Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2023 Rates; Quality Programs and Medicare Promoting Interoperability Program Requirements for Eligible Hospitals and Critical Access Hospitals; Costs Incurred for Qualified and Non-Qualified Deferred Compensation Plans; and Changes to Hospital and Critical Access Hospital Conditions of Participation

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would: Revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). In additon it would establish new requirements and revise existing requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program; provide estimated and newly established performance standards for the Hospital Value-Based Purchasing (VBP) Program; and propose updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting (IQR) Program, Hospital VBP Program, Hospital-Acquired Condition (HAC) Reduction Program, PPS-Exempt Cancer Hospital Reporting (PCHQR) Program, and the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). It would also revise the hospital and critical access hospital (CAH) conditions of participation (CoPs) for infection prevention and control and antibiotic stewardship programs; and codify and clarify policies related to the costs incurred for qualified and non-qualified deferred compensation plans. Lastly, this proposed rule would provide updates on the Rural Community Hospital Demonstration Program and the Frontier Community Health Integration Project.

DATES:

To be assured consideration, comments must be received at one of the addresses provided in the ADDRESSES section, no later than 5 p.m. EDT on June 17, 2022.

ADDRESSES:

In commenting, please refer to file code CMS-1771-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed):

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

2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1771-P, P.O. Box 8013, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1771-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

FOR FURTHER INFORMATION CONTACT:

Donald Thompson, (410) 786-4487, and Michele Hudson, (410) 786-4487, 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 Critical Access Hospital (CAH) Issues.

Emily Lipkin, (410) 786-3633 and Jim Mildenberger, (410) 786-4551, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Allison Pompey, (410) 786-2348, 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, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.

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

Sophia Chan, sophia.chan@cms.hhs.gov, Hospital Readmissions Reduction Program—Administration Issues.

Jennifer Robinson, jennifer.robinson@cms.hhs.gov, Hospital Readmissions Reduction Program—Measures Issues.

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

Yuling Li, yuling.li@cms.hhs.gov, Hospital-Acquired Condition Reduction Program—Measures Issues.

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

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

Elizabeth Goldstein, (410) 786-6665, 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.

Christy Hughes, christy.hughes@cms.hhs.gov, Long-Term Care Hospital Quality Reporting Program—Data Reporting Issues.

Elizabeth Holland, elizabeth.holland@cms.hhs.gov, Medicare Promoting Interoperability Program.

CAPT Scott Cooper, USPHS, (410) 786-9465, and Dawn Linn, dawn.linn@cms.hhs.gov, Conditions of Participation Pandemic Reporting Requirements for Hospitals and Critical Access Hospitals.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received: https://www.regulations.gov/. Follow the search instructions on that website to view public comments.

Tables Available Through the Internet on the CMS Website

The IPPS tables for this fiscal year (FY) 2023 proposed rule are available through the internet 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 2023 IPPS Proposed rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2023 proposed rule are available through the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation Number CMS-1771-P. For further details on the contents of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS proposed rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS websites, as previously identified, should contact Michael Treitel at (410) 786-4552.

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 Proposed Rule

D. Summary of the Provisions of This Proposed Rule

E. Advancing Health Information Exchange

F. Proposed Use of FY 2021 Data and Proposed Methodology Modifications for the FY 2023 IPPS and LTCH PPS Ratesetting

II. Proposed 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. Proposed FY 2023 MS-DRG Documentation and Coding Adjustment

D. Proposed Changes to Specific MS-DRG Classifications

E. Recalibration of the FY 2023 MS-DRG Relative Weights

F. Add-On Payments for New Services and Technologies for FY 2023

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

A. Background

B. Worksheet S-3 Wage Data for the Proposed FY 2022 Wage Index

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the Proposed FY 2022 Unadjusted Wage Index

E. Proposed Occupational Mix Adjustment to the FY 2023 Wage Index

F. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2023 Occupational Mix Adjusted Wage Index

G. Application of the Rural Floor, Application of the State Frontier Floor, and Continuation of the Low Wage Index Hospital Policy, and Proposed Budget Neutrality Adjustment

H. Proposed FY 2023 Wage Index Tables

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

J. Proposed 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. Proposed Labor-Related Share for the FY 2023 Wage Index

IV. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2023 (§ 412.106)

A. General Discussion

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

C. Empirically Justified Medicare DSH Payments

D. Uncompensated Care Payments

E. Proposed Supplemental Payment for Indian Health Service and Tribal Hospitals and Puerto Rico Hospitals for FY 2023 and Subsequent Fiscal Years

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

V. Other Decisions and Changes to the IPPS for Operating Costs

A. Proposed Changes in the Inpatient Hospital Updates for FY 2022 (§ 412.64(d))

B. Rural Referral Centers (RRCs)—Proposed Annual Updates to Case-Mix Index (CMI) and Discharge Criteria (§ 412.96)

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

D. Proposed Changes in the Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

E. Proposed Indirect Medical Education (IME) Payment Adjustment Factor (§ 412.105)

F. Proposed Payment for Indirect and Direct Graduate Medical Education Costs (§§ 412.105 and 413.75 Through 413.83)

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

H. Hospital Readmissions Reduction Program: Proposed Updates and Changes (§§ 412.150 Through 412.154)

I. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy Changes

J. Hospital-Acquired Conditions (HAC) Reduction Program: Proposed Updates and Changes (§ 412.170)

K. Rural Community Hospital Demonstration Program

VI. Proposed Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

C. Proposed Annual Update for FY 2023

VII. Proposed Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2023

B. Critical Access Hospitals (CAHs)

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2023

A. Background of the LTCH PPS

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2023

C. Proposed Changes to the LTCH PPS Payment Rates and Other Proposed Changes to the LTCH PPS for FY 2023

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Assessment of the Impact of Climate Change and Health Equity

B. Overarching Principles for Measuring Healthcare Quality Disparities Across CMS Quality Programs—Request for Information

C. Continuing to Advance to Digital Quality Measurement and the Use of Fast Healthcare Interoperability Resources (FHIR) in Hospital Quality Programs—Request for Information

D. Advancing the Trusted Exchange Framework and Common Agreement-Request for Information

E. Hospital Inpatient Quality Reporting (IQR) Program

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

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

H. Proposed Changes to the Medicare Promoting Interoperability Program

X. Changes for Hospitals and Other Providers and Suppliers

A. Codification of the Costs Incurred for Qualified and Non-Qualified Deferred Compensation Plans

B. Condition of Participation (CoP) Requirements for Hospitals and CAHs To Report Data Elements To Address Any Future Pandemics and Epidemics as Determined by the Secretary

C. Request for Public Comments on IPPS Payment Adjustment for N95 Respirators That Are Wholly Domestically Made

XI. MedPAC Recommendations

XII. Other Required Information

A. Publicly Available Files

B. Collection of Information Requirements

C. Response to Comments

Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of- Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2022 and Payment Rates for LTCHs Effective for Discharges Occurring on or After October 1, 2022

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This FY 2023 IPPS/LTCH PPS proposed rule would make payment and policy changes under the Medicare inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it would make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This proposed rule also would make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. In this FY 2023 proposed rule, we are proposing to implement a permanent policy to cap wage index decreases as well as continuing policies to address wage index disparities impacting low wage index hospitals. We also are proposing to make changes relating to Medicare graduate medical education (GME) for teaching hospitals and new technology add-on payments.

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

We are proposing updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting (IQR) Program, Hospital Value-Based Purchasing (VBP) Program, Hospital-Acquired Condition (HAC) Reduction Program, Long Term Care Hospital Quality Reporting Program (LTCH QRP), and the PPS-Exempt Cancer Hospital Reporting (PCHQR) Program. We are also requesting feedback across programs on health impacts due to climate change and on overarching principles in measuring healthcare quality disparities in hospital quality programs and value-based purchasing programs. We are also seeking feedback on advancing the Trusted Exchange Framework and Common Agreement (TEFCA). Additionally, due to the impact of the COVID-19 PHE on measure data used in our value-based purchasing programs, we are proposing to suppress several measures in the Hospital VBP Program and HAC Reduction Program. In addition to these measure suppressions for the Hospital VBP Program, we are proposing to implement a special scoring methodology for FY 2023 that results in each hospital receiving a value-based incentive payment amount that matches their 2 percent reduction to the base operating DRG payment amount. Similarly, we are also proposing to suppress all six measures in the HAC Reduction Program for the FY 2023 program year. If finalized as proposed, for the FY 2023 program year, hospitals participating in the HAC Reduction Program will not be given a measure score, a Total HAC score, nor will hospitals receive a payment penalty. We are also providing estimated and newly established performance standards for the Hospital VBP Program. For the Hospital Readmissions Reduction Program, we are proposing to resume the use of the one affected measure under the proposed measure suppression policy for the FY 2024 applicable period following suppression of this measure for the FY 2023 applicable period, and incorporating measure updates to the six condition/procedure measures addressed by the Hospital Readmission Reduction Program to account for patient history of COVID-19.

Under various statutory authorities, we either discuss continued program implementation or propose to make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2023 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 BBRA (Pub. L. (Pub. L.) 106-113) and section 307(b)(1) of the 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.
• Sections 1814(l), 1820, and 1834(g) of the Act, which specify that payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services and that these payments are generally based on 101 percent of reasonable cost.
• 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.
• 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 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(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 (dual-eligibles) 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 a new 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 section 1886(d)(5)(F) of the Act for DSH (“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; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) a 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(e) of the Act provides the specific statutory authority for the hospital CoPs; section 1820(e) of the Act provides similar authority for CAHs. The hospital provision at section 1861(e)(9) of the Act authorizes the Secretary to issue any regulations he or she deems necessary to protect the health and safety of patients receiving services in those facilities; the CAH provision at section 1820(e)(3) of the Act authorizes the Secretary to issue such other criteria as he or she may require.

2. Summary of the Major Provisions

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

a. Proposed MS-DRG Documentation and Coding Adjustment

Section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112- 240) amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment to the standardized amount of Medicare payments to acute care hospitals to account for changes in MS-DRG documentation and coding that do not reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. The FY 2014 through FY 2017 adjustments represented the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Pub. L. 110-90. Section 414 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10) replaced the single positive adjustment we intended to make in FY 2018 with a 0.5 percent positive adjustment to the standardized amount of Medicare payments to acute care hospitals for FYs 2018 through 2023. (The FY 2018 adjustment was subsequently adjusted to 0.4588 percent by section 15005 of the 21st Century Cures Act.) Therefore, for FY 2023, we are proposing to make an adjustment of + 0.5 percent to the standardized amount.

b. Proposed Use of FY 2021 Data and Proposed Methodology Modifications for the FY 2023 IPPS and LTCH PPS Ratesetting

For the IPPS and LTCH PPS ratesetting, our longstanding goal is always to use the best available data overall. In section I.F. of the preamble of this proposed rule, we discuss our proposal to return to our historical practice of using the most recent data available for purposes of FY 2023 ratesetting, including the FY 2021 MedPAR claims and FY 2020 cost report data, with certain proposed 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. As discussed in greater detail in section I.F of the preamble of this proposed rule, we believe that it is reasonable to assume that some Medicare beneficiaries will continue to be hospitalized with COVID-19 at IPPS hospitals and LTCHs in FY 2023. Given this expectation, we believe it is appropriate to use FY 2021 data, as the most recent available data during the period of the COVID-19 PHE, for purposes of the FY 2023 IPPS and LTCH PPS ratesetting. However, as also discussed in greater detail in section I.F. of the preamble of this proposed rule, we believe it is reasonable to assume based on the information available at this time that there will be fewer COVID-19 hospitalizations in FY 2023 than in FY 2021. Therefore, we are proposing to use the FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting but with 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. As discussed in section I.O. of Appendix A of this proposed rule, we are also requesting comments on, as an alternative to our proposed approach, the use of the FY 2021 data for purposes of FY 2023 ratesetting without the proposed modifications to our usual methodologies for the calculation of the FY 2023 MS-DRG and MS-LTC-DRG relative weights or the usual methodologies used to determine the FY 2023 outlier fixed-loss amount for IPPS cases and LTCH PPS standard Federal payment rate cases.

c. Proposed Continuation of the Low Wage Index Hospital Policy

To help mitigate wage index disparities between high wage and low wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326 through 42332), we adopted a policy to increase the wage index values for certain hospitals with low wage index values (the low wage index hospital policy). This policy was adopted in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We 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. We are proposing for the low wage index hospital policy to continue for FY 2023, and are also proposing to apply this policy in a budget neutral manner by applying an adjustment to the standardized amounts.

d. Proposed Permanent Cap on Wage Index Decreases

Consistent with section 1886(d)(3)(E) of the Act, we adjust the IPPS 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 and update the wage index annually based on a survey of wages and wage-related costs of short-term, acute care hospitals. As described in section III.N. of the preamble of this proposed rule, we have further considered the comments we received during the FY 2022 rulemaking recommending a permanent 5 percent cap policy to prevent large year-to-year variations in wage index values as a means to reduce overall volatility for hospitals. Under the authority at sections 1886(d)(3)(E) and 1886(d)(5)(I)(i) of the Act, for FY 2023 and subsequent years, we are proposing to apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. That is, we are proposing that a hospital's wage index for FY 2023 would not be less than 95 percent of its final wage index for FY 2022, and that for subsequent years, a hospital's wage index would not be less than 95 percent of its final wage index for the prior FY. We are also proposing to apply this proposed wage index cap policy in a budget neutral manner through a national adjustment to the standardized amount under our authority in sections 1886(d)(3)(E) and 1886(d)(5)(I)(i) of the Act.

e. Proposed 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 proposed rule, we are proposing to update our estimates of the three factors used to determine uncompensated care payments for FY 2023. We are also proposing to continue to use uninsured estimates produced by CMS' Office of the Actuary (OACT) as part of the development of the National Health Expenditure Accounts (NHEA) in conjunction with more recently available data in the calculation of Factor 2. For FY 2023, we are proposing to use the two most recent years of audited data on uncompensated care costs from Worksheet S-10 of the FY 2018 cost reports and the FY 2019 cost reports to calculate Factor 3 in the uncompensated care payment methodology for all eligible hospitals. In addition, for FY 2024 and subsequent fiscal years, we are proposing to use a three-year average of the data on uncompensated care costs from Worksheet S-10 for the three most recent fiscal years for which audited data are available. Beginning in FY 2023, we are proposing to discontinue the use of low-income insured days as a proxy for uncompensated care to determine Factor 3 for Indian Health Service (IHS) and Tribal hospitals and hospitals located in Puerto Rico. In addition, we are proposing certain methodological changes for calculating Factor 3 for FY 2023 and subsequent fiscal years.

We recognize that our proposal to discontinue the use of the low-income insured days proxy to calculate uncompensated care payments for Indian Health Service (IHS) and Tribal hospitals and hospitals located in Puerto Rico could result in a significant financial disruption for these hospitals. Accordingly, we are proposing to use our exceptions and adjustments authority under section 1886(d)(5)(I) to establish a new supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico, beginning in FY 2023.

Additionally, we are proposing to revise our regulation governing the calculation of the Medicaid fraction of the DSH calculation. Under this proposal, we would 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 receive health insurance authorized by a section 1115 demonstration or patients who pay for all or substantially all of the cost of such 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 “regard as” Medicaid eligible, we propose to include in the Medicaid fraction only the days of those patients who obtain 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 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 the patient is not also entitled to Medicare Part A.

f. Proposed Changes to GME Payments Based on Milton S. Hershey Medical Center, et al. v. Becerra Litigation

On May 17, 2021, the U.S. District Court for the District of Columbia ruled against CMS's method of calculating direct GME payments to teaching hospitals when those hospitals' weighted full-time equivalent (FTE) counts exceed their direct GME FTE cap. In Milton S. Hershey Medical Center, et al. v. Becerra, the court ordered CMS to recalculate reimbursement owed, holding that CMS's regulation impermissibly modified the statutory weighting factors. The plaintiffs in these consolidated cases alleged that as far back as 2005, the proportional reduction that CMS applied to the weighted FTE count when the weighted FTE count exceeded the FTE cap conflicted with the Medicare statute, and it was an arbitrary and capricious exercise of agency discretion under the Administrative Procedure Act. The court held that the proportional reduction methodology impermissibly modified the weighting factors statutorily assigned to residents and fellows. The court granted the motion for summary judgment to plaintiffs' motions, denied defendant's, and remanded to the Agency so that it could recalculate plaintiffs' reimbursement payments consistent with the court's opinion.

After reviewing the statutory language regarding the direct GME FTE cap and the court's opinion, we have decided to propose a modified policy to be applied prospectively for all teaching hospitals, as well as retroactively to the providers and cost years in Hershey and certain other providers as described in greater detail in section V.F.2. of the preamble of this proposed rule. The proposed modified policy would address situations for applying the FTE cap when a hospital's weighted FTE count is greater than its FTE cap, but would not reduce the weighting factor of residents that are beyond their initial residency period to an amount less than 0.5. Specifically, effective for cost reporting periods beginning on or after October 1, 2022, we are proposing that the hospital's unweighted number of FTE residents exceeds the FTE cap, and the number of weighted FTE residents also exceeds that FTE cap, the respective primary care and obstetrics and gynecology weighted FTE counts and other weighted FTE counts are adjusted to make the total weighted FTE count equal the FTE cap. If the number of weighted FTE residents does not exceed that FTE cap, then the allowable weighted FTE count for direct GME payment is the actual weighted FTE count.

g. Reduction of Hospital Payments for Excess Readmissions

We are proposing to make changes to policies for the Hospital Readmissions Reduction Program, which was established under section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payment to account for excess readmissions of selected applicable conditions. For FY 2017 and subsequent years, the reduction is based on a hospital's risk-adjusted readmission rate during a 3-year period for acute myocardial infarction (AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), elective primary total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary artery bypass graft (CABG) surgery. In this FY 2023 IPPS/LTCH PPS proposed rule, we are discussing the following policies: (1) Proposal to resume use of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) for the FY 2024 program year; (2) modification of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) to exclude COVID-19 diagnosed patients from the measure denominator, beginning with the Hospital Specific Reports (HSRs) for the FY 2023 program year; and (3) modification of all six condition/procedure specific measures to include a covariate adjustment for patient history of COVID-19 within one year prior to the index admission beginning with the FY 2023 program year. We are also seeking comment on updating the to incorporate provider performance for socially at-risk populations.

h. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. In this proposed rule, we are proposing to: (1) Suppress the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) and five Hospital Acquired Infection (HAI) measures, for the FY 2023 Program year; and (2) update the baseline periods for certain measures for the FY 2025 program year. We are also proposing to revise the scoring and payment methodology for the FY 2023 program year such that hospitals will not receive Total Performance Scores (TPSs). Instead, we are proposing to award each hospital a payment incentive multiplier that results in a value-based incentive payment that is equal to the amount withheld for the fiscal year (2 percent). We note that we are also announcing technical updates to the measures in the Clinical Outcomes Domain.

i. Hospital-Acquired Condition (HAC) Reduction Program

We are proposing changes to the HAC Reduction program, which was established under Section 1886(p) of the Act, to provide an incentive to hospitals to reduce the incidence of hospital-acquired conditions. We refer readers to the FY 2022 IPPS/LTCH PPS final rule for further details on our measure suppression policy (86 FR 45301 through 45304). In this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing to: (1) Suppress the CMS PSI 90 measure and the five CDC NHSN HAI measures from the calculation of measure scores and the Total HAC Score, thereby not penalizing any hospital under the HAC Reduction Program FY 2023 program year; (2) publicly and confidentially report CDC NHSN HAI measure results but not calculate or report measure results for the CMS PSI 90 measure for the HAC Reduction Program FY 2023 program year; (3) suppress CY 2021 CDC NHSN HAI measures data from the FY 2024 HAC Reduction Program Year; (4) update the measure specification to the minimum volume threshold for the CMS PSI 90 measure beginning with the FY 2023 program year; (5) update the measure specifications to risk-adjust for COVID-19 diagnosis in the CMS PSI 90 measure beginning with the FY 2024 HAC Reduction Program Year; (6) request information from stakeholders on the potential adoption of two digital National Healthcare Safety Network (NHSN) measures: The NHSN Healthcare-associated Clostridioides difficile Infection Outcome measure and NHSN Hospital-Onset Bacteremia & Fungemia Outcome measure; (7) request information on overarching principles for measuring healthcare quality disparities across CMS Quality Programs; (8) update the NHSN CDC HAI data submission requirements for newly opened hospitals beginning in the FY 2024 HAC Reduction Program Year; and (9) clarify the removal of the no mapped location policy beginning with the FY 2023 program year.

j. 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 this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing several changes to the Hospital IQR Program. We are proposing the adoption of 10 new measures: (1) Hospital Commitment to Health Equity beginning with the CY 2023 reporting period/FY 2025 payment determination; (2) Screening for Social Drivers of Health beginning with voluntary reporting for the CY 2023 reporting period and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (3) Screen Positive Rate for Social Drivers of Health beginning with voluntary reporting for the CY 2023 reporting period and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (4) Cesarean Birth electronic clinical quality measure (eCQM) with inclusion in the measure set beginning with the CY 2023 reporting period/FY 2025 payment determination, and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (5) Severe Obstetric Complications eCQM with inclusion in the measure set beginning with the CY 2023 reporting period/FY 2025 payment determination, and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (6) Hospital-Harm—Opioid-Related Adverse Events eCQM (NQF #3501e) beginning with the CY 2024 reporting period/FY 2026 payment determination; (7) Global Malnutrition Composite Score eCQM (NQF #3592e) beginning with the CY 2024 reporting period/FY 2026 payment determination; (8) Hospital-Level, Risk Standardized Patient-Reported Outcomes Performance Measure Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #3559) beginning with two voluntary periods, followed by mandatory reporting for the reporting period which runs from July 1, 2025 through June 30, 2026, impacting the FY 2028 payment determination; (9) Medicare Spending Per Beneficiary (MSPB) Hospital (NQF #2158) beginning with the FY 2024 payment determination; and (10) Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary THA/TKA (NQF #1550) beginning with the FY 2024 payment determination. We are proposing refinements to two current measures beginning with the FY 2024 payment determination: (1) Hospital‐Level, Risk‐Standardized Payment Associated with an Episode-of-Care for Primary Elective THA/TKA; and (2) Excess Days in Acute Care (EDAC) After Hospitalization for Acute Myocardial Infarction (AMI) (NQF #2881). We are also requesting comment on the potential future development and inclusion of two National Healthcare Safety Network (NHSN) measures: (1) Healthcare-Associated Clostridioides difficile Infection Outcome; and (2) Hospital-Onset Bacteremia & Fungemia Outcome.

We are proposing changes to current policies related to eCQMs and hybrid measures: (1) A proposal to modify the eCQM reporting and submission requirements to increase the number of eCQMs to be reported beginning with the CY 2024 reporting period/FY 2026 payment determination; (2) a proposal to remove the zero denominator declarations and case threshold exemption policies for hybrid measures beginning with the FY 2026 payment determination; (3) a proposal for the data submission and reporting requirements for patient-reported outcome-based performance measures (PRO-PMs) beginning with the FY 2026 payment determination; and (4) a proposal to modify the eCQM validation policy to increase the requirement from 75 percent to 100 percent of requested medical records, beginning with the FY 2025 payment determination.

With respect to public reporting, we are proposing to establish a hospital designation related to maternity care to be publicly-reported on a public-facing website beginning in Fall 2023, and are also seeking comments on other potential associated activities regarding this designation. Additionally, we are seeking comments on ongoing ways we can advance digital quality measurement and use of Fast Healthcare Interoperability Resources (FHIR).

k. 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 this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing to adopt a patient safety exception into the measure removal policy. We are also proposing to begin public display of the 30-Day Unplanned Readmissions for Cancer Patients measure (NQF #3188) (PCH-36), the Proportion of Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 Days of Life measure (NQF #0210) (PCH-32), the Proportion of Patients Who Died from Cancer Not Admitted to Hospice measure (NQF #0215) (PCH-34), the Proportion of Patients Who Died from Cancer Admitted to the ICU in the Last 30 Days of Life measure (NQF #0213) (PCH-33), and the Proportion of Patients Who Died from Cancer Admitted to Hospice for Less Than Three Days measure (NQF #0216) (PCH-35). In addition, along with the Hospital IQR and HAC Reduction Programs, we are requesting comment on the potential adoption of two digital National Healthcare Safety Network (NHSN) measures: The NHSN Healthcare-associated Clostridioides difficile Infection Outcome measure and NHSN Hospital-Onset Bacteremia and Fungemia Outcome measure.

l. Medicare Promoting Interoperability Program

For CY 2023, we are proposing several changes to the Medicare Promoting Interoperability Program. Specifically, we are proposing: (1) To require and modify the Electronic Prescribing Objective's Query of Prescription Drug Monitoring Program (PDMP) measure while maintaining the associated points at 10 points beginning with the EHR reporting period in CY 2023; (2) to expand the Query of PDMP measure to include Schedule II, III, and IV drugs beginning with the CY 2023 EHR reporting period; (3) to add a new Health Information Exchange (HIE) Objective option, the Enabling Exchange under the Trusted Exchange Framework and Common Agreement (TEFCA) measure (requiring a yes/no response), as an optional alternative to fulfill the objective, beginning with the CY 2023 EHR reporting period; (4) to modify the Public Health and Clinical Data Exchange Objective by adding an Antibiotic Use and Antibiotic Resistance (AUR) measure in addition to the current four required measures (Syndromic Surveillance Reporting, Immunization Registry Reporting, Electronic Case Reporting, and Electronic Reportable Laboratory Result Reporting beginning in the CY 2023 EHR reporting period; (5) to consolidate the current options from three to two levels of active engagement for the Public Health and Clinical Data Exchange Objective and to require the reporting of active engagement for the measures under the objective beginning with the CY 2023 EHR reporting period; (6) to modify the scoring methodology for the Medicare Promoting Interoperability Program beginning in CY 2023; (7) to institute public reporting of certain Medicare Promoting Interoperability Program data beginning with the CY 2023 EHR reporting period; (8) to remove regulation text for the objectives and measures in the Medicare Promoting Interoperability Program from paragraph (e) under 42 CFR 495.24 and add new paragraph (f) beginning in CY 2023; and (9) to adopt two new eCQMs in the Medicare Promoting Interoperability Program's eCQM measure set beginning with the CY 2023 reporting period, two new eCQMs in the Medicare Promoting Interoperability Program's eCQM measure set beginning with the CY 2024 reporting period, and modify the eCQM data reporting and submission requirements to increase the number of eCQMs required to be reported and the total number of eCQMs to be reported beginning with the CY 2024 reporting period, which is in alignment with the eCQM updates proposed for the Hospital IQR Program.

m. Condition of Participation (CoP) Requirements for Hospitals and CAHs To Report Data Elements To Address Any Future Pandemics and Epidemics as Determined by the Secretary

In this proposed rule, we would revise the hospital and CAH infection prevention and control CoP requirements to continue COVID-19 reporting requirements commencing either upon the conclusion of the current COVID-19 PHE declaration or the effective date of this proposed rule, whichever is later, and lasting until April 30, 2024 (unless the Secretary determines an earlier end date). We also propose additional requirements to address future PHEs related to epidemics and pandemics. Specifically, when the Secretary has declared a PHE, we propose to require hospitals and CAHs to report specific data elements to the CDC's National Health Safety Network (NHSN), or other CDC-supported surveillance systems, as determined by the Secretary. The proposed requirements of this section would apply to local, state, and national PHEs as declared by the Secretary. Additionally, we are proposing that the hospital (or CAH) provide the information specified on a daily basis, unless the Secretary specifies a lesser frequency contingent upon the state of the PHE and ongoing risks.

n. Comment Solicitation on IPPS and Outpatient Prospective Payment System (OPPS) Payment Adjustments for Wholly Domestically Made National Institute for Occupational Safety and Health (NIOSH)-Approved Surgical N95 Respirators

As discussed in section X.C. of the preamble of this proposed rule, the Biden-Harris Administration has made it a priority to ensure America is prepared to continue to respond to COVID-19, and to combat future pandemics. A significant action to improve hospital preparedness and readiness for future threats might be to provide payment adjustments to hospitals to recognize the additional resource costs they incur to acquire NIOSH-approved surgical N95 respirators that are wholly domestically made. These surgical respirators, which faced severe shortage at the onset of the COVID-19 pandemic, are essential for the protection of beneficiaries and hospital personnel that interface with patients. The Department of Health and Human Services (HHS) recognizes that procurement of surgical N95 respirators that are wholly domestically made, while critical to pandemic preparedness and protecting health care workers and patients, can result in additional resource costs for hospitals.

We are interested in feedback and comments on the appropriateness of payment adjustments that would account for these additional resource costs. We believe such a payment adjustment could help achieve a strategic policy goal, namely, sustaining a level of supply resilience for surgical N95 respirators that is critical to protect the health and safety of personnel and patients in a public health emergency. We are considering such payment adjustments to apply to 2023 and potentially subsequent years. We realize there may be different ways a payment adjustment to recognize the additional resource costs hospitals incur when purchasing wholly domestically made NIOSH-approved surgical N95 respirators could be implemented and seek comment on two potential frameworks and alternative approaches.

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.3. of the preamble of this proposed rule.

B. Background Summary

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

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

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

If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for a new 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, as we are proposing beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the proposed 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 2022. For discharges occurring on or after October 1, 2007, but before October 1, 2022, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 50205 of the Bipartisan Budget Act extended the MDH program through FY 2022 only, for FY 2023, beginning on October 1, 2022, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond September 30, 2022, beginning October 1, 2022, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate.

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

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

2. Hospitals and Hospital Units Excluded From the IPPS

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

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

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

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

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413.

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

1. The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 114-10)

Section 414 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA, Pub. L. 114-10) specifies a 0.5 percent positive adjustment to the standardized amount of Medicare payments to acute care hospitals for FYs 2018 through 2023. These adjustments follow the recoupment adjustment to the standardized amounts under section 1886(d) of the Act based upon the Secretary's estimates for discharges occurring from FYs 2014 through 2017 to fully offset $11 billion, in accordance with section 631 of the ATRA. The FY 2018 adjustment was subsequently adjusted to 0.4588 percent by section 15005 of the 21st Century Cures Act.

D. Summary of the Provisions of This Proposed Rule

In this proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2023 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 2023.

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

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

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

• Proposed changes to MS-DRG classifications based on our yearly review for FY 2023.
• Proposed adjustment to the standardized amounts under section 1886(d) of the Act for FY 2023 in accordance with the amendments made to section 7(b)(1)(B) of Public Law 110-90 by section 414 of the MACRA.
• Proposed recalibration of the MS-DRG relative weights, including a proposed 10 percent cap on decreases in an MS-DRG relative weight from one fiscal year to the next.
• A discussion of the proposed FY 2023 status of new technologies approved for add-on payments for FY 2022, a presentation of our evaluation and analysis of the FY 2023 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 2023 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.
• A proposal to use National Drug Codes (NDCs) to identify cases involving use of therapeutic agents approved for new technology add-on payments.

• A proposal to publicly post online future applications for new technology add-on payments. Specifically, beginning with the FY 2024 application cycle, we are proposing to post online the completed application forms and certain related materials and updated application information submitted subsequent to the initial application submission for new technology add-on payments, with the exception of certain cost and volume information and certain additional materials (as discussed more fully in section II.F.9. of this proposed rule), no later than the issuance of the proposed rule.

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

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

• The proposed FY 2023 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 2023 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 2023 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• Proposed permanent cap on annual wage index decreases.
• Proposed labor-related share for the proposed FY 2023 wage index.

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

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

• Proposed inpatient hospital update for FY 2023.
• 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 2023 and subsequent years.
• The statutorily required IME adjustment factor for FY 2023.
• Proposed changes to the methodologies for determining Medicare DSH payments and the additional payments for uncompensated care.
• Proposed new supplemental payment for IHS/Tribal and Puerto Rico hospitals.
• Proposed revisions to the regulations regarding the counting of days associated with section 1115 demonstrations in the Medicaid fraction.
• Discussion of statutory expiration of the MDH program at the end of FY 2022.
• Proposed requirements for payment adjustments under the Hospital Readmissions Reduction Program for FY 2023.
• The provision of estimated and newly established performance standards for the calculation of value-based incentive payments, as well as a proposal to suppress multiple measures and provide net-neutral payment adjustments under the Hospital Value-Based Purchasing Program.
• Proposed requirements for payment adjustments to hospitals under the HAC Reduction Program for FY 2023.
• Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2023.

• Proposed GME payment change in response to Milton S. Hershey Medical Center et al v. Becerra litigation.

• Proposed nursing and allied health education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CYs 2020 and 2021.
• Proposal to allow Medicare GME affiliation agreements within certain rural track full-time equivalent limitations.
• Proposed payment adjustment for certain clinical trial and expanded access use immunotherapy cases.

4. Proposed FY 2023 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble to this proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2023.

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

In section VII. of the preamble of this proposed rule, we discuss—

• Proposed changes to payments to certain excluded hospitals for FY 2023.
• Proposed continued implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration.

6. Proposed Changes to the LTCH PPS

In section VIII. of the preamble of this 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 2023.

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

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

• Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program.
• Proposed changes to the requirements for the quality reporting program for PPS-exempt cancer hospitals (PCHQR Program).
• For the Long Term Care Hospital Quality Reporting Program (LTCH QRP), we are requesting information on CMS' overarching principles for measuring healthcare disparities across CMS Quality Programs, including the LTCH QRP. We are also requesting information on the potential adoption of one future National Healthcare Safety Network (NHSN) digital quality measure (dQM) for the LTCH QRP, as well as quality measure concepts under consideration for future years.
• Proposed changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

8. Other Proposals and Comment Solicitations Included in This Proposed Rule

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

• Proposals to codify policies related to the costs incurred for qualified and non-qualified deferred compensation plans.
• Proposed changes pertaining to the CoPs at 42 CFR part 482 for hospitals, and at 42 CFR part 485, subpart F, for CAHs.
• Solicitation of comments on the appropriateness of payment adjustments that would account for the additional resource costs for hospitals for the procurement of wholly domestically made NIOSH-approved surgical N95 respirators.

9. Other Provisions of This Proposed Rule

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

Section XII. of the preamble to this proposed rule includes the following:

• A descriptive listing of the public use files associated with the proposed rule.
• The collection of information requirements for entities based on our proposals.

• Information regarding our responses to public comments.

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

In sections II. and III. of the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2023 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 to this proposed rule, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2023 for certain hospitals excluded from the IPPS.

11. Determining Prospective Payment Rates for LTCHs

In section V. of the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2023 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 2023. 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.

12. 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.

13. 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 2023 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.

14. 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 2022 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 this proposed rule. For further information relating specifically to the MedPAC March 2022 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.

E. Advancing Health Information Exchange

The Department of Health and Human Services (HHS) has a number of initiatives designed to encourage and support the adoption of interoperable health information technology and to promote nationwide health information exchange to improve health care and patient access to their digital health information.

To further interoperability in post-acute care settings, CMS and the Office of the National Coordinator for Health Information Technology (ONC) participate in the Post-Acute Care Interoperability Workgroup (PACIO) to facilitate collaboration with industry stakeholders to develop Health Level Seven International® (HL7) Fast Healthcare Interoperability Resources® (FHIR) standards. These standards could support the exchange and reuse of patient assessment data derived from the post-acute care (PAC) setting assessment tools, such as Minimum Data Set (MDS), Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI), Long Term Care Hospital (LTCH) Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS), Outcome and Assessment Information Set (OASIS), and other sources. The PACIO Project has focused on HL7 FHIR implementation guides for functional status, cognitive status and new use cases on advance directives, re-assessment timepoints, and Speech, Language, Swallowing Cognitive communications and Hearing (SPLASCH). We encourage PAC provider and health internet technology (IT) vendor participation as the efforts advance. The CMS Data Element Library (DEL) continues to be updated and serves as a resource for PAC assessment data elements and their associated mappings to health IT standards, such as Logical Observation Identifiers Names and Codes (LOINC) and Systematized Nomenclature of Medicine Clinical Terms (SNOMED). The DEL furthers CMS' goal of data standardization and interoperability. Standards in the DEL can be referenced on the CMS website ( https://del.cms.gov/DELWeb/pubHome ) and in the ONC Interoperability Standards Advisory (ISA). The 2022 ISA is available at https://www.healthit.gov/isa/sites/isa/files/inline-files/2022-ISA-Reference-Edition.pdf.

The 21st Century Cures Act (Cures Act) (Pub. L. 114-255, enacted December 13, 2016) required HHS and ONC to take steps further interoperability for providers in settings across the care continuum. Specifically, section 4003(b) of the Cures Act required ONC to take steps to advance interoperability through the development of a trusted exchange framework and common agreement aimed at establishing a universal floor of interoperability across the country. On January 18, 2022, ONC announced a significant milestone by releasing the Trusted Exchange Framework and Common Agreement Version 1. The Trusted Exchange Frameworkis a set of non-binding principles for health information exchange, and the Common Agreement is a contract that advances those principles. The Common Agreement and the incorporated by reference Qualified Health Information Network Technical Framework Version 1 establish the technical infrastructure model and governing approach for different health information networks and their users to securely share clinical information with each other, all under commonly agreed to terms. The technical and policy architecture of how exchange occurs under the Trusted Exchange Framework and the Common Agreement follows a network-of-networks structure, which allows for connections at different levels and is inclusive of many different types of entities at those different levels, such as health information networks, healthcare practices, hospitals, public health agencies, and Individual Access Services (IAS) Providers. For more information, we refer readers to https://www.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement.

We invite providers to learn more about these important developments and how they are likely to affect hospitals.

F. Proposed Use of FY 2021 Data and Proposed Methodology Modifications for the FY 2023 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 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, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44789 through 44793), we finalized our proposal to use FY 2019 data for the FY 2022 ratesetting for circumstances where the FY 2020 data (the most recently available data at the time of rulemaking) was significantly impacted by the COVID-19 PHE.

As we discussed in the FY 2022 IPPS/LTCH PPS final rule, the FY 2020 MedPAR claims file and the FY 2019 HCRIS dataset 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. However, the most recent vaccination and hospitalization data from the CDC 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. For example, we used the FY 2019 MedPAR claims data for purposes where we ordinarily would have used the FY 2020 MedPAR claims data. We also used cost report data from the FY 2018 HCRIS file for purposes where we ordinarily would have used the FY 2019 HCRIS file (since the FY 2019 cost report data from HCRIS contained many cost reports ending in FY 2020 based on each hospital's cost reporting period).

Similar to our analysis of the FY 2020 MedPAR claims file and the FY 2019 HCRIS dataset for the FY 2022 IPPS/LTCH PPS rulemaking, the FY 2021 MedPAR claims file and the FY 2020 HCRIS dataset also both contain data that was significantly impacted by the virus that causes COVID-19, 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. Specifically, the share of admissions at IPPS hospitals and LTCHs for MS-DRGs and MS-LTC-DRGs associated with the treatment of COVID-19 continued to remain significantly higher than levels prior to the COVID-19 PHE. For example, in FY 2019, the share of IPPS cases and LTCH PPS standard Federal payment rate cases grouped to MS-DRG and MS-LTC-DRG 177 (Respiratory infections and inflammations with MCC) was approximately 1 percent and 2 percent, respectively. In comparison, in FY 2021, the share of IPPS cases and LTCH PPS standard Federal payment rate cases grouped to MS-DRG 177 was approximately 6 percent and 8 percent, respectively. However, as we discuss further in this section, in light of the expected continued impact on hospitalizations of the virus that causes COVID-19, we believe it is appropriate to use the FY 2021 data reflecting this impact for this FY 2023 IPPS/LTCH PPS rulemaking, with some proposed 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.

The CDC graph below illustrates new inpatient hospital admissions of patients with confirmed COVID-19 from August 1, 2020 through February 15, 2022. ( https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/02182022/images/hospitalizations_02182022.jpg?_=35767, accessed February 22, 2022)

The low point of the graph (late June 2021) approximately coincides with the time of the development of the FY 2022 IPPS/LTCH PPS final rule and generally supports, in conjunction with the other factors discussed in that rulemaking (including the most recent vaccination data from the CDC), our assumption in the final rule that the FY 2022 time period would be more similar to the time period prior to the PHE. However, as can be seen in the graph, the virus that causes COVID-19 has continued to significantly impact hospitalizations for the time period subsequent to the development of the FY 2022 IPPS/LTCH PPS final rule. As the CDC has noted, the most recent increase in hospitalizations has been primarily associated with the Omicron variant of the virus. 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. The CDC and other public health organizations monitor all variants of the virus that causes COVID-19 in the United States and globally. Scientists monitor all variants but may classify certain ones as variants being monitored, variants of interest, variants of concern and variants of high consequence. 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. (see https://www.cdc.gov/coronavirus/2019-ncov/variants/about-variants.html, accessed February 25, 2022)

Given the effects of the virus that causes COVID-19 in the Medicare FY 2020 data, the Medicare FY 2021 data, and the CDC hospitalization data, coupled with the expectation for future variants, we believe that it is reasonable to assume that some Medicare beneficiaries will continue to be hospitalized with COVID-19 at IPPS hospitals and LTCHs in FY 2023. Accordingly, we believe it is appropriate to use FY 2021 data, specifically the FY 2021 MedPAR claims file and the FY 2020 HCRIS dataset (which contains data from many cost reports ending in FY 2021 based on each hospital's cost reporting period) as the most recent available data during the period of the COVID-19 PHE, for purposes of the FY 2023 IPPS and LTCH PPS ratesetting. However, we also believe it is reasonable to assume based on the information available at this time that there will be fewer COVID-19 hospitalizations in FY 2023 than in FY 2021 given the more recent trends in the CDC hospitalization data since the Omicron variant peak in January, 2022. Accordingly, because we anticipate Medicare inpatient hospitalizations for COVID-19 will continue in FY 2023 but at a lower level, we are proposing to use FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting but with 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.

First, we are proposing to modify the calculation of the FY 2023 MS-DRG and MS-LTC-DRG relative weights. We observed that COVID-19 cases were impacting the relative weights as calculated using the FY 2021 MedPAR data for a few COVID-19-related MS-DRGs and MS-LTC-DRGs. As an example, for MS-DRG and MS-LTC-DRG 870 (Septicemia or Severe Sepsis with MV >96 hours), the MS-DRG and MS-LTC-DRG relative weights calculated using the FY 2021 MedPAR data are approximately 9 and 3 percent higher, respectively, compared to their relative weights if calculated excluding COVID-19 cases. Because this MS-DRG contains a mix of COVID-19 cases and non-COVID-19 cases with different average costs, the relative weight for this MS-DRG is dependent on that mix of cases. As noted previously, we believe it is reasonable to assume that there will be fewer COVID-19 hospitalizations among Medicare beneficiaries in FY 2023 than there were in FY 2021; however it is not possible to know precisely how COVID-19 hospitalizations in FY 2023 will compare to FY 2021. We believe that averaging the relative weights as calculated with and without the COVID-19 cases reflected in the FY 2021 MedPAR data would reflect a reasonable estimation of the case mix for FY 2023 based on the information available at this time, and more accurately estimate the relative resource use for the cases treated in FY 2023. Therefore, we are proposing to calculate the relative weights for FY 2023 by first calculating two sets of weights, one including and one excluding COVID-19 claims, and then averaging the two sets of relative weights to determine the proposed FY 2023 relative weight values. We believe this proposed modification to our relative weight setting methodology would appropriately reduce, but not remove entirely, the effect of COVID-19 cases on the relative weight calculations, consistent with our expectation that Medicare inpatient hospitalizations for COVID-19 will continue in FY 2023 at a lower level as compared to FY 2021, and provide a more accurate estimate of relative resource use for FY 2023 than if we were to calculate the proposed relative weights using all applicable cases in the FY 2021 data. The proposal for modifying the methodology for determining the FY 2023 IPPS MS-DRG relative weights is discussed in greater detail in section II.E. of the preamble of this proposed rule. The proposal for modifying the methodology for determining the FY 2023 LTCH PPS MS-LTC-DRG relative weights is discussed in greater detail in section VIII.B. of the preamble of this proposed rule.

We also are proposing to modify our methodologies for determining the FY 2023 outlier fixed-loss amount for IPPS cases and LTCH PPS standard Federal payment rate cases. The methodologies for determining both of these outlier fixed-loss amounts include calculating and applying a charge inflation factor to increase charges from the claim year to the rulemaking year, as well as calculating and applying CCR adjustment factors to adjust CCRs used to make payments in the current year to the rulemaking year. The charge inflation factors calculated using the two most recently available years of MedPAR claims data (FY 2020 and FY 2021) that would ordinarily be used for this FY 2023 proposed rule to inflate the charges on the FY 2021 MedPAR claims were abnormally high as compared to recent historical levels prior to the PHE (for example, for the IPPS, approximately 10 percent based on the FY 2020 and FY 2021 MedPAR claims data as compared to approximately 6 percent based on the FY 2018 and FY 2019 MedPAR claims data). Furthermore, the IPPS operating and capital CCR adjustment factors calculated based on the percentage changes in the CCRs from the December 2020 update of the PSF to the December 2021 update of the PSF that would ordinarily be used for this FY 2023 proposed rule to adjust the CCRs from the December 2021 update of the PSF were also abnormally high as compared to recent historical levels prior to the PHE (for example, for the IPPS operating CCR adjustment factor, a factor of approximately 1.03 based on the December 2020 and December 2021 updates to the PSF as compared to a factor of approximately 0.97 based on the March 2019 and March 2020 updates to the PSF). We believe these abnormally high charge inflation and CCR adjustment factors as compared to historical levels were partially due to the high number of COVID-19 cases with higher charges that were treated in IPPS hospitals and LTCHs in FY 2021. As we previously stated, we believe there will be fewer COVID-19 cases in FY 2023 than in FY 2021. Therefore, we do not believe it is reasonable to assume charges and CCRs will continue to increase at these abnormally high rates. Consequently, when determining the FY 2023 outlier fixed-loss amounts for IPPS cases and LTCH PPS standard Federal payment rate cases, we are proposing to inflate the charges on the FY 2021 MedPAR claims using charge inflation factors computed by comparing the average covered charge per case in the March 2019 MedPAR file of FY 2018 to the average covered charge per case in the March 2020 MedPAR file of FY 2019, which is the last 1-year period prior to the COVID-19 PHE. We also are proposing to adjust the CCRs from the December 2021 update of the PSF by comparing the percentage change in the national average case-weighted CCR from the March 2019 update of the PSF to the national average case-weighted CCR from the March 2020 update of the PSF, which is the last 1-year period prior to the COVID-19 PHE. We believe using the charge inflation factors and CCR adjustment factors derived from data prior to the COVID-19 PHE would provide a more reasonable approximation of the increase in costs that will occur from FY 2021 to FY 2023 because we do not believe the charge inflation that has occurred during the PHE will continue as the number of higher cost COVID-19 cases declines. The proposal for modifying the methodology for determining the FY 2023 outlier fixed-loss amounts for IPPS cases is discussed in greater detail in section II.A.4. of the addendum to this proposed rule. The proposal for modifying the methodology for determining the FY 2023 outlier fixed-loss amounts for LTCH PPS standard Federal payment rate cases is discussed in greater detail in section V.D.3. of the addendum to this proposed rule.

As discussed in section I.O. of Appendix A of this proposed rule, we are also requesting comments on, as an alternative to our proposed approach, the use of the FY 2021 data for purposes of FY 2023 ratesetting without these proposed modifications to our usual methodologies for the calculation of the FY 2023 MS-DRG and MS-LTC-DRG relative weights or the usual methodologies used to determine the FY 2023 outlier fixed-loss amount for IPPS cases and LTCH PPS standard Federal payment rate cases. We note that the FY 2023 outlier fixed-loss amount would be significantly higher under this alternative approach. In order to illustrate the effect of our proposed modifications on the relative weights and fixed loss amount, we are making available supplemental information, including the relative weights and fixed loss amount calculated without the proposed modifications to our usual methodologies, as described in section I.O. of Appendix A of this proposed rule. We refer the reader to section I.O. of Appendix A of this proposed rule for a discussion of the files that we are making available with regard to our alternative approach.

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

A. Background

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

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

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

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

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2022 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, respectively).

C. Proposed FY 2023 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90 and the Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189), we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of -4.8 percentage points to the national standardized amount. We provided for phasing in this -4.8 percentage point adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of -1.2 percentage points for FY 2008, -1.8 percentage points for FY 2009, and -1.8 percentage points for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90). Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to -0.6 percentage point for FY 2008 and -0.9 percentage point for FY 2009.

As discussed in prior year rulemakings, and most recently in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56780 through 56782), we implemented a series of adjustments required under sections 7(b)(1)(A) and 7(b)(1)(B) of Public Law 110-90, based on a retrospective review of FY 2008 and FY 2009 claims data. We completed these adjustments in FY 2013 but indicated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 53275) that delaying full implementation of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 2012 being overstated, and that these overpayments could not be recovered under Public Law 110-90.

In addition, as discussed in prior rulemakings and most recently in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38008 through 38009), section 631 of the American Taxpayer Relief Act of 2012 (ATRA) amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment or adjustments totaling $11 billion by FY 2017. This adjustment represented the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013.

2. Adjustments Made for FYs 2018, 2019, 2020, 2021, and 2022 as Required Under Section 414 of Public Law 114-10 (MACRA) and Section 15005 of Public Law 114-255

As stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785), once the recoupment required under section 631 of the ATRA was complete, we had anticipated making a single positive adjustment in FY 2018 to offset the reductions required to recoup the $11 billion under section 631 of the ATRA. However, section 414 of the MACRA (which was enacted on April 16, 2015) replaced the single positive adjustment we intended to make in FY 2018 with a 0.5 percentage point positive adjustment for each of FYs 2018 through 2023. In the FY 2017 rulemaking, we indicated that we would address the adjustments for FY 2018 and later fiscal years in future rulemaking. Section 15005 of the 21st Century Cures Act (Pub. L. 114-255), which was enacted on December 13, 2016, amended section 7(b)(1)(B) of the TMA, as amended by section 631 of the ATRA and section 414 of the MACRA, to reduce the adjustment for FY 2018 from a 0.5 percentage point positive adjustment to a 0.4588 percentage point positive adjustment. As we discussed in the FY 2018 rulemaking, we believe the directive under section 15005 of Public Law 114-255 is clear. Therefore, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38009) for FY 2018, we implemented the required +0.4588 percentage point adjustment to the standardized amount. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41157), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42057), FY 2021 IPPS/LTCH PPS final rule (85 FR 58444 and 58445), and the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794 and 44795), 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, and FY 2022, respectively. We indicated the FY 2018, FY 2019, FY 2020, FY 2021, and FY 2022 adjustments were permanent adjustments to payment rates. We also stated that we plan to propose a future adjustment required under section 414 of the MACRA for FY 2023 in future rulemaking.

3. Proposed Adjustment for FY 2023

Consistent with the requirements of section 414 of the MACRA, we are proposing to implement a 0.5 percentage point positive adjustment to the standardized amount for FY 2023. This would constitute a permanent adjustment to payment rates. This proposed 0.5 percentage point positive adjustment is the final adjustment prescribed by section 414 of the MACRA. Along with the 0.4588 percentage point positive adjustment for FY 2018, and the 0.5 percentage point positive adjustments for FY 2019, FY 2020, FY 2021, and FY 2022, this final proposed adjustment will result in combined positive adjustment of 2.9588 percentage points (or the sum of the adjustments for FYs 2018 through 2023) to the standardized amount.

D. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed FY 2023 MS-DRG Updates

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

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

b. Basis for Proposed FY 2023 MS-DRG Updates

Given the need for more time to carefully evaluate requests and propose updates, as discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38010), we changed the deadline to request updates to the MS-DRGs to November 1 of each year, which provided an additional five weeks for the data analysis and review process. In the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32472), we stated that with the continued increase in the number and complexity of the requested changes to the MS-DRG classifications since the adoption of ICD-10 MS-DRGs, and to consider as many requests as possible, more time is needed to carefully evaluate the requested changes, analyze claims data, and consider any proposed updates. We further stated we were changing 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. However, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58445), due to the unique circumstances for the FY 2021 IPPS/LTCH PPS final rule for which we waived the delayed effective date, we maintained the deadline of November 1, 2020 for FY 2022 MS-DRG classification change requests. We also noted that we expected to reconsider a change in the deadline beginning with comments and suggestions submitted for FY 2023. In the FY 2022 IPPS/LTCH PPS proposed rule, we stated that while we continue to believe that a change in the deadline from November 1 to October 20 would provide hospitals sufficient time to assess potential impacts and inform future MS-DRG recommendations, we were maintaining the deadline of November 1 for FY 2023 MS-DRG classification change requests. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44795), we received public comments expressing support for a future change to the deadline for requesting updates to the MS-DRG classifications from November 1 to October 20, and we noted in response that we may consider any changes to the deadline or frequency for submissions of requests for MS-DRG classification changes for future fiscal years. Beginning with FY 2024 MS-DRG classification change requests, we are changing the deadline to request changes to the MS-DRGs to October 20th of each year to allow for additional time for the review and consideration of any proposed updates. As previously discussed, we continue to believe such a change would allow hospitals sufficient time to assess potential impacts and inform future MS-DRG recommendations, while also providing CMS the additional time needed for evaluation of the requested changes, analysis of claims data, and consideration of any proposed updates.

We are also changing the process for submitting requested updates to the MS-DRG classifications, beginning with the FY 2024 MS-DRG classification change requests. CMS is in the process of implementing a new electronic application intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM ), that will be available for users to begin gaining familiarity with a new approach and process to submit new technology add-on payment applications, requests for ICD-10-PCS procedure codes, and other requests. To simplify and streamline the process for submission of standardized applications and requests that inform payment policy under the IPPS, we will also be using this new system for submission of MS-DRG classification change requests. We believe that submission of MS-DRG reclassification requests through MEARIS^TM will not only help CMS to track such requests, but it will also create efficiencies for requestors when compared to the previous submission process.

Accordingly, beginning with the FY 2024 MS-DRG classification change requests, CMS will only accept such requests submitted via MEARIS^TM , and will no longer consider any such requests that are sent via email. We anticipate that, beginning April 5, 2022, MEARIS^TM will be available for users to begin gaining familiarity with this new approach for submitting MS-DRG classification change requests. MEARIS^TM , including the mechanism for submitting MS-DRG classification change requests, can be accessed at https://mearis.cms.gov. We encourage users to register and begin using this system to provide feedback on their experience with this initial version. We note 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 ) and 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” at https://mearis.cms.gov/public/resources?app=msdrg.

We also note that, as discussed in section II.D.17. of the preamble of this proposed rule, effective January 5, 2022, MEARIS^TM was made available for users to begin gaining familiarity with a new approach and process to submit ICD-10-PCS procedure code requests.

As noted previously, interested parties had to submit MS-DRG classification change requests for FY 2023 by November 1, 2021. 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 2024 by October 20, 2022 via the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at https://mearis.cms.gov/public/home.

As we did for the FY 2022 IPPS/LTCH PPS proposed rule, for this FY 2023 IPPS/LTCH PPS proposed rule we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 40, so that the public can better analyze and understand the impact of the proposals included in this proposed rule. We note that this test software reflects the proposed GROUPER logic for FY 2023. Therefore, it includes the new diagnosis and procedure codes that are effective for FY 2023 as reflected in Table 6A.—New Diagnosis Codes—FY 2023 and Table 6B.—New Procedure Codes—FY 2023 associated with this proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2023 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2023 associated with this proposed rule. We note that at the time of the development of this proposed rule there were no procedure codes designated as invalid for FY 2023, and therefore, there is no Table 6D—Invalid Procedure Codes—FY 2023 associated with this proposed rule. These tables are not published in the Addendum to this proposed rule, but are available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to this proposed rule. Because the diagnosis codes no longer valid for FY 2023 are not reflected in the test software, we are making available a supplemental file in Table 6P.1a that includes the mapped Version 40 FY 2023 ICD-10-CM codes and the deleted Version 39.1 FY 2022 ICD-10-CM codes that should be used for testing purposes with users' available claims data. Therefore, users will have access to the test software allowing them to build case examples that reflect the proposals included in this proposed rule. In addition, users will be able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 40.

The test version of the ICD-10 MS-DRG GROUPER Software, Version 40, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 40, and the supplemental mapping files in Table 6P.1a of the FY 2022 and FY 2023 ICD-10-CM diagnosis codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

Following are the changes that we are proposing to the MS-DRGs for FY 2023. We are inviting public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in this proposed rule. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data and consultation with our clinical advisors. In other cases, we are proposing to maintain the existing MS-DRG classifications based on our analysis of claims data and consultation with our clinical advisors. As discussed in section I.F. of the preamble of this proposed rule, we are proposing to use the FY 2021 MedPAR data for purposes of this FY 2023 IPPS rulemaking, with certain proposed modifications to the relative weight and outlier methodologies. For this FY 2023 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2021 update of the FY 2021 MedPAR file, which contains hospital bills received from October 1, 2020 through September 30, 2021, for discharges occurring through September 30, 2021. In our discussion of the proposed MS-DRG reclassification changes, we refer to these claims data as the “September 2021 update of the FY 2021 MedPAR file.”

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 the judgment of our clinical advisors 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 our belief that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. We also noted that the application of the NonCC subgroup criteria going forward may result in modifications to certain MS-DRGs that are currently split into three severity levels and result in MS-DRGs that are split into two severity levels. We stated that any proposed modifications to the MS-DRGs would be addressed in future rulemaking consistent with our annual process and reflected in Table 5—Proposed List of Medicare Severity Diagnosis Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay for the applicable fiscal year.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798), we finalized a delay in applying this technical criterion to existing MS-DRGs until FY 2023 or future rulemaking, in light of the PHE. Commenters 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 our analysis of the MS-DRG classification requests for FY 2023 that we received by November 1, 2021, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table.

In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for this FY 2023 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2021 update of the FY 2021 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent 2 years of data. This analysis includes 2 years of MedPAR claims data to compare the data results from 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 are satisfied for a three-way split. If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. 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.

For this FY 2023 IPPS/LTCH PPS proposed rule, using the September 2021 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 affect the MS-DRG structure beginning in FY 2023. Findings from our analysis indicated that approximately 41 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 deletion of 123 MS-DRGs (41 MS-DRGs × 3 severity levels = 123) and the creation of 75 new MS-DRGs. These updates would also involve a redistribution of cases, which would impact the relative weights, and, thus, the payment rates proposed for particular types of cases. We refer the reader to Table 6P.1b for the list of the 123 MS-DRGs that would be subject to deletion and the list of the 75 new MS-DRGs that would be proposed for creation for FY 2023 under this policy if the NonCC subgroup criteria were applied.

In light of the ongoing public health emergency (PHE), we continue to have concerns about the impact of implementing this volume of MS-DRG changes at this time, and believe it may be appropriate to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs to maintain more stability in the current MS-DRG structure and until such time additional analyses can be performed to assess impacts, as discussed in response to comments in the FY 2022 IPPS/LTCH PPS final rule. Therefore, we are proposing not to apply the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2023, and to instead maintain the current structure of the 41 MS-DRGs that currently have a three-way severity level split (total of 123 MS-DRGs) that would otherwise be subject to these criteria. We intend to address the application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split in future rulemaking.

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

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798 through 44806), we finalized our proposal to assign procedure codes describing CAR T-cell, non-CAR T-cell, and other immunotherapies to Pre-MDC MS-DRG 018 and to revise the title for Pre-MDC MS-DRG 018 to “Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies” to reflect this assignment. In that discussion, we noted that a few commenters recommended we continue to work with stakeholders on ways to improve the predictability and stability of hospital payments for these complex, novel cell therapies and that we should continue to monitor and assess the appropriateness of therapies assigned to MS-DRG 018, if they continue to be aligned on resource use, and whether additional refinements or MS-DRGs may be warranted in the future.

We also noted that the process of code creation and proposed assignment to the most appropriate MS-DRG exists independently, regardless of whether there is an associated application for a new technology add-on payment for a product or technology submitted for consideration in a given fiscal year. Specifically, requests for a new code(s) or updates to existing codes are addressed through the ICD-10 Coordination and Maintenance Committee meetings, held annually in the spring and fall, where code proposals are presented and the public is provided the opportunity to comment. All codes finalized from the fall meeting are subsequently proposed for assignment under the ICD-10 MS-DRGs through rulemaking. We refer the reader to section II.D.17 of the preamble of this proposed rule for additional information regarding the ICD-10 Coordination and Maintenance Committee meeting process.

There were no requests or proposals for new procedure codes to describe the administration of a CAR T-cell or another type of gene or cellular therapy discussed at the September 14-15, 2021 ICD-10 Coordination and Maintenance Committee meeting. For the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting, there were topics included on the agenda and in the related meeting materials that included proposals for new procedure codes to describe the administration of a CAR T-cell or another type of gene or cellular therapy product. The agenda and related meeting materials for these specific topics are available via the internet on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials.

As stated in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44805) and noted previously, the process of code creation and proposed assignment to the most appropriate MS-DRG exists independently, regardless of whether there is an associated application for a new technology add-on payment for a product or technology submitted for consideration in a given fiscal year. We also clarified that the assignment of a procedure code to a MS-DRG is not dependent upon a product's Food and Drug Administration (FDA) approval. Similarly, the creation of a code to describe a technology that is utilized in the performance of a procedure or service does not require FDA approval of the technology.

Because the diagnosis and procedure code proposals that are presented at the March meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, as noted in prior rulemaking, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis 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.

In response to commenters' recommendation that we continue to assess the appropriateness of the therapies assigned to Pre-MDC MS-DRG 018, we are providing the results of our data analysis using the September 2021 update of the FY 2021 MedPAR file for cases reporting the administration of a CAR T-cell or other immunotherapy in Pre-MDC MS-DRG 018 and the number of cases reporting a secondary diagnosis of Z00.6 (Encounter for examination for normal comparison and control in clinical research program). We note that if a procedure code that is assigned to the logic for Pre-MDC MS-DRG 018 is not listed it is because there were no cases found. We also note there were no cases reporting diagnosis code Z00.6 as a principal diagnosis. Our findings are shown in the following table.

The data show that there is a wide range in the volume of cases (4 cases versus 435 cases), average length of stay (11.3 days versus 20.3 days), and average costs ($157,950 versus $310,561) reporting the administration of CAR T-cell therapies in MS-DRG 018. This is to be expected since these therapies continue to evolve and the ICD-10-PCS coding to identify and describe these therapies also continues to be refined through the ICD-10 Coordination and Maintenance Committee meeting process. As additional claims data becomes available for these therapies, we will continue to evaluate to determine if further modifications to Pre-MDC MS-DRG 018 are warranted.

In response to our statement in the FY 2022 IPPS/LTCH PPS final rule that we plan to continue engaging with stakeholders on additional options for consideration in this field of cellular and gene therapies, we received additional feedback and suggestions, including recommendations for Town Hall meetings/listening sessions to discuss the interconnectedness of these issues; exploration of what was described as a different set and kind of MS-DRGs that would reward providers for controlling patient care costs, without consideration of product costs outside of their control; and evaluation of the creation and assignment of multiple MS-DRGs for cell and gene therapy cases: One to cover patient care costs, the other to cover product costs across therapeutic product categories.

We appreciate this additional feedback and will continue to consider these issues and suggestions in connection with future rulemaking. We also intend to continue engaging with stakeholders by sharing updates from our analysis of claims data as we examine and explore potential refinements for these therapies under the IPPS.

a. Laser Interstitial Thermal Therapy (LITT)

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44812 through 44814), we finalized the reassignment of 31 ICD-10-PCS procedure codes describing laser interstitial thermal therapy (LITT) of various body parts to more clinically appropriate MS-DRGs, as shown in Table 6P.2b associated with the FY 2022 IPPS/LTCH PPS final rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS, including the reassignment of procedure codes D0Y0KZZ (Laser interstitial thermal therapy of brain) and D0Y1KZZ (Laser interstitial thermal therapy of brain stem), which were reassigned from 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) to MS-DRGs 040, 041, and 042 (Peripheral, Cranial Nerve and Other Nervous System Procedures with MCC, with CC and without CC/MCC, respectively).

We also finalized the redesignation of these two LITT procedures (codes D0Y0KZZ and D0Y1KZZ) and the reassignment from extensive O.R. procedures in MS-DRGs 981, 982 and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) to non-extensive O.R procedures in MS-DRGs 987, 989, and 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) (86 FR 44889).

For FY 2023, we received two requests from the manufacturers of the LITT technology (Medtronic and Monteris® Medical) to reverse the MS-DRG reassignment for the ICD-10 procedure codes that identify LITT of the brain and brain stem (codes D0Y0KZZ and D0Y1KZZ) from the MS-DRGs for peripheral, cranial nerve and other nervous system procedures (MS-DRGs 040, 041, and 042) back to the MS-DRGs for craniotomy and endovascular procedures (MS-DRGs 023, 024, 025, 026, and 027). The first requestor acknowledged that the technique utilized in the performance of LITT procedures for the brain and brain stem are minimally invasive and do not involve a craniotomy however, the requestor also stated the procedures assigned to MS-DRGs 025, 026, and 027 are not exclusive to craniotomies. The requestor further stated that these LITT procedures involve a twist drill or burr hole and are similar to other non-craniotomy procedures in MS-DRGs 025, 026, and 027 including radioactive elements and neurostimulator leads that involve inserting these devices into the brain.

In its review of the other procedures assigned to MS-DRGs 040, 041, and 042, the requestor stated that there are distinct clinical differences between the invasiveness of LITT that involves instrumentation being placed deeply within the brain tissue and the non-invasiveness of stereotactic radiosurgery that does not involve entering the brain with instrumentation. The requestor also indicated LITT utilizes a different modality via direct thermal ablation compared to stereotactic radiosurgery that utilizes externally-generated ionizing radiation.

The requestor performed its own data analysis for LITT procedures of the brain and brain stem using MedPAR data from FY 2019 through FY 2022 impact files. According to the requestor, its findings demonstrate that the costs of the cases reporting LITT of the brain or brain stem are better aligned with MS-DRGs 025, 026, and 027 compared to MS-DRGs 040, 041, and 042.

The second requestor similarly discussed the steps and resources involved in the performance of LITT procedures for the brain and brain stem, provided its detailed analysis on the indications for LITT (brain tumors and epileptic foci), compared LITT to other procedures in MS-DRGs 025, 026, and 027 and stated that the majority of the procedures currently assigned to MS-DRGs 040, 041, 042 are not performed for the treatment of brain cancer or epilepsy. The requestor stated that the LITT procedure is on the inpatient only list and is only performed on Medicare beneficiaries in the inpatient hospital setting. The requestor provided the top 10 principal diagnoses associated with LITT of brain cases it found based on its analysis, and identified the diagnoses for which there were less than 10 cases with an asterisk, as reflected in the following table.

The requestor asserted that the statement in the FY 2022 IPPS/LTCH PPS final rule that the technique to perform the LITT procedure on brain and brain stem structures is considered minimally invasive and does not involve a craniotomy, and that therefore, continued assignment to the craniotomy MS-DRGs is not clinically appropriate, mischaracterizes both the LITT procedures and universe of services assigned to MS-DRGs 023 through 027. The requestor acknowledged that the craniotomy procedures listed in the logic for MS-DRGs 023 through 027 include open procedures but stated the logic also lists less invasive procedures including percutaneous and percutaneous endoscopic procedures. The requestor asserted that open procedures are a minority of the ICD-10-PCS codes assigned to these MS-DRGs.

In addition, the requestor stated that LITT and craniotomy are in fact very clinically similar; in that both procedures are intended to remove and destroy the targeted tumor and lesion with a different surgical tool used (scalpel versus heated ablation probe). According to the requestor, brain LITT procedures involve insertion of laser probes into the brain which requires opening both the skull and dura, similar to a craniotomy. The requestor also stated that craniotomy and LITT share several procedural characteristics and provided the following list.

• Require an operating room;
• Performed under general anesthesia;
• Require creation of burr holes and invasive skull fixation;
• Require a sterile field, incision, opening of the skull and dura;
• Cause tissue to be immediately destroyed or excised;
• Carry a risk of immediate intracranial bleeding;
• Require closure of the scalp wound;
• Risk intracranial infection; and
• Require a hospital stay of one or more nights.

In contrast, the requestor stated that procedures assigned to MS-DRGs 040, 041, and 042 are primarily nerve procedures or excision or detachment procedures performed on parts of the body other than the head, including the upper and lower extremities. According to the requestor, none of the procedures in MS-DRGs 040, 041, and 042 require drilling into the patient's skull, a step which is integral to LITT. The requestor provided the following top 10 principal diagnoses associated with cases it found in MS-DRGs 040, 041, and 042 during its analysis and stated that most of the procedures assigned to MS-DRGs 040, 041, and 042 are not typically performed in the treatment of brain cancer or epilepsy.

However, the requestor stated an exception is stereotactic radiosurgery (SRS) procedures performed on the brain and brain stem that are assigned to MS-DRGs 040, 041, and 042 and are used to treat brain cancer. According to the requestor, craniotomy, LITT and SRS are all image-guided procedures used to treat a variety of brain disorders including tumors and epilepsy, although it stated that is where any similarity between LITT and SRS ends and where the procedural similarities between craniotomy and LITT begin.

The requestor stated SRS is a non-invasive procedure that gradually destroys or inactivates tissues in or around the brain and is typically performed on an outpatient basis while inpatient SRS treatment is rare. According to the requestor, SRS does not require an operating room, is rarely done under general anesthesia (children and highly claustrophobic individuals being an exception), and does not require (but can use) rigid skull fixation. In addition, the requestor stated that because it is non-invasive, there is no need for a sterile field, incision, opening/closing of the skull, opening/closing of the dura, suturing/stapling the wound, and produces essentially no risk of immediate intracranial bleeding or delayed infection. According to the requestor, LITT is much more invasive than SRS using a head frame and involves and requires the same surgical skill and hospital resources as craniotomies.

Following the submission of the two FY 2023 MS-DRG classification change requests for LITT, these same two requestors (the manufacturers of the LITT technology) submitted a joint code proposal requesting an overall change to how LITT is classified within the ICD-10-PCS classification and for consideration as an agenda topic to be discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting. The proposal was presented and discussed at the March 8-9, 2022 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 8, 2022.

Because the diagnosis and procedure code proposals that are presented at the March ICD-10-CM Coordination and Maintenance Committee meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, as we have noted in prior rulemaking and discuss further in this section, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. Under this established process, the MS-DRG assignment for the upcoming fiscal year for any new diagnosis or procedure codes finalized after the March meeting would be reflected in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes associated with the final rule for that fiscal year. However, in light of the unique circumstances relating to these procedures, for which there is a pending proposal to reclassify LITT within ICD-10-PCS and for new procedure codes discussed at the March meeting, as well as an MS-DRG reclassification request to reassign the existing codes describing these procedures, we address in this section first, the code proposal discussed at the March meeting and the possible MS-DRG assignments for any new codes that may be approved, and then secondly, the requested reassignment of the existing codes, in the event the new codes are not approved.

To summarize, as discussed at the March meeting, the code proposal is to reclassify LITT procedures from the Radiation Therapy section of ICD-10-PCS (Section D) to the Medical and Surgical section of ICD-10-PCS. Specifically, the proposal is to reclassify LITT procedures to the root operation Destruction. In ICD-10-PCS, the root operation Destruction is defined as physical eradication of all or a portion of a body part by the direct use of energy, force, or a destructive agent. According to the requestors, LITT is misclassified to section D—Radiation Therapy in ICD-10-PCS possibly because of terminology that was used for predicate devices, whose indications included the phrase “interstitial irradiation or thermal therapy” in describing LITT's method of action. The requestors stated LITT is thermal therapy, destroying soft tissue using heat generated by a laser probe at the target site and that the LITT procedure does not use ionizing radiation, which is what the term “radiation” commonly refers to in the general medical sense. The requestors also stated that by itself, radiation is a broad term and provided an example that the spectrum of electromagnetic radiation technically encompasses low energy non-ionizing radio waves, microwaves, and infrared to high energy ionizing X-rays and gamma rays while ionizing radiation creates ions in the cells it passes through by removing electrons, a process which kills or alters the cells over time.

The requestors further stated that only certain medical uses of radiation are classified to section D—Radiation Therapy. For instance, section D—Radiation Therapy categorizes treatments using ionizing radiation, including beam radiation, brachytherapy, and stereotactic radiosurgery. All of these deliver concentrated ionizing radiation to eradicate abnormal cells, most commonly neoplasms. Other treatments classified to section D—Radiation Therapy, such as hyperthermia, are used as adjuncts to ionizing radiation. The requestors asserted that while LITT eradicates abnormal cells, it does so with heat, not ionizing radiation and rather than a radiation therapy procedure, LITT is a surgical procedure. According to the requestors, LITT would be more appropriately classified as an ablation procedure with the root operation Destruction.

The original request for a new code(s) to describe the LITT technology was initially discussed at the September 24-25, 2008 ICD-9-CM Coordination and Maintenance Committee meeting. At that time, the requestor sought an April 1, 2009 implementation date. Public comments opposed an April 1, 2009 implementation date, therefore, effective October 1, 2009 (FY 2010), ICD-9-CM procedure codes were created to identify procedures performed utilizing the LITT technology. The following table lists the ICD-9-CM procedure codes describing LITT and their respective MDC and MS-DRG assignments under the ICD-9 based MS-DRGs. We refer the reader to the ICD-9 and ICD-10 MS-DRG Definitions Manual Files V33 (available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/FY2016-Final-Rule-Correction-Notice-Files (in the Downloads section) for complete documentation of the GROUPER logic for ICD-9.

The requestors maintain that although LITT was used to treat a variety of anatomic sites when it was first introduced, its current primary use is intracranial, specifically to treat brain tumors and epileptic foci. However, the requestors stated it is also used to treat radiation necrosis, an inflammatory response from prior treatment with ionizing radiation.

Currently, in the U.S. there are only two LITT systems in use, Visualase^TM MRI-Guided Laser Ablation (Medtronic) and the Neuroblate® System (Monteris® Medical). The requestors also stated that over the last six years, the Indications for Use (IFU) for one of the two U.S. approved LITT technologies (Neuroblate®) has been updated to reflect the system's current use in the brain and to align with the intended neurosurgical patient population. The requestor indicated applications in the spine are also anticipated in the future within the central nervous system.

As previously noted, the deadline for receipt of public comments for the proposed reclassification of LITT procedures that was presented at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting along with the corresponding proposal for new procedure codes was April 8, 2022, and the final code decisions on these proposals are not yet available for inclusion in Table 6B.—New Procedure Codes associated with this FY 2023 IPPS/LTCH PPS proposed rule. However, as discussed in prior rulemaking (86 FR 44805), codes that are finalized after the March meeting are reviewed and subject to our established process of initially reviewing the predecessor codes MS-DRG assignment and designation, while considering other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition) as previously described. The codes that are finalized after the March meeting are specifically identified with a footnote in Tables 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes that are made publicly available in association with the final rule via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year.

Accordingly, as previously discussed, the MS-DRG assignment for any new procedure codes describing LITT, if finalized following the March meeting, would be reflected in Table 6B.—New Procedure Codes associated with the final rule for FY 2023. However, in light of the unique circumstances with respect to these procedures, for which there is both a proposal for reclassifying LITT from the Radiation Therapy section of the procedure code classification to the Medical/Surgical section with new ICD-10-PCS procedure code(s) and a separate MS-DRG reclassification request on the existing procedure codes, we are providing the opportunity for public comment on possible MS-DRG assignments for the requested new procedure codes describing LITT that may apply based on the application of our established process and analysis, in the event the new codes are finalized for FY 2023. We note that while we discuss the potential MS-DRG assignments for new procedure codes describing LITT, stakeholders may use current coding information to consider the potential MS-DRG assignments for any other 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 via the internet 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 via the internet 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.

We note that, unlike the typical code request for a new or revised procedure code that involves a new technology or a new approach to performing an existing procedure, the circumstances for this particular request are distinct in that the code request would reclassify LITT within the ICD-10-PCS classification from section D—Radiation Therapy to the root operation Destruction in the Medical and Surgical section of ICD-10-PCS. Therefore, in light of the unique considerations with respect to the requested reclassification of the LITT procedures in connection with the pending code proposal, we believe it is appropriate to utilize the assignments and designations of the procedure codes describing Destruction of the respective anatomic body site as predecessor codes rather than the current codes describing LITT from the Radiation Therapy section of ICD-10-PCS in considering potential MS-DRG assignment for the requested new LITT procedure codes.

As previously discussed, under our established process for determining the MS-DRG assignment for newly approved procedure codes, we examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment for the new codes. 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. As we have noted in prior rulemaking, 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.

Applying this established review process to the proposed codes for the LITT procedures, we believe that, based on the predecessor codes, and as previously noted, the potential assignments and designations would align with the assignments and designations of the procedure codes describing Destruction of the respective anatomic body site. For example, as discussed earlier in this section of this proposed rule, the code request involved reclassifying LITT procedures from section D—Radiation Therapy to the root operation Destruction in the Medical and Surgical section of ICD-10-PCS. The root operation Destruction is appropriate to identify and report procedures, such as ablation, that are performed on various body parts. The code request also involved creating what is referred to as a qualifier value, to uniquely describe LITT as the modality. The qualifier value is the seventh character or digit, in a valid ICD-10-PCS procedure code.

The following ICD-10-PCS table illustrates an example of the proposed procedure codes for LITT of the brain and brain stem, and cervical, thoracic, and lumbar spinal cord body parts, including the qualifier value that was presented and discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting.

We note that the code proposal presented only provided the body part value 0 Brain, for reporting any LITT procedures performed on the brain, as well as, the brain stem, consistent with the current available body part option in Table 005, Destruction of Central Nervous System and Cranial Nerves, where the predecessor code is located. The predecessor code(s) and associated MS-DRG assignments for the proposed new procedure code(s) describing LITT of the brain and spinal cord under MDC 01 are identified as follows.

As shown in the table, the procedure codes describing destruction of brain with an open, percutaneous or percutaneous endoscopic approach are assigned to MS-DRGs 023 through 027 (craniotomy and endovascular procedures) and the procedure codes describing destruction of cervical, thoracic or lumbar spinal cord with an open, percutaneous or percutaneous endoscopic approach are assigned to MS-DRG 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC).

We refer the reader to Table 6P.2a associated with this proposed rule (and available via the internet at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps ) to review the potential MDCs, MS-DRGs, and O.R. versus Non-O.R. designations identified based on this analysis of the proposed new procedure codes describing LITT as presented and discussed at the meeting. We note that Table 6P.2a also includes the predecessor codes that we utilized to inform this analysis. If finalized, the new procedure codes would be included in the FY 2023 code update files that are made available in late May/early June via the internet on the CMS website at https://www.cms.gov/medicare/coding/icd10. Additionally, if finalized, the new procedure codes describing LITT would be displayed in Table 6B.—New Procedure Codes, and the existing codes describing LITT would be deleted and reflected in Table 6D.—Invalid Procedure Codes, in association with the FY 2023 IPPS/LTCH PPS final rule. We refer the reader to section II.D.14. for further information regarding the files.

As previously discussed, we also received requests to reassign the existing ICD-10 procedure codes that identify LITT of the brain and brain stem (codes D0Y0KZZ and D0Y1KZZ). In the event there is not support for the proposed reclassification of LITT procedures and the corresponding new procedure codes as presented at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting, we are also providing the results of our analysis of these existing codes and our proposed MS-DRG assignments for FY 2023, if those existing codes are retained.

We examined claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 023, 024, 025, 026, and 027, in addition to MS-DRGs 040, 041, and 042 for cases reporting LITT of the brain (code D0Y0KZZ) or brain stem (code D0Y1KZZ). We note that if a procedure code is not listed it is because there were no cases found reporting that procedure code. Our findings are shown in the following tables.

As shown, we found a total of 123 cases reporting LITT of the brain across MS-DRGs 023, 025, 026, and 027. There were no cases found in MS-DRG 024. The cases reporting LITT of the brain grouped to these MS-DRGs because another O.R. procedure that is assigned to the respective MS-DRG was also reported. We refer the reader to Table 6P.2b for the list of the other O.R. procedures we identified that were also reported with LITT of the brain.

For MS-DRGs 040, 041, and 042, we found a total of 54 cases reporting LITT of the brain and 2 cases reporting LITT of the brain stem. While the average costs of the cases reporting LITT of the brain were higher compared to all the cases in their respective MS-DRGs, the average length of stay was shorter. For example, the data demonstrates a shorter average length of stay (8.1 days versus 9.9 days) and higher average costs ($40,458 versus $30,212) for the 14 cases reporting LITT of brain in MS-DRG 040 compared to all the cases in MS-DRG 040. There were no cases found to report LITT of brain stem in MS-DRG 040. For MS-DRG 041, we found 16 cases reporting LITT of brain with an average length of stay of 3.4 days and average costs of $23,278 and 1 case reporting LITT of brain stem with an average length of stay of 1 day and average costs of $10,222. The average length of stay for all the cases in MS-DRG 041 is 5 days with average costs of $19,090. The data demonstrates a shorter average length of stay (3.4 days and 1 day, respectively, versus 5 days) for the 16 cases reporting LITT of brain and the 1 case reporting LITT of brain stem. The data also demonstrates higher average costs ($23,278 versus $19,090) for the 16 cases reporting LITT of brain, and lower average costs for the 1 case reporting LITT of brain stem ($10,222 versus $19,090), as compared to the average costs of all cases in MS-DRG 041. For MS-DRG 042, we found 24 cases reporting LITT of brain with an average length of stay of 1.7 days and average costs of $22,426 and 1 case reporting LITT of brain stem with an average length of stay of 2 days and average costs of $32,668. The average length of stay for all the cases in MS-DRG 042 is 2.9 days with average costs of $15,451. The data demonstrates a shorter average length of stay (1.7 days and 2 days, respectively, versus 2.9 days) for the 24 cases reporting LITT of brain and the 1 case reporting LITT of brain stem. The data also demonstrate higher average costs ($22,426 and $32,668, respectively versus $15,451) for the 24 cases reporting LITT of brain and the 1 case reporting LITT of brain stem, compared to all the cases in MS-DRG 042.

Based on the findings from our analysis, we considered whether other factors, such as the reporting of secondary MCC and CC diagnoses, may have contributed to the higher average costs for these cases. Specifically, we conducted additional analyses of the claims data from the September 2021 update of the FY 2021 MedPAR file to determine what secondary MCC diagnoses were also reported for the 14 cases reporting LITT of brain in MS-DRG 040 and what secondary CC diagnoses were reported for the 17 cases (16 for LITT of brain and 1 for LITT of brain stem) in MS-DRG 041. Our findings are shown in the following tables.

We note that we did not find any other O.R. procedures reported on the claims in addition to the procedures for LITT of brain or brain stem for MS-DRGs 040, 041 and 042.

The data shows that at least one of the listed secondary MCC diagnoses was reported with each claim for LITT of brain identified in MS-DRG 040 and the average length of stay for these cases ranged from 9 days to 48 days and the average costs of these cases ranged from $41,486 to $80,745. We note that this data reflects the frequency with which each of the listed diagnoses was reported on a claim with LITT of brain. Therefore, multiple MCCs from this list of diagnoses may have been reported on a single claim. In addition, while the logic for case assignment to MS-DRG 040 requires at least one secondary MCC diagnosis, we conducted additional detailed analyses for MS-DRG 040, as shown in Table 6P.2f, to determine whether there were also secondary CC diagnoses reported in conjunction with one or more of the listed MCC diagnoses that may be contributing to the higher average costs for cases reporting LITT of brain in MS-DRG 040 in comparison to all the cases in MS-DRG 040. We found that 6 of the 14 cases reporting at least one or more secondary MCC diagnosis also reported one or more secondary CC diagnosis, which would appear to support that the severity of illness for these patients, as identified by the secondary MCC and CC diagnoses, may be more directly related to the higher average costs for these patients than the LITT procedure itself.

Similarly, the data for MS-DRG 041 show the frequency with which each of the listed secondary CC diagnoses was reported with LITT of brain or brain stem. Results from the analysis for the 17 cases (16 for LITT of brain and 1 for LITT of brain stem) show the average length of stay for these cases ranged from 1 day to 29 days and the average costs ranged from $9,101 to $57,999. These data analysis findings for MS-DRG 041 also appear to support our belief that the severity of illness for these patients, as identified by the listed secondary CC diagnoses, may be more directly related to the higher average costs for these patients than the LITT procedure itself.

As stated previously, we did not find any other O.R. procedures reported on the claims in addition to the procedures for LITT of brain or brain stem for MS-DRGs 040, 041 and 042. Since the logic for case assignment to MS-DRG 042 is not based on the reporting requirement of any CC or MCC diagnoses, we conducted a detailed analysis of the claims data to determine what other factors may be contributing to the higher average costs and shorter average length of stay for these cases in comparison to all the cases in MS-DRG 042. We refer the reader to Table 6P.2g associated with this proposed rule for the findings from our analysis. As shown in the data, the majority of the cases (15 of 25) had a principal diagnosis of epilepsy, 8 cases had a principal diagnosis related to malignant neoplasm of the brain or brain structures, 1 case had a principal diagnosis of hemangioma of intracranial structures and 1 case had a principal diagnosis of unspecified convulsions. The data also demonstrate that 16 of the 25 cases reported in MS-DRG 042 include patients who were under the age of 65, with ages ranging from 32 years old to 64 years old. We note that patients diagnosed with epilepsy are eligible for coverage since it is a condition that qualifies under certain criteria. It is not entirely clear if the age of these patients had any impact on the average length of stay since the average length of stay of the 24 cases reporting LITT of brain was 1.7 days and the 1 case reporting LITT of brain stem was 2 days.

As stated previously, the logic for case assignment to MS-DRG 042 is not dependent on the reporting of any CC or MCC diagnoses, however, based on the diagnoses reflected in the claims data for MS-DRG 042, it is possible that conditions such as obesity and chronic conditions requiring the long-term use of certain therapeutic agents may be contributing factors to the consumption of resources, separately from the LITT procedure. We found 17 of the 25 cases reporting LITT of brain or brain stem to also report one or both of these conditions.

We also reviewed the number of cases of LITT of the brain or brain stem procedures reported in the data since the transition to ICD-10. Specifically, we examined the claims data for cases reporting LITT of brain or brain stem as a standalone procedure or with another procedure in the FY 2016 through FY 2021 MedPAR data files across all MS-DRGs. The findings from our analysis are shown in table 6P.2e associated with this proposed rule.

The data demonstrates that since the implementation of ICD-10, a shift in the reporting of LITT of brain and brain stem procedures has occurred. For example, the FY 2016, FY 2017 and FY 2018 MedPAR data reflect that the number of cases for which LITT of brain or brain stem procedures were reported as a standalone procedure is higher in comparison to the number of cases reported with another procedure. Conversely, the FY 2019, FY 2020, and FY 2021 MedPAR data reflect that the number of cases for which LITT of brain or brain stem procedures were reported as a standalone procedure is lower in comparison to the number of cases reported with another procedure. The data also reflect that the average length of stay is shorter and the average costs are lower for cases reporting LITT of brain or brain stem as a standalone procedure in comparison to the average length of stay and average costs for cases reported with another procedure across the FY 2016 through FY 2021 MedPAR data files. Lastly, the data demonstrate that overall, the number of cases for which LITT of brain or brain stem procedures was performed had remained fairly stable at over 100 cases with increases in the FY 2017, FY 2020 and FY 2021 MedPAR data files of 156, 154 and 185 cases, respectively.

We also analyzed claims data from the September 2021 update of the FY 2021 MedPAR file for cases reporting LITT of other anatomic sites across all MS-DRGs. Although the requestors indicated that LITT is primarily performed on intracranial lesions, as shown in Table 6P.2c associated with this proposed rule, we identified a small number of cases reporting LITT of the lung, rectum, liver, breast, and prostate, for a total of 29 cases where LITT was performed on other body parts/anatomic sites.

For example, we found a total of 5 cases reporting LITT of lung across 5 different MS-DRGs. Of these 5 cases, 2 cases had a longer average length of stay and higher average costs in comparison to all the cases in their respective MS-DRG. Specifically, for MS-DRG 163 (Major Chest Procedures with MCC), we found 1 case reporting LITT of lung with an average length of stay of 17 days and average costs of $41,467. The average length of stay for all cases in MS-DRG 163 is 10.7 days with average costs of $38,367. The data demonstrates a difference of 6.3 days (17−10.7=6.3) for the average length of stay and a difference of $3,100 in average costs ($41,467−$38,367=$3,100) for the 1 case reporting LITT of lung in MS-DRG 163 compared to all the cases in MS-DRG 163. For MS-DRG 167 (Other Respiratory System O.R. Procedures with CC), we found 1 case reporting LITT of lung with an average length of stay of 7 days and average costs of $22,975. The average length of stay for all cases in MS-DRG 167 is 4.6 days with average costs of $15,397. The data demonstrates a difference of 2.4 days (7−4.6=2.4) for the average length of stay and a difference of $7,578 in average costs ($22,975−$15,397=$7,578) for the 1 case reporting LITT of lung in MS-DRG 167 compared to all the cases in MS-DRG 167. The data for the remaining 3 cases reporting LITT of lung demonstrated a shorter average length of stay and lower average costs in comparison to all the cases in their respective MS-DRGs.

We found 1 case reporting LITT of rectum in MS-DRG 357 (Other Digestive System O.R. Procedures with CC) with a shorter average length of stay (4 days versus 5.6 days) and lower average costs ($3,069 versus $18,065) as compared to all the cases in MS-DRG 357. We also found 1 case reporting LITT of liver in MS-DRG 405 (Pancreas Liver and Shunt Procedures with MCC) with a longer average length of stay (20 days versus 12.3 days) and higher average costs ($49,0695 versus $43,771) as compared to all the cases in MS-DRG 405.We also found 1 case reporting LITT of right breast in MS-DRG 580 (Other Skin Subcutaneous Tissue and Breast Procedures with CC) with a longer average length of stay (19 days versus 5.4 days) and higher average costs ($32,064 versus $13,767) as compared to all the cases in MS-DRG 580.

Lastly, we found 21 cases reporting LITT of prostate across 14 MS-DRGs. Of those 21 cases, 6 cases had a longer average length of stay or higher average costs, or both, in comparison to the average length of stay and average costs of all the cases in their respective MS-DRG. For example, in MS-DRG 650 (Kidney Transplant with Hemodialysis with MCC) we found 1 case reporting LITT of prostate with an average length of stay of 36 days and average costs of $67,238. The average length of stay for all cases in MS-DRG 650 is 8.1 days with average costs of $38,139. The data demonstrates a difference of 27.9 days (36−8.1=27.9) for the average length of stay and a difference of $29,099 in average costs ($67,238−$38,139= $29,099) for the 1 case reporting LITT of prostate in MS-DRG 650 compared to all the cases in MS-DRG 650. We also found 1 case reporting LITT of prostate in MS-DRG 659 (Kidney and Ureter Procedures for Non-Neoplasm with MCC) with an average length of stay of 26 days. The average length of stay for all cases in MS-DRG 659 is 7.8 days, demonstrating a difference of 18.2 days (26−7.8=18.2). We found 1 case reporting LITT of prostate in MS-DRG 712 (Testes Procedures without CC/MCC) with average costs of $15,669. The average costs for all cases in MS-DRG 712 is $10,482, demonstrating a difference of $5,187 ($15,669−$10,482=$5,187). We found 1 case reporting LITT of prostate in MS-DRG 987 with an average length of stay of 23 days and average costs of $35,465. The average length of stay for all cases in MS-DRG 987 is 10.9 days with average costs of $26,657. The data demonstrates a difference of 12.1 days (23−10.9=12.1) for the average length of stay and a difference of $8,808 in average costs ($35,465−$26,657= $8,808) for the 1 case reporting LITT of prostate in MS-DRG 987 compared to all the cases in MS-DRG 987. Lastly, we found 2 cases reporting LITT of prostate in MS-DRG 988 (Non-Extensive O.R. Procedures Unrelated to Principal Diagnosis with CC) with average costs of $17,126. The average costs for all cases in MS-DRG 988 is $13,670, demonstrating a difference of $3,456 ($17,126−$13,670= $3,456) for the 2 cases reporting LITT of prostate in MS-DRG 988.

We refer the reader to Table 6P.2c for the detailed findings from our analysis. We note that if the procedure code describing LITT of a specific anatomic site is not listed it is because there were no cases found.

We note that for the 10 cases previously described, for which LITT of a different anatomic site from the brain or brain stem was reported and had a longer average length of stay or higher average costs, or both, in comparison to the average length of stay and average costs of all the cases in their respective MS-DRG, that with the exception of MS-DRG 712, all the other MS-DRGs include a “with MCC” or “with CC” designation, or were reported in a surgical MS-DRG. We believe that these other factors may have contributed to the longer average length of stay and higher average costs for these cases, therefore we conducted additional analyses of the claims data to determine what diagnoses or procedures were also reported. We refer the reader to Table 6P.2d associated with this proposed rule for the findings from our detailed analysis of these 10 cases.

As shown in Table 6P.2d, the data demonstrate that a number of MCC and/or CC secondary diagnoses were reported for each of the 10 cases and that the surgical procedures that were reported in addition to the LITT procedure seem to have contributed to the longer average length of stay and higher average costs for those cases when compared to the average length of stay and average costs for all the cases in their respective MS-DRG. For example, in case number 1 there are 2 diagnoses that are designated as MCC conditions and 5 diagnoses that that are designated as CC conditions with procedure codes describing a kidney transplant, hemodialysis, and insertion of a ureteral stent that were reported along with LITT of prostate. For case number 3 there are 4 diagnoses that are designated as MCC conditions and 6 diagnoses that are designated as CC conditions with procedure codes describing bronchoscopic treatment of a bronchial tumor with and without stents, as well as the use of mechanical ventilation. Overall, the data appear to indicate that the performance of the LITT procedure was not the underlying reason for, or main driver of, the increase in resource utilization for those cases.

As noted, the requestors indicated that LITT is primarily being performed on intracranial lesions. However, as summarized, we identified a limited number of cases reporting LITT procedures for other anatomic sites. We are interested in comments regarding the use of and experience with LITT for these other anatomic sites.

Based on our analysis of the FY 2021 MedPAR claims data for cases reporting LITT of brain or brain stem (codes D0Y0KZZ and D0Y1KZZ) in MS-DRGs 040, 041, and 042, we agree with the requestors that the average costs of these cases are higher as compared to the average costs of all cases assigned to MS-DRGs 040, 041, and 042. For the reasons summarized, we also believe that other factors, including the reporting of secondary MCC and CC diagnoses, may be contributing to the higher average costs for these cases. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44813), we examined procedure codes D0Y0KZZ and D0Y1KZZ describing LITT of brain and brain stem, respectively, and stated that the technique to perform the LITT procedure on these structures is considered minimally invasive and does not involve a craniotomy, therefore, continued assignment to the craniotomy MS-DRGs is not clinically appropriate. Our clinical advisors continue to maintain that LITT is a minimally invasive procedure, requiring only a tiny incision for purposes of a burr hole and that patients are often only kept overnight (as reflected in the detailed claims data). However, we also recognize that craniotomy and LITT share common procedural characteristics including use of an operating room, carry risk of immediate intracranial bleeding or infection, and cause tissue to be immediately destroyed or excised. While the data do not demonstrate that the LITT procedure is the underlying reason for the higher average costs and consumption of resources for the small number of cases reporting LITT of brain (54 cases) or brain stem (2 cases) that we found in MS-DRGs 040, 041, and 042, the data do demonstrate that the patients receiving this treatment therapy have brain tumors or epilepsy combined with multiple comorbidities or chronic conditions necessitating long-term use of medications, or both, and we note the indications for LITT (brain tumors and epileptic foci) are better aligned with MS-DRGs 025, 026, and 027 as compared to MS-DRGs 040, 041, and 042.

As we discuss further in this section, we intend to more fully evaluate the logic for the procedures specifically involving a craniotomy, as well as the overall structure of MS-DRGs 023 through 027, and we believe that reassignment of cases reporting LITT of brain or brain stem to MS-DRGs 025, 026, and 027 would be an appropriate first step in connection with these efforts. For example, while we recognize the distinctions between open craniotomy procedures and minimally invasive percutaneous intracranial procedures, we also recognize that the current logic for MS-DRGs 025 through 027 also includes other endovascular intracranial procedures performed using percutaneous or percutaneous endoscopic approaches, and we believe that further review of the clinical coherence of the procedures assigned to these MS-DRGs may be warranted. Our clinical advisors note that while the typical patient treated with LITT usually has a single small scalp incision through which a hole approximately the diameter of a straw is drilled, with no extensive surgical exposure, that LITT can still be employed for another subset of more complex patients, including patients with primary brain malignancies and those with larger metastatic lesions or multiple lesions. For this subset of more complex patients, a longer post-operative stay with direct medical supervision may be necessary. As such, we believe reassigning these procedures to MS-DRGs 025 through 027 for FY 2023 would be appropriate as we consider restructuring MS-DRGs 023 through 027, including how to better align the clinical indications with the performance of specific intracranial procedures. Accordingly, for these reasons, in the event there is not support for the proposed reclassification of LITT procedures and the corresponding new procedure codes as presented at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting, we are proposing to reassign the existing procedure codes describing LITT of the brain or brain stem from MS-DRGs 040, 041, and 042 to MS-DRGs 025, 026, and 027 for FY 2023. We are also proposing to maintain the MS-DRG assignments for the existing procedure codes describing LITT of other anatomic sites as finalized and displayed in Table 6P.2b in association with the FY 2022 IPPS/LTCH PPS final rule, for FY 2023. We note that we did not receive any comments or requests to reconsider those finalized MS-DRG assignments for FY 2023.

As noted, 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. 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. We believe it is worthwhile to also compare the claims data for epilepsy patients who are treated with a neurostimulator implant versus a LITT procedure, as well as the claims data for patients with a diagnosis of epilepsy or malignant neoplasms who undergo a LITT procedure. Our analysis also includes reviewing the claims data with regard to the cases that reflect a procedure that is generally performed with another O.R. procedure versus a standalone procedure.

As we continue this analysis of the claims data with respect to MS-DRGs 023 through 027, we are also seeking 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 39.1, which is available via the internet 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, 2022 and directed to the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM), discussed in section II.D.1.b of the preamble of this proposed rule at https://mearis.cms.gov/public/home.

b. Vagus Nerve Stimulation

We received a request to review the MS-DRG assignment for cases that identify patients who receive an implantable vagus nerve stimulation system for heart failure. The vagus nerve, also called the X cranial nerve or the 10th cranial nerve, is the longest and most complex of the cranial nerves. There is one vagus nerve on each side of the body that runs from the brain through the face and thorax to the abdomen. According to the requestor, cranial nerve stimulation (CNS), which includes vagus nerve stimulation, is a well-established therapy for various indications including epilepsy, treatment resistant depression (TRD) and obstructive sleep apnea (OSA), and is now being investigated and studied for use in patients with heart failure.

According to the requestor, heart failure, or the heart's inability to pump an adequate supply of blood and oxygen to support the other organs of the body, is an autonomic nervous system dysfunction. The brain controls the function of the heart through the sympathetic branch and the parasympathetic branches of the autonomic nervous system. In heart failure, there is an imbalance in the autonomic nervous system. The vagus nerve stimulation system for heart failure is comprised of an implantable pulse generator, an electrical lead, and a programming computer system. The pulse generator, which is usually implanted just under the skin of the pectoral region, sends the energy to the vagus nerve through the lead. The lead is a flexible insulated wire that is guided under the skin from the chest up to the neck and is implanted onto the vagus nerve and transmits tiny electrical impulses from the generator to the nerve. These electrical impulses to the vagus nerve are intended to activate the parasympathetic branch of the autonomic nervous system to restore balance.

The requestor stated that cases reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a principal diagnosis code describing epilepsy, TRD or OSA are assigned to surgical MS-DRGs 040, 041 and 042 (Peripheral Cranial Nerve and Other Nervous System Procedures with MCC, with CC or Peripheral Neurostimulator, and without CC/MCC, respectively) in MDC 01 (Diseases and Disorders of the Nervous System). However, when the same codes describing the insertion of a neurostimulator lead onto the vagus nerve and the insertion of a stimulator generator are reported with a principal diagnosis of heart failure, the cases instead are assigned to surgical MS-DRGs 252, 253 and 254 (Other Vascular Procedures with MCC, with CC, without MCC respectively) in MDC 05 (Diseases and Disorders of the Circulatory System).

