS/LTCH PPS (87 FR 28296) proposed rules that this study included patients with a diagnosis of ACLF as well as HRS–AKI, which may have contributed to the differences observed between the TERLIVAZ® arm and the norepinephrine arm in this study.

We invited public comments on whether TERLIVAZ® meets the substantial clinical improvement criterion.

Comment: We received several comments in support of new technology add-on payments for TERLIVAZ®. The commenters supported the substantial clinical improvement assertations for TERLIVAZ®, and described high mortality and significant rates of HRS–1-related readmissions in this patient population. Commenters cited the results of randomized, placebo-controlled trials where the use of TERLIVAZ® was associated with a reduced rate of mortality and more rapid resolution of the disease process as compared to the placebo. Furthermore, commenters indicated that the CONFIRM trial demonstrated the substantial clinical improvement of TERLIVAZ® as compared with placebo on multiple outcomes, including: verified HRS reversal, verified HRS reversal in patients with prior midodrine and octreotide use, durability of HRS reversal, HRS reversal in the systemic inflammatory response syndrome subgroup, decreased incidence of RRT through Day 14, and decreased incidence of RRT after liver transplant. Several commenters noted that the HRS–1 patient population has substantial need for an effective treatment for this disease, and that outcomes have not improved for these patients since 2002. Additionally, several commenters indicated the clinical guidelines recommend using vasoconstrictors in combination with albumin as the first-line treatment to counteract splanchnic arterial vasodilation and that TERLIVAZ® is considered the first line treatment of choice in treating HRS–1 patients in European and Asian countries. A commenter further stated that the CONFIRM study demonstrated that TERLIVAZ® has an acceptable safety profile for this high-morbidity patient population.

Response: We thank the commenters for their input and have taken it into consideration in our determination regarding substantial clinical improvement, discussed later in this section.

Comment: The applicant submitted public comments regarding the substantial clinical improvement criterion, in response to CMS's concerns raised in the proposed rule. With respect to CMS's concern that the applicant provide evidence that TERLIVAZ® offers a treatment option for a patient population unresponsive to currently available treatments from a post-hoc analysis of the trial from which we were cautious about drawing conclusions without additional outcome data, the applicant indicated that although these were findings from a post hoc analysis, the data was derived from the largest multicenter, double-blind, randomized, placebo-controlled clinical trial of TERLIVAZ® to date. The applicant further stated the study of a prospective, randomized, head-to-head trial by Cavallin et al. (2015), in which patients with HRS receiving TERLIVAZ® were compared against patients receiving combination midodrine and octreotide demonstrated that TERLIVAZ®-treated patients attained complete response (decrease in serum creatinine to ≤1.5 mg/dL) at significantly higher rates (55.5%) than midodrine and octreotide-treated patients (4.8%; p 0.001), providing greater confidence in the post hoc results from the CONFIRM trial. The applicant also noted that guidance and international guidelines stated that the efficacy of midodrine and octreotide is lower than that of TERLIVAZ®, and should only be used if TERLIVAZ® is unavailable or contraindicated. The applicant noted that these recommendations were further supported by real-world efficacy data from the United Kingdom, demonstrating that TERLIVAZ® addresses an unmet need and may offer a treatment option for patients who do not respond to existing therapies.

In response to CMS's concern that in the CONFIRM trial, while the proportion of patients with verified HRS reversal without HRS recurrence by Day 30 was numerically greater in the TERLIVAZ® group than placebo, the difference between groups was not statistically significant, and that the potential for HRS recurrence after 30 days was unclear, the applicant stated that verified HRS reversal was the primary endpoint of the CONFIRM trial, and based on study timing, was likely measured beyond Day 14 in most patients. The applicant stated that furthermore, although verified HRS reversal without recurrence was achieved in approximately 50 percent more patients treated with TERLIVAZ® compared to placebo, this endpoint was reported inconsistently, as recurrence was based on investigator judgment. The applicant stated that the endpoint of durability of HRS reversal was a more objective measure of sustained improvements in renal function than verified HRS reversal without HRS recurrence, and reached statistical significance in the CONFIRM trial. In addition, the applicant explained that regarding the potential for HRS recurrence beyond 30 days, HRS develops due to the hemodynamic alterations that occur from portal hypertension and cirrhosis and that TERLIVAZ® is not intended to resolve these complications. The applicant noted that patients whose underlying advanced liver disease is not corrected via transplant may develop HRS again if there is a new precipitating event, and that ultimately, the rate of HRS recurrence beyond 30 days would not be a reflection of TERLIVAZ efficacy, but an effect of patients' underlying liver disease.

With respect to CMS's request for additional outcome data to support post-hoc analyses of patient subgroups, the applicant stated that although the data was derived from post hoc analyses, the CONFIRM trial is the largest multicenter, double-blind, randomized, placebo-controlled clinical trial of TERLIVAZ® to date, and that the incidence of RRT through Day 90 was a prespecified endpoint for the full trial population. The applicant further stated that overall, data from the full intention-to-treat (ITT) population of the CONFIRM trial; data from the pooled analysis of the CONFIRM, REVERSE, and OT–0401 trials; and pre-transplant and long-term data from the subgroup of patients in the CONFIRM trial who received a liver transplant all consistently support that treatment with TERLIVAZ® reduced the incidence of RRT compared to placebo. Thus, TERLIVAZ® treatment offers significant clinical efficacy by helping patients avoid RRT, and has been associated with significant reductions in intensive care unit (ICU) length of stay because it can be administered on the general medicine floor. The applicant further stated that in the subgroup analysis of patients with alcoholic hepatitis, post hoc data from CONFIRM was consistent with published pooled data from all 3 trials, CONFIRM, REVERSE, and OT–0401, and showed that TERLIVAZ® led to significant improvements in renal function compared to placebo. The applicant further stated that there was a significant improvement in renal function in the pooled population subgroup, with 38.0 percent of the TERLIVAZ® group vs 13.1 percent of the placebo group achieving HRS reversal (p0.001). Additionally, the applicant noted that significantly more patients were alive without RRT and maintained HRS reversal to Day 30 in the TERLIVAZ® group (33.9% vs 10.7%; p0.001), consistently demonstrating that TERLIVAZ® treatment led to significant improvements in renal function among patients with alcoholic hepatitis.

With respect to whether the analysis submitted by the applicant provides sufficient evidence of improved clinical outcomes in the Medicare population given that the CONFIRM trial was not powered to assess differences in clinical outcomes in the subpopulation of patients aged ≥65 years, the applicant stated that HRS is a rare disease, and that therefore, it is difficult to enroll an adequate sample size to conduct large clinical trials that are powered to achieve statistical significance among specific subgroups. The applicant further stated that while the CONFIRM trial was not powered to detect a difference between therapies in patients aged 65 years and older, the mean age in the CONFIRM trial was 54 years, and approximately 18 percent of patients in each treatment group were aged 65 years and older. The applicant further stated that although the endpoints shown in the poster by Mujtaba et al. did not reach statistical significance based on the small sample size, each endpoint trended toward improvement in the TERLIVAZ® group compared to placebo and that as a result treatment with TERLIVAZ® in patients aged ≥65 years has shown efficacy results consistent with those of the larger CONFIRM population, and that available pharmacokinetic data does not suggest an older population would have a poorer response or tolerance to TERLIVAZ®. In a separate comment, the applicant also shared a manuscript, with data previously reported in the poster by Mujtaba et al. in abstract form, that had been accepted for publication in Annals of Hepatology. The applicant stated that the manuscript consisted of a pooled analysis of the CONFIRM, REVERSE, and OT–0401 trials that revealed positive results in patients aged 65 years or older with HRS, indicating that treatment with TERLIVAZ® and albumin was associated with clinical improvements for patients aged 65 years and older, and that no new safety signals were revealed in this analysis.

With respect to CMS's concern that the study by Arora et al. included patients with a diagnosis of ACLF as well as HRS–AKI, which may have contributed to the differences observed between the TERLIVAZ® arm and the norepinephrine arm, the applicant responded that ACLF and HRS are often comorbid conditions and both were seen in all patients included in the CONFIRM trial. The applicant further specified that though it was not specifically required in the inclusion criteria, every patient enrolled in the CONFIRM trial had at least ACLF grade 1 at study entry. The applicant conclude that the patient population studied in the Arora et al. was similar to that of the CONFIRM trial and can be used to demonstrate that the improved outcomes seen with TERLIVAZ® compared to norepinephrine is expected in patients with HRS who meet ACLF criteria.

Response: We thank the applicant for its comments and the additional information provided regarding the substantial clinical improvement criterion. Based on the comments and additional information received, we agree that TERLIVAZ® represents a substantial clinical improvement over existing technologies because it is the only FDA-approved treatment for HRS patients, and significantly improves clinical outcomes among HRS patients by improving renal function, compared to placebo as well as currently available treatments, as demonstrated by statistically significant differences in HRS reversal rates, resulting in reduced RRT requirements and hospital length of stay.

After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that TERLIVAZ® meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2024. Cases involving the use of TERLIVAZ® that are eligible for new technology add-on payments will be identified by ICD–10–PCS codes: XW03367 (Introduction of terlipressin into peripheral vein, percutaneous approach, new technology group 7) or XW04367 (Introduction of terlipressin into central vein, percutaneous approach, new technology group 7).

Per the applicant, the WAC of TERLIVAZ® is $950 per vial, and the mean treatment duration with TERLIVAZ® in the CONFIRM trial was 6.2 days, using 27 vials. In its application, the applicant estimated that the average cost of therapy for TERLIVAZ® is $25,650 per patient ($950 × 27 vials). Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, the maximum new technology add-on payment for a case involving the use of TERLIVAZ® is $16,672.50 for FY 2024.

k. XENOVIEW^TM (Xenon Xe 129 Hyperpolarized)

Polarean, Inc. and The Institute for Quality Resource Management (collectively referred to as “applicant”) submitted an application for new technology add-on payments for XENOVIEW^TM (xenon Xe 129 hyperpolarized) for FY 2024. Per the applicant, XENOVIEW^TM is prepared using an FDA approved hyperpolarization process from a dose of Xenon¹²⁹ Xe Gas Blend. The applicant stated that the imaging signal is specifically created to address the unmet needs to quantitively diagnose early pulmonary oxygen deficiency, at the level of the alveoli oxygen exchange, without exposing the patient to ionizing radiation to inform management of patients with diseases manifested by diminished lung function. The applicant explained that after inhalation, HP¹²⁹ Xe freely diffuses from the airspaces through alveolar-capillary barrier (comprised of alveolar epithelial cells, interstitial tissues, and capillary endothelial cells) and subsequently into the red blood cells (RBCs). The applicant noted that HP¹²⁹ Xe exhibits distinct magnetic resonance (MR) frequency shifts in the airspace, barrier, and RBCs, allowing separate imaging of its distribution in all three compartments, and that such imaging has been used to spatially characterize disease burden across a range of pulmonary disorders (for example, chronic obstructive pulmonary disease (COPD) and asthma). We note that the applicant submitted an application for new technology add-on payments for XENOVIEW^TM for FY 2023, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28307 through 28317), 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 XENOVIEW^TM available at https://mearis.cms.gov/public/publications/ntap/NTP221017PBF9L , for additional detail describing the technology and the diseases diagnosed by the technology.

With respect to the newness criterion, according to the applicant, XENOVIEW^TM was granted NDA approval from FDA on December 23, 2022, for the use of XENOVIEW^TM (xenon Xe 129 hyperpolarized) with magnetic resonance imaging (MRI) for evaluation of lung ventilation in adults and pediatric patients aged 12 years and older. According to the applicant, XENOVIEW^TM was commercially available immediately following the NDA approval. The applicant stated that the dose for patients 12 years and older is 75 mL to 100 mL dose equivalent (DE, where DE = [total volume Xe gas] × [¹²⁹ Xe isotopic enrichment] × [polarized percent]) of HP¹²⁹ Xe by oral inhalation of the entire contents of one XENOVIEW^TM Dose Delivery Bag. The applicant explained that each bag contains at least 75 mL DE with a recommended target DE range of 75 mL to 100 mL in a volume of 250 mL to 750 mL total xenon with additional nitrogen, National Formulary (NF) (99.999% purity) added to reach a total volume of 1,000 mL measured 5 minutes before inhalation.

The applicant stated that effective October 1, 2022, the following ICD–10–PCS procedure code may be used to uniquely describe procedures involving the use of XENOVIEW^TM: BB34Z3Z (Magnetic resonance imaging (MRI) of bilateral lungs using hyperpolarized xenon 129 (Xe–129)).

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 XENOVIEW^TM is not substantially similar to other currently available technologies because HP¹²⁹ Xe, a new chemical entity, and new lung MRI signaling agent, is created on-site following an FDA approved method, for oral inhalation. The applicant explained that absent ionizing radiation, XENOVIEW^TM identifies lung abnormalities reporting ventilation defect percent (VDP) diagnosing early deteriorating lung function to inform, guide and monitor therapy. The applicant explained that XENOVIEW^TM 's properties cause diffusion through the lung and distal alveoli, and that novelty mechanistically lies in the gas preparation, where HP creates a quantitative distinct volume DE for the patient's anatomy. Therefore, the applicant asserted that 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 XENOVIEW^TM for the applicant's complete statements in support of its assertion that XENOVIEW^TM is not substantially similar to other currently available technologies.

Similar to our discussion in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28308), we noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26917 through 26918) that although the applicant states that XENOVIEW^TM has not been assigned to an MS–DRG and cannot be compared to an existing technology, we believed that based on its indication, cases involving the use of XENOVIEW^TM would be assigned to the same MS–DRGs as cases involving the use of other MRIs and imaging modalities for pulmonary function and imaging of the lungs.

We invited public comments on whether XENOVIEW^TM is substantially similar to existing technologies and whether XENOVIEW^TM meets the newness criterion.

Comment: The applicant submitted a comment maintaining that XENOVIEW^TM meets the newness criterion. With respect to mechanism of action, the applicant stated that XENOVIEW^TM creates a distinct image requiring a special coil and multinuclear scanner for the MRI to respond to the HP Xe 129, and therefore does not use the same or similar mechanism of action as other imaging agents. Furthermore, the applicant stated that XENOVIEW^TM is FDA-approved as a new chemical entity and that no conventional existing imaging or pulmonary function testing can report region specific quantified VDP. The applicant also explained that conventional MRI, CT, or VQ scintigraphy would not be ordered to measure oxygen exchange of lung tissue, therefore XENOVIEW^TM MRI treats a population with respiratory disease by reporting findings not otherwise obtainable.

With respect to whether cases involving the use of XENOVIEW^TM would be assigned to the same MS–DRGs as cases involving the use of other MRIs and imaging modalities for pulmonary function and imaging of the lungs, the applicant stated that XENOVIEW^TM would not be assigned to the same MS–DRGs as cases involving the use of other MRIs or advanced imaging because medical necessity, images, spatial anatomy, and information obtained from the XENOVIEW^TM MRI are different from the information from a conventional MRI, CT, and nuclear medicine lung imaging. The applicant further stated a patient's principal diagnosis (specifically asthma, COPD, interstitial lung disease, Bronchiolitis Obliterans, cystic fibrosis, or complication post lung transplant), underlying comorbidities, and surgical procedures drive the MS–DRG assignment at the time of discharge, and creation of a new MS–DRG is not required. The applicant stated that XENOVIEW^TM would be assigned within MS–DRGs 190–192, 196–198, 202–206 and 951 when ICD–10–PCS code BB34Z3Z (Magnetic resonance imaging (MRI) of bilateral lungs using hyperpolarized xenon 129 (Xe–129)) is used. The applicant explained that within Major Diagnostic Category (MDC) 004—Diseases Disorders of the Respiratory System, 0.12 percent of cases included lung or pulmonary ICD–10–PCS codes for CT, MRI, or nuclear imaging, and that these imaging services are not ordered to report quantitative lung ventilation, therefore the ICD–10–CM diagnosis code of patients who benefit from XENOVIEW^TM are different from those with diagnosis codes where conventional CT, MRI, or nuclear imaging would be ordered. The applicant explained that XENOVIEW^TM is ordered for patients with respiratory disease, using the VDP as new information to guide treatment decisions and improve patient outcomes.

Response: We thank the applicant for the clarification regarding MS–DRG assignment for XENOVIEW^TM . Based on our review of comments received and information submitted by the applicant as part of its FY 2024 new technology add-on payment application for XENOVIEW^TM, we disagree with the applicant that XENOVIEW^TM would not be assigned to the same MS–DRGs as cases involving the use of other MRIs or advanced imaging. We do not believe that the low volume of CT, MRI, or nuclear imaging cases within MDC 004 indicates that XENOVIEW^TM would not be assigned to the same MS–DRGs as these technologies. As the applicant noted, for patients with lung disease who may be prescribed XENOVIEW^TM, the resulting MS–DRGs are determined by the patient's primary diagnosis codes, not the XENOVIEW^TM MRI ICD–10–PCS procedure code. Therefore, we believe that cases involving the use of XENOVIEW^TM or other MRIs and imaging modalities for pulmonary function and imaging of the lungs that have the same primary diagnosis codes would be assigned to the same MS–DRGs.

However, we agree with the applicant that XENOVIEW^TM uses a new mechanism of action for the diagnosis of respiratory conditions when compared to existing diagnostics because there are currently no FDA-approved or cleared technologies that use imaging with an inhaled hyperpolarized contrast agent that reports VDP quantitatively to provide a detailed, quantifiable image of gas distribution in regions of the lung. Therefore, we believe that XENOVIEW^TM is not substantially similar to existing diagnostic options and meets the newness criterion. We consider the newness period to begin on December 23, 2022, when XENOVIEW^TM was approved by FDA for the evaluation of lung ventilation in adults and pediatric patients aged 12 years and older.

With respect to the cost criterion, the applicant searched the FY 2021 MedPAR file for potential cases representing patients who may be eligible for XENOVIEW^TM . The applicant limited its analysis to eight MS–DRGs, listed in the following table, as it believes these MS–DRGs represent patients most likely eligible for treatment with XENOVIEW^TM (that is, patients with lung and pulmonary challenges, confirmed pulmonary disease, asthma, and COPD). Using the inclusion/exclusion criteria described in the following table, the applicant identified 87,801 claims mapping to these eight 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 $55,652, which exceeded the average case-weighted threshold amount of $46,624. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that XENOVIEW^TM meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26918) we noted that the applicant limited its analysis to eight MS–DRGs. We were interested in information as to whether the technology would map to other MS–DRGs, such as other MS–DRGs under Major Diagnostic Category 004—Diseases Disorders of the Respiratory System, as the indication for the technology regarding lung ventilation seems very broad. We invited public comments on whether XENOVIEW^TM meets the cost criterion.

Comment: With respect to whether XENOVIEW^TM would map to other MS–DRGs under Major Diagnostic Category 004—Diseases Disorders of the Respiratory System, the applicant submitted a comment verifying that Version 40.1 of the FY 2023 MS–DRG grouper comparing diagnosis codes for the MS–DRGs within MDC 004 unique to the population that would benefit from XENOVIEW^TM for lung ventilation returned the following: MS–DRGs 190–192, 196–198, 202–206 and 951. The applicant stated that they added MS–DRGs 204–206 and emphasized that not all MS–DRGs within MDC 004 related to diagnoses that would result in ordering XENOVIEW^TM for lung ventilation VDP measurement. For example, the applicant stated that MS–DRGs 163–168 are specific to thoracic surgical procedures and argued that XENOVIEW^TM would not map to the assignment of these MS–DRGs and would likely not be used during that inpatient admission. Furthermore, the applicant stated that MS–DRGs 174 and 176 are specific to pulmonary embolism, not a diagnosis for XENOVIEW^TM . The applicant also stated that MS–DRGs 177–179, 186–188, 189, 193–195 and 199–201 represent specific respiratory diseases with primary diagnosis codes not related to the diagnosis codes for XENOVIEW^TM . The applicant stated that MS–DRGs 207–208 are specific to patients on a ventilator with diagnosis codes not related to the primary diagnosis codes for XENOVIEW^TM. The applicant stated that lung imaging procedures were identified with MS–DRG 177; however, such imaging was ordered to monitor the accumulation of mucus in the lungs.

After adding MS–DRGs 204–206 to the cost criterion analysis, the applicant calculated a final inflated average case-weighted standardized charge per case of $58,328, which exceeded the average case-weighted threshold amount of $47,107. The applicant asserted that because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, XENOVIEW^TM meets the cost criterion.

Response: We thank the applicant for their revised cost analysis with the addition of MS–DRGs 204–206. We agree the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, and therefore XENOVIEW^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that XENOVIEW^TM represents a substantial clinical improvement over existing technologies because HP Xe gas for oral inhalation with MRI offers an effective option for patients with pulmonary challenges to obtain quantitative information regarding their lung ventilation as it relates to their progression of disease without subjecting the patient to ionizing radiation or the half-life of nuclear imaging agents. The applicant further stated that HP Xe MRI images are sharp and discrete, providing visual evidence of oxygen impairment across the barrier tissues leading to a quantifiable metric to follow patients' treatment. The applicant asserted that XENOVIEW^TM 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. The applicant provided 10 studies to support these claims. The following table summarizes the applicant's assertions regarding the substantial clinical improvement criterion. Please see the online posting for XENOVIEW for additional details on the applicant's statements regarding the substantial clinical improvement criterion and the supporting evidence provided.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26923 through 26924), after reviewing the information the applicant provided, we stated we had the following concerns regarding whether XENOVIEW^TM meets the substantial clinical improvement criterion. We noted that, similar to our discussion in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28312), with respect to the evidence provided by the applicant to support its assertion that XENOVIEW^TM is able to diagnose a medical condition in a patient population where the medical condition is currently undetectable and diagnose a medical condition earlier than currently available methods, the studies do not appear to provide evidence showing that use of the technology to make a diagnosis affected the management of the patients, as required under § 412.87(b)(1)(ii)(B). Although the applicant provided studies demonstrating that XENOVIEW^TM can detect gas diffusion abnormalities in patients that traditional imaging such as CT cannot, or can detect these abnormalities earlier than currently available methods, these studies did not appear to demonstrate that subsequently, treatment planning or disease management was affected.

For example, we noted that studies were designed to assess the ability of XENOVIEW^TM to detect changes in lung function before and after treatment in comparison to other technologies, rather than a change in patient management. For example, in the Mummy et al. (2021) study, HP Xe MRI was used to observe treatment effects in COPD patients before and after receiving biologic therapy. Even though the study demonstrated that XENOVIEW^TM may have more sensitivity in providing measurements of lung functioning in structurally normal areas of the lung, there were no additional follow-ups on patients who appeared to be non-responsive to therapy based on HP Xe MRI imaging. Without this information, it was difficult to determine whether using XENOVIEW^TM to observe the effects of treatment has an impact on clinical decision-making for patients with COPD. Similarly, although the study abstract for McIntosh et al. (2020) noted that clinically relevant VDP improvements were observed 14-days post-benralizumab in patients with minimal response detected using spirometry, it was not clear from the study abstract if the use of XENOVIEW^TM to observe the effects of treatment impacted the clinical decision-making for these patients. In addition, we questioned the clinical significance of the findings in the Hahn et al. (2022) study to support the applicant's statement that in patients with IPF, HP¹²⁹ Xe MRI can predict disease progression in patient population where fibrosis is not detectable by traditional CT, as the study authors suggested that findings need to be verified in a longitudinal multicenter study with more rigorous testing of the repeatability of the MRI-based measurements of gas exchange and ventilation in a larger sample of participants with IPF.

Furthermore, although the applicant stated that HP Xe MRI could be used to quantify abnormalities across three compartments of alveolar gas-exchange (in the airspaces (ventilation), barrier tissue of the lung parenchyma, and transfer to red blood cells (RBCs)), we questioned whether the detection of such abnormalities allows for a specific diagnosis of disease. For example, in the Grist et al. (2022) study, a follow-up to the Grist et al. (2021) study, the authors noted that the relationship of the HP Xe MRI abnormalities detected and the breathlessness experienced by the wider population of post-COVID–19 condition participants was unclear. The authors stated that caution is necessary in the use of HP Xe MRI for the detection of disease, as it was unknown whether participants with other respiratory tract infections, such as flu, had abnormal HP Xe MRI gas transfer months after infection. The authors also stated that it was not known whether the abnormalities detected were of clinical importance. The authors of the Mummy et al. (2021) study also indicated that HP Xe MRI ventilation measurements in COPD had not been well characterized, which limited the authors' ability to determine a clinically meaningful change in ventilation metrics. In addition, we noted that the Thomen et al. (2016) study provided by the applicant consists of a pediatric population, and we questioned whether such detection of ventilation abnormalities by XENOVIEW^TM would be generalizable to a Medicare population.

In summary, we questioned whether the evidence provided demonstrates that earlier detection of alveolar gas-exchange defects using XENOVIEW^TM results in earlier diagnosis and subsequent changes to clinical decision-making following an earlier diagnosis. As such, we were interested in additional evidence to support the applicant's assertion that use of XENOVIEW^TM to make a diagnosis affects the management of the patient.

We invited public comments on whether XENOVIEW^TM meets the substantial clinical improvement criterion.

Comment: We received several comments in support of new technology add-on payments for XENOVIEW^TM, including one from the applicant, in response to CMS's concerns in the FY 2024 IPPS/LTCH PPS proposed rule regarding whether XENOVIEW^TM meets the substantial clinical improvement criterion.

The applicant asserted that the technology informs on spatial lung ventilation defects, leading to treatment decisions that positively impact patient outcomes. The applicant stated that VDP is able to provide quantitative information about a patient's specific region of ventilation and oxygen defect across all functional regions of the lung, unlike conventional chest CT, MRI, nuclear imaging, or pulmonary function tests (PFTs), and therefore can be used to identify treatment effects of drug therapy and guide physicians in making adjustments. The applicant explained that, as a diagnostic test, XENOVEW^TM MRI would not be expected to directly change health outcomes; rather, a diagnostic test affects health outcomes through changes in disease management, and that the usefulness of a test result is constrained by the available treatment options. The applicant also noted that XENOVIEW^TM is not effort dependent, unlike for patients who have difficulty with spirometry or PFTs. The applicant further asserted that XENOVIEW^TM provides an objective quantified measure specific to the individual patient, which removes health disparities and improves equality in healthcare outcomes of chronic diseases where marginalized populations have few options for unbiased lung ventilation evaluation.

The applicant stated that outcomes of interest for the technology as a diagnostic test include beneficial or adverse clinical effects, such as changes in management due to test findings or preferably, improved health outcomes for Medicare beneficiaries. The applicant asserted that results from XENOVIEW^TM MRI lead physicians to prescribe different and better treatments, and that those patients whose treatments are changed by test results remain on the regimen and achieve better long-term lung disease control. The applicant asserted that the evidence provided demonstrates the utility of the technology to accurately identify those patients who will, if untreated with improved treatment protocols, suffer the morbidity and mortality of lung disease. The applicant explained that peer-reviewed publications across patients with asthma, COPD, and asthma plus COPD with underlying risk factors demonstrated a reliable measurement of VDP with XENOVIEW^TM proprietary software. The applicant stated that XENOVIEW^TM VDP is an unbiased, quantitative measure compared to the patient's own lung, rather than a population-based standard as in PFTs, and can detect subtle differences that cannot be captured by spirometry for PFTs. The applicant explained that higher rates of COPD diagnoses in non-Hispanic whites lends credibility to the inequity and bias in understanding and managing this disease, and asserted that XENOVIEW^TM MRI can be used to reduce disparities in healthcare and improve management of chronic disease.

The applicant asserted that XENOVIEW^TM MRI could be used to inform treatment outcomes to make changes as needed. The applicant referenced the Hahn et al. (2022) study, and explained that the study identified patients where VDP could explain the patient symptoms that were unable to be diagnosed by conventional spirometry or lung CT imaging. The applicant also referenced the study abstract for McIntosh et al. (2020), stating that the results support practical clinical use of VDP to inform treatment change, as it allowed for the differentiation between non-responders from responders to benralizumab therapy in patients with severe asthma. The applicant stated that the study provided evidence that the technology effectively measures gas exchange and functional ventilation in a population of asthma patients, and allows clinically meaningful longitudinal follow-up. The applicant also referenced the Mummy et al. (2021) study, and stated it provided further evidence of treatment effect as VDP significantly improved in subjects with COPD before and after bronchodilator therapy. The applicant also asserted that without VDP measurements, physicians prescribe drugs without quantitative measures to document the treatment effect, and referenced a study by Hall et al. (2021). The applicant explained that the use of bronchial thermoplasty (BT) in severe asthma has been limited by peri procedure adverse events, therefore VDP offers physicians an option to guide treatment to the specific region that will benefit. The applicant explained that the Hall et al. (2021) study randomly assigned 30 patients to BT treatment of the six most involved airways in the first session (XENOVIEW^TM MRI VDP guided group) or a standard three-session BT (unguided group). The applicant stated that statistically significant findings in XENOVIEW^TM MRI guided BT patients resulted in actionable changes in the patient's management, and that VDP guided patients experienced a better outcome with fewer adverse asthmatic events. The applicant stated although there were no significant difference in quality of life after one guided BT compared with three unguided BTs (guided = 0.91 [95% confidence interval, 0.28–1.53]; unguided = 1.49 [95% confidence interval, 0.84–2.14]; P = 0.201); VDP guided patients, however, had a statistically significant greater reduction in the percentage of poorly and nonventilated lung from baseline when compared with unguided BT treatments (217.2%; p = 0.009). The applicant further noted that 33 percent of patients experienced asthma exacerbations after one guided BT compared with 73 percent after three unguided BTs (p = 0.028).

Additional commenters supported the use of XENOVIEW^TM MRI to aid in the characterization of the individual patient's disease and impact clinical decision-making and patient management. One commenter suggested XENOVIEW^TM may help characterize an individual's disease and inform treatment decisions in an inpatient setting as it provides information about lung disease severity and activity beyond what is available with conventional PFTs. The commenter added that they foresaw Xenon MRI playing an important role in: (1) patients with respiratory symptoms but normal spirometry or PFTs to assess for lung disease; (2) patients undergoing bronchoscopic treatment of lung disease to guide regional treatments; (3) patients with lung disease who are not responding to treatment to quantify response to treatment or determine if a different treatment was required; and (4) patients with respiratory symptoms but a confusing clinical picture. The commenter stated that hyperpolarized gas MRI is more sensitive than the spirometry or pulmonary function testing in detecting mild or early disease and changes with treatment; has no ionizing radiation compared to CT; and can be used to identify regional lung function defects not seen with other modalities. The commenter stated they envisioned using XENOVIEW^TM in longitudinal assessment of a patient's response to therapy to stop or intensify treatments, and/or serve as an adherence tool to show patients their positive response to therapy and motivate continued compliance. The commenter explained that quantitative measures of VDP and the apparent diffusion coefficient-based emphysema index (ADC) can be safely obtained with hyperpolarized Xe MRI. The commenter also explained that hyperpolarized gas MRI is advantageous compared to spirometry because each patient serves as their own normative value, and may be particularly helpful in populations that struggle with spirometry maneuvers.

Another commenter also asserted that XENOVIEW^TM fills the current clinical gaps for the diagnosis and management of pulmonary diseases. The commenter stated that there are no clinical tests that can assess regional lung function with high resolution as PFT measures global lung function, while a CT scan provides structural details, but not direct functional measurement, and has a radiation risk. The commenter stated that ventilation/perfusion scans lack the resolution for diagnosing lung disease, except pulmonary embolism. The commenter stated that XENOVIEW is non-invasive, is sensitive to changes in ventilation abnormalities, and provides novel information on VDP and the apparent diffusion coefficient-based emphysema index (ADC), which would allow clinicians to develop personalized care for patients to increase patient's compliance with medications and decrease the need for unnecessary testing. The commenter described four common pulmonary conditions where XENOVIEW^TM would be useful. The commenter suggested XENOVIEW could provide an early triage point in the clinical pathway for patients with unexplained dyspnea on exertion (DOE). The commenter provided a clinical scenario of a patient with DOE, and stated that if XENOVIEW^TM had been available, they would have ordered the technology, which would have likely revealed ventilation defects that would have helped them diagnose small airway disease asthma with more confidence and chose the appropriate medications. The commenter stated that chronic cough with failed treatments was another common pulmonary condition, which may be a result of cough-variant asthma that is difficult to diagnose with current clinical tests, and that if XENOVIEW^TM were available, it would assist with disease diagnosis and treatment. The commenter further suggested the use of XENOVIEW^TM in patients with COPD to differentiate between two clinical phenotypes, chronic bronchitis and emphysema. The commenter noted that patients with ventilation patterns more consistent with chronic bronchitis tended to respond better to LABA/LAMA, even if there was minimal response in PFT, and that this information would help clinicians change medications earlier in the “non-responders”. Finally, the commenter noted that patients with asthma may have a normal PFTs and other test results, while remaining symptomatic. The commenter referenced two studies using Xe MRI that had shown the presence of ventilation defects in stable asthma patients even if PFT was normal, and ventilation defects improved after treatment. The commenter explained that ventilation defects on XENOVIEW^TM could alert clinicians that the asthma may not have been well controlled.

An additional commenter affirmed that XENOVIEW^TM, when available in the clinical setting, would inform and/or change their treatment decisions due to knowledge of the underlying respiratory defect in a variety of clinical settings, and could serve as an adherence tool to motivate continued compliance. The commenter stated that children born prematurely have complex respiratory phenotypes, and that hyperpolarized Xe would allow simultaneous investigation of those phenotypes, and allow for targeted therapeutics. The commenter also stated that the technology could be used to detect, and therefore allow for treatment of, early onset obliterative bronchiolitis. The commenter noted that Xe MRI offered an alternative to assess lung function for children who were unable to cooperate with PFTs. The commenter stated that PFTs are insensitive to evaluate regional changes in lung function, and that XENOVIEW^TM MRI can be used to identify regions of the lung with poor ventilation, changes in alveolar size, and gas exchange abnormalities to inform treatment options. The commenter stated that the technology would be able to image pulmonary anatomy not imaged by CT, while avoiding ionizing radiation, which would be particularly critical in children.

With respect to CMS's question as to whether the detection of ventilation abnormalities by XENOVIEW^TM in a study consisting of a pediatric population would be generalizable to a Medicare population, the applicant asserted that it would be because each XENOVIEW^TM VDP measure is unique to individual patients across all ages, as it is compared to their own lung and not a contrived calculation as with PFTs. The applicant explained that as each XENOVIEW^TM MRI is patient specific, the VDP relationship with poor regions of lung ventilation would be correctly identified in an adult when applying studies from patients under 18 years of age. The applicant stated that clinical trial evidence from studies of patients with cystic fibrosis could be related to an adult population. The applicant stated that approximately 14 percent of patients with cystic fibrosis have Medicare, and that therefore, data for this population is relevant to CMS beneficiaries.

In response to the same concern, a commenter stated they had performed hyperpolarized gas MRI in patients ranging from infants to those 80+ years, and asserted that results of research studies in lung diseases in the pediatric population are applicable to these diseases in the adult population since the underlying disease processes are the same. Another commenter stated that their group had successfully and safely implemented Xe MRI throughout childhood from birth through adolescence to gather clinically applicable information, highlighting the ability of hyperpolarized Xe technology to influence care across the lifespan.

Response: We thank the applicant and other commenters for their comments. Based on our review of comments received and additional information submitted by the applicant as part of its FY 2024 new technology add-on payment application for XENOVIEW^TM , we continue to have concerns as to whether XENOVIEW^TM meets the substantial clinical improvement criterion to be approved for new technology add-on payments. In particular, we remain concerned that although XENOVIEW^TM may be able to diagnose pulmonary conditions, it remains unclear that use of the technology to make a diagnosis affected the management of patients. Although commenters provided statements as to how they believed XENOVIEW^TM could be used in clinical settings to impact patient management, we note that these testimonials appear to consist of hypothetical use cases, and we are uncertain if these testimonials would reflect the actual use of XENOVIEW^TM in the inpatient Medicare population.

In particular, we note that neither the applicant nor the other commenters submitted evidence that demonstrated the use of XENOVIEW^TM MRI to actually affect the management of patients, such as a change in diagnosis, a change in treatment planning, or discontinuation of or intensification of treatment regimens. For example, the study by Ebner et al. (2017) assessed the correlation between VDP and PFTs in asthmatic patients versus healthy controls, but did not describe changes in patient management due to VDP findings. In addition, we note that the study by Serajeddini et al. (2020) was a retrospective evaluation of spirometry and hyperpolarized³ He MRI measurements, and as such, does not appear to speak to the use of XENOVIEW^TM.

As described in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26923 and 26924), we continue to have concerns about the Hahn et al. (2022), McIntosh et al. (2020), and Mummy et al. (2021) studies described in the applicant's comment, and to continue to believe that these studies assess the ability of XENOVIEW^TM to detect changes in lung function before and after treatment in comparison to other technologies, rather than a change in patient management. For the same reason, we have concerns that the Thomen et al. (2016) study does not demonstrate a change in patient management, as the study assessed the feasibility of Xe MRI usage and if usage would demonstrate ventilation defects in mild CF with greater sensitivity than FEV₁ . Therefore, we note the technology was not used to diagnose CF in the study, as patients were known to be either healthy control volunteers or cystic fibrosis patients, nor was there a change in diagnosis or treatment due to Xe MRI usage. In addition, we continue to have concerns with the preliminary results presented in the Grist et al. (2021) study referenced by commenters, as it was aimed to determine if hyperpolarized Xe MRI imaging could identify the possible cause of breathlessness in patients after hospital discharge following COVID–19 infection, and did not assess for changes in patient management due to those findings. Furthermore, although the applicant shared a study of Xe-MRI VDP guided bronchial thermoplasty (BT) treatment compared to standard of care, with statistically significant findings reporting that Xe-MRI guided BT patients resulted in actionable changes in the patient's management due to VDP measure of lung ventilation, we note that the study provided, associated with clinical trial number NCT01832363, utilized the MagniXene® technology by Xemed LLC. We note that it is unclear if the XENOVIEW^TM technology from Polarean, Inc. is the same as the MagniXene® technology from Xemed LLC, or what differences may exist between the technologies. Therefore, we are unable to conclude that use of the XENOVIEW^TM technology affects the management of the patient.

After review of the information submitted by the applicant as part of its FY 2024 new technology add-on payment application for XENOVIEW^TM and consideration of the comments received, we are unable to determine that XENOVIEW^TM meets the substantial clinical improvement criterion for the reasons discussed in the FY 2024 IPPS/LTCH PPS proposed rule and in this final rule, and therefore we are not approving new technology add-on payments for XENOVIEW^TM for FY 2024.

7. FY 2024 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 stated in the proposed rule that we are continuing to summarize each application in the proposed rule. However, we stated that 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 2024 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). In addition, we noted that we made available separate 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 2024 new technology add-on payment applications in Table 10 associated with the proposed rule, available via the internet 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 2024 IPPS Proposed Rule Home Page” or “Acute Inpatient—Files for Download”. Please see section VI of the Addendum of the proposed rule for additional information regarding tables associated with the proposed rule.

We received 27 applications for new technology add-on payments for FY 2024 under the new technology add-on payment alternative pathway. Seven applicants withdrew applications prior to the issuance of the proposed rule. Subsequently, prior to the issuance of this final rule, seven additional applicants withdrew their respective applications for Selux NGP System, Total Ankle Talar Replacement, Transdermal GFR Measurement System utilizing Lumitrace, Ceribell Delirium Monitor, NUsurface, 4WEB Ankle Truss System, and the Nelli® Seizure Monitoring System. One applicant, LimFlow (the applicant for the LimFlow System), did not meet the July 1 deadline for FDA approval or clearance of the technology and, therefore, the technology is not eligible for consideration for new technology add-on payments for FY 2024. Of the remaining 12 applications, we are approving 11 and conditionally approving 1 for new technology add-on payments for FY 2024. A discussion of these 12 applications is presented in this final rule, including 9 technologies that have received a Breakthrough Device designation from FDA and 3 that were designated as a QIDP by FDA.

In accordance with the regulations under § 412.87(e)(2), applicants for new technology add-on payments for FY 2024, including Breakthrough Devices, 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. Under the policy finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58742), we revised the regulations at § 412.87 by adding a new paragraph (e)(3) which 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 the July 1 deadline specified in § 412.87(e)(2), provided that the technology receives FDA marketing authorization by July 1 of the particular 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 2023 IPPS/LTCH PPS proposed rule, for applications under the alternative new technology add-on payment pathway, in the FY 2024 IPPS/LTCH PPS proposed rule we proposed to approve or disapprove each of these 12 applications for FY 2024 new technology add-on payments. Therefore, in this section of the preamble of this final rule, we provide background information on each of the remaining 12 alternative pathway applications and our determinations as to whether each technology is eligible for new technology add-on payments for FY 2024 or not. Consistent with our standard approach, we are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for consideration for FY 2024 due to not meeting the July 1 deadline, described previously, which were included in the FY 2024 IPPS/LTCH PPS proposed rule. We are also not summarizing nor responding to public comments received regarding these withdrawn or ineligible applications in this final rule.

a. Alternative Pathway for Breakthrough Devices

(1) Aveir^TM AR Leadless Pacemaker

Abbott Cardiac Rhythm Management submitted an application for new technology add-on payments for the Aveir^TM AR Leadless Pacemaker for FY 2024. Per the applicant, the Aveir^TM AR Leadless Pacemaker is a programmable system comprised of a single leadless pacemaker implanted into the right atrium that provides single-chamber pacing therapy without the need for traditional “wired” leads. According to the applicant, this technology contains both the generator and electrodes within the device and is anticipated to be indicated for one or more of the following permanent conditions: syncope, presyncope, fatigue, disorientation due to arrhythmia/bradycardia, or any combination of those symptoms. We note that the applicant also submitted an application for new technology add-on payments for FY 2024 for the Aveir^TM Leadless Pacemaker (herein referred to as the Aveir^TM Dual-Chamber Leadless Pacemaker), discussed separately in the following section.

Please refer to the online application posting for Aveir^TM AR Leadless Pacemaker, available at https://mearis.cms.gov/public/publications/ntap/NTP221017AH7JC , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, Aveir^TM AR Leadless Pacemaker received Breakthrough Device designation from FDA on March 27, 2020, under the Breakthrough Device designation for the Leadless Dual Chamber System for the following proposed indication: Pacemaker implantation is indicated in one or more of the following permanent conditions: syncope, presyncope, fatigue, disorientation due to arrhythmia/bradycardia, or any combination of those symptoms. The proposed indications for the use of the Leadless Dual Chamber System included all four of the following: (1) Rate-Modulated Pacing is indicated for patients with chronotropic incompetence, and for those who would benefit from increased stimulation rates concurrent with physical activity. Chronotropic incompetence has not been rigorously defined. A conservative approach, supported by the literature, defines chronotropic incompetence as the failure to achieve an intrinsic heart rate of 70 percent of the age-predicted maximum heart rate or 120 bpm during exercise testing, whichever is less, where the age-predicted heart rate is calculated as 197 − (0.56 × age). (2) Dual-Chamber Pacing is indicated for those patients exhibiting: sick sinus syndrome; chronic, symptomatic second- and third-degree AV block; recurrent Adams-Stokes syndrome; symptomatic bilateral bundle branch block when tachyarrhythmia and other causes have been ruled out. (3) Atrial Pacing is indicated for patients with sinus node dysfunction and normal AV and intraventricular conduction systems. (4) Ventricular Pacing is indicated for patients with significant bradycardia and normal sinus rhythm with only rare episodes of AV block or sinus arrest; chronic atrial fibrillation; severe physical disability.

According to the applicant, the relevant indications for single-chamber atrial leadless pacing are the first and third indications, Rate-Modulated Pacing and Atrial Pacing. The applicant further stated that the Breakthrough Device designation applies to two clinical scenarios: a de novo system where a patient receives the Aveir^TM Dual-Chamber Leadless Pacemaker (that is, both the Aveir^TM AR Leadless Pacemaker and the Aveir^TM VR Leadless Pacemaker are implanted within the same procedure), or an upgrade system where a patient already has a ventricular leadless pacemaker and is upgraded to the Aveir^TM Dual-Chamber Leadless Pacemaker by receiving the Aveir^TM AR Leadless Pacemaker. The applicant stated that it received FDA premarket approval for both the atrial leadless pacemaker (Aveir^TM AR Leadless Pacemaker) and the dual chamber leadless pacemaker (Aveir^TM Dual-Chamber Leadless Pacemaker) on June 29, 2023, for the same indications. We stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26927) that while the intended indications for the Aveir^TM AR Leadless Pacemaker would appear to match sections of the Breakthrough Device designation, the Breakthrough Device designation provided by the applicant is for the Leadless Dual Chamber System, rather than the Aveir^TM Dual-Chamber Leadless Pacemaker. Therefore, although the Aveir^TM AR Leadless Pacemaker may be one component of the system, it appeared that the Aveir^TM AR Leadless Pacemaker on its own is not the subject of the Breakthrough Device designation and would not be considered a Breakthrough Device once FDA approved. As discussed, a device must be designated under FDA's Breakthrough Devices Program to be eligible under the alternative pathway. Accordingly, because the Aveir^TM AR Leadless Pacemaker appeared to only be eligible under the alternative pathway for procedures involving the full dual-chamber system (that is, where patients are upgraded to the Aveir^TM Dual-Chamber Leadless Pacemaker by receiving the Aveir^TM AR Leadless Pacemaker), we stated in the proposed rule that we believe any eligible use of the Aveir^TM AR Leadless Pacemaker would be included under the new technology add-on payment application for the Aveir^TM Dual-Chamber Leadless Pacemaker. We invited public comment on the eligibility of the Aveir^TM AR Leadless Pacemaker under the alternative pathway.

Comment: The applicant submitted a comment regarding the eligibility of the Aveir^TM AR Leadless Pacemaker for new technology add-on payments. The applicant asserted that FDA granted Breakthrough Device designation to the modular Leadless Dual Chamber System, which consists of the Aveir^TM VR (ventricular leadless pacemaker) and the Aveir^TM AR (atrial leadless pacemaker). The applicant stated it developed the modular Leadless Dual Chamber System with bidirectional implant-to-implant (i2i) communication to accommodate all pacing indications. According to the applicant, the i2i technology provides beat-to-beat communication and synchrony between two leadless pacemakers, a necessary foundation of dual-chamber leadless pacing therapy. The applicant stated that this system allows the two devices to communicate with each other—sensing for delayed or missed heartbeat and then pacing the appropriate chamber of the heart. According to the applicant, the Aveir^TM system is modular, such that a single device can be implanted in a heart chamber initially, and the second pacemaker added to the other heart chamber in the future should the clinical need arise. The applicant asserted that the Aveir^TM AR Leadless Pacemaker specifically corresponds to the Atrial Pacing configuration listed by FDA in the Breakthrough Device designation, which is distinct from Ventricular Pacing and Dual-Chamber Pacing. The applicant asserted that it would be incongruous for Aveir^TM AR Leadless Pacemaker not to be a Breakthrough Device since it is the precise device that provides Atrial Pacing. The applicant stated that new technology add-on payment designation for the standalone Aveir^TM AR Leadless Pacemaker would enable CMS to recognize that the costs to hospitals are different when a single leadless pacemaker is implanted in the right atrium compared with implantation of both a leadless ventricular pacemaker and atrial leadless pacemaker in the same procedure. The applicant commented that the Aveir^TM AR Leadless Pacemaker with i2i technology also enables physicians to implant for single chamber pacing indications and adapt treatment if symptoms progress and the patient requires dual-chamber pacing.

Response: We appreciate the information submitted by the applicant regarding the eligibility of the Aveir^TM AR Leadless Pacemaker. However, we still note that Breakthrough Device designation was granted for the combination product. We agree with the applicant that the bidirectional i2i communication and synchrony between two leadless pacemakers is distinct from what is offered on implantation of the either the Aveir^TM AR or the Aveir^TM VR leadless pacemakers individually. While we understand that implantation of the Aveir^TM AR Leadless Pacemaker alone during a procedure could be included under the Breakthrough Device designation, it is our understanding that that would only be the case with a prior implanted Aveir^TM VR Pacemaker to trigger the i2i communication, and not with a future implant. Therefore, we believe that eligible uses of the Aveir^TM AR Leadless Pacemaker would be procedures that result in a dual-chamber leadless system (whether as part of an initial dual-chamber insertion procedure or as part of an upgrade procedure to a dual-chamber device, as described previously). Since the Aveir^TM AR Leadless Pacemaker on its own was not granted Breakthrough Device designation, it is therefore not eligible for consideration under the alternative pathway for Breakthrough Devices as a standalone device.

Comment: The applicant provided a list of clinical scenarios and procedure codes for which it believed either the Aveir^TM AR Leadless Pacemaker or the Aveir^TM Dual-Chamber Leadless Pacemaker qualified for the Breakthrough Device designation. The applicant asserted: (1) X2H63V9 and X2HK3V9 (Insertion of dual-chamber intracardiac pacemaker into right atrium, percutaneous approach, new technology group 9, Insertion of dual-chamber intracardiac pacemaker into right ventricle, percutaneous approach, new technology group 9) could be used for de novo insertion, or removal and replacement of the dual chamber leadless system; (2) the procedure code X2H63V9 could be used for upgrading to dual chamber leadless system (Aveir^TM AR insertion when patient has existing Aveir^TM VR), or removal and replacement of right atrial component of dual chamber leadless system (Aveir^TM AR removal and replacement); and (3) the procedure code X2H63V9 could be used for de novo insertion of atrial only single chamber leadless pacemaker, or removal and replacement of right atrial single chamber leadless pacemaker.

Another commenter requested that CMS clarify in the final rule the clinical scenarios to which the new technology add-on payment would apply if approved and provide guidance on appropriate coding to facilitate claims processing to ensure the new technology add-on payment is triggered only in cases that meet the alternative pathway requirements.

Response: We thank the commenters for the comments. As discussed previously, only use of the Aveir^TM AR Leadless Pacemaker as part of an upgrade procedure to dual chamber pacemaker, or as part of a De Novo insertion of a dual chamber pacemaker (discussed in further detail in the following section for Aveir^TM Dual Chamber Leadless Pacemaker), are relevant for the purposes of new technology add-on payments. As noted later in this section, the Aveir^TM AR Leadless Pacemaker was granted approval for the following procedure code effective October 1, 2023: X2H63V9 (Insertion of dual-chamber intracardiac pacemaker into right atrium, percutaneous approach, new technology group 9), which describes upgrade procedures to dual-chamber pacing by implanting a leadless pacemaker into the atrium only where the patient already has a ventricular leadless pacemaker. We do not believe it would be appropriate to utilize X2H63V9 for a procedure that does not result in a dual-chamber pacemaker (such as implantation of an atrial-only pacemaker). We further note that single-chamber pacing is not intended to be captured by the new code, and additional codes are utilized for removal/replacement procedures in addition to insertion codes.

The applicant stated that the following ICD–10–PCS code may be used to uniquely describe procedures involving the use of Aveir^TM AR Leadless Pacemaker effective beginning FY 2017: 02H63NZ (Insertion of intracardiac pacemaker into right atrium, percutaneous approach). The applicant also submitted a request for approval for a unique ICD–10–PCS code for the Aveir^TM AR Leadless Pacemaker beginning in FY 2024 and was granted approval for the following procedure code effective October 1, 2023: X2H63V9 (Insertion of dual-chamber intracardiac pacemaker into right atrium, percutaneous approach, new technology group 9). The applicant stated that I49.9 (Cardiac arrythmia, unspecified) may be used to currently identify the proposed indication for Aveir^TM AR Leadless Pacemaker under the ICD–10–CM coding system.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for the Aveir^TM AR Leadless Pacemaker, the applicant searched the FY 2021 MedPAR file for cases reporting ICD–10–PCS code 02H63NZ (Insertion of intracardiac pacemaker into right atrium, percutaneous approach). Using the inclusion/exclusion criteria described in the following table, the applicant identified 1,186 claims mapping to 43 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 $207,890, which exceeded the average case-weighted threshold amount of $158,574. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the Aveir^TM AR Leadless Pacemaker meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26928), we stated that we have the following concerns regarding the cost criterion. As summarized in the following section, the applicant stated that the Aveir^TM Dual-Chamber Leadless Pacemaker is identified using both ICD–10–PCS code 02H63NZ (used for the cost analysis for the Aveir^TM AR Leadless Pacemaker) and ICD–10–PCS code 02HK3NZ (Insertion of Intracardiac Pacemaker into Right Ventricle, Percutaneous Approach). We questioned whether, by not excluding cases reporting ICD–10–PCS code 02HK3NZ as part of the case selection for the cost analysis for the Aveir^TM AR Leadless Pacemaker, cases involving use of the dual chamber system could have been included as part of this analysis. Also, while it was our understanding that procedure code 02H63NZ was approved to describe procedures involving the use of intracardiac atrial pacemakers effective beginning FY 2017, the applicant stated that there are no technologies on the market eligible to be coded with procedure code 02H63NZ as the Aveir^TM AR Leadless Pacemaker will be the first atrial leadless pacemaker, if approved. Therefore, we were unsure why the applicant searched for cases reporting procedure code 02H63NZ within the FY 2021 MedPAR file if there should not be any technologies coded with procedure code 02H63NZ until FY 2022 (when the applicant stated clinical trials for the Aveir^TM AR Leadless Pacemaker began). We further questioned in the proposed rule which technology the cases identified in the MedPAR data represent. We questioned whether searching for cases utilizing standard pacemakers instead of leadless pacemakers (with relevant adjustments to remove/add charges as necessary) would better reflect the technology that the applicant anticipates Aveir^TM AR Leadless Pacemaker will be replacing.

Subject to the applicant adequately addressing these concerns, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26928), we agreed that the technology meets the cost criterion and proposed to approve the Aveir^TM AR Leadless Pacemaker for new technology add-on payments for FY 2024, subject to the technology receiving Breakthrough Device designation and FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

The applicant had not provided an estimate for the cost of the Aveir^TM AR Leadless Pacemaker at the time of the proposed rule. We stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26928) that we expected the applicant to submit cost information prior to the final rule, and that we would provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. We stated that any new technology add-on payment for the Aveir^TM AR Leadless Pacemaker would be subject to our policy under § 412.88(a)(2) where we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case.

We invited public comments on whether the Aveir^TM AR Leadless Pacemaker meets the cost criterion and our proposal to approve new technology add-on payments for the Aveir^TM AR Leadless Pacemaker for FY 2024 subject to the technology receiving Breakthrough Device designation and FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

Comment: We received a comment in support of our proposal to approve new technology add-on payments for the Aveir^TM AR Leadless Pacemaker. The commenter stated that the Aveir^TM AR Leadless Pacemaker allows for mapping prior to fixation and reduces the number of repositioning attempts. According to the commenter, positioning capabilities may result in better long-term outcomes for patients, and in addition to an increased battery life– twice the battery life of other leadless pacemakers—it may lead to fewer procedures and reduce patient risk.

Response: We thank the commenter for the comments.

Comment: The applicant submitted a comment regarding the cost criterion and provided an alternate cost analysis in response to CMS's concerns identified in the proposed rule regarding whether cases utilizing standard pacemakers instead of leadless pacemakers would better reflect the technology that the applicant anticipates Aveir^TM AR Leadless Pacemaker will be replacing. In the updated analysis, the applicant searched for cases using a combination of ICD–10–PCS codes for implanting a standard dual-chamber pacemaker plus the insertion of the additional lead in the right atrium (rather than codes for leadless pacemakers) based on the assertion that this would appropriately describe patients who already have a leadless right ventricle pacemaker who are implanted with the Aveir^TM AR Leadless Pacemaker. The applicant removed 100 percent of the charges from revenue centers 0275, 0278, 0279, and 0624 from the 1,317 identified discharges to be as conservative as possible. Because the final inflated average case-weighted standardized charge per case of $252,073 for a device upgrade exceeded the average case- weighted threshold amount of $122,326 in the updated cost analysis, the applicant asserted that the Aveir^TM AR Leadless Pacemaker met the cost criterion.

With respect to CMS's question why the applicant searched for cases reporting procedure code 02H63NZ, the applicant stated that it included these cases in the original analysis with the expectation that CMS would seek that data because it is a code specific to a leadless pacemaker, notwithstanding that its technology was not reported until FY 2022. The applicant noted that it updated the analysis using traditional transvenous pacemaker codes and omitted this code, based on CMS's suggestion, and as described previously.

In addition, the applicant provided an additional cost analysis for insertion of atrial only single chamber pacemaker in the right atrium to complement the prior analysis and other clinical scenarios, as it stated that Aveir AR^TM Leadless Pacemaker with i2i technology also enables physicians to implant for single chamber pacing indications and adapt treatment if symptoms progress and the patient requires dual-chamber pacing. In the new cost analysis, because the final inflated average case-weighted standardized charge per case of $276,818 for an atrial-only pacemaker exceeded the average case-weighted threshold amount of $137,401, the applicant maintained that the device meets the cost criterion.

Response: We thank the applicant for its comments and appreciate the updated and additional cost analyses. We agree that the technology meets the cost criterion based on the first updated analysis where the applicant searched for cases utilizing standard pacemakers and implanting an atrial lead during insertion of a dual-chamber system. As previously stated, the Breakthrough Device designation was granted for the dual-chamber product and not for the Aveir^TM AR Leadless Pacemaker, and therefore eligible uses of the Aveir^TM AR Leadless Pacemaker would be procedures that result in the insertion of a dual-chamber system, and it is not eligible for consideration under the alternative pathway for Breakthrough Devices as a standalone device.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe Aveir^TM AR Leadless Pacemaker meets the cost criterion. The technology received FDA premarket approval on June 29, 2023, as a Breakthrough Device when used as part of the Dual-Chamber system, with an indication for one or more of the following permanent conditions: syncope, presyncope, fatigue, disorientation due to arrhythmia/bradycardia, or any combination of those symptoms. Therefore, we are finalizing our proposal to approve new technology add-on payments for Aveir^TM AR Leadless Pacemaker for FY 2024. We note, as discussed previously, that only the use of the technology resulting in the insertion of a dual-chamber system is relevant for the purposes of new technology add-on payments. We consider the beginning of the newness period to commence on June 29, 2023, the date on which technology received FDA marketing authorizationfor the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of Aveir^TM AR Leadless Pacemaker is $16,500, including one Aveir^TM AR atrial leadless pacemaker, one delivery catheter, and one introducer. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of Aveir^TM AR Leadless Pacemaker is $10,725 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the Aveir^TM AR Leadless Pacemaker that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code X2H63V9 (Insertion of dual-chamber intracardiac pacemaker into right atrium, percutaneous approach, new technology group 9).

(2) Aveir^TM Leadless Pacemaker (Dual-Chamber)

Abbott Cardiac Rhythm Management submitted an application for new technology add-on payments for the Aveir^TM Leadless Pacemaker (herein referred to as the Aveir^TM Dual-Chamber Leadless Pacemaker) for FY 2024. According to the applicant, the Aveir^TM Dual-Chamber Leadless Pacemaker is a modular programmable system comprised of two implanted leadless pacemakers that provide dual-chamber pacing therapy: a ventricular leadless pacemaker intended for direct implantation into the right ventricle, and an atrial leadless pacemaker intended for direct implantation into the right atrium. The applicant stated that the Aveir^TM Dual-Chamber Leadless Pacemaker has built-in power supply and electrodes, is designed to be retrievable by a dedicated retrieval catheter, and enables two separate pacemakers to function as one dual-chamber pacing system. The applicant stated that pacemaker implantation is generally indicated in one or more of the following permanent conditions: syncope, presyncope, fatigue, disorientation due to arrhythmia/bradycardia, or any combination of those symptoms. As discussed separately in the previous section, the applicant also submitted an application for FY 2024 new technology add-on payments for the Aveir^TM AR Leadless Pacemaker, which provides atrial pacing.

Please refer to the online application posting for the Aveir^TM Dual-Chamber Leadless Pacemaker, available at https://mearis.cms.gov/public/publications/ntap/NTP221017AJNQH , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, the Aveir^TM Dual-Chamber Leadless Pacemaker was granted Breakthrough Device designation from FDA on March 27, 2020, under the Breakthrough Device designation for the Leadless Dual Chamber System for the following proposed indication: Pacemaker implantation is indicated in one or more of the following permanent conditions: syncope, presyncope, fatigue, disorientation due to arrhythmia/bradycardia, or any combination of those symptoms. The proposed indications for use of the Leadless Dual Chamber System include all four of the following: (1) Rate-Modulated Pacing is indicated for patients with chronotropic incompetence, and for those who would benefit from increased stimulation rates concurrent with physical activity. Chronotropic incompetence has not been rigorously defined. A conservative approach, supported by the literature, defines chronotropic incompetence as the failure to achieve an intrinsic heart rate of 70 percent of the age-predicted maximum heart rate or 120 bpm during exercise testing, whichever is less, where the age-predicted heart rate is calculated as 197−(0.56 × age); (2) Dual-Chamber Pacing is indicated for those patients exhibiting: sick sinus syndrome; chronic, symptomatic second- and third-degree AV block; recurrent Adams-Stokes syndrome; symptomatic bilateral bundle branch block when tachyarrhythmia and other causes have been ruled out; (3) Atrial Pacing is indicated for patients with: sinus node dysfunction and normal AV and intraventricular conduction systems; (4) Ventricular Pacing is indicated for patients with: significant bradycardia and normal sinus rhythm with only rare episodes of AV block or sinus arrest; chronic atrial fibrillation; severe physical disability.

The applicant further stated that the Breakthrough Device designation applies to two clinical scenarios: a de novo system where a patient receives the Aveir^TM Dual-Chamber Leadless Pacemaker, or an upgrade system where a patient already has a ventricular leadless pacemaker and is upgraded to the Aveir^TM Dual-Chamber Leadless Pacemaker by receiving the Aveir^TM AR Leadless Pacemaker. The applicant stated that it received FDA premarket approval for the Aveir^TM Dual-Chamber Leadless Pacemaker on June 29, 2023, for the same indications.

According to the applicant, the following ICD–10–PCS procedure codes can currently be used to distinctly identify the Aveir^TM Dual-Chamber Leadless Pacemaker effective beginning FY 2017: 02H63NZ (Insertion of intracardiac pacemaker into right atrium, percutaneous approach) and 02HK3NZ (Insertion of intracardiac pacemaker into right ventricle, percutaneous approach). The applicant stated that there are other systems also in development that will use this combination of ICD–10–PCS codes but that the Aveir^TM Dual-Chamber Leadless Pacemaker will be the first dual chamber leadless pacemaker system on the market. The applicant also submitted a request for approval for a unique ICD–10–PCS code for the Aveir^TM Dual-Chamber Leadless Pacemaker beginning in FY 2024 and was granted approval for the following procedure code combination effective October 1, 2023: X2H63V9 (Insertion of dual-chamber intracardiac pacemaker into right atrium, percutaneous approach, new technology group 9) and X2HK3V9 (Insertion of dual-chamber intracardiac pacemaker into right ventricle, percutaneous approach, new technology group). Both codes would be reported for this procedure to identify the percutaneous insertion of a dual-chamber leadless cardiac pacemaker system. The applicant stated that diagnosis code I49.9 (Cardiac arrythmia, unspecified) may be used to currently identify the proposed indication for Aveir^TM Dual-Chamber Leadless Pacemaker under the ICD–10–CM coding system.

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for the Aveir^TM Dual-Chamber Leadless Pacemaker, the applicant searched the FY 2021 MedPAR file for cases reporting ICD–10–PCS code 02H63NZ (Insertion of intracardiac pacemaker into right atrium, percutaneous approach) in combination with ICD–10–PCS code 02HK3NZ (Insertion of intracardiac pacemaker into right ventricle, percutaneous approach). Using the inclusion/exclusion criteria described in the following table, the applicant identified 991 claims mapping to 38 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 $206,636, which exceeded the average case-weighted threshold amount of $159,357. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the Aveir^TM Dual-Chamber Leadless Pacemaker meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26930), we stated that we have the following concern regarding the cost criterion. It was our understanding that procedure codes 02H63NZ and 02HK3NZ were approved for use in describing procedures involving intracardiac pacemakers effective beginning FY 2017. The applicant stated that there are no technologies on the market eligible to be coded with procedure code 02H63NZ as the Aveir^TM AR Leadless Pacemaker will be the first atrial leadless pacemaker, if approved, and there are no dual-chamber leadless pacemakers currently available. Therefore, we were unsure why the applicant searched for cases reporting procedure code 02H63NZ within the FY 2021 MedPAR file if there should not be any technologies coded with 02H63NZ until FY 2022 (when the applicant stated clinical trials for the Aveir^TM AR and Dual-Chamber Leadless Pacemaker began). We further questioned in the proposed rule which technology the cases identified in the MedPAR data represent. We questioned whether searching for cases utilizing standard pacemakers instead of leadless pacemakers (with relevant adjustments to remove/add charges as necessary) would better reflect the technology that the applicant anticipates Aveir^TM Dual-Chamber Leadless Pacemaker will be replacing.

Subject to the applicant adequately addressing this concern, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26930), we agreed with the applicant that the technology meets the cost criterion and therefore proposed to approve the Aveir^TM Dual-Chamber Leadless Pacemaker for new technology add-on payments for FY 2024, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

The applicant had not provided an estimate for the cost of the Aveir^TM Dual-Chamber Leadless Pacemaker at the time of the proposed rule. We stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26930) that we expected the applicant to submit cost information prior to the final rule, and that we would provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. We stated that any new technology add-on payment for the Aveir^TM Dual-Chamber Leadless Pacemaker would be subject to our policy under § 412.88(a)(2) where we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case.

We invited public comments on whether the Aveir^TM Dual-Chamber Leadless Pacemaker meets the cost criterion and our proposal to approve new technology add-on payments for the Aveir^TM Dual-Chamber Leadless Pacemaker for FY 2024 subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

Comment: The applicant submitted an alternate cost analysis in response to CMS's concerns identified in the proposed rule whether cases utilizing standard dual-chamber pacemakers instead of leadless pacemakers would be more representative of the discharges Aveir^TM Dual-Chamber Leadless Pacemaker would be replacing. The applicant asserted that the cases selected in the updated cost analysis appropriately describe traditional transvenous dual-chamber de novo implant procedures and provide a good comparator for procedures it anticipates would be replaced with Aveir^TM Dual-Chamber Leadless Pacemaker. The applicant removed 100 percent of the charges from revenue centers 0275, 0278, 0279, and 0624 from the 47,425 identified discharges to be as conservative as possible. In the updated cost analysis, because the final inflated average case-weighted standardized charge per case of $201,227 still exceeded the average case-weighted threshold amount of $115,421, the applicant asserted that Aveir^TM Dual-Chamber Leadless Pacemaker meets the cost criterion.

With respect to CMS's concern that whether cases coded with 02HK3NZ should be included in the analysis, the applicant stated that its original analysis included cases reporting 02H63NZ for purposes of completeness and in expectation that CMS would seek data on codes specific to a leadless pacemaker, notwithstanding that its specific technology was not reported until FY 2022. According to the applicant, the updated analysis used only the traditional transvenous pacemaker codes listed previously based on the CMS's suggestion and omitted 02H63NZ.

Response: We thank the applicant for the comments and the alternate cost analysis.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe Aveir^TM Dual-Chamber Leadless Pacemaker meets the cost criterion. The technology received FDA premarket approval on June 29, 2023, as a Breakthrough Device, with an indication for one or more of the following permanent conditions: syncope, presyncope, fatigue, disorientation due to arrhythmia/bradycardia, or any combination of those symptoms. Therefore, we are finalizing our proposal to approve new technology add-on payments for Aveir^TM Dual-Chamber Leadless Pacemaker for FY 2024. We consider the beginning of the newness period to commence on June 29, 2023, the date on which technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of Aveir^TM Dual-Chamber Leadless Pacemaker is $24,000, including two leadless pacemakers (Aveir^TM AR atrial leadless pacemaker and Aveir^TM VR ventricular leadless pacemaker), two delivery catheters (one for each leadless pacemaker), and one introducer. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of Aveir^TM Leadless Pacemaker is $15,600 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of Aveir^TM Leadless Pacemaker that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure codes X2H63V9 (Insertion of dual-chamber intracardiac pacemaker into right atrium, percutaneous approach, new technology group 9) in combination with X2HK3V9 (Insertion of dual-chamber intracardiac pacemaker into right ventricle, percutaneous approach, new technology group). We note that both codes would be reported for this procedure to identify the percutaneous insertion of a dual-chamber leadless cardiac pacemaker system relevant for new technology add-on payments.

(3) Canary Tibial Extension (CTE) With Canary Health Implanted Reporting Processor (CHIRP) System

Zimmer Biomet submitted an application for new technology add-on payments for the Canary Tibial Extension (CTE) with Canary Health Implanted Reporting Processor (CHIRP) System for FY 2024. Per the applicant, the CTE with CHIRP System is a tibial extension implant containing electronics and software, used with the Zimmer Persona Personalized Knee System. According to the applicant, the CTE with CHIRP System collects kinematic data pertaining to a patient's gait and activity level following total knee arthroplasty (TKA) surgery using internal motion sensors (3–D accelerometers and 3–D gyroscopes).

Please refer to the online application posting for the CTE with CHIRP System, available at https://mearis.cms.gov/public/publications/ntap/NTP221014KYAL1 , for additional detail describing the technology and its intended use.

According to the applicant, the CTE with CHIRP System received Breakthrough Device designation from FDA on October 24, 2019, for the following proposed indication: for use with the Zimmer Persona Personalized Knee System (K113369) for TKA. The CTE with CHIRP System is intended to provide objective kinematic data from the implanted medical device to assist the patient and clinician during a patient's TKA post-surgical care. The kinematic data is intended as an adjunct to standard of care and physiological parameter measurement tools applied or utilized by the physician during the course of patient monitoring and treatment post-surgery. FDA granted De Novo classification to the CTE with CHIRP System on August 27, 2021, for the following indication: to provide objective kinematic data from the implanted medical device during a patient's TKA post-surgical care. The kinematic data is an adjunct to other physiological parameter measurement tools applied or utilized by the physician during the course of patient monitoring and treatment post-surgery. The device is indicated for use in patients undergoing a cemented TKA procedure that are normally indicated for at least a 58 mm sized tibial stem extension. The applicant stated that the technology was not immediately available for sale due to production delays related to COVID–19 and because of the need to negotiate data agreements with customer hospitals, but it became commercially available on October 4, 2021.

The applicant submitted a request for approval for a unique ICD–10–PCS procedure code for the CTE with CHIRP System beginning in FY 2024 and was granted approval for the following procedure code(s) effective October 1, 2023: XNHG0F9 (Insertion of tibial extension with motion sensors into right tibia, open approach, new technology group 9), or XNHH0F9 (Insertion of tibial extension with motion sensors into left tibia, open approach, new technology group 9).

With respect to the cost criterion, the applicant provided the following analysis to demonstrate that it meets the cost criterion. To identify potential cases representing patients who may be eligible for the CTE with CHIRP System, the applicant searched the FY 2021 MedPAR file for cases reporting the ICD–10–PCS codes describing cemented replacement of the knee joint with a synthetic device via an open approach, as listed in the following table. Using the inclusion/exclusion criteria described in the following table, the applicant identified 74,654 claims mapping to 60 MS–DRGs. See Table 10.5.A.—CTE with CHIRP System Codes—FY 2024 associated with the proposed rule for the complete list of MS–DRGs provided by the applicant. 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 $90,599, which exceeded the average case-weighted threshold amount of $84,613. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the CTE with CHIRP System meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26931), we agreed with the applicant that the technology meets the cost criterion and therefore proposed to approve the CTE with CHIRP System for new technology add-on payments for FY 2024 for the indication to provide objective kinematic data from the implanted medical device during a patient's TKA post-surgical care. The kinematic data is an adjunct to other physiological parameter measurement tools applied or utilized by the physician during the course of patient monitoring and treatment post-surgery. The device is indicated for use in patients undergoing a cemented TKA procedure that are normally indicated for at least a 58 mm sized tibial stem extension.

Based on preliminary information from the applicant at the time of the proposed rule, the total cost of the CTE with CHIRP System to the hospital was approximately $1,654 per knee. This included $1,309 for the CTE and $345 for the Canary Medical Home Base Station. We noted that per the applicant, the Home Base Station System is intended for use in the patient's home environment and is used to query the CTE while the patient is asleep. We further noted that the Home Base Station provided to the patient to set up and connect to their home Wi-Fi prior to surgery. We therefore stated that we believe the relevant inpatient costs for the add-on payment would include only the cost of the CTE. We noted that the cost information for this technology would be updated in the final rule based on revised or additional information CMS received prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the CTE with CHIRP System would be $850.85 for one knee (or $1,701.70 for two knees) for FY 2024 (that is, 65 percent of the average cost of the technology).

We invited public comments on whether the CTE with CHIRP System meets the cost criterion and our proposal to approve new technology add-on payments for the CTE with CHIRP System for the indication to provide objective kinematic data from the implanted medical device during a patient's TKA post-surgical care.

Comment: The applicant submitted a comment regarding the cost of the technology relevant for add-on payments. Per the applicant, while they agreed that the home base station is used in the patient's home, the CTE with CHIRP is a system requiring both the CTE and the home base station components for the system to function. The applicant noted that the home base station is necessary for the communication of data to an external server, is paired to only one patient (that is, it is not reusable), and though it is paid for by the facility, it becomes the property of the patient. Thus, it is not a piece of equipment, an instrument, apparatus, implement or item for which depreciation and financing expenses are recovered by the hospital. The applicant maintained that the home base station is different from the operating room base station, which they agreed is not applicable to the new technology add-on payment calculation and was not included in their application because it is given to the hospital, and remains with the hospital, to be used intraoperatively to activate the CHIRP System in multiple patients. The applicant requested that CMS recognize that the CTE with CHIRP is one system and include the $345 cost of the home base station in the new technology add-on payment calculation to bring the maximum new technology add-on payment to $1,075.10 per knee ($1,654 × 65%).

Response: We thank the applicant for its input. However, as stated in the proposed rule, we are concerned that that the Home Base Station is provided to the patient to set up and connect to their home Wi-Fi prior to surgery. The Home Base Station is not an item administered to the patient during the hospital that leaves the hospital with the patient upon discharge. While the applicant states that the Home Base Station is not a piece of equipment, an instrument, apparatus, implement or item for which depreciation and financing expenses are recovered by the hospital, we still are unclear if the Home Base Station is billable in the inpatient setting. Therefore, for this final rule we are excluding the Home Base Station from the add on payment and the relevant inpatient costs for the add-on payment would include only the cost of the CTE. We welcome additional information from the applicant in the future on whether the Home Base Station should be included in the add on payment.

Comment: Another commenter submitted a comment stating that the kinematic data generated by the CTE with CHIRP System has not demonstrated any clinical benefits or outcomes and is not intended to be utilized for clinical decision-making, and raised questions regarding how the technology would be used.

Response: We thank the commenter for its comment. We note, as discussed previously, that a technology that applies under an alternative pathway does not need to meet the requirement that it represents an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule for a discussion of the development of these alternative pathways (84 FR 42292 through 42297).

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe the CTE with CHIRP System meets the cost criterion. The technology received De Novo classification on August 27, 2021, as a Breakthrough Device for the following indication which is covered by its Breakthrough Device designation: to provide objective kinematic data from the implanted medical device during a patient's total knee arthroplasty (TKA) post-surgical care. The device is indicated for use in patients undergoing a cemented TKA procedure that are normally indicated for at least a 58 mm sized tibial stem extension. Therefore, we are finalizing our proposal to approve new technology add-on payments for CTE with CHIRP for FY 2024. We consider the beginning of the newness period to commence on October 4, 2021, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, as stated previously, the relevant inpatient costs for the add-on payment would include only the cost of the CTE. The cost per case of the CTE with CHIRP System is $1,309 per knee. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the CTE with CHIRP System is $850.85 for one knee (or $1,701.70 for two knees) for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the CTE with CHIRP System that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure codes XNHG0D9 (Insertion of tibial extension with motion sensors into right tibia, open approach, new technology group 9) or XNHH0D9 (Insertion of tibial extension with motion sensors into left tibia, open approach, new technology group 9).

(4) Ceribell Status Epilepticus Monitor

Ceribell, Inc. submitted an application for new technology add-on payments for the Ceribell Status Epilepticus Monitor for FY 2024. According to the applicant, the Ceribell Status Epilepticus Monitor is a medical device system comprised of proprietary software and two cleared, proprietary products: a single-use signal acquisition headband (the Ceribell EEG Headband) and a recorder (the Ceribell Pocket EEG). Per the applicant, the software utilizes a machine learning model to analyze EEG signals to detect features indicative of electrographic status epilepticus (ESE) to provide more effective diagnosis of ESE.

Please refer to the online application posting for the Ceribell Status Epilepticus Monitor, available at https://mearis.cms.gov/public/publications/ntap/NTP22101439A1J , for additional detail describing the technology.

The applicant stated that the Ceribell Status Epilepticus Monitor received Breakthrough Device designation from FDA on October 25, 2022, for the following proposed indication: the Ceribell Status Epilepticus Monitor software is intended for the diagnosis of ESE in adult patients at risk for seizure. The Ceribell Status Epilepticus Monitor software analyzes EEG waveforms and identifies patterns consistent with ESE as defined in the American Clinical Neurophysiology Society's Guideline 14. The applicant stated that the technology received 510(k) clearance from FDA on May 23, 2023, for the same indication. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26933), we noted that the Ceribell EEG Headband and Ceribell Pocket EEG were not included on the Breakthrough Device designation, and it therefore appeared that only the software would be designated as the Breakthrough Device once market authorized, such that only the software would be eligible for new technology add-on payments under the alternative pathway. We note that the 510k clearance for the technology provided by the applicant was also for the software only.

The applicant submitted a request for approval for a unique ICD–10–PCS procedure code for the Ceribell Status Epilepticus Monitor beginning in FY 2024 and was granted approval for the following procedure code effective October 1, 2023: XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9).

With respect to the cost criterion, the applicant provided multiple updated analyses to demonstrate that it meets the cost criterion. For the first two analyses, to identify potential cases representing patients who may be eligible for treatment involving the Ceribell Status Epilepticus Monitor, the applicant searched the FY 2021 MedPAR file for cases reporting charges in the revenue codes 020X (Intensive Care Unit) and 021X (Coronary Care Unit) as this is where the technology is expected to be utilized based on the expected FDA label of the technology. The first analysis used 100 percent of all cases reporting charges in the two revenue code categories because these cases could be monitored for Status Epilepticus, and the second analysis used 75 percent of all such cases. The applicant also provided sensitivity analyses limited to cases reporting the diagnosis codes that were believed to identify cases with the highest risk of Status Epilepticus. The third analysis used 100 percent of these cases and the fourth analysis used 75 percent of these cases. The applicant followed the order of operations described in the following table.