The requestor stated that the treatment of autonomic nervous system dysfunction is the underlying therapeutic objective of cranial nerve stimulation for heart failure, and therefore the diagnosis of heart failure is more clinically coherent with other diagnoses in MDC 01. As a result, the requestor, who is developing the VITARIA® System, an active implantable neuromodulation system that uses vagus nerve stimulation to deliver autonomic regulation therapy (ART) for an indicated use that includes patients who have moderate to severe heart failure, submitted a request to reassign cases reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a principal diagnosis code describing heart failure, from MS-DRGs 252, 253 and 254 in MDC 05 to MS-DRGs 040, 041 and 042 in MDC 01. This requestor also submitted an application for new technology add-on payment for FY 2023. We refer readers to section II.F.6. of the preamble of this proposed rule for a discussion regarding the application for new technology add-on payments for the VITARIA® System for FY 2023.

According to the requestor, the following ICD-10-PCS procedure code pair identifies the insertion of a vagus nerve stimulation system for heart failure:

The requestor performed its own analysis of Medicare claims from 2020 and stated that it found that patients enrolled in their pivotal clinical trials had an average length of stay of 6.38 days. According to the requestor this finding indicates a resource coherence more similar to cases assigned to MS-DRGs 040, 041 and 042, whose average lengths of stay ranges from 2 to 8 days, when compared to the average lengths of stay of 1 to 3 days for cases assigned to MS-DRGs 252 and 253. The requestor stated their own analysis of 2019 and 2020 Medicare claims data also showed that fewer than 11 cases with procedure codes describing the implantation of a vagus nerve stimulation system map to MS-DRGs 252, 253 and 254 annually but it is expected that Medicare patients will receive vagus nerve stimulation system for heart failure on an inpatient basis. Because of the shared clinical and resource similarity of the procedure to implant the VITARIA® system to other CNS procedures, regardless of indication, the requestor stated that CNS procedures for the treatment of heart failure should also be assigned to MS-DRGs 040, 041 and 042. The requestor also noted that the title of MS-DRGs 252, 253 and 254 is “Other Vascular Procedures with MCC, with CC, without MCC respectively”. Since no vascular access is involved in the procedure to implant vagus nerve stimulation systems, the requestor stated MS-DRGs 252, 253 and 254 are not appropriate mappings for these procedures.

The ICD-10-CM diagnosis codes that describe heart failure are found in the following table. These diagnosis codes are all currently assigned to MDC 05.

The ICD-10-PCS codes that identify the insertion of a neurostimulator lead onto the vagus nerve are listed in the following table.

The ICD-10-PCS codes that identify the insertion of a stimulator generator are listed in the following table.

Our analysis of this grouping issue confirmed that, when a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator are reported with a principal diagnosis code describing heart failure, these cases group to surgical MS-DRGs 252, 253 and 254 (Other Vascular Procedures with MCC, with CC, without MCC respectively).

We note that cases involving the use of a peripheral neurostimulator and a diagnosis from MDC 01 are assigned to MS-DRG 041 only. The GROUPER logic for MS-DRGs 040, 041, and 042 is reflected in the logic table:

We refer the reader to the ICD-10 MS-DRG Version 39.1 Definitions Manual (which is available via the internet 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.

We examined claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 252, 253 and 254 to identify the subset of cases within MS-DRGs 252, 253 and 254 reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a principal diagnosis of heart failure. We found zero cases in MS-DRGs 252, 253 and 254 reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a principal diagnosis of heart failure. In an attempt to further examine this issue, we then examined claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 252, 253 and 254 to identify the subset of cases within MS-DRGs 252, 253 and 254 reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a secondary diagnosis of heart failure and similarly found zero cases.

The results of the claims analysis demonstrate that there is not sufficient claims data in the MedPAR file on which to assess the resource use of cases reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a principal or secondary diagnosis of heart failure as compared to other cases assigned to MS-DRGs 252, 253, and 254.

In reviewing the requestor's concerns regarding clinical coherence, our clinical advisors acknowledge that heart failure is a complex syndrome involving autonomic nervous system dysfunction, however our clinical advisors disagree with assigning the diagnosis codes describing heart failure to MDC 01 (Diseases and Disorders of the Nervous System). Our clinical advisors note 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. As the listed diagnosis codes describe heart failure, these diagnosis codes are appropriately assigned to MDC 05 (Diseases and Disorders of the Circulatory System). Our clinical advisors also state it would not be appropriate to move these diagnoses into MDC 01 because it could inadvertently cause cases reporting these same MDC 05 diagnoses with a circulatory system procedure to be assigned to an unrelated MS-DRG because 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”.

To further examine the impact of moving the diagnoses describing heart failure into MDC 01, we analyzed claims data for cases reporting a circulatory system O.R. procedure and a principal diagnosis of heart failure. Our findings are reflected in the following table.

As shown in the table, if we were to move diagnosis codes describing heart failure to MDC 01, 20,199 cases would be assigned to the surgical class referred to as “unrelated operating room procedures” as an unintended consequence because the surgical procedure reported on the claim would be considered unrelated to the MDC to which the case was assigned based on the principal diagnosis.

In response to the requestor's concerns regarding the title of MS-DRGs 252, 253 and 254, we note that, as stated in the ICD-10 MS-DRG Definitions Manual, “In each MDC there is usually a medical and a surgical class referred to as “other medical diseases” and “other surgical procedures,” respectively. The “other” medical and surgical classes are not as precisely defined from a clinical perspective. The other classes would include diagnoses or procedures which were infrequently encountered or not well defined clinically. For example, the “other” medical class for the Respiratory System MDC would contain the diagnoses “other somatoform disorders” and “congenital malformation of the respiratory system,” while the “other” surgical class for the female reproductive MDC would contain the surgical procedures “excision of liver” (liver biopsy in ICD-9-CM) and “inspection of peritoneal cavity” (exploratory laparotomy in ICD-9-CM). 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. There are, however, also patients who receive surgical procedures which are completely unrelated to the MDC to which the patient was assigned. An example of such a patient would be a patient with a principal diagnosis of pneumonia whose only surgical procedure is a destruction of prostate (transurethral prostatectomy in ICD-9-CM). Such patients are assigned to a surgical class referred to as “unrelated operating room procedures.” ” We further note that MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) are examples of the “other” surgical class, therefore it is expected that there will be procedures not as precisely clinically aligned within the definition (logic) of these MS-DRGs.

Considering that there is no data in the FY 2021 MedPAR file to support a reassignment of these cases based on resource consumption, the analysis of clinical coherence as discussed previously, and the impact that moving the diagnoses describing heart failure into MDC 01 from MDC 05 would have on heart failure cases, we do not believe a reassignment of these cases is appropriate at this time. We can continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their current MS-DRG assignment as data become available for future rulemaking.

In summary for the reasons stated previously, we are not proposing to reassign cases reporting a procedure code describing the insertion of a neurostimulator lead onto the vagus nerve and a procedure code describing the insertion of a stimulator generator with a principal diagnosis of heart failure from MS-DRG 252, 253 and 254 to MS-DRGs 040, 041 and 042.

As we examined the GROUPER logic that would determine an assignment of a case to MS-DRGs 252, 253 and 254, we noted the logic for MS-DRGs 252, 253 and 254 includes ICD-10-PCS procedure codes that describe the insertion of the stimulator generator. We refer the reader to the ICD-10 MS-DRG Version 39.1 Definitions Manual (which is available via the internet 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. During our review of the stimulator generator insertion procedures assigned to these MS-DRGs, we identified the following 24 procedure codes that describe the insertion of a stimulator generator, differentiated by device type (for example single array or multiple array), that do not exist in the logic for MS-DRGs 252, 253 and 254.

For clinical consistency with the other procedure codes describing the insertion of the stimulator generator currently assigned to these MS-DRGs, we are proposing to add the 24 ICD-10-PCS codes listed previously to MS-DRGs 252, 253 and 254, (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 05 (Diseases and Disorders of the Circulatory System) effective October 1, 2022 for FY 2023.

Also, as we examined the GROUPER logic that would determine an assignment of a case to MS-DRG 041, we note the logic for case assignment to MS-DRG 041 as displayed in the ICD-10 MS-DRG Version 39.1 Definitions Manual, available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html contains code combinations or “clusters” representing the insertion of a neurostimulator lead and the insertion of a stimulator generator that are captured under a list referred to as “Peripheral Neurostimulators.” During our review of the procedure code clusters in this list, we noted that ICD-10-PCS procedure code clusters describing the insertion of a neurostimulator lead and the insertion of the stimulator generator differentiated by device type (for example single array or multiple array), approach and anatomical site placement are captured. However, procedure code clusters describing the insertion of stimulator generator, that is not differentiated by device type, and a neurostimulator lead were inadvertently excluded. We refer the reader to Table 6P.3a (which is available via the internet on the CMS website at https://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html ) for the list of the 108 ICD-10-PCS code clusters that were inadvertently excluded and do not exist in the logic for MS-DRG 041.

For clinical consistency, our clinical advisors supported the addition of the 108 procedure code clusters to the GROUPER logic list referred to as “Peripheral Neurostimulators” for MS-DRG 041 that describe the insertion of stimulator generator, not differentiated by device type, and a neurostimulator lead. Therefore, we are proposing to add the 108 ICD-10-PCS code clusters listed in Table 6P.3a that describe the insertion of a stimulator generator, that is not differentiated by device type, and a neurostimulator lead to MS-DRG 041, effective October 1, 2022 for FY 2023.

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

We received a request 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). According to the requestor, in the current mapping to MS-DRG 123, diagnoses of CRAO and BRAO are being captured inappropriately as eye disorders in MDC 02. Instead, the requestor stated that CRAO and BRAO are forms of acute ischemic stroke which occur when a vessel supplying blood to the brain is obstructed.

The requestor stated the retina is a core component of the central nervous system and there is growing recognition that damage to it is a vascular neurological problem and not an ophthalmological one. Patients with CRAO or BRAO are typically very sick, have an underlying condition, and are at imminent risk for further events including heart attack or brain stroke. A diagnosis of CRAO or BRAO requires an urgent, structured and multidisciplinary team-based examination to evaluate and treat other diagnoses that may be present such as high blood pressure, dyslipidemia, diabetes mellitus, obesity, obstructive sleep apnea and smoking to ameliorate the risks of a subsequent, potentially lethal, cardiovascular event.

The requestor further 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. According to the requestor, BRAO is less commonly treated with IV tPA than CRAO but also requires an urgent and thorough diagnostic workup as with any other form of stroke. The requestor stated the current assignment of these conditions to MS-DRG 123 does not properly recognize disease complexity and allocation of resources for care for these cases. The requestor stated that patients with CRAO or BRAO more closely resemble patients currently mapped to MS-DRGs 061, 062, and 063 in terms of in resource intensity and criticality and that in instances where HBOT is the chosen treatment modality, any revised MS-DRG mapping should include the ICD-10-PCS codes for HBOT.

The ICD-10-CM codes that describe CRAO and BRAO are found in the following table.

Thrombolytic therapy is identified with the following ICD-10-PCS procedure codes.

The requestor identified three ICD-10-PCS codes that they stated describe HBOT.

During our review of this issue, we included the three procedure codes as identified by the requestor as describing HBOT, as well as the similar procedure code 5A05221 (Extracorporeal hyperbaric oxygenation, continuous) that also describes HBOT, differing only in duration.

Our analysis of this grouping issue confirmed that, when a procedure code describing the administration of a thrombolytic agent or a procedure code describing HBOT is reported with principal diagnosis code describing CRAO or BRAO, these cases group to medical MS-DRG 123. To begin our analysis, we examined claims data from the September 2021 update of the FY 2021 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 or a procedure code describing HBOT; (2) identify cases reporting diagnosis codes describing CRAO or BRAO with a procedure code describing HBOT; and (3) 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 2,642 cases within MS-DRG 123 with an average length of stay of 2.5 days and average costs of $6,457. Of these 2,642 cases, there are 774 cases that reported a principal diagnosis code describing CRAO or BRAO without a procedure code describing the administration of a thrombolytic agent or a procedure code describing HBOT with an average length of stay of 2.2 days and average costs of $5,482. There are nine cases that reported a principal diagnosis code describing CRAO or BRAO with a procedure code describing HBOT with an average length of stay of 2 days and average costs of $6,491. There are 47 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 2.3 days and average costs of $14,335.

The data analysis shows that the 774 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 or a procedure code describing HBOT have average costs lower than the average costs in the FY 2021 MedPAR file for MS-DRG 123 ($5,482 compared to $6,457), and the average length of stay is shorter (2.2 days compared to 2.5 days). For the nine cases in MS-DRG 123 reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing HBOT, the average length of stay is shorter (2 days compared to 2.5 days) and the average costs ($6,491 compared to $6,457) are slightly higher than the average length of stay and average costs compared to all cases in that MS-DRG. For the 47 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, the average length of stay is slightly shorter (2.3 days compared to 2.5 days) and the average costs are higher ($14,335 compared to $6,457) than the average length of stay and average costs compared to all cases in that MS-DRG.

We also examined claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 061, 062, and 063. Our findings are shown in the following table.

Because MS-DRG 123 is a base DRG and there is a three-way split within MS-DRGs 061, 062, and 063, we also analyzed the 47 cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent and the nine cases reporting a principal diagnosis code describing CRAO or BRAO with a procedure code describing HBOT for the presence or absence of a secondary diagnosis designated as a complication or comorbidity (CC) or a major complication or comorbidity (MCC).

This data analysis shows the 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 or with a procedure code describing HBOT when distributed based on the presence or absence of a secondary diagnosis designated as a CC or an MCC have average costs lower than the average costs in the FY 2021 MedPAR file for MS-DRGs 061, 062, and 063 respectively, and the average lengths of stay are shorter. Accordingly, we do not believe the data adequately support a potential reassignment of these cases to MS-DRGs 061, 062, and 063 respectively.

Our clinical advisors reviewed this issue and the related data analysis and do not believe that the small subset of patients with a diagnosis of CRAO or BRAO receiving a thrombolytic agent or hyperbaric oxygen therapy warrant a separate MS-DRG or reassignment at this time. Our clinical advisors noted the average costs for cases of patients with a diagnosis of CRAO or BRAO receiving HBOT are only slightly higher than the average costs for all cases in MS-DRG 123 ($6,491 compared to $6,457). The average costs for cases of patients with a diagnosis of CRAO or BRAO receiving a thrombolytic agent are higher than the average costs for all cases in MS-DRG 123 however when distributed based on the presence or absence of a secondary diagnosis designated as a complication or comorbidity (CC) or a major complication or comorbidity (MCC) it is unclear to what degree the higher average costs for these cases are attributable to the severity of illness of the patient and other circumstances of the admission as opposed to the administration of a thrombolytic agent, as the claims data reflects a wide variance with regard to average costs for these cases.

Our clinical advisors further note that ischemia is defined as a condition in which the blood vessels become blocked, and blood flow is stopped or reduced. The condition has many potential causes, including a blockage caused by a blood clot, or due to buildup of deposits, such as cholesterol. Ischemia can occur anywhere in the body, and the different names for the condition depend on the organ or body part affected such as the brain (cerebral ischemia), heart (ischemic heart disease, myocardial ischemia, or cardiac ischemia), and intestines (mesenteric ischemia or bowel ischemia), legs (critical limb ischemia—a form of peripheral artery disease), and skin (cutaneous ischemia), while they are similar in that they all involve a blocked blood vessel.

In ICD-10 the body or organ system is the axis of the classification and diagnosis codes describing ischemia affecting other body parts are classified by the body or organ system affected. For example, codes describing myocardial ischemia are assigned to MDC 05 (Diseases and Disorders of the Circulatory System) and codes describing mesenteric ischemia are assigned to MDC 06 (Diseases and Disorders of the Digestive System). Our clinical advisors disagree with assigning the diagnosis codes describing CRAO and BRAO to MDC 01. Our clinical advisors note the concept of clinical coherence generally 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 DRG. While closely related, the eyes and the brain are different organs. Our clinical advisors state that because the diagnosis codes used to report CRAO and BRAO describe ischemia affecting the retina, these diagnosis codes are appropriately assigned to MDC 02 (Diseases and Disorders of the Eye). The retina is a collection of cells at the back of the eye where the processing of visual information begins. Due to the retina's vital role in vision, damage to it can cause permanent blindness. The presence of CRAO or BRAO requires input from an ophthalmologist and treatment for these diagnoses would be expected to utilize different resources than a diagnosis of cerebral ischemia which may or may not involve visual impairment. Other possible interventions for CRAO or BRAO included attempting to lower the intraocular pressure with medication or by using a small-gauge needle to remove fluid to try to dislodge the embolus or ocular massage to dislodge the clot, which are not interventions generally performed for a diagnosis of acute ischemic stroke.

To explore other mechanisms to address this request, we also reviewed claims data to consider the option of adding another severity level to the current structure of MS-DRG 123 (Neurological Eye Disorders) and assigning the cases with a principal diagnosis of CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent to the highest level. This option would involve modifying the current base MS-DRG to a two-way severity level split or to a three-way severity level split of “with MCC or thrombolytic agent, with CC, and without CC/MCC.” Therefore, it would include proposing new MS-DRGs if the data and our clinical advisors supported creation of new MS-DRGs. However, as displayed in the data findings in the table that follows, the data did not support this option. We applied the five criteria as described in section II.D.1.b. of the preamble of this proposed rule to determine if it would be appropriate to subdivide cases currently assigned to MS-DRG 123 into severity levels. This analysis generally includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. However, as discussed in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25092), our MS-DRG analysis last year was based on ICD-10 claims data from the March 2020 update of the FY 2019 MedPAR file, which contains hospital claims received from October 1, 2018 through March 31, 2020, for discharges occurring through September 30, 2019 and the ICD-10 claims data from the September 2020 update of the FY 2020 MedPAR file, which contains hospital claims received from October 1, 2019 through September 30, 2020, for discharges occurring through September 30, 2020 given the potential impact of the PHE for COVID-19. Therefore, for this FY 2023 IPPS/LTCH PPS proposed rule, we reviewed the claims data for base MS-DRG 123 using the March 2020 update of the FY 2019 MedPAR file and the September 2020 update of the FY 2020 MedPAR file, which were used in our analysis of claims data for MS-DRG reclassification requests for FY 2022. We also reviewed the claims data for base MS-DRG 123 using the September 2021 update of the FY 2021 MedPAR file, which were used in our analysis of claims data for MS-DRG reclassification requests for FY 2023. Our findings are shown in the table:

We applied the criteria to create subgroups for the three-way severity level split. We refer the reader to section II.D.1.b. of the preamble of this FY 2023 IPPS/LTCH PPS proposed rule, for related discussion regarding our finalization of the expansion of the criteria to include the NonCC subgroup and our proposal to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split to maintain more stability in the current MS-DRG structure. We found that the criterion that there be at least 500 cases for each subgroup was not met, as shown in the table based on the data in the FY 2019, FY 2020, and FY 2021 MedPAR files. Specifically, for the “with MCC”, “with CC”, and “without CC/MCC” split, there were only 376 cases in the “with MCC” subgroup based on the data in the FY 2019 MedPAR file, only 345 cases in the “with MCC” subgroup based on the data in the FY 2020 MedPAR file and only 374 cases in the “with MCC” subgroup based on the data in the FY 2021 MedPAR file.

We then applied the criteria to create subgroups for the two-way severity level splits. For the “with MCC” and “without MCC” (CC + NonCC) split, the criterion that there be at least 500 cases for each subgroup failed due to low volume each year, specifically, for the “with MCC” subgroup as previously described. For the “with CC/MCC” and “without CC/MCC” (NonCC) split, we found that the criterion that there be at least a $2,000 difference in average costs between the “with CC/MCC” and “without CC/MCC” subgroups also failed. In the FY 2019 MedPAR file, our data analysis shows average costs in the hypothetical “with CC/MCC” subgroup of $6,282 and average costs in the hypothetical “without CC/MCC” subgroup of $4,832, for a difference of only $1,450 ($6,282 minus $4,832 = $1,450). In the FY 2020 MedPAR file, our data analysis shows average costs in the hypothetical “with CC/MCC” subgroup of $6,573 and average costs in the hypothetical “without CC/MCC” subgroup of $5,122, for a difference of only $1,451 ($6,573 minus $5,122 = $1,451). In the FY 2021 MedPAR file, our data analysis shows average costs in the hypothetical “with CC/MCC” subgroup of $7,176 and average costs in the hypothetical “without CC/MCC” subgroup of $5,364, for a difference of only $1,812 ($7,176 minus $5,364 = $1,812). Our data analysis indicates that the current base MS-DRG 123 maintains the overall accuracy of the IPPS, and that the claims data do not support a three-way or a two-way severity level split for MS-DRG 123.

Lastly, we explored reassigning cases with a principal diagnosis of CRAO or BRAO that receive the administration of a thrombolytic agent to other MS-DRGs within MDC 02. However, our review did not support reassignment of these cases to any other medical MS-DRGs as these cases would not be clinically coherent with the cases assigned to those other MS-DRGs.

Therefore, 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 as previously discussed, for FY 2023 we are not proposing 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.

5. MDC 04 (Diseases and Disorders of the Respiratory System): Acute Respiratory Distress Syndrome (ARDS)

We received a request to reassign cases reporting diagnosis code J80 (Acute respiratory distress syndrome) as the principal diagnosis from MS-DRG 204 (Respiratory Signs and Symptoms) to MS-DRG 189 (Pulmonary Edema and Respiratory Failure).

According to the requestor, when a patient presents with the condition of acute respiratory failure that progresses to acute respiratory distress syndrome (ARDS) during the hospital stay, official coding guidance instructs to only report the diagnosis code for ARDS (code J80). The requestor stated that in the American Hospital Association's (AHA) Coding Clinic for ICD-10-CM and ICD-10-PCS, Fourth Quarter 2020 publication, for a patient who is admitted in acute hypoxic respiratory failure that progresses to ARDS, the advice is to assign code J80, Acute respiratory distress syndrome. Additionally, in the ICD-10-CM Tabular List of Diseases, per the Excludes 1 note under category J96 (Respiratory failure, not elsewhere classified) only code J80 should be assigned when respiratory failure and ARDS are both documented. The same publication also maintained that ARDS is a life-threatening form of respiratory failure and is not an unrelated condition. Therefore, when acute respiratory failure is documented along with ARDS, only one code is reported to capture the highest level of severity.

The requestor also conveyed the Fourth Quarter 2020 publication's reference to previously published advice from the Fourth Quarter 2017 publication that stated, “Acute respiratory distress syndrome (ARDS) is a life-threatening condition. ARDS is a rapidly progressive disorder that has symptoms of dyspnea, tachypnea, and hypoxemia. Fluid builds up in the alveoli and lowers the amount of oxygen that is circulated through the bloodstream. Low levels of oxygen in the blood threatens organ function. ARDS is often associated with sepsis, pneumonia, trauma and aspiration. The majority of people who develop ARDS are already in the hospital in critical condition from some other health complication. The focus of treatment is getting oxygen to the organs.”

We examined claims data from the September 2021 update of the FY 2021 MedPAR file for all cases in MS-DRG 204 and the cases reporting ARDS (code J80) as a principal diagnosis. Our findings are shown in the following table.

As shown in the table, the data demonstrate a longer average length of stay (7.6 days versus 2.8 days) and higher average costs ($15,077 versus $6,780) for the 96 cases reporting ARDS (code J80) as a principal diagnosis when compared to all 5,241 cases in MS-DRG 204.

We also examined claims data from the September 2021 update of the FY 2021 MedPAR file for all cases in MS-DRG 189. Our findings are shown in the following table.

The data analysis supports that cases reporting ARDS (code J80) are more appropriately aligned with the average length of stay and average costs of the cases in MS-DRG 189 in comparison to MS-DRG 204 when ARDS is reported as a principal diagnosis. We also agree that, consistent with the coding clinic advice, ARDS is a life-threatening form of respiratory failure and the conventions of the ICD-10-CM classification as displayed in the Tabular List of Diseases Excludes note, support the concept that cases reporting ARDS as a principal diagnosis are more clinically coherent with the other conditions currently assigned to MS-DRG 189.

For these reasons, we are proposing to reassign cases reporting ARDS (code J80) as a principal diagnosis from MS-DRG 204 to MS-DRG 189 effective FY 2023.

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

a. Percutaneous Transluminal Coronary Angioplasty (PTCA) Logic

We identified a replication issue from the ICD-9 based MS-DRGs to the ICD-10 based MS-DRGs for procedure code 02UG3JE (Supplement mitral valve created from left atrioventricular valve with synthetic substitute, percutaneous approach) that was created effective October 1, 2016 (FY 2017), to identify and describe further interventions that may occur for a patient who had previously undergone cardiac valve surgery to correct a congenital anomaly, such as repair of a complete common atrioventricular canal defect.

We used our established process in the assignment of new procedure code 02UG3JE to the most appropriate MS-DRG(s) for FY 2017. Procedure code 02UG3JE was proposed for assignment to the same MS-DRGs as its predecessor code. The predecessor code for procedure code 02UG3JE as shown in the 2017 ICD-10-PCS conversion table (available via the internet on the CMS web page at https://www.cms.gov/Medicare/Coding/ICD10/2017-ICD-10-PCS-and-GEMs ) is 02UG3JZ (Supplement mitral valve with synthetic substitute, percutaneous approach). The ICD-9-CM comparable translation for this code (02UG3JZ) is procedure code 35.97 (Percutaneous mitral valve repair with implant), which identifies the use of the MitraClip® technology that has been discussed extensively in prior rulemaking.

In the FY 2017 rulemaking, using our established process, new procedure code 02UG3JE was proposed and finalized for assignment to the following MS-DRGs for FY 2017, as also shown in Table 6B.—New Procedure Codes in association with the FY 2017 IPPS/LTCH PPS proposed and final rules (available via the internet on the CMS web page at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download ). We note that the listed MS-DRGs also reflect the MS-DRGs that the predecessor code (02UG3JZ) was assigned to at the time of the proposed rule.

However, as also discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56809 through 56813), in connection with replication efforts between the ICD-9 and ICD-10 based MS-DRGs and the surgical hierarchy, the predecessor procedure code (02UG3JZ) was reassigned from MS-DRGs 273 and 274 to MS-DRG 228 (Other Cardiothoracic Procedures with MCC) and revised MS-DRG 229 (Other Cardiothoracic Procedures without MCC), and was removed from the PTCA logic for MS-DRGs 231 and 232. However, these proposed and finalized MS-DRG changes for procedure code 02UG3JZ were not considered for purposes of the MS-DRG assignments for new procedure code 02UG3JE, which were instead finalized as proposed based on the existing MS-DRG assignments for the predecessor code, and code 02UG3JE continued to remain on the PTCA list in the GROUPER logic for MS-DRGs 231 and 232.

Our clinical advisors stated that procedure code 02UG3JE does not describe a PTCA procedure. We analyzed claims data from the September 2021 update of the FY 2021 MedPAR file for cases in MS-DRGs 231 and 232 to determine if there were any cases reported with procedure code 02UG3JE, and there were no such cases found.

Accordingly, because the procedure described by procedure code 02UG3JE is not clinically consistent with a PTCA procedure and it was initially assigned to the list for PTCA procedures in the GROUPER logic as a result of replication in the transition from ICD-9 to ICD-10 based MS-DRGs, we are proposing to remove procedure code 02UG3JE from the list for PTCA procedures in the GROUPER logic for MS-DRGs 231 and 232 effective FY 2023. We are also proposing to maintain the MS-DRG assignment for procedure code 02UG3JE in MS-DRGs 266 and 267 (Endovascular Cardiac Valve Replacement and Supplement Procedures with and without MCC, respectively) for FY 2023.

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

The BAROSTIM NEO^TM System is the first neuromodulation device system designed to trigger the body's main cardiovascular reflex to target symptoms of heart failure. The system consists of an implantable pulse generator (IPG) that is implanted subcutaneously in the upper chest below the clavicle, a stimulation lead that is sutured to either the right or left carotid sinus to activate the baroreceptors in the wall of the carotid artery and a wireless programmer system that is used to non-invasively program and adjust BAROSTIM NEO^TM therapy via telemetry. The BAROSTIM NEO^TM System is indicated for the improvement of symptoms of heart failure in a subset of patients with symptomatic New York Heart Association (NYHA) class II and III heart failure with low cardiac ejection fractions who do not benefit from guideline directed pharmacologic therapy or qualify for Cardiac Resynchronization Therapy (CRT).

The BAROSTIM NEO^TM System was approved for new technology add-on payments for FY 2021 (85 FR 58716 through 58717) and FY 2022 (86 FR 44974). We refer readers to section II.F.4.a. of the preamble of this proposed rule for a discussion regarding the proposed FY 2023 status of technologies approved for FY 2022 new technology add-on payments, including the BAROSTIM NEO^TM System.

For this FY 2023 IPPS/LTCH PPS proposed rule, we received a request to (1) reassign the ICD-10-PCS procedure codes that describe the implantation of the BAROSTIM NEO^TM System from MS-DRGs 252, 253 and 254 (Other Vascular Procedures with MCC, with CC, without MCC respectively) to MS-DRGs 222, 223, 224, 225, 226, and 227 (Cardiac Defibrillator Implant with and without Cardiac Catheterization with and without AMI/HF/Shock with and without MCC, respectively) and (2) reassign the procedure code that describes the placement of a BAROSTIM NEO^TM IPG alone from MS-DRGs 252, 253 and 254 to MS-DRG 245 (AICD Generator Procedures).

The following ICD-10-PCS procedure codes uniquely identify the implantation of the BAROSTIM NEO^TM System: 0JH60MZ (Insertion of stimulator generator into chest subcutaneous tissue and fascia, open approach) in combination with 03HK3MZ (Insertion of stimulator lead into right internal carotid artery, percutaneous approach) or 03HL3MZ (Insertion of stimulator lead into left internal carotid artery, percutaneous approach). The requestor noted that ICD-10-PCS codes 0JH60MZ, 03HK3MZ and 03HL3MZ are individually assigned to MDC 05 in MS-DRGs 252, 253, and 254 but not mapped to the logic of these MS-DRGs in a code combination or code cluster. According to the requestor this means that cases with a principal diagnosis from MDC 05 with procedure codes describing the implantation of a BAROSTIM NEO^TM system (0JH60MZ with 03HL3MZ or 03HK3MZ); with procedure codes describing placement of the stimulator generator alone (0JH60MZ); or with procedure codes describing the placement of a carotid sinus lead only (03HL3MZ or 03HK3MZ) are all assigned to MS-DRGs 252, 253, and 254, despite the significant differences in the clinical coherence and resources required to perform these distinct procedures.

The requestor stated that cases reporting procedure codes describing the implantation of a BAROSTIM NEO^TM system are more clinically similar to, and have costs that are more closely aligned to, cases within MS-DRGs 222, 223, 224, 225, 226, and 227. The requestor stated that according to its own analysis, the population of Medicare patients surgically treated with procedures assigned to MS-DRGs 222, 223, 224, 225, 226, and 227 is essentially identical to the population treated with the BAROSTIM NEO^TM System. According to the requestor, this congruent patient population accounts for essentially all cases assigned to MS-DRGs 222, 223, 224, 225, 226, and 227. The requestor stated their analysis demonstrated that over 80% of the cases in MS-DRGs 222, 223, 224, 225, 226, and 227 had a diagnosis of heart failure, compared to only 30% of cases with a diagnosis of heart failure assigned to MS-DRGs 252, 253, and 254. The requestor stated that the subset of patients that have an indication for the implantation of a BAROSTIM NEO^TM system also have indications for the implantation of Implantable Cardioverter Defibrillators (ICD), Cardiac Resynchronization Therapy Defibrillators (CRT-D) and/or Cardiac Contractility Modulation (CCM) devices, all of which also require the permanent implantation of a programmable, electrical pulse generator and at least one electrical lead. The requestor specifically highlighted that the procedure code combinations describing the implantation of a cardiac contractility modulation (CCM) device system, which consists of a programmable implantable pulse generator (IPG) and three leads, one of which is implanted into the right atrium and the other two leads which are inserted into the right ventricle is assigned to MS-DRGs 222, 223, 224, 225, 226, and 227, and the codes describing the insertion of contractility modulation device generator alone are assigned to MS-DRG 245. The requestor stated that the average resource utilization required to implant the BAROSTIM NEO^TM System demonstrates a significant disparity compared to all procedures within MS-DRGs 252, 253, and 254 and noted that the cost of the BAROSTIM NEO^TM implantable device is $35,000, which is in range with the cost of the other cardiac implantable devices (for example ICD, CRT-D, and CCM) assigned to MS-DRGs 222, 223, 224, 225, 226, and 227.

The requestor stated that the majority of the procedures assigned to MS-DRGs 252, 253, and 254 are primarily designed to identify, diagnose, clear and restructure veins and arteries, excluding those that require implantable devices. Furthermore, the requestor stated the surgical procedures within MS-DRGs 252, 253, and 254 are not intended to treat or improve the function of the heart, nor treat the symptoms of heart failure.

The requestor acknowledged that there are very few cases within the publicly available Medicare inpatient claims data that potentially includes procedure codes describing the implantation of a BAROSTIM NEO^TM system. The requestors' own analysis revealed fewer than 11 cases with procedure codes describing the implantation of a BAROSTIM NEO^TM system in the combined FY 2019 and FY 2020 MedPAR data and noted that during much of this time period, the BAROSTIM NEO^TM System was only implanted as part of a controlled clinical trial. The requestor stated that this incomplete data should not be used to determine initial MS-DRG assignments, especially for new FDA designated `breakthrough' medical technologies like the BAROSTIM NEO^TM system. Rather, the requestor stated that CMS should use available information and expert knowledge to make initial MS-DRG assignments, while waiting for a substantial number of Medicare covered, post-approved claims from a disperse set of hospitals to reconsider MS-DRG assignments as necessary. The requestor cautioned that upon new technology add-on payments expiration, and if the inadequate MS-DRG assignment for these procedures continues, inpatient admissions to implant the BAROSTIM NEO^TM system will be paid less than outpatient admissions to perform the same procedures.

The ICD-10-CM diagnosis codes that describe heart failure are found in the following table. These diagnosis codes are all currently assigned to MDC 05.

First, we examined claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 252, 253 and 254 to identify cases reporting a diagnosis of heart failure and procedure codes describing the implantation of the BAROSTIM NEO^TM system with or without a procedure code describing the performance of a cardiac catheterization as MS-DRGs 222, 223, 224, 225, 226, and 227 are defined by the performance of cardiac catheterization. Our findings are shown in the following table.

As shown in the table, the data analysis performed indicates that the two cases in MS-DRG 252 reporting procedure codes describing the implantation of a BAROSTIM NEO^TM system have an average length of stay that is shorter than the average length of stay for all the cases in MS-DRG 252 (4.5 days versus 7.6 days) and higher average costs when compared to all the cases in MS-DRG 252 ($67,588 versus $27,488). These two cases did not also report a procedure code describing the performance of a cardiac catherization. The one case in MS-DRG 253 reporting procedure codes describing the implantation of a BAROSTIM NEO^TM system had a length of stay that is shorter than the average length of stay for all the cases in MS-DRG 253 (1 day versus 5.2 days) and lower costs when compared to all the cases in MS-DRG 253 ($19,237 versus $21,978). This case did not also report a procedure code describing the performance of a cardiac catherization. We found zero cases in MS-DRG 254 reporting procedure codes describing the implantation of a BAROSTIM NEO^TM system.

Our clinical advisors reviewed this data and note that is it is difficult to detect patterns of complexity and resource intensity based on the three cases that reported procedure codes describing the implantation of a BAROSTIM NEO^TM system. The claims data also reflect a wide variance with regard to the length of stay and average costs for the three cases that did report the implantation of a BAROSTIM NEO^TM system. The results of the claims analysis demonstrate we do not have sufficient claims data on which to base and evaluate any proposed changes to the current MS-DRG assignment. Our clinical advisors also expressed concern in equating the implantation of a BAROSTIM NEO^TM system to the placement of ICD, CRT-D, and CCM devices as these devices all differ in terms of technical complexity and anatomical placement of the electrical lead(s). Our clinical advisors note there is no intravascular component or vascular puncture involved when implanting a BAROSTIM NEO^TM system. Our clinical advisors also note the placement of ICD, CRT-D, and CCM devices generally involve a lead being affixed to the myocardium, being threaded through the coronary sinus or crossing a heart valve and are procedures that involve a greater level of complexity than affixing the stimulator lead to either the right or left carotid sinus when implanting a BAROSTIM NEO^TM system.

Next, to evaluate the request to reassign the procedure code that describes the placement of a BAROSTIM NEO^TM IPG alone from MS-DRGs 252, 253 and 254 to MS-DRG 245 (AICD Generator Procedures), we examined claims data from the September 2021 update of the FY 2021 MedPAR file for all cases in MS-DRGs 252, 253 and 254 and compared the results to cases with a procedure code describing placement of the stimulator generator alone. Our findings are shown in the following table.

As shown in the table, the data analysis performed indicates that the 12 cases in MS-DRG 252 reporting a procedure code describing placement of the stimulator generator alone have an average length of stay that is longer than the average length of stay for all the cases in MS-DRG 252 (8.8 days versus 7.6 days) and higher average costs when compared to all the cases in MS-DRG 252 ($56,622 versus $27,488). The four cases in MS-DRG 253 reporting a procedure code describing placement of the stimulator generator alone have an average length of stay that is shorter than the average length of stay for all the cases in MS-DRG 253 (2.5 days versus 5.2 days) and higher average costs when compared to all the cases in MS-DRG 253 ($30,451 versus $21,978). We found zero cases in MS-DRG 254 reporting a procedure code describing placement of the stimulator generator alone.

Our clinical advisors reviewed this data, and found, similar to the analysis of the data from the three cases that reported procedure codes describing the implantation of a BAROSTIM NEO^TM system, that it is difficult to detect patterns of complexity and resource intensity based on the few cases that reported procedure codes describing placement of the stimulator generator alone. The claims data similarly reflects a wide variance with regard to the length of stay and average costs for these cases that did report the placement of the stimulator generator alone, indicating there may have been other factors contributing to the higher costs. When reviewing the consumption of hospital resources for this small subset of cases, the claims data also suggest that the increased costs may be attributable to the severity of illness of the patient and other circumstances of the admission as the patients tended to have a major complication or co-morbid (MCC) condition reported based on the MS-DRG assigned.

We recognize the average costs of the small numbers of cases reporting a procedure code describing placement of the stimulator generator alone are greater when compared to the average costs of all cases in their respective MS-DRG. 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 further note that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs.

In response to the requestor's concerns regarding procedures currently assigned to MS-DRGs 252, 253 and 254, as discussed in section II.D.3.b. of the preamble of this proposed rule, we note that MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) are examples of the “other” surgical class, and therefore it is expected that there will be procedures not as precisely clinically aligned within the definition (logic) of these MS-DRGs. In regard to the concern about the implications for reimbursement when these procedures are performed in the outpatient setting as opposed to the inpatient setting, we note that 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.

In response to the requestor's statement that CMS should use available information and expert knowledge to make initial MS-DRG assignments, while waiting for a substantial number of Medicare covered, post-approved claims from a disperse set of hospitals to reconsider MS-DRG assignments as necessary, we note that we use our established process for GROUPER assignments for new diagnosis and procedure codes. Specifically, consistent with our established process for assigning new diagnosis and procedure codes, we review the predecessor code and MS-DRG assignment most closely associated with the new diagnosis or procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We note that this process will not automatically result in the new diagnosis or procedure code being assigned to the same MS-DRG or having the same designation as the predecessor code. Members of the public have the opportunity to provide feedback on the assignment and designation of the codes if they disagree. We refer the reader to section II.D.17 of this proposed rule for a more detailed discussion of this process. We note that when BAROSTIM NEO^TM applied for new technology add-on payment, it was noted that the technology could be uniquely identified using a combination of existing ICD-10-PCS codes that were already assigned to MS-DRGs, and this circumstance generally would not provide a basis for MS-DRG reassignment.

Lastly, our clinical advisors expressed concern regarding making proposed MS-DRG changes based on a specific, single technology (BAROSTIM NEO^TM system), identified by only one unique procedure code combination versus considering proposed changes based on a group of related procedure codes that can be reported to describe that same type or class of technology, which is more consistent with the intent of the MS-DRGs.

We believe that as the number of cases reporting procedure codes describing the implantation of neuromodulation devices for heart failure increases, a better view of the associated costs and lengths of stay on average will be reflected in the data for purposes of assessing any reassignment of these cases. Our clinical advisors stated that it would not be appropriate to reassign cases for patients from MS-DRGs 252, 253 and 254 to MS-DRGs 222, 223, 224, 225, 226, and 227 in the absence of additional data to better determine the resource utilization for this subset of patients to help inform whether a reassignment would be clinically warranted. Therefore, for the reasons stated previously, we are proposing to maintain the assignment of cases reporting procedure codes that describe the implantation of a neuromodulation device in MS-DRGs 252, 253 and 254 for FY 2023. We are also proposing to maintain the assignment of cases reporting a procedure code describing placement of a stimulator generator alone in MS-DRGs 252, 253 and 254 for FY 2023.

During our review of this issue, as we examined the GROUPER logic that would determine an assignment of a case to MS-DRGs 222, 223, 224, 225, 226, and 227, we found two diagnosis codes describing heart failure that are not currently in the listed principal diagnoses in the GROUPER logic for MS-DRGs 222 and 223 (Cardiac Defibrillator Implant with Cardiac Catheterization with AMI, HF or Shock with and without MCC, respectively). These diagnosis codes are listed in the following table.

As a result, when either of these codes are coded as a principal diagnosis, MS-DRGs 224 and 225 (Cardiac Defibrillator Implant with Cardiac Catheterization without AMI, HF, or Shock with and without MCC, respectively) are instead assigned when reported with a procedure code combination describing the implantation of a cardiac defibrillator and a procedure describing the performance of a cardiac catherization procedure. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 39.1, which is available via the internet 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, 223, 224, and 225.

Our clinical advisors reviewed this issue and believe that cases reporting diagnosis code I97.130 or I97.131 as a principal diagnosis are associated with a severity of illness on par with cases reporting a principal diagnosis of a type of heart failure. To code postprocedural heart failure in ICD-10-CM, instructional notes at category I50 direct to “code first heart failure following surgery” (that is, I97.130 and I97.131) with a second code from subcategory of I50 listed after the postprocedural heart failure code to specify the type of heart failure. Our clinical advisors recommend adding diagnosis codes I97.130 and I97.131 to the logic list of principal diagnoses that describe heart failure for clinical consistency, recognizing that coding guidelines instruct to code I97.130 and I97.131 before the codes from subcategory of I50 that specify the type of heart failure, as the codes from subcategory of I50 are currently in the listed principal diagnoses in the GROUPER logic for MS-DRGs 222 and 223. Therefore, we are proposing to modify the GROUPER logic to allow cases reporting diagnosis code I97.130 or I97.131 as a principal diagnosis to group to MS-DRGs 222 and 223 when reported with qualifying procedures.

c. Cardiac Mapping

We identified a replication issue from the ICD-9 based MS-DRGs to the ICD-10 based MS-DRGs for procedure code 02K80ZZ (Map conduction mechanism, open approach). Cardiac mapping describes the creation of detailed maps to detect how the electrical signals that control the timing of the heart rhythm move between each heartbeat to identify the location of rhythm disorders. Cardiac mapping is generally performed during open-heart surgery or performed via cardiac catherization.

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49363 through 49369), we discussed a request to remove the cardiac ablation and other specified cardiovascular procedures from the following MS-DRGs, and to create new MS-DRGs to classify these procedures:

• MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug- Eluting Stent with MCC or 4+ Vessels/Stents);
• MS-DRG 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC);
• MS-DRG 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents);
• MS-DRG 249 (Percutaneous Cardiovascular Procedure with Non- Drug-Eluting Stent without MCC);
• MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent with MCC); and
• MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent without MCC).

The requestor recommended that CMS assign the following ICD-9-CM procedure codes that identify and describe cardiac ablation procedures and the other percutaneous intracardiac procedures to the newly created MS-DRGs:

• 35.52 (Repair of atrial septal defect with prosthesis, closed technique);
• 35.96 (Percutaneous balloon valvuloplasty);
• 35.97 (Percutaneous mitral valve repair with implant);
• 37.26 (Catheter based invasive electrophysiologic testing);
• 37.27 (Cardiac mapping);
• 37.34 (Excision or destruction of other lesion or tissue of heart, endovascular approach);
• 37.36 (Excision, destruction, or exclusion of left atrial appendage (LAA)); and
• 37.90 (Insertion of left atrial appendage device).

We stated we agreed that creating these new MS-DRGs would better reflect utilization of resources and clinical cohesiveness for intracardiac procedures in comparison to intracoronary procedures. Therefore, after consideration of the public comments we received, we finalized our proposal to create MS-DRGs 273 (Percutaneous Intracardiac Procedures with MCC) and MS-DRG 274 (Percutaneous Intracardiac Procedures without MCC) for the FY 2016 ICD-10 MS-DRGs Version 33 and finalized the assignment of the procedures performed within the heart chambers using intracardiac techniques to the two new MS-DRGs.

In the FY 2016 rulemaking, we stated that the comparable ICD-10-PCS code translations for ICD-9-CM procedure code 37.27 (Cardiac mapping) were ICD-10-PCS codes 02K83ZZ (Map conduction mechanism, percutaneous approach) and 02K84ZZ (Map conduction mechanism, percutaneous endoscopic approach). However, code 02K80ZZ (Map Conduction Mechanism, Open Approach), which is also a comparable ICD-10-PCS code translation for ICD-9-CM procedure code 37.27, was inadvertently excluded. Consequently, procedure code 02K80ZZ continued to remain in the GROUPER logic for MS-DRGs 246, 247, 248, 249, 250 and 251.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58477), we finalized a revision to the titles for MS-DRGs 273 and 274 to “Percutaneous and Other Intracardiac Procedures with and without MCC, respectively” to better reflect the procedures assigned to them.

In the ICD-10 MS-DRGs Definitions Manual Version 39.1, procedure code 02K80ZZ is currently recognized as a non-O.R. procedure that affects the MS-DRG to which it is assigned. Our clinical advisors reviewed this grouping issue and stated that procedure code 02K80ZZ does not describe a percutaneous cardiovascular procedure. Our clinical advisors support the reassignment of code 02K80ZZ for clinical coherence, noting the procedure should be appropriately grouped along with other procedure codes that describe cardiac mapping currently assigned to MS-DRGs 273 and 274. Accordingly, because the procedure described by procedure code 02K80ZZ is not clinically consistent with percutaneous cardiovascular procedures and it was initially assigned MS-DRGs 246, 247, 248, 249, 250 and 251 as a result of replication in the transition from ICD-9 to ICD-10 based MS-DRGs, we are proposing the reassignment of procedure code 02K80ZZ from MS-DRGs 246, 247, 248, 249, 250 and 251 to MS-DRGs 273 and 274 (Percutaneous and Other Intracardiac Procedures with and without MCC, respectively) in MDC 05 effective FY 2023.

As discussed in section II.D.1.b. of the preamble of this proposed rule, we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 40, so that the public can better analyze and understand the impact of the proposals included in this proposed rule. We note that at the time of the development of the test software this issue was unable to be addressed and therefore, it does not reflect the proposed reassignment of procedure code 02K80ZZ from MS-DRGs 246, 247, 248, 249, 250 and 251 to MS-DRGs 273 and 274 (Percutaneous and Other Intracardiac Procedures with and without MCC, respectively) in MDC 05 for Version 40.

d. 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 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 via the internet 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, 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. We refer the reader to section II.D.1.b. of this FY 2023 IPPS/LTCH PPS proposed rule, for related discussion regarding our proposal to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs with three-way severity level split to maintain more stability in the current MS-DRG structure.

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) 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 response to this final policy, for this FY 2023 IPPS/LTCH PPS proposed rule, we received a request 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 asked that 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.

The change to the surgical hierarchy in MDC 05 and the assignment of cases with a procedure code describing coronary bypass and a procedure code describing open ablation to MS-DRGs 233 and 234 is recent, only becoming effective October 1, 2021. We believe more time is needed before considering to again review the MS-DRG assignment of cases reporting procedure code combinations describing open concomitant surgical ablations as the data from the September 2021 update of the FY 2021 MedPAR file does not reflect our FY 2022 finalization. In addition, our clinical advisors continue to state that in open concomitant surgical ablation procedures, the CABG, MVR, and AVR components of the procedure are more technically complex than the open surgical ablation procedure. They also state that the finalized revision to the surgical hierarchy leads to a grouping that is more coherent and better accounts for the resources expended to address the more complex procedures from other cases redistributed during the hierarchy change. As noted, we believe that additional time is needed to allow for further analysis of the claims data to reflect our FY 2022 finalization, and also to determine to what extent the patient's co-morbid conditions are also contributing to costs and to identify other contributing factors that might exist with respect to the increased length of stay and costs of this subset of cases in these MS-DRGs, as discussed in the FY 2022 IPPS/LTCH PPS final rule.

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

We received a request to reconsider the MS-DRG assignment for diagnosis code K35.20 (Acute appendicitis with generalized peritonitis, without abscess). According to the requestor, when this code is reported in combination with any one of the corresponding procedure codes that describe an appendectomy, the case is grouping to MS-DRGs 341, 342, and 343 (Appendectomy without Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). Alternatively, the requestor stated that when diagnosis code K35.32 (Acute appendicitis with perforation and localized peritonitis, without abscess) is reported in combination with any one of the corresponding procedure codes that describe an appendectomy, the case is grouping to MS-DRGs 338, 339, and 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively).

The requestor asserted that the difference in MS-DRG assignment suggests that localized peritonitis is more severe or requires an additional level of care over and above that for generalized peritonitis. The requestor stated that clinically, both localized and generalized peritonitis, when treated 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 look for possible abscess, use of intravenous antibiotics, and prolonged inpatient monitoring. The requestor added that generalized peritonitis can be thought of as a progression of the localized peritonitis condition and that patients progress from localized to generalized peritonitis and not vice versa.

We note that this topic has been discussed previously in our FY 2019 (83 FR 41230) and FY 2021 rulemakings (85 FR 32500 through 32503) and (85 FR 58484 through 58488). Effective FY 2019 (October 1, 2018) diagnosis code K35.2 (Acute appendicitis with generalized peritonitis) was expanded to K35.20 (Acute appendicitis with generalized peritonitis, without abscess); and K35.21 (Acute appendicitis with generalized peritonitis, with abscess). In addition, code K35.3 (Acute appendicitis with localized peritonitis) was expanded to K35.30 (Acute appendicitis with localized peritonitis, without perforation or gangrene); K35.31 (Acute appendicitis with localized peritonitis and gangrene, without perforation); K35.32 (Acute appendicitis with perforation and localized peritonitis, without abscess); and K35.33 (Acute appendicitis with perforation and localized peritonitis, with abscess).

We finalized the severity level designations for these new diagnosis codes in the FY 2019 IPPS/LTCH PPS final rule and stated our clinical advisors believed that the new diagnosis codes for acute appendicitis described as “with abscess” or “with perforation” were clinically qualified for the MCC severity level designation, while acute appendicitis “without abscess” or “without perforation” were clinically qualified for the CC severity level designation because cases with abscess or perforation would be expected to require more clinical resources and time to treat while those cases “without abscess” or “without perforation” are not as severe clinical conditions.

As discussed in our FY 2021 rulemaking, we received the request to add K35.20 (Acute appendicitis with generalized peritonitis, without abscess) to the list of complicated principal diagnoses so that all ruptured/perforated appendicitis codes in MDC 06 group to MS-DRGs 338, 339, and 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) as K35.20 is the only ruptured appendicitis code not included in the list of complicated principal diagnosis codes. At that time, we noted that the inclusion term at subcategory K35.2 (Acute appendicitis with generalized peritonitis) is: “Appendicitis (acute) with generalized (diffuse) peritonitis following rupture or perforation of the appendix”. The requestor stated that code K35.20 (Acute appendicitis with generalized peritonitis, without abscess) describes a generalized, more extensive form of peritonitis than code K35.32 (Acute appendicitis with perforation and localized peritonitis, without abscess). We noted that our clinical advisors agreed that the presence of an abscess would clinically determine whether a diagnosis of acute appendicitis would be considered a complicated principal diagnosis. As diagnosis code K35.20 is described as “without” an abscess, our clinical advisors recommended that K35.20 not be added to the list of complicated principal diagnoses for MS-DRGS 338, 339, and 340. We also proposed to remove diagnosis code K35.32 (Acute appendicitis with perforation and localized peritonitis, without abscess) from the complicated principal diagnosis list.

In response to that proposal, some commenters disagreed. A commenter stated that when ruptured appendicitis results in generalized peritonitis, resources are greater because the infection is not walled off, not localized, and has spread to two or more compartments within the abdominal cavity. According to the commenter, clinical literature supports the statement that generalized peritonitis is a more morbid (severe) presentation than just perforation or localized abscess. After consideration of the comments received and for the reasons discussed in the FY 2021 final rule, we did not finalize our proposals in that final rule. We concurred that the expansion of diagnosis codes K35.2 and K35.3 to introduce additional clinical concepts effective October 1, 2018 significantly changed the scope and complexity of the diagnosis codes for this subset of patients. We also stated NCHS' staff acknowledged the clinical concerns based on the manner in which diagnosis codes K35.2 and K35.3 were expanded and confirmed that they would consider further review of these newly expanded codes with respect to the clinical concepts.

We communicated with the CDC/NCHS staff regarding this repeat request submitted for FY 2023 consideration. The CDC/NCHS staff included these codes describing appendicitis on the agenda and a proposal for further revisions was presented for discussion at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting. Specifically, the CDC/NCHS staff proposed to expand current diagnosis codes K35.20 and K35.21, making them sub-subcategories and creating new diagnosis codes to identify and describe acute appendicitis with generalized peritonitis, with perforation and without perforation, and unspecified as to perforation, as shown in the following table.

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.

We note 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 is May 9, 2022 and according to the CDC/NCHS staff, the diagnosis code proposals are being considered for an October 1, 2023 implementation (FY 2024). Any future proposed changes to the MS-DRGs for Appendectomy would be dependent on the diagnosis code revisions that are finalized by the CDC/NCHS. Since it is not clear what code changes may be finalized, including whether public comments would support the proposed changes or provide alternative options for consideration, we believe it is appropriate to delay any possible MS-DRG modifications for future rulemaking. Therefore, we are not proposing a change to the MS-DRG assignment or the current structure for MS-DRGs 338, 339, 340, 341, 342, and 343 at this time. Although we are not proposing a change to the MS-DRG assignments for FY 2023, we are making available the findings from our data analysis for the listed MS-DRGs and the associated diagnosis codes which may help inform future comments. We refer the reader to Table 6P.4a (which is available via the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps ).

8. MDC 07 (Diseases and Disorders of the Hepatobiliary System and Pancreas): Laparoscopic Cholecystectomy with Common Bile Duct Exploration

We received a request to review the MS-DRG assignment when procedure code 0FC94ZZ (Extirpation of matter from common bile duct, percutaneous endoscopic approach) that describes a common bile duct exploration with gallstone removal procedure using a laparoscopic approach, is reported with a laparoscopic cholecystectomy. The procedure codes describing a laparoscopic cholecystectomy are

According to the requestor, when a laparoscopic cholecystectomy is reported with any one of the listed procedure codes with a common bile duct exploration and gallstone removal procedure that is performed laparoscopically and reported with procedure code 0FC94ZZ, the resulting assignment is MS-DRGs 417, 418 and 419 (Laparoscopic Cholecystectomy without C.D.E. with MCC, with CC, and without CC/MCC, respectively). This MS-DRG assignment does not recognize that a common bile duct exploration (C.D.E.) was performed. However, the requestor stated that when procedure code 0FC90ZZ (Extirpation of matter from common bile duct, open approach) that describes a common bile duct exploration with gallstone removal procedure using an open approach is reported with any one of the listed procedure codes describing a laparoscopic cholecystectomy, the resulting assignment is MS-DRGs 411, 412, and 413 (Cholecystectomy with C.D.E. with MCC, with CC, and without CC/MCC, respectively). The requestor stated that this MS-DRG assignment appropriately recognizes that a common bile duct exploration was performed. The requestor questioned why only the common bile duct exploration with gallstone removal procedure performed using an open approach (code 0FC90ZZ) grouped appropriately when reported with the laparoscopic cholecystectomy.

We reviewed procedure code 0FC94ZZ and found that it is currently designated as a non-O.R. procedure, therefore, the GROUPER logic does not recognize this procedure for purposes of MS-DRG assignment. We also note that MS-DRGs 411, 412, and 413 include cholecystectomy procedures performed by either an open or a percutaneous endoscopic (laparoscopic) approach. We refer the reader to the V39.1 ICD-10 MS-DRG Definitions Manual, which is available via the internet 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 411, 412, 413, 417, 418 and 419.

We analyzed claims data from the September 2021 update of the FY 2021 MedPAR file for all cases in MS-DRGs 411, 412, 413, 417, 418, and 419. Because the logic for MS-DRGs 411, 412, and 413 includes cholecystectomy procedures performed by either an open or percutaneous endoscopic (laparoscopic) approach, we also analyzed the cases reported with each approach separately. The findings from our analysis are shown in the following tables.

In MS-DRG 411, we found a total of 116 cases with an average length of stay of 8.5 days and average costs of $29,332. Of those 116 cases, there were 56 cases reporting an open cholecystectomy, with an average length of stay of 10.7 days and average costs of $36,135 and 60 cases reporting a laparoscopic cholecystectomy, with an average length of stay of 6.5 days and average costs of $22,982. The data show that the cases reporting an open cholecystectomy have a longer average length of stay (10.7 days versus 6.5 days) and higher average costs ($36,135 versus $22,982) compared to the cases reporting a laparoscopic cholecystectomy. The data also show that the cases reporting an open cholecystectomy have a longer average length of stay (10.7 days versus 8.5 days) and higher average costs ($36,135 versus $29,332) compared to all the cases in MS-DRG 411. Similar findings are demonstrated for MS-DRGs 412 and 413, where the data show that the cases reporting an open cholecystectomy have a longer average length of stay and higher average costs compared to the cases reporting a laparoscopic cholecystectomy, and also, when compared to all the cases in their respective MS-DRGs.

We then analyzed claims data from the September 2021 update of the FY 2021 MedPAR file for cases reporting procedure code 0FC94ZZ in MS-DRGs 417, 418, and 419 to assess how often it was reported. The findings from our analysis are shown in the following table.

We found a total of 231 cases across MS-DRGs 417, 418, and 419 with an average length of stay of 4.6 days and average costs of $15,348 reporting procedure code 0FC94ZZ. In our review of the cases reporting a laparoscopic cholecystectomy across MS-DRGs 411, 412, and 413, we found a total of 178 cases with an average length of stay of 5.3 days and average costs of $18,206.

We also examined claims data from the September 2021 update of the FY 2021 MedPAR file for cases reporting procedure code 0FC94ZZ across all the MS-DRGs without another O.R. procedure reported, to assess the number of cases and which MS-DRGs procedure code 0FC94ZZ was found. The findings from our analysis are shown in the following table.

The data analysis shows procedure code 0FC94ZZ was reported in a total of 32 cases across 7 MS-DRGs with an average length of stay of 5.9 days and average costs of $16,087. While procedure code 0FC94ZZ is designated as non-O.R., we also analyzed the average length of stay and average costs of the cases found within each of the 7 MS-DRGs reporting procedure code 0FC94ZZ against all the cases in their respective MS-DRGs, to determine if there was any indication that the performance of the procedure described by procedure code 0FC94ZZ may have had any impact. For instance, as shown in the table, for MS-DRG 438 we found 2 cases reporting procedure code 0FC94ZZ with an average length of stay of 14 days and average costs of $26,092. In the September 2021 update of the FY 2021 MedPAR file, the total number of cases for MS-DRG 438 is 10,240 with an average length of stay of 6.4 days and average costs of $13,341. The 2 cases reporting procedure code 0FC94ZZ have approximately twice the average length of stay (14 days versus 6.4 days) and approximately twice the average costs ($26,092 versus $13,341) compared to all the cases for MS-DRG 438. In the absence of additional analysis, it is unknown if these differences can be attributed to other factors, such as the MCCs that were reported in these cases. Similar findings were found for MS-DRGs 441, 445, 446, and 871. We will consider if further detailed analysis may be warranted for these cases.

Our clinical advisors agreed that procedure code 0FC94ZZ describes a common bile duct exploration procedure with removal of a gallstone and should be added to the logic for case assignment to MS-DRGs 411, 412, and 413 for clinical coherence with the other procedures that describe a common bile duct exploration. Therefore, for FY 2023, we are proposing to redesignate procedure code 0FC94ZZ from a non-O.R. procedure to an O.R. procedure and add it to the logic list for common bile duct exploration (CDE) in MS-DRGs 411, 412, and 413 (Cholecystectomy with C.D.E. with MCC, with CC, and without CC/MCC, respectively) in MDC 07 to appropriately reflect when this procedure is performed and improve the clinical coherence of the patients assigned to these MS-DRGs.

In addition, we note that MS-DRGs 414, 415, and 416 (Cholecystectomy Except By Laparoscope without C.D.E. with MCC, with CC and without CC/MCC, respectively) also reflect cholecystectomy procedures, however, the logic is specifically defined for open cholecystectomy procedures without a common bile duct exploration procedure performed. Since MS-DRGs 411, 412, and 413 reflect cases where an open or laparoscopic cholecystectomy is performed with a common bile duct exploration procedure, MS-DRGs 414, 415, and 416 reflect cases where only an open cholecystectomy is performed without a common bile duct exploration procedure, and MS-DRGs 417, 418, and 419 reflect cases where only a laparoscopic cholecystectomy is performed without a common bile duct exploration procedure, we believe there may be an opportunity to further refine these MS-DRGs once additional analysis is performed for consideration in future rulemaking. For example, we could consider proposing to restructure these cholecystectomy MS-DRGs to reflect the following two concepts, if supported by the data, and relatedly, to determine if severity levels are also supported according to the existing criteria.

• Open Cholecystectomy with or without C.D.E.; and
• Laparoscopic Cholecystectomy with or without C.D.E.

We are interested in receiving feedback from the public on this and any alternative recommendations or options to further refine these MS-DRGs by October 20, 2022 for future consideration. Feedback and other suggestions should be directed to the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM), discussed in section II.D.1.b. of the preamble of this proposed rule at https://mearis.cms.gov/public/home.

9. MDC 10 (Diseases and Disorders of the Endocrine System): Eladocagene Exuparvovec Gene Therapy

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895), we finalized the redesignation of code XW0Q316 (Introduction of eladocagene exuparvovec into cranial cavity and brain, percutaneous approach, new technology group 6) from a Non-O.R. procedure to an O.R. procedure, assigned to MS-DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders) and to MS-DRGs 987, 988, and 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC and without MCC/CC, respectively). We received a request to reconsider this assignment for FY 2023. According to the requestor, the clinical characteristics and costs of cases assigned to MS-DRGs 628 through 630 are significantly different from those associated with the administration of eladocagene exuparvovec. The requestor performed its own analysis, using deep brain stimulation for epilepsy and selective dorsal rhizotomy for cerebral palsy as proxies, and stated that based on its findings for the initial cost analysis and clinical comparison, that MS-DRG 23 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator), MS-DRG 24 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC) and MS-DRGs 25, 26, and 27 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively) may be more appropriate. However, the requestor also stated that while the clinical aspects of eladocagene exuparvovec cases are similar to those of MS-DRGs 23 through 27, the costs are much higher and neither MS-DRGs 628, 629, 630 or MS-DRGs 23 through 27 are appropriate. Therefore, the requestor stated its belief that assigning eladocagene exuparvovec cases to new MS-DRGs is warranted.

Eladocagene exuparvovec is a gene therapy for the treatment of patients with aromatic L-amino acid decarboxylase (AADC) deficiency, a rare genetic and fatal condition identified with ICD-10-CM diagnosis code E70.81. Patients with AADC deficiency are generally observed to have onset of symptoms in the first year of life, most notably hypotonia (muscle weakness), followed by movement disorders, developmental delay and autonomic signs, such as hyperhidrosis (profuse sweating unrelated to heat or exercise). It is understood that the long-term implications of this disease are severe, resulting in severe deficits and limitations in life expectancy. Because the condition is primarily diagnosed in the pediatric population, we would not expect to find any meaningful volume of cases in the MedPAR data.

We analyzed claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 628, 629, and 630 for cases reporting procedure code XW0Q316 and did not find any cases. We then extended our analysis to all MS-DRGs and found 1 case reporting the administration of this therapy in MS-DRG 829 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other Procedures with CC/MCC) with an average length of stay of 2 days and average costs of $1,544. As we have discussed elsewhere we generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. However, as discussed in section II.D.19.b. of the preamble of this proposed rule, we are seeking public comment on possible mechanisms through which we can address rare diseases and conditions that are represented by low volumes in our claims data. We believe this topic, relating to the administration of treatment to address the rare genetic and fatal condition of AADC deficiency, is appropriately aligned with and should be considered as part of that effort. Therefore, we are maintaining the current structure for MS-DRGs 628, 629, and 630 for FY 2023, but will continue to consider this request in connection with our evaluation of possible mechanisms to address rare diseases and conditions in the MS-DRG structure, as discussed later in this rule.

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

We received a request to review the MS-DRG assignment of newborn encounters with diagnosis codes describing contact with and (suspected) exposure to COVID-19 when the condition is ruled out after clinical evaluation and negative workup. The requestor expressed concern that a newborn encounter coded with a principal diagnosis code from category Z38 (Liveborn infants according to place of birth and type of delivery), followed by codes Z05.1 (Observation and evaluation of newborn for suspected infectious condition ruled out) and Z20.822 (Contact with and (suspected) exposure to COVID-19) is assigned to MS-DRG 794 (Neonate with Other Significant Problems). The requestor stated that this assignment appears to be in error and that the assignment should instead be to MS-DRG 795 (Normal Newborn).

Our analysis of this grouping issue confirmed that, when a principal diagnosis code from category Z38 (Liveborn infants according to place of birth and type of delivery), followed by codes Z05.1 (Observation and evaluation of newborn for suspected infectious condition ruled out) and Z20.822 (Contact with and (suspected) exposure to COVID-19), the case is assigned to MS-DRG 794.

As we examined the GROUPER logic that would determine an assignment of cases to MS-DRG 795, we note the “only secondary diagnosis” list under MS-DRG 795 includes the following five ICD-10-CM diagnosis codes from ICD-10-CM category Z20. We refer the reader to the ICD-10 MS-DRG Version 39.1 Definitions Manual (which is available via the internet 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 MS-DRG 795.

In reviewing the ICD-10-CM diagnosis code classification and the GROUPER logic list, we note that the 13 ICD-10-CM diagnosis codes, also from category Z20, listed in the following table were inadvertently omitted from the “only secondary diagnosis” list under MS-DRG 795.

We reviewed section I.C.21.c.1 of the 2022 ICD-10-CM Official Guidelines for Coding and Reporting which state “category Z20 indicates contact with, and suspected exposure to, communicable diseases. These codes are for patients who are suspected to have been exposed to a disease by close personal contact with an infected individual or are in an area where a disease is epidemic . . . Contact/exposure codes may be used as a first-listed code to explain an encounter for testing, or, more commonly, as a secondary code to identify a potential risk.” Per the Excludes1 note at category Z20, when applicable, diagnoses of current infectious or parasitic disease are coded instead of codes from category Z20.

Our clinical advisors reviewed this issue and agree that patients exposed to communicable diseases that are worked up or treated prophylactically or both, and for whom those conditions are later determined after study to not be present, are distinct from patients with identified signs or symptoms of a suspected problem or diagnosed with having that communicable disease. Our clinical advisors supported adding the 13 diagnosis codes listed previously to the logic of MS-DRG 795 for clinical consistency with the five other diagnosis codes describing contact with, and suspected exposure to, communicable diseases currently assigned to the “only secondary diagnosis” list under MS-DRG 795.

After review of the coding guidelines and conventions, and discussion with our clinical advisors, we agree with the requestor that in these circumstances, these encounters should not map to MS-DRG 794 (Neonate with Other Significant Problems) and should instead be assigned to MS-DRG 795 (Normal Newborn). Therefore, we are proposing to add the 13 diagnosis codes listed previously that describe contact with and (suspected) exposure to communicable diseases to the “only secondary diagnosis” list under MS-DRG 795 (Normal Newborn). Under this proposal, cases with a principal diagnosis described by an ICD-10-CM code from category Z38 (Liveborn infants according to place of birth and type of delivery), following by codes Z05.1 (Observation and evaluation of newborn for suspected infectious condition ruled out) and Z20.822 (Contact with and (suspected) exposure to COVID-19) will be assigned to MS-DRG 795.

As we examined the GROUPER logic that would determine an assignment of cases to MS-DRGs in MDC 15, we noted the logic for MS-DRG 790 (Extreme Immaturity or Respiratory Distress Syndrome Neonate) includes ICD-10-CM diagnosis codes that describe extremely low birth weight newborn, extreme immaturity of newborn and respiratory distress syndrome of newborn. We refer the reader to the ICD-10 MS-DRG Version 39.1 Definitions Manual (which is available via the internet 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 790. During our review of the diagnosis codes assigned to these MS-DRGs, we identified three diagnosis codes that do not exist in the logic for MS-DRG 790. The three diagnosis codes and their current MS-DRG assignments are listed in the following table.

Our clinical advisors reviewed this grouping issue and noted that while virtually every neonate under 1000 grams, which is the definition of extremely low birth weight (ELBW), will have a weight documented somewhere in the medical record, in the rare instance that it is not, if the diagnosis documented by the provider is “ELBW” the neonate would be in a higher risk category. Our clinical advisors also note that whereas weight is measured with high precision, gestational age is more complicated. With the exception of in vitro fertilization, gestational age is an estimate. Our clinical advisors state similar to documentation of “ELBW”, if the diagnosis documented by the provider is “extreme immaturity of newborn” the neonate would be in a higher risk category. These diagnoses describe conditions that require advanced care and resources similar to other conditions already assigned to the logic of MS-DRG 790 even in cases where the birth weight, or weeks of gestation, are unspecified.

For clinical consistency, our clinical advisors supported the addition of these three diagnosis codes to the GROUPER logic list for MS-DRG 790. Therefore, we are proposing to reassign ICD-10-CM diagnosis codes P07.00, P07.20 and P07.26 to MS-DRG 790, effective October 1, 2022 for FY 2023.

11. 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.

In addition to this internal review, 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.

Based on the results of our review of the claims data from the September 2021 update of the FY 2021 MedPAR file, as well as our review of the requests that we received to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we are proposing 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. Embolization of Portal and Hepatic Veins

We received a request to reassign cases with a principal diagnosis from MDC 07 (Diseases and Disorders of the Hepatobiliary System and Pancreas) when reported with procedures involving the embolization of a hepatic or portal vein from MS-DRGs 981, 982 and 983 (Extensive O.R. Procedures Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 423, 424, and 425 (Other Hepatobiliary or Pancreas Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 07.

In ICD-10-PCS, the root operation selected to code embolization procedures is dependent on the objective of the procedure. If the objective of an embolization procedure is to completely close a vessel, the root operation Occlusion is coded. ICD-10-PCS procedure codes 06L43DZ (Occlusion of hepatic vein with intraluminal device, percutaneous approach) or 06L83DZ (Occlusion of portal vein with intraluminal device, percutaneous approach) may be reported to describe embolization procedures to completely close off a hepatic or portal vein with an intraluminal device. If the objective of an embolization procedure is to narrow the lumen of a vessel, the root operation Restriction is coded. ICD-10-PCS procedure codes 06V43DZ (Restriction of hepatic vein with intraluminal device, percutaneous approach) or 06V83DZ (Restriction of portal vein with intraluminal device, percutaneous approach) may be reported to describe embolization procedures to narrow or partially occlude a hepatic or portal vein with an intraluminal device.

These four ICD-10-PCS procedure codes, as well as their MDC assignments, are listed in the table:

Our analysis of this grouping issue confirmed that when a procedure code describing the percutaneous occlusion or restriction of the hepatic or portal vein with intraluminal device is reported with a principal diagnosis from MDC 07, these cases group to MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). 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”.

To understand the resource use for the subset of cases reporting procedure codes 06L43DZ, 06L83DZ, 06V43DZ or 06V83DZ with a principal diagnosis from MDC 07 that are currently grouping to MS-DRGs 981, 982, and 983, we examined claims data from the September 2021 update of the FY 2021 MedPAR file for the average length of stay and average costs for these cases. Our findings are shown in the following table:

We also examined the data for cases in MS-DRGs 423, 424, and 425, and our findings are shown in the following table:

While the claims analysis based on the September 2021 update of the FY 2021 MedPAR file identified only 34 cases for which these procedures were reported with a principal diagnosis from MDC 07 resulting in assignment to MS-DRGs 981 through 983, and the average length of stay and average costs for these cases vary in comparison to the average length of stay and average costs of all cases in MS-DRGs 423, 424, and 425, given the clinical indications for hepatic or portal vein embolization procedures, such as to induce regrowth on one side of the liver in advance of a planned hepatic resection on the other side, we believe it is clinically appropriate to add these procedure codes describing the percutaneous occlusion or restriction of the hepatic or portal vein with intraluminal device to MS-DRGs 423, 424, and 425 in MDC 07. Our clinical advisors state that these procedures are clearly related to the principal diagnoses as they are procedures performed for hepatobiliary diagnoses, namely hepatocellular carcinoma and liver metastases, so it is clinically appropriate for the procedures to group to the same MDC as the principal diagnoses. Our clinical advisors also stated the procedures describing the percutaneous occlusion or restriction of the hepatic or portal vein with intraluminal device are consistent with the existing procedure codes included in the logic for case assignment to MS-DRGs 423, 424, and 425.

Therefore, we are proposing to add ICD-10-PCS procedure codes 06L43DZ, 06L83DZ, 06V43DZ and 06V83DZ to MDC 07 in MS-DRGs 423, 424 and 425. Under this proposal, cases reporting procedure codes 06L43DZ, 06L83DZ, 06V43DZ or 06V83DZ in conjunction with a principal diagnosis code from MDC 07 would group to MS-DRGs 423, 424 and 425.

b. Percutaneous Excision of Hip Muscle

We received a request to examine cases reporting a procedure describing percutaneous biopsies of muscle. The requestor stated that when procedures describing the percutaneous excision of the left hip muscle for diagnostic purposes are reported with a principal diagnosis from MDC 06 (Diseases and Disorders of the Digestive System) such as K68.12 (Psoas muscle abscess), the cases are assigned to MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). However, when procedures describing the percutaneous excision of the retroperitoneum for diagnostic purposes are reported with the same principal diagnosis of psoas muscle abscess, the cases are assigned to medical MS-DRGs 371, 372, and 373 (Major Gastrointestinal Disorders and Peritoneal Infections with MCC, with CC, and without CC/MCC, respectively). The requestor stated the cases at their facility with a principal diagnosis of psoas muscle abscess when reported with a procedure describing a biopsy of the left muscle had an average length of stay comparable to other cases assigned to MS-DRGs 371, 372, and 373. The requestor provided ICD-10-PCS procedure code 0KBP3ZX (Excision of left hip muscle, percutaneous approach, diagnostic) in its request and asked that CMS evaluate the assignment of procedure code 0KBP3ZX because procedures describing the percutaneous excision of the left hip muscle for diagnostic purposes appear to be related to a diagnosis of psoas muscle abscess.

To analyze this request, we first identified the similar ICD-10-PCS procedure codes that also describe the excision of hip muscle. We note that under the ICD-10-PCS procedure classification, biopsy procedures are identified by the 7th digit qualifier value “diagnostic” in the code description. The four ICD-10-PCS procedure codes that describe the excision of hip muscle, as well as their MDC assignments, are listed in the table:

Our analysis of this grouping issue confirmed that when procedure codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX or 0KBP3ZZ are reported with a principal diagnosis from MDC 06, such as K68.12, these cases group to MS-DRGs 981, 982, and 983. As noted in the previous discussion, 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”.

We examined the claims data from the September 2021 update of the FY 2021 MedPAR file to identify cases reporting procedure codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, or 0KBP3ZZ with a principal diagnosis of K68.12 (Psoas muscle abscess) that are currently grouping to MS-DRGs 981, 982, and 983. Our findings are shown in this table:

As shown, in our analyses of the claims data for MS-DRGs 981 through 983, we found a total of seven cases reporting procedures describing excision of hip muscle with a principal diagnosis of K68.12 in the September 2021 update of the FY 2021 MedPAR file.

To further evaluate this issue, we examined claims data from the September 2021 update of the FY 2021 MedPAR file for cases reporting any one of the four procedure codes (0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, or 0KBP3ZZ) in MS-DRGs 981 through 983 with a principal diagnosis from MDC 06. Our findings are shown in the following table.

As shown, in our analyses of the claims data for MS-DRGs 981 through 983, we found a total of 14 cases reporting procedures describing excision of hip muscle with a principal diagnosis from MDC 06 in the September 2021 update of the FY 2021 MedPAR file.

We also examined the data for cases in MS-DRGs 371, 372, and 373, and our findings are shown in the following table:

We reviewed these procedures and our clinical advisors state that procedures that describe the percutaneous excision of hip muscle are not surgical in nature and would not be the main reason for inpatient hospitalization or be considered the principal driver of resource expenditure. Our clinical advisors state although a correlation cannot usually be made between procedures performed in general anatomic regions, such as the retroperitoneum, and procedures performed in specific body parts, such as muscle, because procedures coded with general anatomic region body parts represent a broader range of procedures that cannot be coded to a specific body part, they agree that in this instance procedures that describe the percutaneous excision of hip muscle should have the same designation as the ICD-10-PCS procedure codes that describe the percutaneous excision of the retroperitoneum that are currently designated as non-O.R. procedures.

Our clinical advisors reviewed this analysis and believe that, for clinical coherence and consistency, it would be appropriate to designate ICD-10-PCS codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, and 0KBP3ZZ as non-O.R. procedures.

Therefore, we are proposing to remove codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, and 0KBP3ZZ from the FY 2023 ICD-10 MS-DRGs Version 40 Definitions Manual in Appendix E—Operating Room Procedures and Procedure Code/MS-DRG Index as O.R. procedures. Under this proposal, these procedures would no longer impact MS-DRG assignment. Cases reporting procedure codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, and 0KBP3ZZ in conjunction with a principal diagnosis code from MDC 06 would group to MS-DRGs 371, 372, and 373.

In addition, we also conduct an internal review and consider requests that we receive to examine cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to determine if it would be appropriate for the cases to be reassigned from one of the MS-DRG groups to the other. Based on the results of our review of the claims data from the September 2021 update of the FY 2021 MedPAR file we did not identify any cases for reassignment. We also did not receive any requests suggesting reassignment. Therefore, for FY 2023 we are not proposing to move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa.

12. Operating Room (O.R.) and Non-O.R. Issues

a. Background

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

Currently, each ICD-10-PCS procedure code has designations that determine whether and in what way the presence of that procedure on a claim impacts the MS-DRG assignment. First, each ICD-10-PCS procedure code is either designated as an O.R. procedure for purposes of MS-DRG assignment (“O.R. procedures”) or is not designated as an O.R. procedure for purposes of MS-DRG assignment (“non-O.R. procedures”). Second, for each procedure that is designated as an O.R. procedure, that O.R. procedure is further classified as either extensive or non-extensive. Third, for each procedure that is designated as a non-O.R. procedure, that non-O.R. procedure is further classified as either affecting the MS-DRG assignment or not affecting the MS-DRG assignment. We refer to these designations that do affect MS-DRG assignment as “non O.R. affecting the MS-DRG.” For new procedure codes that have been finalized through the ICD-10 Coordination and Maintenance Committee meeting process and are proposed to be classified as O.R. procedures or non-O.R. procedures affecting the MS-DRG, our clinical advisors 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.D.14. of the preamble of this proposed rule, we are making Table 6B.—New Procedure Codes—FY 2023 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 39.1 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 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 consideration of the ongoing PHE, we continue to believe it may be appropriate to allow additional time for the claims data to stabilize prior to selecting the timeframe to analyze for this review. Additional time is also necessary as we continue to develop our process and methodology. Therefore, we will provide more detail on this analysis and the methodology for conducting this review in future rulemaking.

We received the following requests regarding changing the designation of specific ICD-10-PCS procedure codes from non-O.R. to O.R. procedures. We summarize these requests in this section of this rule and address why we are not considering a change to the designation of these codes at this time.

• We 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. According to the requestor, thoracoscopic and laparoscopic procedures are always performed in the operating room under general anesthesia. We believe additional time is 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 as there are over 19,000 ICD-10-PCS codes in the classification that describe procedures performed using a percutaneous endoscopic approach. 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. 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. We will continue to evaluate the ICD-10-PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs as we conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes.

• 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 39.1 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.

For this FY 2023 IPPS/LTCH PPS proposed rule, we received a request to re-examine this change in designation. According to the requestor, open procedures for the drainage of subcutaneous tissue and fascia are indeed typically performed in the operating room under general anesthesia and involve making incisions through the subcutaneous tissue into fascia for therapeutic drainage, breaking up of loculations, and irrigation. While our clinical advisors do not disagree with the requestor that these procedures can involve making incisions through the subcutaneous tissue into fascia, they continue to state 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, they are typically performed in conjunction with another O.R. procedure. For the reasons discussed in the FY 2022 final rule, our clinical advisors state 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.

13. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2023

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/MedicareFee-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 this new edit will be effective beginning with discharges on and after April 1, 2022, our clinical advisors believe at this time, it is 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 stakeholders the time needed to become acclimated to the new edit.

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 MedPAR file, the FY 2020 MedPAR file and the FY 2021 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.

For new diagnosis codes approved for FY 2023, consistent with our annual process for designating a severity level (MCC, CC or NonCC) for new diagnosis codes, we first review the predecessor code designation, followed by review and consideration of other factors that may be relevant to the severity level designation, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We note that this process does not automatically result in the new diagnosis code having the same designation as the predecessor code. We refer the reader to section II.D.14 of this proposed rule for the discussion of the proposed changes to the ICD-10-CM and ICD-10-PCS coding systems for FY 2023.

c. Requested Changes to Severity Levels

For this FY 2023 IPPS/LTCH PPS proposed rule, we received several requests to change the severity level designations of specific ICD-10-CM diagnosis codes, including a request to analyze a subset of the social determinants of health (SDOH) diagnosis codes. Our clinical advisors believe it is appropriate to consider these requests in connection with our continued comprehensive CC/MCC analysis in future rulemaking, rather than proposing to change the designation of individual ICD-10-CM diagnosis codes at this time. However, we refer the reader to section II.D.13.d for further discussion related to the diagnosis codes describing social determinants of health. 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 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.

d. Request for Information on Social Determinants of Health Diagnosis Codes

For this FY 2023 IPPS/LTCH PPS proposed rule, we are soliciting public comments on how the reporting of diagnosis codes in categories Z55-Z65 may improve our ability to recognize severity of illness, complexity of illness, and/or utilization of resources under the MS-DRGs as described further in this section. 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 are 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.

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. These circumstances or determinants influence an individual's health status and can contribute to wide health disparities and inequities. While SDOH do not describe current illnesses or injuries at the individual level, they are widely recognized as important potential predictors of risk for developing medical conditions like heart disease, diabetes, and obesity. In ICD-10-CM, the Z codes found in Chapter 21 represent reasons for encounters, and are provided for occasions when circumstances other than a disease, injury or external cause classifiable to categories A00-Y89 are recorded as `diagnoses' or `problems'. 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. Effective October 1, 2021, the Centers for Disease Control and Prevention (CDC) National Center for Health Statistics (NCHS) added 11 new diagnosis codes describing SDOH to provide additional information regarding determinants such as housing, food insecurity, and transportation. In addition, section I.B.14 of the FY 2022 ICD-10-CM Official Guidelines for Coding and Reporting was updated to provide clarification of the term “clinician” in reporting codes related to social determinants of health and clarified the documentation that can be utilized to assign SDOH codes when included in the official medical record. In this context, “clinicians” other than the patient's provider refer to “healthcare professionals permitted, based on regulatory or accreditation requirements or internal hospital policies, to document in a patient's official medical record.”

Reporting SDOH Z codes in inpatient claims data could enhance quality improvement activities, track factors that influence people's health, and provide further insight into existing health inequities. More routine collection of SDOH Z codes could also likely improve coordination within hospitals to utilize the data across their clinical care and discharge planning teams, including with post-acute partners. CMS has heard from stakeholders about a number of reasons for why there may be less routine documentation and reporting of SDOH in the inpatient setting. First, Z codes are not required to be reported by inpatient hospitals and generally do not affect MS-DRG assignment. Rather, these codes are currently reported voluntarily by providers when and if supported in the medical record documentation. As such, consistent protocols may not be in place for documenting and reporting. Second, many of the circumstances captured through SDOH Z codes are dependent on the willingness of patients to discuss personal social, economic, or environmental conditions. Providers may or may not be able to reliably document certain circumstances, as a result, in the medical records. There are also questions of how bias can play into screening for SDOH and how systemic bias within the health care system can play a role in this process. CMS has also heard of the significant pressures on provider time, and whether providers have access to comprehensive care and coordination teams, including social workers, who may be more appropriately skilled to assess certain SDOH.

Given that SDOH diagnosis codes describe economic and environmental circumstances faced by patients and often correlate with substantial variance in health outcomes, more widely adopted consistent documentation and reporting in the inpatient setting could better identify non-medical factors affecting health and track progress toward addressing them. Doing so could also aid in work toward formulating more comprehensive and actionable policies to address health equity and promote the highest quality, best-value care for all beneficiaries.

As we discuss more fully later in this section, we believe reporting of SDOH Z codes may also better determine the resource utilization for treating patients experiencing these circumstances to help inform whether a change to the severity designation of these codes would be clinically warranted as we 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.

There are 96 diagnosis codes that describe the social determinants of health found in categories Z55-Z65. These 96 diagnosis codes for which we are soliciting comments as described in this proposed rule are shown in Table 6P.5a (which is available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS ). We note we are also making available the data describing the impact on resource use when reported as a secondary diagnosis for all 96 ICD-10-CM Z codes that describe the social determinants of health from categories Z55-Z65. These data are consistent with data historically used to mathematically measure impact on resource use for secondary diagnoses, and the data which we plan to use in combination with application of the nine guiding principles as we continue the comprehensive CC/MCC analysis.

In Table 6P.5a associated with this proposed rule, column C displays the FY 2021 severity level designation for these diagnosis codes in MS-DRG GROUPER Version 38.1. Column D displays CMS's current FY 2022 severity level designation in MS-DRG GROUPER Version 39.1. Columns E—N show data on the impact on resource use generated using discharge claims from the September 2021 update of the FY 2021 MedPAR file and MS-DRG GROUPER Version 39.1. For further information on the data on the impact on resource use as displayed in Columns E—N, we refer readers to the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159) for a complete discussion of the methodology utilized to mathematically measure the impact on resource use. Also, 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/MedicareFee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html for the supplementary file containing the data 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. We note that the supplementary file that was made available for the listening session contains the mathematical data for the impact on resource use generated using claims from the FY 2018 MedPAR file. We have also 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 MedPAR file, FY 2020 MedPAR file and the FY 2021 MedPAR files.

In the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159), we described the categorization of diagnoses as an MCC, a CC, or a NonCC, 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. As such, the designation of CC or MCC is intended to account for the increased resources required to address a condition as a secondary diagnosis. In Version 39.1, the 96 diagnosis codes that describe the social determinants of health from categories Z55-Z65 have a severity designation of NonCC.

If SDOH Z codes are not consistently reported in inpatient claims data, our methodology utilized to mathematically measure the impact on resource use, as described previously, may not adequately reflect what additional resources were expended by the hospital to address these SDOH circumstances in terms of requiring clinical evaluation, extended length of hospital stay, increased nursing care or monitoring or both, and comprehensive discharge planning. We seek public comment on whether CMS should consider requiring more robust documentation and claims data reporting to inform the impact on resource use these determinants have on caring for patients affected by these circumstances in an inpatient setting and inform our decision-making in a future year in determining the most appropriate CC subclass (NonCC, CC, or MCC) assignment for each SDOH Z code as a secondary diagnosis. We also seek public comment on developing protocols to standardize the screening for SDOH for all patients, and then consistently document and report such codes and on whether such protocols should vary based on certain factors, such as hospital size and type. For instance, we recognize that hospitals have different mixes of patients and volume of patients, and as such, may have different staffing resources to devote to proper documentation and coding of SDOH. In particular, we are interested in hearing the perspectives of different sized hospitals in both urban and rural settings, and hospitals disproportionately serving members of historically underserved and under-resourced communities in regard to their experience with reporting of SDOH. We are additionally interested in learning how reporting SDOH Z codes may be used to inform community health need assessment activities required by non-profit hospitals.

We also recognize that there is a potential for different uses and complexity in appropriately determining and reporting the full range of Z codes. For instance, certain code categories like Z62 (Problems related to upbringing) and Z63 (Other problems related to principal support group, including family circumstances) may require specialized clinical training to diagnose and document, which may not be the primary purpose of the inpatient admission. Category Z57 describes occupational exposure to risk factors, which also may not be apparent in most inpatient admissions and would rely upon the patient providing this information voluntarily. Category Z60 (Problems related to social environment) also describes problems of adjustment to life-cycle transitions, which also may or may not be readily apparent or discussed by the patient in relation to the inpatient admission.

Thus, we are seeking comment on which specific SDOH Z codes are 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. CMS believes a potential starting point for discussion is consideration of the SDOH Z diagnosis codes describing homelessness. Homelessness can be reasonably expected to have an impact on hospital 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 homeless. Patients experiencing homelessness may also face challenges in accessing transplants and clinicians may defer care because of the uncertain post-acute discharge.

To further examine the diagnosis codes that describe SDOH, 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 this comment solicitation. We note that prior to FY 2022, homelessness was one of the more frequently reported codes that describe social determinants of health. We also note that effective FY 2022, this subcategory has been expanded and now includes codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered homelessness), and code Z59.02 (Unsheltered homelessness).

In the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19243 through 19244), as part of our proposal to change the severity level designations for 1,492 ICD-10-CM diagnosis codes, we proposed to change the severity level designation of code Z59.0 (Homelessness) from NonCC to CC. We stated that because the C1 value (C1 = 1.5964) in the table was generally close to 2, the data suggested that when reported as a secondary diagnosis, the resources involved in caring for a patient experiencing homelessness supported increasing the severity level from a NonCC to a CC. In the FY 2020 IPPS/LTCH PPS proposed rule, we also stated our clinical advisors reviewed these data and believed the resources involved in caring for these patients are more aligned with a CC. As noted in section II.D.13.b of this proposed rule, many commenters expressed concern with the proposed severity level designation changes overall and consequently we generally did not finalize our proposed changes to the severity designations for the 1,492 ICD-10-CM diagnosis codes, at that time. However, the proposal to change the severity designation of code Z59.0 specifically did receive mostly supportive comments. Many commenters stated that a patient experiencing homelessness requires significant coordination of social services along with their health care. One commenter also recommended that CMS expand the change in designation to all the codes in category Z59, not just code Z59.0. Another commenter, while indicating their support of the proposal, noted that it is unclear that the status/condition would result in increased hospital resource use.

Our proposal in FY 2020 was based on the data for the impact on resource use generated using claims from the FY 2018 MedPAR file. The following table reflects 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 note there is currently no data for codes Z59.01 (Sheltered homelessness) and code Z59.02 (Unsheltered homelessness) as these codes became effective on October 1, 2021. Again, 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.

As shown in the table, we examined data for the diagnosis code(s) that describe homelessness as a NonCC in FY 2019 through FY 2021. When examining diagnosis code Z59.0 (Homelessness), the value in column C1 is closer to 2.0 than to 1.0 in FY 2019 and FY 2020, though we note that we did not use FY 2020 data for rate setting purposes in light of impacts related to the PHE for COVID-19 as described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44778). The data suggests 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, as explained in the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159). However, in FY 2021, the C1 value is generally closer to 1, which suggest 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 also note fluctuations in the C1 values year to year. We are uncertain if the data from FY 2021, in particular, reflect fluctuations that may be a result of the public health emergency or even reduced hospitalizations of certain conditions. We also are uncertain if homelessness may be underreported when there is not an available field on the claim when other diagnoses are reported instead. We seek public comment on these possibilities, particularly to inform our understanding of the trend of the C1 value.

As we have stated in prior rulemaking, these mathematical constructs are used in conjunction with the judgment of our clinical advisors to classify each secondary diagnosis reviewed. We present these data to highlight that the resources expended in caring for patients reported to be affected by a SDOH such as homelessness during an inpatient hospitalization may not be consistently expressed in the inpatient claims data and to demonstrate how reporting the SDOH Z codes could more accurately reflect the health care encounter and improve the reliability and validity of the coded data.

In summary, we appreciate public comment on these issues, including on the following questions:

• How the reporting of certain Z codes—and if so, which Z codes —may improve our ability to recognize severity of illness, complexity of illness, and utilization of resources under the MS-DRGs?

• Whether CMS should require the reporting of certain Z codes—and if so, which ones—to be reported on hospital inpatient claims to strengthen data analysis?
• The additional provider burden and potential benefits of documenting and reporting of certain Z codes, including potential benefits to beneficiaries.
• Whether codes in category Z59 (Homelessness) have been underreported and if so, why? In particular, we are interested in hearing the perspectives of large urban hospitals, rural hospitals, and other hospital types in regard to their experience. We also seek comments on how factors such as hospital size and type might impact a hospital's ability to develop standardized consistent protocols to better screen, document and report homelessness.

The comments we receive on these issues may also be informative as we evaluate whether to develop a proposal in future rulemaking to change the severity level designation of the diagnosis codes describing homelessness from NonCC to CC and whether other SDOH, as described by Z codes, are also appropriate candidates to be proposed for designation as CCs.

We note that examining the severity level designation of diagnosis codes is just one area to possibly support documentation and reporting of SDOH in the inpatient setting. We are also interested in ideas from the public on how the MS-DRG classification can be utilized in agency wide efforts to advance health equity, expand access, drive high-quality, person-centered care, and promote affordability and sustainability in the Medicare program. Specifically, we invite public comment on ways the MS-DRG classification can be useful in addressing the challenges of defining and collecting accurate and standardized self-identified socioeconomic information for the purposes of reporting, measure stratification, and other data collection efforts. We are interested in learning more about the potential benefits and challenges associated with the collection of SDOH data in the inpatient setting. Feedback on the limitations and barriers providers could experience as they consider more robust documentation and reporting would also help inform our development of appropriately tailored efforts that address and mitigate barriers for all hospital types across communities and patient mixes. We will take commenters' feedback into consideration in future policy development.

e. Proposed Additions and Deletions to the Diagnosis Code Severity Levels for FY 2023

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 2023 and are available via the internet 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 2023;

Table 6I.2—Proposed Deletions to the MCC List—FY 2023;

Table 6J.1—Proposed Additions to the CC List—FY 2023; and

Table 6J.2—Proposed Deletions to the CC List—FY 2023.

f. Proposed CC Exclusions List for FY 2023

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.
• 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 39.1 CC Exclusion List is included as Appendix C in the ICD-10 MS-DRG Definitions Manual, which is available via the internet 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 a MCC only for patients discharged alive; otherwise, they are assigned as a NonCC.

We are proposing additional changes to the ICD-10 MS-DRGs Version 40 CC Exclusion List based on the diagnosis and procedure code updates as discussed in section II.D.14. of this FY 2023 IPPS/LTCH PPS proposed rule. Therefore, we have developed Table 6G.1.-Proposed Secondary Diagnosis Order Additions to the CC Exclusions List-FY 2023; Table 6G.2.-Proposed Principal Diagnosis Order Additions to the CC Exclusions List-FY 2023; Table 6H.1.-Proposed Secondary Diagnosis Order Deletions to the CC Exclusions List-FY 2023; and Table 6H.2.-Proposed Principal Diagnosis Order Deletions to the CC Exclusions List-FY 2023. For Table 6G.1, each secondary diagnosis code proposed for addition to the CC Exclusion List is shown with an asterisk and the principal diagnoses proposed to exclude the secondary diagnosis code are provided in the indented column immediately following it. For Table 6G.2, each of the principal diagnosis codes for which there is a CC exclusion is shown with an asterisk and the conditions proposed for addition to the CC Exclusion List that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis. For Table 6H.1, each secondary diagnosis code proposed for deletion from the CC Exclusion List is shown with an asterisk followed by the principal diagnosis codes that currently exclude it. For Table 6H.2, each of the principal diagnosis codes is shown with an asterisk and the proposed deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. Tables 6G.1., 6G.2., 6H.1., and 6H.2. associated with this proposed rule are available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

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

To identify new, revised and deleted diagnosis and procedure codes, for FY 2023, we have developed Table 6A.-New Diagnosis Codes, Table 6B.-New Procedure Codes, Table 6C.-Invalid Diagnosis Codes, and Table 6E.-Revised Diagnosis Code Titles for this proposed rule. These tables are not published in the Addendum to this proposed rule, but are available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. Of the Addendum to this proposed rule. As discussed in section II.D.17. of the preamble of this proposed rule, the code titles are adopted as part of the ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

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

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

• Table 6A.—New Diagnosis Codes-FY 2023
• Table 6B.—New Procedure Codes-FY 2023
• Table 6C.—Invalid Diagnosis Codes-FY 2023
• Table 6E.—Revised Diagnosis Code Titles-FY 2023
• Table 6G.1.—Proposed Secondary Diagnosis Order Additions to the CC Exclusions List-FY 2023
• Table 6G.2.—Proposed Principal Diagnosis Order Additions to the CC Exclusions List-FY 2023
• Table 6H.1.—Proposed Secondary Diagnosis Order Deletions to the CC Exclusions List-FY 2023
• Table 6H.2.—Proposed Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2023
• Table 6I.1.—Proposed Additions to the MCC List-FY 2023
• Table 6I.2.—Proposed Deletions to the MCC List-FY 2023
• Table 6J.1.—Proposed Additions to the CC List-FY 2023
• Table 6J.2.—Proposed Deletions to the CC List-FY 2023.

15. Proposed 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 2022 IPPS/LTCH PPS final rule (86 FR 44936), we made available the FY 2022 ICD-10 MCE Version 39 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 39 (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.

For this FY 2023 IPPS/LTCH PPS proposed rule, we discuss the proposals we are making based on our internal review and analysis. We did not receive any specific MCE requests by the November 1, 2021 deadline.

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.D.14. of the preamble of this proposed rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2022. Included in this table are codes currently subject to the External causes of morbidity codes as principal diagnosis edit. We are proposing to delete the ICD-10-CM diagnosis codes shown in Table 6P.6a associated with this proposed rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS that are currently subject to the External causes of morbidity codes as principal diagnosis edit since they will no longer be valid for reporting purposes.

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).

(1) 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.D.14. of the preamble of this 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, 2022. We are proposing to add new ICD-10-CM diagnosis codes to the edit code list for the Maternity diagnoses category as shown in Table 6P.6b associated with this proposed rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS under the Age conflict edit.

In addition, as discussed in section II.D.14. of the preamble of this proposed rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2022. Included in this table are the following ICD-10-CM diagnosis codes that are currently listed on the edit code list for the Maternity diagnoses category under the Age conflict edit. We are proposing to delete these codes from the Maternity diagnoses edit code list.

(2) 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.D.14. of the preamble of this 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, 2022. We are proposing 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.

In addition, as discussed in section II.D.14. of the preamble of this proposed rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2022. Included in this table are the following ICD-10-CM diagnosis codes that are currently listed on the edit code list for the Adult diagnoses category under the Age conflict edit. We are proposing to delete these codes from the Adult diagnoses edit code list.

c. Sex Conflict Edit

In the MCE, the Sex conflict edit detects inconsistencies between a patient's sex and any diagnosis or procedure on the patient's record; for example, a male patient with cervical cancer (diagnosis) or a female patient with a prostatectomy (procedure). In both instances, the indicated diagnosis or the procedure conflicts with the stated sex of the patient. Therefore, the patient's diagnosis, procedure, or sex is presumed to be incorrect.

(1) Diagnoses for Females Only Edit

As discussed in section II.D.14. of the preamble of this proposed 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, 2022. We are proposing to add new ICD-10-CM diagnosis codes to the edit code list for the Diagnoses for females only category as shown in Table 6P.6c associated with this proposed rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS under the Sex conflict edit.

In addition, as discussed in section II.D.14. of the preamble of this proposed rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2022. Included in this table are the following ICD-10-CM diagnosis codes that are currently listed on the edit code list for the Diagnoses for females only category under the Sex conflict edit. We are proposing to delete these codes from the Diagnoses for females only edit code list.

(2) Procedures for Males Only

As discussed in section II.D.14. of the preamble of this proposed rule, Table 6B.—New Procedure Codes, lists the new procedure codes that have been approved to date which will be effective with discharges on and after October 1, 2022. Included in this table are the following procedure codes we are proposing to add to the edit code list for the Procedures for males only category under the Sex conflict edit.