Under the first analysis (100 percent of all cases within the revenue code categories), the applicant identified 2,985,030 claims mapping to 754 MS–DRGs (see Table 10.7.A.—Ceribell Status Epilepticus Monitor Codes (Analyses 1–2)—FY 2024 associated with the proposed rule for a complete list of MS–DRGs provided by the applicant) and calculated a final inflated average case-weighted standardized charge per case of $114,238, which exceeded the average case-weighted threshold amount of $85,765.

Under the second analysis (75 percent of all cases within the revenue code categories) the applicant identified 2,243,140 claims mapping to 92 MS–DRGs (see Table 10.7.B.—Ceribell Status Epilepticus Monitor Codes (Analyses 1–2)—FY 2024 associated with the proposed rule for a complete list of MS–DRGs provided by the applicant) and calculated a final inflated average case-weighted standardized charge per case of $110,949, which exceeded the average case-weighted threshold amount of $85,280.

Under the third analysis, in addition to searching for cases reporting charges in the two revenue code categories listed previously, the applicant limited the cases by selecting claims reporting diagnosis codes that it believed reflected the cases for patients age 65 or older with the highest risk of Status Epilepticus (see Table 10.7.B.—Ceribell Status Epilepticus Monitor Codes (Analyses 3–4)—FY 2024 associated with the proposed rule for a complete list of the diagnosis codes provided by the applicant). According to the applicant, the diagnosis codes identified fall into four categories: Neurological Disorders, Infection/Toxicity, Respiratory Failure and Cardiac Arrest. The applicant identified 981,013 claims mapping to 672 MS–DRGs (see Table 10.7.B.—Ceribell Status Epilepticus Monitor Codes (Analyses 3–4)—FY 2024 associated with the proposed rule for a complete list of MS–DRGs provided by the applicant) and calculated a final inflated average case-weighted standardized charge per case of $127,942, which exceeded the average case-weighted threshold amount of $89,219.

Under the fourth analysis, using 75 percent of all cases reporting the diagnosis codes used in scenario 3, the applicant identified 734,908 claims mapping to 59 MS–DRGs (see Table 10.7.B.—Ceribell Status Epilepticus Monitor Codes (Analyses 3–4)—FY 2024 associated with the proposed rule for a complete list of MS–DRGs provided by the applicant), and calculated a final inflated average case-weighted standardized charge per case of $123,446, which exceeded the average case-weighted threshold amount of $88,063.

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 Ceribell Status Epilepticus Monitor meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26934), we agreed that the technology meets the cost criterion and therefore proposed to approve the Ceribell Status Epilepticus Monitor for new technology add-on payments for FY 2024 subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the Ceribell Status Epilepticus Monitor to the hospital to be $2,600 per patient (comprised of $1,800 for the software and $800 for the required headband). We stated in the proposed rule, however, that as discussed previously, it seemed that only the software would be eligible for the new technology add-on payment under the alternative pathway as it was the subject of the Breakthrough Device designation. We further noted, as discussed with regard to the Ceribell Delirium Monitor, that the Ceribell EEG headband appeared to have been 510(k)–cleared by FDA since August 2017 and was therefore no longer new. Therefore, it appeared any add-on payment for the Ceribell Status Epilepticus Monitor would include only the cost of the software ($1,800). We welcomed comment on including only the cost of the software in determining the add-on payment amount for the Ceribell Status Epilepticus Monitor. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS received prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the Ceribell Status Epilepticus Monitor would be $1,170 ($1,800 × 0.65) for FY 2024 (that is, 65 percent of the average cost of the technology for the software).

We invited public comments on whether the Ceribell Status Epilepticus Monitor meets the cost criterion and our proposal to approve new technology add-on payments for the Ceribell Status Epilepticus Monitor for FY 2024 for the diagnosis of ESE in adult patients at risk for status epilepticus.

Comment: The applicant submitted a comment and a revised cost analysis. In its comment, the applicant noted that they have updated their pricing structure to commercialize the Status Epilepticus Monitor software through a subscription-based pricing model. Under this model, a hospital will pay a fixed monthly subscription for use of the software that allows the hospital to utilize the technology without limitations on volume. Per the applicant, their rationale for charging hospitals a monthly subscription fee is based on prior experience using a similar charge structure for launching their current EEG technology in 2020. The applicant noted that because they anticipated a lot of overlap in the use of their current EEG technology and the anticipated use of the Status Epilepticus Monitor, they plan to also commercialize the Status Epilepticus Monitor using a subscription-based pricing model. According to the applicant, to arrive at the updated per-patient cost, they estimated the number of patients expected to be evaluated using the Status Epilepticus Monitor software and divided that number by the projected monthly subscription cost. According to the applicant, it arrived at an estimated annual utilization of the Status Epilepticus Monitor per hospital based on the median annual utilization of their customers' existing EEG system over the three-year timeframe of 2020, 2021, and 2022. This resulted in a per case charge of $1,406 (instead of $1,800 in the proposed rule); the cost of the headband was unchanged at $800. Thus, the updated per patient cost is $2,206, per the applicant.

Using the new per patient cost, the applicant updated its cost analysis. According to the applicant, the updated analysis was consistent with what they had provided in the past, with the cost per patient as the only change. In their revised first analysis, in which the applicant used 100 percent of all cases within the revenue code categories, the final inflated average case-weighted standardized charge per case was $113,082, which exceeded the average case-weighted threshold amount of $85,765. In the revised second analysis, the applicant used 75 percent of all cases within the revenue code categories, the final inflated average case-weighted standardized charge per case was $109,784, which exceeded the average case-weighted threshold amount of $85,280. In the revised third analyses, in which the applicant provided sensitivity analyses limited to 100 percent of all the cases with the highest risk of Status Epilepticus, the inflated average case-weighted standardized charge per case was $125,611, which exceeded the average case-weighted threshold amount of $88,778. In their revised fourth analysis, in which the applicant provided sensitivity analyses limited to 75 percent of all the cases with the highest risk of Status Epilepticus, the final inflated average case-weighted standardized charge per case was $121,188, which exceeded the average case-weighted threshold amount of $87,583. Per the applicant, all the revised cost analyses have demonstrated that the technology still meets cost criterion.

Response: We thank the applicant for the updated information. We agree that the technology continues to meet the cost criterion using the revised pricing structure based on a subscription-based pricing model. We also thank the commenter for providing an explanation how it computed the per discharge amount based on a subscription-based pricing model.

Comment: Several commenters submitted public comments providing general support for Ceribell Status Epilepticus Monitor. A commenter noted that diagnosing status epilepticus is often challenging, as community hospitals often lack EEG technicians or specialized providers. A commenter stated that this technology will be helpful to patients in both the emergency department and the inpatient setting, especially in the intensive care unit, where patients likely have altered awareness and need to have status epilepticus diagnosed or excluded timely. Several of the commenters disagreed with our proposal to cover only the Ceribell Status Epilepticus Monitor software and not the Ceribell headband. They stated that the technology is only operational as a complete system, and that the Ceribell Status Epilepticus Monitor software requires the use of the Ceribell headband. They therefore argued in favor of including the Ceribell headband in any new technology add-on payment for the Ceribell Status Epilepticus Monitor.

Response: We thank the commenters for their comments. We note that, under the eligibility criteria for approval under the alternative pathway for certain transformative new devices, only the use of the Ceribell Status Epilepticus Monitor software is relevant for purposes of the new technology add-on payment application for FY 2024. Since only the software was designated as a Breakthrough Device by FDA, the Ceribell EEG Headband is not eligible to be included in the Ceribell Status Epilepticus Monitor add-on payment amount.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Ceribell Status Epilepticus Monitor meets the cost criterion. The Ceribell Status Epilepticus Monitor System received 510(k) clearance from FDA on May 23, 2023, for the diagnosis of Electrographic Status Epilepticus in adult patients at risk for seizure, which is covered by its Breakthrough Device designation. We consider the beginning of the newness period to commence on May 23, 2023, the date on which Ceribell Status Epilepticus Monitor was 510(K)–cleared by FDA for the indication covered in its Breakthrough Device designation.

As noted earlier, the applicant updated their pricing structure to commercialize the Status Epilepticus Monitor software through a subscription-based pricing model. Based on the information available at the time of this final rule, the cost per case of the Ceribell Status Epilepticus Monitor (using a per discharge amount based on a subscription-based pricing model) is $1,406, based on the cost per patient of the software only. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the new technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Ceribell Status Epilepticus Monitor is $913.90 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the Ceribell Status Epilepticus Monitor that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XX20X89 (Monitoring of brain electrical activity, computer-aided detection and notification, new technology group 9).

(5) DETOUR System

Endologix, Inc., submitted an application for new technology add-on payments for the DETOUR System for FY 2024. According to the applicant, the DETOUR System is a fully percutaneous approach to femoral-popliteal bypass. Per the applicant, under fluoroscopic guidance, a proprietary TORUS Stent Graft System is deployed from the popliteal artery into the femoral vein, and from the femoral vein into the superficial femoral artery (SFA) in a continuous, overlapping fashion through two independent anastomoses. The applicant stated that the intended result is a large lumen endograft bypass, that delivers unobstructed, pulsatile flow from the SFA ostium to the popliteal artery.

Please refer to the online application posting for the DETOUR System, available at https://mearis.cms.gov/public/publications/ntap/NTP2210149Y5M6 , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, the DETOUR System received Breakthrough Device designation from FDA on September 2, 2020, for percutaneous revascularization of symptomatic femoropopliteal lesions 200mm to 460mm with a chronic total occlusion 100mm to 425mm, and/or moderate-to-severe calcification, and/or in-stent-restenosis in patients with severe peripheral arterial disease. The applicant received FDA premarket approval on June 7, 2023, for the same indication. According to the applicant, the device became available on the market immediately upon FDA approval.

The applicant submitted a request for approval for a unique ICD–10–PCS procedure code for DETOUR System beginning in FY 2024 and was granted approval for the following procedure codes effective October 1, 2023: X2KH3D9 (Bypass right femoral artery using conduit through femoral vein to superficial femoral artery, percutaneous approach, new technology group 9), X2KH3E9 (Bypass right femoral artery using conduit through femoral vein to popliteal artery, percutaneous approach, new technology group 9), X2KJ3D9 (Bypass left femoral artery using conduit through femoral vein to superficial femoral artery, percutaneous approach, new technology group 9), or X2KJ3E9 (Bypass left femoral artery using conduit through femoral vein to popliteal artery, percutaneous approach, new technology group 9). Per the applicant, diagnosis codes 170.92 (Chronic total occlusion of artery of the extremities), 170.2XX (Atherosclerosis of native arteries of the extremities), and 173.9 (Peripheral vascular disease, unspecified) may be used to currently identify the indication for the DETOUR System under the ICD–10–CM system.

With respect to the cost criterion, the applicant provided two analyses to demonstrate that it meets the cost criterion. For both analyses, the applicant searched the FY 2021 MedPAR file for potential cases representing patients who may be eligible for the DETOUR System femoral-popliteal bypass procedures using either a synthetic substitute or an autologous venous tissue graft.

Under the first analysis, the applicant searched the FY 2021 MedPAR file for cases reporting one of the ICD–10–PCS codes listed in the following table and included 100 percent of the cases identified. Using the inclusion/exclusion criteria described in the following table, the applicant identified 3,110 cases mapping to 63 MS–DRGs. Please see Table 10.25.A.—The DETOUR System Codes—FY 2024 associated with the proposed rule for the complete list of MS–DRGs that the applicant indicated were included in its cost analysis. 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 $146,323, which exceeded the average case-weighted threshold amount of $106,123.

Under the second analysis, the applicant searched the FY 2021 MedPAR file for cases reporting one of the ICD–10–PCS codes listed in the table that follows and included 67.3 percent of the cases identified. Using the inclusion/exclusion criteria described in the following table, the applicant limited the search to the top three MS–DRGs as listed in the table and identified 2,094 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 $111,332, which exceeded the average case-weighted threshold amount of $96,526. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both analyses, the applicant asserted that the DETOUR System meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26950), we agreed with the applicant that the DETOUR System meets the cost criterion and proposed to approve the DETOUR System for new technology add-on payments for FY 2024, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

We stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26950) that we expected the applicant to submit cost information prior to the final rule, and we would 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 DETOUR System would be subject to our policy under § 412.88(a)(2) where we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case.

We invited public comments on whether the DETOUR System meets the cost criterion and our proposal to approve new technology add-on payments for the DETOUR System for FY 2024 subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

Comment: We received a comment from the applicant in support of CMS's proposal to approve the technology for new technology add-on payments. The applicant stated that the DETOUR System provides a transformative approach for the treatment of individuals with complex peripheral artery disease (PAD) through a novel, minimally invasive procedure referred to as percutaneous transmural arterial bypass (PTAB).

Response: We thank the commenter for its support.

Based on the information provided in the application for new technology add-on payments, we believe the DETOUR System meets the cost criterion. The technology received FDA marketing authorization on June 7, 2023, as a Breakthrough Device with an indication for percutaneous revascularization of symptomatic femoropopliteal lesions 200mm to 460mm with a chronic total occlusion 100mm to 425mm, and/or moderate-to-severe calcification, and/or in-stent-restenosis in patients with severe peripheral arterial disease, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the DETOUR System for FY 2024. We consider the beginning of the newness period to commence on June 7, 2023, the date on which the technology became commercially available for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of the DETOUR System is $25,000 for the single-use system comprised of the TORUS Stent Graft(s) and the ENDOCROSS device. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the DETOUR System is 65 percent of $16,250 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the DETOUR System that are eligible for new technology add-on payments will be identified by one of the following ICD–10–PCS procedure codes: X2KH3D9 (Bypass right femoral artery using conduit through femoral vein to superficial femoral artery, percutaneous approach, new technology group 9), X2KH3E9 (Bypass right femoral artery using conduit through femoral vein to popliteal artery, percutaneous approach, new technology group 9), X2KJ3D9 (Bypass left femoral artery using conduit through femoral vein to superficial femoral artery, percutaneous approach, new technology group 9), or X2KJ3E9 (Bypass left femoral artery using conduit through femoral vein to popliteal artery, percutaneous approach, new technology group 9).

(6) EchoGo Heart Failure 1.0

Ultromics Limited submitted an application for EchoGo Heart Failure 1.0 for FY 2024. According to the applicant, EchoGo Heart Failure 1.0 is an automated machine learning-based decision support system, indicated as a diagnostic aid for patients undergoing routine functional cardiovascular assessment using echocardiography. Per the applicant, when utilized by an interpreting physician, this device provides information that may be useful in detecting heart failure with preserved ejection fraction (HFpEF).

Please refer to the online application posting for EchoGo Heart Failure 1.0, available at https://mearis.cms.gov/public/publications/ntap/NTP2210172L1HN , for additional detail describing the technology and the medical condition the technology is intended for.

According to the applicant, EchoGo Heart Failure 1.0 received Breakthrough Device designation from FDA on February 24, 2022, as an automated machine learning-based decision support system, indicated as a diagnostic aid for patients undergoing routine functional cardiovascular assessment using echocardiography. When utilized by an interpreting clinician, this device provides information that may be useful in detecting heart failure with preserved ejection fraction (HFpEF). EchoGo Heart Failure 1.0 is indicated in adult populations over 25 years of age. Patient management decisions should not be made solely on the results of the EchoGo Heart Failure 1.0 analysis. EchoGo Heart Failure 1.0 takes as input an apical 4-chamber view of the heart that has been captured and assessed to have an ejection fraction ≥50 percent. The applicant received FDA 510(k) clearance on November 23, 2022, for the same indication.

The applicant submitted a request for approval for a unique ICD–10–PCS procedure code for EchoGo Heart Failure 1.0 beginning in FY 2024 and was granted approval for the following procedure code effective October 1, 2023: XXE2X19 (Measurement of cardiac output, computer-aided assessment, new technology group 9). The applicant provided a list of diagnosis codes that may be used to currently identify the indication for EchoGo Heart Failure 1.0 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. For each analysis, the applicant searched the FY 2021 MedPAR file using a combination of MS–DRGs and ICD–10–CM codes to identify potential cases representing patients who may be eligible for EchoGo Heart Failure 1.0. The applicant explained that it ran eight additional simulations as a sensitivity analysis, in which the applicant used combinations of MS–DRGs and/or ICD–10–CM codes to identify potential cases. Each analysis followed the order of operations described in the following table.

For the first analysis, the applicant searched for specific ICD–10–CM codes in the primary diagnosis position mapped to specific MS–DRGs representing patients likely to undergo routine functional cardiovascular assessment using echocardiography and likely to use EchoGo Heart Failure 1.0 to detect HFpEF. Please see Table 10.12.A.—EchoGo Heart Failure 1.0 Codes (Analyses 1–5)—FY 2024 associated with the proposed rule for the complete list of ICD–10–CM codes and MS–DRGs that the applicant indicated were included in its cost analysis 1. Using the inclusion/exclusion criteria described in the following table, the applicant identified 407,813 claims mapping to 17 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $66,144, which exceeded the average case-weighted threshold amount of $52,548.

For the second analysis, the applicant searched for cases that had a primary diagnosis from the applicant's ICD–10–CM list, in any MS–DRG. Please see Table 10.12.A.—EchoGo Heart Failure 1.0 Codes (Analyses 1–5)—FY 2024 associated with the proposed rule for the complete lists of ICD–10–CM codes and MS–DRGs that the applicant indicated were included in its cost analysis 2. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 496,879 claims mapping to 92 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $88,203, which exceeded the average case-weighted threshold amount of $66,971.

For the third analysis, the applicant used all cases (without the use of any ICD–10–CM or ICD–10–PCS codes) in any of the MS–DRGs included on the applicant's list of specific MS–DRGs representing patients likely to undergo routine functional cardiovascular assessment using echocardiography and likely to use the EchoGo Heart Failure 1.0 to detect HFpEF. Please see Table 10.12.A.—EchoGo Heart Failure 1.0 Codes (Analyses 1–5)—FY 2024 associated with the proposed rule for the complete list of MS–DRGs that the applicant indicated were included in its cost analysis 3. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 572,720 claims mapping to 20 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $69,126, which exceeded the average case-weighted threshold amount of $54,038.

For the fourth analysis, the applicant searched for any Medicare fee-for-service (FFS) case with an admitting diagnosis from the applicant's ICD–10–CM codes list, in any MS–DRG. Please see Table 10.12.A.—EchoGo Heart Failure 1.0 Codes (Analyses 1–5)—FY 2024 associated with the proposed rule for the complete lists of ICD–10–CM codes and MS–DRGs that the applicant indicated were included in its cost analysis 4. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 267,378 claims mapping to 493 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $97,027, which exceeded the average case-weighted threshold amount of $72,813.

For the fifth analysis, the applicant searched for any case with a primary or secondary diagnosis from the applicant's ICD–10–CM codes list, in any MS–DRG. Please see Table 10.12.A.—EchoGo Heart Failure 1.0 Codes (Analyses 1–5)—FY 2024 associated with the proposed rule for the complete list of ICD–10–CM codes and MS–DRGs that the applicant indicated were included in its cost analysis 5. The applicant used the inclusion/exclusion criteria described in the following table. Under this analysis, the applicant identified 2,277,736 claims mapping to 746 MS–DRGs, with none exceeding more than 15 percent of the total identified cases. The applicant calculated a final inflated average case-weighted standardized charge per case of $107,796, which exceeded the average case-weighted threshold amount of $76,632.

According to the applicant, the ICD–10–CM codes for systolic HF were included in the initial cost criterion analysis as the provider may not know if the patient has either systolic or diastolic HF unless the provider has ordered an echo and subsequently EchoGo Heart Failure 1.0. Symptoms are often identical, and systolic HF is defined by low ejection fraction which the applicant stated is an incredibly variable measurement. In addition, in acute decompensated HF, these patients can present as HFpEF and transition to systolic HF or vice versa within a single inpatient stay. As such, the applicant asserted that ordering EchoGo Heart Failure 1.0 would be appropriate. To understand the impact of removing the cases where the only inclusion criteria met was one of the ICD–10–CM codes for systolic HF, the applicant conducted additional analyses six through nine, removing ICD–10–CM codes for systolic heart failure: I50.20 (Unspecified systolic (congestive) heart failure), I50.21 (Acute systolic (congestive) heart failure), I50.22 (Chronic systolic (congestive) heart failure), and I50.23 (Acute on chronic systolic (congestive) heart failure). Please see Table 10.12.B.—EchoGo Heart Failure 1.0 Codes (Analyses 6–9)—FY 2024 associated with the proposed rule for the complete list of ICD–10–CM codes and MS–DRGs that the applicant indicated were included in its cost analyses 6–9. Inclusion/exclusion criteria for analyses six through nine are detailed in the table that follows.

The sixth analysis mirrored the first analysis, except that cases with ICD–10–CM systolic heart failure codes were excluded. Under this analysis, the applicant identified 398,398 claims mapping to 17 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $66,245, which exceeded the average case-weighted threshold amount of $52,651.

The seventh analysis mirrored the second analysis, except that cases with systolic heart failure ICD–10–CM codes were excluded. Under this analysis, the applicant identified 485,027 claims mapping to 92 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $88,149, which exceeded the average case-weighted threshold amount of $66,991.

The eighth analysis mirrored the fourth analysis, except that cases with ICD–10–CM systolic heart failure codes were excluded. Under this analysis, the applicant identified 244,399 claims mapping to 491 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $97,453, which exceeded the average case-weighted threshold amount of $72,735.

The ninth analysis mirrored the fifth analysis, except that cases with ICD–10–CM systolic heart failure codes were excluded. Under this analysis, the applicant identified 2,214,393 claims mapping to 746 MS–DRGs. The applicant calculated a final inflated average case-weighted standardized charge per case of $107,201, which exceeded the average case-weighted threshold amount of $76,389.

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 EchoGo Heart Failure 1.0 meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26937), we agreed with the applicant that EchoGo Heart Failure 1.0 meets the cost criterion and therefore proposed to approve EchoGo Heart Failure 1.0 for new technology add-on payments for FY 2024.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant's anticipated cost per patient for EchoGo Heart Failure 1.0 was $1,575. According to the applicant, the EchoGo Heart Failure 1.0 is charged on a per patient basis with no monthly subscription to the hospital. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS received prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of EchoGo Heart Failure 1.0 would be $1,023.75 for FY 2024 (that is, 65 percent of the average cost of the technology).

We invited public comments on whether EchoGo Heart Failure 1.0 meets the cost criterion and our proposal to approve new technology add-on payments for EchoGo Heart Failure 1.0 for FY 2024 for the indication as an automated machine learning-based decision support system, indicated as a diagnostic aid for patients undergoing routine functional cardiovascular assessment using echocardiography that corresponds to the Breakthrough Device designation.

Comment: The applicant submitted a public comment expressing support for the approval of EchoGo Heart Failure 1.0 for the new technology add-on payment for FY 2024. The applicant also supported CMS's proposed maximum new technology add-on payment amount.

Response: We thank the applicant for its comments.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe EchoGo Heart Failure 1.0 meets the cost criterion. The technology was granted FDA marketing authorization on November 23, 2022, as a Breakthrough Device, with an indication for use as an automated machine learning-based decision support system, indicated as a diagnostic aid for patients undergoing routine functional cardiovascular assessment using echocardiography. When utilized by an interpreting clinician, this device provides information that may be useful in detecting heart failure with preserved ejection fraction (HFpEF). EchoGo Heart Failure 1.0 is indicated in adult populations over 25 years of age. Patient management decisions should not be made solely on the results of the EchoGo Heart Failure 1.0 analysis. EchoGo Heart Failure 1.0 takes as input an apical 4-chamber view of the heart that has been captured and assessed to have an ejection fraction ≥50 percent. This indication is covered by its Breakthrough Device Designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for EchoGo Heart Failure 1.0 for FY 2024. We consider the beginning of the newness period to commence on November 23, 2022, the date on which technology received its FDA 510(k) clearance for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of EchoGo Heart Failure 1.0 is $1,575. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of EchoGo Heart Failure 1.0 is $1,023.75 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of EchoGo Heart Failure 1.0 that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XXE2X19 (Measurement of cardiac output, computer-aided assessment, new technology group 9).

(7) Phagenyx® System

Phagenesis Ltd. submitted an application for new technology add-on payments for the Phagenyx® System for FY 2024. The Phagenyx® System treats neurogenic dysphagia using electrical pulses to stimulate sensory nerves in the oropharynx. We note that Phagenesis Ltd. submitted an application for new technology add-on payments for the Phagenyx® System for FY 2022 and 2023, as summarized in the FY 2022 and 2023 IPPS/LTCH PPS proposed rules (86 FR 25382 through 25384 and 87 FR 28342 through 28344), but the technology did not meet the deadline of July 1, 2021/2022 for FDA approval or clearance of the technology and, therefore, was not eligible for consideration for new technology add-on payments for the FY 2022 or 2023 IPPS/LTCH PPS final rules (86 FR 45126 through 45127 and 87 FR 48780).

Please refer to the online application posting for the Phagenyx® System, available at https://mearis.cms.gov/public/publications/ntap/NTP221013D2MDC, for additional detail describing the technology and the disorder treated by the technology.

According to the applicant, the Phagenyx® System received Breakthrough Device designation from FDA on January 29, 2021, for the treatment of non-progressive neurogenic dysphagia in adult patients. Non-progressive neurogenic dysphagia is defined as all neurogenic dysphagia excluding that arising solely as a result of a progressive neurodegenerative disease or condition. The Phagenyx® System was granted De Novo Classification from FDA on September 16, 2022, as a neurostimulation device delivering electrical stimulation to the oropharynx, to be used in addition to standard dysphagia care, as an aid to improve swallowing in patients with severe dysphagia post stroke. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26943) we noted that since the indication for which the applicant received 510(k) clearance is included within the scope of the Breakthrough Device designation, and FDA considers this marketing authorization to be the Breakthrough Device, it appears that the 510(k) indication is appropriate for consideration for new technology add-on payment under the alternative pathway criteria.

According to the applicant, Phagenesis Ltd is based in Manchester, United Kingdom and currently setting up business operations infrastructure to commercially market and sell Phagenyx. This includes but is not limited to establishing an importing agent, third party warehousing and logistics, tax IDs in all states, a corporate office, and hiring staff. The applicant stated that for these reasons, April 1, 2023, was the expected commercial availability date for the Phagenyx® System.

The applicant stated that, effective October 1, 2021, the ICD–10–PCS code XWHD7Q7 (Insertion of neurostimulator lead into mouth and pharynx, via natural or artificial opening, new technology group 7) may be used to uniquely describe procedures involving the use of the Phagenyx® System. The applicant provided a list of diagnosis codes that may be used to currently identify the indication for the Phagenyx® 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 searched the FY 2021 MedPAR file for potential cases representing patients who may be eligible for the Phagenyx® System to demonstrate that it meets the cost criterion. The applicant searched for cases reporting a combination of the ICD–10–CM codes that may be used to currently identify the indication for the Phagenyx® System under the ICD–10–CM coding systems. Please see the following table for the complete list of ICD–10–CM codes provided by the applicant. Using the inclusion/exclusion criteria described in the following table, the applicant identified 79,056 claims mapping to 551 MS–DRGs (see Table 10.16.A.—Phagenyx® System Codes—FY 2024 associated with the proposed rule for a list of MS–DRGs that the applicant indicated were included in its cost analysis). 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 $130,440, which exceeded the average case-weighted threshold amount of $82,183. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the Phagenyx® System meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26944), we agreed with the applicant that the Phagenyx® System meets the cost criterion and therefore proposed to approve the Phagenyx® System for new technology add-on payments for FY 2024.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the cost to the hospital for the Phagenyx® System to be $5,000, which is the price of the single use, per patient catheter. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the Phagenyx® System would be $3,250 for FY 2024 (that is, 65 percent of the average cost of the technology).

We invited public comments on whether the Phagenyx® System meets the cost criterion and our proposal to approve new technology add-on payments for the Phagenyx® System for FY 2024 as a neurostimulation device delivering electrical stimulation to the oropharynx, to be used in addition to standard dysphagia care, as an aid to improve swallowing in patients with severe dysphagia post stroke, which corresponds to the Breakthrough Device designation.

Comment: The applicant submitted a public comment expressing support for the approval of the Phagenyx® System for the new technology add-on payment for FY 2024. The applicant reiterated that the Phagenyx® System meets the cost criterion and confirmed the proposed cost of the Phagenyx® System. The applicant also restated that the ICD–10–PCS code XWHD7Q7 (Insertion of neurostimulator lead into mouth and pharynx, via natural or artificial opening, new technology group 7) must be used to appropriately describe the procedure. The applicant provided an update on the availability of the device, stating the actual commercial availability of the device was established when FDA cleared the product from U.S. customs on April 12, 2023.

Response: Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Phagenyx® System meets the cost criterion. The technology was granted FDA marketing authorization on September 16, 2022, as a Breakthrough Device with an indication as a neurostimulation device delivering electrical stimulation to the oropharynx, to be used in addition to standard dysphagia care, as an aid to improve swallowing in patients with severe dysphagia post stroke, which corresponds to the Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Phagenyx® System for FY 2024. We consider the beginning of the newness period to commence on April 12, 2023, the date that the technology became commercially available for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of the Phagenyx® System is $5,000. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the Phagenyx® System is $3,250 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the Phagenyx® System that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XWHD7Q7 (Insertion of neurostimulator lead into mouth and pharynx, via natural or artificial opening, new technology group 7).

(8) SAINT Neuromodulation System

Magnus Medical, Inc. submitted an application for new technology add-on payments for the SAINT Neuromodulation System for FY 2024. The SAINT Neuromodulation System is a non-invasive repetitive transcranial magnetic stimulation (rTMS) system that identifies an individualized target and delivers navigationally directed repetitive magnetic pulses to that individualized target located within the left dorsolateral prefrontal cortex (L–DLPFC) to treat Major Depressive Disorder (MDD) in adult patients who have failed to achieve satisfactory improvement from prior antidepressant medication in the current episode. The SAINT Neuromodulation System consists of hardware devices (for example, stimulator with treatment coil and neuro-navigation) designed to deliver SAINT Therapy to a targeted area within the L–DLPFC, as well as cloud software that identifies the personalized target. We note that Magnus Medical, Inc. submitted an application for new technology add-on payments for the SAINT Neuromodulation System for FY 2023 under the name Magnus Neuromodulation System with SAINT Technology, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28339 through 28341), that it withdrew prior to the issuance of the FY 2023 IPPS/LTCH PPS final rule (87 FR 48960).

Please refer to the online application posting for the SAINT Neuromodulation System, available at https://mearis.cms.gov/public/publications/ntap/NTP2210157HBCW , for additional detail describing the technology and the disorder treated by the technology.

According to the applicant, the SAINT Neuromodulation System received Breakthrough Device designation from FDA on July 2, 2021, for the treatment of MDD in adult patients who have failed to receive satisfactory improvement from prior antidepressant medication in the current episode. According to the applicant, the Magnus Neuromodulation System (SAINT Neuromodulation System) received 510(k) clearance from FDA on September 1, 2022, for the same indication. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26945), the applicant noted that the technology is not anticipated to become available for sale until March 29, 2024, as several components of the SAINT Neuromodulation System are currently being integrated into a single unit to simplify and improve ease of use, and the applicant is bringing up scalable manufacturing of production systems to optimize commercial adoption of the technology. We noted that the applicant has submitted the application for new technology add-on payments for FY 2024 with a Breakthrough Device designation that corresponds to the SAINT Neuromodulation System, as it was assessed by FDA. Changes to the system to integrate components may require a reassessment by FDA to determine if the integrated, single unit system still meets the current Breakthrough Device designation, or if a new application for Breakthrough Device designation and additional 510(k) clearance is required. We noted that a device must be designated under FDA's Breakthrough Devices Program to be eligible under the alternative pathway, and that we would be interested in additional information regarding the Breakthrough Device status of the integrated, single unit system as it becomes available.

The applicant stated that ICD–10–PCS code X0Z0X18 (Computer-assisted transcranial magnetic stimulation of prefrontal cortex, new technology group 8) may be used to uniquely describe procedures involving the use of the SAINT Neuromodulation System, effective October 1, 2022. The applicant stated that ICD–10–CM codes F32.2 (Major depressive disorder, single episode, severe without psychotic features) and F33.2 (Major depressive disorder, recurrent severe without psychotic features) may be used to currently identify the indication for the SAINT Neuromodulation System under the ICD–10–CM coding system.

With respect to the cost criterion, the applicant provided the following analysis to demonstrate that it meets the cost criterion. To identify potential cases representing patients who may be eligible for the SAINT Neuromodulation System, the applicant searched the FY 2021 MedPAR file for cases reporting one of the following ICD–10–CM codes: F32.2 (Major depressive disorder, single episode, severe without psychotic features) and F33.2 (Major depressive disorder, recurrent severe without psychotic features). Only MS–DRG 885 (Psychoses) had significant volume; all other MS–DRGs accounted for 1 percent or less of cases by volume. Using the inclusion/exclusion criteria described in the following table, the applicant identified 19,181 claims mapping to MS–DRG 885 (Psychoses). 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 $94,697, which exceeded the average case-weighted threshold amount of $39,071. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the SAINT Neuromodulation System meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26946), we agreed with the applicant that SAINT Neuromodulation System meets the cost criterion and therefore proposed to approve SAINT Neuromodulation System for new technology add-on payments for FY 2024 for the treatment of MDD in adult patients who have failed to receive satisfactory improvement from prior antidepressant medication in the current episode.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the SAINT Neuromodulation System to the hospital to be $19,500.00 per patient, including personalized target identification using the SAINT software, neuro-navigation, and treatment for 50 sessions over 5 days. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of the SAINT Neuromodulation System would be $12,675.00 for FY 2024 (that is, 65 percent of the average cost of the technology).

We invited public comments on whether the SAINT Neuromodulation System meets the cost criterion and our proposal to approve new technology add-on payments for the SAINT Neuromodulation System for FY 2024 for the treatment of MDD in adult patients who have failed to receive satisfactory improvement from prior antidepressant medication in the current episode, which corresponds to the Breakthrough Device designation.

Comment: Several commenters expressed support for our proposal to approve new technology add-on payments for the SAINT Neuromodulation System. Many commenters shared anecdotal experiences with transcranial magnetic stimulation (TMS) and advocated for implementing the SAINT Neuromodulation System in the inpatient setting. Some commenters emphasized the importance of the inpatient schedule of treatment. Many commenters stated that this technology will not be available to Medicare patients without a new technology add-on payment. There were a multitude of comments directly from people who participated in trials of the SAINT Neuromodulation System who were supportive of CMS's proposal to approve new technology add-on payments and attributed significant and remarkable relief from depression resulting from use of the SAINT Neuromodulation System.

Response: We thank the commenters for their support and feedback.

Comment: Several commenters asserted that the SAINT Neuromodulation System meets the cost criterion and supported the applicant's use of MS–DRG 885 (Psychoses), and ICD–10–CM codes F32.2 (Major depressive disorder, single episode, severe without psychotic features) and F33.2 (Major depressive disorder, recurrent severe without psychotic features) in their analyses.

Response: We thank the commenters for their input.

Comment: A couple of commenters urged CMS to consider a higher reimbursement rate than what was proposed, stating that neuro-navigated TMS costs significantly more in the outpatient setting, than that of the SAINT Neuromodulation System's $19,500 inpatient technology cost. Commenters suggested that patients could resort to hospitalization to save on procedure costs, as a result. The commenters advocated for an increased rate of payment.

Response: It is unclear what the commenters are referring to by advocating for an increased rate of payment. The cost of the technology of $19,500 is based on information directly from the manufacturer. While the commenter may have concerns with regard to reimbursement in the outpatient setting, we believe the information for the cost per case of the SAINT Neuromodulation System in this final rule for the inpatient setting is accurate for the purposes of new technology add-on payments. We also rely on clinicians to determine whether to treat a patient in the inpatient or outpatient setting.

Comment: The applicant submitted a public comment in support of our proposal to approve new technology add-on payments for FY 2024 for the SAINT Neuromodulation System. The applicant reiterated that the SAINT Neuromodulation System meets the cost criterion, and reaffirmed the selection of codes and the MS–DRG used in the cost analysis, as discussed in the proposed rule. The applicant confirmed the proposed cost of the SAINT Neuromodulation System to the hospital of $19,500.00 per patient, including personalized target identification using the SAINT software, neuro-navigation, and treatment for 50 sessions over 5 days. The applicant also stated that they will commercially launch the SAINT Neuromodulation System, which is the subject of the Breakthrough Device designation (BDD) and is currently cleared by the FDA (510k number K220177, obtained September 1, 2022), on April 15, 2024. The applicant explained that the interval between the 510(k) clearance and the April 2024 launch date represents the time necessary to manufacture an adequate supply of SAINT Neuromodulation Systems and prepare for commercial launch. The applicant also stated that the company is also continuing to develop future versions of the technology but intends that any future modifications to the hardware system will be substantially equivalent to the hardware components in the current system, and that no changes to the BDD SAINT treatment are contemplated.

Response: We thank the applicant for this information and support to approve new technology add-on payments for the SAINT Neuromodulation System. As we have discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally, our policy is to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market. The applicant states that the SAINT Neuromodulation System will be commercially available on April 15, 2024, but it is unclear whether the technology would be available for sale, prior to that date. At this time, we cannot determine a definitive, future newness date based on a documented delay in the technology's availability on the U.S. market. Absent additional information, we therefore consider the newness date for this technology to be September 1, 2022. We welcome updates from the applicant once the technology becomes commercially available for future rulemaking.

Comment: A comment was submitted on behalf of the applicant, Magnus Medical, stating that if the manufacturer makes changes to the SAINT Hardware System to integrate certain components but retains the same indication for use and intended patient population, the new version will continue to be recognized under the SAINT Neuromodulation System's existing Breakthrough Device designation (BDD). The commenter further requested general confirmation that new technology add-on payment eligibility for devices qualified under the alternative pathway for transformative new devices will continue to apply to a future iteration of the device as long as: (1) FDA determines the device versions to be substantially equivalent via the 510(k) review and clearance process; and (2) the new version continues to meet the requirements of the new technology add-on payment program (for example, the indication for the new 510(k) is the indication covered by the Breakthrough Device designation).

Response: We thank the commenter for its comment. As discussed previously, eligible devices under the alternative pathway for Breakthrough Devices are devices that are designated and market authorized by FDA as a Breakthrough Device for the indication covered by the Breakthrough Device designation. We understand that Magnus has outreached FDA on whether a subsequent cleared version of a device would still be considered a Breakthrough Device. We appreciate updates as they become available.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the SAINT Neuromodulation System meets the cost criterion. The technology was granted FDA marketing authorization on September 1, 2022, as a Breakthrough Device for the treatment of MDD in adult patients who have failed to receive satisfactory improvement from prior antidepressant medication in the current episode. Therefore, we are finalizing our proposal to approve new technology add-on payments for the SAINT Neuromodulation System for FY 2024. Absent additional information from the applicant, we consider the beginning of the newness period to commence on September 1, 2022, the date of FDA marketing authorization for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of the SAINT Neuromodulation System is $19,500.00. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the SAINT Neuromodulation System is $12,675.00 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the SAINT Neuromodulation System that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code X0Z0X18 (Computer-assisted transcranial magnetic stimulation of prefrontal cortex, new technology group 8).

(9) TOPS^TM System

Premia Spine, Inc. submitted an application for new technology add-on payments for the TOPS^TM System for FY 2024. According to the applicant, the TOPS^TM System is a motion preserving device inserted and affixed during spinal surgery after open posterior decompression to preserve normal spinal motion and provide stabilization of the lumbar intervertebral segment. The applicant stated that the TOPS^TM System replaces anatomical structures, such as the lamina and the facet joints, which are removed during spinal decompression treatment to alleviate pain. We note that Premia Spine, Inc. submitted an application for new technology add-on payments for the TOPS^TM System for FY 2023, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28346), that it withdrew prior to the issuance of the FY 2023 IPPS/LTCH PPS final rule (87 FR 48960).

Please refer to the online application posting for the TOPS^TM System, available at https://mearis.cms.gov/public/publications/ntap/NTP2210146W0H2 , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, the TOPS^TM System received Breakthrough Device designation from FDA on October 26, 2020, for patients between 35 and 80 years of age suffering from neurogenic claudication resulting from degenerative spondylolisthesis up to Grade I with moderate to severe lumbar spinal stenosis and either the thickening of the ligamentum flavum or scaring facet joint capsule at one level from L2 to L5. The applicant stated that it was seeking premarket approval from FDA for the following indication: for patients between the ages 35 and 80 years suffering from degenerative spondylolisthesis up to Grade I with moderate to severe lumbar spinal stenosis and either the thickening of the ligamentum flavum or scarring facet joint capsule at one level from L2 to L5. We noted in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26950) that the proposed premarket approval indication did not include limitation to neurogenic claudication as noted in the Breakthrough Device designation. We noted that, as previously stated, under the eligibility criteria for approval under the alternative pathway for certain transformative devices, only the use of the technology for the indication that corresponds to the technology's Breakthrough Device designation would be eligible for the new technology add-on payment for FY 2024. The applicant subsequently received premarket approval from FDA on June 15, 2023, for patients between 35 and 80 years of age with symptomatic degenerative spondylolisthesis up to Grade I, with moderate to severe lumbar spinal stenosis and either the thickening of the ligamentum flavum and/or scarring of the facet joint capsule at one level from L3 to L5.

The applicant stated that effective October 1, 2021, the following ICD–10–PCS procedure code may be used to uniquely describe procedures involving the use of TOPS^TM System: XRHB018 (Insertion of posterior spinal motion preservation device into lumbar vertebral joint, open approach, new technology group 8). The applicant stated that ICD–10–CM codes M43.16 (Spondylolisthesis, lumbar region), M48.061 (Spinal stenosis, lumbar region, without neurogenic claudication) and M48.062 (Spinal stenosis, lumbar region, with neurogenic claudication) may be used to currently identify the indication for the TOPS^TM System under the ICD–10–CM coding system. We noted that ICD–10–CM code M48.061 was not relevant for identification of the indication under Breakthrough Device designation.

With respect to the cost criterion, the applicant provided the following analysis to demonstrate that it meets the cost criterion. To identify potential cases representing patients who may be eligible for the TOPS^TM System, the applicant searched the FY 2021 MedPAR file for cases reporting one of the ICD–10–PCS codes listed in table 10.2.A.—TOPS^TM System Codes—FY 2024 associated with the proposed rule. Using the inclusion/exclusion criteria described in the following table, the applicant identified 669 claims mapping to MS–DRG 518. 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 $175,574, which exceeded the average case-weighted threshold amount of $123,029. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the TOPS^TM System meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26951), we agreed with the applicant that the TOPS^TM System meets the cost criterion and therefore proposed to approve the TOPS^TM System for new technology add-on payments for FY 2024, subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant anticipated the total cost of the TOPS^TM System to the hospital to be $17,500 for a single level construct. Per the applicant, as the TOPS^TM System is anticipated to only be implanted at one level, the per-patient anticipated cost to the hospital is $17,500. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65 percent of the average cost of the technology, or 65 percent of the costs in excess of the MS–DRG payment for the case. As a result, we that the maximum new technology add-on payment for a case involving the use of the TOPS^TM System would be $11,375 for FY 2024 (that is, 65 percent of the average cost of the technology).

We invited public comments on whether the TOPS^TM System meets the cost criterion and our proposal to approve new technology add-on payments for the TOPS^TM System for FY 2024 subject to the technology receiving FDA marketing authorization as a Breakthrough Device for the indication corresponding to the Breakthrough Device designation by July 1, 2023.

We did not receive any comments any public comments related to the TOPS^TM System. Based on the information provided in the application for new technology add-on payments, we believe the TOPS^TM System meets the cost criterion. The technology received FDA premarket approval on June 15, 2023 as a Breakthrough Device, with an indication for patients between 35 and 80 years of age with symptomatic degenerative spondylolisthesis up to Grade I, with moderate to severe lumbar spinal stenosis and either the thickening of the ligamentum flavum and/or scarring of the facet joint capsule at one level from L3 to L5, which is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for the TOPS^TM System for FY 2024. We consider the beginning of the newness period to commence on June 15, 2023, the date on which technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation. We note that, under the eligibility criteria for approval under the alternative pathway for certain transformative new devices, only the use of TOPS^TM for patients suffering from neurogenic claudication resulting from degenerative spondylolisthesis, 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 2024. Since the Breakthrough Device designation is limited to patients with neurogenic claudication specifically, as opposed to the PMA indication for patients with symptomatic disease, only use of the technology for patients with neurogenic claudication is relevant for new technology add-on payment purposes.

Based on the information available at the time of this final rule, the cost per case of the TOPS^TM System is $17,500 for a single level construct. Per the applicant, as the TOPS^TM System is anticipated to only be implanted at one level, the per-patient anticipated cost to the hospital is $17,500. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of the TOPS^TM System is $11,375 for FY 2024 (that is, 65 percent of the average cost of the technology). Cases involving the use of the TOPS^TM System that are eligible for new technology add-on payments will be identified by ICD–10–PCS code XRHB018 (Insertion of posterior spinal motion preservation device into lumbar vertebral joint, open approach, new technology group 8) in combination with ICD–10–CM code M48.062 (Spinal stenosis, lumbar region, with neurogenic claudication).

b. Alternative Pathways for Qualified Infectious Disease Products (QIDPs)

(1) taurolidine/heparin

CorMedix Inc. submitted an application for new technology add-on payments for taurolidine/heparin for FY 2024. Per the applicant, taurolidine/heparin is a proprietary formulation of taurolidine, a thiadiazinane antimicrobial, and heparin, an anti-coagulant, that is under development for use as catheter lock solution, with the aim of reducing the risk of catheter-related bloodstream infections (CRBSI) from in-dwelling catheters in patients undergoing hemodialysis (HD) through a central venous catheter (CVC). We note that CorMedix Inc. submitted an application for new technology add-on payments for taurolidine/heparin for FY 2023 under the name DefenCath^TM and received conditional approval for new technology add-on payments for FY 2023, subject to DefenCath^TM receiving FDA marketing authorization before July 1, 2023 (87 FR 48978 through 48982). In the proposed rule, we explained that if DefenCath^TM receives FDA marketing authorization before July 1, 2023, 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. We stated that if the FDA marketing authorization is received on or after July 1, 2023, no new technology add-on payments would be made for cases involving the use of DefenCath^TM for FY 2023. We noted that the applicant stated that it submitted this second new technology add-on payment application for FY 2024 in the event it does not obtain FDA approval prior to July 1, 2023. We further noted that in the event DefenCath^TM does receive FDA marketing authorization before July 1, 2023, evaluation of this FY 2024 application would no longer be necessary, and we would propose to instead continue the new technology add-on payment for DefenCath^TM for FY 2024. We note that Defencath^TM did not receive FDA marketing authorization by July 1, 2023, and therefore no add-on payments will be made for this technology for FY 2023, and we are instead making a determination regarding this application for FY 2024.

Please refer to the online application posting for taurolidine/heparin, available at https://mearis.cms.gov/public/publications/ntap/NTP221014UJ89G , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, taurolidine/heparin received QIDP designation from FDA in 2015 for the prevention of CRBSI in patients with end-stage renal disease (ESRD) receiving HD through a CVC and has been granted FDA Fast Track status. The applicant indicated that it was pursuing an NDA under FDA's LPAD for the same indication. The applicant noted that FDA issued a Complete Response Letter, and the NDA is pending resubmission.

The applicant stated that effective October 1, 2022, the following ICD–10–PCS code may be used to uniquely describe procedures involving the use of taurolidine/heparin: XY0YX28 (Extracorporeal introduction of taurolidine anti-infective and heparin anticoagulant, new technology group 8).

With respect to the cost criterion, the applicant provided two analyses to demonstrate that it meets the cost criterion. For each analysis, the applicant searched the FY 2021 MedPAR file using a different combination of codes to identify potential cases representing patients who may be eligible for taurolidine/heparin.

Per the applicant, taurolidine/heparin will be used for patients receiving HD through a CVC. The applicant stated that coding to identify this population is difficult because the available CVC codes only describe the insertion of a CVC. The applicant asserted that it is not possible to identify in the MedPAR file those patients who had previously received a CVC and are now hospitalized and receiving HD. Therefore, the applicant developed two sets of selection criteria. Analysis A searched for claims with presence of a diagnosis code for ESRD, chronic kidney disease (CKD), AKI, or ATN in combination with diagnosis and procedure codes for HD. Analysis B searched for claims with presence of a diagnosis code for ESRD, CKD, AKI, or ATN with codes for both HD (diagnosis and procedure codes) and CVC (procedure codes). The applicant explained that Analysis A overstates the population of patients eligible for taurolidine/heparin because it includes any patient receiving HD, regardless of whether a central venous catheter is used. The applicant further explained that Analysis B undercounts the potential cases because CVC codes are not always available on inpatient claims. Please see Table 10.10.A Taurolidine/Heparin Codes—FY 2024 associated with the proposed rule for a complete list of ICD–10–CM and ICD–10–PCS codes provided by the applicant.

Under Analysis A, using the inclusion/exclusion criteria described in the following table, the applicant identified 412,436 claims mapping to 494 MS–DRGs. Please see Table 10.10.A.—Taurolidine/Heparin Codes—FY 2024 associated with the proposed rule for a complete list of MS–DRGs provided by the applicant. 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 $230,720, which exceeded the average case-weighted threshold amount of $141,035.

Under Analysis B, using the inclusion/exclusion criteria described in the following table, the applicant identified 66,861 claims mapping to 410 MS–DRGs. Please see Table 10.10.A.—Taurolidine/Heparin Codes—FY 2024 associated with the proposed rule for a complete list of MS–DRGs provided by the applicant. 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 $313,587, which exceeded the average case-weighted threshold amount of $201,755.

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 taurolidine/heparin meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26957), we agreed with the applicant that taurolidine/heparin meets the cost criterion based on the analysis presented. We also welcomed additional information on using additional codes and/or criteria to better target cases of taurolidine/heparin for the cost criterion.

We stated that therefore, if taurolidine/heparin does not receive FDA approval by July 1, 2023, to receive new technology add-on payments beginning with FY 2023, per § 412.87(e)(3), we proposed to conditionally approve taurolidine/heparin for new technology add-on payments for FY 2024, subject to the technology receiving FDA marketing authorization by July 1, 2024. If taurolidine/heparin receives FDA marketing authorization before July 1, 2024, 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, 2024, no new technology add-on payments will be made for cases involving the use of taurolidine/heparin for FY 2024. If taurolidine/heparin receives FDA marketing authorization prior to July 1, 2023, we proposed to continue making new technology add-on payments for taurolidine/heparin in FY 2024.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant stated the Wholesale Acquisition Cost of taurolidine/heparin is $1,170 per three milliliter vial taurolidine/heparin. The applicant noted that two vials of taurolidine/heparin (one vial for each lumen) will be used for each HD session and that while HD typically occurs three times/week for patients in the outpatient setting, inpatients may receive HD daily or every other day, depending on the severity of their disease. According to the applicant, on average, patients would receive 9.75 HD treatments per inpatient stay based upon the average length of stay of 13.3 days, which would require 19.5 vials of taurolidine/heparin. Thus, the applicant anticipated the cost of taurolidine/heparin to the hospital per patient to be $22,815. We stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26957) that we were interested in additional information as to how the length of stay for patients on HD and the estimation of daily or every other day dialysis were determined for purposes of estimating the anticipated average cost. We also noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments for QIDPs to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of taurolidine/heparin would be $17,111.25 for FY 2024 (that is, 75 percent of the average cost of the technology).

We invited public comments on whether taurolidine/heparin meets the cost criterion and our proposal to approve new technology add-on payments for taurolidine/heparin for FY 2024 for the prevention of CRBSI in patients with ESRD receiving HD through a CVC.

Comment: A commenter submitted a comment in support of the implementation of add-on payments for taurolidine/heparin for the treatment of CRBSI from in-dwelling catheters in ESRD patients undergoing HD through a CVC as well CMS's proposal for conditional approval.

Response: We thank the commenter for its support.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe taurolidine/heparin meets the cost criterion. Therefore, we are granting conditional approval for taurolidine/heparin for new technology add-on payments for FY 2024, subject to the technology receiving FDA marketing authorization by July 1, 2024 (that is, by July 1 of the fiscal year for which the applicant applied for new technology add-on payments (2024)). In the proposed rule we stated that as an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), taurolidine/heparin is eligible for conditional approval for new technology add-on payments if it does not receive FDA marketing authorization by the July 1 deadline specified in § 412.87(e)(2), provided that the technology receives FDA marketing authorization by July 1 of the particular fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2024) (88 FR 26956 to 26957). If taurolidine/heparin receives FDA marketing authorization before July 1, 2024, 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, 2024, no new technology add-on payments will be made for cases involving the use of taurolidine/heparin for FY 2024.

Based on the information available at the time of this final rule, the cost per case of taurolidine/heparin is $22,815. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of taurolidine/heparin is $17,111.25 for FY 2024 (that is, 75 percent of the average cost of the technology). Cases involving the use of taurolidine/heparin that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure code XY0YX28 (Extracorporeal introduction of taurolidine anti-infective and heparin anticoagulant, new technology group 8).

(2) REZZAYO^TM (Rezafungin for Injection)

Cidara Therapeutics submitted an application for new technology add-on payments for REZZAYO^TM (rezafungin for injection) for FY 2024. According to the applicant, REZZAYO^TM is an echinocandin antifungal drug for the treatment of candidemia and invasive candidiasis in patients 18 years of age or older.

Please refer to the online application posting for REZZAYO^TM, available at https://mearis.cms.gov/public/publications/ntap/NTP221017057WN , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, REZZAYO^TM received QIDP designation from FDA on June 27, 2017, for treatment of candidemia and/or invasive candidiasis. The applicant stated that the NDA for REZZAYO^TM was approved on March 22, 2023, for use in patients 18 years of age or older who have limited or no alternative options for the treatment of candidemia and invasive candidiasis. Approval of this indication is based on limited clinical safety and efficacy data for REZZAYO^TM . The applicant stated that REZZAYO^TM would not be commercially available until July 2023, but we note that a rationale for the delay in market availability was not provided. Due to the timing of receipt of FDA approval, we stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26958) that we were interested in additional information on whether the technology is considered a QIDP under this NDA.

The applicant submitted a request for approval for a unique ICD–10–PCS procedure code for REZZAYO^TM beginning in FY 2024 and was granted approval for the following procedure codes effective October 1, 2023: XW033R9 (Introduction of rezafungin into peripheral vein, percutaneous approach, new technology group 9) and XW043R9 (Introduction of rezafungin into central vein, percutaneous approach, new technology group 9).

With respect to the cost criterion, to identify potential cases representing patients who may be eligible for REZZAYO^TM, the applicant searched the FY 2021 MedPAR file for cases reporting one of the ICD–10–CM diagnosis codes for candidemia or invasive candidiasis (in any position) listed in the table in this section. Using the inclusion/exclusion criteria described in the following table, the applicant identified 50,939 claims mapping to 540 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 $177,099.74, which exceeded the average case-weighted threshold amount of $97,375.67. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that REZZAYO^TM meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26958), we agreed with the applicant that REZZAYO^TM meets the cost criterion and therefore proposed to approve REZZAYO^TM for new technology add-on payments for FY 2024 for use in patients 18 years of age or older who have limited or no alternative options for the treatment of candidemia and invasive candidiasis.

The applicant had not provided an estimate for the cost of REZZAYO^TM at the time of the proposed rule. According to the applicant, REZZAYO^TM is to be administered once weekly by intravenous infusion, with an initial loading dose of 400 mg and followed by a 200 mg dose once weekly thereafter. According to the applicant, in the pivotal trial, on average patients received 14 days of IV treatment and that data also showed that patients stay in the hospital after being diagnosed with invasive candidiasis for 14 days. Therefore, the applicant estimated the average dose of medication during an inpatient stay to be 600 mg, given the initial 400 mg dose plus one 200 mg maintenance dose prior to discharge from the hospital. We stated that we expected the applicant to submit cost information prior to the final rule, and we would 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 REZZAYO^TM would be subject to our policy under § 412.88(a)(2) where we limit new technology add-on payments for QIDPs to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS–DRG payment for the case.

We invited public comments on whether REZZAYO^TM meets the cost criterion and our proposal to approve new technology add-on payments for REZZAYO^TM for FY 2024 for use in patients 18 years of age or older who have limited or no alternative options for the treatment of candidemia and invasive candidiasis.

Comment: The applicant submitted a public comment urging CMS to finalize its proposal to approve REZZAYO^TM for new technology add-on payments and reiterating that REZZAYO^TM meets the criteria for approval. The applicant also stated that the wholesale acquisition cost of REZZAYO^TM will be $1,950 per 200 mg vial. Per the applicant, as discussed in the proposed rule, the estimated average dose during an inpatient stay is 600mg and therefore the average cost of the technology would be $5,850 per inpatient stay. The applicant recommended a maximum add-on payment of $4,387.50 or 75 percent of the average cost of REZZAYO^TM of $5,850.

Response: We thank the applicant for its support and the additional information.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe REZZAYO^TM meets the cost criterion. The technology was granted FDA marketing authorization on March 22, 2023, with an indication for use in patients 18 years of age or older who have limited or no alternative options for the treatment of candidemia and invasive candidiasis, which is covered by its QIDP designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for REZZAYO^TM for FY 2024. The applicant has stated that the technology is not yet available for sale but has not provided information regarding a documented delay in market availability. Absent additional information, we therefore consider the newness period to commence on the date of marketing authorization, March 22, 2023.

Based on the information available at the time of this final rule, the cost per case of REZZAYO^TM is $5,850. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of REZZAYO^TM is $4,387.50 for FY 2024 (that is, 75 percent of the average cost of the technology). Cases involving the use of REZZAYO^TM that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure codes: XW033R9 (Introduction of rezafungin into peripheral vein, percutaneous approach, new technology group 9) or XW043R9 (Introduction of rezafungin into central vein, percutaneous approach, new technology group 9).

(3) XACDURO® (Sulbactam/Durlobactam)

Entasis Therapeutics, Inc. submitted an application for new technology add-on payments for XACDURO® (sulbactam/durlobactam, referred to as “SUL–DUR” in the proposed rule) for FY 2024. According to the applicant, XACDURO® is a penicillin derivative and classified as a β-lactamase inhibitor but also has intrinsic antibacterial activity against Acinetobacter baumannii and other members of the Acinetobacter baumannii-calcoaceticus complex (ABC). According to the applicant, sulbactam, in combination with durlobactam, will be used for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia (HABP/VABP) and bloodstream infections (BSI) due to Acinetobacter baumannii.

Please refer to the online application posting for XACDURO®, available at https://mearis.cms.gov/public/publications/ntap/NTP221017F5WKE , for additional detail describing the technology and the disease treated by the technology.

According to the applicant, XACDURO® received QIDP designation for the treatment of HABP/VABP and bloodstream infections due to Acinetobacter baumannii. The applicant stated that it was seeking approval of a broader NDA from FDA for the treatment of adults with infections due to Acinetobacter baumannii-calcoaceticus complex organisms, including multidrug-resistant and carbapenem-resistant strains. According to the applicant, patients are expected to receive 1 to 1.5 grams sulbactam and 1 to 1.5 grams durlobactam every 6 hours for an average of 10 days. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26959), we noted that, under the eligibility criteria for approval under the alternative pathway for certain antimicrobial products, only the use of XACDURO® for the treatment of HABP/VABP and bloodstream infections due to Acinetobacter baumannii, and the FDA QIDP designation it received for that use, were relevant for purposes of the new technology add-on payment application for FY 2024. We also noted that, as an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), XACDURO® was eligible for conditional approval for new technology add-on payments if it did not receive FDA marketing authorization by the July 1 deadline specified in § 412.87(e)(2), provided that the technology receives FDA marketing authorization by July 1 of the particular fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2024). The applicant stated that XACDURO® received FDA approval on May 23, 2023, with an indication for use in patients 18 years of age and older for the treatment of HABP/VABP, caused by susceptible isolates of Acinetobacter baumanni-calcoaceticus complex. Since the indication for which the technology received FDA approval is included within the scope of the QIDP designation, it appears that the proposed FDA indication is appropriate for new technology add-on payment under the alternative pathway criteria.

The applicant submitted a request for approval for a unique ICD–10–PCS procedure code for XACDURO® beginning in FY 2024 and was granted approval for the following procedure codes effective October 1, 2023: XW033K9 (Introduction of sulbactam-durlobactam into peripheral vein, percutaneous approach, new technology group 9) and XW043K9 (Introduction of sulbactam-durlobactam into central 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 XACDURO® 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 noted that the applicant included ICD–10–CM codes that correspond to the broader anticipated NDA indication. As previously noted, only use of the technology for the indications corresponding to the QIDP designation would be relevant for new technology add-on payment purposes. We believed the relevant ICD–10–CM codes to identify the QIDP-designated indications were: Y95 and J15.6 (describing HABP due to Acinetobacter baumannii); or J95.851 and B96.89 (describing VABP due to Acinetobacter baumannii); or A41.59 (Other Gram-negative sepsis) for bloodstream infection due to Acinetobacter baumannii. We note that since the approved NDA indication is limited to HABP and VABP due to Acinetobacter baumannii and does not include bloodstream infections, we believe ICD–10–CM code A41.59 is no longer is relevant to describe the indication relevant for new technology add-on payment purposes.

With respect to the cost criterion, the applicant provided two analyses to demonstrate that it meets the cost criterion. For each analysis, the application searched the FY 2021 MedPAR file using a different combination of codes to identify potential cases representing patients who may be eligible for XACDURO®. 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 following table.

According to the applicant, XACDURO® was anticipated to be indicated in adults for the treatment of infections due to ABC complex including multi-drug resistant and carbapenem-resistant strains upon FDA approval. Therefore, in the first analysis, the applicant identified ICD–10–CM codes that reflect the anticipated FDA indication. According to the QIDP designation, XACDURO® was designated for the treatment of HABP/VABP and bloodstream infections due to Acinetobacter baumannii. Therefore, in the second analysis, the applicant identified ICD–10–CM codes that reflect the QIDP-designated indications. Please see Table 10.23.A.—XACDURO® Codes—FY 2024 associated with the proposed rule for the complete list of codes provided by the applicant.

For Analysis 1, using the inclusion/exclusion criteria described in the following table, the applicant identified 440,756 cases mapping to 452 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 $182,553, which exceeded the average case-weighted threshold amount of $76,364.

For Analysis 2, using the inclusion/exclusion criteria described in the following table, the applicant identified 214,694 claims mapping to 330 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 $202,171, which exceeded the average case-weighted threshold amount of $85,665.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in both analyses, the applicant asserted that XACDURO® meets the cost criterion.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26960), we agreed with the applicant that XACDURO® meets the cost criterion and therefore proposed to approve XACDURO® for new technology add-on payments for FY 2024 for the treatment of HABP/VABP and bloodstream infections due to Acinetobacter baumannii, subject to the technology receiving FDA marketing authorization for the indication corresponding to the QIDP designation by July 1, 2023. We stated that as an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), XACDURO® was eligible for conditional approval for new technology add-on payments if it did not receive FDA marketing authorization by the July 1 deadline specified in § 412.87(e)(2), provided that the technology received FDA marketing authorization by July 1 of the particular fiscal year for which the applicant applied for new technology add-on payments (that is, July 1, 2024). If XACDURO® received FDA marketing authorization before July 1, 2024, 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 was received on or after July 1, 2024, no new technology add-on payments would be made for cases involving the use of XACDURO® for FY 2024.

Based on preliminary information from the applicant at the time of the proposed rule, the applicant stated that the anticipated cost of XACDURO® was $15,000 per stay based upon the expectation that patients would receive 1 to 1.5 grams sulbactam and 1 to 1.5 grams durlobactam every 6 hours for an average of 10 days. The applicant did not provide the cost per vial and did not supply supporting information with regard to the average of 10 days. Therefore, we stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26960) that we were interested in information regarding the cost per vial and the average of 10 days to support the anticipated average cost of $15,000 provided by the applicant. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS received prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments for QIDPs to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS–DRG payment for the case. As a result, we proposed that the maximum new technology add-on payment for a case involving the use of XACDURO® when used for the treatment of HABP/VABP and bloodstream infections due to Acinetobacter baumannii would be $11,250 for FY 2024 (that is, 75 percent of the average cost of the technology).

We invited public comments on whether XACDURO® meets the cost criterion and our proposal to approve new technology add-on payments for XACDURO® for FY 2024 for the treatment of HABP/VABP and bloodstream infections due to Acinetobacter baumannii subject to the technology receiving marketing authorization consistent with its QIDP designation by July 1, 2023.

Comment: The applicant submitted a public comment in support of its application and responding to questions raised by CMS in the proposed rule regarding the cost information. In its comment letter, the applicant stated that XACDURO® for injection is supplied as a kit containing 3 single-dose vials. Per the applicant, one vial contains sulbactam 1g and 2 vials each contains durlobactam 0.5g. The applicant stated that the expected dosing schedule for XACDURO varies, but most patients will receive one infusion every 6 hours, for a total of 4 kits per 24-hour period. The applicant provided the following table showing the dosage of XACDURO® based on renal function.

The applicant stated that the recommended duration of treatment is 7 to 14 days and should be guided by the severity and site of infection and the patient's clinical and bacteriological progress.

Per the applicant, the claims data analysis would not allow for identifying XACDURO® dosing based on creatinine clearance utilizing ICD–10–CM, HCPCS Level I (CPT) and HCPCS Level II codes. Therefore, the applicant was unable to determine any XACDURO® dosing adjustments of different time intervals based on the coding in claims data.

In response to CMS questions regarding cost and duration of treatment, the applicant submitted a change to the proposed average of days of treatment from 10 days to 9.6 days. The applicant calculated a weighted average duration of treatment (in days) across the treatment arms in the trial. In Part A of the study, there were 91 patients with an average of 9.3 days of treatment duration. In part B, there were 28 patients with an average treatment duration of 10.6 days. The weighted average days of treatment across both groups is 9.6 days. Based on an average estimated length of stay of 9.6 days, the applicant submitted a change to the expected cost for treatment per stay to be $18,240.

Based on the revised expected cost of treatment per stay, the applicant provided an updated analysis for the second analysis which matches the final approved indication and cost. The revised final inflated average case-weighted standardized charge per case was $219,780, which exceeded the average case-weighted threshold amount of $85,665. The applicant asserted that XACDURO® still met the cost criterion threshold.

Response: We thank the applicant for it comments and the additional information.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comment we received, we believe XACDURO® meets the cost criterion. The technology was granted FDA marketing authorization on May 23, 2023, for the treatment of hospital-acquired bacterial pneumonia (HABP) and ventilator-associated bacterial pneumonia (VABP) caused by susceptible strains of bacteria called Acinetobacter baumannii-calcoaceticus complex, for patients 18 years of age and older, which is covered by its QIDP designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for XACDURO® for FY 2024. We consider the beginning of the newness period to commence on May 23, 2023, the date on which the technology received FDA market authorization for the indication covered by its QIDP designation.

Based on the information available at the time of this final rule, the average cost per case of XACDURO® is $18,240. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 75 percent of the average cost of the technology, or 75 percent of the costs in excess of the MS–DRG payment for the case. As a result, we are finalizing that the maximum new technology add-on payment for a case involving the use of XACDURO® is $13,680 for FY 2024 (that is, 75 percent of the average cost of the technology). Cases involving the use of XACDURO® that are eligible for new technology add-on payments will be identified by ICD–10–PCS procedure codes XW033K9 (Introduction of sulbactam-durlobactam into peripheral vein, percutaneous approach, new technology group 9) or XW043K9 (Introduction of sulbactam-durlobactam into central vein, percutaneous approach, new technology group 9) in combination with one of the following ICD–10–CM codes: Y95 and J15.6 (describing HABP due to Acinetobacter baumannii); or J95.851 and B96.89 (describing VABP due to Acinetobacter baumannii)

8. Other Comments

We received several public comments requesting changes to the new technology add-on payment policies, such as increasing the add-on payment amount to 85 percent or more, creating new alternative pathway categories for different FDA designations or types of treatments, and expanding the conditional approval process to additional types of technologies or designations, that were outside the scope of the proposals included in the FY 2024 IPPS/LTCH PPS proposed rule and we are therefore not addressing them in this final rule. We appreciate these comments and may consider them for possible proposals in future rulemaking.

9. Modification of New Technology Add-On Payment Application Eligibility Requirements Related to FDA Application Status and Moving the Deadline for FDA Marketing Authorization from July 1 to May 1 for Technologies that Are Not Already FDA Market Authorized

As noted in section II.E.1.f. of this final rule, applicants for new technology add-on payments for new medical services or technologies must submit to CMS 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). In addition, as reflected in the application, applicants must submit information about the technology's FDA marketing authorization status and the status of any relevant designations required for new technology add-on payment eligibility.

As set forth in 42 CFR 412.87(e)(1), CMS considers whether a technology meets the criteria for the new technology add-on payment and announces the results as part of its annual updates and changes to the IPPS. Accordingly, in drafting the proposed rule, CMS reviews each new technology add-on payment application it receives under the pathway specified by the applicant at the time of application submission, along with any supplemental information obtained from the applicant, information provided at the Town Hall meeting, and comments received in response to the Town Hall meeting. As part of the new technology add-on payment application process, CMS summarizes in the IPPS/LTCH PPS proposed rule the information submitted as part of each new technology add-on payment application. This generally includes summarizing and/or providing the public with information on the applicant's explanation of what the technology does, background on the disease process, status of FDA approval or clearance, and the applicant's assertions and supporting data on how the technology meets the new technology add-on payment criteria under § 412.87. As discussed in prior rulemaking, our goal is to ensure that the public has sufficient information to facilitate public comment on whether the medical service or technology meets the new technology add-on payment criteria.

In the FY 2023 IPPS/LTCH PPS final rule, to increase transparency, enable increased stakeholder engagement, and improve and streamline our new technology add-on payment review process, we finalized a policy that, beginning with FY 2024, new technology add-on payment applications and certain related materials would be publicly posted online (87 FR 48986 through 48990). We noted that we believed making this information publicly available may help to further engage the public and foster greater input and insights through public comments on the new medical services and technologies presented annually for consideration for new technology add-on payments. Consistent with this finalized policy, the FY 2024 applications for new technology add-on payments are available at https://mearis.cms.gov/public/publications/ntap .

Building on our efforts to further increase transparency, facilitate public input, and improve the review process, we are finalizing as proposed modifications to both the new technology add-on payment application eligibility requirements and the date by which applicants must receive FDA marketing authorization in order to be eligible for consideration. Specifically, we are finalizing our proposed policies to modify the new technology add-on payment application eligibility requirements for technologies that are not already FDA market authorized to require such applicants to have a complete and active FDA marketing authorization request at the time of new technology add-on payment application submission, and to move the FDA marketing authorization deadline from July 1 to May 1, beginning with applications for FY 2025. As we discuss in further detail later in this section, we believe these changes will significantly improve our ability to evaluate whether a technology is eligible for new technology add-on payment.

We accept new technology add-on payment applications annually, each fall. As previously discussed, CMS considers whether the technology meets the criteria for the new technology add-on payment and announces the results as part of the annual IPPS rulemaking. To provide maximum flexibility for applicants for new technology add-on payments, we have not historically specified how complete an application must be at the time of its submission. This has resulted in a significant number of applicants submitting new technology add-on payment applications that lack critical information that is needed to evaluate whether the technology meets the eligibility criteria at § 412.87(b), (c), or (d), particularly with regard to having information available for the proposed rule and during the comment period. Specifically, many applicants submit new technology add-on payment applications prior to submitting a request to FDA for the necessary marketing authorization, and applicants have stated that information missing from their applications, which is needed to evaluate the technology for the add-on payment, will not become available until after submission to FDA. With regard to the alternative pathways, such applications may also be missing information that would help inform understanding of the details and interrelationship between the intended indication and FDA Breakthrough Device or QIDP designation, which is the basis for a product's eligibility for the alternative pathway.

Ultimately, it is difficult for CMS to review and for interested parties to comment on a product that has not yet been submitted to FDA, as multiple sections of the new technology add-on payment applications lack preliminary information that is more likely to be available after an FDA submission. Public input is an important part of our assessment of whether a technology meets the new technology add-on payment criteria, particularly as technology becomes more complex and specialized.

Thus, we believe that requiring applicants to have already submitted a marketing authorization request to FDA at the time of submission of the new technology add-on payment application will further increase transparency and improve the evaluation process, including the identification of critical questions in the proposed rule, particularly as the number and complexity of the applications have been increasing over time. By requiring applicants to submit their FDA marketing authorization requests prior to submitting an application for new technology add-on payments, the public and the agency will be able to more knowledgeably analyze the new technology add-on payment applications and supporting data and evidence to inform an assessment of the technology's eligibility for the add-on payment.

Therefore, we proposed that beginning with the new technology add-on payment applications for FY 2025, to be eligible for consideration for the new technology add-on payment, an applicant must have already submitted an FDA marketing authorization request before submitting an application for new technology add-on payments. We proposed that, for the purposes of this policy, submission of a request for marketing authorization by FDA would mean that the applicant has submitted a complete application to FDA, and that the application has an active status with FDA (such as not in a Hold status or having received a Complete Response Letter). An applicant must provide documentation of the marketing authorization request at the time of submission of its new technology add- on payment application to CMS. We stated our belief that requiring an FDA acceptance or filing letter will provide the clearest and most effective means of documenting that the applicant has submitted a complete request to FDA and therefore proposed to require this approach to documentation. We proposed that the applicant would also indicate on the new technology add-on payment application whether the FDA request has an active status with FDA. We noted that applicants for technologies that have already received FDA marketing authorization for the indication for which they are applying for new technology add-on payments would not be required to submit an FDA acceptance or filing letter and would continue to be eligible for consideration for new technology add-on payments. We proposed to amend 42 CFR 412.87 to reflect this proposal by redesignating current paragraph (e) as paragraph (f) and adding a new provision at 42 CFR 412.87(e) to state that CMS will only consider, for add-on payments for a particular fiscal year, an application for which the medical service or technology is either FDA market authorized for the indication that is the subject of the new technology add-on payment application or for which the medical service or technology is the subject of a complete and active FDA marketing authorization request and documentation of FDA acceptance or filing is provided to CMS at the time of new technology add-on payment application submission.

In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48562 through 48563), we finalized our proposal to set July 1 of each year as the deadline by which IPPS new technology add-on payment applications must receive FDA marketing authorization. We noted that while we prefer that technologies have FDA approval or clearance at the time of application, this may not always be feasible. At that time, we believed that the July 1 deadline would provide an appropriate balance between the necessity for adequate time to fully evaluate the applications, the requirement to publish the IPPS final rule by August 1 of each year, and addressing commenters' concerns that potential new technology applicants have some flexibility with respect to when their technology receives FDA approval or clearance.

However, with the increased complexity and volume of applications for new technology add-on payments since finalization of this policy in the FY 2009 IPPS/LTCH PPS final rule, we believe the July 1 deadline may no longer provide sufficient time to fully evaluate the new technology applications in advance of the issuance of the final rule, including information that does not become available until FDA approval or clearance. The technologies that are the subject of new technology add-on payment applications are increasingly complex, such as fourth- and fifth-line therapies and devices utilizing artificial intelligence algorithms. The volume of new technology add-on payment applications has also risen substantially. In the first 20 years of the new technology add-on payment program, CMS received on average 2–10 applications per year. Applications have risen by 200 percent from FY 2020 to FY 2024 alone.

The increased volume and complexity of applications makes it more challenging to mitigate information gaps in advance of the final rule, particularly with regard to analysis and validation of information necessary to make determinations regarding whether technologies meet the add-on payment criteria. For traditional pathway applications, this may involve submission of new clinical studies and/or a different final indication, which can change the relevant comparators for consideration. For alternative pathway applications, CMS must assess the relevant designations in connection with the applicable indications and how the necessary marketing authorization relates to the designated technology, which often necessitates coordination with FDA and other components of HHS. As new technology continues to be developed, we expect both the complexity and the number of applications to increase, further increasing the need for additional time to fully evaluate the applications in advance of the final rule. We also believe that providing the opportunity for interested parties to review the FDA approved indications and the clinical data that often only becomes available after receiving, and may only be available in, FDA marketing authorization will strengthen the quality of the public comments and allow for more informed decision-making in the final rule.

Accordingly, to allow adequate time to fully evaluate the new technology add-on payment criteria for FDA-authorized technologies in advance of the final rule, and to further facilitate and inform public comment, we proposed requiring applicants to receive FDA approval or clearance by May 1 in order to be eligible for consideration for the new technology add-on payment for the upcoming fiscal year. We said we believed that this May 1 deadline would strike a balance between providing adequate time to fully evaluate the applications while also continuing to preserve flexibility for manufacturers. We proposed to amend proposed redesignated § 412.87(f)(2) to reflect this proposed change by revising the date by which new medical services or technologies must receive FDA marketing authorization from July 1 to May 1 and making other conforming changes to the regulatory text.

Consistent with our current approach, we will not include in the final rule the description and discussion of new technology add-on payment applications which were included in the proposed rule that were withdrawn or that were ineligible for consideration for the upcoming fiscal year due to not meeting the proposed May 1 deadline. We will also neither summarize nor respond to public comments received regarding these withdrawn or ineligible applications in the final rule.

We noted that we were not proposing to change the July 1 deadline for technologies for which an application is submitted under the alternative pathway for certain antimicrobial products because they would continue to be eligible for conditional approval under § 412.87(e)(3) (to be redesignated as § 412.87(f)(3)), as finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58740). However, we proposed to amend the redesignated § 412.87(f)(3) to revise the current cross-reference to § 412.87(e)(2) in light of the previously discussed amendments being proposed.

We sought public comment on our proposal to modify the new technology add-on payment application eligibility requirements for technologies that are not already FDA market authorized to require such applicants to have a complete and active FDA marketing authorization request at the time of new technology add-on payment application submission, to provide documentation of FDA acceptance or filing to CMS at the time of application submission, and to move the FDA marketing authorization deadline from July 1 to May 1, beginning with applications for FY 2025.

Comment: We received several public comments regarding the stated policy goals behind our proposal of promoting transparency, facilitating public input, and improving the review process. As part of improving the new technology add-on payment review process, we stated that as new technologies continue to be developed, we expect both the complexity and the number of applications to increase, further increasing the need for additional information earlier in the new technology add-on payment review process in order to fully evaluate the applications. As discussed further in this section, many commenters stated that they understood our policy goals but provided alternatives as to how to achieve those goals or asked for a delay in implementation. We discuss the specific comments concerning alternatives to our proposal and asking for a delay in implementation later in this section.