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.D.14. of the preamble of this proposed 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, 2022. Included in this table are the following new ICD-10-CM diagnosis codes that we are proposing 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.

In addition, as discussed in section II.D.14. of the preamble of this proposed rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2022. Included in this table is ICD-10-CM diagnosis code F02.81 (Dementia in other diseases classified elsewhere with behavioral disturbance), that is currently listed on the edit code list for the Manifestation code as principal diagnosis edit. We are proposing to delete this code from the Manifestation code as principal diagnosis edit code list.

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.D.14. of the preamble of this proposed 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, 2022. We are proposing to add the following new ICD-10-CM diagnosis codes to the Unacceptable Principal Diagnosis edit code list.

As discussed in section II.D.1.b. of the preamble of this proposed rule, we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 40, so that the public can better analyze and understand the impact of the proposals included in this proposed rule. We note that at the time of the development of the test software, a subset of the listed codes (F01.511 through F01.C4) proposed for this edit were unable to be included and therefore, the test software does not reflect these codes.

In addition, as discussed in section II.D.14. of the preamble of this proposed rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective October 1, 2022. 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 are proposing to delete these codes from the Unacceptable Principal Diagnosis edit code list.

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.D.14. of the preamble of this proposed 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, 2022. We are proposing to add the following new ICD-10-CM diagnosis codes to the Unspecified code edit code list.

g. Future Enhancement

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38053 through 38054), we noted the importance of ensuring accuracy of the coded data from the reporting, collection, processing, coverage, payment and analysis aspects. Subsequently, in the FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20235), we stated that we engaged a contractor to assist in the review of the limited coverage and non-covered procedure edits in the MCE that may also be present in other claims processing systems that are utilized by our MACs. The MACs must adhere to criteria specified within the National Coverage Determinations (NCDs) and may implement their own edits in addition to what is already incorporated into the MCE, resulting in duplicate edits. The objective of this review is to identify where duplicate edits may exist and to determine what the impact might be if these edits were to be removed from the MCE.

We have also noted that the purpose of the MCE is to ensure that errors and inconsistencies in the coded data are recognized during Medicare claims processing. As we indicated in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41228), we are considering whether the inclusion of coverage edits in the MCE necessarily aligns with that specific goal because the focus of coverage edits is on whether or not a particular service is covered for payment purposes and not whether it was coded correctly.

As we continue to evaluate the purpose and function of the MCE with respect to ICD-10, we encourage public input for future discussion. As we have discussed in prior rulemaking, we recognize a need to further examine the current list of edits and the definitions of those edits.

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^TM (MEARIS^TM), discussed in section II.D.1.b. of the preamble of this proposed rule at https://mearis.cms.gov/public/home by October 20, 2022.

16. Proposed 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 proposed rule.

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

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

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

Based on the changes that we are proposing to make for FY 2023, as discussed in section II.D. of the preamble of this proposed rule, we are proposing to maintain the existing surgical hierarchy for FY 2023.

17. 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 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. 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 2023 at a public meeting held on September 14-15, 2021, and finalized the coding changes after consideration of comments received at the meetings and in writing by November 15, 2021.

The Committee held its 2022 meeting on March 8-9, 2022. The deadline for submitting comments on the procedure code proposals that are being considered for an October 1, 2022 implementation was April 8, 2022. The deadline for submitting comments on the diagnosis code proposals that are being considered for an October 1, 2023 implementation is May 9, 2022. 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 2022 would be included in the October 1, 2022, update to the ICD-10-CM diagnosis and ICD-10-PCS procedure code sets. It was also announced at this meeting that we are changing the process for submitting requested updates to the ICD-10-PCS classification, beginning with the procedure code request submitted for consideration for the September 13-14, 2022 ICD-10 Coordination and Maintenance Committee Meeting. As stated in section II.D.1.b. of the preamble of this proposed rule, CMS is in the process of implementing a new electronic application intake system, MEARIS^TM . Effective January 5, 2022, MEARIS^TM became available as an initial release for users to begin gaining familiarity with a new approach and process to submit ICD-10-PCS procedure code requests. Information on this new approach for submitting an ICD-10-PCS code request can be accessed at https://mearis.cms.gov. Effective March 1, 2022, the full release of MEARIS^TM became active for ICD-10-PCS code request submissions. ICD-10-PCS code request submissions are due no later than June 10, 2022, to be considered for the September 13-14, 2022, ICD-10 Coordination and Maintenance Committee Meeting. Moving forward, CMS will only accept ICD-10-PCS code requests submitted via MEARIS^TM . Requests submitted through the ICDProcedureCodeRequest mailbox will no longer be considered. Within MEARIS^TM , we have built in several resources to support users, including a “Resources” section (available at https://mearis.cms.gov/public/resources ) and technical support available under “Useful Links” at the bottom of the MEARIS^TM site. Questions regarding MEARIS^TM can be submitted to CMS using the form available under “Contact” at https://mearis.cms.gov/public/resources.

As discussed in earlier sections of the preamble of this proposed rule, there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes that are captured in Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, and Table 6E.—Revised Diagnosis Code Titles for this proposed rule, which are available via the internet 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 through tables in association with the IPPS proposed rule, they are not subject to comment in the proposed rule. Because of the length of these tables, they are not published in the Addendum to the proposed rule. Rather, they are available via the internet as discussed in section VI. of the Addendum to the proposed rule.

Recordings for the virtual meeting discussions of the procedure codes at the Committee's September 14-15, 2021, meeting and the March 8-9, 2022, 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 14-15, 2021, meeting and March 8-9, 2022, meeting can be found at https://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.

As a result of the ongoing COVID-19 public health emergency, the CDC implemented three new diagnosis codes describing immunization status related to COVID-19 into the ICD-10-CM effective with discharges on and after April 1, 2022. The diagnosis codes are as follows:

We refer the reader to the CDC web page at https://www.cdc.gov/nchs/icd/icd10cm.htm for additional details regarding the implementation of these new diagnosis codes.

We provided the MS-DRG assignments for the three diagnosis codes effective with discharges on and after April 1, 2022, 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 (which is available via the internet 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 of this proposed rule, we are soliciting public comments on the most appropriate MDC, MS-DRG, and severity level assignments for these codes for FY 2023, as well as any other options for the GROUPER logic.

In addition, CMS implemented nine new procedure codes describing the introduction or infusion of therapeutics, including vaccines for COVID-19 treatment, into the ICD-10-PCS effective with discharges on and after April 1, 2022. The nine procedure codes listed in this section of this rule are designated as non-O.R. and do not affect any MDC or MS-DRG assignment as shown in the following table.

The ICD-10 MS-DRG assignment for cases reporting any one of the nine procedure codes is dependent on the reported principal diagnosis, any secondary diagnoses defined as a CC or MCC, procedures or services performed, age, sex, and discharge status. The nine procedure codes are reflected in Table 6B—New Procedure Codes (which is available via the internet 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 of this proposed rule, we are soliciting public comments on the most appropriate MDC, MS-DRG, and operating room status assignments for these codes for FY 2023, as well as any other options for the GROUPER logic.

We note that Change Request (CR) 12578, Transmittal 11174, titled “April 2022 Update to the Medicare Severity—Diagnosis Related Group (MS-DRG) Grouper and Medicare Code Editor (MCE) Version 39.1 for the International Classification of Diseases, Tenth Revision (ICD-10) Diagnosis Codes for 2019 Novel Coronavirus (COVID-19) Vaccination Status and ICD-10 Procedure Coding System (PCS) Codes for Introduction or Infusion of Therapeutics and Vaccines for COVID-19 Treatment”, was issued on January 14, 2022 (available via the internet on the CMS website at https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r11174cp ) regarding the release of an updated version of the ICD-10 MS-DRG GROUPER and Medicare Code Editor software, Version 39.1, effective with discharges on and after April 1, 2022, reflecting the new diagnosis and procedure codes. The updated software, along with the updated ICD-10 MS-DRG V39.1 Definitions Manual and the Definitions of Medicare Code Edits V39.1 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 those determinations. Topics considered during the Fall ICD-10 (previously ICD-9-CM) Coordination and Maintenance Committee meeting were considered for an April 1 update if a strong and convincing case was made by the requestor during the Committee's public meeting. The request needed to identify the reason why a new code was needed in April for purposes of the new technology process. Meeting participants and those reviewing the Committee meeting materials were provided the opportunity to comment on the expedited request. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950) for further discussion of the implementation of this prior April 1 update for purposes of the new technology add-on payment process.

However, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950 through 44956), we adopted an April 1 implementation date, in addition to the annual October 1 update, beginning with April 1, 2022. We noted that the intent of this April 1 implementation date is to allow flexibility in the ICD-10 code update process. With this new April 1 update, CMS now uses the same process for consideration of all requests for an April 1 implementation date, including for purposes of the new technology add-on payment process (that is, the prior process for consideration of an April 1 implementation date only if a strong and convincing case was made by the requestor during the meeting no longer applies). We are continuing to use several aspects of our existing established process to implement new codes through the April 1 code update, which includes presenting proposals for April 1 consideration at the September ICD-10 Coordination and Maintenance Committee meeting, requesting public comments, reviewing the public comments, finalizing codes, and announcing the new codes with their assignments consistent with the new GROUPER release information. We note that under our established process, requestors indicate whether they are submitting their code request for consideration for an April 1 implementation date or an October 1 implementation date. The ICD-10 Coordination and Maintenance Committee makes efforts to accommodate the requested implementation date for each request submitted. However, the Committee determines which requests are to be presented for consideration for an April 1 implementation date or an October 1 implementation date. As discussed earlier in this section of the preamble of this proposed rule, there were code proposals presented for an expedited April 1, 2022, implementation at the September 14-15, 2021, Committee meetings that involved treatments related to the COVID-19 PHE. One of these code proposals was also in connection with a request for a new technology add-on payment application. Following the receipt of public comments, the code proposals were approved and finalized, therefore, there were new codes implemented April 1, 2022.

Consistent with the process we outlined for the April 1 implementation date, we announced the new codes in November 2021 and provided the updated code files and ICD-10-CM Official Guidelines for Coding and Reporting in December 2021. In the January 24, 2022, Federal Register (87 FR 3549), notice for the March 8-9, 2022, 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, 2022, we made available the updated V39.1 ICD-10 MS-DRG Grouper software and related materials via the internet on 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/icd10cm.htm. Additionally, information on new, revised, and deleted ICD-10-CM diagnosis and ICD-10-PCS procedure codes is provided to the AHA for publication in the Coding Clinic for ICD-10. The AHA also distributes coding update information to publishers and software vendors.

For FY 2022, there are currently 72,750 diagnosis codes and 78,229 procedure codes. As displayed in Table 6A.—New Diagnosis Codes and in Table 6B.—New Procedure Codes associated with this proposed rule (and available via the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps, there are 1,176 new diagnosis codes and 45 new procedure codes that have been finalized for FY 2023 at the time of the development of this proposed rule. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to provide the October updates in this manner in the IPPS proposed and final rules.

18. Replaced Devices Offered Without Cost or With a Credit

a. Background

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

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

b. Proposed Changes for FY 2023

For FY 2023 we are proposing not to add any MS-DRGs to the policy for replaced devices offered without cost or with a credit. We are proposing to continue to include the existing MS-DRGs currently subject to the policy as displayed in the following table.

The final list of MS-DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be included in the FY 2023 IPPS/LTCH PPS final rule and also will be issued to providers in the form of a Change Request (CR).

19. Other Policy Issues

a. Comment Solicitation on Possible Mechanisms To Address Rare Diseases and Conditions Represented by Low Volumes Within the MS-DRG Structure

As discussed in section II.D.13.d. of the preamble of this proposed rule, we are soliciting public comments involving how the reporting of certain diagnosis codes may improve our ability to recognize severity of illness, complexity of illness, and utilization of resources under the MS-DRGs, as well as feedback on mechanisms to improve the reliability and validity of the coded data as part of an ongoing effort across CMS to evaluate and develop policies to reduce health disparities. In concert with that effort, we are also soliciting comments to explore possible mechanisms through which we can address rare diseases and conditions that are represented by low volumes in our claims data.

One subset of our beneficiary population for which we are seeking comment on potential issues related to patient access in the inpatient setting are patients diagnosed with rare diseases and conditions that are represented by low volumes in our claims data. The Orphan Drug Act (ODA) added section 526(a)(2)(B) to the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360bb(a)(2)(B)), defining a rare disease or condition as “any disease or condition which (A) affects less than 200,000 persons in the United States, or (B) affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.” Most rare diseases, however, affect far fewer people. The Genetic and Rare Diseases Information Center (GARD), which was created in 2002 by the National Institutes of Health (NIH) Office of Rare Diseases Research, estimates that there are as many as 7,000 distinct rare diseases. Rare diseases, which can include genetic diseases, autoimmune conditions, some cancers, and uncommon infections, are highly diverse, may affect many organ systems and have wide variations in the rates and patterns of manifestations and progression.

The ODA created a process for the U.S. Food and Drug Administration (FDA) to identify a drug as a drug developed for the treatment of a rare disease or condition called “orphan-drug designation”. The sponsor of a drug that has orphan drug designation may be eligible for certain financial incentives, such as tax credits and potentially seven years of market exclusivity after approval, all of which are intended to incentivize developing drugs for small numbers of patients. We have heard from some stakeholders, however, that there may be a number of barriers to providers in treating these patients with these orphan designated drugs in the Medicare hospital inpatient setting.

According to these stakeholders, one significant barrier that continues to present challenges to manufacturers is accessing formulary coverage for potentially high cost therapeutics for rare diseases. These stakeholders have stated that hospitals utilize formularies for inpatient drugs as a cost-management tool that strongly incentivizes physicians to use on-formulary drugs over off-formulary drugs, whenever clinically appropriate to do so. A drug formulary is defined as a list of medications and continually updated related information, that represents the clinical judgment of pharmacists, physicians, and other experts in the diagnosis and treatment of disease or promotion of health. It is often described as a list of medications routinely stocked by the health care system. These stakeholders stated that although certain therapeutics can be associated with better outcomes for patients with rare diseases, the lack of access to hospital formularies represents a hurdle under the IPPS MS-DRGs. According to these stakeholders, when Medicare reimbursement is insufficient to cover the costs of certain therapeutics that treat patients with rare diseases, a disincentive can be created in addressing these conditions.

For the purposes of this comment solicitation we describe in this section three selected requests we have received relating to the MS-DRG classification of rare diseases and conditions that are represented by low volumes in our claims data.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53311), the FY 2015 IPPS/LTCH PPS final rule (79 FR 49901), and the FY 2019 IPPS/LTCH PPS final rule (83 FR 41200), we discussed requests we received to revise the MS-DRG classification for cases of patients diagnosed with porphyria to recognize the resource requirements in caring for these patients, to ensure appropriate payment for these cases, and to preserve patient access to necessary treatments. Porphyria is defined as a group of rare disorders (“porphyrias”) that interfere with the production of hemoglobin that is needed for red blood cells. While some of these disorders are genetic (inborn) and others are acquired, they all result in the abnormal accumulation of hemoglobin building blocks, called porphyrins, which can be deposited in the tissues where they particularly interfere with the functioning of the nervous system and the skin. Treatment for patients suffering from disorders of porphyrin metabolism consists of an intravenous injection of Panhematin® (hemin for injection).

In the FY 2019 proposed rule, we stated our data analysis showed that cases reporting diagnosis code E80.21 (Acute intermittent (hepatic) porphyria) as the principal diagnosis in MS-DRG 642 (Inborn and Other Disorders of Metabolism) had higher average costs and longer average lengths of stay compared to the average costs and length of stay for all other cases in MS-DRG 642. However, after considering these findings in the context of the current MS-DRG structure, we stated that we were unable to identify an MS-DRG that would more closely parallel these cases with respect to average costs and length of stay that would also be clinically aligned. We further stated that our clinical advisors believed that, in the current MS-DRG structure, the clinical characteristics of patients in these cases are most closely aligned with the clinical characteristics of patients in all cases in MS-DRG 642. Moreover, given the small number of porphyria cases, we stated we did not believe there was justification for creating a new MS-DRG and did not propose to revise the MS-DRG classification for porphyria cases.

In response, some commenters described significant difficulties encountered by patients with acute porphyria attacks in obtaining Panhematin® when presenting to an inpatient hospital, which they attributed to the strong financial disincentives faced by facilities to treat these cases on an inpatient basis. The commenters stated that, based on the lower than expected average cost per case and longer than expected length of stay for acute porphyria attacks, it appeared that facilities were frequently not providing Panhematin® to patients in this condition, and instead attempting to provide symptom relief and transferring patients to an outpatient setting to receive the drug where they can be adequately paid. The commenters stated that this is in contrast to the standard of care for acute porphyria attacks and could result in devastating long-term health consequences.

In the FY 2019 final rule (83 FR 41200), as we have stated in prior rulemaking, we noted it is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that involves increased costs. We further noted the MS-DRG system is a system of averages and it is expected that across the diagnostic related groups that within certain groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. While we recognized the average costs of the small number of porphyria cases were greater than the average costs of the cases in MS-DRG 642 overall, we also noted that an averaged payment system depends on aggregation of similar cases with a range of costs, and that we 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 of diagnoses. We further stated that we were sensitive to the commenters' concerns about access to treatment for beneficiaries who have been diagnosed with this condition and we would continue to explore mechanisms through which to address rare diseases and low volume DRGs.

Similarly, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44869), we discussed a request we received to review potential access issues in the inpatient setting for the administration of ANDEXXA®. ANDEXXA® (coagulation factor Xa (recombinant), inactivated-zhzo) is a recombinant decoy protein that rapidly reverses the anticoagulant effects of two direct oral anticoagulants, apixaban and rivaroxaban, when reversal of anticoagulation is needed due to life-threatening or uncontrolled bleeding in indications such as intracranial hemorrhages (ICHs) and gastrointestinal bleeds (GIBs). We noted that while our data findings demonstrated the average costs for the cases reporting the intravenous administration of ANDEXXA® were higher when compared to all cases in their respective MS-DRG, these cases represented a very small percentage of the total number of cases reported in those MS-DRGs. We stated we were unable to identify another MS-DRG that would be a more appropriate MS-DRG assignment for these cases based on the indication for this therapeutic drug. We also stated that while we were sensitive to the requestors' concerns about continued access to treatment for beneficiaries who require the reversal of anticoagulation due to life-threatening or uncontrolled bleeding, we indicated additional time was needed to explore options and other mechanisms through which to address low volume, high-cost drugs outside of the MS-DRGs.

Lastly, we received a request to reconsider how cases reporting the administration of Zulresso® (brexanolone) are recognized for payment under the ICD-10 MS-DRGs in an effort to improve access to treatment for maternal mental health. On March 19, 2019 Zulresso® (brexanolone) became the first Food and Drug Administration (FDA) approved drug, specifically for postpartum depression (PPD) in adults. According to the requestor, PPD is one of the most common complications during and after pregnancy. The requestor stated PPD is a serious but manageable disorder and that with early treatment, the life of the mother, baby, and the entire family could be positively impacted. The requestor indicated it shares CMS's goals of addressing disparities in access to care, and urged CMS to take additional steps to address inequities in women's health by permitting separate payment for Zulresso® (brexanolone), in addition to the MS-DRG payment.

Effective with discharges on and after October 1, 2020, cases reporting the administration of Zulresso® in the inpatient setting are identified by ICD-10-PCS procedure codes XW03306 (Introduction of brexanolone into peripheral vein, percutaneous approach, new technology group 6) or XW04306 (Introduction of brexanolone into central vein, percutaneous approach, new technology group 6). These procedure codes are designated as non-O. R. procedures and do not affect the MS-DRG assignment when reported on an inpatient claim. We note that an application for new technology add-on payment for Zulresso® (brexanolone) was discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32672 through 32676) and was not approved, as discussed in the final rule (85 FR 58709 through 58715).

We analyzed claims from the September 2021 update of the FY 2021 MedPAR file for cases reporting the administration of Zulresso® (brexanolone). Our analysis of the claims data identified only one case reporting the administration of Zulresso® (brexanolone) in MS-DRG 870 (Septicemia or Severe Sepsis with MV >96 Hours) with an average length of stay of 22 days and average costs of $67,812. For all cases in MS-DRG 870, the average costs are $55,459 and the average length of stay is 15.9 days. While the average length of stay for the case reporting the administration of Zulresso® (brexanolone) is greater (22 days versus 15.9 days) and the average costs are higher ($67,812 versus $55,459), than all cases in MS-DRG 870 it is unclear if treatment with Zulresso® (brexanolone) is the underlying reason for these factors, given that the MS-DRG assigned is for sepsis and it is not uncommon for sepsis patients to have multiple co-morbidities and intensive treatment strategies to address this severe, often life threatening condition.

We appreciate the requestor's interest in sharing CMS's goal of advancing women's health, however, we note that the population in which Zulresso® (brexanolone) is indicated generally does not include our inpatient Medicare population. As we have stated in prior rulemaking, (83 FR 41210), we have not adopted the same approach to refine the maternity and newborn MS-DRGs because of the extremely low volume of Medicare patients there are in these MS-DRGs. When there is not a high volume of these cases (for example, maternity and newborn) represented in the Medicare data, we generally advise that other payers should develop DRGs to address the needs of their patients. We believe the same would apply with respect to administration of Zulresso® (brexanolone) for which, as noted, we identified only one case in the FY 2021 MedPAR file.

As discussed 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. Rare diseases and conditions that are represented by low volumes in our claims data however, pose a unique challenge to this methodology as these conditions by definition affect small subsets of the population. It has been difficult to identify other MS-DRGs that would be more appropriate MS-DRG assignments for these rare conditions based on the wide variance in the clinical characteristics and utilization of resources for each condition, depending on the diagnosis. Creating a new MS-DRG for these conditions as a distinct “related” group is also challenging for the same reasons.

As previously noted, 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. We have been concerned that basing MS-DRG reclassification decisions on small numbers of cases could lead to complexities in establishing the relative payment weights for the MS-DRGs because several expensive cases could impact the overall relative payment weight. Having larger clinical cohesive groups within an MS-DRG provides greater stability and thus predictability for hospitals for annual updates to the relative payment weights.

As also previously noted, 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. However, as noted, cases involving treatment of rare diseases may involve more resource use than other cases in their respective MS-DRG. Section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs, however we are soliciting feedback on other mechanisms we can explore through which we could address concerns relating to payment for patients with rare diseases and conditions that are represented by low volumes in our claims data. We are also interested in receiving comments on other meaningful ways in which we may potentially improve access to treatment for postpartum depression in certain populations, including through activities pursuant to Vice President Harris's Call to Action to Reduce Maternal Mortality and Morbidity.

To inform decision making, we are also looking for feedback on how to mitigate any unintended negative payment impacts to providers serving patients with rare diseases or conditions that are represented by low volumes in our claims data. In particular, we are interested in hearing the perspectives of large urban hospitals, rural hospitals, and other hospital types in regard to their experience. We also seek comments on how factors such as hospital size and type might impact a hospital's ability to develop protocols to better address these conditions. We will take commenters' feedback into consideration in future policy development.

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

E. Recalibration of the FY 2023 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 2023, we are proposing 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 2021 MedPAR data used in this proposed rule include discharges occurring on October 1, 2020, through September 30, 2021, based on bills received by CMS through December 31, 2021, 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 2021 MedPAR file used in calculating the proposed relative weights includes data for approximately 7,417,999 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 31, 2021 update of the FY 2021 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the proposed relative weights for FY 2023 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 proposed FY 2023 relative weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes from the FY 2021 MedPAR claims data, grouped through the ICD-10 version of the proposed FY 2023 GROUPER (Version 40).

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 proposed rule, we used the December 31, 2021 update of the FY 2020 HCRIS for calculating the proposed FY 2023 cost-based relative weights. Consistent with our historical practice, for this FY 2023 proposed rule, we are providing the version of the HCRIS from which we calculated these proposed 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 2023 IPPS Proposed Rule Home Page” or “Acute Inpatient Files for Download.”

2. Methodology for Calculation of the Relative Weights

a. General

We continued to calculate the proposed FY 2023 relative weights based on 19 CCRs. The methodology we are proposing to use to calculate the FY 2023 MS-DRG cost-based relative weights based on claims data in the FY 2021 MedPAR file and data from the FY 2020 Medicare cost reports is as follows:

• To the extent possible, all the claims were regrouped using the proposed FY 2023 MS-DRG classifications discussed in sections II.B. and II.D. of the preamble of this proposed rule.
• The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2021 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)

• Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.

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

• Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $30.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, implantable devices charges, supplies and equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood and blood products charges, anesthesia charges, cardiac catheterization charges, CT scan charges, and MRI charges were also deleted.
• At least 92.9 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 2022, and consistent with how we have treated hospitals that participated in the BPCI Initiative, for FY 2023, 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 2022 IPPS/LTCH PPS final rule, we are also proposing to include all applicable data from subsection (d) hospitals participating in the Comprehensive Care for Joint Replacement (CJR) Model in our IPPS payment modeling and ratesetting calculations.

The charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. Statistical outliers were then removed. These charges were then adjusted to cost by applying the proposed national average CCRs developed from the FY 2020 cost report data, consistent with our proposed FY 2023 ratesetting discussed in section II.A.4. of the Addendum of this proposed rule.

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

Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS-DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS-DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS-DRGs, combining the cases across those two MS-DRGs results in the same relative weight for both MS-DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. For this FY 2023 proposed rule, this calculation was applied to address non-monotonicity for cases that grouped to MS-DRG 504 and MS-DRG 505, as well as MS-DRG 793 and MS-DRG 794. In the supplemental file titled AOR/BOR File, we include statistics for the affected MS-DRGs both separately and with cases combined.

We are inviting public comments on our proposals related to recalibration of the proposed FY 2023 relative weights and the changes in relative weights from FY 2022.

b. Relative Weight Calculation for MS-DRG 018

As discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58599 through 58600), 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. 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). We refer the reader to section II.D.17. of this proposed rule for discussion of the agenda items for the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting relating to new procedure codes to describe the administration of a CAR T-cell or another type of gene or cellular therapy product, as well as our established process for determining the MS-DRG assignment for codes approved at the March meeting.

For MS-DRG 018, we include a modification to 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 and non-CAR T-cell therapies and other immunotherapies outside of a clinical trial, while still accounting for the clinical trial cases in the overall average cost for all MS-DRGs. For cases that group to MS-DRG 018, 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, 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, we include the claim 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 the CAR T-cell, non-CAR T-cell or other immunotherapy product, these cases will not be included when calculating the average cost for new MS-DRG 018 to the extent such claims can be identified in the historical data (85 FR 58600). We also calculate an adjustment to account for the CAR T-cell, non-CAR T-cell and other immunotherapy cases determined to be clinical trial cases, as described later in this proposed rule and include revenue center 891 in our calculation of standardized drug charges for MS-DRG 018. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for further discussion of our modifications to the relative weight calculation for MS-DRG 018.

We are proposing to continue to use the same process to identify clinical trial claims in the FY 2021 MedPAR for purposes of calculating the FY 2023 relative weights. We continue to use the proxy of standardized drug charges of less than $373,000, which was the average sales price of KYMRIAH and YESCARTA, which are the two CAR T-cell biological products in the FY 2021 MedPAR data used for this proposed rule. (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).) Using the same methodology from the FY 2021 IPPS/LTCH PPS final rule, we are proposing to apply 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:

• Calculate the average cost for cases to be assigned to MS-DRG 018 that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000.
• Calculate the average cost for all other cases to be 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 clinical trial cases, then add this adjusted case count to the non-clinical trial case count prior to calculating the average cost across all MS-DRGs.

Additionally, we are continuing our finalized methodology for calculating this payment adjustment, such that: (a) 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 claim will be included when calculating the average cost for cases not determined to be clinical trial cases 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. However, we continue to believe to the best of our knowledge there are 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.

Applying this previously finalized methodology, based on the December 2021 update of the FY 2021 MedPAR file used for this proposed rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($61,356) were 20 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($299,460). Accordingly, as we did for FY 2022, we are proposing to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of .20 to the applicable clinical trial and expanded access use immunotherapy cases, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by .20. As we did for FY 2022, we are applying this same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We are also proposing to update the value of the adjustor based on more recent data for the final rule.

c. Proposed Averaging of Relative Weights for FY 2023

In section I.F. of this proposed rule, we discuss our proposal to use the FY 2021 MedPAR data for purposes of FY 2023 IPPS ratesetting, with certain proposed modifications to our usual methodologies, including a proposed averaging approach for calculating the FY 2023 relative weights. As discussed, we observed that COVID-19 cases were impacting the relative weights as calculated using the FY 2021 claims data for a few COVID-19-related MS-DRGs. For example, for MS-DRG 870 (Septicemia or Severe Sepsis with MV >96 hours), the relative weight calculated using the FY 2021 MedPAR data was approximately 9 percent higher than the relative weight calculated excluding the COVID-19 cases in the FY 2021 data. As also discussed in that section, we believe it is reasonable to assume that there will be fewer COVID-19 hospitalizations among Medicare beneficiaries in FY 2023 than there were in FY 2021. However, we cannot know the precise number of COVID-19 hospitalizations among Medicare beneficiaries in FY 2023. To account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries as compared to FY 2021, we are proposing to determine the MS-DRG relative weights for FY 2023 by averaging the relative weights as calculated with and without COVID-19 cases in the FY 2021 data, as described in greater detail below. Given the uncertainty in the number of COVID-19 hospitalizations in FY 2023, we are proposing to use 50 percent of the relative weights calculated using all applicable cases in the FY 2021 claims data and 50 percent of the relative weights calculated without the COVID-19 cases in the FY 2021 claims data. We believe this proposed approach would appropriately reduce, but not remove entirely, the effect of COVID-19 cases on the relative weight calculations, consistent with our expectation that Medicare inpatient hospitalizations for COVID-19 will continue in FY 2023 at a lower level as compared to FY 2021. By averaging the relative weights in this manner, we believe the result would reflect a reasonable estimation of the case mix for FY 2023 based on the information available at this time, as discussed in section I.F. of the preamble to this proposed rule, and more accurately estimate the relative resource use for the cases treated in FY 2023 than if we were to calculate the proposed relative weights based on 100% of the relative weights as calculated for all applicable cases in the FY 2021 data. For this proposed rule, our proposed calculation is as follows:

• Step 1: Calculate a set of relative weights using all applicable cases in the December 2021 update of the FY 2021 MedPAR data, using the methodology as described earlier in this section, and then applying a normalization adjustment factor as described later in this section.

• Step 2: Calculate a set of relative weights using the December 2021 update of the FY 2021 MedPAR data excluding cases with a principal or secondary diagnosis of COVID-19 (ICD-10-CM diagnosis code U07.1), and otherwise using the methodology as described earlier in this section, and then applying a normalization adjustment factor as described later in this section.

• Step 3: Average the results of step 1 and step 2 to calculate a set of averaged relative weights, geometric mean length of stays, and arithmetic mean length of stays.

• Step 4: Calculate the proposed FY 2023 relative weights by applying an additional normalization factor to these averaged relative weights. This additional normalization factor is necessary to ensure that the average case weight as calculated in step 3 of this proposed averaging methodology for recalibration of the FY 2023 relative weights is equal to the average case weight before recalibration. We note that this factor is very close to 1 and is described later in this section.

We note that in Step 5 of this proposed calculation, we apply the proposed 10 percent cap to the relative weights for those MS-DRGs for which the relative weight as calculated in Step 4 would otherwise have declined by more than 10 percent from the FY 2022 relative weight, as discussed more fully later in this section. We also note that we intend to update this calculation for the final rule using the March 2022 update of the FY 2021 MedPAR file.

The proposed relative weights, geometric mean length of stay, and average length of stay as calculated using this proposed methodology are set forth in Table 5 associated with this proposed rule, which is available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. We are also making available the relative weights, geometric mean length of stay, and average length of stay as calculated in steps 1 and 2 of this proposed methodology on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

As discussed in section I.O. of Appendix A of this proposed rule, as an alternative to our proposed approach, we also considered calculating the FY 2023 MS-DRG relative weights based on all applicable cases in the FY 2021 MedPAR data, without the averaging approach we are proposing to account for COVID-19 cases. We note, as an example, that the proposed relative weight for MS-DRG 871 (Septicemia Or Severe Sepsis Without MV >96 Hours with MCC) as calculated using our proposed averaging of the relative weights as calculated with and without the COVID-19 cases in the FY 2021 data is 1.9549, while the relative weight as calculated without this proposed averaging would be 1.9954. We are making available supplemental information, including the relative weights, average length of stay, and geometric mean length of stay, calculated both with and without COVID-19 cases as noted previously. We refer the reader to section I.O. of Appendix A of this proposed rule for a discussion of the files that we are making available with regard to our alternative approach.

d. Proposed Cap for Relative Weight Reductions

In the FY 2018 IPPS/LTCH PPS final rule, we summarized comments we had received requesting a transition period for substantial reductions in relative weights in order to facilitate payment stability. Specifically, some commenters asked CMS to establish a cap on the decline in a relative weight from FY 2017 to FY 2018, or a phase-in or multi-year transition period in cases of substantial fluctuation of payment rates (82 FR 38103).

After consideration of these comments, and for the reasons discussed in the FY 2018 final rule, we adopted a temporary one-time measure for FY 2018 for MS-DRGs where the relative weight would have declined by more than 20 percent from the FY 2017 relative weight, consistent with our general authority to assign and update appropriate weighting factors under sections 1886(d)(4)(B) and (C) of the Act (82 FR 38103). Specifically, for these MS-DRGs, the relative weight for FY 2018 was set at 80 percent of the FY 2017 relative weight. In the FY 2019 IPPS/LTCH PPS final rule, in response to similar comments, we adopted a temporary one-time measure for FY 2019 for an MS-DRG where the FY 2018 relative weight declined by 20 percent from the FY 2017 relative weight and the FY 2019 relative weight would have declined by 20 percent or more from the FY 2018 relative weight (83 FR 41273). Specifically, for an MS-DRG meeting this criterion, we set the FY 2019 relative weight equal to the FY 2018 relative weight. In the FY 2020 IPPS/LTCH PPS final rule, in response to similar comments, we adopted a temporary one-time measure for FY 2020 for an MS-DRG where the FY 2018 relative weight declined by 20 percent from the FY 2017 relative weight and the FY 2020 relative weight would have declined by 20 percent or more from the FY 2019 relative weight, which was maintained at the FY 2018 relative weight (84 FR 42167). Specifically, for an MS-DRG meeting this criterion, we set the FY 2020 relative weight equal to the FY 2019 relative weight, which was in turn set equal to the FY 2018 relative weight.

In the FY 2021 IPPS/LTCH PPS proposed rule, we noted the one-time measure adopted for FY 2020 and sought comment on whether we should consider a similar policy for FY 2021, or an alternative approach such as averaging the FY 2020 relative weight and the otherwise applicable FY 2021 relative weight for MS-DRG 215, which was the only MS-DRG impacted by the FY 2020 policy setting the FY 2020 relative weight equal to the FY 2019 relative weight. Commenters generally supported either setting the FY 2021 weight for MS-DRG 215 equal to the FY 2020 relative weight or an averaging approach. Some commenters requested that CMS consider such an approach when the relative weight for an MS-DRG is drastically reduced in a given year, particularly when it follows a significant decline in prior years. After consideration of comments received, and for the reasons discussed in the FY 2021 final rule, we set the FY 2021 relative weight for MS-DRG 215 equal to the average of the FY 2020 relative weight and the otherwise applicable FY 2021 weight. With regard to the concerns raised about other MS-DRGs with significant reductions relative to FY 2020, we noted that these other MS-DRGs were low volume in our claims data, and therefore typically experience a greater degree of year-to-year variation. We acknowledged the longstanding concerns related to low volume MS-DRGs and stated that we would take into consideration the unique issues relating to such MS-DRGs and the stability of their weights for future rulemaking.

We have continued to consider the comments we received in response to prior rulemaking recommending that CMS limit significant declines in the relative weights for the MS-DRGs more broadly, including by establishing a cap on the degree to which the relative weight for an MS-DRG may decline from one fiscal year to the next. For prior fiscal years, as previously discussed, we have adopted limited, temporary measures to address potentially substantial declines in the relative weights in certain outlier circumstances to mitigate the impacts of such declines. However, we have also acknowledged commenters' concerns related to significant reductions in the weights for other MS-DRGs, in particular low volume MS-DRGs. For these low volume MS-DRGs, fluctuations in the volume or mix of cases and/or the presence of a few high cost or low cost cases can have a disproportionate impact on the calculated relative weight, thus resulting in greater year-to-year variation in the relative weights for these MS-DRGs. This variation may reduce the predictability and stability of an individual hospital's Medicare payments from year-to-year. We also recognize that significant declines in the relative weights may occur for higher-volume MS-DRGs, with such fluctuations likewise affecting the predictability and stability of hospital payments.

In light of these concerns, we have further considered requests made by commenters that we address year-to-year fluctuations in relative weights, particularly for low volume MS-DRGs, and to mitigate the financial impacts of significant fluctuations. In consideration of the concerns that commenters have raised about year-to-year fluctuations in relative weights and the financial impacts of significant fluctuations, we believe it would be appropriate to limit such fluctuations by applying a cap on reductions in the relative weight for an MS-DRG for a given fiscal year. Therefore, consistent with our statutory authority under section 1886(d)(4)(B) and (C) of the Act to assign and update appropriate weighting factors, we are proposing a permanent 10-percent cap on the reduction in a MS-DRG's relative weight in a given fiscal year, beginning in FY 2023. This proposal is consistent with our general authority to assign and update appropriate weighting factors as part of our annual reclassification of the MS-DRGs and recalibration of the relative weights under sections 1886(d)(4)(B) and (C)(i) of the Act, as well as the requirements of section 1886(d)(4)(C)(iii) of the Act, which specifies that the annual DRG reclassification and recalibration of the relative weights be made in a manner that ensures that aggregate payments to hospitals are not affected. In addition, we have authority to implement this proposed cap and the associated budget neutrality adjustment under our special exceptions and adjustments authority at section 1886(d)(5)(I)(i) of the Act, which similarly gives the Secretary broad authority to provide by regulation for such other exceptions and adjustments to the payment amounts under section 1886(d) of the Act as the Secretary deems appropriate. As discussed, we believe this cap on declines in the relative weights would be appropriate in order to promote predictability and stability in hospital payments and to mitigate the financial impacts of significant fluctuations in the weights. That is, by smoothing year-to-year changes in the MS-DRG relative weights, this proposed policy would provide greater predictability to hospitals, allowing time to adjust to significant changes to relative weights. Moreover, consistent with the budget neutrality requirement for annual updates to the relative weights, including our implementation of similar caps on significant declines in the relative weight for prior fiscal years, we believe that application of this proposed 10-percent cap on relative weight reductions should not increase estimated aggregate Medicare payments beyond the payments that would be made had we never applied this cap. Accordingly, we are proposing to apply a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the proposed 10-percent cap does not result in an increase or decrease of estimated aggregate payments. For a further discussion of the proposed budget neutrality adjustment, we refer readers to the Addendum of this proposed rule.

Under this proposal, in cases where the relative weight for a MS-DRG would decrease by more than 10 percent in a given fiscal year, we propose to limit the reduction to 10 percent for that fiscal year. For example, if the relative weight for an MS-DRG in FY 2022 is 1.100 and the relative weight for FY 2023 would otherwise be 0.9350, which would represent a decrease of 15 percent from FY 2022, the reduction would be limited to 10 percent, such that the proposed relative weight for FY 2023 for MS-DRG XYZ would be 0.9900 (that is, 0.90 x FY 2022 weight of 1.100). The proposed relative weights for FY 2023 as set forth in Table 5 associated with this proposed rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this proposed cap.

As previously summarized, in the past, we have adopted a temporary cap of 20 percent on the decline in an MS-DRG's relative weight to address certain outlier circumstances. However, as also previously discussed, we recognize that hospitals may benefit from the phase-in of smaller declines in the relative weight that may nonetheless contribute to less stability and predictability in hospital payment rates. Accordingly, for purposes of this proposed permanent cap, we considered that a higher cap, such as the twenty percent cap that we have applied previously (see, for example, 82 FR 38103), would limit declines in the relative weights for fewer MS-DRGs (5 MS-DRGs in our analysis of FY 2021 claims), while a lower cap, such as a five percent cap, would limit declines in the relative weights for more MS-DRGs (89 MS-DRGs in our analysis of FY 2021 claims), but with a larger associated budget neutrality adjustment to the standardized amount. On balance, we believe that a 10-percent cap would mitigate financial impacts resulting from significant fluctuations in the relative weights, particularly for low volume MS-DRGs, without the larger budget neutrality adjustment associated with a smaller cap. We note that this proposed policy would limit declines in the relative weight for 27 MS-DRGs, based on the FY 2021 claims data used for this proposed rule.

We note that this proposed 10-percent cap on reductions to a MS-DRG's relative weight would apply only to a given MS-DRG with its current MS-DRG number. In cases where CMS creates new MS-DRGs or modifies the MS-DRGs as part of its annual reclassifications resulting in renumbering of one or more MS-DRGs, we are proposing that this limit on the reduction in the relative weight would not apply to any MS-DRGs affected by the renumbering (that is, the proposed 10 percent cap would not apply to the relative weight for any new or renumbered MS-DRGs for the fiscal year). We propose to modify the regulations at § 412.60(b) to reflect this proposed permanent cap on relative weight reductions. We are seeking comments on our proposal to apply a 10-percent cap on decreases in a MS-DRG relative weight from one fiscal year to the next.

3. Development of Proposed National Average CCRs

We developed the proposed national average CCRs as follows:

Using the FY 2020 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. Then we created CCRs for each provider for each cost center (see the supplemental data file for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. Then we took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the proposed relative weight.

As discussed earlier in this section, we are proposing to (a) use 50 percent of the relative weights calculated using all cases in the FY 2021 MedPAR data and 50 percent of the relative weights calculated without COVID-19 cases in the FY 2021 MedPAR data to calculate the relative weights for FY 2023 and (b) apply a permanent 10-percent cap on the reduction in a MS-DRG's relative weight in a given fiscal year, beginning in FY 2023.

In developing the proposed relative weights consistent with these proposals, we first created a set of relative weights using all applicable cases in the December 2021 update of the FY 2021 MedPAR data, using the methodology as described earlier in this section (Step 1). These relative weights were then normalized by an adjustment factor of 1.947540 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.

Next, we created a set of relative weights using the December 2021 update of the FY 2021 MedPAR data excluding cases with a principal or secondary diagnosis of COVID-19 (ICD-10-CM diagnosis code U07.1), and otherwise using the methodology as described earlier in this section (Step 2). These relative weights were then normalized by an adjustment factor of 1.915575.

We then averaged the results of Step 1 and Step 2 (Step 3), and normalized these relative weights by applying an adjustment factor of 1.000308 (Step 4). This normalization adjustment is intended to ensure that this proposed averaging methodology for recalibration of the FY 2023 relative weights neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

Finally, we applied the proposed 10 percent cap to the relative weights for those MS-DRGs for which the relative weight as calculated in Step 4 would otherwise have declined by more than 10 percent from the FY 2022 relative weight (Step 5). Specifically, for those MS-DRGs for which the relative weight as calculated in Step 4 declined by more than 10 percent from the FY 2022 relative weight, we set the proposed FY 2023 relative weight equal to 90 percent of the FY 2022 relative weight. The proposed relative weights for FY 2023 as set forth in Table 5 associated with this proposed rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this proposed cap. We are also making available a supplemental file setting forth the relative weights as calculated with all cases (Step 1), excluding cases with a principal or secondary diagnosis of COVID-19 (Step 2), following application of the normalization factor and prior to the application of this proposed cap (Step 4), and with the application of this proposed cap (Step 5) along with the other supplemental files for this proposed rule, on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. The proposed 19 national average CCRs for FY 2023 are as follows:

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

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We are proposing to use that same case threshold in recalibrating the proposed MS-DRG relative weights for FY 2023. Using data from the FY 2021 MedPAR file, there were 7 MS-DRGs that contain fewer than 10 cases. For FY 2023, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we are proposing to compute relative weights for the low-volume MS-DRGs by adjusting their final FY 2022 relative weights by the percentage change in the average weight of the cases in other MS-DRGs from FY 2022 to FY 2023. The crosswalk table is as follows.

F. Add-On Payments for New Services and Technologies for FY 2023

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 2023 are presented in a data file that is available, along with the other data files associated with the FY 2022 IPPS/LTCH PPS final rule and correction notice, 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 2024 are presented in a data file that is available on the CMS website, along with the other data files associated with the FY 2023 proposed rule, by clicking on the FY 2023 IPPS proposed rule home page at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index .

In the FY 2022 IPPS/LTCH PPS final rule, we finalized our proposal to use the FY 2019 MedPAR claims data where we ordinarily would have used the FY 2020 MedPAR claims data for purposes of FY 2022 ratesetting. Consistent with that final policy, we finalized our proposal to use the FY 2019 claims data to set the thresholds for applications for new technology add-on payments for FY 2023. We note that, for the reasons discussed in section I.F. of the preamble of this proposed rule, we are proposing to use the FY 2021 MedPAR claims data for FY 2023 ratesetting, with certain proposed modifications to our relative weight setting and outlier methodologies. Consistent with this proposal, for the FY 2024 proposed threshold values, we are proposing to use the FY 2021 claims data to set the proposed thresholds for applications for new technology add-on payments for FY 2024. In addition, as discussed in section III.E.1.c. of this proposed rule, we are proposing to use an averaging approach for calculating the FY 2023 relative weights, to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries as compared to FY 2021. Specifically, we are proposing to average the relative weights as calculated with and without COVID-19 cases in the FY 2021 data to determine the MS-DRG relative weights for FY 2023. Certain steps of calculating the thresholds for applications for new technology add-on payments use the same charge data that is used to calculate the MS-DRG weights. As a result, different average charges per MS-DRG are calculated using the charge data for the relative weights as calculated with and without COVID-19 cases. Therefore, for purposes of calculating the FY 2024 thresholds, we are also proposing to average the data in the steps of the calculation that use charge data from the calculation of the MS-DRG weights. In addition, as discussed in section III.E.1.c. of this proposed rule, we are also considering, as an alternative to our proposal, calculating the FY 2023 MS-DRG relative weights without this proposed averaging approach to account for COVID-19 cases. In connection with this alternative approach, we are making available the threshold values as calculated without this averaged data on the “FY 2023 Proposed Rule Homepage” at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps, as well as other supplemental files as discussed further in section I.O. of Appendix A of this proposed rule.

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 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 although we do not question FDA's 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 drugs, devices, or 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, if a medical device is part of FDA's Breakthrough Devices Program and received FDA marketing authorization, it 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) and that is part of FDA's Breakthrough Devices Program 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, 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 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.

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.

e. New Technology Liaisons

Many stakeholders (including device/biologic/drug developers or manufacturers, industry consultants, others) engage CMS for coverage, coding, and payment questions or concerns. In order to streamline stakeholder 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 stakeholders. This team is available to assist with all of the following:

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

We received many questions from stakeholders interested in pursuing new technology add-on payments who may not be entirely familiar with working with CMS. While we encourage stakeholders 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. Stakeholders 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 2024 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 2024, the CMS website also will post the tracking forms completed by each applicant. 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 Paper Reduction Act (PRA) and approved under OMB control number 0938-1347, and has an expiration date of 11/30/2023.

As discussed previously, in the FY 2020 IPPS/LTCH PPS final rule, we adopted an alternative inpatient new technology add-on payment pathway for certain transformative new devices and for Qualified Infectious Disease Products, as set forth in the regulations at § 412.87(c) and (d). The change in burden associated with these changes to the new technology add-on payment application process were discussed in a revision of the information collection requirement (ICR) request currently approved under OMB control number 0938-1347, with an expiration date of November 30, 2023. In accordance with the implementing regulations of the PRA, we detailed the revisions of the ICR and published the required 60-day notice on August 15, 2019 (84 FR 41723), and 30-day notice on December 17, 2019 (84 FR 68936), to solicit public comments.

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 2023 prior to publication of the FY 2023 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on September 24, 2021 (86 FR 53056), and held a virtual town hall meeting on December 14, 2021. 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 2023 new medical service and technology add-on payment applications before the publication of the FY 2023 IPPS/LTCH IPPS proposed rule.

Approximately 378 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 27, 2021, deadline, in our evaluation of the new technology add-on payment applications for FY 2023 in the development of this FY 2023 IPPS/ LTCH PPS proposed rule. In response to the published notice and the December 14, 2021, New Technology Town Hall meeting, we received written comments regarding the applications for FY 2023 new technology add on payments. As explained earlier and in the Federal Register notice announcing the New Technology Town Hall meeting (86 FR 53056 through 53059), 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 2023. Therefore, we are not summarizing those written comments in this proposed rule that are unrelated to the substantial clinical improvement criterion. In section II.F.6. of the preamble of this proposed rule, we are summarizing comments regarding individual applications, or, if applicable, indicating that there were no comments received in response to the New Technology Town Hall meeting notice or New Technology Town Hall meeting, at the end of each discussion of the individual applications.

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

As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434), the ICD-10-PCS includes a new section containing the new Section “X” codes, which began being used with discharges occurring on or after October 1, 2015. Decisions regarding changes to ICD-10-PCS Section “X” codes will be handled in the same manner as the decisions for all of the other ICD-10-PCS code changes. That is, proposals to create, delete, or revise Section “X” codes under the ICD-10-PCS structure will be referred to the ICD-10 Coordination and Maintenance Committee. In addition, several of the new medical services and technologies that have been, or may be, approved for new technology add-on payments may now, and in the future, be assigned a Section “X” code within the structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS website at https://www.cms.gov/medicare/icd-10/2021-icd-10-pcs, including guidelines for ICD-10-PCS Section “X” codes. We encourage providers to view the material provided on ICD-10-PCS Section “X” codes.

As discussed in more detail in section II.F.8. of the preamble of this proposed rule, we are proposing to use NDCs instead of ICD-10-PCS Section “X” codes to identify cases involving the use of therapeutic agents approved for new technology add-on payments beginning with a transitional period in FY 2023. We refer the reader to section II.F.8. of the preamble of this proposed rule for a full discussion of this proposal.

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 become available and 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 (85 FR 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. Proposed FY 2023 Status of Technologies Receiving New Technology Add-On Payments for FY 2022

In this section of the proposed rule, we discuss the proposed FY 2023 status of 37 technologies approved for FY 2022 new technology add-on payments, including 2 technologies approved for 2 separate add-on payments for different indications (RECARBRIO^TM and FETROJA®), as set forth in the tables that follow. 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 upcoming fiscal year. We note that, as discussed later in this section, we provided a 1-year extension of new technology add-on payments for FY 2022 for 13 technologies for which the new technology add-on payment would otherwise be discontinued beginning in FY 2022 using our authority under section 1886(d)(5)(I) of the Act.

Additionally, we note that we conditionally approved CONTEPO for FY 2022 new technology add-on payments under the alternative pathway for certain antimicrobial products (86 FR 45155), subject to the technology receiving FDA marketing authorization by July 1, 2022. As of the time of the development of this proposed rule, CONTEPO has not yet received FDA approval. If CONTEPO receives FDA marketing authorization before July 1, 2022, 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, 2022, no new technology add-on payments would be made for cases involving the use of CONTEPO for FY 2022. If CONTEPO receives FDA marketing authorization prior to July 1, 2022, we are proposing to continue making new technology add-on payments for CONTEPO for FY 2023. If CONTEPO does not receive FDA marketing authorization by July 1, 2022, then it would not be eligible for new technology add-on payments for FY 2022, and therefore would not be eligible for the continuation of new technology add-on payments for FY 2023. We further note that the applicant for CONTEPO did not submit an application for FY 2023 new technology add on payments and, therefore, the technology also would not be eligible for approval or conditional approval for new technology add-on payments for FY 2023.

a. Proposed FY 2023 Status of Technologies Approved for FY 2022 New Technology Add-On Payments

As noted previously, we used our authority under section 1886(d)(5)(I) of the Act to allow a 1-year extension of new technology add-on payments for FY 2022 for 13 technologies for which the add-on payments would otherwise be discontinued beginning in FY 2022 because the technologies would no longer be considered “new” for FY 2022. In this section, we discuss the proposed FY 2023 status for the remaining 24 technologies approved for FY 2022 new technology add-on payments. Specifically, we present our proposals to continue the new technology add-on payment for FY 2023 for those technologies that were approved for the new technology add-on payment for FY 2022 and which would still be considered “new” for purposes of new technology add-on payments for FY 2023. We also present our proposals to discontinue new technology add-on payment for FY 2023 for those technologies that were approved for the new technology add-on payment for FY 2022 and which would no longer be considered “new” for purposes of new technology add-on payments for FY 2023.

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).

The following table lists the technologies for which we are proposing to discontinue making new technology add-on payments for FY 2023 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, relevant final rule citations from prior fiscal years, and coding assignments for each technology. We refer readers to the cited final rules in the following table for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

We are inviting public comments on our proposals to discontinue new technology add-on payments for FY 2023 for the technologies listed in the Table BBBB-A1.

Table II.F.-02 lists the technologies for which we are proposing to continue making new technology add-on payments for FY 2023 because they are still considered “new” for purposes of new technology add-on payments. This table also presents the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We refer readers to the cited final rules in the following table for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

We note, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45104 through 45107), on May 1, 2020, VEKLURY® (remdesivir) received an Emergency Use Authorization (EUA) from FDA for the treatment of suspected or laboratory confirmed COVID-19 in adults and children hospitalized with severe disease. The applicant asserted that between July 1, 2020 and September 30, 2020, it entered into an agreement with the U.S. Government to allocate and distribute commercially-available VEKLURY® across the country. The applicant stated that under this agreement, the first sale of VEKLURY® was completed on July 10, 2020. The applicant stated that they transitioned to a more traditional, unallocated model of distribution as of October 1, 2020. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45107), we determined that VEKLURY® meets the newness criterion with an indication for use in adults and pediatric patients (12 years of age and older and weighing at least 40 kg) for the treatment of COVID-19 requiring hospitalization. We stated that consistent with our longstanding policy, we considered the newness period for VEKLURY® to begin on October 22, 2020, when the NDA for VEKLURY® was approved by FDA for adults and pediatric patients (12 years of age and older and weighing at least 40 kg) for the treatment of COVID-19 requiring hospitalization. We also discussed comments solicited regarding the newness period for products available through an EUA for COVID-19 in section II.F.7. of the FY 2022 IPPS/LTCH PPS final rule (86 FR 45159 through 45160), including comments we received regarding the potential variability in cost estimates for technologies available under an EUA due to government price subsidies or variable treatment practices in the context of the global pandemic and comments suggesting that CMS monitor pricing changes for products available under an EUA once a product receives full marketing authorization, instead of basing the newness period on data that may have become available under an EUA, and indicated that we would consider these comments for future rulemaking.

After further review of the information provided by the applicant, we believe that additional information related to VEKLURY®'s commercial availability is relevant to assessing the start of the newness period for VEKLURY®. The applicant stated that once VEKLURY® was issued an EUA, from May through June 2020, the entire existing supply of VEKLURY® was donated worldwide and distributed to hospitals free of charge. The applicant further stated that the commercial list price of the technology was announced when it entered into the agreement with the U.S. Government previously described, in anticipation of the post-donation phase. Under this agreement, the U.S. Government allocated VEKLURY® to each hospital, and the hospitals would then choose to purchase quantities of VEKLURY® directly from the applicant's subsidiary who was the sole distributor.

We continue to believe this issue is complex, particularly as it relates to VEKLURY® as a technology that has been available under both an EUA and an NDA. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45159 through 45160), while an EUA is not marketing authorization within the meaning of § 412.87(e)(2) for purposes of eligibility for new technology add-on payments, data reflecting the costs of products that have received an EUA could become available as soon as the date of the EUA issuance and prior to receiving FDA approval or clearance. In the case of VEKLURY®, we believe that there may be unique considerations in determining the start of the newness period in light of the donation period, during which the technology was distributed at no cost. Accordingly, while we continue to believe that data reflecting the costs of a product that has received an EUA could become available as soon as the date of EUA issuance for that product, we believe that with respect to VEKLURY®, such data may not have become available until after the end of the donation period, when the technology became commercially available, on July 1, 2020. For these reasons, after further consideration, we believe the newness period for VEKLURY® may more appropriately begin on July 1, 2020, the date on which the technology became available for sale under the allocation agreement. We note that VEKLURY® would still be considered new for FY 2023 regardless of whether the newness period began on May 1 (the date of the EUA), July 1 (the date the donation phase ended), October 22 (the date of the NDA), or some other date in between, as in all cases the three-year anniversary date would occur after April 1, 2023, and therefore the product would remain eligible for FY 2023 new technology add-on payments.

Therefore, as reflected in the table that follows, we are proposing to continue new technology add-on payments for VEKLURY® for FY 2023. We invite public comments on this proposal, including the newness start date for VEKLURY®. As discussed, while we continue to believe that data reflecting the costs of a product that has received an EUA could become available as soon as the date of EUA issuance for that product, we also recognize that there may be unique considerations in determining the start of the newness period for a product available under an EUA. We are continuing to consider the comments as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45159) regarding the newness period for products available through an EUA for COVID-19, and we welcome additional comments in this proposed rule.

We further note that we are proposing to continue new technology add-on payments for Caption Guidance for FY 2023, a technology sold on a subscription basis. We continue to welcome comments from the public as to the appropriate method to determine a cost per case for technologies sold on a subscription basis, including comments on whether the cost per case should be estimated based on subscriber hospital data as described previously, and if so, whether the cost analysis should be updated based on the most recent subscriber data for each year for which the technology may be eligible for the new technology add-on payment.

We are inviting public comments on our proposals to continue new technology add-on payments for FY 2023 for the technologies listed in the following table.

b. Status of Technologies Provided a One-Year Extension of New Technology Add-On Payments in FY 2022

As stated in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44789), our goal is always to use the best available data overall for ratesetting. The best available MedPAR data would typically be 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.

In the FY 2022 IPPS/LTCH PPS final rule, for the reasons discussed, we finalized that we would use FY 2019 MedPAR data instead of FY 2020 MedPAR data to develop the FY 2022 MS-DRG relative weights (86 FR 44789 through 44793). Because we finalized that we would use FY 2019 MedPAR data instead of FY 2020 MedPAR data for the development of the FY 2022 MS-DRG relative weights, we stated that the costs for a new technology for which the 3-year anniversary date of the product's entry onto the U.S. market occurs prior to the latter half of FY 2022 may not be fully reflected in the MedPAR data used to recalibrate the MS-DRG relative weights for FY 2022. Therefore, in light of this final policy, we finalized our proposal to use our authority under section 1886(d)(5)(I) of the Act to allow for a 1-year extension of new technology add-on payments for FY 2022 for 13 technologies (see table below) for which the new technology add-on payment would have otherwise been discontinued beginning with FY 2022. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44975 through 44979) for a complete discussion regarding this 1-year extension for FY 2022.

For FY 2023 ratesetting, as we discuss in section I.F. of this proposed rule, we believe the best available data would be the FY 2021 MedPAR file. As discussed in section I.F. of this proposed rule, for FY 2023, we are proposing to use the FY 2021 MedPAR (the best available data at the time of this proposed rule) for FY 2023 ratesetting, including for purposes of developing the FY 2023 relative weights. We refer the reader to section I.F. of this proposed rule for a complete discussion regarding our proposal to use the FY 2021 MedPAR for the FY 2023 ratesetting and recalibration of the FY 2023 MS-DRG relative weights.

As noted previously, 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. For FY 2023, because we are proposing to use FY 2021 MedPAR data to recalibrate the FY 2023 MS-DRG relative weights, we believe the costs of the 13 technologies in the following table, for which the 3-year anniversary date of the product's entry onto the U.S. market occurs prior to FY 2023 (and therefore are no longer “new”), may now be fully reflected in the MedPAR data used to recalibrate the MS-DRG relative weights for FY 2023. As a result, we are proposing to discontinue new technology add on payments for these 13 technologies in FY 2023.

We are inviting public comments on our proposals to discontinue new technology add-on payments for FY 2023 for these 13 technologies listed in Table BBBB-A3.

6. FY 2023 Applications for New Technology Add-On Payments (Traditional Pathway)

We received 18 applications for new technology add-on payments for FY 2023 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. Five applicants withdrew their applications prior to the issuance of this proposed rule. We are addressing the remaining 13 applications.

a. CARVYKTI^TM (ciltacabtagene autoleucel)

Janssen Biotech, Inc., submitted an application for new technology add-on payments for CARVYKTI^TM (ciltacabtagene autoleucel) for FY 2023. CARVYKTI^TM is an autologous chimeric-antigen receptor (CAR) T-cell therapy directed against B cell maturation antigen (BCMA) for the treatment of patients with multiple myeloma. We note that Janssen Biotech, Inc. previously submitted an application for new technology add-on payments for CARVYKTI^TM for FY 2022 under the name ciltacabtagene autoleucel, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25233 through 25239), but withdrew that application prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44979).

The applicant stated that ciltacabtagene autoleucel refers to both JNJ-4528, an investigational BCMA-directed CAR T-cell therapy for previously treated patients with multiple myeloma, and LCAR-B38M, the investigational product (ciltacabtagene autoleucel) being studied in China. Both JNJ-4528 and LCAR-B38M are representative of the same CAR T-cell therapy, ciltacabtagene autoleucel.

Multiple myeloma is an incurable blood cancer that affects a type of white blood cell called plasma cells. Plasma cells, found in bone marrow, make the antibodies that help the body attack and kill various pathogens. According to the applicant, when damaged, malignant plasma cells rapidly spread and replace the normal cells in the bone marrow. The applicant asserted the median age of onset is 69 years old and only 3% of patients are less than 45 at the age of diagnosis; it was estimated that in 2021 nearly 35,000 people would be diagnosed and more than 12,000 will die from multiple myeloma in the US. According to the applicant, multiple myeloma is associated with substantial morbidity and mortality and median 5 year survival is 56%.

According to the applicant, introduction of new treatment options in the last 2 decades has extended the median survival of multiple myeloma patients. The applicant asserted that the introduction of proteasome inhibitors (PI) (for example, bortezomib, carfilzomib, and ixazomib), histone deacetylase inhibitors (for example, panobinostat, vorinostat), immunomodulatory agents (IMiD) (for example, thalidomide, lenalidomide, and pomalidomide), monoclonal antibodies (daratumumab and elotuzumab), and stem cell transplantation, have allowed numerous therapeutic options for patients with multiple myeloma (Rajkumar 2020). According to the applicant, the National Comprehensive Cancer Network (NCCN) recommended treatment regimen for first-line therapy of multiple myeloma is bortezomib (a PI), lenalidomide (an IMiD) and dexamethasone. According to the applicant, the strategy of triplet therapies for patients with newly diagnosed multiple myeloma, followed by high-dose chemotherapy and autologous stem-cell transplantation for eligible patients, and subsequently consolidation and maintenance therapy, is the current treatment roadmap for patients. However, despite these treatments, according to the applicant, most patients will relapse after first-line treatment and require further treatment with only 50% survival of relapsed patients after 5 years. The applicant stated that as multiple myeloma progresses, each subsequent line of treatment is associated with shorter progression free survival (PFS) and decreased rate, depth, and durability of response and worsening of quality of life. In addition, cumulative and long-term toxicities are often associated with long-term therapy (Ludwig, 2018). Thus, according to the applicant, there remains an ongoing need for additional therapeutic approaches when the disease is resistant to available therapy.

The applicant asserted that relapsed and refractory (r/r) multiple myeloma (RRMM) constitutes a specific unmet medical need. According to the applicant, patients with r/r disease are defined as those who, having achieved a minor response or better, relapse and then progress while on therapy, or experience progression within 60 days of their last therapy. The applicant stated the introduction of a new class of agents, CD38-targeting monoclonal antibodies (CD38 MoAbs), daratumumab and isatuximab, have improved options in r/r patients. The applicant asserted that given these advances, guideline recommendations following first-line therapy are varied, with treatment options including combinations of novel agents with existing standard of care regimens, and include triplet and quadruplet regimens, creating a complex treatment landscape. According to the applicant, while triplet regimens should be used as the standard therapy for patients with multiple myeloma, elderly or frail patients may be treated with double regimens. The applicant further states that for patients with RRMM who have received at least three prior lines of therapy, including a PI, an IMiD and an anti-CD38, there does not exist a standard or consensus for treatment at this time, and often, supportive care/palliative care is the only option.

According to the applicant, multiple myeloma remains incurable and most patients eventually relapse, even with the advent of new treatments. The applicant further stated that novel, innovative therapies are needed to improve long-term survival and outcomes. The applicant asserted that CAR T-cell-based therapies offer potential advantages over current therapeutic strategies. According to the applicant, while other therapies require long-term repetitive administration generally until progression of disease, CAR T-cell therapy is a single infusion treatment due to live T-cell expansion in the patient and long-term disease response. The applicant asserted that CARVYKTI^TM is an autologous CAR T-cell therapy directed against B cell maturation antigen (BCMA) for the treatment of patients with multiple myeloma. The applicant stated that BCMA, a protein that is highly expressed on myeloma cells and is a member of the tumor necrosis factor (TNF) receptor family, plays a central role in regulating B-cell maturation and differentiation into plasma cells. The applicant stated BCMA is selectively expressed on a subset of B cells (plasma cell neoplasms including myeloma cells) and is more stably expressed specifically on the B cell lineage, compared with key plasma cell marker CD138, which is also expressed on normal fibroblasts and epithelial cells. According to the applicant, these expression characteristics make BCMA an ideal therapeutic target for the treatment of multiple myeloma. CARVYKTI^TM, according to the applicant, is a unique, structurally differentiated BCMA-targeting chimeric antigen receptor with two distinct BCMA-binding domains that can identify and eliminate myeloma cells.

The applicant asserted that CAR T-cell technology is a form of immunotherapy and is a “living drug” that utilizes specially altered T cells, part of the immune system, to fight cancer. According to the applicant, a sample of the patient's T cells are collected from the blood, then modified in a laboratory setting to express a CAR. The applicant stated chimeric antigen receptors are specifically designed receptor proteins that are made up of three distinct features: (1) A target recognition domain (typically derived from a single domain of an antibody) that sits on the cell's exterior; (2) a co-stimulatory domain on the cell's interior that boosts activation, enhances survival and expansion of the modified cells; and (3) an interior stimulatory domain that supports activation and target killing. According to the applicant, the binding domain expressed on the surface of T cells gives them the new ability to target a specific protein. The applicant stated, when the target is recognized, the intracellular portions of the receptor send signals within the T cells to destroy the target cells. The applicant asserted these engineered CAR T-cells are reinfused back into the same patient, which enables these specialized T cells to latch onto the target antigen and abolish the tumor cells.

According to the applicant, CARVYKTI^TM is a CAR T-cell immunotherapy designed to recognize myeloma cells and target their destruction. According to the applicant, CARVYKTI^TM 's CAR T-cell technology consists of harvesting the patient's own T cells, programming them to express a chimeric antigen receptor that identifies BCMA, a protein highly expressed on the surface of malignant multiple myeloma B-lineage cells, and reinfusing these modified cells back into the patient where they bind to and eliminate myeloma tumor cells. The applicant asserted that, unlike the chimeric antigen receptor design of currently approved CAR T-cell immunotherapies, which are composed of a single-domain antibody (sdAbs), CARVYKTI^TM is composed of two antibody binding domains that allow for high recognition of human BCMA (CD269) and elimination of BCMA expressing myeloma cells. According to the applicant, the two distinct BCMA-binding domains confer avidity and distinguish CARVYKTI^TM from other BCMA-targeting products. The applicant stated the BCMA binding domains are linked to the receptor's interior costimulatory (4-1BB) and signaling (CD3ζ) domains through a transmembrane linker (CD8a). The applicant asserted these intracellular domains are critical components for T cell growth and anti-tumor activity in the body once CAR T-cells are bound to a BCMA target on multiple myeloma cells.

With respect to the newness criterion, according to the applicant, CARVYKTI^TM was granted Breakthrough Therapy designation in December 2019 for the treatment of adult patients with relapsed or refractory multiple myeloma, who previously received a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 antibody. Per the applicant, FDA approved the Biologics License Application (BLA) for CARVYKTI^TM on February 28, 2022 for the treatment of adult patients with relapsed or refractory multiple myeloma after four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. The applicant stated that procedures involving the administration of CARVYKTI^TM can be uniquely identified using the following ICD-10-PCS procedure codes: XW033A7 (Introduction of ciltacabtagene autoleucel into peripheral vein, percutaneous approach, new technology group 7) and XW043A7 (Introduction of ciltacabtagene autoleucel into central vein, percutaneous approach, new technology group 7). The applicant also noted that they will submit a request for a Healthcare Common Procedure Coding System (HCPCS) code specific to the administration of CARVYKTI^TM once the product is eligible for such a code.

As previously stated, if a technology meets all three of the substantial similarity criteria as previously described, it would be considered substantially similar to an existing technology and therefore would not be considered “new” for purposes of new technology add-on payments.

With respect to whether a product uses the same or a similar mechanism of action when compared to an existing technology to achieve a therapeutic outcome, the applicant asserted that CARVYKTI^TM has a unique mechanism of action because it has two distinct binding domains that confer avidity to the BCMA antigen, a 4-1BB costimulatory domain and a CD3z signaling domain, whereas other CAR T-cell products have only one target binding domain. The applicant asserted that ABECMA® also targets BCMA, but does so by binding to a single BCMA domain. In addition to detail provided in the applicant's FY 2022 application (as discussed in 86 FR 25235 through 25236), the applicant asserted that CARVYKTI^TM differs significantly from ABECMA® and other BCMA-targeting agents, including Blenrep, because it targets BCMA with two distinct binding domains. According to the applicant, the distinct BCMA-binding moieties confer avidity and distinguish CARVYKTI^TM from other BCMA CAR T-cell constructs providing a novel mechanism of action. The applicant added, the 4-1BB and CD3z domains on the CAR optimize T cell activation and proliferation. According to the applicant, non-clinical pharmacology and toxicology have been used to characterize the biological activity and mechanism of action of CARVYKTI^TM and confirm the on-target specificity to BCMA through (1) in vitro binding characterization; (2) in vitro co-culture assays to assess CAR T-cell cytotoxicity and cytokine release; (3) in vivo efficacy studies in mice with human CAR T- cells; and (4) an in vivo safety study. According to the applicant, because CARVYKTI^TM has a novel mechanism of action with two distinct BCMA-binding domains that confer binding avidity and unprecedented clinical activity compared with other novel anti-myeloma treatments in comparable study populations, it is unlike any existing technology utilized to treat relapsed/refractory multiple myeloma.

With regard to whether a product is assigned to the same DRG when compared to an existing technology, the applicant asserted that because CMS has suggested that all inpatient hospitalizations involving a CAR T-cell treatment will be assigned to DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies), CARVYKTI^TM is expected to be assigned to the same DRG as other multiple myeloma cases treated with a CAR T-cell therapy. We note that the DRG assignment was finalized to Pre-MDC MS-DRG 018, effective October 1, 2022 and is reflected in the V39.1 ICD-10 MS-DRG Grouper effective April 1, 2022 (86 FR 58021).

With regard to whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant asserted in its application that CARVYKTI^TM is indicated for a broader population than other available therapies, specifically multiple myeloma patients having received three prior therapies. The applicant asserted in its application that Blenrep and ABECMA® are indicated only for those with at least 4 prior therapies whereas CARVYKTI^TM had a proposed indication for the treatment of patients with 3 or more prior therapies. According to the applicant, CARVYKTI^TM could potentially be used in a broader multiple myeloma population, that includes patients after 3 prior therapies as opposed to 4 for Blenrep and ABECMA®.

According to the applicant, FDA is currently reviewing the registrational trial CARTITUDE 1. The applicant stated that in this trial, 17% (a total of 17 patients) of patients had only three prior lines of therapy; results were presented at the American Society of Hematology (ASH) 2021 meeting on fourth line patients. The applicant stated that among those with three prior lines of therapy, the response rate was 100%, the median duration of response (DoR) was 21.8 months, minimal residual disease (MRD) negativity was found in 80%, the 18-month progression free survival (PFS) was 75.6%, and the 18-month overall survival (OS) was 88.2 months. According to the applicant, because the sample size was small (17), median endpoints may not be as rigorous as in the larger population.

According to the applicant, the distinction between three and four previous lines of therapy is important. The applicant asserted with each subsequent therapy patients generally become frailer and their prognosis worsens. The applicant stated that studies comparing fourth line to fifth line are not as common as trials studying earlier lines, but in a real-world study by Yong et al. the percent of myeloma patients who were able to move from third line therapy to fourth line was 15% of all diagnosed myeloma patients, and only 1% of patients moved to a fifth line. The applicant added that in the same study of those patients in first line therapy, approximately 90% of patients were able to discontinue treatment due to remission and/or planned end of treatment while only 13% of those in fifth line ended treatment due to stable disease/remission.

The applicant asserted that for these reasons, CARVYKTI^TM does not meet the third criterion and is therefore a new technology with regards to the population having been studied and being targeted for use.

In summary, the applicant asserted that CARVYKTI^TM meets the newness criterion because it is not substantially similar to other available therapies due to its unique mechanism of action, with two distinct binding domains that confer avidity to the BCMA antigen, and because it treats a different patient population, RRMM patients who received three prior therapies. As we stated in the FY 2022 proposed rule (86 FR 25236), we note that CARVYKTI^TM may have a similar mechanism of action to that of ABECMA®. We note ABECMA® received approval for new technology add-on payments for FY 2022 for the treatment of adult patients with RRMM after four or more prior lines of therapy, including an immunomodulatory agent, a proteasome inhibitor, and an anti-CD38 monoclonal antibody (86 FR 45028 through 45035). Although the number of BCMA binding domains of CARVYKTI^TM and ABECMA® differ, it appears that the mechanism of action for both therapies is the binding to BCMA by a CAR construct, which results in T-cell activation and killing of malignant myeloma cells. We note that the applicant asserted that CARVYKTI^TM 's mechanism of action is unique due to its dual binding domain which affects the therapy's clinical activity, as compared to existing technologies with a single binding domain. However, we are unclear how the additional BCMA binding domain represents a change in the mechanism of action of this therapy, or if it may instead relate to an assessment of whether the technology meets the substantial clinical improvement criterion. Because of the potential similarity with the BCMA antigen and other actions, we believe that the mechanism of action for CARVYKTI^TM may be the same or similar to that of ABECMA®.

We note that the applicant stated that CARVYKTI^TM may serve a new patient population if approved as a fourth line treatment, as existing treatments are approved for fifth line treatment. However, we note that CARVYKTI^TM 's recent approval states that it is indicated for fifth line treatment and we therefore question whether CARVYKTI^TM treats a new patient population.

Accordingly, as it appears that CARVYKTI^TM and ABECMA® are purposed to achieve the same therapeutic outcome using the same or similar mechanism of action, are assigned to the same MS-DRG, and treat the same or similar patient population and disease, we believe that these technologies may be substantially similar to each other. We note that if this technology is substantially similar to ABECMA®, we believe the newness period for this technology would begin on March 26, 2021, the date ABECMA® received FDA approval. We are interested in information on how these two technologies may differ from each other with respect to the substantial similarity criteria and newness criterion. We are inviting public comment on whether CARVYKTI^TM meets the newness criterion, including whether CARVYKTI^TM is substantially similar to ABECMA® for purposes of new technology add-on payments.

With regard to the cost criterion, the applicant searched the FY 2019 MedPAR final rule to identify potential cases representing patients who may be eligible for treatment using CARVYKTI^TM . In its analysis, the applicant identified a primary cohort to assess whether this therapy met the cost criterion. The following ICD-10-CM diagnosis codes were used to identify claims involving multiple myeloma procedures.

The applicant stated that it identified two cohorts for the cost analysis: Cohort A limited the analysis to MS-DRG 016 (Autologous Bone Marrow Transplant W CC/MCC or T-Cell Immunotherapy) because patients receiving autologous bone marrow transplant (BMT) are generally patients with relapsed or refractory multiple myeloma and are most similar to patients who would be eligible to receive CAR T-cell therapy; Cohort B limited the analysis to MS-DRG 018 (CAR T-Cell and Other Immunotherapies). The applicant stated that the claim search resulted in 1,215 claims in Cohort A and 268 claims in Cohort B using the FY 2019 MedPAR. The applicant stated that it used the New Technology Threshold for FY 2023 from the FY 2022 IPPS/LTCH PPS final rule for MS-DRG 018. The applicant stated that it removed all charges in the drug cost center for the prior technology because, according to the applicant, it is not possible to differentiate between different drugs on inpatient claims. Per the applicant, this is likely an overestimate of the charges that would be replaced by the use of CARVYKTI^TM . The applicant added that it then standardized the charges using the FY 2022 IPPS/LTCH PPS final rule impact file. Next, the applicant applied a 4-year inflation factor of 1.281834 or 28.1834%, based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule to update the outlier threshold) (86 FR 45542). To calculate the charges for the new technology for both cohorts, the applicant stated that it first used the inverse of a simulated alternative cost-to-charge ratio (CCR) specifically for CAR T-cell therapies and second used the national average drug CCR. The applicant stated that a simulated alternative CCR was used to account for CAR T-cell therapies' higher costs compared to other drugs and the potential for hospitals' charging practices to differ for these drugs. To determine this alternative CCR for CAR T-cell therapies, the applicant referred to the FY 2021 IPPS final rule After Outliers Removed (AOR)/Before Outliers Removed (BOR) file and calculated an alternative markup percentage by dividing the AOR drug charges within MS-DRG 018 by the number of cases to determine a per case drug charge. The applicant then divided the drug charges per case by $373,000, the acquisition cost of YESCARTA® and KYMRIAH®, the CAR T-cell products used in those claims, to arrive at a CCR of 0.295. The applicant stated that it used the national average drug CCR of 0.187 from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966). For Cohort A, with the CAR T-cell CCR, the applicant calculated a final inflated average case-weighted standardized charge per case of $1,695,406, which it stated exceeded the average case-weighted threshold amount of $1,256,379. For Cohort A, with the national average drug CCR, the applicant stated that it calculated a final inflated average case-weighted standardized charge per case of $2,595,169, which it stated exceeded the average case-weighted threshold amount of $1,256,379. For Cohort B, with the CAR T-cell CCR, the applicant stated that it calculated a final inflated average case-weighted standardized charge per case of $1,713,723, which it stated exceeded the average case-weighted threshold amount of $1,256,379. The applicant stated that if CARVYKTI^TM meets the cost criterion using the more conservative alternate CAR T-cell CCR to inflate the cost of the treatment to charges, then it will also meet the cost criterion using the national average drug CCR to inflate the cost to charges. The applicant stated that because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, CARVYKTI^TM meets the cost criterion.

In regard to the cost criterion, we question whether the ICD-10 codes used to identify potential cases are appropriately representative of those who would receive CARVYKTI^TM . Specifically, we are uncertain if the applicant's identification of cases using the previously specified ICD-10 codes differentiated between those treated with one, two, three, and four prior lines of therapy. We are also seeking clarification on whether these cases are appropriately representative of the technology. We note that while the applicant provided a cost analysis for Cohort A, with a simulated alternative CCR specifically for CAR T-cell therapies, the applicant did not provide the cost analyses for Cohort B or Cohort A with the national average drug CCR. We request these cost analyses as we are unable to evaluate these analyses based on the information provided by the applicant. As we have noted in previous discussions (86 FR 25237, 86 FR 25279), the submitted costs for CAR T-cell therapies vary widely due to differences in provider billing and charging practices for this therapy, and we are continuing to consider the use of this submitted cost data for purposes of calculating a CAR T-cell CCR for use in the applicant's cost analyses given this potential for variability. Therefore, we request submission of the cost analyses with the national average drug CCR, which the applicant referenced, but did not submit, for cost criterion consideration.

We invite public comment on whether CARVYKTI^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that it believes that CARVYKTI^TM represents a substantial clinical improvement over existing technologies because it: (1) Treats a new and expanded patient population, (2) offers a treatment for a patient population with limited options and continued disease progression, despite having been treated with multiple prior therapies; and (3) provides a significantly improved clinical outcome relative to other therapies, either approved or still under FDA review, used in the relapsed and refractory multiple myeloma setting.

With regard to the applicant's assertion that CARVYKTI^TM treats a new and expanded patient population, the applicant stated that other multiple myeloma therapies, such as Blenrep and ABECMA®, are indicated for patients with at least four prior therapies including a PI, an IMiD, and a CD38 antibody. In its application, the applicant asserted that CARVYKTI^TM may receive an indication for patients with only three prior lines of therapy. The applicant cited the CARTITUDE-1 trial where 17% of patients had three prior lines of therapy.

With regard to the applicant's assertion that CARVYKTI^TM offers a treatment for a patient population with limited options and continued disease progression, despite having been treated with multiple prior therapies, the applicant cited results from the CARTITUDE-1 STUDY, a Phase 1b/2, open-label, multicenter, multi-national (including US) study (n=113) to evaluate the safety and efficacy of ciltacabtagene autoleucel in adult patients who have RRMM who have previously received a PI, an IMiD, and an anti-CD38 antibody. The applicant asserted that ciltacabtagene autoleucel was granted Breakthrough Therapy designation for patients who have RRMM who have previously received a PI, an IMiD, and an anti-CD38 antibody, based on data from the Phase 1b/2 CARTITUDE-1 study. According to the applicant, of the 113 enrolled patients, 16 discontinued the study, including 9 patients who died due to progressive disease. Ninety-seven patients received ciltacabtagene autoleucel. The Phase 1b portion of the study included 29 of the 97 patients.

Two patients died during the study: One due to cytokine release syndrome (CRS) and one due to acute myeloid leukemia (not treatment-related). According to the applicant, 24 patients were ongoing in the phase 1b dose confirmation period with an additional 59 patients ongoing in the phase 2 portion. The applicant stated the primary objective of the Phase 1b portion of the trial was to confirm the safety of the selected dose based on the data from the ongoing Phase 1 trial in China (Legend-2), as discussed later in this section. The applicant asserted the primary objective of the Phase 2 portion of the trial is to evaluate the efficacy of ciltacabtagene autoleucel.

The applicant asserted that at median follow-up of 18 months, ciltacabtagene autoleucel led to a 98% overall response rate (ORR) in all 97 study patients who received ciltacabtagene autoleucel. The applicant asserted that this unprecedented overall response rate of (98%), represents early, deep, and durable responses in all patients, minimal residual disease negativity (meaning minimal residual cancer cells after treatment to the -nth degree) in the majority of patients who achieved a complete response (CR) and a very manageable toxicity profile. The applicant provided a comparison of the ORR in phase 1 studies for other therapies used to treat RRMM and noted the following: Idecabtagene vicleucel ORR 60%, daratumumab ORR 31%, Selinexor ORR 26%, and Blenrep ORR 31%. According to the applicant, in addition to the CARTITUDE-1 trial ORR, the Legend-2 study demonstrated an ORR of 87.8% (95% CI: 78.2, 94.3) at a 2 year follow up time period. The applicant asserted that both of these studies are ongoing and the depth and duration of response continues to improve over time.

The applicant further asserted that ciltacabtagene autoleucel led to early and deep clinical responses in the phase1b/2 portion of the CARTITUDE-1 study at median follow up of 18 months. The applicant stated that results of CARTITUDE-1 showed 80% of patients attaining a stringent complete response (sCR) and 93% of patients attaining a very good partial response (VGPR) or better. According to the applicant, ORR and depth of response were independent of BCMA expression on myeloma cells at baseline. The median time to first response was one month (range, 1-9).

The applicant also asserted that most patients attained a status of MRD-negativity by the time they were evaluable for a CR. According to the applicant, of evaluable patients, 93.0% achieved MRD 10 negativity. According to the applicant, 58% of patients were both MRD negative and in sCR at MRD detection level of 10⁻⁵ . According to the applicant, the median time to MRD 10⁻⁵ negativity was 1 month (0.8-7.7). The applicant stated, among patients with 6 months individual follow-up, most had ciltacabtagene autoleucel CAR+ T-cells below the level of quantification (2 cells/μL) in peripheral blood.

The applicant added that PFS at 12 months was 77% (95% CI; 66.0-84.37) with median PFS not having been reached. According to the applicant, at median follow-up of 12.4 months, there were 14 deaths during the Phase 1b/2 study: One due to CRS and hemophagocytic lymphohistiocytosis (HLH), one due to neurotoxicity, and 12 due to other causes. The applicant asserted that the CRS was manageable in most patients; CRS was the most common adverse event (AE) (94.8%) observed in the CARTITUDE-1 study. According to the applicant, the median time to onset of CRS was 7 days (range 1-12 days) post ciltacabtagene autoleucel infusion with a median duration of 4 days. The applicant asserted that 90% of patients experienced Grade 1-2 CRS and 5 patients (5%) experienced grade 3 or greater CRS. According to the applicant there were 3 Grade 3 CRS, 1 Grade 4, and 1 aforementioned death due to CRS/HLH Grade 5 event.

The applicant noted that in the CARTITUDE-1 trial, neurotoxicity with immune effector cell-associated neurotoxicity syndrome (ICANS) was infrequently observed in the context of CRS and was generally low grade. Neurotoxicity with ICANS was observed in 20 patients (20.6%) including 10 patients (10.3%) with Grade 3 or above toxicity.

According to the applicant, the LEGEND-2 study is an ongoing Phase 1, single-arm, open-label, multicenter, first-in-human trial to determine the safety and efficacy of ciltacabtagene autoleucel (LCAR-B38M in China) in the treatment of patients with relapsed or refractory multiple myeloma. The applicant stated enrollment in this investigator-initiated study (study proposed, initiated, and conducted by an investigator that is funded by industry) completed in November 2017; a total of 74 patients with RRMM have been treated with ciltacabtagene autoleucel CAR T-cell therapy. The applicant stated the clinical cutoff for the analysis of these 74 patients was February 6, 2018 with updated survival and efficacy data as of November 26, 2019 (which represents 2 years of follow-up from the date of the last subject's infusion). The applicant stated in the LEGEND-2 study, at a median follow up of 25 months, the median PFS for all patients was 19.9 months and 28.2 months for patients with CR. According to the applicant, 17 patients (17/57—29%) died during the study and follow up period (19 months) mostly due to progressive disease. The applicant asserted that none were related to CRS or neurotoxicity, the two most common adverse events associated with CAR T-cell therapy. At data cutoff, 57 patients had received LCAR-B38M CAR T-cells.

The applicant further asserted that outcomes from the LEGEND-2 study show that ciltacabtagene autoleucel provides a significantly improved clinical outcome relative to other therapies, either approved or still under FDA review, used in the RRMM setting. According the applicant, at a median follow up of 19 months, the overall response rate for ciltacabtagene autoleucel was 88%. The applicant stated the overall survival (OS) rate at 18 months was 68% (54-79%) with a median duration of response (mDOR) of 22 months (13-29). The applicant stated that of MRD-negative patients with CR, 91% were still alive at data cut, with a 27-month (95% CI, 14.3-NE) mDOR. The applicant added that the median time to first response was 1.1 months. The applicant asserted there was no relationship between best response and baseline BCMA expression level or weight-adjusted CAR T-cells infused. We note some inconsistencies between the citation provided and what the applicant stated. Specifically, per the citation, the median time to follow-up was 25 months, with a median overall survival among all patients of 36.1 months (95% CI, 26.4-NE), and a MDOR of 29.1 months (95% CI, 19.9-NE).

The applicant asserted that of patients in the LEGEND-2 study with CR, 39 of 42 were minimal residual disease negative (MRD-neg) and remained RRMM progression-free. According to the applicant, the median PFS rate for all treated patients was 20 months (10-28); median PFS for MRD-neg patients with CR was 28 months (20-31). The applicant stated that at 18 months, the PFS rate was 50 (36-63%) for all patients and 71% (52-84%) for MRD-neg patients with CR. The applicant stated that 17 patients died during the study and the follow-up period. The causes of death included progressive disease (PD; n=11), disease relapse, PD with lung infection, suicide after PD, esophageal carcinoma, infection, pulmonary embolism and acute coronary syndrome (n=1 each). Of these, 4 did not achieve partial response (PR) or better; and 1 was not evaluable.

According to the applicant, from the LEGEND-2 study, the median time to onset of CRS was 9 days (range, 1-19) with a median duration of 9 days (range, 3-57); all but 1 CRS events resolved. Tocilizumab (46%), oxygen (35%), vasopressor (11%), and intubation (1 patient) were used to treat CRS. Neurotoxicity with Grade 1 aphasia, agitation and seizure-like activity was observed in 1 patient in the LEGEND-2 study. The applicant believes that since ciltacabtagene autoleucel displayed a manageable CRS safety profile that it represents a substantial clinical improvement over existing therapies.

The applicant lastly discussed multiple unpublished studies which used matching-adjusted indirect treatment comparison (MAIC) and other matching techniques to compare ciltacabtagene autoleucel to other existing therapies. The applicant stated that while there are no randomized head-to-head trials comparing ciltacabtagene autoleucel to ABECMA®, there is a peer-reviewed, published MAIC where individual patient data from CARTITUDE-1 (ciltacabtagene autoleucel) and published summary-level data for ABECMA® from the KarMMA trial are compared. According to the applicant, the authors concluded that ciltacabtagene autoleucel demonstrated clinically superior results for all outcomes studied (ORR, CR rate, DoR, PFS, and OS), and these were robust across all sensitivity analyses. The applicant provided, as an example, results from one study by Martin et al. (2021) which, when comparing ciltacabtagene autoleucel to ABECMA®, found that the former had a 34% higher chance of response, a 220% higher chance of a CR, a hazard ratio of 0.5 for the DoR, 0.37 for PFS, and 0.55 for OS. The applicant asserted that based on these findings, ciltacabtagene autoleucel offers substantial clinical benefits for patients with triple-class exposed RRMM compared to ABECMA®.

According to the applicant, there are several unpublished studies employing MAIC and other matching techniques comparing clinical outcomes for patients receiving ciltacabtagene autoleucel and the standard of care, or other conventional therapies, such as belantamab mafadotin or selinexor and dexamethasone. The applicant stated that in a comparison to patients receiving various conventional therapies, the authors conclude that treatment with ciltacabtagene autoleucel is associated with higher response rate and superior PFS and OS. The applicant stated that in a comparison with treatment with selinexor and dexamethasone, the study authors conclude that the analysis shows that ciltacabtagene autoleucel “offers substantially more clinical benefit” for patients with triple-class exposed RRMM. The applicant also asserted that in a study that assessed the comparative effectiveness of ciltacabtagene autoleucel to physician's choice of treatment (PCT) using an external real-world control arm from the Flatiron Health multiple myeloma cohort registry, authors found that ciltacabtagene autoleucel offers substantial clinical benefits for PFS, time to next treatment (TTNT), and OS over PCT for patients with triple class exposed RRMM. According to the applicant, patients receiving ciltacabtagene autoleucel were 3.2 times more likely to achieve overall response than patients receiving belantamab mafodotin after adjusting for refractory status, cytogenetic profile, International Staging System (ISS) stage, and extramedullary disease.

Lastly, the applicant summarized data from 22 months follow-up for CARTITUDE-1, which was presented at ASH 2021. The applicant asserted that compared to the previous 12-month and 18-month data, 2-year data showed responses deepening over time. The applicant stated the ORR continued at 98% (up from 96% at 12 months) and the sCR at 22 months was 82.5%, compared to 67% at 12 months and 80.4% at 18 months. According to the applicant, at 22 months, 92% of the patients with MRD status noted were MRD negative, which is consistent with 18-month data (92%) and 12-month data (93%), illustrating persistent ability for the treatment to maintain MRD negativity over time. According to the applicant, the two-year PFS was 60.5% and 71% when a sCR was achieved and the two-year OS for all patients was 74%. The applicant stated that at the 2-year median follow up, no new treatment-related deaths had occurred since the median approximately 1-year follow-up, and there were no new safety signals reported. The applicant added that adverse events were generally low grade, well tolerated and managed with standard treatment algorithms employing drugs such as tocilizumab, corticosteroids, and anakinra.

After reviewing the information submitted by the applicant as part of its FY 2023 application for new technology add-on payments for CARVYKTI^TM, we have the following concerns regarding the substantial clinical improvement criterion. We note that in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25238 through 25239), we expressed concern regarding a lack of comparisons between CARVYKTI^TM and other existing therapies. We note that the applicant provided new references in its FY 2023 application to compare CARVYKTI^TM to other therapies. However, we further note that many of the references provided are in abstract or presentation format with limited data on the overall study design and methodology used to achieve the presented results. With respect to the LEGEND-2 study, the authors stated that for the initial patient sample (n=57), the median number of prior lines of therapy was 3, with a range of 1 to 9. Furthermore, we note that in the LEGEND-2 study only 11 (19%) of the respondents were 65 and older in the sample. As only 60% of this patient sample had received both a proteasome inhibitor and an immunomodulatory agent, and no patients had received a CD38 antibody, we question the true refractoriness of the test population in the LEGEND-2 study and whether the results are generalizable to the Medicare population for which this treatment is intended.

In addition, we request clarification on any potential inconsistencies between the statements in the applicant's new technology add-on payment application and the citation which explains the LEGEND-2 study, including inconsistencies in median time to follow-up, median OS, and mDOR, as previously noted.

Finally, while the applicant has asserted that CARVYKTI^TM treats a new and expanded patient population since existing treatments are indicated for patients with at least four prior therapies, we note that CARVYKTI^TM was recently approved with an indication for patients with at least four prior lines of therapy as well. Therefore, we would appreciate additional clarification on any differences between CARVYKTI^TM and existing therapies with respect to the patient populations indicated for treatment.

We are inviting public comment on whether CARVYKTI^TM meets the substantial clinical improvement criterion.

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

b. DARZALEX FASPRO® (daratumumab and hyaluronidase-fihj)

Janssen Biotech, Inc., submitted an application for new technology add-on payments for DARZALEX FASPRO® for FY 2023. DARZALEX FASPRO® is a combination of daratumumab (a monoclonal CD38-directed cytolytic antibody), and hyaluronidase (an endoglycosidase) indicated for the treatment of light chain (AL) amyloidosis in combination with bortezomib, cyclophosphamide and dexamethasone (CyBorD) in newly diagnosed patients and is administered through a subcutaneous injection.

According to the applicant, AL amyloidosis is a life-threatening blood disorder caused by increased production of misfolded immunoglobulin light chains by an abnormal proliferation of malignant CD38+ plasma cells. Per the applicant, these deficient immunoglobulin light chains aggregate into highly ordered amyloid fibrils that deposit in tissues, eventually resulting in progressive organ dysfunction and damage due to the toxic effect of the misfolded proteins (proteotoxicity) and the distortion of the normal tissue architecture by the amyloid deposits. The applicant stated that the most frequently affected organs are the heart, kidney, liver, spleen, gastrointestinal tract and nervous system. Per the applicant, patients often have a poor prognosis, and as many as 30% of patients with AL amyloidosis die within the first year after diagnosis. The applicant stated that approximately 4,500 people in the US develop AL amyloidosis each year. The applicant stated that while there were no FDA approved therapies prior to daratumumab, a number of therapies were used clinically to treat AL amyloidosis including combination therapies like cyclophosphamide-bortezomib-dexamethasone (CyBorD), bortezomib-lenalidomide-dexamethasone (VRd), bortezomib-melphalan-dexamethasone (VMd), melphalan-dexamethasone (Md), and bortezomib-dexamethasone (Vd). The applicant further noted that none of these combination regimens are approved for use by FDA in this specific indication.

According to the applicant, DARZALEX FASPRO® is the first and only FDA-approved treatment for patients with AL amyloidosis and is also approved for multiple indications for treatment of patients with multiple myeloma. The applicant stated that the indication for the technology for which it is submitting a new technology add-on payment application is for the treatment of adult patients with AL amyloidosis in combination with bortezomib, cyclophosphamide and dexamethasone in newly diagnosed patients. The applicant noted that DARZALEX FASPRO® is not indicated nor recommended to be used in patients with AL amyloidosis who have NYHA Class IIIB or Class IV cardiac disease or Mayo Stage IIIB, except in the context of controlled clinical trials.

According to the applicant, DARZALEX FASPRO® is the subcutaneous formulation of daratumumab, which is a human IgG- kappa monoclonal antibody that targets CD38, an enzymatic protein that is uniformly expressed on human plasma cells. Per the applicant, in DARZALEX FASPRO®, daratumumab is co-formulated with recombinant human hyaluronidase (rHuP20), which critically allows daratumumab to be administered in a volume of 15 mL by a 3-5 minute injection under the skin, compared to the 500-1000 mL volume and 3-7 hour administration time required for IV daratumumab. The applicant further noted that given the cardiac and renal dysfunction which afflicts many AL amyloidosis patients and makes them poor candidates for large volume IV administration, rHuP20 is a critical component of DARZALEX FASPRO®. Per the applicant, daratumamab binds to the CD38 protein on the surface of the malignant plasma cells which are responsible for abnormal amyloid protein production in AL amyloidosis, directly killing the malignant CD38+ plasma cells and/or directing the immune system to destroy them. The immunomodulatory response consists of CD8+ clonal expansion, CD38 enzymatic inhibition, complement activation and cell recruitment to enable antibody dependent cellular phagocytosis (ADPC) and antibody dependent cellular cytotoxicity (ADCC). Per the applicant, the mechanism of actions of daratumumab in AL amyloidosis are the same as the mechanisms of action of daratumumab in multiple myeloma, since both disease entities are disorders of malignant CD38+ plasma cells.

The applicant stated that without hyaluronidase, it is not possible to inject more than 2-3 mL of drug directly into the subcutaneous tissue under the skin. Per the applicant rHuPH20 naturally mimics natural hyaluronidase and increases the permeability of subcutaneous tissue by degrading hyaluronan. By co-formulating daratumumab with rHuPH20, it becomes possible for 15 mL containing 1,800 mg of daratumamab to be administered subcutaneously in approximately 3 to 5 minutes. The applicant stated that the ability to administer daratumumab subcutaneously reduces the reaction rate to daratumumab, may improve convenience and patient satisfaction, and greatly reduces the volume of administration, which is critical in light of the cardiac dysfunction and kidney dysfunction which afflict many patients with AL amyloidosis.

With respect to the newness criterion, the applicant stated that DARZALEX FASPRO® was granted accelerated approval from FDA on January 15, 2021, indicated for the treatment of adult patients with light chain (AL) amyloidosis in combination with bortezomib, cyclophosphamide and dexamethasone in newly diagnosed patients. Per the applicant, DARZALEX FASPRO® is not indicated and recommended for the treatment of patients with AL amyloidosis who have NYHA Class IIIB or Class IV cardiac disease or Mayo Stage IIIB outside of controlled clinical trials. The applicant also stated that DARZALEX FASPRO® received FDA approval on September 26, 2019, for the treatment of adult patients with multiple myeloma as part of a combination therapy in newly diagnosed patients eligible for autologous stem cell transplant, and on May 1, 2020, for the treatment of patients with multiple myeloma. As stated previously, the indication for which the applicant submitted an application for new technology add-on payments is for the treatment of adult patients with AL amyloidosis in combination with bortezomib, cyclophosphamide and dexamethasone in newly diagnosed patients. The applicant stated that DARZALEX FASPRO® for newly diagnosed AL amyloidosis was commercially available immediately following the accelerated approval granted by FDA. The recommended dosage for DARZALEX FASPRO® for newly diagnosed AL amyloidosis is 1,800 mg of daratumumab and 30,000 units of hyaluronidase administered subcutaneously over approximately 3 to 5 minutes in combination with bortezomib, cyclophosphamide and dexamethasone. According to the applicant, patients receiving DARZALEX FASPRO® for this indication receive a weekly dose for the first 8 weeks (week 1 to week 8), one dose every 2 weeks from week 9 to week 24, followed by one dose monthly from week 25 onward until disease progression for a maximum of 2 years.

The applicant stated that ICD-10-PCS code 3E013GC (Introduction of other therapeutic substance into subcutaneous tissue, percutaneous approach) may currently be used to identify DARZALEX FASPRO® under the ICD-10-PCS coding system but that there are currently no ICD-10-PCS procedure codes that uniquely identify the use of DARZALEX FASPRO®. The applicant submitted a request for a unique ICD-10-PCS code to identify procedures involving the administration of DARZALEX FASPRO®. The applicant stated that E85.81 (Light chain (AL) amyloidosis) may be used to currently identify the indication for DARZALEX FASPRO® under the ICD-10-CM coding system but that there is no ICD-10-CM diagnosis code that is specific to DARZALEX FASPRO® for newly diagnosed AL amyloidosis.

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 first criterion, whether a technology uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that it does not use the same or similar mechanism of action as existing technologies. The applicant stated that DARZALEX FASPRO® was the first drug approved by FDA for treatment of AL amyloidosis and its mechanism of action is different from that of any other drug previously used to treat AL amyloidosis. According to the applicant, the other therapies currently used to treat amyloidosis off-label (for example, bortezomib, cyclophosphamide, melphalan, lenlidomide) all have different mechanisms of action; none of them are monoclonal antibodies that specifically bind to CD38 on malignant plasma cells. The applicant stated that bortezomib induces cell death of the malignant plasma cell by inhibition of the 26S proteasome which plays a key role in cell survival by regulating protein breakdown in a controlled fashion. The applicant further stated that when bortezomib inhibits proteasome function, the normal balance within a cell is disrupted, resulting in a buildup of cell cycle and regulatory proteins which eventually leads to cell death. Per the applicant, lenalidomide is an immunomodulator which modulates the E3 ubiquitin ligase complex. Modulation of this E3 ubiquitin ligase complex by lenalidomide eventually leads to enhanced function of specific immune cells and induction of cell death and the exact mechanism of action of lenalidomide is still not fully understood. The applicant stated that both melphalan and cyclophosphamide are alkylating chemotherapy drugs that add an alkyl group to the guanine base of the DNA molecule, preventing the strands of the double helix from linking, which causes breakage of the DNA strands, affecting the ability of the cancer cell to multiply. Per the applicant, like bortezomib and lenalidomide, melphalan and cyclophosphamide are not approved by FDA for the use in patients with AL amyloidosis. The applicant also noted that while the National Comprehensive Cancer Network® (NCCN®) Guidelines for Systemic Light Chain Amyloidosis state that both IV and SQ daratumumab can be used to treat previously treated amyloidosis, IV daratumumab is not approved by FDA for the treatment of patients with amyloidosis (newly diagnosed and previously treated). The applicant also stated that DARZALEX FASPRO® is the more appropriate option in the AL amyloidosis patient population due to the fact that subcutaneous dosing has a negligible volume administration (15 ml for SC vs up to 1000ml for IV), which is particularly important in patients with AL amyloidosis who often have compromised cardiac and renal function due to the amyloid deposition in cardiac and kidney tissue.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG, the applicant stated that this product is not expected to change the DRG assignment of a case when used for the treatment of AL amyloidosis.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated that DARZALEX FASPRO® does not meet this criterion because it was the first approved drug to treat patients with AL amyloidosis. The applicant also stated that the NCCN® Guidelines for Systemic Light Chain Amyloidosis reflect the limited treatment options for this specific disease. The applicant further stated that DARZALEX FASPRO® in combination with CyBorD is the only treatment with a Category 1 recommendation in the NCCN® Guidelines for patients with newly diagnosed AL amyloidosis.

In summary, the applicant believes that DARZALEX FASPRO® is not substantially similar to other currently available therapies and/or technologies because it has a unique mechanism of action and because it is the first FDA approved treatment for AL amyloidosis.

We are inviting public comments on whether DARZALEX FASPRO® is substantially similar to existing technologies and whether DARZALEX FASPRO® meets the newness criterion.

With respect to the cost criterion, the applicant presented the following analysis to demonstrate that DARZALEX FASPRO® meets the cost criterion. To identify cases representing patients who may be eligible for treatment with DARZALEX FASPRO®, the applicant searched the FY 2019 MedPAR database released with the FY 2022 IPPS final rule and stated that it used fee-for-service IPPS discharges, plus Maryland hospital discharges. The applicant searched for claims reporting ICD-10-CM diagnosis code E85.81 (Light chain amyloidosis) in conjunction with at least one of the following additional ICD-10-CM diagnosis codes:

The applicant excluded cases with a length of stay greater than 7 days from the analysis. According to the applicant, administration of DARZALEX FASPRO® would likely be delayed if a patient becomes seriously ill during the course of treatment, so it is unlikely a patient would receive DARZALEX FASPRO® during an inpatient stay lasting longer than 7 days. The applicant indicated that based on the advice of clinical experts, it also excluded cases mapped to the following MS-DRGs, as DARZALEX FASPRO® would not be an appropriate treatment for patients receiving treatment for such conditions:

After applying the case selection and exclusion criteria, the applicant's search resulted in the identification of 114 MS-DRGs using the FY 2019 MedPAR file dataset. The applicant imputed a case count of 11 for 104 MS-DRGs with fewer than 11 cases, resulting in a total of 1,494 cases mapping to the 114 MS-DRGs.

The applicant determined an average unstandardized case weighted charge per case of $47,599.

The applicant did not remove charges for related or prior technologies because, per the applicant, DARZALEX FASPRO® would not replace other therapies a patient may receive during an inpatient stay. Next, the applicant standardized the charges using the FY 2022 IPPS/LTCH PPS final rule impact file and applied a 4-year inflation factor of 1.281834 or 28.1834% based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule to update the outlier threshold (86 FR 45542). The applicant then added charges for the new technology by multiplying the per treatment cost of DARZALEX FASPRO® by the inverse of the national average drug CCR of 0.187 from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966).

The applicant calculated a final inflated average case-weighted standardized charge per case of $92,916, which exceeded the average case-weighted threshold amount of $61,426. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that DARZALEX FASPRO® meets the cost criterion.

We are inviting public comment on whether DARZALEX FASPRO® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that DARZALEX FASPRO® 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. The applicant also asserted that DARZALEX FASPRO® demonstrates significant improvement in a number of clinical outcomes including hematologic complete response (hemCR), prolonged survival free from major organ deterioration, increased cardiac and renal response rates, with a demonstrated safety and tolerability profile and no negative impact to health-related quality of life based on patient-reported outcomes.

With regard to the claim that DARZALEX FASPRO® offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, the applicant stated that the initial standard of therapy (CyBorD) is considered inadequate, as most patients do not respond adequately to the CyBorD regimen alone. Furthermore, according to the applicant, the ANDROMEDA data shows that >80% of patients do not achieve a hemCR, >75% of patients with cardiac disease do not have an organ response, and >75% of patients with renal disease do not have an organ response when treated with the initial standard of therapy CyBorD. Per the applicant, there is a high unmet need to improve treatment for AL amyloidosis patients. The applicant stated that rapid and deep response like hemCR are critical and are strongly associated with organ response and improved survival in AL amyloidosis. Per the applicant, adding DARZALEX FASPRO® to CyBorD increases the hemCR rate by three-fold and doubles the cardiac and renal response rates, thereby addressing this high unmet medical need.

With regard to the claim that the use of DARZALEX FASPRO® significantly improves clinical outcomes for a patient population as compared to currently available treatments, as stated previously, the applicant asserted that DARZALEX FASPRO® represents a substantial clinical improvement over existing technologies because it: (1) Demonstrates a consistent safety profile; (2) significantly improves hematologic complete response (hemCR rates); (3) maintains the increased hemCR rates for pre-specified subgroups; (4) shortens the time to hemCR; (5) improves very good partial response (VGPR) or better rates; (6) substantially improves cardiac response at 6 and at 12 months; (7) improves renal response at 6 and at 12 months; (8) improves major-organ deterioration or progression-free survival (MOD-PFS); (9) improves Global Health status and fatigue as of cycle 6 of treatment, and maintains health-related quality of life (HRQoL); and (10) provides important advantages for the population with AL.

In support of these claims, the applicant submitted the ANDROMEDA phase 3 trial as well as presentations related to these trials. The applicant stated that data in the ANDROMEDA study demonstrated that DARZALEX FASPRO® led to significantly better outcomes both at the time of the primary analysis as well as at the time of updated analyses which were presented at the 2021 ASCO annual meeting and 2021 EHA annual meeting.

ANDROMEDA was a randomized, open-label, phase 3 study of 388 patients with newly diagnosed AL amyloidosis randomized 1:1 to receive 6 cycles of CyBorD, either alone (control group, n=193) or in combination with daratumumab SC (that is, DARZALEX FASPRO®), followed by DARZALEX FASPRO® monotherapy every 4 weeks for up to 24 additional cycles (daratumumab group, n=195). The study enrolled patients between May 3, 2018 and August 15, 2019. Median age was 64 (range 34-87). The study reported a median 11.4 month follow-up for the published trial, and 20.3 months for the follow-up data. The primary endpoint was hemCR, defined as having negative serum and urine immunofixation and a free light chain ratio (FLCr) within the reference range or abnormal free light-chain ratio if the uninvolved free light chain (uFLC) is higher than the involved free light chain (iFLC). According to the applicant, this definition of hemCR is in line with a recent clarification of the Internal Society of Amyloidosis guidelines. Secondary endpoints were survival free from major organ deterioration or hematologic progression (composite end point that included end-stage cardiac or renal failure, hematologic progression), or death, organ response, overall survival, hematologic complete response at 6 months, VGPR or better, time to and duration of hematologic complete response, time to next treatment, and reduction in fatigue. The applicant noted that the safety population in the ANDROMEDA study consisted of 193 patients in the daratumumab arm and 188 patients in the control arm.

The applicant also cited an oral presentation, presented at the American Society of Clinical Oncology (ASCO) 2021 and European Hematology Association (EHA) 2021 annual meetings, with updated data from the ANDROMEDA study after 20.3 months of follow-up, which described sustained primary outcome of higher rates of hemCR across subgroups as well as improved secondary endpoints of cardiac and renal response rate at 12 months. In the intent to treat population, there were 11 deaths in the CyBorD group compared to 7 deaths in the control group.

In support of its assertion that DARZALEX FASPRO® demonstrates a consistent safety profile, the applicant cited Kastritis et al., discussed previously, stating that the safety profiles of daratumumab and bortezomib, cyclophosphamide, and dexamethasone in the ANDROMEDA trial were consistent with their known profiles and the underlying disease from previous trials. To support its assertion that DARZALEX FASPRO® significantly improves hemCR rate, the applicant stated that the trial results showed that patients treated with DARZALEX FASPRO® demonstrated a statistically significant increase in hemCR compared to control (53.3% versus 18.1%; relative risk ratio, 2.9; 95% CI, 2.1 to 4.1; odds ratio, 5.1; 95% CI, 3.2 to 8.2; p<0.001 for both comparisons) at the 11.4 month median follow-up. To support its assertion that DARZALEX FASPRO® results in a shorter time to hemCR, the applicant noted that in the trial, median time to hemCR was 60 days in the daratumumab group and 85 days in the control group. In support of its assertion that the increased hemCR rate was maintained for pre-specified subgroups, the applicant also stated that hemCR remained consistent in most prespecified subgroups (for example, sex, age, weight, race, cardiac stage, etc.) receiving daratumumab. The applicant also cited results from the oral presentation, discussed previously, stating that after a median follow up of 20.3 months, the percentage of patients who achieved hemCR increased to 59% in the daratumumab group vs 19% in the control group (odds ratio: 5.9; 95% CI, 3.7 to 9.4; P<0.001), and that this advantage was seen consistently across all prespecified subgroups. The applicant stated that rapid and deep hematologic responses are critical and are strongly associated with organ response and improved survival in AL amyloidosis.

In support of its assertion that DARZALEX FASPRO® improved VGPR or better rates, the applicant also stated that the trial demonstrated that the secondary endpoint of VGPR or better was 78.5% in the daratumumab group and 49.2% in the control group (relative risk ratio, 1.6; 95% CI, 1.4 to 1.9; odds ratio, 3.8; 95% CI, 2.4 to 5.9). Per the applicant, the substantial improvements in hematologic response rates and other endpoints like cardiac and renal response and MOD-PFS indicate the clinical meaningfulness of these efficacy results.

In support of its assertion that DARZALEX FASPRO® substantially improves cardiac response at 6 and at 12 months, according to the applicant, of the subgroup that was evaluated for cardiac response (118 in the daratumumab group and 117 in the control group), 41.5% in the daratumumab group and 22.2% in the control group (odds ratio, 2.44; 95% CI: 1.35 to 4.42) demonstrated a cardiac response at 6 months. The applicant noted that at a median follow up of 20.3 months, cardiac response rates were higher with in the daratumumab group compared to CyBorD alone at 6 months (42% versus 22%, odds ratio 2.4, 95% CI 1.4 to 4.4; P=0.0029) and at 12 months (57% versus 28%, odds ratio 3.5 95% CI 2.0 to 6.2; P<0.0001). In addition, in support of its assertion that DARZALEX FASPRO® improves renal response at 6 and at 12 months, the applicant noted that in the subgroup evaluated for renal response (117 in the daratumumab group and 113 in the control group), 53.0% of patients in the daratumumab group and 23.9% in the control group (odds ratio, 3.34; 95% CI:1.88 to 5.94) demonstrated a renal response at 6 months. The applicant noted that at a median follow up of 20.3 months, renal response rates were higher with in the daratumumab group compared to CyBorD alone at 6 months (54% vs 27%; odds ratio 3.3 95% CI 1.9 to 5.9; P<0.0001) and at 12 months (57% vs 27%; odds ratio 4.1 95% CI 2.3 to 7.3; P<0.0001). The applicant noted that the percentages of patients who had a cardiac or renal response were substantially higher in the daratumumab group than in the control group, which it stated was an important finding given that organ responses are also a predictor of improved survival.

In support of its assertion that DARZALEX FASPRO® improves MOD-PFS, the applicant noted significant findings of secondary endpoint survival free from major organ deterioration or hematologic progression in the daratumumab group compared to control (hazard ratio for major organ deterioration, hematologic progression, or death, 0.58; 95% CI, 0.36 to 0.93; P = 0.02).

With regard to the claim that DARZALEX FASPRO® improves Global Health status (GHS) and fatigue as of cycle 6 of treatment, as well as maintains HRQoL, the applicant cited a poster presentation of a subgroup analysis on patient reported outcomes (PRO) for patients participating in the ANDROMEDA study. The applicant noted that the patients were provided with PRO questionnaires and assessed on day 1 of cycles −1-6 as well as every 8 weeks thereafter in the daratumumab group. The applicant stated that of the 388 patients randomized in the study, compliance rates for all PRO questionnaires were >90% at baseline and >83% through Cycle 6. The questionnaires included the European Organization for Research and Treatment of Cancer Quality of Life Questionnaire Core 30-item (EORTC QLQ-C30), the EuroQol 5-dimensional descriptive system (EQ-5D-5L), and Short Form-36 (SF-36). Secondary endpoints centered around improvements in EORTC QLQ-C30 global health status (GHS), fatigue scale scores, and SF-36 mental component summary (MCS) score. Exploratory outcomes included physical function assessment, symptom improvement, functional improvement, and health utility as measured by the SF-36, EORTC QLQC30 with supplemental symptom items, and the EQ-5D-5L.

The applicant stated that the results from this presentation show that following Cycle 6, improvements in GHS and fatigue were reported in patients in the treatment group, and that these findings further support the value of daratumumab SQ plus CyBorD (Dara-CyBorD) in patients with AL amyloidosis. The applicant also stated that patients with AL amyloidosis treated with Dara-CyBorD experienced clinical improvements without any decrement in HRQoL over 6 cycles. The applicant noted that the findings demonstrated that the median time to improvement was shorter in the treatment group than in the control group for EORTC QLQ-C30 GHS (CyBorD: 16.79 months, 95% CI:11.79 to NE, Dara-CyBorD: 7.82 months, 95% CI: 3.94 to 17.58, HR 1.53; 95% CI: 1.10 to 2.13), fatigue scales (CyBorD: NE, 95% CI:8.44 to NE, Dara-CyBorD: 9.30 months, 95% CI: 5.55 to 13.01, HR 1.39; 95% CI: 1.00 to 1.93) and EQ-5D-5L visual analog scale (CyBorD: NE, 95% CI:16.79 to NE, Dara-CyBorD: 10.05 months, 95% CI: 8.41 to NE, HR 1.21; 95% CI: 0.86 to 1.71). The applicant also noted that the findings demonstrated that median time to worsening was longer in the treatment group than in the control group for EORTC QLQ-C30 GHS (CyBorD: 2.89 months, 95% CI:2.23 to 3.78, Dara-CyBorD: 4.70 months, 95% CI: 2.83 to 7.36, HR 0.87; 95% CI: 0.66 to 1.13) and fatigue scales (CyBorD: 3.75 months, 95% CI: 2.86 to 4.76 Dara-CyBorD: 8.84 months, 95% CI: 3.75 to NE, HR 0.78; 95% CI: 0.58 to 1.04) and EQ-5D-5L visual analog scale (CyBorD: 3.38 months, 95% CI:2.79 to 4.67, Dara-CyBorD: 4.14 months, 95% CI: 2.86 to 7.66, HR 0.89; 95% CI: 0.67 to 1.19).

Finally, the applicant stated that DARZALEX FASPRO® provides important advantages to the population with AL amyloidosis because the subcutaneous administration allows for a negligible volume of administration and a reduced rate of systemic administration-related reactions.

After review of the information provided by the applicant, we have the following concerns regarding whether DARZALEX FASPRO® meets the substantial clinical improvement criterion. First, with respect to the ANDROMEDA trial, we note that the study's open label and unblinded design adds a potential risk of bias which may affect the treatment effect reported by the applicant. Additionally, we note that the ANDROMEDA trial used stratified randomization which resulted in potentially substantive differences between the treatment and control group at baseline; for example, the control group was slightly older, with more males, and more people at higher cardiac stage (based on N-terminal pro-B-type natriuretic peptide and high-sensitivity cardiac troponin T). The groups also differed by Eastern Cooperative Oncology Group (ECOG) performance-status scores and uninvolved free light chain (dFLC) levels, and renal function. Additionally, compared to control, the daratumumab group appeared to have higher rates of peripheral sensory neuropathy, upper respiratory infection, and neutropenia in the longer term data. We question whether these differences noted at baseline are in fact significant and would have the potential to impact the treatment effect seen in this study. In terms of study outcomes, the ANDROMEDA study relied on hematologic and organ-based laboratory-based outcomes, but we question whether a primary endpoint of overall survival would have provided stronger evidence.

Second, we have concerns about the generalizability of the ANDROMEDA population and subgroups. As clarified by the applicant during the New Technology Town Hall meeting, all subjects in the ANDROMEDA trial received DARZALEX FASPRO® in the outpatient setting. As such, we question whether the outcomes for this outpatient population are generalizable to patients who are sufficiently ill to require hospitalization. In regard to subpopulations, we note that the prespecified groups and the studies of cardiac stage and Asian cohorts exhibit the same potential limitations of the main trial with small sample size, open-label, and limited follow-up. We note that small sample size resulted in wider confidence intervals in some subgroups, which may limit the generalizability of the treatment results. For example, in the ANDROMEDA prespecified groups, the subgroups `other' race, cardiac stage I at baseline, and renal stage III had wider confidence intervals than other subgroups. Finally, while the applicant provided a phase 2 poster presentation in support of DARZALEX FASPRO® we question the extent to which these results are generalizable to the indication for which the applicant has applied for the new technology add-on payment (that is, the treatment of adult patients with light chain (AL) amyloidosis in combination with bortezomib, cyclophosphamide and dexamethasone in newly diagnosed patients) given that the indication within this source (that is monotherapy in patients with Stage 3B AL amyloidosis), does not match.

We note that the applicant provided the outcomes of secondary endpoints which appear to be exploratory or novel for some of the data presented in posters in support of its claims, such as the quality of life assessments and hematologic response as measured by involved and uninvolved free light chain, and we note that some of the endpoints are still being studied and validated. Specifically, we question whether these surrogate endpoints may be used to appropriately evaluate the measure for which they are intended to assess. We request further information on whether these secondary endpoints have been appropriately validated in relevant clinical settings.

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

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

Comment: The applicant provided a supplemental written response pertaining to data from the ANDROMEDA trial. The applicant clarified that the ITT population represented all patients that underwent randomization, while the safety population represented patients who received at least one dose of study treatment. Per the applicant, among the 388 patients who underwent randomization (ITT population—195 vs. 193 in the treatment vs. control group, respectively), 381 received at least one dose of trial treatment (safety population—193 vs. 188 in the treatment vs. control group, respectively).

Response: We thank the applicant for its comments and will take this information into consideration when deciding whether to approve new technology add-on payments for DARZALEX FASPRO®.

c. Hemolung Respiratory Assist System (Hemolung RAS)

ALung Technologies, Inc. submitted an application for new technology add-on payments for the Hemolung Respiratory Assist System (Hemolung RAS) for FY 2023. The applicant stated that the Hemolung RAS is the first and only FDA authorized technology for the treatment of acute, hypercapnic respiratory failure using an extracorporeal circuit to remove CO₂ directly from the blood. Per the applicant, patients experiencing acute, hypercapnic respiratory failure are unable to remove excess CO₂ waste molecules from their blood via their lungs, resulting in accumulation of CO₂ in their blood (hypercapnia), acid/base derangement (respiratory acidosis), and life-threatening clinical sequelae. The applicant stated that the Hemolung RAS does not treat a specific disease but removes CO₂ directly from the blood to treat a variety of underlying respiratory disease states, including, but not limited to, cystic fibrosis (CF), chronic obstructive pulmonary disease (COPD), and asthma, where CO₂ retention (hypercapnia) is the primary cause of continued clinical deterioration.

Per the applicant, the Hemolung RAS provides low-flow, veno-venous extracorporeal carbon dioxide removal (ECCO₂ R) using a 15.5 French dual lumen catheter inserted percutaneously in the femoral or jugular vein, providing partial ventilatory lung support independent of the lungs as an alternative or supplement to invasive mechanical ventilation. The applicant stated that the Hemolung RAS removes up to 50% of basal metabolic carbon dioxide (CO₂) production at circuit blood flows of 350-550 mL/min. According to the applicant, the Hemolung RAS is not intended to provide therapeutic levels of oxygenation. The applicant stated that during the Hemolung RAS therapy, blood passing through the circuit is oxygenated; however, at low extracorporeal blood flows, the limited oxygen-carrying capacity of blood precludes meaningful oxygenation of mixed venous blood. Extracorporeal therapy with the Hemolung RAS requires continuous systemic anticoagulation with unfractionated heparin or a standard of care alternative to prevent clotting of blood in the circuit.

With respect to the newness criterion, the applicant stated that the Hemolung RAS received Breakthrough Device Designation from FDA in 2015 specific to COPD patients experiencing acute, refractory, hypercapnic respiratory failure. The applicant stated it is not applying under the Breakthrough Device Alternative Pathway in the current application for new technology add-on payments, as the Breakthrough Device indication is different from its FDA De Novo indication. The applicant explained that the Hemolung RAS was classified as a Class III device and received a Breakthrough Device designation for COPD only. According to the applicant, on April 22, 2020, the Hemolung RAS received an Emergency Use Authorization (EUA) to treat lung failure due to COVID-19 when used as an adjunct to noninvasive or invasive mechanical ventilation in reducing hypercapnia and hypercapnic acidosis due to COVID-19 and/or maintaining normalized levels of partial pressure of carbon dioxide (PCO₂) and pH in patients suffering from acute, reversible respiratory failure due to COVID-19 for whom ventilation of CO₂ cannot be adequately, safely, or tolerably achieved. The applicant further explained Hemolung RAS was later classified as a Class II device under the De Novo pathway. The applicant indicated its De Novo classification request (DEN210006) was granted on November 13, 2021, for the indication of respiratory support providing extracorporeal carbon dioxide (CO₂) removal from the patient's blood for up to five days in adults with acute, reversible respiratory failure for whom ventilation of CO₂ cannot be adequately or safely achieved using other available treatment options and continued clinical deterioration is expected. According to the applicant, the De Novo classified Hemolung RAS became available on the market on November 15, 2021, the first business day following the FDA authorization. The applicant indicated that it is seeking new technology add-on payments for FY 2023 for the FDA De Novo indication for the treatment of hypercapnic respiratory failure due to all causes in adults, which would include the EUA indication for the use of the Hemolung RAS in patients with respiratory failure caused by COVID-19. The applicant stated that the following ICD-10-PCS code may be used to uniquely describe procedures involving the use of the Hemolung RAS: 5A0920Z (Assistance with respiratory filtration, continuous, ECCO₂ R).

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. According to the applicant, patients experiencing acute, hypercapnic respiratory failure are treated pharmacologically and with non-invasive ventilatory support as a first line treatment. The applicant stated that if these treatments are insufficient to support the failing lungs, escalation of ventilatory support via intubation and invasive mechanical ventilation (IMV) are the only available treatment options. According to the applicant, patients who are intubated and invasively mechanically ventilated are at significant risk for increased morbidity and mortality. The applicant stated that no additional treatments are available if IMV is insufficient to correct refractory hypercapnia and respiratory acidosis, which ultimately lead to cardiopulmonary collapse and death. Furthermore, the applicant stated that no treatment options are available for patients who have a Do Not Intubate (DNI) order.

With respect to the first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that the Hemolung RAS has a different mechanism of action compared to existing technologies. According to the applicant, IMV, the only existing technology used to treat acute, refractory, hypercapnic respiratory failure, utilizes positive airway pressure to deliver oxygen and remove CO₂ from the lungs, whereas the Hemolung RAS removes CO₂ directly from the blood, independent of the lungs and allowing the lungs to rest and recover. Thus, the applicant asserted that the Hemolung RAS uses a different mechanism of action when compared to the existing therapeutic option (that is, IMV). The applicant also stated that extracorporeal membrane oxygenation (ECMO) is a rescue therapy for patients experiencing refractory hypoxemic respiratory failure, where insufficient oxygenation is the source of the respiratory failure. However, the applicant stated that ECMO is not suitable, nor FDA-approved, as a treatment for acute, hypercapnic respiratory failure. Therefore, the applicant asserted that ECMO and the Hemolung RAS are fundamentally different technologies used to treat different patient populations.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG when compared to an existing technology, the applicant stated that the Hemolung RAS is assigned to the same MS-DRGs when compared to an existing technology. Per the applicant, the Hemolung RAS is an escalation therapy to be used when current therapies are unable to support a patient's failing lungs and continued clinical deterioration is expected. The applicant noted that MS-DRGs 207 and 208 (Respiratory System Diagnosis with Ventilator Support > 96 Hours and Respiratory System Diagnosis with Ventilator Support ≤ 96 Hours, respectively) relate to the treatment of respiratory failure using mechanical ventilation, so the Hemolung RAS may be assigned to the same MS-DRGs if mechanical ventilation is unable to safely or adequately remove CO₂ from the blood.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated that the Hemolung RAS and IMV are both used to treat patients experiencing acute, refractory, hypercapnic respiratory failure due to numerous disease etiologies and pathophysiologies. However, the applicant noted that the Hemolung RAS is indicated for use as an escalation therapy when IMV is unable to safely or adequately remove CO₂ from the blood and continued clinical deterioration is expected.

In summary, the applicant maintained that the Hemolung RAS is not substantially similar to currently available therapies and/or technologies because it uses a new mechanism of action and therefore the technology meets the “newness” criterion.

As noted previously, the applicant received an FDA De Novo classification for the device on November 13, 2021 (with the product becoming commercially available on November 15, 2021), for the FDA De Novo indication that is the subject of this application, for the treatment of hypercapnic respiratory failure due to all causes in adults. This De Novo indication would include use of the product for the indication for which the applicant initially received an EUA from FDA, for the use of the Hemolung RAS in patients with respiratory failure caused by COVID-19. In the FY 2005 IPPS/LTCH PPS final rule, we stated that 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 two to three 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 EUA could become available as soon as the date of the EUA issuance and prior to receiving FDA approval or clearance (86 FR 45159). We refer readers to section II.F.7. of the FY 2022 IPPS/LTCH PPS final rule (86 FR 45159 through 45160), for discussion of our solicitation of comments regarding the newness period for products available through an EUA for COVID-19. As discussed in section II.F.4 of the preamble of this proposed rule, we are continuing to consider the comments we received regarding the newness period for products available through an EUA for COVID-19 as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45159), and we welcome additional comments in this proposed rule.

Therefore, because data reflecting the costs of the Hemolung RAS used for the indication of COVID-19 could be available beginning with the EUA on April 22, 2020, we question whether the newness period for the use of the Hemolung RAS for patients with COVID-19 should begin with the date of EUA issuance, April 22, 2020, while the newness period for the use of Hemolung RAS for patients with other causes of hypercapnic respiratory failure unrelated to COVID-19 should begin on the date of commercial availability of the De Novo classified device, November 15, 2021. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45159 through 45160), under the current regulations at 42 CFR 412.87(e)(2) and consistent with our longstanding policy of not considering eligibility for new technology add-on payments prior to a product receiving FDA approval or clearance, a product available only through an EUA would not be eligible for new technology add-on payments. Therefore, cases involving pediatric patients, or cases involving the use of the Hemolung RAS for greater than 5 days, would not be eligible for new technology add-on payment if the Hemolung RAS is approved for new technology add-on payment for the patient population indicated in its FDA De Novo marketing authorization.

We invite public comments on whether the newness period for the Hemolung RAS when used for patients with COVID-19 should begin on April 22, 2020 (the date of its EUA), when the product became available on the market for this indication. We are inviting public comments on whether the Hemolung RAS is substantially similar to existing technologies and whether the Hemolung RAS meets the newness criterion.

With respect to the cost criterion, the applicant presented the following analysis. The applicant searched the FY 2019 MedPAR Limited Data Set (LDS) for cases that received ventilator support to identify patients who may have been eligible for the Hemolung RAS. The applicant reviewed multiple ICD-10-CM and ICD-10-PCS codes related to respiratory failure and hypercapnic disease and determined that two ICD-10-PCS codes were most applicable: 5A1955Z (Respiratory ventilation, greater than 96 consecutive hours) and 5A1945Z (Respiratory ventilation, 24-96 consecutive hours). We note that, in the applicant's analysis, it listed ICD-10-PCS code 5A1955Z as 5A1935Z (Respiratory ventilation, greater than 96 consecutive hours), but we believe the applicant intended to reference the correct ICD-10-PCS code 5A1955Z (Respiratory ventilation, greater than 96 consecutive hours) to correctly map to MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support > 96 Hours).

The applicant identified 68,317 cases mapping to MS-DRGs 207 (Respiratory System Diagnosis with Ventilator Support > 96 Hours) and 208 (Respiratory System Diagnosis with Ventilator Support <= 96 Hours). MS-DRG 207 contained 24.6% of the cases and MS-DRG 208 contained the remaining 75.4% of cases.

Next, the applicant removed 100% of the inhalation charges and charges associated with a 1-day length of stay (LOS) in the intensive care unit (ICU). The applicant explained that it removed the 1 day of routine care plus ICU day charges based on an assumed LOS reduction associated with the use of the Hemolung RAS from relevant cases (as compared to cases without the Hemolung RAS) to estimate the potential decrease in costs as a result of the use of the Hemolung RAS. The applicant then standardized the charges and applied a 4-year inflation factor of 1.281834 or 28.1834%, based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to calculate outlier threshold charges (86 FR 45542). The applicant then added charges for the new technology, which it calculated by dividing the cost of the Hemolung RAS by the national average CCR for inhalation therapy, which is 0.147 (86 FR 44966).

The applicant calculated a final inflated average case-weighted standardized charge per case of $178,436, which exceeded the average case-weighted threshold amount of $102,867. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that the Hemolung RAS meets the cost criterion.

After review of the cost analysis provided by the applicant, we question whether the analysis should have included patients who would also require a tracheostomy, which could result in cases mapping to the Pre-Major Diagnostic Category (Pre-MDC) MS-DRGs 003 or 004 if used with mechanical ventilation, and whether the inclusion of those additional MS-DRGs would impact the cost analysis. We are seeking comments on whether the Hemolung RAS meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that the Hemolung RAS offers a treatment option for patients unresponsive to non-invasive mechanical ventilation (NIV), patients unresponsive to invasive mechanical ventilation (IMV), and patients ineligible for currently available treatments (that is, failure of NIV with DNI order). Further, the applicant asserted that the Hemolung RAS significantly improves clinical outcomes relative to available services or technologies.

With regard to the claim that the Hemolung RAS offers a treatment option for patients unresponsive to NIV, the applicant noted that while acute respiratory failure can often be treated with NIV, which does not require intubation and is typically safe and well tolerated, 12-50% of patients are unresponsive to NIV as a result of several factors, including elevated respiratory rates, uncorrected respiratory acidosis, and reduced level of consciousness. Further, the applicant stated that if a patient fails NIV, the only currently indicated treatment is escalation to IMV; however, per the applicant, intubation and IMV following NIV failure is associated with a 200% increase in mortality compared to patients successfully treated with NIV; 27% vs 9% mortality rate, respectively.

The applicant asserted that the Hemolung RAS can be an effective tool for patients unresponsive to NIV by rapidly correcting respiratory acidosis (pH and arterial partial pressure of carbon dioxide (PaCO₂ )), thereby reducing respiratory drive and improving NIV efficacy. In support of this claim, the applicant submitted a consensus paper by Combes et al. In this consensus paper, 14 clinical experts in critical care and respiratory support using ECCO₂ R convened to determine how ECCO₂ R therapy is applied, identify how patients are selected, and discuss how treatment decisions are made. Per the applicant, the results of the paper showed that there were two groups of patients where ECCO₂ R therapy was indicated—patients with acute respiratory distress syndrome (ARDS) or patients with COPD. The treatment goal for ECCO₂ R therapy in patients with ARDS is to provide ultra-protective lung ventilation via managing CO₂ levels. The criteria for initiating ECCO₂ R therapy in patients with ARDS and on NIV is when there was no decrease in PaCO₂ and no decrease in respiratory rate. In patients with acute COPD exacerbation, treatment targets were patient comfort, pH between 7.30-7.35, respiratory rate less than 20-25 breaths per minute, decrease of PaCO₂ by 10-20%, weaning from NIV, decrease in bicarbonate levels (HCO₃), and maintaining hemodynamic stability. The clinical experts came to the consensus that ECCO₂ R therapy may be an effective support treatment for adults with ARDS or COPD exacerbation, but noted the need for further evidence from randomized clinical trials and/or high quality prospective studies to better guide decision-making.

The applicant also submitted three peer-reviewed publications in support of this claim. First the applicant cited Bonin et al., a case study of a 50-year- old male awaiting a bilateral lung transplant, admitted for COPD exacerbation caused by infection. The patient was initially treated with antibiotics and continuous NIV, which he tolerated for three days. After three days, the patient decompensated due to a spontaneous pneumothorax. The lung was emergently reinflated, but the patient's respiratory status continued to decline with a PaCO₂ between 72-85 mmHg, pH of less than 7.3, and a respiratory rate of 30-40. The patient showed signs of exhaustion but did not qualify for intubation due to the recent pneumothorax. The patient consented to the Hemolung RAS therapy and within the first hour of treatment, the patient's respiratory rate improved to around 10 breaths/minute. However, the patient was no longer able to tolerate the NIV minimum set breathing rate, so the minimum set breathing rate was turned off. The PaCO₂ decreased to 55-60 mmHg for the duration of therapy (6 days). The patient was able to be successfully weaned from continuous NIV. The patient was also able to take oral nutrition and participate in interventions against pressure sores. After day 6, the patient was able to wean from the Hemolung RAS support and continue with intermittent NIV support.

Second, the applicant cited a multi-national pilot study done by Burki et al. in India and Germany. There were 20 COPD patients with hypercapnic respiratory failure treated with ECCO₂ R therapy and placed into 1 of 3 groups. Group 1 had seven patients on NIV with a high likelihood of requiring IMV; Group 2 had two patients who could not be weaned from NIV; and Group 3 had 11 patients on IMV who failed weaning attempts. The authors found that the device was well-tolerated with complications and rates similar to those seen with central venous catheterization. The patients in Group 1 successfully avoided IMV as a result of ECCO₂ R therapy, although three patients died within 30 days of ECCO₂ R therapy due to underlying disease states. The patients in Group 2 were successfully weaned from continuous NIV after receiving ECCO₂ R therapy and were alive 30 days after ECCO₂ R therapy, but remained on intermittent non-invasive, positive-pressure ventilation (NIPPV) support. Of the patients in Group 3, nine of the 11 patients had been on IMV for greater than 15 days prior to ECCO₂ R therapy. In Group 3, three patients were weaned from IMV, three patients had decreased IMV support, one patient expired from retroperitoneal bleed following catheterization, and one patient remained on the same level of ventilatory support despite receiving ECCO₂ R therapy. The authors concluded that the single catheter, low-flow ECCO₂ R system, provided clinically useful levels of CO₂ removal in patients with COPD and could be a potentially valuable addition to the treatment of hypercapnic respiratory failure.

Third, the applicant cited a case series by Tiruvoipati et al. (2016), which retrospectively reviewed 15 patients among three Australian ICUs treated with the Hemolung RAS who had severe hypercapnic respiratory failure due to COPD, ARDS, asthma, or bronchiolitis obliterans syndrome (BOS), to show that ECCO₂ R was safe and effective in the removal of CO₂ . For five patients (four with COPD and one with BOS), the indication for the Hemolung RAS was to avoid intubation, whereas for the other 10 patients (five with acute lung injury/ARDS, three with asthma, and two with COPD), the indication was to institute lung-protective ventilation. The median age of the patients was 61.5 years; 12 patients were men, the median Acute Physiology and Chronic Health Evaluation III (APACHE III) score was 85, and the median duration of ECCO₂ R was 5 days. The primary outcome measures of the study were clearance of CO₂ and change in pH with the use of ECCO₂ R. Secondary outcome measures included complications associated with Hemolung RAS use, survival to weaning from the Hemolung RAS, and survival to ICU and hospital discharge. There was no specified protocol for managing mechanical ventilation across the three centers; however, all centers used low-pressure ventilation for ARDS. For asthma, the mechanical ventilation was characterized by low tidal volume, low respiratory rate, and short inspiratory time associated with prolonged expiratory time to avoid dynamic hyperinflation. Four of the five patients treated for this indication, as well as all 10 patients who were treated to institute lung-protective ventilation, avoided intubation; successful lung-protective ventilation was achieved by a reduction in peak inspiratory pressure, tidal volume, and minute ventilation. The clearance of CO₂ and return of PaCO₂ to near-normal levels was achieved within 6 hours, and there was significant reduction in minute ventilation and peak airway pressures. Complications reported during the study included hemorrhage, thrombocytopenia, and compartment syndrome, none of which required cessation of the Hemolung RAS therapy. Overall, 93.3% of the patients survived to discontinuation of ECCO₂ R, 73.3% of patients survived to ICU discharge, and 66.66% of patients survived to hospital discharge. In conclusion, the study authors stated that the Hemolung RAS appears to be safe and effective for managing hypercapnic respiratory failure of various etiologies, but noted that more research is needed to clarify which patients may benefit most from this therapy.

In addition to the previous peer-reviewed studies, the applicant also cited the Hemolung RAS Registry Program Analysis in support of its claim. Per the applicant, the voluntary Hemolung RAS Registry Program collected data from commercial use of the Hemolung RAS outside of the US as well as US EUA therapies. 176 patients from the Hemolung RAS Registry were analyzed to evaluate the benefits and safety of the Hemolung RAS therapy. The applicant stated that the Hemolung RAS Registry Program Analysis demonstrated that 86% (19/22) of patients failing NIV avoided intubation due to the Hemolung RAS therapy.

With respect to the applicant's assertion that the Hemolung RAS offers a treatment option for patients unresponsive to IMV and are retaining CO₂, the applicant stated that the Hemolung RAS de-couples CO₂ removal from the mechanical ventilator thereby allowing correction of hypercapnia and hypercapnic acidosis without a dangerous escalation of ventilator settings. The applicant provided 10 publications that document the use of the Hemolung RAS in patients unresponsive to IMV to significantly reduce ventilator settings to lung safe levels or to significantly correct and control hypercapnic acidosis, including Tiruvoipati et al. (2016) and Combes et al., discussed previously.

In the first case study, a 44-year-old male with acute asthma exacerbation went into respiratory arrest and was intubated in the emergency department (ED). The patient was found to have a left tension pneumothorax, which was decompressed, and then developed a second tension pneumothorax on the right side, which was also decompressed. The patient was transferred to the ICU for further management. The patient continued to deteriorate over the subsequent 48 hours due to subcutaneous emphysema and ongoing air leaks, and after 72 hours had uncontrollable hypercapnia (PaCO₂ 73, pH 7.22) despite optimal medical management with corticosteroids, nebulized and intravenous bronchodilators, magnesium, ketamine, and muscle relaxants. ECCO₂ R was indicated for hypercapnia and to facilitate de-escalation of IMV. After initiating ECCO₂ R, it was possible to decrease the support on the IMV while maintaining satisfactory gas exchange and allowing the withdrawal of muscle relaxants. Within 1 hour of initiation of ECCO₂ R, the pH improved from 7.22 to 7.28, and the PaCO₂ went from 68.1 to 60.6. The patient remained on ECCO₂ R for a total of 7 days mainly due to ongoing air leaks from three chest drains and a bleeding complication that was managed with transfusion. After discontinuing ECCO₂ R therapy, the patient received a tracheostomy to assist in weaning from IMV. The patient was successfully weaned from IMV after 23 days in the ICU and was ultimately discharged home. The authors discussed that while this patient could have been treated with ECMO, the use of ECMO is limited to specialized centers and requires a multidisciplinary approach for a successful outcome.

In the second case study, the Hemolung RAS system was used to treat hypercapnia in a 58-year-old male patient with an out-of-hospital cardiac arrest where mechanical ventilation failed to achieve normocapnia. The patient was intubated in the ED and treated with nebulized bronchodilators, corticosteroids, and therapeutic hypothermia. Initially, the PaCO₂ was 82 mmHg (baseline 50 mmHg) with a pH of 7.20, but as the next few hours progressed, the patient became more difficult to ventilate and the PaCO₂ increased to 94 mmHg. ECCO₂ R therapy was indicated to prevent lung injury and secondary brain injury. After initiating the Hemolung RAS, the minute ventilation and the respiratory rate could be decreased and the team was able to optimize the inspiratory and expiratory time ration to minimize the risk of barotrauma. The patient was on the Hemolung RAS therapy for 3 days and was able to de-escalate the ventilator settings, but still required mechanical ventilation. After cessation of the Hemolung RAS therapy, the patient started to show signs of significant hypoxic brain injury. Despite maximal medical treatment, the neurological prognosis was considered to be very poor, and all life-sustaining therapies were withdrawn. The authors stated that ECCO₂ R therapy is safe to use in a metropolitan hospital where the staff have a limited period of education, and that the extracorporeal therapy was delivered without complications. The authors also stated that ECMO is not an option in every health care center since it requires a specialized team including cardiac surgeons and perfusionists and is costly. The authors stated that ECCO₂ R is less invasive and able to provide partial respiratory support. Thus, the authors concluded that ECCO₂ R may have a role in patients with severe respiratory failure when IMV alone is inadequate and in centers that are not capable of initiating ECMO in the management of severe hypercapnic respiratory failure.

Next, the applicant cited a United Kingdom case study about a 48-year-old male presenting to the ED with 7 days of cough, fever, and shortness of breath. He tested positive for COVID-19 via respiratory viral swab and had a chest x-ray demonstrating bilateral infiltrates. He initially required supplemental oxygen via facemask and oral doxycycline to treat possible bacterial co-infection. He continued to deteriorate, was trialed on NIV and failed, and was then transitioned to IMV on day four of the hospitalization and transferred to the ICU for further management. The patient continued to deteriorate and within a week and was found to be in ARDS due to COVID-19 pneumonitis. The patient was treated with several strategies for lung recruitment, and was referred to ECMO but was declined on the basis of futility. The treatment team felt that continuing to treat the patient with high airway pressure was contributing to the progression of the ARDS, so the Hemolung RAS was initiated as a rescue therapy. After initiation, the PaCO₂ and pH improved, which allowed the treatment team to reduce the tidal volume and respiratory rate. The patient spent 6 days on the Hemolung RAS without bleeding events or vasopressors and could continue to receive prone position ventilation without complication. The patient was successfully weaned from the Hemolung RAS and then completed a slow respiratory wean followed by a percutaneous tracheostomy. The patient was ultimately discharged from the ICU to home with mobility and cognition intact. The authors concluded that ECCO₂ R can be used as a rescue therapy for patients with hypercapnic respiratory failure resulting from ARDS in COVID-19 pneumonitis and to facilitate lung protective ventilation in patients on IMV. According to the authors, refractory hypercapnia is an acceptable indication for ECMO in ARDS and that ECCO₂ R can be considered as rescue therapy if ECMO is deemed inappropriate or cannot be delivered due to resource constraints. Per the authors, potential advantages of using ECCO₂ R over ECMO include lack of requirement for transfer to an ECMO center, smaller catheter size, and lower blood flow rate which may reduce the likelihood of complications.

The applicant also cited a case study of an 18-year-old male with solitary mediastinal metastasis and ARDS, in which the Hemolung RAS was used to facilitate de-escalation of mechanical ventilation. Post-treatment with chemotherapy, a residual mediastinal mass was found with extension to the left lung hilum. The patient underwent lung resection and was extubated postoperatively without issue. The patient became febrile and developed a progressively extensive right lung infiltrate. On postoperative day five, the patient developed severe hypercapnia, hypoxemia, and hypotension, necessitating re-intubation and invasive mechanical ventilation. The Hemolung RAS was initiated to provide ECCO₂ R. Arterial PCO₂ decreased from 73 to 53 mmHg within 4 hours (with a concomitant pH increase from 7.28 to 7.44), permitting tidal volume reduction to 3.5 mL/kg, and plateau airway pressure to 25 cm H2O, with simultaneous hemodynamic improvement. ECCO₂ R was titrated to maintain an arterial PCO₂ between 45 and 50 mmHg, and the patient was weaned and decannulated after 71 hours of support. The patient was removed from mechanical ventilation within 24 hours and then transferred to an intermediate care unit. No ECCO₂ R-related complications were observed. The authors stated the Hemolung RAS has a conceptual advantage over ECMO as the Hemolung RAS uses one small dual-lumen venous catheter, without additional arterial access and its attendant risks. The authors concluded that in appropriately selected patients, a minimally invasive ECCO₂ R approach may be useful.

Next, the applicant cited a case study by Saavedra-Romero et al., which describes the use of ECCO₂ R immediately administered with lung-protective mechanical ventilation on a patient with COVID-19 ARDS in her mid-60s. The authors stated that, upon arrival to the ICU, on inpatient day 5, the patient's oxygen saturation by pulse oximeter (SpO₂) was 77%, blood pressure (BP) 90/40 on norepinephrine at 10 mcg/min, and the patient's initial arterial blood gas (ABG) results were pH = 7.14, PaCO₂ = 90 mmHg, PaO₂ = 52 mmHg, and HCO₃ = 30mEq/L. The patient had significant whole-body subcutaneous crepitus, and the chest x-ray (CXR) showed an inflated right lung, subcutaneous emphysema, and an appropriately positioned endotracheal tube (ETT). The patient became increasingly tachycardic and tachypneic due to further worsening of hypercapnia and respiratory acidosis. ECCO₂ R was initiated using the Hemolung RAS and was administered for 17 days without complications. Ventilator settings were maintained at PEEP of 14, rate of 26, and minute ventilation at 7.8 liters during the first 24 hours. Respiratory rate and tidal volumes were subsequently titrated downward, maintaining adequate oxygen levels and permissive hypercapnia. The patient's chest tubes were removed 4 days after the Hemolung RAS decannulation, and the patient was weaned from mechanical ventilation 28 days from ICU admission, and discharged 47 days after admission. The authors stated that this case report highlights the use of ECCO₂ R to facilitate effective treatment of a patient with severe hypercapnic respiratory failure secondary to COVID-19 ARDS and multiple risk factors for death. The authors stated that treatment with ECCO₂ R allowed a lung-protective ventilator management strategy with ultralow tidal volumes, minimizing the risk of ventilator-induced lung injury, attenuating severe hypercapnia and acidosis, and limiting the expansion of an existing pneumothorax. The authors concluded that ECCO₂ R facilitates early lung-protective ventilation and control of refractory hypercapnia and can be safely utilized to increase the likelihood of survival among patients with severe COVID-19 ARDS.

Finally, the applicant cited a case study by Bermudez et al., in which a 33-year-old male with cystic fibrosis (CF), post double lung transplantation who developed severe hypercarbic respiratory failure due to adenovirus pneumonia requiring hospitalization, tracheostomy, and prolonged IMV for greater than 30 days. The patient was transferred to a tertiary care center and was treated with the Hemolung RAS because of persistent hypoxemia and hypercarbia. The patient was not a candidate for ECMO because of frail clinical condition, volume overload, and need for a redo lung transplantation. After 4 days of the Hemolung RAS support, the patient was weaned from vasopressors, and after 9 days, the patient was accepted as a candidate for redo lung transplantation because of considerable clinical improvement.

Lastly, the applicant provided a retrospective, multicenter study of 31 patients placed on the Hemolung RAS at 8 sites across the U.S. The cohort was comprised of patients with COVID-19 who were mechanically ventilated with severe hypercapnia and respiratory acidosis and treated with low-flow extracorporeal CO₂ removal treated between March 4 and September 30, 2020. Two patients underwent cannulation but were never started on therapy due to a vascular access failure in one patient and immediate circuit clotting in the other. For the 29 patients who received the Hemolung RAS treatment, analysis of covariance revealed a significant improvement trend in both pH and PaCO₂ ( p <0.0001). Comparison of time intervals yielded a statistically significant improvement in pH (7.24 ± 0.12 to 7.35 ± 0.07; p <0.0001) and decrease in PCO₂ (79 ± 23 to 58 ± 14; p <0.0001) from baseline to 24 hours after start of therapy. There were numerical, but not significant, decreases from baseline to 24 hours in respiratory rate (26.6 ± 5.4 to 23.4 ± 4.9), tidal volume (407 ± 100 to 386 ± 75 mL), and minute ventilation (10.2 ± 3.2 to 8.7 ± 2.2 L/min). The authors indicated that this is the first reported use of ECCO₂ R in the U.S. for this patient population. The authors reported that limitations of the study are its small size and single-cohort retrospective nature. The applicant stated that the study results demonstrated the efficacy of ECCO₂ R using the Hemolung RAS to improve respiratory acidosis in patients with severe hypercapnic respiratory failure due to COVID-19.

In addition to the case reports and retrospective study, the applicant also cited to the Hemolung RAS Registry Program Analysis, discussed previously, in support of its claim. The applicant stated that the Hemolung RAS Registry Program Analysis demonstrated clinically and statistically significant correction of pH and PaCO₂ within the first day of the Hemolung RAS therapy (p<0.05). Additionally, the applicant noted that the statistical analysis showed this correction in pH and PaCO₂ was independent of the patient's primary diagnosis.

With respect to the applicant's assertion that the Hemolung RAS offers a treatment option for patients ineligible for currently available treatments (for example, patients with a DNI order), the applicant reiterated that intubation with IMV is the only currently available treatment option for patients failing NIV; however, the applicant indicated that these patients have no other therapeutic options if they were to fail NIV because of their preference to not be intubated. According to the applicant, the CO₂ removal by the Hemolung RAS would rapidly correct the pH and PaCO₂ which would reduce the respiratory drive and improve NIV efficacy and prevent continued clinical deterioration.

The applicant submitted three peer-reviewed case reports that have documented the use of the Hemolung RAS in patients failing NIV with a DNI order. In the first case study done in Germany, a 72-year-old female with a past medical history of severe COPD (GOLD 4, nocturnal home ventilation therapy) with a DNI order presented to an ED in a hypercapnic coma. The patient had a Glasgow Coma Score of 3, pH of 6.97, and PaCO₂ greater than 150 mm Hg. The patient was hemodynamically stable on NIV with a respiratory rate of 28, oxygen saturation of 88% on supplemental oxygen with an inspired fraction (FiO₂) of 30%. After 30 minutes of NIV treatment, the patient's PaCO₂ improved, but the patient was nearly unconscious and was transferred to the ICU. Because of the high predictive mortality for patients with severe COPD who fail NIV and require intubation and invasive mechanical ventilation, combined with the patient's DNI order, the Hemolung RAS was initiated to supplement treatment. Within the first hour of treatment with both NIV and Hemolung RAS, the PaCO₂ levels continued to decrease from 109 mmHg to 89 mmHg and the patient's level of consciousness improved after about 25 minutes. Ultimately, the patient was able to start oral nutrition, communicate, and start mobilizing early because of her improved mental state within four hours of starting the Hemolung RAS and was discharged to rehabilitation.

The second case study by Mani et al. described two patients with severe COPD admitted to the ICU with an acute COPD exacerbation requiring NIV, but failed NIV treatments. A 69-year-old female in India was admitted with acute COPD exacerbation, waning consciousness and a pH of 7.20 and PaCO₂ of 101 mmHg. After starting NIV for 2 hours, the PaCO₂ had risen to 105 mmHg and pH had dropped to 7.193. After 1 hour of the Hemolung RAS treatment and NIV, the PaCO₂ declined to 93 mmHg with a pH 7.25. After 6 hours of treatment with the Hemolung RAS and NIV, the patient was awake with a PaCO₂ of 68 mmHg and a pH of 7.35. Ultimately, she was discharged to home on home oxygen and nocturnal NIV. There was also a report of a 78-year-old male with COPD and other comorbidities who had a DNI order in Germany. He was admitted with an acute COPD exacerbation and treated with NIV after his initial arterial blood gas (ABG) showed PaCO₂ 92 mmHg and pH of 7.24. After treatment with both the Hemolung RAS and NIV for 1 hour, the patient's PaCO₂ dropped to 68 mmHg and pH 7.33. Ultimately, the patient was discharged to home on nocturnal NIV. Both patients were both diagnosed with thrombocytopenia as a known complication of extracorporeal therapy, but neither required transfusion.

The applicant submitted a third case study in which Cole et al. describe a 62-year-old female with past medical history of COPD (GOLD class 3) and 2 recent hospitalizations for COPD exacerbations in the past 60 days. The patient had hypercapnic respiratory failure for which she did not want to be intubated, so she was started on NIV. She initially improved, but by day four of NIV treatment, she deteriorated, as evidenced by tachypnea and fatigue due to increased work of breathing. She was started on the Hemolung RAS and within two hours therapy with the Hemolung RAS alone (patient requested to stop NIV with the initiation of the Hemolung RAS), the patient's respiratory rate improved. Within 6 hours, the patient was able to converse and fully engage with her treatment. Ultimately the patient was discharged to home at her baseline activity level and did not require home oxygen therapy, and was not readmitted to hospital within 30 days of discharge.

Furthermore, the applicant claimed that the Hemolung RAS significantly improves clinical outcomes relative to services or technologies previously available by mitigating the harmful clinical sequelae from hypercapnic acidosis and facilitates de-escalation of high pressure and high volume ventilatory support or prevent intubation, both of which are known predictors for poor clinical outcomes. Thus, per the applicant, the correction of hypercapnia and hypercapnic acidosis (that is, pH and PaCO₂) are appropriate surrogate markers for improved clinical outcomes in critically ill, mechanically ventilated patients. Per the applicant, the use of correction of hypercapnia and hypercapnic acidosis as surrogate markers for improved clinical outcomes was accepted by FDA as evidence of the clinical benefit of the Hemolung RAS as part of FDA's clearance of its De Novo request.

The applicant asserted that the pH and PaCO₂ correction due to the Hemolung RAS therapy provide the following six improved outcomes: (1) Reduced mortality in intubated and IMV patients; (2) reduced length of stay in IMV patients; (3) de-escalation of mechanical ventilation settings (decreased rate of subsequent diagnostic or therapeutic interventions); (4) avoidance of intubation following NIV failure; (5) reduced mortality in NIV patients; and (6) improvement in activities of daily living/quality of life.

In support of its assertion that the Hemolung RAS reduces mortality in intubated and IMV patients, the applicant cited two background studies. In the study by Nin et al., the authors completed a secondary analysis of 3 prospective, non-interventional cohort studies in 1,899 patients with ARDS among 40 ICUs. The goal of the study was to determine the relationship between severe hypercapnia (PaO₂ ≥50 mmHg) in the first 48 hours following onset of ARDS and mortality. The applicant stated that the study results demonstrate that severe hypercapnia in IMV patients was independently associated with increased risk of ICU mortality (odds ratio: 1.93, 95% CI: 1.32-2.81, p=0.001). The second study by Tiruvoipati et al (2017), was a multicenter, binational, retrospective study that included 252,812 patients of 3 cohorts: Normocapnia and normal pH (n=110,104), compensated hypercapnia (n=20,463), and hypercapnic acidosis (n=122,245), that aimed to determine the relationship between these states and Acute Physiology and Chronic Health Evaluation (APACHE) III score and mortality. The study found that those with compensated hypercapnia and hypercapnic acidosis had higher APACHE III scores (49.2 vs. 53.2 vs. 68.6, p<0.01); mortality was highest in the hypercapnic acidosis patients (OR: 1.18, 95% CI: 1.1-1.25) and lowest in the normocapnia and normal pH, p<0.001. The applicant stated that the adjusted odds ratio for hospital mortality remained significantly higher in compensated hypercapnia and hypercapnic acidosis when compared with patients with normocapnia and normal pH irrespective of their P/F ratios.

In support of the applicant's second assertion that use of the Hemolung RAS contributes to reduced LOS in IMV patients, the applicant cited Tiruvoipati et al (2017), previously discussed. The median hospital LOS was 10.5 days in the normocapnia and normal pH group, 12 days in the compensated hypercapnia group and 11 days in the hypercapnic acidosis group (p<0.001). The median ICU LOS was 1.9 days vs 2.2 days vs. 2.9 days in the normocapnia/normal pH group vs. compensated hypercapnia group vs. the hypercapnic acidosis group, respectively (p<0.001). The authors noted that that there was increased mortality in patients with hypercapnic acidosis and compensated hypercapnia with unclear cause.

In support of the applicant's assertion that use of the Hemolung RAS results in de-escalation of mechanical ventilation settings and decreased rate of subsequent diagnostic or therapeutic interventions, the applicant cited the Tully et al. case report, discussed previously, in which intubated patients had a 20% decrease in peak airways pressure and 30% decrease in driving pressure during the Hemolung RAS therapy. The applicant also cited the Tiruvoipati et al. (2016) study, discussed previously, in which 10 patients showed a 19% decrease in peak respiratory pressure and a 26% decrease in minute ventilation within 1 day of the Hemolung RAS therapy. The applicant also cited the Hemolung RAS Registry Program Analysis, which demonstrated statistically significant correction of pH and PaCO₂ within the first day of the Hemolung RAS therapy (p<0.05).

In support of its assertion that use of the Hemolung RAS contributes to avoidance of intubation following NIV failure, the applicant noted that respiratory acidosis is the primary determinant of NIV failure citing risk charts using a background study from Confalonieri et al., in which data from 1,033 patients admitted to experienced hospital units was used to predict the likelihood of failure of noninvasive positive pressure ventilation (NPPV). The prediction charts were calculated using the APACHE II, GCS, pH, and respiratory rate data of 1,033 patients admitted with acute respiratory failure due to exacerbation of COPD treated with NIV. The applicant stated that the study results show that pH < 7.25 (acidosis) after 2 hours of NIV is the primary determinant of NIV failure [odds ratio: 21.02; 95% CI: 10.07-43.87], and that additionally, a pH between 7.25 and 7.29 (acidosis) after 2 hours of NIV is also significant predictor of NIV failure [odds ratio: 2.92; 95% CI: 1.62-5.28]. The applicant stated that accuracy and generalizability of the model's ability to predict NIV failure was validated on an independent group of 145 COPD patients treated with NIV.

In a prospective, single-arm feasibility study, Burki et al., previously discussed, stated that 100% ( 7/7 ) patients failing NIV and treated with the Hemolung RAS therapy avoided intubation and 100% ( 2/2 ) patients failing NIV with a DNI and treated with the Hemolung RAS therapy were successfully weaned from NIV. The applicant cited a retrospective review by Tiruvoipati et al. (2016), also previously discussed, in which 80% ( 4/5 ) of patients failing NIV and treated with Hemolung RAS therapy avoided intubation. Furthermore, the applicant cited an unpublished study of the Hemolung RAS Registry Program Analysis, in which 86% of patients (19 of the 22 patients in the analysis) who failed NIV and were treated with the Hemolung RAS therapy avoided intubation.

In support of the assertion that the Hemolung RAS reduced mortality in NIV patients, the applicant submitted two retrospective studies as background studies, in addition to two case studies that utilized the technology. The first background study was a retrospective analysis of data from the Healthcare Cost and Utilization Project's Nationwide Inpatient Sample between 1998 and 2008 to assess the pattern and NIPPV use for acute exacerbations of COPD. The patient cohort was defined as people greater than 35-years-old admitted with a primary diagnosis of COPD or a primary diagnosis of respiratory failure with a secondary diagnosis of COPD. The study demonstrated a decline over time in overall in-hospital mortality for those patients treated with NIPPV without a subsequent need for IMV. Mortality was high and increased over time in patients who transitioned from NIPPV to IMV (27%) compared to those patients who did not transition (9%). Charges for hospitalization increased from 1998 to 2008, especially for patients who transitioned from NIPPV to IMV. LOS decreased in all patients except those who transitioned from NIPPV to IMV. The authors noted a few limitations that would have allowed for a more detailed examination of predictors of NIPPV failure and death, including the lack of information on the severity of the exacerbation, response to NIPPV treatment, end-of-life decision-making, or location of the patient in the hospital (ICU vs. medical ward vs. ED, etc.).

The applicant also cited a retrospective study by Sprooten et al. as background, that looked at patients admitted to the Respicare Unit located in Maastricht University Medical Center (MUMC) in the Netherlands between 2009 and 2011 who met the criteria of admitted for exacerbation of COPD requiring NIV therapy and a definitive COPD diagnosis. In-hospital mortality was 14% with a median LOS of 16.5 days. Overall, this single-center study showed that patients who are admitted to the hospital for a first hospitalization requiring NIV for acute respiratory due to COPD exacerbation have a high short- and long-term mortality rate. According to the article, older age, NIV use greater than eight days and lack of successful NIV response were independent prognostic factors to two-year mortality rather than response of levels of PaCO₂ or pH.

The applicant also cited two case studies where the Hemolung RAS was used to successfully treat patients in hypercapnic respiratory failure caused by COPD. The applicant stated that in these case reports, the Hemolung RAS therapy prevented imminent death in COPD patients with a DNI order who were failing NIV. In a case study by Engel et al., previously described, a 72-year-old female with hypercapnic coma due to COPD exacerbation was administered the Hemolung RAS; after 4 hours, PaCO₂, pH, and clinical parameters improved, and the patient was weaned off therapy after 7 days.

In a second study by Mani et al., previously described, the Hemolung RAS was used to treat two patients. The first patient, a 69-year-old female with COPD, was placed on the Hemolung RAS after failing NIV treatment. After 66 hours of treatment, the patient was weaned off the Hemolung RAS, and was discharged home 4 days later. The second patient, a 78-year-old male with COPD, was placed on the Hemolung RAS after failing NIV treatment. After 48 hours of treatment, the patient was weaned off the Hemolung RAS, and was discharged home 10 days later.

In support of the assertion that the Hemolung RAS improves activities of daily living/quality of life, the applicant submitted one randomized controlled trial (RCT) abstract and three case studies. In the RCT abstract by Barrett at al., 18 patients (median age: 67.5 years) with acute hypercapnic respiratory failure due to exacerbations of COPD were randomized to receive NIV alone or ECCO₂ R and NIV. The applicant stated that the study included patients who were at high risk of failing NIV (pH<7.30 after ≥1 hour of NIV). The applicant stated that the control arm continued to be treated with NIV only (n=9) and the test arm was treated with ECCO₂ R (n=9). The primary endpoint was the time to cessation of NIV. Secondary outcomes included device tolerance and complications, changes in arterial blood gases (ABGs) and hospital survival. The time to NIV discontinuation was shorter in the ECCO₂ R arm (7 hours) vs in the NIV alone arm (24.5 hours), p = 0.004. The study claimed that dyspnea rapidly improved with ECCO₂ R, but that ICU and hospital LOS were longer with the ECCO₂ R group and there was no difference in mortality or functional outcomes at follow-up. The authors concluded that ECCO₂ R can be an alternative to NIV for patients who are at risk of failing or cannot tolerate NIV, or for patients in whom a more rapid correction of hypercapnia is desirable.

The applicant referred to three case studies using the Hemolung RAS to treat hypercapnic respiratory failure, to demonstrate improvement in activities of daily living/quality of life. In the case study by Engel et al., previously described, the applicant stated that early mobilization, communication, and nutrition were facilitated with Hemolung therapy. In the Bermudez et al. case study, previously discussed, the Hemolung RAS was successfully used to bridge a patient with COPD to a lung transplantation. The applicant stated that considerable clinical improvement attributed to Hemolung therapy permitted the patient to be awake and mobilized to sit on the edge of the bed. In the Bonin et al. case study, previously discussed, the applicant stated that drinking and recovery from pressure sores were possible by day three of the Hemolung RAS.

After review of the information provided by the applicant, we have the following concerns regarding whether the Hemolung RAS meets the substantial clinical improvement criterion. We note that the evidence provided for several of the claims of substantial clinical improvement include small, non-randomized studies without the use of comparators or controls, including case studies, which may affect the ability to draw meaningful conclusions about treatment outcomes from the results of the studies. The benefits of avoiding intubation or de-escalating IMV settings are described in case studies, but the absence of comparative data may make it more difficult to determine whether there are clinically meaningful changes in these outcomes. We also note that in the one abstract of an RCT using the Hemolung RAS, although the time to NIV discontinuation was shorter in the ECCO₂ R arm than in the NIV alone arm, the ICU and hospital length of stay were longer with the ECCO₂ R group and there were no differences in mortality or functional outcomes at follow-up. Additionally, while the applicant states that the Hemolung RAS results in improved clinical outcomes, such as reducing mortality in NIV patients compared to continuing the patient's previous treatment, given that many of the case studies provided as evidence to support improved clinical outcomes included only one or two patients, it is not clear whether or not the results of these studies are generalizable to the Medicare population. We also note that several of the case studies, for example, Bonin et al., Mani et al., Tully et al., etc., mentioned by the applicant included patients and cases from outside the U.S., and we question if there may be differences in treatment guidelines between these countries that may have affected clinical outcomes. Lastly, we note that for several of the claims of substantial clinical improvement, the applicant provided evidence from background studies that did not utilize the Hemolung RAS to support the use of the technology to improve clinical outcomes. For example, in support of its assertion that the Hemolung RAS reduces mortality in NIPPV patients, the study cited by the applicant only addressed NIPPV as a treatment option to treat exacerbations in patients with COPD, but did not directly address the use of the Hemolung RAS as an intervention.

We are inviting public comments on whether the Hemolung RAS meets the substantial clinical improvement criterion.

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

Comment: The applicant submitted a public comment from a commenter who supported the use of the Hemolung RAS. The commenter explained that they have treated five patients with the Hemolung RAS (two in the Investigational Device Exemption (IDE) clinical trial for the Hemolung RAS in patients with COPD and three via the EUA for COVID-19 pneumonia) and found the Hemolung RAS to be reliable and safe. They noted that they found that it consistently removed roughly 80 ml of CO₂ per minute with a blood flow rate of 300-400 mL/min and it allowed the reduction of ventilator settings including tidal volume and rate while maintaining or lowering the PaCO₂ . They further commented that the nurses and staff found it easy to use and comparable to continuous veno-venous hemofiltration (CVVHD). The commenter also offered that they anticipate using the Hemolung RAS in a number of clinical scenarios, such as to avoid intubation or facilitate extubation in patients with hypercapnic respiratory failure due to COPD or other forms of acute chronic hypercapnic respiratory failure. Lastly, the commenter explained that the randomized controlled trial (RCT) was very difficult to enroll due to a number of factors including the challenges of getting rapid consent when trying to enroll patients failing NIV, consent concerns by proxies, difficulties enrolling at night and on weekends, and many others. However, the commenter believed that when it is available outside of the context of a clinical trial, the Hemolung RAS will be used more often to reduce the need for IMV in hypercapnic patients, enhance comfort, and permit more efficient use of ICU resources.

The applicant also submitted a second public comment from a commenter who supported the Hemolung RAS for release for clinical use, especially during the COVID-19 pandemic during which the commenter had seen an increase in the admission rate for COPD patients infected with COVID-19. The commenter stated they believe that the Hemolung RAS can reduce LOS and ICU ventilation days. In support, the commenter stated that its site has been involved in the Hemolung RAS trial in the US and has a large population of COPD patients who are admitted with exacerbation of COPD, with the majority requiring mechanical ventilation. The commenter stated that the Hemolung RAS had allowed them to avoid mechanical ventilation or successfully extubate patients enrolled in the study. They further stated that they have not had any serious adverse side effects with the use of the device and that the nursing and respiratory therapy staff acquired the needed skill to use the device with minimal training.

Response: We thank the applicant for its comments and will take this information into consideration when deciding whether to approve new technology add-on payments for the Hemolung RAS.

d. Lifileucel

Iovance Biotherapeutics submitted an application for new technology add-on payments for lifileucel for FY 2023. According to the applicant, lifileucel is a proprietary, one-time autologous Tumor Infiltrating Lymphocytes (TIL) cell-based therapy for the treatment of unresectable or metastatic melanoma. TIL cell therapy with lifileucel involves the adoptive cell transfer (ACT) of autologous T-cells directly isolated from the tumor tissue and expanded ex vivo without any prior selection or genetic modification. Tumor antigen-specific T-cells are located within tumor lesions, where a dysfunctional state and low numbers prevent them from effectively eradicating the tumor. By isolating autologous TIL from the tumor microenvironment and expanding them, the lifileucel manufacturing process produces large numbers of reinvigorated T-cells. Following the infusion of lifileucel, the TIL migrate back into the tumor, including metastases, where they trigger specific tumor cell killing upon recognition of tumor antigens. We note that Iovance Biotherapeutics previously submitted an application for new technology add-on payments for lifileucel for FY 2022, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25272 through 25282), but withdrew the application prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44979).

As noted in our prior review, the applicant stated relapsed and refractory metastatic melanoma presents a high unmet medical need with low survival rates and limited durable treatment options. Despite the advances in available treatments, responses in patients with metastatic melanoma are at times inadequate, with many patients either not responding (40% to 65%) or displaying primary or acquired resistance (>70%) and the disease progresses. The applicant stated there are currently no approved agents for the treatment of patients with metastatic melanoma who fail available standard-of-care therapies, which include immune checkpoint inhibitors (ICI) and BRAF/MEK inhibitors. According to the applicant, the only commonly used available therapy for these patients post progression is chemotherapy. The applicant stated that as demonstrated in the literature referenced previously, retreatment with chemotherapy or experimental combined ICIs offers a poor Objective Response Rate (ORR) of 4%-10%, a median PFS of 2.7-3.7 months and a median OS of ~7-8 months.

According to the applicant, lifileucel is being studied for effectiveness in solid tumors. The applicant stated that in addition to the pivotal programs researching metastatic melanoma (C-144-01) and advanced cervical cancer (C-145-04) patients, TIL cell therapy is being investigated in the treatment of patients with locally advanced, recurrent, or metastatic non-small-cell lung cancer (IOV-COM-202 and IOV-LUN-202) as well as in peripheral blood lymphocyte (PBL) blood cancers. The applicant asserted lifileucel is expected to be administered primarily in the hospital inpatient setting to assure appropriate patient monitoring and to ensure the supervision of a qualified physician experienced with the use and administration of IL-2 (for example, aldesleukin). However, the applicant added, some treatment centers may make the clinical decision to infuse lifileucel as an outpatient procedure.

With respect to the newness criterion, the applicant indicated that they are pursuing a Biologics License Application (BLA) for lifileucel from FDA. The applicant added that the proposed prescribing information for lifileucel is currently in development and will be submitted upon BLA submission to FDA. The applicant stated the proposed indication for lifileucel is as a one-time autologous TIL immunotherapy for the treatment of patients with unresectable or metastatic melanoma who have been previously treated with at least one systemic therapy, including a PD-1 blocking antibody and, if BRAF V600 mutation positive, a BRAF inhibitor or BRAF inhibitor with MEK inhibitor. The applicant stated lifileucel has received Regenerative Medicine Advanced Therapy (RMAT), Orphan Drug, and Fast Track designations from FDA for the treatment of advanced melanoma. The applicant stated that currently, the following ICD-10-PCS procedure codes, effective October 1, 2021, uniquely identify procedures involving the administration of lifileucel in the inpatient setting: XW033L7 (Introduction of lifileucel immunotherapy into peripheral vein, percutaneous approach, new technology group 7) and XW043L7 (Introduction of lifileucel immunotherapy into central vein, percutaneous approach, new technology group 7). Based on their clinical trial protocol and proposed label, the applicant stated a single dose of lifileucel contains between 1 × 109 and 150 × 109 autologous TIL suspended in up to four patient-specific infusion bags for intravenous infusion. The applicant stated patients receive pre-treatment in the form of a nonmyeloablative lymphodepleting chemotherapy regimen of cyclophosphamide 60 mg/kg intravenously daily for 2 days followed by fludarabine 25 mg/m² intravenously daily for 5 days before infusion of lifileucel administration within 24 hours of the last dose. The applicant stated that 3 to 24 hours following the administration of lifileucel, patients should receive a post-treatment of a short course of high dose IL-2 (600,000 IU/kg every 8-12 hours for up to a maximum of six doses).

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 regard to the first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant asserted that lifileucel does not use the same or similar mechanism of action as compared to currently available products used in the treatment of advanced melanoma. The applicant stated that clinical studies suggest that TIL therapy lyses tumor cells via the following mechanism:

• Reinfused TIL circulate in the blood until they recognize tumor-specific antigens (TSAs) on the surface of the tumor cells via chemokines produced by the tumor. The TIL depart the capillaries, migrate to the tumor, and recognize tumor antigen peptides presented by MHC molecules on the surface of the tumor cells via their T cell receptors.
• Upon tumor antigen recognition, the TIL are activated and release perforin, a pore-forming protein.
• TIL then release granzyme, a pro-apoptotic protease, which enters the tumor via the pores, causing lysis of the tumor cells.
• TIL also release IFN-γ, which promotes macrophage activation to phagocytize (that is, engulf and internalize) the lysed tumor cell debris and present tumor antigens.
• TIL therapy mediates regression of tumors both by direct cell lysis and by inducing cytokine- (IFN-γ) mediated tumor cell killing.

According to the applicant, the currently available first and second line treatments for advanced melanoma include kinase inhibitors (BRAF and MEK inhibitors) and immune checkpoint inhibitors (anti-CTLA-4 antibody and anti-PD-1 antibody). The applicant explained that kinase inhibitors selectively inhibit the mutated BRAF V600E- or V600K kinase and MEK inhibitors are used in combination with BRAF inhibitors to interfere with the signaling of the MEK-1 and MEK-2 protein within the cancer cell. The applicant next explained that immune checkpoint inhibitors include CTLA-4 blocking antibodies and PD-1 blocking antibodies that are humanized monoclonal or recombinant IgG4 kappa immunoglobulin produced in recombinant Chinese hamster ovary cell lines. The applicant asserted that there are no approved treatment options for patients with metastatic melanoma that have progressed after two lines of therapy but stated that some patients may receive high-dose IL-2 or cytotoxic agents per NCCN clinical practice guidelines.

According to the applicant, TIL cell therapy with lifileucel uses a novel and distinct mechanism of action which delivers a highly customized, personalized, and targeted treatment for unresectable or metastatic melanoma. According to the applicant, lifileucel TIL cell therapy involves the Adoptive Cell Therapy (ACT) of autologous T-cells directly isolated from the patient's tumor tissue and expanded ex vivo. The applicant added that following the infusion of lifileucel, the TIL migrates back into the patient's tumor deposits, including metastases, where they trigger specific tumor cell killing upon recognition of tumor antigens. According to the applicant, after approval, lifileucel will be the only personalized, cellular therapy indicated for the treatment of unresectable or metastatic melanoma.

The applicant stated that as well as having tumor recognition, discussed previously, TIL therapy is personalized, polyclonal, and neoantigen-specific. According to the applicant, TIL is inherently personalized because it is derived from the patient's tumor tissue. According to the applicant, theoretically, tumor tissue TIL recognize a multitude of an individual's tumor specific antigens (TSAs) as opposed to CAR T-cell therapies which recognize only one TSA. The applicant asserted that TIL therapy is polyclonal because it can recognize an array of different tumor antigens which best addresses the high mutational diversity of solid tumors. According to the applicant, TIL is neoantigen-specific because the TIL therapy process ensures the inclusion of neoantigen-specific T cell clones without prior knowledge of the number or identity of those neoantigens.

The applicant asserted TIL cell therapy with lifileucel is also highly differentiated from currently approved CAR T-cell therapies which treat liquid tumors: YESCARTA® (axicabtagene ciloleucel) and KYMRIAH® (tisagenlecleucel), both approved for the treatment of large B-cell lymphoma in adults, and recently approved TECARTUS^TM (brexucabtagene autoleucel) indicated for the treatment of relapsed/refractory mantle cell lymphoma (MCL) and ABECMA® (idecabtagene vicleucel) indicated for the treatment of relapsed/refractory multiple myeloma. The applicant stated that while other ACT, including CAR T-cell therapies, utilize circulating T-cells from the blood, TIL therapy harvests neoantigen-directed T-cells that are isolated from a tumor biopsy. The applicant stated that whereas T-cells are genetically altered to have special receptors called chimeric antigen receptors in CAR T-cell therapy, TIL from tumor tissue fragments are cultured with IL-2 to allow outgrowth of TIL cell population during pre-rapid expansion (pre-REP). The applicant asserted that TIL cells obtained at the end of the pre-REP are subsequently cultured with IL-2, anti-CD-2 and feeder cells to start REP which is lastly cryopreserved.

According to the applicant, CAR T-cell therapies mainly target only single/surface tumor antigens, versus TIL cell therapy which targets multiple tumor antigens. The applicant added that CAR T-cells return to the bloodstream and lymphatic system and have more contact with blood tumor cells which may reduce their ability to penetrate tumor tissue through the vascular endothelium. The applicant stated another obstacle with the use of CAR T-cell therapy in the treatment of solid tumors is a phenomenon known as “tumor antigen escape” where a tumor expresses alternative forms of the target antigen that lack the extracellular epitopes recognized by CAR T-cells. The applicant stated that there are no examples of successful utility of CAR T-cell therapy in solid tumors. The applicant further stated that the TIL mechanism of action does not rely on genetically engineered receptors, but maintains some physiologic control and therefore avoids hyperactivation that may be responsible for complications from CAR T-cell therapy such as cytokine release syndrome (CRS) or neurotoxicity. Per the applicant, there have been no off-tissue effects found to date following treatment with TIL cell therapy, and TIL therefore offers a differentiated safety profile compared to CAR T-cell products or ICIs and confirms the mechanism of action differentiation discussed previously.

With respect to the second criterion, whether a product is assigned to the same or different MS-DRG, the applicant stated that in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798 through 44806), CMS finalized its proposal to assign existing procedure codes describing CAR T-cell, non-CAR T-cell and other immunotherapies to Pre-MDC 018 and to modify the title to “Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies” to better reflect the cases reporting the administration of non-CAR T-cell therapies and other immunotherapies. The applicant stated their appreciation and support for CMS' final decision to assign lifileucel ICD-10-PCS codes to Pre-MDC MS-DRG 018. The applicant agreed that while the clinical and resource intensity of lifileucel is comparable to that of CAR T-cell therapy inpatient episodes of care, the TIL cell therapy mechanism of action and patient population differ from autologous CAR T-cell therapy.

With respect to the third criterion, whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population, the applicant stated that if FDA grants approval, lifileucel will be the only FDA-approved cellular treatment for patients with unresectable or metastatic melanoma who have been previously treated with at least one systemic therapy, including a PD-1 blocking antibody and, if BRAF V600 mutation positive, a BRAF inhibitor or BRAF inhibitor with MEK inhibitor. The applicant asserted lifileucel will be the first and only FDA-approved cellular treatment for this challenging to treat patient population.

After review of the information provided by the applicant, we note that in regard to the MS-DRG assignment, while the applicant stated that lifileucel is assigned to the same MS-DRG as CAR T-cell therapies, it seems that lifileucel maps to a different MS-DRG than existing treatments for metastatic melanoma. We also note that there are currently other therapies for the treatment of metastatic melanoma and we are not certain that the distinction of being the first cellular treatment is relevant to the third criterion. We are seeking public comment on whether lifileucel would indeed be the only FDA approved treatment for the patient population identified here.

We are inviting public comments on whether lifileucel is substantially similar to other currently available therapies and/or technologies and whether this technology meets the newness criterion.

With regard to the cost criterion, the applicant provided the following analyses to demonstrate the technology meets the cost criterion: (1) A primary cohort, (2) a cohort with a principle or admitting diagnosis of melanoma and metastasis, and (3) a cohort with any diagnosis of melanoma and metastasis. The ICD-10 codes used to identify melanoma and metastasis and MS-DRGs identified by the applicant (for the primary cohort) are listed in the following tables.

To conduct the primary analysis, the applicant identified a cohort of patients that would be eligible for lifileucel that met the criteria of having any ICD-10 diagnosis of melanoma from ICD-10-CM codes C43.XXX and D03.XXX (where XXX represents all codes in the broader category) also noted in the prior tables, and any ICD-10 diagnosis of metastasis from ICD-10-CM codes C77.X, C78.XX, and C79.XX (where the X and XX represent all codes in the broader categories respectively) and in the prior tables, and any ICD-10 procedure code indicating administration of IL-2 or other chemotherapy via central or peripheral vein from the previous tables.

The applicant used the FY 2019 MedPAR file dataset with the FY 2019 final rule with Correction Notice IPPS Impact File and the FY 2023 New Technology Thresholds to perform their cost analyses. Using the FY 2019 MedPAR file dataset, the applicant's search resulted in the identification of 20 MS-DRGs to which cases in the primary cohort mapped, as previously listed. The applicant provided two sensitivity cohorts: (1) A principal or admitting ICD-10 diagnosis of melanoma and metastasis; and (2) any ICD-10 diagnosis of melanoma and metastasis. The applicant stated that the analysis was limited to Medicare discharges from facilities paid under the IPPS by only including hospitals listed in the FY 2019 IPPS/LTCH PPS final rule IPPS Impact File. The previously discussed criteria resulted in 39 claims from 20 MS-DRGs in the primary cohort, 387 claims from 80 MS-DRGs in the sensitivity cohort 1, and 4,985 claims from 372 MS-DRGs in sensitivity cohort 2. The applicant imputed a case count of 11 for those MS-DRGs with fewer than 11 cases. For each cohort, the applicant provided two analyses, first using the national pharmacy CCR of 0.187 from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966) to calculate charges, and second using the applicant-calculated CAR T-cell CCR (0.2936) to calculate charges. The applicant first calculated a case weighted threshold of $1,256,379 for the primary, sensitivity one, and sensitivity two cohorts where the MS-DRG 018 threshold was applied for all MS-DRGs identified. We note, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44806) we finalized our proposal to assign other immunotherapies to MS-DRG 018 (for example, Introduction of lifileucel immunotherapy into peripheral vein, percutaneous approach, new technology group 7), in addition to CAR T-cell therapies. Therefore, it seems the appropriate threshold for comparison is that of MS-DRG 018, with an average case-weighted threshold amount of $1,256,379.

For these analyses, to calculate the average charge per case, the applicant used the cases identified based on the claims data search and mapped them to the MS-DRG 018 threshold. To determine the charges for lifileucel, the applicant converted cost to charges by dividing by the national average pharmacy CCR of 0.187 from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966), and in secondary analyses, by a CAR T-cell CCR of 0.2936 calculated by the applicant. To estimate the CAR T-cell CCR, the applicant obtained the total drug charges for cases in MS-DRG 018 from the FY 2022 IPPS final rule AOR/BOR file. Next the applicant divided the total drug charges ($184,237,653.25) by the number of cases (145) to get an average drug charge per case of $1,270,605. Using the acquisition cost of YESCARTA® and KYMRIAH® ($373,000) as the cost per case, the applicant divided by the charge per case ($1,270,605) to get a CCR of 0.2936.

The applicant stated no charges were removed for the prior technology because previous treatments will continue to be reflected in cases where lifileucel is administered. Next the applicant calculated the average standardized charge per case using the FY 2019 IPPS/LTCH PPS final rule impact file. A 3-year inflation factor of 20.4686% was obtained from the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542) and applied to the average standardized charge per case.

The applicant calculated the final inflated average case-weighted standardized charge per case by adding the estimated charges for the technology to the inflated average standardized charge per case. The applicant determined a final inflated average case-weighted standardized charge per case of $2,196,319 and $1,448,803 from the primary cohort, pharmacy and CAR T-cell CCR analyses with CAR T-cell thresholds respectively, which both exceed the average case-weighted threshold amount of $1,256,379.

The applicant determined a final inflated average case-weighted standardized charge per case of $2,139,220 and $1,391,704 from the sensitivity cohort one using the pharmacy and CAR T-cell CCR analyses with CAR T-cell thresholds respectively, which both exceed the average case-weighted threshold amount of $1,256,379.

The applicant determined a final inflated average case-weighted standardized charge per case of $2,136,701 and $1,389,185 from the sensitivity cohort two using the pharmacy and CAR T-cell CCR analyses with CAR T-cell thresholds respectively, which both exceed the average case-weighted threshold amount of $1,256,379.

Because the final inflated average case-weighted standardized charge per case for all the analyses exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

As we have noted in previous discussions (86 FR 25237, 86 FR 25279), the submitted costs for CAR T-cell therapies vary widely due to differences in provider billing and charging practices for this therapy, and we are continuing to consider the use of this submitted cost data for purposes of calculating a CAR T-cell CCR for use in the applicant's cost analyses given this potential for variability. We invite public comments on whether lifileucel meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant asserted that lifileucel represents a substantial clinical improvement over existing technologies. The applicant asserted that the one-time administration of lifileucel, an autologous TIL immunotherapy, has demonstrated substantial clinical improvement compared to current therapies used to treat patients with unresectable or metastatic melanoma who have been previously treated with at least one systemic therapy; that patients with unresectable or metastatic melanoma who have failed at least one prior systemic therapy will have substantially improved ORRs compared with patients treated with currently available therapies; that responses continue to deepen over time after a single infusion of lifileucel; and that efficacy and safety data have shown lifileucel is an effective therapy for advanced melanoma patients.

The applicant asserted that when approved by FDA, lifileucel will provide a treatment option for patients with advanced melanoma who relapse on or do not tolerate treatment with immune checkpoint inhibitors and BRAF-targeted therapies and who respond poorly to a subsequent round of therapy with these agents or chemotherapy. The applicant stated metastatic melanoma is capable of rapidly metastasizing to distant organs and accounts for the majority of skin cancer-related deaths. According to the applicant, despite the advances in available treatments, there are currently no treatment options based on data from patients with advanced melanoma who have progressive disease after one line of immune checkpoint inhibitor therapy (for BRAF wild-type tumors), or two lines of therapy (for BRAF V600 mutation-positive tumors). The applicant added, patients recurring with advanced melanoma after adjuvant anti-PD-1 therapy for high-risk disease represent an emerging unmet need. As the applicant stated previously, patient outcomes are consistently poor for this population. Based on the C-144-01 study, the applicant concluded that treatment with lifileucel represents substantial clinical improvement over published, poor outcomes for retreatment with chemotherapy.

The applicant next stated that lifileucel significantly improves clinical outcomes compared to current therapies. In support of this assertion, the applicant provided data from two of four cohorts of the C-144-01 study, an ongoing phase 2 multicenter study (NCT02360579) to assess the efficacy and safety of autologous TIL in patients with stage IIIc-IV metastatic melanoma. Those 4 cohorts are:

• Cohort 1 (n=30 generation 1 non-cryopreserved TIL product), not included for review as part of the applicant's application for new technology add-on payments.
• Cohort 2 (n=66 generation 2 cryopreserved TIL product), included for review as part of the applicant's application for new technology add-on payments.
• Cohort 3 (a sub-sample of n=10 from cohorts 1, 2, and 4), not included for review as part of the applicant's application for new technology add-on payments.
• Cohort 4 (n=75 generation 2 cryopreserved TIL product), will be provided to FDA as part of the applicant's BLA and will be provided to CMS upon FDA approval.

The applicant stated that patients were enrolled between April 2017 and January 2019 at 26 sites.

According to the applicant, the primary objective of this study was to evaluate the efficacy of lifileucel in patients with unresectable or metastatic melanoma using the ORR, as assessed by the independent review committee (IRC) per Response Evaluation Criteria in Solid Tumors (RECIST) version 1.1. The applicant added that secondary objectives were to: (1) Evaluate the efficacy endpoints of duration of response (DOR), disease control rate (DCR), and progression free survival (PFS); (2) further evaluate the efficacy of lifileucel in patients with unresectable or metastatic melanoma by assessing DOR, DCR, and PFS; (3) to evaluate overall survival (OS); and (4) to characterize the safety profile of lifileucel. For cohort 2, 60 patients were determined to allow estimation of the ORR using the maximum half width of the two-sided 95% confidence limit of less than 13.2% when ORR is expected to range from 20-50%. For cohort 4, approximately 75 patients were planned to be infused based on the null hypothesis of 10% ORR (based on historical control) which resulted in over 90% power to demonstrate superiority to this control. Patients included in this study were 18 years or older, had an ECOG (Eastern Cooperative Oncology Group) performance status of 0 or 1 upon entry, an estimated life expectancy of greater than or equal to 3 months, and had unresectable or metastatic melanoma (stage IIIC or IV) treated with at least one prior systemic therapy including an anti-PD-1 antibody and a BRAF/MEK inhibitor. Patients had at least one measurable target lesion, as defined by RECIST v1.1 (which was not used for tumor resection), and at least one resectable lesion (or aggregate of lesions resected). Patients were required to have a washout period of at least 28 days from prior anticancer therapy(ies) to the start of the planned nonmyeloablative lymphodeletion (NMA-LD) preconditioning regimen. According to the applicant, all patients were to receive the pre-treatment, pre-medication, and post-treatment as described in the discussion of the newness criterion, in combination with the infusion of lifileucel. The applicant explained that prior to the infusion of lifileucel, the patients received NMA-LD with cyclophosphamide (60 mg/kg) intravenously daily for 2 days followed by fludarabine (25 mg/m2) intravenously for 5 days to eliminate potentially suppressive immune cells which support the tumor and to maximize engraftment and potency of the lifileucel therapy through homeostatic proliferation.

The applicant stated that the patients in this study had a high tumor burden at baseline and had received a mean of 3.3 lines (range, 1-9) of prior therapies. Twenty-eight patients (42%) had liver and/or brain lesions at baseline. Each prior line of therapy was defined as any concomitant therapy given to the patient even if more than one target for each treatment was involved. The applicant added that 77% of patients had progressed on prior anti-CTLA-4 blockade therapy, 99% had progressed on prior anti-PD-1/PD-L1 therapy, and 88% had received BRAF/MEK inhibitors. All patients had received PD on their prior therapy before study entry.

Next, the applicant discussed the efficacy results from the C-144-01 study. The applicant stated that regardless of location of tumor resected and BRAF mutational status, and across ages (20-79 years), patients responded to lifileucel therapy. According to the applicant, at the data cutoff of April 2020 patients in cohort 2 (n=66) had an ORR of 36% (95% CI 25, 49) and a DCR of 80% (95% CI 69, 89). When considering best overall response, two patients (3%) achieved complete response (CR), 22 patients (33%) achieved partial response (PR), 29 patients (44%) achieved stable disease (SD), 9 patients (14%) had progressive disease (PD), and 4 patients (6%) were non-evaluable. The applicant highlighted that the ORR (36.5% for those less than 65 years and 35.7% for those 65 and older) and DCR (71.2% for those less than 65 years and 78.6% for those 65 and older) were consistent across age groups. The applicant contends that these results following the one-time, single infusion of lifileucel represent a substantial improvement over chemotherapy which offers poor ORR of 4%-10%. The applicant added that the primary-refractory subset (n=42), defined as patients who had a best overall response of progressive disease to first immune checkpoint inhibitor, had an ORR of 41% (95% CI, 26, 57) with 2 CRs (5%), 15 PRs (36%), 17 (41%) SD, and 5 (12%) having PD. The applicant asserted that this subset is important because 40%-65% of all patients with metastatic melanoma and >70% of those treated with anti-CTLA-4 therapy have disease that is primary refractory to initial immune checkpoint inhibitor therapy.

Next, the applicant asserted that, because the median duration of response (DOR) had not been reached at a median follow-up of 33 months, the treatment effect will be durable and provide long-term benefit to those treated with lifileucel. The applicant added that the median time from infusion to best response was 1.4 months (1.3-8.7 months). At 18.7 months the median OS was 17.4 months (95% CI, 11.0 to not reached), with 1-year OS of 58% (95% CI, 45 to 69). The applicant stated that a univariable Cox proportional hazards regression model was used to estimate hazard ratios with 95% confidence intervals between subgroups on DOR which found that for every 6-month decrease in cumulative duration of prior anti-PD-1/anti-PD-L1 therapy, the median DOR to lifileucel was nearly doubled. The applicant concluded from these results that shorter duration of prior anti-PD-1 therapy maximizes DOR to lifileucel treatment and that all newly diagnosed patients should be closely monitored for progression on anti-PD-1 therapy.

Lastly, the applicant stated that the safety profile of lifileucel was consistent with the underlying advanced disease and the known toxicities associated with the single course of lymphodepleting preconditioning regimen and IL-2. The applicant stated that all patients experienced at least one treatment-emergent adverse event (TEAE) during the course of the study with the most common adverse event of any grade being hematologic along with chills, pyrexia, fatigue, tachycardia, and hypotension. The applicant added that the most common grade 3/4 TEAEs included thrombocytopenia (89%), chills (80%), anemia (68%), pyrexia (59%), neutropenia (56%), febrile neutropenia (55%), hypophosphatemia (46%), leukopenia (42%), lymphopenia (35%), and tachycardia (35%) which were consistent with the lymphodepletion regimen and known profile of IL-2. One patient died due to intra-abdominal hemorrhage reported as possibly related to TIL and one due to acute respiratory failure assessed as not related to TIL. The applicant stated that there was no difference in the incidence of TEAEs (for example any grade, among grades 3 to 4, and among grade 5) in patients 65 or older as compared to those younger than 65. The applicant asserted that this profile of the incidence of TEAEs over time, including grade 3/4 TEAEs that decreased rapidly over time reaching background rate by approximately day 10 post lifileucel administration, is reflective of the potential benefit of the one-time treatment with lifileucel.

In addition to the evidence summarized previously and in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25281), the applicant submitted one article and two presentations with abstracts in support of its claims regarding substantial clinical improvement. The published article discussed the C-144-01 trial previously summarized and provided greater detail on Cohort 2; the authors described the study design, patient sample, and study endpoints for Cohort 2. In addition to previously discussed information, the authors stated that 78 patients underwent tumor resection in preparation for participation in this trial, however only 66 patients received lifileucel. The article stated that three of the patients either received a low dosage or did not receive TIL and nine patients could not be treated because of other causes; while it is not directly stated in the article it is likely that these patients were not included in the analysis. The authors added that only 25% of patients had progressed after achieving a response from lifileucel. The authors stated that the median DOR had not been reached with a 1-year DOR of 69% (95% CI, 46-84). The authors stated that 34 (52%) of patients received anti-PD-1 plus anti-CTLA-4 combination therapy, either as frontline (n=5, 23%) or after failing frontline therapy (n=9, 29%); the ORRs for these subsets were 33% and 32%, respectively. According to the authors, the ORRs for patients with primary resistance (n=17) or acquired resistance (n=11) to anti-PD-1 plus anti-CTLA-4 combination therapy were 35% and 27%, respectively. The article lastly discussed similar safety outcomes as previously discussed by the applicant.

Finally, the applicant discussed presentations from the American Association for Cancer Research (AACR) 2021 annual meeting (28-month follow-up data) and the 2021 American Society of Clinical Oncology (ASCO) annual meeting (33-month follow-up data). The first presentation provided 28-month follow up data from the C-144-01 study of the efficacy and safety of lifileucel cohort 2. Data presented is similar to the preceding presentation and article discussed previously. According to the second presentation, 81% (50/62) of patients had a reduction in tumor burden while 11 patients (17.7%) had further sum of diameters (SOD) reduction since April 2020. The presentation stated that 79% of responders to lifileucel received prior ipilimumab. The presentation provides a brief case study of a patient who achieved PR at day 42 and CR at day 84. The presentation concluded that: Lifileucel resulted in a 36.4% ORR with a median DOR not reached at 33.1 months; patient responses deepened over time with continued decrease in tumor size for 11 patients (17.7%); and that early intervention with lifileucel at the time of initial progression on anti-PD-1 agents may maximize the benefit seen.

In response to concerns expressed by CMS in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25281 and 25282) about the appropriateness of the ORR as the primary outcome, the applicant stated the ORR was determined to be the appropriate primary endpoint for C-144-01 following a review of studies in patients with advanced cancers where FDA approval has been granted and in consultation with key opinion leaders in oncology. The applicant next summarized their June 17, 2021, public comment letter to CMS. In their comment the applicant stated that FDA has described the significance of ORR as assessed by its magnitude and duration of effect. The comment added that ORR can represent direct clinical benefit based on the specific disease, context of use, magnitude of the effect, the number of CRs, the durability of response, the disease setting, the location of the tumors, available therapy, and the risk-benefit relationship. According to the comment, the surrogate endpoint of ORR has allowed for earlier measurement of lifileucel results and has demonstrated direct, ongoing clinical benefit for patients with metastatic melanoma with limited treatment options. Furthermore, the comment stated further evidence of ORR as an accepted and important efficacy measure for metastatic or unresectable melanoma is that it has been recognized by the National Comprehensive Cancer Network (NCCN) in the NCCN Clinical Practice Guidelines in Oncology, Melanoma: Cutaneous, Version 2.2021. The comment concluded that given the limited treatment options and poor response rates for patients, lifileucel has demonstrated a favorable risk-benefit profile and represents a substantial clinical improvement for patients with metastatic melanoma who otherwise have limited treatment options.

The applicant next addressed the second concern raised by CMS in the FY 2022 PPS/LTCH PPS proposed rule in response to the FY 2022 application for new technology add-on payments, that CMS was unable to verify the appropriateness of a historical control because the evidence describing it was not provided. According to the applicant, only dacarbazine (DTIC) is an appropriate comparator for Cohort 4 as it is the only chemotherapy agent approved for the treatment of metastatic melanoma. The applicant added that other published studies provide evidence on other treatment options without prior anti-PD-1 and are not pertinent comparators for the C-144-01 study population (weighted average ORR of DTIC alone was 15.3% across 24 studies). The applicant stated that a more recent study in the post-immune checkpoint inhibitor era reported ORR of 4% from the investigator's choice arm. While not appropriate for direct comparison to Cohort 4, the applicant asserted that these studies do provide historical ORR information in metastatic melanoma in general and demonstrate that the ORR in these historical studies approximates the 10% ORR from the DTIC arm of the Goldinger 2018 study. According to the applicant, at the End-of-Phase 2 (EOP2) meeting held in September 2018, FDA concluded that a controlled trial likely could not be concluded in the patient population of interest. The applicant stated the precedence for a 10% historical control rate in the metastatic melanoma population was established in FDA's approval of BLA 125514 for KEYTRUDA, a PD-1 indicated for the treatment of patients with unresectable or metastatic melanoma, among other oncologic indications. According to the applicant, FDA's Medical Review Summary dated August 2, 2014 stated, “There are no historical data of the response rate of chemotherapies in patients who are refractory to ipilimumab; however, response rate of chemotherapies ranged from 5% to 10% in three recently completed Phase 3 studies (ipilimumab in 1st line melanoma patients, and trametinib and vemurafenib in patients with BRAF V600E mutation). Therefore, the applicant stated that it is reasonable to use 10% as the null hypothesis for testing the anti-tumor activity of MK-3475 against putative chemotherapies in this population.” The applicant concluded that the chemotherapy control arms of the original registration study of pembrolizumab (KEYTRUDA) and nivolumab (OPDIVO) provide further support for the 10% historical control rate for Study C-144-01. According to the applicant, these two studies provide a substantial and coherent data set for response to chemotherapy following treatment with ipilimumab, an immune checkpoint inhibitor, as well as a BRAF inhibitor, where indicated. The applicant reported that these studies had ORRs of 4% (95% CI 2,9) (n=179) and 10.6% (95% CI 3.5, 23.1) (n=47).

After review of the information provided by the applicant, we have the following concerns regarding the substantial clinical improvement criterion. We note that while multiple references were provided in support of substantial clinical improvement, those that evaluate lifileucel are based solely on the C-144-01 trial. We question whether there are methods by which lifileucel might be compared to existing treatments which were used to construct the historical controls in the studies provided. Similar to the discussion in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25279 through 25282) we also note that a historical control is used for all of the studies provided and that the analyses using this historical control do not account for baseline differences between the groups being compared. This makes it difficult to determine if the results seen are due to the treatment, random occurrences, or bias. We also question whether the patient sample or samples used to construct the historical control are representative of the C-144-01 cohort.