Other commenters stated that it is unclear how the proposal would improve transparency, facilitate public input, and improve the review process, or disagreed that it would do so. One commenter specifically stated that it did not understand how our proposal would further facilitate and inform public comment, as the proposed rule is released in April and the information from the full FDA approval would not be available in the proposed rule at that time. A number of commenters asserted that the intent of these policies is to reduce the number of applications or decrease CMS's workload, and some of these commenters expressed the view that the proposal is unlikely to address the increasing volume and complexity of applications or reduce CMS's review time. Commenters also stated that they did not believe the volume of applications would decline because they believe that applicants will likely continue to pursue a new technology add-on payment application as a “just in case” strategy, or to solicit information on what concerns CMS may have with a future application, even if they are unlikely to receive FDA approval until well after the proposed May 1 deadline. One commenter noted that even those with Priority Review status may not receive FDA approval until after May 1, and that technologies subject to the standard review timeline may not receive approval until late fall.

A few of the commenters noted that applicants who do not receive new technology add-on payment approval due to missing the marketing authorization deadline would likely apply again during the following application cycle and CMS would have to repeat this process the following year, resulting in a greater burden on both manufacturers and CMS. A few of these commenters also disagreed that our proposal would improve transparency nor materially impact the volume or complexity of applications, specifically for technologies with Breakthrough Device designations for which the new technology add-on payment applications only contain limited information as compared to traditional pathway applications that contain newness and SCI information.

One commenter stated that complete new technology add-on payment applications should provide CMS with sufficient information to assess the medical technology in question regardless of whether the FDA application has been formally submitted, and another commenter stated that CMS currently has the discretion not to approve applications that are missing data, regardless of the status of the FDA marketing authorization application.

Response: We thank commenters for their comments. While a number of commenters noted their belief that the intent of these policies is to reduce the number of applications or decrease CMS's workload, the intent of our proposal is instead to address the ever-increasing complexity and number of applications lacking critical information that is needed to evaluate whether the technology meets the eligibility criteria at § 412.87(b), (c), or (d), by enhancing transparency and improving the evaluation process, as described in the proposed rule. Specifically, applications for technologies that have not yet received FDA marketing authorization often have incomplete information about the indication, lack cost information, and provide limited clinical information and supporting data (where applicable), all of which are necessary for a thorough analysis of new technology add-on payment criteria. Thus, the application summaries and lists of relevant CMS concerns in the proposed rule may be limited and the public may not have all of the necessary information on the new technology being considered for new technology add-on payment. Public commenters in previous final rules have noted that they cannot meaningfully comment on a product that has not yet been FDA approved because multiple sections of the new technology add-on payment applications are informed by the marketing authorization approval process. Public input on the new technology add-on payments is highly valued and an important consideration in our assessment of whether a new technology add-on payment application meets the eligibility criteria. This is especially important given that new technologies are becoming more complex and specialized and the volume of applications for new technology add-on payments is increasing.

Therefore, we believe more comprehensive applications at the time of submission will allow CMS to better identify critical questions in the proposed rule and will enable more comprehensive evaluation by commenters during the public comment process. In summary, the goal of the proposal is to increase the quality of the information contained in the application to allow the public and the agency to more knowledgeably review and analyze the applications, supporting data, and evidence to inform an assessment of a technology's eligibility for the new technology add-on payment.

Although a commenter stated that complete new technology add-on payment applications should provide CMS with sufficient information to assess the medical technology in question regardless of whether an application has been formally submitted to FDA, as noted previously, applications for technologies that have not yet received FDA marketing authorization often have incomplete information about the indication, lack cost information, and provide limited clinical information and supporting data (where applicable). In addition, in regard to the commenter that stated CMS has the discretion not to approve applications that are missing data, this does not address our intent to increase the quality of the information contained in the application, as previously described.

CMS recognizes that some applicants who submit new technology add-on payment applications prior to submitting applications for FDA marketing authorization may be doing so strategically to identify information regarding concerns CMS may have with new technology that is the subject of the new technology add-on payment application as early as possible, as described by a commenter. While we acknowledge that it could be advantageous for an applicant to learn of CMS's concerns regarding eligibility of its product for new technology add-on payments, we do not believe it is an appropriate use of resources to evaluate applications for technologies that will not be eligible in time for that particular rulemaking cycle. In addition, over the last 4 years, 50 to 75 percent of applications (depending on the fiscal year) did not meet the July 1 deadline for obtaining FDA marketing authorization. We believe that this proposal will serve to mitigate these practices to some extent, though this is not the goal behind the proposal, as described previously.

Regarding the comments that stated that applicants who miss the marketing authorization deadline would likely apply again during the following application cycle, resulting in a greater burden on both manufacturers and CMS, we note that this would not be a change from our current policy. As noted previously, even with a July 1 deadline, 50–75 percent of applications do not meet the deadline and many reapply the following year. As described later in this section, we believe requiring technologies to have submitted FDA marketing authorization requests prior to submitting applications for new technology add-on payments would mitigate this issue, as we believe applications for which a “complete and active” FDA application has been accepted or filed have a greater chance of meeting the deadline for FDA marketing authorization for new technology add-on payment eligibility purposes.

Additionally, with regard to commenters' assertion that our proposal would not improve transparency and materially impact the volume or complexity of Breakthrough Device applications, we believe that requiring a FDA marketing authorization request to have been submitted and in an active status at the time of application for technologies with Breakthrough Device designations will lead to applicants submitting information in their new technology add-on payments applications that address the criteria needed to determine eligibility, such as the marketing authorization indication and other information that would help inform understanding of the details and interrelationship between the intended indication and FDA Breakthrough Device designation, which is the basis for a product's eligibility for the alternative pathway, and whether the device that is the subject of the application is the same device designated as a Breakthrough Device. We note, as we have gained more experience with applications for technologies with Breakthrough Device designations, these applications are increasingly complex and involve many considerations and nuances across multiple aspects of the application, not just the cost criterion. This requirement will enhance the quality of information CMS receives at the time of application for all application pathways, making more information available to the public and providing CMS with more robust information to evaluate the application.

Although a commenter mentioned that the proposed rule is released in April and therefore, information from the full FDA approval would not be available in the proposed rule, we note that a May 1 deadline allows for information necessary to determine whether a technology meets the requirements for new technology add-on payment eligibility, such as the full FDA marketing authorization indication and information for which release is dependent on that approval, to be publicly available during the comment period in time for consideration by the public and the agency, since this deadline would generally occur approximately 30 days before the public comment period closes. A technology's FDA marketing authorization may differ from the proposed indication, which may require additional consideration when contemplating new technology add-on payment eligibility; for example, with respect to how the final marketing authorization indication compares to an alternative pathway designation, or what would be the appropriate comparators for newness and substantial clinical improvement for traditional pathway applications. Access to this information will enhance the quality of the review process and improve transparency for the public prior to the final rule.

Comment: One commenter was fully supportive of our proposal and agreed that increasing transparency is critical for the new technology add-on payment process. The commenter stated applications that lack information at the time of submission make it difficult for CMS and the public to assess whether the technology meets the new technology add-on payment criteria. The commenter believed that the vast majority of applicants, if not virtually all, who apply for new technology add-on payments before they are ready to submit an application for marketing authorization to FDA, do not end up receiving FDA approval in time for the new technology add-on payment determination, which leads to a tremendous use of resources to review technologies and put them through the proposed rule and comment period, just to have the applications be withdrawn from new technology add-on payment consideration at the last minute. The commenter further asserted that due to the increased volume and complexity of applications over the years, these issues may have been compounded. The commenter noted that spreading limited resources over a large number of applications with an extremely short deadline to review the applications could result in a less than thorough review process.

Response: We thank the commenter who was supportive of the proposal and agree that the policy will increase our stated goals of transparency, facilitating public input, and improving the review process.

Comment: Many commenters who opposed our proposal stated that one or both aspects of the proposal would create a barrier to beneficiary and provider access to innovative technologies. A few commenters recommended that CMS analyze the proposal's impact on beneficiary access. Some of the commenters explained that the proposal would impact the timeliness of reimbursement for the new technology. One commenter stated that new technology add-on payments are often not in place until more than a year after a product receives marketing authorization from FDA and that the proposal would further delay that payment. Another commenter encouraged CMS to maintain the existing timelines as reducing the duration of the new technology add-on payment could reduce patient access to therapies like CAR T-cell therapy. One commenter raised concerns about the proposal having a negative effect on applicants that rely on new technology add-on payments to sustain a viable market entry point.

Several commenters noted that the proposal would worsen the lag time between FDA marketing authorization and new technology add-on payments and create disruptions, and thus delay beneficiary access to new technologies, which would be the opposite of the intent of the new technology add-on payment process. A few commenters stated that this proposal would negatively affect therapies intended to treat serious conditions and address unmet needs, and one commenter raised several concerns about timing for new technology add-on payment approvals for, and patient access to, certain types of newly approved FDA therapies, such as cell and gene therapies and therapies treating orphan conditions and rare diseases. One commenter stated that there is risk that the policies would have a disproportionately negative effect on drugs that utilize the FDA “rolling review” process, delaying patient access to these drugs.

Response: We thank the commenters for sharing their concerns. CMS shares the goal of ensuring Medicare beneficiaries and their providers have access to new technologies. However, as described in the FY 2005 final rule (69 FR 49003 and 49009), patient access to these technologies should not be adversely affected if a technology does not qualify to receive new technology add-on payments, as CMS continues to pay for new technologies through the regular payment mechanism established by the MS–DRG methodology. We further note that whether a technology receives new technology add-on payments or not does not affect coverage of the technology or the ability for hospitals to provide a technology to patients where appropriate.

Comment: Many commenters raised concerns that our proposals to require a complete and active FDA marketing authorization request at the time of submission of the new technology add-on payment application and to move the FDA approval deadline from July 1 to May 1 for technologies to receive FDA marketing authorization would adversely impact their ability to enjoy maximum flexibility with respect to when to apply to FDA and when they apply for new technology add-on payment.

One commenter stated that the proposal could discourage applicants from applying for a new technology add-on payment. Another commenter noted a manufacturer could be working closely and actively with FDA through the FDA's voluntary pre-submission process, which is intended to improve the quality of subsequent submissions, shorten total review times, and facilitate the development process for new devices. The commenter explained that the proposal would discourage industry collaboration with FDA in its voluntary pre-submission process since the policy could potentially delay eligibility for a new technology add-on payment by a full year. A commenter stated that CMS should consider a flexible approach for submitting additional documentation on a rolling basis that corresponds with the type of technology's FDA review process to account for the variation in FDA review processes across new technologies and avoid creating new burdens on FDA.

One commenter noted that manufacturers' timelines are driven primarily by trial enrollment so they may not be able to submit a BLA prior to the new technology add-on payment application submission or get approved by the May 1 deadline. A few commenters asserted that the proposal would jeopardize the ability of manufacturers to submit applications within the window of time necessary to be eligible to receive new technology add-on payments, leading to fewer products being eligible for approval each year.

A few commenters noted how the proposal does not reflect the variations in FDA processes and timelines for different types of new technologies, whereas the new technology add-on payment designation is the same and only occurs once a year. Additionally, commenters noted that the FDA provides estimates of timeline, but it does not provide applicants with definitive timelines of when the product will be approved or provide feedback on what is needed. A few commenters raised concerns about how the FDA submission process can be impacted by several factors, including timing of interactions with the FDA and manufacturing readiness. One commenter noted that there are examples of technologies receiving FDA clearance after submitting their new technology add-on payment application and meeting the new-technology add-on payment criteria, and that as long as new technology add-on payments can only be awarded annually, applicants should be able to apply for new technology add-on payments as long as there is potential for FDA clearance prior to the July 1 deadline.

Response: We understand the commenters' concerns with regard to the impact of having maximum flexibility with respect to when they apply for FDA marketing authorization and when they apply for new technology add-on payments. We believe the new technology add-on payment application timeline with the same deadline for submission of a request for FDA marketing authorization is appropriate regardless of how long it takes for a technology to receive FDA approval. To date, we have not specified how complete an application for new technology add-on payments must be at the time of its submission, and used a late deadline of July 1 for the requirement for FDA approval, in order to maximize flexibility for applicants. But as noted earlier, currently, many applicants submit new technology add-on payment applications prior to submitting a request to FDA for marketing authorization, and applicants have stated that information missing from their applications, which is needed to evaluate the eligibility of the technology for the add-on payment, will not become available until after submission to FDA. Our policy will further increase transparency and improve the evaluation process, including enabling CMS to identify critical questions regarding the technology's eligibility for add-on payments in the proposed rule. It will also reduce the number of applications that CMS receives that contain limited information.

We further note that even under the current policy with the flexibilities mentioned by the commenters, most applicants do not receive FDA marketing authorization by the July 1 deadline. As noted previously, over the last 4 years, more than 50 percent of applications each year did not receive FDA marketing authorization by the July 1 deadline and were therefore ineligible for new technology add-on payments for the fiscal year for which they applied. As the commenters noted, there are many factors (including timing of interactions with FDA and manufacturing readiness) that can impact a technology's approval or clearance by FDA, despite expected FDA timelines based on review time or submission planning. This is true regardless of whether the deadline for FDA approval is May 1 or July 1.

We note that this policy does not eliminate flexibilities built into the new technology add-on payment process, as FDA marketing authorization is not required at the time of application, and applicants can continue to provide information as it becomes available according to our standard processes (such as the December supplemental deadline and the public comment period). We believe in providing maximum flexibility to applicants where feasible, but due to the increasing complexity and volume of applications lacking critical information that is needed to evaluate whether the technology meets the eligibility criteria at § 412.87(b), (c), or (d), as we have noted previously, we will require information related to FDA submission at the time of application beginning with applications for FY 2025.

We do not anticipate that the policy of requiring an applicant to have already submitted its marketing authorization application to FDA will discourage applicants from applying for new technology add-on payments, since they would be able to reasonably provide sufficient information at the time of application in order 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. In addition, the extent to which an applicant decides to collaborate with FDA is independent from the application process for new technology add-on payment, and the applicants retain the autonomy to decide if, when, and how to collaborate with the FDA. Applicants are not precluded from continuing to work with FDA as appropriate, and can continue to submit applications to FDA based on their individual readiness and internal timelines.

Comment: Many commenters expressed specific concerns regarding moving the FDA approval deadline to May 1 and how it would impact how long technologies may be eligible for a 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 get 3 years of new technology add-on payments, shortening the window from 3 months under the current policy to just 1 month (April 1 until July 1, vs April 1 until May 1). One commenter stated that few new technology add-on payment applications have had a full three-year duration of add-on payments under existing policy, potentially limiting Medicare beneficiary access, and this new policy would exacerbate the issue. Further, another commenter provided an example of the potential impact of this policy by referring to Table II.P.–01 in the proposed rule that details the technologies that are scheduled to continue new technology add-on payments in FY 2024. The commenter noted that of the 11 technologies listed, seven (64%) received FDA approval/clearance between May 5 and June 30, and stated that if this policy had been in place at the time these new technology add-on payment applications were evaluated, each of these would not have been granted new technology add-on payments the following October, representing a delay of 12 months.

Some commenters recommended that if CMS finalizes the aspect of its proposal to move the FDA approval date to May 1, it also adjust its regulations to provide that all devices that receive approval for a new technology add-on payment be granted 3 fiscal years of reimbursement from the time of approval for the new technology add-on payment, independent of the timing of the FDA approval. A few commenters noted that the shortened period resulting from decreasing the window for 3 years of payment for new technology add-on payments to 1 month (April 1 until May 1) would mean CMS would have less claims data available to determine the MS–DRG payment rate.

Several commenters believed our proposal would worsen lag times between FDA approval and the new technology add-on payment designation, resulting in an FDA-approved product being on the market for up to 17–18 months without being approved to receive new technology add-on payments and reducing the potential length of new technology add-on payment eligibility from a possible 3-year period to a 2-year period.

Some commenters performed analyses to demonstrate the potential impact of the proposed May 1 deadline policy: one commenter noted that if the policy were currently in effect then new technology add-on payments would have been delayed for 4 out of the 25 technologies that received approval between 2019 and 2023; another noted that if this policy had already been implemented, then 9 out of the current 19 traditional applications would be disqualified for consideration for the FY 2024 rule; and another commenter noted that almost all renewals proposed for FY 2024 would have had new technology add-on payments delayed by a year as their newness periods begin in May/June. One commenter noted that 20 percent of FY 2022 approved technologies and 30 percent of FY 2023 approved technologies had FDA approval dates between May 2 and July 1, and that based on this data, the commenter estimated the proposed May 1 deadline would delay access by a full year for between one-in-three and one-in-five therapies. Another commenter cited a study finding that, historically, over 25 percent of new technology add-on payment denials were due to applicants being unable to meet the existing July 1 deadline, stating that the May 1 deadline would result in even more products experiencing delays in new technology add-on payments.

Response: We thank the commenters for their feedback. We note that it appears that commenters' analyses may have conflated FDA approval dates with newness period start dates. For example, with respect to the commenter that referred to Table II.P.–01 in the proposed rule, we note that this table does not provide FDA approval/clearance dates, but rather the newness period start dates, for these technologies. Furthermore, the commenters' analyses of technologies in previous fiscal years that received approvals for new technology add-on payments with newness period start dates between May 2 and July 1 do not necessarily indicate that these technologies would have received a denial for new technology add-on payments for those respective fiscal years. In certain circumstances, the newness start date may occur after the FDA marketing authorization date. Applicants may have also applied for new technology add-on payments after receiving FDA marketing authorization. It is also possible that some of these manufacturers may have delayed their submission of their FDA marketing authorization application in an attempt to align that approval as much as possible with the existing new technology add-on payment timelines, rather than applying at a sooner time that could have resulted in an FDA marketing authorization date prior to May 1. With regard to the commenter that stated that 9 out of the current 19 traditional applications would be disqualified for consideration for the FY 2024 rule if CMS had already implemented an FDA marketing authorization deadline of May 1st, we note that of those 9 applications, 7 withdrew or were ineligible for new technology add-on payments.

We also note that even under the current policy with the flexibilities mentioned by the commenters, not all applicants receive the full three years of new technology add on payments. As the commenters noted, 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 technologies ability to receive the full three years of payment.

We note that our data analysis of applications over the last 3 years demonstrates that nearly all applicants who submit new technology add-on payment applications prior to FDA submission in fact do not receive FDA approval by the July 1 deadline. Between FY 2021 and FY 2023, only 3.7 percent of applicants that applied for a new technology add-on payment prior to having submitted its marketing authorization application to FDA received FDA marketing authorization prior to the July 1 deadline. We believe this may result in part from strategically planning the timing of application submission to FDA, as noted by commenters. However, while we expect that applicants are applying for new technology add-on payments with the expectation that they will receive FDA marketing authorization by the deadline, we agree that this choice to “time” an application submission to FDA by applicants may not change with implementation of this policy. As stated previously, the goals of this policy are to increase transparency, facilitate public input, and improve the review process, and we believe that by receiving relevant information earlier (both in terms of the time of application and in terms of final FDA marketing authorization prior to the close of the comment period), these goals will be fostered and advanced. We further note that between FY 2021 and FY 2023, only 4 applications out of 107 received FDA marketing authorization between May 1 and July 1 and were approved for new technology add-on payments. Based on this analysis, however, we note that it appears that changing the FDA approval date from July 1 to May 1 would still have affected only a small percentage of new technology add-on payment applications.

We further note that section 1886(d)(5)(K)(ii) of the Act establishes a period of not less than two years and not more than three years for the collection of data with respect to the costs of new services or technologies; a full 3 years is not required. As previously stated, consistent with the statute and our implementing regulations, a technology is no longer considered “new” once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). As such, once a technology has been available on the U.S. market for more than 2 to 3 years, we consider the costs to be included in the MS–DRG relative weights regardless of whether the technology's use in the Medicare population has been frequent or infrequent. Therefore, we do not believe that 2 years' worth of data would be insufficient to inform rate-setting for the inpatient setting.

However, we have noted commenters' concerns regarding the possibility that moving the FDA approval deadline from July 1 to May 1 may limit the ability of new technology add-on payment recipients to receive three years of add-on payments, due to the shortened time period between April 1 and May 1. We note that we anticipate considering for future rulemaking changes to how we assess new technology add-on payment eligibility in the third year of newness, such as consideration of adjusting the April 1 cut-off to allow for a longer window of eligibility.

Comment: One commenter supported this aspect of the proposal, agreeing that moving the deadline to May 1 would allow interested parties to review the FDA-approved indications and clinical data that often becomes available only after receiving FDA marketing authorization, and would strengthen the quality of the public comments, allowing for a more informed decision-making process in the final rule.

Response: We thank the commenter and agree that the policy will increase our stated goals of transparency, facilitating public input, and improving the review process.

Comment: Commenters asked for clarifications or raised concerns with the terminology used in the proposal regarding the requirement for a complete and active FDA marketing authorization request at the time of new technology add-on payment application submission and providing documentation of FDA acceptance or filing to CMS at the time of application submission.

Some commenters requested that CMS clarify what constitutes a “complete and active FDA marketing authorization request.” Some of these commenters stated it was unclear what the terms “complete and active FDA marketing authorization” means, as they are not defined in statute, regulation, or guidance, or adequately defined in the proposed rule. A few commenters noted that these terms do not correlate with the terms used by the FDA and that there is currently no certification provided by the FDA indicating such a status. Some commenters suggested this would create further confusion between FDA, CMS, and interested parties.

A few commenters noted the FDA application status at the time of the new technology add-on payment application submission is not always an accurate representation of the maturity of the FDA application. A few commenters stated that the FDA application process is dynamic and could switch from “active” to “on hold” at any time for various reasons including temporary pauses for minor questions or the request of supplemental materials, and noted that a temporary hold may be lifted with submission of supplemental materials.

Some commenters raised concerns about what documentation is sufficient to demonstrate that a product was submitted to FDA for approval or review at the time of submission of the new technology add-on payment application and requested additional clarification from CMS. One commenter recommended that CMS accept a copy of the first page of the marketing authorization request cover letter submitted to the FDA as sufficient documentation. Another commenter raised concerns that this would increase the burden on the FDA to provide applicants with proof of a “complete and active” application status.

One commenter requested clarification about whether a “Refuse to File” letter from the FDA would prevent an applicant from applying for new technology add-on payments, recommending that a “Refuse to File” letter should not preclude an applicant from applying for new technology add-on payments because the applicant could correct the filing error and re-submit their NDA or BLA and still meet the current July 1 FDA marketing authorization deadline.

Response: We thank the commenters for the feedback and sharing their concerns. We note that we collaborated with the FDA in developing the terminology used in this proposal, and the intent behind using the terms we did was to ensure that the requirement could apply to and be inclusive of the different types of FDA applications for different types of drugs and devices. Many of the commenters only referenced terms used for either drugs or for devices, and because a variety of types of technologies, with different FDA marketing authorization application requirements, can be eligible for new technology add-on payment, we are not using terms defined in statute or existing regulations or terms defined by FDA.

We consider, for the purposes of new technology add-on payment applications, an FDA marketing authorization application to be “complete” when the full application has been submitted to FDA. Specifically, for relevant FDA application types, a full application includes all modules or all information following a rolling review or Real-Time Oncology Review (RTOR). We will only accept new technology add-on payment applications once FDA has received all of the information to determine whether it will accept (such as in the case of a 510k application or De Novo Classification request) or file (such as in the case of a PMA, NDA, or BLA) the application, as demonstrated by the acceptance/filing letter that is already provided by FDA to indicate that FDA has determined that the application is sufficiently complete to allow for substantive review by FDA. Additionally, for the purposes of new technology add-on payment applications, we consider an FDA marketing authorization application to be in an “active” status when the application has been determined by FDA to be sufficiently complete to permit substantive review by FDA, and when it is still under review at the time of new technology add-on payment application submission (that is, it is not in an inactive status such as withdrawn, the subject of a Complete Response Letter or final decision from FDA to refuse to approve the application, or on hold). We have received a number of applications over the years for technologies that have received a Complete Response Letter (CRL) or not approvable status from FDA, or are in a hold status with up to 360 days allowed for submission of additional information. Applications that are submitted to CMS without a new submission to FDA or additional information submitted to FDA addressing the relevant issues leading to the inactive review status would still be missing significant relevant information to inform assessment of the add-on payment criteria. For these reasons, applications submitted for new technology add-on payments must be in an active status with FDA at the time of new technology add-on payment application submission, and must provide that information as part of their new technology add-on payment application. We believe that those technologies for which a “complete and active” FDA application has been accepted or filed also have a greater chance of meeting the deadline for FDA marketing authorization for new technology add-on payment eligibility purposes. We do not believe this process will increase the burden on FDA; we are requiring that applicants provide us with the initial acceptance or filing letter that is already provided by FDA after its initial administrative review (which can vary based on the FDA application type) which demonstrates FDA has begun substantive review of the application in full, as described further in this section. Aside from that, we do not require specific documentation from FDA to demonstrate continued “active status” after initial FDA acceptance or filing, as we believe applicants are aware of any changes to their FDA application status and would be able to provide this information to CMS in their new technology add-on payment application. We acknowledge that the FDA application process is dynamic and could switch from “active” to “on hold” at any time for various reasons, and do not intend for our requirement to exclude applicants that have submitted to FDA; the intention is that applicants apply for new technology add-on payments if they can indicate that the FDA application has an “active status” at the time of new technology add-on payment application submission. As described previously, the intent of this requirement is 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 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.

Regarding the documentation that would suffice for the purposes of this policy, as described previously, we are requiring the documentation provided to applicants by FDA after FDA concludes that the application is sufficiently complete to permit a substantive review. We note that when FDA instead provides applicants with a “Refuse to File” (RTF) (or “Refusal to Accept” (RTA)) letter, this specifically indicates that FDA has determined the application is not complete and therefore those applicants that have received an RTF or RTA letter will not be eligible to apply for new technology add-on payment until the application is resubmitted to FDA and an acceptance/filing letter is received.

Comment: A few commenters requested exceptions for QIDPs and LPADs to one or both aspects of the proposal. The commenters stated that since applications for these technologies only require the cost criterion, they should be exempt from the proposal, as the proposal could delay access to QIDPs and LAPDs.

Response: We thank commenters for their feedback. We note that we did not propose to change the July 1 deadline for technologies for which an application is submitted under the alternative pathway for certain antimicrobial products because they would continue to be eligible for conditional approval under § 412.87(e)(3) (as finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58740)). However, we do not believe it is appropriate to exempt any technology from the requirement to request FDA marketing authorization prior to applying for new technology add-on payments. As discussed previously, this proposal is intended to increase transparency for the proposed rule, and as such, receiving the most information possible at the time of application would result in robust analysis and discussion for the proposed rule to maximize public input. Furthermore, as discussed previously, with regard to the alternative pathways, such applications may also be missing information that would help inform understanding of the details and interrelationship between the intended indication and FDA QIDP (or Breakthrough Device) designation, which is the basis for a product's eligibility for the relevant alternative pathway.

Comment: Several commenters requested that if CMS finalizes its proposal, it should delay implementing until after FY 2025. The commenters recommended that CMS provide more notice to manufacturers and delay implementation of the proposed new policies until FY 2026 or later to provide more time for manufacturers to adjust their development processes. Some commenters raised concerns that planning for the FY 2025 cycle is already underway and if these policy changes are implemented in this final rule, they would no longer be able to apply for a new technology add-on payment in the next cycle as they anticipated, which raises the risk that Medicare beneficiaries would not have reliable access to these new technologies for more than a year after FDA approval. One commenter also noted that it takes about 6–10 months from the initial FDA application request to receive an approval decision, and that by the time the final rule releases in August, if the policy is finalized, it may be too late for manufacturers to apply and receive FDA approval before the May 1 deadline. Other commenters specifically noted that this could require Breakthrough Devices/510k applications to submit applications to FDA earlier, such as 4–6 months sooner (since their FDA timeline is shorter), which would mean a year delay in add-on payments if the deadline is missed, since they can currently apply to FDA as late as April and still anticipate approval by July 1.

Response: We thank the commenters for their recommendations regarding delay of implementation of the proposal. It seems that commenters are suggesting that manufacturers may strategically time the submission of an application to the FDA in an attempt to align an expected decision by the FDA with the timelines for new technology add-on payment eligibility. We encourage manufacturers to pursue the appropriate regulatory processes to bring new products to market as soon as practical. While FDA reviews often have standard estimated timeframes from application to approval, we understand that there can be many variables in the review, including FDA seeking new or additional information, that may result in a longer or shorter timeframe to approval than estimated. We further note that CMS continues to pay for new technologies through the regular payment mechanism established by the MS–DRG methodology, with or without new technology add-on payments, and whether a technology receives new technology add-on payments or not does not affect coverage of the technology or ability for hospitals to provide a technology to patients where appropriate.

As discussed previously and in the FY 2024 IPPS/LTCH PPS proposed rule, we believe these policies will help facilitate a more transparent process that will improve public engagement and help improve and streamline our review processes. Many of these products are novel and complex, and CMS has a responsibility to appropriately and thoroughly review applications for eligibility for new technology add-on payments against our established eligibility criteria. Therefore, we do not intend to delay implementation of the proposed new policies because we believe that such a delay would not lead to improved transparency and more robust applications or otherwise align with the issues this policy would address.

Comment: Many commenters stated that the proposal was unlikely to achieve CMS's stated goals or to decrease workload, and would instead negatively impact beneficiary access or manufacturer flexibility. The commenters therefore recommended alternatives that they believed would maximize flexibility and improve access in line with the intent of new technology add-on payments, as described further in this section.

Commenters recommended that rather than finalizing the proposal, CMS consider increasing the frequency of new technology add-on payment application reviews. Specifically, some commenters requested that CMS conduct quarterly or biannual reviews that align with existing CMS processes for the hospital outpatient transitional pass-through payments and ICD–10 coding cycles. One commenter supported the proposal to require applicants to submit their FDA marketing authorization requests prior to submitting a new technology add-on payment application only if the new technology add-on payment eligibility determinations are conducted biannually.

For instance, a few commenters suggested the effective dates of a semiannual new technology add-on payment application process to begin making new technology add-on payments could fall on April 1 and October 1. Some of the commenters suggested a biannual cycle as follows: For an October 1 add-on payment start date, new technology add-on payment applications could have a deadline of April 1, with a public meeting in early/mid-May, with new technology add-on payment proposals issued in early/mid-June allowing for a 30-day comment period leading to final new technology add-on payment decisions in late August with an effective date of October 1; the second cycle would follow a similar timeline with a new technology add-on payment application deadline of October 1 and April 1 add-on payment start date. This commenter stated that this proposed timeline would be consistent with the statute and would allow for more new technology add-on payment determinations, which would, in theory, enhance the quantity and quality of claims data used for ratesetting. Other commenters also noted that biannual new technology add-on payment reviews could also theoretically result in more claims data to analyze in the next fiscal year.

Another commenter asserted that section 1886(d)(5)(K)(vii) of the Act does not prevent the agency from approving new technology add-on payment applications more than once a year, but mandates only that the Secretary provide the addition of new diagnosis and procedure codes on April 1, while giving the Secretary discretion to adjust the payment. One commenter proposed that the 60-day comment period could be avoided by CMS going through rulemaking to establish the substantive legal standards used to determine whether a product qualifies for new technology add-on payment, as well as the process, including the opportunity for public comment, for applying those standards. The commenter noted precedent for similar approaches under the Medicare program, including the Clinical Laboratory Fee Schedule rate setting process and the process for approving applications for transitional pass-through payment under the Outpatient Prospective Payment System. Another commenter stated that the statute does not preclude CMS from considering applications prior to the required public meeting, and accordingly supported a quarterly review process.

A few commenters suggested that more frequent reviews could help address patient access challenges, reduce the volume of applications per application cycle, provide CMS with additional time to fully review and analyze applications and reduce the administrative burden on the agency, and ensure timely reimbursement for new technologies. Other commenters recommended that CMS consider expanding alternative pathways and conditional approvals to more types of technologies, for example, products designated as Breakthrough Therapies and Regenerative Medicine Advanced Therapies (RMAT) by the FDA, innovative therapies, cell and gene therapies, in-vitro diagnostics, etc., to reduce workload and accelerate review timelines. Some commenters recommended that CMS expand the new technology add-on payment conditional approval pathway to include all technologies approved or cleared by the FDA through the Breakthrough Device Program to reduce workload and improve access.

One commenter stated that CMS should consider more frequent application cycles or other mechanisms that allow for faster NTAP eligibility, and indicated that certain technologies, such as antimicrobial products, have unique characteristics or policy needs recognized by CMS that warrant bespoke new technology add-on payment policies. The commenter stated that CMS should consider adopting a similar mechanism in other contexts to allow a new technology add-on payment to be implemented on a rolling or quarterly basis, especially in situations where there is a heightened policy need to facilitate new technology add-on payment availability.

A number of commenters suggested that CMS not finalize these policies and instead gather additional input from interested parties to assist with finding alternative policies, such as convening various interested parties to discuss potential alternatives or issuing a separate request for information (RFI) related to the new technology add-on payment applications process. One commenter stated that a 200 percent increase in new technology add-on payment applications would require additional resources but recommended that CMS work with interested parties to explore other options before finalizing any policy and ensure that any future changes to the new technology add-on payment process maintain transparency into the agency's decisions and provide applicants and the public the opportunity to provide comments.

A few commenters recommended that instead of requiring proof of active FDA review by the application deadline, CMS should require that proof by the December supplemental information deadline. They stated that this could account for the lag between FDA submission and the acknowledgment letter CMS is proposing to require, and this modification to the proposed policy would enable CMS to achieve the stated intent of striking a balance between being able to fully evaluate applications and preserving flexibility for manufacturers.

Response: We thank the commenters for their suggestions and recommendations. We believe at the heart of these comments is a shared interest among commenters and CMS in the goal of the new technology add-on payment program, which is to facilitate access to innovative new technologies for Medicare beneficiaries. We understand that the goals of other new technology payment pathways, such as transitional pass-through payments under the OPPS, may be similar.

However, there are a number of complexities, both legal and operational, that CMS would need to consider before proposing and finalizing an increase in the frequency of new technology add-on payment application review cycles, and not all of these complexities are the same in other new technology payment programs, such as transitional pass-through payment under the Outpatient Prospective Payment System. For example, the assessment of whether new technology add-on payment applicants meet the newness criterion intersects with other requirements associated with MS–DRG development and assessment, which is tied to fiscal year rulemaking and ratesetting. We note that we did not propose increasing the frequency of the new technology add-on payment application review cycle, and as such, we believe it is most appropriate to consider the feasibility of taking such steps in future years, so that we could solicit public comment through a full notice-and-comment rulemaking cycle.

Regarding the comments that recommended CMS should require proof of active FDA review by the December supplemental information deadline instead of the new technology add-on payment application deadline, as stated previously, we believe the new technology add-on payment application timeline with a simultaneous deadline for submission of a request for FDA marketing authorization is appropriate because when applicants submit new technology add-on payment applications prior to submitting a request to FDA for marketing authorization, missing information from their applications, which is needed to evaluate the eligibility of the technology for the add-on payment, will not become available until after submission to FDA.

With regard to expanding conditional approvals to other types of technologies, we note that we only recently established the pathway of conditional approvals. To date, no application that has gone through the conditional approval pathway has received FDA approval after being granted conditional new technology add-on payment approval and we therefore do not yet have sufficient experience with the conditional approval process. We do not currently have any reasonable expectation that expansion of eligibility for conditional approvals would advance our policy goals of promoting transparency, facilitating public input, and improving the review/evaluation process, or lead to additional technologies being granted conditional approval based on other new technology add-on payment criteria that we are required to assess. In addition, we have stated in prior rulemaking that we do not believe it is appropriate for CMS to determine whether a medical service or technology represents a substantial clinical improvement over existing technologies before FDA makes a determination as to whether the medical service or technology is safe and effective, and therefore we are unable to extend conditional approval to traditional applications (86 FR 45049).

With regard to expanding alternative pathways, we will continue to consider these issues for future rulemaking, including suggestions previously made by commenters to develop other ways pursuant to which a technology could qualify for new technology add-on payments, such as technologies that are designated for an FDA expedited program for drugs or devices (85 FR 58432).

We appreciate all the comments and various suggested alternatives to our proposal, as well as the recognition of our efforts toward greater transparency, public input, and streamlining of the new technology add-on application process. We acknowledge the concerns raised by commenters regarding flexibility and clarification of our policy. While commenters were concerned about our proposal, they did not address our concerns with regard to transparency. However, after having reviewed and carefully considered the comments and suggestions we received, we have determined that the additional information that will be made available by requiring a complete and active FDA marketing application prior to submission of a new technology add-on payment application, and the increased time for final review of such application made available by changing the FDA authorization deadline from July 1 to May 1, supports our decision to finalize these policy changes in this final rule. We have also further clarified the requirements for documentation and the meaning of “complete and active” under this policy, as described previously.

Therefore, for the reasons discussed previously and in the FY 2024 IPPS/LTCH proposed rule, we are finalizing our proposal to require applications to have a complete and active FDA marketing authorization request at the time of the new technology add-on payment application submission, and to move up the FDA marketing authorization deadline from July 1 to May 1, beginning with applications for FY 2025. As stated previously, we have noted commenters' concern regarding the potential impact of the shortened time period between April 1 and May 1, and we anticipate considering potential changes to the April 1 cut-off for future rulemaking. As previously noted, we are not making changes to the July 1 deadline for applications submitted under the alternative pathway for certain antimicrobial products because they would continue to be eligible for conditional approval under § 412.87(e)(3) (redesignated as § 412.87(f)(3)) in this final rule), as finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58740). We are also finalizing our proposal to redesignate § 412.87(e)(3) as § 412.87(f)(3), and to amend the redesignated § 412.87(f)(3) to revise the current cross-reference to § 412.87(e)(2), in light of the previously discussed proposed amendments.

III. 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 FY 2024 hospital wage index based on the statistical areas appears under section III.A.2. of the preamble of this final rule.

Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage- related costs of short-term, acute care hospitals. CMS collects these data on the Medicare cost report, 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 adjustment for FY 2024 is discussed in section II.B. of the Addendum to this final rule.

As discussed in section III.I. of the preamble of this final rule, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2024 is discussed in section II.A.4.b. of the Addendum to this final rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, 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 applying to the FY 2024 wage index appears under sections III.E. and F. of the preamble of this final rule.

2. Core-Based Statistical Areas (CBSAs) for the FY 2024 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, 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 2015) are based on revised OMB delineations issued on February 28, 2013, in OMB Bulletin No. 13–01. OMB Bulletin No. 13–01 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 provided guidance on the use of the delineations of these statistical areas using standards published in the June 28, 2010, Federal Register (75 FR 37246 through 37252). We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963 and 49973 through 49982) for a full discussion of our implementation of the OMB statistical area delineations beginning with the FY 2015 wage index.

Generally, OMB issues major revisions to statistical areas every 10 years, based on the results of the decennial census. However, OMB occasionally issues minor updates and revisions to statistical areas in the years between the decennial censuses through OMB Bulletins. On July 15, 2015, OMB issued OMB Bulletin No. 15–01, which provided updates to and superseded OMB Bulletin No. 13–01 that was issued on February 28, 2013. The attachment to OMB Bulletin No. 15–01 provided detailed information on the update to statistical areas since February 28, 2013. The updates provided in OMB Bulletin No. 15–01 were based on the application of the 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates for July 1, 2012, and July 1, 2013. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56913), we adopted the updates set forth in OMB Bulletin No. 15–01 effective October 1, 2016, beginning with the FY 2017 wage index. For a complete discussion of the adoption of the updates set forth in OMB Bulletin No. 15–01, we refer readers to the FY 2017 IPPS/LTCH PPS final rule. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38130), we continued to use the OMB delineations that were adopted beginning with FY 2015 to calculate the area wage indexes, with updates as reflected in OMB Bulletin No. 15–01 specified in the FY 2017 IPPS/LTCH PPS final rule.

On August 15, 2017, OMB issued OMB Bulletin No. 17–01, which provided updates to and superseded OMB Bulletin No. 15–01 that was issued on July 15, 2015. 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. For a complete discussion of the adoption of the updates set forth in OMB Bulletin No. 17–01, we refer readers to the FY 2019 IPPS/LTCH PPS final rule. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42300 through 42301), 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 and 17–01.

On April 10, 2018 OMB issued OMB Bulletin No. 18–03 which superseded OMB Bulletin No. 17–01 (August 15, 2017). On September 14, 2018, OMB issued OMB Bulletin No. 18–04 which superseded OMB Bulletin No. 18–03 (April 10, 2018). Historically OMB bulletins issued between decennial censuses have only contained minor modifications to CBSA delineations based on changes in population counts. However, OMB's 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates created a larger mid-decade redelineation that takes into account commuting data from the American Commuting Survey. As a result, OMB Bulletin No. 18–04 (September 14, 2018) included more modifications to the CBSAs than are typical for OMB bulletins issued between decennial censuses.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58743 through 58755) we adopted the updates set forth in OMB Bulletin No. 18–04 effective October 1, 2020, beginning with the FY 2021 wage index. For a complete discussion of the adoption of the updates set forth in OMB Bulletin No. 18–04, we refer readers to the FY 2021 IPPS/LTCH PPS final rule.

On March 6, 2020, OMB issued Bulletin No. 20–01, which provided updates to and superseded OMB Bulletin No. 18–04 that was issued on September 14, 2018. The attachments to OMB Bulletin No. 20–01 provided detailed information on the update to statistical areas since September 14, 2018, 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, 2017, and July 1, 2018. After reviewing OMB Bulletin No. 20–01, we determined that the changes in Bulletin 20–01 encompassed delineation changes that would not affect the Medicare wage index for FY 2022. While we adopted the updates set forth in OMB Bulletin No. 20–01 in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45163 through 45164) consistent with our general policy of adopting OMB delineation updates, we also noted that specific wage index updates would not be necessary for FY 2022 as a result of adopting these updates. In other words, the updates set forth in OMB Bulletin No. 20–01 would not affect any hospital's geographic area for purposes of the wage index calculation for FY 2022. For a complete discussion of the adoption of the updates set forth in OMB Bulletin No. 20–01, we refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45163 through 45164).

For FY 2024, we will continue 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, 18– 04 and 20–01.

3. Codes for Constituent Counties in CBSAs

CBSAs are made up of one or more constituent counties. Each CBSA and constituent county has its own unique identifying codes. There are two different lists of codes associated with counties: Social Security Administration (SSA) codes and Federal Information Processing Standard (FIPS) codes. Historically, CMS has listed and used SSA and FIPS county codes to identify and crosswalk counties to CBSA codes for purposes of the hospital wage index. As we discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130), we have learned that SSA county codes are no longer being maintained and updated. However, the FIPS codes continue to be maintained by the U.S. Census Bureau. We believe that using the latest FIPS codes will allow us to maintain a more accurate and up-to-date payment system that reflects the reality of population shifts and labor market conditions.

The Census Bureau's most current statistical area information is derived from ongoing census data received since 2010; the most recent data are from 2020. The Census Bureau maintains a complete list of changes to counties or county equivalent entities on the website at https://www.census.gov/programs-surveys/geography/technical-documentation/county-changes.html . We believe that it is important to use the latest counties or county equivalent entities in order to properly crosswalk hospitals from a county to a CBSA for purposes of the hospital wage index used under the IPPS. Per the schedule published in a July 16, 2021 OMB Notice of Decision, we expect revised delineations based on the 2020 decennial census data to be available in July 2023 (86 FR 37775). We intend to address these revisions in future rulemaking.

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130), we adopted a policy to discontinue the use of the SSA county codes and began using only the FIPS county codes for purposes of cross walking counties to CBSAs. In addition, in the same rule, we implemented the latest FIPS code updates, which were effective October 1, 2017, beginning with the FY 2018 wage indexes. These updates have been used to calculate the wage indexes in a manner generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule and the FY 2015 IPPS/LTCH PPS final rule. We refer the reader to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38129 through 38130) for a complete discussion of our adoption of FIPS county codes.

For FY 2024, we are continuing to use only the FIPS county codes for purposes of crosswalking counties to CBSAs. For FY 2024, Tables 2 and 3 associated with this final rule and the County to CBSA Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care Hospitals File posted on the CMS website reflect the latest FIPS code updates.

B. Worksheet S–3 Wage Data for the FY 2024 Wage Index

The FY 2024 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2020 (the FY 2023 wage indexes were based on data from cost reporting periods beginning during FY 2019).

1. Included Categories of Costs

The FY 2024 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.

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2023, the wage index for FY 2024 also 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 FY 2024 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). 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.

3. 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. We did not receive any comments on the discussion in this section.

C. Verification of Worksheet S–3 Wage Data

The wage data for the FY 2024 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, 2019, and before October 1, 2020. For wage index purposes, we refer to cost reports beginning on or after October 1, 2019, and before October 1, 2020, as the “FY 2020 cost report,” the “FY 2020 wage data,” or the “FY 2020 data.” Instructions for completing the wage index sections of Worksheet S–3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. 15–2), Chapter 40, sections 4005.2 through 4005.4. The data file used to construct the FY 2024 wage index includes FY 2020 data submitted to us as of June 2023. 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 2022 wage index we used cost report data from FY 2018). We stated in the FY 2023 IPPS/LTCH PPS 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 2024 wage index, the best available data typically would be from the FY 2020 wage data.

In the proposed rule we stated that based on pre reclassified wage data, the changes in the wage data from FY 2019 to FY 2020 show the following compared to the annual changes for the most recent 3 year periods (that is, FY 2016 to FY 2017, FY 2017 to FY 2018 and FY 2018 to FY 2019):

• Approximately 85 percent of hospitals have an increase in their average hourly wage (AHW) from FY 2019 to FY 2020 compared to a range of 76–77 percent of hospitals for the most recent 3 year periods.
• Approximately 81 percent of all CBSA AHWs increased from FY 2019 to FY 2020 compared to a range of 73–75 percent of all CBSAs for the most recent 3 year periods.
• Approximately 36 percent of all urban areas have an increase in their area wage index from FY 2019 to FY 2020 compared to a range of 41–43 percent of all urban areas for the most recent 3 year periods.
• Approximately 2.8 percent of all rural areas have an increase in their area wage index from FY 2019 to FY 2020 compared to a range of 4–6 percent of all rural areas for the most recent 3 year periods.
• The unadjusted national average hourly wage increased by a range of 2.4–2.8 percent per year from FY 2016 to FY 2019. For FY 2020, the unadjusted national average hourly increased by 5.3 percent from FY 2019.

Even if the comparison with the historical trends had indicated greater differences at a national level in this context, we stated it is not apparent whether any changes due to the COVID–19 PHE differentially impacted the wages paid by individual hospitals. Furthermore, even if hypothetically changes due to the COVID–19 PHE did differentially impact the wages paid by individual hospitals over time, we further stated that 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.

Lastly, we also noted that we did not identify any significant issues with the FY 2020 wage 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 of these factors into account, we stated that we believe the FY 2020 wage data is the best available wage data to use for FY 2024. Therefore, we proposed to use the FY 2020 wage data for FY 2024.

We also noted that AHW data by provider and CBSA, including the data upon which the comparisons as previously described 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/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files .

Comment: One commenter stated that CMS should not be utilizing any data from FY 2020 due to the impacts of COVID–19.

Another commenter stated that based on the agency's description in the proposed rule, the specifics of the analysis above are unclear, as the agency does not reference specific tables or files for the public to review to confirm the agency's conclusion. The commenter further stated that while CMS states that the data does not show a significant discrepancy from prior years' data, when compared to trends from the previous three fiscal years, the FY 2020 data does not follow the same trends. Also, the commenter noted that the extent of the wage increases is important to consider, not just the percentage of hospitals that saw an hourly wage increase. The commenter stated that without knowing what other sources of data are available for future wage index calculations or evaluating a comparison of other data sources to identify any potential discrepancies, the commenter is concerned that the impact of the COVID–19 PHE may not be easily parsed out of future years' data.

The commenter also commented that while CMS states that it does not believe the PHE alone is responsible for these changes, and that it is difficult to parse out what impact the PHE had versus other factors that may be driving up wages, the commenter is concerned that the agency does not provide alternate methods for calculating the wage index to try to account for the impact of COVID–19. Although the impact of the PHE may not have been apparent on wage data until partially through FY 2020, the commenter believes that CMS should consider approaches to best account for the wage spikes and changes that are a result of the pandemic. The commenter cited data from Vizient's May 2023 Workforce Intelligence Report that contract labor rates are expected to stay 15% above pre-pandemic levels due to inflation and other external economic factors. The commenter also noted that numerous nursing workforce trends changed once the pandemic began in 2020, including those related to nursing overtime hours as a percentage of hours work, burnout, and turnover and asserted that these trends are not sustainable. The commenter also stated that if hospitals were to adopt and use strategies to address staffing challenges ( e.g., ensure nurses are practicing at the top of their license, plan ahead for seasonable contract labor use, using technology as an enabler but not a standalone solution) they would impact the wage index and such trends are not considered by CMS. The commenter encouraged CMS to share additional information regarding its analysis and other information the agency needs so stakeholders can better understand the agency's position and respond accordingly. The commenter further encouraged CMS to begin exploring alternate data sources and analyses to better understand how to account for the impact of the pandemic in the wage index given enduring employment trends that were triggered by the pandemic. The commenter concluded that CMS should work with stakeholders on further developing or refining such an approach to promote stability and accuracy.

Response: We are unsure what the commenter means when it states that the agency does not reference specific tables or files for the public to review to confirm the agency's conclusion. As stated above, AHW data by provider and CBSA, including the data upon which the comparisons, as previously described 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/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files . Therefore, any comparisons that CMS made within the current year data and prior year data can easily be replicated by the public by utilizing standard, commonly known statistical methods.

Also, the commenter states that the FY 2020 data does not follow the same trends as prior years. However, as stated earlier, for the reasons described above (it is not apparent whether any changes due to the COVID–19 PHE differentially impacted the wages paid by individual hospitals; even if hypothetically changes due to the COVID–19 PHE did differentially impact the wages paid by individual hospitals over time, we further stated that 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; we did not identify any significant issues with the FY 2020 wage data itself in terms of our audits of this data), we continue to believe the FY 2020 wage data is the best available wage data to use for FY 2024.

With regard to the use of alternative data, as stated above, we did not identify any significant issues with the FY 2020 wage 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. Also, as stated above, it is not apparent whether any changes due to the COVID–19 PHE differentially impacted the wages paid by individual hospitals. Furthermore, the commenters did not present any data from the actual wage data demonstrating the need to use alternative data. The commenter cited outside data sources with no actual data from our public use files. Additionally, the commenter is asking CMS to project potential changes hospitals may make to address potential staffing shortages without any supporting data. Also, if hospital workforce trends changed uniformly once the pandemic began in 2020 or if hospitals adopted strategies to address staffing shotages uniformly, then this would be reflected uniformly across the salaries and hours for all hospitals and areas (which is used to calculate an area's AHW) which would lead to a commensurate change to the national AHW and not the wage index itself. Therefore, we continue to believe the FY 2020 wage data is the best available wage data to use for FY 2024.

Comment: One commenter stated that as a result of high COVID–19 patient volume for more than two years and subsequent healthcare staff departures during the pandemic, hospitals are in the midst of a national staffing shortage. The commenter continued that inflation is simultaneously driving up healthcare costs during this workforce shortage. The commenter believes CMS should offer short-term assistance to the hospital community, considering inflationary updates to the wage index as necessary to preserve current service levels, which is a particular risk point for underserved populations. The commenter recommended a more time-sensitive and layered approach to wage index updates to account for excess labor costs driven by increased contract labor and reimbursement rates to preserve critical national hospital system infrastructure. The commenter stated that CMS could accomplish this by leveraging current Medicare surveys and reporting to develop a wage adjustment until the labor market stabilizes. The commenter concluded that this approach would account for regional disparities and impact, use known and accepted survey data, create a standardized and auditable system, and support hospitals without disrupting the baseline Medicare wage index.

Response: The commenter mentions that CMS could leverage current Medicare surveys and reporting to develop a wage adjustment until the labor market stabilizes. It is not clear what the commenter is requesting. As stated above, the latest audited wage data is from FY 2020. We do not possesss audited wage data from a more recent period. We also are unsure what type of adjustment the commenter is requesting and how this adjustment would account for regional adjustments. Without additional information we are unable to respond directly to the comment. Also, as previously noted, 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. If the commenter is requesting a uniform adjustment to the salaries and hours then uniformly adjusting the salaries and hours for all areas (which is used to calculate an areas AHW) would lead to a commensurate change to the national AHW and not the wage index itself. This is because the wage index is required to be a relative measure.

Comment: One commenter urged CMS to reconsider using FY 2020 cost report data to calculate the wage index. The commenter explained that CMS has stated that FY 2020 cost reports contained data that was significantly impacted by the COVID–19 PHE, which will disproportionately impact reimbursements for Massachusetts hospitals and cause these hospitals to be underpaid because of the “Nantucket effect.” That is, the commenter noted that, in general, Massachusetts hospitals saw heightened levels of COVID–19 patients in FY 2020, while one hospital located on the island of Nantucket saw almost no COVID–19 patients because the island was able to isolate from the rest of the state. As a result of this effect, the commenter contended that the Nantucket hospital's FY 2020 cost report is not reflective of the COVID burden experienced by other hospitals in the state. The commenter recommended that CMS use the FY 2022 cost reports, which better reflects its labor market.

Response: We believe the commeneter is referring to provider number 220110, Nantucket Cottage Hospital, as this is the only hospital from Nantucket included in the wage data. Within the wage data each fiscal year, there are hospitals that have different hiring practices and experiences. For example, some hospitals may be smaller than others and not provide the same complex services as another hospital in the area. Or one hospital may have more contracted workers compared to another hospital in the same area that has no contracted workers. Perhaps one hospital is focused on cancer patients compared to another hospital that tries to provide all types of servies. But these are not reasons that would make a hospitals data aberrant. This simply means that hospitals provide different care, have different hiring practices or have different case mixes and are different than eachother; but it does not make the wage data aberrant or not reflective of the area. Similarly, a hospital that may have had a different experience with COVID does not mean the wage data of that hospital is aberrant or not reflective of the area. Also, we are unsure what issue the commenter is referring to with regard to including this hospital in its area as Nantucket Cottage Hospital is the only hospital located in rural Massachusetts. Finally, the data for the FY 2024 wage index uses FY 2020 cost report data which was audited by the MACs, and there were no significant issues reported across the data for all hospitals. Additionally, CMS used the most recent audited surveys and data to develop the FY 2024 wage index. Audited cost report data from FY 2022 will be used for FY 2026 and is not available at the time of this final rule. Therefore, we do not have any audited data from the FY 2022 cost reports available for use at the time of this final rule. We continue to believe the FY 2020 wage data is the best available wage data to use for FY 2024.

For the FY 2025 wage index, as in the past two fiscal years, 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.

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 area of the hospital compared to the national average hospital wage level. In response to public comments, as previously stated in past final rules (the FY 2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491), the FY 2022 IPPS/LTCH PPS final rule (86 FR 45168 through 45169), and the FY 2023 IPPS/LTCH PPS final rule (87 FR 48996 through 48997)), we believe that, under this section of the Act, we have discretion to exclude aberrant hospital data from the wage index public use files (PUFs) to help ensure that the costs attributable to wages and wage-related costs in fact reflect the relative hospital wage level in the hospitals' geographic area. We refer the reader to our previous responses to comments at the Federal Register pages cited earlier with regard to the exclusion of hospitals' wage data from the wage index.

Comment: Commenters opposed the exclusion of audited hospitals' wage data which they contended was arbitrarily excluded from the proposed rule wage data. These commenters stated that excluding accurate and verified data is inconsistent with the extensive process established by CMS to ensure the accuracy and reliability of hospital wage index data. Commenters also stated the following concerns about the lawfulness of excluding wage data for these hospitals:

• Nothing in the applicable statute, section 1886(d)(3)(E), permits CMS to exclude general acute care hospitals from the wage index data simply because those hospitals' wages are higher than the wages of other hospitals in their area. Rather, as indicated by CMS in past rulemakings, the wages of all short-term acute care hospitals must be included unless such data are incomplete or inaccurate.
• Even if CMS had the authority to exclude certain hospitals despite the fact that their data were accurate and verifiable (which is the case with these hospitals), the exclusion of these hospitals would be arbitrary and capricious, as CMS has promulgated no standards to govern the exercise of its discretion. CMS has established an extensive process to ensure the accuracy and reliability of hospital wage data, which the excluded hospitals have been subjected to. Yet, where the agency does not like the result, it has decided to deviate from this process by arbitrarily excluding hospitals with accurate data.
• CMS' exclusion of these hospitals is procedurally improper, as CMS has failed to promulgate a rule in accordance with the Administrative Procedures Act (APA) and section 2886 of the Social Security Act that would define what constitutes aberrant data or authorize excluding hospitals with verifiable data from the Medicare wage index.
• CMS has failed to consider the relevant factors and has relied on factors that are not relevant under the applicable statute. As a result, its action is arbitrary and capricious. The commenter explained that because CMS has not conducted notice-and-comment rulemaking to establish standards for excluding hospitals from the wage index, it is unknown what factors CMS considered. Further, since CMS has not proposed any ascertainable standards, the public has no meaningful opportunity to comment on the factors that should be considered.
• The proposed exclusions for FFY 2024 will cause significant harm to not only IPPS hospitals, but also inpatient psychiatric hospitals, SNFs, inpatient rehabilitation hospitals (IRFs), and many others. The consequence of these exclusions negatively impacting more than the IPPS hospitals appear to be unintended by CMS, as it failed to even consider them in its regulatory fiscal impact analysis in the proposed rule, which it is legally required to do. Thus, the exclusions are legally impermissible.

Response: As discussed above, we responded to similar comments in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45168 through 45169). We provide summary responses below based on our responses to similiar comments from previous rulemaking. However, we refer commenters to the Federal Register pages cited earlier for our complete response to similar comments with regard to the exclusion of hospitals' wage data from the wage index.

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 area of the hospital compared to the national average hospital wage level. As previously stated in those final rules, we believe that, under this section of the Act, we have discretion to exclude aberrant hospital data from the wage index PUFs to help ensure that the costs attributable to wages and wage-related costs in fact reflect the relative hospital wage level in the hospitals' geographic area.

Also, as discussed in response to comments in prior rules (80 FR 49490 and 86 FR 45168), as a standard part of the refinement of the annual wage index, CMS evaluates the wage data for both accuracy and reasonableness to ensure that the wage index is a relative measure of the labor value provided to a typical hospital in a particular labor market area. We have also previously stated that a hospital is included in the wage index if its data are reasonable, regardless of whether the hospital is open or whether it has terminated after the relevant past period, because the wage index is constructed to represent the relative average hourly wage for each labor market area in that past period. Thus, reasonableness and relativity to each area's average hourly wages have been longstanding tenets of the wage index development process that CMS has articulated in rulemaking.

We acknowledge the commenters' suggestions for increased transparency and disclosure of criteria for hospitals' exclusion. We believe performing analysis of hospitals' wage data quality and conducting edits for reasonableness are inherent parts of conducting a survey of the wages and wage-related costs of subsection (d) hospitals. We note that it has never been CMS' policy to disclose audit protocol, because CMS is concerned that allowing hospitals to become familiar with our audit parameters—which are based on standard mathematical processes—would create opportunities for hospitals to take action to manipulate their data in order to game audit thresholds. However, in the future, we will continue to consider a limited proposal regarding criteria for excluding a hospital's data from the wage index due to its overall average hourly wage being either too high or too low, as well as utilizing additional methods of communicating with stakeholders regarding the adequacy of their wage data.

As discussed in response to comments in prior rules (80 FR 49491 and 86 FR 45169), just as CMS has excluded certain hospitals from the wage index with extraordinarily high average hourly wages relative to their labor market areas, CMS also has excluded hospitals with extraordinarily low average hourly wages relative to their labor market areas. Therefore, we disagree with commenters' assertions that we have been “arbitrary and capricious” in excluding hospitals from the wage index.

We also reiterate the following example of a hospital in California removed from the FY 2024 wage index. The hospital is located in CBSA 23420 (Fresno, California) and had a very high average hourly wage and was removed from the wage data even though the hospital's wage data was properly documented. However, the hospital does not merely have the highest average hourly wage in the CBSA; its average hourly wage is extremely and unusually high, significantly higher than the next highest average hourly wage in that CBSA and in the surrounding areas. While we believe this is a result of the unique salary structure and business model of the hospital's owner, not from a lack of reliability in its wage data, we believe the data is nonetheless aberrant and we therefore have authority to remove it. We do not believe that the average hourly wage of this particular hospital accurately reflects the economic conditions in its labor market area during the FY 2018 cost reporting period. Therefore, its inclusion in the wage index would not ensure that the FY 2024 wage index represents the labor market area's current wages as compared to the national average of wages. Rather, its inclusion would distort the average hourly wage of its labor market area. Accordingly, we have exercised our discretion to remove this hospital's wage data from the FY 2024 wage index.

With regard to the impact on facilities paid under other PPSs, we refer commenters to the rulemaking of those PPSs for comments on the wage index.

We requested that our MACs revise or verify data elements that result in specific edit failures. For the proposed FY 2024 wage index, we identified and excluded 88 providers with aberrant data that should not be included in the wage index. However, we stated that if data elements for some of these providers are corrected, we intended to include data from those providers in the final FY 2024 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 data verification of questionable data elements and to transmit any changes to the wage data no later than March 20, 2023. For the final FY 2024 wage index, we restored the data of 27 hospitals to the wage index, because their data was either verified or improved. Thus, 61 hospitals with aberrant data remain excluded from the FY 2024 wage index (88−27 = 61).

In constructing the proposed FY 2024 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2020, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We stated in the proposed rule (88 FR 26965 through 26967) that we believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. 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 FY 2024 wage index, we removed 1 hospital that converted to CAH status on or after January 22, 2022, the cut-off date for CAH exclusion from the FY 2023 wage index, and through and including January 23, 2023, the cut-off date for CAH exclusion from the FY 2024 wage index. Since the proposed rule, we learned of 1 more hospital that converted to CAH status on or after January 22, 2022, and through and including January 23, 2023, the cut-off date for CAH exclusion from the FY 2024 wage index, for a total of 2 hospital that were removed from the FY 2024 wage index due to conversion to CAH status. In summary, we calculated the FY 2024 wage index using the Worksheet S–3, Parts II and III wage data of 3,129 hospitals.

For the FY 2024 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 2024 wage index associated with this final rule (available via the internet on the CMS website), includes separate wage data for the campuses of 28 multicampus hospitals. The following chart lists the multicampus hospitals by core service area (CSA) 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.

D. Method for Computing the FY 2024 Unadjusted Wage Index

As stated in the proposed rule (88 FR 26967 through 26970), the method used to compute the FY 2024 wage index without an occupational mix adjustment follows the same methodology that we used to compute the wage indexes without an occupational mix adjustment in the FY 2021 IPPS/LTCH PPS final rule (see 85 FR 58758 through 58761, September 18, 2020), and we did not propose 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 2024, these were data from cost reports for cost reporting periods beginning on or after October 1, 2019, and before October 1, 2020). In addition, we included data from some hospitals that had cost reporting periods beginning before October 2019 and reported a cost reporting period covering all of FY 2020. These data were included 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 FY 2020 data. We note that, if a hospital had more than one cost reporting period beginning during FY 2020 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2019, and before October 1, 2020), 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, 2019, through April 15, 2021, for private industry hospital workers from the Bureau of Labor Statistics' (BLS') National Compensation Survey. 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 did not propose to make any changes to the usage of the ECI for FY 2024. 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 CBSA's 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, August 16, 2019). 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 FY 2024 wage index, we note there is one urban CBSAs 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 CBSAs this policy applies. These CBSAs' wage indexes would be equal to total urban salaries plus wage-related costs (from Step 5) in the respective State, divided by the total urban hours (from Step 4) in the respective State, divided by the national average hourly wage (from Step 8) (see 84 FR 42305 and 42306, August 16, 2019). 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 rule.

We refer readers to section II. of appendix A of this final rule for the policy regarding rural areas that do not have IPPS hospitals.

Step 11.—Section 4410 of Public Law 105–33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI. of the Addendum to the final rule and available via the internet on the CMS website.

The following is our policy with regard to rounding of the wage data (dollar amounts, hours, and other numerical values) in the calculation of the unadjusted and adjusted wage index, as finalized in the FY 2020 IPPS/LTCH final rule (84 FR 42306, August 16, 2019). 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 employment cost index (ECI) for compensation for each 30-day increment from October 14, 2019, through April 15, 2021, for private industry hospital workers from the BLS' National Compensation Survey. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we did not propose any changes to the usage of the ECI for FY 2024. The factors used to adjust the hospital's data are 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, 2020, and ending December 31, 2020, is June 30, 2020. An adjustment factor of 1.01923 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 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 2024, there is no Puerto Rico-specific overall average hourly wage or wage index.

Based on the previously discussed methodology, we stated in the proposed rule (88 FR 26970) that the proposed FY 2024 unadjusted national average hourly wage was $50.33.

We did not receive any comments regarding the discussion of our method for computing the FY 2024 unadjusted wage index. Based on the previously described methodology, the final FY 2024 unadjusted national average hourly wage is the following:

E. Occupational Mix Adjustment to the FY 2024 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 2019 Medicare Wage Index Occupational Mix Survey for the FY 2024 Wage Index

Section 304(c) 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. 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. The FY 2024 occupational mix adjustment is based on the calendar year (CY) 2019 survey. Hospitals were required to submit their completed 2019 surveys (Form CMS–10079, OMB Number 0938–0907, expiration date January 31, 2026) to their MACs by September 3, 2021. The preliminary, unaudited CY 2019 survey data were posted on the CMS website on September 8, 2020. As with the Worksheet S–3, Parts II and III cost report wage data, as part of the FY 2022 desk review process, the MACs revised or verified data elements in hospitals' occupational mix surveys that resulted in certain edit failures.

2. Calculation of the Occupational Mix Adjustment for FY 2024

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26971), for FY 2024, we proposed to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the FY 2024 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 final rule (which is available via the internet on the CMS website), which contains the final FY 2024 occupational mix adjusted wage index, includes separate wage data for the campuses of multicampus hospitals. We refer readers to section III.C. of the preamble of this final rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data.

Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that 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 FY 2024 wage index. For the proposed FY 2024 wage index, we used the Worksheet S–3, Parts II and III wage data of 3,103 hospitals, and we used the occupational mix surveys of 3,007 hospitals for which we also had Worksheet S–3 wage data, which represented a “response” rate of 97 percent (3,007/3,103). For the proposed FY 2024 wage index, we applied 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 2024 occupational mix adjusted national average hourly wage was $50.27.

For the final FY 2024 wage index, we are using the Worksheet S3, Parts II and III wage data of 3,129 hospitals, and we are using the occupational mix surveys of 3,031 hospitals for which we also have Worksheet S–3 wage data, which is a “response” rate of 97 percent (3,031/3,129). For the final FY 2024 wage index, we are applying proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the final FY 2024 occupational mix adjusted national average hourly wage is the following:

3. Deadline for Submitting the 2022 Medicare Wage Index Occupational Mix Survey for Use Beginning With the FY 2025 Wage Index

A new measurement of occupational mix is required for FY 2025. The FY 2025 occupational mix adjustment will be based on a new calendar year (CY) 2022 survey. The CY 2022 survey (Form CMS–10079, OMB Number 0938–0907, expiration date January 31, 2026) received OMB approval on January 3, 2023. The final CY 2022 Occupational Mix Survey Hospital Reporting Form is available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-service-payment/acuteinpatientpps/wage-index-files/2022-occupational-mix-survey-hospital . Hospitals were required to submit their completed 2022 surveys to their MACs (not directly to CMS) by June 30, 2023. The preliminary, unaudited CY 2022 survey data was posted on the CMS website in mid-July 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 will revise or verify data elements in hospitals' occupational mix surveys that result in certain edit failures.

Comment: We received comments with regard to the CY 2022 Occupational Mix Survey data. One commenter had concerns that the data may be skewed due to the PHE. Another commenter stated that CMS must ensure it is including all of the available data, including the data that were submitted to the agency, when it constructs an occupational mix adjustment to the wage index. In addition, the commenter stated CMS must ensure that such data is corrected after the initial submission deadline.

Response: CMS has yet to audit and review the CY 2022 Occupational Mix Survey data. We plan to assess the CY 2022 Occupational Mix Survey data in the FY 2025 IPPS proposed rule. Additionally, per the FY 2025 wage index development timetable on the web at https://www.cms.gov/files/document/fy2025-hospital-wage-index-development-timetable.pdf, providers have until September 1, 2023, to request revisions to their Worksheet S–3 wage data and CY 2022 occupational mix data as included in the wage and occupational mix preliminary public use files. We refer the reader to the FY 2025 wage index development timetable for complete details.

F. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2024 Occupational Mix Adjusted Wage Index

As discussed in section III.E. of the preamble of this final rule, for FY 2024, we are applying the occupational mix adjustment to 100 percent of the FY 2024 wage index. We calculated the occupational mix adjustment using data from the 2019 occupational mix survey data, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 through 51586).

The FY 2024 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

The national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2019 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following:

We compared the FY 2024 occupational mix adjusted wage indexes for each CBSA to the unadjusted wage indexes for each CBSA. Applying the occupational mix adjustment to the wage data resulted in the following:

G. Application of the Rural Floor, Application of the Imputed Floor, Application of the State Frontier Floor, Continuation of the Low Wage Index Hospital Policy, and Permanent Cap on Wage Index Decreases

1. Application of the 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 2024 wage index associated with this final 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 (as discussed in section III.K. of the preamble of this final rule), we estimate that 646 hospitals will receive the rural floor in FY 2024. The budget neutrality impact of the proposed application of the rural floor is discussed in section II.A.4.e. of the Addendum of this final rule.

a. Treatment of Hospitals Reclassified as Rural Under § 412.103 for the Rural Wage Index and Rural Floor Calculation

Section 1886(d)(8)(E)(i) of the Act, implemented at 42 CFR 412.103, requires 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.

In recent years, CMS's wage index and floor policies involving the treatment of § 412.103 hospitals have been the subject of frequent litigation. Courts have repeatedly held unlawful CMS wage index and floor policies that do not treat § 412.103 hospitals the same as geographically rural hospitals based on section 1886(d)(8)(E)(i) of the Act, which requires that “the Secretary shall treat the [§ 412.103] hospital as being located in the rural area.”

For example, on July 23, 2015, the U.S. Court of Appeals for the Third Circuit issued a decision in Geisinger Community Medical Center v. Secretary, United States Department of Health and Human Services, 794 F.3d 383 (3d Cir. 2015). Geisinger challenged as unlawful a CMS regulation prohibiting hospitals with an active § 412.103 rural reclassification from applying for an additional reclassification for wage index purposes through the MGCRB. A divided panel of the Court of Appeals for the Third Circuit held that section 1886(d)(8)(E)(i) of the Act required the Secretary to treat § 412.103 hospitals the same as geographically rural hospitals for the purposes of MGCRB reclassification. Because geographically rural hospitals were eligible for MGCRB reclassification, the court held CMS's regulation prohibiting § 412.103 hospitals from seeking MGCRB reclassification was unlawful.

On February 4, 2016, the U.S. Court of Appeals for the Second Circuit issued its decision in Lawrence + Memorial Hospital v. Burwell, 812 F.3d 257 (2d Cir. 2016), agreeing with the Third Circuit's conclusion in Geisinger. The Second Circuit disagreed with CMS's argument that the impact of these decisions—allowing § 412.103 hospitals to be urban for wage index purposes and rural for others—was “anomalous”: “[T]his is simply a function of the many different roles that hospitals play and the many different contexts in which they operate . . . Section 401 simply increases the number of situations in which hospitals can be treated as rural for some purposes and urban for others, but there is nothing `absurd' about such a measured approach.” Id. At 267.

As a consequence of the Geisinger and Lawrence + Memorial decisions, CMS published an interim final rule with comment period (IFC) on April 21, 2016 (81 FR 23428 through 23438), revising the regulations to allow hospitals to hold simultaneous § 412.103 and MGCRB reclassifications, consistent with the courts' decisions. But commenters have since argued that CMS continued to treat § 412.103 hospitals differently from geographically rural hospitals in two respects. First, CMS only allowed MGCRB reclassifications for § 412.103 hospitals when the hospital's wages are at least 106 percent of the urban area in which it was geographically located, rather than the rural area to which it was reclassified under § 412.103 ( see81 FR 56925). Additionally, CMS would not include data from § 412.103 hospitals that are reclassified to an urban area by the MGCRB for wage index purposes when calculating the rural wage index for that state (81 FR 23434).

The first policy was held unlawful on May 14, 2020, when the United States District Court for the District of Columbia issued a decision in Bates County Memorial Hospital v. Azar, 464 F. Supp. 3d 43 (DDC 2020) ( Bates). There, Bates County Memorial Hospital and five other geographically urban hospitals were reclassified to rural under § 412.103. They also applied for reclassification under the MGCRB but were denied because their wages were not at least 106 percent of the geographic urban area in which the hospitals were located. Each of the hospitals' average hourly wages were at least 106 percent of the 3-year average hourly wage of all other hospitals in the rural area of the state in which the hospitals were located. The Court agreed with the Plaintiffs that section 1886(d)(8)(E)(i) of Act requires that CMS consider the rural area to be the area in which a § 412.103 hospital is located for the wage comparisons required for MGCRB reclassifications.

CMS did not appeal this decision, and in the May 10, 2021 Federal Register (86 FR 24735), concurrent with the FY 2022 IPPS/LTCH PPS proposed rule, we published an interim final rule with comment period that amended our regulations to allow hospitals with a rural reclassification under the Act to reclassify through the MGCRB using the rural reclassified area as the geographic area in which the hospital is located. We stated that these changes implemented the Bates Court's interpretation of the requirement at section 1886(d)(8)(E)(i) of the Act that “the Secretary shall treat the hospital as being located in the rural area,” for all purposes of MGCRB reclassification, including the average hourly wage comparisons required by § 412.230(a)(5)(i) and (d)(1)(iii)(C).

The second policy was recently challenged in Deaconess Hospital Inc. v. Becerra, No. 1:22–cv–03136 (D.D.C. Oct. 14, 2022) and Robert Packer v. Becerra, No. 1:22–cv–03196 (D.D.C. Oct. 19, 2022). Specifically, plaintiffs in Deaconess and Robert Packer contend that CMS must include § 412.103 hospitals reclassified to another wage area under the MGCRB in the rural wage index and rural wage floor under the “hold harmless” provision in section 1886(d)(8)(C)(ii) of Act. That provision provides that if an MGCRB decision “reduces the wage index for that rural area (as applied under this subsection), the Secretary shall calculate and apply such wage index under this subsection as if the hospitals so treated had not been excluded from calculation of the wage index for that rural area.”

The treatment of § 412.103 hospitals was again the subject of litigation in a recent case contesting our FY 2020 rural floor policy, under which we calculated the rural floor and the related budget neutrality adjustment without including data from hospitals that reclassified from urban to rural (84 FR 42332 through 42336). On April 8, 2022, the district court in Citrus HMA, LLC, d/b/a Seven Rivers Regional Medical Center v. Becerra, No. 1:20–cv–00707 (D.D.C.) ( Citrus) found that the Secretary did not have authority under section 4410(a) of the Balanced Budget Act of 1997 to establish a rural floor different from the rural wage index for a state.

Following our review of the Citrus decision (which we did not appeal) and the comments we received on the FY 2023 IPPS/LTCH PPS proposed rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49002 through 49004), we finalized a policy that calculates the rural floor as it was calculated before FY 2020. We stated that we understand that our policy of setting a rural floor lower than the rural wage index for a state was inconsistent with the district court's decision in Citrus. For FY 2023 and subsequent years, our policy is to include the wage data of hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Act (as implemented in the regulations at § 412.103) and have no MGCRB reclassification in the calculation of the rural floor, and to 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. We stated that we will apply the same policy as prior to the FY 2020 final rule for calculating the rural floor, in which the rural wage index sets the rural floor.

In addition to the litigation, as previously described, CMS has received numerous public comments in recent years urging CMS to treat § 412.103 hospitals the same as geographically rural hospitals for the rural wage index and rural floor calculations. For example, we received many comments in response to our FY 2020 policy of excluding the wage data of § 412.103 hospitals from the calculation of the rural floor stating that excluding reclassified hospitals from the rural floor is inconsistent with the statutory language of section 1886(d)(8)(E) of the Act and section 4410(a) of the Balanced Budget Act of 1997. As summarized in greater detail in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42334), commenters stated that the statute does not draw any distinction between the “rural areas” used to calculate the rural floor under section 4410(a) of the Balanced Budget Act of 1997 and the “rural areas” that reclassified hospitals are to be treated as located in under section 1886(d)(8)(E) of the Act, and that under the Geisinger and Lawrence Memorial Hospital cases, a § 412.103 hospital should be treated as a rural hospital for wage reclassification.

Also, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45181), a commenter disagreed with CMS's treatment of hospitals with dual § 412.103 and MGCRB reclassifications. The commenter stated that CMS's policy of considering the hospital's geographic CBSA and the urban CBSA to which the hospital is reclassified under the MGCRB for the wage index calculation violates the statutory requirement to treat § 412.103 hospitals the same as geographically rural hospitals. The commenter specifically requested that CMS include the wages of § 412.103 hospitals that also have an active MGCRB reclassification in calculating the rural wage of the state if not doing so would reduce the wage index for that area, in the same manner that geographically rural hospitals with a MGCRB reclassification are treated according to section 1886(d)(8)(C)(ii) of Act.

Again, in response to the FY 2023 IPPS/LTCH PPS proposed rule, commenters urged CMS to discontinue the policy of excluding the wage data of § 412.103 hospitals from the rural floor calculation (87 FR 49002). Spurred by the aforementioned district court's decision in Citrus, commenters urged CMS to acquiesce, stating their belief that the court's analysis was thorough and emphasizing that continuing the rural floor policy would only increase the agency's exposure to future lawsuits. Commenters asserted that the plain language of the statute does not provide for a free-floating rural floor that is not linked to the rural wage index.

As previously enumerated, CMS has made policy changes as a result of the courts' decisions and related public comments. Because these policy changes were implemented piecemeal in reaction to litigation, and many through IFCs rather than the usual proposed rule process, CMS has not had the opportunity to systematically revisit this regulatory framework.

In the proposed rule, CMS took the opportunity to revisit the case law, prior public comments, and the relevant statutory language. After doing so, we stated that we now agree—for the reasons expressed by the U.S. Courts of Appeals for the Second and Third Circuits, as well as the U.S. District Court for the District of Columbia—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. We stated that while CMS has previously treated section 1886(d)(8)(E) reclassifications as one among many reclassifications provided for under section 1886(d) of the Act and so limited its scope in several ways, we now read it to provide that a § 412.103 reclassification functions the same as if the reclassifying hospital had physically relocated into a geographically rural area. We explained in the proposed rule that we are influenced by the fact that courts have largely adopted this interpretation of section 1886(d)(8)(E) of the Act, and that it requires considerable resources to unwind a wage index policy after adverse judicial decisions—often requiring an IFC outside the usual IPPS rulemaking schedule. We further note that such unwindings may have budget neutrality implications. Cf. Amgen, Inc. v. Smith, 357 F.3d 103, 112 (D.C. Cir. 2004) (collecting cases “not[ing] the havoc that piecemeal review of OPPS payments could bring about” in light of statutory budget neutrality requirements).

We acknowledged that this interpretation of section 1886(d)(8)(E) of the Act can lead to significant financial consequences. Many hospitals eligible for § 412.103 reclassifications have paired that reclassification with a MGCRB wage index reclassification to escalate their wage index beyond what would be otherwise available to them under the law. Section 1886(d)(3)(E)(i) of the Act states that any adjustments or updates made under subparagraph (E) for a fiscal year shall be made in a manner that assures that the aggregate payments under section 1886(d) of the Act in the fiscal year are not greater or less than those that would have been made without such adjustment, and therefore any increases to these hospitals' wage index inevitably decrease the payments Medicare makes to other hospitals. But, as the Second Circuit explained ( Lawrence + Memorial Hospital, 812 F.3d at 267), these payment consequences are “a function of the many different roles that hospitals play and the many different contexts in which they operate.” We solicited comments on our proposed interpretation of sections 1886(d)(8)(E) and 1886(d)(3)(E)(i) of the Act.

As additionally previously discussed, pending litigation and public comments in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45181 and 45182) have raised concerns that there is an additional wage index policy under which CMS does not treat § 412.103 hospitals the same as geographically rural hospitals: its policy of CMS excluding data from § 412.103 hospitals that are reclassified to an urban area by the MGCRB for wage index purposes when calculating the rural wage index for that state. We proposed to change that policy, consistent with our new proposed interpretation of section 1886(d)(8)(E) of the Act, as described in this section of this rule. Under the policy changes adopted in the FY 2023 IPPS/LTCH PPS final rule under which the rural floor is the same as the rural wage index (87 FR 49002 through 49004), we believe that this change to the wage index policy will also resolve the concerns about the rural floor raised in comments discussed previously. As far as we are aware, these are the only policies that our reinterpretation of section 1886(d)(8)(E) of the Act requires us to change, but we solicited comments on whether there are any remaining policies that CMS should reexamine in light of our proposed reinterpretation of section 1886(d)(8)(E) of the Act.

b. Current Calculation of the Rural Wage Index and Application of Various Hold Harmless Policies

Sections 1886(d)(8)(C)(ii) and (iii) of the Act are “hold harmless” provisions that may affect the wage index calculation when hospitals reclassify out of a state's rural area into another area. Section 1886(d)(8)(C)(ii) of the Act provides that if the application of section 1886(d)(8)(B) of the Act (“Lugar” status) or a decision of the MGCRB or the Secretary under section 1886(d)(10) of the Act, by treating hospitals located in a rural county or counties as not being located in the rural area in a state, reduces the wage index for that rural area, the Secretary shall calculate and apply such wage index as if the hospitals so treated had not been excluded from calculation of the wage index for that rural area. Section 1886(d)(8)(C)(iii) of the Act provides that the application of section 1886(d)(8)(B) of the Act (“Lugar” status) or a decision of the MGCRB or the Secretary under section 1886(d)(10) of the Act may not result in the reduction of any county's wage index to a level below the wage index for rural areas in the state in which the county is located.

In the FY 2006 IPPS final rule (70 FR 47378 and 47379), we adopted a regulatory hold harmless policy for situations where hospitals reclassify into a state's rural area under section 1886(d)(8)(E) of the Act. We stated that the wage data of an urban hospital reclassifying into the rural area are included in the rural area's wage index, if including the urban hospital's data increases the wage index of the rural area. Otherwise, the wage data are excluded. It has been CMS's policy since then to include hospitals with state-to-state MGCRB reclassifications to a nearby state's rural area along with hospitals reclassified under section 1886(d)(8)(E) of the Act in this regulatory hold harmless policy.

In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43837 and 43838), as part of a summary of reclassification policies we had adopted, we stated that in cases where hospitals have reclassified to rural areas, such as urban hospitals reclassifying to rural areas under 42 CFR 412.103, the hospital's wage data are: (a) included in the rural wage index calculation, unless doing so would reduce the rural wage index; and (b) included in the urban area where the hospital is physically located. We further stated that the effect of this policy, in combination with the statutory requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural areas may receive a wage index based upon the highest of: (1) wage data from hospitals geographically located in the rural area (calculation 1 in the table in this section of this rule); (2) wage data from hospitals geographically located in the rural area, but excluding all data associated with hospitals reclassifying out of the rural area under section 1886(d)(8)(B) or section 1886(d)(10) of the Act (calculation 2 in the table in this section of this rule); or (3) wage data associated with hospitals geographically located in the area plus all hospitals reclassified into the rural area (calculation 3 in the table in this section of this rule).

In the April 21, 2016 IFC (81 FR 23428 through 23438), referenced earlier in section III.G.1.a. of the preamble of this final rule, as a result of the Geisinger decision, we adopted a policy allowing hospitals to hold simultaneous § 412.103 and MGCRB reclassifications. In our wage index development process, we refer to these hospitals as having “dual reclass” status. We further stated in the IFC that we will exclude hospitals with § 412.103 reclassifications from the calculation of the reclassified rural wage index if they also have an active MGCRB reclassification to another area (81 FR 23434).

We also clarified in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25070) that if a hospital qualified for “Lugar” status and obtained § 412.103 rural status, we would apply the urban “Lugar” status for wage index purposes only. These geographically rural hospitals would be included in the rural wage index calculation in accordance with the previously described hold harmless policy.

The following chart summarizes the current calculation of the rural wage index algebraically and in accordance with the statutes and policies previously described:

c. Modification to the Rural Wage Index Calculation Methodology

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45181 and 45182), we responded to a comment disagreeing with our treatment of “dual reclass” hospitals when calculating the rural floor. The commenter stated that CMS's policy of considering the hospital's geographic CBSA and the urban CBSA to which the hospital is reclassified under the MGCRB for the wage index calculation violates the statutory requirement to treat § 412.103 hospitals the same as hospitals geographically located in the rural area of the state. The commenter requested that CMS include the wages of § 412.103 hospitals that also have an active MGCRB reclassification in calculating the rural wage of the state if not doing so would reduce the wage index for that area, in the same manner that geographically rural hospitals with a MGCRB reclassification are treated according to section 1886(d)(8)(C)(ii) of the Act.

We responded that we did not propose the policy the commenter suggested, and noted that it would constitute a significant change with numerous and potentially negative effects on the IPPS wage index. We stated that we did not believe it would be appropriate to adopt such a policy without describing it in a proposed rule and obtaining public comments. Therefore, we did not adopt the policy the commenter suggested, but we stated that we would consider further addressing the issue in future rulemaking. We also received and responded to a similar comment in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49003). After further consideration of these comments and our proposed reinterpretation of section 1886(d)(8)(E) of the Act discussed earlier in this section, we proposed changing the rural wage index calculation methodology consistent with that proposed reinterpretation. We acknowledged the ongoing risk of the pending lawsuits cited previously, and recognized the challenge should we need to implement any future remedy in a budget neutral manner.

Beginning with FY 2024, we proposed 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) implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. The following chart summarizes the current (as described in the table earlier in this section) and proposed rural wage index calculation algebraically:

As shown in the current calculation policy, as previously described, § 412.103 hospitals enter the rural wage index calculation in calculation 3, which reflects the regulatory hold harmless policy described in the FY 2006 IPPS final rule (70 FR 47378 and 47379) and previously referenced, preventing reclassification into a state's rural area from reducing the rural wage index. That is, we determine the effects for outbound reclassification (from the rural area to another area) and inbound reclassification (from another area into the rural area) separately when determining the highest rural wage index value. Under our proposal, as shown in the proposed calculation policy, as previously described, § 412.103 hospitals will no longer be treated as an inbound reclassification (calculation 3 of the current policy), but will instead be included in all calculations in which geographically rural hospitals are included (calculations 1–3 of the proposed policy). “Dual reclass” hospitals will be excluded (calculation 2 of the proposed policy) in accordance with the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act, along with other geographically rural hospitals with MGCRB or “Lugar” reclassification status.

As discussed earlier in section III.G.1.a. of the preamble of this final rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49004), we stated that we will apply the same policy as prior to the FY 2020 IPPS/LTCH PPS final rule for calculating the rural floor, in which the rural wage index sets the rural floor. For FY 2023 and subsequent years, our current policy is to include the wage data of § 412.103 hospitals that have no MGCRB reclassification in the calculation of the rural floor, and to 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. Consistent with the previously discussed proposal, beginning with FY 2024 we proposed to include the data of all § 412.103 hospitals (including 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 acknowledged that these proposals will have significant effects on wage index values. As discussed in prior rulemaking (72 FR 47371 through 47373, 84 FR 42332, 85 FR 58788) and in this rule, CMS has expressed concern with hospitals' use of § 412.103 reclassification to increase the rural wage index and rural floor. However, as already mentioned, “this is simply a function of the many different roles that hospitals play and the many different contexts in which they operate,” Lawrence + Mem'l Hosp., 812 F.3d at 267, and follows from our proposed interpretation of section 1886(d)(8)(E) of the Act—which encompasses the calculation of the State's rural wage index. We discuss the overall impact of these proposed changes on the rural wage index calculation methodology in detail in section II.A.4. of appendix A of this final rule.

As discussed in the previous section, in the FY 2006 IPPS final rule (70 FR 47378 and 47379), we adopted a regulatory hold harmless policy for situations where hospitals reclassify into a state's rural area. Hospitals reclassified under § 412.103 will no longer be affected by this policy, as we proposed to include them in the rural wage index calculation in the same manner as geographically rural hospitals. Therefore, only the effects of hospitals with state-to-state MGCRB reclassifications to a nearby state's rural area will be addressed by this policy. It has been CMS's longstanding policy that hospitals with state-to-state MGCRB reclassifications to a nearby state's rural area receive a “combined” wage index (calculation 3 of the current rural wage index calculation, as previously detailed in the chart) that includes the wage data for geographically rural hospitals and all hospitals reclassified into that rural area. Given our longstanding goal to mitigate potential negative impacts on rural hospitals, we proposed to continue the part of our hold harmless policy that excludes the data of hospitals reclassifying into a state's rural area if doing so would reduce that state's rural wage index. We proposed that these reclassified hospitals be assigned the “combined” wage index (calculation 3 of the proposed rural wage index calculation as previously detailed in the chart) that includes the wage data for geographically rural hospitals and all hospitals reclassified into that rural area (subject to any additional wage index adjustment policies for which those reclassified hospitals may be eligible).

Finally, we proposed to continue the policy to apply the deemed urban wage index value for § 412.103 hospitals that also qualify as “Lugar” under section 1886(d)(8)(B) of the Act. Prior to Geisinger, since section 1886(d)(8)(E) of the Act requires CMS to treat a reclassified hospital as being located in the rural area of the state, and section 1886(d)(8)(B) of the Act requires CMS to treat a rural hospital as being located in an urban area, our policy was that obtaining § 412.103 status would effectively waive a hospital's deemed urban “Lugar” status. We discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25070) that if a hospital qualified for “Lugar” status and obtained § 412.103 rural status, our policy is to apply the urban “Lugar” status for wage index purposes only.

Comment: Commenters strongly supported CMS's proposal to revise the rural wage index and rural floor calculation. Specifically, commenters supported CMS's proposed treatment of a § 412.103 hospital in the calculation of the rural wage index of its state even when the hospital has an MGCRB reclassification to another area. Commenters stated that the inclusion of § 412.103 hospitals in this manner represents a straightforward interpretation of the regulations and faithfully executes Congressional intent by treating § 412.103 hospitals “as being located in the rural area” as required by section 1886(d)(8)(E) of the Act. Commenters also supported CMS's proposed treatment of § 412.103 hospitals for the calculation at section 1886(d)(8)(C)(ii) of the Act, stating that they believe that treating § 412.103 hospitals the same as geographically rural hospitals is the only lawful interpretation of the Act. A commenter stated that the proposed changes in response to the court cases illustrate the complexity, inconsistency, and even irrationality of the wage index system. Commenters also encouraged CMS to continue the policy of setting a state's rural floor equal to its rural wage index as part of coherent and consistent treatment of § 412.103 hospitals.

Numerous commenters stressed the positive payment impact of these proposals on many hospitals. Similarly, a commenter noted that the proposed change to the calculation of the rural wage index and rural floor would help further reduce the disparity between high and low wage index hospitals due to its larger impact on hospitals with wage index values at or below the 25th percentile. This commenter provided its own wage index analysis in support of this finding.

Multiple commenters expressed concern regarding the increased rural floor budget neutrality factor due to the proposed changes. While some commenters acknowledged CMS's statutory budget neutrality requirement, another commenter requested that CMS not apply the rural floor budget neutrality factor to urban hospitals paid at the rural floor and to rural hospitals, stating that it was Congress's intent that these providers be excluded from this factor. Another commenter requested CMS provide a more complete summary of the specific impact of the proposed changes to the rural wage index calculation.

Response: We appreciate the commenters' support for our proposal. We reviewed the analysis a commenter provided that suggests the proposed change to the rural wage index calculation methodology would reduce the total level of adjustments made under the low wage policy, by raising the wage index of hospitals with wage index values currently at or below the 25th percentile As proposed, nearly half of all IPPS hospitals will be assigned their State's rural wage index, either directly or through the application of the previously discussed “floor” policies. We expect that this number will increase in future years as hospitals adjust to the policy and as the relative value of States' rural wage index values increase due to the strategic inclusion of hospitals that obtain § 412.103 reclassification. An outcome of this trend would be that the majority of hospitals (if not all) will be assigned identical wage index values as all other hospitals within their states. This would greatly reduce wage index variations within a State but might dramatically increase wage index differentials between States.

We understand the other commenters' concern regarding the effect that the proposed modification of the rural wage index calculation has on the rural floor budget neutrality factor. This policy will result in the rural wage index being greater than the wage index of most or all urban areas in that State. This will result in substantially more hospitals receiving the rural floor (and the section 1886(d)(8)(C)(iii) reclassification hold-harmless floor), and a consequently greater budget neutrality impact. We acknowledge tension between hospitals receiving identical wage index values and the broader structure of a national wage index to reflect relative differences in regional labor market costs. However, we believe this result would be unavoidable given the requirement of section 1886(d)(8)(E) of the Act to treat § 412.103 hospitals `as being located in the rural area' of the state.

With regard to the commenter's assertion that urban hospitals paid at the rural floor and rural hospitals should be excluded from the application of the rural floor budget neutrality factor, we believe we have applied the rural floor budget neutrality adjustment correctly. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111–148) requires that a national budget neutrality adjustment be applied in implementing the rural floor. There is a statutory requirement for budget neutrality, and the statute does not express intent to exempt certain hospitals as the commenter claims. Consistent with our longstanding methodology for implementing rural floor budget neutrality, we believe it is appropriate to continue to apply a budget neutrality adjustment to all hospitals' wage indexes so that the rural floor is implemented in a budget neutral manner.

With regard to the commenter requesting a summary of the specific impact of the changes to the rural wage index calculation, we refer the commenter to section II.A.4.e. of the Addendum of this final rule for a complete discussion of the budget neutrality impact of the application of the rural floor.

Comment: Several commenters expressed concern with the timing of our proposed policy as it relates to Medicare Advantage (MA) reimbursement funding for MA plans. Commenters cited locations that would have significant, sudden increases in hospital payment rates due to the proposed change in the calculation of the rural wage index values and cited potential severe financial hardships (including increased insurance rates) if such plans are not granted adequate time to transition and adjust to the implications of the policy change.

Another commenter stated that while budget neutrality may mitigate the impact of CMS's rural wage index adjustments overall, it does not prevent significant regional impacts. The commenter stated that MA organizations have limited mechanisms to account for any increased costs given that they must pay the FFS rate for non-contracted providers. The negative impacts would be greater on small, regional plans that do not provide services across a broad enough area to mitigate the effects. Commenters requested CMS delay changes to the rural wage index or implement a companion policy to counterbalance the effects of the policy.

Response: After reviewing the concerns submitted by commenters regarding the potential impact this policy would have on MA plan payments, we are not convinced that the impact of this specific policy is exceptionally unique (in either form or magnitude) from other policy proposals made in past cycles. That is, we note that any change in policy that has the effect of increasing the wage index of an area will always result in an increase in MA payment rates to non-contracted hospital providers in that area. It would be out of the scope of this rulemaking to implement any change in MA payment policy (for example, raising benchmark rates) and outside of our authority to change the statutory bidding deadline for MA organizations (the first Monday in June of the year preceding the payment and coverage year), and given the broad general support we received from other commenters, we find the benefits of the proposed policy outweigh the possible repercussions highlighted by the commenter. Further, MA rates (that is, the bidding benchmarks) are set, in part, using projections of national FFS per capita costs for the payment year combined with a localized cost index, or the average geographic adjustment (AGA). The AGA is based on the most recent five-years of historical FFS experience. The IPPS claims supporting the AGAs are repriced using the most recent available wage index, which is FY 2023 for the 2024 MA rates. (These projections are subject to specific statutory exclusions of certain costs that are explained in the annual Rate Announcement.)

In response to the specific request to delay IPPS payment changes because of non-contract MA claims, for the reason cited in the proposed rule (83 FR 26976 through 26977), we believe that any delay to the proposed changes to the rural wage index calculation would be detrimental to hospitals and would result in additional litigation. Consistent with sections 1852(a)(2), 1852(k)(1), and 1866(a)(1)(O) of the Act, non-contract providers must accept as payment in full payment amounts applicable in Original Medicare. We will take these comments regarding MA payment implications into consideration for future rulemaking.

Comment: A commenter requested that CMS provide clarification on how its proposed interpretation of § 412.103 impacts the distance and proximity requirements for MGCRB reclassification. The commenter specifically asked if a § 412.103 redesignated hospital can seek MGCRB reclassification to any CBSA within 35 miles of any point of the State's rural area or to any CBSA adjacent to the rural area.

Response: We believe the commenter is misunderstanding the current MGCRB reclassification rules. Hospitals with a § 412.103 reclassification will continue to use the 35-mile rural proximity criterion at § 412.230(b)(1). All reclassification proximity criteria that use mileage begin the measurement at the hospital's geographic address and end at the nearest point in the requested CBSA area.

After consideration of public comments received, we are adopting the proposed changes to the rural wage index calculations as described in the proposed rule. Specifically, we are adopting without change our proposed interpretation of section 1886(d)(8)(E) of the Act. Accordingly, we are finalizing our proposal 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) implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. We are also finalizing the proposed policy that hospitals with state-to-state MGCRB reclassifications to a nearby state's rural area receive a “combined” wage index (calculation 3 of the rural wage index calculation as previously detailed in the chart) that includes the wage data for geographically rural hospitals and all hospitals reclassified into that rural area (subject to any additional wage index adjustment policies for which those reclassified hospitals may be eligible). Finally, we are finalizing our policy to continue to apply the deemed urban wage index value for § 412.103 hospitals that also qualify as “Lugar” under section 1886(d)(8)(B) of the Act, for wage index purposes only.

We note in this final rule that an additional corollary of the changes being finalized regarding our treatment of hospitals reclassified under § 412.103 is that a hospital with a § 412.103 reclassification should be considered as being located in its State's rural area for the purposes of applying the hold harmless provision under section 1886(d)(8)(C)(iii) of the Act. This would prevent the rare situation where § 412.103 hospitals with the state-to-state rural MGCRB reclassification would be assigned a lower wage index than geographically rural hospitals with the same state-to-state rural MGCRB reclassification.

We note that this policy implication would not alter any wage index values for any hospital or CBSA for this FY 2024 rule, but will have some minor underlying budget neutrality implications, as several additional hospitals will be assigned their State's rural wage index prior to the application of the “rural floor” provision (insofar as CMS applies a budget neutrality adjustment in implementing the “rural floor”).

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 42 CFR 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 42 CFR 412.64(h)(4)(vi) as in effect for FY 2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178) for further discussion of the original imputed floor calculation methodology implemented in FY 2005 and the alternative methodology implemented in FY 2013.

Based on data available for this final rule, States that will be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States that will be eligible to receive an increase in their wage index due to application of the imputed floor for FY 2024, are identified in Table 3 associated with this final rule. States with a value in the column titled “State Imputed Floor” are eligible for the imputed floor.

The regulations at § 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 will continue to be applied for FY 2024 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 2024

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 42 CFR 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 the FY 2024 IPPS/LTCH PPS proposed rule, we did not propose any changes to the frontier floor policy for FY 2024. In the proposed rule we stated 43 hospitals would receive the frontier floor value of 1.0000 for their FY 2024 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming.

We did not receive any public comments on the application of the State frontier floor for FY 2024. In this final rule, 42 hospitals will receive the frontier floor value of 1.0000 for their FY 2024 wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.0000. The areas affected by the rural and frontier floor policies for the final FY 2024 wage index are identified in Table 2 associated with this final rule, which is available via the internet on the CMS website.

4. 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 by the use of historical wage data to prospectively set hospitals' wage indexes. That lag creates barriers to hospitals with low wage index values from 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. 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 increase 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 is that this policy will 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.

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.) (hereafter referred to as Bridgeport). The district court in Bridgeport found 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.

At the time the policy was originally promulgated, we stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328) our intention that it would be in effect for at least 4 fiscal years beginning October 1, 2019. We stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. At this time, we only have one year of relevant data (from FY 2020) that we could use to evaluate any potential impacts of this policy. As discussed in section III.B. of the preamble of this final rule, 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). Given our current lack of sufficient data with which to evaluate the low wage index hospital policy, we believe it is necessary to wait until we have useable data from additional fiscal years before making any decision to modify or discontinue the policy. Therefore, for FY 2024, we proposed to continue the low wage index hospital policy and the related budget neutrality adjustment (discussed in this section of this rule).

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 2024 and for subsequent fiscal years during which the low wage index hospital policy is in effect, we proposed to apply a budget neutrality adjustment in the same manner as we 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 final rule for further discussion of the budget neutrality adjustment for FY 2024. For purposes of the low wage index hospital policy, based on the data for this final rule, the table displays the 25th percentile wage index value across all hospitals for FY 2024.

Comment: Several commenters supported the low wage index hospital policy. Numerous commenters indicated that they have used the increased payments resulting from the low wage index hospital policy as CMS intended, resulting in a positive impact on their workforce recruitment and retention. Commenters commended the extension of the policy and noted that there continues to be insufficient data to support modifying or discontinuing the policy. Commenters explained that CMS should continue to extend the policy until a full four-year period of wage data is gathered in order to more fully evaluate the effectiveness of the policy. Several commenters noted that the full 4 years of wage data gathered should be post-COVID–19 wage data in part due to ongoing workforce shortages and regional impacts as a result of the COVID–19 public health emergency (PHE). Specifically, one commenter explained that CMS should not be utilizing any data from FY 2020 due to the impacts of the PHE and other commenters urged CMS to continue the low wage index policy at least through FY 2030 in order to collect wage data outside of the PHE.

Some commenters asked that CMS provide clarification on its plans for this low-wage hospital policy moving forward, urging CMS to specify how many years of data it expects to need in order to evaluate whether the policy has increased wages for low-wage hospitals. Commenters also urged CMS to describe how it will account for the dramatic shifts in wage costs during the COVID–19 PHE, while explaining that doing so will help provide clarity and predictability to the field, especially during the current financial climate in which hospitals are operating.

A commenter explained that regardless of whether the low-wage hospital policy had its intended effect, CMS should now enter the evaluation phase, ending the artificial increase in the low quartile hospitals' wage indices after four years. According to the commenter, if CMS disagrees that four years of the policy is sufficient, it should better justify continuing the policy and lay out its criteria for evaluating the policy's potential success and at what point it should be terminated.

Response: We thank the many commenters expressing their support of the low wage index hospital policy and the continued feedback regarding achievement of the intended policy goal. We appreciate the commenters' requests to consider the impacts of COVID–19, to extend this policy beyond four years due to COVID–19, and to extend the policy until the intended goals of the policy are reached. We appreciate commenters' suggestions on how we might evaluate the effectiveness of the policy and may consider those suggestions in future rulemaking.

Regarding the comments requesting clarity about how many years of data are needed in order to evaluate whether the policy has increased wages for low-wage hospitals, as noted in the proposed rule and earlier in this section of the final rule, in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328) we stated our intention that this policy will be effective for at least 4 years, until the policy's effects could be reflected in the wage index data. As discussed in section III.B. of the preamble of this final rule, 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). At this time, we only have one year of relevant data (from FY 2020) that we could use to evaluate any potential impacts of this policy. Again, as described earlier in this section, when this policy was finalized in the FY 2020 IPPS/LTCH PPS final rule, it was our intention that it would be effective for at least 4 years, until the policy's effects could be reflected in the wage index data. Given our current lack of sufficient data with which to evaluate the low wage index hospital policy, currently having access to only one year of relevant data at this time due to the 4-year data lag also as described earlier in this section, we believe it is necessary to wait until we have useable data from additional fiscal years before making any decision to modify or discontinue the policy.

Comment: Several commenters expressed their support for the continued implementation of wage index payment increases for low-wage hospitals but urged CMS to do so in a non-budget-neutral manner. Commenters stated that implementing the policy with a budget neutrality adjustment merely redistributes funds from one hospital to another, arbitrarily causing some hospitals to experience a payment decrease and others an increase. One commenter stated that those hospitals that fall between approximately the 22nd and 25th percentile are receiving a reduction to the wage adjusted standardized rate because the amount of benefit received is less than the cost to fund the benefit. This commenter suggested holding hospitals under the 25th percentile harmless. Commenters also provided other suggestions for data and alternative methodologies to include: reducing the wage index for hospitals with values above the 75th percentile; working with Congress on a more permanent fix to address the disparities in the wage index by establishing a national floor for all hospitals; and seeking input from the hospital community on best overall reform options that will better avoid downstream consequences from wage index policy changes.

Response: We disagree with the commenters that the low wage index hospital policy should be implemented in a non-budget neutral manner. As we stated in response to similar comments in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42331 and 42332), the FY 2022 IPPS/LTCH PPS final rule (86 FR 45180), and the FY 2023 IPPS/LTCH PPS final rule (87 FR 49007), under section 1886(d)(3)(E) of the Act, the wage index adjustment is required to be implemented in a budget neutral manner. However, even if the wage index were not required to be budget neutral under section 1886(d)(3)(E) of the Act, we would consider it inappropriate to use the wage index to increase or decrease overall IPPS spending. As we stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42331), the wage index is not a policy tool but rather a technical adjustment designed to be a relative measure of the wages and wage-related costs of subsection (d) hospitals. As a result, as we explained in the FY 2020 IPPS/LTCH PPS final rule, if it were determined that section 1886(d)(3)(E) of the Act does not require the wage index to be budget neutral, we invoke our authority at section 1886(d)(5)(I) of the Act in support of such a budget neutrality adjustment.

With regard to the commenter's concern that application of the low wage index policy may result in a reduction to overall payment if the amount of benefit received from the wage index boost is less than the reduction to the standardized amount, we believe we have applied both the quartile policy and the budget neutrality policy appropriately. As we explained most recently in response to comments in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49007), the quartile adjustment is applied to the wage index, which results in an increase to the wage index for hospitals below the 25th percentile. The budget neutrality adjustment is applied to the standardized amount in order to ensure that the low wage index hospital policy is implemented in a budget neutral manner. Thus, consistent with our current methodology for implementing wage index budget neutrality under section 1886(d)(3)(E) of the Act and with how we implemented budget neutrality for the low wage index hospital policy in FY 2020, we believe it is appropriate to continue to apply a budget neutrality adjustment to the national standardized amount for all hospitals so that the low wage index hospital policy is implemented in a budget neutral manner for FY 2024.

Regarding the comment about reducing the wage index for hospitals with values above the 75th percentile, in the FY 2020 IPPS/LTCH final rule (84 FR 42329), we discussed that we originally proposed to reduce the wage index values for high wage index hospitals using a methodology analogous to the methodology used to increase the wage index values for low wage index hospitals described in section III.N.3.a. of the preamble of the proposed rule; that is, we proposed to decrease the wage index values for high wage index hospitals by a uniform factor of the distance between the hospital's otherwise applicable wage index and the 75th percentile wage index value for a fiscal year across all hospitals. In response to comments we received (84 FR 42329 and 42330), we acknowledged that some commenters presented reasonable policy arguments that we should consider further regarding the relationship between our proposed budget neutrality adjustment targeting high wage hospitals and the design of the wage index to be a relative measure of the wages and wage-related costs of subsection (d) hospitals in the United States. Therefore, in the FY 2020 IPPS/LTCH final rule, we did not finalize our proposal to target that budget neutrality adjustment on high wage hospitals (84 FR 42331). Regarding the comment about the establishment of a national floor for all hospitals, we noted in response to a similar comment in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42338 through 42339), as we do not have evidence a national rural labor market exists or would be created if we were to adopt this alternative, this alternative would not increase the accuracy of the wage index. Also, we believe we have applied both the quartile policy and the budget neutrality policy appropriately, as we explained in response to comments in the FYs 2021 and 2022 IPPS/LTCH PPS final rules and most recently FY 2023 IPPS/LTCH PPS final rule (87 FR 49007). The quartile adjustment is applied to the wage index, which resulted in an increase to the wage index for hospitals below the 25th percentile. The budget neutrality adjustment is applied to the standardized amount in order to ensure that the low wage index hospital policy is implemented in a budget neutral manner.

Comment: Several commenters opposed the low wage index hospital policy, stating that it is inappropriately redistributive, ineffective, and outside the agency's statutory authority under section 1886(d)(3)(E) of the Act. Specifically, some commenters stated that although the policy is intended to help rural hospitals, some rural hospitals in certain states do not benefit from this policy. Furthermore, a commenter stated that the policy undermines the intent of the wage index by not recognizing real differences in labor costs.

Response: We believe we addressed the stated concerns in our responses to comments when we first finalized the policy and the related budget neutrality adjustment in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42332). Concerning the policy's redistributive effect, we refer readers to our response to the previous comments about budget neutrality. With regard to the policy's effectiveness, we continue to believe that the comments in support of the policy, specifically comments from relatively low-wage hospitals stating that the increased payments under the policy have allowed them to raise compensation for their workers, indicate that many low wage hospitals are benefiting from this policy. Furthermore, we stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328) our intention that this policy will be effective for at least 4 years, until the policy's effects could be reflected in the wage index data. Regarding the policy's effect on rural hospitals, as we stated FY 2020 IPPS/LTCH PPS final rule (84 FR 42328), the wage index is a technical payment adjustment. The intent of the low wage hospital policy is to increase the accuracy of the wage index as a technical adjustment, and not to use the wage index as a policy tool to address non-wage issues related to rural hospitals, or the laudable goals of the overall financial health of hospitals in low wage areas or broader wage index reform. The low wage hospital policy aims to increase the accuracy of the wage index as a relative measure because it allows low wage index hospitals to increase their employee compensation in ways that we would expect if there were no lag between the time a hospital increases employee compensation and the time these increases are reflected in the wage index, and allows those increases to be more timely reflected in the wage index. While one effect of the policy may be to improve the overall well-being of low wage hospitals, and we would welcome that effect, that is not the primary rationale for our policy.

In response to comments stating the policy exceeds CMS's statutory authority, we refer the commenters to our prior discussion of the authority for the policy in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42332).

In response to the assertion that the low wage index hospital policy does not recognize real differences in labor costs, we continue to believe, for the reasons stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42327 and 42328), that by preserving the rank order in wage index values, our policy continues to reflect meaningful distinctions between the employee compensation costs faced by hospitals in different geographic areas. Thus, under the low wage index hospital policy, we believe the wage index for low wage index hospitals appropriately reflects the relative hospital wage level in those areas compared to the national average hospital wage level.

Comment: Many commenters noted that the low wage index hospital policy is currently the subject of pending litigation in Bridgeport. A few commenters urged CMS not to finalize the policy for FY 2024, or to wait until a final court decision is reached. One such commenter suggested CMS should eliminate the budget neutrality adjustments for FYs 2020, 2021, 2022 and 2023 in light of Bridgeport. Many commenters applauded CMS's decision to appeal the district court's decision in Bridgeport. These commenters stated that the consequences of halting the policy would be dire.

Response: We appreciate the commenters' input. As noted previously, 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.) (hereafter referred to as Bridgeport). The district court in Bridgeport found 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.

After consideration of the comments we received, and for the reasons stated previously and in the proposed rule, we are finalizing as proposed to continue the low wage index hospital policy and the related budget neutrality adjustment for FY 2024.

5. Permanent 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 42 CFR 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).

Although we did not propose changes to the policy to apply a permanent cap on wage index decreases, we received comments which are summarized and responded to as follows.

Comment: Many commenters expressed their support for CMS's policy, as finalized in the FY 2023 IPPS/ LTCH PPS final rule (87 FR 49018 through 49021), to limit any decrease in a hospital's wage index value to be no greater than 5 percent as compared to the hospital's wage index value for the prior fiscal year, regardless of the circumstances causing the decline. According to commenters, the policy helps maintain stability and predictability to current and future payments under the IPPS by preventing abrupt variation in year-to-year wage data for affected hospitals, much of which may be beyond a hospital's control.

Response: We appreciate the support from commenters.

Comment: Several commenters that supported the policy to apply a permanent cap on wage index decreases, explained that CMS is not bound by statute to make the policy budget neutral and urged CMS to revisit how the policy is funded in order to implement the policy in a non-budget neutral manner. According to these commenters, the budget neutral aspect of the policy causes unintended consequences as payment rates are redistributed and undermines the intended benefit of the policy. Commenters asked CMS to examine alternatives to fund this policy so that the policy is funded using separate and additional funds, rather than in a budget neutral way that reduces the wage indexes of other hospitals. Furthermore, commenters explained that implementing this policy in a non-budget neutral manner would both stabilize provider reimbursement and avoid further unexpected reductions for other providers. Finally, commenters encouraged CMS to continue working with stakeholders and Congress to address the need for more comprehensive reforms.

Response: We thank the commenters for their input regarding the policy to apply a permanent cap on wage index decreases. As discussed in our response to comments in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49020), the budget neutrality adjustment associated with the permanent cap on wage index increases policy is implemented through our authority under sections 1886(d)(3)(E) and (d)(5)(I)(i) of the Act. Section 1886(d)(3)(E) gives the Secretary broad authority to adjust 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, and requires those adjustments to be applied in a budget neutral manner. However, even if the wage index were not required to be budget neutral under section 1886(d)(3)(E) of the Act, we would not consider it an appropriate alternative to use the wage index and the proposed permanent cap on wage index decreases to increase or decrease overall IPPS spending. The wage index is not a policy tool but rather a technical adjustment designed to be a relative measure of the wages and wage-related costs of subsection (d) hospitals in the United States. Furthermore, our past policies involving a 5 percent cap on wage index decreases implemented in a budget neutral manner did not result in wage index volatility, and we expect the same for the overall budget neutrality adjustments associated with the permanent cap policy. For more information about the wage index cap policy and associated budget neutrality adjustment finalized in FY 2023 for FY 2023 and subsequent years, we refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021). For FY 2024, we will apply the wage index cap and associated budget neutrality adjustment in accordance with the policies adopted in the FY 2023 IPPS/LTCH PPS final rule. We 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 final rule for further information regarding the budget neutrality calculations.

H. FY 2023 Wage Index Tables

In this FY 2024 IPPS/LTCH PPS final rule, we have included the following wage index tables: Table 2 titled “Case-Mix Index and Wage Index Table by CCN”; Table 3 titled “Wage Index Table by CBSA”; Table 4A titled “List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act”; and Table 4B titled “Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar Counties).” We refer readers to section VI. of the Addendum to this final rule for a discussion of the wage index tables for FY 2024.

I. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General Policies and Effects of Reclassification and Redesignation

Under section 1886(d)(10) of the Act, the Medicare Geographic Classification Review Board (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 42 CFR 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 42 CFR 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 42 CFR 412.103 from the calculation of the rural floor, but we reverted back 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 42 CFR 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 and 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 this 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.

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 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.

2. MGCRB Reclassification and Redesignation Issues for FY 2024

a. FY 2024 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 466 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2024. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2024, hospitals reclassified beginning in FY 2022 or FY 2023 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 271 hospitals approved for wage index reclassifications in FY 2022 that will continue for FY 2024, and 325 hospitals approved for wage index reclassifications in FY 2023 that will continue for FY 2024. Of all the hospitals approved for reclassification for FY 2022, FY 2023, and FY 2024, 1062 (approximately 30 percent) hospitals are in a MGCRB reclassification status for FY 2024 (with 187 of these hospitals reclassified back to their geographic location).

Under the regulations at 42 CFR 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's 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. For information about 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).

We note that in the FY 2021 IPPS/LTCH final rule (85 FR 58771 through 58778), CMS finalized an assignment policy for hospitals reclassified to CBSAs from which one or more counties moved to a new or different urban CBSA under the revised OMB delineations based on OMB Bulletin 18–04. We provided a table in that rule (85 FR 58777 and 58778) which described the assigned CBSA for all the MGCRB cases subject to this policy. For such reclassifications that continue to be active or are reinstated for FY 2024, the CBSAs assigned in the FY 2021 IPPS/LTCH final rule continue to be in effect.

Applications for FY 2025 reclassifications are due to the MGCRB by September 1, 2023. We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under 42 CFR 412.273(d). Applications and other information about MGCRB reclassifications may be obtained beginning in mid-July 2023 via the internet on the CMS website at https://www.cms.gov/Regulations-andGuidance/Review-Boards/MGCRB/index.html . 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.

Comment: A commenter noted that the MGCRB issued determinations for FY 2024 on January 31, 2023. The commenter stated that this was earlier than in the past, when the MGCRB typically issued determinations mid-February, to meet the statutory requirement for decisions to be issued by the end of February. The commenter requested that CMS limit the MGCRB from issuing decisions prior to the first week of February to allow hospitals ample time to submit documentation of rural reclassification, SCH and RRC status to the Board or to submit a request to withdraw an application based on review of the January PUF. The commenter stated that without a more definitive timeline, hospitals face uncertainty if their documentation will be accepted by the MGCRB and could be adversely affected by an early decision being issued by the Board.

Response: We disagree with the commenter that hospitals are disadvantaged by earlier issuance of MGCRB decisions. First, we believe hospitals should submit applications complete with supporting documentation at the time MGCRB applications are due. Hospitals taking advantage of the MGCRB's practice of accepting supporting documentation to supplement applications until the date of the MGCRB's review are aware that the review is not held on the same date annually. In fact, the MGCRB even issued determinations for FY 2024 on a later date in January than it issued determinations for FY 2023 (January 31, 2023, versus January 24, 2022). Furthermore, rural reclassification may be obtained at any time, and hospitals seeking benefits of rural status for MGCRB reclassification should plan accordingly. Finally, we note that hospitals dissatisfied with the MGCRB's decision may request the Administrator's review under § 412.278. With regard to hospitals requesting to withdraw a pending reclassification application following review of the January PUF, hospitals may withdraw a reclassification after the MGCRB has issued decisions, within 45 days of the date that CMS's annual notice of proposed rulemaking is issued in the Federal Register , per the regulations at § 412.273. Therefore, we do not believe hospitals are disadvantaged by the earlier timing of MGCRB decisions, because they can submit supporting documentation timely, obtain a rural reclassification in advance, request the Administrator's review of an MGCRB decision, and withdraw an unwanted reclassification.

3. Redesignations Under Section 1886(d)(8)(B) of the Act (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 out-migration adjustment. In addition, in that rule, we adopted a minor procedural change that allows a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the publication of the proposed rule) to waive its urban status for the full 3-year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital will no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of publication of the proposed rule 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 out-migration 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 out-migration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the out-migration adjustment will be denied, and the hospital will be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values will be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out-migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it would be ineligible to receive the county out-migration adjustment under section 1886(d)(13)(G) of the Act.

We received three timely requests in the wageindex@cms.hhs.gov mailbox from CCN 230005 (located in Lenawee County, PA), and CCNs 390183 and 390332 (located in Schuykill county, PA) to waive “Lugar” reclassification status to accept the county out-migration adjustment (OMA). These requests are approved. All three hospitals have current § 412.103 rural reclassifications. Per the regulation at § 412.103(g)(5), the rural reclassification status will be terminated, effective October 1, 2023. The status of these requests will be listed in Table 2 in the addendum of this final rule.

We received one request from CCN 150076 on June 13, 2023. The deadline to file a request to waive “Lugar” reclassification status to accept its county OMA was May 25, 2023; 45 days from the date of public display (April 10, 2023) of the proposed rule at the Office of the Federal Register. This request is therefore denied.

J. 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 or OMA). 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 proposed to use them again for FY 2024, as we believe they continue to be appropriate. 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.

For FY 2024, the out-migration adjustment will continue to be based on the data derived from the custom tabulation of the ACS utilizing 2008 through 2012 (5-year) Microdata. For future fiscal years, we may consider determining out-migration adjustments based on data from the next Census or other available data, as appropriate. For FY 2024, we did not propose any changes to the methodology or data source that we used for FY 2016 (81 FR 25071). (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).)

Comment: A commenter stated that CMS should reconsider whether an out-migration adjustment should be applied to hospitals with a § 412.103 rural reclassification. The commenter stated that, in light of the proposed modification to treat § 412.103 hospitals the same as geographically rural hospitals in the wage index calculation methodology, a § 412.103 hospital without an MGCRB or “Lugar” designation should be eligible to receive its county's calculated OMA.

Response: We disagree that a hospital with an active § 412.103 rural reclassification is eligible to receive an OMA. Section 1886(d)(13)(G) of the Act states that a hospital that receives an OMA is not eligible for reclassification under section 1886(d)(8) or 1886(d)(10) of the Act. Section 1886(d)(8) of the Act describes both deemed urban status under section 1886(d)(8)(B) (“Lugar” reclassification) and obtaining rural status under section 1886(d)(8)(E) of the Act (implemented by § 412.103). By voluntarily applying for a § 412.103 rural reclassification, a hospital is therefore waiving the application of the OMA, as described at section 1886(d)(13)(F) of the Act. Therefore, for the reasons set forth in this final rule and in the FY 2024 IPPS/LTCH PPS proposed rule, for FY 2024, we are finalizing our proposal, without modification, to continue using the same policies, procedures, and computations that were used for the FY 2012 out-migration adjustment and that were applicable for FYs 2016 through 2023.

Table 2 associated with this final rule (which is available via the CMS website) includes the proposed out-migration adjustments for the FY 2024 wage index. In addition, Table 4A associated with this final rule, “List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act” (also available via the internet on the CMS website), consists of the following: A list of counties that are eligible for the out-migration adjustment for FY 2024 identified by FIPS county code, the proposed FY 2024 out-migration adjustment, and the number of years the adjustment will be in effect. We refer readers to section V.I. of the Addendum of this final rule for instructions on accessing IPPS tables that are posted on the CMS websites identified in this final rule.

K. Reclassification From Urban to Rural Under Section 1886(d)(8)(E) of the Act Implemented at 42 CFR 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 42 CFR 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. 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 2023 IPPS/LTCH PPS final rule (87 FR 49004) for a discussion of our current policy to calculate the rural floor with the wage data of urban hospitals reclassifying to rural areas under 42 CFR 412.103. We also refer readers to section III.G.1. of the preamble of this final rule with regard to our proposal to modify how we calculate 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 42 CFR 412.92, 412.96, 412.103, and 412.108. We stated that reclassifications from urban to rural under 42 CFR 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 an SCH, RRC, or MDH status, or rural reclassification under 42 CFR 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 42 CFR 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's 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 CBSA 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 42 CFR 412.103 rural reclassification status in a different CBSA are identified in Table 2, and hospitals should evaluate potential wage index outcomes for its remote location(s) when withdrawing or terminating MGCRB reclassification, or canceling § 412.103 rural reclassification status.

Finally, in section V.C.2. of the preamble of this final rule, we are changing 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 are finalizing that in these circumstances, and subject to the requirements set forth at new § 412.92(b)(2)(vi), the effective date for rural reclassification will be as of the effective date set forth in new § 412.92(b)(2)(vi).

Also, in section V.C.2 of the preamble of this final rule, we are making a conforming change to the regulations at § 412.103(d) to modify 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. We are amending § 412.103(d)(1) and to add new paragraph § 412.103(d)(3) to provide that, subject to the hospital meeting the requirements set forth at new § 412.92(b)(2)(vi), the effective date for rural reclassification for such hospital will be as of the effective date determined under § 412.92(b)(2)(vi).

We refer the reader to section V.C.2. of the preamble of this final rule for complete details on these policies.

L. Process for Requests for Wage Index Data Corrections

1. Process for Hospitals To Request Wage Index Data Corrections

The preliminary, unaudited Worksheet S–3 wage data files and the CY 2019 occupational mix data files for the proposed FY 2024 wage index were made available on May 23, 2022, through the internet on the CMS website at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy-2024-wage-index-home-page .

On January 30, 2023, we posted a public use file (PUF) at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy-2024-wage-index-home-page containing FY 2024 wage index data available as of January 30, 2023. 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, 2019 through September 30, 2020; that is, FY 2020 wage data), a tab with the occupational mix data (which includes data from the CY 2019 occupational mix survey, Form CMS–10079), a tab containing the Worksheet S–3 wage data of hospitals deleted from the January 30, 2023, wage data PUF, and a tab containing the CY 2019 occupational mix data of the hospitals deleted from the January 30, 2023, occupational mix PUF. In a memorandum dated January 31, 2023, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the January 30, 2023, wage index data PUFs, and the process and timeframe for requesting revisions in accordance with the FY 2024 Hospital Wage Index Development Time Table available at https://www.cms.gov/files/document/fy-2024-hospital-wage-index-development-time-table.pdf .

In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional PUF on the CMS website that reflects the actual data that are used in computing the proposed wage index. The release of this file does not alter the current wage index process or schedule. 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 3, 2022, 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 2019 occupational mix survey data files posted on May 23, 2022, 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, 2022, preliminary wage data files and occupational mix data files, the hospital had to submit corrections along with complete, detailed supporting documentation to its MAC so that the MAC received them by September 2, 2022. 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 4, 2022, 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 2023. CMS published the wage index PUFs that included hospitals' revised wage index data on January 30, 2023. Hospitals had until February 15, 2023, to submit requests to the MACs to correct errors in the January 30, 2023, 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 30, 2023, PUF. Hospitals also were required to submit sufficient documentation to support their requests. Hospitals' requests and supporting documentation must be received by the MAC by the February deadline (that is, by February 15, 2023, for the FY 2024 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, 2023. Under our current policy as adopted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38153), the deadline for a hospital to request CMS intervention in cases where a hospital disagreed with a MAC's handling of wage data on any basis (including a policy, factual, or other dispute) was April 3, 2023. Data that were incorrect in the preliminary or January 30, 2023, wage index data PUFs, but for which no correction request was received by the February 15, 2023 deadline, are not considered for correction at this stage. In addition, April 3, 2023, was the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified after the January 30, 2023, PUF and at least 14 calendar days prior to April 3, 2023 (that is, March 20, 2023), 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, 2023, for the FY 2024 wage index). We refer readers to the FY 2024 Hospital Wage Index Development Time Table for complete details.

Hospitals were given the opportunity to examine Table 2 associated with the proposed rule, which is listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy-2024-wage-index-home-page . Table 2 associated with the proposed rule contained each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2024 wage index which was constructed from FY 2020 data. We noted in the proposed rule that the proposed hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by early February 2023.

We posted the final wage index data PUFs on April 28, 2023, on the CMS website at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy-2024-wage-index-home-page . The April 2023 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, 2023, 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 2023 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, 2023.
• Requests for correction of errors that were not, but could have been, identified during the hospital's review of the January 30, 2023, 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 2023 final wage index data PUFs, a hospital believes that its wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital is given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital was required to send its request to CMS and to the MAC so that it was received no later than May 26, 2023. May 26, 2023, was also the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified on or after 13 calendar days prior to April 1, 2023 (that is, March 19, 2023), and at least 14 calendar days prior to May 26, 2023 (that is, May 12, 2023), that did not arise from a hospital's request for revisions. (Data corrections made by CMS of which a hospital was notified on or after 13 calendar days prior to May 26, 2023 (that is, May 13, 2023), may be appealed to the Provider Reimbursement Review Board (PRRB)). In accordance with the FY 2024 Hospital Wage Index Development Time Table posted on the CMS website at https://www.cms.gov/files/document/fy-2024-hospital-wage-index-development-time-table.pdf , the May appeals were required to be sent via mail and email to CMS and the MACs. We refer readers to the FY 2024 Hospital Wage Index Development Time Table for complete details.

Verified corrections to the wage index data received timely (that is, by May 26, 2023) by CMS and the MACs were incorporated into the final FY 2024 wage index, which will be effective October 1, 2023.

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 2024 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 2023, 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 2024 wage index by August 2023, and the implementation of the FY 2024 wage index on October 1, 2023. 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 26, 2023, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with 42 CFR 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 26, 2023, for the FY 2024 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 42 CFR 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 26, 2023, deadline for the FY 2024 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 26, 2023, deadline for the FY 2024 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS's 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 42 CFR 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.

2. Process for Data Corrections by CMS After the January 30 Public Use File (PUF)

The process set forth with the wage index timetable discussed in section III.L.1. of the preamble of this final rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data 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 30 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 that 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 30 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 to instances where CMS makes data corrections after the January 30 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 2024 Hospital Wage Index Development Time Table, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156).

M. Labor-Related Share for the FY 2023 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 resulted 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. We established a 2018-based IPPS hospital market basket to replace the FY 2014-based IPPS hospital market basket, effective 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, 45529, and 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 the proposed rule, for FY 2024, we did not propose to make any further changes to the labor-related share. For FY 2024, we are finalizing the policy to continue to use a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2023.

As discussed in section V.B. of the preamble of this final rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114–113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national labor-related share and nonlabor-related share percentages that are applied to the national standardized amount. Accordingly, for FY 2024, we did not propose 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 2024 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflect the national labor-related share. Table 1C, in section VI. of the Addendum to this FY 2024 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflects the national labor-related share for hospitals located in Puerto Rico. For FY 2024, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are applying the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2024, we are applying the wage index to a labor-related share of 67.6 percent of the national standardized amount.

Comment: A commenter requested that CMS maintain the labor-related share from FY 2023 for FY 2024.

Response: We did not propose to make any further changes to the labor-related share for FY 2024. As discussed earlier, for FY 2024, we are continuing to use a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2023.

IV. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2024 (§ 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 most common 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 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 provided uncompensated care. These additional 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.

In summary, 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 two 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, equal to 1 minus the percent change in the percent of individuals who are uninsured. For purposes of calculating this factor, the Secretary determines the percent change in the percent of individuals who are uninsured 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 beginning in 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 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 the periods selected to develop such estimates.

B. Eligibility for Empirically Justified Medicare DSH Payments and Uncompensated Care Payments

As explained earlier, 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. In addition, section 1886(r) of the Act states that 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 provides that, in addition to the empirically justified Medicare DSH payment made to a subsection (d) hospital under section 1886(r)(1), the Secretary will 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). Therefore, the uncompensated care payment provided for in Section 1886(r)(2) is limited to those hospitals that receive empirically justified Medicare DSH payments.

Accordingly, 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 for the applicable fiscal year (using the most recent data that are available). In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26988), we stated that we would estimate DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We noted that FY 2020 SSI ratios available on the CMS website were the most recent available SSI ratios at the time of developing the proposed rule. We stated that if more recent data on DSH eligibility become available before the final rule, we would use such data in the final rule. The FY 2020 SSI ratios were the most recent data available at the time of developing this FY 2024 IPPS/LTCH PPS final rule.

Our final determination of a hospital's eligibility for uncompensated care payments will be based on the hospital's actual DSH status at cost report settlement for FY 2024.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the rulemaking for subsequent fiscal years, we specified our policies regarding the eligibility of several specific classes of hospitals to receive empirically justified Medicare DSH payments and uncompensated care payments under 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 Federal fiscal year (based on the best available data at that time) subject to settlement through the cost report. If an SCH receives interim empirically justified Medicare DSH payments in a fiscal year, it also will receive interim uncompensated care payments for that fiscal year on a per discharge basis, subject to settlement through the cost report. 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 updated hospital-specific rate from certain specified base years (76 FR 51684) exceeds the Federal rate. 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. The MDH program was initially extended through December 17, 2022, by section 102 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023 (Pub. L. 117–180), and through December 24, 2022, by section 102 of the Further Continuing Appropriations and Extensions Act, 2023 (Pub. L. 117–229). Section 4102 of the Continuing Appropriations Act, 2023 (Pub. L. 117–328) 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 October 1, 2024 (that is, for discharges occurring on or before September 30, 2024). We refer readers to section V.F. of the preamble of this final rule for further discussion of the MDH program. We continue to make determinations concerning an MDH's eligibility for interim 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, which started October 1, 2018, will continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. On October 13, 2022, CMS announced that the BPCI Advanced Model would be extended for two years. Accordingly, the Model's final performance year will end 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 Model (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 interim final rule with request for comments that appeared in the November 6, 2020 Federal Register for a discussion of the Model (85 FR 71167 through 71173). In that interim final rule, we extended the Model's Performance Year 5 to September 30, 2021. In a subsequent final rule that appeared in the May 3, 2021 Federal Register (86 FR 23496), we further extended the Model for an additional three performance years. The Model's Performance Year 8 will end on December 31, 2024.

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 1886(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. Under this Model, which began on January 1, 2019, and 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. (See 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), and extended for another 5-year period by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111–148). The period of performance for this 5-year extension period ended December 31, 2016. Section 15003 of the 21st Century Cures Act (Pub. L. 114–255), enacted December 13, 2016, again amended section 410A of Public Law 108–173 to require a 10-year extension period (in place of the 5-year extension required by the Affordable Care Act), therefore requiring an additional 5-year participation period for the demonstration program. Section 15003 of Public Law 114–255 also required a solicitation for applications for additional hospitals to participate in the demonstration program. The period of performance for this second 5-year extension period ended December 31, 2021. The Consolidated Appropriations Act, 2021 (Pub. L. 116–260) amended section 410A of Public Law 108–173 to extend the Rural Community Hospital Demonstration Program for an additional 5-year period. 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 the third 5-year extension period for the demonstration program, participating hospitals do not receive empirically justified Medicare DSH payments, and they are excluded from receiving interim and final uncompensated care payments. At the time of development of this final rule, we expect 26 hospitals may participate in the demonstration program at the start of FY 2024.

We received a comment that was outside the scope of the proposed rule. The comment related to the eligibility of SCHs paid under hospital-specific rate and MDHs to receive DSH payments. Because we consider this public comment to be outside the scope of the proposed rule, we are not addressing the comment in this final rule.

C. Empirically Justified Medicare DSH Payments

As we 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 Medicare program to pay a designated percentage of these payments and does not revise 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 had determined that it was unnecessary to develop new operational mechanisms for making empirically justified DSH payments under section 1886(r)(1). Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented section 1886(r)(1) of the Act 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 can 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, which 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 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 2024 for purposes of this rulemaking) and FY 2022, where the total uncompensated care amount for a 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.

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 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.

Comment: Two commenters expressed continued support for these supplemental payments to lessen the impact of discontinuing the use of low-income patient days to calculate uncompensated care payments for IHS/Tribal hospitals and hospitals in Puerto Rico. Specifically, a commenter noted that the permanent supplemental payments will mitigate the undue long-term financial disruption that would have occurred due to the discontinuance of the previous methodology for calculating uncompensated care costs.

Many commenters reiterated their recommendations that were submitted in response to the proposal to establish these supplemental payments in last year's proposed rule. Specifically, these commenters recommended that CMS calculate the supplemental payment for Puerto Rico hospitals using a base year amount determined from Medicaid days and an SSI days proxy of at least 40 percent of the hospital's Medicaid days, instead of the proxy that applied from FY 2017 through FY 2022, consisting of 14 percent of the hospital's Medicaid days, and was developed based on national data regarding the relationship between Medicare SSI days and Medicaid days. In addition, these commenters requested that CMS make all acute care hospitals in Puerto Rico eligible to receive uncompensated care payments, including those that do not qualify for empirically justified DSH payments, which the commenters believe would be consistent with statutory language. As an alternative, these commenters requested that CMS determine a hospital's eligibility to receive uncompensated care payments and supplemental payments using the suggested proxy for Medicare SSI days of 40 percent of the hospital's Medicaid days. These commenters contend that hospitals that fail to qualify for empirically justified DSH payments might still qualify for uncompensated care payments by using the 40 percent metric.

Another commenter requested that CMS evaluate alternatives to the supplemental payment that would better support hospitals in Puerto Rico in instances of increasing uninsured days. This commenter argued that the supplemental payment only mitigates the anticipated impact of the changes to the uncompensated care payment methodology starting in FY 2023 relative to these hospitals' 2022 uncompensated care payment levels. However, the commenter stated that this approach is not helpful if uninsured patient volumes rise above the 2022 levels. The same commenter further expressed that they would alternatively support a return to the prior method of using a proxy to determine uninsured days for hospitals in Puerto Rico given the challenges around the collection of Worksheet S–10 data.

The Medicare Payment Advisory Commission (MedPAC) recommended that CMS alter its methodology for making interim supplemental payments as an add-on payment to the IPPS payment rates for Puerto Rico hospitals to avoid distorting Medicare Advantage (MA) benchmarks. MedPAC argued that the $80 million in supplemental payments to Puerto Rico hospitals in 2023 would inappropriately boost payments to MA plans operating in Puerto Rico by almost $1 billion per year.

Response: We appreciate the concerns and input raised by commenters regarding the supplemental payment for hospitals in Puerto Rico and IHS and Tribal hospitals that was established in the FY 2023 IPPS/LTCH PPS final rule. We continue to recognize the unique financial circumstances and challenges faced by Puerto Rico hospitals and IHS and Tribal hospitals related to uncompensated care cost reporting on Worksheet S–10, with respect to uncompensated care due to structural differences in health care delivery and financing in these areas compared to the rest of the country (87 FR 49047). With respect to comments regarding SSI proxy recommendations, we refer readers to our response to a similar comment in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49049 and 49050).

Regarding the commenter's request that all acute care hospitals in Puerto Rico receive uncompensated care payments regardless of DSH eligibility, we refer readers to the policy initially adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622 and 50623), which explains that hospitals, including Puerto Rico hospitals, must be eligible to receive empirically justified Medicare DSH payments to receive an additional Medicare uncompensated care payment for that year. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048 and 49049), the processes for determining eligibility for the supplemental payment and making interim and final payments are consistent with the processes for determining eligibility to receive interim and final uncompensated care payments adopted in FY 2014 IPPS/LTCH final rule and the approach used to make interim uncompensated care payments on a per discharge basis.

With respect to the comments recommending that CMS determine eligibility to receive empirically justified DSH payments using the suggested proxy for SSI days of 40 percent of Medicaid days, we note that in the FY 2024 IPPS/LTCH PPS proposed rule, we did not propose to adopt a proxy for Puerto Rico hospitals' SSI days for use in determining eligibility to receive empirically justified Medicare DSH payments or the amount of such payments. Therefore, these comments are considered to be outside the scope of the FY 2024 proposed rule. However, we note that as discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49050), section 1886(d)(5)(F)(vi) of the Act prescribes the disproportionate patient percentage used to determine empirically justified Medicare DSH payments, and it specifically calls for the use of SSI days in the Medicare fraction and does not allow the use of alternative data. Therefore, we continue to disagree with the commenter's assertion that there is legal support for CMS to use a proxy for Puerto Rico hospitals' SSI days in the calculation of the empirically justified Medicare DSH payment or in the eligibility determination for this payment.

Regarding the comments encouraging CMS to evaluate alternatives to supplemental payments to support Puerto Rico hospitals in the case of increasing uninsured days, we note that prior to FY 2023, we used low-income insured days as a proxy for uncompensated care costs. In contrast, we have never directly considered fluctuations in uninsured days in the calculation of uncompensated care payments. Therefore, we continue to believe that the supplemental payments, which are based on the FY 2022 uncompensated care payments calculated for Puerto Rico hospitals and IHS and Tribal hospitals using the low-income insured days proxy, are an appropriate approach to address the difficulties for Puerto Rico and IHS and Tribal hospitals in reporting uncompensated care costs.

In response to MedPAC's comment, we continue to believe the combined amount of empirically justified DSH payments, uncompensated care payments, and supplemental payments to IHS/Tribal hospitals and Puerto Rico hospitals will be comparable to the amount these hospitals would have received if CMS had continued to use the low-income days proxy to determine Factor 3 of the uncompensated care payment methodology. As a result, the supplemental payments are expected to have no significant impact on MA benchmarks in Puerto Rico. We also note that for the past several years, the MA benchmark rates in Puerto Rico have excluded beneficiaries with coverage for only Medicare Part A or only Medicare Part B. For calendar years 2020 and 2021, about 70 percent of uncompensated care payments represented in Puerto Rico claim records were associated with Part A-only beneficiaries and thus excluded from the MA ratebook calculation. Accordingly, about 70 percent of any supplemental payments to Puerto Rico providers would be excluded from the MA ratebook development.

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 our estimate of three factors: (1) 75 percent of the amount of Medicare DSH payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply; (2) 1 minus the percent change in the national rate of uninsurance compared to the rate of uninsurance in 2013; and (3) each eligible hospital's estimated uncompensated care amount relative to the estimated uncompensated care amount for all eligible hospitals. In this section of this final rule, we discuss the data sources and methodologies for computing each of these factors, our final policies for FYs 2014 through 2023, and our final policies for FY 2024.

1. Calculation of Factor 1 for FY 2024

Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the uncompensated care payment. Section 1886(r)(2)(A) of the Act states that this factor is equal to the difference between: (1) the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if section 1886(r) of the Act did not apply for such fiscal year (as estimated by the Secretary); and (2) the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year (as so estimated). Therefore, section 1886(r)(2)(A)(i) of the Act represents the estimated Medicare DSH payments that would have been made under section 1886(d)(5)(F) of the Act if section 1886(r) of the Act did not apply for such fiscal year. Under a prospective payment system, we would not know the precise aggregate Medicare DSH payment amount that would be paid for a Federal fiscal year until cost report settlement for all IPPS hospitals is completed, which occurs several years after the end of the Federal 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, section 1886(r)(2)(A)(ii) of the Act represents the estimated empirically justified Medicare DSH payments to be made in a fiscal year, as prescribed under section 1886(r)(1) of the Act. Again, section 1886(r)(2)(A)(ii) of the Act provides authority to estimate this amount.

Therefore, Factor 1 is the difference between our 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. The second element of Factor 1 reflects the statutory requirement to pay subsection (d) hospitals 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of the Act. In other words, Factor 1 represents 75 percent (100 percent minus 25 percent) of our estimate of Medicare DSH payments that would be made for the fiscal year in the absence of section 1886(r) of the Act.

In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed that to determine Factor 1 in the uncompensated care payment formula for FY 2024, we would continue the policy established in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50628 through 50630) and in the FY 2014 IPPS interim final rule with comment period (78 FR 61194). Accordingly, we proposed to determine Factor 1 by developing estimates of both the aggregate amount of Medicare DSH payments that would be made for FY 2024 in the absence of section 1886(r)(1) of the Act and the aggregate amount of empirically justified Medicare DSH payments to hospitals under section 1886(r)(1) of the Act. Consistent with the policy that we have applied in previous years, these estimates are not revised or updated subsequent to the publication of our final projections in this FY 2024 IPPS/LTCH PPS final rule.

Thus, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26989 through 26992), we proposed that to determine the two elements of proposed Factor 1 for FY 2024, we would use the most recent available projections of Medicare DSH payments for the fiscal year, as calculated by CMS' Office of the Actuary (OACT) using the most recently filed Medicare hospital cost reports with Medicare DSH payment information and the most recent Medicare DSH patient percentages and Medicare DSH payment adjustments provided in the FY 2023 IPPS/LTCH PPS final rule's Impact File. The determination of the amount of DSH payments is partially based on OACT's Part A benefits projection model. One of the components of this model is inpatient hospital spending. Projections of DSH payments require projections for expected increases in utilization and case-mix. The assumptions that were used in making these projections and the resulting estimates of DSH payments for FY 2021 through FY 2024 are discussed in the table titled “Factors Applied for FY 2021 through FY 2024 to Estimate Medicare DSH Expenditures Using FY 2020 Baseline” (88 FR 26991).

For purposes of calculating the proposed Factor 1 and modeling the impact of the FY 2024 IPPS/LTCH PPS proposed rule, we used OACT's January 2023 Medicare DSH estimates, which were based on data from the September 2022 update to the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2023 IPPS/LTCH PPS final rule IPPS Impact File, published in conjunction with the FY 2023 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 2023 Medicare DSH estimates. Furthermore, 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 the OACT's January 2023 Medicare DSH estimates. Finally, the 26 hospitals that CMS anticipates may participate in the Rural Community Hospital Demonstration Program in FY 2024 were excluded from these estimates because these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments under the payment methodology that applies under the demonstration.

Using the data sources as previously discussed, OACT's January 2023 estimate of Medicare DSH payments for FY 2024 without regard to the application of section 1886(r)(1) of the Act was approximately $13.621 billion, as explained in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26990). Therefore, based on that January 2023 estimate, the estimate of empirically justified Medicare DSH payments for FY 2024, with the application of section 1886(r)(1) of the Act, was approximately $3.405 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2024). Under § 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Thus, in the FY 2024 IPPS/LTCH PPS proposed rule, we proposed that Factor 1 for FY 2024 would be $10,216,040,319.50, which was equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2024 ($13.621 billion minus $3.405 billion). In the FY 2024 IPPS/LTCH PPS proposed rule, we noted that, consistent with our approach in previous rulemakings, OACT would use more recent data to project the final Factor 1 estimates for the FY 2024 IPPS/LTCH PPS final rule if such data became available prior to the development of the final rule.

In the FY 2024 IPPS/LTCH PPS proposed rule, we noted 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 that Factor 1 estimates for the final rules are generally consistent with those used for the Midsession Review of the President's Budget (88 FR 26990). For additional information on the development of the President's Budget, we refer readers to the Office of Management and Budget website at https://www.whitehouse.gov/omb/budget . Consistent with historical practice, we indicated in the proposed rule that we expected that the Midsession Review would have updated economic assumptions and actuarial analysis, which we would use to develop Factor 1 estimates in the FY 2024 final rule.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26990), we referred readers to the “2022 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/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds under “Downloads” for a general overview of the principal steps involved in projecting future inpatient costs and utilization. We also noted that the annual reports of the Medicare Boards of Trustees to Congress represent the Federal Government's official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, 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 referred 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/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/MedicaidReport ).

Comment: Some commenters requested greater transparency in the methodology used by CMS and OACT to calculate Factor 1. Several commenters specifically requested that a detailed description of the methodology and the data behind the assumptions be made public. Specifically, commenters requested more detail from CMS on the “Other” component. A few commenters emphasized their inability to replicate CMS' calculations and requested that the agency clarify how the effects of the COVID–19 Public Health Emergency (PHE) were accounted for in the “Other” factor. Some commenters suggested that CMS address this issue by disaggregating the variables that contribute to the “Other” factor and then demonstrating the impact of each of those variables on the final value, while a few other commenters requested that CMS publish a detailed methodology of its “Other” calculation, including how all the components contribute to its estimates from year to year. A couple of commenters requested that CMS clarify why the “Other” factor frequently varies in successive rulemaking cycles. Commenters requested that this information be provided in advance of the publication of the final rule and in the IPPS proposed rule each year going forward, so that the data is available to replicate CMS' DSH calculation and comment sufficiently in future years.

Additionally, a few commenters asserted that the lack of opportunity afforded to hospitals to review the data used in rulemaking is in violation of the Administrative Procedure Act. These commenters expressed concerns about the lack of transparency in how Factor 1 is calculated, arguing that hospitals cannot meaningfully comment on the methodology given the lack of details. In particular, these commenters asserted that the proposed rule provided neither sufficient details nor an explanation of the treatment of Medicaid expansions in the calculation for Factor 1.

Response: We thank the commenters for their input. We disagree with commenters' assertion regarding the lack of transparency with respect to the methodology and assumptions used in the calculation of Factor 1. As explained in the FY 2024 IPPS/LTCH PPS proposed rule and in this section of this final rule, we have been and continue to be transparent about the methodology and data used to estimate Factor 1. Regarding the commenters who reference the Administrative Procedure Act, we note that under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule or a description of the subjects and issues involved. In this case, the FY 2024 IPPS/LTCH PPS proposed rule included a detailed discussion of our proposed Factor 1 methodology and the data sources that would be used in making our final estimate. See 88 FR 26989 through 26992. Accordingly, commenters had sufficient information to meaningfully comment on our proposed estimate of Factor 1.

To provide additional context, we note that Factor 1 is not estimated in isolation from other projections made by OACT. As we explained in the FY 2024 IPPS/LTCH PPS proposed rule and in other previous rulemakings, Factor 1 estimates used in our proposed rules are generally consistent with the economic assumptions and actuarial analyses used to develop the President's Budget estimates under current law, which are publicly available, and the Factor 1 estimates used in our final rules are generally consistent with the economic assumptions and actuarial analyses used for the Midsession Review of the President's Budget. As we have in the past, we refer readers to the “Midsession Review of the President's FY 2024 Budget” for additional information on the development of the President's Budget and the specific economic assumptions used in the Midsession Review of the President's FY 2024 Budget, forthcoming on the Office of Management and Budget website at https://www.whitehouse.gov/omb/budget . We recognize that our reliance on the economic assumptions and actuarial analyses used to develop the President's Budget and the Midsession Review of the President's Budget in estimating Factor 1 has an impact on hospitals, health systems, and other impacted parties who wish to replicate the Factor 1 calculation, such as modeling the relevant Medicare Part A portion of the budget. Yet, commenters are able to meaningfully comment on our proposed estimate of Factor 1 without replicating the budget.

For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the “2023 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” available under “Downloads” on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html . We note that the annual reports of the Medicare Boards of Trustees to Congress represent the Federal Government's official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, 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 ( https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html ). We note that the annual reports of the Medicare Boards of Trustees to Congress represent the Federal Government's official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, as well as other factors affecting program expenditures. In addition, 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.

As described in more detail later in this section, in the FY 2024 IPPS/LTCH PPS proposed rule, we included information regarding the data sources, methods, and assumptions employed by the actuaries to determine OACT's estimate of Factor 1 (88 FR 26989 through FR 26992). We explained that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provided the components of all 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 included a description of the “Other” and “Discharges” assumptions, as well as additional information regarding how we address the Medicaid and CHIP expansion.

For additional context, the “Other” factor column reflects the expectation that DSH payments will grow faster than IPPS payments in 2023. This expectation is based on the 2023 IPPS Impact File, which reflects the change in the mix of cases between 2019 and 2021. The “Other” factor varies in rulemaking cycles due to changing growth patterns for DSH payments and Medicaid enrollment. The impact of Medicaid enrollment is captured in the “Other” column.

For further information on our assumptions regarding Medicaid expansion in the Factor 1 calculation, later in this section, we provide a discussion of more recent estimates and assumptions regarding the Medicaid expansion as part of the discussion of the final Factor 1 for FY 2024. This discussion also incorporates the estimated impact of the COVID–19 PHE.

Comment: Many commenters questioned the proposed rule's estimate of the “Discharges” component of the Factor 1 calculation. Some commenters requested that CMS align the discharge volume estimates in Factor 1 with the forecasted estimates for Federal fiscal year 2022 through Federal fiscal year 2024 cited in the March 2023 Medicare Trustee Report. Other commenters recommended that CMS use more recent data to reflect the changes in discharge volumes. Some commenters noted that the current assumptions of discharge volume may underestimate the growth in utilization in the Medicare fee-for-service (FFS) population. Four hospital associations questioned CMS' discharge factor for FY 2024 based on “the assumption of recent trends recovering back to the long-term trend and the assumption related to how many beneficiaries will be enrolled in Medicare Advantage (MA) plans.” These commenters noted that they expect that the discharge factor will continue to decrease, as half of Medicare beneficiaries are now enrolled in MA plans. These commenters further expressed concern about the effect of this decreasing trend on hospitals serving a disproportionate share of lower-income beneficiaries. The same commenters requested that CMS provide detailed calculations of the discharge estimates in the proposed rule each year going forward and welcomed the opportunity to work with CMS to examine the impacts of MA enrollment on FFS inpatient hospital payments. One commenter recommended that CMS exclude FY 2021 and FY 2022 discharges from the FY 2024 Factor 1 calculation, as data from those years include atypical trends in Medicare discharges resulting from the COVID–19 PHE.

Some commenters also raised concerns about the “Case Mix” update factor used in the proposed FY 2024 Factor 1 calculation. Commenters stated that the proposed “Case Mix” update factor underestimates the complexity of patients seeking care following the postponement or deferral of care during the COVID–19 PHE. Some commenters requested that CMS consider the impact of Medicaid disenrollment, which may inhibit care access and lead to worse outcomes, resulting in more complex cases and higher hospitalization rates. One commenter requested that CMS include an acuity factor to reflect the fact that COVID–19 patients have longer lengths of stay and higher acuity than the typical patient population.

Some commenters requested that CMS increase the FY 2022 market basket in the Factor 1 update factor by three percentage points to align with the “trued up” market basket cited in the March 2023 MedPAC report to Congress. Some of these commenters further recommended that CMS apply the recommendation from MedPAC to increase the FY 2024 market basket in the Factor 1 update factor by an additional percentage point.

Response: We thank the commenters for their input on the impact the COVID–19 PHE may have had on the factors used to estimate DSH payments for FY 2024. In updating our estimate of Factor 1 for this final rule, we considered, as appropriate, the same set of factors that we used in the proposed rule using the most recent available data at the time of developing this final rule. The “Discharges” and “Case Mix” factors incorporate the latest estimates of the COVID–19 PHE's impact on the Medicare program. The “Case Mix” factor is specific for Medicare inpatient claims. In 2020, the COVID–19 PHE had a significant impact on the “Case Mix” factor, however its impact has lessened in subsequent years. The impact of COVID–19 discharges is captured in the 2021 and 2022 experience, which is the basis for the projections. The number of COVID–19 cases has dropped significantly since 2020, therefore we believe a separate acuity factor would not be necessary. We provide further details on the updated Factor 1 estimate and data sources as part of the discussion of the final Factor 1 estimate for FY 2024 in this section of the rule.

Regarding the comments requesting that we exclude FY 2021 and FY 2022 discharges due to the impacts of the COVID–19 PHE when estimating Factor 1 for FY 2024, we note that section 1886(r)(2)(A) of the Act specifies that Factor 1 is based on the amount of disproportionate share payments that would otherwise be made to subsection (d) hospitals for the fiscal year. As discussed further in this section, OACT's estimates of Medicare DSH payments used in the development of Factor 1 reflect the estimated impact of the COVID–19 PHE on DSH payments. Excluding data from certain periods is not necessary to estimate DSH payments during FY 2024 for purposes of the Factor 1 calculation. To reasonably make projections for FY 2024, the FY 2021 and FY 2022 claims data experience is necessary to inform trends. The FY 2021 and FY 2022 claims are not atypical, in contrast to FY 2020 claims. Furthermore, the FY 2021 claims data are used for the FY 2023 Impact File, which make it consistent and reliable to use in making projections of the amount of DSH payments in FY 2024.

Regarding the comments on the impacts of MA enrollment on the Medicare FFS discharge volume, we believe the “Discharge” factor is a reasonable projection for purposes of Factor 1 estimates using the latest available data. For a discussion on trends in MA enrollment, 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, which contains actuarial projections and 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. We also note that the estimates for the “Discharges” factor used to estimate Medicare DSH expenditures incorporate OACT's analyses of “Discharges” using only claims from the Medicare FFS program rather than claims from the MA program.

In response to commenters who requested that CMS align the discharge volume estimates in Factor 1 with the estimates in the March 2023 Medicare Trustee Report and that CMS consider using more recent data to reflect the changes in discharge volume, we have determined that the use of the most recent available data to calculate Factor 1 at proposed and final rulemaking is appropriate and consistent with our approach in previous rulemakings and will produce results that are generally consistent with the Medicare Trustee Report. In this final rule, OACT has updated the estimate of Factor 1 with more recent economic assumptions and actuarial analyses.

Regarding comments about the inpatient hospital update and the FY 2024 update factor in the Factor 1 estimate, we refer readers to the discussion in the section V.B. of the preamble of this final rule. Consistent with the inpatient hospital update discussion in section V.B. of the rule, OACT is using the most recent available inpatient hospital update for the final FY 2024 update factor in the Factor 1 calculation.

After consideration of the public comments we received, we are finalizing, as proposed, the methodology for calculating Factor 1 for FY 2024. We discuss the resulting Factor 1 amount for FY 2024 in this final rule. For this final rule, OACT used the most recently submitted Medicare cost report data from the March 2023 update of HCRIS to identify Medicare DSH payments and the most recent Medicare DSH payment adjustments provided in the Impact File and applied update factors and assumptions for future changes in utilization and case-mix to estimate Medicare DSH payments for the upcoming fiscal year. The June 2023 OACT estimate for Medicare DSH payments for FY 2024, without regard to the application of section 1886(r)(1) of the Act, was approximately $13.354 billion. This estimate excluded Maryland hospitals participating in the Maryland All-Payer Model, hospitals participating in the Rural Community Hospital Demonstration, and SCHs paid under their hospital-specific payment rate. Therefore, based on this June 2023 estimate, the estimate of empirically justified Medicare DSH payments for FY 2024, with the application of section 1886(r)(1) of the Act, was approximately $3.338 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2024). Under § 412.106(g)(1)(i), Factor 1 is the difference between these two OACT estimates. Therefore, the final Factor 1 for FY 2024 is $10,015,191,021.88, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2024 ($13,353,588,029.18 minus $3,338,397,007.29).