We note a low sample size in the primary reference which is used to explain the findings of C-144-01. First, we note that the study enrolled 66 of 78 patients who underwent tumor resection. Given the small sample size, the 12 patients who withdrew represent a substantial proportion of the total patients evaluated and may make it even more difficult to determine whether the results of the patients remaining in the study are generalizable, especially to the Medicare patient population. We are concerned that those patients who were not included in the study may have had poorer clinical outcomes as compared to those evaluated in the study which would potentially bias the results seen in the study. Second, in regard to the sample studied, we note a median age of 55 with males represented at 59%; data on race, ethnicity, and other demographics are not presented. We question whether the sample evaluated is appropriately representative of the Medicare population and whether this sample has a disease burden similar to that seen in Medicare beneficiaries.

Next, we note that according to the applicant, high-dose IL-2 has been used to treat MM in the past and is given as a post-treatment to lifileucel. The applicant asserted that the occurrence of grade 3 and 4 TEAEs was early and consistent with the lymphodepletion regimen (NMA-LD) and known profile of IL-2. If lifileucel is always given in conjunction with the pre- and post-treatments, we question how it is possible to determine the cause of the TEAEs which are categorized as severe based on the Common Terminology Criteria for Adverse Events v4.03. We further note that we have not received any analyses which controlled for the amount of IL-2 used per patient. There did not appear to be a discussion of how the number of doses of IL-2 administered to a patient interacted with lifileucel and impacted the treatment effects (for example, CR, PR, SD), and TEAEs. We believe it is important to understand the effect of IL-2 on the response rate and these values as it may be possible for higher doses of IL-2 leading to better patient outcomes or worse TEAEs as compared to those with fewer doses of IL-2. Specifically, we question whether the effect seen in C-144-01 is due to lifileucel itself or due to other factors such as the use of IL-2, general changes in medical practice over time, and the specific sample identified for the trial at hand.

Separate from our concern about the use of a historical comparator, we note that according to the applicant, based on data from 1985 through 1993 analyzing 270 patients across 8 clinical trials, high dose IL-2 resulted in an ORR of 16% and CR of 6%, as compared to an ORR of 36% for the C-144-01 trial. However, we question whether the differences in the studies, the samples, and the time period in which the studies were conducted may account for this difference in the ORR values as opposed to the use of lifileucel itself.

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

We received a comment from the applicant in response to the New Technology Town Hall meeting notice published in the Federal Register regarding the substantial clinical improvement criterion for lifileucel.

Comment: In response to CMS' question related to the level of therapeutic effect of IL-2 which is administered following the one-time, single administration of lifileucel TIL therapy, the applicant described IL-1 and discussed its approved therapeutic use. The applicant asserted that IL-2 is a naturally occurring cytokine that has been shown to drive T cell activation and effector function. The applicant added that IL-2 plays a role in the maintenance of CD4 regulatory T cells and differentiation of CD8+ T cells into mature cytotoxic cells. According to the applicant, to support T-cell activity after the lifileucel infusion, a short course of high-dose IL-2 (for example, aldesleukin) is administered in vivo at 600,000 IU/kg every 8 to 12 hours for up to 6 doses beginning 3 to 24 hours after lifileucel is infused. The applicant stated this short course of high-dose IL-2 differs substantially from the typical high-dose IL-2 antineoplastic regimens discussed previously: 79% lower dose IL-2 is instead administered to support the migration, antitumor cytotoxicity and persistence of the infused TIL, not for antineoplastic effect.

According to the applicant, the methodology of adoptive cell transfer (ACT), giving autologous ex vivo expanded TIL to nonmyeloablated lymphodepleted cancer patients followed by a short course of high-dose IL-2 was developed in 1988. The applicant stated that in a phase I trial which evaluated the anti-tumor effect of TIL therapy with varying IL-2 doses in 15 patients with metastatic melanoma, tumor response was not seen in patients that did not receive any IL-2 (n=6). The applicant next stated that in a second study, patients who experienced an objective response received fewer doses of high-dose IL-2 as compared to non-responders. According to the applicant, this might be explained by the fact that IL-2 administration significantly increased the number of CD4+FoxP3+regulatory T-cells (Tregs) with a direct correlation between the number of IL-2 doses given and reconstitution of Treg numbers in the blood and an inverse correlation between reconstitution of the Tregs and the probability of achieving an anti-tumor response. The applicant summarized that the use of IL-2 in TIL therapy is not for antineoplastic effect, but instead for the sole purpose of creating the right cytokine environment and supporting T-cell activity after the lifileucel infusion.

Next the applicant stated that the purpose of the comment letter was to respond to CMS' question on whether a multivariate analysis had been conducted to determine the impact of independent predictors on the efficacy results of lifileucel and, specifically, if the impact of IL-2 had been analyzed in such a univariable analysis. The applicant noted that the updated analyses are proprietary until further notice. We note that we are therefore unable to discuss them in this proposed rule or consider them in support of this application.

Response: We appreciate the applicant's comments. We will take these comments into consideration when deciding whether to approve new technology add-on payments for lifileucel.

e. LIVTENCITY^TM (maribavir)

Takeda Pharmaceuticals U.S.A., Inc. submitted an application for new technology add-on payments for LIVTENCITY^TM (maribavir) for FY 2023. LIVTENCITY^TM is a cytomegalovirus (CMV) pUL97 kinase inhibitor indicated for the treatment of adults and pediatrics (12 years of age and older and weighing at least 35 kg) with post-transplant CMV infection/disease that is refractory to treatment (with or without genotypic resistance) to ganciclovir, valganciclovir, cidofovir, or foscarnet.

According to the applicant, LIVTENCITY^TM is the only antiviral therapy indicated to treat post-transplant patients with CMV in solid organ transplant (SOT) and hematopoietic stem cell transplant (HCT). Per the applicant, LIVTENCITY^TM provides multi-targeted anti-CMV activity by inhibiting protein kinase UL97 and its natural substrates, which subsequently inhibits CMV DNA replication, encapsidation, and nuclear egress of viral capsids.

The applicant stated that CMV is one of the most common viral infections experienced by transplant recipients, with an estimated incidence rate between 16%-56% in SOT recipients and 30%-70% in HCT recipients. CMV is a beta herpesvirus that commonly infects humans; serologic evidence of prior infection can be found in 40%-100% of various populations. CMV typically resides latent and asymptomatic in the body but may reactivate during periods of immunosuppression. The applicant estimated that there are approximately 200,000 adult transplants per year globally and an estimated 1,435 cases of CMV post-transplant in the Medicare population per year. The applicant stated that in transplant patients, reactivation of CMV can potentially lead to serious consequences including loss of the transplanted organ and, in extreme cases, death.

Per the applicant, there are four FDA-approved therapies for the treatment and/or prevention (that is, prophylaxis) of CMV disease: Valganciclovir, ganciclovir, foscarnet, and cidofovir. The applicant stated that ganciclovir and valganciclovir are approved for prevention of CMV disease in transplant recipients and for treatment of CMV retinitis in immunocompromised hosts, including those with Acquired Immune Deficiency Syndrome (AIDS); and foscarnet and cidofovir are approved for treatment of CMV retinitis in AIDS patients. Per the applicant, none of these four therapies are FDA-approved for the treatment of resistant or refractory CMV infection and disease. The applicant provided a table that included the therapy, transplant type, mechanism of action, approved indications that were CMV-related, and the formulation(s).

With respect to the newness criterion, the applicant stated that LIVTENCITY^TM was granted Breakthrough Therapy, Priority Review, and Orphan Drug designations from FDA, and subsequently received FDA approval for its New Drug Application on November 23, 2021. LIVTENCITY^TM is indicated for the treatment of adults and pediatric patients (12 years of age or older and weighing at least 35 kg) with post-transplant CMV infection/disease that is refractory to treatment (with or without genotypic resistance) with ganciclovir, valganciclovir, cidofovir, or foscarnet. Per the applicant, LIVTENCITY^TM became commercially available on December 2, 2021. The applicant did not explain the reason for the delay between market authorization and commercial availability. The recommended dosing is 400 mg (two 200 mg tablets) orally twice daily with or without food. The applicant stated that if LIVTENCITY is co-administered with carbamazepine, then the dosage is increased to 800 mg twice daily; if co-administered with phenytoin or phenobarbital, the dosage is increased to 1,200 mg twice daily.

According to the applicant, ICD-10-PCS code 3E0DX29 (Introduction of other anti-infective into mouth and pharynx, external approach) may be used to identify administration of LIVTENCITY^TM but does not uniquely identify it. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for LIVTENCITY^TM beginning in FY 2023.

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 first criterion, whether a technology uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that LIVTENCITY^TM targets a different gene locus (pUL97 vs. pUL54) than the existing therapies to treat CMV infection, including those resistant or refractory to conventional therapy. Specifically, LIVTENCITY^TM inhibits CMV DNA replication, encapsidation, and nuclear egress of viral capsids through inhibition of pUL97 and its natural substrates. The applicant provided the mechanisms of action for the other existing anti-CMV drugs, namely valganciclovir ganciclovir, foscarnet, and cidofovir in the table previously listed and concluded that the LIVTENCITY^TM uses a different mechanism of action compared to existing anti-CMV drugs.

With respect to the second criterion, whether a technology is assigned to the same or a different MS-DRG when compared to an existing technology, the applicant stated that LIVTENCITY^TM is expected to be assigned to the same MS-DRGs as therapies that are currently used off-label for the treatment of CMV infection or disease.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant noted that there are no other existing therapies indicated to treat the same or similar type of disease or patient population as LIVTENCITY^TM . The applicant noted that currently available therapies are used off-label to treat patients with refractory or resistant CMV infection or disease. Thus, the applicant maintained that LIVTENCITY^TM is indicated to treat a different patient population compared to existing technologies.

In summary, the applicant asserted that LIVTENCITY^TM is not substantially similar to other currently available therapies because it uses a new mechanism of action and is indicated to treat a unique patient population and/or disease and, therefore, the technology meets the newness criterion. We are inviting public comments on whether LIVTENCITY^TM is substantially similar to existing technologies and whether LIVTENCITY^TM meets the newness criterion. As noted previously, the applicant did not explain the reason for the delay between market authorization and commercial availability, and we therefore also request additional information regarding this point.

With respect to the cost criterion, the applicant presented the following analysis. To identify patients who may be eligible to receive LIVTENCITY^TM as a treatment, the applicant searched the 2019 MedPAR dataset for cases with the following ICD-10-CM codes for CMV and post-transplant SOT and HCT infection. The applicant included inpatient discharges under Medicare fee-for-service (FFS) and excluded Medicare Advantage discharges.

The applicant identified 1,435 claims mapping to 108 MS-DRGs. For MS-DRGs where the case volume was below 11, the applicant imputed a count of 11 cases. The table lists the nine MS-DRGs with the highest volume of cases.

The applicant did not remove charges for a prior technology, as the applicant claimed that any current treatment that is used off-label to treat CMV patients post-transplant SOT and HCT may not be reflected in claims data. The applicant further explained that in cases where an off-label treatment is reflected on the claim, LIVTENCITY^TM might be used as a second-line treatment rather than to replace the off-label treatment. The applicant then standardized the charges and applied a 4-year inflation factor of 1.281834 or 28.1834%, based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to update the outlier threshold (86 FR 45542). The applicant added charges for the new technology by dividing the cost of LIVTENCITY^TM by the national average CCR for drugs which is 0.187 (86 FR 44966). The applicant estimated the costs of LIVTENCITY^TM based on 8-week dosing regimens to complete the full treatment.

The applicant calculated a final inflated average case-weighted standardized charge per case of $508,855 which exceeded the average case-weighted threshold amount of $76,739.

We invite public comments on whether LIVTENCITY^TM meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that LIVTENCITY^TM represents a new treatment option for a patient population unresponsive to, or ineligible for, currently available treatments. To support this claim, the applicant reiterated that there are no existing therapies that are approved by FDA to treat post-transplant patients with refractory or resistant CMV infection or disease. The applicant also asserted that the use of LIVTENCITY^TM may significantly improve clinical outcomes by improving efficacy and reducing adverse effects compared to available therapies.

To support the claim of improved efficacy, the applicant cited results from SOLSTICE, a phase III, open-label, randomized controlled trial in which 352 transplant recipients [HCT (n=211) and SOT (n=141)] with refractory or resistant CMV were assigned 2:1 to receive 400 mg of LIVTENCITY^TM twice daily (n=235) or investigator-assigned therapy (IAT) with drug-specific dosing (n=117) for 8 weeks, with 12 weeks of follow-up. The choice of specific IAT was at the investigators' discretion and included mono- or combination therapy (≤2 drugs) with intravenous (IV) ganciclovir, oral valganciclovir, IV foscarnet or IV cidofovir, where switching between ganciclovir and valganciclovir was permitted. The median (range) duration of exposure was 57 (2-64) days in the LIVTENCITY^TM arm and 34 (4-64) days with IAT. The primary endpoint was the proportion of patients achieving CMV clearance at 8 weeks, and the key secondary endpoint was achievement of CMV clearance and symptom control at the end of week 8, maintained through week 16. With respect to the primary endpoint, the applicant indicated that CMV clearance at 8 weeks was achieved in 55.7% (n=131/235) of the LIVTENCITY^TM group and 23.9% (n=28/117) of the IAT group with an adjusted difference of 32.8%, where the results achieved statistical significance [95% CI, 22.8-42.7%, p<0.001]. With respect to the secondary endpoint, the applicant indicated that 18.7% (n=44/235) of the LIVTENCITY^TM -treated group and 10.3% (n=12/117) of IAT-treated group maintained CMV viremia clearance and symptom control through week 16 (p=0.013). The applicant stated that, based on these results, LIVTENCITY^TM is superior to conventional antiviral therapies in achieving and maintaining CMV viremia clearance and symptom control.

The applicant also claimed that the efficacy of LIVTENCITY^TM is consistent across SOT types, as evidenced by an unpublished subgroup analysis by Avery et al. which evaluated 211 SOT patients from the SOLSTICE trial for CMV clearance (LIVTENCITY^TM vs. conventional) by transplant type, with the following results: Heart: 42.9% (n=6/14) vs. 11.1% (n=1/9) (adjusted difference: 30.7% [95% CI, −1.72-63.15%]); lung: 47.5% (n=19/40) vs. 13.6% (n=3/22), adjusted difference: 38.2% [95% CI, 16.89-59.53%]; kidney: 59.5% (n=44/74) vs. 34.4% (n=11/32); adjusted difference: 26.7% [95% CI, 7.48-45.85%].

Finally, with regard to efficacy, the applicant stated that LIVTENCITY^TM is active against refractory or resistant CMV infections and tolerable across doses. To support this claim, the applicant pointed to a randomized, dose-ranging, open-label, phase II study by Papanicolaou et al., in which HCT and SOT recipients with refractory or resistant CMV infections (n=120) were randomized 1:1:1 to twice-daily LIVTENCITY^TM doses of 400 mg (n=40), 800 mg (n=40), or 1,200 mg (n=40) for up to 24 weeks. The primary efficacy endpoint was the proportion of patients with confirmed undetectable plasma CMV DNA within 6 weeks of treatment. About two-thirds (n=80/120) of the patients achieved undetectable plasma CMV DNA within 6 weeks of treatment among all doses [95% CI, 57-75%], and 70% of patients receiving 400 mg of LIVTENCITY^TM twice daily [95% CI, 53-83]; 62% of patients receiving 800 mg twice daily [95% CI, 46-77%], and 68% of patients receiving 1,200 mg twice daily [95% CI, 51-81%] achieved the primary endpoint. About a third of patients experienced recurrent CMV infection while on LIVTENCITY^TM (n=25) and 13 patients developed mutations conferring LIVTENCITY^TM resistance.

To support the claim of decreased adverse effects, the applicant cited the results of two secondary endpoints from the SOLSTICE trial. Per the applicant, neutropenia and acute kidney injury are known, common adverse effects associated with valganciclovir/ganciclovir and foscarnet, respectively. The applicant noted that the rates of treatment-related neutropenia and acute kidney injury were both 1.7% (n=4/234), separately, in the LIVTENCITY^TM treatment group. The applicant also noted that the rate of neutropenia was 25% (n=14/56) in the valganciclovir/ganciclovir group, and the rate of acute kidney injury was 19.1% (n=9/47) in the foscarnet group. The applicant maintained that the rate of treatment-related neutropenia and acute kidney injury was lower in the LIVTENCITY^TM group vs. conventional therapy group. The applicant asserted that, based on these results, LIVTENCITY^TM has a lower incidence of treatment-related toxicities than existing therapies.

The applicant more specifically claimed that transplant patients treated with LIVTENCITY^TM for CMV infection experienced a lower incidence of treatment-related neutropenia compared with valganciclovir. To support this claim, the applicant cited the primary safety endpoint from Maertens et al., a parallel-group, phase II study. In this open-label, LIVTENCITY^TM -blinded trial, 120 HCT or SOT recipients with CMV reactivation were randomly assigned to receive LIVTENCITY^TM at a dose of 400 mg (n=40), 800 mg (n=40), or 1,200 mg (n=40) twice daily or the standard dose of valganciclovir for 12 weeks for preemptive treatment. The primary efficacy endpoint was the percentage of patients with a response to treatment, defined as confirmed undetectable CMV DNA in plasma, within 3 weeks and 6 weeks after the start of treatment. The primary safety endpoint was the incidence of adverse events that occurred or worsened during treatment. Specifically, the applicant cited the rate of treatment-emergent neutropenia in this study which was identified in 4% (n=5/118) of patients administered LIVTENCITY^TM versus 15% (n=6/39) of patients administered valganciclovir through week 6. Similar results were found through week 12: 5% (n=6/118) vs. 18% (n=7/39). The statistical significance of the difference in treatment-emergent neutropenia between the two groups was not reported in the study.

Finally, the applicant stated that LIVTENCITY^TM had a lower incidence of adverse events leading to discontinuation. To support this assertion, the applicant cited the rate of treatment-emergent adverse effects (TEAEs) leading to discontinuation from SOLSTICE, which was lower in the LIVTENCITY^TM group (13.2% (n=31/324)) vs. the conventional group (31.9% (n=37/116)).

After reviewing the information provided by the applicant, we have the following concerns regarding whether LIVTENCITY^TM meets the substantial clinical improvement criterion. First, while the applicant provided data to demonstrate that the proportion of patients achieving CMV clearance at 8 weeks was higher among patients using LIVTENCITY^TM, we note similar rates of mortality and new-onset CMV between the 2 treatment groups in this trial: LIVTENCITY^TM vs. comparator: 11% (n=27/235) vs. 6% (n=13/117) and 6% (n=14/235) vs. 6% (n=7/113), respectively. We also note that it is unclear whether the SOLSTICE study was sufficiently powered to detect a difference in CMV viremia clearance at week 16, one of the study's secondary endpoints. We further note that while the rate of TEAEs leading to discontinuation was lower in the LIVTENCITY^TM group, the rate of overall TEAEs and serious TEAEs in the SOLSTICE trial was similar between the two treatment groups [LIVTENCITY^TM vs. comparator: Any TEAE: 97.4% (n=229/234) vs. 91.4% (n=106/116), serious TEAE: 38.5% vs. 37.1%]. Furthermore, we would appreciate additional information from the applicant regarding safeguards taken to minimize or prevent bias from the treating physician in choosing the conventional therapy for patients in the investigator-assigned therapy group of the phase III trial.

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

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

f. Mosunetuzumab

Genentech, Inc. submitted an application for new technology add-on payments for mosunetuzumab for FY 2023. According to the applicant, mosunetuzumab is an investigational drug that is anticipated to be a novel first-in class therapy for the treatment of any non-Hodgkin lymphoma (NHL). The applicant stated that it intends to seek FDA approval for the use of mosunetuzumab in adults with relapsed or refractory (r/r) follicular lymphoma (FL) who have received at least two prior systemic therapies.

According to the applicant, mosunetuzumab is a humanized bispecific monoclonal antibody (BsAb) that exhibits potential antineoplastic activity. The applicant stated that mosunetuzumab contains two antigen-recognition sites: One for human CD3 (a T cell surface antigen) and one for human CD20 (a tumor-associated antigen expressed on B cells, and often overexpressed in B cell malignancies). Per the applicant, mosunetuzumab binds to both patients' existing T cells and CD20-expressing tumor cells, linking them, which can cause a cytotoxic T-lymphocyte response against CD20-expressing tumor B cells. According to the applicant, mosunetuzumab's dual targeting design, due to two fragment antigen-binding or `Fab' binding regions, activates and redirects engagement of a lymphoma patient's T cells to eliminate malignant B cells by releasing cytotoxic proteins into the B cells. The applicant further stated that target B cell killing occurs only upon simultaneous binding to both targets, as it is a conditional agonist. According to the applicant, clinical trials of mosunetuzumab are ongoing with different dosing regimens including subcutaneous and intravenous administration.

FL is the second most prevalent form of non-Hodgkins lymphoma (NHL), affecting approximately 16,000 individuals annually in the US. According to the National Institute of Health (NIH), the rate of new cases of FL was 2.7 per 100,000 men and women per year based on 2014-2018 cases, age-adjusted. According to the applicant, the vast majority of patients treated for FL will have an initial response to therapy with 40 to 80 percent demonstrating a complete response, depending on the initial regimen used. In addition, less than 10 percent of patients treated with initial chemoimmunotherapy will not respond to treatment (that is, have refractory disease).

According to the applicant, FL is an indolent, incurable disease and patients are expected to have relapses. Based on a 10-year retrospective study of follicular NHL patients treated with first line (1L) therapy between 1998-2009, 50% progressed to second line (2L) therapy. Of those who completed 2L treatment, 65% progressed to third line (3L) therapy, and 65% of those patients then progressed to fourth line (4L). An observational National LymphoCare Study also noted that of patients undergoing 1L, 37% progressed to 2L, 18% received 3L, and 9% and 5% went on to 4L and 5L, respectively. The applicant stated that multiply relapsed FL has a high unmet medical need especially in patients who are relapsed or refractory to different classes of agents and have limited treatment options with challenging safety profiles. Therefore, per the applicant, novel treatments with improved efficacy and tolerability are needed.

The applicant stated that the NCCN provides suggested treatment regimens for existing agents in FL. According to the applicant, choice of therapy requires consideration of several factors, including age and comorbidities, as well as refractory status to prior therapies. However, per the applicant, there is no established standard of care for FL in third-line or later (3L+) settings. The applicant stated that the currently FDA approved treatments for r/r FL include anti-CD20-based treatment regimens (including the combination of lenalidomide + rituximab known as the R2 regimen), phosphatidylinositol 3-kinase (PI3K) inhibitors, enhancer of zeste homolog 2 (EZH2) inhibitors, and CAR T-cell therapy.

According to the applicant, chemoimmunotherapy with anti-CD20 monoclonal antibodies (mAb) approved for FL includes rituximab, a Type I antibody, and obinutuzumab, a Type II antibody. The applicant stated that while the anti-CD20 antibodies are NCCN Guidelines Preferred treatments for 2L and subsequent therapy, they are not considered the most beneficial treatment for 3L+ FL; most patients are treated with rituximab-based therapies in the early lines (1L and 2L) of treatment, which the applicant stated leads to decreasing duration of response (DOR) and increasing refractoriness to therapies in the later lines of treatment. The applicant further asserted that the predominantly elderly FL population, together with the fact that many patients have typically been through multiple rounds of therapy, limits their ability to tolerate anti-CD20 mAb plus chemotherapy-based regimens.

According to the applicant, since anti-CD20 mAbs alone or with chemotherapy are not curative, show decreasing efficacy with repeated administrations, and because chemotherapy-based regimens are associated with long-term toxic effects, leading to limited tolerability especially for the elderly population, different targets were sought in the treatment of r/r FL. Per the applicant, the FDA has granted accelerated approval for idelalisib copanlisib, and duvelisib as single agent inhibitors of PI3K delta, alpha/delta, and delta/gamma isoforms, respectively, for the treatment of patients with r/r FL who have received ≥2 prior therapies. More recently, the dual PI3K delta and casein kinase 1 epsilon inhibitor umbralisib gained accelerated approval for treatment of patients with r/r FL who have received at least three prior lines of systemic therapy. The applicant asserted that balancing tumor target inhibition with dose-limiting toxicities has presented a challenge for PI3K inhibitors, and that although these PI3K inhibitors have shown efficacy, they have also been associated with significant toxicities. The applicant further stated that these treatments provide important options to physicians and patients, but their side-by-side evaluation for FL in cross-trial comparisons is challenging due to variability in patient selection and treatments. The applicant noted that both duvelisib and idelalisib have recently been voluntarily withdrawn from the US market for the treatment of FL.

According to the applicant, a newer therapeutic approach to treat FL includes EZH2 inhibitor therapy, a catalytic subunit of the chromatin remodeling Polycomb Repressive Complex 2 (PRC2). According to the applicant, the FDA granted accelerated approval to tazemetostat, a first-in-class EZH2 inhibitor for patients with r/r FL who received ≥2 prior therapies whose tumors are positive for an EZH2 mutation, and for patients with r/r FL who have no satisfactory alternative treatment options. The applicant stated that EZH2 exhibits somatic, gain-of-function activating mutations in 7-29% of FL patients. EZH2 mutations represent an early event in FL, and in the majority of cases are maintained throughout disease transformation. The applicant further stated that considering the high overall incidence of EZH2 mutations in FL, their stability during disease progression, and that EZH2 selective inhibitors can be made, it follows that efforts would be placed on developing FL therapies targeting the inhibition of EZH2.

The applicant stated that recent developments have supported the effectiveness of therapies that utilize T cells in the treatment of B-cell malignancies, such as the ex vivo manipulation of T lymphocytes to express chimeric antigen receptors (CARs) that target lineage-specific surface molecules such as CD19. According to the applicant, axicabtagene ciloleucel (YESCARTA®) was the second approved gene-altering cancer treatment, first-in-class for aggressive lymphoma, and was approved by FDA based on clinical study results for the treatment of patients with r/r FL who have received ≥2 prior therapies. The applicant asserted that while offering strong efficacy, CAR T-cell therapy has significant limitations as it adds complexities in manufacturing and treatment which the applicant states negatively impact patient access significantly. The applicant stated that CAR T-cell therapy requires mandatory hospitalization and is only available at one of only approximately 100 authorized treatment centers (ATCs) across the United States, adding cost and travel burdens on patients, particularly older patients who may be on limited incomes and have difficulty traveling long distances. Per the applicant, CAR T-cell therapy also raises risks for serious toxicities and prominent side effects like neurotoxicity and cytokine release syndrome (CRS).

The applicant stated that for these reasons, there is a high unmet need for patients with r/r FL who have received ≥2 prior therapies, particularly for patients who are refractory to different classes of agents and are left with limited treatment options that may have challenging safety profiles. Per the applicant, new treatment options are needed that will significantly extend the duration of remission and can overcome resistance to existing therapies, while providing acceptable safety and tolerability.

With respect to the newness criterion, the applicant stated that mosunetuzumab was granted Breakthrough Therapy designation by FDA. The applicant indicated that it expects to receive FDA approval by June 30, 2022 and stated that the final review pathway has yet to be determined. Additionally, the applicant stated they may be limited in their ability to make mosunetuzumab available immediately following FDA approval and pointed to printing and labeling requirements as the reason. Per the applicant, while the drug has not yet been FDA-approved, the recommended dosage is presented in the following table.

The applicant described a dose escalation for mosunetuzumab to be administered intravenously for eight cycles unless there is unacceptable toxicity or disease progression. For patients who achieve a complete response (CR), no further treatment beyond eight cycles is required. For patients who achieve a partial response (PR) or have stable disease control in response to treatment with mosunetuzumab after eight cycles, an additional nine cycles of treatment (17 cycles total) should be administered. Additionally, if there is any dose delay >7 days in cycle 1, the previous tolerated dose should be repeated prior to resuming the planned treatment schedule. If a dose interruption occurs between cycles 1 and 2 that results in a treatment-free interval of ≥6 weeks, mosunetuzumab is recommended to be administered as 1 mg on day 1 and 2 mg on day 8, and then the planned cycle 2 treatment of 60 mg is resumed on day 15. If a dose interruption occurs that results in a treatment-free interval of ≥6 weeks between any cycles in cycle 3 onwards, mosunetuzumab is to be administered at 1 mg on day 1 and 2 mg on day 8, and then the planned treatment schedule of 30 mg is resumed on day 15.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify procedures involving administration of mosunetuzumab. The applicant submitted a request for approval for a unique ICD-10-PCS code to identify procedures involving the administration of mosunetuzumab for FY 2023. The applicant also listed the following diagnosis codes that could be used to identify the indications associated with the technology:

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 first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that mosunetuzumab does not use the same or a similar mechanism of action when compared to other therapies approved in the treatment of 3L+ r/r FL. The applicant stated that mosunetuzumab is a bispecific CD20xCD3 monoclonal antibody. The applicant asserted that mosunetuzumab has a mechanism of action that is unique and different from that of existing technologies used to treat FL. The applicant asserted that mosunetuzumab is a novel, full-length, humanized, IgG1 bispecific antibody that concomitantly binds CD3 on T-cells and CD20 on malignant B-cells. Importantly, according to the applicant, 98-100% of FL cases are positive for CD20. Per the applicant, crosslinking leads to T-cell activation, which redirects T-cells to engage and eliminate malignant B-cells. The applicant stated that an amino acid substitution in the Fc region of mosunetuzumab results in a non-glycosylated heavy chain with minimal binding to Fc-γ receptors, significantly reducing Fc effector functions.

The applicant provided a summary of the currently available treatments, their respective mechanisms of action and FDA approval dates in the following table:

The applicant stated that regimens using monospecific, anti-CD20 antibodies, including lenalidomide + rituximab (R2), are approved for r/r FL, but data for R2 was derived from less pre-treated and refractory patients. According to the applicant, rituximab alone, or anti-CD20 mAbs combined with chemotherapy, are critical mainstay therapies used in earlier lines of FL, but patients become refractory or have short DOR to them as they go through relapses. According to the applicant, PI3K inhibitors, EZH2 inhibitors, and CAR T-cell therapies all have different mechanisms of action when compared to mosunetuzumab.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG, the applicant stated that with the exception of CAR T-cell therapies, which are assigned to a separate MS-DRG (MS-DRG 018 Chimeric Antigen Receptor (CAR) T-cell Immunotherapy and Other Immunotherapies), mosunetuzumab may be assigned to the same MS-DRG as existing technologies. The applicant stated that with respect to PI3K inhibitors, however, they are often provided in outpatient care and it is unlikely that they would be used in inpatient care such that they would be wrapped into an existing MS-DRG. The applicant stated that although mosunetuzumab might be assigned to the same MS-DRG as existing technologies, this does not mean that mosunetuzumab is not new. The applicant stated that the MS-DRG payment system cannot differentiate between patients with r/r FL who could be grouped to MS-DRGs included in the MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasms). The applicant stated they have not requested new or different MS-DRGs for mosunetuzumab for FY 2023. According to the applicant, procedures involving the use of mosunetuzumab are expected to map to the following MS-DRGs:

The applicant further noted that MDC 17 includes ICD-10 CM diagnosis codes that are not specific to FL and that for patients diagnosed with FL, according to the applicant, the current MS-DRG payment system does not factor in whether the patient has received previous treatment. As a result, according to the applicant, mosunetuzumab and an existing technology used to treat r/r FL could be assigned to any of the aforementioned MS-DRGs. The applicant asserted that the assignment of mosunetuzumab to the same MS-DRGs mentioned previously is a result of the lack of specificity in the current MS-DRG system with respect to its classification of lymphomas rather than because mosunetuzumab is not new.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated that mosunetuzumab will not involve the treatment of the same type of disease and the same or similar patient population when compared to existing technologies. The applicant asserted that mosunetuzumab would treat FL 3+ line patients for whom there is no current standard of care. The applicant asserted that in the U.S., there are no therapies with full FDA approval for the specific indication of r/r FL patients who have received 2 or more prior systemic therapies. The applicant further stated that available options used in practice are primarily composed of approved therapies in earlier lines, including anti-CD20 monoclonal antibody plus chemotherapy or lenalidomide, or therapies under accelerated approval including pathway inhibitors and cellular therapies. According to the applicant, each of these options presents several limitations for the treatment of multiple relapsed FL, particularly for patients who are relapsed or refractory to different classes of agents.

In summary, the applicant asserted that mosunetuzumab is new because it does not use the same or a similar mechanism of action compared to other technologies currently available to Medicare beneficiaries to treat FL, and that upon FDA approval, mosunetuzumab would treat FL in 3L+ settings, for which there is no established standard of care. According to the applicant, all existing options have limitations that emphasize the need for a better solution.

We note that the applicant asserted that use of mosunetuzumab will not involve the treatment of the same or similar type of disease and the same or similar patient population when compared to existing technologies. The applicant asserted that mosunetuzumab would treat FL in 3L+ settings, for which there is no established standard of care and that there are no therapies with full FDA approval for the specific indication of r/r FL patients who have received 2 or more prior systemic therapies. We note 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 also note that CAR T-cell therapies, such as Yescarta®, are FDA approved therapies. We believe that mosunetuzumab would be used for the same disease and patient population when compared to other therapies approved to treat FL in 3L+ settings. We are inviting public comments on whether mosunetuzumab is substantially similar to existing technologies and whether mosunetuzumab meets the newness criterion.

With respect to the cost criterion, the applicant presented the following analyses to demonstrate that mosunetuzumab meets the cost criterion across four different cohorts. For each cohort, the applicant searched the FY 2019 MedPAR database for cases representing patients who may be eligible for mosunetuzumab. To identify cases for patients with a diagnosis of FL, the applicant searched for claims with ICD-10-CM diagnosis codes C82.00-C82.99. Per the applicant, because a potential patient would need to fail an established prior therapy and not be engaged in active treatment, the applicant then removed cases with the following ICD-10-CM diagnosis codes to exclude cases for patients still actively in the bone marrow transplant process for all four cohorts:

Per the applicant, as mosunetuzumab would not be administered concomitant to an allogenic bone marrow transplant or CAR T-cell therapy, the applicant also excluded cases with the following ICD-10-PCS procedure codes related to allogenic bone marrow transplants or CAR T-cell therapy for all four cohorts.

Per the applicant, as mosunetuzumab is being evaluated as a monotherapy for 3L+ r/r FL, cases with at least one ICD-10-PCS procedure code related to chemotherapy administration were removed in Cohort 1 and Cohort 2. Cases with these ICD-10-PCS procedure codes related to chemotherapy administration were maintained in Cohort 3 and Cohort 4. Per the applicant, as the exclusion criteria for one portion of one clinical trial excluded grade IIIb FL patients, cases with at least one ICD-10-CM diagnosis code associated with grade IIIb FL were removed in Cohort 2 and Cohort 4. Cases with these ICD-10-CM diagnosis codes associated with grade IIIb FL were maintained in Cohort 1 and Cohort 3.

Per the applicant, the top five MS-DRGs covering the greatest case volume in each of the four cohorts were 840 (Lymphoma and Non-Acute Leukemia with MCC), 841 (Lymphoma and Non-Acute Leukemia with CC), 824 (Lymphoma and Non-Acute Leukemia with Other Procedure with CC), 823 (Lymphoma and Non-Acute Leukemia with Other Procedure with MCC), and 825 (Lymphoma and Non-Acute Leukemia with Other Procedure without CC/MCC).

The applicant did not remove charges for prior technology. The applicant stated that the predominate prior technologies identified were associated with pain and inflammation relief or contrast agents for radiology, and patients receiving mosunetuzumab may also benefit from the use of these technologies. The applicant standardized the charges across all four cohorts using the FY 2019 IPPS/LTCH PPS final rule and Correction Notice Impact File, and conducted separate analyses on each cohort using both the three-year inflation factor (rounded to 20.5%) and four-year inflation factor (rounded to 28.2%) based on the inflation factor from the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542) to calculate outlier threshold charges. The applicant stated that it did not add any charges for the new technology.

In the first analysis (Cohort 1), the applicant computed a final inflated average case-weighted standardized charge per case of $85,452 using the three-year inflation factor, and $90,912 using the four-year inflation factor, both of which exceeded the average case-weighted threshold amount of $80,433.

In the second analysis (Cohort 2), the applicant computed a final inflated average case-weighted standardized charge per case of $84,849 using the three-year inflation factor, and $90,271 using the four-year inflation factor, both of which exceeded the average case-weighted threshold amount of $80,008.

In the third analysis (Cohort 3), the applicant computed a final inflated average case-weighted standardized charge per case of $103,236 using the three-year inflation factor, and $109,833 using the four-year inflation factor, both of which exceeded the average case-weighted threshold amount of $82,688.

In the fourth analysis (Cohort 4), the applicant computed a final inflated average case-weighted standardized charge per case of $102,520 using the three-year inflation factor, and $109,071 using the four-year inflation factor, both of which exceeded the average case-weighted threshold amount of $82,325.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount under all analyses without the addition of any costs related to the new technology, the applicant asserted that the technology meets the cost criterion.

Based on the information provided by the applicant, we have the following concerns regarding the cost criterion. We note that the applicant did not specify the list of ICD-10-PCS procedure codes noted in its analysis related to chemotherapy administration used for exclusion of cases. Separately, while the applicant provided ICD-10-CM diagnosis codes listed previously, the applicant did not specifically list out which diagnoses were used to exclude grade IIIb FL from Cohort 2 and Cohort 4. We invite public comments on whether mosunetuzumab meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant asserted that mosunetuzumab represents a substantial clinical improvement over existing technologies because—(1) mosunetuzumab offers a treatment option for patients with r/r FL who are relapsed or refractory to different classes of agents and are left with limited treatment options; and (2) mosunetuzumab significantly improves clinical outcomes relative to previously available therapies, demonstrating high overall and CR rates, high DOR, deep durable responses, and safety.

According to the applicant, mosunetuzumab demonstrates robust efficacy and complete response rates in the context of the r/r FL after two or more prior lines of therapy, a disease setting with high unmet medical need for which novel treatments are needed. According to the applicant, mosunetuzumab also demonstrates complete response (CR) and overall response rates (ORR) approaching those observed with CAR T-cell therapy. The applicant asserted that mosunetuzumab demonstrates efficacy for those who have had prior systemic therapies, including an anti-CD20 (aCD20) antibody, alkylator, PI3K inhibitor, immunomodulatory drug (IMiD), and/or CAR T-cell therapy, as well ≥2 prior therapies, and that the therapy also shows antitumor response for those having prior autologous stem cell transplant (ASCT). According to the applicant, mosunetuzumab demonstrates efficacy for those who are refractory to their last prior therapy, refractory to any prior aCD20, or double refractory to any prior aCD20 therapy + alkylator therapy. The applicant further stated that mosunetuzumab shows responses for FL patients who experience progression of disease within 2 years of initial chemoimmunotherapy.

To support the assertion that mosunetuzumab offers a treatment option for patients who are relapsed or refractory to different classes of agents and are left with limited treatment options, the applicant described an abstract and presentation from Budde, et al. of an open-label, uncontrolled pivotal Phase II trial of 90 patients with r/r FL (Grade 1 to 3a) and >2 prior therapies that were treated with mosunetuzumab. The median age of enrolled patients was 60 years (range 29 to 90), and these patients had a median of 3 prior therapies (range 2-10). Mosunetuzumab doses started with 1 mg on days 1 and 8, stepping up dosing to mitigate CRS. On day 15 of the first 21-day cycle, 60 mg was administered. In the second cycle, 60 mg was administered, but on subsequent cycles, the day 1 dose was 30 mg. This could be repeated up to 17 cycles, depending upon whether a patient had a CR, a PR, or stable disease. The response was assessed both by the investigators and by an independent reviewer. The investigators noted that there was no mandatory hospitalization for administration of mosunetuzumab. The authors noted that the CR rate assessed by PET/CT was 60% (n=54; CI 49%, 70%) as compared to a historical control of 14% CR rate

(from a 2017 article on copanlisib ). The ORR was 80% (n=72). The median DOR in complete responders was 22.8 months (CI 18.7, NE) and the same for all responders (CI 9.7, NE). The median progression free survival (PFS) was 17.9 months (CI 10.1, NE).

To support the assertion that monsunetuzumab is efficacious in high-risk subgroups and in patients with prior systemic therapies, the applicant pointed to a CR of 74% and ORR of 85% among patients who have had 2 prior therapies (n=34), and a CR of 52% and ORR of 77% among patients who have had >3 prior therapies (n=56). According to the applicant, mosunetuzumab demonstrated responses for FL patients who experience progression of disease within 2 years of initial chemoimmunotherapy (POD24) (N=47, CR =57% and ORR = 85%) and those who were not POD24 (N=43, CR = 63%,ORR=74%). The applicant also asserted that mosunetuzumab demonstrated efficacy for patients who are refractory to their last prior therapy (N=62, CR =52% and ORR = 77%) and those who were not refractory (N=28, CR =79% and ORR= 86%). The applicant asserted that mosunetuzumab demonstrated efficacy for patients who are double refractory to any prior aCD20 therapy + alkylator therapy (N=48, CR =50% and ORR =71%) and those who were not double refractory to any prior aCD20 therapy + alkylator therapy (N=42, CR = 71% and ORR =71%). Lastly, the applicant asserted that mosunetuzumab demonstrated efficacy for elderly patients (> 65 years) (N=30, CR of 70% and ORR = 87%).

To support the assertion that mosunetuzumab offers a manageable safety profile with fewer discontinuations or treatment-ending toxicities when compared to PI3K inhibitors, as well as a low rate of CRS and neurotoxicity when compared to CAR T-cell therapies, the applicant again cited data from the Budde et al. pivotal Phase II trial, in which 83 patients had mosunetuzumab-related adverse events. The most common were CRS, fatigue, pyrexia, pruritus, neutropenia, hypophosphatemia, and headache. None of the mosunetuzumab-related adverse events were fatal; however, 30 were described as serious and 2 led to the discontinuation of mosunetuzumab. The applicant also cited the Budde et al. article to support features of access to treatment, wide availability, off-the-shelf therapy, potential for administration without mandatory hospitalization, fixed treatment duration, and no requirement of lymphodepleting chemotherapy. The applicant asserted that mosunetuzumab will be immediately available for patients and avoids the ex-vivo T-cell manipulation and the resulting delay in treatment that may be prohibitive in patients with rapidly progressing disease.

According to the applicant, while the therapies used in the treatment of r/r FL have not been tested in a head-to-head trial, when looking at the independent results in the treatment of patients with r/r FL after ≥2 prior systemic therapies, the CR rate and ORR achieved by mosunetuzumab (N=90, CR=60% and ORR=80%) are greater than those for the PI3K and EZH2 inhibitors (N=72, CR=6% and ORR=54%) and are approaching the response rates observed with CAR T-cell therapy (N=84, CR= 80% and ORR =94%). The applicant states, compared to the CAR T-cell therapy axicabtagene ciloleucel, CRS events reported for mosunetuzumab were less frequent and less severe, and that the management of CRS in patients treated with mosunetuzumab enabled more than 95% of affected patients to continue therapy and potentially benefit from its efficacy.

According to the applicant, compared to axicabtagene ciloleucel, which the applicant asserts is only available at authorized treatment centers, mosunetuzumab may potentially be available in community clinics and hospital-based outpatient departments (HOPDs) with the potential for AEs that can be treated at local hospitals. Therefore, according to the applicant, mosunetuzumab is not expected to present significant barriers for widespread implementation of emerging cellular therapies such as CAR T-cell. In addition, the applicant stated that since mosunetuzumab may potentially be administered in a local community setting with no mandatory hospitalization, those unable to travel may still obtain treatment. The applicant states mosunetuzumab is an immediately available, off-the-shelf therapy, enabling critically ill patients with urgent need of treatment access to the drug without delay administered as a fixed treatment duration regimen.

To support the claim that mosunetuzumab improves clinical outcomes, the applicant cited data from the Budde et al. pivotal Phase II trial of mosunetuzumab. The applicant stated that mosunetuzumab showed a complete response (CR) of 60% as compared to 14% for historical control, 1.2% for duvelisib, 6% for P13k, 20.2% for copanlisib, 5.1% for umbralisib, and 6% for idelalisib.

The applicant stated that mosunetuzumab showed an ORR of 80% as compared to 42.2% for duvelisib, 54% for P13k, 58.7% for copanlisib, 45.3% for umbralisib, and 54.0% for idelalisib. The applicant stated that mosunetuzumab showed an mDOR of 22.8 months as compared to 10.0 months for duvelisib, 12.5 months for P13k, 14.1 months for copanlisib, 11.1 months for umbralisib, and 12.5 months for idelalisib. According to the applicant, while the mDOR for mosunetuzumab is still maturing, the estimate of patients who remain in remission at 12 months compares favorably with mDORs ranging from 10-13 months for therapies under accelerated approval to treat patients with r/r FL after ≥2 prior systemic therapies.

According to the applicant, the overall safety profile of mosunetuzumab appears manageable with no unexpected safety signals, considering the advanced nature of the disease and the heavily pretreated patient population under study. The applicant asserted that the tolerability of mosunetuzumab is evident by the lack of mandatory hospitalization, the low proportion of patients who discontinue mosunetuzumab due to AEs, and the ability to adequately manage and resolve AEs. As an example, the applicant states, CRS events, as the most common AE, were generally low-grade (Gr 1 or 2), mostly confined to cycle 1, manageable, and resolved after a median duration of three days. According to the applicant, dose interruptions generally do not prevent patients continuing to receive their planned mosunetuzumab dose for most of the duration of treatment.

To support the claim that mosunetuzumab improves clinical outcomes related to safety, the applicant asserted that mosunetuzumab has a manageable safety profile with grade 3/4 AEs at 51.1%, SAEs at 33.3% and no grade 5 (fatal) AEs. According to the applicant, mosunetuzumab had fewer discontinuations of treatment at 4.4% as compared to idelalisib at 20.0%, copanlisib at 21.1%, duvelisib at 31.0%, umbralisib at 14.9% and EZH2 inhibitors at 8.0%. According to the applicant, mosunetuzumab has a lower rate of CRS and severe neurotoxicity in comparison to CAR T-cell therapy as evidenced by a CRS adverse event rate of any grade at 44.0% compared to 99% for axicabtagene ciloleucel.

The applicant summarized that fixed-duration mosunetuzumab monotherapy results in high response rates and durable disease control with a tolerable safety profile in heavily pretreated, multiply relapsed patients with FL, including known high-risk subgroups. According to the applicant, mosunetuzumab offers a new treatment option with a novel mechanism of action and demonstrates clinically meaningful advantages over available therapies for the treatment of patients with r/r FL who have received ≥2 prior therapies, a patient population with a high unmet medical need for which novel treatments are needed. The applicant asserted that the benefit-risk assessment of mosunetuzumab is considered to be positive based on the high unmet need in this disease setting and the compelling results from the Budde et.al. study compared to available therapies, in particular the complete response rates and durable remissions observed with current study follow-up. The applicant asserted that mosunetuzumab demonstrates high clinical efficacy and tolerability in 3L+ r/r FL and is a substantial clinical improvement. According to the applicant it is the first T-cell-engaging bispecific antibody to demonstrate clinically meaningful outcomes for patients with r/r FL who have received ≥2 prior lines of therapy in the pivotal Phase II setting, and offers potentially promising off-the-shelf, outpatient therapy.

After review of the information provided by the applicant, we have the following concerns regarding whether mosunetuzumab meets the substantial clinical improvement criterion. We note that the applicant provided the abstract for one single-arm, phase II trial of 90 patients to support all of its claims of substantial clinical improvement. The applicant compared outcomes of the phase II trial with mosunetuzumab to outcomes, including CR and ORR, from background studies of other technologies. However, we note 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 mosunetuzumab, without more detailed adjustment for patient characteristics. As an example, the applicant compared rates of AEs to NHL patients in trials for idelalisib, copanlisib, and duvelisib. In those studies, FL subtype data was not available for direct comparison and we are concerned that there may be potential for selection bias. Without a direct comparison of outcomes between these therapies, we are concerned as to whether the differences in outcomes such as CR, ORR, mDOR, AEs and treatment discontinuation identified by the applicant translate to clinically meaningful differences or improvements for patients treated with mosunetuzumab as compared to historical rates for other treatments. In addition, durability of response is still maturing per the applicant, and we would appreciate additional information regarding treatment durability when available. We note that the applicant stated that mosunetuzumab has a lower rate of CRS and severe neurotoxicity in comparison to CAR T-cell therapy as evidenced by a CRS adverse event rate of any grade at 44.0% compared to 99% for axicabtagene ciloleucel. However, the study provided by the applicant to support this claim, Jacobson et.al., referenced an any-grade AE rate of 99% for axicabtagene ciloleucel and did not include a value for any-grade CRS for axicabtagene ciloleucel. We would appreciate further clarification of this claim. Lastly, while we understand that there may be potential benefits related to mosunetuzumab potentially being available in community clinics and HOPDs, we question if the benefits are related only to the outpatient administration of the medication and whether they would demonstrate improved clinical outcomes that represent a substantial clinical improvement in the inpatient setting.

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

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

g. Narsoplimab

The Omeros Corporation submitted an application for new technology add-on payments for narsoplimab for FY 2023. Narsoplimab is a fully human monoclonal antibody for the treatment of hematopoietic stem cell transplantation-associated thrombotic microangiopathy (HSCT-TMA), also known as transplant-associated thrombotic microangiopathy (TA-TMA).

According to the applicant, narsoplimab inhibits mannan-binding lectin serine protease 2 (MASP-2), the effector enzyme of the lectin pathway of the complement system, and activation of the lectin pathway that prevents complement-mediated inflammation and exhibits anticoagulant effects while leaving intact the respective functions of the classical and alternative pathways of innate immunity. According to the applicant, there are currently no FDA-approved products indicated for the treatment of HSCT-TMA. We note that the Omeros Corporation previously submitted an application for new technology add-on payments for narsoplimab for FY 2022, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25282 through 25286), that it withdrew prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44979).

According to the applicant, HSCT-TMA is a lethal complication of hematopoietic stem cell transplantation (HSCT) that results in thrombosis in the small blood vessels, leading to organ failure. According to the applicant, clinical guidelines for the treatment of HSCT-TMA are being developed by members of the American Society for Transplant and Cellular Therapy (ASTCT) and are expected to be published in 2021. The applicant stated that current management of HSCT-TMA includes modification or cessation of any immune-suppressive regimen, appropriate treatment of infections and/or graft-versus-host disease (GvHD) if present, aggressive control of hypertension, and other supportive therapy as deemed appropriate by the treating physician. However, according to the applicant, the withdrawal of immunosuppressive therapies and ongoing monitoring for resolution of TMA symptoms has been determined to be ineffective. The applicant stated that there are multiple off-label treatments for HSCT-TMA which have either not been reviewed by FDA or have been reviewed and not deemed adequate for registration purposes; these unapproved treatments include therapeutic plasma exchange (TPE), eculizumab, defibrotide sodium, rituximab, and vincristine sulfate. The applicant asserted that available evidence for agents used off-label to treat HSCT-TMA is derived from observational studies and case series with mixed results, and none of the agents have been evaluated for efficacy or safety in a robust clinical trial in patients with HSCT-TMA. In summary, the applicant stated with regard to these unapproved therapies that: (1) The use of TPE is based on the extrapolation of its effectiveness for thrombocytopenic purpura with poor outcomes leading the Blood and Marrow Transplant Clinical Trials Network Toxicity Committee in 2005 to recommend that TPE not be considered as a standard of care for HSCT-TMA; (2) eculizumab is a C5 inhibitor that blocks activation of the terminal cascade of complement, the use of which is constrained by lack of efficacy and safety evaluations by FDA and associated increased susceptibility to infections; (3) defibrotide (Defitelio®), an oligonucleotide mixture with profibrinolytic properties whose mechanism of action has not been fully elucidated is not approved by FDA for the treatment of HSCT-TMA nor considered a standard of care; (4) rituximab (Rituxan®), a monoclonal antibody that targets the CD20 antigen expressed on the surface of pre-B and mature B-lymphocytes, is not approved by FDA for the treatment of HSCT-TMA; and (5) vincristine sulfate, a vinca alkaloid isolated as a 1:1 sulfate salt from the periwinkle plant is not approved by FDA for the treatment of HSCT-TMA.

With respect to the newness criterion, the applicant stated in its application that FDA has accepted the Biologics License Application (BLA) for narsoplimab for the treatment of HSCT-TMA with a PDUFA date of October 17, 2021. The applicant stated that as of November 2021 they have received a Complete Response Letter (CRL) from FDA regarding the BLA for narsoplimab. The applicant stated they intend to resubmit the pending application soon. According to the applicant, narsoplimab has received Orphan Drug designation, Breakthrough Therapy Designation, and Priority Review. The applicant stated that the recommended dosage of narsoplimab is 4 mg/kg given as a 30-minute intravenous infusion (up to a maximum of 370 mg per infusion) once weekly. 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 narsoplimab: XW03357 (Introduction of narsoplimab monoclonal antibody into peripheral vein, percutaneous approach, new technology group 7) and XW04357 (Introduction of narsoplimab monoclonal antibody into central vein, percutaneous approach, new technology group 7). The applicant stated that effective October 1, 2021, the following ICD-10-CM code is used to identify the indication of narsoplimab: M31.11 (Hematopoietic stem cell transplant-associated thrombotic microangiopathy (HSCT-TMA)).

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 regard to the first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant asserted that narsoplimab has a unique mechanism of action which inhibits the key effector enzyme of the lectin pathway of complement, MASP-2, provides an upstream (relative to other complement inhibitors) and targeted effect inhibiting complement-mediated inflammation and coagulation while leaving fully intact the alternative and classical pathways to fight infection. The applicant stated that narsoplimab binds with high affinity and specificity to, and blocks, MASP-2, the key effector enzyme of the lectin pathway of complement, inhibiting the inflammatory and pro-thrombotic responses to endothelial injury found in HSCT-TMA. The applicant stated that although all pathways of complement (lectin, alternative, and classical) result in production of pro-inflammatory anaphylatoxins and activation of membrane attack complex on targeted cells, each pathway is triggered in a unique manner.

According to the applicant, the lectin pathway of complement has a role that is different from the classical and alternative pathways in that it serves as a “surveillance system” responsible for the identification and removal of damaged host cells or microbes. The applicant asserted that upon host tissue injury or microbe exposure, lectins (MBLs and other pattern recognition molecules including ficolins and collections) recognize damage-associated molecular patterns (DAMPs) on the surface of injured cells or pathogen-associated molecular patterns on microbes, initiating the lectin cascade. According to the applicant, the alternative pathway is a signal amplification system that is consistently engaged at low levels through the presence of a small amount of autoactivated C3 in the blood, so-called “C3 tickover”. Lastly, the applicant stated the classical pathway is mainly responsible for the antigen-antibody innate immune response necessary to protect against infection and is activated by antibody-antigen complexes recognized by complement component C1q.

The applicant stated that MASP-2 inhibition specifically blocks the lectin pathway of complement but does not inhibit the classical and alternative pathways, leaving the complement system's effector function in adaptive immunity intact, which is important for fighting infection. According to the applicant, the mechanism of action of narsoplimab not only results in inhibition of lectin pathway-mediated activation of complement, but also blocks the MASP-2 mediated procoagulant activities in the coagulation cascade. The procoagulant effects of MASP-2, independent of its role in the complement system, include the conversion of prothrombin to thrombin as well as the activation of Factor XII to XIIa. In addition, MASP-2 is activated by fibrin and activated platelets, further augmenting a procoagulant state. The applicant asserted that by inhibiting these procoagulant activities of MASP-2, narsoplimab provides important anticoagulant benefits, without affecting bleeding parameters (that is, prothrombin time, activated partial thromboplastin time, international normalized ratio, or bleeding time). According to the applicant, narsoplimab is the only drug that addresses all the components of HSCT-TMA and is the only product that inhibits complement activation and has anticoagulant activity. Therefore, the applicant asserted that the mechanism of action of narsoplimab differs from that of the products occasionally used off label: Eculizumab, defibrotide sodium, rituximab, and vincristine.

With respect to the second criterion, whether a product is assigned to the same or different MS-DRG, the applicant stated that patients who receive narsoplimab will be assigned to the same DRGs as patients who are diagnosed with HSCT-TMA/TA-TMA regardless of the treatment.

With respect to the third criterion, whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population, the applicant stated that narsoplimab treats HSCT-TMA, a serious multi-factorial syndrome for which no current FDA-approved technology exists. The applicant asserted that HSCT-TMA is a distinctly different TMA characterized by endothelial injury and microvascular thrombosis caused by pre-HSCT conditioning regimens and exposure to immunosuppressants and is further aggravated by potential complications of HSCT including GVHD and infections.

The applicant next differentiated between thrombotic microangiopathies (TMAs) and HSCT-TMA. According to the applicant, TMAs are a group of disorders with hallmark features of thrombocytopenia, microangiopathic hemolytic anemia (MAHA), and end organ damage. The applicant asserted that two specific TMAs, atypical hemolytic uremic syndrome (aHUS) and thrombotic thrombocytopenic purpura (TTP), exhibit clinical presentations similar to HSCT-TMA; however, their underlying mechanism set their diagnosis and treatment apart from that of HSCT-TMA. The applicant stated that HSCT-TMA is a distinct TMA arising from treatment and complications of HSCT, diagnosis of which requires a constellation of findings. According to the applicant HSCT-TMA is a distinctive endothelial injury syndrome (EIS) commonly associated with transplant conditioning (chemotherapy and total body irradiation), transplant complications such as infection and GVHD, and immunosuppressive agents (CNI and mTOR inhibitors). The applicant asserted that there is no approved treatment for HSCT-TMA.

In summary, the applicant believes that narsoplimab is not substantially similar to other currently available therapies and/or technologies and meets the “newness” criterion. Similar to our discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 25283-25284), we note that the applicant asserted that there are no FDA-approved products indicated for the treatment of HSCT-TMA and we are inviting public comment on whether narsoplimab therefore has a unique mechanism of action. In addition, we note that although the cause or triggers of thrombotic microangiopathy may be different between HSCT and for example HUS or TTP, the resulting disease may be similar. We welcome public comments on whether HSCT-TMA is a similar disease to other forms of TMA. We are inviting public comments on whether narsoplimab is substantially similar to other currently available therapies and/or technologies and whether this technology meets the newness criterion.

With regard to the cost criterion, the applicant provided the following analysis to demonstrate the technology meets the cost criterion. The applicant used the FY 2019 MedPAR inpatient claims data file released with the FY 2022 IPPS proposed rule to identify patients with a combined diagnosis of history of stem cell transplantation (SCT, ICD-10 code Z94.84) OR complications of stem cell transplant (ICD-10 code T86.5) AND thrombotic microangiopathy (TMA, ICD-10 code M31.1) OR hemolytic-uremic syndrome (HUS, ICD-10 code D59.3). Claims from PPS-exempt hospitals were excluded. The applicant stated that given the nature of HSCT-TMA, patient claims map to many MS-DRGs. The applicant identified a total of 27 MS-DRGs with fewer than 11 patients in any one MS-DRG; the applicant stated the top four MS-DRGs by volume are 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), 919 (Complications of Treatment with MCC), 546 (Connective Tissue Disorders with CC), and 545 (Connective Tissue Disorders with MCC). In the cost analysis, a total of 54 cases across 27 MS-DRGs were identified. The applicant imputed a case count of 11 for those MS-DRGs with fewer than 11 cases, which increased the number of claims from 54 to 297 because all MS-DRGs had fewer than 11 claims.

The applicant first calculated a case weighted threshold of $89,095 for all scenarios based upon the dollar threshold for each MS-DRG grouping and the proportion of cases in each MS-DRG. The applicant then calculated the average charge per case. The applicant stated that because narsoplimab is an adjunctive therapy, no charges for a prior technology or a technology being replaced were removed. Next the applicant calculated the average standardized charge per case using the FY 2022 IPPS/LTCH PPS final rule Impact file. The 4-year inflation factor of 1.281834 or 28.1834% was obtained from the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542) and applied to the average standardized charge per case.

According to the applicant, because narsoplimab has not yet received FDA approval, the price has not yet been established. Therefore, the applicant did not include the charges for the new technology in the cost analysis. Next, the applicant calculated the final inflated average case-weighted standardized charge per case of $508,855, which exceeded the average case-weighted threshold amount of $76,739.

We invite public comments on whether narsoplimab meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant asserted that narsoplimab represents a substantial clinical improvement over existing technologies because it offers a treatment option for a patient population unresponsive to currently available treatments due to filling an unmet need for patients with HSCT-TMA where supportive care and/or off-label therapies have been ineffective. The applicant also asserted that narsoplimab has demonstrated a substantial clinical improvement in the treatment of HSCT-TMA in the clinical trial setting and has demonstrated substantial improvement in TMA complete response.

With respect to the assertion that narsoplimab fills an unmet need, the applicant stated that FDA awarded narsoplimab Breakthrough Therapy designation for the treatment of patients with HSCT-TMA who have persistent TMA despite modification of immunosuppressive therapy and if approved by FDA, narsoplimab will be the only drug or biological approved for the treatment of HSCT-TMA.

In support of the assertion that narsoplimab offers a treatment option for patients unresponsive to currently available treatments as demonstrated in the clinical trial setting, the applicant described the pivotal single-arm, open label trial OMS721-TMA-001 which included a high-risk sample (n=28) including patients with persistent TMA following calcineurin inhibitors (CNI) modification and other transplant features or complications such as GVHD, mismatched transplants, female-to-male transplants, and multiple organ involvement. According to the applicant, the study design allowed evaluation of patients at high risk for poor outcomes, including mortality. According to the applicant, 28 patients with HSCT-TMA received narsoplimab intravenously once weekly for four to eight weeks with an eight-week follow-up period. The applicant stated the primary end point of the study was a response defined by improvements in both TMA laboratory markers (LDH and platelet count) and clinical status (improvement in organ function [renal, pulmonary, gastrointestinal, or neurological] or freedom from transfusion). According to the applicant, patients had multiple risk factors for poor outcomes at baseline, including significant infection (85.7%), renal dysfunction (75%), GVHD (67.9%), neurological dysfunction (57.1%), multiple organ involvement (50%), and pulmonary dysfunction (17.9%). Because the primary response endpoint is novel, the applicant asserted that historical response data using the endpoint are not available.

According to the applicant, patients receiving narsoplimab in the full analysis set (FAS) (patients receiving at least 1 dose of narsoplimab) demonstrated a 61% complete response rate (17/28; 95% CI 40.6% to 78.5%), and patients receiving per protocol dosing (≥ 4 doses) demonstrated a 74% complete response rate (17/23; 95% CI 51.6% to 89.8%). The applicant stated that the 100-day survival was demonstrated in 68% (19/28) of narsoplimab-treated patients in the FAS, 83% (19/23) for patients receiving per protocol dosing, and 94% for patients determined to be complete responders (16/17). The applicant added that median overall survival for the full analysis population was demonstrated at 274 days (95% CI 103, NE), 361 days (95% CI 176, NE) for the per protocol analysis, and median survival for the responder population was not reached (95% CI 273, NE) because more than half of the patients were still alive. According to the applicant, similar populations described in the literature have demonstrated much shorter overall survival and much lower 100-day survival rates.

Next the applicant addressed clinical laboratory markers, improvement in clinical status, and key secondary objectives. According to the applicant, statistically significant (p < 0.01) and clinically relevant improvements from baseline were observed in platelet count, LDH, and haptoglobin. The applicant stated that platelet count increased from baseline over time. The applicant stated that LDH, an adverse predictor for HSCT outcomes, decreased from baseline with narsoplimab treatment, consistent with clinical improvement. The applicant stated that haptoglobin, a marker for hemolysis which is often decreased in HSCT-TMA, steadily increased from baseline with narsoplimab treatment. The applicant stated that hemoglobin also increased with narsoplimab treatment. According to the applicant, the response across all key laboratory parameters was rapid and progressive over time. The applicant noted that overall freedom from transfusion was 48% in the FAS and 55% in the Per-Protocol Analysis Set (PAS).

The applicant also asserted that narsoplimab was well-tolerated in this very sick population with multiple comorbidities. The applicant stated that the most common adverse events in the pivotal trial were nausea, vomiting, diarrhea, hypokalemia, neutropenia, and fever, which are comparable to those typically seen in the post-transplant population. Six deaths (21%) occurred, collectively, from sepsis, AML progression, and GVHD, which according to the applicant are causes of death common in patients with HSCT. The applicant asserted that across all clinical trials, including trials in aHUS and IgA nephropathy (IgAN), with narsoplimab, no safety signal of concern has been observed.

With respect to the claim that use of narsoplimab significantly improves clinical outcomes relative to existing treatments, the applicant stated that there is a lack of effective treatment options for TMA following HSCT. Per the applicant, in order to provide a comparison group for the HSCT-TMA patients treated in the narsoplimab study, a protocol-driven systematic (retrospective) literature review was conducted evaluating clinical outcomes in adult patients with HSCT-TMA following allogeneic transplant. The applicant stated that publications dating from 2000-2020 which described the clinical course and outcomes of HSCT-TMA patients were identified by electronic database search (PubMed) using pre-specified search terms. The applicant stated the literature search identified 459 papers of which 25 manuscripts describing 149 patient outcomes in HSCT-TMA were identified. The applicant stated that to facilitate data comparisons with the narsoplimab clinical trial, random effects logistic regression and propensity score analyses were performed. The applicant stated that they examined various imputation methods to ensure the robustness of findings and then evaluated the following: Age and days from HSCT to TMA diagnosis as continuous variables, and GVHD, infection, renal dysfunction, and neurologic dysfunction as categorical variables.

According to the applicant, where only a minority of patients responded to treatment in the literature review, a majority of patients responded to narsoplimab. The applicant asserted that the comparison was conservative and biased toward the literature group, since the endpoint used in the narsoplimab pivotal trial is novel and rigorous, requiring a composite of laboratory and clinical measures, and none of the literature studies used this response endpoint. According to the applicant, many of the studies identified in the literature review used only one or two components of the narsoplimab primary endpoint or simply reported “response”. According to the applicant, narsoplimab-treated patients had an overall response rate of 61% (95% CI 40.6% to 78.5%) for the full analysis set as compared to the literature-reported results with 23.3% (95% CI, 15.1% to 34.2%) response. According to the applicant, 62.5% of narsoplimab-treated patients had significant infection and responded to treatment as compared to 23.9% of the literature review dataset. The applicant asserted that propensity score analyses and sensitivity analyses, including all 4 imputation methods, comparing response rates of the narsoplimab-treated patients to those in the literature-based group, yielded odds ratios (ORs) that are all greater than 1 (2- to 8-fold and, with few exceptions, p-values < 0.05), supporting superiority of narsoplimab. The applicant concluded that the results demonstrate that the response observed with narsoplimab is a marked deviation from the natural history of HSCT-TMA, and is especially notable given that the patients in the narsoplimab pivotal trial were at high risk for poor outcomes, yet the majority achieved a complete response with significant improvement in laboratory markers and in clinical status.

In support of the application, the applicant submitted three new references in the form of abstracts. The first abstract discusses results from the single-arm open-label pivotal trial (NCT02222545) (n=28) involving adult TA-TMA patients. The authors stated that patients were at high risk for poor outcomes and had multiple comorbidities. Patients received 6.3 doses on average (2 to 8 range) of narsoplimab for a median duration of treatment of 8 weeks. The authors discussed many of the outcomes discussed by the applicant previously adding that six patients died during the core study period: 1 of septic shock, 2 of progressive AML, 2 of neutropenic sepsis, and 1 of GVHD and TMA. The authors stated that these deaths occurred 3-42 days following the last narsoplimab dose. The second and third abstracts also discuss the single-arm open-label pivotal trial (NCT02222545) (n=28) involving adult TA-TMA patients, as previously described.

After review of the information provided by the applicant, we have concerns with regard to the substantial clinical improvement criterion. As we noted in the FY 2022 IPPS/LTCH PPS proposed rule, first, the sample from which the applicant draws conclusions is small (sample size of pivotal trial 28, plus five case studies previously discussed in the FY 2022 proposed rule (86 FR 25285 through 25286)). We question whether the sample and these results are generalizable to the greater Medicare population.

As we discussed in the FY 2022 IPPS/LTCH PPS proposed rule, with regard to methodological concerns, the authors pool data from an historical cohort of patients drawn from published literature to calculate survival rates in patients with HSCT-TMA and then retrospectively compare these rates to the survival in their treated cohort. We note the applicant has in their current application provided some insight into how the historical control was evaluated in comparison to narsoplimab outcomes, as previously discussed. We appreciate the greater detail provided by the applicant but without information regarding how the systematic review was designed and performed, we question the appropriateness of the sample used to identify a historical comparator. We question whether this systematic review and analysis sufficiently establish differences between various studies and whether they are sufficient to show that the difference between outcomes is due to differences in treatments as opposed to study design, samples, and so forth.

As we also noted in the FY 2022 IPPS/LTCH PPS proposed rule, the study described in the pivotal trial, upon which the applicant bases its claims for substantial clinical improvement, was not appropriately designed to test for comparisons with another treatment such as an historical control; a historical control was only assessed in post hoc analyses and was not incorporated in the initial study design. Furthermore, the methods utilized in the pivotal trial do not lend themselves to making statistical inferences based on the provided protocol (for example, no power assessment performed, no assessment for multiple comparisons, no pre-identified alpha). We note that the applicant stated that the trial's composite endpoint of laboratory and clinical measures is novel and rigorous, and has not been previously used in the literature. We would appreciate additional information on the clinical significance of this endpoint as compared to others in the literature referenced by the applicant, and whether the composite endpoint has been clinically validated and is demonstrative of durable clinical benefit. Specifically, we note that in some cases, measures used as indicators for patient improvement such as haptoglobin initially showed increases at early time points (for example, 1-10 weeks) but began to decrease at later time points (for example, 13-15 weeks).

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

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

h. Spesolimab

Boehringer Ingelheim Pharmaceuticals, Inc. (BIPI), submitted an application for new technology add-on payments for spesolimab for FY 2023. According to the applicant, spesolimab is a humanized antagonistic monoclonal immunoglobulin G1 antibody blocking human IL36R signaling currently under investigation for the treatment of flares in adult patients with generalized pustular psoriasis (GPP). The applicant stated that binding of spesolimab to IL36R prevents the subsequent activation of IL36R by cognate ligands (IL36 α, β and γ) and downstream activation of pro-inflammatory and pro-fibrotic pathways. Per the applicant, genetic human studies have established a strong link between IL36R signaling and skin inflammation.

According to the applicant, GPP is a rare, heterogeneous, and potentially life-threatening neutrophilic skin disease, with an estimated prevalence of 1/10,000 in the United States. The applicant noted that a flare entails widespread formation of pustules that may occur with or without systemic inflammation. Per the applicant, GPP causes significant morbidity and, in some cases, mortality; infectious, metabolic, cardiac, liver, respiratory, and neurological comorbidities have been reported. The applicant also stated that various factors have been reported to trigger a GPP flare, including pregnancy, severe injury, or viral and bacterial infections. Per the applicant, the use and subsequent withdrawal of systemic corticosteroids is a key contributing factor.

According to the applicant, GPP can be distinguished from plaque psoriasis based on clinical, pathologic, and genetic features in GPP. The applicant asserted that although there are shared pathways between GPP and plaque psoriasis, the IL-36 pathway is predominantly involved in the pathogenesis of GPP, while the IL-23 axis drives plaque psoriasis. Per the applicant, binding of spesolimab to IL36R prevents the subsequent activation of IL36R by cognate ligands (IL36 α, β and γ) and downstream activation of pro-inflammatory and pro-fibrotic pathways. The applicant also stated that IL-36R signaling is differentiated from TNF-α, integrin and IL-23 inhibitory pathways by directly and simultaneously blocking both inflammatory and pro-fibrotic pathways.

The applicant stated that in the absence of an FDA-approved therapy specifically indicated for GPP, immunomodulatory therapies, including biologics, are used in the treatment of GPP based on clinical experience in patients with plaque psoriasis. The applicant further noted that there is limited evidence on the efficacy and safety of these therapies in the treatment of GPP. Per the applicant, due to the rarity of the disease, there are no high-quality clinical trials providing evidence for treatment options in GPP. The applicant also stated that the National Psoriasis Foundation treatment recommendations include cyclosporine, retinoids, infliximab and methotrexate as first-line therapies but that current treatments are associated with slow resolution of GPP flares, and complete clearance of pustules and skin is not always achieved.

With respect to the newness criterion, the applicant is pursuing FDA approval of a Biologics License Application (BLA). We note that a December 15, 2021, press release indicates that FDA has accepted a BLA and granted Priority Review for spesolimab for the treatment of flares in patients with GPP. The applicant indicated that it expects to receive FDA approval prior to the July 1 deadline. According to the applicant, the product will be available on the market 1 week post FDA approval. According to the applicant, spesolimab is administered as a single 900 mg (2 x 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. According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify spesolimab. The applicant submitted a request for approval of a unique ICD-10-PCS code to identify cases involving the administration of spesolimab beginning in FY 2023.

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 first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that spesolimab does not use the same or similar mechanism of action when compared to an existing technology. The applicant stated that spesolimab inhibits IL-36R signaling which is differentiated from TNF-α, integrin and IL-23 inhibitory pathways by directly and simultaneously blocking both inflammatory and pro-fibrotic pathways. The applicant described first line therapies that include acitretin, cyclosporine, methotrexate, infliximab, oral prednisone, topical corticosteroids, topical calcipotriene, and etanercept. As second line, the applicant cited adalimumab, etanercept, psoralen and long-wave ultraviolet light A (PUVA), ultraviolet light B (UVB) phototherapy, topical corticosteroids, topical calcipotriene, topical tacrolimus, and infliximab. The applicant stated there is limited evidence on the efficacy and safety of these therapies in the treatment of GPP. The applicant reported that due to the rarity of the disease, there are no high-quality clinical trials providing evidence for treatment options in GPP.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG, the applicant stated that there is no MS-DRG for spesolimab. We note that the applicant also stated that spesolimab currently maps to the following MS-DRGs: 603 (Cellulitis without MCC), 607 (Minor Skin Disorders without MCC), 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), and 872 (Septicemia or Severe Sepsis without MV >96 Hours without MCC) under the MS-DRG grouper for FY 2022.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated the clinical, pathological, and genetic features associated with GPP establish it as a distinct disease entity from plaque psoriasis, which is managed with existing therapies.

In summary, the applicant asserted that spesolimab is not substantially similar to other currently available therapies and/or technologies because it does not use the same or similar mechanism of action, there is no MS-DRG, and the features of GPP establish it as a distinct disease entity from plaque psoriasis and that therefore, the technology meets the “newness” criterion. However, we have the following concerns with regard to the newness criterion. First, we note that the applicant stated that there are no FDA-approved therapies specifically indicated for GPP. However, we question 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 request additional information on any such treatments. We also note that while the applicant stated that spesolimab 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 believe these are the same MS-DRGs to which other treatments for GPP would map.

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

With respect to the cost criterion, the applicant presented the following analysis. The applicant first searched the FY 2019 MedPAR for cases representing patients who may be eligible for spesolimab. The applicant selected claims with a diagnosis code of L40.1 (Generalized pustular psoriasis) and limited the data to PPS hospitals. The applicant removed HMO cases, cases with total charges or covered charges less than zero, and cases with a length of stay of zero. After imputing a value of 11 cases for MS-DRGs with a case volume less than 11, the applicant identified 101 claims mapping to 4 MS-DRGs under the MS-DRG grouper for FY 2022: MS-DRG 603 (Cellulitis without MCC), MS-DRG 607 (Minor Skin Disorders without MCC), MS-DRG 871 (Septicemia or Severe Sepsis without MV >96 Hours with MCC), and MS-DRG 872 (Septicemia or Severe Sepsis without MV >96 Hours without MCC).

The applicant did not remove charges for prior technology as the applicant stated it did not believe that it was applicable for this product. The applicant standardized the charges and applied a 4-year inflation factor of 1.281834 based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to calculate outlier threshold charges. The applicant then added charges for the new technology by dividing the cost of spesolimab by the national average CCR for drugs which is 0.187 from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966). The applicant stated that the final inflated average case-weighted standardized charge per case of $359,404 exceeded the average case-weighted threshold amount of $41,595. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that spesolimab meets the cost criterion.

We note the applicant's statement that removing charges for prior technology was not applicable to spesolimab; however, the applicant did not provide an explanation as to why. We would be interested in additional detail regarding the applicant's decision not to remove charges for prior technology. We invite public comment on whether spesolimab meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserted that spesolimab 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 significantly improves clinical outcomes relative to services or technologies previously available.

With respect to the claim that spesolimab offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, the applicant stated that there are no FDA-approved therapies specifically indicated for GPP. The applicant further stated that current treatments are associated with slow resolution of GPP flares, and complete clearance of pustules and skin is not always achieved. In support of this claim, the applicant submitted a study describing a structured survey which was purposed to gauge unmet needs for GPP. The study results of the survey of 29 dermatologists were published regarding the range and adequacy of GPP treatment options. Dermatologists were identified by the Corrona Psoriasis Registry as likely to be currently treating patients with GPP, with a history of having treated at least one patient in the Corrona Registry. The survey was made up of 28 multiple choice questions regarding GPP flares, diagnosis, and treatment options. The authors found that all surveyed dermatologists believed that pustules were necessary to diagnose a GPP flare. Most surveyed dermatologists responded that treatment options for all flare frequencies were adequate “most” (79%) or “all” (14%) of the time, and 83% reported that treatments for residual disease for all flare frequencies are adequate “most of the time.” According to the applicant, this survey established the need for new therapies. The applicant stated that while the study results suggest that moderately effective therapies may exist, the need for GPP-specific treatments remains.

With respect to the claim that spesolimab improves outcomes, the applicant restated that there are no FDA-approved therapies specifically indicated for GPP, current treatments are associated with slow resolution of GPP flares, and complete clearance of pustules and skin is not always achieved. The applicant also stated that spesolimab, as compared to placebo, leads to rapid pustular clearance and rapid skin clearance; clinically significant improvements in patient-reported pain, psoriasis symptoms, and fatigue; and significant decreases in markers of systemic inflammation. The applicant provided three data submissions in support of their claims of improved outcomes.

The applicant submitted a published letter to the editor describing a phase I, proof-of-concept trial in 7 patients who were given a single intravenous dose of spesolimab 10mg/kg and followed for 20 weeks, to establish the results of spesolimab in a study. The authors noted that most adverse events were mild or moderate in nature and that a Generalized Pustular Psoriasis Physician Global Assessment (GPPGA) score of 0 or 1 (clear or almost clear skin) was achieved in five patients by week 1 and in all patients by week 4. Complete pustular clearance was achieved in three patients within 48 hours after treatment (n=3; 42.9%), in five patients by week 1 (n=5; 71.4%) and in six patients by week 2 (n=6; 85.7%). According to the applicant, this proof-of-concept study demonstrated that spesolimab could achieve clear or almost clear skin with no serious adverse effects.

The applicant also submitted a published study protocol describing Effisayil-1, a phase 2 multicenter, randomized, placebo-controlled trial designed to support the use of spesolimab for GPP in a double-blind study. The protocol aimed to randomize at least 51 patients with an acute GPP flare in 2:1 fashion for a single 900 mg intravenous dose of spesolimab or placebo. Inclusion criteria included patients with a GPPGA score 0 or 1 and documented history of GPP; or acute GPP with moderate to severe intensity flare; or first episode acute GPP with moderate to severe intensity with diagnosis to be confirmed retrospectively. According to the protocol, patients would be followed for up to 28 weeks and the primary endpoint would be achievement of GPPGA pustulation subscore of 0 (pustule clearance) at Week 1. A secondary endpoint of GPPGA score of 0 or 1 (clear or almost clear) at Week 1 would also be assessed. Patients not qualifying to enter the open label extension study would be followed for an additional 16 weeks. In addition to photographs, exam, vitals, safety laboratory testing, the IL36RN mutation status would be determined for all patients. Finally, safety would be assessed along with data collection of blood and skin biopsies.

Finally, the applicant summarized unpublished data from Effisayil-1, described previously to demonstrate that spesolimab improves outcomes as compared to placebo. According to the applicant, 54.3% of the treatment arm (19/35) achieved pustule clearance, as assessed by GPPGA pustulation subscore one week after treatment, compared to approximately 5.6% (1/18) of patients in the placebo arm (p<0.001), demonstrating rapid pustular clearance. The applicant also noted a secondary endpoint of clear or almost clear skin one week after treatment. The applicant stated that spesolimab also demonstrated rapid skin clearance, with 42.9% (15/35) of the treatment arm, compared to 11.1% (12/18) of patients treated with placebo (p=0.012) achieving clear or almost clear skin as indicated by a total GPPGA score of 0 or 1 at week 1.

With respect to the claim that spesolimab improved patient-reported outcomes, the applicant stated that patients in the Effisayil-1 trial discussed previously used a visual analog scale to measure their pain. According to the applicant, a significantly greater reduction in pain was measured in patients receiving spesolimab at Week 4 as compared to those receiving placebo (p=0.001). In addition, the applicant stated that patients receiving spesolimab reported significantly greater reductions in psoriasis symptoms (including pain, redness, itching, and burning) as indicated by the psoriasis symptom scale (PSS) by Week 4 (p=0.004). The applicant also noted significantly greater reductions in fatigue by the Functional Assessment of Chronic Illness Therapy (FACIT) scores in the spesolimab group as compared to placebo (p=0.001) at Week 4.

Lastly, the applicant stated that the Effisayil-1 study also demonstrated significant decreases in markers of systemic inflammation. According to the applicant, serum biomarker data showed that treatment with spesolimab led to normalization of C-reactive protein (CRP) and neutrophil values that had been above the upper limit of normal at baseline within 2 weeks for CRP and within 1 week for neutrophils. The applicant further stated that this effect was sustained through to Week 12.

After review of the information provided by the applicant, we have the following concerns regarding whether spesolimab meets the substantial clinical improvement criterion. We note that the results of the Effisayil-1 trial are not included in the application. As the applicant references the Effisayil-1 trial in support of its assertions regarding improved outcomes we are concerned that our analysis of the clinical benefit of spesolimab relies entirely on the applicant's summary of the unpublished trial. To the extent that Bachelez et al., matched to the previously published protocol, it does not appear that the unpublished study met the goal of recruiting 51 patients and therefore we question if the study was adequately powered. In addition, the patient demographics, excluded cases, and details of adverse events are unable to be determined. We therefore question the generalizability of the Effisayil-1 trial outcomes to the Medicare population.

With regard to the Effisayil-1 protocol and the unpublished data, we note that the protocol is not designed to compare spesolimab to current treatment options. While the applicant states that spesolimab will be the first GPP treatment targeting the IL-36 pathway, we note that the applicant previously described other treatments that are available, which include TNF-α inhibitors, etanercept, and others. We also question 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, as discussed previously. In addition, we note that the dermatology survey results supplied by the applicant seem to indicate that there is perceived efficacy in current treatments. Most of the surveyed dermatologists indicated that treatment options for all flare frequencies were adequate “most” (79%) or “all” (14%) of the time, and 83% reported that treatments for residual disease for all flare frequencies are adequate “most of the time.” Given this, we question whether placebo is the most appropriate comparator for spesolimab.

We also note that there does not appear to be a standard way to assess GPP severity and response to treatment. Though the studies described in the application used GPPGA to assess these outcomes, because there are multiple assessment tools such as the Psoriasis Area and Severity Index (PASI), the GPPGA adapted from the Psoriasis Physician Global Assessment (PGA), the Clinical Global Impression (CGI) scale, the Japanese Dermatological Association Severity Index (JDA-SI), patient reported outcomes, and others, we question the extent of response and comparability to other therapies. We also question if skin manifestations correlate with systemic symptoms and laboratory values as those outcomes would also be of interest.

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

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

Comment: The applicant provided supplemental written responses to questions by CMS during the FY 2022 Town Hall meeting regarding the Effisayil-1 study. First, in response to a question regarding how the results of the Effisayil-1 trial align to labs and other findings, the applicant clarified that among patients with elevated baseline neutrophils in the Effisayil-1 trial, counts were normalized within one week of receiving spesolimab while median C-reactive protein (CRP) normalized within two weeks in patients with elevated baseline CRP (≥ 10mg/L).

Second, in response to a question regarding whether safety data is available based on impact to the immune system, the applicant also stated that a comparison of safety data among patients with or without measurable changes to immune response cannot be answered since treatment with spesolimab consistently resulted in normalization of inflammatory markers among patients with elevated baseline values. Per the applicant, during the 1-week placebo-controlled period in Effisayil-1, infections were reported in 17.1% of patients treated with spesolimab compared with 5.6% of patients treated with placebo. Serious infection (urinary tract infection) was reported in one patient (2.9%) in the spesolimab group and no patients in the placebo group. The applicant also stated that infections observed were mild to moderate with no distinct pattern regarding pathogen or type of infection.

Third, in response to a question regarding whether older adults were studied in the trial, the applicant stated that among patients enrolled in the Effisayil-1 study, the mean age was 43 years and the median age was 41 years, thirteen patients (24.5%) were 50 to <65 years of age and two patients (3.8%) were ≥65 years of age. Per the applicant, the age distribution observed in the Effisayil-1 study is similar to what is known for the US population with GPP but market research has suggested a larger impact on the Medicare population. In utilizing IQVIA claims data, the applicant estimated that approximately 40% of GPP claims are adjudicated as Medicare.

Fourth, in response to a request for the inclusion and exclusion criteria, the applicant clarified that patients aged 18-75 years were eligible for enrollment if they had a history of GPP consistent with criteria for diagnosis according to European Rare and Severe Psoriasis Expert Network (ERASPEN) criteria. The applicant further stated that patients had to have a GPP flare of moderate-to-severe intensity (defined as total GPPGA score ≥3, new or worsening pustules, a GPPGA pustulation subscore ≥2, and ≥5% body surface area with erythema and the presence of pustules). Per the applicant, key exclusion criteria included patients with plaque psoriasis without pustules or with pustules restricted to psoriatic plaques, drug-triggered acute generalized exanthematous pustulosis, immediate life-threatening flare of GPP requiring intensive care treatment, and requirement for current treatment with methotrexate, cyclosporine, or retinoids, or any restricted medication.

Fifth, in response to a question regarding whether the primary endpoint reached statistical significance, the applicant asserted that the Effisayil-1 study met its primary endpoint and achieved statistical significance with the following results: At week one, 19 patients (54.3%) receiving spesolimab versus one patient (5.6%) receiving placebo, achieved a GPPGA pustulation subscore of 0; (risk difference: 48.7% with a 95% confidence interval [CI] 21.5-67.2; one-sided p<0.001).

Sixth, in response to a question regarding how IL-36R signaling could be utilized for other indications, the applicant stated that spesolimab is also under investigation for the prevention of GPP flares and for the treatment of other neutrophilic skin diseases, such as palmoplantar pustulosis (PPP) and hidradenitis suppurativa (HS).

Seventh, in response to a question regarding when the published results of Effisayil-1 and Effisayil-2 are expected, the applicant stated that the primary results of Effisayil-1 were previously presented at the World Psoriasis and Psoriatic Arthritis Conference in June 2021, and the full manuscript has been accepted in a peer-reviewed journal for publication by the end of December 2021. The applicant further noted that the Effisayil-2 study is currently ongoing and publication of the results is to be determined.

Response: We thank the applicant for its comments and will take this information into consideration when deciding whether to approve new technology add-on payments for spesolimab. We note that as of the time of the development of this proposed rule, we have not received the published Effisayil-1 trial results.

i. Teclistamab

Johnson & Johnson submitted an application for new technology add-on payments for teclistamab for FY 2023. Teclistamab is a bispecific antibody (bsAb) that is intended to bind CD3 on T cells and B cell maturation antigen (BCMA) on myeloma cells in the treatment of relapsed or refractory multiple myeloma. The applicant stated that this dual binding brings T cells into proximity with target myeloma cells and triggers T cell activation, leading to a cascade of “effector” events, such as cytotoxicity, cytokine production and immune activation, and an overall anti-tumor response.

Multiple myeloma is an incurable blood cancer that affects a type of white blood cell called plasma cells. Normal plasma cells are found in the bone marrow as part of the immune system and make antibodies that help the body fight infections. According to the applicant, when they become malignant, these plasma cells rapidly spread and replace normal cells in the bone marrow. As indicated by its name, multiple myeloma is characterized by dissemination of multiple tumor cells throughout the bone marrow. The applicant asserted that the median age of onset is 66 years old, and only 2% of patients are less than 40 at the age of diagnosis. In 2020, it is estimated that more than 32,000 people will be diagnosed and nearly 13,000 will die from multiple myeloma in the US. It is associated with substantial morbidity and mortality, and approximately 25% of patients have a median survival of two years or less.

According to the applicant, multiple myeloma is incurable, with most patients relapsing despite current treatments. The applicant stated that immunotherapies, including CAR T-cell therapy and antibody-based therapies, engage the patient's immune system to fight cancer. According to the applicant, new treatment options available in the last two decades have extended the median survival of multiple myeloma patients. The introduction of proteasome inhibitors (PI), histone deacetylase inhibitors, immunomodulatory agents (IMiD), monoclonal antibodies, antibody-drug conjugates, corticosteroids, conventional chemotherapy and cellular therapies like autologous stem cell transplantation (ASCT) have allowed numerous therapeutic options for patients with multiple myeloma. The applicant stated that other currently available treatment options include selective inhibitor of nuclear export (SINES) and melphalan flufenamide. However, the applicant stated that barriers to access and a complex, time-consuming manufacturing process limit access on some therapies. The applicant stated that bsAbs facilitate T cell redirection without the need for patient cell collection and external manipulation as is seen in CAR T-cell therapy.

With respect to the newness criterion, the applicant stated that teclistamab has not yet received FDA marketing authorization but was granted Breakthrough Therapy designation on May 26, 2021. The applicant stated that it is seeking accelerated approval for a Biologics License Application (BLA) for the proposed indication for adult patients with relapsed or refractory multiple myeloma, who have received at least 3 prior therapies including a proteasome inhibitor, an immunomodulatory agent and an anti-CD38 monoclonal antibody, and that it expects FDA approval by June 2022. According to the applicant, teclistamab is designed to be given subcutaneously in two priming doses of 60 ug/kg and 300 ug/kg, then a maintenance dose of 1500 ug/kg. According to the applicant, ICD-10-PCS code 3E01305 (Introduction of other antineoplastic into subcutaneous tissue, percutaneous approach) can be used to identify the technology, but it does not distinctly identify procedures involving the administration of teclistamab. The applicant has submitted a request for approval for a unique ICD-10-PCS code to identify procedures involving the administration of teclistamab. The applicant also stated that the following ICD-10 CM diagnosis codes can be used to identify the proposed indication for teclistamab: C90.00 (Multiple myeloma not having achieved remission), C90.01 (Multiple myeloma in remission), and C90.02 (Multiple myeloma in relapse).

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 first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant asserts that teclistamab uses a different mechanism of action when compared to existing technologies used to treat myeloma. The applicant stated that teclistamab has a unique mechanism of action with a full-sized antibody containing two distinct binding domains that simultaneously bind the BCMA target on tumor cells and the CD3 T-cell receptor. The applicant stated that teclistamab's mechanism of action is different from CAR T-cell therapies used to treat multiple myeloma such as idecabtagene vicleucel because it does not require cell extraction and engineering. The applicant submitted the following table that compares the mechanism of action for teclistamab to the mechanism of action for existing technologies used to treat multiple myeloma.

According to the applicant, there is currently no commercially available bispecific antibody for multiple myeloma: Blinatumomab is a bispecific T cell engager (BiTE) targeting CD3 and CD19 made up of two fragment antigen-binding (Fab) portions held together by a chemical linker that is only approved for pre-B-cell acute lymphoblastic lymphoma, and amivantamab targets two antigens specific to lung cancer cells and does not contain a CD3-binding domain. The applicant stated that teclistamab is not substantially similar to other existing bispecific antibodies like blinatumomab due to teclistamab's duobody structure of BCMA versus CD19, or amivantamab due to targeting of CD3 and BCMA versus the lung cancer antigens, cMET and EGFR. Therefore, the applicant asserted that teclistamab has a novel structure and unique mechanism of action, and is unlike any existing technology utilized to treat multiple myeloma.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG, the applicant stated that the DRG assignment for treating multiple myeloma is not expected to change with this technology.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated that its proposed indication is for treatment of adult patients with relapsed or refractory multiple myeloma, who have received at least three prior therapies including a proteasome inhibitor, an immunomodulatory agent and an anti-CD38 monoclonal antibody. According to the applicant, this indication is similar to belantamab and idecabtagene vicleucel, which are approved for multiple myeloma patients who have failed four prior therapies or lines of therapy, respectively. The applicant asserts that it is likely that teclistamab will be approved for an indication identical or similar to these two other therapies.

In summary, the applicant believes that teclistamab is not substantially similar to other currently available therapies and/or technologies because it uses a new mechanism of action and that therefore, the technology meets the newness criterion.

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

With respect to the cost criterion, the applicant presented the following analysis. The applicant searched the FY 2019 MedPAR for cases representing patients who may be eligible for teclistamab based on the presence of the ICD-10-CM diagnosis codes listed.

The applicant limited its case selection to cases mapping to MS-DRGs 846 (Chemotherapy without Acute Leukemia as Secondary Diagnosis with MCC) and 847 (Chemotherapy without Acute Leukemia as Secondary Diagnosis with CC). The applicant identified 766 claims that mapped to these two MS-DRGs.

Next, the applicant removed all charges in the drug cost center because it stated that it was not possible to differentiate between different drugs on inpatient claims. The applicant noted that the three doses of the drug administered during inpatient hospitalization would replace other therapies, but that removing all charges is likely an overestimation of the charges that would be replaced by use of teclistamab.

The applicant then standardized the charges using the FY 2022 IPPS/LTCH PPS final rule impact file and applied a 4-year inflation factor (1.281834) based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule and correction notice (86 FR 45542) to calculate outlier threshold charges. Since the technology is not FDA approved, the cost of teclistamab has not yet been determined. However, the applicant added charges for the new technology by dividing an estimated cost of teclistamab by the national average CCR for drugs (0.187) published in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966).

The applicant calculated a final inflated average case-weighted standardized charge per case of $101,270, which exceeded the average case-weighted threshold amount of $58,800. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that teclistamab meets the cost criterion. We are inviting public comment on whether teclistamab meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant asserted that teclistamab offers a treatment option for patients who are refractory to the three major classes of drugs currently approved for multiple myeloma (IMiDs, PIs, and monoclonal antibodies). The applicant also asserts that teclistamab significantly improves clinical outcomes such as treatment response rates, and minimal residual disease (MRD) rates when compared to currently available treatments.

With respect to the claim that teclistamab provides a treatment option for patients who are refractory to the three major classes of drugs currently approved for multiple myeloma, the applicant asserted that patients treated with teclistamab demonstrate an overall response rate (ORR) of 65%, with 61% of patients who are triple-class refractory exhibiting a response. The applicant stated that while response rates are similar for idecabtagene vicleucel, another BCMA targeting therapy, access may be limited due to inability to secure a CAR T-cell treatment spot due to manufacturing constraints, inability and/or unwillingness to travel to an idecabtagene vicleucel qualified center, or the need to initiate immediate treatment and inability to wait weeks for CAR T-cell manufacturing and/or respond to bridging therapy. Additionally, the applicant stated some patients are not eligible for idecabtagene vicleucel due to fitness/frailty and CAR T-cell manufacturing may be unsuccessful. The applicant described the “off-the-shelf” nature of teclistamab providing a more accessible and immediate option for patients, not limited to certified centers, and available to more practitioners. Finally, the applicant asserted that frequency and severity of CRS and neurotoxicity are less with teclistamab than with some other therapies, including CAR T-cell therapies. The applicant asserted that no neurotoxicity was observed at the recommended phase 2 dose (RP2D).

With respect to the claim that teclistamab improves clinical outcomes as compared to existing technologies, the applicant stated that teclistamab demonstrates a high ORR in general as well as in triple-class refractory patients; early and deep clinical responses; MRD at time of complete response and sustained results; good progression-free survival (PFS); predictable, limited, and manageable CRS, and minimal toxicity. To support these claims, the applicant referenced data from the MajesTEC-1 trial, which is an ongoing, open-label, single-arm, phase 1 study of intravenous (IV) or subcutaneous (SQ) teclistamab in 157 patients with multiple myeloma who were relapsed, refractory, or intolerant to established therapies. The primary objectives were to identify the RP2D and its safety and tolerability. The study used a data cutoff date of March 29, 2021. Between June 8, 2017 and March 29, 2021, enrolled patients were administered the study drug at 0.3-19.2 ug/kg once every 2 weeks or 19.2-720 ug/kg once a week in the IV cohort, and 80-3000 ug/kg once a week in the SQ cohort. Teclistamab was given to the 157 subjects by IV (n=84) or SC (n=73) administration. Step-up dosing was employed during the first week to minimize side effects, and the full dose was given weekly beginning on day 1 of week 2. Patients continued treatment until disease progression, unacceptable toxicity, withdrawal of consent, death, or at study completion. Patients who had at least one post-baseline response evaluation after teclistamab administration (n=40) were evaluated for secondary endpoints of ORR, duration of response (DOR), time to response, pharmacokinetic parameters, pharmacodynamics markers, and anti-teclistamab antibodies. The authors did not report PFS and overall survival (OS) because they stated that the data were not mature.

At the cutoff date, median age of enrolled patients was 63, with more elderly patients (≥70 years) in the IV cohort than the SQ cohort. The median lines of therapy received prior to the study were six. All patients enrolled in the study experienced treatment-emergent adverse events (TEAEs), with 85% experiencing grade 3 or 4. At R2PD, the percentage of grade 3 or 4 TEAEs dropped to 80%, and 50% of those were believed to be treatment related. The most common hematologic TEAEs were neutropenia, anemia, and thrombocytopenia, whereas the most common non-hematologic TEAE was CRS at grade 1 or 2. TEAEs occurred in 57% of all treated patients, and 70% of those at the R2PD. Median time and duration of CRS was 1 day in IV cohort and 2 days in the SQ cohort. The most common non-hematologic adverse event (AE) was CRS, all grade 1 or 2, which occurred in 60% of all subjects treated with subcutaneous drug and 70% of subjects at the RP2D. Infections were noted in 45% of subjects at the RP2D, including 23% with grade 3/4 infections. Neurotoxicity occurred in 1% of subjects treated with SC drug, including 3% at the RP2D. AEs led to cycle delays or dose reductions in the overall population. No subject discontinued treatment due to CRS. Based on data from this trial, the authors noted a more gradual increase in serum teclistamab in SQ administration compared to IV administration and established a RP2D of 1500 ug/kg SQ. The ORR at the RP2D was 65%, with complete response (CR) and very good partial response (VGPR) rates of 40% and 58%, respectively. After a median follow-up of 7.1 months, 22/26 (85%) responders continued on therapy. In a small subgroup of 33 triple-class refractory patients, the ORR was 61%. Authors noted that, in contrast, studies of selinexor and belantamab mafodotin at approved doses had response rates of 26% and 31%, respectively.

The applicant also provided updated results that were presented at the American Society for Hematology in December 2021. This data, up to clinical cut-off date September 7, 2021, included longer follow-up of the phase 1 trial (median 5.9 months, 0.2-18 month range in the safety analysis) as well as initial data from the phase 2 trial at median follow-up of 7.8 months (range 0.5+−18 months). The pivotal cohort now included 165 patients, with 40 in the phase 1 cohort and 125 in the phase 2 cohort. According to the applicant, the phase 1 patients were relapsed, refractory, or intolerant to established therapies. The phase 2 patients received >3 prior lines of therapy and both cohorts received R2PD. There were discontinuations in both groups due to progressive disease, physician decision, patient withdrawal, AE, and death. At the time of the ASH presentation, authors noted an ORR of 62% (95% CI: 53.7-69.8) with median time to first response of 1.2 months (range 0.2-5.5 months). ORR was slightly higher in patients <75 years old (n=127) compared to patients >75 years (n=23) and in those with baseline renal function >60 ml/min/1.73 m2. Of the 165 patients, serious AEs occurred in 88 patients and there were 9 deaths. CRS events were mostly grade 1/2 with one transient-grade 3 CRS. There was neurotoxicity in 21 patients, with headache being the most common. At a data cut-off of November 7, 2021, the applicant stated that 88.2% of responders were alive without subsequent treatment or progressive disease. Median DOR has not been reached, with a 9-month PFS rate of 59%. The applicant also stated that enrollment in phase 2 expansion cohorts is ongoing, and phase 3 study enrollment has been initiated.

In support of the claim that teclistamab demonstrates a high ORR and early and deep clinical responses, the applicant cited MajesTEC-1 data for 40 patients who received R2PD and were eligible for evaluation of response. The applicant noted that at a median follow-up of 6.1 months, teclistamab was associated with a 65% overall response rate (95% CI 48-79), in patients receiving the RP2D of maintenance dose of 1.5 mg/kg SQ weekly (n=40). Approximately 58% achieved VGPR or better, and 40% achieved complete response or better. For the subgroup of triple-class refractory patients (n=33), the applicant cited a 61% ORR at R2PD. Regarding early and deep clinical responses, the applicant noted that of the 40 patients receiving R2PD, the median time to first confirmed response was 1 month (IQR 1.0-1.6), very good partial response or better was 1 month (1.0-3.1), first confirmed complete response or better was 3.0 months (1.7-3.7).

In support of the assertions that teclistamab is associated with high levels of response, the applicant stated that most patients at RP2D attained a status of MRD-negativity by the time they were evaluable for a CR. The applicant also stated that teclistamab demonstrated responses wherein myeloma cells were not detected in a background of 105 or 106 cells. The applicant also cited a 6-month PFS of 67% (95% CI 49-80) for those treated at R2PD.

Lastly, in support of the claim that teclistamab results in predictable, limited, and manageable CRS and minimal toxicity, the applicant cited hematological and nonhematological TEAEs described earlier in the MajesTEC-1 trial summary. The applicant also stated that CRS was of limited severity, with consistent, predictable time to onset (median 2 days) and duration of CRS (median 2 days). Teclistamab-related toxicity was manageable, including CRS, and did not result in discontinuation of therapy. In review of the applicant's data, neurotoxicity occurred in 4% of patients (n=7), with higher grade neurotoxicity (3 or 4) occurring in the IV cohort.

The applicant also provided preclinical data regarding the development of JNJ-7957 (teclistamab), a novel BCMAxCD3 bispecific antibody. In the first paper, authors evaluated activity of this antibody in cell lines and bone marrow samples from patients with multiple myeloma and refractory disease. It was noted that JNJ-7957 was associated with anti-tumor activity in 48 of 49 bone marrow samples from multiple myeloma patients and in 5 of 6 bone marrow samples from primary plasma cell leukemia patients. In daratumumab-exposed effector cells, there appeared to be enhanced JNJ-7957 activity. The authors used this data to support further studies on JNJ-7957 in patients with multiple myeloma (MM). In a second preclinical paper, authors described the development of a BCMAxCD3 bispecific antibody (teclistamab [JNJ-64007957]) to recruit and activate T cells to kill BCMA-expressing multiple myeloma cells. This study noted that teclistamab was associated with cytotoxicity of BCMA+ MM cell lines in vitro (H929 cells, 50% effective concentration [EC50] = 0.15 nM; MM.1R cells, EC50 = 0.06 nM; RPMI 8226 cells, EC50 = 0.45 nM) with concomitant T-cell activation (H929 cells, EC50 = 0.21 nM; MM.1R cells, EC50 = 0.1 nM; RPMI 8226 cells, EC50 = 0.28 nM) and cytokine release. According to the applicant, teclistamab also depleted BCMA+ cells in bone marrow samples from MM patients in an ex vivo assay with an average EC50 value of 1.7 nM. Under more physiological conditions using healthy human whole blood, teclistamab mediated dose-dependent lysis of H929 cells and activation of T cells. Antitumor activity of teclistamab was also observed in 2 BCMA+ MM murine xenograft models inoculated with human T cells (tumor inhibition with H929 model and tumor regression with the RPMI 8226 model) compared with vehicle and antibody controls. According to the applicant, the findings of this study indicate that teclistamab is active against BCMA-expressing cells from MM cell lines, patient samples, and MM xenograft models.

After review of the information provided by the applicant, we have the following concerns regarding whether teclistamab meets the substantial clinical improvement criterion. We note that all substantial clinical improvement claims were based on one small-sized open-label phase 1 study (MajesTEC-1) without control or comparator and that subsequently submitted phase 2 data is still in early phases. The application and MajesTEC-1 manuscript reported outcomes on 26 of the 40 patients at RP2D, but further information on that smaller population and MRD-evaluability would be helpful. There is also no long-term follow-up in the published data. Additionally, of the 40 patients enrolled in the R2PD cohort, 70% had CRS and 18 had discontinued treatment at the time of publication. Updated results presented at ASH demonstrated that 50 patients had discontinued treatment out of the 125 enrolled in the phase 2 cohort. The authors studied both IV and SQ dosing in the MajesTEC-1 trial, but it is unclear if the overall results that include IV doses can be generalizable. We further note that the median age in MajesTEC-1 was 63 years and the majority of elderly patients (≥70 years old) were not in the R2PD cohort. The new data presented at ASH included 24 patients ≥75 years in the safety analysis. The ORR was slightly lower than what was seen in younger patients. It is unclear if this is mainly due to small sample size; the confidence interval is wider in this subgroup.

While the applicant provided data to demonstrate that teclistamab is associated with a 62% ORR, this was done in a single-arm trial which the applicant compared to historically published data of other therapies such as selinexor, belantamab, and idecabtagene vicleucel. We note that this comparison may be subject to sample-selection bias, as without matching of patients or study characteristics, it is unclear whether these differences in ORR are due to the therapy or can be attributed to other factors.

We also note that while the applicant asserted that teclistamab offers a treatment option for patients with limited access to or who are ineligible for CAR T-cell therapy due to wait time, fitness/frailty, and other issues, we question whether there are other available therapies, such as belantamab and selinexor, that may be used to treat patients with multiple relapses or who are refractory to other therapies that also would not have those limitations. We are inviting public comments on whether teclistamab meets the substantial clinical improvement criterion.

We received a written public comment from the applicant in response to the New Technology Town Hall meeting regarding the teclistamab FY 2023 application for new technology add-on payments.

Comment: The applicant responded to questions received at the New Technology Town Hall Meeting. During the Q&A portion of their presentation, the applicant presenter was asked about the status of planned phase 2 studies as the data shown were from the phase I portion of MajesTEC-1, first presented at the American Society of Clinical Oncology Annual Meeting in June 2021. According to the applicant, the data shown were the most recent available at the time of submission of the FY 2023 application and slide for new technology add-on payments. The applicant provided updated data from the phase I and phase 2 cohorts of MajesTEC-1 which, according to the applicant, were presented just the evening before at the American Society for Hematology 2021 Annual Meeting. This update included safety and efficacy data from both cohorts, including longer-term follow for 150 patients at the RP2D. The applicant provided a summary of this update as well as the presentation deck from the ASH oral session. (We note that we have summarized this updated data in the preceding discussion of the substantial clinical improvement criterion for teclistamab.)

Response: We appreciate the applicant's comments and updated data, as previously summarized. We will take these comments into consideration when deciding whether to approve new technology add-on payments for teclistamab.

j. TERLIVAZ® for Injection (Terlipressin)

Mallinckrodt Pharmaceuticals submitted an application for new technology add-on payments for TERLIVAZ® (terlipressin) for FY 2023. Per the applicant, TERLIVAZ® is for intravenous use in the treatment of adults with hepatorenal syndrome type 1 (HRS-1). TERLIVAZ® is a sterile, preservative-free, lyophilized powder for intravenous (IV) administration. We note that Mallinckrodt Pharmaceuticals previously submitted an application for new technology add-on payments for TERLIVAZ^TM for FY 2022, 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).

The applicant stated that TERLIVAZ® (Na-tryglycl-8-lysinevasopressin) is a pro-drug for the endogenous/natural porcine hormone [Lys8]-vasopressin and a synthetic vasopressin analog derived from the natural/endogenous human hormone [Arg8]-vasopressin. According to the applicant, TERLIVAZ® has greater selectivity for the vasopressin receptors (V1) versus vasopressin receptors (V2) and inhibits portal hypertension with simultaneous reduction of blood circulation in portal vessels. The applicant stated that the V1 receptor mediated vasoconstrictor activity of TERLIVAZ®, particularly in the splanchnic area, results in an increase in effective arterial volume, an increase in mean arterial pressure (MAP), and normalization of endogenous vasoconstrictor systems (renin-angiotensin-aldosterone and sympathetic nervous system) resulting in increased renal blood flow.

The applicant described HRS-1 as a serious, life-threatening condition characterized by development of acute or sub-acute renal failure in patients with advanced chronic liver disease (CLD). The applicant stated that HRS-1 is the leading cause of hospitalizations among all patients with advanced CLD. The applicant explained that HRS-1 most often develops in patients with CLD, including cirrhosis. HRS-1 does not exist in isolation, but as a co-morbidity in very ill patients with CLD. According to the applicant, 43.4% of estimated annual HRS cases in FY 2023 will be Medicare patients. The applicant asserted that the high mortality and significant rates of HRS-1-related readmissions support the need for better disease awareness and more effective treatment options. The applicant stated that there are currently no FDA-approved medications available in the US indicated specifically for the treatment of HRS-1, but several agents are used off-label. The applicant stated that in the U.S., the standard of care and initial treatment for HRS-1 is a combination of midodrine and octreotide, which are used off-label. According to the applicant, this combination is concomitantly administered with albumin. The applicant also stated that in patients who are admitted to the intensive care unit (ICU), initial treatment with norepinephrine, also used off-label, in combination with albumin is recommended. The applicant stated that the ideal therapy for HRS-1 is improvement of liver function from either recovery of alcoholic hepatitis, treatment of decompensated hepatitis B with effective antiviral therapy, recovery from acute hepatic failure, or liver transplantation. According to the applicant, TERLIVAZ® is approved as the first-line treatment for HRS-1 in European and Asian countries under appropriate marketing authorizations in those countries.

The applicant explained that the goal of HRS-1 treatment is to reverse the underlying hemodynamic instability. According to the applicant, treatment with TERLIVAZ® accomplishes this by decreasing splanchnic vasodilation and improving renal hemodynamics, thereby ameliorating afferent renal vasoconstriction, and improving glomerular filtration rate (GFR). The applicant noted that recent research suggests that increased circulating levels of pro-inflammatory cytokines (which the applicant asserted TERLIVAZ® administration helps to reduce) also play an important role in the development of HRS. The applicant asserted that, overall, treatment with TERLIVAZ® effectively addresses multiple aspects of the fundamental pathophysiology responsible for HRS-1, though it does not treat the underlying liver disease or decompensated cirrhosis. Furthermore, the applicant asserted that effective timely reversal of HRS-1 helps to improve post-liver transplant outcomes, as well as mitigates demand for renal replacement therapy (RRT) and kidney transplant.

With respect to the newness criterion, the applicant explained that TERLIVAZ® has not yet been granted approval from FDA for the proposed indication of treatment of adults with HRS-1. The applicant stated that in 2005, a New Drug Application (NDA) filing for TERLIVAZ® was granted Fast Track designation by FDA and was considered under Priority Review in May 2008, but a Complete Response Letter (CRL) was issued by FDA in November 2009. The applicant also stated that in 2016, Mallinckrodt Pharmaceuticals and FDA reached agreement on their trial protocol design and data analysis under the Agency's special protocol assessment (SPA) process. In April 2020, the applicant submitted the current NDA application with FDA as a Class 2 resubmission of the original NDA. On July 15, 2020, the Cardiovascular and Renal Drugs Advisory Committee of FDA voted to recommend approval of the investigational agent TERLIVAZ® to treat adults with HRS-1; however, on September 11, 2020, Mallinckrodt received a CRL from FDA denying this NDA. The applicant stated that it will work with FDA and anticipates approval prior to July 1, 2022.

According to the applicant, TERLIVAZ® is administered as an IV bolus injection. For the first 3 days, the recommended dosage is 1 mg TERLIVAZ every 6 hours by slow IV bolus injection (over 2 minutes). On day 4, the serum creatinine level is assessed against the baseline level obtained prior to initiating treatment. If the serum creatinine has decreased by 30% or more from the baseline, then 1 mg TERLIVAZ® can continue to be administered every 6 hours. If the serum creatinine has decreased by less than 30% from the baseline, then TERLIVAZ® may be increased to 2 mg 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. If, by day 4, serum creatine is at or above the baseline serum creatinine level, then TERLIVAZ® should be discontinued. If a patient develops a recurrence of HRS-1 after discontinuation of initial treatment, TERLIVAZ may be re-administered.

The applicant stated that, effective October 1, 2022, 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) and XW04367 (Introduction of terlipressin into central vein, percutaneous 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 purposes of new technology add-on payments.

With respect to the first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that TERLIVAZ® uses a different mechanism of action than existing, off-label treatments for HRS-1, for example, midodrine, octreotide, and norepinephrine. The applicant explained that TERLIVAZ® has a selective affinity for V1 vasopressin receptors predominantly located in the arterial vasculature in the splanchnic region. The applicant submitted the following table that compares the mechanism of action for TERLIVAZ® to the mechanism of action for existing technologies used off-label to treat HRS-1 including midodrine, octreotide, and norepinephrine.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG, the applicant stated that TERLIVAZ® may be assigned to the same MS-DRG as existing technologies currently used to treat HRS-1. In particular, the applicant stated that cases involving the use of TERLIVAZ® may map to the following three MS-DRGs: (1) MS-DRG 441 (Disorders of Liver Except Malignancy, Cirrhosis or Alcoholic Hepatitis with Major Complication or Comorbidity); (2) MS-DRG 442 (Disorders of Liver Except Malignancy, Cirrhosis or Alcoholic Hepatitis with Complication or Comorbidity); and (3) MS-DRG 443 (Disorders of Liver Except Malignancy, Cirrhosis or Alcoholic Hepatitis without Complication or Comorbidity/Major Complication or Comorbidity). The applicant stated that although TERLIVAZ® may be assigned to the same MS-DRG when compared with an existing technology, this does not mean that TERLIVAZ® is not “new” for the purposes of new technology add-on payments because, according to the applicant, the existing technologies are not specifically indicated for the treatment of HRS-1. The applicant stated that none of the current standard-of-care drugs used to treat HRS-1, namely midodrine, octreotide, and norepinephrine, are FDA-approved for the treatment of this disease. The applicant referenced the discussion in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49445) of BLINCYTO®, as an example of another technology that was the only FDA-approved product available on the U.S. market to treat the relevant indication, and stated that CMS agreed that eligible cases involving the BLINCYTO technology would map to a different MS-DRG than cases treated with similar technologies. The applicant also stated that the MS-DRG system does not differentiate between patients with HRS and non-HRS conditions that are assigned to the three MS-DRGs included in Major Diagnostic Category (MDC) 7 (Diseases & Disorders of the Hepatobiliary System & Pancreas), and further that the current MS-DRGs do not differentiate between HRS type 1 and type 2. The applicant states that because of this, both TERLIVAZ® and an existing technology used to treat non-HRS conditions may be assigned to MS-DRGs 441, 442, and 443.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated that it is seeking FDA approval for the proposed indication of treatment of adults with HRS-1. Therefore, the applicant explained, TERLIVAZ® will treat the same type of disease when compared to existing technologies. However, the applicant noted that the use of the existing drugs for treatment of HRS-1 is off-label, while Mallinckrodt Pharmaceuticals is seeking FDA approval of TERLIVAZ® specifically for the proposed indication of treatment of adults with HRS-1. The applicant also asserted that TERLIVAZ® (upon FDA approval) will not treat the same or a similar population when compared to existing technologies currently used to treat HRS-1 in the U.S. The applicant asserted that results from the CONFIRM trial ( ClinicalTrials.gov number, NCT02770716) indicate there is a subset of patients for whom TERLIVAZ® will have efficacy and for whom current therapies, which are used off-label, are not effective. The applicant asserted that the patient population for which TERLIVAZ® offers a new treatment option (that is, those unresponsive to current standard of care treatments) is a subset of the larger patient population for which TERLIVAZ® will receive an FDA label. Nevertheless, the applicant stated that while the FDA label for TERLIVAZ® is not expected to be reserved for a subset of the patient population that has been diagnosed with HRS-1 and has failed to respond to standard-of-care treatment options, it does not logically follow that because of this label, TERLIVAZ® will not offer a treatment option to a new patient population.

In summary, the applicant stated that TERLIVAZ® is not substantially similar to existing technologies currently available to Medicare beneficiaries to treat HRS-1 because it uses a different mechanism of action and treats a new patient population, and therefore, the technology meets the “newness” criterion. However, similar to our discussion in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25340), we note that while TERLIVAZ® may address an unmet need because it will be the first treatment indicated specifically for the treatment of HRS-1, the applicant's assertion that TERLIVAZ® involves the treatment of a different patient population on the basis that there is a subset of patients for whom TERLIVAZ® will have efficacy and for whom current treatments are ineffective does not necessarily speak to the treatment of a new patient population for HRS-1.

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

With respect to the cost criterion, the applicant presented the following analysis. The applicant searched the FY 2019 MedPAR database for cases representing patients who may be eligible for TERLIVAZ® using patient claims bearing the ICD-10-CM code K76.7 (Hepatorenal syndrome) to identify HRS-1 in the inpatient setting. The applicant stated that it filtered for HRS-1 cases by excluding cases with an inpatient length of stay of under two days. The applicant explained that HRS-1 is diagnosed by the exclusion of other causes of acute kidney injury in cirrhotic patients, and that no response after two consecutive days of diuretic withdrawal and plasma volume expansion with albumin is one of the diagnostic criteria of HRS-1 in patients with cirrhosis. The applicant stated that, accordingly, patients who do not fulfill this criterion cannot be considered HRS-1 cases. The applicant also stated that it differentiated between cases where HRS-1 is the primary and/or admitting diagnosis code and cases where HRS-1 can be the primary, admitting, or any secondary diagnosis. The applicant further defined cohorts using an ICU indicator, explaining that it considered the different clinical presentations of HRS-1, which may at times be treated in the ICU.

The applicant then presented two analyses using six defined cohorts. The applicant considered the following factors in defining the cohorts. For Cohorts 1 and 2, the applicant included cases with an ICU indicator, representing serious cases where the patient needed stabilization procedures and/or conditions needing immediate attention. The applicant stated that these could be conditions related to, caused by, or leading to the HRS-1 diagnosis or having no relationship to HRS-1 other than a concurrent presence. For Cohorts 3 and 4, the applicant also included cases without an ICU indicator. For Cohorts 5 and 6, the applicant included all cases without differentiation in ICU utilization. Cohorts 1, 3, and 5 include cases where HRS is the primary and/or admitting diagnosis code. Cohorts 2, 4, and 6 include cases where HRS can be the primary, the admitting, or any secondary diagnosis. The applicant described the six cohorts as shown in the table.

The applicant imputed a value of 11 cases for MS-DRGs with a case volume under 11 for use in the weighted average calculations. Using this approach, the applicant identified 318,557 cases mapping to 249 MS-DRGs across the six cohorts. The applicant noted, however, that only 14 MS-DRGs had a case volume ≥ 1% across all cohorts, as shown in the table, and that these MS-DRGs cumulatively represented 77.8% of all cases. The applicant stated that MS-DRG 441 (Disorders of Liver Except Malignancy, Cirrhosis or Alcoholic Hepatitis with MCC) had the highest case volume in each of the six cohorts in the analysis, and that only the first four MS-DRGs listed in the table had a case volume ≥7%.

After identifying cases in each of the cohorts, the applicant removed charges for prior technology as follows:

• The applicant subtracted the estimated cost of generic norepinephrine based on HRS-1 dosing regimens, $1,699 (AnalySource 2018 U.S. Pricing), for ICU-only cases (Cohorts 1 and 2).
• The applicant subtracted the estimated cost of midodrine plus octreotide based on HRS-1 dosing regimens, $3,391 (AnalySource 2018 U.S. Pricing), for non-ICU cases (Cohorts 3 and 4).
• The applicant noted that Cohorts 5 and 6 have a mix of both ICU and non-ICU cases. For the ICU cases, the applicant subtracted the estimated cost of generic norepinephrine, $1,699. For non-ICU cases, the applicant subtracted the estimated cost of midodrine plus octreotide, $3,391.

The applicant then standardized the charges across the six cohorts using the FY 2019 impact file in the FY 2022 IPPS/LTCH PPS final rule and correction notice. The applicant presented two scenarios that varied the inflation factor used to update charges from FY 2019. Under the first scenario, the applicant applied the 3-year inflation factor of 20.5% (rounded from 1.204686), which was derived from the inflation factor used to calculate outlier threshold charges in the FY 2022 IPPS/LTCH PPS final rule and correction notice (86 FR 45542), to update the charges from FY 2019 to FY 2022. The applicant asserted that it did not add charges for the new technology, as a price for TERLIVAZ® has not yet been established. Even without the additional charges, the applicant asserted that TERLIVAZ® would meet the cost criterion as the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount across all six cohorts, as summarized in the table.

Under the second scenario, the applicant applied a 4-year inflation factor of 28.2% (rounded from 1.281834), which was derived from the inflation factor used to calculate outlier threshold charges in the FY 2022 IPPS/LTCH PPS final rule and correction notice (86 FR 45542), to update the standardized charges from FY 2019 to FY 2023. Similar to the first analysis, the applicant did not add charges for the new technology as the applicant asserted that a price for TERLIVAZ® has not yet been established. Again, the applicant asserted that even without the additional charges, TERLIVAZ® would meet the cost criterion as the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount across all six cohorts. We did not receive a weighted average for the final inflated average case-weighted standardized charge per case across the six cohorts for the 4-year inflation factor calculations.

• For Cohort 1, the applicant calculated a final inflated average case-weighted standardized charge per case of $153,342, which exceeded the average case-weighted threshold amount of $71,069.
• For Cohort 2, the applicant calculated a final inflated average case-weighted standardized charge per case of $206,064, which exceeded the average case-weighted threshold amount of $88,995.

• For Cohort 3, the applicant calculated a final inflated average case- weighted standardized charge per case of $67,120, which exceeded the average case-weighted threshold amount of $57,341.

• For Cohort 4, the applicant calculated a final inflated average case-weighted standardized charge per case of $76,156, which exceeded the average case-weighted threshold amount of $64,420.
• For Cohort 5, the applicant calculated a final inflated average case-weighted standardized charge per case of $109,752, which exceeded the average case-weighted threshold amount of $64,125.
• For Cohort 6, the applicant calculated a final inflated average case-weighted standardized charge per case of $150,184, which exceeded the average case-weighted threshold amount of $78,597.

Because the final inflated average case-weighted standardized charge per case for each of the six cohorts under both scenarios exceeded the average case-weighted threshold amount, the applicant asserted that TERLIVAZ® meets the cost criterion.

We invite public comments on whether 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 (1) it offers a treatment option for HRS-1 patients unresponsive to currently available treatments (for example, midodrine, octreotide, and norepinephrine); and (2) it significantly improves clinical outcomes among HRS-1 patients as compared to placebo as well as currently available treatments.

In support of the claim that the use of TERLIVAZ® offers a treatment option for HRS-1 patients unresponsive to currently available treatments, the applicant cited the results of the CONFIRM trial (ClinicalTrials.gov number, NCT02770716). The CONFIRM study was a randomized (2:1), double-blinded study comparing TERLIVAZ® to placebo in 300 adult patients, 18 years of age or older with HRS-1 (defined as rapidly progressive worsening in renal function to a serum creatinine (SCr) ≥2.25 mg/dL and meeting a trajectory for SCr to double over 2 weeks). TERLIVAZ® or placebo were administered as a 1 mg IV bolus injection every 6 hours for a maximum of 14 days. The primary objective of the study was to confirm the efficacy and safety of TERLIVAZ® versus placebo in the treatment of adult subjects with HRS-1 receiving standard of care albumin therapy. The primary endpoint was the incidence of verified HRS reversal, defined as 2 consecutive serum creatinine values ≤1.5 mg/dL at least 2 hours apart, while on treatment by Day 14 or discharge, whichever came first (on treatment defined as up to 24 hours after the final dose of study drug). To be counted in the primary endpoint, patients needed to be alive without RRT for at least 10 days after achieving verified HRS reversal. The secondary endpoints were as follows: HRS reversal, defined as a serum creatinine level of 1.5 mg per deciliter or less; durability of HRS reversal, defined as HRS reversal without renal-replacement therapy to day 30; HRS reversal among patients with systemic inflammatory response syndrome (SIRS); and verified reversal of HRS without recurrence of HRS by day 30. The applicant explained that patient enrollment criteria for the CONFIRM trial included cirrhosis, ascites, and rapidly progressive kidney failure, with a doubling of the serum creatinine level to at least 2.25 mg per deciliter (199 µmol per liter) within 14 days before randomization.

The applicant stated that patients were excluded if they had a sustained reduction in the serum creatinine level of more than 20% or a decrease to below 2.25 mg per deciliter at least 48 hours after diuretic withdrawal and albumin infusions. The applicant explained that approximately three fourths of the study patients in the CONFIRM trial had received vasopressors prior to randomization and did not respond; these included midodrine, octreotide, and/or norepinephrine. The applicant stated that out of a total of 121 patients, 60 patients (61%) in the TERLIVAZ® group and 61 patients (60%) in the placebo group, had previously received midodrine and octreotide and had failed on that combination before entering the study. Therefore, the applicant explained that well over half of the patients treated in the CONFIRM trial were unresponsive to currently available (off-label) treatment options—the option often used in the ICU setting (norepinephrine) and the options typically used to treat patients on the general medical ward (midodrine and/or octreotide).

In support of the claim that the use of TERLIVAZ® significantly improves clinical outcomes among HRS-1 patients as compared to the currently available treatments, the applicant stated that TERLIVAZ® is associated with a more rapid resolution of the disease process and a reduced rate of mortality compared to placebo, midodrine and octreotide, and norepinephrine. The applicant also stated that the use of TERLIVAZ® is associated with a decreased rate of several subsequent diagnostic or therapeutic interventions, compared with placebo, and that the overall benefit-risk profile of TERLIVAZ® as a treatment for HRS-1 is favorable.

In support of the claim that the use of TERLIVAZ® is associated with a more rapid resolution of the disease process and a reduced rate of mortality compared to placebo, the applicant cited results from the CONFIRM study, previously described, as a well as an abstract of a post-hoc analysis done by Mujtaba et al. on outcomes with TERLIVAZ® in older patients aged ≥65 years. The applicant stated that the incidence of verified HRS reversal was 32% in the TERLIVAZ® (treatment) group and 17% in the placebo (control) group (p=0.006). According to the applicant, the incidence of subjects with the pre-specified secondary endpoint of HRS reversal was 36.2% in the treatment group and 16.8% in the control group (p<0.001). According to the applicant, the incidence of verified HRS reversal without HRS recurrence by Day 30 was 24.1% in the treatment group and 15.8% in the control group (p=0.092). The applicant stated that in the intent-to-treat (ITT) population for patients at least 65 years old, 34.3% of the patients in the TERLIVAZ® group demonstrated the pre-specified secondary endpoint of HRS reversal compared to 16.7% patients in the placebo group.

The applicant noted that the durability of HRS reversal was 31.7% in the treatment group and 15.8% in the control group (p=0.003). In addition, the applicant stated that TERLIVAZ® provided greater durability of HRS reversal in HRS-1 patients who were at least 65 years of age, and that in the ITT population, 31.4% of patients in the TERLIVAZ® arm achieved durable HRS reversal compared to 16.7% in the placebo arm.

The applicant stated that TERLIVAZ® provided greater benefit in HRS-1 patients with SIRS and that the incidence of HRS reversal in the SIRS subgroup was 33.3% (n=28) in the treatment group and 6.3% (n=3) in the control group (p <0.001). In addition, the applicant stated that TERLIVAZ® provided greater benefit in HRS-1 patients with SIRS who were at least 65 years of age, and that in the ITT population, 23.1% of patients with SIRS in the TERLIVAZ® arm achieved HRS reversal compared to 0.0% in the placebo arm.

The applicant also reported that overall survival up to Day 90 was higher in subjects who achieved verified HRS reversal or HRS reversal while receiving treatment than in those who did not (p<0.001). The applicant stated that by Day 90, death occurred in 101 patients (51%) in the TERLIVAZ® group and in 45 patients (45%) in the placebo group (6% difference, 95% CI, −6 to 18). The applicant stated that overall survival was not a primary or secondary endpoint in the CONFIRM trial as the prognosis of patients with HRS-1 is poor, with a reported median survival of ≤ 3 months. The applicant stated that aggregate, published studies and meta-analyses suggest that TERLIVAZ® treatment is likely associated with improved survival for HRS-1 as a cause of death, but not for other causes of death. The applicant also stated that given the high overall mortality in the study population, a total of 146 patients (48.8%) died during the CONFIRM trial. The applicant explained that while TERLIVAZ® improves renal function, patients with end stage liver disease nonetheless may continue to experience and die from other complications of end stage liver disease, unrelated to HRS-1. The applicant further explained that the CONFIRM trial was not powered to show a statistical difference in survival. However, the applicant stated that the TERLIVAZ® plus albumin arm in CONFIRM had a significantly better verified response rate than the albumin arm, and that better response confers better prognosis in these patients. The applicant also mentioned that similar results were seen in previous North American and European trials with TERLIVAZ®.

To support its claim that the use of TERLIVAZ® is associated with a more rapid resolution of the HRS-1 disease process and a reduced rate of mortality compared to norepinephrine, the applicant cited a study conducted by Arora et al. This study was an open-label, randomized controlled trial conducted as a single-center study in India. The study compared a continuous infusion of TERLIVAZ® and albumin to a continuous infusion of norepinephrine and albumin in the management of HRS-AKI in patients with a diagnosis of acute chronic liver failure (ACLF). Patients were randomized to receive either TERLIVAZ® or norepinephrine in a 1:1 ratio. ACLF is a distinct diagnosis where, because of severe acute hepatic injury, a rapid loss of liver function develops in a patient with previous chronic liver disease. In this study, ACLF was defined as an acute hepatic insult manifesting as jaundice (serum bilirubin ≥5 mg/dL) and coagulopathy (international normalized ratio [INR] ≥1.5) complicated within 4 weeks by ascites and/or encephalopathy in a patient with previously diagnosed or undiagnosed CLD or cirrhosis. HRS-AKI was defined as ICA-AKI stage ≥II when other causes of AKI were excluded and the patient was nonresponsive to volume expansion with intravenous albumin.

A total of 120 patients were randomized; 60 patients were allocated to the intention to treat group for both the TERLIVAZ® and norepinephrine arms. Adverse events requiring discontinuation of the drug were reported in 9 of 60 (15%) patients in the TERLIVAZ® arm compared to 5 of 60 (8.3%) in the norepinephrine arm (P=0.39). These events included diarrhea, abdominal pain, atrial fibrillation, cyanosis, and chest pain in the TERLIVAZ® arm. In the norepinephrine arm, patients experienced the previously mentioned adverse events as well as ventricular premature complex (VPCs) and hypertension. The per protocol analysis included 51 patients in the TERLIVAZ® arm and 55 patients in the norepinephrine arm. A response rate of 56% for TERLIVAZ®, a response rate of 43% for norepinephrine, and a 10% noninferiority margin was assumed. For an alpha level of 5% and power of 80%, it was determined that 57 patients were needed in each arm.

According to the applicant, the results showed that a higher percentage of patients achieved HRS reversal at day 14 (primary endpoint) in the TERLIVAZ® group compared to the norepinephrine group in both the ITT analysis and per protocol analysis (PPA) (ITT 40% (n=24) vs. 16.7% (n=10), p=0.004; PPA 43.1% (n=22) vs. 16.3% (n=9), p=0.002). Complete response was defined as return of serum creatinine to a value within 0.3 mg/dL of baseline. The applicant also stated that patients in the TERLIVAZ® group had higher 28-day survival compared to the norepinephrine group (48% versus 20%, respectively; p=0.001).

In support of its claims that TERLIVAZ® is associated with a more rapid resolution of the HRS-1 disease process and a reduced rate of mortality compared to midodrine and octreotide, the applicant summarized the results of the Cavallin et al. study, which compared TERLIVAZ® plus albumin versus midodrine and octreotide (MID/OCT) plus albumin in a multi-center randomized controlled trial. The applicant stated that 27 patients were randomized to receive TERLIVAZ® with albumin and 22 to receive MID/OCT plus albumin. Patients in the study were from eight hospitals in Italy. The researchers hypothesized a response rate of 60% for TERLIVAZ® and of 30% for MID/OCT, with an alpha error of 5% and power of 80%. An interim analysis after enrolling half the sample set a stopping rule for the randomized clinical trial if the difference in renal function recovery was significant at p<0.01. The study was terminated after 49 patients were enrolled according to the a priori determined stopping rule.

The applicant stated that the results showed improvement of renal function was significantly more frequent in patients randomized to the TERLIVAZ® group compared to patients randomized to the MID/OCT group; 70.4% of patients in the TERLIVAZ® group had a complete or partial response compared with 28.6% in the MID/OCT group (p=0.01); 55.5% of patients in the TERLIVAZ® group had a complete response compared with 4.8% of the MID/OCT group (p<0.001). Complete response was defined as a decrease in serum creatinine to ≤133 mmol/L (≤1.5 mg/dL). Partial response was defined as a ≥50% serum creatinine decrease from baseline to a final value >133 mmol/L (>1.5 mg/dL). No response was defined as a serum creatinine decrease of <50% from baseline. The applicant stated that mean arterial pressure (MAP) was significantly higher in the TERLIVAZ® group compared to the MID/OCT group after 3 days of treatment as well as at the midpoint of the treatment period.

The applicant also stated that response to treatment (complete or partial) was found to be a predictor of 3-month survival in the univariate analysis. The difference in cumulative survival between all responders (partial and full responders) and nonresponders was statistically significant in the TERLIVAZ® group (P<0.001) but not in the MID/OCT group. Some nonresponders to the assigned treatment received a rescue treatment according to the treating physician's decision. Seven of 12 (58.3%) nonresponders in the MID/OCT group received a rescue treatment: Six received TERLIVAZ® plus albumin, and one received dialysis. An improvement of renal function was observed in five of six patients (83.3%) who received TERLIVAZ® plus albumin. Four patients had a complete response and one patient had a partial response. The applicant stated that in patients who did not receive any rescue treatment, the TERLIVAZ® group had a higher 3-month survival rate than the MID/OCT group (55.5% vs. 28.6%, P=0.06).

In support of its claim that TERLIVAZ® is associated with a decreased rate of subsequent diagnostic or therapeutic interventions, compared with placebo, the applicant cited the results of the CONFIRM trial. The applicant noted that there was a lower incidence of RRT through the treatment period (14 days) in patients receiving TERLIVAZ® (23.1% (n=46)) versus the placebo (34.7% (n=35)) (p=0.03).

In addition, according to the applicant, based on the ITT population for the integrated studies for patients at least 65 years old (TERLIVAZ® n=54; placebo n=36), there was a favorable trend of lower incidence of RRT in the subsequent follow-up periods: (1) The use of RRT/dialysis by Day 30 visit was 25.9% (n=14) in TERLIVAZ®-treated patients vs. 44.4% in placebo-treated patients; (2) the use of RRT/dialysis by Day 60 visit was 27.8% in TERLIVAZ®-treated patients vs. 44.4% in placebo-treated patients; and (3) the use of RRT/dialysis by Day 90 visit was 29.6% in TERLIVAZ®-treated patients vs. 47.2% in placebo-treated patients.

The applicant also stated that there was a decreased incidence of RRT after liver transplant in patients treated with TERLIVAZ® (19.6% (n=46)) versus 44.8% (n=29) in the placebo group (p=0.04). The applicant stated that the need for RRT post-transplant is predictive of poor graft function and survival. The applicant stated that in the ITT population, 0 of 8 TERLIVAZ®-treated patients 65 years and older who received liver transplant required RRT and 5 of 6 placebo-treated patients 65 years and older who received liver transplant required RRT.

The applicant also claimed that patients receiving TERLIVAZ® in the CONFIRM trial had shorter lengths of hospitalizations and ICU stays compared to those in the placebo group. The applicant stated that in the ITT population for patients at least 65 years old, the median number of days for hospital length of stay was 18 for TERLIVAZ®-treated patients and 25.5 for placebo-treated patients. In addition, the applicant stated that patients in the TERLIVAZ® group stayed an average of 6.4 days in the ICU versus 13.2 days in the placebo group. The applicant explained that, while in CONFIRM, the overall incidence of admission to ICU was similar in both cohorts given the severe multiple pre-existing comorbidities in patients with decompensated cirrhosis, and that by addressing one severe complication (HRS-1), TERLIVAZ® facilitates management of these patients and reduces the burden of critical care management.

The applicant also asserted that the overall benefit-risk profile of TERLIVAZ® as a treatment for HRS-1 is favorable. In support of this assertion, the applicant cited the results of the CONFIRM trial. The applicant noted that the overall incidence of adverse events (AEs) and serious adverse events (SAEs) were similar between patients receiving TERLIVAZ® (n=200) and those receiving placebo (n=99). The applicant stated that 88.0% (n=176) of patients receiving TERLIVAZ® reported AEs versus 88.9% (n=88) in the placebo group, and that 65.0% (n=130) of patients receiving TERLIVAZ® reported SAEs versus 60.6% (n=60) in the placebo group. The applicant also stated that: (1) The overall incidence of AEs was similar between groups: 91.1% in the TERLIVAZ® group and 90.4% in the placebo group; (2) the incidence of SAEs was similar between groups: 65.0% in the TERLIVAZ® group and 59.8% in the placebo group; and (3) mortality up to 30 days after first treatment was 41.5% in the TERLIVAZ® group and 40.6% in the placebo group.

The applicant stated that, with appropriate labeling to help prevent administration to patients who are known to be at higher risk for SAEs, TERLIVAZ® has an acceptable safety profile for patients at least 65 years old, a high-morbidity patient population. The applicant explained that the safety profile of TERLIVAZ® is well-characterized, with the majority of AEs being predictable, recognizable, and generally manageable in the hospital setting where HRS-1 patients are treated. The applicant further stated that most of the events observed in the company-sponsored clinical studies were expected based on TERLIVAZ®'s V1-receptor activity and consistent with the known experience with TERLIVAZ® outside the US. Regarding the increased risk of serious or fatal respiratory failure, the applicant stated that TERLIVAZ® should not be administered in patients with pulmonary edema, pneumonia, dyspnea, or tachypnea until events resolve. The applicant explained that patients with ACLF grade 3 are at significant risk of respiratory failure and fluid overload must be actively managed. Regarding increased mortality in patients with SCr ≥5 mg/dL, the applicant explained that the use of TERLIVAZ® with these patients should be considered only when the anticipated benefit to the patient outweighs the potential risk.

In support of the claim that TERLIVAZ® represents a substantial clinical improvement over existing technologies, based on real-world usage, the applicant noted that TERLIVAZ is the vasoconstrictor of choice for HRS-1 in much of the rest of the world, where it is approved and available due to its direct effect in reversing the fundamental hemodynamic pathophysiology of HRS-1. The applicant stated that both the EASL and the American Association for the Study of Liver Diseases (AASLD) recommend TERLIVAZ® plus albumin as the first-line treatment for the reversal of HRS-1, while other treatment options should only be used if TERLIVAZ® is not available.

The applicant also described a meta-analysis study identifying a total of 377 patients from eight eligible studies, from which the authors found that: (1) TERLIVAZ® reduced the all-cause mortality rate by 15% (Risk Difference: −0.15%, 95% CI: −0.26 to −0.03); and (2) the reduction in the mortality rate due to HRS at three months was 9% (Risk Difference: −0.09%, 95% CI: −0.18 to 0.00). According to the applicant, the authors concluded that TERLIVAZ® has long-term survival benefits of at least up to three months, but only with HRS as a cause of death, not for other causes of death.

In addition, the applicant cited a study by Moore et al. of real-world treatment patterns and outcomes using TERLIVAZ® in 203 patients with HRS-1/HRS-acute kidney injury (AKI) in the United Kingdom. The applicant stated that the authors found that the vast majority of patients with a clinical diagnosis of HRS-AKI were treated with TERLIVAZ® in the United Kingdom, consistent with EASL guidelines. The applicant stated that approximately 50% of patients treated with TERLIVAZ® in the study achieved a complete response, with an additional 23% experiencing partial response, and that initiation of TERLIVAZ® at lower serum creatinine levels was associated with higher rates of treatment response. The applicant stated that complete or partial response to TERLIVAZ® was associated with a higher rate of 90-day survival.

Finally, the applicant asserted that TERLIVAZ® represents a substantial clinical improvement because the totality of the circumstances demonstrates that TERLIVAZ® substantially improves, relative to technologies previously available, the treatment of Medicare beneficiaries. The applicant stated that HRS-1 is a serious, life-threatening condition characterized by development of acute or sub-acute renal failure in patients with advanced CLD. The applicant further emphasized that HRS-1 is the leading cause of hospitalizations among all patients with advanced CLD; therefore, inpatient care management of patients with HRS-1 is time and resource intensive, representing a significant cost to hospitals. Finally, the applicant reiterated that upon FDA approval, TERLIVAZ® will be the only FDA-approved drug for the HRS-1 indication that aligns with the EASL treatment guidelines for HRS-1 and that TERLIVAZ® has now been recommended in guidance from AASLD as first-line treatment for HRS reversal.

After review of the information provided by the applicant, we have the following concerns regarding whether TERLIVAZ® meets the substantial clinical improvement criterion. As we noted in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25344), in the CONFIRM trial the proportion of patients with verified HRS reversal without HRS-1 recurrence by Day 30 was numerically greater in the TERLIVAZ® arm than placebo; however, the difference between groups was not statistically significant (26% vs 17%, p=0.08) and we note that the potential for HRS-1 recurrence among patients treated with TERLIVAZ® after 30 days is unclear. We also noted in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25344) that, although the applicant claimed a reduction in mortality with the use of TERLIVAZ®, the mortality rate at Day 90 was higher in the TERLIVAZ® group vs. the placebo group (51% vs. 45%). We further noted in the FY 2022 IPPS/LTCH PPS proposed rule that the applicant states that survival was not defined as a primary or secondary analysis in the CONFIRM trial and that no overall survival benefit was observed in the CONFIRM trial because survival is confounded by multiple comorbidities in patients with HRS-1.

In addition, we noted in the FY 2022 IPPS/LTCH PPS proposed rule that the primary endpoint of the CONFIRM trial used a surrogate endpoint of serum creatinine as an indicator of HRS reversal, and we questioned whether this correlates to improvements in clinical outcomes such as mortality and time to transplant (86 FR 25344). We also question whether mortality would be a more appropriate endpoint than HRS reversal to demonstrate substantial clinical improvement in clinical outcomes. We note that we were unable to verify the following claims made by the applicant about the ITT population for the integrated studies involving patients at least 65 years old, based on the submitted abstract for Mujtaba et al: (1) That there was a greater benefit in these HRS-1 patients with SIRS, (2) that there was a favorable trend of lower incidence of RRT in these patients, and (3) that there was a shorter median number of days for hospital length of stay in these patients.

With regard to the applicant's claims regarding a similar incidence of AEs and SAEs between groups in the CONFIRM trial, we noted in the FY 2022 IPPS/LTCH PPS proposed rule that the results show that the TERLIVAZ® arm had a higher incidence of SAEs up to 30 days post-treatment (65% of patients receiving TERLIVAZ® reported SAEs vs. 60.6% in the placebo group) related to respiratory failure, serious infections such as sepsis and septic shock, GI bleeding, and abdominal pain (86 FR 25344).

Additionally, we note that death within 90 days due to respiratory disorders occurred in 11% of patients in the TERLIVAZ® group and 2% of patients in the placebo group. Regarding the study conducted by Arora et al., we noted in the FY 2022 IPPS/LTCH PPS proposed rule that this study had an open-label design and 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 (86 FR 25344). Finally, in the FY 2022 IPPS/LTCH PPS proposed rule, we noted that the results of the Cavallin et al. study submitted by the applicant in support of a substantial clinical improvement over midodrine and octreotide show that there was no survival benefit for the TERLIVAZ® group at months one and three (86 FR 25344).

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

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

k. Treosulfan

Medexus Pharma, Inc. submitted an application for new technology add-on payments for treosulfan for FY 2023. According to the applicant, treosulfan is a prodrug of a bifunctional alkylating agent that is being studied in combination with fludarabine as a preparative regimen for allogenic hematopoietic stem cell transplantation (alloHSCT) in patients with acute myeloid leukemia (AML) or myelodysplastic syndrome (MDS).

The applicant stated that the goal of alloHSCT is to cure patients of their disease by replacing their hematopoietic stem cells (that is, bone marrow stem cells) with stem cells from a healthy related or unrelated donor. The applicant noted that preparative or conditioning treatments are often used to (1) eradicate existing bone marrow tissue to provide space for engraftment of transplanted donor stem cells, (2) prevent rejection of the incoming donor stem cells by host immune cells, and (3) help eradicate existing disease, and that this type of preparation is needed for the alloHSCT process. The applicant explained that there are two types of conditioning regimens, myeloablative conditioning (MAC) and reduced intensity conditioning (RIC). According to the applicant, while standard MAC regimens generally lead to low relapse rates, they are associated with high treatment-related toxicity and transplantation-related mortality (TRM). Thus, patients who are not eligible for MAC regimens due to these risks (for example, the elderly and patients with comorbidities) usually receive a RIC regimen. The applicant described a recent study of patients with acute myeloid leukemia, where RIC resulted in lower treatment related mortality but higher relapse rates compared with MAC, with a statistically significant advantage in relapse-free survival with MAC. However, the applicant stated that certain patients are unable to tolerate MAC, therefore according to the applicant, treosulfan was developed in an effort to address the significant unmet medical need for improved alloHSCT conditioning regimens that can reduce treatment-related toxicity and the risk of TRM without increasing the incidence of relapse. Per the applicant, treosulfan's immunosuppressive effects are due to its toxicity against primitive and committed progenitor cells, T and NK cells, reduction of cellularity of primary and secondary lymphatic organs and a preclusive effect on the `cytokine storm' that precedes the development of graft-versus-host disease (GVHD). The applicant stated that these events are involved in the pathogenesis of hepatic sinusoidal obstruction syndrome (HSOS).

With respect to the newness criterion, the applicant stated that FDA is still reviewing treosulfan's NDA which has a proposed indication for: (1) Use in combination with fludarabine as a preparative regimen for alloHSCT in adult and pediatric patients older than one year with AML; and (2) use in combination with fludarabine as a preparative regimen for alloHSCT in adult and pediatric patients older than one year with MDS. According to the applicant, FDA approval is anticipated by June 30, 2022. The applicant stated that the drug is designed to be administered intravenously and must be reconstituted prior to infusion. While not yet FDA approved, the applicant noted that the recommended dosage of treosulfan for adult patients is anticipated to be 10 grams per square meter (10g/m² ) of body surface area (BSA) per day of treatment, given as a two-hour intravenous infusion, and with treatment provided on three consecutive days (day -4, -3, -2) in conjunction with fludarabine before hematopoietic stem cell infusion (which occurs on day 0).

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify procedures involving the administration of treosulfan. The applicant submitted a request for approval for a unique ICD-10-PCS code for procedures involving the administration of treosulfan beginning in FY 2023. The applicant also stated that the following ICD-10 CM diagnosis codes are potentially applicable for the proposed AML and MDS indications that FDA is currently reviewing:

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 first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that treosulfan does not use the same or similar mechanism of action to achieve a therapeutic outcome as compared to existing busulfan- and melphalan-based MAC and RIC regimens. The applicant stated that treosulfan differs from both busulfan and melphalan in that it is a separate chemical entity that is pending FDA review for a fully separate and distinct New Drug Application. The applicant further stated that treosulfan differs from other alkylating agents in that it is a prodrug activated under specific pH conditions and that it has its own distinct cytotoxic activity toward hematopoietic precursor cells. The applicant described the pH-dependent conversion into a mono-epoxide intermediate and L-diepoxybutan. The applicant stated that the epoxides form alkylate and cross-link nucleophilic centers of deoxyribonucleic acid (DNA) and other biological molecules, which are involved in various physiological functions, and the alkylation and cross-linking are considered responsible for the stem cell depleting, immune-suppressive and antineoplastic effects of the epoxides. The applicant stated that treosulfan exerts broad antineoplastic and antileukemic activity. In further support of its assertion that treosulfan has a different mechanism of action, the applicant cited an in vitro to in vivo extrapolation (IVIVE) study modeling its potential for drug interactions.

The applicant further stated that treosulfan-based conditioning regimens differ significantly from existing conditioning regimens that commonly utilize busulfan and melphalan. The applicant stated that MAC treatments typically include high-dose TBI and high-dose chemotherapy-based regimens, while in RIC treatments, cytotoxic components of the regimen are reduced or replaced with less toxic but immunosuppressive agents. The applicant noted that busulfan and melphalan are typically the mainstays of MAC chemotherapy-based regimens, while fludarabine combined with busulfan or melphalan is commonly used in RIC regimens.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG, the applicant stated that treosulfan would be assigned to the same MS-DRG as other agents used for conditioning/preparative treatments, MS-DRG 014 (Allogeneic Bone Marrow Transplant) because, in a majority of cases, it is anticipated that a patient would undergo the treosulfan-based conditioning regimen during the same inpatient admission as alloHSCT itself.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant stated that treosulfan is designed to address a broader patient population than existing MAC and RIC treatment regimens by providing access to improved alloHSCT conditioning outcomes for patients who may otherwise be ineligible for MAC regimens (for example, the elderly and patients with comorbidities) due to the increased toxicity of those regimens, without increasing risk of relapse. The applicant stated that treosulfan may also be used as a conditioning regimen appropriate for children with malignant and non-malignant disorders that are indicated for alloHSCT.

In summary, the applicant believes that treosulfan is not substantially similar to other currently available therapies and/or technologies because it uses a new mechanism of action and treats a broader patient population as compared to existing technologies and therefore, the technology meets the “newness” criterion. However, we have the following concerns regarding whether treosulfan meets the newness criterion. We note that it is unclear how the drug interaction modeling study, and the separate NDA being considered for treosulfan, as cited by the applicant, support the assertion that its mechanism of action is different from other alkylating agents. We note that treosulfan is an alkylating agent like other drugs used in myeloablative conditioning such as busulfan and melphalan. Specifically, treosulfan appears to be structurally similar to busulfan, and we therefore question whether they share a similar mechanism of action. Additionally, we note that the applicant asserts that treosulfan can be used in a broader patient population than that eligible for MAC regimens, without increasing the risk of relapse associated with RIC regimens, but the references presented by the applicant only compare a treosulfan-containing conditioning regimen to another RIC regimen and thus do not demonstrate that treosulfan can be used in different patient populations unable to receive MAC. Specifically, the studies provided by the applicant compare treosulfan to busulfan, both of which are RIC regimens, so this appears to demonstrate that a RIC regimen using treosulfan could be an option for patients who otherwise would have been treated with a busulfan regimen. We are inviting public comments on whether treosulfan is substanially similar to existing technologies and whether treosulfan meets the newness criterion.

With respect to the cost criterion, the applicant presented the following analysis to demonstrate that treosulfan meets the cost criterion. To identify cases representing patients who may be eligible for treatment with treosulfan, the applicant searched the FY 2019 MedPAR dataset from the FY 2022 IPPS/LTCH PPS final rule for claims reporting an ICD-10-PCS procedure code that could potentially be used to identify procedures involving the administration of treosulfan, in conjunction with an ICD-10-CM diagnosis code for AML or MDS. For inclusion in the analysis, the applicant required at least one ICD-10-PCS procedure code and at least one ICD-10-CM diagnosis code from the following tables:

Using these case selection criteria, the applicant's search resulted in 549 cases mapping to three MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant), MS-DRG 003 (ECMO or Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face, Mouth and Neck with Major O.R. Procedures), and MS-DRG 004 (Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face, Mouth and Neck Without Major O.R. Procedures). The applicant noted that they imputed a value of 11 cases for MS-DRGs with a case count lower than 11 for use in the weighted average calculations. The applicant noted that approximately 96% of identified cases were in MS-DRG 014, approximately 2% of identified cases were in MS-DRG 003, and approximately 2% of identified cases were in MS-DRG 004. The applicant stated that the cost threshold would still be exceeded even if the cases from DRGs 003 and 004 were excluded.

The applicant then removed charges for the technology being replaced. According to the applicant, 100% of charges associated with drugs (revenue centers 025X, 026X, and 063X) were removed from the identified claims. The applicant stated that, while some other drugs would still be required for patients treated with treosulfan during their inpatient hospital stay, the applicant removed 100% of total drug charges to be as conservative as possible. Next, the applicant standardized charges using the FY 2022 IPPS/LTCH PPS final rule impact file and applied a 4-year inflation factor (1.281834) based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule to calculate outlier threshold charges. As the price of treosulfan has yet to be determined, the applicant did not add charges for the new technology. The applicant indicated that, once the price is determined, it will divide the wholesale acquisition cost (WAC) of treosulfan (per gram) by the national CCR for drugs from the FY 2022 IPPS/LTCH PPS final rule (0.187) to calculate estimated average hospital charges associated with treosulfan. The applicant also noted that no other charges related to the administration of treosulfan are expected to be added.

The applicant calculated a final inflated average case-weighted standardized charge per case of $363,789, which exceeded the average case-weighted threshold amount of $260,833. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that treosulfan meets the cost criterion.

We note that the applicant did not remove claims from PPS-excluded cancer hospitals that can be identified by a “V” in the fifth position of their provider number or an “E” or “F” in the sixth position in their Medicare certification number. We further note that many HSCTs are done by cancer centers not paid under IPPS and typically have higher charges, which may inflate the cost calculation. Since these hospitals are not paid under IPPS, their claims should not be included in the calculation of the charges for cases. We believe estimates from an analysis excluding PPS-exempt hospitals would be more appropriate for this cost analysis. Finally, we also note that the leukemia patients in treosulfan's clinical evidence were in remission and posit that codes only specifying remission should be included in the cost analysis. We invite public comments on whether treosulfan meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant asserted that treosulfan represents a substantial clinical improvement over existing technologies because it was designed to provide access to improved alloHSCT conditioning outcomes for patients that may otherwise be ineligible for MAC regimens due to its increased toxicity (for example, the elderly and patients with comorbidities), without the increased risk of relapse that is demonstrated to occur with RIC regimens. The applicant also asserted that treosulfan significantly improves clinical outcomes relative to services or technologies previously available, including increased event free survival and overall survival at 24 months post-alloHSCT, reduced cumulative incidence of non-relapse mortality (NRM) at 24 months post-alloHSCT, reduced cumulative incidence of treatment-related mortality (TRM) at 24 months post-alloHSCT, increased rate of graft-versus-host disease (GVHD)-free and relapse/progression-free survival at 24 months post-alloHSCT. To support its claims, the applicant provided two published articles, one published abstract, and two background articles.

To support its claim that treosulfan represents a substantial clinical improvement over existing technologies because it was designed to provide access to improved alloHSCT conditioning outcomes for patients that may otherwise be ineligible for MAC regimens without the increased risk of relapse that is demonstrated to occur with RIC regimens, the applicant asserted that treosulfan-based regimens retain the beneficial properties from both MAC and RIC regimens with an efficacy profile comparable with that of conventional MAC regimens as they are associated with rapid engraftment, high levels of donor chimerism, and relatively low post-transplantation relapse rates. The applicant also cited background studies, which indicated that MAC regimens are currently the preferred standard of care for young patients given the reduced relapse rates for MAC patients as compared to RIC patients showing that MAC regimens produced less recurrence of disease.

To support its claim that treosulfan significantly improves clinical outcomes relative to services or technologies previously available, the applicant provided a phase 3 open-label, non-inferiority, randomized study of the use of treosulfan as part of a conditioning regimen in 31 transplant centers in 5 European countries. The authors compared a RIC regimen of treosulfan 10 gm/m² daily for 3 days (days 4 to 2 prior to the alloHSCT) plus fludarabine 30 mg/m² daily for 5 days (6 to 2 days prior to the alloHSCT) to a RIC regimen containing busulfan (another alkylating agent) 0.8 mg/kg at 6 hour intervals on days 4 and 3 prior to the alloHSCT with the same dose of fludarabine. The initial protocol used a treosulfan dose of 14 gm/m² , but the protocol was modified to 10 gm/m² , but the protocol was modified to 10 gm/m² daily because of the prolonged neutropenia and subsequent infections with that dose. Eligible patients were aged 18 to 70 years with either AML in a first or complete remission or MDS with bone marrow blast counts >20% who were identified as appropriate for treatment with alloHSCT but were considered high risk for myeloablative conditioning because of age greater than or equal to 50 or comorbidities. 476 patients were enrolled (240 patients in the busulfan group received treatment and transplantation and were included in the full analysis population; 221 patients in the treosulfan group received treatment, but only 220 patients received transplantation and were included in the full analysis population). Study discontinuations were mainly due to disease progression prior to conditioning.

The applicant noted that other results from this study demonstrated no significant differences in engraftment with neutrophils, leukocytes, and platelets and graft versus host disease (overall, acute and chronic). The applicant also noted that the treosulfan treated group had higher incidences of complete chimerism at both 28- and 100-days post alloHSCT.

The applicant also submitted an abstract containing a final evaluation of the results from the phase 3 study reported in the earlier publication. The authors of the abstract noted that the previous study was a confirmatory interim analysis (based on 476 patients), and that results of the final analysis of all 570 randomized patients including post surveillance data were provided in this analysis. The full analysis in the abstract consisted of 551 patients: 352 with AML and 199 with MDS. Treosulfan was given to 268 patients and busulfan was given to 283 patients. The median age of patients was 60 years (range 21-70). The median follow-up time was 29 months. The findings are shown in the following table.

The applicant stated that the results of the phase 3 trial demonstrated that the treosulfan treatment group had increased event free survival (EFS) and overall survival (OS), with statistically significant improvements in EFS (p=0.0005787) and OS at 24 months post-alloHSCT (p=0.0037) compared to the busulfan treatment group. The applicant also stated that the results of the phase 3 trial demonstrated that the treosulfan treatment group had reduced cumulative incidence of NRM and TRM, noting a statistically significant reduced cumulative incidence of NRM at 24 months post-alloHSCT (p=0.0343), as well as a reduced cumulative incidence of TRM at 24 months post-alloHSCT (adjusted p value of 0.0043) compared to the busulfan treatment group. The applicant also cited a statistically significantly lower cumulative incidence of TRM caused by infections (adjusted p value of 0.0371) and lower cumulative incidence of TRM related to causes of death other than infections (adjusted p value of 0.0423). Furthermore, the applicant stated that the incidence of complete donor type chimerism was statistically significantly higher in the treosulfan treatment group compared with the busulfan treatment group (adjusted p value of 0.0381). Finally, the applicant stated that the results of the phase 3 trial demonstrated that the treosulfan treatment group had an increased rate of GVHD-free and relapse/progression-free survival at 24 months post-alloHSCT compared to the busulfan treatment group (adjusted p value of 0.00087), as well as a higher chronic GVHD-free and relapse/progression-free survival at 24 months (adjusted p value of 0.003).

After review of the information provided by the applicant, we have the following concerns regarding whether treosulfan meets the substantial clinical improvement criterion. We note that we were unable to verify the applicant's claims that the treosulfan treatment group had a statistically significant increased rate of acute and chronic GVHD-free and relapse/progression-free survival at 24 months post-alloHSCT compared to the busulfan treatment group. We note that the Beelen et al. abstract cited by the applicant only provided an analysis of GVHD rates up to the 28-day follow-up visit, and stated that the incidences of acute and chronic GVHD were comparable between the two regimens (treosulfan and busulfan). We also note that the cumulative incidence of acute GVHD in the Beelen et al. interim analysis of 473 patients submitted by the applicant was only analyzed at 100 days, and did not describe a statistically significant difference between the treosulfan and busulfan groups (acute GVHD grade 2-4, p=0.13; grade 3-4, p=0.21); similarly, the cumulative incidence of chronic GVHD at 24 months were not significantly different (chronic GVHD, p=0.52; extensive chronic GVHD, p=0.11). Furthermore, we note that the treosulfan and busulfan treatment groups did not have a statistically significant difference in cumulative incidence of relapse or progression incidence at 24 months (p=0.50).

Finally, we note that the phase 3 trial was a non-inferiority trial, which is not designed to demonstrate superiority over other regimens, and may be subject to observer bias due to the lack of blinding. We also note that the studies provided were not powered to show that the treosulfan 10mg/m² improved outcomes for patients 65 and older, and therefore question whether the results may be generalizable to the Medicare population. Furthermore, the comparison of treosulfan with busulfan represents the testing of only one potential RIC regimen, and we note that there are other possible treatment regimens. For example, the applicant asserted that combination treatments including treosulfan can provide patients who are ineligible for MAC regimens access to a new treatment option. However, the applicant did not provide evidence that this treosulfan treatment combination improved outcomes relative to other current RIC regimens, besides busulfan and fludarabine used in their cited studies. We note that while the applicant stated that treosulfan demonstrates improved outcomes (reduces treatment-related toxicity and risk of TRM without increasing risk of relapse) as compared to MAC regimens and that it therefore offers a treatment option for patients ineligible for MAC, the proposed indications for treosulfan do not limit use to patients ineligible for MAC. We would appreciate additional information comparing outcomes with treosulfan-based regimens to MAC regimens. We are inviting public comments on whether treosulfan meets the substantial clinical improvement criterion.

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

l. UPLIZNA® (inebilizumab-cdon)

HTI-DAC, the manufacturer under the distributor Horizon Therapeutics USA, Inc., submitted an application for new technology add-on payment for UPLIZNA® (inebilizumab-cdon) for FY 2023. Per the applicant, UPLIZNA® is the first FDA-approved anti-cluster of differentiation 19 (CD19) B-cell depleter for the treatment of neuromyelitis optica spectrum disorder (NMOSD) in adults who are anti-aquaporin-4 (AQP4) antibody positive, for which 80% of all patients with NMOSD test positive. According to the applicant, the goal of UPLIZNA® is to reduce the risk of relapse and disability progression. The applicant explained UPLIZNA® is a CD19+ B cell-directed humanized afucosylated immunoglobulin F1 (IgG1) monoclonal antibody. The applicant further explained that CD19 is a cell surface antigen expressed on a broad range of B lymphocytes. Per the applicant, UPLIZNA® is a B-cell depleter that binds specifically to CD19, allowing it to target an extended range of B-cells that play a role in NMOSD. The applicant stated that following cell surface binding to CD19+ B lymphocytes, UPLIZNA® causes antibody-dependent cellular cytolysis (ADCC), resulting in significant and robust B-cell depletion.

NMOSD is a rare, severe autoimmune disease of the central nervous system that causes damage to the optic nerve, spinal cord, and brain stem. NMOSD affects approximately 10,000-15,000 people in the United States, and the incidence rate may be up to 9 times higher for women than for men, with prevalence approximately 2- to 3-fold higher among Black and Asian populations. According to the applicant, NMOSD is characterized by unpredictable, recurrent attacks of inflammation of the optic nerve (optic neuritis) and/or of the spinal cord (transverse myelitis), and may also affect regions of the brain. The applicant stated that attacks can be severe and result in life-altering permanent disability, such as blindness and paralysis, and that recurring attacks can have cumulative effects resulting in significant morbidity. According to the applicant, aquaporin-4 antibodies are highly specific to NMOSD and AQP4 is expressed on astrocytes throughout the central nervous system. Per the applicant, in NMOSD, AQP4 antibodies bind to AQP4, resulting in astrocyte cell death and inflammation. The applicant stated that a sub-population of B-lineage cells, CD19+ plasmablasts, produce AQP4 antibodies and that certain CD19+ B-cells are increased in the blood of AQP4-seropositive individuals with NMOSD, with the highest levels observed during an attack. According to the applicant, by depleting a wide range of B-cells that express CD19 (including plasmablasts and some plasma cells), UPLIZNA® reduces the risk of relapses or attacks that may lead to permanent disability in NMOSD patients.

With respect to the newness criterion, the applicant stated that UPLIZNA® was designated as a Breakthrough Therapy and received Orphan Drug designation on February 10, 2016 for the treatment of NMOSD. Per the applicant, UPLIZNA® received FDA approval on June 11, 2020, for the treatment of NMOSD in adult patients who are AQP4 antibody positive (BLA #761142). The applicant stated that UPLIZNA® became commercially available on July 9, 2020, following FDA approval. According to the applicant, UPLIZNA® is administered as an intravenous infusion, and titrated to completion, over approximately 90 minutes under the close supervision of an experienced healthcare professional. The applicant stated that the recommended initial dose is a 300 mg intravenous infusion followed 2 weeks later by a second 300 mg intravenous infusion. The applicant also stated that subsequent doses, starting 6 months from the first infusion, consist of a single 300 mg intravenous infusion every 6 months.

According to the applicant, there are currently no ICD-10-PCS procedure codes that uniquely identify the use of UPLIZNA®. However, the applicant stated that the following procedure codes may be used to identify administration of UPLIZNA® in the inpatient setting, though they are not specific to UPLIZNA®: 3E033GC (Introduction of other therapeutic substance into the peripheral vein, percutaneous approach) or 3E043GC (Introduction of other therapeutic substance into central vein, percutaneous approach). The applicant submitted a request for approval of a unique ICD-10-PCS procedure code to identify use of the technology beginning in FY 2023. 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. According to the applicant, the only approved treatments for NMOSD are UPLIZNA®, Soliris® (eculizumab), and ENSPRYNG^TM (satralizumab). We note that ENSPRYNG^TM and Soliris® previously submitted applications for new technology add-on payments. Please see discussion of ENSPRYNG^TM in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45019 through 45028) and Soliris® in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58684 through 58689).

With respect to the first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant stated that UPLIZNA® is the only treatment for NMOSD that targets B-cells and causes B-cell depletion. The applicant contrasted the mechanism of action of UPLIZNA® with those of Soliris® and ENSPRYNG^TM . Per the applicant, the mechanism of action of Soliris® is the inhibition of aquaporin-4-antibody induced terminal complement C5b-9 deposition. The applicant explained that Soliris® specifically binds to complement protein C5, inhibiting its cleavage to C5a and C5b and preventing the generation of C5b-9. The applicant also stated that ENSPRYNG^TM is a recombinant humanized anti-human interleukin-6 (IL-6) receptor monoclonal antibody. Per the applicant, the mechanism of action of ENSPRYNG^TM involves the inhibition of IL-6-mediated signaling through binding to soluble and membrane-bound IL-6 receptors. Thus, the applicant asserted that each of the three FDA approved treatments for NMOSD—UPLIZNA®, Soliris®, and ENSPRYNG^TM —bind to a different molecular target and have different mechanisms of action.

With respect to the second criterion, whether a product is assigned to the same or a different MS-DRG when compared to an existing technology, the applicant stated that cases representing patients who may be eligible for treatment with UPLIZNA® map to MS-DRGs 058, 059, or 060 (Multiple Sclerosis and Cerebellar Ataxia with MCC, with CC, or without CC/MCC, respectively), which are the same MS-DRGs to which existing technologies may also be assigned.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant asserted that, while UPLIZNA® treats a patient population with the same type of disease (NMOSD) as Soliris® or ENSPRYNG^TM, it offers a treatment option for a subset of this patient population, which differentiates it from existing technologies. Per the applicant, UPLIZNA® has not been shown to carry an increased risk of meningitis and may be used in patient populations who are unvaccinated with the meningococcal vaccine and/or are not able to use prophylactic antibiotics. The applicant noted that while patients with NMOSD who are unvaccinated with the meningococcal vaccine can still receive other approved treatments for NMOSD, such as Soliris® or ENSPRYNG^TM, they need to have a risk reduction protocol instituted at the time of treatment and, in some cases, may require two weeks of prophylactic antibacterial treatment first.

In summary, the applicant maintained that UPLIZNA® is not substantially similar to other currently available therapies and/or technologies because it uses a new mechanism of action and treats a different subset of the patient population with NMOSD compared to an existing technology.

We note that the applicant asserts that UPLIZNA® treats a different subset of the patient population with NMOSD compared to existing technologies, specifically patients who are unvaccinated with the meningococcal vaccine. However, we question whether this subset is considered a new patient population since, as previously discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45021), ENSPRYNG^TM is also not contraindicated in patients with unresolved serious Neisseria meningitidis infections, and therefore, may be a treatment option for patients with meningococcal disease as well as UPLIZNA®. Furthermore, as we previously stated in the FY 2022 IPPS/LTCH PPS final rule, individuals that are not vaccinated against Neisseria mengitidis are not considered a separate patient population because eligibility can be easily attained via a widely available vaccine (86 FR 45027). Additionally, we question whether the additional requirements for patients taking Soliris®—namely participation in a risk reduction protocol related to the associated risk of meningococcal infections, and prophylactic antibiotic treatment that may result in a 2-week delay for treatment—constitute a new patient population for technologies without those requirements.

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

With respect to the cost criterion, the applicant presented the following analysis. The applicant searched the FY 2019 Medicare Provider Analysis and Review (MedPAR) Hospital Limited Data Set (LDS) for cases with ICD-10-CM diagnosis code G36.0 for Neuromyelitis optica [Devic] (NMOSD) coded in the first diagnosis position. The applicant determined that cases representing patients who may be eligible for treatment with UPLIZNA® would map to MS-DRGs 058, 059, or 060 (Multiple Sclerosis and Cerebellar Ataxia with MCC, with CC, or without CC/MCC, respectively).

The applicant determined a case count of 257 after imputing a value of 11 for MS-DRGs with a case volume under 11. The applicant then removed 100% of the drug charges to estimate the potential decrease in costs due to the use of UPLIZNA®. The applicant noted that, although use of UPLIZNA® would replace current drug charges for therapies such as azathioprine, methotrexate, and rituximab, it is not possible to differentiate between drug costs on MedPAR claims, and so it removed all drug charges to be conservative. The applicant then standardized the charges and applied a 4-year inflation factor of 1.281834, or 28.1834%, based on the inflation factor used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542). The applicant added charges for the new technology by dividing the estimated cost of UPLIZNA® by the national average CCR for drugs which is 0.187, from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966).

The applicant calculated a final inflated average case-weighted standardized charge per case of $764,547, which exceeded the average case-weighted threshold amount of $48,165. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that UPLIZNA® meets the cost criterion.

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

With regard to the substantial clinical improvement criterion, the applicant made two assertions. First, the applicant asserted that UPLIZNA® offers a treatment option for a patient population that is ineligible for currently available treatments. Specifically, the applicant asserted that UPLIZNA® is a new treatment option for patients who carry an increased risk of meningitis, patients following treatments with more frequent and burdensome dosing schedules, and patient populations more likely to be impacted by health disparities. Finally, the applicant asserted that UPLIZNA® significantly improves clinical outcomes relative to currently available technologies because it reduced the risk of NMOSD attacks and disability progression among patients with NMOSD when compared to placebo in the N-MOmentum trial, which the applicant asserted is the largest NMOSD study conducted.

With respect to the applicant's assertion that UPLIZNA® is a substantial clinical improvement over existing technologies because it represents a new treatment option for a patient population ineligible for currently available treatments, the applicant stated that UPLIZNA® may be used in patient populations who are unvaccinated with the meningococcal vaccine and/or are not able to use prophylactic antibiotics because UPLIZNA® has not been shown to carry an increased risk of meningitis, as compared with Soliris®.

To support this claim, the applicant cited an article from the CDC explaining that patients taking complement inhibitors, such as Soliris®, are at an increased risk for meningococcal disease and referenced the CDC's recommendation that patients receive the meningococcal vaccination prior to initiating treatment with a complement inhibitor. The applicant also cited a study by McNamara et al. that identified 16 cases in the U.S. between 2008 and 2016 of patients who were taking Soliris® who had meningococcal disease despite having received at least 1 dose of meningococcal vaccine before disease onset. Referring to the same article by McNamara et al., the applicant stated that some healthcare providers recommend prophylactic antibiotics even for vaccinated patients during treatment with Soliris®, exposing them to long-term antibiotic use, which carries the risk of developing antimicrobial resistance.

Furthermore, the applicant claimed that UPLIZNA® represents a new treatment option for patients following treatments with more frequent and burdensome dosing schedules than UPLIZNA®. Per the applicant, the dosing schedule for UPLIZNA® consists of 2 initial doses delivered 2 weeks apart, followed by 1 dose every 6 months after that. In comparison, based on the FDA prescribing information for Soliris®, the applicant asserted that UPLIZNA®'s 6-month dosing regimen is less frequent than that of Soliris®, and, therefore, is less burdensome to follow. The applicant asserted the dosing schedule for UPLIZNA® is more amenable to NMOSD patients for whom more frequent intravenous infusions may be burdensome and stated that its characteristics as a treatment regimen, compared to Soliris^TM, may help to improve medication adherence and decrease likelihood of relapse and hospitalization relative to placebo. To further demonstrate that UPLIZNA® may help to improve long-term patient adherence, compared to Soliris^TM , the applicant provided a review by Vlasnik et al. noting that medication regimen complexity is one factor that can negatively affect adherence. The applicant emphasized that, for NMOSD, medication adherence to maintain immune suppression is essential for reducing the risk of attacks, which can lead to hospitalization, vision loss and paralysis. Finally, the applicant stated that UPLIZNA® poses less of a barrier for patient access, as it does not require patients or providers to participate in FDA's Risk Evaluation and Mitigation Strategy (REMS) program, or receive additional counselling regarding the program, as required by Soliris®.

To support its claim that UPLIZNA® is a new treatment option for populations that are more likely to be impacted by health disparities, the applicant noted UPLIZNA®'s durable efficacy and favorable safety profile among African Americans with NMOSD. To support this claim, the applicant cited the safety results published by Cree et al. from both a randomized control period (RCP) and an open label period (OLP) of the N-MOmentum trial. The RCP phase of N-Momentum was a multicenter, double-blind, 2/3 study conducted at 99 outpatient specialty clinics or hospitals in 25 countries that lasted up to 197 days. The primary endpoint was time to onset of an NMOSD attack, as determined by the investigator and adjudication committee. Eligible participants were randomized in a 3:1 ratio to receive either 300 mg intravenous UPLIZNA® (n=174) or a saline placebo (n=56) on days 1 and 15. Participants continued through the RCP for up to 28 weeks unless they had a confirmed NMOSD attack, at which point they could choose to continue in the OLP phase of the trial. The OLP included eligible adult participants (n=230) who had had at least 1 NMOSD attack in the year before screening or at least 2 attacks requiring rescue therapy in the 2 years before screening. During the OLP, all patients received UPLIZNA® for at least 2 years. As recommended by an independent committee, enrollment in the RCP phase stopped prior to study completion due to the early findings where 21 of 174 participants (12%) receiving UPLIZNA® had an attack as compared with 22 of the 56 placebo recipients (39%). Marignier et al. (2021) assessed treatment effects in N-MOmentum by measuring score worsening of the Expanded Disability Status Scale (EDSS) and modified Rankin Scale (mRS) scores. EDSS scores were measured at baseline, then at RCP study weeks 12 and 28, and every 3 months during the OLP, and within 5 days of a potential attack. mRS scores were measured at baseline, and at weeks 4, 8, 12, 16, 22, and 28 of the RCP. The Marignier results from the N-MOmentum study found the annualized attack rate for African Americans was lower at 0.06 compared to an annualized attack rate of 0.09 in the overall group exposed to UPLIZNA®. The applicant stated that among the 19 African American participants who received UPLIZNA® or placebo during the RCP and/or OLP of the N-MOmentum trial, three had attacks 18, 29, and 104 days after their first UPLIZNA® dose. The summary of baseline demographics and characteristics of the intent-to-treat population notes that there were 14 African American participants who received UPLIZNA® and 5 who received the placebo.

With respect to its claim that UPLIZNA® significantly improves clinical outcomes relative to previously available treatment options, the applicant stated that patients taking UPLIZNA® had a reduced risk of NMOSD attacks and disability progression when compared to placebo in the N-MOmentum trial. The applicant again referenced the results of the N-MOmentum trial reported by Cree et al., where 21 (12%) of the 174 participants receiving UPLIZNA® had an attack by the time enrollment ended versus 22 (39%) of the 56 participants receiving placebo (hazard ratio (HR) 0·272 [95% CI 0·150-0·496]; p<0·0001). The applicant also referred to the N-MOmentum results from the OLP and asserted that they show long-term treatment with UPLIZNA® provided a sustained reduction in NMOSD attack risk, MRI lesions, and NMOSD-related hospitalizations regardless of treatment provided during the RCP. The applicant referenced the disability data published by Marignier et al. from the results of the N-MOmentum trial on the use of UPLIZNA® and asserted that they showed favorable results among patients with NMOSD when compared to placebo. Specifically, Marignier et al. assessed the treatment effects of UPLIZNA® in comparison with placebo by using a worsening score of the Expanded Disability Status Scale (EDSS) to measure confirmed disability progression (CDP). The applicant asserted that the results show UPLIZNA® reduced the risk of 3-month CDP compared with placebo (HR: 0.375; 95% CI: 0.148-0.952; p = 0.0390). The applicant also stated that UPLIZNA® showed a significantly lower risk of relapse among patients with NMOSD when compared to placebo. The applicant cited results from Pittock et al., a randomized, double-blind, time-to-event trial in which 143 adult subjects were randomly assigned to receive either UPLIZNA® or placebo weekly and continued use of an immunosuppressive therapy, as needed. The primary endpoint was the first adjudicated relapse, while secondary endpoints included the adjudicated annualized relapse rate. Pittock et al. reported that adjudicated relapses occurred in 3 of 96 patients (3%) in the UPLIZNA® group and 20 of 47 (43%) in the placebo group (hazard ratio 0.06; 95% confidence interval [CI], 0.02 to 0.20; P<0.001). The adjudicated annualized relapse rate was 0.02 in the eculizumab group and 0.35 in the placebo group (rate ratio, 0.04; 95% CI, 0.01 to 0.15; P<0.001). Referring to the results from the Pittock et al. study, the applicant asserted that UPLIZNA® showed a consistent effect in reducing the risk of attack compared to placebo, regardless of baseline disability status, attack history, or disease duration.

After review of the information provided by the applicant, we have the following concerns regarding whether UPLIZNA® meets the substantial clinical improvement criterion. First, we note that while the applicant provided data comparing UPLIZNA® to placebo, we did not receive any data to demonstrate improved outcomes over existing FDA approved treatments. Additional information comparing outcomes such as relapse rate, risk of relapse, and disability progression for patients receiving UPLIZNA® versus other currently available treatments would help inform our assessment of whether UPLIZNA® demonstrates a substantial clinical improvement over existing technologies. Second, while the applicant asserted that UPLIZNA® represents a new treatment option for patients who are unvaccinated with the meningococcal vaccine, similar to the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45021) in response to a similar assertion with respect to ENSPRYNG^TM, we note that ENSPRYNG® is also not contraindicated in patients with unresolved serious Neisseria meningitidis infection and therefore may also be a treatment option for patients with meningococcal disease. We further note that the use of ENSPRYNG^TM to treat patients with NMOSD also does not require a meningococcal vaccination. We note that the applicant sought to support its claim that UPLIZNA® represents a new treatment option for patients who are unvaccinated against Neisseria meningitidis through the inference that Soliris® has a high risk of causing meningitis; however, we have concerns about the applicant's claim because Neisseria meningitidis may easily be mitigated through the use of a common vaccine or antimicrobials. As discussed in the FY 2022 IPPS/LTCH PPS final rule in response to similar claims with respect to ENSPRYNG®, and as noted previously, individuals that are not vaccinated against Neisseria mengitidis are not considered a separate patient population because eligibility can be easily attained via a widely available vaccine and are also able to receive treatment with UPLIZNA® which does not require a vaccine (86 FR 45027).

With regard to the applicant's claim that UPLIZNA® is a new treatment option for patients following treatments with more frequent dosing schedules, we are unsure whether these patients may be considered as a separate patient population ineligible for currently available treatments. For example, although the applicant compared the UPLIZNA® dosing regimen against Soliris®, it did not provide a similar comparison against ENSPRYNG^TM, which—similar to UPLIZNA®—does not require frequent intravenous infusions or participation in the FDA REMS program (see 86 FR 45020). Therefore, it is unclear whether UPLIZNA® provides a treatment option for a separate patient population that is ineligible for currently available treatments, when there are other available treatments, like ENSPRYNG^TM , without the limitations that the applicant described with respect to Soliris®. In addition, while the applicant stated that UPLIZNA®'s dosing regimen may help to improve long-term patient medication adherence and decrease the likelihood of relapse and hospitalization, we question the strength of the correlation between UPLIZNA's® dosing regimen and these outcomes. We are also interested in additional information on the efficacy results of UPLIZNA® among African Americans with NMOSD, as cited by the applicant, as we understand that NMOSD disproportionately affects African American and Asian populations at rates approximately 2- to 3-fold higher than their Caucasian counterparts. Specifically, we question whether the retrospective analysis of the results from the N-MOmentum trial on the annualized attack rate for African Americans (0.06 compared with 0.09 in the overall group) is generalizable to larger populations because the study included low numbers of participants. Of the 20 African American participants randomized in N-Momentum, 19 were AQP4 antibody positive and 1 was AQP4 antibody negative. As a result, of the 19 participants, 14 received UPLIZNA®, and only 5 received placebo. We further note that the applicant did not provide comparative data on the efficacy of UPLIZNA®, Soliris®, and ENSPRYNG^TM in these populations.

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

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

m. XENOVIEW (hyperpolarized Xenon-129 [HP¹²⁹ Xe] gas for inhalation)

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 for FY 2023. Per the applicant, XENOVIEW is a gas blend used in chest magnetic resonance imaging (MRI) that is processed to consist of 89% Helium, 10% Nitrogen, and 1% Xenon. The applicant stated that the 1% Xenon in the gas blend is hyperpolarized (HP) to create Xenon-129 ( Xe) (that is, 80% purity of Xe isotope), which allows for high resolution 3-dimensional (3-D) images of the lungs and assessment of the lungs' functional status when inhaled by a patient during a pulmonary MRI scan. The applicant stated that XENOVIEW rapidly and directly quantifies regional lung function without ionizing radiation or compromising patient comfort and aids clinical decision-making by directly quantifying gas exchange across three compartments (airspace and ventilation, interstitial barrier tissues, and transfer to red blood cells (RBCs)) to provide a complete picture of lung function. The applicant stated that this makes it well-suited for longitudinal therapeutic evaluation and assessment of disease progression.

The applicant stated that hyperpolarization of¹²⁹ Xe gas is generated by using the combination hyperpolarization system consisting of the¹²⁹ Xe gas cylinder, Hyperpolarizer, Measurement Station, and Dose Delivery Bag. The applicant noted that hospital trained clinical personnel use this drug system to activate the XENOVIEW from the initial gas blend cylinder, and to make HP¹²⁹ Xenon immediately prior to patient administration. The applicant explained that collectively, these components hyperpolarize (using the Xenon Hyperpolarizer) and measure the hyperpolarization of¹²⁹ Xe gas (using the Polarization Measurement Station), and then the clinician administers the XENOVIEW Dose Equivalent (DE) to the patient using the Polarean DE Dose Delivery Bag during a pulmonary MRI scan.

According to the applicant, XENOVIEW MRIs can be used to spatially characterize disease burden across a range of pulmonary disorders and lung abnormalities, including asthma, cystic fibrosis (CF), bronchiolitis obliterans, interstitial lung disease, patients recommended for surgical lung resection, post-lung transplant patients, and people diagnosed with chronic obstructive pulmonary disease (COPD). The applicant noted specifically that defects in all three compartments of lung function are commonly seen in COPD, and that XENOVIEW has been used to assess regional lung function in patients recommended for surgical lung resection as well as in post-lung transplant patients to sooner diagnose a failing transplant (where corrective action is needed to save the lung). Per the applicant, the estimated patient prevalence of these conditions is over 40 million diagnoses in the United States.

With respect to the newness criterion, the applicant stated it is pursuing an NDA from FDA for XENOVIEW as a drug combination for the evaluation of pulmonary function and imaging of the lungs using MRI. The applicant reported that on October 5, 2021, it received a complete response letter from FDA. The applicant stated that it intends to address FDA's concerns and resubmit the NDA, with FDA approval anticipated by July 1, 2022. The applicant anticipates commercial availability for XENOVIEW after FDA approval. Per the applicant, the recommended dosage for XENOVIEW is 75 mL Dose Equivalent (DE, where DE = total volume Xe gas ×¹²⁹ Xe isotopic enrichment × polarized%) of HP¹²⁹ Xe (250-750 mL total Xe) mixed with nitrogen NF (99.999% purity) as an inert buffer to ensure that the total volume of gas contained in the XENOVIEW Dose Delivery Bag is 1L.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify cases involving the use of XENOVIEW. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for XENOVIEW beginning in FY 2023.

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 first criterion, whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome, the applicant explained that HP¹²⁹ Xe identifies regional function in the entire lung, facilitating more informed treatment decisions while reducing the patient's risk of receiving more invasive procedures, such as a right heart catherization. The applicant stated that the hyperpolarization and isotopic properties used by XENOVIEW are different from traditional MRI imaging, which is based on imaging of the hydrogen nucleus. Further, the applicant stated that XENOVIEW provides a completely new image requiring novel hardware, pulse sequence programming, post-processing interpretation software, and physician training for evaluation of lung function. Per the applicant, alternatives to XENOVIEW include nuclear scintigraphy methods using¹³³ Xe ventilation and/or Technetium (99mTc) perfusion (ventilation/perfusion [V/Q] scan) or spirometry measurements, which, according to the applicant, do not provide regional information and pose added ionizing radiation to the patient. The applicant stated that experimental computed tomography (CT) imaging using parametric modeling has also been used to infer function from structural imaging; however, unlike XENOVIEW, it does not directly measure function.

With respect to the second criterion, whether a product is assigned to the same or different MS-DRG when compared to an existing technology, the applicant stated that XENOVIEW has not been assigned to an MS-DRG and cannot be compared to an existing technology, nor is there data reflecting the cost of XENOVIEW in the MS-DRGs as it has not yet been billed to Medicare. However, the applicant noted that XENOVIEW is intended to aid diagnoses for patients with pulmonary disease frequently assigned to MS-DRGs 190-192 and 202-203, provided in the table.

With respect to the third criterion, whether the new use of technology involves the treatment of the same or similar type of disease and the same or similar patient population when compared to an existing technology, the applicant asserted that XENOVIEW is available to a new population of patients whose underlying morbidities cannot safely tolerate standard lung imaging. The applicant noted that only 13% of patients within MS-DRGs 190-192 and 202-203 are without a complication or major complication, and that subjecting these patients to additional radiation exposure—such as that through single-photon emission computed tomography (SPECT)/CT, high-resolution CT, or nephrotoxicity from MRI—is not appropriate. The applicant further stated that an analysis of imaging ICD-10-PCS codes within these MS-DRGs indicates that less than 8% of these patients receive inpatient imaging. The applicant stated that XENOVIEW enables patients with comorbidities to have safe and effective MRIs to monitor their disease response to treatment or to identify loss of lung function. The applicant stated that XENOVIEW addresses an unmet medical need for a diagnostic agent that evaluates pulmonary function using more modern and precise imaging techniques (for example, MRI) without requiring patients to be exposed to radiation or nephrotoxicity.

In summary, the applicant stated that XENOVIEW is not substantially similar to other currently available therapies and/or technologies because it has a unique mechanism of action compared to existing lung imaging modalities, has not been assigned to an MS-DRG, and treats a new patient population. Therefore, the applicant asserted that XENOVIEW meets the “newness” criterion.

We note that although the applicant states that XENOVIEW has not been assigned to an MS-DRG and cannot be compared to an existing technology, we believe that based on its proposed FDA indication, cases involving the use of XENOVIEW 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 also believe that XENOVIEW may use the same or similar mechanism of action as other inhaled gases (¹³³ Xe) and oxygen-enhanced pulmonary imaging, and we invite public comments on whether XENOVIEW's mechanism of action for the diagnosis and assessment of certain lung abnormalities is different than existing technologies. Further, we also invite public comments on whether XENOVIEW's safety profile allows patients with certain underlying morbidities access to previously contraindicated pulmonary testing and whether those patients with previous contraindication to current pulmonary imaging techniques should be considered a new patient population. We note that the proposed FDA indication for this technology is the evaluation of pulmonary function and imaging of the lungs using MRI, which is not unique to XENOVIEW, and does not mention the subset of patients with comorbidities that the applicant asserts is a new patient population.

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

With respect to the cost criterion, the applicant presented three analyses which varied the charges added for the new technology. For all three analyses, the applicant determined that cases representing patients potentially eligible for treatment with XENOVIEW (that is, patients with lung disease, exacerbations of lung disease, or those who require an inpatient admission to better monitor their response to or the side effects of pharmacologic therapy) mapped to five MS-DRGs, listed in the table.

The applicant explained that it initially identified 255,651 cases as reported for the MS-DRGs in the preceding table in the FY 2019 MedPAR data. However, the applicant stated that because the cases it identified were 96% of total FY 2019 MS-DRG discharges reported in the FY 2023 threshold table, it decided to use the case counts from the FY 2023 Threshold Table, which resulted in a total of 267,158 cases. The applicant stated that it did not remove charges for prior drugs. The applicant then standardized the charges and applied a 4-year inflation factor of 1.281834 or 28.1834% based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to calculate outlier threshold charges (86 FR 45542).

The applicant then added charges for the new technology by dividing the cost of XENOVIEW by the national average CCR for: (1) Drugs and radiology; (2) drugs alone; and (3) radiology alone. The applicant used the national average CCRs published in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966).

In the first analysis, the applicant applied the national average CCR for drugs, which is 0.187, to costs associated with the gas blend preparation, and the national average CCR for radiology, which is 0.136, for preparation of the hyperpolarized dose equivalent. Under this analysis, the applicant calculated a final inflated average case-weighted standardized charge per case of $51,418 which exceeded the average case-weighted threshold amount of $42,424.

In the second analysis, the applicant added charges for the new technology by dividing the cost of XENOVIEW by the national average CCR for drugs, which is 0.187, for costs associated with the gas blend preparation as well as costs associated with preparation of the hyperpolarized dose equivalent. Under this analysis, the applicant calculated a final inflated average case-weighted standardized charge per case of $49,012 which exceeded the average case-weighted threshold amount of $42,424.

In the third analysis, the applicant added charges for the new technology by dividing the total cost of XENOVIEW by the national average CCR for radiology, which is 0.136. Under this analysis, the applicant calculated a final inflated average case-weighted standardized charge per case of $52,622 which exceeded the average case-weighted threshold amount of $42,424.

Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount in each analysis, the applicant asserted that XENOVIEW meets the cost criterion.

We are inviting public comments on whether XENOVIEW meets the cost criterion, including whether it is appropriate to assume that no charges should be removed for the prior technology or the technologies being replaced for the cases assigned to the identified MS-DRGs, particularly as the applicant noted 13% of patients within MS-DRGs 190-192 and 202-203 are without a complication or major complication, and therefore might be able to handle additional radiation exposure such as that through SPECT/CT or high-resolution CT, or nephrotoxicity from MRI. For this reason, we invite comment on whether any charges should be removed within the specified MS-DRGs to account for prior technology XENOVIEW would be replacing.

With regard to the substantial clinical improvement criterion, the applicant asserted that XENOVIEW offers: (1) A new service or treatment option for patients with early symptoms of breathing difficulty, including those with an uncertain diagnosis that are unresponsive to, or ineligible for, currently available treatments; (2) the ability to diagnose a medical condition in a patient population where the medical condition is currently undetectable; (3) the ability to diagnose a medical condition earlier than currently available methods; (4) improved outcomes such as novel actionable information to inform treatment decisions; and (5) the ability to safely monitor unexplained dyspnea.

In support of its first assertion that XENOVIEW can help patients with early symptoms of breathing difficulty, the applicant noted that these patients—which include those with suspected COPD, asthma, or those living with idiopathic pulmonary fibrosis or inflammatory pulmonary disease—can benefit from XENOVIEW's safety profile as it allows them to receive medically necessary diagnostic treatment to aid their treatment decisions. The applicant stated that these patients are particularly vulnerable to gadolinium contrast enhanced MRI, lung SPECT, or thoracic CT imaging. According to the applicant, XENOVIEW can aid in treatment management and would be able to be used for clinical decision making to reduce a COPD exacerbation, preempt asthma exacerbation, and support therapies for interstitial lung disease.

The applicant also asserted that XENOVIEW can help identify the ventilation defect percentage (VDP) in patients with early symptoms, including patients in early phase COPD or asthma, and can provide diagnostic information with lesser risk than other pulmonary function tests (PFTs) and lung imaging methods. The applicant cited an opinion paper by Usmani et al., which discusses small airways disease in the context of asthma and COPD, as background to highlight gaps in current knowledge that impede earlier identification of obstructive lung disease and the development and standardization of novel small airways-specific end points for use in clinical trials. The applicant stated that because XENOVIEW is intended to help assess small airways, it could help address the gaps in current knowledge discussed in the opinion paper.

The applicant asserted that detailed imaging through the 23 branches of the lung that can be provided by XENOVIEW is an ideal way to preemptively manage the patients with lung disease. In support of this claim, the applicant cited a narrative review by Crisafulli et al. as background on AECOPD and the current treatment options. In this narrative, the authors conducted a review of 160 citations, based on a search of Medline completed in the month of May 2018, to update the scientific evidence about the in-hospital pharmacological (inhaled bronchodilators, steroids, antibiotics) and non-pharmacological treatments (oxygen, high flow nasal cannulae (HFNC) oxygen, non-invasive mechanical ventilation (NIMV), pulmonary rehabilitation (PR)) used in the management of a severe COPD exacerbation as well as studies about non-conventional drugs for severe AECOPD. The applicant asserted that HP¹²⁹ Xe MRI has been shown to identify signs of COPD earlier than conventional techniques and can therefore enable earlier rehabilitation for the patient, which was identified in the study as one factor that could improve treatment of AECOPD.

In support of its claim that XENOVIEW offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, the applicant cited additional references. The applicant asserted that use of HP Xe MRI correlates with asthma severity, health care utilization and oral corticosteroid use. The applicant referenced an article by Lin et al. in which children with asthma have a higher VDP (p = 0.002) and a higher number of defects per image slice than children without asthma (p = 0.0001). The article noted that children with asthma who had higher defects per image slice had a higher rate of health care utilization correlation (r) (r = 0.48; p = 0.03) and oral corticosteroid use (r = 0.43, p = 0.05). Asthma severity can be difficult to assess in children and the authors postulate that HP¹²⁹ Xe MRI can be used to identify children at a higher risk for exacerbations and improve outcomes. The applicant stated that VDP detected by HP¹²⁹ Xe was significantly different between the healthy cohort (n = 16 subjects), mild/moderate asthma cohort (n = 8 subjects), and severe asthma cohort (n = 13 subjects) as well as between the healthy cohort and the combined asthma cohorts (all p < 0.002). The applicant also noted that the forced expiratory volume in 1 second (FEV₁) pulmonary function test did not detect significant differences between any of the cohorts (p = 0.15) whereas the FEV₁ to forced vital capacity (FVC) ratio did (p = 0.009).

The applicant also cited the opinion paper by Usmani et al. discussed in its first claim regarding the importance of assessing small airways. The applicant again asserted that HP¹²⁹ XE offers the diagnostic ability needed to assess small airways, is minimally invasive, and does not require additional ionizing radiation. The applicant states that this combination is not found in any other existing diagnostic tool for pulmonary function.

The applicant also asserted that XENOVIEW has been demonstrated to detect early stages of lung disease in smokers before progression to COPD and could help diagnose patients more accurately than the use of FEV₁ and related pulmonary function tests, which the applicant asserted can impair spirometry results. In support of this claim, the applicant provided background from a study performed by Fortis et al., a retrospective cohort study to evaluate whether slow vital capacity (SVC) instead of FVC increased the sensitivity of spirometry to identify patients with early or mild obstructive lung disease. The study included 854 current and former smokers in the U.S. aged 40-80 years from the Sub-populations and Intermediate Outcome Measures in COPD Study cohort with a postbronchodilator FEV₁ /FVC ≥ 0.7 and FEV₁ % predicted of ≥ 80% at enrollment. Characteristics, chest CT scan features, exacerbations, and progression to COPD (postbronchodilator FEV₁ /FVC, < 0.7) were compared to the baseline during the follow-up period between 734 participants with postbronchodilator FEV₁ /SVC of ≥ 0.7 and 120 with postbronchodilator FEV₁ /SVC < 0.7 at the enrollment. The study included multivariate linear and logistic regression models and negative binomial and interval-censored proportion hazards regression models adjusted for demographics and smoking exposure to examine the association of FEV₁ /SVC < 0.7 with those characteristics and outcomes.

Of the 854 current and former smokers with normal spirometry results at enrollment, 120 participants showed a post bronchodilator FEV₁ /SVC less than 0.7, and 734 participants showed an FEV₁ /SVC greater than or equal to 0.7. Participants with a postbronchodilator FEV₁ /SVC of less than 0.7 experienced more emphysema, gas trapping and severe exacerbations and manifested more COPD symptoms relative to those patients with FEV₁ /SVC greater than or equal to 0.7. They also found similar results in patients with a prebronchodilator FEV₁ /SVC of less than 0.7 or FEV₁ /SVC less than the lower limit of normal with chest CT scan features and progression to COPD. In conclusion, the authors believed that FEV₁ /SVC less than 0.7 or the lower limit of normal may be used as a metric of early obstruction and may be a useful tool in identifying individuals at increased risk of COPD. The authors noted that the study had some limitations as the analysis was limited to a cohort of heavy smokers older than 40 years and cautioned that the study findings may not be generalizable. The authors also stated that they did not take into consideration other risk factors for obstructive lung disease such as occupational exposure. Fortis et al. also noted that because FEV₁ /SVC ratios are not widely used, there are no widely accepted reference values so they used 0.7 as a cutoff for the FEV₁ to true vital capacity (VC) for the main analysis. The applicant stated that FEV₁ and related pulmonary function tests can result in increased intrathoracic pressure, which could shorten exhalation time and impair accurate spirometry results, and that this issue is not prevalent with HP¹²⁹ Xe MRI.

The applicant stated that XENOVIEW can provide critical diagnostic information for patients that cannot perform spirometry or tolerate the risk of standard lung imaging, and/or require detailed information on ventilation differences. The applicant also asserted that the safety profile of XENOVIEW for MRI lung diagnostics is superior to alternative lung imaging options, including PFT, because XENOVIEW does not use any ionizing radiation or impart any ionizing radiation in the procedure, and it offers visualization of MRI images without nephrotoxicity (in contrast to CT images), which permits it to be used for longitudinal therapeutic evaluation and assessment of disease progression.

The applicant asserted that HP Xe MRI is able to depict airway obstructions in mild to moderate asthma and significantly correlates with PFTs. In support of this claim, the applicant referenced a study by Ebner et al., which investigated ventilation in mild to moderate asthmatic patients and age-matched controls using HP¹²⁹ Xe MRI and correlated findings with PFTs. In this study, 30 subjects (10 young asthmatic patients, 26 ± 6 years; three males, seven females; 10 older asthmatic patients, 64 ± 6 years; three males, seven females; 10 healthy controls) were enrolled. After repeated PFTs 1 week apart, the subjects underwent two MRI scans within 10 minutes, inhaling 1-L volumes containing 0.5 to 1 L of HP¹²⁹ Xe. The applicant stated that HP¹²⁹ Xe MRI detected significant differences between young healthy subjects and young asthmatic subjects (p = 0.03), between young asthmatic subjects and old asthmatic subjects (p = 0.02), and between young healthy subjects and old healthy subjects (p = 0.05), whereas FEV₁ % only detected a significant difference between young healthy subjects and young asthmatic subjects (p = 0.01).

The applicant also asserted that in patients with COPD, the VDP obtained with HP Xe is significantly greater than that with HP He MRI, suggesting incomplete or delayed filling of lung regions that may be related to the different properties inherent to HP Xe gas and physiologic and/or anatomic abnormalities in COPD. The applicant provided a peer-reviewed journal article by Kirby et al. on HP³ He and HP¹²⁹ Xe MRI imaging in healthy volunteers and patients with COPD. Kirby et al. quantitatively compared HP³ He and HP¹²⁹ Xe MRI images in healthy volunteers and patients with COPD with measurements from spirometry and plethysmography. In the study, 8 healthy patients and 10 COPD patients underwent MRI (5 minutes between HP³ He MRI and HP¹²⁹ Xe MRI), spirometry and plethysmography. VDPs were calculated in HP³ He and HP¹²⁹ Xe MRIs. HP¹²⁹ Xe VDP was significantly greater than HP³ He VDPs for patients with COPD (p < 0.0001) but not for healthy volunteers (p = 0.35).