OACT's estimates for FY 2024 for this final rule began with a baseline of $13.257 billion in Medicare DSH expenditures for FY 2020. The following table shows the factors applied to update this baseline through the current estimate for FY 2024:

In this table, the discharges column shows the changes in the number of Medicare FFS inpatient hospital discharges. The discharge figures for FY 2021 and FY 2022 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 2023 is based on preliminary data. The discharge figure for FY 2024 is an assumption based on recent historical experience and an assumed partial return to pre-COVID trends. In addition, this column reflects a decrease in FFS enrollment, as a growing share of beneficiaries have moved into MA plans. The discharge figures for FY 2021 to FY 2024 incorporate the actual impact and estimated future impact from the COVID–19 pandemic. The case-mix column shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2021 and FY 2022 are based on actual claims data adjusted by a completion factor. We note that these claims data reflect the impact of the COVID–19 pandemic. The case-mix figure for FY 2023 is based on preliminary data, and the case-mix figure for FY 2024 is an assumption based on the recommendation of the 2010–2011 Medicare Technical Review Panel. Accordingly, the case-mix factor figures for FY 2021 to FY 2024 incorporate the actual impact and estimated future impact from the COVID–19 pandemic.

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 the 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. We note that this factor also includes the estimated impacts on Medicaid enrollment from the COVID–19 pandemic and the end of the PHE declaration. On May 11, 2023, the Biden Administration ended the national emergency declaration and PHE declaration.

Based on the most recent available data, Medicaid enrollment is estimated to change as follows: 12.3 percent in FY 2021, 8.2 percent in FY 2022, 4.2 percent in FY 2023, and −11.6 percent in FY 2024. In the future, the 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 recipient and, therefore, receive fewer hospital services. Specifically, based on the most recent available data at the time of developing the 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 the future, 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:

2. Calculation of Factor 2 for FY 2024

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 note that, unlike section 1886(r)(2)(B)(i) of the Act, which governed the calculation of Factor 2 for FYs 2014, 2015, 2016, and 2017, section 1886(r)(2)(B)(ii) of the Act permits the use of a data source other than the Congressional Budget Office (CBO) estimates to determine the percent change in the rate of uninsurance beginning in FY 2018, provided the Secretary determines that the data source is appropriate and the Chief Actuary of CMS certifies it. In addition, for FY 2018 and subsequent years, the statute does not require that the estimate of the percent of individuals who are uninsured be limited to individuals who are under 65 years of age. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26992), we proposed to continue to use a methodology similar to the one that was used in FY 2018 through FY 2023 to determine Factor 2 for FY 2024.

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 and 38198), we explained that we determined the data source for the rate of uninsurance that, on balance, best meets all of 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, is the uninsured estimates produced by OACT as part of the development of the National Health Expenditure Accounts (NHEA). The NHEA are the Federal Government's official estimates of economic activity (spending) within the health sector. The information contained in the NHEA are used to study numerous topics related to the health care sector, including the following topics: changes in the amount and cost of health services purchased and the payers or programs that provide or purchase these services; the economic causal factors at work in the health sector; the impact of policy changes, including major health reform, on health care spending; and comparison of U.S. health care spending to other countries' health care spending.

Of relevance to the determination of Factor 2 is that the comprehensive and integrated structure of the NHEA creates an ideal tool for evaluating changes to the health care system, such as the mix of the insured and uninsured, because this information is integral to the well-established NHEA methodology. A full description of the methodology used to develop the NHEA is available on the CMS website at https://www.cms.gov/files/document/definitions-sources-and-methods.pdf . We note that the NHEA estimates of uninsurance are for the total resident-based U.S. population, including all people who usually reside in the 50 States or the District of Columbia, but excluding individuals living in Puerto Rico and areas under U.S. sovereignty, members of the U.S. Armed Forces overseas, and U.S. citizens whose usual place of residence is outside the U.S., plus a small (typically less that 0.2 percent of population) adjustment to reflect Census undercounts. Thus, the NHEA estimates of uninsurance account for U.S. residents of all ages and are not limited to a specific age cohort, such as the population under the age of 65. As we explained in the FY 2018 IPPS/LTCH PPS proposed and final rules, we believe it is appropriate to use an estimate that reflects the rate of uninsurance in the U.S. across all age groups. In addition, our view continues to be that a resident-based population estimate more fully reflects the levels of uninsurance in the U.S. that influence uncompensated care for hospitals than an estimate that reflects only legal residents.

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. Estimates of total PHI enrollment are available for 1960 through 2021, estimates of Medicaid, Medicare, and CHIP enrollment are available for the length of the respective programs, and all other estimates (including the more detailed estimates of direct-purchased and employer-sponsored insurance) are available for 1987 through 2021. 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, the first metric that is needed is the proportion of the total U.S. population that was uninsured in 2013. In developing the estimates for the NHEA, OACT's methodology included using the number of uninsured individuals for 1987 through 2009 based on the enhanced Current Population Survey (CPS) from the State Health Access Data Assistance Center (SHADAC). The CPS, sponsored jointly by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics (BLS), is the primary source of labor force statistics for the U.S. population. (We refer readers to the website at https://www.census.gov/programs-surveys/cps.html .) The enhanced CPS, available from SHADAC (available at https://datacenter.shadac.org ) accounts for changes in the CPS methodology over time. OACT further adjusts the enhanced CPS for an estimated undercount of Medicaid enrollees (a population that is often not fully captured in surveys that include Medicaid enrollees due to a perceived stigma associated with being enrolled in the Medicaid program or confusion about the source of their health insurance).

To estimate the number of uninsured individuals for 2010 through 2018, OACT extrapolates from the 2009 CPS data through 2018 using data from the National Health Interview Survey (NHIS). The NHIS is one of the major data collection programs of the National Center for Health Statistics (NCHS), which is part of the Centers for Disease Control and Prevention (CDC). The estimate of the number of uninsured individuals in 2019 was extrapolated using the 2019/2018 trend from the American Community Survey (ACS). Because the 2020 ACS data were not available, the ACS data were not used for purposes of estimating the number of uninsured individuals for 2020. Rather, the 2020 estimate was extrapolated using the 2020/2018 trend from the CPS as published by the Census Bureau. The 2021 estimate was based on the population share of the uninsured from the NHIS. The U.S. Census Bureau is the data collection agent for the NHIS, the ACS, and the CPS. The results from these data sources have been instrumental over the years in providing data to track health status, health care access, and progress toward achieving national health objectives. For further information regarding the NHIS, we refer readers to the CDC website at https://www.cdc.gov/nchs/nhis/index.htm . For further information regarding the ACS, we refer readers to the Census Bureau's website at https://www.census.gov/programs-surveys/acs/ .

The next metrics needed to compute Factor 2 for FY 2024 are projections of the rates of uninsurance in CY 2023 and CY 2024. On an annual basis, OACT projects enrollment and spending trends for the coming 10-year period. The projections for the rates of uninsurance in the FY 2024 IPPS/LTCH PPS proposed rule were derived using the most recent NHEA projections that were available at the time the proposed rule was developed (published March 28, 2022, with historical data through 2021). The NHEA projection methodology accounts for expected changes in enrollment across all the categories of insurance coverage previously listed. The projected growth rates in enrollment for Medicare, Medicaid, and CHIP are developed to be consistent with the 2022 Medicare Trustees Report, updated where possible with more recent data. Projected rates of growth in enrollment for private health insurance and the uninsured are based largely on OACT's econometric models, which rely on a set of macroeconomic assumptions that are generally based on the 2022 Medicare Trustees Report. Greater detail on these projected rates of growth in enrollment for private health insurance and the uninsured can be found in OACT's report titled “Projections of National Health Expenditure and Health Insurance Enrollment: Methodology and Model Specification,” which is available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology.pdf .

b. Factor 2 for FY 2024

Using these data sources and the previously described methodologies in section IV.E.2.a, at the time of developing the proposed rule, OACT had estimated that the uninsured rate for the historical, baseline year of 2013 was 14 percent, while the estimated rates of uninsurance for CYs 2023 and 2024 were 9.3 percent and 9.2 percent, respectively. As required by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS certified these estimates. We refer readers to OACT's Memorandum on Certification of Rates of Uninsured prepared for the FY 2024 IPPS/LTCH PPS proposed rule for further details on the methodology and assumptions that were used in the projection of these rates of uninsurance for the proposed rule.

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 have used a weighted average approach to project the rate of uninsurance for each fiscal year. We continue to believe that, 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, in the FY 2024 IPPS/LTCH PPS proposed rule, we proposed to continue to apply the weighted average approach used in past fiscal years to estimate the rate of uninsurance for FY 2024.

OACT certified the estimate of the rate of uninsurance for FY 2024 determined using this weighted average approach to be reasonable and appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26993), we noted that we might 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 2024. We noted the following examples of more up-to-date data that may become available for use in calculating Factor 2 for FY 2024: (1) data regarding the impacts of the expiration of the Families First Coronavirus Response Act's continuous enrollment provision for Medicaid, which permits states to actively begin disenrolling beneficiaries no longer eligible for the program starting on April 1, 2023; (2) data on the impact of the Inflation Reduction Act's extension of enhanced Marketplace premium tax credits through 2025; and (3) data on the impacts associated with the Internal Revenue Service's amended regulations that expanded eligibility for Marketplace subsidies by revising the affordability test of employer coverage for family members of employees (87 FR 61979 and 62003).

In the proposed rule, we outlined the calculation of the proposed Factor 2 for FY 2024 as follows:

Percent of individuals without insurance for CY 2013: 14 percent.

Percent of individuals without insurance for CY 2023: 9.3 percent.

Percent of individuals without insurance for CY 2024: 9.2 percent.

Percent of individuals without insurance for FY 2024 (0.25 times 0.093) + (0.75 times 0.092): 9.2 percent. 1−|((0.14−0.092)/0.14)| = 1−0.3429 = 0.6571 (65.71 percent).

For FY 2020 and subsequent fiscal years, section 1886(r)(2)(B)(ii) of the Act no longer includes any reduction to the previous calculation to determine Factor 2. Therefore, we proposed that Factor 2 for FY 2024 would be 65.71 percent.

The proposed FY 2024 uncompensated care amount was $10,216,040,319.50 * 0.6571 = $6,712,960,093.94.

We invited public comments on our proposed Factor 2 for FY 2024.

Comment: Most commenters discussed Factor 2 in the context of the impact of the temporary COVID–19 PHE provisions on the uninsured rate, such as expiration of the Families First Coronavirus Response Act's Medicaid continuous coverage requirement and extension of the American Rescue Plan's Marketplace enhanced premium tax credits. Large and small healthcare organizations and associations opposed the proposed Factor 2 and the estimated FY 2024 uninsured rate and urged OACT to update its estimate of Factor 2 to account for the projected increases in the number of uninsured individuals as the COVID–19 PHE Medicaid continuous enrollment provisions expire.

Many commenters also indicated that they expect increases in the uninsured rates in their communities. To that end, these commenters urged CMS to use more recent and accurate data sources to account for the anticipated increases in the uninsured population, citing CMS' statement in the proposed rule that the agency may consider more recent data that may become available for the calculation of Factor 2 for the FY 2024 final rule. Some of these commenters urged CMS to monitor the forthcoming data to ensure that Factor 2 reflects the current coverage landscape considering the expiring COVID–19 PHE provisions. A few commenters expressed their concern that the NHEA data that CMS proposed to use for Factor 2 do not reflect current trends in the uninsured rate as the COVID–19 PHE ends, as they appear to be the same data utilized in the FY 2023 IPPS/LTCH PPS final rule. These commenters requested that CMS consider applying a one-time increase in Factor 2 to account for the data lag and the anticipated increase in the uninsured population in FY 2024 following the expiration of the Medicaid continuous enrollment provisions, if the agency chooses to continue with its proposal of utilizing the same NHEA data used in the FY 2023 rule. In addition, one commenter stated as an example that an additional 0.7 percentage point increase in the uninsured rate for FY 2024 (9.9 percent uninsured, reflecting a projection of approximately 2.4 million additional uninsured individuals) would increase the proposed uncompensated care payment amount by about $511 million compared to the proposed rule's uncompensated care amount.

Several commenters referenced various data sources and analyses that project between 3–18 million individuals will lose their Medicaid coverage in FY 2024, such as analyses by the Kaiser Family Foundation; the Congressional Budget Office; the Urban Institute; NORC at the University of Chicago; and HHS' Assistant Secretary for Planning and Evaluation (ASPE). Accordingly, these commenters requested that CMS increase Factor 2 to reflect the anticipated increase in the uninsured population.

A few commenters requested CMS maintain the same level of total uncompensated care payments as in the FY 2023 IPPS/LTCH PPS final rule. Several other commenters opposed the proposed decrease in the total uncompensated care payments from the level in FY 2023. These commenters noted that the proposed decrease would disproportionately impact safety-net hospitals and negatively impact vulnerable patients and hospitals that are already financially strained.

Response: We thank the commenters for their input regarding the estimate of proposed Factor 2 discussed in the proposed rule. In the FY 2024 IPPS/LTCH PPS proposed rule we used the most recent available estimates from the NHEA at that time, and we refer readers to OACT's Memorandum on Certification of Rates of Uninsured prepared for the proposed rule for further details on the methodology and assumptions used in the calculation of the proposed rule's projection of the uninsured rate.

We indicated that our projection of the rates of uninsurance for CY 2023 and CY 2024 were from the latest NHEA historical data available and accounted for expected changes in enrollment across all categories of insurance coverage. As detailed in the proposed rule, we believe that the most recently updated NHEA data, on balance, best meet all our considerations for ensuring that the data source used to estimate the rate of uninsurance meets the statutory requirement that the estimate be based on data from the Census Bureau, or other sources the Secretary determines appropriate, and will provide reasonable estimates for the rate of uninsurance that are available in conjunction with the IPPS rulemaking cycle.

For the final rule, we are using the NHEA data for the Factor 2 calculation because we continue to believe that it is the most appropriate measure of changes in the rate of uninsurance.

In response to the comments concerning the data sources used for calculating Factor 2, in this final rule we are updating Factor 2 using the most recently updated NHEA projections that were released in June 2023, which reflect the most recent historical data and updated expectations for the uninsurance rate. We also refer readers to the OACT memo that accompanies this final rule, which provides additional information regarding the development of the uninsurance rate projection.

Regarding the comments requesting that CMS maintain total uncompensated care payments at the FY 2023 level or delay any proposed changes to mitigate the impact on safety-net hospitals and vulnerable patients, we believe estimating Factor 2 based on the best available data is appropriate and consistent with the requirements of section 1886(r)(2)(B)(ii) of the Act.

Comment: Several commenters urged CMS to be transparent in its calculation of Factor 2 and how it accounts for Medicaid expansion populations and the expiration of the COVID–19 PHE Medicaid continuous enrollment provisions. Other commenters urged CMS to be transparent regarding the data sources used for calculating Factor 2 and the assumptions behind the uninsured rate.

Response: In response to the comments concerning transparency, we note that the accompanying OACT memo contains additional background describing the methods used to derive the FY 2024 rate of uninsured for this final rule. For purposes of this final rule, we are using the most recent NHEA estimates for the rate of uninsurance, which account for the legislative impacts from the expiration of the Families First Coronavirus Response Act's Medicaid continuous coverage requirement and extension of the American Rescue Plan's Marketplace enhanced premium tax credits and effects of the COVID–19 PHE on insurance coverage. Although Medicaid enrollment is expected to decrease significantly, the insured share of the population is only expected to decline in CY 2024 to 91.5 percent (from 92.3 percent in CY 2023), as many individuals who were not disenrolled from Medicaid during the public health emergency already had comprehensive coverage from another source (such as through an employer) and thus remain insured even when disenrolled from Medicaid. We note that the most recent NHEA projections are that the uninsured population will change from 25.7 million in CY 2023 to 28.6 million in CY 2024 and increase to 29.8 million in CY 2025. For more information about the methodology and data used to estimate Factor 2, we refer readers to NHEA's “Health Insurance Enrollment and Enrollment Growth Rates” table.

Section 1886(r)(2)(B)(ii) of the Act permits us to use a data source other than CBO estimates to determine the percent change in the rate of uninsurance beginning in FY 2018. The NHEA data and methodology that were used to estimate Factor 2 for this final rule are transparent and best meet all of our considerations for ensuring reasonable estimates for the rate of uninsurance that are available in conjunction with the IPPS rulemaking cycle. We have concluded it is appropriate to update the projection of the FY 2024 rate of uninsurance using the most recent NHEA data.

After consideration of the public comments we received, we are updating the calculation of Factor 2 for FY 2024 using more recent data from NHEA. The final estimates of the percent of uninsured individuals have been certified by the Chief Actuary of CMS. The calculation of the final Factor 2 for FY 2024 using a weighted average of OACT's updated projections for CY 2023 and CY 2024 is as follows:

Percent of individuals without insurance for CY 2013: 14 percent.

Percent of individuals without insurance for CY 2023: 7.7 percent.

Percent of individuals without insurance for CY 2024: 8.5 percent.

Percent of individuals without insurance for FY 2024 (0.25 times 0.077) + (0.75 times 0.085): 8.3 percent. 1−|((0.14−0.083)/0.14)| = 1−0.4071 = 0.5929 (59.29 percent).

Therefore, the final Factor 2 for FY 2024 is 59.29 percent. The final FY 2024 uncompensated care amount is $10,015,191,021.88 * 0.5929 = $5,938,006,756.87.

3. Calculation of Factor 3 for FY 2024

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 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.

In the course of considering how to determine Factor 3 during the rulemaking process for FY 2014, the first year for which section 1886(r) of the Act was in effect, we considered defining the amount of uncompensated care for a hospital as the uncompensated care costs of that hospital and determined that Worksheet S–10 of the Medicare cost report would potentially provide the most complete data regarding uncompensated care costs for Medicare hospitals. However, because of concerns regarding variations in the data reported on Worksheet S–10 and the completeness of these data, we did not use Worksheet S–10 data to determine Factor 3 for FY 2014, or for FY 2015, 2016, or 2017. Instead, we used alternative data on the utilization of insured low-income patients, as measured by patient days, which we believed would be a better proxy for the costs of hospitals in treating the uninsured and therefore appropriate to use in calculating Factor 3 for these years. However, we indicated our belief that Worksheet S–10 could ultimately serve as an appropriate source of more direct data regarding uncompensated care costs for purposes of determining Factor 3 once hospitals were submitting more accurate and consistent data through this reporting mechanism.

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38202), we stated that we could no longer conclude that alternative data to the Worksheet S–10 are available for FY 2014 that are a better proxy for the costs of subsection (d) hospitals for treating individuals who are uninsured. Hospitals were on notice as of FY 2014 that Worksheet S–10 could eventually become the data source for CMS to calculate uncompensated care payments. Furthermore, hospitals' cost reports from FY 2014 had been publicly available for some time, and CMS had analyses of Worksheet S–10, conducted both internally and by stakeholders, demonstrating that Worksheet S–10 accuracy had improved over time. In the FY 2018 IPPS/LTCH PPS final rule, we finalized a methodology under which we calculated Factor 3 for all eligible hospitals, with the exception of Puerto Rico hospitals and Indian Health Service (IHS) and Tribal hospitals, using Worksheet S–10 data from FY 2014 cost reports in conjunction with low-income insured days proxy data based on Medicaid days and SSI days. The time period for the Medicaid days data was FY 2012 and FY 2013 cost reports, which reflected the most recent available information regarding these hospitals' low-income insured days before any expansion of Medicaid. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38208 through 38212) for a further discussion of the methodology used to determine Factor 3 for FY 2018.

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41414), we stated that with the additional steps we had taken to ensure the accuracy and consistency of the data reported on Worksheet S–10 since the publication of the FY 2018 IPPS/LTCH PPS final rule, we continued to believe that we could no longer conclude that alternative data to the Worksheet S–10 were available for FY 2014 or FY 2015 that would be a better proxy for the costs of subsection (d) hospitals for treating individuals who are uninsured. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41428), we advanced the time period of the data used in the calculation of Factor 3 forward by one year and used Worksheet S–10 data from FY 2014 and FY 2015 cost reports in combination with the low-income insured days proxy for FY 2013 to determine Factor 3 for FY 2019. We note that, as discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42366), the use of 3 years of data to determine Factor 3 for FY 2018 and FY 2019 had the effect of smoothing the transition from the use of low-income insured days to the use of Worksheet S–10 data.

As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41423 and 41424), we received overwhelming feedback from commenters emphasizing the importance of audits in ensuring the accuracy and consistency of data reported on the Worksheet S–10. We began auditing the Worksheet S–10 data for selected hospitals in the fall of 2018 so that the audited uncompensated care data from these hospitals would be available in time for use in the FY 2020 IPPS/LTCH PPS proposed rule.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42368), we finalized our proposal to use a single year of audited Worksheet S–10 cost report data from FY 2015 in the methodology for determining Factor 3 for FY 2020. Some commenters expressed support for the alternative policy of using the more recent FY 2017 Worksheet S–10 data to determine each hospital's share of uncompensated care costs in FY 2020. However, given the feedback from commenters in response to both the FY 2019 and FY 2020 IPPS/LTCH PPS proposed rules emphasizing the importance of audits in ensuring the accuracy and consistency of data reported on the Worksheet S–10, we concluded that the FY 2015 Worksheet S–10 data were the best available audited data to be used in determining Factor 3 for FY 2020. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42369), we also noted that we had begun auditing the FY 2017 data in July 2019, with the goal of having the FY 2017 audited data available for future rulemaking.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58823 through 58825), we finalized our proposal to use the most recent available single year of audited Worksheet S–10 data to determine Factor 3 for FY 2021 and subsequent fiscal years. We explained our belief that using the most recent audited data available before the applicable Federal fiscal year (FY) would more accurately reflect a hospital's uncompensated care costs, as opposed to averaging multiple years of unaudited and audited data. We explained that mixing audited and unaudited data for individual hospitals by averaging multiple years of data could potentially lead to a less smooth result. We also noted that if a hospital has relatively different data between cost report years, we potentially would be diluting the effect of our considerable auditing efforts and introducing unnecessary variability into the calculation if we were to use multiple years of data to calculate Factor 3. Therefore, we also believed using a single year of audited cost report data would be an appropriate methodology to determine Factor 3 for FY 2021 and subsequent years, except for IHS and Tribal hospitals and hospitals located in Puerto Rico. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58825), we finalized the use of a low-income insured days proxy to determine Factor 3 for FY 2021 for IHS and Tribal hospitals and Puerto Rico hospitals.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58825 through 58828), we also finalized the definition of “uncompensated care” for FY 2021 and subsequent fiscal years, for purposes of determining uncompensated care costs and calculating Factor 3. Specifically, “uncompensated care” is defined as the amount on Line 30 of Worksheet S–10, which is the cost of charity care (Line 23) and the cost of non-Medicare bad debt and non-reimbursable Medicare bad debt (Line 29). This is the same definition that we initially adopted in the FY 2018 IPPS/LTCH PPS final rule. We refer readers to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58825 through 58828) for a discussion of additional topics related to the definition of uncompensated care.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45236 through 45243), consistent with the policy adopted in the FY 2021 IPPS/LTCH PPS final rule, we used a single year of Worksheet S–10 data from FY 2018 cost reports to calculate Factor 3 for FY 2022 for all eligible hospitals with the exception of IHS and Tribal hospitals and Puerto Rico hospitals that have a cost report for 2013. We continued to use the low-income insured days proxy to calculate Factor 3 for these IHS and Tribal hospitals and Puerto Rico hospitals for FY 2022.

b. Background on the Methodology Used To Calculate Factor 3 for FY 2023 and Subsequent Years

Section 1886(r)(2)(C) of the Act both 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 50638), 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 and for those hospitals that we do not estimate will qualify for Medicare DSH payments but that may ultimately qualify for Medicare DSH payments at the time of cost report settlement.

As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45237), commenters expressed concerns that the use of only 1 year of data to determine Factor 3 would lead to significant variations in year-to-year uncompensated care payments. Some stakeholders recommended the use of 2 years of historical Worksheet S–10 data. In that same final rule (86 FR 45237), we stated that we would consider using multiple years of data when the vast majority of providers had been audited for more than 1 fiscal year under the revised reporting instructions. Audited FY 2019 cost reports were available for the development of the FY 2023 IPPS/LTCH PPS proposed and final rule. 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. However, 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. Accordingly, 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. We also discontinued the use of the low-income days proxy to determine Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals and instead finalized use of the same multi-year average of Worksheet S–10 data to determine Factor 3 for FY 2023 and subsequent fiscal years, as is used to determine Factor 3 for all other DSH-eligible hospitals.

Because we finalized our proposal to use multiple years of cost reports to determine Factor 3 starting in FY 2023, we determined that it would also be necessary to make a further modification to the policy regarding cost reports that start in one fiscal year and span the entirety of the following fiscal year. Specifically, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49041), we explained that in the rare cases when we use a cost report that starts in one fiscal year and spans the entirety of the subsequent Federal fiscal year to determine uncompensated care costs for the subsequent Federal 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. In other words, in determining Factor 3 for FY 2023, we did not use the same cost report to determine the hospital's uncompensated care costs for both FY 2018 and FY 2019. Rather, we used the cost report that spans the entirety of FY 2019 to determine uncompensated care costs for FY 2019 and we used the hospital's most recent prior cost report to determine its uncompensated care costs for FY 2018, provided that cost report spans some portion of Federal fiscal year 2018.

(1) Scaling Factor

To address the effects of calculating Factor 3 using data from multiple fiscal years, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042) we finalized a policy under 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 eligible for DSH for a fiscal year will be consistent with the estimated amount available to make uncompensated care payments for that fiscal year. Specifically, we adopted a policy under which 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. We noted that a similar scaling factor methodology was previously used in both FY 2018 (82 FR 38214 and 38215) and FY 2019 (83 FR 41414), when the Factor 3 calculation also included multiple years of data.

(2) New Hospital Policy for Purposes of Factor 3

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we modified the new hospital policy that was initially adopted in the FY 2020 IPPS/LTCH PPS final rule 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 Federal fiscal year after the most recent year for which audits of the Worksheet S–10 data have been conducted. For FY 2023, the FY 2019 cost reports were the most recent year of cost reports for which audits of Worksheet S–10 data had been conducted. Thus, hospitals with CCNs (CMS Certification Numbers) established on or after October 1, 2019, were subject to the new hospital policy for FY 2023.

Under this modification to the new hospital policy, we continued the policy established in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42370) that if a new hospital has a preliminary projection of being eligible for DSH payments 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 from 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 the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we also modified the methodology used to calculate Factor 3 for new hospitals. Specifically, 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 adopted an approach under which we determine 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. We explained our belief that applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, in order to improve consistency and predictability across all hospitals.

(3) Newly Merged Hospital Policy

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042 and 49043), we stated that we would continue to treat 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 2023 IPPS/LTCH PPS final rule, 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 modification to the methodology used to determine Factor 3 for new hospitals described previously, we finalized a 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 previously, to the Factor 3 calculation for a newly merged hospital. We stated our belief that applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, in order to improve consistency and predictability across all hospitals. We also explained that consistent with past policy, interim uncompensated care payments for the newly merged hospital will 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 2023 IPPS/LTCH PPS final rule (87 FR 49043), we adopted a process for trimming CCRs under which 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 non-DSH eligible hospitals), 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 non-DSH eligible hospitals), 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 the previously described 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. For example, if a hospital's FY 2018 cost report is determined to include potentially aberrant data, data from its FY 2019 cost report would be used for the ratio calculation.

However, we note that we have audited the Worksheet S–10 data that will be used in the Factor 3 calculation for a number of hospitals. Because the UCC data for these hospitals have been subject to audit, we believe that there is increased confidence that if high uncompensated care costs are reported by these audited hospitals, the information is accurate. Therefore, consistent with the policy that was adopted in the FY 2021 IPPS/LTCH PPS final rule, it is unnecessary to apply the 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). Accordingly, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49044), we stated that in addition to the UCC trim methodology, we will continue to apply a 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 exclude the hospital from the prospective Factor 3 calculation. 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 projected DSH-eligible hospitals. 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 2023 IPPS/LTCH PPS final rule (87 FR 49044), 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 the most recent audited cost reports for hospitals that are projected to be DSH-eligible. We stated that we continued to believe these thresholds were appropriate in order to address potentially aberrant data. However, we modified the calculation to include Worksheet S–10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our final policy decision to begin using Worksheet S–10 data to determine Factor 3 for these hospitals. In addition, we finalized a policy of applying the same threshold amounts originally calculated for the FY 2018 reports to identify potentially aberrant data for FY 2023 and subsequent fiscal years in order 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 2024

For FY 2024, we proposed to follow the same methodology as applied in FY 2023 and that is described in section IV.E.3.b. of the preamble of this final rule to determine Factor 3 using the most recent 3 years of audited cost reports from FY 2018, FY 2019, and 2020. For purposes of the FY 2024 IPPS/LTCH PPS proposed rule, we used reports from the December 2022 Healthcare Cost Report Information System (HCRIS) extract to calculate Factor 3. We noted that we intended to use the March 2023 update of HCRIS to calculate the final Factor 3 for the FY 2024 IPPS/LTCH PPS final rule.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49051), we finalized our proposal to determine Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals based on uncompensated care data reported on Worksheet S–10, and we discontinued the use of low-income insured days as a proxy for the uncompensated care costs of these hospitals. Beginning in FY 2023, we established a new supplemental payment for IHS/Tribal hospitals and Puerto Rico hospitals, because we recognized that discontinuing the use of the low-income insured days proxy and relying solely on Worksheet S–10 data to calculate Factor 3 of the uncompensated care payment methodology for IHS/Tribal hospitals and Puerto Rico hospitals could result in significant financial disruption for these hospitals. We refer readers to section IV.D of this final rule for a further discussion of these payments. We note that in the FY 2024 IPPS/LTCH PPS proposed rule, we did not propose any changes to the methodology for determining supplemental payments, and we will calculate the supplemental payments to eligible IHS/Tribal and Puerto Rico hospitals for FY 2024 consistent with the methodology described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and in the regulations at § 412.106(h).

Consistent with the policy adopted in the FY 2023 IPPS/LTCH PPS final rule and codified in the regulations at § 412.106(g)(1)(iii)(C)( 11), for FY 2024 and subsequent fiscal years, 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.

Step 1: Select the hospital's longest cost report for each of the most recent 3 years of Federal fiscal year audited cost reports (FY 2018, FY 2019, and FY 2020). (Alternatively, in the rare case when the hospital has no cost report for a particular year because the cost report for the previous Federal fiscal year spanned the more recent Federal fiscal year, the previous Federal fiscal year cost report would be used in this step. In the rare case that using a previous Federal 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. (For example, if a hospital does not have a FY 2019 cost report because the hospital's FY 2018 cost report spanned the FY 2019 time period, then we would use the FY 2018 cost report that spanned the FY 2019 time period for this step. Using the same example, where the hospital's FY 2018 report is used for the FY 2019 time period, then we would use the hospital's FY 2017 report if it spans some of the FY 2018 time period. In other words, we would not use the same cost report for both the FY 2019 and the FY 2018 time periods.) 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 Federal fiscal year period.

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 the result by a scaling factor.

We received comments regarding the uncompensated care costs definition, Worksheet S–10 cost report audits, and Factor 3 calculation instructions.

Comment: Several commenters expressed their support for CMS' proposal in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26997 and 26998) to calculate Factor 3 for FY 2024 based on a three-year average of audited FY 2018, FY 2019, and FY 2020 Worksheet S–10 data, and the policy finalized in the FY 2023 IPPS/LTCH PPS final rule to implement a three-year average based on the most recent available audited data for subsequent fiscal years. Supporters of this proposal specified several benefits to the use of a multi-year average of Worksheet S–10 data, such as minimizing year-to-year volatility, promoting accuracy, and ensuring stability in future uncompensated care payments. One commenter noted their long-standing support for using audited Worksheet S–10 data to promote an accurate and consistent calculation of uncompensated care costs.

Notably, none of the commenters expressed opposition to using a three-year average of Worksheet S–10 data to calculate uncompensated care payments moving forward.

Response: We appreciate the commenters' support for our proposal to use a three-year average of audited FY 2018, FY 2019, and FY 2020 Worksheet S–10 data to determine each hospital's share of uncompensated care costs in FY 2024. As explained in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26995), we believe that using a multi-year average of Worksheet S–10 data will provide assurance that hospitals' uncompensated care payments remain stable and predictable and will not be subject to unpredictable swings and anomalies in a hospital's uncompensated care costs.

Comment: A few commenters suggested approaches to mitigating the impact of the COVID–19 PHE on the three-year average of Worksheet S–10 data. One commenter recommended that CMS exclude FY 2020 data entirely from FY 2024 DSH calculations, because the commenter believes the data are flawed due to COVID–19 PHE impacts. Another recommended that CMS hold the evaluation period of Worksheet S–10 data constant until data free of the impacts of the COVID–19 PHE are available. One commenter encouraged CMS to review the impact of the COVID–19 PHE may have on accurately capturing uncompensated care as the three-year average range includes more years with COVID–19 repercussions, while another recommended that CMS mitigate the effect of anomalies in FYs 2020–2022 cost report data that may adversely impact DSH payments in future years.

Response: Regarding requests that CMS account for the impact of the COVID–19 PHE on the three-year average of Worksheet S–10 cost report data, we note that we will continue to use the three-year average of the most recently audited cost report data for FY 2024 and subsequent years, as finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49038). In response to the comments requesting that we exclude FY 2020 data or hold data constant, we continue to believe using the three-year average will smooth the variation in year-to-year uncompensated care payments and lessen the impacts of the COVID–19 PHE and future unforeseen events. Further, we anticipate that there will be less fluctuation in cost report data as the PHE disruptions on healthcare utilization recover. We will continue to monitor the impacts of the PHE and will consider this issue further in future rulemaking, as appropriate.

Comment: Some commenters suggested alternative approaches to the uncompensated care payment calculation unrelated to methodological concepts concerning the blending of historical Worksheet S–10 data. Such recommendations included that CMS should consider the impact of the healthcare labor shortage on uncompensated care payments. One commenter recommended that CMS protect essential hospitals from fluctuations and cuts to uncompensated care payments, without reducing the payments to other DSH-eligible hospitals.

Another commenter requested that CMS modify the FY 2024 methodology to compensate safety-net hospitals for any decrease in FY 2020 uncompensated care payments inadvertently caused by the Factor 3 policies from the FY 2020 IPPS/LTCH PPS final rule. Specifically, this commenter's recommendation was that CMS should account for FY 2015 uncompensated care costs from reopened FY 2015 Worksheet S–10 on a one-time basis to calculate Factor 3 for FY 2024.

Further, a handful of commenters expressed concern about the proposed reduction in uncompensated care payments. These commenters indicated that the proposed decrease in payments in addition to the inadequate payment update would be insufficient for these hospitals in the current financial environment.

Response: With regard to commenters' concerns and suggestions unrelated to the previously discussed methodological concepts for the blending of historical Worksheet S–10 data, we consider these public comments to be outside the scope of the proposed rule, we are not addressing them in this final rule. However, we appreciate commenters' input and note that we may address these and other considerations in future rulemaking.

Concerning the commenter's suggestion to modify uncompensated care payments to account for payments from a previous year we are continuing to use Worksheet S–10 data from multiple years to mitigate fluctuations in the data and smooth variations in year-to-year uncompensated care payments. Regarding the commenter's suggestion to account for FY 2015 uncompensated care costs from reopened Worksheet S–10, we are not considering re-using FY 2015 cost reports or supplementing the FY 2024 uncompensated care payments with information from FY 2015. As explained in the FY 2024 IPPS/LTCH PPS proposed rule, we believe that using a multi-year average of the most recent audited Worksheet S–10 data will reflect the most recent available information regarding a hospital's uncompensated care costs. We note that MACs will continue to have discretion to determine if a provider revision may be accepted for amended or reopened cost reports, per 42 CFR 405.1885.

Comment: Many commenters indicated that CMS' proposed reduction to the DSH payment amount by nearly half a billion dollars from FY 2023 will have a disparate impact on DSH hospitals as they continue to face financial challenges related to the COVID–19 PHE. These challenges include increasing labor and supply costs, increasing inflation, and potential Medicare sequestration cuts. One commenter noted that any payment reduction during a time of increased operating costs for hospitals could hinder progress in areas that are top priorities for hospitals. These areas include investments in value-based payment models, climate policies, and data collection that are needed to build a foundation for improving health equity.

Response: We thank the commenters for their feedback. We agree that the COVID–19 PHE presents unique challenges to hospitals' finances. Regarding the commenters' concerns regarding changes to the amount available to make uncompensated care payments in this rulemaking, we note that, as described in the FY 2024 IPPS/LTCH PPS proposed rule, the statute instructs the Secretary to estimate the amounts of uncompensated care for a period based on appropriate data, which for FY 2024 include data that reflect the COVID–19 PHE's effect on hospitals.

Comment: Some commenters proposed changes to the definition of uncompensated care and requested that CMS ensure its methodology accurately captures the full range of uncompensated care costs that hospitals incur in their provision of care for disadvantaged patients. One commenter urged CMS to include all patient care costs in the CCR, including those for teaching and providing physician and other professional services, to ensure an accurate distribution of uncompensated care payments to hospitals with the highest levels of uncompensated care. This commenter stated that doing so should include Graduate Medical Education (GME) costs, which are disproportionately detrimental to teaching hospitals. The commenter further suggested that CMS revise the data collected on Medicaid shortfalls to better capture actual shortfalls incurred by hospitals by allowing hospitals to include unpaid coinsurance and deductibles on Worksheet S–10. Another commenter suggested treating the unreimbursed portion of state or local indigent care as charity care.

Response: We appreciate commenters' suggestions for revisions and/or modifications to Worksheet S–10. We will consider modifications as necessary to further improve and refine the information that is reported on Worksheet S–10 to support collection of the information regarding uncompensated care costs.

Regarding the request to include costs for teaching and providing physician and other professional services, including GME costs when calculating the CCR, we note that because the CCR on Line 1 of Worksheet S–10 is obtained from Worksheet C, Part I, and is also used in other IPPS rate setting contexts (such as high-cost outliers and the calculation of the MS–DRG relative weights) from which it is appropriate to exclude the costs associated with supporting physician and professional services and GME costs, we remain reluctant to adjust CCRs in the narrower context of calculating uncompensated care costs. Therefore, as stated in past final rules, including the FY 2022 IPPS/LTCH PPS final rule (86 FR 45241 and 45242), we continue to believe that it is not appropriate to modify the calculation of the CCR on Line 1 of Worksheet S–10 to include any additional costs in the numerator of the CCR calculation.

With regard to the comments requesting that payment shortfalls from Medicaid and State and local indigent care programs be included in uncompensated care cost calculations, we have consistently stated in past final rules (85 FR 58826; 86 FR 45238; and 87 FR 49039) in response to similar comments that we believe there are compelling arguments for excluding such shortfalls from the definition of uncompensated care. We refer readers to those prior rules for further discussion.

Comment: Commenters expressed concern that the reductions in uncompensated care payments do not align with the Federal Government's focus on equity. One commenter stated that safety-net hospitals provide eight times more uncompensated care than other hospital types, which disproportionately impacts safety-net hospitals' payments. Another commenter requested that CMS revise the current payment policy to account for the proportion of low-income discharges for each hospital and the capacity of a hospital to absorb uncompensated care costs. This commenter recommended changing the uncompensated care payment calculation to be based on each hospital's uncompensated care and disproportionate share percentage.

Response: We thank commenters for their continued concern regarding the distribution of uncompensated care payments and the impact of uncompensated care payments on safety-net hospitals and for their recommendations for potential changes to the uncompensated care payment methodology. We may consider this issue further in future rulemaking, if appropriate.

We note that in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27187 through 27190), we included a Request for Information (RFI) that sought public feedback on the challenges faced by safety-net hospitals and potential approaches to help safety-net hospitals meet those challenges. We are in the process of reviewing the comments received in response to the RFI.

Comment: In relation to the accuracy of the Worksheet S–10 data, one commenter requested that CMS regularly review Worksheet S–10 cost reports for any irregular trends in the data.

Response: The use of the three-year average of the most recently audited cost report data for FY 2024 and subsequent years will smooth the variation in year-to-year uncompensated care payments and lessen the impacts of future unforeseen events, such as the COVID–19 PHE. Further, we anticipate that there will be less fluctuation in cost report data as the PHE has ended. We note that the audit process for Worksheet S–10 cost reports will continue to be an important part of identifying potential irregularities in the data.

Comment: One commenter commended CMS for the agency's efforts to develop and improve the audit process for Worksheet S–10 data. Echoing concerns expressed in previous years, other commenters encouraged CMS to work with MACs to make the audit process clearer, more consistent, and more complete. The same commenters recommended that CMS establish a standardized process across auditors and make audit instructions publicly available. A few commenters cited the Medicare wage index audit as a model that CMS could use to clarify the timeline and process for Worksheet S–10 revisions. Like in the wage index audit process, these commenters recommended that CMS utilize a public use file, rather than the HCRIS data file, which would make the audit process more transparent. One commenter suggested that CMS ensure that Worksheet S–10 audits impose minimal burden and are equitable and uniform across hospitals. The same commenter also suggested CMS consider making the audit process more transparent by disclosing criteria used to identify hospitals for audits and publishing audit protocols in advance to allow hospitals time and opportunity to respond to audits and address findings through notice and comment rulemaking. Given the high costs of Worksheet S–10 audits, one commenter recommended that CMS select a discrete number of hospitals to audit every year. For example, in the case that CMS audits one third of DSH hospitals per year, every hospital would be audited once per 3-year cycle. Finally, this commenter also requested that CMS implement an informal, fast-track review process for audit appeals similar to the audit criteria the agency uses for retrospective DSH reimbursement, such that hospitals have the same protections afforded by the appeal rights for retrospective DSH reimbursement. One commenter expressed concern with the handling of Health Resources Services Administration's (HRSA) COVID–19 claims and argued that claims not paid for by HRSA funds, but which are covered under the hospital's financial assistance policy (FAP), should be included on Worksheet S–10.

Response: We thank commenters for their feedback on the audits of the FY 2020 Worksheet S–10 data and their recommendations for future audits. As we have stated previously in response to comments regarding audit protocols, they are provided to the MACs in advance of the audit to assure consistency and timeliness in the audit process. CMS began auditing the FY 2020 Worksheet S–10 data for selected hospitals last year so that the audited uncompensated care data for these hospitals would be available in time for use in the FY 2024 IPPS/LTCH PPS proposed rule. We chose to focus the audit on the FY 2020 cost reports in order to maximize the available audit resources. We also note that FY 2020 data are the most recent year of audited data.

We appreciate all commenters' input and recommendations on how to improve our audit process and reiterate our commitment to continue working with MACs and providers on audit improvements, which include making changes to increase the efficiency of the audit process, building on the lessons learned in previous audit years. Regarding commenters' requests for a standard audit timeline, we do not intend to establish a fixed timeline for audits across MACs at this time, to ensure we can retain the flexibility to use our limited audit resources to address and prioritize audit needs across all CMS programs each year. We note that MACs collaborate with providers regarding scheduling dates during the Worksheet S–10 audit process. We also note that MACs work closely with providers to balance the time needed to complete the Worksheet S–10 audits and to minimize the burden on providers and will continue to do so.

Regarding commenters' requests that CMS make public the audit instructions and criteria, as we previously stated in the FY 2021 IPPS/LTCH PPS final rule and prior rules (81 FR 56964; 84 FR 42368; 85 FR 58822), we do not make review protocols public as CMS desk review and audit protocols are confidential and are for CMS and MAC use only. Concerning the request to promulgate the Worksheet S–10 audit policy and protocols, there is no requirement under either the Administrative Procedure Act or the Medicare statute that CMS adopt the audit protocols through notice and comment rulemaking. As previously discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58822), at this point, to maximize our limited audit resources, we do not plan on introducing an audit appeals process.

Regarding commenters' recommendations that we establish a similar process to that used for the wage index audits, at this point we do not plan to introduce an audit process with such a structure in order to maximize limited audit resources.

We also note that the quarterly HCRIS data is published as a public use file, available at https://www.cms.gov/research-statistics-data-and-systems/downloadable-public-use-files/cost-reports/cost-reports-by-fiscal-year. The December HCRIS extract is available for providers to review at the time the IPPS/LTCH PPS proposed rule is issued and the March HCRIS is generally available during the comment period.

Regarding comments on the handling of claims under the HRSA-administered COVID–19 Uninsured Program and the audits of Worksheet S–10, providers should discuss with their MAC during the Worksheet S–10 audit process if they encounter issues. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58827), we noted that one term and condition of the HRSA Uninsured Program states as follows: “The Recipient will not include costs for which Payment was received in cost reports or otherwise seek uncompensated care reimbursement through federal or state programs for items or services for which Payment was received.”

Comment: One commenter commended CMS for its efforts to provide clearer instructions for Worksheet S–10. Three commenters requested that CMS clarify whether Worksheet S–10 Part I or Part II should be utilized to calculate Factor 3. A few commenters recommended that CMS allow providers to submit Worksheet S–10 corrections following the March 2023 HCRIS deadline. These commenters noted that they were not aware of the March deadline until the publishing of the proposed rule. In addition, one commenter requested that CMS clarify the “normal timeline” MACs follow for allowing providers to amend or reopen previously audited Worksheet S–10 data used to calculate Factor 3. One commenter requested that CMS clarify inconsistent Worksheet S–10 instructions so that non-Medicare bad debt is not multiplied by CCR. This commenter stated that CMS' revised instructions indicated that non-reimbursed Medicare bad debt is not reduced by the CCR, but that cost report instructions state that non-Medicare bad debt is multiplied by the CCR.²⁰⁷ This commenter indicated that such a practice is inconsistent with the way non-reimbursable Medicare bad debt is treated. The commenter also noted that CMS should provide opportunities for stakeholder feedback on Worksheet S–10 as well as additional educational outreach on revisions, extended submission deadlines, and training to hospital staff on accurately reporting data. Finally, one commenter proposed that CMS create a working group with industry and government stakeholders to develop standard specifications for the data fields and formats used for Worksheet S–10 cost reporting of uncompensated care, empirical DSH, and Medicare bad debt reimbursement.

Response: We appreciate commenters' concerns regarding the need for clarification of the Worksheet S–10 instructions, as well as their suggestions for form revisions to improve reporting. We reiterate our commitment to continuing to work with impacted parties to address their concerns regarding Worksheet S–10 instructions and reporting through provider education and further refinement of the instructions as appropriate. We also encourage providers to share with their respective MAC any questions regarding clarifications of instructions, reporting, and submission deadlines.

We continue to believe that our efforts to refine the instructions and guidance have improved provider understanding of the Worksheet S–10 and added clarity to the instructions. We also recognize that there are continuing opportunities to further improve the accuracy and consistency of the information that is reported on the Worksheet S–10, and to the extent that commenters have raised new questions and concerns regarding the reporting requirements, we will attempt to address them through future rulemaking and/or sub-regulatory guidance and subsequent outreach. However, as stated in previous rules, we continue to believe that the Worksheet S–10 instructions are sufficiently clear and continue to allow hospitals to accurately complete Worksheet S–10.

Regarding commenters' requests for clarification on whether Worksheet S–10 Part I or Part II is used for the Factor 3 calculation for “new” hospital and “newly merged” hospitals, we would use information reported on the hospital's Worksheet S–10, Part I to determine Factor 3 if the hospital is determined to be DSH eligible at cost report settlement.

Concerning commenters' requests to submit Worksheet S–10 corrections after the March 2023 HCRIS, we note that the December HCRIS extract is publicly available for providers to review on the CMS website at the time of the publishing of the IPPS/LTCH PPS proposed rule. The March update of HCRIS is generally available during the comment period to the proposed rule. We are continuing to use the March HCRIS extract, which is the latest data available during this final rule's development, for Factor 3 calculations.

Concerning commenters' request that CMS clarify the timeline and procedures MACs follow to amend or reopen previously audited Worksheet S–10 data, we note that MACs will continue to have discretion to determine if a provider's report may be accepted. We also note that MACs will not reject requests related to Worksheet S–10 revisions solely due to the direct reimbursement not meeting current year amended cost report or reopening thresholds. For hospital-requested revisions to Worksheet S–10, MACs make a determination to accept or reject the amended cost report or cost report reopening consistent with the current instructions at CMS Pub. 100–06, Chapter 8, available at www.cms.gov/regulations-and-guidance/guidance/manuals/internet-only-manuals-ioms-items/cms019018 .

Regarding the commenters' request that CMS to clarify whether non-Medicare bad debt is multiplied by CCR, we believe that the Worksheet S–10 instructions are clear and indicate that the CCR will not be applied to the deductible and coinsurance amounts for insured patients approved for charity care and non-reimbursed Medicare bad debt.

Regarding the comments requesting changes to Worksheet S–10 and/or further clarification of the reporting instructions, we note that these comments fall outside the scope of this final rule.

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26998), for purposes of identifying new hospitals, for FY 2024, the FY 2020 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, 2020, would be subject to the new hospital policy in FY 2024. If a new hospital is ultimately determined to be eligible for Medicare DSH payments for FY 2024, the hospital would 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 2024 cost report, and the denominator is the sum of the uncompensated care costs reported on Worksheet S–10 of the FY 2020 cost reports for all DSH-eligible hospitals. In addition, we would apply a scaling factor, as discussed previously, to the Factor 3 calculation for a new hospital. As we explained in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), 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, in order to improve consistency and predictability across all hospitals.

In the proposed rule, we stated that for FY 2024, the eligibility of a newly merged hospital to receive interim uncompensated care payments and the amount of any interim uncompensated care payments, would be based on the uncompensated care costs from the FY 2018, FY 2019, and FY 2020 cost reports available for the surviving CCN at the time this final rule is developed. However, at cost report settlement, we would determine the newly merged hospital's final uncompensated care payment based on the uncompensated care costs reported on its FY 2024 cost report. That is, we would 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 2024 cost report. The denominator would be the sum of the uncompensated care costs reported on Worksheet S–10 of the FY 2020 cost reports for all DSH-eligible hospitals, which is the most recent fiscal year for which audits have been conducted. We would also apply a scaling factor, as described previously.

Comment: A couple of commenters expressed support for the policy currently in place for newly merged hospitals. This policy states that uncompensated care payments for a merged hospital will be based on the surviving hospital's cost report for the current fiscal year, and that the final uncompensated care payments for these hospitals will be determined during cost report settlement. These commenters also indicated support for the policy in place for new hospitals, which states that MACs will make the final determination concerning whether hospitals are eligible to receive DSH payments at cost report settlement based on the new hospital's cost report.

Response: We appreciate the support for our policies for new and newly merged hospitals.

As we explained in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26998), for a hospital that is subject to the trim for potentially aberrant data and is ultimately determined to be DSH-eligible at cost report settlement, its uncompensated care payment should be calculated only after the hospital's reporting of insured charity care costs on its FY 2024 Worksheet S–10 has been reviewed. Accordingly, the MAC would calculate a Factor 3 for the hospital only after reviewing the uncompensated care information reported on Worksheet S–10 of the hospital's FY 2024 cost report. Then we would calculate Factor 3 for a hospital subject to this alternative trim using the same methodology used to determine Factor 3 for new hospitals. Specifically, the numerator would reflect the uncompensated care costs reported on the hospital's FY 2024 cost report, while the denominator would reflect the sum of the uncompensated care costs reported on Worksheet S–10 of the FY 2020 cost reports of all DSH-eligible hospitals. In addition, we would apply a scaling factor, as discussed previously, to the Factor 3 calculation for the hospital. We stated that we continue to 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, in order to improve consistency and predictability across all hospitals.

We did not receive any comments on the discussion of CCR trim methodology or the UCC trim methodology.

For purposes of this final rule, the statewide average CCR was applied to 7 hospitals' FY 2018 reports, of which 3 hospitals had FY 2018 Worksheet S–10 data. The statewide average CCR was applied to 13 hospitals' FY 2019 reports, of which 6 hospitals had FY 2019 Worksheet S–10 data. The statewide average CCR was applied to 10 hospitals' FY 2020 reports, of which 3 hospitals had FY 2020 Worksheet S–10 data.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26999), we stated that for purposes of this FY 2024 IPPS/LTCH PPS final rule, we intended to use data from the March 2023 HCRIS extract to calculate Factor 3. We explained that the March HCRIS extract would be the latest quarterly HCRIS extract that would be publicly available at the time of the development of this 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 noted that MACs follow normal timelines and procedures. We explained that for purposes of the Factor 3 calculation for FY 2024, 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 2023. In other words, if the amended report and/or reopened report was not available for the March HCRIS extract, then that amended and/or reopened report data would not be a part of the FY 2024 IPPS/LTCH PPS final rule's Factor 3 calculation. We noted that the March HCRIS data extract would be available during the comment period for the proposed rule if providers want to verify that their amended and/or reopened data is reflected in the March HCRIS extract.

Comment: One commenter commended CMS for using the latest available data ( i.e., the December 2022 HCRIS data) for determining DSH eligibility for the proposed rule and encouraged CMS to use the latest data that may become available prior to the development of the final rule ( i.e., the March 2023 HCRIS update as indicated in the proposed rule) to ensure the proper allocation of uncompensated care payments.

Response: We appreciate the commenter's support for our use of a later HCRIS extract for calculating Factor 3 for FY 2024. We are using the March HCRIS extract to calculate Factor 3 for this FY 2024 IPPS/LTCH PPS final rule. We believe on balance this is the best available data for the purposes of calculating Factor 3 for FY 2024. We also intend to continue utilizing the most recent data available for the applicable rulemaking, which generally means the respective December HCRIS extract for purposes of Factor 3 calculations in future proposed rules. Furthermore, as noted in the FY 2024 IPPS/LTCH PPS proposed rule, we continue to intend to use the respective March HCRIS extract for future final rules.

d. Per Discharge Amount of Interim Uncompensated Care Payments

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 that included data from FY 2018, FY 2019, and FY 2020. We explained our belief that computing a 3-year average with the FY 2020 discharge data would underestimate discharges, due to the decrease in discharges during the COVID–19 pandemic. 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.

Consistent with the approach adopted in the FY 2023 IPPS/LTCH PPS final rule, for FY 2024, we proposed to calculate the average of FY 2019, FY 2021, and FY 2022 historical discharge data, rather than a 3-year average of the most recent 3 years of discharge data from FY 2020, FY 2021, and FY 2022. We stated that we continued to believe 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. Therefore, as explained in the FY 2024 IPPS/LTCH IPPS proposed rule (88 FR 26999), we believed that our proposed approach may result in a better estimate of the number of discharges during FY 2024, for purposes of the interim uncompensated care payment calculation. In addition, we noted that including discharge data from FY 2022 to compute this 3-year average would be consistent with the proposal to use FY 2022 Medicare claims in the IPPS ratesetting, as discussed in section I.E. of the preamble of this FY 2024 IPPS/LTCH PPS final rule. As discussed in the proposed rule, we would use the resulting 3-year average of the number of discharges to calculate a per discharge payment amount that would be used to make interim uncompensated care payments to each projected DSH-eligible hospital during FY 2024. The interim uncompensated care payments made to a hospital during the fiscal year would 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 FY 2024.

We requested comments on our proposal to use data from FY 2019, FY 2021, and FY 2022 to compute a 3-year average of the number of discharges in order to calculate the per discharge amount for purposes of making interim uncompensated care payments to projected DSH eligible hospitals during FY 2024.

Comment: Several commenters supported CMS' proposal to exclude FY 2020 data from the per-discharge amount calculation for interim uncompensated care payments. In contrast, one commenter noted that the use of FY 2019, FY 2021, and FY 2022 data would overestimate the discharge volume and decrease interim uncompensated care payments in FY 2024. The same commenter recommended alternative approaches, such as using the average of the two most recent years (FY 2020 and FY 2021) and applying a national adjustment factor to normalize the data based on projected discharge trends.

Response: We agree with the commenter that using FY 2019 data to calculate the per-discharge amount for interim uncompensated care payments may overestimate the discharge volume, in general. For example, the updated claims data used to estimate the FY 2024 discharges in the Factor 1 calculation indicate that discharge volumes are not expected to return to pre-pandemic levels during FY 2024; therefore, we believe omitting FY 2019 data from the per-discharge amount calculation for interim uncompensated care payments may more accurately estimate FY 2024 discharges. However, we note that we continue to believe the FY 2020 discharge data would underestimate discharges due to the effects of the COVID–19 PHE in FY 2020. Accordingly, to address these concerns regarding the use of FY 2019 discharge data, we are finalizing our proposal with modification, and will calculate the per-discharge amount of uncompensated care payments using FY 2021 and FY 2022 discharge data.

As we explained in the FY 2024 IPPS/LTCH PPS proposed rule, we finalized a voluntary process in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), through which a hospital may submit a request to its MAC for a lower per discharge interim uncompensated care payment amount, including a reduction to zero, once before the beginning of the Federal fiscal year and/or once during the Federal fiscal year. In conjunction with this request, the hospital must provide supporting documentation demonstrating that there would likely be a significant recoupment (for example, 10 percent or more of the hospital's total uncompensated care payment or at least $100,000) at cost report settlement if the per discharge amount is not lowered. 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, the hospital's MAC will evaluate these requests and the supporting documentation before the beginning of the Federal 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 Federal fiscal year. We refer readers to the Addendum in this FY 2024 IPPS/LTCH PPS final rule for the steps for determining the operating and capital Federal payment rate and the outlier payment calculation. 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 would not change how the total uncompensated care payment amount will be reconciled at cost report settlement.

We received comments related to the uncompensated care payment reconciliation process.

Comment: A couple of commenters recommended that CMS use the traditional payment reconciliation process to calculate final uncompensated care payments pursuant to section 1886(r)(2) of the Act. These commenters did not object to CMS using prospective estimates, derived from the best data available, to calculate interim payments for uncompensated care costs. However, the commenters stated that interim payments should be subject to later reconciliation based on estimates derived from actual data from the applicable Federal fiscal year. These same commenters noted that CMS' failure to provide meaningful explanations for uncompensated care payment calculations is in violation of the Administrative Procedure Act. Commenters also recommended that CMS satisfy its legal obligation by providing hospitals the opportunity to review and comment on the more recent data used in rulemaking before the agency publishes the final rule.

Response: Consistent with the position that we have taken in past rulemaking, we continue to believe that applying our best estimates of the three factors used in the calculation of uncompensated care payments to determine payments prospectively is most conducive to administrative efficiency, finality, and predictability in payments (78 FR 50628; 79 FR 50010; 80 FR 49518; 81 FR 56949; 82 FR 38195; 84 FR 42373; 85 FR 58833; 86 FR 45246; and 87 FR 49046). We continue to believe that, in affording the Secretary the discretion to estimate the three factors used to determine uncompensated care payments and by including a prohibition against administrative and judicial review of those estimates in section 1886(r)(3) of the Act, Congress recognized the importance of finality and predictability under a prospective payment system. As a result, we do not agree with the commenter's suggestion that we should establish a process for reconciling our estimates of uncompensated care payments, which would be contrary to the notion of a prospective payment system. Furthermore, we note that this rulemaking has been conducted consistent with the requirements of the Administrative Procedure Act and Title XVIII of the Act. Under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule, or a description of the subjects and issues involved. In this case, the FY 2024 IPPS/LTCH PPS proposed rule included a detailed discussion of our proposed methodology for calculating Factor 3 and the data that would be used. We made public the best data available at the time of the proposed rule to allow hospitals to understand the anticipated impact of the proposed methodology and submit comments, and we have considered those comments in determining our final policies for FY 2024.

After consideration of the comments received, we are finalizing our proposal to follow the same methodology used in the FY 2023 IPPS/LTCH PPS final rule to calculate Factor 3 for FY 2024 using data from the most recent 3 years of audited cost reports from FY 2018, FY 2019, and 2020, based on the March 2023 HCRIS extract. In addition, we are finalizing our proposal for determining the per-discharge amount of interim uncompensated care payments with modification. Specifically, for this FY2024 IPPS/LTCH PPS final rule, we calculated the per-discharge amount of interim uncompensated care payments using the FY 2021 and FY 2022 discharge data.

e. Process for Notifying CMS of Merger Updates and To Report Upload Issues

As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this final rule, we will publish on the CMS website a table listing Factor 3 for hospitals that we estimate will receive empirically justified Medicare DSH payments in FY 2024 (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 11 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 had 60 days from the date of public display of the FY 2024 IPPS/LTCH PPS proposed rule in the Federal Register to review the table and supplemental data file published on the CMS website in conjunction with the proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S–10 data during the report submission process (for example, report not reflecting audit results due to MAC mishandling, or most recent report differs from previously accepted amended report due to MAC mishandling). In the proposed rule, we stated that 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 indicated that we would address comments related to mergers and/or reporting upload discrepancies submitted to the CMS DSH inbox as appropriate in the table and the supplemental data file that we publish on the CMS website in conjunction with the publication of the FY 2024 IPPS/LTCH PPS final rule. We also stated that all other comments submitted in response to our proposed policies for FY 2024 must be submitted in one of the three ways found in the ADDRESSES section of the proposed rule before the close of the comment period in order to be assured consideration. In addition, we noted that the CMS DSH inbox is not intended for Worksheet S–10 audit process related emails, which should be directed to the MACs.

Hospitals had 15 business days from the date of public display of the FY 2023 IPPS/LTCH PPS final rule to review and submit via email any updated information on mergers and/or to report upload discrepancies (87 FR 49047). We did not receive comments during this notification period regarding mergers or data upload issues. In the FY 2023 IPPS/LTCH PPS final rule, we also noted that historical cost reports are publicly available on a quarterly basis on the CMS website for analysis and additional review of cost report data, separate from the supplemental data file published with the annual final rule.

As we have stated in previous rulemaking (see, for example, 87 FR 49046 and 86 FR 45249), in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27000), we stated our belief that hospitals have sufficient opportunity during the comment period for the proposed rule to provide information about recent and/or pending mergers and/or to report upload discrepancies. Hospitals do not enter into mergers without advanced planning. A hospital can inform CMS during the comment period for the proposed rule regarding any merger activity not reflected in supplemental file published in conjunction with the proposed rule. Therefore, for FY 2024 and subsequent fiscal years, we proposed to discontinue the 15 business day period after display of the final rule for hospitals to submit any updated information on mergers and/or to report upload discrepancies, because there will have been sufficient opportunity for hospitals to provide information on these issues during the comment period for the proposed rule. We invited public comments on this proposal.

Comment: One commenter expressed disagreement with the proposal to discontinue the 15-day period for hospitals to notify CMS of any data discrepancies after display of the final rule. This commenter asserted that the proposal affects all hospitals, not only those with recent or pending mergers. The commenter stated that the time period after the final rule is an important opportunity to address errors and/or verify the final rule's DSH Supplemental File.

Response: We appreciate this commenter sharing their concerns regarding the proposal to discontinue the 15-day period following the final rule. However, we believe the opportunity for providers to notify CMS of discrepancies during the comment period on the proposed rule affords a sufficient opportunity to address data discrepancies and mergers. In addition, we note there is a policy for determining Factor 3 for hospitals that merge after the final rule's Factor 3 calculation ( i.e., newly merged hospitals during FY 2024). Accordingly, we are finalizing our proposal to discontinue the notification period following display of the final rule as proposed.

F. Counting Certain Days Associated With Section 1115 Demonstration in the Medicaid Fraction

1. Background

Section 1886(d)(5)(F) of the Social Security Act (the Act) provides for additional Medicare inpatient prospective payment system (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, and the statute specifies two methods by which a hospital may qualify for the DSH payment adjustment.

• Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a 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 most common 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 Indirect Medical Education (IME) adjustment under § 412.105(b).

Section 1115(a) of the Act gives the Secretary the authority to approve a demonstration requested by a State which, “in the judgment of the Secretary, is likely to assist in promoting the objectives of [Medicaid.]” In approving a section 1115 demonstration, the Secretary may waive compliance with any Medicaid State plan requirement under section 1902 of the Act to the extent and for the period he finds necessary to enable the State to carry out such project. The costs of such project that would not otherwise be included as Medicaid expenditures eligible for Federal matching under section 1903 of the Act may be regarded as such federally matchable expenditures to the extent and for the period prescribed by the Secretary.

States use section 1115(a) demonstrations to test changes to their Medicaid programs that generally cannot be made using other Medicaid authorities, including to provide health insurance to groups that generally could not or have not been made “eligible for medical assistance under a State plan approved under title XIX” (Medicaid benefits). These groups, commonly referred to as expansion populations or expansion waiver groups, are specific, finite groups of people defined in the demonstration approval letter and special terms and conditions for each demonstration. (We note in the discussion that follows, we use the term “demonstration” rather than “project” and/or “waiver” and the term “groups” instead of “populations,” as this terminology is generally more consistent with the implementation of the provisions of section 1115 of the Act. Therefore, we refer in what follows to groups extended health insurance through a demonstration as “demonstration expansion groups.”)

2. History of 42 CFR 412.106(b)(4) and the Deficit Reduction Act of 2005

Prior to 2000, some States had chosen to only cover Medicaid populations under their State plans when State plan coverage was mandatory under the statute, and they did not provide State plan coverage for populations for whom the statute made State plan coverage optional. Instead, coverage for these optional State plan coverage groups (as well as groups not eligible for even optional coverage) could be provided through demonstrations approved under section 1115 of the Act. We referred to these demonstration groups that could have been covered under optional State plan coverage as “hypothetical” groups—consisting of patients that could have been but were not covered under a State plan, but that received the same or very similar package of insurance benefits under a demonstration as did individuals eligible for those benefits under the State plan. Many other States, however, still elected to cover optional State plan coverage groups under their Medicaid State plans instead of through a demonstration. In order to avoid disadvantaging hospitals in States that covered such optional State plan coverage groups under a demonstration, CMS developed a policy of counting such hypothetical group patients in the numerator of the Medicaid fraction of the Medicare DSH calculation (hereinafter, the DPP Medicaid fraction numerator) as if those patients were eligible for Medicaid.

Such demonstrations could also include individuals who could not have been covered under a State plan, such as childless adults for whom, at the time, State plan coverage was not mandatory under the statute, nor was optional State plan coverage available. We refer to these groups as “expansion” groups. Prior to 2000, CMS did not include expansion groups in the DPP Medicaid fraction numerator, even if individuals in that group received the same package of hospital insurance benefits under a demonstration as hypothetical groups and those eligible for Medicaid under the State plan.

On January 20, 2000, we issued an interim final rule with comment period (65 FR 3136) (hereinafter, January 2000 interim final rule), followed by a final rule issued on August 1, 2000 (65 FR 47086 through 47087), that changed the Secretary's policy on how to treat the patient days of expansion groups that received Medicaid-like benefits under a section 1115 demonstration in calculating the Medicare DSH adjustment. The policy adopted in the January 2000 interim final rule (65 FR 3136) permitted hospitals to include in the DPP Medicaid fraction numerator all patient days of groups made eligible for title XIX matching payments through a section 1115 demonstration, whether or not those individuals were, or could be made, eligible for Medicaid under a State plan (assuming they were not also entitled to benefits under Medicare Part A). Speaking literally, neither expansion groups nor hypothetical groups were in fact “eligible for medical assistance under a State plan”—meaning neither group was eligible for Medicaid benefits. But, in CMS' view, certain section 1115 demonstrations introduced an ambiguity into the DSH statute (section 1886(d)(5)(F)(vi) of the Act) that justified including both hypothetical and expansion groups in the DPP Medicaid fraction numerator. Specifically, CMS thought it appropriate to count the days of individuals in these demonstration groups because the demonstrations provided them the same or very similar benefits as the benefits provided to Medicaid beneficiaries under the State plan. As we explained in that rule (65 FR 3137), allowing hospitals to include patient days for section 1115 demonstration expansion groups in the DPP Medicaid fraction numerator is fully consistent with the Congressional goals of the Medicare DSH payment adjustment to recognize the higher costs to hospitals of treating low-income individuals covered under Medicaid. This policy was effective for discharges occurring on or after January 20, 2000.

In the FY 2004 IPPS final rule (68 FR 45420 and 45421), we further revised our regulations to limit the types of section 1115 demonstrations for which patient days could be counted in the DPP Medicaid fraction numerator. We explained that in allowing hospitals, in our 2000 rulemaking, to include patient days of section 1115 demonstration expansion groups, our intention was to include patient days of those groups who under a demonstration receive benefits, including inpatient hospital benefits, that are similar to the benefits provided to Medicaid beneficiaries under a State plan. But within a few years, we had become aware that certain section 1115 demonstrations provided some expansion groups with benefit packages so limited that the benefits were unlike the relatively expansive health insurance (including insurance for inpatient hospital services) provided to beneficiaries under a Medicaid State plan. Thus, we explained in the FY 2004 IPPS final rule that these limited section 1115 demonstrations extend benefits only for specific services and do not include similarly expansive benefits.

In the FY 2004 IPPS final rule we specifically discussed family planning benefits offered through a section 1115 demonstration as an example of the kind of demonstration days that should not be counted in the DPP Medicaid fraction numerator because the benefits granted to the expansion group are too limited, and therefore, unlike the package of benefits received as Medicaid benefits under a State plan. Our intention in discussing family planning benefits provided under a section 1115 demonstration was not to single out family planning benefits, but instead to provide a concrete example of how the changes being made in the FY 2004 IPPS final rule would refine the Secretary's prior policy set forth in the January 2000 interim final rule (65 FR 3136). This refinement was to allow only the days of those demonstration expansion groups who are provided benefits, and specifically inpatient hospital benefits, equivalent to the health care insurance that Medicaid beneficiaries receive under a State plan, to be included in the DPP Medicaid fraction numerator. Moreover, this example was intended to illustrate the kind of benefits offered through a section 1115 demonstration that are so limited that the patients receiving them should not be considered eligible for Medicaid for purposes of the DSH calculation.

Because of the limited nature of the Medicaid benefits provided to expansion groups under some demonstrations, as compared to the benefits provided to the Medicaid population under a State plan, we determined it was appropriate to exclude the patient days of patients provided limited benefits under a section 1115 demonstration from the determination of Medicaid days for purposes of the DSH calculation. Therefore, in the FY 2004 IPPS final rule (68 FR 45420 and 45421), we revised the language of § 412.106(b)(4)(i) to provide that for purposes of determining the DPP Medicaid fraction numerator, a patient is deemed eligible for Medicaid on a given day only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan or under a section 1115 demonstration. Thus, under our current regulations, hospitals are allowed to count patient days in the DPP Medicaid fraction numerator only if they are days of patients made eligible for inpatient hospital services under either a State Medicaid plan or a section 1115 demonstration, and who are not also entitled to benefits under Medicare Part A.

In 2005, the United States Court of Appeals for the Ninth Circuit held that demonstration expansion groups receive care “under the State plan” and that, accordingly, our pre-2000 practice of excluding them from the DPP Medicaid fraction numerator was contrary to the plain language of the Act. Subsequently, the United States District Court for the District of Columbia reached the same conclusion, reasoning that if our policy after 2000 of counting the days of demonstration expansion groups was correct, then patients in demonstration expansion groups were necessarily “eligible for medical assistance under a State plan” (that is, eligible for Medicaid), and the Act had always required including their days in the Medicaid fraction.

Shortly after these court decisions, in early 2006, Congress enacted the Deficit Reduction Act of 2005 (the DRA) (Pub. L. 109–171, February 8, 2006). Section 5002 of the DRA amended section 1886(d)(5)(F)(vi) of the Act to clarify the Secretary's discretion to regard as eligible for Medicaid those not so eligible and to include in or exclude from the DPP Medicaid fraction numerator demonstration days of patients regarded as eligible for Medicaid. First, by distinguishing between “patients who . . . were eligible for medical assistance under a State plan approved under subchapter XIX” (that is, Medicaid) and “ patients not so eligible but who are regarded as such because they receive benefits under a demonstration project,” section 5002(a) of the DRA clarified that groups that receive benefits through a section 1115 demonstration are not “eligible for medical assistance under a State plan approved under title XIX.” This provision effectively overruled the earlier court decisions that held that expansion groups were made eligible for Medicaid under a State plan. Second, the DRA stated “the Secretary may, to the extent and for the period the Secretary determines appropriate, include patient days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under title XI.” Thus, the statute provides the Secretary the discretion to determine “the extent” to which patients “not so eligible” for Medicaid benefits “may” be “regarded as” eligible “because they receive benefits under a demonstration project approved under title XI.” Third, this same language provides the Secretary with further authority to determine the days of which patients regarded as being eligible for Medicaid to include in the DPP Medicaid fraction numerator and for how long.

Having provided the Secretary with the discretion to decide whether and to what extent to include patients who receive benefits under a demonstration project, Congress expressly ratified in section 5002(b) of the DRA our prior and then-current policies on counting demonstration days in the Medicaid fraction. As stated before, our pre-2000 policy was not to include in the DPP Medicaid fraction numerator days of section 1115 demonstration expansion groups unless those patients could have been made eligible for Medicaid under a State plan (the “hypothetical” groups). We changed that policy in 2000 to include in the DPP Medicaid fraction numerator all patient days of demonstration expansion groups made eligible for matching payments under title XIX, regardless of whether they could have been made eligible for Medicaid under a State plan. And for FY 2004, before the DRA was enacted, CMS had further refined this policy and included in the DPP Medicaid fraction numerator the days of only a small subset of demonstration expansion group patients regarded as eligible for Medicaid: those that were eligible to receive inpatient hospital insurance benefits under the terms of a section 1115 demonstration. Thus, by ratifying the Secretary's pre-2000 policy, the January 2000 interim final rule, and the FY 2004 IPPS final rule, the DRA further established that the Secretary had always had the discretion to determine which demonstration expansion group patients to regard as eligible for Medicaid and whether or not to include any of their days in the DPP Medicaid fraction numerator.

Because at the time the DRA was passed the language of § 412.106(b)(4) already addressed the treatment of section 1115 days to exclude some expansion populations that received limited health insurance benefits through the demonstration, we did not believe it was necessary to update our regulations after the DRA explicitly granted us the discretion to include or exclude section 1115 days from the Medicaid fraction of the DSH calculation. We believed instead that the language of § 412.106(b)(4) reflected our view that only those eligible to receive inpatient hospital insurance benefits under a demonstration project could be “regarded as” “eligible for medical assistance” under Medicaid. Thus, considering this history and the text of the DRA, we understand the Secretary to have broad discretion to decide (1) whether and the extent to which to “regard as” eligible for Medicaid because they receive benefits under a demonstration those patients “not so eligible” under the State plan, and (2) of such patients regarded as Medicaid eligible, the days of which types of these patients to count in the DPP Medicaid fraction numerator and for what period of time to do so.

We do not believe that either the statute or the DRA permit or require the Secretary to count in the DPP Medicaid fraction numerator days of just any patient who is in any way related to a section 1115 demonstration. Rather, section 1886(d)(5)(F)(vi) of the Act limits including days of expansion group patients to those who may be “regarded as” “eligible for medical assistance under a State plan approved under title XIX.”

3. Uncompensated/Undercompensated Care Funding Pools Authorized Through Section 1115 Demonstrations

CMS's overall policy for including section 1115 demonstration days in the DPP Medicaid fraction numerator has rested on the presumption that the demonstration provided a package of health insurance benefits that were essentially the same as what a State provided to its Medicaid population. More recently, however, section 1115 demonstrations have been used to authorize funding a limited and narrowly circumscribed set of payments to hospitals. For example, some section 1115 demonstrations include funding for uncompensated/undercompensated care pools that help to offset hospitals' costs for treating uninsured and underinsured individuals. These pools do not extend health insurance to such individuals nor are they similar to the package of health insurance benefits provided to participants in a State's Medicaid program under the State plan. Rather, such funding pools “promote the objectives of Medicaid” as required under section 1115 of the Act, but they do so by providing funds directly to hospitals, rather than providing health insurance to patients. These pools help hospitals that treat the uninsured and underinsured stay financially viable so they can treat Medicaid patients.

By providing hospitals payment based on their uncompensated care costs, the pools directly benefit those providers, and, in turn, albeit less directly, the patients they serve. Unlike demonstrations that expand the group of people who receive health insurance beyond those groups eligible under the State plan and unlike Medicaid itself, however, uncompensated/undercompensated care pools do not provide inpatient health insurance to patients or, like insurance, make payments on behalf of specific, covered individuals. In these ways, payments from these pools serve essentially the same function as Medicaid DSH payments under sections 1902(a)(13)(A)(iv) and 1923 of the Act, which are also title XIX payments to hospitals meant to subsidize the cost of treating the uninsured, underinsured, and low-income patients and that promote the hospitals' financial viability and ability to continue treating Medicaid patients. Notably, as numerous Federal courts across the country have universally held, the patients whose care costs are indirectly offset by such Medicaid DSH payments are not “eligible for medical assistance” under the Medicare DSH statute and are not included in the DPP Medicaid fraction numerator. See, for example, Adena Regional Medical Center v. Leavitt, 527 F.3d 176 (D.C. Cir. 2008); Owensboro Health, Inc. v. HHS, 832 F.3d 615 (6th Cir. 2016).

We also note that demonstrations can simultaneously authorize different programs within a single demonstration, thereby creating a group of people the Secretary regards as Medicaid eligible because they receive health insurance through the demonstration, while also creating a separate category of payments that do not provide health insurance to individuals, such as uncompensated/undercompensated care pools for providers.

4. Recent Court Decisions and Rulemaking Proposals on the Treatment of 1115 Days in the Medicare DSH Payment Adjustment Calculation

Several hospitals challenged our policy of excluding uncompensated/undercompensated care days and premium assistance days from the DPP Medicaid fraction numerator, which the courts have recently decided in a series of cases. These decisions held that the current language of the regulation at § 412.106(b)(4) requires CMS to count in the DPP Medicaid fraction numerator patient days for which hospitals have received payment from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration, as well as days of patients who received premium assistance under a section 1115 demonstration. Interpreting this regulatory language, which was adopted before the DRA was enacted, two courts concluded that if a hospital received payment for a patient's otherwise uncompensated inpatient hospital treatment, that patient is “eligible for inpatient hospital services” within the meaning of the current regulation, and therefore, their patient day must be included in the DPP Medicaid fraction. Likewise, a court concluded that patients who receive premium assistance to pay for private insurance that covers inpatient hospital services are “eligible for inpatient hospital services” within the meaning of the current regulation, and those patient days must be counted.

As discussed previously, it was never our intent when we adopted the current language of the regulation to include in the DPP Medicaid fraction numerator days of patients that benefitted so indirectly from a demonstration. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25459) (hereinafter, the FY 2022 proposed rule), we stated that we continued to believe, as we have consistently believed since at least 2000, that it is not appropriate to include patient days associated with funding pools and premium assistance authorized by section 1115 demonstrations in the DPP Medicaid fraction numerator because the benefits provided patients under such demonstrations are not similar to Medicaid benefits provided beneficiaries under a State plan and may offset costs that hospitals incur when treating uninsured and underinsured individuals. In the FY 2022 proposed rule, we proposed to revise our regulations to more clearly state that in order for an inpatient day to be counted in the DPP Medicaid fraction numerator, the section 1115 demonstration must provide inpatient hospital insurance benefits directly to the individual whose day is being considered for inclusion. We specifically discussed that, under the proposed change, days of patients who receive premium assistance through a section 1115 demonstration and the days of patients for which hospitals receive payments from an uncompensated/undercompensated care pool created by a section 1115 demonstration would not be included in the DPP Medicaid fraction numerator. Because neither premium assistance nor uncompensated/undercompensated care pools are inpatient hospital insurance benefits directly provided to individuals, nor are they comparable to the breadth of benefits available under a Medicaid State plan, we stated that individuals associated with such assistance and pools should not be “regarded as” “eligible for medical assistance under a State plan.”

Commenters generally disagreed with our proposal, arguing that both premium assistance programs and uncompensated/undercompensated care pools are used to provide individuals with inpatient hospital services, either by reimbursing hospitals for the same services as the Medicaid program in the case of uncompensated/undercompensated care pools or by allowing individuals to purchase insurance with benefits similar to Medicaid benefits offered under a State plan in the case of premium assistance. Thus, they argued, those types of days should be included in the DPP Medicaid fraction numerator. Following review of these comments, in the final rule with comment period that appeared in the December 27, 2021 Federal Register , which finalized certain provisions of the FY 2022 proposed rule related to Medicare graduate medical education payments for teaching and Medicare organ acquisition payment, we stated that after further consideration of the issue we had determined not to move forward with our proposal and planned to revisit the issue of section 1115 demonstration days in future rulemaking (86 FR 73418).

After considering the comments we received in response to the FY 2022 proposed rule, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28398) (hereinafter, the FY 2023 proposed rule), we proposed to revise our regulation to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” in section 1886(d)(5)(F)(vi) of the Act to mean patients who (1) receive health insurance authorized by a section 1115 demonstration or (2) patients who pay for all or substantially all of the cost of health insurance with premium assistance authorized by a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance may be matched with funds from title XIX. Moreover, of the groups we regarded as Medicaid eligible, we proposed to use our discretion under the Act to include in the DPP Medicaid fraction numerator only (1) the days of those patients who obtained health insurance directly or with premium assistance that provides essential health benefits (EHB) as set forth in 42 CFR part 440, subpart C, for an Alternative Benefit Plan (ABP), and (2) for patients obtaining premium assistance, only the days of those patients for which the premium assistance is equal to or greater than 90 percent of the cost of the health insurance, provided in either case that the patient is not also entitled to Medicare Part A (87 FR 28398 through 28402).

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49051), we noted that the agency received numerous, detailed comments on our proposal. We indicated that due to the number and nature of the comments that we received, and after further consideration of the issue, we had determined not to move forward with the FY 2023 proposal. We stated that we expected to revisit the treatment of section 1115 demonstration days for purposes of the DSH adjustment in future rulemaking (87 FR 49051).

In a proposed rule published in the Federal Register on February 28, 2023 (88 FR 12623), hereinafter referred to as the February 2023 proposed rule, we proposed revisions to our regulations on the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's disproportionate patient percentage, as discussed in greater detail below. We proposed the revised regulation would be effective for discharges occurring on or after October 1, 2023.

5. Amendment to 42 CFR 412.106(b)(4)

Consistent with our interpretation of the Medicare DSH statute over more than two decades and the history of our policy on counting section 1115 demonstration days in the DPP Medicaid fraction numerator set forth in our regulations, considering the series of adverse cases interpreting the current regulation, in light of what we proposed in the FY 2022 and FY 2023 proposed rules and our consideration of the comments we received thereon, and considering the comments we received on the February 2023 proposed rule (88 FR 12623), we are amending the regulation at § 412.106(b)(4) as proposed. In order for days associated with section 1115 demonstrations to be counted in the DPP Medicaid fraction numerator, the statute requires those days to be of patients who can be “regarded as” eligible for Medicaid. Accordingly, and consistent with the proposed approach set forth in the FY 2023 proposed rule and with our longstanding interpretation of the statute and as amended by the DRA, and with the current language of § 412.106(b)(4), we are modifying our regulations to explicitly state our long-held view that only patients who receive health insurance through a section 1115 demonstration where State expenditures to provide the insurance may be matched with funds from title XIX can be “regarded as” eligible for Medicaid.

Similar to our statements in the FY 2023 and February 2023 proposed rules, and in further considering the comments received regarding the treatment of the days of patients provided premium assistance through a section 1115 demonstration to buy health insurance, we are finalizing our proposal that such patients can also be regarded as eligible for Medicaid under section 1886(d)(5)(F)(vi) of the Act. Therefore, we are finalizing our proposal for purposes of the Medicare DSH calculation in section 1886(d)(5)(F)(vi) of the Act to “regard as” “eligible for medical assistance under a State plan approved under title XIX” patients who (1) receive health insurance authorized by a section 1115 demonstration or (2) buy health insurance with premium assistance provided to them under a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance is matched with funds from title XIX.

Furthermore, of these expansion groups we proposed to regard as eligible for Medicaid, we are finalizing our proposal to include in the DPP Medicaid fraction numerator only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A.

Finally, we are finalizing our proposed amendment of the regulation to state specifically that patients whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration are not patients “regarded as” eligible for Medicaid, and the days of such patients may not be included in the DPP Medicaid fraction numerator.

As discussed previously, we continue to believe it is not appropriate to include in the DPP Medicaid fraction numerator days of all patients who may benefit in some way from a section 1115 demonstration. First, we do not believe the statute permits everyone receiving a benefit from a section 1115 demonstration to be “regarded as” “eligible for medical assistance under a State plan approved under title XIX” merely because they receive a limited benefit. Second, even if the statute were so to permit, as discussed herein, the Secretary believes the DRA provides him with discretion to determine which patients “not so eligible” for Medicaid under a State plan may be “regarded as” eligible. Thus, the Secretary is regarding as Medicaid eligible only those patients who receive as “benefits” from a demonstration health insurance or premium assistance to buy health insurance, because—at root—“medical assistance under a State plan approved under title XIX” provides Medicaid beneficiaries with health insurance, not simply medical care. Third, the DRA also gives the Secretary the authority to decide which days of patients “regarded as” Medicaid eligible to include in the DPP Medicaid fraction numerator. Using this discretion, we are including only the days of those patients who receive from a demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A.

We note this policy is a change from the proposal included in the FY 2023 proposed rule, which would have required that the insurance provide EHB and the premium assistance cover at least 90 percent of the cost of the insurance. The feedback we received on that proposal from interested parties included concerns regarding, among other issues, the burden associated with verifying whether a particular insurance program in which an individual was enrolled provided EHB, how to determine whether a particular premium assistance program covered at least 90 percent of the cost of the insurance, and the difficulty in receiving accurate information on those issues in a timely manner. In light of this feedback, the rule we proposed in February 2023 and are now finalizing maintains the policy established in the regulations at least as far back as FY 2004 that days associated with individuals who obtain health insurance from a demonstration that covers inpatient hospital services be included in the DPP Medicaid fraction numerator. We do not believe that it would be unduly difficult for providers to verify that a particular insurance program includes inpatient benefits. (We refer readers to section XII.B.2. of this final rule for more information on the burden estimate associated with this final rule.) For those individuals who buy health insurance covering inpatient hospital services using premium assistance received from a demonstration, we proposed and are finalizing that the premium assistance cover 100 percent of the individual's cost of the premium to be included in the DPP Medicaid fraction numerator. Indeed, it may be difficult to distinguish between patients who, on the one hand, receive through a demonstration health insurance for inpatient hospital services or 100 percent premium assistance to purchase health insurance and patients who, on the other hand, are eligible for medical assistance under the State plan: all patients receive health insurance paid for with title XIX funds, and all may be enrolled in a Medicaid managed care plan. In the proposal, we stated that we also do not believe that it will be difficult for providers to verify that a particular demonstration covers 100 percent of the premium cost to the patient, as it is our understanding that all premium assistance demonstrations currently meet that standard. In other words, as a practical matter, if a hospital is able to document that a patient is in a demonstration that explicitly provides premium assistance, then that documentation would also document that a patient is in a demonstration that covers 100 percent of the individual's costs of the premium. We also stated in the proposal that we believe our proposed standard of 100 percent of the premium cost to the beneficiary is appropriate because it encapsulates all current demonstrations as a practical matter. We also said that if in the future there is a demonstration that explicitly provides premium assistance that does not cover 100 percent of the individual's costs for the premium, we may revisit this issue in future rulemaking.

As we have consistently stated, individuals eligible for medical assistance under title XIX are eligible for, among other things, specific benefits related to the provision of inpatient hospital services in the form of inpatient hospital insurance. Because funding pool payments to hospitals authorized by a section 1115 demonstration do not provide health insurance to any patient, nor do the payments inure to any specific individual, uninsured patients whose costs are subsidized by uncompensated/undercompensated care pool payments to hospitals do not receive benefits to the extent that or in a manner similar to the full equivalent of “medical assistance” available to those eligible under a Medicaid State plan. Uninsured or underinsured individuals, whether or not they benefit from uncompensated/undercompensated care pool payments to hospitals, do not have health insurance provided by the Medicaid program. Thus, we continue to believe that patients whose costs are associated with uncompensated/undercompensated care pools may not be “regarded as” Medicaid-eligible, and we are using the Secretary's discretion to not regard them as such. Even if they could be so regarded and irrespective of whether the Secretary has the discretion to not regard them as such, the Secretary also is using his authority to not include the days of such patients in the DPP Medicaid fraction numerator: Such patients have not obtained insurance under the demonstration, and including all uninsured patients associated with uncompensated/undercompensated care pools could distort the Medicaid proxy in the Medicare DSH calculation that is used to determine the low-income, non-senior population a hospital serves. An uninsured patient who does not pay their hospital bill (thereby creating uncompensated care for the hospital) is not necessarily a low-income patient.

Accordingly, in this rule, we are finalizing our proposal to revise our regulations at § 412.106(b)(4) to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI” in section 1886(d)(5)(F)(vi) of the Act to mean patients provided health insurance benefits by a section 1115 demonstration. Specifically, we are finalizing our proposal to regard as Medicaid eligible for purposes of the Medicare DSH payment adjustment patients (1) who receive health insurance through a section 1115 demonstration itself or (2) who purchase health insurance with the use of premium assistance provided by a section 1115 demonstration, where State expenditures to provide the insurance or premium assistance is matchable with funds from title XIX. In addition, even if the statute would permit a broader reading, the Secretary is exercising his discretion under section 1886(d)(5)(F)(vi) of the Act to “regard as” Medicaid eligible only those patients. Furthermore, whether or not the Secretary has discretion to determine who is “regarded as” Medicaid eligible, we are using the authority provided the Secretary to limit the days of those section 1115 demonstration patients included in the DPP Medicaid fraction numerator to only those of individuals who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A. And we are finalizing our proposal to explicitly exclude from the DPP Medicaid fraction numerator the days of patients with uncompensated care costs for which a hospital is paid from a funding pool authorized by a section 1115 demonstration project.

Finally, we are finalizing as proposed that our revised regulation would be effective for discharges occurring on or after October 1, 2023. As has been our practice for more than two decades, we have made our periodic revisions to the counting of certain section 1115 patient days in the Medicare DSH calculation effective based on patient discharge dates. Doing so again here treats all providers similarly and does not impact providers differently depending on their cost reporting periods.

In developing the proposal we are finalizing, we considered counting the days of patients in the DPP Medicaid fraction numerator whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration. However, after consideration, as discussed in the proposal and in greater detail herein, because of the Secretary's interpretation of the statute and electing to exercise his discretion for policy reasons, we did not propose to include counting in the DPP Medicaid fraction numerator the days of patients whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration. We invited public comments with regard to our statutory interpretation and our election to exercise the Secretary's authority discussed above, as well as our proposal not to count in the DPP Medicaid fraction numerator days of patients whose inpatient hospital costs are paid to hospitals from uncompensated/undercompensated care pool funds authorized by a section 1115 demonstration.

6. Responses to Comments on CMS 1788–P

In section II.E. of the February 2023 proposed rule (88 FR 12629–12632), we addressed relevant comments the agency received on the proposed rules for FY 2022 and FY 2023 on the treatment of certain 1115 days in the Medicare DSH payment adjustment calculation (86 FR 25459 and 87 FR 28398). We direct the reader to section II.E. of the February 2023 proposed rule to review those comments and responses.

The agency received several timely comments on the February 2023 proposed rule. Many commenters submitted comments similar or identical to those that were submitted on the FY 2022 and FY 2023 proposals. Some of the comments we received on the February 2023 proposed rule were out of scope of the proposal. We will keep these comments in mind for future rulemaking.

Comment: Several commenters argued that CMS is prohibited from finalizing our proposed revisions with respect to days associated with 1115 demonstrations. Many of these commenters argued that section 1886(d)(5)(F)(vi) of the Act prohibits the Secretary from distinguishing days of patients that receive any benefit at all under a demonstration from patients made eligible under a demonstration for health insurance coverage that includes inpatient hospital services. In addition, many of these commenters also argued that two Federal appeals courts have held that the statute requires all patients who are “capable of receiving a demonstration project's helpful or useful effect by reason of a demonstration project's authority” be counted in the Medicare DSH DPP Medicaid numerator, citing Forrest General Hospital v. Azar, 926 F.3d 221 (5th Cir. 2019), and Bethesda Health, Inc. v. Azar, 980 F.3d 121 (D.C. Cir. 2020). Some commenters argued that CMS was prohibited from revising our regulations in light of these court decisions and the decision in HealthAlliance Hospitals, Inc. v. Azar, 346 F. Supp. 3d 43 (D.D.C. 2018).

Response: We thank commenters for their input but we continue to believe that the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI,” in section 1886(d)(5)(F)(vi) of the Act, as amended by the Deficit Reduction Act of 2005, Public Law 109–171, 120 Stat. 4, 31 (Feb. 8, 2006) (“DRA”) sec. 5002, means patients provided health insurance by a section 1115 demonstration, because health insurance is what patients covered under a Medicaid State plan receive under title XIX.

As we explained in the FY 2023 proposed rule (87 FR 28108 and 28400) and reiterated again in the February 2023 proposed rule (88 FR 12623), we believe the statutory phrase “regarded as such” refers to patients who are regarded as eligible for medical assistance under a State plan approved under title XIX, and therefore, should be understood to refer to patients who receive benefits that are most like those that Medicaid-eligible patients get. Patients covered by a Medicaid State plan receive a guarantee of payment for an extensive list of medical services paid for with Medicaid funds—effectively health insurance. In other words, for the purposes of Medicare DSH, patients “regarded as” Medicaid-eligible under a demonstration are people the Medicaid program treats as if they are eligible for Medicaid because a demonstration approved under title XI provides them the same or very similar benefits that Medicaid beneficiaries receive under the State plan, and which are paid for with Medicaid funds. Patients who do not receive the same or very similar benefits, but who might receive from a demonstration a benefit that is not effectively health insurance (such as receiving treatment at a hospital) are not “regarded as” Medicaid-eligible.

Moreover, we believe the DSH statute also provides the Secretary the discretion to determine which patients to “regard[ ] as” “eligible for medical assistance under a State plan approved under title XIX” and to further determine, of those “regarded as” Medicaid-eligible, which patient days to include in the Medicare DSH DPP Medicaid fraction numerator. Therefore, under the Secretary's discretion, we are including in the DPP Medicaid fraction numerator only patients regarded as eligible for Medicaid who are provided by a section 1115 demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A.

In amending the DSH statute in 2006, Congress in section 5002 of the DRA provided the Secretary with: (1) authority to determine which types of patients extended benefits through a section 1115 demonstration to regard as eligible for Medicaid; and (2) discretion to count or not count in the DPP Medicaid fraction numerator days of patients regarded as Medicaid-eligible. We know this because, as discussed above, DRA section 5002(a) confirmed that (1) groups that receive benefits through a section 1115 demonstration are not Medicaid-eligible (meaning they do not receive benefits under a State plan), and (2) the Secretary's pre-2000 policy of excluding expansion populations from the DPP (like patients in Portland Adventist and Cookville who received the same benefits as Medicaid beneficiaries, only under a demonstration) was proper under the DSH statute at the time ( i.e., pre-DRA amendments). Thus, section 5002(a) of the DRA effectively overturned the Portland Adventist and Cookville cases that had held demonstration expansion groups received Medicaid benefits under a State plan. And by ratifying in DRA section 5002(b) the separate policies adopted in rulemaking in January 2000 and for FY 2004, in which the Secretary first included in the DSH calculation all days of expansion groups and then later limited the inclusion to only the days of expansion group patients receiving coverage of inpatient hospital services, Congress affirmed that the Secretary could determine the contours and limits of what it meant under the amended statute for patients to be “regarded as [Medicaid-eligible] because they receive benefits under a demonstration project” and the “extent” to which to include the days of those patients in the DSH DPP Medicaid fraction numerator.

In light of this history, we believe that commenters' reliance on the quotation from Portland Adventist, to say CMS “has refused to implement the DSH provision in conformity with the intent behind the statute” does not reflect the statute as amended and is therefore incorrect. In amending the DSH statute in the DRA, Congress effectively overturned Portland Adventist and clearly stated the authority the Secretary has, and has always had, to determine whether a recipient of benefits under a section 1115 demonstration may be regarded as Medicaid-eligible and, if so, that the Secretary may decide whether to include such patient day in the DPP Medicaid fraction numerator.

As earlier noted, Section 5002(b) of the DRA ratified CMS' January 2000 policy of including all demonstration expansion group days in the DPP Medicaid fraction numerator as those that the Secretary regarded as days of Medicaid-eligible patients. But Congress also ratified CMS' FY 2004 policy that narrowed the type of expansion days included in the DPP Medicaid fraction numerator to only those of patients receiving coverage of inpatient hospital services. In revising the DSH regulation (42 CFR 412.106(b)(4)) for FY 2004, the agency noted that hospitals were claiming days of patients in the DPP Medicaid fraction numerator who were extended only limited benefits (like coverage for family planning services) by a section 1115 demonstration. Thus, in amending the DSH regulation for FY 2004 under the pre-DRA DSH statute, the Secretary affirmed his view that a patient receiving such limited benefits from a demonstration was not similar enough to a patient eligible for Medicaid under a State plan to include the demonstration patient's day in the DPP Medicaid fraction numerator. In other words, the FY 2004 rule—the current regulation we are amending in this rule—underscored the Secretary's belief that patients receiving only some benefit provided by a demonstration, but not the more comprehensive coverage provided under a Medicaid State plan, was not enough to regard such patient as Medicaid-eligible and to count their patient days as Medicaid days for purposes of the DSH calculation.

Moreover, by amending the DSH statute in DRA section 5002(a) to explicitly permit the Secretary to consider certain demonstration days as Medicaid days and include them in the DSH calculation, and by ratifying in section 5002(b) the Secretary's policy of including only demonstration days of patients provided select benefits (coverage of inpatient hospital services), we disagree that the DSH statute requires counting as Medicaid days in the DPP Medicaid fraction numerator all days of patients merely “considered or accounted to be capable of receiving a demonstration project's helpful or useful effects,” as some commenters assert. Rather, the DSH statute, as amended by the DRA, permits demonstration expansion groups to be “regarded as” Medicaid-eligible only when they get benefits similar to those of State plan beneficiaries; provides the Secretary with discretion to determine, in the context of Medicare DSH calculations, whether populations that receive benefits under a section 1115 demonstration are “regarded as” eligible for Medicaid; and likewise provides the Secretary further discretion to determine “the extent” to which the days of those regarded as Medicaid-eligible may be included in the Medicare DSH DPP Medicaid fraction numerator. Therefore, considering our prior rulemakings on this subject and Congress' intervention in enacting section 5002 of the DRA, we disagree with commenters who read section 1886(d)(5)(F)(vi) of the Act to mandate that all days of patients who may benefit in any way from a section 1115 demonstration must be included in the DSH DPP Medicaid fraction numerator.

The text of the statute also confirms the Secretary's authority in these respects. The statute clearly uses discretionary language. It specifies that “the Secretary may, to the extent and for the period the Secretary determines appropriate, include patient days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under title XI.” As the Supreme Court recently explained, “may” is quintessentially discretionary language and has repeatedly emphasized that the use of “may” in a statute is intended to confer discretion rather than establish a requirement. “The use of the word `may' . . . thus makes clear that . . . the Secretary `has the authority, but not the duty.' ” Lopez v. Davi s, 531 U.S. 230, 241 (2001). So, while the DSH statute, section 1886(d)(5)(F)(vi)(II) of the Act, specifies the DPP Medicaid fraction numerator includes the days of patients “eligible for medical assistance under a State plan approved under title XIX,” (if they are not also entitled to Medicare Part A), the DRA provides that the Secretary may include the days of those “not so eligible” (that is, patients not eligible for Medicaid). The additional clause “to the extent and for the period the Secretary determines appropriate” provides even more evidence that Congress sought to give the Secretary the authority to determine which “patient days of patients not so eligible [for Medicaid] but who are regarded as such” to count in the DPP Medicaid fraction numerator. In other words, the statute expressly contemplates that the Secretary may include the days of patients who are not actually eligible for Medicaid under the State plan but who the Secretary treats for all intents and purposes under a section 1115 demonstration as if they were so eligible. But the statute does not command that the Secretary must count such patients. Accordingly, we disagree with commenters who stated that the statute requires we count in the DPP Medicaid fraction numerator all patients who benefit in any way from a demonstration. Rather, the plain reading of the statute authorizes the Secretary to determine, as “the Secretary determines [is] appropriate,” whether patients are regarded as being eligible for Medicaid and, if so, “the extent” to which to include their days in the DPP Medicaid fraction numerator. Moreover, even if we are incorrect in interpreting the statute to give the Secretary the authority to determine what patients may be “regarded as” Medicaid-eligible, the statute still clearly provides the Secretary authority to choose not to include all days of patients so regarded under a demonstration.

Some commenters disagreed with this position, suggesting that all patients who benefit from a demonstration ( e.g. even if they are uninsured or do not receive 100 percent of their premium costs as premium assistance from a demonstration) must be regarded as eligible for Medicaid and included in the DPP Medicaid fraction numerator. While it is true that courts have interpreted the regulation we are replacing with the rule we are finalizing in that manner, we note that the current regulation was drafted prior to the enactment of DRA section 5002 and, therefore, the regulation does not interpret the language the DRA added to the Medicare statute, which, as we explain above and previously, gives the Secretary wide discretion whether to consider demonstration days as Medicaid-eligible days and whether to count them in the Medicaid fraction. Our revised regulation uses the authority granted to the Secretary under the DRA to not regard as eligible for Medicaid individuals eligible for certain 1115 demonstration benefits; and in the event they are “regarded as” Medicaid-eligible, the revised regulation uses the authority granted the Secretary under the DRA to not count their days in the DPP Medicaid fraction numerator.

Also, to the extent commenters read the Forrest General or Bethesda cases as interpreting section 1886(d)(5)(F)(vi) of the Act to require that any patient who benefits from an approved demonstration is “regarded as” eligible for Medicaid and required to be included in the DPP Medicaid fraction, as their comments suggest, we respectfully disagree with that reading of those cases. Rather, we believe the better readings of Forrest General and Bethesda are that the courts determined that days of any patient who is “regarded as” eligible for medical assistance under the DSH regulation (which the courts found uninsured patients to be because they received the “benefit” of inpatient hospital services) must be included in the Medicaid fraction. While, for the reasons already stated, we also disagree with the courts' finding that uninsured patients can be “regarded as” eligible for Medicaid under the current regulation, we nonetheless believe this is the better reading of the courts' decisions and, indeed, is what has led us to revising our regulations. The commenters' readings of these cases cannot square the decisions with Congress' ratification in DRA section 5002(b) of the Secretary's rulemakings that at first included all demonstration days and then excluded many types of demonstration days from the DPP Medicaid fraction numerator. Additionally, we do not believe anything in the courts' decisions, or in the HealthAlliance decision, limits the Secretary's authority to amend his own regulations.

We believe that the revisions we have proposed are consistent with the amended DSH statute and our authority provided thereunder and, for the reasons stated above and in the February 2023 proposed rule, we believe that days associated with uncompensated/undercompensated care pools and premium assistance demonstrations which cover less than 100 percent of the costs of the premium to the patient should not be included in the DPP Medicaid fraction numerator. We are finalizing the proposed changes to the regulation in this rule to clarify who, under1886(d)(5)(F)(vi) of the Act, as amended, the Secretary regards as eligible for Medicaid because of benefits provided by a section 1115 demonstration and which patient days the Secretary will and will not include in the Medicare DSH DPP Medicaid fraction numerator. We believe that our revisions are consistent with the statute and our statutory authority and are not precluded by the court decisions cited by the commenters.

Comment: Some commenters argued that our proposal violated the Administrative Procedure Act because it is arbitrary and capricious and irrationally overbroad.

Response: For reasons we articulated both in the February 2023 proposed rule and above, we do not believe our proposal is arbitrary, capricious or overbroad. We believe that our proposal conforms with the DSH statute, as amended, and the authority given to the Secretary under the Act as it relates to calculating a hospital's disproportionate patient percentage.

Comment: Several commenters specifically objected to our proposal to exclude from counting in the DPP Medicaid fraction numerator days associated with uncompensated/undercompensated care funding pools authorized by section 1115 demonstrations. These commenters argued that patients whose hospital costs were paid for by a section 1115 funding pool must be “regarded as” Medicaid-eligible under the statute because such patients “effectively” receive insurance paid for with Medicaid funds under section 1115 demonstrations. Thus, they assert, these uninsured patients cannot reasonably be distinguished from patients who receive insurance from the Medicaid program. Commenters also asserted in the same vein that uninsured patients receive as benefits from a demonstration's uncompensated/undercompensated funding pool program inpatient hospital services that are the same inpatient benefits that Medicaid beneficiaries receive because the inpatient care they receive from hospitals is the same.

Response: We thank commenters for their input, however we respectfully disagree with the factual predicates and the legal conclusions of these assertions. First, we disagree with the proposition that uninsured patients whose costs may be partially paid to hospitals by uncompensated/undercompensated care pools effectively have insurance which includes inpatient hospital benefits. Therefore, we do not believe that these patients are indistinguishable from Medicaid beneficiaries and expansion group patients who receive health insurance under the State plan or demonstration, respectively, and whose days the Secretary includes in the DPP Medicaid fraction numerator. Uninsured patients, unlike Medicaid or expansion group patients, do not have health insurance.

It is clear, insurance is beneficial to specific patients in ways that uncompensated/undercompensated care pool payments to hospitals are not or could not possibly be to such patients. Medicaid and other forms of health insurance are not merely mechanisms of payment to providers for costs of patient care: Health insurance provides a reasonable expectation on the part of the insurance holder that they can seek treatment without the risk of financial ruin. On the other hand, hospitals may bill uninsured patients for the full cost of their care and refer their medical debts to collection agencies when they are unable to pay, even if some of their medical treatment costs may be paid to the provider by an uncompensated/undercompensated care pool. Thus, it remains the case that uninsured patients may avoid treatment for fear of being unable to pay for it. For example, if two patients receive identical care from a hospital that accepts government-funded insurance, but one of them has insurance as a Medicaid beneficiary or receives insurance through a section 1115 demonstration and, therefore, is financially protected, while the other patient is uninsured and spends years struggling to pay their hospital bill—even if the hospital receives partial payment from a demonstration-authorized uncompensated/undercompensated care pool for that patient's treatment—the two patients have not received the same “benefit” from the government or one that could reasonably be “regarded as” comparable. This distinction between insured and uninsured patients is meaningful in this context, and we believe it is a sound basis on which to distinguish the treatment of patient days in the DSH calculation of uninsured patients who may in some way benefit from a section 1115 demonstration-authorized uncompensated/undercompensated care pool and the days of patients provided health insurance as a Medicaid beneficiary under a State plan or through a demonstration as part of an expansion group.

Second, we also respectfully disagree with commenters who have stated that uninsured patients whose costs may be paid to hospitals by an uncompensated/undercompensated care pool receive the same benefits as patients eligible for Medicaid because the inpatient hospital care is likely the same for both groups. As stated above, within the meaning of section 1886(d)(5)(F)(vi) of the Act, the “benefits” provided to the individual by Medicaid and other forms of insurance a patient receives is the promise of a payment made on behalf of a specific patient to a provider of care for providing the care, not the care itself the hospital provides. The provision of inpatient hospital services and payment for such services are two distinct issues, and because a hospital treats a patient presenting a need for medical care does not indicate anything about whether or how the hospital may be paid for providing that care. And, similarly, the fact that a demonstration provides pool funding from which hospitals may be paid in no way creates an obligation under the demonstration to provide inpatient hospital care to any individual, nor does it create a reasonable expectation on behalf of a specific individual that a hospital must treat them or that such treatment will be paid for under the demonstration. Thus, the similarity of care a patient may receive and for which a hospital may receive some payment from a demonstration's uncompensated/undercompensated care fund is irrelevant to the question of whether the “benefits” provided a patient “because” of a demonstration may be “regarded as” something akin to “medical assistance under a State plan approved under title XIX” such that the Secretary could choose to count that patient's day in the DPP Medicaid fraction numerator. And even if hospitals that receive some Medicaid funds to provide similar treatment to uninsured patients permits or requires the Secretary to regard those patients as Medicaid-eligible for DSH calculation purposes, the Secretary has still rationally distinguished such patients from Medicaid-eligible patients and is choosing not to count them in the DPP Medicaid fraction numerator.

Comment: Some commenters argued that because partial payment of costs by a demonstration's uncompensated/undercompensated care fund to hospitals for the cost of treating uninsured/underinsured patients may be “medical assistance” within the meaning of the Medicaid statute, that the Medicare DSH statute requires the uninsured/underinsured patient to be “regarded as” eligible for Medicaid and their patient days included in the DPP Medicaid fraction numerator.

Response: We disagree with the conclusion that individuals who may benefit from a demonstration's uncompensated/undercompensated care pool payments to hospitals must be “regarded as” eligible for Medicaid because those payments may be considered “medical assistance” under the Medicaid statute and that their patient days must be included in the DPP Medicaid fraction numerator. We believe this conclusion is precluded in light of Congress' amendment of the DSH statute and its ratification of the then-existing DSH regulation, which we are amending through this rule.

As discussed above, Congress ratified the Secretary's FY 2004 regulation, which limited the agency's prior DSH policy of including in the DSH DPP Medicaid fraction all expansion days authorized by a section 1115 demonstration. In limiting the January 2000 regulation, the agency determined a demonstration needed to extend coverage for inpatient hospital services, one form of “medical assistance” (under SSA section 1905(a)(1)), to individuals to include the days of such patients in the DPP Medicaid fraction numerator. As an example of the limitation promulgated in the FY 2004 rule, no longer would the Secretary consider a demonstration's provision of coverage only for family planning services sufficiently similar to the comprehensive coverage Medicaid beneficiaries receive under a State plan. Thus, despite family planning services being “medical assistance” under section 1905(a)(4)(C) of the Act, the FY 2004 rulemaking precluded including in the DPP Medicaid fraction numerator the days of patients receiving only that limited “medical assistance” under a demonstration because it was not similar enough to the medical assistance benefits Medicaid-eligible patients received. Therefore, the days of expansion group patients who only received coverage of this particular type of medical assistance (family planning services) were no longer included in the DSH DPP Medicaid fraction. Congress ratified the FY 2004 regulation, thereby confirming that not every provision of “medical assistance” through a section 1115 demonstration constitutes a “benefit” under the DSH statute that requires the Secretary to regard the recipient as Medicaid-eligible and to include the patient day in the DSH DPP Medicaid fraction. Thus, even if the “benefit” an uninsured patient receives because a hospital is paid something under a section 1115 demonstration for providing that patient inpatient services could be considered “medical assistance,” the Secretary need not regard that patient as Medicaid-eligible for DSH purposes or include their patient day in the DPP Medicaid fraction numerator.

In keeping with this view, we continue to disagree with commenters that our prior discussions of court cases like Adena Regional Medical Center v. Leavitt, 527 F.3d 176 (D.C. Cir. 2008), and Owensboro Health, Inc. v. HHS, 832 F.3d 615 (6th Cir. 2016), are irrelevant to this discussion because those cases did not involve section 1115 demonstrations. We rely on these cases to refute the idea that the provision of something beneficial—like the provision of inpatient hospital services to the uninsured—even when paid for with Medicaid funds, transforms those things into “medical assistance” or makes the recipient of them “eligible for medical assistance” as those phrases are used in the Medicaid statute. The Medicaid program can subsidize the treatment of low-income uninsured patients without making those individuals eligible for “medical assistance.” The phrase, “eligible for medical assistance under a state plan approved under title XIX” is a term of art that Congress uses to identify patients that are eligible for Medicaid. As the D.C. Circuit put the point: “Congress has, throughout the various Medicare and Medicaid statutory provisions, consistently used the words `eligible' to refer to potential Medicaid beneficiaries and `entitled' to refer to potential Medicare beneficiaries.” Northeast Hospital Corp. v. Sebelius, 657 F. 3d 1, 12, (D.C. Cir. 2011). Congress simply followed suit when referring to the two programs in the Medicare DSH DPP provisions. Becerra v. Empire Health Foundation, 142 S. Ct. 2354 (2022). Indeed, the Medicaid DSH provision in section 1923 of the Act is a good example of how a Medicaid state plan may subsidize the treatment of low-income, uninsured patients without making those individuals eligible for “medical assistance” as that phrase is used in the Medicaid statute. The Courts of Appeals have repeatedly rejected lawsuits that presented some variation of the argument that when hospitals received Medicaid DSH payments— i.e., payments funded by title XIX—because they incurred costs treating low-income uninsured patients, it meant that the uninsured patients treated were thereby rendered eligible for Medicaid (or received “medical assistance”). They were not. Likewise here, a subsidy approved under section 1115 to hospitals for costs they incur in treating un- and under-insured patients— i.e., in the form of title XIX payments from a section 1115-approved uncompensated care fund—does not render the patients whose cost may be covered in part by those payments eligible for “medical assistance.” We therefore disagree with comments suggesting that patients whose costs may be offset by demonstration-authorized pool funding to hospitals receive “medical assistance” within the meaning of the Medicare DSH provision at section 1886(d)(5)(F)(vi) of the Act that would require the Secretary to regard such patients as eligible for Medicaid and that those patients days must be included in the DPP Medicaid fraction numerator.

Furthermore, even if uninsured patients could be regarded as eligible for Medicaid, we would not include them in the DPP Medicaid fraction numerator for policy reasons. The DPP is intended to be a proxy calculation for the percentage of low-income patients a hospital treats. Congress has defined the proxy to count in the Medicare fraction the days of patients entitled to Medicare Part A and SSI; the days of patients not entitled to Medicare but eligible for Medicaid are counted in the Medicaid fraction. Thus, because Medicaid has never covered everyone that could be considered low-income—for instance, it generally did not cover low-income, childless adults before passage of the Affordable Care Act—therefore not every low-income patient was ever necessarily accounted for in the DPP Medicaid proxy. If we counted all uninsured patients who could be said to have benefited from an uncompensated/undercompensated care pool (whether low income patients or not, because one need not be low-income to be uninsured and leave a hospital bill unpaid), we could potentially include in the DPP proxy not just all low-income patients in States with uncompensated/undercompensated care pools, including those who have never been, and in our view should not be accounted for int the DPP Medicaid proxy, but also patients who are not low-income but who do not have insurance and did not pay their hospital bill, who we also believe should not be included in the DPP Medicaid fraction numerator. This would be a distortion from how Congress intended the DSH calculation to work, where the DPP is a proxy for the percentage of low-income patients that hospitals serve based on patients covered by Medicare or Medicaid. We note that in contrast to an individual who could afford but elects not to buy insurance and lets bills go unpaid, an individual who receives insurance coverage under Medicaid or a section 1115 demonstration, by definition, must meet low-income standards.

Comment: Some commenters pointed out that in the recently approved Texas demonstration, the Special Terms and Conditions of that program only permit payment from the approved uncompensated/undercompensated care pool for costs incurred providing medical services to uninsured individuals as “charity care” and thus only the hospitals' costs of patients “who demonstrated financial need according to the provider's charity care policy” could be paid from such fund. They assert that this undercuts the above rationale for exercising the Secretary's discretion to exclude uncompensated/undercompensated care days from inclusion in the DPP Medicaid fraction numerator.

Response: We respectfully disagree that the provision in the Texas program undercuts our rationale. As stated above, we think the fact that an individual is provided health insurance through Medicaid or a demonstration is a salient and rational basis for distinguishing individuals that should and should not count in the low-income proxy that is the DPP Medicaid fraction numerator. Moreover, a policy that incentivizes states to expand Medicaid eligibility by including in the DPP Medicaid fraction numerator only the days of patients made eligible for health insurance under a State plan or section 1115 demonstration is sound policy. And while recognizing that the objectives of the Medicaid program can be advanced through the approval of uncompensated/undercompensated care pools in section 1115 demonstration programs because they help keep hospitals financially viable to provide services to Medicaid patients, these funding pools do not provide individuals with a right to seek medical care or any guarantee that the cost of any care will be made on their behalf. Thus, we continue to believe that there is a rational basis to distinguish for Medicare payment purposes days of uninsured patients from those who receive health insurance coverage under a Medicaid State plan or section 1115 demonstration.

Also, counting all patients that may be “capable of receiving a demonstration project's helpful or useful effect by reason of a demonstration project's authority” in States with uncompensated/undercompensated care pools could drastically and unfairly increase DSH payments to hospitals located in States with those programs in comparison to hospitals in States without them, even though the cost burden on hospitals of treating low-income, uninsured patients might be higher in States without uncompensated/undercompensated care pools, precisely because they do not have uncompensated/undercompensated care pools. The purpose “of the DSH provisions is not to pay hospitals the most money possible; it is instead to compensate hospitals for serving a disproportionate share of low-income patients.” We do not believe that purpose would be furthered by regarding uninsured patients associated with uncompensated/undercompensated care pool funding as if they were patients eligible for Medicaid or counting them in the DPP Medicaid fraction numerator.

Thus, while we continue to believe that the statute does not permit patients who might indirectly benefit from uncompensated/undercompensated care pool funding to be “regarded as” eligible for Medicaid, if the statute permits us to regard such patients as eligible for medical assistance under title XIX, the statute also provides the Secretary with the discretion to determine whether to do so. We are electing to exercise the Secretary's discretion not to regard as eligible for Medicaid patients that may indirectly benefit from uncompensated/undercompensated funding pools. In any event, we believe the statute also expressly provides the Secretary with the authority to determine whether to include patient days of patients regarded as eligible for Medicaid in the DPP Medicaid fraction numerator “to the extent and for the period” that the Secretary deems appropriate. Thus, we are also exercising the Secretary's discretion not to include in the DPP Medicaid fraction numerator patient days of patients associated with uncompensated/undercompensated care pool payments.

Comment: Some commenters stated that because CMS does not have evidence that uncompensated/undercompensated care pools are improperly used, we lack the authority to exclude days associated with those programs from the numerator of the Medicaid fraction.

Response: Our interpretation of the DSH statute and policy choices we are finalizing in this rule to exclude counting patient days for which hospitals are paid from demonstration-approved uncompensated/undercompensated care pools is not based on any conclusion that such funding mechanisms are being improperly used; and for the reasons previously stated, we believe we have the authority to do so. To the extent approved by a section 1115 demonstration, funding pools can play a proper role in paying hospitals with title XIX funds for uncompensated costs they incur treating un- and under-insured patients. In doing so, these funding pools can further the objectives of the Medicaid program, as required by section 1115 of the Act, by helping to financially stabilize hospitals that serve Medicaid beneficiaries. We do not, however, agree that the fact that demonstration funding pools can be used properly under section 1115 of the Act requires us, under section 1886(d)(5)(F)(vi) of the Act, to count days associated with them in the DPP Medicaid fraction numerator. As we have stated, individuals who have the cost of their care partially offset through the use of uncompensated/undercompensated care pools do not receive “medical assistance” that is sufficiently similar to the benefits individuals eligible for Medicaid receive under title XIX for us to regard them as eligible for Medicaid for the purposes of Medicare DSH or to count them in the DPP Medicaid fraction numerator, even if they could be regarded as Medicaid eligible under the Medicare statute.

Comment: Many commenters objected to our proposal to exercise the Secretary's discretion to limit including in the DPP Medicaid fraction numerator days of patients who receive premium assistance under a section 1115 demonstration to only the days of those patients receiving such assistance that covers 100 percent of the premium cost to the patient and that are used to buy health insurance for inpatient hospital services. Some of these commenters stated that they believe CMS has ignored the burden of this proposal on hospitals.

A commenter noted that CMS stated that “if in the future there is a demonstration that explicitly provides premium assistance that does not cover 100 percent of the individual's costs for the premium,” that it “may revisit this issue in future rulemaking.” The commenter asserted it is unclear who would furnish this data to hospitals or how hospitals would obtain the patient-specific data that they would need to prove eligibility for each patient under the proposed rule. Therefore, the commenter believes that the proposed limitation on counting patients receiving premium assistance pursuant to a section 1115 waiver is arbitrary and capricious.

Another commenter stated that CMS does not adequately consider the undue burden on hospitals to obtain the information necessary to document these proposed requirements for each patient whose patient days the hospital is seeking to include. Another commenter noted that CMS's existing regulation at § 412.106(b)(4)(iii) requires providers “of furnishing data adequate to prove eligibility for each Medicaid patient day.” The commenter believes that the proposal would place an undue burden on hospitals to be able to count days associated with section 1115 premium assistance programs. The commenter also noted that CMS did not address adequately how hospitals are supposed to determine how much specific patients are paying in premiums to their private health plans or how much the premium assistance under the demonstration is funding for those patients. The commenter was also concerned that CMS has not clarified how hospitals would determine if the 100 percent threshold is met, thus potentially putting at risk even those waiver days that could qualify. The commenter also noted that if all the waiver programs already satisfy the standard of 100 percent of the individual's costs of the premium, it is unclear why CMS needs a new regulation to carve out premium assistance programs that do not even exist.

Response: As we explained both herein and in our proposal, we believe that premium assistance that covers 100 percent of the costs of the premium to the patient, used to purchase health insurance coverage of inpatient hospital services is the level and type of benefit that is most similar to the benefits provided by the Medicaid program under title XIX of the Act—namely, health insurance that covers inpatient hospital benefits. Therefore, because this threshold of premium assistance to buy health insurance covering inpatient services provides the same benefit to individuals as Medicaid beneficiaries receive, albeit obtained through a slightly different mechanism, we believe it is an appropriate threshold to distinguish between individuals we will count for the purposes of calculating Medicare DSH and those we will not. Thus, we are choosing to not include in the DPP Medicaid fraction numerator the days of patients who buy insurance with demonstration-authorized premium assistance that accounts for less than 100 percent of their premium costs because the benefit the government is providing is not similar enough to that which Medicaid-eligible beneficiaries receive. Additionally, we disagree with the commenters who believe that we have ignored the burden of this proposal on providers. In our February 2023 proposal, we stated that it was our understanding that all states with current 1115 premium assistance demonstration programs provide 100 percent premium assistance to individuals; and based on this understanding we quantified as best we could that it would cost 310 hospitals a total of approximately $18,350,169 annually to determine whether a patient received under a demonstration's premium assistance program 100 percent of the cost of their premium for inpatient hospital services coverage (88 FR 12632). While commenters may disagree as to the accuracy of our estimate, we believe that our estimate was reasonable and demonstrates that the burden to providers was not ignored.

We are unsure why some commenters have significant concerns with verifying an individual's section 1115 eligibility and the amount of premium assistance when hospitals are already communicating with their state Medicaid office to verify an individual's eligibility. We do not understand why it is unclear who would furnish this data to hospitals or how hospitals would obtain the patient-specific data that they would need to prove eligibility for each patient under the proposed premium assistance rule. The states have this information as part of the section 1115 demonstration requirements. Finally, as a commenter recognizes, it remains the hospitals' burden to furnish data adequate to prove eligibility for each Medicaid patient day it claims in the DPP Medicaid fraction numerator, and we believe that the state will continue to be able to furnish hospitals with the eligibility data necessary for the hospitals to do so.

We note, as discussed below, since our proposal it has come to our attention that, in addition to the current 1115 demonstrations that all provide 100 percent premium assistance to at least some individuals, at least one demonstration—Massachusetts' discussed in more detail below—also provides a sliding scale of premium assistance to other individuals, dependent on their income levels. Therefore, we are revising our burden estimate accordingly, as discussed in more detail below in section XII.B.2. of this final rule.

Comment: One commenter stated that the proposed requirement that premium assistance fund 100 percent of an individual's health insurance premium to have that patient's inpatient hospital day included in the DPP Medicaid fraction numerator “will complicate and negate the counting of certain Medicaid patients.” This commentator asserts that the Massachusetts 1115 demonstration provides premium assistance to enrollees in the state's Medicaid program (MassHealth), including those who have access to employer-sponsored health insurance (ESI), and to other non-Medicaid-eligible residents who purchase health insurance in the state's health insurance exchange (Health Connector). They claim setting the threshold at 100 percent of the patient's premium costs may cause an increased burden on Massachusetts and the state's providers to determine which patients receive 100 percent premium assistance.

Response: We acknowledge the commenter appears concerned that, by finalizing the premium assistance proposal, Medicaid enrollees made to participate in the MassHealth premium assistance program, where some enrollees may be responsible for paying a small portion of premiums, would not be counted in the DPP Medicaid fraction numerator. We believe, however, that concern is unfounded. Under our proposal, the days of such Medicaid enrollees would be counted in the DPP Medicaid fraction numerator (assuming such enrollees are not also entitled to Medicare Part A), notwithstanding some small premium cost sharing required of the enrollees. As described by the commenter, these individuals are Medicaid enrollees under the State plan; the fact that the Secretary has approved a section 1115 demonstration for Massachusetts to leverage available ESI with premium assistance does not change the nature of an individual's status as a Medicaid enrollee under the State plan, and their Medicaid patient days, as they have always been, will continue to be included in the DPP Medicaid fraction numerator as a Medicaid day (assuming these enrollees are not also entitled to Medicare Part A). The requirement that the demonstration cover 100 percent of the cost of the premium to the patient only applies to individuals who are not eligible for Medicaid under the State plan.

We also disagree that our premium assistance proposal will unreasonably burden hospitals or the state in determining which days of patients who receive premium assistance through an 1115 demonstration may properly be included in the DPP Medicaid fraction numerator. To the extent a hospital seeks to include a day in the DPP Medicaid fraction of a Medicaid enrollee who receives premium assistance to purchase ESI, we are not aware why the hospital would bear any greater burden to determine such patient's Medicaid-enrollee status than if such patient did not receive premium assistance. These patients are entitled to Medicaid under the State plan and should therefore be identifiable in any Medicaid eligibility system a state already maintains. Nothing in the comments we received suggests otherwise.

This commenter also notes that Massachusetts's section 1115 demonstration provides premium assistance to other, non-Medicaid-eligible individuals, and that while the premium assistance covers 100 percent of the patient's premium costs for some low-income individuals, others must contribute to the cost of their premiums depending on their income level and health plan choice. The commenter is concerned because they do not believe that current eligibility systems would inform hospitals whether an enrollee in the state's health exchange had their premium entirely covered or only partially covered with premium assistance provided through the demonstration, and thus, hospitals would be burdened with attempting to obtain this information, which may not be possible unless the state were to modify its own systems that communicate with providers.

While we acknowledge that the premium assistance policy we are finalizing will lead to an increased burden on Massachusetts and providers in that state to identify which non-Medicaid-eligible patients have received premium assistance that covers 100 percent of their premium costs for that patient day to be included in the DPP Medicaid fraction, we do not believe that the burden involved is unreasonable. The commenters did not provide any supporting information as to the extent of the burden or why they believe it would be unreasonable for Massachusetts or hospitals in that state to bear such burden.

While one commenter did point to a quotation in our proposed rule to support the difficulty in obtaining the required information, we believe that this quote has been misunderstood by the commenter. The commenter quotes our proposal as “CMS notes it may be difficult for hospitals to distinguish between patients with premium assistance paid for by Medicaid from patients who are otherwise covered by Medicaid through fee-for-service or managed care.” In the proposal (88 FR 12628), we stated in the context of acknowledging a change in our premium assistance proposal from the FY 2023 proposed rule, which would have required premium assistance that covered at least 90 percent of the cost of the patient's premium for EHB coverage to be included in the DPP Medicaid fraction numerator, that the February 2023 proposal would require premium assistance to cover 100 percent of the patient's premium cost for inpatient hospital coverage to count. As a basis for changing our proposal, we said, “Indeed, it may be difficult to distinguish between patients who, on the one hand, receive through a demonstration health insurance for inpatient hospital services or 100 percent premium assistance to purchase health insurance and patients who, on the other hand, are eligible for medical assistance under the State plan: all patients receive health insurance paid for with title XIX funds, and all may be enrolled in a Medicaid managed care plan.” Our point here was to show that those patients who receive under a demonstration 100 percent premium assistance to buy health insurance that provides inpatient hospital coverage look very similar to patients who receive health insurance under either a demonstration or a Medicaid State plan, thereby establishing why we have chosen to “regard as” Medicaid-eligible such premium assistance recipients and to count their patient days in the Medicare DSH DPP Medicaid numerator fraction. The proposal language the commenter noted was not a statement about the ease or difficulty a hospital may have in determining which patients receive—either under a State plan or 1115 demonstration—health insurance or premium assistance that covers 100 percent of a patient's premium costs for insurance coverage of inpatient hospital services.

We do not believe it will be unreasonably difficult for providers to obtain from the state information on whether certain non-Medicaid-eligible patients qualify through the demonstration to receive premium assistance that covers 100 percent of the cost of their premium for insurance that covers inpatient hospital services. The current Massachusetts section 1115 demonstration provides premium assistance of 100 percent of the cost of premiums to individuals making 150 percent or less of the Federal Poverty Level (FPL), and it provides a sliding scale of premium assistance to non-Medicaid-eligible residents whose income levels range from above 150 percent to over 1,000 percent FPL. (See MassHealth Medicaid and CHIP Section 1115 Demonstration (Project Number 11–W–00030/1 and 21–00071/1), Special Terms and Conditions (STCs), attachment C (Cost Sharing), https://www.medicaid.gov/medicaid/section-1115-demonstrations/downloads/ma-masshealth-ca-demstrtn-aprvl-05192023.pdf .) As stated in the September 28, 2022 Massachusetts Demonstration Extension Approval Letter, “to evaluate the impact of the premium policy, the Commonwealth must continue to assess beneficiary access to and utilization of health care services, enrollment continuity, number and frequency of coverage gaps, and beneficiary experiences with care.” Therefore, to comply with the terms of the section 1115 demonstration, Massachusetts can reasonably be expected to have information on the patients extended premium assistance through the demonstration, including patients' income levels relative to FPL and thus the level of premium assistance each patient receives, and to be able to provide that information to hospitals. See https://www.medicaid.gov/medicaid/section-1115-demonstrations/downloads/ma-masshealth-ca1.pdf , page 14. We believe that, because the state already collects the information hospitals would need to determine which individuals receive 100 percent premium assistance for insurance coverage of inpatient hospital services, there should be no significant hurdle to hospitals obtaining this information from the state.

Comment: One commenter noted that in the proposal, CMS listed a number of states the agency believed to have a section 1115 demonstration that may be affected by the premium assistance proposal, and that this list did not include Indiana. The commenter agreed that Indiana is not among those states that operate such a demonstration. Another commenter noted that Connecticut was not among the states listed as having a section 1115 premium assistance program and requested clarification that the Connecticut program would qualify.

Response: We appreciate the commenter's thoughts on Indiana's 1115 premium assistance demonstration as it might relate to the proposal we are finalizing; we agree with the commenter that Indiana does not currently operate a section 1115 premium assistance demonstration that would be affected by the rule we proposed and are finalizing.

With respect to Connecticut, we agree with the commenter that individuals eligible for premium assistance under the current demonstration (which was approved subsequent to the issuance of the NPRM) would be “regarded as” eligible for Medicaid under the revisions to our regulations and included in the DPP Medicaid numerator (if not also entitled to Medicare Part A) because the demonstration covers 100 percent of the costs of the premium to individuals eligible for it. We note, however, that should the Connecticut program, or any other currently approved premium assistance program authorized under section 1115 of the Act, be revised or approved in the future so that premium assistance under the demonstration does not cover 100 percent of the costs of the premium to the individual or does not cover 100 percent of the costs of the premium for all individuals eligible for it, only the days of those individuals for whom the demonstration covers 100 percent of the cost of the premium to the individuals may be included in the DPP Medicaid fraction numerator under our revised regulations. We have added Connecticut to the list of states in the final rule that currently operate premium assistance programs authorized by section 1115 of the Act.

Comment: Some commenters suggested that the Secretary cannot finalize either the uncompensated/undercompensated care days policy or the premium assistance policy we proposed and apply them to currently approved demonstrations because of providers' reliance interests. They argue once the Secretary approves a section 1115 demonstration “for purposes of the Medicaid program,” it cannot exclude patient days attributable to such demonstration “for purposes of the Medicare DSH patient percentage.” They argue for the Secretary to do so would constitute a “take back” and has no basis in the text of the Medicare statute. In the alternative, some commenters stated that even if CMS had the authority to finalize the proposal with respect to currently approved demonstrations, we should not or specifically requested that we not.

Response: We respectfully disagree with the commenters' interpretation of the statute and the effects of finalizing this rule. As stated above, we believe the Medicare statute provides the Secretary with the discretion to determine what patients may be “regarded as” Medicaid-eligible for purposes of being counted in the Medicare DSH DPP Medicaid fraction numerator and whether to include therein any or which days of patients so regarded. The Medicaid statute, section 1115(a) of the Act, separately provides the Secretary with the authority to authorize Medicaid demonstrations that waive Medicaid requirements and provide expenditure authority to states to incur costs not permitted under a State plan so that states may experiment with ways of using Medicaid funds to “assist in promoting the objective of” the Medicaid program. Thus, the Medicare DSH policies finalized here will not change the terms of any current demonstration or the calculations of Medicaid payments made thereunder. Therefore, by going through this notice and comment rulemaking to clarify our Medicare regulation (42 CFR 412.106(b)(4)) on the treatment of section 1115 patient days in the calculation of Medicare DSH payment adjustments, the Secretary is not “taking back” any Medicaid payments that hospitals or states might otherwise be entitled to under an approved Medicaid section 1115 demonstration. Nor does finalizing this prospective rule unsettle any legitimate reliance interest the hospitals may otherwise have in future Medicare DSH payment adjustments. With respect to the argument that CMS should not finalize the proposal with respect to currently approved demonstrations, for the reasons explained more fully in our February 2023 proposed rule and herein, we believe that, assuming CMS has the discretion to “regard” uninsured individuals as eligible for Medicaid (which we do not believe we can), we believe that the better policy is to exclude their days from the DPP Medicaid fraction numerator and to also exclude days of those receiving premium assistance that is less than 100 percent of the cost of their premiums for inpatient health insurance.

Comment: Some commenters state the proposed changes will have serious financial ramifications for hospitals at a time the hospitals can least afford it. Specifically, commenters raised the financial hardships hospitals have been experiencing over the last few years due to the Covid–19 pandemic, recent inflationary cost pressures, and other causes of financial strain, to suggest that reductions in DSH payments that may result from finalizing this proposal are “reason alone” the proposal should be withdrawn. Some of these commenters expressed concern that the proposal would have a negative effect on health equity in general and safety net hospitals specifically. Other commenters expressed concern that the proposed changes to our regulations would make it more difficult for hospitals to participate in the 340B Program.

Response: We appreciate the points the commenters raise and are sympathetic to the financial hardships faced by many hospitals and acknowledge that the proposed revisions to the regulations affect the calculation of the disproportionate patient percentage, which in turn affects the DSH adjustment, and that a certain DSH adjustment threshold is statutorily required for participation in the 340B Program as well as the unique concerns of safety net hospitals, and health equity remains an important goal of the Secretary. We note, however, as described above, that the Secretary is constrained by the statute as to which patients can be regarded as eligible for Medicaid under a demonstration, even though they are not actually Medicaid-eligible, and therefore whether such patient days may be included in the DPP Medicaid fraction numerator in calculating any DSH payment adjustment. And even if the statute does not require the Secretary to exclude from the DPP Medicaid fraction days of uninsured patients whose hospital care is paid to hospitals from uncompensated/undercompensated care pools or days of patients who receive less in premium assistance than 100 percent of their premium costs to purchase health insurance that covers inpatient hospital care, the Secretary believes that these parameters best further the goals of the Medicare DSH payment adjustment, which is to pay hospitals extra for treating a disproportionate share of low income patients. Additionally, maximizing the size of Factor 1 or the number of hospitals that qualify for HRSA's 340B Program is neither required by the Medicare statute nor an appropriate policy goal of Medicare DSH policy. As the Supreme Court recently said, the purpose “of the DSH provisions is not to pay hospitals the most money possible; it is instead to compensate hospitals for serving a disproportionate share of low-income patients.” To the extent hospitals may be suffering financially because of the COVID–19 pandemic, recent inflationary cost pressures, and other causes of financial strain, the commenters have not demonstrated whether or how such strains have had the effect of causing hospitals to treat a disproportionate share of low-income patients, and therefore it is beyond the boundaries of this rule to address such financial strain.

By using our discretion to regard as Medicaid eligible for purposes of the DPP Medicaid fraction numerator only the days of demonstration patients for which the demonstration provides health insurance or premium assistance to purchase health insurance, and to only include the days of those patients that receive from a demonstration health insurance for inpatient hospital services or premium assistance to buy inpatient hospital insurance, where the premium assistance accounts for 100 percent of the premium cost to the patient, we believe we are acting in accordance with Congress' intent to count some, but not necessarily all, low-income patients in the proxy.

For the reasons stated previously, the DRA's ratification of the Secretary's prior regulations on including or excluding demonstration group patient days from the DPP Medicaid numerator also supports the Secretary having the discretion to exclude days of uninsured patients and patients that do not receive health insurance for inpatient hospital services, and for those receiving premium assistance, where the assistance is less than 100 percent of the premium cost to the patient. By ratifying the Secretary's prior regulation that explicitly stated that our intent was to include in the fraction only the days of those that most looked like Medicaid-eligible patients, the limits we are proposing here fully align with Congress's amendment of the statute.

In summary, we proposed to revise our regulations at § 412.106(b)(4) to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI” in section 1886(d)(5)(F)(vi) of the Act to mean patients (1) who receive health insurance through a section 1115 demonstration itself or (2) who purchase health insurance with the use of premium assistance provided by a section 1115 demonstration, where State expenditures to provide the insurance or premium assistance may be matched with funds from title XIX. Alternatively, we proposed exercising the discretion the statute provides the Secretary to limit to those two groups the patients the Secretary “regard[s] as” “eligible for medical assistance under a State plan” “because they receive benefits under a demonstration.” Moreover, using the Secretary's authority to determine the days of which demonstration groups “regarded as” Medicaid eligible to include in the DPP Medicaid fraction numerator, we proposed that only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, are to be included, provided in either case that the patient is not also entitled to Medicare Part A. Finally, we proposed exercising the Secretary's discretion to not regard as Medicaid-eligible patients whose costs are paid to hospitals from uncompensated/undercompensated care pool funds authorized by a section 1115 demonstration; and we similarly proposed exercising the Secretary's authority to exclude the days of such patients from being counted in the DPP Medicaid fraction numerator, even if those patients could be “regarded as” “eligible for medical assistance under a State plan authorized by title XIX.” Thus, we proposed explicitly excluding from counting in the DPP Medicaid fraction numerator any days of patients for which hospitals are paid from demonstration-authorized uncompensated/undercompensated care pools.

Finally, we proposed our revised regulation would be effective for discharges occurring on or after October 1, 2023. As has been our practice for more than two decades, we have made our periodic revisions to the counting of certain section 1115 patient days in the Medicare DSH calculation effective based on patient discharge dates. Doing so again here treats all providers similarly and does not impact providers differently depending on their cost reporting periods.

For all the reasons stated in the February 2023 proposal and herein, after considering the comments received on this proposal, we are finalizing the rule as proposed. We are making some minor formatting changes to the regulation text to conform to the Office of Federal Register Document Drafting Handbook. See regulations text which appears at the end of this of final rule.

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 the fixed-loss outlier threshold for nontransfer cases (adjusted for geographic variations in costs), divided by the geometric mean length of stay for the MS–DRG, and multiplied by the 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) to 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. Changes for FY 2024

As discussed in section II.C. of the preamble of the proposed rule and this final rule, based on our analysis of FY 2022 MedPAR claims data, we proposed to make changes to a number of MS–DRGs, effective for FY 2024. Specifically, we proposed to do the following:

• Reassign procedures describing thrombolysis when performed for pulmonary embolism from MS–DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) to proposed new MS–DRG 173 (Ultrasound Accelerated and Other Thrombolysis for Pulmonary Embolism).
• Create proposed new base MS–DRG 212 (Concomitant Aortic and Mitral Valve Procedures) for cases reporting an aortic valve repair or replacement procedure and a mitral valve repair or replacement procedure in addition to another concomitant cardiovascular procedure.
• Reassign the procedures involving cardiac defibrillator implants by deleting MS–DRGs 222 through 227 (Cardiac Defibrillator Implant, with and without Cardiac Catheterization, with and without AMI/HF/shock, with and without MCC, respectively) and create proposed new MS–DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) for cases reporting cardiac defibrillator implant with cardiac catheterization with MCC, and proposed new MS–DRGs 276 and 277 (Cardiac Defibrillator Implant with MCC and without MCC, respectively) for cases reporting cardiac defibrillator implant.

• Reassign procedures describing thrombolysis performed on peripheral vascular structures from MS–DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) to proposed new MS–DRG 278 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures with MCC) and proposed new MS–DRG 279 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures without MCC).

• Create proposed MS–DRGs 323 and 324 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC and without MCC, respectively) for cases reporting C–IVL with placement of an intraluminal device, create proposed new base MS–DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) for cases reporting C–IVL without the placement of an intraluminal device, delete MS–DRG 246 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ Arteries or Stents), MS–DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent without MCC), MS–DRG 248 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ Arteries or Stents) and MS–DRG 249 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent without MCC) and create proposed new MS–DRG 321 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices) and proposed new MS–DRG 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device without MCC).
• Delete MS–DRGs 338 through 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) and MS–DRGs 341 through 343 (Appendectomy without Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) describing appendectomy with and without a complicated principal diagnosis and create proposed new MS–DRGs 397, 398, and 399 (Appendix Procedures with MCC, with CC, without CC/MCC, respectively).

As discussed in the proposed rule, in light of the proposed changes to the MS–DRGs for FY 2024, according to the regulations under § 412.4(d), we evaluated the MS–DRGs using the general postacute care transfer policy criteria and data from the December 2022 update of the FY 2022 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. We noted that while CMS proposed the reassignment of procedure codes from MS–DRGs 252, 253, and 254 to proposed new MS–DRGs 278 and 279, we do not consider the proposed revision to constitute a material change that would warrant reevaluation of the postacute care status of MS–DRGs 252, 253, and 254. We noted this base MS–DRG (MS–DRG 252) does not currently qualify for postacute care transfer status. 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.

We stated that proposed new MS–DRG 276 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 proposed to add proposed new MS–DRGs 276 and 277 to the list of MS–DRGs that are subject to the postacute care transfer policy. MS–DRGs 166, 167, and 168 are currently subject to the postacute care transfer policy. As a result of our review, these MS–DRGs, as proposed to be revised, would continue to qualify to be included on the list of MS–DRGs that are subject to the postacute care transfer policy. We note that, as discussed in section II. of this final rule, we are finalizing these proposed changes to the MS–DRGs.

CMS has updated its analysis using the March 2023 update of the FY 2022 MedPAR file, and has developed the following chart which sets forth the analysis of the postacute care transfer policy criteria completed for this final rule with respect to each of these new or revised MS–DRGs. We note that this chart is updated from the MedPAR file used in the proposed rule (the December 2022 update of the FY 2022 MedPAR file).

During our annual review of proposed new or revised MS–DRGs and analysis of the December 2022 update of the FY 2022 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 2024 to determine if any of these MS–DRGs would also be subject to the special payment methodology policy for FY 2024. Based on our analysis of proposed changes to MS–DRGs included in the proposed rule, we determined that proposed new MS–DRG 276 meets 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 proposed that proposed new MS–DRG 277 also would be subject to the MS–DRG special payment methodology, effective for FY 2024. For this FY 2024 final rule, we updated this analysis using data from the March 2023 update of the FY 2022 MedPAR file.

Comment: One commenter, citing extremely high early stay costs, expressed concern about adding MS–DRGs 276 and 277 to the post-acute transfer policy unless the full cost of the cardiac defibrillator and the cost to implant is covered. The commenter stated that payment to the transferring hospital for these MS–DRGs would be twice the per-diem amount the first day and with each subsequent day paid at the per-diem amount up until the full MS–DRG payment.

Response: The commenter described the payment methodology under the post-acute care transfer policy. However, CMS proposed that these MS–DRGs also be added to the list of MS–DRGs subject to the special payment policy. Under this policy, the transferring hospital would receive 50 percent of the full MS–DRG payment, plus a 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). The intent of the special payment policy is specifically to address MS–DRGs with high initial costs, such as the one-time cost of surgically implanted devices. We believe the proposed addition of MS–DRGs 276 and 277 to the special payment policy adequately addresses the specific concerns expressed by the commenter.

After consideration of public comments we received, we are finalizing our proposal to add new MS–DRGs 276 and 277 to the list of MS–DRGs that are subject to the postacute care transfer policy and the MS–DRG special payment methodology for FY 2024.

The postacute care transfer and special payment policy status of these MS–DRGs is reflected in Table 5 associated with this final rule, which is listed in section VI. of the Addendum to this final rule and available on the CMS website.

B. Changes in the Inpatient Hospital Update for FY 2024 (§ 412.64(d))

1. FY 2024 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 2024, we stated in the proposed rule that we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 2023. (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 stated that 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 2024 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.

We note, in compliance with section 404 of the MMA, 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.

We proposed to base the FY 2024 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Inc.'s (IGI's) fourth quarter 2022 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through third quarter 2022, which was estimated to be 3.0 percent. We also proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2024 market basket update in the final rule.

Comment: Several commenters stated that hospitals continue to face significant inflationary pressures. Commenters specifically expressed concern that the proposed hospital IPPS payment update for FY 2024 does not adequately consider the cost growth that hospitals have faced over the last few years, noting cost increases related to workforce (including contract labor), drugs, medical supplies, personal protective equipment (PPE), and capital investment. The commenters stated that the significant inflation over the past several years has not been fully captured by the IPPS payment updates during the COVID years.

Several commenters requested that CMS use its exceptions and adjustments authority to increase the FY 2024 IPPS hospital market basket update higher than proposed. One commenter urged CMS to review the hospital cost data and the margin on Medicare reimbursement and readjust payment rates based on the new baseline cost of care that has resulted from supply shocks and labor shortages. A few commenters suggested CMS apply a market basket increase of at least 3.8 percent, reflecting MedPAC's March 2023 Report to Congress recommending a one-percent increase to the FY 2024 market basket and requested that CMS consider a FY 2024 market basket that more accurately represents inflation on hospital expenses. One commenter supported a higher market basket payment update under the IPPS to reflect the actual effects of inflation on hospital operating costs and endorsed an annual inflation-based payment update based on the full Medicare Economic Index (MEI) while one commenter requested CMS use its authority to increase the FY 2024 IPPS hospital payment update to at least 5 percent.

Many commenters stated that they have experienced their lowest margins in decades and anticipated additional worse operating losses in at least the next two fiscal years. One commenter stated that in its March 2023 report to Congress, MedPAC reported overall Medicare hospital margins were negative 6.2 percent in 2021 (after accounting for temporary COVID–19 relief funds). Moreover, the commenter stated that MedPAC also projected hospitals' Medicare margins in 2023 to be lower than in 2021, driven in part by the growth in hospitals' input costs, which exceeded the forecasts CMS used to set Medicare payment rate updates, and in part by the expected expiration of Federal relief funds and temporary Medicare payment increases related to the public health emergency. The commenter stated that MedPAC also projects that even “relatively efficient” hospitals' Medicare margins will fall below break-even in 2023.

One commenter stated that while the 2022 market basket increase of 4 percent provided some relief from the additional costs of COVID–19 for 2023, the proposed FY 2024 market basket update would not carry these elevated costs associated with COVID–19 forward into 2024 even though the commenter stated that additional costs of COVID–19 still exist. The commenter noted that hospitals are now faced with rebuilding long-term funds, paying longer-term inflated costs of supplies and equipment and high wages due to the lack of staffing that still exists as a result of COVID burn out. Several commenters stated that this year's proposed update is inadequate and requested that CMS address the market basket update in the final rule.

One commenter noted that CMS proposed “that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2024 market basket update in the final rule.” The commenter urged CMS to use more recent data that include the recent inflationary increases in cost; and in the absence of such data urged CMS to consider an alternative approach to better align the market basket increases with increases in cost to treat patients. A few commenters appreciated the proposed payment increase but also stated agreement with other commenters that the proposed increase is inadequate given inflation and labor and supply pressures that hospitals, particularly rural hospitals, have been facing and continue to face.

Many commenters had significant concerns that the proposed IPPS payment update does not adequately reflect labor costs. Commenters stated the significant increases in labor expenses over the last couple of years have been largely driven by increased utilization of contract staff (due to workforce shortages) and growth in employee salaries. One commenter cited their own analysis of payroll data to calculate the increased cost of labor, which it stated was significantly higher than the annual increases for compensation prices that CMS finalized over the last several years. Given what they stated was the significant difference between the increased cost of labor versus what CMS estimates using the ECIs, the commenters stated they had significant concerns that CMS' data source for estimating the cost of labor does not capture current market dynamics and underestimates the actual cost of healthcare labor. Many commenters cited analysis that nursing staff shortages are predicted to continue for the next several years. Specifically, commenters raised concerns about the CMS use of the Bureau of Labor Statistics' Employment Cost Index (ECI) in the IPPS market basket. Commenters stated they believe the BLS' ECI does not accurately reflect the shift from salaried employees to contract labor since the ECI does not collect data for contract staff, and thus does not capture extraordinary labor cost growth associated with hospitals' increased reliance on clinicians contracted through staffing agencies in response to supply shortages. One commenter highlighted their belief that a closely related measure—the Employer Costs for Employee Compensation (ECEC)—may be a better and more timely data source for growth in hospital compensation costs compared to the ECI. The commenter claimed that all else equal, if the hospital ECI growth had matched the hospital ECEC growth, this would have meant an additional three percentage point increase in the IPPS hospital market basket over the 2019 to 2022 time period. Several commenters recommended that CMS use its exceptions and adjustments authority to adopt new or supplemental data sources such as commercial databases on hospital payrolls, to ensure labor costs are adequately reflected in the FY 2024 payment update in the final rule.

One commenter also requested CMS identify more accurate data inputs and use its existing authority to calculate the final rule “base” (before additional adjustments) market basket update with data that better reflect the rapidly increasing input prices facing hospitals. The commenter suggested that CMS should consider using the average growth rate in allowable Medicare costs per risk adjusted discharge for IPPS hospitals between FY 2019 and FY 2021 to calculate the FY 2024 final rule market basket update rather than using the growth in the ECI as the price proxy for compensation in the IPPS market basket. The commenter requested using Medicare cost report data from Worksheets D–1, Part II, Lines 48 and 49 and S–3, Part 1, Column 13 to determine the Medicare costs per discharge. The commenter stated that this growth rate will capture the increased cost of contract labor, unlike the ECI. Based on their analysis of Medicare cost report data, they found that this methodology would yield an unadjusted market basket update of 4.39 percent for FY 2024 rather than the 2.8 percent net market basket update proposed by CMS. The commenter also stated that Medicare margins have declined over the last 20 years and believes this is due to persistently inadequate Medicare market basket updates. They further stated that hospitals' financial situations are so precarious that MedPAC recommended to Congress that it increase IPPS and OPPS payments over current law to preserve access.

Response: We acknowledge commenters' concerns regarding recent trends in inflation. Section 1886(b)(3)(B)(iii) of the Act states the Secretary shall update IPPS payments based on a market basket percentage increase based on an index of appropriately weighted indicators of changes in wages and prices that are representative of the mix of goods and services included in such inpatient hospital services. The 2018-based IPPS market basket is a fixed-weight, Laspeyres-type price index that measures the change in price, over time, of the same mix of goods and services purchased by hospitals in the base period. As we discussed in response to similar comments in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49053), the IPPS market basket increase would reflect the prospective price pressures described by the commenters as increasing during a high inflation period (such as faster wage price growth or higher energy prices), but would inherently not reflect other factors that might increase the level of costs, such as the quantity of labor used or any shifts between contract and staff nurses (which would be reflected in the Medicare cost report data). We disagree that costs as reported on the Medicare cost report are a suitable data source for determining the trend in compensation prices for the market basket update. The Medicare cost report data also reflects factors that are beyond those that impact wage or price growth. For instance, overall Medicare costs per discharge as reported by hospitals on the Medicare cost report would also reflect observed IPPS case-mix (and associated higher payments to hospitals), which from 2019 to 2022 has increased faster than in prior years and would be associated with the use of more skilled care and medical/drug supplies needed to provide these services.

Regarding commenters' request that CMS consider other methods and data sources to calculate the final rule market basket update, we believe that the 2018-based IPPS market basket continues to appropriately reflect IPPS cost structures and we believe the price proxies used (such as those from BLS that reflect wage and benefit price growth) are an appropriate representation of price changes for the inputs used by hospitals in providing services. As discussed in appendix B of this final rule, in its March report, MedPAC recommended that the Congress update the inpatient hospital rates by the amount specified in current law plus one percent. Given that we believe the 2018-based IPPS market basket reflects an index of appropriately weighted indicators of changes in wages and prices that are representative of the mix of goods and services included in such inpatient hospital services and the percentage change of the 2018-based IPPS market basket is based on IGI's more recent forecast reflecting the prospective price pressures for FY 2024, we do not believe it would be appropriate to use our exceptions and adjustment authority to create a separate payment that would have the effect of modifying the current law update.

The ECI (published by the BLS) measures the change in the hourly labor cost to employers, independent of the influence of employment shifts among occupations and industry categories. We acknowledge that the ECI measures only reflect price changes and does not capture changes in quantity or mix of labor such as increased utilization of contract staff as noted by the commenter. We believe that the ECI for hospital workers is accurately reflecting the price change associated with the labor used to provide hospital care and appropriately does not reflect other factors that might affect labor costs (such as a shift in occupations that may occur due to increases in case-mix). The ECEC data cited by the commenter is limited in its usefulness in the market basket because it reflects averages across all employees (similar to another BLS wage series, Average Hourly Earnings, available from the Current Employment Statistics program). According to BLS documentation, the ECEC reflects average compensation in the economy at a point in time, including both changes in compensation and changes in employment. The wage measure in the market basket should not reflect changes in employment to be consistent with the statute that the market basket percentage increase be based on an index of appropriately weighted indicators of changes in wages and prices. The ECEC, an indicator that also includes changes in employment, is not as appropriate to use as the ECI in the IPPS market basket. For these reasons, we believe the ECI continues to be an appropriate measure to use in the IPPS market basket.

We note that the Medicare cost report data shows contract labor hours account for about 4 percent of total compensation hours (reflecting employed and contract labor staff) for IPPS hospitals in 2021. Therefore, while we acknowledge that the ECI measures only reflect price changes for employed staff, we believe that the ECI for hospital workers is accurately reflecting the price change associated with the labor used to provide hospital care (as employed workers' hours account for 96 percent of hospital compensation hours). Therefore, we believe it continues to be an appropriate measure to use in the IPPS market basket. We also note that when developing its forecast for the ECI for hospital workers, IGI 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 highlight that the market basket percentage increase is a forecast of the price pressures that are expected to be faced in 2024. As projected by IGI (a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the price proxies of the market baskets) and upward price pressures are expected to slow in FY 2024 relative to FY 2022 and FY 2023. As is our general practice, we proposed that if more recent data became available, we would use such data, if appropriate, to derive the final FY 2024 IPPS market basket update for the final rule. We appreciate the commenter's concern regarding inflationary pressure and the request to use more recent data to determine the FY 2024 IPPS market basket update. For this final rule, we are incorporating a projection of the 2018-based IPPS market basket that is based on the most recent forecast from IHS Global Inc. For this final rule, based on the more recent IGI second quarter 2023 forecast with historical data through the first quarter of 2023, the projected 2018-based IPPS market basket increase factor for FY 2024 is 3.3 percent, which is 0.3 percentage point higher than the projected FY 2024 market basket increase factor in the proposed rule based on IGI's fourth quarter 2022 forecast, and reflects a projected increase in compensation prices of 4.3 percent. We would note that the 10-year historical average (2013–2022) growth rate of the 2018-based IPPS market basket is 2.5 percent reflecting a 10-year historical average (2013–2022) growth rate compensation prices equal to 2.4 percent.

Comment: One commenter recommended that CMS reevaluate the data sources it uses for rebasing its market basket and calculating the annual market basket update, including labor costs. They strongly encouraged CMS to adopt new or supplemental data sources in future rulemaking that more accurately reflect the costs to hospitals, such as through use of more real time data from the hospital community. They stated that they believe that the current market basket does not account for the higher costs of contract labor, which has become more common in hospitals in an era of clinical labor shortages. One commenter requested that CMS rebase the market baskets more frequently and at least every three years to ensure the market basket reflects the appropriate mix of services provided to Medicare beneficiaries.