The applicant asserted that functional alveolar wall thickness assessed by HP Xe MRI allows discrimination between healthy subjects and healthy smokers and the applicant asserted its belief that HP Xe could be a useful tool for detecting early-stage lung disease. The applicant referenced a prospective cohort study by Ruppert et al. that hypothesized that the functional alveolar wall thickness as assessed by HP¹²⁹ Xe MR spectroscopy would be elevated in clinically healthy smokers before HP¹²⁹ Xe MR diffusion measurements would indicate emphysematous tissue destruction. The researchers used HP¹²⁹ Xe MR to measure the functional septal wall thickness and apparent diffusion coefficient of the gas phase in 16 subjects with smoking-related COPD, 9 clinically healthy current or former smokers, and 10 healthy never-smokers. The applicant stated that the study results reported that in healthy never-smokers, the septal wall thickness increased by 0.04 μm per year of age, while that the healthy smoker cohort exhibited normal PFT measures that did not significantly differ from the never-smoker cohort. The applicant stated that the study results noted that age-corrected septal wall thickness correlated well with diffusion capacity for carbon monoxide (R² = 0.56) and showed a statistically significant difference between healthy subjects and COPD patients (p < 0.001) but was the only measure that actually discriminated healthy subjects from healthy smokers (p < 0.006). The applicant stated that this suggests HP¹²⁹ Xe MRI can be used to detect early stages of lung disease, and that detecting early COPD could enable lifestyle changes and encourage patients to gain insight into their disease to aid their health.

According to the applicant, the unique properties of HP Xe are well-suited to evaluate pulmonary function in patients with lung cancer and HP Xe has a potential advantage over other imaging modalities such as a ventilation-perfusion (VQ) scan since both gaseous and dissolved phases can be measured to provide a more comprehensive 3-D evaluation of ventilation and interstitial thickening. In support of this claim, the applicant cited a case report by Song et al. involving a 64-year-old male who presented with dyspnea. In the study, the patient's chest CT revealed a seven cm right lung mass with mediastinal invasion and compression of the right mainstem bronchus while bronchoscopy showed a 90% obstructing mass in the right mainstem bronchus. Pathology was consistent with adenocarcinoma. The mass was hypermetabolic on PET/CT with involvement of mediastinal lymph nodes. The patient was under concurrent radiation therapy (RT) and chemotherapy and subsequently enrolled in the HP¹²⁹ Xe study after institutional review board approval. The study design involved the evaluation of HP¹²⁹ Xe before and after RT. The patient's right lung was completely expanded at diagnosis, yet the patient displayed significant dyspnea. The applicant stated that HP¹²⁹ Xe MRI detected non-ventilation to the right lung despite the right lung appearing inflated in the CT scan, and that the increased FEV₁ values from pre- to post-treatment reflected re-ventilation induced by treatment resulting from detected non-ventilation by the HP¹²⁹ Xe MRI. The study authors noted that post-treatment HP¹²⁹ Xe MRI confirmed re-ventilation of the lung.

The applicant further asserted that emphysema index based on HP He and HP Xe diffusion MRI provides a repeatable measure of emphysema burden, independent of gas or b value, with similar diagnostic performance as quantitative CT or pulmonary function metrics. The applicant referenced an article from Tafti et al., a retrospective study that sought to introduce and test a quantitative framework with which to characterize emphysema burden based on HP³ He and HP¹²⁹ Xe apparent diffusion coefficient (ADC) maps and compare its diagnostic performance with CT-based emphysema metrics and PFTs. The authors indicated that emphysema is a disease characterized by irreversible destruction of alveolar walls that causes loss of lung elastic recoil and impaired gas exchange. The study investigated 27 patients with mild, moderate, or severe COPD and 13 age-matched healthy control subjects participated in this retrospective study. Participants underwent CT and multiple b value diffusion-weighted HP³ He and HP¹²⁹ Xe MRI examinations and standard PFTs between August 2014 and November 2017. The ADC-based emphysema index was computed separately for each gas and b value as the fraction of lung voxels with ADC values greater than in the healthy group 99th percentile. The resulting values were compared with quantitative CT results (relative lung area <−950 HU) as the reference standard. Diagnostic performance metrics included area under the receiver operating characteristic curve (AUC). Spearman rank correlations and Wilcoxon rank sum tests were performed between ADC-, CT-, and PFT-based metrics, and intraclass correlation was performed between repeated measurements. The study concluded that an emphysema index based on HP³ He and HP¹²⁹ Xe diffusion MRI provides a repeatable measure of emphysema burden, independent of gas or b value, with similar diagnostic performance as quantitative CT or pulmonary function metrics. The applicant stated that HP¹²⁹ Xe MRI offered higher sensitivity in detecting pulmonary obstruction, as 19% of subjects with COPD appeared healthy based on CT scans, and emphysematous based on HP³ He and HP¹²⁹ Xe MRI ADC, whereas no subjects with COPD appeared healthy based on HP³ He and HP¹²⁹ Xe MRI ADC.

The applicant asserted that HP Xe MRI could develop into a tool that can guide individualized patient care and the use of HP Xe MRI may have a role as a tool for both patient selection and measuring treatment response in future COPD clinical trials. To support its claim that HP Xe MRI provides a quantitative, reproducible measure of treatment effectiveness, the applicant cited a study by Mummy et al., a prospective study characterizing changes in HP Xe gas transfer function following administration of an inhaled long‐acting beta‐agonist/long‐acting muscarinic receptor antagonist (LABA/LAMA) bronchodilator. The study involved 17 COPD study participants with a GOLD II/III classification per Global Initiative for Chronic Obstructive Lung Disease criteria. The study participants were imaged before and after 2 weeks of LABA/LAMA therapy. According to the applicant, the study concluded that LABA/LAMA therapy tended to preferentially improve ventilation in those subjects with relatively preserved measures of HP Xe barrier uptake and DL_CO (carbon monoxide) and noted that even in study participants with improved ventilation, newly ventilated lung regions often revealed persistent HP Xe red blood cell (RBC) transfer defects, an aspect of LABA/LAMA therapy response that is opaque to spirometry. The study indicated that these results add to the body of knowledge regarding COPD phenotypes and indicate a possible role for HP Xe gas transfer MRI as a tool for both patient selection and measuring treatment response in future COPD clinical trials. The study also concluded that as health care develops therapies that demonstrably improve not only ventilation but also RBC transfer, HP Xe may develop into a tool that can guide individualized patient care.

The applicant asserted HP Xe is a useful imaging tool for conducting pulmonary assessments on a patient-specific scale and allows for a deeper examination of underlying pathologies and pulmonary function test results. In support, the applicant referenced an article by Wang et al. that indicated that HP¹²⁹ Xe MRI has emerged as a novel means to evaluate pulmonary function via 3-D mapping of ventilation, interstitial barrier uptake, and RBC transfer, and the physiological interpretation of these measurements has yet to be firmly established. The authors proposed a model that uses the three components of HP¹²⁹ Xe MRI to estimate accessible alveolar volume ( V _A), membrane conductance, and capillary blood volume contributions to carbon monoxide (DL_CO ). The model was built on a cohort of 41 healthy subjects and 101 patients with pulmonary disorders. The study concluded that the ability to use HP¹²⁹ Xe MRI measures of ventilation, barrier uptake, and RBC transfer to estimate each of the underlying constituents of DL_CO clarifies the interpretation of these images while enabling their use to monitor these aspects of gas exchange independently and regionally. The applicant stated that HP¹²⁹ Xe MRI-derived DL_CO values and measured DL_CO values were significantly correlated (p <0.001), while ventilated volume, barrier transfer, and red blood cell transfer were significantly different between the healthy cohort and the individual disease cohorts.

With respect to the applicant's assertion that XENOVIEW will provide novel actionable information that will lead to improved treatment decisions because it will provide clinicians with information beyond current lung imaging techniques, the applicant summarized a Song et al. case study of a 64-year-old with dyspnea, discussed previously. The applicant asserted that HP¹²⁹ Xe identified the right lung to be unventilated despite a fairly normal CT appearance. The applicant stated that XENOVIEW can safely monitor unexplained dyspnea and that a prospective study is underway to validate the value HP¹²⁹ Xe MRI can add to evaluate pulmonary function in patients with lung cancer. The applicant asserted that this case report and prior studies consistently found that HP¹²⁹ Xe MRI has imaging capabilities above those of reporting VQ scans because both gaseous and dissolved phases can be measured to provide more comprehensive 3-D evaluation of ventilation and interstitial thickening. The applicant stated that further analysis of the benefit of established regional lung function and ventilation, when added to analysis of gaseous exchange, will enable better patient identification for surgical planning and RT and that dose-dependent functional changes of radiation could be evaluated allowing guided radiation administration to limit the RT to the most highly functional regions in the lung, reducing long-term effects of the therapy.

Based on the information provided by the applicant in support of the substantial clinical improvement criterion, we have the following concerns. With respect to the applicant's claim that XENOVIEW offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, we note that XENOVIEW is a diagnostic test and does not itself provide a treatment, but can be used in monitoring patients with pulmonary pathologies.

With respect to the applicant's claim that XENOVIEW 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, we note that 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 under § 412.87(b)(1)(ii)(B). We also note that one of the studies cited utilized a pediatric cohort of patients, which is a patient population largely distinct from the Medicare population. We note that, in other instances, the journal articles provided for review were for clinical studies with contributors outside the U.S. such as the Ebner et al. and Crisafulli et al. articles, and that there may be differing standards of care that could affect the detection of these medical conditions as well as the subsequent management of the patients. We also note that the narrative review by Crisafulli et al. does not address the use of XENOVIEW, but rather discusses potential future improvements in the treatment of AECOPD. As the study does not measure the effect of XENOVIEW on actual treatment outcomes, we are uncertain if the technology will lead to improvement in clinical outcomes. We invite public comments as to whether the studies discussed previously can be generalized to the Medicare population.

With respect to the applicant's claim that XENOVIEW used in MRI will provide novel actionable information that will lead to improved treatment decisions, we question whether the results of a single case report, consisting of only one patient, are generalizable to the Medicare population as a whole. We also question whether XENOVIEW's use in Song et al. was used to inform the patient treatment decision, as it appears from the case study that the treatment for the right lung collapse was radiation therapy for the adenocarcinoma, and that this radiation planning was informed via CT imaging. In addition, while the applicant asserts that XENOVIEW can provide actionable information by early detection of lung diseases such as asthma/COPD, we question whether this is relevant to patients in the inpatient setting. We also note that the studies provided by the applicant do not appear to assess the use of XENOVIEW to significantly improve clinical outcomes over existing technologies, as they are primarily feasibility/correlation studies, and that the studies assume but do not provide evidence that earlier diagnosis and potentially earlier treatment would result in better clinical outcomes. We also note that some studies appeared to describe the use of non-XENOVIEW HP Xe (that is, xenon hyperpolarized using the XeBox-E10, which is manufactured by Xemed, LLC), and we question whether the results of these studies using non-XENOVIEW HP Xe MRI can be extrapolated to the use of XENOVIEW HP Xe MRI. We would also be interested in additional evidence that demonstrates how the use of XENOVIEW results in a change in patient disease management, improved clinical decisions, as well as improvement in clinical outcomes based on earlier diagnosis and/or enhanced imaging.

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

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

Comment: The applicant submitted a public comment in response to three questions posed at the December 2021 New Technology Town Hall meeting and provided additional studies. First, the applicant was asked whether there are studies in the medical literature that have shown that early detection of disease using XENOVIEW and followed longitudinally have better outcomes than patients who are monitored with PFTs or other diagnostic tools. In response, the applicant stated that HP¹²⁹ Xe is currently under review by FDA as a drug used in MRI and that there are no published studies reporting early detection of disease using XENOVIEW and following longitudinally reported outcomes.

The applicant then cited the Mummy D.G., et al. prospective study about 67 asthmatics comparing HP He VDP and PFTs over 2 years to correlate VDP levels with outcomes. The Mummy et al. study found that HP He at levels greater than 4.28% were associated with an exacerbation incidence ratio of 2.5 (95% CI 1.3-4.7) compared to VDP less than 4.28%. The applicant also stated that XENOVIEW VDP correlates well with HP He VDP and is more sensitive than spirometry. Further, the applicant stated that HP¹²⁹ Xe allows radiologists and pulmonologists to evaluate images within the patient's own thoracic cavity and contrasted HP¹²⁹ Xe with PFTs, which the applicant asserts requires comparisons to reference equations that depend on age, sex, height, and ethnicity.

Next, the applicant stated additional studies report HP Xe MRI being correlated with the apparent diffusion coefficient-based emphysema index (ADC) obtained with quantitative computed tomography (CT). According to the applicant VDP, FEV₁, FEV₁ /FVC and ADC are measures relied upon by pulmonologists to follow a patient's response to treatment, to refine the patient's diagnosis and to aid patient compliance. The applicant stated that HP¹²⁹ Xe MRI provides these measures with a high degree of accuracy and correlates well to disease clinical signs and symptoms.

Next, the applicant provided a “summary of evidence” by first citing a Horn et al. study that measured HP He MRI to determine its effectiveness at treatment response mapping (TRM) in response to respiratory therapeutic agents in the lungs. According to the applicant, 20 patients with asthma were examined in this analysis using TRM to quantify regional physiologic response to a bronchodilator and provide regional quantitative information on changes in inhaled gas ventilation in response to therapy. The applicant stated that the study concluded that TRM has potential to aid treatment decisions for the assessment of regional lung interventions such as anti-inflammatory therapies or targeted therapies such as thermoplasty, endobronchial valve therapy, and lung volume reduction surgery. The applicant asserted the findings are applicable to measurements derived from HP¹²⁹ Xe and that HP¹²⁹ Xe can be used to provide regional insight into alterations of both the structure and function of the lungs, and that this is increasingly being used as an outcome measure in the early-phase evaluation of respiratory therapeutic agents. The applicant also noted that regionally specific therapies, such as bronchial thermoplasty, require regional information so the efficacy of the intervention can be assessed. The applicant also noted, but did not cite, that previous studies have used computed tomography (CT) and computational fluid dynamics-derived markers of airflow to assess functional changes after bronchodilator therapy.

The applicant also cited Rayment JH, et al. who performed a study measuring the VDP in 15 CF patients between the ages of 8-18 who underwent HP Xe MRI, spirometry, plethysmography and multiple-breath nitrogen washout at the beginning and end of inpatient treatment of a pulmonary exacerbation. Per the applicant, VDP was calculated from HP Xe MRI obtained during a static breath hold using semi-automated k -means clustering and linear binning approaches. The applicant stated that Rayment et al. reported that imaging, spirometric FEV_1, lung clearance index, plethysmographic, MBW, and symptom score outcomes improved with treatment. The applicant noted that the study reported that VDP showed the largest relative improvement compared to all outcome measures (−42.1%, 95% CI −52.1-−31.9%, p<0.0001). The applicant suggested that this technique can generate outcomes that are responsive to treatment regardless of the image analysis technique used, and that using HP Xe-129 MRI to measure VDP as a metric of outcome response is expected to aid understanding of the individual patient response to treatment.

The applicant also cited an Altes et al. blinded study on a population of CF patients >12 years of age with a G551D-CFTR mutation to measure the effect of short- and long-term ivacaftor treatment on HP³ He MRI defined ventilation defects. According to the applicant, the study design included: Part A (single-blind) comprised 4 weeks of ivacaftor treatment; and Part B (open-label) comprised 48 weeks of treatment. The applicant noted that the study's primary outcome measure was the change from baseline in total ventilation defect (TVD; total defect volume: Total lung volume ratio). The applicant reported that the study findings revealed that the mean change in TVD ranged from −8.2% (p = 0.0547) to −12.8% (p = 0.0078) in Part A (n = 8) and −6.3% (p = 0.1953) to −9.0% (p = 0.0547) in Part B (n = 8) as assessed by human reader and computer algorithm, respectively. The applicant stated that the study concluded that TVD responded to ivacaftor therapy, and that HP³ He MRI provided an individual quantification of disease burden that may be able to detect aspects of the disease missed by population-based spirometry metrics.

The applicant also re-submitted the New Technology Town Hall slide discussing the Thomen et al. study in patients with mild CF to illustrate that HP Xe MRI is a more sensitive measure than spirometry. The applicant also provided additional evidence of HP Xe's quantitative measurement of pulmonary function from Doganay et al. in which HP¹²⁹ Xe MRI was compared to PFT imaging standards relied upon by pulmonologists when following patients recommended for pharmacologic therapy. The applicant stated that in the study, 12 COPD subjects who were subjected to rapid time-series HP¹²⁹ Xe MRI imaging and compared to ventilation/perfusion single-photon emission computed tomography (V/Q-SPECT), high-resolution CT and PFTs for measuring lobar percentage ventilation. The applicant stated that the study concluded that lobar ventilation with HP¹²⁹ Xe MRI showed a strong correlation with lobar ventilation and perfusion measurements derived from SPECT/CT (r = 0.644; p < 0.001 for percentage ventilation SPECT and r = 0.767; p <0.001 for perfusion SPECT) and that the measured whole lung HP¹²⁹ Xe MRI percentage ventilation correlated with the PFT measurements (FEV₁ with r = −0.886, p < 0.001, and FEV₁ /FVC with r = −0.861, p < 0.001) better than the emphysema score obtained from high resolution CT (FEV₁ with r = −0.635, p = 0.027; and FEV₁ /FVC with r = −0.652, p = 0.021).

The applicant repeated an assertion that XENOVIEW's sensitivity of pulmonary regions that cannot be imaged by CT or SPECT/CT has been found to identify signs of COPD disease earlier and more accurately than conventional techniques, which enables clinicians to identify patients at risk of readmission.

Next, the applicant asserted that Kirby et al. validated HP He VDP measurements to HP Xe VDP measurements. The applicant then stated HP He was the most commonly studied MRI agent; however HP Xe MRI has evolved into the “favored” inhaled gas for functional pulmonary MRI due to the lower cost and higher availability of HP Xe as well as advances in hyperpolarization physics that have allowed for greater polarization efficiency of HP Xe. Next, the applicant stated that studies using HP He MR images reporting treatment response correlate well to HP Xe MR images. The applicant also referenced a table excerpted from Kirby et al., and reports that there are significant correlations between HP He and HP Xe MR imaging measurements of VDP with FEV_I .

According to the applicant, VDP obtained from HP He MRI was found to be a predictor of asthma severity and predict exacerbation in a population of asthma and COPD patients. The applicant stated that HP Xe VDP can be relied upon as quantitatively similar or better than HP He VDP. According to the applicant, HP³ He and HP¹²⁹ Xe MR images were quantitatively compared to results from spirometry and those from plethysmography in a population of 8 healthy volunteers and 10 patients with COPD. According to the applicant, quantitative gold standard measurements included VDPs of HP³ He and HP¹²⁹ Xe MR imaging, compared to measurements of FEV_I, FEV₁ /FVC ratio, ADC, and CT emphysema score. The applicant stated that tables in Kirby et al. provided a comparison of the correlation of HP¹²⁹ Xe to gold standard PF measurements relied upon by pulmonologists.

The applicant asserted that the predictive power of VDP obtained from HP He identified COPD patients with a higher likelihood of increased hospitalization due to exacerbation, therefore HP Xe MRI VDP can be relied upon to be equally predictive. The applicant stated that Kirby et al. concluded that, in patients with COPD, the VDP obtained with HP Xe MRI was “significantly greater” than that obtained with HP He, and that this was likely due to HP Xe's ability to fill lung spaces even in the presence of the physiologic and/or anatomic abnormalities in COPD patients. The applicant stated that because HP¹²⁹ Xe is delivered and imaged in the same manner as HP³ He, XENOVIEW likely shares that predictive power while also providing more extensive detail of alveolar gas-exchange compared to HP³ He MRI.

Next, the applicant noted that numerous studies, including a Mummy et al. study and a Svenningsen et al., study have suggested that HP¹²⁹ Xe is a useful resource to guide patient treatment decisions of COPD and asthma, respectively, based on the deeper understanding it provides of patient response to treatment (for example, bronchodilators).

In summary, the applicant stated in response to the first question asked at the New Technology Town Hall meeting that HP Xe MRI provides pulmonologists with relied upon measurements of pulmonary function to inform treatment decisions. The applicant stated that lung CT can only image the first six airway branches. The applicant stated earlier disease and more subtle response to pharmacologic treatment has been quantified because XENOVIEW provides regional function and ventilation on 23 branches of the airway tree. Per the applicant, XENOVIEW MRIs enable identification of COPD or lung tissue abnormalities, leading to reduced elasticity earlier than spirometry or lung CT.

The next two questions asked at the New Technology Town Hall meeting pertained to the “gold standard” for diagnosis when comparing sensitivity for HP¹²⁹ Xe and FEV₁, and a request to share “receiver operator characteristics” for the comparison of diagnostic accuracy. The applicant stated that the evidence for these answers was related and provided a combined response.

According to the applicant, pulmonary function is reported using FEV₁ measured by spirometry for FEV₁ /FVC <0.7, yet lacks accuracy at the individual patient level. Next, the applicant stated high resolution CT (HRCT) and in some cases SPECT/(CT) have been added to aid accuracy in diagnosis to inform treatment decisions. The applicant stated that these diagnostic tools are the gold standard(s) for measuring pulmonary function as a measure of diminished lung capacity.

The applicant explained that due to the versatility of HP Xe MRI, XENOVIEW can produce different measurements for PF related to disease with the accuracy reported by receiver operator characteristics (ROC). The applicant referenced Ebner, et al., a retrospective study that reported ROC data on the relationship of the ventilation defect scores (VDSs) derived from HP Xe MRI identified with clinically relevant airway obstruction. The applicant stated that healthy volunteers (n=27) were compared to patients with asthma (n=20), and COPD (n=8), and that all the subjects underwent spirometry 1 day before MRI to establish the presence of airway obstruction (FEV₁ /FVC <70%). The applicant stated that five blinded readers assessed the degree of ventilation impairment and assigned a VDS (range, 0-100%). According to the applicant, the study found that VDS measured with HP Xe MRI correlated with the severity of airway obstruction and is significantly different between healthy control subjects and patients with mild to moderate airway obstruction. The applicant stated that while FEV₁ /FVC is an imperfect gold standard, Ebner et al applied HP Xe MRI, a less effort-dependent and reproducible test, to establish a threshold for clinically significant ventilation defects to enable informed treatment decisions.

According to the applicant, Ruppert et al. were able to detect early stages of lung disease in smokers before it progressed to COPD detected by spirometry. The applicant stated that in this study, the functional septal wall thickness and apparent diffusion coefficient of the gas phase was compared across 16 patients with smoking-related COPD, 9 clinically healthy current or former smokers, and 10 healthy never smokers. The applicant stated that a table from Ruppert et al. showed the ROC area under curve (AUC) provides evidence to aid in understanding HP Xe MRI when considering the metrics of early-stage lung disease. According to the applicant, HP¹²⁹ Xe MRI produced favorable metrics for determining early-stage lung disease compared to FEV₁ . The applicant reported while the study had a small sample size, the ROC and AUC indicate HP¹²⁹ Xe MR imaging does detect patients with early lung disfunction.

The applicant stated that in a separate study by Tafti et al., a table reported that ADC yielded a much higher ROC AUC of ≥0.92 [0.83, 1.00] when used to determine emphysema. The applicant stated that the ADC emphysema index showed near-perfect sensitivity in a sample of 17 patients, all of whom were measured with both HP³ He and HP¹²⁹ Xe (95% CI: 94%, 100%), but somewhat lower specificity (14 of 19 = 74% for HP³ He [95% CI: 49%, 99%]; 13 of 19 = 68% for HP¹²⁹ Xe [95% CI: 42%, 94%]).

The applicant stated that Lin et al. showed, in a population of children with asthma, a difference in HP Xe compared to spirometry related to patient's clinical signs and symptoms. The applicant stated that in this study of 37 children with asthma, Xe MRI was able to distinguish between control patients and patients with disease, whereas spirometry did not. The applicant stated Lin et al. demonstrated sensitivity, specificity and PPV values of HP Xe to provide reliable prediction of asthma severity. The applicant stated that currently, there are no adequate predictive diagnostic tools to clearly measure clinical severity of pediatric asthma that concurrently provide information about regional ventilation differences. The applicant stated that results from HP Xe MRI are correlated with increased asthma severity, as well as increased healthcare utilization (HCU) and oral corticosteroid (OCS) use. According to the applicant, even with relatively modest cohort numbers, ROC analysis demonstrated that VDP and image scoring can predict increased asthma severity and HCU in a pediatric asthma cohort. The applicant stated that the improved predictive value, high safety profile, and short and tolerable imaging process allows for longitudinal follow-up in children. According to the applicant, the ROC curves from Lin et al. demonstrated that the number of defects (AUC, 0.83) is more predictive of healthcare utilization (HCU) than VDP (AUC, 0.73), and that the number of defects is more predictive of severe asthma (AUC, 0.86) than is VDP (AUC, 0.80). The applicant stated that these findings are consistent with HP¹²⁹ Xe MRI (similar to HP³ He) VDP in COPD patients as predictive of a higher likelihood of increased hospitalization.

Response: We thank the applicant for its comments and will take this information into consideration when deciding whether to approve new technology add-on payments for XENOVIEW. Regarding XENOVIEW, we note the applicant stated there are no published studies reporting early detection of disease using XENOVIEW that followed longitudinally reported outcomes. We also note that many of the articles submitted by the applicant were not about XENOVIEW, but rather described the usage of hyperpolarized 3-Helium (or HP³ He) imaging and the correlation of measurements obtained through HP³ He imaging with existing standard of care imaging modalities such as spirometry. We question whether results from studies that utilize HP³ He MRI can be extrapolated to the use of HP¹²⁹ Xe MRI. We also note that several citations provided by the applicant are limited to pediatric populations, and we question whether the results would be generalizable to a Medicare population.

7. Proposed FY 2023 Applications for New Technology Add-On Payments (Alternative Pathways)

As discussed previously, beginning with applications for FY 2021, under the regulations at § 412.87(c), a medical device that is part of FDA's Breakthrough Devices Program and has received marketing authorization 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, under the regulations at § 412.87(d), a medical product that is designated by FDA as a 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 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 2-3 year newness period to be considered “new,” and must also still meet the cost criterion.

We note, section 1886(d)(5)(K)(ii)(II) of the Act provides for the collection of data with respect to the costs of a new medical service or technology described in subclause (I) for a period of not less than 2 years and not more than 3 years beginning on the date on which an inpatient hospital code is issued with respect to the service or technology. Our regulations in § 412.87(c)(2) for breakthrough devices and § 412.87(d)(2) for certain antimicrobial products state that a medical device/product that meets the condition in paragraph (c)(1) or (d)(1) of § 412.87 will be considered new for not less than 2 years and not more than 3 years after the point at which data begin to become available reflecting the inpatient hospital code (as defined in section 1886(d)(5)(K)(iii) of the Act) assigned to the new technology (depending on when a new code is assigned and data on the new technology become available for DRG recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical technology, the medical technology will no longer be considered “new” under the criterion of this section.

We received 19 applications for new technology add-on payments for FY 2023 under the new technology add-on payment alternative pathways. Six applicants withdrew applications prior to the issuance of this proposed rule. Of the remaining 13 applications, 11 of the technologies received a Breakthrough Device designation from FDA, 1 has a pending Breakthrough Device designation from FDA, and the remaining application was designated as a QIDP by FDA and is also requesting approval under the LPAD pathway from FDA.

In accordance with the regulations under § 412.87(e)(2), applicants for new technology add-on payments, 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(e) 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 PPS final rule for a complete discussion of this policy (85 FR 58737 through 58742).

As we did in the FY 2022 IPPS/LTCH PPS proposed rule, for applications under the alternative new technology add-on payment pathway, in this proposed rule we are making a proposal to approve or disapprove each of these 13 applications for FY 2023 new technology add-on payments. Therefore, in this section of the preamble of this proposed rule, we provide background information on each alternative pathway application and propose whether or not each technology would be eligible for the new technology add-on payment for FY 2023. We refer readers to section II.H.8. of the preamble of the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final rule (85 FR 58715 through 58733) for further discussion of the alternative new technology add-on payment pathways for these technologies.

a. Alternative Pathway for Breakthrough Devices

(1) CERAMENT® G

BONESUPPORT AB submitted an application for new technology-add on payments for CERAMENT® G for FY 2023. Per the applicant, CERAMENT® G is an injectable bone-void filler made of calcium sulfate, hydroxyapatite, and gentamicin sulfate indicated for the surgical treatment of osteomyelitis. Per the applicant, this bone graft substitute fills gaps resulting from debridement of infected bone and prevents colonization of sensitive bacteria, promoting bone healing in two ways. The applicant stated that the primary mode of action is for CERAMENT® G to act as a resorbable ceramic bone-void filler intended to fill gaps and voids in the skeleton system created when infected bone is debrided. The applicant also stated that the secondary mode of action is to prevent the colonization of gentamicin-sensitive microorganisms in order to protect bone healing. Per the applicant, CERAMENT® G may eliminate the need to harvest autologous bone, avoiding pain and infection at the donor site. We note that BONESUPPORT Inc. previously submitted an application for new technology add-on payments for CERAMENT® G for FY 2022, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25368 through 25373) but the technology did not meet the deadline of July 1, 2021, for FDA approval or clearance of the technology and, therefore, was not eligible for consideration for new technology add-on payments for FY 2022 (86 FR 45126 through 45127).

According to the applicant, CERAMENT® G is designated as a Breakthrough Device for use as a bone-void filler as an adjunct to systemic antibiotic therapy and surgical debridement as part of the surgical treatment of osteomyelitis. The applicant indicated that it anticipates FDA will grant its De Novo classification request in the second quarter of calendar year 2022. The applicant applied for and received a unique ICD-10-PCS procedure code to identify cases involving the administration of CERAMENT® G in 2021. Effective October 1, 2021, CERAMENT® G administration can be identified by ICD-10-PCS procedure code XWOV0P7 (Introduction of antibiotic eluting bone void filler into bones, open approach, new technology group 7), which is unique to CERAMENT® G administration. The applicant stated that the following existing ICD-10-CM codes for osteomyelitis appropriately describe the proposed indication for which the device received Breakthrough Device designation (“Breakthrough Device Indication”):

With respect to the cost criterion, the applicant identified candidate cases using ICD-10-PCS procedure and ICD-10-CM diagnosis codes, which are detailed in the tables in this section. With these codes identified, the applicant then went through the Grouper logic in the MS-DRG v39.0 Definitions Manual and located where cases with these codes would be assigned in the MS-DRG system. This process yielded 13 MS-DRGs which the applicant used for their analysis. The applicant also submitted an additional subanalysis using only cases from the applicant's top three identified MS-DRGs (464, 493, and 504), to demonstrate that the technology meets the cost criterion.

Under the first analysis, the applicant searched claims in the FY 2019 MedPAR final rule dataset within the 13 identified MS-DRGs that reported one of the M86 ICD-10-CM diagnosis codes listed previously in combination with the ICD-10-PCS procedure codes listed in the following table, which identify procedures that could involve the use of CERAMENT® G as an adjunct to systemic antibiotic therapy and surgical debridement where there is a need for supplemental bone void filler material.

The applicant identified 11,620 cases across 13 MS-DRGs as identified in the table that follows.

The applicant noted that candidate cases for CERAMENT® G with osteomyelitis would qualify for the CC/MCC MS-DRGs because osteomyelitis is listed in the Grouper as a CC condition. Therefore, the applicant concluded that cases with osteomyelitis would not be grouped in the uncomplicated MS-DRGs (for example, 465, 494, etc.). The applicant stated that because osteomyelitis is never assigned to uncomplicated surgical MS-DRGs, it excluded uncomplicated MS-DRGs from its analysis.

The applicant then removed charges for the prior technology that may be replaced by CERAMENT® G. The applicant conducted a market analysis that identified 3 types of prior technology devices: Poly(methyl methacrylate) (PMMA) manually mixed with antibiotics, PMMA pre-loaded with antibiotics, and calcium sulfate (CaS) mixed with antibiotics. The applicant researched the average sales price (ASP) for major competitors for 5cc and 10cc of each device type and calculated a weighted average cost of $444 per 5cc and $727 per 10 cc. Then the applicant converted costs to charges by dividing costs by the Supplies & Equipment CCR of 0.297 (86 FR 44966). Using this CCR, $444 per 5cc and $727 per 10cc yielded an estimated hospital charge of prior technologies of $1,495 per 5cc and $2,449 per 10cc. The applicant explained that the total amount of antibiotics depends on the amount of product required for different sized bones. The applicant then standardized the charges and applied a 4-year inflation factor of 1.281834 based on the inflation factor used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542).

The applicant added estimated charges for the new technology by dividing the estimated, expected hospital list price for the device (based on expected 5/10/15 cc costs for CERAMENT® G, by MS-DRG), by the aforementioned Supplies & Equipment CCR of 0.297.

The applicant calculated a final inflated case-weighted average standardized charge per case of $135,258 and an average case-weighted threshold of $86,603. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

The applicant also provided an alternate cost analysis using the applicant's top three identified MS-DRGs (464, 493, and 504), which together constituted more than half of the applicant's identified cases. Using the same methodology and data sources above, the applicant calculated a final inflated case-weighted average standardized charge per case of $112,316 and an average case-weighted threshold of $77,375. The applicant maintained that CERAMENT® G meets the cost criterion under this alternate analysis.

We agree with the applicant that CERAMENT® G meets the cost criterion and therefore, subject to the technology receiving FDA marketing authorization for use as a bone-void filler as an adjunct to systemic antibiotic therapy and surgical debridement as part of the surgical treatment of osteomyelitis by July 1, 2022, we are proposing to approve CERAMENT® G for new technology add-on payments for FY 2023.

Based on preliminary information from the applicant at the time of this proposed rule, the total cost of CERAMENT® G for a typical patient is $7,567 per procedure. Per the applicant, the amount of CERAMENT® G used per patient depends on the complexity of the patient's injury, subsequent comorbidities, as well as the location and size of the bone void. The applicant expects that an average patient will require ~10cc per procedure, based on the case weighted volume of expected utilization across the MS-DRGs. From this weighted average, the applicant derived the average, weighted cost of $7,567 per patient. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the product CERAMENT® G would be $4,918.55 for FY 2022 (that is, 65% of the average cost of the technology).

We are inviting public comments on whether CERAMENT® G meets the cost criterion and our proposal to approve new technology add-on payments for CERAMENT® G for FY 2023, subject to CERAMENT® G receiving FDA marketing authorization for use as a bone-void filler as an adjunct to systemic antibiotic therapy and surgical debridement as part of the surgical treatment of osteomyelitis by July 1, 2022.

(2) GORE® TAG® Thoracic BranchEndoprosthesis (TBE Device)

W.L. Gore and Associates, Inc., submitted an application for new technology add-on payments for the GORE® TAG® Thoracic Branch Endoprosthesis (TBE) device for FY 2023. According to the applicant, the GORE® TAG® TBE device is a modular device consisting of three components, an Aortic Component, a Side Branch Component, and an optional Aortic Extender Component, each of which is pre-mounted on a catheter delivery system for treatment of thoracic aortic aneurysms, traumatic aortic transection, and aortic dissection.

According to the applicant, the GORE® TAG® TBE device was granted designation under the Expedited Access Pathway (EAP) by FDA (and is therefore considered part of the Breakthrough Devices Program by FDA) on July 17, 2015, for endovascular repair of descending thoracic aortic and aortic arch for patients who have appropriate anatomy. The applicant indicated that it anticipates receiving premarket approval of the GORE® TAG® TBE device as a Class III device from FDA in Spring 2022 with a proposed indication for endovascular repair of lesions of the descending thoracic aorta, while maintaining flow into the left subclavian artery, in patients who have adequate iliac/femoral access, and eligible proximal aorta, left subclavian, or distal landing zones (isolated lesion patients only). Since the indication for which the applicant anticipates receiving premarket approval is included within the scope of the EAP designation, it appears that the proposed PMA indication is appropriate for new technology add-on payment under the alternative pathway criteria.

The applicant noted that a combination of two existing ICD-10-PCS procedure codes can be used to uniquely identify the GORE® TAG® TBE: 02VW4EZ (Restriction of thoracic aorta, descending with branched or fenestrated intraluminal device, one or two arteries, percutaneous endoscopic approach), in combination with 02VX4EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous endoscopic approach). Per the applicant, the GORE® TAG® TBE device is placed such that it straddles two anatomic regions, the descending thoracic aorta and thoracic aortic arch, thereby necessitating the use of both ICD-10-PCS procedure codes to accurately describe the use of the device.

With regard to the cost criterion, the applicant searched the FY 2019 MedPAR dataset from the FY 2022 IPPS proposed rule for cases reporting a combination of a thoracic endovascular repair (TEVAR) procedure and a bypass procedure. The applicant listed the following ICD-10-PCS codes for TEVAR procedures and bypass procedures, which the applicant used to identify potential cases that may be eligible for treatment with the GORE® TAG® TBE device. Per the applicant, cases with at least one ICD-10-PCS procedure code from each category were included in the analysis.

The applicant identified 210 cases mapping to five MS-DRGs. The applicant then removed charges for the technology being replaced. The applicant stated that the use of TAG® Conformable devices in cases that also use the GORE® TAG® TBE device is entirely dependent on the patient's anatomy. The applicant explained that the average case utilizing the GORE® TAG® TBE device uses 0.6 TAG® Conformable devices, compared to an average of 1.4 TAG® Conformable devices per procedure for current TEVAR cases, resulting in a difference of 0.8 TAG® Conformable devices which will no longer be used in cases utilizing the GORE® TAG® TBE device. Accordingly, 80% of all device implant charges were removed from the claims to be conservative, per the applicant. The applicant then removed other charges related to the prior technology. According to the applicant, a research study that compared 24 patients treated with TBE to 31 patients treated with the traditional method at one facility found that TBE device cases have a 19% reduction in operating room (OR) time compared to the OR time for the combined procedures (TEVAR with a bypass procedure), and a 48% reduction in length of stay. Accordingly, the applicant removed 19% of OR charges (revenue code 0360), removed 48% of routine charges (revenue code 01XX) when a claim showed routine charges, and removed 48% of intensive care unit (ICU) charges if a claim included no routine charges. The applicant then standardized the charges and applied a 4-year inflation factor of 1.2818 based on the inflation factor used in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45538), to update the charges from FY 2019 to FY 2023. The applicant then added charges for the new technology by dividing the average per patient cost of the GORE® TAG® TBE device by the national CCR for implantable devices (0.293) from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966). The applicant calculated a final inflated case-weighted average standardized charge per case of $400,515 and an average case-weighted threshold of $217,182. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

We note that the charges removed for prior technology are based on length of stay in a small study conducted at a single institution. Specifically, the study involved 24 patients who received the TBE device during elective procedures and 31 who had the procedures with bypass. Three of these procedures were emergent and only 14 and 17, respectively, were procedures in Zone 2 where the GORE® TAG® TBE would be indicated. Given the small percentage of procedures that directly relate to the proposed GORE® TAG® TBE indication, we question the extent to which these results are generalizable to the cost analysis performed above and the greater Medicare population. Additionally, the applicant did not specify the revenue codes used to identify and remove intensive care unit charges. We note the applicant listed two ICD-10-PCS codes (03S43ZZ and 03SQ3ZZ) in their analysis which are percutaneous procedures and question whether the inclusion of these codes is appropriate as the devices currently used to repair the aortic arch require the creation of a bypass performed in an open surgery. We also question whether the cases that the applicant identified are appropriately representative of cases eligible for treatment with GORE® TAG® TBE and request additional information to clarify this issue.

Subject to the applicant adequately addressing these concerns, we would agree that the technology meets the cost criterion and therefore are proposing to approve the GORE® TAG® TBE device for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the proposed indication by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the per-patient anticipated hospital cost of the GORE® TAG® TBE device is $42,780. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. In the event we receive supplemental information from the applicant to adequately address our concerns regarding the cost criterion, and we were to approve new technology add-on payments for the GORE® TAG® TBE device in the final rule, the maximum new technology add-on payment for a case involving the use of the GORE® TAG® TBE device would be $27,807 for FY 2023 (that is, 65% of the average cost of the technology).

We are inviting public comments on whether the GORE® TAG® TBE device meets the cost criterion and our proposal to approve new technology add-on payments for the GORE® TAG® TBE device for FY 2023, subject to the technology receiving FDA marketing authorization for the proposed indication that corresponds to the EAP designation by July 1, 2022.

(3) iFuse Bedrock Granite Implant System

SI-BONE, Inc., submitted an application for new technology add-on payments for the iFuse Bedrock Granite Implant System for FY 2023. According to the applicant, the iFuse Bedrock Granite Implant System is a sterile, single-use permanent implant intended to provide sacropelvic fusion of the sacroiliac joint and fixation to the pelvis when used in conjunction with commercially available pedicle screw fixation systems as a foundational element for segmental spinal fusion. The applicant states that the joint fusion occurs as a result of the device's porous surface and interstices, and fixation occurs through the device's helical threaded design and traditional posterior fixation rod connection. Per the applicant, the iFuse Bedrock Granite Implant System can be placed into the pelvis in two trajectories: Sacroalar-iliac (SAI) trajectory (that is, into the sacrum, across the SI joint and into the ilium) or directly into the ilium, and joint fusion occurs only when the SAI trajectory is used.

According to the applicant, the iFuse Bedrock Granite Implant System received FDA Breakthrough Device designation on November 23, 2021 for sacropelvic fixation and as an adjunct for sacroiliac joint fusion (when used with commercially available sacroiliac joint fusion promoting devices) in conjunction with commercially available posterior pedicle screw systems for the treatment of the acute and chronic instabilities or deformities of the thoracic, lumbar, and sacral spine; degenerative disc disease (DDD) as defined by back pain of discogenic origin with degeneration of the disc confirmed by patient history and radiographic studies; severe spondylolisthesis (Grades 3 and 4) of the L5-S1 vertebra in skeletally mature patients receiving fusions by autogenous bone graft having implants attached to the lumbar and sacral spine (L3 to sacrum) with removal of the implants after the attainment of a solid fusion; spondylolisthesis; trauma (that is, fracture or dislocation); spinal stenosis; deformities or curvatures (that is, scoliosis, kyphosis, and/or lordosis); spinal tumor; pseudarthrosis; and/or failed previous fusion. The applicant is seeking 510(k) clearance from FDA for the same indication.

The applicant stated that ICD-10-PCS codes that may be utilized to describe the placement of an internal fixation device into the pelvic bone or acetabulum, listed in the following table, do not distinctly identify the iFuse Bedrock Granite Implant System. The applicant submitted a request to the ICD-10 Coordination and Maintenance Committee for approval of a unique code for FY 2023 to identify the technology.

With regard to the cost criterion, the applicant conducted two analyses based on 100% of identified claims and 78% of identified claims. To identify potential cases where the iFuse Bedrock Granite Implant System could be utilized, the applicant searched the FY 2019 MedPAR final rule file for claims reporting a combination of at least one of the ICD-10-PCS procedure codes for the placement of an internal fixation device into the pelvic bone or acetabulum, noted previously, and at least one of the following ICD-10-CM diagnosis codes used to describe the indication under the Breakthrough Device designation.

For the analysis using 100% of cases, the applicant identified 2,165 cases mapping to the following 26 MS-DRGs:

The applicant then removed 50% of the charges associated with medical supplies and implantable devices (revenue centers 027x and 0624). The applicant stated that the removal of 50% of the charges associated with medical supplies and implantable devices reflects a conservative estimate as the iFuse Bedrock Granite Implant System is used in conjunction with commercially available pedicle screw fixation systems as a foundational element for segmental spinal fusion. The applicant then standardized the charges and applied the three-year inflation factor of 20.4% used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542) to update the charges from FY 2019 to FY 2022. The applicant then added charges for the new technology by dividing the per-patient anticipated hospital cost of the iFuse Bedrock Granite Implant System by the national average cost-to-charge ratio for implantable devices (0.239) from the FY 2022 IPPS/LTCH PPS final rule. Under the analysis based on 100% of identified claims, the applicant calculated a final inflated case-weighted average standardized charge per case of $254,264 and an average case-weighted threshold of $159,841.

For the analysis using 78% of cases, the applicant identified 1,682 cases mapping to 4 MS-DRGs. The applicant conducted the same analysis noted previously and determined a final inflated case-weighted average standardized charge per case of $253,333 and an average case-weighted threshold of $164,561. Because the final inflated case-weighted average standardized charge per case exceeded the average case-weighted threshold amount under both analyses, the applicant asserted that the technology meets the cost criterion.

We agree with the applicant that iFuse Bedrock Granite Implant System meets the cost criterion and therefore are proposing to approve the iFuse Bedrock Granite Implant System for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the per-patient anticipated hospital cost of the iFuse Bedrock Granite Implant System is $15,120. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the iFuse Bedrock Granite Implant System would be $9,828 for FY 2023 (that is, 65% of the average cost of the technology).

We are inviting public comments on whether the iFuse Bedrock Granite Implant System meets the cost criterion and our proposal to approve new technology add-on payments for the iFuse Bedrock Granite Implant System for FY 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

(4) LigaPASS 2.0 PJK Prevention System

Medtronic submitted an application for new technology add-on payments for the LigaPASS 2.0 PJK Prevention System for FY 2023. Per the applicant, the LigaPASS 2.0 PJK Prevention System is intended to mitigate the risk of post-operative proximal junctional kyphosis (PJK) and proximal junctional failure (PJF) in patients with spinal deformities. The applicant states that the LigaPASS 2.0 PJK Prevention System is designed to restore balance and stability as a complement to a posterior thoracolumbar fixation system, and provides surgeons the ability to mimic anatomical muscle and ligament functionality and stabilization between vertebrae adjacent to fused levels in a spine surgery. According to the applicant, the LigaPASS 2.0 PJK Prevention System consists of a polyester (PET) band and titanium alloy medial open connector with two set screws. The applicant indicates the LigaPASS 2.0 PJK Prevention System bands are laced around the vertebra independently of the vertebra anatomy and then connected to a LigaPASS 2.0 PJK Prevention System connector to make the rod-bone connection, allowing the surgeon to create a posterior vertebra anchorage without the use of a pedicle screw or hook.

According to the applicant, the LigaPASS 2.0 PJK Prevention System was granted Breakthrough Device designation on September 2, 2021, for spinal trauma surgery, used in sublaminar or facet wiring techniques; spinal reconstructive surgery, incorporated into construct for the purpose of correction of spinal deformities such as idiopathic and neuromuscular scoliosis in patients 8 years of age and older, adult scoliosis and kyphosis; spinal degenerative surgery as an adjunct to spinal fusions; intended for use at the non-fused level(s) adjacent to a posterior spinal instrumentation construct when ligament augmentation is considered appropriate to mitigate the risk of post-operative PJK and PJF. The applicant noted that a 510(k) has been submitted to FDA for the same indication (K213659). The applicant stated that the LigaPASS 2.0 PJK Prevention System includes components from two predicate devices: The LigaPASS 2.0 connector (K172021), previously cleared to provide temporary stabilization as a bone anchor during the development of solid bony fusion, and the LigaPASS 2.0 band (K173506), previously cleared to aid in the repair of bone fractures. According to the applicant, there are no technological differences between the subject device and its predicates; the only difference would be the added PJK/PJF indication covered by the Breakthrough Device designation. The applicant indicated that it is seeking new technology add-on payment only for the LigaPASS 2.0 PJK Prevention System's proposed new PJK and PJF indication for which the device has been designated as a Breakthrough Device by FDA. According to the applicant, there are no ICD-10-PCS codes that uniquely identify procedures involving the use of the LigaPASS 2.0 PJK Prevention System. The applicant also noted there are no unique ICD-10-CM diagnosis codes that describe the indication for prophylactic use of the LigaPASS 2.0 PJK Prevention System for PJK/PJF prevention covered by the Breakthrough Device designation. The applicant has submitted a request for a unique ICD-10-CM diagnosis code and a unique ICD-10-PCS code that can be used together to uniquely identify cases involving use of the technology for the Breakthrough Device designation for the technology.

With regard to the cost criterion, the applicant provided the following cost analysis to demonstrate that the LigaPASS 2.0 PJK Prevention System meets the cost criterion. The applicant searched the FY 2019 MedPAR dataset for cases representing patients who may be eligible for LigaPASS 2.0 PJK Prevention System. The applicant stated they conducted a thorough review of ICD-10-PCS codes for procedures in which the LigaPASS 2.0 PJK Prevention System might be placed into the spine to prevent PJK/PJF in an adult patient who is diagnosed with spinal deformity. The applicant provided the following ICD-10-PCS procedure codes and ICD-10-CM diagnosis codes used to identify cases representing patients who may be eligible for the LigaPASS 2.0 PJK Prevention System.

The applicant identified 433,845 cases using the combination of ICD-10-PCS and ICD-10-CM codes which mapped to the following 11 MS-DRGs:

The applicant did not remove charges for prior technology. The applicant standardized the charges and applied a 4-year inflation factor of 1.281834 based on the inflation factor used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542), to update the charges from FY 2019 to FY 2023. The applicant then added charges for the new technology by dividing the per-patient anticipated hospital cost of the LigaPASS 2.0 PJK Prevention System by the national average cost-to-charge ratio for implantable devices (0.239) from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966). The applicant also added related charges for the new technology, estimated by the cost of 15 additional minutes of operating room time and 15 additional minutes of nursing time divided by the national average cost-to-charge ratios for Operating Room (0.167) and Other Services (0.344), respectively, from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966). The applicant calculated a final inflated case-weighted average standardized charge per case of $386,183 and an average case-weighted threshold of $165,473. Because the final inflated case-weighted average standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

We agree with the applicant that the LigaPASS 2.0 PJK Prevention System meets the cost criterion and therefore are proposing to approve the LigaPASS 2.0 PJK Prevention System for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

Based on the preliminary information from the applicant at the time of this proposed rule, the cost per case of the LigaPASS 2.0 PJK Prevention System is $17,392, which includes $10,458 for 2 bands and $6,934 for 2 connectors per surgery. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the LigaPASS 2.0 PJK Prevention System would be $11,305 for FY 2023 (that is, 65% of the average cost of the technology).

We are inviting public comments on whether the LigaPASS 2.0 PJK Prevention System meets the cost criterion and our proposal to approve new technology add-on payments for LigaPASS 2.0 PJK Prevention System for FY 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

(5) Magnus Neuromodulation System With SAINT Technology

Magnus Medical, Inc. submitted an application for new technology add-on payments for Magnus Neuromodulation System (MNS) with Stanford Accelerated Intelligent Neuromodulation Therapy (SAINT) technology for FY 2023. Per the applicant, the Magnus Neuromodulation System with SAINT technology is a transcranial magnetic stimulation (TMS) device with intermittent theta burst (iTBS) capability and includes a neuronavigation system to direct neurostimulation to individualized targets, and has target identification software that identifies individualized targets in the brain for stimulation using structural and functional MRI outputs. According to the applicant, the Magnus Neuromodulation System with SAINT technology utilizes magnetic pulses delivered to the prefrontal cortex in order to treat major depressive disorder (MDD), and has redesigned aspects of TMS to personalize the treatment and optimize individual patient response. These aspects include the identification of a target for stimulation, the dose or amount of stimulation, and the stimulation pattern.

The applicant stated that on July 2, 2021, the FDA designated the Magnus Transcranial Magnetic Stimulation (TMS) System with MINT (Magnus Intelligent Neuromodulation Therapy) as a Breakthrough Device for the treatment of major depressive disorder (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 with SAINT technology is the same system that received the Breakthrough Device designation, but with a revised name. Per the applicant, Magnus Neuromodulation System with SAINT technology is a Class II device. The applicant stated that it is seeking FDA 510(k) clearance for the same indication, which the applicant expects to receive by June 1, 2022.

According to the applicant, there are currently no ICD-10-PCS codes to distinctly identify the Magnus Neuromodulation System with SAINT technology. The applicant submitted a request for approval for a unique ICD-10-PCS procedure code for Magnus Neuromodulation System with SAINT technology beginning in FY 2023. The applicant stated that the following ICD-10-CM diagnosis codes may be used to identify cases corresponding to the proposed Breakthrough Device indication for use of Magnus Neuromodulation System with SAINT technology: F32.2 (Major depressive affective disorder, single episode, severe, without mention of psychotic behavior) and F33.3 (Major depressive affective disorder, recurrent episode, severe, without mention of psychotic behavior).

With respect to the cost criterion, the applicant completed an analysis, as well as an additional subanalysis including only cases containing the ICD-10-CM diagnosis codes that correspond to their Breakthrough Device indication, to demonstrate that the Magnus Neuromodulation System with SAINT technology meets the cost criterion.

Under the main analysis, after determining that cases representing patients who may be eligible for treatment with Magnus Neuromodulation System with SAINT technology would map to MS-DRG 885 (Psychoses), the applicant determined a case count of 68,602 based on the number of cases reported for MS-DRG 885 in the FY 2023 New Technology Thresholds data file published with the FY 2022 IPPS/LTCH PPS final rule. The applicant then searched the FY 2020 Inpatient Standard Analytic File (IPSAF) for claims incurred during FY 2020 with an MS-DRG of 885. The applicant aggregated the charges at the facility level and calculated a weighted average of covered charges across all facilities.

The applicant stated that it declined to remove charges for prior technology, as the applicant determined that analogous technologies are currently used almost exclusively on an outpatient basis. The applicant then standardized the charges using inputs from the FY 2022 Standardizing File and the geographic adjustment factor (GAF) from the IPPS FY 2022 final rule impact file. The applicant applied the 3-year inflation factor used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to calculate outlier threshold charges, which the applicant stated as 1.204686 (86 FR 45542). The applicant then added charges for the new technology by dividing the cost of Magnus Neuromodulation System with SAINT technology by the national average CCR for the Other Services, which is 0.334 (86 FR 44966), and inflating the charges using the same three year-inflation factor. The applicant added costs using the Outpatient Standard Analytic File (OPSAF) for FY 2020 data to populate estimated charges related to the technology and specifically included the following charges related to procedures from the OSPAF 2020:

• Brain Stimulation Consultation (completed on day 1 or 2 of the admission): Average weighted charges for CPT codes 99253-99255 ($481.91).
• Neuro Navigation (completed on day 1 or 2 of the admission): Average weighted charges for CPT code 61782 ($3,871.77). This procedure is performed every day before stimulation treatment and the day of the fMRI (Functional MRI) (6 instances on separate days).
• Functional MRI (fMRI) (completed on day 1 or day 2 of the admission): Average charges for CPT code 70554 ($3,333.89).
• Motor Threshold Determination (completed on the first day of the brain stimulation sessions): Average charges for CPT code 90867 within revenue code 900 ($639.05).
• Brain Stimulation Sessions (10 sessions a day across 5 treatment days, that is 50 sessions): Average charges for CPT code 90868 within revenue code 900 ($502.63).

The applicant calculated a final inflated average case-weighted standardized charge per case of $120,840 which exceeded the average case-weighted threshold amount of $34,073. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that Magnus Neuromodulation System with SAINT technology meets the cost criterion.

Under the subanalysis, the applicant included only cases within MS-DRG 885 reporting an ICD-10-CM diagnosis code of F32.2 or F33.3, as these two diagnosis codes match their Breakthrough Device indication. The applicant identified 2,787 cases containing either of these two ICD-10-CM diagnosis codes within MS-DRG 885. The applicant then applied the same methodology for calculations as in the main analysis. The calculations in this sub-analysis resulted in a case-weighted average standardized charge per case of $29,882 and a final inflated average case weight standardized charge per case of $125,152. The final inflated average case-weighted standardized charge per case under this subanalysis also exceeded the average case-weighted threshold amount of $34,073.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the Magnus Neuromodulation System with SAINT technology to the hospital to be a $12,500 fee per patient. The applicant stated that the cost of the technology consists of the three individual components of the Magnus Neuromodulation System with SAINT technology: The neurostimulation hardware, the neuronavigation hardware, and the target identification software. The applicant also noted that none of these were operating costs. Because section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for payment of the operating costs of inpatient hospital services, we do not include capital costs in the add-on payments for a new medical service or technology or make new technology add-on payments under the IPPS for capital-related costs (86 FR 45145). Based on the information from the applicant, it appears that the costs of the Magnus Neuromodulation System with SAINT technology only include capital costs. Therefore, even if the technology meets the cost criterion, it appears that the Magnus Neuromodulation System with SAINT technology is not eligible for new technology add-on payment because, as discussed in prior rulemaking and noted previously, we only make new technology add-on payments for operating costs (72 FR 47307 through 47308). However, we are inviting public comments on whether the Magnus Neuromodulation System with SAINT technology has any operating costs, and if it meets the cost criterion. If the Magnus Neuromodulation System with SAINT technology does have operating costs, since it appears to meet the cost criterion, we are proposing to approve new technology add-on payments for only the operating costs of the Magnus Neuromodulation System with SAINT technology for FY 2023, subject to the technology receiving FDA marketing authorization for the treatment of MDD in adult patients who have failed to receive satisfactory improvement from prior antidepressant medication in the current episode, by July 1, 2022.

(6) Nelli® Seizure Monitoring System

Neuro Event Labs, Inc. submitted an application for new technology add-on payments for the Nelli® Seizure Monitoring System for FY 2023. Per the applicant, the Nelli® Seizure Monitoring System is software designed to automate the analysis of audio and video data to identify seizure events with a positive motor component as an adjunct to seizure monitoring in a hospital inpatient or home setting for adults and children 6 years of age and older. The applicant stated that data is collected while the patient is `observed' using the Nelli® Seizure Monitoring System hardware (Personal Recording Unit [PRU]), which temporarily stores and pre-processes raw media data to extract only periods likely to contain clinically relevant activity. The applicant then stated that data is transmitted via a secure internet connection to the Nelli® Seizure Monitoring System software running on a remote server where it is processed using analysis algorithms which create and categorize media samples that may be indicative of epileptic seizure events. Per the applicant, the software provides objective summaries of semiological components of identified events (including velocity and acceleration of movements, seizure frequency, seizure duration, heart rate, and respiratory rate) to enable the detection and classification of epileptic events using pretrained artificial intelligence (AI).

According to the applicant, the Nelli® Seizure Monitoring System received Breakthrough Device designation from FDA on October 9, 2020 for the automated analysis of audio and video data to identify seizure events with a positive motor component in children and adults as well as to characterize seizures and peri-ictal events. The applicant stated that the Nelli® Seizure Monitoring System is not yet commercially available as it is awaiting 510(k) clearance of the device from the FDA for the same indication, which the applicant submitted on August 17, 2021.

According to the applicant, there are currently no ICD-10-PCS procedure codes to distinctly identify the Nelli® Seizure Monitoring System. The applicant stated that the inpatient population for which the Nelli® Seizure Monitoring System is indicated would undergo standard video EEG monitoring, which is described by the ICD-10-PCS code 4A10X4Z (Monitoring of central nervous electrical activity, external approach). The applicant has submitted a request to the ICD-10 Coordination and Maintenance Committee for approval of a unique code for FY 2023 to identify the technology.

With respect to the cost criterion, the applicant conducted two analyses to demonstrate that the Nelli® Seizure Monitoring System meets the cost criterion, one based on 100% of identified claims, and second based on 91.1% of identified claims.

Under the first scenario, which included 100% of claims, the applicant searched the FY 2020 MedPAR database for cases representing patients who may be eligible for the Nelli® Seizure Monitoring System. The applicant extracted all inpatient claims for which ICD-10-PCS code 4A10X4Z (Monitoring of central nervous electrical activity, external approach) appeared in conjunction with any of the ICD-10-CM codes listed in the table below. The applicant stated this approach to identifying cases is based on the methodology used in a recent paper, which assessed the ability of using code-based queries to identify inpatient epilepsy monitoring unit (EMU) admissions from billing records in a large academic medical center over a 4-year period, 2016-2019.

After imputing a case count of 11 for those MS-DRGs with fewer than 11 cases, the applicant identified 9,506 claims mapping to the following 11 MS-DRGs, with over 90% of cases mapping to MS-DRGs 100 (Seizures with MCC) and 101 (Seizures without MCC):

The applicant did not remove charges for prior technology as it asserted there is no technology being replaced when the Nelli® Seizure Monitoring System is used in a hospital inpatient setting. The applicant then standardized the charges by applying the 3-year inflation factor of 1.204686 used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to calculate outlier threshold charges (86 FR 45542). The applicant then added charges for the new technology by dividing the cost of the Nelli® Seizure Monitoring System by the national average CCR for “Other Services,” which is 0.344 as published in the FY 2022 IPPS/LTCH IPPS final rule (86 FR 44966).

The applicant calculated a case-weighted average standardized charge per case of $56,770 and a final inflated average case-weighted standardized charge per case of $71,297, both of which exceeded the average case-weighted threshold amount of $48,474.

Under the second scenario, the applicant included only cases mapping to MS-DRGs 100 and 101 (seizures with and without MCC, respectively) as these two MS-DRGs represented 91.1% of patients undergoing video EEG, which the applicant identified using the ICD-10-PCS code 4A10X4Z (Monitoring of central nervous electrical activity, external approach). Per the applicant, 30.2% of the procedures mapped to MS-DRG 100 and 60.9% of the procedures mapped to MS-DRG 101. The applicant asserted that these patients more likely represent the inpatient EMU population for which the Nelli® Seizure Monitoring System would be especially applicable. The applicant identified 6,182 cases mapping to these 2 MS-DRGs. The applicant then applied the same methodology for calculations as in the first analysis. The calculations in this sub-analysis resulted in a case-weighted average standardized charge per case of $55,524 and a final inflated average case weight standardized charge per case of $69,796. Both of these amounts exceed the case-weighted threshold amount of $48,404.

Because the final inflated case-weighted average standardized charge per case for each scenario exceeded the average case-weighted threshold amount for all scenarios, the applicant asserted that the Nelli® Seizure Monitoring System meets the cost criterion.

We agree that the Nelli® Seizure Monitoring System meets the cost criterion and therefore are proposing to approve the Nelli® Seizure Monitoring System for new technology add on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the automated analysis of audio and video data to identify seizure events with a positive motor component in children and adults by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the non-capital cost of the Nelli® Seizure Monitoring System to the hospital to be $1,000 per patient for the semiological report and seizure detection notification produced following patient assessment. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. The applicant based the cost per case of its technology on two pricing models that it currently uses in Europe. The first pricing model consists of an approximately $350 per day charge for the technology. The applicant stated that this results in a typical cost to the hospital of around $1,000 USD (excluding capital costs) for an average patient stay of 3-4 days in an EMU. The applicant stated that the second pricing model is a single 1000 € per-patient fee for measurement of readings and producing the report, regardless of the number of days the system is used. Therefore, based on the information provided by the applicant, it appears that the average cost per case for the use of the Nelli® Seizure Monitoring System is $1000 USD. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the Nelli® Seizure Monitoring System would be $650 for FY 2023 (that is 65% of the average cost of the technology).

We are inviting public comments on whether the Nelli® Seizure Monitoring System meets the cost criterion and our proposal to approve new technology add-on payments for the Nelli® Seizure Monitoring System for FY 2023, subject to the technology receiving FDA marketing authorization for the automated analysis of audio and video data to identify seizure events with a positive motor component in children and adults by July 1, 2022.

(7) Phagenyx® System

Phagenesis Ltd. submitted an application for new technology-add on payments for the Phagenyx® System for FY 2023. The Phagenyx® System (Phagenyx®) is a neurostimulation device for the treatment of neurogenic dysphagia, which is often seen after stroke, traumatic brain injury, or prolonged mechanical ventilation. Per the applicant, the system is comprised of a sterile single-use per patient catheter (the PNX-1000 catheter), introduced nasally and extending as far as the patient's stomach; and the (reusable) EPSB3 Base Station, described as a touch screen user interface that facilitates the optimization of stimulation levels and stores patient and treatment information. Per the applicant, treatment involves the use of electric pulses to stimulate sensory nerves in the oropharynx. The applicant is requesting new technology add-on payments for the PNX-1000 catheter only. We note that Phagenesis Ltd. previously submitted an application for new technology add-on payments for the Phagenyx® System for FY 2022, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25382 through 25384) but the technology did not meet the deadline of July 1, 2021, for FDA approval or clearance of the technology and, therefore, was not eligible for consideration for new technology add-on payments for FY 2022 (86 FR 45126 through 45127).

Per the applicant, Phagenyx® received Breakthrough Device designation on December 4, 2019 for use in treating neurogenic dysphagia in adult tracheotomized patients weaned from ventilation. The Breakthrough Device designation was revised on January 29, 2021 to include the treatment of nonprogressive neurogenic dysphagia in adult patients, for which the applicant indicated that it anticipates FDA will grant a De Novo classification request in the second quarter of calendar year 2022.

The applicant applied for and received a unique ICD-10-PCS procedure code to identify cases involving the administration of Phagenyx® effective for FY 2022. Phagenyx® administration can now be identified by the ICD-10-PCS procedure code XWHD7Q7 (Insertion of neurostimulator lead into mouth and pharynx, via natural or artificial opening, new technology group 7), which is unique to Phagenyx® administration.

With respect to the cost criterion, the applicant provided an analysis, as well as an additional subanalysis containing only MS-DRGs having at least 1% of the entire sample volume, to demonstrate that the technology meets the cost criterion. Under the first analysis, the applicant first identified discharges from the 2019 MedPAR final rule dataset reporting one of the following ICD-10-CM codes for dysphagia:

The applicant then removed all discharges reporting one of the following ICD-10-CM codes for a progressive neurodegenerative disease or condition:

The applicant included only inpatient fee-for-service discharges (claim type “60”) and excluded Medicare Advantage discharges.

After imputing a value of 11 cases for any MS-DRG with a discharge count under 11, the applicant identified 391,136 cases spanning 722 MS-DRGs. The applicant explained that it did not remove charges for prior technology as Phagenyx® does not replace any existing therapy for treating neurogenic dysphagia. The applicant then standardized the charges using the FY 2019 final rule and correction notice impact file and excluded any discharges without a standardized charge. The applicant applied a 4-year inflation factor of 1.281834 to update the charges from FY 2019 to FY 2023, based on the inflation factor used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542). The applicant then added charges for the new technology by dividing the estimated cost of Phagenyx® by the national cost-to-charge ratio for supplies and equipment of .297 from the FY 2022 IPPS/LTCH PPS final rule (86 FR 44966). The applicant determined a final inflated case weighted average standardized charge per case of $115,910, which exceeded the case weighted threshold of $68,761. Because the final inflated case-weighted average standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

The applicant submitted an additional analysis containing only cases mapping to MS-DRGs with at least 1% of the entire sample volume. This secondary analysis contained 19 MS-DRGs (vs. 722 MS-DRGs in the original analysis). Using the same methodology above, the applicant determined a final inflated case weighted standardized charge per case of $102,682 and a case-weighted threshold of $60,674. Because the final inflated case weighted standardized charge per case exceeded the case-weighted threshold under this second analysis, the applicant maintained that the technology meets the cost criterion.

We agree with the applicant that Phagenyx® meets the cost criterion and are therefore proposing to approve Phagenyx® for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the cost of Phagenyx® is $5,000 per catheter, which is the subject of this application. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of Phagenyx® would be $3,250 for FY 2023 (that is, 65% of the average cost of the technology).

We are inviting public comments on whether Phagenyx® meets the cost criterion and our proposal to approve new technology add-on payments for Phagenyx® for FY 2023 for the indication corresponding to the updated Breakthrough Device designation, subject to Phagenyx® receiving FDA marketing authorization for that indication by July 1, 2022.

(8) Precision TAVI^TM Coronary Obstruction Module

DASI Simulations submitted an application for new technology add-on payments for the Precision Transcatheter Aortic Valve Implantation (TAVI)^TM Coronary Obstruction Module for FY 2023. According to the applicant, the Precision TAVI Coronary Obstruction Module, which would be an added feature of the Precision TAVI Software System, is intended to provide intelligent decision support powered by artificial intelligence (AI) and machine learning to help physicians accurately predict potential coronary artery obstructions in transcatheter aortic valve replacement (TAVR) procedures. The applicant stated that the technology may assist physicians in the evaluation of patients with severe aortic stenosis when considering surgical replacement as opposed to trans-catheter replacement procedures, as well as other interventional or protection measures, when used with the Precision TAVI^TM Software System.

The applicant stated that the Precision TAVI^TM Coronary Obstruction Module has not yet received FDA Breakthrough Device designation, but that it expects to receive Breakthrough Device designation for the following indication: Precision TAVI^TM Coronary Obstruction Module utilizes an additional proprietary software to analyze the results of the simulation module and output coronary obstruction risk biomarkers corresponding to each implantation simulation scenario. For scenarios involving TAVR in a failed surgical valve or a failed transcatheter valve, the computational test will also include use of anatomic characteristics before and after simulated bioprosthetic or native aortic scallop intentional laceration to prevent iatrogenic coronary artery obstruction (BASILICA) procedure. The applicant indicated that it anticipates receiving 510(k) clearance for the Precision TAVI^TM Coronary Obstruction Module from FDA by July 1, 2022 for the same indication. According to the applicant, the device will be available on the market immediately after receiving FDA clearance. We note that the proposed indication as stated in the application does not describe a disease or population to be treated and we therefore question whether this information is the expected indication or some other description of the technology.

According to the applicant, there are currently no ICD-10-PCS codes that uniquely identify the Precision TAVI^TM Coronary Obstruction Module. The applicant submitted a request to the ICD-10 Coordination and Maintenance Committee for approval of a unique code for FY 2023 to identify the Precision TAVI^TM Coronary Obstruction Module.

With regard to the cost criterion, the applicant provided the following analysis. To identify potential cases where the Precision TAVI^TM Coronary Obstruction Module could be utilized, the applicant searched the FY 2019 MedPAR Limited Data Set for cases reporting either of the two ICD-10-PCS procedure codes to describe TAVR procedures, 02RF38Z (Replacement of aortic valve with zooplastic tissue, percutaneous approach) and 02RF38H (Replacement of aortic valve with zooplastic tissue, transapical, percutaneous approach), consistent with the indication for which the applicant anticipates receiving Breakthrough Device designation.

The applicant identified 40,407 total claims across 60 MS-DRGs. The applicant stated that it did not remove charges associated with Medical/Surgical Supplies and Devices (revenue centers 027x and 0624) because the use of the Precision TAVI^TM Coronary Obstruction Module is additive, and does not replace other supplies or devices utilized in the TAVR procedures analyzed. The applicant then standardized the charges and applied the 3-year inflation factor of 1.204686 used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542) to update the charges from FY 2019 to FY 2022. The applicant then added charges for the new technology. The applicant multiplied the cost of the technology by the national cost-to-charge ratio for radiology from the FY2022 IPPS/LTCH PPS final rule (0.136) (86 FR 44966) to calculate estimated average hospital charges associated with the device.

The applicant calculated a final inflated case-weighted average standardized charge per case of $240,685 and an average case-weighted threshold of $181,410. Because the final inflated case-weighted average standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

We have the following concern regarding the applicant's analysis. We note that the applicant used the ICD-10-PCS codes for TAVR to identify cases where the Precision TAVI^TM Coronary Obstruction Module may be used. However, according to the applicant, the software can identify cases where TAVR should not be performed. We question whether these potentially lower cost cases are reflected in the applicant's cost analysis, as a TAVR procedure code would not be on the claim.

Subject to the applicant adequately addressing this concern, we would agree that the technology meets the cost criterion and propose to approve the Precision TAVI^TM Coronary Obstruction Module for new technology add-on payments for FY 2023, subject to the technology receiving Breakthrough Device designation and FDA marketing authorization for the same indication by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the cost of Precision TAVI^TM Coronary Obstruction Module is $1,995 per patient. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of Precision TAVI^TM Coronary Obstruction Module would be $1,296.75 for FY 2023 (that is, 65% of the average cost of the technology). We are inviting public comments on whether the Precision TAVI^TM Coronary Obstruction Module meets the cost criterion and our proposal to approve new technology add-on payments for the Precision TAVI^TM Coronary Obstruction Module for FY 2022 subject to the technology receiving Breakthrough Device designation and FDA marketing authorization by July 1, 2022 for the same indication as described previously.

(9) Thoraflex^TM Hybrid Device

Terumo Aortic submitted an application for new technology-add on payments for the Thoraflex^TM Hybrid Device (Thoraflex^TM) for FY 2023. Per the applicant, the device is a sterile single-use, gelatin sealed Frozen Elephant Trunk (FET) surgical medical device. The applicant explained that the device is deployed through an opened aortic arch and then positioned into the descending thoracic aorta. The applicant further explained that, once it is completely deployed, the collar is sutured to the aorta, and graft anastomoses are then performed in a manner depending upon the chosen product design (which the applicant specified as either the Plexus or the Ante-Flo). The device includes a proximal crimped polyester surgical graft, central polyester collar, and distal nitinol ring stents supported by thin wall polyester fabric. The applicant also noted that the device has a unique gelatin sealant that acts as a seal, preventing blood loss through the polyester fabric product wall. We note that Terumo Aortic previously submitted an application for new technology add-on payments for the Thoraflex^TM Hybrid Device for FY 2022, as summarized in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25390) which was withdrawn prior to the issuance of the FY 2022 IPPS/LTCH PPS final rule (86 FR 45127).

According to the applicant, the Thoraflex^TM Hybrid Device received Breakthrough Device designation on March 20, 2020 for the open surgical repair or replacement of damaged or diseased vessels of the aortic arch and descending aorta, with or without involvement of the ascending aorta, in cases of aneurysm and/or dissection. The applicant is seeking premarket approval of the device for the same indication. According to the applicant, the ICD-10 Coordination and Maintenance Committee approved the following ICD-10-PCS codes to specifically describe the use of the Thoraflex^TM Hybrid Device, effective October 1, 2021: X2RX0N7 (Replacement of thoracic aorta arch with branched synthetic substitute with intraluminal device, new technology group 7) and X2VW0N7 (Restriction of thoracic descending aorta with branched synthetic substitute with intraluminal device, new technology group 7).

With respect to the cost criterion, the applicant conducted two analyses based on 100% of identified claims and 74% of identified claims. To identify potential cases where the Thoraflex^TM Hybrid Device could be utilized, the applicant searched the FY 2019 MedPAR file for claims reporting the following ICD-10-PCS codes for thoracic aortic replacement procedures: 02RX08Z (Replacement of thoracic aorta, ascending/arch with zooplastic tissue, open approach), 02RX0JZ (Replacement of thoracic aorta, ascending/arch with synthetic tissue, open approach), and 02RX0KZ (Replacement of thoracic aorta, ascending/arch with nonautologous tissue substitute, open approach).

For the analysis using 100% of cases, the applicant identified 5,374 cases mapping to 21 MS-DRGs. The applicant then removed charges for the technology being replaced. Per the applicant, the use of the Thoraflex^TM Hybrid device is expected to replace a portion of prior technologies. The applicant explained that because an estimate of the percentage of these total charges that would be replaced could not be determined, it removed 100% of charges associated with medical/surgical supplies and devices (revenue centers 027x and 0624). The applicant then standardized the charges and applied the 3-year outlier inflation factor of 1.204686 used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542) to update the charges from FY 2019 to FY 2022. The applicant then added charges for the new technology. The applicant multiplied the cost of the technology by the national cost-to-charge ratio for implantable devices from the FY 2022 IPPS/LTCH PPS final rule (0.293) to calculate estimated average hospital charges associated with the device. Under this analysis, based on 100% of identified claims, the applicant calculated a final inflated case-weighted average standardized charge per case of $420,924 and an average case-weighted threshold of $230,659.

Under the analysis based on 74% of cases, the applicant used the same methodology, which identified 3,980 cases across MS-DRGs 219 and 220. The applicant determined the average case-weighted threshold of $211,423 and a final inflated average standardized charge per case of $373,273. Because the final inflated case-weighted average standardized charge per case exceeded the average case-weighted threshold amount under both analyses, the applicant asserted that the technology meets the cost criterion.

We agree with the applicant that the Thoraflex^TM Hybrid Device meets the cost criterion and therefore are proposing to approve the Thoraflex^TM Hybrid Device for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the open surgical repair or replacement of damaged or diseased vessels of the aortic arch and descending aorta, with or without involvement of the ascending aorta, in cases of aneurysm and/or dissection by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the cost of Thoraflex^TM Hybrid Device is $35,000 per patient. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of Thoraflex^TM Hybrid Device would be $22,750 per patient for FY 2023 (that is, 65% of the average cost of the technology).

We are inviting public comments on whether the Thoraflex^TM Hybrid Device meets the cost criterion and our proposal to approve new technology add-on payments for the Thoraflex^TM Hybrid Device for FY 2023, subject to Thoraflex^TM Hybrid Device receiving FDA marketing authorization by July 1, 2022 for the open surgical repair or replacement of damaged or diseased vessels of the aortic arch and descending aorta, with or without involvement of the ascending aorta, in cases of aneurysm and/or dissection.

(10) TOPS^TM System

Premia Spine, Inc., submitted an application for new technology add-on payments for the TOPS^TM System for FY 2023. According to the applicant, the TOPS^TM System is a motion preserving device comprised of a titanium construct with an interlocking polycarbonate urethane articulating core that is inserted into the lumbar vertebral joint and anchored using pedicle screws after posterior spinal decompression surgery. 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. Per the applicant, unlike spinal fusion, the TOPS^TM System preserves normal biomechanical motion while providing spinal stabilization after decompression.

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 indicated that it expects to receive FDA premarket approval of the TOPS^TM System by Q2, 2022 for the same indication.

According to the applicant, ICD-10-PCS procedure code 0SH00DZ (Insertion of facet replacement spinal stabilization device into lumbar vertebral joint, open approach) may be used to identify the TOPS^TM System, but the code does not uniquely identify the technology. The applicant submitted a request to the ICD-10 Coordination & Maintenance Committee for a new ICD-10-PCS code to uniquely identify the TOPS^TM System.

With respect to the cost criterion, the applicant provided the following cost analysis. To identify cases representing patients who may be eligible for the TOPS^TM System, the applicant searched the FY 2019 MedPAR dataset for cases reporting a combination of ICD-10-PCS procedure code 0SH00DZ (Insertion of facet replacement spinal stabilization device into lumbar vertebral joint, open approach) with a relevant diagnosis code. The applicant identified the following MS-DRG for the TOPS^TM System: 518 (Back and Neck Procedures except Spinal Fusion with MCC or Disc Device or Neurostimulator).

The applicant identified 2,614 cases mapping to MS-DRG 518. The applicant then removed charges for prior technology. The applicant stated that in analyzing the MedPAR data, 100% of charges associated with Medical/Surgical Supplies and Devices (revenue centers 027x and 0624) were removed. The applicant explained that use of the TOPS^TM System will replace a portion of devices included in these claims but will not replace all devices, nor any medical supplies required to perform the procedure. The applicant noted that an estimate of the percentage of total charges for devices that would be replaced could not be determined and therefore, to be as conservative as possible, the analysis removed 100% of these charges. The applicant then standardized the charges and applied the three-year inflation factor of 20.4% used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542), to update the charges from FY 2019 to FY 2022. The applicant then added charges for the new technology by dividing the per-patient anticipated hospital cost of the TOPS^TM System by the national average cost-to-charge ratio for implantable devices (0.239) from the FY 2022 IPPS/LTCH PPS final rule. The applicant calculated a final inflated case-weighted average standardized charge per case of $152,935 and an average case-weighted threshold of $109,174. Because the final inflated case-weighted average standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

We agree with the applicant that the TOPS^TM System meets the cost criterion and therefore are proposing to approve the TOPS^TM System for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

Based on preliminary information from the applicant at the time of this proposed rule, the per-patient anticipated hospital cost of the TOPS^TM System is $15,000. We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the TOPS System would be $9,750 for FY 2023 (that is, 65% of the average cost of the technology).

We are inviting 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 2023, subject to the technology receiving FDA marketing authorization for the indication corresponding to the Breakthrough Device designation by July 1, 2022.

(11) VITARIA® System

LivaNova, PLC submitted an application for new technology add-on payments for the VITARIA® System for FY 2023. According to the applicant, the VITARIA® System is an active implantable neuromodulation system that uses vagus nerve stimulation to deliver autonomic regulation therapy. The applicant reported the VITARIA® System includes a pulse generator and an electrical lead, which are implanted under the skin, without requiring a vascular procedure. Per the applicant the electrical lead attaches the pulse generator to the 10th cranial nerve (vagus nerve). The applicant stated that after implantation is completed, a hand-held wand positioned on the skin over the implanted pulse generator and a computer tablet are used together externally to adjust the intensity of the electrical impulses delivered from the pulse generator through the electrical lead to stimulate the vagus nerve. Per the applicant, the VITARIA® System is intended for use in patients with moderate to severe heart failure (New York Heart Association classification of Class II or Class III) and left ventricular dysfunction (ejection fraction (EF) of 35% or less) who remain symptomatic despite receiving medical treatment in line with current treatment guidelines.

According to the applicant, the VITARIA® System received designation under the EAP (and is therefore considered part of the Breakthrough Devices Program by FDA ) on October 24, 2016, for patients who have moderate to severe heart failure (NYHA Class II/III), with left ventricular dysfunction (EF of 40% or less), who remain symptomatic despite stable, optimal heart failure drug therapy and are not candidates for cardiac resynchronization therapy (CRT). Per the applicant, FDA approved an amendment to its investigational device exemption (IDE) trial on November 16, 2018, to include CRT or CRT-D recipients who have been receiving cardiac resynchronization therapy (CRT) according to guideline directed medical therapy (GDMT) and meet all of the other indications for use. According to the applicant, FDA premarket approval of the VITARIA® System is expected by June 30, 2022 for the proposed indication for the symptomatic improvement of heart failure patients who have reduced left ventricular ejection fraction and chronic heart failure despite guideline-directed medical treatment. We note 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 2023. The applicant stated that the indication for which they are seeking the new technology add-on payment is for patients who have moderate to severe heart failure (NYHA Class II/III), with left ventricular dysfunction, who remain symptomatic despite stable, optimal heart failure drug therapy and are not candidates for cardiac resynchronization therapy (CRT).

Per the applicant, ICD-10-PCS procedure codes that can currently be used to identify procedures involving the use of the VITARIA® System are not unique to the VITARIA® System and may also be used for other cranial nerve stimulators: 00HE0MZ (Insertion of neurostimulator lead into cranial nerve, open approach) and 0JH60BZ (Insertion of single array stimulator generator into chest subcutaneous tissue and fascia, open approach). The applicant submitted a request to the ICD-10 Coordination and Maintenance Committee for approval of a code for FY 2023 to uniquely identify procedures involving the use of the VITARIA® System. Additionally, the applicant submitted a FY 2023 MS-DRG reclassification request, as discussed further in section II.D.3.b. of the preamble of this proposed rule.

The applicant also stated that the ICD-10-CM diagnosis codes in the following table identify the EAP designation.

We note that the ICD-10-CM diagnosis codes listed by the applicant include those for diastolic heart failure, which is not part of the indication for which the applicant stated the device had received EAP designation. As such, we would appreciate additional information regarding the rationale for inclusion of codes I50.30 through I50.33. In addition, we believe that the following additional 13 ICD-10 CM diagnosis codes could also be used to identify the EAP designation for which the applicant is seeking the new technology add-on payment:

We invite public comment regarding the extent to which this is the most appropriate list of ICD-10 CM diagnosis codes and is reflective of the indication for which the applicant is seeking the new technology add-on payment.

With respect to the cost criterion, the applicant provided the following cost analysis. To identify potential cases where the VITARIA® System could be utilized, the applicant searched the FY 2019 MedPAR dataset for claims reporting the aforementioned ICD-10-PCS codes (00HE0MZ and 0JH60BZ). Using the FY 2022 MS-DRG Grouper (Version 39.0), the applicant identified three MS-DRGs to which the preceding ICD-10-PCS codes mapped and limited discharges to these MS-DRGs: 252 (Other Vascular Procedures with MCC, 253 (Other Vascular Procedures with CC, and 254 (Other Vascular Procedures without CC/MCC).

The applicant identified 66,438 cases mapping to the three MS-DRGs. The applicant then removed charges for medical/surgical supplies and devices at revenue centers 027x and 0624, since the applicant expects the VITARIA® System to replace all of the current device charges included in the claims. The applicant then standardized the charges and applied the three-year inflation factor of 20.4% used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45538), to update the charges from FY 2019 to FY 2022. The applicant did not add charges for the new technology because the applicant has not yet determined the average sales price for the device. According to the applicant, no other charges related to the new technology were included in the cost calculations, as the applicant assumes no other charges are required to implant the VITARIA® System. Under the analysis, the applicant calculated a final inflated case-weighted average standardized charge per case of $97,567 and an average case-weighted threshold of $93,472. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant asserted that the technology meets the cost criterion.

With regard to the cost criterion for the VITARIA® System, we note that the applicant identified MS-DRGs which may represent a population broader than those cases which are eligible for treatment by the VITARIA® System, and we question whether this cost analysis is sufficiently representative of cases which would be eligible for treatment with the technology.

Subject to the applicant adequately addressing this concern, we would agree with the applicant that the VITARIA® System meets the cost criterion and therefore are proposing to approve the VITARIA® System for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization by July 1, 2022 for patients who have moderate to severe heart failure (NYHA Class II/III), with left ventricular dysfunction (EF≤40%), who remain symptomatic despite stable, optimal heart failure drug therapy and are not candidates for cardiac resynchronization therapy (CRT).

Per the applicant, the anticipated cost for the VITARIA® System will be available once the device receives FDA approval. While the applicant has not stated which components of the system would comprise the cost, the applicant has stated that the system is used in conjunction with a computer tablet and hand-held wand that are used together externally, which appear to be capital expenses. We note that as discussed in prior rulemaking (86 FR 45134) and 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. Because the applicant has not provided an estimate for the cost of the VITARIA® System at the time of this proposed rule, we expect the applicant to submit cost information prior to the final rule, and we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. Any new technology add-on payment for the VITARIA® 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% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case.

We are inviting public comments on whether the VITARIA® System meets the cost criterion and our proposal to approve new technology add-on payments for the VITARIA® System for FY 2023, subject to the technology receiving FDA marketing authorization by July 1, 2022 for patients who have moderate to severe heart failure (NYHA Class II/III), with left ventricular dysfunction (EF≤40%), who remain symptomatic despite stable, optimal heart failure drug therapy and are not candidates for cardiac resynchronization therapy (CRT).

(12) ViviStim® Paired VNS System

MicroTransponder, Inc. submitted an application for new technology add-on payments for the ViviStim® Paired VNS System for FY 2023. According to the applicant, the ViviStim® Paired VNS System is a paired vagus nerve stimulation therapy intended to stimulate the vagus nerve during rehabilitation therapy to reduce upper extremity motor deficits and improve motor function in chronic ischemic stroke patients with moderate to severe arm impairment. The applicant stated that the Vivistim® Paired VNS System is comprised of an Implantable Pulse Generator (IPG), an implantable stimulation Lead, and an external paired stimulation controller which is composed of the external Wireless Transmitter (WT) and the external Stroke Application and Programming Software (SAPS). According to the applicant, the external paired stimulation controller (SAPS and WT) enables the implanted components (the IPG and Lead) to stimulate the vagus nerve during rehabilitation. The applicant stated that patients undergo 25-30 hours of in-clinic rehabilitation over 6 weeks, where the ViviStim® Paired VNS System is actively paired with rehabilitation by a therapist. The applicant further stated that following this in-clinic rehabilitation period, when directed by a physician and with appropriate programming to the IPG, the patient can initiate at-home use by swiping a magnet over the IPG implant site which activates the IPG to deliver stimulation while rehabilitation movements are performed.

The applicant stated that the ViviStim® Paired VNS System was designated as a Breakthrough Device on February 10, 2021 for use in stimulating the vagus nerve during rehabilitation therapy in order to reduce upper extremity motor deficits and improve motor function in chronic ischemic stroke patients with moderate to severe arm impairment. According to the applicant, the ViviStim® Paired VNS System received FDA premarket approval on August 27, 2021 as a Class III implantable device for the same indication. The applicant stated that the technology is not yet commercially available due to manufacturing delays.

According to the applicant, there are no unique ICD-10-PCS procedure codes to report the implantation of the device. The applicant noted that together the following two ICD-10-PCS codes describe the insertion of the ViviStim® Paired VNS System: 0JH60BZ (Insertion of single array stimulator generator into chest subcutaneous tissue and fascia, open approach) and 00HE0MZ (Insertion of neurostimulator lead into cranial nerve, open approach). The applicant noted that these codes may be used for any cranial nerve stimulator insertion procedure, including VNS therapy for treatment resistant depression, VNS therapy for refractory epilepsy, and upper airway stimulation to treat obstructive sleep apnea. The applicant has submitted a request to the ICD-10 Coordination and Maintenance Committee for approval of a unique code for FY 2022 to identify insertion of the ViviStim® Paired VNS System.

The applicant also provided the ICD-10-CM diagnosis codes in the table below. The applicant stated that moderate to severe upper limb impairment is described in the ICD-10-CM as monoplegia (single limb) or hemiplegia (single laterality, including upper limb). The applicant stated that the FY 2021 ICD-10-CM code set includes monoplegia and hemiplegia as a sequela of infarction (stroke), and delineates codes based upon stroke type (hemorrhagic versus ischemic). Therefore, the applicant states that the ICD-10-CM diagnosis codes in the table below describe chronic moderate to severe upper arm impairment as a sequela of ischemic stroke, and are related to the use of the ViviStim® Paired VNS System.

With respect to the cost criterion, the applicant presented the following analysis. The applicant searched the FY 2019 MedPAR claims data set released with the FY 2022 IPPS/LTCH PPS final rule for cases representing patients who may be eligible for the ViviStim® Paired VNS System. The applicant identified cases reporting the ICD-10-PCS codes 0JH60BZ and 00HE0MZ in combination with one of the ICD-10-CM diagnosis codes above describing moderate to severe upper limb impairment. The applicant then mapped the cases to the appropriate MS-DRGs using MS-DRG Grouper Version 39.0. After imputing a case count of 11 for those MS-DRGs with fewer than 11 cases, the applicant identified 285 claims mapping to 12 MS-DRGs, with 65% of cases mapping to MS-DRGs 024 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC), 041 (Peripheral Cranial Nerve and Other Nervous System Procedures with CC or Peripheral Neurostimulator) and 042 (Peripheral Cranial Nerve and Other Nervous System Procedures without CC/MCC).

The applicant then removed 100% of charges associated with Medical/Surgical Supplies and Devices (prior technology, revenue centers 027X, and 0624). The applicant asserted that the use of the Vivistim® Paired VNS System is expected to replace the majority of existing technologies, although some devices will still be required to perform the procedure. The applicant stated that because it could not determine the estimated percentage of the total charges that would be replaced, it removed 100% of these total charges to be as conservative as possible. The applicant did not remove charges related to the technology being replaced, stating that the financial impact of utilizing the Vivistim® Paired VNS System on hospital resources compared to prior technologies other than on Medical Supplies is minimal, and that 100% of charges for Medical/Surgical Supplies had been removed in the previous step.

The applicant standardized the charges by applying the three-year inflation factor of 1.20469 used in the FY 2022 IPPS/LTCH PPS final rule and correction notice to calculate outlier threshold charges (86 FR 45542). The applicant then added charges for the new technology by dividing the cost of the ViviStim® Paired VNS System by the national average CCR for implantable devices which is 0.293 as published in the FY 2022 IPPS/LTCH IPPS final rule (86 FR 44966). The applicant calculated a final inflated average case-weighted standardized charge per case of $200,398 which exceeded the average case-weighted threshold amount of $107,963. Because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, the applicant maintained that the ViviStim® Paired VNS System meets the cost criterion.

We agree with the applicant that the ViviStim® Paired VNS System meets the cost criterion and are therefore proposing to approve the ViviStim® Paired VNS System for new technology add-on payments for FY 2023.

Based on preliminary information from the applicant at the time of this proposed rule, the applicant anticipated the total cost of the ViviStim® Paired VNS System to the hospital to be $36,000 per patient. According to the applicant, this cost represents the entire per-patient cost of the system to hospital providers—specifically for the cost of the Implantable Pulse Generator and stimulation lead. Per the applicant, there is no charge associated with the external paired stimulation controller and the magnet/take-home patient programmer. The applicant stated that the external paired stimulation controller may be used on multiple patients and that it retains a service agreement with each provider to own, maintain, and update the hardware and software that resides on that device component. The applicant has also stated that they have this service agreement with providers for the magnet/take-home patient programmer. Therefore, as the applicant has stated they retain and maintain the reusable hardware components at no charge to the providers, it appears that capital components are not included in the cost of the technology. We welcome public comment on the cost information provided by the applicant for the purpose of calculating the new technology add-on payment amount.

We note that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. As a result, we are proposing that the maximum new technology add-on payment for a case involving the use of the ViviStim® Paired VNS System would be $23,400 for FY 2023 (that is, 65% of the average cost of the technology).

We invite public comments on whether the ViviStim® Paired VNS System meets the cost criterion and our proposal to approve new technology add-on payments for the ViviStim® Paired VNS System for FY 2023 for use in stimulating the vagus nerve during rehabilitation therapy in order to reduce upper extremity motor deficits and improve motor function in chronic ischemic stroke patients with moderate to severe arm impairment.

b. Alternative Pathways for Qualified Infectious Disease Products (QIDPs)

(1) DefenCath^TM (Solution of Taurolidine (13.5 mg/mL) and Heparin (1000 USP Units/mL))

CorMedix Inc. submitted an application for new technology add-on payments for DefenCath^TM (solution of taurolidine (13.5 mg/mL) and heparin (1000 USP Units/mL)) for FY 2023. The applicant stated that DefenCath^TM 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 (CRBI) from in-dwelling catheters in patients undergoing hemodialysis (HD) through a central venous catheter (CVC). According to the applicant, in vitro studies of DefenCath^TM indicate broad antimicrobial activity against gram-positive and gram-negative bacteria, including antibiotic resistant strains as well as mycobacteria and clinically relevant fungi. The applicant stated that DefenCath^TM is available in a single-dose vial, which is sufficient to fill both lumens of the HD catheter, and is instilled into the catheter lumen as a lock solution at the conclusion of each dialysis session and aspirated at the beginning of the next dialysis session. The applicant noted that DefenCath^TM cannot be flushed or injected into the patient and that dosing is calibrated to the volume of the catheter lumens.

Per the applicant, DefenCath^TM was designated by FDA as a Qualified Infectious Disease Product (QIDP) in 2015 for the prevention of CRBSI in patients with end-stage renal disease (ESRD) receiving HD through a central venous catheter, and has been granted FDA Fast Track status. The applicant indicated that it is pursuing an NDA under FDA's LPAD for the same indication, which the applicant also stated received Priority Review. The applicant noted that FDA issued a Complete Response Letter in 2021 denying the NDA due to concerns with the third-party manufacturing facility. The applicant stated that the NDA has been resubmitted and anticipates approval before July 1, 2022. We note that, as an application submitted under the alternative pathway for certain antimicrobial products at § 412.87(d), DefenCath^TM 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, 2023).

According to the applicant, there are no ICD-10-PCS codes that specifically identify catheter lock solutions. The applicant submitted a request for approval of a unique ICD-10-PCS procedure code to identify use of Defencath^TM beginning FY 2023.

With regard to the cost criterion, the applicant provided two analyses to demonstrate that DefenCath^TM meets the cost criterion. The applicant first searched the FY 2019 MedPAR file released with the FY 2022 IPPS final rule for claims based on the presence of one of the following ICD-10-CM diagnosis codes used to identify ESRD, chronic kidney disease (CKD), acute kidney injury (AKI) or acute tubular necrosis (ATN).

Per the applicant, DefenCath^TM 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: Claims with codes for HD (Analysis A) and claims with codes for both HD and CVC (Analysis B). The applicant asserted that Analysis A overstates the population of patients eligible for DefenCath^TM because it includes any patient receiving HD, regardless of whether a central venous catheter is used. The applicant also asserted that Analysis B undercounts the potential cases because CVC codes are not always available on inpatient claims.

In the first analysis (Analysis A), which included only claims with codes for chronic HD, the applicant searched for claims based on the presence of one of the ICD-10-CM diagnosis codes listed above and then limited the selection criteria to claims including ICD-10-CM diagnosis code Z49.31 (encounter for adequacy testing for HD) or one of the following ICD-10-PCS procedure codes for HD:

After imputing a case count of 11 to any MS-DRG with fewer than 11 cases in the FY 2019 MedPAR file released with the FY 2022 IPPS final rule, the applicant identified a total of 490,790 cases mapping to 512 MS-DRGs. The table below shows the top 20 MS-DRGs, which account for 57% of all cases included in Analysis A.

For Analysis B, the applicant used the same case selection criteria as Analysis A (the presence of an ICD-10- procedure or diagnosis code for HD only) but further limited cases to those that include one of the following ICD-10 procedure codes for the insertion of a CVC.

The applicant asserted that the patient population in Analysis B (HD and central venous catheter) is more likely to receive DefenCath^TM during an inpatient stay. After imputing a case count of 11 to any MS-DRG with fewer than 11 cases, the applicant identified a total of 60,679 cases mapping to 408 MS-DRGs. The table below shows the top 20 MS-DRGs by case count, which account for 72% of all cases included in Analysis B.

In both analyses, the applicant did not remove charges for prior technology because DefenCath^TM would not replace other therapies a patient may receive during an inpatient stay. The applicant standardized the charges using the FY 2022 IPPS final rule impact file and applied a 4-year inflation factor of 1.281834 to update the charges from FY 2019 to FY 2023 based on the inflation factor used to update the outlier threshold in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45542). The applicant did not add charges for new technology as the cost of DefenCath^TM has not yet been determined but believes that the technology meets the cost criterion without the additional charges.

The applicant calculated a final inflated case-weighted average standardized charge per case of $116,221 for Analysis A and a final inflated case-weighted average standardized charge per case of $203,746 for Analysis B. The applicant also determined an average case weighted threshold amount of $77,290 in Scenario A and $96,645 in Scenario B. Because the final inflated case-weighted average standardized charge per case for each scenario exceeded the average case-weighted threshold amount for both scenarios, the applicant asserted that DefenCath^TM meets the cost criterion.

We agree that the technology meets the cost criterion and are therefore proposing to approve DefenCath^TM for new technology add on payments for FY 2023, subject to the technology receiving FDA approval for the prevention of CRBSI in patients with ESRD receiving HD through a central venous catheter by July 1, 2022.

The applicant has not provided an estimate for the cost of DefenCath^TM at the time of this proposed rule. We expect the applicant to submit cost information prior to the final rule, and we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. Any new technology add-on payment for DefenCath^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% of the average cost of the technology, or 75% of the costs in excess of the MS-DRG payment for the case.

We are inviting comments on whether DefenCath^TM meets the cost criterion and our proposal to approve DefenCath^TM for new technology add-on payments for FY 2023, subject to the technology receiving marketing authorization consistent with its QIDP designation by July 1, 2022.

8. Proposed Use of National Drug Codes (NDCs) To Identify Cases Involving Use of Therapeutic Agents Approved for New Technology Add-On Payment

As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434 through 49435), as a part of the transition to the ICD-10-CM diagnosis and ICD-10-PCS procedure coding system from the ICD-9-CM coding system, CMS established the use of Section “X” New Technology codes within the ICD-10-PCS classification to more specifically identify new technologies or procedures that have historically not been captured through ICD-9-CM codes, or to more precisely describe information on a specific procedure or technology than is found with the other sections of ICD-10-PCS. However, CMS has continued to receive comments from stakeholders, including representatives from hospital associations, software vendors, professional societies, and coding professionals, opposing the continued creation of new ICD-10-PCS (for example, Section X) procedure codes for the purpose of administering the new technology add-on payment for drugs and biologics. Specifically, public comments from the ICD-10 Coordination and Maintenance Committee Meetings have stated that the ICD-10-PCS classification system was not intended to represent unique drugs/therapeutic agents and is not an appropriate code set for this purpose. Commenters explained that, since the implementation of ICD-10, Section X codes have been established for procedures describing the administration of a drug/therapeutic agent, which historically were not typically coded in the inpatient hospital setting. Commenters stated their belief that it was not logical nor should it be expected for hospital coding professionals to seek codes for the administration of drugs within the ICD-10-PCS classification system. In addition, we note that over the past three years, the number of applications for new technology add-on payments has continued to increase, which has subsequently resulted in an increasing number of requests for unique ICD-10-PCS (for example, Section X) procedure codes specifically for the purposes of administering the new technology add-on payments.