Response: CMS appreciates the commenter's request to rebase more frequently. Section 404 of Public Law 108–173 states the Secretary shall establish a frequency for revising the cost weights of the IPPS market basket more frequently than once every 5 years. As published in the FY 2006 IPPS final rule (70 FR 47403), we established a rebasing frequency of every four years, in part because the cost weights obtained from the Medicare cost reports do not indicate much of a change in the weights from year to year. The most recent rebasing of the IPPS market basket was for the FY 2022 payment update and reflected a base year of 2018 costs. Given recent concerns raised by commenters regarding changes in costs as a result of recent inflation and the COVID–19 pandemic, we also have been regularly monitoring the Medicare cost report data to assess whether a rebasing is technically appropriate, and we will continue to do so in the future. Based on a preliminary analysis of the Medicare cost report data for IPPS hospitals for 2021 that became available for this final rule, the IPPS compensation cost weight for 2021 is estimated to be about 1 percentage point lower than the 2018-based IPPS market basket compensation cost weight of 53.0 percent, and reflects a combined decrease in the salary and benefit cost weights that is larger than the increase in the contract labor cost weight. The major cost categories that preliminarily show an increase in the cost weight over this period are pharmaceuticals (proxied by the PPI—Commodity—Special Index—Pharmaceuticals for human use, prescription) and home office contract labor compensation costs (which would be proxied by the ECI for Professional and Related workers). We plan to review the 2021 Medicare cost report data in more detail as well as 2022 Medicare cost report data as soon as complete information is available and evaluate these data for future rebasing of the IPPS market basket.

Regarding the comment about using new or supplemental data sources in future rulemaking, we believe the Medicare cost report data is the most complete, timely and relevant data source for the development of the cost weights. We also welcome feedback on alternative publicly available data sources that could be used to evaluate the cost conditions facing hospitals and the subsequent derivation of the market basket cost weights.

Comment: Several commenters, including many associations, urged CMS to use its special exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to implement a retrospective adjustment for FY 2024 to account for the difference between the market basket update that was implemented for FY 2022 and what the currently projected market basket is for FY 2022. Commenters stated this is, in large part, because the market basket is a time-lagged estimate that cannot fully account for unexpected changes that occur, such as historic inflation and increased labor and supply costs. They stated this is exactly what occurred at the end of the calendar year 2021 into calendar year 2022, which resulted in a large forecast error in the FY 2022 market basket update. Commenters stated the IPPS reimbursement has failed to keep pace with inflation as costs for drugs, supplies, insurance premiums, and labor have increased. They recommended that CMS utilize the FY 2024 update to include a retrospective adjustment and methodology change to make the FY 2022 actual 5.7 percent market basket percentage increase to be more reflective of the costs hospitals face, including the true impact of inflation. One commenter also urged CMS to reflect the forecast error in FY 2022 as well as an additional 1.0 percent on top of the proposed FY 2024 market basket increase. One commenter requested that CMS use its special exceptions and adjustment authority to make a one-time retrospective adjustment of 10–15 percent to the market basket to account for what it stated hospitals should have received in 2022 when accounting for inflation, while another commenter stated that at a minimum, CMS should address what it stated was the gross underpayment that occurred in FY 2022 via a one-time adjustment of at least 3 percent.

One commenter urged CMS to use its exceptions and adjustments authority to apply a one-time adjustment to course correct for its significantly lower estimates of costs for FY 2021 through FY 2023. The commenter stated that because the annual payment update builds on the prior year's payment rate, failing to correct what it described as CMS' gross underestimation of the payment updates during the pandemic will further perpetuate inaccuracies in the payment rate moving forward, resulting in a permanent cut to hospital payments. Similarly, another commenter stated that in three of the last five years for which they had data to compare, they observed that the forecasted hospital market basket data used to set IPPS payment rates has fallen short of actual market basket data. They estimated, based on actual expenditure data from the 2023 Medicare Trustees Report, that in 2021 hospitals may have lost nearly $1 billion and in 2022 hospitals may have lost more than $4 billion as a result of the forecast error assumptions.

Several commenters suggested CMS should consider implementing a market basket forecast error adjustment within the methodology for calculating the annual IPPS payment update. One commenter stated that this change would reduce the risk hospitals face when rapid inflation causes CMS's forecasted hospital market basket percentage increase to be out of alignment with the actual hospital market basket percentage increase. One commenter stated that CMS should do so if forecast error is more than 0.5 percentage point while another commenter recommended a threshold of 1.5 percentage points. One commenter stated that unlike other industries, hospitals cannot simply raise prices to bring in additional revenue, but rather can only bring in additional revenue by renegotiating higher payments with employers and health insurers, something that is increasingly difficult in the current fiscal environment. They stated that if hospitals are unable to grow revenue from other sources, they must make cuts to important service lines just like any other business to remain financially viable.

One commenter also noted that for both the SNF PPS and the capital IPPS, CMS is making the forecast error adjustments based on a threshold level of difference between the update and the market basket that was adopted through rulemaking in prior years.

Response: While the projected IPPS hospital market basket updates for FY 2021 and FY 2022 were under forecast (actual increases less forecasted increases were positive), this was largely due to unanticipated inflationary and labor market pressures as the economy emerged from the COVID–19 PHE. However, an analysis of the forecast error of the IPPS market basket over a longer period of time shows the forecast error has been both positive and negative. For example, the 10-year cumulative forecast error showed a negative forecast error (that is, forecasted increases were greater than actual increases) of 1.1 percentage points (2013 through 2022). In addition, for each year from 2012 through 2020, the forecasted FY hospital market basket update implemented in the final rule was higher than the actual hospital market basket update once historical data were available, with 7 out of the 9 years having a negative forecast error greater than 0.5 percentage point (in absolute terms). Only considering the forecast error for years when the final hospital market basket update was lower than the actual market basket update does not consider the numerous years that providers benefited from the forecast error. Relatedly, the capital PPS and SNF PPS forecast error adjustments were adopted very early in both payment systems and, unlike what commenters are requesting here for the IPPS, forecast errors over many years have been consistently addressed within each of the Capital PPS and SNF PPS

For these reasons, we do not believe it is appropriate to include adjustments to the market basket update for future years based on the difference between the actual and forecasted market basket increase in prior years. We thank the commenters for their comments. After consideration of the comments received and consistent with our proposal, we are finalizing to use more recent data to determine the FY 2024 market basket update for the final rule. Specifically, based on more recent data available, we determined final applicable percentage increases to the standardized amount for FY 2024, as specified in the table that appears later in this section.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business 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 multifactor productivity (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/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch . 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 2024, we proposed a productivity adjustment of 0.2 percent. Similar to the proposed market basket update, for the proposed rule, the estimate of the proposed FY 2024 productivity adjustment was based on IGI's fourth quarter 2022 forecast. As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2024 productivity adjustment for the final rule.

Comment: Several commenters expressed concern about the application of the productivity adjustment, stating that the PHE has had unimaginable impacts on hospital productivity. They state that even before the PHE, OACT indicated that hospital productivity will be less than the general economy-wide productivity, which is the measure that is required by law to be used to derive the productivity adjustment. Given that CMS is required by statute to implement a productivity adjustment to the market basket update, commenters asked the agency to work with Congress to permanently eliminate what they stated is an unjustified reduction to hospital payments. Further, they asked CMS to use its “exceptions and adjustments” authority to remove the productivity adjustment for any fiscal year that was covered under PHE determination ( i.e., 2020 (0.4 percent), 2021 (0.0 percent), 2022 (0.7 percent), and 2023 (0.3 percent) from the calculation of the market basket update for FY 2024 and any year thereafter. A few commenters expressed concerns about the proposed productivity adjustment given the extreme and uncertain circumstances under which hospitals and health systems are currently operating and urged CMS to eliminate the productivity cut for FY 2024.

Response: While we appreciate the commenters' concerns, section 1886(b)(3)(B)(xi) of the Act requires the application of the productivity adjustment. As required by statute, the FY 2024 productivity adjustment is derived based on the 10-year moving average growth in economy-wide productivity for the period ending FY 2024.

We thank the commenters for their comments. After consideration of the comments received and consistent with our proposal, we are finalizing as proposed to use more recent data to determine the FY 2024 productivity adjustment for the final rule.

Based on more recent data available for this FY 2024 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2023 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through the first quarter of 2023), we estimate that the FY 2024 market basket update used to determine the applicable percentage increase for the IPPS is 3.3 percent. Based on more recent data available for this FY 2024 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2023 forecast of the productivity adjustment), the current estimate of the productivity adjustment for FY 2024 is 0.2 percentage point.

As previously discussed, based on the more recent data available, for this final rule, we have determined four final applicable percentage increases to the standardized amount for FY 2024. For FY 2024, depending on whether a hospital submits quality data under the rules established in accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital that submits quality data) and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR user), there are four possible applicable percentage increases that can be applied to the standardized amount, as specified in this 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 previously noted, section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.)

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. As discussed in section V.F. of the preamble of this final rule, section 4102 of the Consolidated Appropriations Act, 2023 (Public Law 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). We refer readers to section V.F. of the preamble of this final rule for further discussion of the MDH program.

For FY 2024, we proposed the following updates to the hospital-specific rates applicable to SCHs and MDHs: A proposed update of 2.8 percent for a hospital that submits quality data and is a meaningful EHR user; a proposed update of 0.55 percent for a hospital that submits quality data and is not a meaningful EHR user; a proposed update of 2.05 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and a proposed update of −0.2 percent for a hospital that fails to submit quality data and is not an meaningful EHR user. We proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the update in the final rule.

We did not receive any public comments on our proposed updates to hospital-specific rates applicable to SCHs and MDHs. The general comments we received on the proposed FY 2024 update (including the proposed market basket update and productivity adjustment) are discussed earlier in this section. For FY 2024, we are finalizing the proposal to determine the update to the hospital specific rates for SCHs and MDHs in this final rule using the more recent available data, as previously discussed.

For this final rule, based on more recent available data we are finalizing the following updates to the hospital specific rates applicable to SCHs and MDHs (the same update factor as for all other hospitals subject to the IPPS, consistent with the applicable percentage increases for the IPPS): An update of 3.1 percent for a hospital that submits quality data and is a meaningful EHR user; an update of 0.625 percent for a hospital that submits quality data and is not a meaningful EHR user; an update of 2.275 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and an update of −0.2 percent for a hospital that fails to submit quality data and is not a meaningful EHR user.

2. FY 2024 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 2024, 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 2022 forecast of the 2018-based IPPS market basket update with historical data through third quarter 2022, in the FY 2024 IPPS/LTCH PPS proposed rule, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we proposed a market basket update of 3.0 percent less a productivity adjustment of 0.2 percentage point. Therefore, for FY 2024, depending on whether a Puerto Rico hospital is a meaningful EHR user, we stated there would be 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 2024 for Puerto Rico hospitals:

• For a Puerto Rico hospital that is a meaningful EHR user, we proposed a FY 2024 applicable percentage increase to the operating standardized amount of 2.8 percent (that is, the FY 2024 estimate of the proposed market basket rate-of-increase of 3.0 percent less 0.2 percentage point for the proposed productivity adjustment).
• For a Puerto Rico hospital that is not a meaningful EHR user, we proposed a FY 2024 applicable percentage increase to the operating standardized amount of 0.55 percent (that is, the FY 2024 estimate of the proposed market basket rate-of-increase of 3.0 percent, less an adjustment of 2.25 percentage point (the proposed market basket rate-of-increase of 3.0 percent × 0.75 for failure to be a meaningful EHR user), and less 0.2 percentage point for the proposed productivity adjustment).

As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2024 market basket update and the productivity adjustment for the FY 2024 IPPS/LTCH PPS final rule.

We did not receive any public comments on our proposed updates to the standardized amount for FY 2024 for Puerto Rico hospitals. The general comments we received on the proposed FY 2024 update (including the proposed market basket update and productivity adjustment) are discussed in greater detail earlier in this section. For FY 2024, we are finalizing the proposal to determine the update to the standardized amount for FY 2024 for Puerto Rico hospitals in this final rule using the more recent available data, as previously discussed.

As previously discussed in section V.A.1, based on more recent data available for this final rule (that is, IGI's second quarter 2023 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through the first quarter of 2023), we estimate that the FY 2024 market basket update used to determine the applicable percentage increase for the IPPS is 3.3 percent and the productivity adjustment is 0.2 percent. For FY 2024, depending on whether a Puerto Rico hospital is a meaningful EHR user, there are two possible applicable percentage increases that can be applied to the standardized amount. Based on these data, accordance with section 1886(b)(3)(B) of the Act, we determined the following applicable percentage increases to the standardized amount for FY 2024 for Puerto Rico hospitals:

• For a Puerto Rico hospital that is a meaningful EHR user, an applicable percentage increase to the FY 2024 operating standardized amount of 3.1 percent (that is, the FY 2024 estimate of the market basket rate-of-increase of 3.3 percent less an adjustment of 0.2 percentage point for the productivity adjustment).
• For a Puerto Rico hospital that is not a meaningful EHR user, an applicable percentage increase to the operating standardized amount of 0.625 percent (that is, the FY 2024 estimate of the market basket rate-of-increase of 3.3 percent, less an adjustment of 2.475 percentage point (the market basket rate-of-increase of 3.3 percent × 0.75 for failure to be a meaningful EHR user), and less an adjustment of 0.2 percentage point for the productivity adjustment).

C. Sole Community Hospitals (SCHs) (§ 412.92)

1. Background

Section 1886(d)(5)(D) of the Act provides special payment protections under the IPPS to sole community hospitals (SCHs). Section 1886(d)(5)(D)(iii) of the Act defines an SCH in part as a hospital that the Secretary determines is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of inpatient hospital services reasonably available to Medicare beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria that a hospital must meet to be classified as an SCH. For more information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (74 FR 43894 through 43897).

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41430), effective for SCH applications received on or after October 1, 2018, we modified the effective date of SCH classification from 30 days after the date of CMS's written notification of approval to the date that the MAC receives the complete SCH application. As we explained in that final rule, section 401 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106–113, Appendix F) amended section 1886(d)(8) of the Act to add paragraph (E) which authorizes reclassification of certain urban hospitals as rural if the hospital applies for such status and meets certain criteria. The effective date for rural reclassification status under section 1886(d)(8)(E) of the Act is set forth at 42 CFR 412.103(d)(1) as the filing date, which is the date CMS receives the reclassification application (§ 412.103(b)(5)). One way that an urban hospital can reclassify as rural under § 412.103 (specifically, § 412.103(a)(3)) is if the hospital would qualify as a rural referral center (RRC) as set forth in § 412.96, or as an SCH as set forth in § 412.92, if the hospital were located in a rural area. A geographically urban hospital may simultaneously apply for reclassification as rural under § 412.103(a)(3) by meeting the criteria for SCH status (other than being located in a rural area), and apply to obtain SCH status under § 412.92 based on that acquired rural reclassification. However, as we explained in the FY 2019 final rule, the rural reclassification is effective as of the filing date, whereas under our policy at that time, the SCH status was effective 30 days after approval. In addition, while § 412.103(c) states that the CMS Regional Office will review the application and notify the hospital of its approval or disapproval of the request within 60 days of the filing date, the regulations do not set a timeframe by which CMS must decide on an SCH request. We stated that therefore, geographically urban hospitals that obtain rural reclassification under § 412.103 for the purposes of obtaining SCH status may face a payment disadvantage because, under the policy at that time, they are paid as rural until the SCH application is approved and the SCH classification and payment adjustment become effective 30 days after approval.

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41430), to minimize the lag between the effective date of rural reclassification under § 412.103 and the effective date for SCH status, we revised our policy so that the effective date for SCH classification and for the payment adjustment would be the date that the MAC receives the complete SCH application, effective for SCH applications received on or after October 1, 2018, as reflected in § 412.92(b)(2)(i) and (iv). We stated that a complete application includes a request and all supporting documentation needed to demonstrate that the hospital meets criteria for SCH status as of the date of application. We also stated that for an application to be complete, all criteria must be met as of the date the MAC receives the SCH application. We further stated that a hospital applying for SCH status on the basis of a § 412.103 rural reclassification must submit its § 412.103 application no later than its SCH application in order to be considered rural as of the date the MAC receives the SCH application.

As we explained in the FY 2019 IPPS/LTCH PPS final rule, we believed that updating the regulations at § 412.92 to provide an effective date for SCH status that is consistent with the effective date for rural reclassification under § 412.103 would benefit hospitals by minimizing any payment disadvantage caused by the lag between the effective date of rural reclassification and the effective date of SCH status. We also stated that we believe that aligning the SCH effective date with the § 412.103 effective date supports agency efforts to reduce regulatory burden because it would provide for a more uniform policy.

In addition, we made parallel changes to the effective date for a Medicare dependent hospital (MDH) status determination under § 412.108(b)(4) such that for applications received on or after October 1, 2018, a determination of MDH status would be effective as of the date that the MAC receives the complete application, rather than the prior effective date of 30 days after the date the MAC provides written notification to the hospital. Similar to applications for SCH status, we stated that a complete application includes a request and all supporting documentation needed to demonstrate that the hospital meets criteria for MDH status as of the date of application. We further stated that for an application to be complete, all criteria must be met as of the date the MAC receives the MDH application. For example, a cost report must be settled at the time of application for a hospital to use that cost report as one of the cost reports required in § 412.108(a)(1)(iv)(C).

We refer the reader to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41430) for further discussion of these changes to the effective dates of SCH and MDH status beginning with applications received on or after October 1, 2018.

As explained in the FY 2019 IPPS/LTCH PPS final rule, we specifically modified the effective date for SCH status for consistency with the effective date for rural reclassification in order to minimize any payment disadvantage caused by the lag between the effective date of rural reclassification and the effective date of SCH status for hospitals applying for both rural reclassification under § 412.103(a)(3) by meeting the criteria for SCH status (other than being located in a rural area), and applying to obtain SCH status under § 412.92 based on that acquired rural reclassification. As previously discussed, by meeting the criteria for SCH status (other than being located in a rural area), a hospital can qualify for rural reclassification per the regulations at § 412.103(a)(3), which then allows it to meet all the criteria for SCH status—including the rural requirement at § 412.92(a).

2. Change of Effective Date for SCH Status in the Case of a Merger

For some hospitals, eligibility for SCH classification may depend on the hospital's merger with a nearby “like hospital” as defined in § 412.92(c)(2) and meeting other criteria at § 412.92(a). The merger allows the two hospitals involved to operate under a single provider agreement. The regulations at § 412.92(c)(2) define a like hospital as a nearby hospital that furnishes short-term acute care and whose total inpatient days attributable to units of the nearby hospital that provide a level of care characteristic of the level of care payable under the acute care hospital inpatient prospective payment system are greater than 8 percent of the similarly calculated total inpatient days of the hospital seeking SCH designation. In this scenario, prior to the merger, the applicant hospital was not eligible for SCH classification due to its proximity to a nearby like hospital. When the applicant hospital subsequently merges with the nearby like hospital, it is potentially eligible for SCH classification.

If an SCH application is approved, under current policy, the effective date of the SCH classification is the date the MAC receives the complete application. In situations where SCH classification is contingent on a merger, a hospital is not considered to have submitted a complete application to the MAC unless the application contains the notification that the merger was approved. We have heard concerns that in these situations the time difference between the effective date of the hospital merger, which may be retroactive, and the effective date of the SCH status, which is based on the date the complete application is received by the MAC, including the merger approval, may be problematic for hospitals because they cannot benefit from the special payment protections that are afforded to SCHs until the effective date of the SCH classification. We have also heard concerns that different merger requirements across states could potentially introduce an uneven playing field for providers seeking SCH classification because the timeframe for a merger approval could vary from one state or region to another.

Therefore, in an effort to address these concerns and in light of our continuing experience in applying these policies, in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27007), we proposed to revise § 412.92(b)(2) so that for SCH applications received on or after October 1, 2023, where (1) a hospital's SCH approval is dependent on its merger with another nearby hospital, and (2) the hospital meets the other SCH classification requirements, the SCH classification and payment adjustment would be effective as of the effective date of the approved merger if the MAC receives the complete application within 90 days of CMS' written notification to the hospital of the approval of the merger. We explained that this 90-day timeframe would provide sufficient time for a hospital to submit a complete SCH application, while addressing the concerns, as previously discussed, that merger approval may be delayed for reasons beyond a hospital's control. Under this proposal, if the MAC does not receive the complete application within 90 days of CMS' notification of the merger approval, SCH classification would be effective as of the date the MAC receives the complete application, including documentation of the merger approval, and in accordance with the regulations at § 412.92(b)(2)(i).

In connection with this proposal, we also proposed to change 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 proposed that in these circumstances, and subject to the requirements set forth at proposed new § 412.92(b)(2)(vi), the effective date for rural reclassification would be as of the effective date set forth in proposed new § 412.92(b)(2)(vi).

We note that we did not propose to modify any SCH classification requirements or what constitutes a “complete application”. The SCH application must, therefore, include all required documentation that would constitute a “complete application” including documentation of the hospital's merger approval. We also note that we did not propose any change to the effective date for an SCH application that does not involve a merger.

In the proposed rule, we stated that we continue to believe that our current approach in determining the effective date for SCH classification where the SCH application is contingent on a hospital merger is reasonable. However, in light of our experience in applying these policies and the concerns we have heard about the timeframes involved, we believe that our proposed revision to the effective date for hospitals applying for SCH classification where that classification is dependent on a merger is also reasonable and appropriate and would benefit hospitals by minimizing the time difference between the effective date of the merger and the effective date of SCH status. We noted that we did not propose a parallel change to the effective date policy for MDH classification because eligibility for MDH classification is not dependent on proximity to nearby providers and, therefore, MDH classification would generally not be contingent on a merger taking place. However, we sought comment on the need for such a proposal, which we would consider for future rulemaking as appropriate.

Comment: Commenters supported CMS' proposed change to the effective date for SCH status for SCH applications received on or after October 1, 2023, in the case of a merger where eligibility for SCH classification depends on a hospital merger. Commenters also supported the proposed conforming change to 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.

Response: We appreciate the commenters' support.

Comment: Commenters requested that CMS apply these proposals retroactively and provided various ideas for a retroactive effective date. One commenter suggested that we apply our proposed change retroactively to FY 2019, when CMS last changed the effective date for SCHs (83 FR 41430). The commenter stated that the reasoning given to the FY 2019 modification of the SCH effective date would apply to providers submitting a combined merger and SCH application. Specifically, the commenter indicated that the FY 2019 regulatory change to the SCH effective date was intended to minimize any payment disadvantage caused by the lag between the effective date of rural reclassification and the effective date of SCH status, and to reduce regulatory burden by providing for a more uniform policy. The same commenter stated that different CMS Regional Offices and/or MACs have applied different requirements and effective dates for SCH classifications in the case of a merger where eligibility for SCH classification depends on a hospital merger, and in order to avoid differing treatment, CMS should adopt this proposal retroactively to FY 2019. Alternatively, the commenter suggested that CMS could apply the change to any situation for which the parties have preserved appeal rights over the effective date determination for an SCH approval. Other commenters suggested that CMS apply the change retroactively for providers who were seeking SCH classification during the COVID–19 pandemic and were affected by the lag time between their merger and SCH classification.

Response: We appreciate the commenters' ideas and suggestions. However, we do not agree that we should apply our proposed changes retroactively. The IPPS is a prospective system and, we generally make changes to IPPS regulations effective prospectively based on the date of discharge or the start of a cost reporting period within a certain Federal fiscal year. Under that approach, we believe that applying this change for a merger that already took place may constitute retroactive rulemaking—and would be a departure from our usual practice in IPPS—regardless of whether there's a pending administrative appeal. We believe that following our usual approach and adopting the new effective date policies for SCH and rural reclassification applications where SCH eligibility is dependent on a hospital merger that are received on or after October 1, 2023 will allow for the most equitable application among all IPPS providers seeking to qualify for SCH classification and rural reclassification (as applicable). For these reasons, we are finalizing, without modification, that our proposed changes to the SCH and the rural reclassification effective dates will apply prospectively for applications received on or after October 1, 2023.

Comment: Several commenters requested that CMS clarify its current policy definition of a “complete application” for cases contingent on a merger.

Response: As stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27008), we did not propose to modify any SCH classification requirements or what constitutes a “complete application”. We refer the commenters to the Chapter 28 of the Provider Reimbursement Manual (PRM), section 2810. B. ( https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/p151_28.zip ), for a list of documentation that must be included with its request for SCH classification. In addition to the documentation list in the PRM, for an SCH application where eligibility for SCH classification is dependent on a hospital merger, that documentation must include confirmation that the merger has been approved by CMS (for example, a CMS tie-in notice recognizing the two CCNs as merged). We note that we intend to update the list of required documentation in the PRM to include documentation indicating that the merger has been approved by CMS for SCH classification requests that are dependent on a hospital merger.

After consideration of the public comments we received, we are finalizing our policies as proposed, without modification. Specifically, we are finalizing our proposal to revise § 412.92 by adding a new paragraph (b)(2)(vi) to specify that for applications received on or after October 1, 2023, where eligibility for SCH classification is dependent on a merger, the effective date of the SCH classification will be as of the effective date of the approved merger if the MAC receives the complete application within 90 days of CMS' written notification to the hospital of the approval of the merger. If the MAC does not receive the complete application within 90 days of CMS' written notification of the merger approval, SCH classification will be effective as of the date the MAC receives the complete application in accordance with the regulations at § 412.92(b)(2)(i). We are also finalizing our proposal to make conforming changes to the existing regulations at § 412.92(b) by adding an exception referencing paragraph § 412.92(b)(2)(vi) to the language describing the effective date for applications received on or after October 1, 2018 at § 412.92(b)(2)(i), and by revising and streamlining the language at § 412.92(b)(2)(ii)(C) and (b)(2)(iv) to reference § 412.92(b)(2)(i) as the effective date policy in effect for applications received on or after October 1, 2018. In addition, we are finalizing our proposed technical correction to paragraph (b)(1)(v) by revising the word “forward” to “forwards”.

We are also finalizing our proposal to make a conforming change to the regulations at § 412.103(d) by modifying 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. We are finalizing our proposed amendment to § 412.103(d)(1) and the proposed addition of new § 412.103(d)(3) to provide that, subject to the hospital meeting the requirements set forth at § 412.92(b)(2)(vi), the effective date for rural reclassification for such hospital will be as of the effective date determined under § 412.92(b)(2)(vi).

D. 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 Public Law 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 Public Law 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), 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 47089), we indicated that we were revisiting that decision. Specifically, we stated that we will 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 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 national median CMI value for FY 2024 is based on the CMI values of all urban hospitals nationwide, and the regional median CMI values for FY 2024 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 values are based on discharges occurring during FY 2022 (October 1, 2021 through September 30, 2022), and include bills posted to CMS' records through March 2023. Because this is the latest available data, we believe that it is the best available data for use in calculating the national and regional median CMI values and is consistent with our proposal to use the FY 2022 MedPAR claims data for FY 2024 ratesetting.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27009), we proposed that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2023, they must have a CMI value for FY 2022 that is at least—

• 1.8067 (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 were set forth in the table in the proposed rule (88 FR 27010). We stated in the proposed rule that we intended to update the proposed CMI values in the FY 2024 final rule to reflect the updated FY 2022 MedPAR file, which will contain data from additional bills received through March 2023.

Comment: Commenters supported our proposal to use FY 2022 data to calculate the national and regional median CMI values for FY 2024.

Response: We appreciate the commenters' support.

Therefore, based on the best available data (FY 2022 bills received through March 2023), 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, 2023, they must have a CMI value for FY 2022 that is at least:

• 1.80655 (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 final CMI values by region are set forth in the following table.

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 (PSR) 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.

3. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges criteria in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27010), for FY 2024, we proposed to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2021 (that is, October 1, 2020, through September 30, 2021). Because this is the latest available cost reporting data, we believe that it 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 2021 for FY 2024 ratesetting.

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27010), we proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2023, must have, as the number of discharges for its cost reporting period that began during FY 2021, at least—

• 5,000 (3,000 for an osteopathic hospital); or
• If less, the median number of discharges for urban hospitals in the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2023 IPPS/LTCH PPS proposed rule at 88 FR 27010).

In the proposed rule, we stated that we intended to update to update these numbers in the FY 2024 final rule based on the latest available cost report data.

Comment: Commenters supported our proposal to use FY 2021 data to calculate median number of discharges by region for FY 2024.

Response: We appreciate the commenters' support.

Therefore, based on the best available discharge data at this time, that is, for cost reporting periods that began during FY 2021, the final median number of discharges for urban hospitals by census region are set forth in the following table.

We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this final rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

E. Payment Adjustment for Low-Volume Hospitals (§ 412.101)

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. Therefore, the additional payment adjustment is based on the per discharge amount paid to the qualifying hospital under section 1886 of the Act. 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.

1. Recent Legislation

As discussed in the FY 2023 IPPS/LTCH PPS final rule, beginning with FY 2023, the low-volume hospital qualifying criteria and payment adjustment were set to revert to the statutory requirements that were in effect prior to FY 2011 (87 FR 49060). Subsequent legislation extended, for FYs 2023 and 2024, the temporary changes to the low-volume hospital qualifying criteria and payment adjustment originally provided for by section 50204 of the Bipartisan Budget Act of 2018 for FYs 2019 through 2022 as follows:

• Section 101 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023 (Pub. L. 117–180), enacted on September 30, 2022, through December 16, 2022.
• Section 101 of the Further Continuing Appropriations and Extensions Act, 2023 (Pub. L. 117–229), enacted on December 16, 2022, through December 23, 2022.
• Section 4101 of the Consolidated Appropriations Act, 2023 (CAA 2023) (Pub. L. 117–328), enacted on December 29, 2022, through September 30, 2024.

We discuss the extension of these temporary changes for FY 2023 and FY 2024 in greater detail in this section of this rule and in the FY 2024 IPPS/LTCH proposed rule (88 FR 27010 through 27011). Beginning in FY 2025, the low-volume hospital definition and payment adjustment methodology will revert back to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act, which were extended and modified through subsequent legislation.

2. Extension of the Temporary Changes to the Low-Volume Hospital Definition and Payment Adjustment Methodology for FYs 2023 and 2024

As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399), section 50204 of the Bipartisan Budget Act of 2018 (Pub. L. 115–123) modified the definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals for FYs 2019 through 2022. Specifically, the qualifying criteria for low-volume hospitals under section 1886(d)(12)(C)(i) of the Act were amended to specify that, for FYs 2019 through 2022, 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. Section 1886(d)(12)(D) of the Act was also amended to provide that, for discharges occurring in FYs 2019 through 2022, 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), to implement this requirement, we specified a continuous, linear sliding scale formula to determine the low-volume hospital payment adjustment for FYs 2019 through FY 2022 that is similar to the continuous, linear sliding scale formula used to determine the low-volume hospital payment adjustment originally established by the Affordable Care Act and implemented in the regulations at § 412.101(c)(2)(ii) in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50240 through 50241). 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. As such, for qualifying hospitals with fewer than 3,800 total discharges but more than 500 total discharges, the low volume hospital payment adjustment for FYs 2019 through FY 2022 was calculated using the following formula:

Low-Volume Hospital Payment Adjustment = 0.25−[0.25/3300] × (number of total discharges−500) = (95/330)−(number of total discharges/13,200)

For this purpose, we specified that the “number of total discharges” is determined as total discharges, which includes Medicare and non-Medicare discharges during the fiscal year, based on the hospital's most recently submitted cost report. The low-volume hospital payment adjustment for FYs 2019 through 2022 is set forth in the regulations at § 412.101(c)(3).

As described previously, recent legislation extended through FY 2024 the definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals in effect for FYs 2019 through FY 2022 pursuant to the Bipartisan Budget Act of 2018. Specifically, under sections 1886(d)(12)(C)(i) and 1886(d)(12)(C)(i)(III) of the Act, as amended, for FY 2023 and FY 2024, a low-volume hospital must be more than 15 road miles from another subsection (d) hospital and have less than 3,800 discharges during the fiscal year.

In addition, under section 1886(d)(12)(D)(ii) of the Act, as amended, for FY 2023 and FY 2024, the low-volume hospital payment adjustment is determined using a continuous linear sliding scale ranging from 25 percent for low-volume hospitals with 500 or fewer discharges to 0 percent for low-volume hospitals with greater than 3,800 discharges.

Based on the current law, beginning with FY 2025, the low-volume hospital qualifying criteria and payment adjustment will revert to the statutory requirements that were in effect prior to FY 2011. Section 1886(d)(12)(C)(i) of the Act, as amended, defines a low-volume hospital, for FYs 2005 through 2010 and FY 2025 and subsequent years, as a subsection (d) hospital that the Secretary determines is located more than 25 road miles from another subsection (d) hospital and that has less than 800 discharges during the fiscal year. As previously noted, section 1886(d)(12)(C)(ii) of the Act further stipulates that the term “discharge” means an inpatient acute care discharge of an individual, regardless of whether the individual is entitled to benefits under Medicare Part A (except with respect to FYs 2011 through 2018). Therefore, for FYs 2005 through 2010 and FY 2019 and subsequent years, the term “discharge” refers to total discharges, regardless of payer (that is, Medicare and non-Medicare discharges). Furthermore, as amended, section 1886(d)(12)(B) of the Act requires, for discharges occurring in FYs 2005 through 2010 and FY 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. Section 1886(d)(12)(B)(iii) of the Act limits the applicable percentage increase adjustment to no more than 25 percent. 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 to low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated that multivariate analyses supported the existing low-volume adjustment implemented in FY 2005. Therefore, in order for a hospital to continue to qualify as a low-volume hospital on or after October 1, 2024, it must have fewer than 200 total discharges during the fiscal year and be located more than 25 road miles from the nearest “subsection (d)” hospital (see § 412.101(b)(2)(i)). We refer readers to the FY 2023 IPPS/LTCH PPS final rule for further discussion.

As discussed in section V.E.4. of the preamble of this final rule, we proposed to make conforming changes to the regulation text in § 412.101 to reflect the extension of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals through FY 2024.

Comment: Many commenters supported the extension of the changes to the low-volume hospital qualifying criteria and payment adjustment methodology for FYs 2023 and 2024.

Response: We appreciate the commenters sharing their support for the extension of the temporary changes to the low-volume hospital payment adjustment FYs 2023 and 2024.

As discussed later in the section, we are finalizing our proposals without modification on the extension of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals through FY 2024, after consideration of the public comments.

3. Extension of the Temporary Changes to the Low-Volume Hospital Definition and Payment Adjustment Methodology for FY 2023

Prior to the enactment of Public Law 117–180, the temporary changes to the low-volume hospital qualifying criteria and payment adjustment originally provided by section 50204 of the Bipartisan Budget Act of 2018 were set to expire October 1, 2022. As previously discussed, these temporary changes to the low-volume hospital payment policy were extended through December 16, 2022 by section 101 of Public Law 117–180, through December 23, 2022 by section 101 of Public Law 117–229, and through September 30, 2024 by section 4101 of Public Law 117–328. In accordance with section 1886(d)(12)(C)(i) of the Act, as amended, for FY 2023 a low-volume hospital must be more than 15 road miles from another subsection (d) hospital and must have less than 3,800 discharges during the fiscal year.

We addressed the extension provided by section 101 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023 (Pub. L. 117–180) for the portion of FY 2023 beginning on October 1, 2022, and ending on December 16, 2022 (in other words, occurring before December 17, 2022) in Change Request 12970 (Transmittal 117400), issued December 9, 2022. For additional information on this extension, please refer to the transmittal https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r11740otn .

We subsequently addressed the additional extensions of these provisions for FY 2023, specifically, through December 23, 2022, as provided by section 101 of the Further Continuing Appropriations and Extensions Act, 2023 (Pub. L. 117–229) and through September 30, 2023, as provided by section 4101 of the CAA 2023 (Pub. L. 117–328) in Change Request 13103 (Transmittal 11878), issued February 23, 2023. For additional information, please refer to the transmittal https://www.cms.gov/files/document/r11878otn.pdf .

We proposed to make conforming changes to the regulations text in § 412.101 to codify these extensions for FY 2023 as discussed in section V.E.4. of the preamble of this final rule.

Comment: Many commenters supported the extension of the definition and payment of the low-volume hospital payment adjustment for FY 2023. A commenter urged CMS to expeditiously process claims and provide instructions to MACs for extensions, especially in instances when extensions are made retroactively. The commenter indicated seamless transition of these payments are crucial for rural providers.

Response: We appreciate the commenters sharing their support for legislative action of the extension. As we have said in the past, we will make every effort to implement any extension of the low-volume payment policy as expeditiously as possible.

After consideration of the public comments we received regarding the temporary changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals through FY 2023, we are finalizing our proposal without modification for the FY 2023 extensions.

4. Payment Adjustment for FY 2024 and Conforming Changes to Regulations

As discussed earlier, section 4101 of the CAA 2023 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. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2024, 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 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).

As previously discussed, 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. As such, for qualifying hospitals with fewer than 3,800 total discharges but more than 500 total discharges, the low-volume hospital payment adjustment at § 412.101(c)(3)(ii) is calculated using the following formula:

Low-Volume Hospital Payment Adjustment = 0.25−[0.25/3300] × (number of total discharges−500) = (95/330)−(number of total discharges/13,200)

For this purpose, the “number of total discharges” is determined as total discharges, which includes Medicare and non-Medicare discharges during the fiscal year, based on the hospital's most recently submitted cost report, as explained previously.

Consistent with the extension of the methodology for calculating the payment adjustment for low-volume hospitals through FY 2024, we proposed to continue using the previously specified continuous, linear sliding scale formula to determine the low-volume hospital payment adjustment for FY 2024. We also proposed 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 Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023, the Further Continuing Appropriations and Extensions Act, 2023, and the CAA 2023. Specifically, we proposed 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 FY 2023 and FY 2024 is the same low-volume hospital payment adjustment policy in effect for FYs 2019 through 2022 (as described in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399)). In addition, in accordance with the provisions of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023, the Further Continuing Appropriations and Extensions Act, 2023, and the CAA 2023, for FY 2025 and subsequent fiscal years, we proposed to make conforming changes to paragraphs (b)(2)(i) and (c)(1) of § 412.101 to reflect that the low-volume hospital payment adjustment policy in effect for those years is the same the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010, as described previously.

Comment: In addition to expressing support for FY 2023, many commenters supported the extension to the FY 2024 definition and payment of the low-volume hospital payment adjustment.

Response: We appreciate the commenters sharing their support for the extension of the low-volume hospital definition and payment adjustment for FY 2024, and for legislative action for the permanent modification of the low-volume hospital payment policy.

Comment: Many commenters urged CMS to collaborate with Congress to make permanent the modifications to the low-volume hospital payment policy. Some commenters urged CMS to continue the temporary changes to the definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals for FY 2024 and subsequent years. Commenters stated that not continuing these temporary changes would result in significant reductions in payment that could impede the services hospitals, including those in rural communities, provide in the communities they serve.

Response: We appreciate the feedback from comments urging CMS to explore ways to continue the enhanced low-volume hospital payment policy for FY 2024 and subsequent years, we note that the statute only extends the temporary changes to the low-volume hospital policy for FYs 2023 and 2024. Therefore, beginning with FY 2025, the low-volume hospital qualifying criteria and the amount of the payment adjustment to such hospitals will revert back to those policies that were in effect prior to the amendments made by recent legislation.

After consideration of the public comments on the payment adjustment methodology for low-volume hospitals through FY 2024, we are finalizing our proposal to codify these extensions to the regulation text in § 412.101 without modification.

5. Process for Requesting and Obtaining the Low-Volume Hospital Payment Adjustment for FY 2024

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414) and subsequent rulemaking, most recently in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49062 through 49063), 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 the revised § 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.

As also discussed earlier, in addition to the discharge criterion, for FY 2019 and subsequent fiscal years, eligibility for the low-volume hospital payment adjustment is also dependent upon the hospital meeting the applicable mileage criterion specified in the revised § 412.101(b)(2)(i) or (iii) for the fiscal year. Specifically, to meet the mileage criterion for FY 2024, as noted earlier, a hospital must be located more than 15 road miles from the nearest subsection (d) hospital, as was the case for FYs 2019 through 2023. (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 hospitals, 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 our previously established process, for FY 2024, we proposed that a hospital must submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, we proposed that for FY 2024, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than September 1, 2023, in order for the low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2023. If a hospital's written request for low-volume hospital status for FY 2024 is received after September 1, 2023, 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 2024 discharges, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination.

Under this process, a hospital that qualified for the low-volume hospital payment adjustment for FY 2023 may continue to receive a low-volume hospital payment adjustment for FY 2024 without reapplying if it continues to meet both the discharge and the mileage criteria (which, as discussed previously, are the same qualifying criteria that apply for FY 2023). In this case, a hospital's request can include a verification statement that it continues to meet the mileage criterion applicable for FY 2023. (Determination of meeting the discharge criterion is discussed earlier in this section.) We note that a hospital must continue to meet the applicable qualifying criteria as a low-volume hospital (that is, the hospital must meet the applicable discharge criterion and mileage criterion for the fiscal year) to receive the payment adjustment in that fiscal year; that is, low-volume hospital status is not based on a “one-time” qualification (75 FR 50238 through 50275). Consistent with historical policy, a hospital must submit its request, including this written verification, for each fiscal year for which it seeks to receive the low-volume hospital payment adjustment, and in accordance with the timeline described earlier.

We did not receive any comments on our process for requesting and obtaining the low-volume payment adjustment for FY 2024. For the reasons discussed in this final rule and in the FY 2024 IPPS/LTCH PPS proposed rule, we are finalizing our proposal, without modification.

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

1. Background

Section 1886(d)(5)(G) of the Act provides special payment protections, under the IPPS, to a Medicare-dependent, small rural hospital (MDH). Section 1886(d)(5)(G)(iv) of the Act defines a MDH as a hospital that is located in a rural area, or is located in an all-urban State but meets one of the specified statutory criteria for rural reclassification (as added by section 50205 of the Bipartisan Budget Act of 2018, Pub. L. 115–123), has not more than 100 beds, is not an sole community hospital (SCH), and has a high percentage of Medicare discharges (that is, not less than 60 percent of its inpatient days or discharges during the cost reporting period beginning in FY 1987 or two of the three most recently audited cost reporting periods for which the Secretary has a settled cost report were attributable to inpatients entitled to benefits under Part A). The regulations at 42 CFR 412.108 set forth the criteria that a hospital must meet to be classified as an 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).)

2. Implementation of Legislative Extension of MDH Program

Since the extension of the MDH program through FY 2012 provided by section 3124 of the Affordable Care Act, the MDH program has been extended multiple times by subsequent legislation, most recently for FYs 2023 through 2024, as discussed further in this section (that is, for discharges occurring before October 1, 2024.) (Additional information on the extensions of the MDH program after FY 2012 and through FY 2022 can be found in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49064).) As discussed in the FY 2023 IPPS/LTCH PPS final rule, the MDH program provisions at section 1886(d)(5)(G) of the Act were set to expire at the end of FY 2022 (87 FR 49064). Subsequently, the MDH program was extended by additional legislation as follows:

• Division D, Section 102 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023 (Public Law 117–180), enacted on September 30, 2022, 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 December 16, 2022.
• Division C, Section 102 of the Further Continuing Appropriations and Extensions Act, 2023 (Pub. L. 117–229), enacted on December 16, 2022, 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 December 23, 2022.
• Division FF, Section 4102 of the Consolidated Appropriations Act, 2023 (Pub. L. 117–328), enacted on December 29, 2022, 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 FY 2024 (that is, for discharges occurring on or before September 30, 2024).

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27014), we proposed 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 FY 2024.

We note that the legislative extensions of the MDH program provided by section 102 of Pub. L. 117–180 and section 102 of Public Law 117–229, which collectively extended the program through December 23, 2022, were signed into law prior to a statutory expiration of the MDH program. Generally, as a result of these extensions, a provider that was classified as an MDH as of September 30, 2022, continued to be classified as an MDH as of October 1, 2022, with no need to reapply for MDH classification. (For more information on the MDH extensions through December 23, 2022, see Change Request 12970 and Change Request 13103, which are available online at https://www.cms.gov/files/document/R11740OTN.pdf and https://www.cms.gov/files/document/r11878otn.pdf , respectively.) In contrast, the legislative extension provided by section 4102 of Public Law 117–328 was signed into law on December 29, 2022, after the December 24, 2022, expiration of the MDH program. Generally, as a result of this extension and consistent with previous extensions of the MDH program, a provider that was classified as an MDH as of December 23, 2022, was reinstated as a MDH effective December 24, 2022, with no need to reapply for MDH classification.

The regulations at § 412.92(b)(2)(v) allow MDHs to apply for classification as a SCH 30 days prior to the anticipated expiration of the MDH program, and if approved, to be granted such status effective with the expiration of the MDH program. As discussed in Change Requests 12970 and 13103, because the MDH program did not, in fact, expire as of the anticipated October 1, 2022, or December 17, 2022, expiration dates, any MDH that applied for SCH classification per the regulations at § 412.92(b)(2)(v) in anticipation of either of those expiration dates would not have been classified as a SCH as of October 1, 2022, or December 17, 2022, as applicable. Furthermore, we are not aware of any hospitals that applied for SCH classification in this manner in advance of the December 24, 2022, expiration of the MDH program. However, as discussed in Change Request 13103, if there are any such hospitals and those hospitals are unsure about their MDH status, those hospitals should contact their MACs. We note that in accordance with Change Request 13103, a provider affected by the MDH program extension that also applied for SCH classification per the regulations at § 412.92(b)(2)(v) or cancelled its rural reclassification under § 412.103 in anticipation of the expiration of the MDH program will receive a notice from its MAC detailing its status in light of the MDH program extension.

Therefore, as collectively provided by division D, section 102 of the Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023, division C, section 102 of the Further Continuing Appropriations and Extensions Act, 2023, and division FF, section 4102 of the Consolidated Appropriations Act, 2023, providers that were classified as MDHs as of September 30, 2022, generally continue to be classified as MDHs as of October 1, 2022, with no need to reapply for MDH classification. However, as discussed in Change Requests 12970 and 13103, if a MDH cancelled its rural classification under § 412.103(g) effective on or after October 1, 2022, its MDH status may not be applied continuously or automatically reinstated, as applicable (and as described previously). In order to meet the criteria to become an MDH, generally a hospital must be located in a rural area. To qualify for MDH status, some MDHs may have reclassified as rural under the regulations at § 412.103. With the anticipated expiration of the MDH provision, some of these providers may have requested a cancellation of their rural classification. Therefore, in order to qualify for MDH status, these providers must request to be reclassified as rural under 42 CFR 412.103(b) and reapply for MDH classification in accordance with the regulations at 42 CFR 412.108(b). As discussed, all other hospitals with MDH status as of September 30, 2022 continue to be classified as MDHs effective October 1, 2022. We refer readers to Change Requests 12970 and 13103 for further discussion on the extensions of the MDH program through FY 2023.

Comment: Commenters supported our proposals to make conforming changes to the regulations to reflect the legislation extending the MDH provision. Commenters also urged CMS to expeditiously process claims and provide instructions to MACs during program extensions, especially in instances when extensions are made retroactively. They noted that seamless transition of programmatic support are crucial life lines for rural providers.

Response: We appreciate the commenters' support and their concern for the legislative interruption of Medicare programs that support rural providers. We note that in response to the multiple legislative extensions since the September 1, 2022, expiration (listed previously), CMS has issued multiple program instructions as expeditiously as possible to the MACs so that rural providers could benefit from the special payment protections afforded to MDHs.

After consideration of the public comments we received, we are adopting as final the proposed conforming changes to the regulations text at §§ 412.90 and 412.108 to reflect the extension of the MDH program through FY 2024 in accordance with division FF, section 4102 of the Consolidated Appropriations Act, 2023 (Pub. L. 117–328). We are finalizing the proposed changes in paragraphs (a)(1) and (c)(2)(iii) of § 412.108 and paragraph (j) of § 412.90 without modification.

G. 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, 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, through the Balanced Budget Act of 1997 (Pub. L. 105–33), 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. 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 may not 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 same 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. Calculation of Prior Year IME Resident to Bed Ratio When There Is a Medicare GME Affiliation Agreement

Section 1886(d)(5)(B) of the Act provides that IPPS hospitals that have residents in an approved graduate medical education (GME) program receive an additional payment to reflect the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment, known as the indirect medical education (IME) adjustment, are located at § 412.105. The IME adjustment factor is calculated using a hospital's ratio of residents to beds, which is represented as r, and a statutorily set multiplier, which is represented as c, in the following equation: c × [(1 + r)^.405 −1]. 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. Thus, for FY 2024, the IME multiplier is 1.35. The formula is traditionally described in terms of a certain percentage increase in payment for every 10-percent increase in the resident-to-bed ratio. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for a full discussion of the IME adjustment and IME adjustment factor.

Section 4621(b)(1) of the Balanced Budget Act of 1997 (Pub. L. 105–33) amended section 1886(d)(5)(B) of the Act by adding a clause (vi) to provide that, effective for cost reporting periods beginning on or after October 1, 1997, the resident-to-bed ratio may not exceed the ratio calculated during the prior cost reporting period (after accounting for the cap on the hospital's number of full-time equivalent (FTE) residents). We implemented this policy in the August 29, 1997, final rule with comment period (62 FR 46003) and the May 12, 1998 final rule (63 FR 26323) under regulations at § 412.105(a)(1). In general, the resident-to-bed ratio from the prior cost reporting period, which is to be used as the cap on the resident-to-bed ratio for the current cost reporting period, should reflect the prior year FTE count subject to the FTE cap on the number of allopathic and osteopathic residents, but not subject to the three-year rolling average. We note that the resident-to-bed ratio cap is a cap on the resident-to-bed ratio calculated for all residents, including allopathic, osteopathic, dental, and podiatry residents (63 FR 26324, May 12, 1998). However, as described in existing § 412.105(a)(1)(i), the numerator of the resident-to bed ratio cap may be adjusted to reflect an increase in the current cost reporting period's resident-to-bed ratio due to residents in a new GME program or new Rural Track Program, a Medicare GME affiliation agreement, or due to residents displaced by the closure of a hospital or a residency program. Under other circumstances where the exception does not apply, such as an increase in the number of podiatry or dentistry residents or a decrease in the number of beds (that is, the denominator of the resident-to-bed ratio), the ratio can increase after a 1-year delay. The law requires a hospital's IME payment to be determined based on the lower of the two ratios (see section 1886(d)(5)(B)(vi)(I) of the Act and regulations at 42 CFR 412.105(a)(1)(i)). An increase in the current cost reporting period's ratio (subject to the FTE cap on the overall number of allopathic and osteopathic residents) thereby establishes a higher cap for the following cost reporting period.

Sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act established limits on the number of allopathic and osteopathic residents that hospitals may count for purposes of calculating direct GME payments and the IME adjustment, respectively, thereby establishing hospital specific direct GME and IME full-time equivalent (FTE) resident caps. However, under the authority granted by section 1886(h)(4)(H)(ii) of the Act, the Secretary may issue rules to allow institutions that are members of the same affiliated group to apply their direct GME and IME FTE resident caps on an aggregate basis through a Medicare GME affiliation agreement. The Secretary's regulations permit hospitals, through a Medicare GME affiliation agreement, to increase or decrease their IME and direct GME FTE resident caps to reflect the rotation of residents among affiliated hospitals for agreed-upon academic years. Consistent with the broad authority conferred by the statute, we established criteria for defining an “affiliated group” and an “affiliation agreement” in both the August 29, 1997, final rule (62 FR 45966, 46006) and the May 12, 1998, final rule (63 FR 26318). In the August 1, 2002, IPPS final rule (67 FR 50069), we amended our regulations to require that each Medicare GME affiliation agreement must have a shared rotational arrangement. The regulations for “Medicare GME affiliation agreements” are at 42 CFR 413.75(b) and (f). In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49075, August 10, 2022), we expanded the regulations regarding Medicare GME affiliation agreements to permit urban and rural hospitals that participate in the same separately accredited family medicine Rural Track Program (RTP) and have rural track FTE limitations to enter into “Rural Track Medicare GME Affiliation Agreements”.

As previously mentioned, as described in existing § 412.105(a)(1)(i), the numerator of the prior year resident-to bed ratio may be adjusted to reflect an increase in the current cost reporting period's resident-to-bed ratio due to residents in a Medicare GME affiliation agreement (among other limited reasons). As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27016), we have occasionally received inquiries related to adjusting the prior year numerator when the hospital is training more residents in the current year as a result of an IME FTE cap increase under the terms of a Medicare GME affiliation agreement. A hospital can train more residents in the current year versus the prior year under the terms of a Medicare GME affiliation agreement as a result of several scenarios. As an example, Hospital A and Hospital B participate in a Medicare GME affiliation agreement over a period of several years, and generally, under the terms of the agreement, Hospital A is giving IME FTE cap slots to Hospital B:

Example of Medicare GME Affiliations:

In this example, we see that Hospital B's IME cap increases from 2019 to 2020 and again from 2020 to 2021 because it receives cap slots from Hospital A. However, we also see that Hospital A experiences a net increase in its FTE cap from 2021 to 2022, even though it continues to loan IME slots to Hospital B. This is because, under the terms of the Medicare GME affiliation agreement, Hospital A loans one less IME FTE to Hospital B in 2022 than it did in 2021. In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed to clarify how to determine the net increase in FTEs in the current year numerator as compared to the prior year numerator as a result of the terms of a Medicare GME affiliation agreement. We explained that to determine this change accurately, we need to isolate only changes resulting from the Medicare GME affiliation agreement, and not, for example, an increase in the resident-bed-ratio due to participation in new programs, or due to a change in the number of beds in the denominator. Under the current cost report instructions (Transmittal 20) on Form CMS–2552–10, Worksheet E, Part A line 20, regarding the determination the prior year IRB ratio, states:

Line 20 —In general, enter from the prior year cost report the intern and resident to bed ratio by dividing line 12 by line 4 (divide line 3.14 by line 3 if the prior year cost report was the Form CMS–2552–96). However, if the provider is participating in training residents in a new medical residency training program(s) under 42 CFR 413.79(e) for a new program started prior to October 1, 2012, add to the numerator of the prior year intern and resident to bed ratio (that is, line 12 of the prior cost report, which might be zero), if applicable, the number of FTE residents in the current cost reporting period that are in the initial period of years of a new program (line 16) (that is, the period of years is the minimum accredited length of the program). For a new program started prior to October 1, 2012, contact your contractor for instructions on how to complete this line if you have a new program for which the period of years is less than or more than three years. For urban hospitals that began participating in training residents in a new program for the first time on or after October 1, 2012, under 42 CFR 413.79(e)(1), if this cost reporting period is prior to the cost reporting period that coincides with or follows the start of the sixth program year of the first new program started, then divide line 16 of this cost report by line 4 of the prior year cost report (see 79 FR 50110 (August 22, 2014)). For rural hospitals participating in a new program on or after October 1, 2012, under 42 CFR 413.79(e)(3), for each new program started, if this cost reporting period is prior to the cost reporting period that coincides with or follows the start of the sixth program year of each particular new program, then add the amount from line 12 of the prior year (if greater than zero) and line 16 of this cost report, and divide the sum by line 4 of the prior year's cost report (see 79 FR 50110 (August 22, 2014)). If the provider is participating in a Medicare GME affiliation agreement or rural track Medicare GME affiliation agreement under 42 CFR 413.79(f), and the provider increased its current year FTE cap and current year FTE count due to this affiliation agreement, identify the lower of: (a) the difference between the current year numerator and the prior year numerator, and (b) the number by which the FTE cap increased per the affiliation agreement, and add the lower of these two numbers to the prior year's numerator (see 42 CFR 412.105(a)(1)(i)). If the hospital is participating in a valid emergency Medicare GME affiliation agreement under a § 1135 waiver, and a portion of this cost report falls within the time frame covered by that emergency affiliation agreement, then, effective on and after October 1, 2008, enter the current year resident-to-bed ratio from line 19 (see 73 FR 48649 (August 19, 2008) and 42 CFR 412.105(f)(1)(vi)). Effective for cost reporting periods beginning on or after October 1, 2002, if the hospital is training FTE residents in the current year that were displaced by the closure of another hospital or program, also adjust the numerator of the prior year ratio for the number of current year FTE residents that were displaced by hospital or program closure (see 42 CFR 412.105(a)(1)(iii)). The amount added to the prior year's numerator is the displaced resident FTE amount that you would not be able to count without a temporary cap adjustment. This is the same amount of displaced resident FTEs entered on line 17. For cost reporting periods beginning on or after October 1, 2022, for urban and rural hospitals participating in a rural track program(s), adjust the numerator by adding to the amount on Worksheet E, Part A, line 12, of the prior year cost report (if greater than zero) the FTEs in the rural track program(s) on line 16 of this worksheet, if this cost report is still prior to the cost reporting period that coincides with or follows the start of the sixth program year of that rural track program (italics emphasis added).

Our proposed clarification focused on the italicized text as previously detailed:

If the provider is participating in a Medicare GME affiliation agreement or rural track Medicare GME affiliation agreement under 42 CFR 413.79(f), and the provider increased its current year FTE cap and current year FTE count due to this affiliation agreement, identify the lower of: (a) the difference between the current year numerator and the prior year numerator, and (b) the number by which the FTE cap increased per the affiliation agreement, and add the lower of these two numbers to the prior year's numerator (emphasis added).

We have been asked by teaching hospitals to clarify what lines on the cost report to use to determine that the provider “increased its current year FTE cap,” and that the provider increased its “current year FTE count” due to the affiliation agreement. We have also been asked to clarify what line on the cost report represents the “current year numerator,” specifically, whether this value refers to current year line 12, or line 15, or line 18.

Line 8 states: Enter the adjustment (increase or decrease) to the FTE count for allopathic and osteopathic programs for affiliated programs in accordance with 42 CFR 413.75(b), 413.79(c)(2)(iv) and 63 FR 26340 (May 12, 1998), and 67 FR 50069 (August 1, 2002).

Line 10 states: Enter the FTE count for allopathic and osteopathic programs in the current year from your records. Do not include residents in the initial years of the new program.

Line 12 states: Enter the result of the lesser of line 9, or line 10 added to line 11.

Line 15 states: Enter the sum of lines 12 through 14 divided by three.

Line 18 states: Enter the sum of lines 15, 16 and 17.

Line 19 states: Enter the current year resident to bed ratio by dividing line 18 by line 4 [beds].

As discussed in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27017 through 27018), if the provider is participating in a Medicare GME affiliation agreement (or rural track Medicare GME affiliation agreement under 42 CFR 413.75(b)), the provider first has to make sure that in fact, it increased its current year FTE cap, and second, that it increased its current year allowable FTE count. We proposed to clarify that, to determine if there is an increase in the current year FTE cap “due to this affiliation agreement,” the provider would check if the difference of current year line 8 minus prior year line 8 is positive. If yes, next the provider would determine if the difference of current year allowable allopathic and osteopathic FTE count line 12 minus prior year allowable allopathic and osteopathic FTE count line 12 is positive. The provider would determine the difference between current year line 12 and prior year line 12 by first excluding any dental and podiatry FTEs on line 11 of both years, if applicable. If negative, then the provider did not increase its current year allowable allopathic and osteopathic FTE count due to the affiliation agreement, and there is no adjustment made to the prior year IRB ratio. If positive, the provider would proceed with the next part of the determination to “ identify the lower of: (a) the difference between the current year numerator and the prior year numerator, and (b) the number by which the FTE cap increased per the affiliation agreement, and add the lower of these two numbers to the prior year's numerator. ”

We further proposed to clarify that the “current year numerator” referred to in the excerpt from Worksheet E, Part A line 20 is line 15; that is, the current year numerator before making any adjustments for new programs, new RTPs, or displaced residents, but including residents counted under the terms of a Medicare GME affiliation agreement, and subject to the three-year rolling average. We explained the reasons for this in detail and restate the explanation in this section of this final rule. We also acknowledged that the phrase “current year numerator” in the context of line 20 must refer to a different value than the numerator of the “current year resident to bed ratio” in line 19, which states, “Enter the current year resident to bed ratio by dividing line 18 by line 4.” In the context of Medicare GME affiliation agreements in line 20, the current year numerator cannot refer to line 18, as line 18 represents the current year IRB ratio with various adjustments, including the FTEs in new programs from line 16, and FTEs displaced by hospital or program closure on line 17. As previously stated, we need to isolate only changes associated with the Medicare GME affiliation agreement, and including FTEs associated with new programs or closed programs on line 18 would introduce extraneous variables into the equation.

Next, we noted that the “current year numerator” is not line 12. Line 12 is the current year allowable FTE count; that is, the lower of the current year FTE count or the adjusted FTE cap, which reflects the FTE adjustment under the terms of the Medicare GME affiliation agreement. The current year allowable FTE count on line 12 is used in the 3-year rolling average calculation on line 15, which sums the current year allowable FTE count, the prior year allowable FTE count, and the penultimate year FTE count, and divides the result by 3. While it may seem that averaging the current year FTEs with FTEs from prior years interferes with determining only changes to the current year FTEs under an affiliation agreement, the law and regulations require that additional FTEs added due to a Medicare GME affiliation agreement are subject to the 3-year rolling average (see section 1886(d)(5)(B)(viii) of the Act and 42 CFR 413.79(f), regarding a Medicare GME affiliated group, which provides that a hospital may receive a temporary adjustment to its FTE cap, which is subject to the averaging rules under § 413.79(d), to reflect residents added or subtracted because the hospital is participating in a Medicare GME affiliated group (as defined under § 413.75(b)). Because any additional FTEs due to participation in a Medicare GME affiliation agreement must be included in the rolling average on line 15, we stated that we believe that the “current year numerator” referred to on Worksheet E, Part A line 20 is line 15, not line 12. This contrasts with the “prior year numerator,” which we note is line 12, as the instructions for line 20 state: “In general, enter from the prior year cost report the intern and resident to bed ratio by dividing line 12 by line 4.” (See 42 CFR 412.105(a)(1)(i), which states “this ratio may not exceed the ratio for the hospital's most recent prior cost reporting period after accounting for the cap on the number of allopathic and osteopathic full-time equivalent residents as described in paragraph (f)(1)(iv) of this section.” This regulation does not require accounting for the 3-year rolling average.) Therefore, we proposed to clarify the instructions on Worksheet E, Part A line 20 as follows, in italics:

If the provider is participating in a Medicare GME affiliation agreement or rural track Medicare GME affiliation agreement under 42 CFR 413.79(f), and the provider increased its current year FTE cap (difference of current year line 8 and prior year line 8 is positive) and increased its current year allowable FTE count (difference of current year line 12 (excluding current year dental and podiatry from line 11) and prior year line 12 (excluding prior year dental and podiatry from line 11) is positive) due to this affiliation agreement, identify the lower of: a) the difference between the current year numerator line 15 and the prior year numerator line 12 of the prior year cost report, and b) the number by which the FTE cap increased per the affiliation agreement (difference of current year line 8 and prior year line 8), and add the lower of these two numbers to the prior year's numerator line 12 of the prior year cost report.

Comment: Several commenters appreciated CMS's proposed clarification to the IME worksheet on the Medicare cost report when hospitals enter into a Medicare GME affiliation agreement, stating it will assist hospitals in ensuring that they complete the worksheet and report FTE counts in the proper manner. A commenter supported CMS's clarification efforts and another asked CMS to continue listening to teaching hospitals when specific policies are unclear.

Other commenters disagreed with aspects of CMS's proposed clarification. Another commenter noted that CMS's proposed clarification involves a comparison of the total allowable FTEs from the prior year and the current year as reported on line 12 (“. . . the provider . . . increased its current year allowable FTE count (difference of current year line 12 (excluding current year dental and podiatry from line 11) and prior year line 12 (excluding prior year dental and podiatry from line 11) is positive) due to this affiliation agreement . . .” (88 FR 27017–27018, emphasis added). The commenter noted that the total allowable FTE count on line 12 is subject to the FTE cap, and since there are many hospitals that have IME FTE counts limited by their FTE caps, utilizing this line may not be the most accurate reflection of an actual increase or decrease in FTEs between years. The commenter suggested that a better reflection of an increase/decrease between years would be to compare the actual current year FTEs from line 10 between years before any FTE cap limits are applied.

Two commenters that opposed CMS's proposed clarification focused on another part of the clarification, where CMS proposed to compare current year line 15 and prior year line 12 (“. . . identify the lower of: (a) the difference between the current year numerator line 15 and the prior year numerator line 12 of the prior year cost report . . .”) (88 FR 27018). The commenters provided two examples where they believed the prior year numerator would not be sufficiently increased as a result of this proposed clarification. In the first example, a hospital experiences a decrease in its three-year rolling average FTE count in the current year as a result of a decrease in its number of dental and podiatric FTEs, even though its allopathic and osteopathic FTE count and its FTE cap increase under the terms of a Medicare GME affiliation agreement. In the second example, a hospital's allopathic and osteopathic FTE count and cap similarly increase in the current year as a result of a Medicare GME affiliation agreement, but the hospital's three-year rolling average FTE count is nevertheless lower than the prior-year allowable FTE count as a result of a significantly lower FTE count in the penultimate year. Furthermore, the commenters noted that in these examples CMS's proposed clarification would result in an inappropriate reduction to the numerator of the prior-year IRB ratio, since subtracting prior year line 12 from current year line 15 would result in a negative number. In addition, these commenters argued that CMS's proposed language does not account for rural track FTE affiliation agreements.

Response: We appreciate commenters' support of our proposed clarification and the careful review from those who raised concerns about it. Specifically, we proposed to add the following italicized language to Worksheet E, Part A, line 20 of CMS-Form-2552–10:

If the provider is participating in a Medicare GME affiliation agreement or rural track Medicare GME affiliation agreement under 42 CFR 413.79(f), and the provider increased its current year FTE cap (difference of current year line 8 and prior year line 8 is positive) and increased its current year allowable FTE count (difference of current year line 12 (excluding current year dental and podiatry from line 11) and prior year line 12 (excluding prior year dental and podiatry from line 11) is positive) due to this affiliation agreement, identify the lower of: (a) the difference between the current year numerator line 15 and the prior year numerator line 12 of the prior year cost report, and (b) the number by which the FTE cap increased per the affiliation agreement (difference of current year line 8 and prior year line 8), and add the lower of these two numbers to the prior year's numerator line 12 of the prior year cost report (88 FR 27018).

We do not concur with the commenters who disagreed with certain aspects of the proposed clarification, because we believe the commenters overlooked key portions of the law and regulations in drawing their conclusions. First, we reiterate that the point of permitting the numerator of the prior year IRB ratio to be adjusted due to the exceptions listed at 42 CFR 412.105(a)(1)(i) (for example, a new GME program or new Rural Track Program, a Medicare GME affiliation agreement, or due to residents displaced by the closure of a hospital or a residency program) is to more equitably compute a hospital's IME payment in certain situations where the IME cap increases year-over-year, so that the hospital is not held to a lower IME payment based on the prior year's FTE cap. Second, once the appropriate adjustments are made to the numerator of the prior year IRB ratio, the law at section 1886(d)(5)(B)(vi) of the Act requires that for actual payment, we take the lower of the current year IRB ratio or the prior year IRB ratio. That is, line 21 on Worksheet E, Part A states, “Enter the lesser of line 19 or 20.” It appears that the commenters disregarded this key point.

In the examples the commenters provided, they argued that under CMS's proposed clarification, the prior year IRB ratio is not sufficiently increased, and that the comparison of current year line 15 to prior year line 12 distorts the calculation of the IRB ratio. However, we have reviewed the examples and the adjustments that commenters suggested, and the result is that even if the prior year numerator were increased in the manner requested by commenters, this would not increase a hospital's IME payment, since doing so would have no effect on the value of the current year numerator: in both examples, the current year IRB ratio on line 19 would still be lower than the prior year IRB ratio on line 20, so that the current year IRB ratio would be reported on line 21. This demonstrates that there is no need to increase the prior year numerator above the current year numerator; it is only necessary to ensure that the prior year numerator is adjusted to accommodate the additional FTEs counted as a result of certain increases to a hospital's IME FTE cap.

In this way we also address the commenters' concern that the proposed clarification distorts the calculation of the IRB ratio, and their contention that a hospital is harmed if its current year three-year average FTE count is less than its prior year total allowable FTE count, either through a decrease in dental or podiatry FTEs or because of a low FTE count in the penultimate year. Since the law requires IME payment to be based on the lesser of the current year IRB ratio or the prior year IRB ratio, if a hospital's current year FTE count goes down, then payment would logically be made based on the current year's lower IRB ratio; payment based on last year's higher ratio would result in an overpayment in the current year. Thus, if a hospital increases its cap through a Medicare GME affiliation agreement, but, for whatever reason, its three-year average FTE count is less than the prior year total allowable FTE count, then an adjustment to the prior year numerator will make no difference, as the law requires that the hospital use the lower of the current year IRB ratio or prior year IRB ratio for IME payment.

Similarly, we do not believe it is appropriate to compare line 10 of the current year to line 10 of the prior year, as a commenter suggested. First, the FTEs used in the IRB ratio are subject to a hospital's IME FTE cap, which applies to line 12 but not to line 10. Second, the following fairly common scenario demonstrates how comparing line 10 to line 10 may lead to unfair results. Assume a hospital is training FTEs significantly over its FTE cap, and even though it has increased its FTE cap via a Medicare GME affiliation agreement, it is still training FTEs in excess of that affiliated cap. However, this hospital's current year FTE count on line 10 is somewhat less than the prior year FTE count on line 10. Specifically, assume that in 2020, Hospital A has an FTE cap of 100 (line 9 = 100) and trains 200 allopathic and osteopathic FTE residents (line 10 = 200); further assume that Hospital A does not train any dental or podiatry residents (line 11 = 0; line 12 = 100). In 2021, Hospital A has difficulty filling positions in a certain program, and therefore, it experiences a reduction in its FTE count and trains 190 allopathic and osteopathic residents (line 10 = 190). However, under the terms of a Medicare GME affiliation agreement, Hospital A increases its FTE cap by 10 to 110 (line 8 = 10; line 9 = 110; line 12 = 110). Thus, the hospital's total FTE count decreased from 200 to 190, but because its FTE cap increased from 100 to 110 under the Medicare GME affiliation agreement, its allowable FTE count actually increased by 10, from 100 to 110. If we were to take the difference between the current year line 10 (190 FTEs) and prior year line 10 (200 FTEs), the result would be a negative number (−10), and there would be no adjustment to the prior year numerator, since the FTE count decreased in the current year. But under CMS's proposed clarification, the hospital increased its allowable FTE count, and when we determine the difference between current year line 12 (110) and prior year line 12 (100), the result is a positive difference of 10, allowing the hospital to adjust the prior year numerator by +10. In this manner, the hospital's IME payment will reflect the fact that its current year allowable FTE count increased by 10 relative to the prior year allowable FTE count. That is also why we proposed to clarify the language on line 20 to require that the hospital increase its allowable FTE count, as follows:

In addition, the commenters correctly pointed out that the instructions should specifically reference line 7.02 to allow consideration of a cap increase under the terms of a rural track Medicare GME affiliation agreement. Therefore, in this final rule we are revising the instructions on line 20 to include this reference to line 7.02 of Worksheet E, Part A. We are finalizing our proposed clarification to the instructions on line 20 of Worksheet E, Part A of the Medicare cost report, in addition to adding the bolded changes stated later in this section in response to comments, as follows:

We did not propose any changes to the regulation text at 42 CFR 412.105, as we believe the appropriate regulations text already exists at 42 CFR 412.105(a)(1)(i) and 413.79(f), indicating that an adjustment may be made to the prior year numerator due to an increase in the Medicare GME affiliated cap, that the lower of the current or prior year IRB ratio is used for payment, and that FTE residents added under a Medicare GME affiliation agreement are subject to the rolling average. Rather, as we stated, we proposed to clarify the Medicare cost report instructions Form CMS–2552–10 Worksheet E, Part A, line 20 to more clearly indicate how these calculations are performed. We intend to insert the finalized clarification into the next update of the Medicare cost report instructions Form CMS–2552–10 Worksheet E, Part A, line 20.

3. Training in New REH Facility Type

In the Hospital Outpatient Prospective Payment System CY 2023 final rule with comment (87 FR 71748) CMS finalized certain payment policies and conditions of participation (CoPs) with respect to rural emergency hospitals (REHs). Section 125 of Division CC of the Consolidated Appropriations Act, 2021 (CAA) added a new section 1861(kkk) of the Act to establish REHs as a new Medicare provider type, effective January 1, 2023. REHs are facilities that convert from either a critical access hospital (CAH) or a rural hospital (or one treated as such under section 1886(d)(8)(E) of the Act) with not more than 50 beds, and that do not provide acute care inpatient services with the exception of post-hospital extended care services furnished in a unit of the facility that is a distinct part licensed as a skilled nursing facility. By statute, REH services include emergency department services and observation care and, at the election of the REH, other outpatient medical and health services furnished on an outpatient basis, as specified by the Secretary through rulemaking. REHs are a new provider type established by the CAA, 2021 to address the growing concern over closures of rural hospitals. Similar to CAHs, REHs are intended to provide much needed healthcare services, often times as the initial and only accessible point of care for individuals living in rural underserved areas.

As part of the comments received in response to the CY 2023 Outpatient Prospective Payment System (OPPS) proposed rule (87 FR 44502) and the proposed rule establishing REH CoPs (87 FR 40350), CMS received the request to designate REHs as graduate medical education (GME) eligible facilities similar to the GME designation for CAHs (87 FR 72164). CMS' current policy with respect to CAHs and GME is discussed in the August 16, 2019 Federal Register (84 FR 42411). In that rule we finalized the policy that effective with portions of cost reporting periods beginning on or after October 1, 2019, a hospital may include FTE residents training at a CAH in its direct GME and IME FTE counts as long as it meets the nonprovider setting requirements currently included at 42 CFR 412.105(f)(1)(ii)(E) and 413.78(g). We stated that while a CAH is considered a “provider of services” under section 1861(u) of the Act, the term “nonprovider” is not explicitly defined in the statute. Furthermore, section 1861(e) of the Act, which states in part that the term “hospital” does not include, unless the context otherwise requires, a critical access hospital (as defined in section 1861(mm)(1) of the Act), underscores the sometimes ambiguous status of CAHs. We stated that we believe that the lack of both an explicit statutory definition of “nonprovider” and a definitive determination as to whether a CAH is considered a hospital along with the fact that a CAH is a facility primarily engaged in patient care (we referred readers to section 1886(h)(5)(K) of the Act which states that the term “nonprovider setting that is primarily engaged in furnishing patient care” means a nonprovider setting in which the primary activity is the care and treatment of patients, as defined by the Secretary), provides flexibility within the current statutory language to consider a CAH as a “nonprovider” setting for direct GME and IME payment purposes.

Section 125(a)(1)(A) of the CAA, 2021, amended section 1861(e) of the Social Security Act by inserting the phrase “or a rural emergency hospital (as defined in subsection (kkk)(2))”, such that the language now states that the term “hospital” does not include, unless the context otherwise requires, a critical access hospital (as defined in section 1861(mm)(1) of the Act) or a rural emergency hospital (as defined in subsection (kkk)(2)). Given the inclusion of REHs in the last sentence of section 1861(e) and the fact that an REH is a facility primarily engaged in patient care (see the previous discussion of 1886(h)(5)(K)), we believe that statutory flexibility also exists for REHs to be considered nonprovider settings for GME payment purposes. In addition, facilities currently designated as CAHs, which serve as nonprovider sites, may choose to convert to REH status to be able to continue to provide healthcare services within their communities. We believe that increasing access to physicians in rural areas can be supported by a flexible policy which would allow for residency training to continue at these former CAHs and begin at other newly designated REHs, which may have not previously trained residents. Therefore, we proposed to add a new paragraph (d) at 42 CFR 419.92 to state that effective for portions of cost reporting periods beginning on or after October 1, 2023, a hospital may include FTE residents training at an REH in its direct GME and IME FTE counts as long as it meets the nonprovider setting requirements included at 42 CFR 412.105(f)(1)(ii)(E) and 413.78(g) and any succeeding regulations. Consistent with our policy regarding residency training at CAHs during a hospital's cap building period (84 FR 42415), if a hospital is at some point in its 5-year cap-building period as of October 1, 2023, and as of that date is sending residents in a new program to train at a REH, assuming the regulations governing nonprovider site training are met, the time spent by FTE residents training at the REH on or after October 1, 2023, will be included in the hospital's FTE cap calculation.

As an alternative to being considered a nonprovider site, we stated in the August 16, 2019 Federal Register (84 FR 42415), that a CAH may decide to continue to incur the costs of training residents in an approved residency training program(s) and receive payment based on 101 percent of the reasonable costs for those training costs. In this situation no hospital can include the residents training at the CAH in its direct GME and IME FTE counts. We believe REHs may make a similar decision to incur residency training costs directly consistent with the statutory language at section 1886(k)(2)(D) of the Act, which refers to nonhospital providers, and the aforementioned flexibility provided under 1861(e) of the Act. Specifically, we proposed under the authority of section 1886(k)(2)(D) of the Act to add a new paragraph (d) at 42 CFR 419.92 indicating that effective for portions of cost reporting periods beginning on or after October 1, 2023, REHs may decide to incur the costs of training residents in an approved residency training program(s) and receive payment based on 100 percent of the reasonable costs for those training costs, consistent with the reasonable cost principles at section 1861(v)(1)(A) of the Act. As is the case when CAHs incur GME costs directly, no hospital can include the residents training at the REH in its direct GME and IME FTE counts when the REH chooses to be paid for direct GME costs instead of functioning as a nonprovider site and as such, residency training in this instance is not limited by FTE resident caps.

In summary, we proposed that effective for portions of cost reporting periods beginning on or after October 1, 2023, an REH may decide to be a nonprovider site such that if the requirements at 42 CFR 412.105(f)(1)(ii)(E) and 413.78(g) are met, a hospital can include the FTE residents training at the REH in its direct GME and IME FTE counts for Medicare payment purposes, or, the REH may decide to incur direct GME costs and be paid based on reasonable costs for those training costs. We proposed to add a new paragraph (d) at 42 CFR 419.92 to implement these provisions.

Comment: Commenters supported the proposal to treat REHs similar to CAHs for Medicare GME payment purposes such that an REH may choose to function as a nonprovider setting consistent with 42 CFR 412.105(f)(1)(ii)(E) and 413.78(g) or choose to be paid based on reasonable costs for the GME training costs that it incurs.

Many commenters stated that allowing REHs to be GME eligible facilities will help promote greater physician participation in rural healthcare thereby improving workforce shortages in rural areas and in turn improve patient access to care in underserved areas. Commenters noted the correlation between where residents train and where they practice such that increasing residency training in rural areas has a positive impact on physician supply and interest in serving in rural areas. A commenter noted that while the proposal is not a complete solution to oncology workforce challenges in rural areas, they support it as an initial step toward improving access to cancer care in rural communities. The commenter encouraged CMS to consider future policies to retain practitioners of various specialties, including oncology, in rural and underserved settings. A few commenters stated that family physicians are an essential source of emergency care in rural areas and are uniquely suited to work in REHs. The commenters stated that multiple studies have demonstrated that, while many family physicians provide emergency care in urban and suburban communities, rural family physicians are more likely to work in emergency departments. The commenters stated that The Accreditation Council for Graduate Medical Education (ACGME) requirements for family medicine residents include several proficiencies important for providing emergency care and that in addition to emergency services, REHs can offer other outpatient services like pregnancy and delivery care, behavioral health services, and primary care, all of which are within family physicians' scope of training. The commenters therefore believe that REHs would be a valuable training site for family medicine residents. A commenter stated that it is critically important that REHs be adequately staffed, considering the important role that they play in rural communities. The commenter stated that as long as the rotations at REHs meet the requirements set out by the ACGME, thereby ensuring that residents are still receiving the high-quality education they deserve, they support the expansion of considering REHs as nonprovider sites for purposes of GME training and payment. A commenter expressed support for the proposal and noted that a large part of their state is designated as a Health Professional Shortage Area and reimbursement for GME training programs is an important piece to sustain and hopefully grow healthcare in these areas. Another commenter stated that allowing REHs to attract, educate, and be reimbursed for training additional healthcare workforce will help sustain these critical healthcare access points across rural parts of their state. A commenter stated they anticipate the proposed policy will be favorable to rural communities and REHs as it would provide for continued training of residents in rural areas for converting CAHs and offer the opportunity for additional rural training of residents that might not otherwise be viable in the absence of the proposal.

Response: We appreciate the commenters' support. After consideration of the public comments received, we are finalizing our proposal that effective for portions of cost reporting periods beginning on or after October 1, 2023, an REH may decide to be a non-provider site. If the requirements at 42 CFR 412.105(f)(1)(ii)(E) and 413.78(g) and any succeeding regulations are met, a hospital can include the FTE residents training at the REH in its direct GME and IME FTE counts for Medicare payment purposes. In the alternative, the REH may decide to incur direct GME costs and be paid based on reasonable costs for those training costs. We are finalizing our proposed regulation text to include these provisions at 42 CFR 419.92(d).

Comment: A commenter stated that the designation of REHs as GME-eligible facilities is a perfect example of how a flexible policy can increase access to physicians in rural areas. The commenter stated that the proposed policy reduces barriers to Tribal facilities that may be considering redesignation to an REH by eliminating one of the cons from the equation, that is, deciding whether it can cut its training program and continue providing adequate care to its patient populations. The commenter stated as this new provider type rolls out, CMS must continue to address the concerns that come up from Tribal facilities to ensure that the REH program operates as intended, to best serve folks in rural areas. One of these identified concerns is that the REH payment structure does not include the all-inclusive encounter rate, so the new provider type is not as attractive as it could be to Indian Health Care Providers (IHCPs). These are the kinds of issues that come up and can be addressed when CMS engages with Tribes.

Response: We appreciate hearing that the proposed policy may help alleviate concerns related to REH designation for Tribal facilities. Regarding the REH payment structure, while the proposed policy discussed in this section is not related to general REH payment policies, we appreciate hearing the concerns brought up by Tribal facilities regarding the REH program and look forward to continued discussions with Tribes to address these concerns.

Comment: Several commenters stated that the proposed policy to consider REHs as GME eligible training sites will allow small rural teaching hospitals and CAHs that convert to REHs to minimize unnecessary financial burdens when they convert and choose to continue their educational mission. The commenters stated that the REH program should provide stability in health care delivery systems for communities that would otherwise experience the closure of a hospital and that the proposal helps limit the financial barriers for any REH with the capacity to operate as a rural training site. Another commenter stated that their concern lies principally in the financial viability of the REH model, given the prohibition on providing inpatient services, and therefore the commenter's advocacy focuses on ensuring that REHs retain every opportunity to participate fully in Medicare as permitted by Congress in the CAA, 2021. The commenters thanked CMS for the proposal to incorporate REHs into the GME program via the “nonprovider” designation and permit REHs the same opportunities as CAHs to receive reimbursement for the costs incurred in training residents.

However, some commenters expressed concern over the proposed payment methodology should an REH choose to be reimbursed directly for training costs. Several commenters asked that CMS adopt cost-based reimbursement at 101 percent for REHs that choose to incur direct GME costs since CAHs currently receive reimbursement at 101 percent of reasonable costs for residency training and therefore CMS should maintain consistency for CAHs that convert to REHs. The commenters stated that hospitals that choose to convert to REHs do not make the decision lightly and are more likely to be independent CAHs, have a three-year negative operating margin, and have a relatively low average daily census. The commenters stated that hospitals that convert to REHs and decide to train residents are doing so while in a precarious financial position and thus should receive higher reimbursement. The commenters stated that aligning the REH GME policy with the policy applicable to CAHs is consistent with CMS' approach in other areas of law for REHs, such as mirroring many CAH conditions of participation for REHs. A few commenters stated that the REH provider type was created with the express goal of enabling CAHs to transition into REHs to keep their doors open amid financial challenges. The commenters stated that they do not believe REHs should be penalized in their GME payments when transitioning from a CAH to an REH. Another commenter requested that CMS pay for residency training at CAHs at 101 percent of the reasonable cost under section 1861(v) of the Social Security Act, which would align with CAH payments based on reasonable cost principals.

Response: We appreciate the comments indicating that allowing REHs to be GME eligible facilities will reduce financial barriers to REH conversion and aid in supporting the financial viability of REHs. We understand the commenters' request to reimburse REHs based on 101 percent of reasonable costs when they choose to be paid for the direct costs of training residents as is the case for CAHs. However, there is no statutory basis for reimbursing REHs for the direct costs of GME at 101 percent of reasonable costs. Whereas the statutory language for CAH inpatient and outpatient reimbursement at sections 1814(l) and 1834(g) of the Act specifically refers to 101 percent of reasonable costs, payments made to REHs for outpatient services under section 1834(x) of the Act are generally made under the Outpatient Prospective Payment System plus 5 percent. Furthermore, sections 1886(k)(2)(D) of the Act (Payment to Nonhospital Providers) and 1861(v)(1)(A) of the Act (Reasonable Cost) do not specify reimbursement at 101 percent of reasonable costs. Therefore, as noted previously, we are finalizing the proposed policy that if an REH chooses to be reimbursed for its direct GME costs, it will be reimbursed based on 100 percent of reasonable costs. As stated in the proposed rule (88 FR 27019), if an REH chooses to be reimbursed for the direct costs of residency training, it is not limited by FTE residency caps. Therefore, training at REHs that choose to be reimbursed directly are Medicare GME payments that are made above the statutorily mandated caps and thus provide for additional funding supporting training in rural areas despite payment at 100 percent of reasonable costs as opposed to 101 percent of reasonable costs.

Comment: Several commenters submitted comments specific to REHs and rural track programs (RTPs). Commenters stated that the size of REH facilities and training requirements from the ACGME will likely limit the number of residents who train at these sites, but with new opportunities for hospitals to expand training through RTPs, REH GME has the potential to create training partnerships in rural areas with larger academic medical centers. The commenters stated that the learning experience provided to trainees in rural areas is unique and additional resources like REH GME may have positive patient care outcomes in these underserved areas. A commenter stated that as evidenced by their strong advocacy for RTPs (formerly rural training tracks) and the inclusion of hospitals located in rural areas among the beneficiaries of resident cap relief legislation, they support innovative strategies that will incentivize bringing physician services to those living in rural areas. Another commenter stated they expect the proposed policy will enable REHs to serve as rotator sites for RTPs, which would enhance resident training in rural areas and potentially improve timely access to care in areas with an REH. The commenter specifically requested CMS clarify in the final rule that REHs will be able to serve as rotator sites in RTPs.

Response: We appreciate the comments noting that training at REHs may help to expand RTPs. Since we are finalizing a policy to treat REHs similar to CAHs for Medicare GME payment purposes, REHs can serve as a rural training site in an RTP in the same manner as a CAH would. Note that if an REH has reclassified as rural under 42 CFR 412.103 (section 1886(d)(8)(E) of the Act), it would only be considered rural for IME payment purposes in the event it is serving as a non-provider site. We refer readers to the current policies concerning RTPs as discussed in the December 27, 2021 Federal Register , which implements section 127 of the CAA, 2021 (86 FR 73445).

Comment: A commenter stated that as the REH model evolves, it would be helpful for CMS to evaluate and request feedback from participating facilities to help guide future policy. The commenter encouraged CMS to continue working collaboratively to provide support for facilities converting, or considering converting, to the new REH status, as well as provide clarity and support for those considering participating as a GME training facility.

Response: We appreciate the commenter's recommendation to continue collaborative efforts that will support facilities interested in REH status. We encourage individuals to contact CMS or their Medicare Administrative Contractor (MAC) should they have any questions on specific policies concerning REHs and Medicare GME payments.

Comment: A commenter stated that to further alleviate workforce shortages and address the needs of rural and medically underserved communities, they urge CMS to work with members of the United States Senate Committee on Health, Education, Labor, and Pensions (HELP). The commenter stated that the Senate HELP Committee recently sought feedback from the public on healthcare workforce shortages, and provided several recommendations to reduce barriers to care, diversify the healthcare workforce, increase funding for GME programs specifically designated for mental health and substance use disorder providers, and advance technology solutions to reduce administrative friction and workforce burnout. The commenter stated by working together, CMS and the Senate HELP Committee can effectively address workforce shortages, increase community resources, and mitigate closures of rural hospitals. The commenter stated they welcome the opportunity to discuss their investments and recommendations with CMS and also encouraged CMS to work with Congress on additional policy changes and investments that support the healthcare workforce and rural and medically underserved communities.

A commenter stated that they support other initiatives to transform physician training programs from urban settings, currently representing the majority of programs, and having more robust training options in rural communities. The commenter recommended that the financial support and resources for such training programs be sustainable and allow residents to fully complete their training without the concern of funding gaps. The commenter stated that they aim to ensure continuous financial support for training programs, avoiding any interruptions or breaks in funding. The commenter noted that since most rural hospitals are unable to financially support residency training positions independently, they rely on federally funded GME resources.

A commenter requested that similar to the GME designation for CAHs, REHs also include advanced practice nursing education. The commenter stated that this designation is essential, especially since 221 clinical sites for nurse anesthesia have been designated as having CAH status and are eligible to convert to REH status. The commenter stated that certified registered nurse anesthetists (CRNAs) predominate in rural hospitals, and it is critical that these educational opportunities are available for CRNAs and other advanced practice registered nurses. The commenter stated that in some states, CRNAs are the sole anesthesia providers in nearly100 percent of rural hospitals, affording these medical facilities obstetrical, surgical, trauma stabilization, and pain management capabilities. The commenter stated that the importance of CRNA services in rural areas was highlighted in a recent study which examined the relationship between socioeconomic factors related to geography, insurance type, and the distribution of anesthesia provider type. The study correlated CRNAs with lower income populations and correlated anesthesiologist services with higher-income populations. The commenter stated that of particular importance to the implementation of public benefit programs in the U.S., the study showed that compared with anesthesiologists, CRNAs are more likely to work in areas with lower median incomes and larger populations of citizens who are unemployed, uninsured, and/or Medicaid beneficiaries.

Response: The policy finalized in this rule relates specifically to Medicare GME payments made to REH facilities. These payments are made only for the training of medical, dental, and podiatry residents. Because Medicare GME payments do not include payments for training CRNAs and because the policy finalized in this rule is limited in scope to residency training at REHs, we consider these comments to be out of scope and are not responding to them in this final rule.

H. Reasonable Cost Payment for Nursing and Allied Health Education Programs (§§ 413.85 and 413.87)

1. 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 would receive additional payments from MA organizations. 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, and was implemented in the August 1, 2001 IPPS final rule (66 FR 39909 and 39910).

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). In that IFC, 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 amounts, 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) 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 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 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 were 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 the FY 2024 IPPS/LTCH PPS proposed rule, we proposed the rates for CY 2022. Consistent with the use of HCRIS data for past calendar years, we proposed to use data from cost reports ending in FY 2020 HCRIS (the fiscal year that is 2 years prior to CY 2022) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days.

For the proposed rule, we accessed the FY 2020 HCRIS data from the fourth quarterly HCRIS update of 2022. 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 the proposed rule and in this final rule, is CY 2022, 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-Urban (CPI–U) increases for Part A direct GME). For CY 2022, the direct GME projections are based on the fourth quarterly update of CY 2020 HCRIS, adjusted for the CPI–U and for increasing MA enrollment.

For CY 2022, the proposed national rates and percentages, and their data sources are set forth in this table. We stated in the proposed rule that we intend to update these numbers in the FY 2024 final rule based on the latest available cost report data.

We did not receive any comments on the proposed national NAH MA rates and percentages.

For this final rule, consistent with the use of HCRIS data for past calendar years, for CY 2022, we use data from cost reports ending in FY 2020 HCRIS (the fiscal year that is 2 years prior to CY 2022) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days. For this final rule, we accessed the HCRIS data from the first 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 final rule, is CY 2022 as the best available cost report data. 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—Urban (CPI–U) increases for Part A direct GME). For CY 2022, the direct GME projections are based on FY 2020 HCRIS, and the final national rates and percentages, and their data sources are set forth in this table.

In summary, we are finalizing our proposal to use NAH MA add-on rates as well as the direct GME MA percent reductions for CY 2022, based on sufficient HCRIS data to develop the rates for these years. We expect to propose to issue the rates for CY 2023 in the FY 2025 IPPS/LTCH PPS proposed rule, when sufficient HCRIS data is available to develop the rates for CY 2023.

Section 4143 of the CAA 2023 (enacted December 29, 2022), called “Waiver of Cap on Annual Payments for Nursing and Allied Health Education Payments,” amends section 1886(l)(2)(B) of the Act to state that for portions of cost reporting periods occurring in each of CYs 2010 through 2019, the $60 million payment limit, or payment “pool,” shall not apply to the total amount of additional payments for nursing and allied health education to be distributed to hospitals that, as of the date of enactment of this clause, are operating a school of nursing, a school of allied health, or a school of nursing and allied health. As noted previously, section 541 of the BBRA limited total spending under the NAH MA provision to no more than $60 million in any calendar year. Under CR 11642 issued on November 19, 2020, CMS instructed MACs to recalculate historical payments to hospitals consistent with the $60 million limit per calendar year, and make applicable adjustments to NAH MA payments. In the FY 2023 IPPS/LTCH PPS proposed rule (88 FR 27022), we proposed a method for the MACs to implement section 4143 in the absence of the $60 million limit on the pool.

In addition, section 541 of the BBRA 1999 also provides that direct GME payments for MA utilization will be reduced to the extent that these additional payments are made for nursing and allied health education programs. However, section 4143 of the CAA 2023 also provides that in not applying the $60 million limit for each of 2010 through 2019, the Secretary shall not take into account any increase in the total amount of such additional payment amounts for such nursing and allied health education for portions of cost reporting periods occurring in the year. In the proposed rule, we proposed to interpret this to mean that, pursuant to the requirement set out at section 4143(b) of CAA 2023, MACs shall not change the DGME MA percent reduction amounts specified in CR 11642 for CYs 2010 through 2018, and CR 12407 for CY 2019 (and CR 12596 which corrected the DGME MA percent reduction related to CY 2018 specified in CR 11642).

The following table shows the recalculated pool amounts for CYs 2010 through 2019. We proposed that MACs would first determine whether hospitals that received revised payments under CR 11642 were still receiving NAH MA payments on an interim basis as of December 29, 2022. For example, if a hospital's payments for a NAH program(s) were adjusted under CR 11642, but that hospital since closed all of its NAH programs, that hospital would not be eligible under section 4143 to receive adjusted payments for CYs 2010 through 2019, even if the hospital itself has remained operational.

Second, we proposed that MACs would use the table in this section of this rule to recalculate an eligible hospital's NAH MA payment for portions of cost reporting periods occurring in CY 2010 through CY 2019 that are still within the 3-year reopening period. The formula is specified previously in this section.

Third, we proposed that the MACs would subtract the payment amount determined under CR 11642 (or CR 12596 or CR 12407 as applicable) for a CY from the recalculated amount in the second step, as previously detailed.

Fourth, we proposed that the MACs would determine the amount owed to a hospital in a CY as the amount calculated in the third step plus the difference, if any, between that amount and the amount previously recouped under CR 11642 (or CR 12596 or CR 12407 as applicable) or the amount that would have been recouped under CR 11642 (or CR 12596 or CR 12407 as applicable) if not for the enactment of section 4143 of the CAA 2023, if such difference for a CY is greater than $0. We noted that by adding this difference to the amount calculated in the third step, the amounts previously recouped under CR 11642 (or CR 12596 or CR 12407 as applicable) would be returned to hospitals, and recoupments that would have occurred under CR 11642 (or CR 12596 or CR 12407 as applicable) if not for the enactment of section 4143 of the CAA 2023 would not occur.

We did not propose any changes to the regulations text at 42 CFR 413.87.

Comment: Multiple commenters stated that they support the steps outlined in the proposed rule as the method of returning the full amount of NAH MA recoupments to hospitals. Commenters also stated that they support the process outlined in previously issued CR 13122 as a first step towards returning a portion of the recoupments to hospitals while we engaged in rulemaking to implement section 4143 in full. One commenter asked that CMS provide guidance to the MACs instructing them to use the same variables that were in place prior to the release of Change Request 11642, to help ensure that the payments returned are accurate. Another commenter that expressed support for CMS's proposal urged CMS to direct MACs to expeditiously recalculate and reconcile NAH payments before the final rule goes into effect on October 1, 2023.

Response: We appreciate the supportive comments, and we are finalizing the proposed methodology, such that the amounts previously recouped under CR 11642 (or CR 12596 or CR 12407 as applicable) will be returned to hospitals, and recoupments that would have occurred under CR 11642 (or CR 12596 or CR 12407 as applicable) if not for the enactment of section 4143 of the CAA 2023 will not occur. By returning the amounts previously recouped, the amounts would be consistent with the amounts calculated with variables in place prior to the release of CR 11642. After issuance of this final rule, we will issue another CR to reflect this finalized methodology. The exact timeframe and details of the implementation process will be specified in the CR.

Comment: A commenter stated that under CMS's proposal, many hospitals will not have full payment restored as required by section 4143 of the CAA. Specifically, several commenters added that CMS's proposed approach to not allow reopening after the 3-year reopening period is inconsistent with the language in section 4143(c), which states, “The amendments made by this section shall apply to payments made for portions of cost reporting periods occurring in 2010 through 2019.” Another commenter stated that the “reopening regulations at 42 CFR 405.1885 do not require the three-year reopening limitation when related to reimbursement changes mandated by law.” One commenter expressed concern that the proposal that would only permit corrections to cost reports within the three-year reopening time period as of 12/29/2022 (that is, cost reports finalized prior to 12/29/2019 will not be reopened). A different commenter stated that Congress eliminated the cap for all years between 2010 and 2019, and it “was clearly Congress' intent that nursing and allied health programs be made whole for past underpayments so long as they were still functioning at the time CAA, 2023 was passed.”

Response: As commenters are aware, in the proposed rule, we noted that the provision applies to “each of 2010 through 2019,” and included a table called CALCULATION TABLE FOR SECTION 4143 OF CAA OF 2023 that includes revised Section 4143 Pool amounts for each of CYs 2010 through 2019. That is, we provided revised payment rates for as far back as 2010, thereby conforming with the retroactive aspect of this provision. However, we proposed that MACs would use the table to recalculate an eligible hospital's NAH MA payment only for portions of cost reporting periods occurring in CY 2010 through CY 2019 that are still within the 3-year reopening period. We have reviewed the comments and the language in section 4143, subsection (c) regarding “Retroactive Application,” and we do not believe that language overrides CMS's existing reopening regulations. Rather, we believe the statute indicates that Congress instructed us to ensure that necessary payments “apply” retroactively. We note that any recoupments under CR 11642 (or CR 12596 or CR 12407 as applicable) occurred during the last three years, and thus we can reverse the recoupments by reopening cost reports affected by those CRs consistent with the reopening regulations. Further, because those CRs and the recoupments conducted under them are the source of the underpayments corrected by Section 4143 and this implementing rule, we do not believe it is necessary to reopen other cost reports to “apply” “the amendments made under Section 4143.” In addition, we do not understand the commenter's concern that the proposal would only permit corrections to cost reports within the three-year reopening time period “as of 12/29/2022”; nowhere in the proposal did we specify such a requirement. On the contrary, we point out that generally, there should be no concern that a cost report reopening timeframe would expire since the time that the cost report was adjusted under CR 11642. We note that CR 11642 states that “MACs shall not make recalculations or reconciliations for MA nursing and allied health education payments or MA direct GME payments for cost reports that are already beyond the 3-year reopening period as of the implementation date of this CR.” CR 11642 further instructed MACs to complete their work between approximately December 14, 2020, and March 2022. This means that during that implementation timeframe, MACs would only have made adjustments to cost reports from 2010 and 2019 that were still open or reopenable. Thus, for example, a 2010 cost report would likely not have been reopenable as of December 14, 2020, and therefore would not have been subject to any recoupment under CR 11642. (If such a cost report were reopenable as of December 14, 2020, and was in fact reopened pursuant to CR 11642, it would be reopenable again for three years from the date of the reopening to implement CR 11642, meaning that it remains reopenable until December 14, 2023, at the earliest). Accordingly, there would either be no need to reverse a recoupment to that 2010 cost report, or that cost report would have been adjusted and would be subject to a reversal of that adjustment under Section 4143. Furthermore, if, after applying CR 11642 to a still open or reopenable cost report, the MAC subsequently settled that cost report, then that cost report should still fall within a new 3-year reopening period because the earliest possible reopening to implement CR 11642 would have occurred on December 14, 2020. Accordingly, since applicable cost reports would either still be open or would fall within a recently restarted 3-year reopening period, it is not obvious to us that there is any conflict between Congress's instructions to apply section 4143 retroactively and our reopening regulations. In the absence of such conflict, we decline to create an exception to our reopening regulations.

In addition, some commenters refer to restoration of “past underpayments” or being “made whole for past underpayments” under section 4143. We disagree with this position and point out that hospitals were generally being overpaid. Specifically, prior to issuance of CR 11642 on November 19, 2020, the MACs were relying on the instructions contained in CR 2692, which CMS had issued in 2003. Under these instructions, NAH MA payments were calculated on the basis of aggregate data that had not been updated since CY 2001, when total MA patient days were still relatively low, and the size of the NAH MA payment pool was $43,663,043 (refer to CR 2692, Transmittal A–03–043, https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/a03043.pdf ). Over the course of those years from 2003 through 2020, MACs were calculating NAH MA payments to individual hospitals using contemporaneous hospital-specific data, which, as the years passed, reflected the significant increase in MA patient days during this period. Because hospital-specific MA patient days are one of the factors used in the calculation of a hospital's NAH MA payments in a calendar year (see § 413.87(e)(1)(iii)), the interaction of the aggregate data that had not been updated since 2001 and the contemporaneous hospital-specific data for each calendar year resulted in significant empirical overpayments to hospitals.

Under CR 11642, CMS instructed MACs to recalculate historical payments to hospitals consistent with the $60 million limit per calendar year (applicable as of CY 2010 and after), and use updated national data and make applicable adjustments to NAH MA payments. Under our proposal for the implementation of section 4143, the amounts previously recouped under CR 11642 (or CR 12596 or CR 12407 as applicable) will be returned to hospitals, and recoupments that would have occurred under CR 11642 (or CR 12596 or CR 12407 as applicable) if not for the enactment of section 4143 of the CAA 2023 will not occur. In other words, CMS only imposed the $60 million cap that section 4143(a)(2)(ii) stated “shall not apply [for 2010–2019] to those hospitals that, as of [December 29, 2022], are operating a school of nursing, a school of allied health, or a school of nursing and allied health” via the previously described CRs, and all cost reports affected by those CRs are within the three-year reopening window. We believe we can fulfill Congress's instructions to apply section 4143 retroactively without creating an exception to our reopening regulations. For the reasons stated previously, we do not believe an override or exception to the reopening regulations is required, and we are finalizing our proposal to recalculate an eligible hospital's NAH MA payment only for portions of cost reporting periods occurring in CY 2010 through CY 2019 that are still within the 3-year reopening period.

Comment: Some commenters disagreed with CMS's proposal that MACs would first determine whether hospitals that received revised payments under CR 11642 were still receiving NAH MA payments on an interim basis as of December 29, 2022. One commenter stated that there is nothing in the statute that suggests a hospital must receive payments on an interim basis, only that a nursing and allied health program “was operating” on December 29, 2022. This commenter asked that CMS eliminate the reference to payments on an interim basis and indicate that all hospitals operating a nursing and allied health program as of December 29, 2022, are eligible under section 4143 to receive adjusted nursing and allied health MA payments for CYs 2010 through 2019. Other commenters recommended that instead of interim rates, the MACs should apply Section 4143 to hospitals that file pass-through costs for NAH programs on their cost reports, because these hospitals still have their NAH programs even though the MAC disallowed their pass-through costs as a result of audits. Another commenter stated that some hospitals may have closed their NAH programs because the MACs disallowed payment. This commenter asserted that regardless of why a NAH program may have closed prior to December 29, 2022, it seems unfair not to provide the same relief for underpayments they received in the past when they were operating those programs. In cases where the MACs disallowed payment, and the hospitals are appealing those determinations, the commenters argued that, even though the hospitals were not receiving interim payments as of December 29, 2022, they were still operating their programs, and they expect their NAH payments to be recognized after a successful appeal.

Response: We understand that there may be a few possible reasons why a hospital may not have been receiving NAH MA payments on an interim basis as of December 29, 2022, even though the hospital had not formally closed its NAH program(s). For example, the hospital's NAH pass-through amount may be too small to qualify for interim payments. Also, as the commenters describe, the MAC may have disallowed the hospital's pass-through payments, and the hospital might currently be in the process of appealing that determination. Alternatively, a hospital may have several years of cost reports that it filed with NAH costs, but those cost reports may not yet be settled, and thus, the MAC has not yet made a determination as to the allowability of the NAH pass-through costs with regard to interim payments. In the first case, where the NAH pass-through amount is too small to qualify for interim payments, if the hospital's NAH pass-through would otherwise qualify for interim payments as of December 29, 2022, if the amount had been large enough, then for the purpose of implementing Section 4143, we would treat the hospital as though it was receiving interim payments as of December 29, 2022. With regard to multiple cost reporting years that have not yet been settled, it may be that CR 11642 was not yet applied to those cost reports, in which case there would be no need for reversal of a recoupment upon eventual settlement of those cost reports. However, regarding the situation where the MAC has disallowed the NAH payment, we understand that in many cases the MACs have found that hospitals are not “operating” the NAH program(s) consistent with the regulations at 42 CFR 413.85, although hospitals may believe that “as of the date of enactment” of section 4143, the hospitals “are operating” a school or nursing and/or allied health. Where the MACs have disallowed the NAH payment, settled the cost report(s), and the hospitals are appealing the disallowance, then we believe the normal appeals process should be followed, and NAH payments, under section 4143 or otherwise, are held in abeyance pending the outcome of the appeals. Thus, we proposed to use receipt of interim payments as of December 29, 2022 as an indicator of eligibility of NAH pass-through payments; lack of such pass-through payment could indicate a MAC disallowance, which should be adjudicated through the normal appeals process. If the hospitals should be successful in their appeals to restore NAH pass-through payment, then for the purpose of implementing section 4143, we would treat the hospitals as though they were receiving interim payments as of December 29, 2022. If, on the other hand, a hospital closed its NAH program(s), whether the closure was allegedly a result of MAC disallowances or due to some other reason, we do not believe that section 4143 applies in those cases, because section 4143 clearly states that payments should only be made to “those hospitals that, as of the date of enactment, are operating a school of nursing, a school of allied health, or a school of nursing and allied health (emphasis added).” Thus, in this final rule, we are still requiring that MACs first determine whether hospitals that received revised payments under CR 11642 were still receiving NAH MA payments on an interim basis as of December 29, 2022, with the exception of hospitals whose NAH pass-through payment would otherwise qualify for interim payments as of December 29, 2022, if the amount had been large enough, and hospitals that will be successful in their appeals to restore NAH pass-through payment.

Comment: One commenter believed that no money should be siphoned away from DGME funding to pay for nonphysician training. Though the commenter appreciates the role that nonphysician providers play, the commenter believed that there should be a funding source separate from GME funding. This commenter also expressed concern that the rule does not contain proposals to ensure that in the future, too much MA DGME would not be removed from GME funding, and recommended that CMS put robust guardrails in place to ensure that GME funding updates are made accurately every year moving forward.

Response: This comment is generally out of the scope of the proposals made in the FY 2024 IPPS/LTCH PPS proposed rule; therefore, we are not responding to it directly at this time. However, with regard to ensuring accurate (and timely) payment rate updates, we note that starting with the rates 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 the FY 2024 IPPS/LTCH PPS proposed rule, we proposed the rates for CY 2022, and we are finalizing the CY 2022 rates in this final rule. Accordingly, we have established an annual process to ensure issuance of updated NAH MA and DGME MA rates that are as updated and accurate as possible.

In summary, after consideration of the public comments received, we are finalizing the proposed methodology for the implementation of section 4143, such that the amounts previously recouped under CR 11642 (or CR 12596 or CR 12407 as applicable) will be returned to hospitals, and recoupments that would have occurred under CR 11642 (or CR 12596 or CR 12407 as applicable) if not for the enactment of section 4143 of the CAA 2023 will not occur. After issuance of this final rule, we will issue another CR to reflect this finalized methodology.

I. 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 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 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 2024, we proposed 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 proposed modifications to our existing methodology, as adopted in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), that we proposed to use to adjust the case count for purposes of the relative weight calculations, as described in section II.D. of the preamble of the proposed rule and this final rule. As discussed in that section, the December update of the FY 2022 MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. For the FY 2022 MedPAR claims data, this field identifies whether or not the claim includes condition code ZB. For the FY 2023 MedPAR data and for subsequent years, this field will identify 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 the proposed rule and this final rule for further discussion of our proposed changes to our methodology for identifying clinical trial claims and expanded access use claims in MS–DRG 018 and our proposed modifications to the methodology used to adjust the case count for purposes of the relative weight calculations.

Consistent with these proposals, and using the same methodology that we proposed to use to adjust the case count for purposes of the relative weight calculations, we proposed 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 (or, for FY 2024 ratesetting, which is based on the FY 2022 MedPAR data, condition code “ZB”).
• 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 the proposed rule and this final rule for further discussion of these proposed methodology changes.

Consistent with our calculation of the proposed adjustor for the relative weight calculations, for the proposed rule we proposed to calculate this adjustor based on the December 2022 update of the FY 2022 MedPAR file for purposes of establishing the FY 2024 payment amount. Specifically, in accordance with 42 CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS payments), we proposed to multiply the FY 2024 relative weight for MS–DRG 018 by a proposed adjustor of 0.28 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 proposed to update the value of the adjustor based on more recent data for the final rule.

We did not receive any comments specifically relating to the proposed payment adjustment for applicable clinical trial and expanded access use immunotherapy cases and are therefore finalizing our proposal without modification. We are also finalizing our proposal to update the value of this adjustor based on more recent data for this final rule. Therefore, using the March 2023 update of the FY 2022 MedPAR data, we are finalizing an adjustor of 0.27 for FY 2024, which will be multiplied by the final FY 2024 relative weight for MS–DRG 018 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.

J. Hospital Readmissions Reduction Program

1. Statutory Basis for the Hospital Readmissions Reduction Program

Section 1886(q) of the Act established the Hospital Readmissions Reduction Program. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49531) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38221 through 38240) for a detailed discussion of and additional information on the statutory history of the Hospital Readmissions Reduction Program.

2. Regulatory Background

We refer readers to the following final rules for detailed discussions of the regulatory background and descriptions of the current policies for the Hospital Readmissions Reduction Program:

• FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 through 51676);
• FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 53401);
• FY 2014 IPPS/LTCH PPS final rule (78 FR 50649 through 50676);
• FY 2015 IPPS/LTCH PPS final rule (79 FR 50024 through 50048);
• FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49543);
• FY 2017 IPPS/LTCH PPS final rule (81 FR 56973 through 56979);
• FY 2018 IPPS/LTCH PPS final rule (82 FR 38221 through 38240);
• FY 2019 IPPS/LTCH PPS final rule (83 FR 41431 through 41439);
• FY 2020 IPPS/LTCH PPS final rule (84 FR 42380 through 42390);
• FY 2021 IPPS/LTCH PPS final rule (85 FR 58844 through 58847);
• FY 2022 IPPS/LTCH PPS final rule (86 FR 45249 through 45266); and
• FY 2023 IPPS/LTCH PPS final rule (87 FR 49081 through 49094).

We have also codified certain requirements of the Hospital Readmissions Reduction Program at 42 CFR 412.152 through 412.154.

3. Current Measures

The Hospital Readmissions Reduction Program currently includes six applicable conditions/procedures: Acute myocardial infarction (AMI); heart failure (HF); pneumonia (PN); elective primary total hip arthroplasty/total knee arthroplasty (THA/TKA); chronic obstructive pulmonary disease (COPD); and coronary artery bypass graft (CABG) surgery.

We did not make any proposals or updates in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27024) for the Hospital Readmissions Reduction Program. We refer readers to section V.G.5. of the preamble for an updated estimate of the financial impact of using the proportion of dually eligible beneficiaries, Excess Readmission Ratios, and aggregate payments for each condition/procedure and all discharges for applicable hospitals from the FY 2024 Hospital Readmissions Reduction Program applicable period (that is, July 1, 2019, through June 30, 2022).

While we did not make any proposals or updates to the Hospital Readmissions Reduction Program, we did receive comments noting additional opportunities for addressing health equity. Suggestions included expanding social risk adjustments, particularly to include homelessness Z codes in risk adjustments, a comment not to use dual eligibility status, and a comment to expand social risk adjustments to decrease annual readmissions penalties. A few commenters urged CMS to find more ways to support safety net hospitals including by incorporating an essential hospital definition in the peer grouping methodology. We thank the commenters for their input, and we will consider these comments for future rulemaking.

K. Hospital Value-Based Purchasing (VBP) Program: Policy Changes

1. Background

a. Overview

Section 1886(o) of the Act requires the Secretary to establish a hospital value-based purchasing program (the Hospital VBP Program) under which value-based incentive payments are made in a fiscal year (FY) to hospitals that meet performance standards established for a performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year are to be established by the Secretary.

For descriptions of our current policies for the Hospital VBP Program, we refer readers to our codified requirements for the Hospital VBP Program at 42 CFR 412.160 through 412.168.

b. FY 2024 Program Year Payment Details

Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce the base operating DRG payment amount for a hospital for each discharge in a fiscal year by an applicable percent. Under section 1886(o)(7)(A) of the Act, the sum of these reductions in a fiscal year must equal the total amount available for value-based incentive payments for all eligible hospitals for the fiscal year, as estimated by the Secretary. We finalized details on how we would implement these provisions in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), and we refer readers to that rule for further details.

Under section 1886(o)(7)(C)(v) of the Act, the applicable percent for the FY 2024 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 2024 is approximately $1.7 billion, based on the March 2023 update of the FY 2022 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 published proxy value-based incentive payment adjustment factors in Table 16 associated with the proposed rule (which is available via CMS website). We are publishing updated proxy value-based incentive payment adjustment factors in Table 16A associated with this final rule (which is available via the CMS website). We note that these proxy adjustment factors will not be used to adjust hospital payments for FY 2024 as they were calculated using the historical baseline and performance periods for the FY 2023 Hospital VBP Program. These updated proxy factors were calculated using the March 2023 update to the FY 2022 MedPAR file. The updated slope of the linear exchange function used to calculate these proxy factors was 2.6517299103, and the estimated amount available for value-based incentive payments to hospitals for FY 2024 is approximately $1.7 billion. 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 2024 Hospital VBP Program. We expect that Table 16B will be posted in Fall 2023.

2. Retention and Removal of Quality Measures

a. Retention of Previously Adopted Hospital VBP Program Measures and Relationship Between the Hospital IQR and Hospital VBP Program Measure Sets

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592), we finalized a policy to retain measures from prior program years for each successive program year, unless otherwise proposed and finalized. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41440 through 41441), we finalized a revision to our regulations at 42 CFR 412.164(a) to clarify that once we have complied with the statutory prerequisites for adopting a measure for the Hospital VBP Program (that is, we have selected the measure from the Hospital IQR Program measure set and included data on that measure on Hospital Compare for at least one year prior to its inclusion in a Hospital VBP Program performance period), the Hospital VBP Program statute does not require that the measure continue to remain in the Hospital IQR Program.

We did not propose any changes to these policies in the FY 2024 IPPS/LTCH PPS proposed rule.

b. Codification of the Current Hospital VBP Program Measure Removal Factors

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41441 through 41446), we finalized eight measure removal factors for the Hospital VBP Program, and we refer readers to that final rule for details. In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed to codify at 42 CFR 412.164(c) of our regulations these eight measure removal factors as well as the policies for updating measure specifications and retaining measures (88 FR 27025). We believe that this codification will make it easier for interested parties to find these policies and will further align the Hospital VBP Program regulations with the regulations we have codified for other quality reporting programs.

We invited public comment on this proposal.

We did not receive any comments on this proposal and are finalizing this proposal as proposed with minor technical modifications to regulation text at 42 CFR 412.164(c).

c. Substantive Measure Modifications

(1) Adoption of Substantive Measure Updates to the Medicare Spending per Beneficiary (MSPB)—Hospital Measure (CBE #2158) Beginning With the FY 2028 Program Year

In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed to adopt substantive measure updates to the MSPB Hospital measure (CBE #2158) in the Hospital VBP Program beginning with the FY 2028 program year (88 FR 27025 through 27026). We adopted the MSPB Hospital measure in the Hospital VBP Program in the FY 2012 IPPS/LTCH PPS final rule beginning with the FY 2014 program year (76 FR 51654 through 51658). We continue to believe that the MSPB Hospital measure provides important data on resource use (addressing the Meaningful Measures Framework priority of making care affordable), which is why we proposed substantive updates to the MSPB Hospital measure in the Hospital VBP Program under the Efficiency/Cost Domain. We refer readers to the FY 2019 IPPS/LTCH PPS final rule for a broader discussion of the Meaningful Measures Framework (83 FR 41147).

We previously adopted the same substantive updates to the MSPB Hospital measure for use in the Hospital IQR Program in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49257 through 49263). The substantive updates to the MSPB Hospital measure are three refinements which ensure a more comprehensive and consistent assessment of hospital performance by capturing more episodes and adjusting the measure calculation:

• An update to allow readmissions to trigger new episodes to account for episodes and costs that are currently not included in the measure but that could be within the hospital's reasonable influence;
• A new indicator variable in the risk adjustment model for whether there was an inpatient stay in the 30 days prior to episode start date; and
• An updated MSPB amount calculation methodology to change one step in the measure calculation from the sum of observed costs divided by the sum of expected costs (ratio of sums) to the mean of observed costs divided by expected costs (mean of ratios).

These refinements also appear in a summary of the measure re-evaluation on the CMS QualityNet website posted in July 2020.

We presented the three substantive updates to the MSPB Hospital measure (CBE #2158) to the consensus-based entity (CBE) in the Fall 2020 cycle for measure re-endorsement. During the Fall 2020 11-month endorsement cycle, the re-evaluated MSPB Hospital measure was reviewed by the Scientific Methods Panel (SMP), Cost and Efficiency Standing Committee, and Consensus Standards Approval Committee (CSAC). The re-evaluated measure passed on the reliability and validity criteria when reviewed by the SMP. The Cost and Efficiency Standing Committee reviewed each aspect of the re-evaluated measure in detail across three meetings. The CSAC approved the Standing Committee's endorsement recommendation unanimously and re-endorsed the MSPB Hospital measure (CBE #2158) in June 2021 with the three refinements. Following re-endorsement, we included the updated measure in CMS's “List of Measures Under Consideration (MUC) for December 1, 2021.” The re-evaluated MSPB Hospital measure (MUC2021–131) underwent Measure Applications Partnership (MAP) review during the 2021–2022 cycle. On December 15, 2021, the MAP Hospital Workgroup supported the re-evaluated measure for rulemaking. On January 19, 2022, the MAP Coordinating Committee upheld the MAP Hospital Workgroup's preliminary recommendation to support the re-evaluated measure for rulemaking. More detail on the discussion is available in the MAP's final report.

For the purpose of continuing to assess hospitals' efficiency and resource use and to meet statutory requirements under section 1886(o)(2)(B)(ii) of the Act, we proposed to adopt the substantive updates to the MSPB Hospital measure in the Hospital VBP Program under the Efficiency and Cost Reduction Domain. As previously stated, we previously adopted the same substantive updates to the measure in the Hospital IQR Program (87 FR 49257 through 49263), and we intend to begin posting the updated measure data on Care Compare beginning in January 2024, which will enable us to post data on the substantive updates to the measure for at least one year before the proposed beginning of the performance period for the FY 2028 program year (discharges beginning January 1, 2026).

We proposed to adopt the substantive updates to the MSPB Hospital measure (CBE #2158) in the Hospital VBP Program beginning with the FY 2028 program year. We refer readers to section V.K.4.c of the preamble of this final rule where we discuss our defined baseline and performance periods for this updated measure under the Hospital VBP Program. We also proposed that the performance standards calculation methodology for the updated MSPB Hospital measure will be the same as that which we currently use for the measure. The performance standards for the updated measure for the FY 2028 program year are not yet available.

We invited public comment on this proposal.

Comment: Many commenters supported the proposal to implement the substantive updates to the MSPB Hospital measure in Hospital VBP Program. Several commenters commended CMS for its alignment with the Hospital IQR Program. A commenter cited the updates to readmission terminology as a significant factor in their support.

Response: We thank commenters for their support, and we aim to maintain alignment with the Hospital IQR Program in line with our statutory requirements and to update our existing measures when possible.

Comment: A few commenters did not support the proposal and expressed concern that allowing readmissions to trigger new episodes could lead to the same costs being attributed to hospitals twice and provide a misleading portrayal of hospital performance.

Response: As previously stated in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49257 through 49263) where we adopted the MSPB re-evaluated measure in the Hospital IQR Program, the refinement allows readmissions to trigger new episodes which will result in some services being assigned to multiple episodes. These services, however, will only be counted once per episode, so the cost of these services will not be counted twice within the same episode. Additionally, the presence of an inpatient admission within 30 days before the start date of an episode based on a readmission is controlled for in the risk adjustment model to account for the additional complexity that readmissions may entail. Further, the inclusion of episodes triggered by readmissions does not necessarily result in a worse measure score for the provider. Such episodes still use the observed over expected cost ratios, where it is possible for the observed cost to be lower than expected cost, if the hospital performed better on the episode than expected.

Comment: A few commenters did not support the proposal to adopt the re-evaluated MSPB Hospital measure citing concern that hospitals have not had enough time to understand how these measure refinements will impact hospital performance. A few commenters recommended allowing hospitals to have a better understanding of the impact the measure updates will have on performance. Specifically, commenters recommended delaying implementation in the Hospital VBP Program so that hospitals have a better understanding of how the updates impacted hospital performance in the Hospital IQR Program, including allowing hospitals to see performance metrics, prior to implementation in the Hospital VBP Program. A commenter requested to see the calculations and impact changes before being able to appropriately comment, and a commenter recommended delaying adoption for one year to allow for more robust feedback. Additionally, a few commenters expressed concern that the measure will increase the burden on hospitals because they will have to monitor and validate two different performance rates using two different measure specifications. A few commenters also expressed concern that the policy will result in two slightly different measure specifications being used simultaneously in the two different programs which they believe could yield different results and make it more difficult to interpret results.

Response: We appreciate the commenters' concerns. As we have previously stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27025 through 27026), we adopted the re-evaluated version of the MSPB Hospital measure into the Hospital IQR Program to accommodate the statutory and regulatory requirements as well as to provide interested parties with an opportunity to become familiar with the new version of the measure and provide feedback. We staged our proposals across the Hospital IQR Program and Hospital VBP Program to accommodate statutory and regulatory requirements, as further discussed later in this section. We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49257 through 49263) for more information on the policy to adopt the substantive updates to MSPB Hospital measure in the Hospital IQR Program, which provided interested parties with an opportunity to become familiar with the new version of the measure and provide feedback prior to our proposal to adopt the measure updates in the Hospital VBP Program. Hospital-specific reports for the re-evaluated MSPB Hospital measure in the Hospital IQR Program will be available for review in October 2023. Further, hospitals will be able to see their performance in the Hospital IQR Program for four years prior to measure implementation in the Hospital VBP Program beginning with the FY 2028 program year.

We acknowledge the commenters' concerns that two slightly different versions of the measure will be in use across the Hospital IQR and Hospital VBP Programs simultaneously until the measure is removed from the Hospital IQR Program with the FY 2028 payment determination. Section 1886(o)(2)(C)(i) of the Act and 42 CFR 412.164(b) state that measures must be publicly reported for one year in the Hospital IQR Program prior to the beginning of the performance period in the Hospital VBP Program. Additionally, section 1886(o)(2)(B)(ii) of the Act outlines that the Hospital VBP Program must contain an efficiency measure. As part of routine measure maintenance, we will continue to monitor the measure's impact on hospitals.

Comment: A commenter recommended suppressing one set of measures from public reporting to reduce confusion caused by two different publicly reported rates.

Response: Results for the MSPB Hospital measure currently implemented in the Hospital VBP Program will continue to be available on data.medicare.gov along with other Hospital VBP Program data until the re-evaluated measure is implemented under the finalized policy outlined in section V.K.2.a of this rule. We intend to continue publishing re-evaluated MSPB Hospital measure data on Care Compare for the period of time in which hospitals report on two versions of the measure to provide important cost measure information to the public. In addition, we will make sure it is clear which version of the measure is being displayed in which location through outreach and education efforts.

Comment: A few commenters did not support the re-evaluated MSPB Hospital measure proposal because they believed that the measure was not adequately tested and adjusted for social risk factors. A commenter believed that measure scores shifted when social risk factors were applied within the risk model. A commenter recommended implementing a social risk factor adjustment in calculating measure performance because they believed that it will improve measure reliability. A commenter specifically stated that they believed that the endorsement review suggested low reliability and validity. Another commenter expressed concern about the scientific acceptability of the measure, and a commenter believed that there would be a potential inverse relationship between outcomes, adjustment for social risk factors, and medical complexities due to vulnerable patient groups driving performance differences.

Response: We respectfully disagree with the commenters that the re-evaluated MSPB Hospital measure has low reliability and validity. The CBE rated the measure's reliability as high when endorsing the measure. The average reliability score of hospitals with at least 25 episodes was .92, which far exceeds the standard generally considered as `high' reliability. The CBE rated the measure's validity as moderate when endorsing the measure. Further, as part of the CBE endorsement submission we assessed the impact of social risk factors on the measure, conducting testing based on CBE precedents, as well as supplemented with novel testing and in response to specific stakeholder feedback. Specifically, we tested whether the inclusion of sex, dual eligibility status, race/ethnicity, the AHRQ socioeconomic status (SES) index, components of the AHRQ SES index, and the Area Deprivation Index could meaningfully be incorporated into the measure's risk adjustment model so as not to penalize the hospital for the patients they treat, while also not setting a lower standard of care for hospitals with patients who have social risk factors. Results showed that the inclusion of these social risk factors in the risk model had a limited and inconsistent effect on measure scores, and some of the variation that was captured by tested covariates was attributable to the hospital in which the episodes were initiated. The CBE's Scientific Methods Panel carefully reviewed the testing results on the impacts of social risk factors on the measure and our recommendation to continue not including them in the measure's risk adjustment model and passed the measure on the validity criterion. While social risk factors continue to not be included in the measure's risk adjustment model, we plan to continue to conduct testing and monitoring of the impact of social risk factors on the measure as part of normal measure maintenance.

Comment: Several commenters expressed concerns about the re-evaluated MSPB Hospital measure, including their beliefs that the measure does not inform performance by condition, there could be an increased number of episodes included in the measure that could impact performance, and the explanation of how services are allocated to an episode is unclear on how this would not penalize a hospital twice.

Response: Regarding the commenter's concern about hospitals being penalized twice, this refinement will not result in hospitals being penalized twice because the re-evaluated MSPB Hospital measure, whether used in the Hospital IQR Program or Hospital VBP Program, and the condition- and procedure-specific readmission measures used in the Hospital Readmissions Reduction Program assess readmissions for different purposes. The re-evaluated MSPB Hospital measure assesses hospitals' cost efficiency on readmissions and other costs for both the hospital and patient, while the condition- and procedure- specific measures in the Hospital Readmissions Reduction Program are intended to reduce avoidable readmissions.

We respectfully disagree that there could be an increased number of episodes included in the measure and thus impact performance due to readmissions triggering new episodes. The inclusion of episodes triggered by readmissions does not necessarily result in a worse measure score for the provider. Such episodes still use the observed over expected cost ratios, where it is possible for the observed cost to be lower than expected cost, if the hospital performed better on the episode than expected. Additionally, allowing readmissions to trigger new MSPB Hospital episodes does not impact a hospital's readmissions rates, given that it merely captures episodes that are based on existing readmissions so that those episodes can be used to assess hospital performance.

Comment: A commenter requested additional clarification around what is a hospital's reasonable influence for a readmission. They expressed concern that it may be difficult for hospitals to track readmissions without understanding what CMS considers to be reasonable influence and recommended providing additional information on Care Compare prior to FY 2028.

Response: We interpret “reasonable influence” in the comment to mean the appropriateness to hold the hospital accountable for the costs associated with the readmissions if they are influenced not only by the hospital's care decisions but also other factors that the hospital may not have influence over (for example, a patient's age, comorbidities, or other risk factors). The Technical Expert Panel (TEP) that provided feedback to the measure developer on the re-evaluated MSPB Hospital measure agreed that readmissions should trigger MSPB episodes to capture costs in the subsequent 30 days post-discharge for the readmissions because they believed that it is clinically appropriate to hold a hospital responsible for these costs. Allowing readmissions to trigger new episodes (i) encourages hospitals to provide cost efficient care and improve care coordination not only during initial hospitalizations, but also during readmissions, (ii) increases the number of episodes for which a clinician can be scored, and (iii) captures potentially high-cost services that are otherwise excluded. Additionally, allowing readmissions to trigger new MSPB Hospital episodes does not impact a hospital's readmissions rates, given that it merely captures episodes that are based on existing readmissions so that those episodes can be used to assess hospital performance. Furthermore, readmissions trigger an episode similarly to how initial admissions trigger in an episode, in that the episode window starts three days prior to the inpatient stay (whether it's an initial admission or readmission) and ends 30 days after discharge—thus, this refinement to measure construction will not result in any additional burden for hospitals to track.

We provide clarification on (i) how readmissions trigger an episode, and (ii) the impact of the re-evaluated MSPB Hospital measure as follows. An episode is opened, or triggered, by an initial admission to an inpatient hospital, and the episode window starts three days prior to this index admission and ends 30 days after discharge. If a readmission for the same patient occurs within the 30-day post-discharge of the first episode, then the readmission triggers a new episode. This new episode's window starts three days prior to the readmission and ends 30 days after discharge from the readmission. The hospital managing the readmission is now being measured under similar cost efficiency incentives by the new episode. Specifically, the new episode includes the costs in the post-discharge period of the readmission not previously captured. The refinement to allow readmissions to trigger a new episode will result in some services being assigned to multiple episodes. These services, however, are counted only once per episode (that is, cost will not be double-counted). The revised measure calculation compares each hospital's observed episode costs to predicted episode costs among their peers for patients with the same observable characteristics, rather than to a pre-defined standard. By comparing hospitals to other hospitals that are all attributed in the same way, we expect this comparison to be fair. This helps maintain care coordination incentives of the re-evaluated MSPB Hospital measure. Further, the inclusion of episodes triggered by readmissions does not necessarily result in a worse measure score for the provider—such episodes still use the observed over expected cost ratios, where it is possible for the observed cost to be lower than expected cost if the hospital performed better on the episode than expected. Additionally, the prior inpatient admission characteristic is controlled for in the risk adjustment model to avoid unfairly penalizing the hospital attributed to the newly triggered episode. An illustration of this refinement is available in Appendix B of the Measure Information Form (MIF) document available at: https://qualitynet.cms.gov/files/647f8ba16f7752001c37e302?filename=2023_HIQR_Re-eval_MSPB_%20MIF.pdf .

We also wish to note that because the updated version of this measure was adopted in the Hospital IQR Program in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49257 through 49263), hospitals will receive hospital-specific reports for the re-evaluated MSPB Hospital measure on an annual basis, which include patient-level episode information, prior to public display on the Compare tool. In addition, hospitals receive hospital-specific reports for seven readmission measures used in the Hospital IQR and Hospital Readmissions Reduction Programs that provide patient-level readmissions information.

Comment: A few commenters had recommendations for the re-evaluated MSPB Hospital measure including ensuring that the re-evaluated MSPB Hospital measure is reliable and valid for efficiency and cost reduction and exploring whether adding a new variable indicating a patient had an inpatient stay in the 30 days prior to an episode may unfairly disadvantage hospitals that frequently provide care to patients with a high case mix index.

Response: As discussed earlier, the re-evaluated MSPB Hospital measure rated high for reliability and moderate for validity during the CBE endorsement process. As part of the CBE endorsement submission, we undertook three approaches to empirically examine the extent to which the re-evaluated MSPB Hospital measure captures what it intends to capture. Firstly, we examined the relationship between risk adjusted episode cost ratios and episodes with and without post-admission events that are known indicators of high cost or intensive care. Secondly, we examined the relationship between a hospital's average expected episode cost and average episode rates of several service use categories, to test whether the risk adjustment model can predict patient need for certain services. Thirdly, we examined the relationship between the re-evaluated MSPB Hospital measure and other cost-specific measures, efficiency-related measures, and measures in other Hospital VBP Program domains. For all three types of validity testing, we observed results that were in line with our expectations, demonstrating that the measure is functioning as intended.

We thank the commenter for their feedback regarding performance of hospitals with high case mix index. There has been extensive testing done on the measure to demonstrate the validity of its risk adjustment model. In general, the re-evaluated MSPB Hospital measure's risk adjustment methodology accounts for patient case-mix and other factors by adjustment for patient age and severity of illness. Specifically, the risk adjustment methodology includes 12 age categorical variables, 79 hierarchical condition category (HCC) indicators, status indicator variables for whether the beneficiary qualifies for Medicare through disability or age and End-Stage Renal Disease (ESRD), indicators to account for disease interactions, an indicator of whether the beneficiary recently required long-term care, and the Medicare Severity-Diagnosis Related Group (MS–DRG) of the index hospitalization. We believe that this provides adequate adjustment for patient acuity. For the re-evaluated MSPB Hospital measure specifically, a variable indicator showing whether there was an inpatient stay in the 30 days prior to an episode start date is added to the risk adjustment model to account for differences in expected cost for episodes that are triggered by readmissions. This prior inpatient admission characteristic is controlled for in the risk adjustment model to ensure that the hospital attributed to the newly triggered episode from a readmission is not unfairly penalized for providing care to the patient during the episode that could be higher cost due to the readmission status. This refinement was supported by the TEP. As part of routine measure maintenance, we plan to continue to conduct testing and monitor the impact of risk factors on the measure.

After consideration of the public comments we received, we are finalizing this policy as proposed.

(2) Adoption of Substantive Measure Updates to the Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (CBE #1550) Measure Beginning With the FY 2030 Program Year

In the FY 2024 IPPS/LTCH PPS proposed rule, we proposed to adopt substantive measure updates to the Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (CBE #1550) (hereinafter referred to as the THA/TKA Complication measure), beginning with the FY 2030 program year (88 FR 27026). We adopted the THA/TKA Complication measure in the FY 2015 IPPS/LTCH PPS final rule beginning with the FY 2019 program year for use in the Hospital VBP Program (79 FR 50062 through 50063). We continue to consider the clinical outcomes of the THA/TKA Complication measure a high priority, and we believe that this measure provides important data on resource use (addressing the Meaningful Measures Framework priority of making care affordable), which is why we proposed to adopt substantive updates to the THA/TKA Complication measure in the Hospital VBP Program under the Clinical Outcomes Domain.

We previously adopted the same substantive updates to the THA/TKA Complication measure for use in the Hospital IQR Program as a re-evaluated measure in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49257 through 49263). We also listed the re-evaluated THA/TKA Complication measure in the publicly available document entitled “List of Measures Under Consideration for December 1, 2021,” with identification number MUC2021–118. The MAP reviewed the re-evaluated the measure and voted to conditionally support the measure for rulemaking for use pending CBE review and endorsement of the measure update. The MAP Rural Health Advisory Group reviewed this re-evaluated measure on December 8, 2021, and agreed that the measure was suitable for use with rural providers given that there would be no undue consequences for rural hospitals. The CBE re-endorsed the original measure in July of 2021, and we intend to submit the re-evaluated measure to the CBE for endorsement in Fall 2024.

The substantive updates to the THA/TKA Complication measure are the inclusion of index admission diagnoses and in-hospital comorbidity data from Medicare Part A claims. Additional comorbidities prior to the index admission are assessed using Part A inpatient, outpatient, and Part B office visit Medicare claims in the 12 months prior to index (initial) admission. As a claims-based measure, hospitals will not be required to submit additional data for calculating the updated measure. We refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49263 through 49267), which describes the same updates we proposed to apply to the THA/TKA Complication measure in the Hospital VBP Program, including updates to the risk adjustment and measure calculations.

Adopting these substantive measure updates into the Hospital VBP Program will expand the measure outcome to include 26 additional mechanical complication ICD–10 codes. The additional ICD–10 codes capture the following diagnoses: fracture following insertion of orthopedic implant, joint prosthesis, or bone plate of the pelvis, femur, tibia or fibula, and periprosthetic fracture around internal prosthetic hip, hip joint, knee, knee joint, and other or unspecified internal prosthetic joint. We refer readers to FY 2023 IPPS/LTCH PPS final rule (87 FR 49264) for further information on these additional included ICD–10 codes that are included in the updated measure as adopted for the Hospital IQR Program.

Section 1886(o)(2)(A) of the Act requires the Hospital VBP Program to select measures that have been specified for the Hospital IQR Program. We note that although section 1886(b)(3)(B)(viii)(IX)(aa) of the Act generally requires measures specified by the Secretary 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 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 reviewed CBE-endorsed measures and were unable to identify any other CBE-endorsed measures on this topic, and, therefore, we believe that the exception in section 1886 6(b)(3)(B)(viii)(IX)(bb) of the Act applies. We note that we intend to submit the re-evaluated measure to the CBE for endorsement in Fall 2024.

For the purpose of continuing to assess clinical outcomes, we proposed to adopt the substantive measure updates to the THA/TKA Complication measure (CBE #1550) in the Hospital VBP Program under the Clinical Domain beginning with the FY 2030 program year. As previously stated, we previously adopted the same substantive updates to the measure in the Hospital IQR Program (87 49257 through 49263), and we intend to begin posting the updated measure data on Care Compare beginning in July 2023, which will enable us to post data on the substantive updates to the measure for at least one year before the proposed beginning of the FY 2030 performance period, April 1, 2025, through March 31, 2028.

We proposed to adopt the substantive updates to THA/TKA Complications measure (CBE #1550) in the Hospital VBP Program beginning with the FY 2030 program year. We refer readers to section V.K.4.c of the preamble of this final rule where we discuss our defined baseline and performance periods for this updated measure under the Hospital VBP Program. We also proposed that the performance standards calculation methodology for the updated THA/TKA Complications measure will be the same as that which we currently use for the measure. The performance standards for the updated measure for FY 2030 are not yet available.

We invited public comment on this proposal.

Comment: Many commenters supported the proposal to implement the re-evaluated THA/TKA Complications measure in Hospital VBP Program, with a commenter noting they believed that it is important to ensure measure specifications align across programs. A commenter believed the measure updates will reduce duplicative reporting requirements for hospitals participating in both programs, increase accountability for hospitals by rewarding hospitals with lower complication rates, and provide patients with information to guide their choices regarding where to seek care. The commenter also believed that the measure updates have the potential to lower healthcare costs by decreasing the likelihood of costly readmissions. A commenter noted that they believed that the expansion of the numerator events for this measure provides a more comprehensive picture of hospital performance for hip and knee arthroplasty procedures. A few commenters indicated their support of the inclusion of the 26 additional mechanical complication ICD–10 codes because the codes are clinically appropriate to be paired with arthroplasty and will improve the measure's accuracy. A commenter specifically mentioned the measure cohort expansion to include admission diagnoses and in-hospital comorbidity data in their support because they believed that it enables the inclusion of the 26 additional mechanical complication ICD–10 codes.

Response: We thank commenters for their support. We agree that it is important to align measures across programs where possible and that the 26 additional mechanical complication ICD–10 codes are clinically appropriate.

Comment: A few commenters did not support the substantive updates to the THA/TKA Complications measure citing concerns with the length of the delay in implementation, the inability to assess impact prior to implementation and ability to appropriately comment, and public confusion with the measure currently in the Hospital IQR Program. A commenter noted that they believe that the proposal does not provide enough information to demonstrate the anticipated improvements once implemented.

Response: Section 1886(o)(2)(C)(i) of the Act and 42 CFR 412.164(b) state that measures must be publicly reported for one year in the Hospital IQR Program prior to the beginning of the performance period in the Hospital VBP Program. As we stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27026), we previously adopted the re-evaluated THA/TKA Complication measure into the Hospital IQR Program to accommodate these statutory and regulatory requirements. We staged our proposals across the Hospital IQR Program and Hospital VBP Program to accommodate the statutory requirement. Therefore, we do not want to alter the public reporting timeline of the measures. Hospital-specific reports for the re-evaluated THA/TKA Complications measure in the Hospital IQR Program were released to hospitals in May 2023. Additionally, hospitals will be able to see their performance in the Hospital IQR Program for 6 years prior to measure implementation in the Hospital VBP Program beginning with the FY 2030 program year. Further, like the re-evaluated MSPB Hospital measure, we will make sure it is clear which version of the measure is being publicly displayed in which location through outreach and education efforts.

Comment: A few commenters expressed concern that the measure will increase burden on hospitals because they will have to monitor and validate two different performance rates, with a commenter expressing concern regarding the number of hospitals that participate in the Hospital VBP Program versus the Hospital IQR Program. The commenter recommended monitoring reporting rates to make sure no reporting gaps occur when the measure is removed from the Hospital IQR Program.

Response: We acknowledge the commenters' concerns regarding burden of reporting two slightly different versions of the measure in the Hospital IQR and Hospital VBP Programs simultaneously. However, we respectfully disagree that the proposed transition of the re-evaluated THA/TKA Complication measure from the Hospital IQR Program to the Hospital VBP Program will cause significant data collection burden. Hospitals will not be required to submit additional data for calculating the measure as it is a claims-based measure. Section 1886(o) of the Act and at 42 CFR 412.164(b) of our regulations state that measures must be publicly reported for one year in the Hospital IQR Program prior to the beginning of the performance period in the Hospital VBP Program. As we have previously stated in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 27026 through 27027), we adopted the revised version of the THA/TKA Complication measure into the Hospital IQR Program first to accommodate the statutory and regulatory requirements. The benefits of keeping the original THA/TKA Complications measure until the statutory timeframe for the updated measure has been met outweighs the burden of reporting two measures. We refer readers to FY 2023 IPPS/LTCH PPS final rule (87 FR 49263 through 49267), which provided interested parties with an opportunity to become familiar with the new version of the measure and provide feedback prior to our proposed adoption of that revised measure in the Hospital VBP Program.

Comment: Several commenters recommended that CMS consider modifying the measure to capture both inpatient and outpatient procedures in the case that the shift of procedures from an inpatient setting to an outpatient setting alters the measure validity and reliability or impacts performance.

Response: We thank the commenters for their feedback. We are monitoring the shifts of THA/TKA from the inpatient to outpatient setting as well as the potential impacts on this inpatient only measure. The proposed re-evaluated THA/TKA Complication measure is case mix adjusted for patient comorbidities and is a relative performance measure for hospitals performing these elective THA/TKA procedures. As such, we believe that this measure accurately reflects hospital performance even if patients receiving these procedures in the inpatient setting tend to be sicker, on average, than those treated in an outpatient setting. We also refer readers to section XIV.B.3.b of the CY 2024 OPPS proposed rule for a proposal to adopt the THA/TKA Patient-Reported Outcome-based Performance Measure (PRO–PM) in the Hospital Outpatient Quality Reporting (OQR) Program.

Comment: A few commenters expressed concerns about the inclusion of the additional ICD–10 codes, including that the feedback from subject matter experts have not been reviewed or endorsed by the CBE and that the additional codes will negatively impact patients and clinicians in small community hospitals.

Response: As stated in the proposed rule (88 FR 27026), the re-evaluated measure was conditionally supported by the MAP in December of 2021. The CBE re-endorsed the original measure in July of 2021, and we intend to submit the re-evaluated measure to the CBE for endorsement in the fall of 2024. Additionally, the MAP Rural Health Advisory Group reviewed this re-evaluated measure on December 8, 2021, and agreed that the measure was suitable for use with rural providers given that there would be no undue consequences for rural hospitals. We also note while conducting internal analyses, orthopedic surgeons and clinical coding experts vetted the additional 26 mechanical complication ICD–10 codes and agreed they should be included.

Comment: A commenter recommended suppressing one set of measure results from public reporting to reduce potential confusion, while another commenter recommended reviewing the changes to makes sure reliability and validity of the measure were not impacted. Additional recommendations included allowing hospitals to have the ability to see the performance metrics to have a better understanding of the impacts of the modifications and publicly reporting the risk-adjusted, one-year mortality and revision rates on the Care Compare website.

Response: We thank the commenters for their feedback on the re-evaluated THA/TKA measure. We will work to clearly identify the version of the measure when publicly reporting the re-evaluated THA/TKA Complications measure and help address any potential confusion. Data for this measure will continue to be posted to the Care Compare website.

Comment: A few commenters made recommendations about including adjustments around socioeconomic and SDOH considerations, including expanding the claims lines from 25 to a number that allows for the capture of mechanical complication codes along with SDOH diagnosis codes that could also impact the outcome of an elective THA or TKA, and creating a socioeconomic status risk-adjustment that stratifies by dual eligibility populations. A few commenters stated that they believe hospitals taking care of the most complex patients may be unfairly penalized and recommend exploring an alternative risk adjustment.

Response: We are committed to measuring and improving health equity and addressing social risk factors in quality measurement. During the last CBE endorsement maintenance submission for the THA/TKA Complication measure prior to 2022, comprehensive testing was completed which included an assessment of the impact of social risk as captured by dual eligibility and the AHRQ SES Index. The AHRQ SES index score considers aspects of socioeconomic status and is computed using US census data and considers factors including median household income, percentage of persons below the Federal poverty line, unemployment, education, property value, and percentage of persons in crowded households at the 9-digit zip code level. We found wide variation in the prevalence of the two social risk factors we examined, with a large proportion of hospitals treating zero patients with these risk factors. We also found that both had some association with complication risk. However, adjustment for these factors did not have a material impact on hospital RSCRs. Our decisions about which risk factors should be included in each measure's risk-adjustment model are based on whether inclusion of such variables is likely to make the measures more successful at illuminating quality differences and motivating quality improvement. Given these empiric findings and program considerations, we chose not to include these two social risk factors in the final risk model. In presenting these results and interpretation, the CBE re-endorsed the original measure (CBE #1550) in June of 2021 without adjustment for patient-level social risk factors. We acknowledge the importance of balancing these competing considerations and we plan to continue to reevaluate the risk adjustment model and available risk factors on an ongoing basis as part of routine measure maintenance, with the goal of producing the most accurate and fair risk adjustment models for assessing provider performance. Further details related to social risk testing for this measure can be found from downloading the measure specifications from the National Quality Forum (NQF)'s Surgery Fall Cycle 2020 project here: https://nqfappservicesstorage.blob.core.windows.net/proddocs/22/Fall/2020/measures/1550/shared/1550.zip .

After consideration of the public comments we received, we are finalizing our policy as proposed.

3. New Measure for the Hospital VBP Program Set

We consider measures for adoption based on the statutory requirements, including specification under the Hospital IQR Program, posting dates on the Care Compare website, and our priorities for quality improvement as outlined in the CMS National Quality Strategy, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/CMS-Quality-Strategy . We also refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41147 through 41148), in which we describe the Meaningful Measures Framework, our objectives under this Framework for quality measurement, and the quality topics that we have identified as high-impact measurement areas that are relevant and meaningful to both patients and providers. Due to the time necessary to adopt measures, we often adopt policies for the Hospital VBP Program well in advance of the program year for which they will be applicable.

a. New Measure Adoption Beginning With the FY 2026 Program Year: Severe Sepsis and Septic Shock: Management Bundle (CBE #0500)

(1) Background

Sepsis, severe sepsis, and septic shock can arise from simple infections, such as a pneumonia or urinary tract infection. Although it can affect anyone at any age, sepsis is more common in infants, the elderly, and patients with chronic health conditions such as diabetes and immunosuppressive disorders. A 2021 report by the Healthcare Cost and Utilization Project on the most frequent principal diagnoses among non-maternal, non-neonatal inpatient stays using the 2018 National Inpatient Sample revealed septicemia as the most frequent principal diagnosis with over 2.2 million hospital stays. The CDC estimates there are approximately 1.7 million adults diagnosed with sepsis annually with approximately 270,000 resulting deaths. An analysis of over 2.5 million patients with sepsis discharged from January 1, 2010, to September 30, 2016, revealed average mortality rates of 14.9 percent for patients with severe sepsis and 34.3 percent for patients with septic shock. Another analysis using CMS claims data for services provided to approximately 6.9 million patients admitted to inpatient with sepsis from January 1, 2012, to December 31, 2018, showed that while the number of patients admitted to the hospital with sepsis increased over this time period, mortality rates decreased, however they remained high with mortality rates at one week post discharge of approximately 15 percent for severe sepsis and approximately 40 percent for patients with septic shock. For this same population mortality rates increased at six months post discharge to approximately 36 percent for severe sepsis and 60 percent for septic shock.

In a 2001 study by Rivers et al., it was shown that an absolute and relative reduction in mortality from sepsis can be reduced 16 percent and 30 percent, respectively, when aggressive care is provided within six hours of hospital arrival. In a more recent study that utilized chart-abstracted data for the Severe Sepsis and Septic Shock: Management Bundle measure (CBE #0500) from October 1, 2015, to March 31, 2017, submitted to CMS for over 1.3 million patients, Townsend et al. found that compliance with the measure was associated with a reduction in 30-day mortality.

(2) Overview of Measure and MAP Feedback

We previously adopted the Severe Sepsis and Septic Shock: Management Bundle measure (CBE #0500) into the Hospital IQR Program beginning with the FY 2017 payment determination in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50236 through 50241). Hospital submission of patient level data for reporting on the measure began with qualifying patient discharges starting October 1, 2015. We began public reporting of the Severe Sepsis and Septic Shock: Management Bundle measure (CBE #0500) performance results on the Care Compare website with the July 2018 refresh at which time the national average performance for the measure was 49 percent. Performance rates have increased with each subsequent Care Compare refresh reaching 60 percent for results reported from October 1, 2019, through September 30, 2020. During the COVID–19 public health emergency (PHE), performance rates decreased slightly to 57 percent for the results reported from January 1, 2021, through December 31, 2021. Performance rates for the top 10 percent of hospitals have averaged 80 percent since we began public reporting with performance data from October 1, 2017, through September 30, 2018. We believe that additional incentives will support continued improvement in measure performance. The Severe Sepsis and Septic Shock: Management Bundle measure (CBE #0500) was initially endorsed by the CBE in 2008 for the hospital/acute care facility setting, and underwent maintenance review and endorsement renewal in June 2013, November 2014, July 2017, and December 2021.

The Severe Sepsis and Septic Shock: Management Bundle measure supports the efficient, effective, and timely delivery of high-quality sepsis care. The Severe Sepsis and Septic Shock: Management Bundle provides a standard operating procedure for the early risk stratification and management of a patient with severe infection. When the care interventions in the Severe Sepsis and Septic Shock: Management Bundle measure are provided as a composite, there have been significant reductions observed in hospital length of stay, re-admission rates and mortality. Additional information about this measure is available on the CMS Measures Inventory Tool (CMIT) website.

We believe that the adoption of this measure aligns with the core principles outlined in the HHS National Healthcare System Action Alliance to Advance Patient Safety, including the focus on demonstrating and fostering commitments to safety as a core value and the promotion of the development of safety cultures. We also believe that the adoption of the Sepsis and Septic Shock: Management Bundle measure will contribute toward CMS' goal of advancing health equity, as outlined in the CMS National Quality Strategy. Research on in-hospital sepsis mortality between 2004–2013 showed that there is a higher rate of sepsis mortality for Black and Hispanic patients, compared with White patients. Further, this research showed that disparities in outcomes disappeared when results were adjusted for hospital characteristics which highlights the need for improved septic management in hospitals that are treating a high proportion of Black and Hispanic patients. Another study of 249 academic medical centers found that for patients with a diagnosis of sepsis, Black patients exhibited lower adjusted sepsis mortality than White patients. While the results of research in the field are varied, we believe that this measure, which outlines standardized protocols, could mitigate potential biases held by individuals and systems that lead to such variation in outcomes.

The measure was submitted to the MAP for the Hospital VBP Program for the 2022–2023 pre-rulemaking cycle and received conditional support for rulemaking pending the measure developer providing clarity about the differences between the measure specifications submitted to the MUC list in May 2022 and reviewed by MAP and the current measure specifications published in December 2022 which include abstraction guidance updates related to crystalloid fluid administration volumes. During the public comment period for the MUC list, we received comments that were both supportive and not supportive of the inclusion of the measure in the Hospital VBP Program. Public comments supportive of including the measure in the Hospital VBP Program noted the measure is CBE endorsed and that it encourages hospitals to follow published international guidelines for the early identification and management of severe sepsis and septic shock.

Public comments not supportive of including the measure in the Hospital VBP Program centered around two main themes. The first group of commenters were concerned that the adoption of the Severe Sepsis and Septic Shock: Management Bundle measure could result in the overuse of antibiotics, more specifically, that adherence to the Severe Sepsis and Septic Shock: Management Bundle measure includes administering antibiotic therapy to all patients with possible sepsis, regardless of severity-of-illness, which commenters believed could risk excessive and unwarranted antibiotic administration. The antibiotic requirements and timing for the measure are consistent with antimicrobial recommendations Surviving Sepsis Campaign: International Guidelines for Management of Severe Sepsis and Septic Shock: 2021. We believe that there is enough flexibility to incorporate clinician judgment in the measure as there are several opportunities for abstractors to disregard Systemic Inflammatory Response Syndrome (SIRS) criteria or signs of organ dysfunction if there is physician, advance practice nurse, or physician assistant documentation that SIRS criteria or signs of organ dysfunction are due to a chronic condition, medication, or a non-infectious source.

Second, some commenters had concerns around the burden associated with the data abstraction of the measure and staying up to date with changes to the data abstraction. We note that adding the measure to the Hospital VBP Program will not create a new burden for hospitals because they are already required to report data on the measure under the Hospital IQR Program. With regard to concerns about the overall burden of collecting these data in the Hospital IQR Program, we note that we are currently developing a sepsis outcome electronic clinical quality measure (eCQM) that, if adopted for that program, would not be as burdensome for hospitals to report. However, in light of our high priority to address patient safety, in the FY 2024 IPPS/LTCH PPS proposed rule, we proceeded with the proposal to adopt the Severe Sepsis and Septic Shock: Management Bundle measure (88 FR 27027 through 27029). The specifications for the proposed measure are listed in v5.14 of the CMS Specifications Manual for National Hospital Inpatient Quality Measures, and those specifications apply to patients discharged from July 1, 2023, through December 31, 2023. The proposed measure specifications for v5.14 include minor technical updates to the data abstraction guidance and review for consistency with recent published literature. The minor technical updates were made to address hospital abstractor and clinician feedback received via the QualityNet Question and Answer Tool from hospital medical record abstractors and clinicians about the documentation required for fluid resuscitation within three hours of tissue hypoperfusion presentation. We routinely make these minor, technical updates based on feedback we receive from abstractors and clinicians to improve the data abstraction of the measure. The measure is in alignment with the Surviving Sepsis Campaign: International Guidelines for Management of Severe Sepsis and Septic Shock: 2021 which suggest administering at least 30 mL/kg of intravenous (IV) crystalloid fluids within the first three hours of resuscitation noting that timely, effective fluid resuscitation is critical to stabilize patients with sepsis-induced tissue hypoperfusion. The guidelines noted that there are no prospective interventional studies comparing various crystalloid fluid volumes for initial resuscitation but reference observational studies and a retrospective study that demonstrated not administering 30 mL/kg of crystalloid fluids within three hours of sepsis identification was associated with higher mortality regardless of comorbidities such as end-stage renal disease and heart failure. With this in mind, the guidelines suggest that fluid administration should be guided by careful assessment of responsiveness to avoid over- and under-resuscitation. The measure requires starting crystalloid fluids within three hours of recognition of tissue hypoperfusion but does not require fluids for resuscitation be completely infused within three hours. This is in part due to recognition of various factors that can contribute to complete fluid infusion potentially taking longer. The measure establishes 30 mL/kg of crystalloid fluids as the default volume for fluid resuscitation but does allow for lesser volumes ordered by a clinician and accompanied by documentation of a reason for administering a lesser volume in recognition that some patients may not tolerate 30 mL/kg and that others may respond adequately to a lesser volume.

We have made technical updates to the measure specifications since we adopted this measure in the Hospital IQR Program, and we proposed to adopt the measure, as updated, for the Hospital VBP Program. The data submission requirements, Specifications Manual, and submission deadlines are posted on the QualityNet website at: https://qualitynet.cms.gov (or other successor CMS designated websites).

(3) Overview of the Measure Specifications

a. Numerator

Patients who received all of the following interventions for which they qualify:

b. Denominator

The denominator is patients 18 years of age and older with an ICD–10–CM Principal or Other Diagnosis Code for sepsis, severe sepsis without septic shock, or severe sepsis with septic shock, and without an ICD–10–CM Principal or Other Diagnosis Code of U07.1 (COVID–19).

Patients who are admitted as a transfer from an inpatient, outpatient, or emergency/observation department of another hospital or an ambulatory surgical center, or who are enrolled in a clinical trial associated with treatment of patients with sepsis, are excluded from the denominator. The denominator is further refined as the number of patients confirmed with severe sepsis or septic shock through medical record review for the presence of a suspected infection, two or more SIRS criteria, and a sign of organ dysfunction that are all documented within 6 hours of each other. Additional exclusions are for patients:

• With advanced directives for comfort care or palliative care;
• Who or for whom a surrogate decision maker declines or is unwilling to consent to interventions required to meet the numerator;
• With severe sepsis or septic shock who are discharged within six hours of presentation; or
• Who received IV antibiotics for more than 24 hours prior to severe sepsis presentation.