The current process of requesting, proposing, finalizing and assigning new ICD-10-PCS procedure codes to identify and describe the administration of drugs involves several steps, as described further in this section, and frequently results in a number of procedure codes that are created unnecessarily when the drug/therapeutic agents do not receive approval for the new technology add-on payments, as the administration of drugs/therapeutic agents is not typically coded in the inpatient hospital setting. Applicants seeking a unique ICD-10-PCS (for example, Section X) procedure code to identify the use of their technology for purposes of new technology add-on payments must complete the code request process prior to learning the outcome of their new technology add-on payment application. This process involves a number of steps, including: Gathering relevant information and submitting the ICD-10-PCS code request; developing a slide deck for the ICD-10 Coordination and Maintenance Committee Meeting; and reviewing the background paper draft for the ICD-10 Coordination and Maintenance Committee Meeting agenda and meeting materials. CMS also expends significant time, effort, and resources to administer this process, which is compounded by the increasing number of requests for unique ICD-10-PCS (for example, Section X) procedure codes. CMS must work with applicants to review, prepare, and present the code proposals at ICD-10 Coordination and Maintenance Committee Meetings, then review and summarize public comments received in response to the meetings, and ultimately make a decision on the codes requested for new technology add-on payment policy purposes before the outcome of the new technology add-on payment application (approval or denial) is known. Following the end of the three-year timeframe for which a code was created in connection with a new technology add-on payment application, the disposition of the Section X code is addressed at a later ICD-10 Coordination and Maintenance Committee meeting and CMS subsequently receives public comments that must be reviewed regarding this disposition.

Stakeholders submitted comments that suggested alternative options to the use of Section X procedure codes to identify therapeutic agents for the administration of the new technology add-on payment policy. The majority of commenters supported using National Drug Codes (NDCs), because it would avoid creating duplicate codes within the ICD-10-PCS and NDC code sets to identify the same technology/product, which would allow for predictive and efficient coding. Commenters also stated that using NDCs would generate product data on inpatient claims that would allow for outcomes analyses, thus providing the same benefit as a unique ICD-10-PCS code. Some commenters suggested using the 3E0 Administration Table within the ICD-10-PCS code set, as opposed to Section X, as they stated this would be a more intuitive location for coders to look for ICD-10-PCS procedure codes describing the administration of therapeutic agents. However, a commenter noted that this would be unsustainable due to the potentially large number of new products coming to market. A few commenters also suggested using different drug terminologies, such as RxNorm, in lieu of using Section X codes for the time period needed to administer the new technology add-on payment.

We also note that we have previously established the use of NDCs as an alternative code set for the purposes of administering the new technology add-on payment in circumstances where an ICD-10-PCS code was not available to uniquely identify the use of the technology. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53351 through 53354), we established the use of the NDC code set to identify oral medications where no inpatient procedure was associated, to report the oral administration of the drug DIFICID^TM . We finalized that the NDC for DIFICID^TM would be used in conjunction with an ICD-9-CM diagnosis code to uniquely identify the indication for which administration of the drug (technology) was performed for new technology add-on payment purposes. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41311), we stated that we believed that the circumstances with respect to the identification of eligible cases reporting the use of VABOMERE^TM, which was administered by IV infusion, were similar to those addressed in the FY 2013 IPPS/LTCH PPS final rule with regard to DIFICID^TM because we also did not have current ICD-10-PCS code(s) to uniquely identify the use of VABOMERE^TM to make the new technology add-on payments. Therefore, consistent with our approach in FY 2013, we stated that we would identify cases involving the use of VABOMERE^TM that were eligible for FY 2019 new technology add-on payments using its NDCs 65293-0009-01 or 70842-0120-01 (VABOMERE^TM Meropenem-Vaborbactam Vial). At the time of its new technology add-on payment application approval, VABOMERE^TM was not assigned a corresponding ICD-10-PCS procedure or ICD-10-CM diagnosis code along with its NDCs. In addition, cases involving the use of two therapeutic agents that qualify for NCTAP, which is administered similarly to the new technology add-on payment, are identified using the NDCs for these products for the purposes of the NCTAP, because there are not currently ICD-10-PCS procedure codes that uniquely describe the administration of these therapies.

We believe that our previous policies regarding the use of NDCs to identify the administration of certain therapeutic agents can be consistently applied toward broader future usage of the NDCs to identify therapeutic agents eligible for the new technology add-on payment. Additionally, we believe that the use of an existing code set to identify therapeutic agents eligible for the new technology add-on payment would address concerns raised by commenters regarding the use of the ICD-10-PCS classification system to identify these agents, and reduce the need for applicants to seek a unique ICD-10-PCS code through the ICD-10-PCS Section X code request process in advance of a determination on their new technology add-on payment applications. Therefore, as we discuss further in this section, we are proposing for FY 2024 to instead use NDCs to identify cases involving the use of therapeutic agents approved for the new technology add-on payment. We anticipate that this proposal would reduce work for hospital coding professionals in becoming familiar with newly created ICD-10-PCS Section X codes to describe the administration of therapeutic agents and in searching for these codes within the documentation and within the classification in what may be non-intuitive locations. We also expect this proposed change would address concerns regarding the creation of duplicative codes within the ICD-10-PCS procedure coding system to describe the administration of therapeutic agents, which would also reduce the need for vendors to incorporate additional procedure codes into their coding products; for educators to provide training on these codes; and for programmers to maintain codes that may be seldom reported on inpatient claims but for the purposes of the new technology add-on payment, in their databases. It would also reduce efforts associated with determining the disposition of procedure codes describing therapeutic agents that have reached the end of their three-year new technology add-on payment timeframe.

Furthermore, we believe that NDCs are a viable alternative to Section X codes for the administration of the new technology add-on payment for therapeutic agents. We believe inpatient hospital staff are familiar with using NDCs, and as stated earlier, we have also previously utilized NDCs to administer the new technology add-on payment. However, to allow for adequate time to implement this regular usage of NDCs with the new technology add-on payment for health care providers and hospital coding professionals, we are proposing a transitional period for FY 2023. During this transitional period, we would utilize NDCs to identify the administration of therapeutic agents for new technology add-on payment purposes. However, we would also utilize ICD-10-PCS Section X codes, including codes newly created for FY 2023, for therapeutic agents during the FY 2023 new technology add-on payment application cycle. Beginning with the FY 2024 new technology add-on payment application cycle, we would utilize only NDCs to identify claims involving the administration of therapeutic agents approved for the new technology add-on payment, with the exception of claims involving therapeutic agents that are not assigned an NDC by FDA (for example, blood, blood products, etc.) and are approved for the new technology add-on payment. Cases involving the use of these technologies approved for the new technology add-on payment would continue to be identified based on the assigned ICD-10-PCS procedure code. A unique ICD-10-PCS procedure code would also still be needed to identify cases involving the use of CAR T-cell and other immunotherapies that may be assigned to Pre-MDC MS-DRG 018, because the ICD-10 MS-DRG GROUPER logic for assignment to Pre-MDC MS-DRG 018 is comprised of the procedure codes describing these CAR T-cell and other immunotherapy products. Therefore, under this proposal, beginning with FY 2024 new technology add-on payment applications submitted for a therapeutic agent, CMS would review the information and inform the applicant, in advance of the deadline for submitting an ICD-10-PCS procedure code request to the ICD-10 Coordination and Maintenance Committee for consideration at the March meeting, if it would be necessary to submit such a code request for purposes of identifying cases involving the use of the therapeutic agent for the new technology add-on payment, if approved, or if, based on the information made available with the application, the NDC could be used to identify such cases, and therefore, the applicant would not need to submit an ICD-10-PCS procedure code request. For each applicable technology that may be approved for new technology add-on payment, we would indicate the NDC(s) to use to identify cases involving the administration of the therapeutic agent for purposes of the new technology add-on payment.

Specifically, we are proposing that, during the transitional period beginning with discharges on or after October 1, 2022 (FY 2023), the administration of therapeutic agents newly approved for new technology add-on payments would be uniquely identified using either their respective NDC(s) or ICD-10-PCS procedure code(s), in combination with ICD-10-CM codes when appropriate. As stated in our FY 2013 IPPS/LTCH PPS final rule, the use of the NDCs “does not preclude CMS from using additional ICD-9-CM procedure or diagnosis codes to identify cases for this new technology in conjunction with this alternative code set” (77 FR 53352). Therefore, when necessary, we may require the use of additional ICD-10-PCS procedure and/or ICD-10-CM diagnosis codes to uniquely identify cases using these technologies. We would continue the use of the existing ICD-10-PCS procedure codes to identify the administration of therapeutic agents previously approved for the new technology add-on payment and that remain eligible for the new technology add-on payment for FY 2023.

We are further proposing that, beginning with discharges on or after October 1, 2023 (FY 2024), the administration of therapeutic agents newly approved for the new technology add-on payments beginning FY 2024 or a subsequent fiscal year would be uniquely identified only by their respective NDC(s), along with the corresponding existing ICD-10 code(s) required to uniquely identify the therapeutic agents, when necessary, to make the new technology add-on payments. For technologies that were newly approved for new technology add-on payments for FY 2023 (beginning with discharges on or after October 1, 2022) and remain eligible for the new technology add-on payment for FY 2024 or a subsequent fiscal year, we would continue to allow the use of either the existing ICD-10-PCS procedure codes or NDCs to identify the administration of those therapeutic agents. For technologies that were newly approved for new technology add-on payments prior to FY 2023 and remain eligible for the new technology add-on payment for FY 2024 or a subsequent fiscal year, we would continue to use the existing ICD-10-PCS procedure codes to identify the administration of those therapeutic agents.

We are inviting public comments on our proposal to utilize NDCs to identify claims involving the use of therapeutic agents approved for new technology add-on payments, including any potential concerns regarding adoption of this code set for the identification of therapeutic agents for purposes of new technology add-on payments.

9. Proposal to Publicly Post New Technology Add-On Payment Applications

As noted in section II.F.1.f. of the preamble of this proposed rule, applicants for new technology add-on payments for new medical services or technologies 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), along with a significant sample of data to demonstrate the new medical service or technology meets the high-cost threshold (OMB-0938-1347). See section II.F.1.f. of the preamble of this proposed rule for further details on the data and evidence that can be submitted. We post complete application information and final deadlines for submitting a full application on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech . We also post on the same website tracking forms completed by each applicant, which include the name of each applicant, name of the technology, and a brief description so that interested parties can identify the new medical services or technologies under review before the annual proposed rule. Additionally, section 1886(d)(5)(K)(viii) of the Act provides for a mechanism for public input before the publication of a proposed rule regarding whether a medical service or technology represents a substantial clinical improvement. Consistent with the Act, we hold an annual Town Hall meeting, typically in December following notice of the meeting in the Federal Register .

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 supplemental information obtained from the applicant, information provided at the Town Hall meeting, and comments received in response to the Town Hall meeting. In the proposed rule, CMS summarizes the information contained in the application, including the applicant's explanation of what the technology does, background on the disease process, information about the FDA approval/clearance, and the applicant's assertions and supporting data on how the technology meets the new technology add-on payment criteria under § 412.87. In summarizing this information for inclusion in the proposed rule, CMS restates or paraphrases information contained in the application and attempts to avoid misrepresenting or omitting any of an applicant's claims. CMS also tries to ensure that sufficient information is provided in the proposed rule to facilitate public comments on whether the medical service or technology meets the new technology add-on payment criteria. Currently, however, CMS does not make the applications themselves, as completed by the applicants, publicly available. In addition, CMS generally does not take into consideration information that is marked as confidential when determining whether a technology meets the criteria for new technology add-on payments.

We note that in the past, CMS has received requests from the public to access and review the new technology add-on payment applications to further facilitate comment on whether a technology meets the new technology add-on payment criteria. In consideration of this issue, we agree that review of the original source information from the applications for new technology add-on payments may help to inform public comment. Further, making this information publicly available may foster greater input from experts in the stakeholder community based on their review of the completed application forms and related materials. Accordingly, as we discuss further in this section, we believe that providing additional information to the public by publicly posting the applications and certain related materials online may help to further engage the public and foster greater input and insights on the various new medical services and technologies presented annually for consideration for new technology add-on payments.

We also believe that posting the applications online would reduce the risk that we may inadvertently omit or misrepresent relevant information submitted by applicants, or are perceived as misrepresenting such information, in our summaries in the rules. It also would streamline our 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. That is, by making the applications available to the public online, we would afford more time for CMS to process and analyze the supporting data and evidence rather than reiterate parts of the application in the rule.

Therefore, to increase transparency, enable increased stakeholder engagement, and further improve and streamline our evaluation process, we are proposing to publicly post online future applications for new technology add-on payments. Specifically, beginning with the FY 2024 application cycle, we propose to post online the completed application forms and certain related materials (for example, attachments, uploaded supportive materials) that we receive from applicants. Additionally, we propose to post information acquired subsequent to the application submission (for example, comments received after the New Technology Town Hall, updated application information, additional clinical studies, etc.). We propose that we would not post the cost and volume information the applicant provides in the application form itself or as attached materials, or any material included with the application that the applicant indicates is not releasable to the public because the applicant does not own the copyright or the applicant does not have the appropriate license to make the material available to the public, as further described in the next paragraph. We propose that we would publicly post the completed application forms and related materials no later than the issuance of the proposed rule, which would afford the public the full public comment period to review the information provided by the applicant in its application.

With respect to copyrighted materials, we propose that on the application form itself, the applicant would be asked to provide a representation that the applicant owns the copyright or otherwise has the appropriate license to make all the copyrighted material included with its application public with the exception of those materials identified by the applicant as not releasable to the public, as applicable. For any material included with the application that the applicant indicates as copyrighted and/or not otherwise releasable to the public, we propose that the applicant must either provide a link to where the material can be accessed or provide an abstract or summary of the material that CMS can make public, and CMS will then post that link or abstract or summary online, along with the other posted application materials. We invite comments on this proposal.

Under our current practice, we include in the final rule information on the cost of each technology that is approved for the new technology add-on payment for the purposes of calculating the maximum add-on payment, and information on the anticipated volume of the technology for purposes of the impact analysis. For the proposed rule, specifically for applications submitted under the alternative pathway, our current practice is to propose whether or not to approve the application based on the eligibility criteria for the alternative pathway under 42 CFR 412.87(c) or (d) and, where cost information is available from the applicant, to use this information in proposing a maximum add-on payment amount. Where cost information is not yet available, we note our expectation is that the applicant will submit cost information prior to the final rule, and indicate that we will provide an update regarding the new technology add-on payment amount for the technology, if approved, in the final rule. We note that we would continue this same approach with respect to including cost and volume information in the proposed and final rules. However, as noted, under our proposal to post online the new technology add-on payment applications, we would not include cost and volume information for either traditional or alternative pathway applications as part of the application materials that would be posted online.

We note that at times an applicant may furnish information marked as proprietary or trade secret information along with its application for new technology add-on payments. Currently, the application specifies that data provided in the application or tracking form may be subject to disclosure and instructs the applicant to mark any proprietary or trade secret information so that CMS can attempt, to the extent allowed under Federal law, to keep the information protected from public view. This instruction would change under our proposal such that information included in the application, other than cost and volume information, would be made publicly available online through posting of the application. Therefore, the applicant should not submit as part of its application any such proprietary or trade secret information that it does not want to be made publicly available online. As noted, under our existing practice we generally do not consider information that is marked as confidential, proprietary, or trade secret when determining whether a technology meets the criteria for new technology add-on payments.

This proposal would not change the current timeline or evaluation process for new technology add-on payments, the criteria used to assess applications, or the deadlines for various data submissions. Additionally, we do not expect added burdens on prospective applicants as a result of this proposal since we are not proposing to fundamentally change the information collected in the application itself or the supplemental information that would be furnished to support the application. As noted, the aim of this proposed policy change is to increase accuracy, transparency, and efficiency for both CMS and stakeholders.

In connection with this proposal to post the new technology applications online, we expect we would also make changes to the summaries that appear in the annual proposed and final rules, given that the public would have access to the submitted applications themselves (excluding certain information and materials as described previously), while also continuing to provide sufficient information in the rules to facilitate public comments on whether a medical service or technology meets the new technology add-on payment criteria. Specifically, we do not anticipate summarizing each entire application in the Federal Register as we have in the past, given the expanded and public access to the applications under the proposal. In some instances, such as the discussion of the substantial clinical improvement criterion, we expect to provide a more concise summary of the evidence or a more targeted discussion of the applicant's claims about how that criterion is met based on the evidence and supporting data (although this may vary depending on the application, new medical service or technology, and the nature of supporting materials provided). We expect that we would continue to generally include, at a high-level, the following information in the proposed and final rules: The technology and applicant name; a description of what the technology does; background on the disease process; the FDA approval/clearance status; and a summary of the applicant's assertions. We also expect to provide 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. For example, we would provide a list of the applicant's assertions for whether the technology meets the three sub-criteria under the substantial clinical improvement criterion and a list of the sources of data submitted in support of the assertions, along with references to the application in support of these lists. In the proposed rule, we would also continue to provide discussion of the concerns or issues we identified with respect to applications submitted under the traditional pathway, and for an alternative pathway application, we intend to continue to propose whether to approve or disapprove the application, including noting any concerns we have identified, and, as applicable, the maximum add-on payment amount, where cost information is available. In the final rule, we would continue to provide an explanation of our determination of whether a medical service or technology meets the applicable new technology add-on payment criteria and, for approved technologies, the final add-on payment amounts. As noted, we believe the proposal to post online the completed application forms and other information described previously would afford greater transparency during the annual rulemaking, for purposes of determining whether a medical service or technology is eligible for new technology add-on payments.

We are seeking public comment on our proposal to publicly post online the completed application forms and certain related materials and updated application information submitted subsequent to the initial application submission for new technology add-on payments, beginning with applications for FY 2024.

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

A. Background

1. Legislative Authority

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary adjust the standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the proposed FY 2023 hospital wage index based on the statistical areas appears under section III.A.2. of the preamble of this proposed rule.

Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. (CMS collects these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-3, Parts II, III, IV. The OMB control number for this information collection request is 0938-0050, which expired on March 31, 2022. A reinstatement of the information collection request is currently being developed. The public will have an opportunity to review and submit comments on the reinstatement through a public notice and comment period separate from this rulemaking. This provision also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for FY 2023 is discussed in section II.B. of the Addendum to this proposed rule.

As discussed in section III.I. of the preamble of this proposed rule, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The proposed budget neutrality adjustment for FY 2023 is discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. (The OMB control number for approved collection of this information is 0938-0907, which expires on September 30, 2022.) A discussion of the occupational mix adjustment that we are proposing to apply to the FY 2023 wage index appears under sections III.E. and F. of the preamble of this proposed rule.

2. Core-Based Statistical Areas (CBSAs) for the Proposed FY 2023 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 the August 15, 2017, OMB Bulletin No. 17-01. On September 14, 2018, OMB issued OMB Bulletin No. 18-04 which superseded the April 10, 2018 OMB Bulletin No. 18-03. 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, the September 14, 2018, OMB Bulletin No. 18-04 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 2023, we would 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, although as noted previously OMB Bulletin No. 20-01 did not require any wage area updates.

In connection with our adoption in FY 2021 of the updates in OMB Bulletin 18-04, we adopted a policy to place a 5 percent cap, for FY 2021, on any decrease in a hospital's wage index from the hospital's final wage index in FY 2020 so that a hospital's final wage index for FY 2021 would not be less than 95 percent of its final wage index for FY 2020. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58753 through 58755) for a complete discussion of this transition. As finalized in the FY 2021 IPPS/LTCH PPS final rule, this transition was set to expire at the end of FY 2021. However, given the unprecedented nature of the ongoing COVID-19 public health emergency (PHE), we adopted a policy in the FY 2022 IPPS/LTCH PPS final rule to apply an extended transition to the FY 2022 wage index for hospitals that received the transition in FY 2021. Specifically, we continued a wage index transition for FY 2022 (for hospitals that received the transition in FY 2021) under which we applied a 5 percent cap on any decrease in the hospital's wage index compared to its wage index for FY 2021 to mitigate significant negative impacts of, and provide additional time for hospitals to adapt to, the CMS decision to adopt the revised OMB delineations. We also applied a budget neutrality adjustment to the standardized amount so that our transition in FY 2022 was implemented in a budget neutral manner under our authority in section 1886(d)(5)(I) of the Act. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (85 FR 45164 through 45165) for a complete discussion of this transition. We also refer readers to section III.N. of the preamble of this proposed rule which discusses our proposal with regard to a permanent wage index transition for a hospital's wage index that applies a 5 percent cap on any decrease in the hospital's wage index compared to its wage index from the prior fiscal year.

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.

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.

Based on the latest information included in the Census Bureau's website at https://www.census.gov/programs-surveys/geography/technical-documentation/county-changes.2010.html , the Census Bureau has made the following updates to the FIPS codes for counties or county equivalent entities:

• Chugach Census Area, AK (FIPS State County Code 02-063) and Copper River Census Area, AK (FIPS State County Code 02-066), were created from former Valdez-Cordova Census Area (02-261) which was located in CBSA 02. The CBSA code for these two new county equivalents remains 02.

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. In addition, we believe that using the latest FIPS codes allows us to maintain a more accurate and up-to-date payment system that reflects the reality of population shifts and labor market conditions. Therefore, we are proposing to implement these FIPS code updates listed previously, effective October 1, 2022, beginning with the FY 2023 wage indexes. We are proposing to use these update changes to calculate area wage indexes in a manner that is generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule (69 FR 49026 through 49034) and the 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963). We note that while the county update changes listed above changed the county names, the CBSAs to which these counties map did not change from the prior counties. Therefore, there would be no impact or change to hospitals in these counties for purposes of the hospital wage index as a result of our implementation of these FIPS code updates.

For FY 2023, Tables 2 and 3 associated with this proposed 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. We are inviting public comments on our proposals.

B. Worksheet S-3 Wage Data for the Proposed FY 2023 Wage Index

The proposed FY 2023 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2019 (the FY 2022 wage indexes were based on data from cost reporting periods beginning during FY 2018).

1. Included Categories of Costs

The proposed FY 2023 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 2022, the proposed wage index for FY 2023 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 proposed FY 2023 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.

C. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2023 wage index were obtained from Worksheet S-3, Parts II, III and IV of the Medicare cost report, CMS Form 2552-10 for cost reporting periods beginning on or after October 1, 2018, and before October 1, 2019. (As noted in section III.A.1 of the preamble of this proposed rule, the OMB control number for this information collection request is 0938-0050, which expired on March 31, 2022. A reinstatement of the information collection request is currently being developed. The public will have an opportunity to review and submit comments on the reinstatement through a public notice and comment period separate from this rulemaking). For wage index purposes, we refer to cost reports beginning on or after October 1, 2018, and before October 1, 2019 as the “FY 2019 cost report,” the “FY 2019 wage data,” or the “FY 2019 data.” Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. 15-2), Chapter 40, Sections 4005.2 through 4005.4. The data file used to construct the proposed FY 2023 wage index includes FY 2019 data submitted to us as of February 5, 2022. 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 ratesetting, 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 four year lag (for example, for the FY 2022 wage index we used cost report data from FY 2018) . In section I.F. of the preamble of this proposed rule, we discuss our analysis of the best available data for use in the development of this FY 2023 IPPS/LTCH PPS proposed rule given the potential impact of the public health emergency (PHE) for the Coronavirus Disease (COVID-19). For the FY 2023 wage index, the best available data typically would be from the FY 2019 wage data. Our review and analysis of the FY 2019 wage data shows that the data is not significantly impacted by COVID-19 PHE. A comparison of providers shows similar trends in those with cost reports ending during the PHE as compared to providers without cost reports ending during the PHE. The data also shows that changes in the Average Hourly Wage (AHW) for providers were consistent between providers with cost reports ending during the PHE as compared to providers without cost reports ending during the PHE. It appears that the overall impact of the COVID-19 PHE on the FY 2019 wage data has been minimal.

Additionally, the changes in the wage data from FY 2018 to FY 2019 show similar trends in the change of the data from FY 2017 to FY 2018. Therefore, we are proposing to use the FY 2019 wage data for the FY 2023 wage index.

We asked our MACs to revise or verify data elements that result in specific edit failures. For the proposed FY 2023 wage index, we identified and excluded 86 providers with aberrant data that should not be included in the wage index. If data elements for some of these providers are corrected, we intend to include data from those providers in the final FY 2023 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 19, 2022.

In constructing the proposed FY 2023 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2019, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398); that is, any hospital that is designated as a CAH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. For the proposed rule, we removed 3 hospitals that converted to CAH status on or after January 24, 2021, the cut-off date for CAH exclusion from the FY 2022 wage index, and through and including January 21, 2022, the cut-off date for CAH exclusion from the FY 2023 wage index. In summary, we calculated the proposed FY 2023 wage index using the Worksheet S-3, Parts II and III wage data of 3,112 hospitals.

For the proposed FY 2023 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 proposed FY 2023 wage index associated with this proposed rule (available via the internet on the CMS website), includes separate wage data for the campuses of 26 multicampus hospitals. The following chart lists the multicampus hospitals by 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 Proposed FY 2023 Unadjusted Wage Index

The method used to compute the proposed FY 2023 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 are not proposing any changes to this methodology. We have restated our methodology in this section of this rule.

Step 1. —We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period relevant to the proposed wage index (in this case, for FY 2023, these were data from cost reports for cost reporting periods beginning on or after October 1, 2018, and before October 1, 2019). In addition, we included data from some hospitals that had cost reporting periods beginning before October 2018 and reported a cost reporting period covering all of FY 2019. 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 2019 data. We note that, if a hospital had more than one cost reporting period beginning during FY 2019 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2018, and before October 1, 2019), 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 above 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, 2018, through April 15, 2020, for private industry hospital workers from the Bureau of Labor Statistics' (BLS') Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringes) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We also note that, since April 2006 with the publication of March 2006 data, the BLS' ECI uses a different classification system, the North American Industrial Classification System (NAICS), instead of the Standard Industrial Codes (SICs), which no longer exist. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing to make any changes to the usage of the ECI for FY 2023. 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 proposed FY 2023 wage index, we note there is one urban CBSA for which we do not have IPPS hospital wage data. In Table 3 (which is available via the internet on the CMS website) which contains the area wage indexes, we include a footnote to indicate to which 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 the Appendix of the proposed rule for the policy regarding rural areas that do not have IPPS hospitals.

Step 11 .—Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website.

Following is our policy with regard to rounding of the wage data (dollar amounts, hours, and other numerical values) in the calculation of the unadjusted and adjusted wage index, as finalized in the FY 2020 IPPS/LTCH final rule (84 FR 42306, 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, 2018, through April 15, 2020, for private industry hospital workers from the BLS' Compensation and Working Conditions. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing any changes to the usage of the ECI for FY 2023. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated in the following table.

For example, the midpoint of a cost reporting period beginning January 1, 2019, and ending December 31, 2019, is June 30, 2019. An adjustment factor of 1.01630 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 2023, there is no Puerto Rico-specific overall average hourly wage or wage index.

Based on the methodology, as previously discussed, the proposed FY 2023 unadjusted national average hourly wage is the following:

E. Proposed Occupational Mix Adjustment to the FY 2023 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 2023 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 2023 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 September 30, 2022) to their MACs by September 3, 2020. It should be noted that this collection of information was approved under OMB control number 0938-0907 with an expiration date of September 30, 2022. Prior to the expiration date, CMS will submit an extension request to OMB. The extension request will be announced in the Federal Register via the required 60-day and 30-day notice and comment periods. 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 2023

For FY 2023, we are proposing to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the proposed FY 2023 wage index. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308), we modified our methodology with regard to how dollar amounts, hours, and other numerical values in the unadjusted and adjusted wage index calculation are rounded, in order to ensure consistency in the calculation. According to the policy finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308 and 42309), for data that we consider to be “raw data,” such as the cost report data on Worksheets S-3, Parts II and III, and the occupational mix survey data, we continue to use these data “as is”, and not round any of the individual line items or fields. However, for any dollar amounts within the wage index calculations, including any type of summed wage amount, average hourly wages, and the national average hourly wage (both the unadjusted and adjusted for occupational mix), we round such dollar amounts to 2 decimals. We round any hour amounts within the wage index calculations to the nearest whole number. We round any numbers not expressed as dollars or hours in the wage index calculations, which could include ratios, percentages, or inflation factors, to 5 decimals. However, we continue rounding the actual unadjusted and adjusted wage indexes to 4 decimals, as we have done historically.

Similar to the method we use for the calculation of the wage index without occupational mix, salaries and hours for a multicampus hospital are allotted among the different labor market areas where its campuses are located. Table 2 associated with this proposed rule (which is available via the internet on the CMS website), which contains the proposed FY 2023 occupational mix adjusted wage index, includes separate wage data for the campuses of multicampus hospitals. We refer readers to section III.C. of the preamble of this proposed rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data.

Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2023 wage index. For the proposed FY 2023 wage index, we are using the Worksheet S-3, Parts II and III wage data of 3,112 hospitals, and we used the occupational mix surveys of 3,010 hospitals for which we also had Worksheet S-3 wage data, which represented a “response” rate of 97 percent (3,010/3,112). For the proposed FY 2023 wage index, we are applying proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the proposed FY 2023 occupational mix adjusted national average hourly wage is the following:

F. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2023 Occupational Mix Adjusted Wage Index

As discussed in section III.E. of the preamble of this proposed rule, for FY 2023, we are applying the occupational mix adjustment to 100 percent of the FY 2023 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 proposed FY 2023 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

The proposed national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2019 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following:

We compared the proposed FY 2023 occupational mix adjusted wage indexes for each CBSA to the proposed unadjusted wage indexes for each CBSA. Applying the occupational mix adjustment to the wage data resulted in the following:

These results indicate that a smaller percentage of urban areas (55.8 percent) would benefit from the occupational mix adjustment than would rural areas (57.4 percent).

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

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 Proposed Budget Neutrality Adjustment

1. Rural Floor

Section 4410(a) 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. This provision is referred to as the rural floor. Section 3141 of Public Law 111-148 also requires that a national budget neutrality adjustment be applied in implementing the rural floor.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336), we removed urban to rural reclassifications from the calculation of the rural floor to prevent inappropriate payment increases under the rural floor due to rural reclassifications, such that, beginning in FY 2020, the rural floor is calculated without including the wage data of hospitals that have reclassified as rural under section 1886(d)(8)(E) of the Act (as implemented in the regulations at § 412.103). For FY 2023, we are proposing to continue to calculate the rural floor without the wage data of hospitals that have reclassified as rural under § 412.103. Also, for the purposes of applying the provisions of section 1886(d)(8)(C)(iii) of the Act, effective beginning in FY 2020, we remove the data of hospitals reclassified from urban to rural under section 1886(d)(8)(E) of the Act (as implemented in the regulations at § 412.103) from 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 are proposing to continue to apply this policy for FY 2023.

We note that the FY 2020 rural floor policy and the related budget neutrality adjustment are the subject of pending litigation, including in Citrus HMA, LLC, d/b/a Seven Rivers Regional Medical Center v. Becerra, No. 1:20-cv-00707 (D.D.C.) (hereafter referred to as Citrus ). On April 8, 2022, the district court in Citrus granted in part the plaintiff hospitals' motion for summary judgment and denied the Secretary's cross-motion for summary judgment. The court found that the Secretary did not have authority under section 4410(a) of the Balanced Budget Act of 1997 to establish a rural floor lower than the rural wage index for a state. While Citrus involves only FY 2020, the court's decision—which is subject to potential appeal—may have implications for FY 2023 payment rates. We are continuing to evaluate the court's decision, and although we are proposing for the rural floor wage index policy (and the related budget neutrality adjustment) to continue for FY 2023, we may decide to take a different approach in the final rule, depending on public comments or developments in the court proceedings.

Based on the FY 2023 wage index associated with this proposed rule (which is available via the internet on the CMS website) and based on the calculation of the rural floor without the wage data of hospitals that have reclassified as rural under § 412.103, we estimate that 192 hospitals would receive an increase in their FY 2023 proposed wage index due to the application of 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 argued 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.

In computing the imputed floor for an all-urban State under the original methodology established beginning in FY 2005, we calculated the ratio of the lowest-to-highest CBSA wage index for each all-urban State as well as the average of the ratios of lowest-to-highest CBSA wage indexes of those all-urban States. We then compared the State's own ratio to the average ratio for all-urban States and whichever was higher was multiplied by the highest CBSA wage index value in the State—the product of which established the imputed floor for the State.

We adopted a second, alternative methodology beginning in FY 2013 (77 FR 53368 through 53369) to address the concern that the original imputed floor methodology guaranteed a benefit for one all-urban State with multiple wage indexes (New Jersey) but could not benefit another all-urban State, Rhode Island, which had only one CBSA. Under the alternative methodology, we first determined the average percentage difference between the post-reclassified, pre-floor area wage index and the post-reclassified, rural floor wage index (without rural floor budget neutrality applied) for all CBSAs receiving the rural floor. The lowest post-reclassified wage index assigned to a hospital in an all-urban State having a range of such values then was increased by this factor, the result of which established the State's alternative imputed floor. Under the updated OMB labor market area delineations adopted by CMS beginning in FY 2015, Delaware became an all-urban State, along with New Jersey and Rhode Island, and was subject to an imputed floor as well. In addition, we adopted a policy, as reflected at § 412.64(h)(4)(vi), that, for discharges on or after October 1, 2012, and before October 1, 2018, the minimum wage index value for a State is the higher of the value determined under the original methodology or the value determined under the alternative methodology. The regulations implementing the imputed floor wage index, both the original methodology and the alternative methodology, were set forth at § 412.64(h)(4).

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 (42 U.S.C. 1395ww(d)(3)(E)(i)) 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. Thus, 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. As discussed previously, under § 412.64(h)(4)(vi), the minimum wage index value for hospitals in an all-urban State is the higher of the value determined using the original methodology (as set forth at § 412.64(h)(4)(i) through (v)) or the value determined using alternative methodology (as set forth at § 412.64(h)(4)(vi)(A) and (B)) for calculating an imputed floor. Therefore, as provided in § 412.64(h)(4)(vi), we apply the higher of the value determined under the original or alternative methodology for calculating a minimum wage index, or imputed floor, for all-urban States effective beginning with FY 2022. We note that the rural floor values used in the alternative methodology at § 412.64(h)(4)(vi)(A) and (B) would not include the wage data of hospitals reclassified under § 412.103, because we currently calculate the rural floor without the wage data of such hospitals.

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. Specifically, section 9831(b) of Public Law 117-2 amends section 1886(d)(3)(E)(i) of the Act to exclude the imputed floor from the budget neutrality requirement under section 1886(d)(3)(E)(i) of the Act. In other words, the budget neutrality requirement under section 1886(d)(3)(E)(i) of the Act, as amended, must be applied without taking into account the imputed floor adjustment under section 1886(d)(3)(E)(iv) of the Act. When the imputed floor was in effect from FY 2005 through FY 2018, to budget neutralize the increase in payments resulting from application of the imputed floor, we calculated the increase in payments resulting from the imputed floor together with the increase in payments resulting from the rural floor and applied an adjustment to reduce the wage index. By contrast, for FY 2022 and subsequent years, we apply the imputed floor after the application of the rural floor and apply no reductions to the standardized amount or to the wage index to fund the increase in payments to hospitals in all-urban States resulting from the application of the imputed floor required under section 1886(d)(3)(E)(iv) of the Act.

The imputed floor under section 1886(d)(3)(E)(iv) of the Act applies to all-urban States, as defined in new subclause (IV). Section 1886(d)(3)(E)(iv)(IV) 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. Therefore, under the definition at section 1886(d)(3)(E)(iv)(IV) of the Act, “a State in which there are no hospitals classified as rural under this section” includes a State that has a rural area but no hospitals that receive the rural area wage index under section 1886(d) of the Act. For purposes of this definition, hospitals redesignated as rural under section 1886(d)(8)(E) of the Act (412.103 rural reclassifications) are considered classified as rural if they receive the rural wage index; however, hospitals that are deemed urban under section 1886(d)(8)(B) of the Act (in Lugar counties), or are reclassified to an urban area under section 1886(d)(10) of the Act (Medicare Geographic Classification Review Board (MGCRB) reclassifications) are not considered classified as rural because they do not receive the rural wage index. In contrast, we note that in the imputed floor policy in effect from FY 2005 through FY 2018, we did not consider a State to qualify for “all urban status” if there were one or more hospitals geographically located in the rural area of the State, even if all such hospitals subsequently reclassified to receive an urban area wage index. There is one State, Connecticut, that would be eligible for the imputed floor because there are currently no hospitals in Connecticut that are classified as rural under section 1886(d) for purposes of the wage index—in other words, there are no hospitals that receive the rural wage index. There is currently one rural county in Connecticut. All hospitals in this county are either deemed urban under section 1886(d)(8)(B) of the Act or receive an MGCRB reclassification under section 1886(d)(10) of the Act. While several Connecticut hospitals were approved for rural reclassification under section 1886(d)(8)(E) of the Act, at this point all have received a subsequent urban reclassification under section 1886(d)(10) of the Act.

Additionally, under section 1861(x) of the Act, the term State has the meaning given to it in section 210(h) of the Act. Because section 210(h) of the Act defines the word State to also include the District of Columbia and the Commonwealth of Puerto Rico, Washington, DC and Puerto Rico may also qualify as all-urban States for purposes of the imputed floor if the requirements of section 1886(d)(3)(E)(iv)(IV) of the Act are met. Based on data available for this proposed rule, the following States would be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States would be eligible to receive an increase in their wage index due to application of the imputed floor for FY 2023: New Jersey, Rhode Island, Delaware, Connecticut, and Washington, DC.

In the FY 2022 IPPS/LTCH PPS final rule, we revised the regulations at § 412.64(e)(1) and (4) and (h)(4) and (5) to 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 be applied for FY 2023 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 2023

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 this FY 2023 IPPS/LTCH PPS proposed rule, we are not proposing any changes to the frontier floor policy for FY 2023. In this proposed rule, 44 hospitals would receive the frontier floor value of 1.0000 for their FY 2023 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.0000.

The areas affected by the rural and frontier floor policies for the proposed FY 2023 wage index are identified in Table 2 associated with this proposed rule, which is available via the internet on the CMS website.

4. Continuation of the Low Wage Index Hospital Policy; Proposed Budget Neutrality Adjustment

To help mitigate wage index disparities, including those resulting from the inclusion of hospitals with rural reclassifications under 42 CFR 412.103 in the rural floor, in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339), we finalized policies to reduce the disparity between high and low wage index hospitals by 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. We also provided for a transition in FY 2020 for hospitals experiencing significant decreases in their wage index values as compared to their final FY 2019 wage index, and made these changes in a budget neutral manner.

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 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 ). On March 2, 2022, the district court in Bridgeport granted in part the plaintiff hospitals' motion for summary judgment and denied the Secretary's cross-motion for summary judgment. The court 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 and ordered additional briefing on the appropriate remedy. While Bridgeport involves only FY 2020, the court's decision—which is not final at this time and is also subject to potential appeal—may have implications for FY 2023 payment rates. We are continuing to evaluate the court's decision, and although we are proposing for the low wage index hospital policy (and the related budget neutrality adjustment, proposed below) to continue for FY 2023, we may decide to take a different approach in the final rule, depending on public comments or developments in the court proceedings.

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 2023 and for subsequent fiscal years during which the low wage index hospital policy is in effect, we are proposing to apply a budget neutrality adjustment in the same manner as we applied it in FYs 2020, 2021, and 2022, as a uniform budget neutrality factor applied to the standardized amount. We refer readers to section II.A.4.f. of the addendum to this proposed rule for further discussion of the budget neutrality adjustment for FY 2023. For purposes of the low wage index hospital policy, based on the data for this proposed rule, the table displays the 25th percentile wage index value across all hospitals for FY 2023.

H. Proposed FY 2023 Wage Index Tables

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49498 and 49807 through 49808), we finalized a proposal to streamline and consolidate the wage index tables associated with the IPPS proposed and final rules for FY 2016 and subsequent fiscal years. Effective beginning FY 2016, with the exception of Table 4E, we streamlined and consolidated 11 tables (Tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 4F, 4J, 9A, and 9C) into 2 tables (Tables 2 and 3). In this FY 2023 IPPS/LTCH PPS proposed rule, as provided beginning with the FY 2021 IPPS/LTCH PPS final rule, we have included Table 4A which is titled “List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act” and Table 4B titled “Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar Counties).” We refer readers to section VI. of the Addendum to this proposed rule for a discussion of the wage index tables for FY 2023.

I. Proposed 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). We note that rural hospitals reclassifying under the MGCRB to another State's rural area are not eligible for the rural floor, because the rural floor may apply only to urban, not rural, hospitals.

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. 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. We exclude 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 a discussion on the effects of reclassifications under § 412.103 on the rural area wage index and the calculation of the rural floor, we refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336).

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 prereclassified 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 2023

a. FY 2023 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. At the time this proposed rule was drafted, the MGCRB had completed its review of FY 2023 reclassification requests. Based on such reviews, there are 491 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2023. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2023, hospitals reclassified beginning in FY 2021 or FY 2022 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 288 hospitals approved for wage index reclassifications in FY 2021 that will continue for FY 2023, and 304 hospitals approved for wage index reclassifications in FY 2022 that will continue for FY 2023. Of all the hospitals approved for reclassification for FY 2021, FY 2022 and FY 2023, based upon the review at the time of the proposed rule, 1,083 hospitals are in a MGCRB reclassification status for FY 2023 (with 192 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' 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 58771-58778), 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 2023, the CBSAs assigned in the FY 2021 IPPS/LTCH final rule continue to be in effect.

Applications for FY 2024 reclassifications are due to the MGCRB by September 1, 2022. 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 2022, via the internet on the CMS website at https://www.cms.gov/Regulations/andGuidance/Review/Boards/MGCRB/index.html , or by calling the MGCRB at (410) 786-1174. This collection of information was previously approved under OMB Control Number 0938-0573 which expired on January 31, 2021. A reinstatement of this PRA package is currently being developed. The public will have an opportunity to review and submit comments regarding the reinstatement of this PRA package through a public notice and comment period separate from this rulemaking.

b. Clarification of Method for Submission Under § 412.273

The regulations at 42 CFR 412.273 set forth the procedures for withdrawing an MGCRB application, terminating an approved 3-year reclassification, or canceling a previous withdrawal or termination (also referred to as a reinstatement). The timing of such requests is specified at § 412.273(c) for terminations and withdrawals and at paragraph (d)(2) for canceling a previous withdrawal or termination. However, the method of submission is not clearly specified in the regulations, other than the requirement that a request to cancel a previous withdrawal or termination (a reinstatement), or to withdraw an application or terminate an approved reclassification, be in writing according to § 412.273(d)(2) and (e). It has come to our attention that this may be a source of confusion for hospital representatives seeking to submit such requests. It is possible that hospital representatives would attempt to send such requests to the MGCRB via mail, email, or fax, rather than in the manner that the MGCRB can most efficiently track and process.

Beginning with applications from hospitals to reclassify for FY 2020, the MGCRB requires applications, supporting documents, and subsequent correspondence to be filed electronically through the MGCRB module of the Office of Hearings Case and Document Management System (“OH CDMS”). The MGCRB issues all of its notices and decisions via email and these documents are accessible electronically through OH CDMS. Registration instructions and the system user manual are available at https://www.cms.gov/Regulations-and-Guidance/ReviewBoards/MGCRB/Electronic-Filing.html .

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42313), we revised the regulations at § 412.256(a)(1) to require applications for reclassification to be submitted to the MGCRB according to the method prescribed by the MGCRB. However, the regulations at § 412.273 for withdrawals, terminations, or cancelations of a previous withdrawal or termination (reinstatement) do not similarly specify a required manner of submission. Therefore, to eliminate potential confusion about how to submit withdrawal, termination, or cancelation (reinstatement) requests, we are proposing to align the regulations at § 412.273 for withdrawal, termination, or cancelation (reinstatement) requests with the regulations at § 412.256 for new applications by specifying that withdrawal, termination, or cancelation (reinstatement) requests also must be submitted to the MGCRB according to the method prescribed by the MGCRB.

Specifically, we are proposing to revise § 412.273(d)(2) for timing and process of cancellation requests and § 412.273(e) for withdrawal and termination requests. We are proposing to revise § 412.273(d)(2) to state that cancellation requests must be submitted in writing to the MGCRB according to the method prescribed by the MGCRB no later than the deadline for submitting reclassification applications for the following fiscal year, as specified in § 412.256(a)(2). We are also proposing to revise § 412.273(e) by adding that requests to withdraw an application or terminate an approved reclassification must be submitted in writing to the MGCRB according to the method prescribed by the MGCRB. We believe these proposed revisions to the regulations would eliminate potential confusion; align our policy for withdrawals, terminations, and cancelations (reinstatements) with our policy for applications; and ensure requests are submitted to the MGCRB through the method for submission that they can most efficiently process.

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 outmigration adjustment. In addition, in that rule, we adopted a minor procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the 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 would no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of 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 outmigration adjustment within 45 days of the public display date of the proposed rule at the Office of the Federal Register in lieu of its Lugar wage index reclassification, and the county in which the hospital is located would no longer qualify for an out-migration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the outmigration adjustment would be denied, and the hospital would be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values would be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out-migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it would be ineligible to receive the county outmigration adjustment under section 1886(d)(13)(G) of the Act.

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

In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index.

Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. When the provision of section 1886(d)(13) of the Act was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau that were derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the “long-form” survey, which the Census Bureau used at that time and which contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was “short form” only; information on where residents in each county worked was not collected as part of the 2010 Census. The Census Bureau worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked in 2010, for use in developing a new outmigration 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 2021 IPPS/LTCH PPS final rule (85 FR 58787), we have applied the same policies, procedures, and computations since FY 2012. We are proposing to use them again for FY 2023, 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 2023, 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 2023, we are not proposing 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).)

Table 2 associated with this proposed rule (which is available via the internet on the CMS website) includes the proposed out-migration adjustments for the FY 2023 wage index. In addition, Table 4A associated with this proposed 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 2023 identified by FIPS county code, the proposed FY 2023 out-migration adjustment, and the number of years the adjustment will be in effect.

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 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336) for a discussion on our current policy to calculate the rural floor without the wage data of urban hospitals reclassifying to rural areas under 42 CFR 412.103.

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. However, we are aware that some urban hospitals operate one or more remote location(s) in a State's rural area. In light of this scenario, we wish to clarify that rural reclassification under 42 CFR 412.103 applies to the main campus and any remote location located in an urban area. Under section 1886(d)(8)(E) of the Act, rural reclassification is available only to a hospital that is located in an urban area and satisfies the criteria specified in the statute. Thus, a remote location that is located in a rural area would not qualify for rural reclassification under section 1886(d)(8)(E) of the Act, as implemented under 42 CFR 412.103. We are proposing to add 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.

We are also aware that CMS has not consistently reflected the 412.103 rural reclassification status in Table 2 of the annual IPPS/LTCH PPS rulemaking for certain remote locations of hospitals that are located in a different CBSA than the main campus. 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.

As discussed previously, for a multicampus hospital, rural reclassification under 42 CFR 412.103 applies to the main campus and any remote location located in an urban area. The wage index implications of this policy are that, barring another form of wage index reclassification (for example, MGCRB reclassification), a main campus or remote location with approved 412.103 rural reclassification status would be assigned the rural wage index of its State. For FY 2023, we will list the 412.103 rural reclassification status for remote locations (a remote location is listed with a “B” in the third digit of the CCN) in Table 2 of the appendix to the proposed rule. We note that, as of the date this proposed rule is issued, only one “B” location (36B020) would be assigned its State's rural wage index in FY 2023 due to the 412.103 rural reclassification status of the main provider (360020). This location appears to have ceased inpatient activities, so we do not expect a negative financial impact for FY 2023. However, hospitals with 412.103 rural reclassification status and a remote location in a different CBSA should evaluate potential wage index outcomes for its remote location(s) when withdrawing or terminating MGCRB reclassification, or canceling 412.103 rural reclassification status. For example, if a hospital with 412.103 rural reclassification status withdraws a separate active MGCRB reclassification for a remote location, that remote location may be assigned the State's rural wage index value, effective for FY 2023.

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 2023 wage index were made available on May 24, 2021 through the internet on the CMS website at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy2023-wage-index-home-page .

On January 28, 2022, we posted a public use file (PUF) at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy2023-wage-index-home-page containing FY 2023 wage index data available as of January 28, 2022. 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, 2018 through September 30, 2019; that is, FY 2019 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 28, 2022 wage data PUF, and a tab containing the CY 2019 occupational mix data of the hospitals deleted from the January 28, 2022 occupational mix PUF. In a memorandum dated January 20, 2022, we instructed all MACs to inform the IPPS hospitals that they service of the availability of the January 28, 2022 wage index data PUFs, and the process and timeframe for requesting revisions in accordance with the FY 2023 Hospital Wage Index Development Time Table available at https://www.cms.gov/files/document/fy2023-wi-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 11, 2021, 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 24, 2021, and the process and timeframe for requesting revisions.

If a hospital wished to request a change to its data as shown in the May 24, 2021, 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, 2021. 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. We note, CMS issued a waiver due to Hurricane Ida and modified the September 2, 2021, deadline specified in the FY 2023 Hospital Wage Index Development Time Table for certain hospitals. Specifically, CMS granted an extension until October 4, 2021, for hospitals in the States of Louisiana and Mississippi to request revisions to and provide documentation for their FY 2019 Worksheet S-3 wage data and CY 2019 occupational mix data as included in the May 24, 2021 preliminary Public Use Files (PUFs), respectively. According to the waiver, MACs must receive the revision requests and supporting documentation by October 4, 2021. If hospitals encountered difficulty meeting the extended deadline, hospitals were to communicate their concerns to CMS via their MAC for CMS to consider an additional extension if CMS determined it was warranted. Details regarding this waiver are available on the CMS website at https://www.cms.gov/current-non-covid-emergencies , Additional IPPS Hospital Blanket Waivers ( https://www.cms.gov/files/document/hurrican-ida-additional-ipps-hospital-blanket-waivers.pdf ). November 15, 2021, was the deadline for MACs to complete all desk reviews for hospital wage and occupational mix data and transmit revised Worksheet S-3 wage data and occupational mix data to CMS.

November 4, 2021, 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 2022. CMS published the wage index PUFs that included hospitals' revised wage index data on January 28, 2022. Hospitals had until February 15, 2022, to submit requests to the MACs to correct errors in the January 28, 2022 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 28, 2022, 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, 2022, for the FY 2023 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 18, 2022. 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 1, 2022. Data that were incorrect in the preliminary or January 28, 2022 wage index data PUFs, but for which no correction request was received by the February 15, 2022 deadline, are not considered for correction at this stage. In addition, April 1, 2022, was the deadline for hospitals to dispute data corrections made by CMS of which the hospital was notified after the January 28, 2022, PUF and at least 14 calendar days prior to April 1, 2022 (that is, March 18, 2022), 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 1, 2022, for the FY 2023 wage index). We refer readers to the FY 2023 Hospital Wage Index Development Time Table for complete details.

Hospitals are given the opportunity to examine Table 2 associated with this proposed rule, which is listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicare/acute-inpatient-pps/fy-2023-ipps-proposed-rule-home-page . Table 2 associated with the proposed rule contains each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2023 wage index which was constructed from FY 2019 data. We note 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 2022.

We plan to post the final wage index data PUFs in late April 2022 on the CMS website at https://www.cms.gov/medicaremedicare-fee-service-paymentacuteinpatientppswage-index-files/fy2023-wage-index-home-page . The April 2022 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 previously described (the process for disputing revisions submitted to CMS by the MACs by March 18, 2022, 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).

After the release of the April 2022 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 18, 2022.
• Requests for correction of errors that were not, but could have been, identified during the hospital's review of the January 28, 2022, 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 2022 final wage index data PUFs, a hospital believes that its wage or occupational mix data are incorrect due to a MAC or CMS error in the entry or tabulation of the final data, the hospital is given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital is required to send its request to CMS and to the MAC so that it is received no later than May 27, 2022. May 27, 2022, is also the deadline for hospitals to dispute data corrections made by CMS of which the hospital is notified on or after 13 calendar days prior to April 1, 2022 (that is, March 19, 2022), and at least 14 calendar days prior to May 27, 2022 (that is, May 13, 2022), that do 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 27, 2022 (that is, May 14, 2022), may be appealed to the Provider Reimbursement Review Board (PRRB)). In accordance with the FY 2023 Hospital Wage Index Development Time Table posted on the CMS website at https://www.cms.gov/files/document/fy2023-wi-time-table.pdf , the May appeals are required to be sent via mail and email to CMS and the MACs. We refer readers to the FY 2023 Hospital Wage Index Development Time Table for complete details.

Verified corrections to the wage index data received timely (that is, by May 27, 2022) by CMS and the MACs will be incorporated into the final FY 2023 wage index, which will be effective October 1, 2022.

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 2023 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 2022, 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 2023 wage index by August 2022, and the implementation of the FY 2023 wage index on October 1, 2022. 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 27, 2022, 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 27, 2022, for the FY 2023 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 27, 2022, deadline for the FY 2023 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 27, 2022 deadline for the FY 2023 wage index), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the MAC's mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; it can only be used for the current Federal fiscal year. In situations where our policies would allow midyear corrections other than those specified in 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 28 Public Use File (PUF)

The process set forth with the wage index time table discussed in section III.L.1. of the preamble of this proposed rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data in order to ensure the accuracy of the wage index. As we explained in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic areas of the hospital compared to the national average hospital wage level. We believe that, under section 1886(d)(3)(E) of the Act, we have discretion to make corrections to hospitals' data to help ensure that the costs attributable to wages and wage-related costs in fact accurately reflect the relative hospital wage level in the hospitals' geographic areas.

We have an established multistep, 15-month process for the review and correction of the hospital wage data that is used to create the IPPS wage index for the upcoming fiscal year. Since the origin of the IPPS, the wage index has been subject to its own annual review process, first by the MACs, and then by CMS. As a standard practice, after each annual desk review, CMS reviews the results of the MACs' desk reviews and focuses on items flagged during the desk review, requiring that, if necessary, hospitals provide additional documentation, adjustments, or corrections to the data. This ongoing communication with hospitals about their wage data may result in the discovery by CMS of additional items that were reported incorrectly or other data errors, even after the posting of the January 28 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 28 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 28 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 2023 Hospital Wage Index Development Time Table, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156).

M. Proposed 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). However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0000.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45204 through 45207), we included in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2018-based IPPS market basket: Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor-related Services. In this proposed rule, for FY 2023, we are not proposing to make any further changes to the labor-related share. For FY 2023, we are proposing to continue to use a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2022.

As discussed in section V.A. of the preamble of this proposed rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national labor-related share and nonlabor-related share percentages that are applied to the national standardized amount. Accordingly, for FY 2023, we are not proposing a Puerto Rico-specific labor-related share percentage or a nonlabor-related share percentage.

Tables 1A and 1B, which are published in section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS proposed rule and available via the internet on the CMS website, reflect the proposed national labor-related share. Table 1C, in section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS proposed rule and available via the internet on the CMS website, reflects the proposed national labor-related share for hospitals located in Puerto Rico. For FY 2023, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are proposing to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2023, we are proposing to apply the wage index to a proposed labor-related share of 67.6 percent of the national standardized amount.

N. Proposed Permanent Cap on Wage Index Decreases

1. Proposed Permanent Cap Policy for the Wage Index

In the FY 2020 IPPS/LTCH PPS final rule, CMS implemented a transition policy for FY 2020 to place a 5 percent cap on any decrease in a hospital's wage index from the hospital's final wage index in FY 2019 so that a hospital's final wage index for FY 2020 will not be less than 95 percent of its final wage index for FY 2019 (84 FR 42336 through 42337). We implemented this transition due to the combined effect of the policy changes for the FY 2020 wage index (including policies to address wage index disparities between high and low wage index hospitals), which we believed could lead to significant decreases in the wage index values for some hospitals. We stated that this transition would allow the effects of our proposed policies to be phased in over 2 years with no estimated reduction in the wage index of more than 5 percent in FY 2020 (that is, no cap would be applied the second year). We also stated that we believed 5 percent is a reasonable level for the cap because it would effectively mitigate any significant decreases in the wage index for FY 2020. We applied a budget neutrality adjustment factor to the FY 2020 standardized amount for all hospitals to achieve budget neutrality for the transition policy (84 FR 42337 through 42338).

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58753 through 58755), to mitigate the effect of our adoption of the revised OMB delineations in OMB Bulletin 18-04, we implemented for FY 2021 the same 5 percent cap transition policy that we had implemented for FY 2020. Specifically, we placed a 5 percent cap on any decrease in a hospital's wage index from the hospital's final wage index in FY 2020 so that a hospital's final wage index for FY 2021 will not be less than 95 percent of its final wage index for FY 2020. We stated that for FY 2021, we did not believe it was necessary to implement the multifaceted transitions (including a 1-year blended wage index) we established in FY 2015 for the adoption of the new OMB delineations based on the new decennial census data. The 5 percent cap transition policy resulted in some hospitals receiving a transition adjustment that were not directly affected by the adoption of the revised OMB delineations (85 FR 58754). We applied a budget neutrality adjustment to the FY 2021 standardized amount to achieve budget neutrality for the transition policy (85 FR 58755).

In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25397), given the unprecedented nature of the ongoing COVID-19 PHE, we solicited comments on whether it would be appropriate to continue to apply a transition to the FY 2022 wage index for hospitals negatively impacted by our adoption of the updates in OMB Bulletin 18-04. We received several comments strongly recommending CMS extend a transition policy similar to that implemented in FY 2020 and FY 2021. Commenters also recommended CMS consider making a permanent 5 percent maximum reduction policy to protect hospitals from large year-to-year variations in wage index values as a means to reduce overall volatility. While we did not adopt the commenters' suggestion for a permanent 5 percent cap policy, we did finalize a transition policy for FY 2022 in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45164). Specifically, for hospitals that received the transition in FY 2021, we continued a wage index transition for FY 2022 under which we apply a 5 percent cap on any decrease in the hospital's wage index compared to its wage index for FY 2021 to mitigate significant negative impacts of, and provide additional time for hospitals to adapt to, the CMS decision to adopt the revised OMB delineations. We applied a budget neutrality adjustment to the FY 2022 standardized amount so that the transition is implemented in a budget neutral manner (86 FR 45165).

For FY 2023 and subsequent years, we have further considered the comments we received during the FY 2022 rulemaking recommending a permanent 5 percent cap policy to prevent large year-to-year variations in wage index values as a means to reduce overall volatility for hospitals. In the past, we have established temporary transition policies (as described above) when there have been significant changes to wage index policy, and we have limited the duration of each transition in order to phase in the effects of those policy changes. In taking this temporary approach in the past, we have sought to mitigate short-term instability and fluctuations that can negatively impact hospitals. We also recognize that, absent any specific change in wage index policy, significant year-to-year fluctuations in an area's wage index can occur due to external factors beyond a hospital's control, such as the COVID-19 PHE. For an individual hospital, these fluctuations can be difficult to predict. We recognize that predictability in Medicare payments is important to enable hospitals to budget and plan their operations.

In light of these considerations, we are proposing a permanent approach to smooth year-to-year decreases in hospitals' wage indexes. We are proposing a policy that we believe increases the predictability of IPPS payments for hospitals and mitigates instability and significant negative impacts to hospitals resulting from changes to the wage index. We also believe our proposed permanent policy would eliminate the need for temporary and potentially uncertain transition adjustments to the wage index in the future due to specific policy changes or circumstances outside hospitals' control (for example, in the event we adopt any future OMB revisions to the CBSA delineations). As a result of this proposed policy, an otherwise rare but relatively large year-to-year decrease in the wage index value for an individual hospital would be phased in, providing the hospital with additional time to plan appropriately and explore potential reclassification options, if applicable. For example, if a change in OMB delineations resulted in a hospital's wage index decreasing by more than 10 percent in any given year, this proposed policy could provide at least one additional year to phase in the decrease beyond a single “transition” year methodology, such as the transition policy finalized in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 through 49962).

Typical year-to-year variation in the wage index has historically been within 5 percent, and we expect this will continue to be the case in future years. Because hospitals are usually experienced with this level of wage index fluctuation, we believe applying a 5-percent cap on all wage index decreases each year, regardless of the reason for the decrease, would effectively mitigate instability in IPPS payments due to any significant wage index decreases that may affect hospitals in a year. In addition, we believe that the predictability resulting from a 5 percent cap on all wage index decreases would enable hospitals to more effectively budget and plan their operations. Because applying a 5-percent cap on all wage index decreases would represent a small overall impact on the labor market area wage index system, we believe it would ensure the wage index is a relative measure of the value of labor in prescribed labor market areas. We estimate that applying a 5-percent cap on all wage index decreases would have a very small effect on the proposed budget neutrality factor associated with the proposed cap applied to the standardized amount for FY 2023 (discussed in section III.N.2 of the preamble of this proposed rule). Because the wage index is a measure of the value of labor (wage and wage-related costs) in a prescribed labor market area relative to the national average, we anticipate that in the absence of proposed policy changes most hospitals will not experience year-to-year wage index declines greater than 5 percent in any given year. Therefore, we anticipate that the impact to the proposed budget neutrality factor associated with the proposed cap in future years would continue to be minimal. We also believe that when the 5-percent cap would be applied under this proposal, in general it is likely that it would be applied similarly to all hospitals in the same labor market area, as the hospital average hourly wage data in the CBSA (and any relative decreases compared to the national average hourly wage) would be similar. While in certain circumstances this policy may result in some hospitals in a CBSA receiving a higher wage index than others in the same area, we believe the impact would be temporary.

For the reasons discussed in this section, we believe a 5-percent cap on wage index decreases would be appropriate for the IPPS. Therefore, for FY 2023 and subsequent years, we are proposing to apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. That is, we are proposing that a hospital's wage index for FY 2023 would not be less than 95 percent of its final wage index for FY 2022, and that for subsequent years, a hospital's wage index would not be less than 95 percent of its final wage index for the prior FY. This also means that if a hospital's prior FY wage index is calculated with the application of the 5-percent cap, the following year's wage index would not be less than 95 percent of the hospital's capped wage index in the prior FY. For example, if a hospital's wage index for FY 2023 is calculated with the application of the 5-percent cap, then its wage index for FY 2024 would not be less than 95 percent of its capped wage index in FY 2023. We would reflect the proposed wage index cap policy at 42 CFR 412.64(h). Specifically, we are proposing to add a new paragraph at 42 CFR 412.64(h)(7) to state that beginning with fiscal year 2023, if CMS determines that a hospital's wage index value for a fiscal year would decrease by more than 5 percent as compared to the hospital's wage index value for the prior fiscal year, CMS limits the decrease to 5 percent for the fiscal year.

We have authority to implement this proposed wage index cap policy and the associated proposed budget neutrality adjustment (discussed below in section III.N.2. of the preamble of this proposed rule) under section 1886(d)(3)(E) of the Act, which 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 budget neutral. In addition, we have authority to implement this proposed wage index cap policy and the associated proposed budget neutrality adjustment (discussed below in section III.N.2. of the preamble of this proposed rule) as an adjustment under section 1886(d)(5)(I)(i) of the Act, which similarly gives the Secretary broad authority to provide by regulation for such other exceptions and adjustments to such payment amounts under subsection (d) as the Secretary deems appropriate.

We are proposing to apply the proposed wage index cap policy described above for a FY using the final wage index applicable to the hospital on the last day of the prior FY (except for newly opened hospitals, as discussed below). In general, the final wage index applicable to the hospital on the last day of the prior FY would be the wage index value listed for the hospital in Table 2 of the IPPS/LTCH PPS final rule for that prior FY (including any correction notices, if applicable). In rulemaking for a FY, we intend to relist the wage index values from Table 2 of the IPPS/LTCH PPS final rule for the prior FY, with updates as described below. Under the proposed wage index cap policy described above, we would use these values to determine a hospital's wage index for a FY by capping it at 95 percent of the final wage index applicable to the hospital on the last day of the prior FY (in general, the wage index value listed for the hospital in Table 2 of the IPPS/LTCH PPS final rule for the prior FY). We note, consistent with our past application of the 5 percent cap transition policy (see the FY 2020 IPPS/LTCH PPS final rule (84 FR 42337)), the proposed wage index cap policy described above would apply to hospitals whose wage index is reduced by obtaining a urban to rural reclassification under 42 CFR 412.103. Specifically, a hospital that obtains a rural reclassification under 42 CFR 412.103 may be assigned its State's rural wage index. While other forms of wage index reclassification are effective with the start of a Federal fiscal year, pursuant to 42 CFR 412.103(d)(1), the effective date of an approved rural reclassification is the filing date of the application. Therefore, the wage index values for hospitals that obtain rural reclassification under 42 CFR 412.103 may change in the middle of a Federal fiscal year and thus may not be reflected in Table 2 of the IPPS/LTCH PPS final rule for that year. For example, if a hospital was assigned its geographic wage index of 1.0001 in Table 2 of the FY 2022 IPPS/LTCH PPS final rule, but obtained a rural reclassification on December 1, 2021 and was assigned its state's rural wage index of 0.9600 for the remainder of FY 2022; the FY 2023 cap would be based on the 0.9600 value, not the 1.0001 value listed in Table 2 of the FY 2022 IPPS/LTCH PPS final rule. As in previous years, we would instruct hospitals that obtain a rural reclassification under 42 CFR 412.103 to contact their MAC to ensure that their assigned wage index does not result in a greater than 5 percent decrease from the hospital's prior year wage index value (see the FY 2020 IPPS/LTCH PPS final rule (84 FR 42337) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58754)).

In Table 2 associated with this proposed rule, which is available via the internet on the CMS website, we list the FY 2022 final wage index value for all hospitals in column C. For additional clarity, we have identified hospitals that have obtained rural reclassification after the FY 2022 lock-in date, as described in 42 CFR 412.103(b)(6), and that were assigned a different wage index than what was listed in Table 2 associated with the FY 2022 IPPS/LTCH PPS correction notice (available on the internet at https://www.cms.gov/files/zip/fy-2022-ipps-fr-tables-2-3-4a-4b.zip ). In Table 2 associated with this proposed rule, the FY 2022 wage index column for these hospitals will not use the values listed in Table 2 associated with the FY 2022 IPPS/LTCH PPS correction notice (available on the internet at https://www.cms.gov/files/zip/fy-2022-ipps-fr-tables-2-3-4a-4b.zip ), but will instead be updated with the wage index value that is currently assigned to the hospitals. Under our proposal described above, we would apply the proposed wage index cap using the actual final wage index value assigned to the hospital on the last day of the prior Federal fiscal year rather than the value listed in Table 2 of the prior FY final rule. We are providing a supplemental data file (posted on the FY 2023 proposed rule web page at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps ) which lists all hospitals that have obtained rural reclassification under 42 CFR 412.103 after the FY 2022 lock-in date and that have no other form of wage index reclassification applicable to them at this time. This list will be revised for the final rule to add additional hospitals without another form of reclassification that obtain rural reclassification under 42 CFR 412.103 before the FY 2023 lock-in date as described in 42 CFR 412.103(b)(6).

Hospitals that obtain rural reclassification after the FY 2023 lock-in date will not be listed as being reclassified as rural in the FY 2023 IPPS/LTCH PPS final rule. If we finalize the proposed wage index cap policy described above, these hospitals should contact their MAC to ensure that the assigned rural wage index value is not less than 95 percent of their final wage index value for FY 2022 (that is, the wage index assigned to the hospital as of September 30, 2022).

For newly opened hospitals, we propose to apply the proposed wage index cap policy described previously for a FY using the wage index value the hospital was assigned for the prior FY. A new hospital would be paid the wage index for the area in which it is geographically located for its first full or partial fiscal year, and it would not receive a cap for that first year because it would not have been assigned a wage index in the prior year. Also, it is possible a new hospital may not be listed in Table 2 for several years since the hospitals listed in Table 2 are based on historical data. If we finalize the proposed wage index cap policy described above, a new hospital may contact their MAC to ensure that their assigned wage index value for the upcoming FY is not less than 95 percent of the value assigned to them for the prior Federal fiscal year. For example, if a hospital begins operations on July 1, 2022, and is assigned its area wage index of 0.9000 for the remainder of FY 2022, its FY 2023 wage index would be capped at 95 percent of that value, and could not be lower than 0.8550 (0.95 × 0.9000) regardless of whether it was listed in Table 2 in the FY 2022 IPPS/LTCH PPS final rule. A hospital that opens on December 1, 2022 would not be eligible for a capped wage index in FY 2023, as it was not assigned a wage index during FY 2022.We finally note that if we adopt these proposals as final policy, we would examine the effects of the policy on an ongoing basis in the future in order to assess whether it effectively and appropriately accomplishes the goal of increasing predictability and stability in IPPS payments.

2. Proposed Permanent Cap Budget Neutrality

We are proposing to implement the proposed wage index cap policy (discussed above in section III.N.1 of the preamble of this proposed rule) in a budget neutral manner through a national adjustment to the standardized amount each fiscal year as we have implemented similar past transition policies involving a cap on wage index decreases (for example, see the FY 2021 IPPS/LTCH PPS final rule (85 FR 58755) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45164 through 45165)). We believe application of the proposed wage index cap policy should not increase estimated aggregate Medicare payments beyond the payments that would be made had we never applied the cap.

Specifically, we are proposing to apply a budget neutrality adjustment to ensure that estimated aggregate payments under our proposed wage index cap policy for hospitals that would have a decrease in their wage indexes for the upcoming fiscal year of more than 5 percent would equal what estimated aggregate payments would have been without the proposed wage index cap policy. To determine the proposed associated budget neutrality factor, we compare estimated aggregate IPPS payments with and without the proposed wage index cap policy. As discussed above in section III.N.1 of the preamble of this proposed rule, we have authority to implement this proposed budget neutrality adjustment under sections 1886(d)(3)(E) and (d)(5)(I)(i) of the Act. We note that the proposed budget neutrality adjustment would be updated, as appropriate, based on the final rule data. We refer readers to the Addendum of this proposed rule for further information regarding the proposed budget neutrality calculations.

IV. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2023 (§ 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, 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, 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. (For purposes of this proposed rule, we refer to these provisions collectively as section 3133 of the Affordable Care Act.) Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act.

The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals who are uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year are based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year.

Section 1886(r) of the Act requires that, for FY 2014 and each subsequent fiscal year, a subsection (d) hospital that would otherwise receive DSH payments made under section 1886(d)(5)(F) of the Act receives two separately calculated payments. Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital (including a Pickle hospital) 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for DSH payments, which represents the empirically justified amount for such payment, as determined by the MedPAC in its March 2007 Report to Congress. We refer to this payment as the “empirically justified Medicare DSH payment.”

In addition to this empirically justified Medicare DSH payment, section 1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the Secretary shall pay to such subsection (d) hospital an additional amount equal to the product of three factors. The first factor is the difference between the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply and the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year. Therefore, this factor amounts to 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act.

The second factor is, for FY 2018 and subsequent fiscal years, 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS), and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified), minus a statutory adjustment of 0.2 percentage point for FYs 2018 and 2019.

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.”

Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act.

Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or the periods selected in order 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. Therefore, hospitals must receive empirically justified Medicare DSH payments in a fiscal year in order to receive an additional Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, in addition to the payment made to a subsection (d) hospital under section 1886(r)(1) of the Act, the Secretary shall pay to such subsection (d) hospitals an additional amount. Because section 1886(r)(1) of the Act refers to empirically justified Medicare DSH payments, the additional payment under section 1886(r)(2) of the Act is limited to hospitals that receive empirically justified Medicare DSH payments in accordance with section 1886(r)(1) of the Act for the applicable fiscal year.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS interim final rule with comment period (78 FR 61193), we provided 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). For this proposed rule, we estimated DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We note FY 2019 SSI ratios available on the CMS website are the most recent available SSI ratios at the time of developing this proposed rule. If more recent data on DSH eligibility become available before the final rule, then we would use such data in the final rule. Our final determination on a hospital's eligibility for uncompensated care payments will be based on the hospital's actual DSH status at cost report settlement for that payment year.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the rulemaking for subsequent fiscal years, we have specified our policies for several specific classes of hospitals within the scope of section 1886(r) of the Act. In this FY 2023 IPPS/LTCH PPS proposed rule, we discuss our specific policies regarding eligibility to receive empirically justified Medicare DSH payments and uncompensated care payments for FY 2023 with respect to the following hospitals:

• 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 the new payment methodology (78 FR 50623 and 79 FR 50006).

• 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, which began on January 1, 2019. Under the Maryland TCOC Model, Maryland hospitals will not be paid under the IPPS in FY 2023, and will be ineligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act.

• Sole community hospitals ( SCHs) that are paid under their hospital-specific rate are not eligible for Medicare DSH payments. 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, and if they receive interim empirically justified Medicare DSH payments in a fiscal year, they also will receive interim uncompensated care payments for that fiscal year on a per discharge basis, subject as well 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 Federal rate is exceeded by the updated hospital-specific rate from certain specified base years (76 FR 51684). The IPPS Federal rate that is used in the MDH payment methodology is the same IPPS Federal rate that is used in the SCH payment methodology. Section 50205 of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), enacted on February 9, 2018, extended the MDH program for discharges on or after October 1, 2017, through September 30, 2022. 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.

We note that there has not been legislation at the time of development of this proposed rule that would extend the MDH program beyond September 30, 2022. However, if the MDH program were to be extended beyond its current expiration date, similar to how it was extended under the Bipartisan Budget Act of 2018, we would continue to make a determination 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 starting 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. The BPCI Advanced Model's final performance year will end on December 31, 2023. For further information regarding the BPCI Advanced model, we refer readers to the CMS website at https://innovation.cms.gov/initiatives/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.

• 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. 114-255). 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 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 would extend until June 30, 2028, as outlined in section V.K. of the preamble of this proposed rule. 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 also excluded from receiving interim and final uncompensated care payments. At the time of development of this proposed rule, we believe 26 hospitals may participate in the demonstration program at the start of FY 2023.

C. Empirically Justified Medicare DSH Payments

As we have discussed earlier, section 1886(r)(1) of the Act requires the Secretary to pay 25 percent of the amount of the Medicare DSH payment that would otherwise be made under section 1886(d)(5)(F) of the Act to a subsection (d) hospital. Because section 1886(r)(1) of the Act merely requires the program to pay a designated percentage of these payments, without revising the criteria governing eligibility for DSH payments or the underlying payment methodology, we stated in the FY 2014 IPPS/LTCH PPS final rule that we did not believe that it was necessary to develop any new operational mechanisms for making such payments. Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented this provision by advising Medicare Administrative Contractors (MACs) to simply adjust the interim claim payments to the requisite 25 percent of what would have otherwise been paid. 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 that are available on the CMS website at https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html .

D. Uncompensated Care Payments

As we discussed earlier, section 1886(r)(2) of the Act provides that, for each eligible hospital in FY 2014 and subsequent years, the uncompensated care payment is the product of three factors. These three factors represent our estimate of 75 percent of the amount of Medicare DSH payments that would otherwise have been paid, an adjustment to this amount for the percent change in the national rate of uninsurance compared to the rate of uninsurance in 2013, and each eligible hospital's estimated uncompensated care amount relative to the estimated uncompensated care amount for all eligible hospitals. In this section of the preamble of this proposed rule, we discuss the data sources and methodologies for computing each of these factors, our final policies for FYs 2014 through 2022, and our proposed policies for FY 2023.

1. Proposed Calculation of Factor 1 for FY 2023

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 the new payment provision; and (2) the amount of empirically justified Medicare DSH payments that are made for the fiscal year, which takes into account the requirement to pay 25 percent of what would have otherwise been paid under section 1886(d)(5)(F) of the Act. In other words, this factor represents our estimate of 75 percent (100 percent minus 25 percent) of our estimate of Medicare DSH payments that would otherwise be made, in the absence of section 1886(r) of the Act, for the fiscal year.

In this FY 2023 IPPS/LTCH PPS proposed rule, in order to determine Factor 1 in the uncompensated care payment formula for FY 2023, we are proposing to 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) of determining Factor 1 by developing estimates of both the aggregate amount of Medicare DSH payments that would be made 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 has applied in previous years, these estimates will not be revised or updated subsequent to the publication of our final projections in the FY 2023 IPPS/LTCH PPS final rule.

Therefore, in order to determine the two elements of proposed Factor 1 for FY 2023 (Medicare DSH payments prior to the application of section 1886(r)(1) of the Act, and empirically justified Medicare DSH payments after application of section 1886(r)(1) of the Act), for this proposed rule, we used the most recently 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 IPPS Impact File. The determination of the amount of DSH payments is partially based on OACT's Part A benefits projection model. One of the results 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 2020 through FY 2023 are discussed in the table titled “Factors Applied for FY 2020 through FY 2023 to Estimate Medicare DSH Expenditures Using FY 2019 Baseline.”

For purposes of calculating Factor 1 and modeling the impact of this FY 2023 IPPS/LTCH PPS proposed rule, we used the Office of the Actuary's January 2022 Medicare DSH estimates, which were based on data from the September 2021 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2022 IPPS/LTCH PPS final rule IPPS Impact File, published in conjunction with the publication of the FY 2022 IPPS/LTCH PPS final rule. Because SCHs that are projected to be paid under their hospital-specific rate are excluded from the application of section 1886(r) of the Act, these hospitals also were excluded from the January 2022 Medicare DSH estimates. Furthermore, because section 1886(r) of the Act specifies that the uncompensated care payment is in addition to the empirically justified Medicare DSH payment (25 percent of DSH payments that would be made without regard to section 1886(r) of the Act), Maryland hospitals, which are not eligible to receive DSH payments, were also excluded from the Office of the Actuary's January 2022 Medicare DSH estimates. The 26 hospitals that are anticipated to participate in the Rural Community Hospital Demonstration Program in FY 2023 were also excluded from these estimates, because under the payment methodology that applies during the third 5-year extension period, these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments.

For this proposed rule, using the data sources as previously discussed, the Office of the Actuary's January 2022 estimate of Medicare DSH payments for FY 2023 without regard to the application of section 1886(r)(1) of the Act, is approximately $13.266 billion. Therefore, also based on the January 2022 estimate, the estimate of empirically justified Medicare DSH payments for FY 2023, with the application of section 1886(r)(1) of the Act, is approximately $3.316 billion (or 25 percent of the total amount of estimated Medicare DSH payments for FY 2023). Under § 412.106(g)(1)(i) of the regulations, Factor 1 is the difference between these two OACT estimates. Therefore, in this proposed rule, we are proposing that Factor 1 for FY 2023 would be $9,949,258,556.56, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2023 ($13,266 million minus $3,316 million). We note that consistent with our approach in previous rulemakings, OACT intends to use more recent data that may become available for purposes of projecting the final Factor 1 estimates for the FY 2023 IPPS/LTCH PPS final rule.

The Factor 1 estimates for proposed rules are generally consistent with the economic assumptions and actuarial analysis used to develop the President's Budget estimates under current law, and the Factor 1 estimates for the final rule are generally consistent with those used for the Midsession Review of the President's Budget. As we have in the past, 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 expect that the Midsession Review will have updated economic assumptions and actuarial analysis, which would be used for the development of Factor 1 estimates in the final rule.

For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the “2021 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.” 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.

We also refer readers to the 2018 Actuarial Report on the Financial Outlook for Medicaid for a discussion of general issues regarding Medicaid projections (available at https://www.cms.gov/Research/Statistics/Data-and/Systems/Research/ActuarialStudies/MedicaidReport ).

In this proposed rule, we include information regarding the data sources, methods, and assumptions employed by the actuaries in determining the OACT's estimate of Factor 1. In summary, we indicate the historical HCRIS data update OACT used to identify Medicare DSH payments, we explain that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provide the components of all the update factors that were applied to the historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. This discussion also includes a description of the “Other” and “Discharges” assumptions, and also provides additional information regarding how we address the Medicaid and CHIP expansion.

The Office of the Actuary's estimates for FY 2023 for this proposed rule began with a baseline of $13.808 billion in Medicare DSH expenditures for FY 2019. The following table shows the factors applied to update this baseline through the current estimate for FY 2023:

In this table, the discharges column shows the changes in the number of Medicare fee-for-service (FFS) inpatient hospital discharges. The discharge figures for FY 2020 and FY 2021 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 include the impact of the pandemic. The discharge figure for FY 2022 is based on preliminary data. The discharge figure for FY 2023 is an assumption based on recent trends recovering back to the long-term trend and assumptions related to how many beneficiaries will be enrolled in Medicare Advantage (MA) plans. The discharge figures for FY 2020 to FY 2023 reflect the actual impact and estimated future impact of the COVID-19 pandemic. The case-mix column shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2020 and FY 2021 are based on actual claims data adjusted by a completion factor. We note that these claims include the impact of the pandemic. The case-mix figure for FY 2022 is based on preliminary data. The case-mix factor figures for FY 2020 to FY 2023 reflect the actual impact and estimated future impact of the COVID-19 pandemic. The “Other” column shows the increase 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 change in rates for the 2-midnight stay policy and the 20 percent add-on for COVID-19 discharges). In addition, the “Other” column includes a factor for the Medicaid expansion due to the Affordable Care Act. The factor for Medicaid expansion was developed using public information and statements for each State regarding its intent to implement the expansion. Based on the information available at the time of development of this proposed rule, it is assumed that approximately 55 percent of all individuals who were potentially newly eligible Medicaid enrollees in 2018, 2019, and 2020 resided in States that had elected to expand Medicaid eligibility, and approximately 60 percent of all individuals who were potentially newly eligible Medicaid enrollees in 2021-2023 and approximately 75 percent in 2024 and thereafter, resided in States that had elected to expand Medicaid eligibility. In the future, these assumptions may change based on actual participation by States. The “Other” column also includes the estimated impacts on Medicaid enrollment from the COVID-19 pandemic. We note that, based on the most recent available data, Medicaid enrollment is estimated to change as follows: 2.0 percent in FY 2020, 9.5 percent in FY 2021, 4.2 percent in FY 2022, and -5.7 percent in FY 2023.

For a discussion of general issues regarding Medicaid projections, we refer readers to the 2018 Actuarial Report on the Financial Outlook for Medicaid, which is available on the CMS website at https://www.cms.gov/Researc/Statistics/Data/and/Systems/Research/ActuarialStudies/MedicaidReport . 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, use fewer hospital services. Specifically, based on the most recent available data at the time of developing this proposed rule, the OACT assumed per capita spending for Medicaid beneficiaries who enrolled due to the expansion to be 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, given that the pandemic is ongoing.

The following table shows the factors that are included in the “Update” column of the previous table:

2. Calculation of Proposed Factor 2 for FY 2023

(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), minus 0.2 percentage point for FYs 2018 and 2019. In FY 2020 and subsequent fiscal years, there is no longer a reduction. 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 CBO estimates to determine the percent change in the rate of uninsurance beginning in FY 2018. 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. We are proposing to use a methodology similar to the one that was used in FY 2018 through FY 2022 to determine Factor 2 for FY 2023.

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 represents the government's official estimates of economic activity (spending) within the health sector. The information contained in the NHEA has been used to study numerous topics related to the health care sector, including, but not limited to, 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; and comparisons to other countries' health 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 are 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, we continue to believe 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 2020, 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 2020. 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 .

In order 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 population of the United States. (We refer readers to the website at https://www.census.gov/programs-surveys/cps.html .) The enhanced CPS, available from SHADAC (available at http://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 2019 estimate was extrapolated using the 2019/2018 trend from the American Community Survey (ACS). The 2020 estimate was extrapolated using the 2020/2018 trend from the CPS as published by the Census Bureau. 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/ . For information regarding the data collection issues regarding the 2020 ACS, we refer readers to the Census Bureau's website at https://www.census.gov/newsroom/blogs/random-samplings/2021/10/pandemic-impact-on-2020-acs-1-year-data.html . Since the 2020 ACS data were not available, the ACS data were not used for purposes of estimating the number of uninsured individuals for 2020.

The next metrics needed to compute Factor 2 for FY 2023 are projections of the rate of uninsurance in both CY 2022 and CY 2023. On an annual basis, OACT projects enrollment and spending trends for the coming 10-year period. The most recent projections are for 2021 through 2030. Those projections use the latest NHEA historical data, available at the time of their construction. The NHEA projection methodology accounts for expected changes in enrollment across all of the categories of insurance coverage previously listed. The sources for projected growth rates in enrollment for Medicare, Medicaid, and CHIP include the latest Medicare Trustees Report and other updated estimates as produced by OACT. Projected rates of growth in enrollment for private health insurance and the uninsured are based largely on OACT's econometric models, which rely on the set of macroeconomic assumptions underlying the latest Medicare Trustees Report. Greater detail can be found in OACT's report titled “Projections of National Health Expenditure: 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) Proposed Factor 2 for FY 2023

Using these data sources and the previously described methodologies, OACT estimated that the uninsured rate for the historical, baseline year of 2013 was 14 percent and for CYs 2022 and 2023 is 8.9 percent and 9.3 percent, respectively. As required by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS has certified these estimates. We refer readers to OACT's Memorandum on Certification of Rates of Uninsured prepared for this FY 2023 IPPS/LTCH PPS proposed rule for further details on the methodology and assumptions that were used in the projection of these rates of uninsurance.

As with the CBO estimates on which we based Factor 2 for fiscal years before FY 2018, the NHEA estimates are for a calendar year. Under the approach originally adopted in the FY 2014 IPPS/LTCH PPS final rule, we have used a weighted average approach to project the rate of uninsurance for each fiscal year. We continue to believe that, in order to estimate the rate of uninsurance during a fiscal year accurately, Factor 2 should reflect the estimated rate of uninsurance that hospitals will experience during the fiscal year, rather than the rate of uninsurance during only one of the calendar years that the fiscal year spans. Accordingly, we are proposing to continue to apply the weighted average approach used in past fiscal years in order to estimate the rate of uninsurance for FY 2023.

The OACT has certified the estimate of the rate of uninsurance for FY 2023 determined using this weighted average approach to be reasonable and appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act. We note that we may also consider the use of more recent data that may become available for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2023.

The calculation of the proposed Factor 2 for FY 2023 is as follows:

Percent of individuals without insurance for CY 2013: 14 percent.

Percent of individuals without insurance for CY 2022: 8.9 percent.

Percent of individuals without insurance for CY 2023: 9.3 percent.

Percent of individuals without insurance for FY 2023 (0.25 times 0.089) + (0.75 times 0.093): 9.2 percent.

1−|((0.092−0.14)/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 in order to determine Factor 2. Therefore, we are proposing that Factor 2 for FY 2023 would be 65.71 percent.

The proposed FY 2023 uncompensated care amount is equivalent to this proposed rule's Factor 1 multiplied by this proposed rule's Factor 2, which is $9,949,258,556.56 * 0.6571 = $6,537,657,797.52.

In addition, it has recently come to our attention that the provision of the regulations that addresses Factor 2 inadvertently omits any reference to the statutory methodology in section 1886(r)(2)(B)(ii) of the Act for determining Factor 2 for FY 2018 and subsequent fiscal years. Accordingly, we are proposing a technical change to the regulation at § 412.106 to update paragraph (g)(1)(ii) to reflect the statutory requirements governing the determination of Factor 2 for FY 2018 and subsequent fiscal years. We have determined Factor 2 for FY 2018 through FY 2022 consistent with the plain language of section 1886(r)(2)(B)(ii) of the Act; therefore, this proposed technical change is intended merely to update our regulations to reflect the methodology for determining Factor 2 that has applied since FY 2018 and will continue to apply for FY 2023 and subsequent fiscal years.

We are inviting public comments on our proposed Factor 2 for FY 2023 and on the proposed technical change to the regulation at § 412.106(g)(1)(ii).

3. Calculation of Proposed Factor 3 for FY 2023

(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 FYs 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. Of particular importance in our decision to use proxy data was the relative newness of Worksheet S-10, which went into effect on May 1, 2010. At the time of the rulemaking for FY 2014, the most recent available cost reports would have been from FYs 2010 and 2011 and submitted on or after May 1, 2010, when the new Worksheet S-10 went into effect. 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. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38201 through 38203) for a complete discussion of these analyses.

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38206), we recognized commenters' concerns that, in continuing to use Medicaid days as part of the proxy for uncompensated care, it would be possible for hospitals in States that choose to expand Medicaid to receive higher uncompensated care payments because they may have more Medicaid patient days than hospitals in a State that does not choose to expand Medicaid. 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 (82 FR 38208 through 38212).

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 currently 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 1 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 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. Although 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, 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. 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, will more accurately reflect a hospital's uncompensated care costs, as opposed to averaging multiple years of 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. For IHS and Tribal hospitals and Puerto Rico hospitals, we finalized the use of a low-income insured days proxy to determine Factor 3 for FY 2021. We did not finalize a methodology to determine Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals for FY 2022 and subsequent years because we believed further consideration and review of these hospitals' Worksheet S-10 data was necessary (85 FR 58825).

In the FY 2021 IPPS/LTCH PPS final rule, we finalized the definition of “uncompensated care” for FY 2021 and subsequent fiscal years, for purposes of determining uncompensated care costs and calculating Factor 3 (85 FR 58825 through 58828). 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 rule (85 FR 58825 through 58828) for a discussion of additional topics related to the definition of uncompensated care. We noted in the FY 2021 IPPS/LTCH PPS final rule that the Paper Reduction Act (PRA) package for Form CMS-2552-10 would offer an additional opportunity to comment on the cost reporting instructions. A PRA package with comment period appeared in the November 10, 2020, Federal Register (85 FR 71653). We thank stakeholders for their comments on the PRA package and we will respond to those comments in a separate Federal Register document. The OMB control number for this information collection request is 0938-0050, which expired on March 31, 2022. A reinstatement of the information collection request is currently being developed. The public will have an opportunity to review and submit comments on the reinstatement through a public notice and comment period separate from this rulemaking.

(b) Background on the Methodology Used To Calculate Factor 3 for FY 2022

Section 1886(r)(2)(C) of the Act governs both the selection of the data to be used in calculating Factor 3, and also 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.

In the FY 2022 IPPS/LTCH PPS final rule, we continued to apply the following policies as part of the Factor 3 methodology: (1) The policy regarding newly merged hospitals that was initially adopted in the FY 2015 IPPS/LTCH PPS final rule; (2) the policies regarding annualization and long cost reports that were adopted in the FY 2018 and FY 2019 IPPS/LTCH PPS final rules, including a modified policy for the rare cases where a provider has no cost report for the fiscal year that is used in the Factor 3 methodology because the cost report for the previous fiscal year spans both years; (3) the modified new hospital policy that was finalized in the FY 2020 IPPS/LTCH PPS final rule; (4) the new merger policy adopted in the FY 2021 IPPS/LTCH PPS final rule that accounts for the merger effective date; and (5) the policies regarding the application of statistical trim methodologies to potentially aberrant CCRs and potentially aberrant uncompensated care costs reported on the Worksheet S-10. We discuss these policies in greater detail in this section.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45244), we continued 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, 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 (79 FR 50021). In the FY 2015 IPPS/LTCH PPS final rule, 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 would be recalculated similar to new hospitals (79 FR 50021 and 50022). Consistent with past policy, interim uncompensated care payments for newly merged hospitals are based only on the data for the surviving hospital's CCN available the time of the development of the final rule. However, at cost report settlement, we will determine the newly merged hospital's final uncompensated care payment based on the uncompensated care costs reported on its cost report for the applicable fiscal year. That is, for FY 2022, we will revise the numerator of Factor 3 for a newly merged hospital to reflect the uncompensated care costs reported on the newly merged hospital's FY 2022 cost report.

In FY 2022 IPPS/LTCH PPS final rule, we continued the policy that was finalized in the FY 2018 IPPS/LTCH PPS final rule of annualizing uncompensated care cost data reported on the Worksheet S-10 if a hospital's cost report does not equal 12 months of data, except in the case of mergers, which would be subject to the modified merger policy originally adopted in FY 2021. In addition, we continued the policies that were finalized in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41415) regarding the use of the longest cost report available within the Federal fiscal year. We also applied the modified policy that was adopted in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58829) for those rare situations where a hospital has a cost report that starts in one fiscal year but spans the entirety of the following fiscal year such that the hospital has no cost report starting in that subsequent fiscal year. Under this modified policy, we use the cost report that spans both fiscal years for purposes of calculating Factor 3 when data from the latter fiscal year are used in the Factor 3 methodology.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 25454), we continued the modified new hospital policy for new hospitals that do not have data for the cost reporting period(s) used in the Factor 3 calculation (that is, the most recent cost reporting year for which audits have been conducted). Under the modified policy originally adopted for FY 2020, new hospitals that have a preliminary projection of being eligible for Medicare DSH based on their most recent available disproportionate patient percentages may receive interim empirically justified DSH payments during the fiscal year. However, because these hospitals do not have a cost report for the cost reporting period used in the Factor 3 calculation and the projection of eligibility for DSH payments is still preliminary, we are unable to calculate a prospective Factor 3 for these hospitals and they do not receive interim uncompensated care payments. The MAC will make a final determination concerning whether the hospital is eligible to receive Medicare DSH payments for the fiscal year at cost report settlement. Thus, for FY 2022, if a new hospital is ultimately determined to be eligible for Medicare DSH payments for FY 2022, the hospital will receive an uncompensated care payment calculated using a Factor 3, where the numerator is the uncompensated care costs reported on Worksheet S-10 of the hospital's FY 2022 cost report, and the denominator is the same denominator that was used in the prospective Factor 3 calculation for FY 2022 (that is, the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2018 cost reports for all DSH-eligible hospitals).

In the FY 2022 IPPS/LTCH PPS final rule, we continued the new merger policy that accounts for the merger effective date, that was originally adopted in FY 2021. To more accurately estimate uncompensated care costs (UCC) for the hospitals involved in a merger when the merger effective date occurs partway through the surviving hospital's cost reporting period, we apply a policy of not annualizing the acquired hospital's data. Under this policy, we use only the portion of the acquired hospital's unannualized UCC data that reflects the UCC incurred prior to the merger effective date, but after the start of the surviving hospital's current cost reporting period. To do this, we calculate a multiplier to be applied to the acquired hospital's UCC. This multiplier represents the portion of the UCC data from the acquired hospital that should be incorporated with the surviving hospital's data to determine UCC for purposes of determining Factor 3 for the surviving hospital. This multiplier is obtained by calculating the number of days between the start of the applicable cost reporting period for the surviving hospital and the merger effective date, and then dividing this result by the total number of days in the reporting period of the acquired hospital. Applying this multiplier to the acquired hospital's unannualized UCC data will determine the final portion of the acquired hospital's UCC that should be added to the UCC of the surviving hospital for purposes of determining Factor 3 for the merged hospital.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 25454 and 25455), we continued to apply a CCR trim methodology similar to the CCR trim methodology policy that has been used for purposes of determining uncompensated care payments since FY 2018. This CCR trim methodology is consistent with the approach used in the outlier payment methodology under § 412.84(h)(3)(ii), which states that the Medicare contractor may use a statewide average CCR for hospitals whose operating or capital CCR is in excess of 3 standard deviations above the corresponding national geometric mean. We refer readers to the discussion in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58831) for a detailed description of the steps used to determine the applicable CCR.

In addition, we continued the UCC data trim methodology for rare situations where a hospital has potentially aberrant data that are unrelated to its CCR (86 FR 45245). However, because we audit the Worksheet S-10 data for a number of hospitals, we no longer believe it is necessary to apply the trim methodology for hospitals whose cost report has been audited. Accordingly, for FY 2022, we continued the policy adopted in FY 2021 under which we exclude hospitals that were part of the audits for the fiscal year used in the Factor 3 calculation from the trim methodology for potentially aberrant UCC. We also continued to apply a modified trim methodology for all-inclusive rate providers (AIRPs) with potentially aberrant UCC (86 FR 45235). Under this modified trim methodology, when an AIRP's total UCC are greater than 50 percent of its total operating costs when calculated using the CCR included on its cost report for the most recent cost reporting year for which audits have been conducted, we recalculate the AIRP's UCC using the CCR reported on Worksheet S-10, line 1 of the hospital's most recent available prior year cost report that does not result in UCC of over 50 percent of total operating costs.

In addition, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45245 and 452456), we finalized an alternative trim specific to hospitals that are not projected to be DSH-eligible and that do not have audited FY 2018 Worksheet S-10 data for use in determining Factor 3. We explained that we believe this new alternative trim more appropriately addresses potentially aberrant insured patient charity care costs compared to the existing trim, because the existing 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. Specifically, we finalized that, for the hospitals that would be subject to the trim, if the hospital is ultimately determined to be DSH-eligible at cost report settlement, then the MAC would calculate a Factor 3 after reviewing the uncompensated care information reported on Worksheet S-10 of the hospital's FY 2022 cost report. We stated that we believe if a hospital subject to this trim 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 2022 Worksheet S-10 has been reviewed. We noted that this approach is comparable to the policy for new hospitals for which we cannot calculate a prospective Factor 3 because they do not have Worksheet S-10 data for the relevant fiscal year.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45242 and 45243), we continued the policy we first adopted for FY 2018 of substituting data regarding FY 2013 low-income insured days for the Worksheet S-10 data when determining Factor 3 for IHS and Tribal hospitals and subsection (d) Puerto Rico hospitals that have a FY 2013 cost report. We stated our belief that this approach was appropriate as the FY 2013 data reflect the most recent available information regarding these hospitals' low-income insured days before any expansion of Medicaid. In addition, because we continued to use 1 year of insured low income patient days as a proxy for uncompensated care for Puerto Rico hospitals and residents of Puerto Rico are not eligible for SSI benefits, we continued to use a proxy for SSI days for Puerto Rico hospitals consisting of 14 percent of the hospital's Medicaid days, as finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56953 through 56956).

We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45236) for a discussion of the approach that we continued to apply in FY 2022 to determine Factor 3 for new Puerto Rico hospitals. In brief, Puerto Rico hospitals that do not have a FY 2013 cost report were considered new hospitals and subject to the new hospital policy, as discussed previously. Specifically, the numerator of the Factor 3 calculation will be the uncompensated care costs reported on Worksheet S-10 of the hospital's cost report for the applicable fiscal year and the denominator is the same denominator that is determined prospectively for purposes of determining Factor 3 for all DSH-eligible hospitals.

Consistent with the policy adopted in the FY 2021 IPPS/LTCH PPS final rule and codified in the regulations at § 412.106(g)(8) for subsequent fiscal years, in the FY 2022 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.

Therefore, for FY 2022, we applied the following methodology to compute Factor 3 for each hospital:

Step 1: Select the provider's longest cost report from its Federal fiscal year (FFY) 2018 cost reports. (Alternatively, in the rare case when the provider has no FFY 2018 cost report because the cost report for the previous Federal fiscal year spanned the FFY 2018 time period, the previous Federal fiscal year cost report will be used in this step.)

Step 2: Annualize the uncompensated care costs (UCC) from Worksheet S-10 Line 30, if the 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 IHS and Tribal hospitals and Puerto Rico hospitals that have a cost report for 2013 using the low-income insured days proxy based on FY 2013 cost report data and the most recent available SSI ratio (or, for Puerto Rico hospitals, 14 percent of the hospital's FY 2013 Medicaid days). The denominator is calculated using the low-income insured days proxy data from all DSH eligible hospitals.

Step 5: Calculate Factor 3 for the remaining DSH eligible hospitals using annualized uncompensated care costs (Worksheet S-10 Line 30) based on FY 2018 cost report data (from Step 1, 2 or 3). New hospitals and the hospitals for which Factor 3 was calculated in Step 4 are excluded from this calculation.

We amended the regulation at § 412.106 by adding a new paragraph (g)(1)(iii)(C)( 9 ) to reflect the methodology for computing Factor 3 for FY 2022 for IHS and Tribal hospitals and for Puerto Rico hospitals that have a 2013 cost report. We also finalized a conforming change to limit the reference to Puerto Rico hospitals in § 412.106(g)(1)(iii)(C)( 8 ) to those Puerto Rico hospitals that have a cost report for 2013.

(c) Proposed Changes to the Methodology for Calculating Factor 3 for FY 2023 and Subsequent Fiscal Years

As described in the FY 2022 IPPS/LTCH PPS final rule, commenters expressed concerns that the use of only one 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 two years of historical Worksheet S-10 data (86 FR 45237). In the FY 2022 IPPS/LTCH PPS final rule, we stated that we would consider using multiple years of data when the vast majority of providers have been audited for more than one fiscal year under the revised reporting instructions. The audits of FY 2019 cost reports began in 2021 and those audited reports are now available, in time for the development of this proposed 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, for FY 2023, we are proposing to determine Factor 3 using the average of the audited FY 2018 and audited FY 2019 reports. We believe this proposal addresses concerns from stakeholders regarding year-to-year fluctuations in uncompensated care payments. In addition, taking into consideration the comments recommending that CMS transition to the use of three years of audited data, we expect that FY 2024 will be the first year that three years of audited data will be available at the time of rulemaking. Accordingly, for FY 2024 and subsequent fiscal years, we propose to use a three-year average of the uncompensated care data from the three most recent fiscal years for which audited data are available to determine Factor 3. Specifically, for FY 2024, we would expect to use data from FY 2018, FY 2019, and FY 2020 reports to calculate uncompensated care payments. In other words, for each of the three most recent fiscal years for which audited data are available at the time of rulemaking for the applicable fiscal year, we would divide a hospital's uncompensated care costs for the fiscal year by the estimated total uncompensated care costs of all DSH hospitals for that fiscal year. We would then calculate an average of those proportions to determine the hospital's Factor 3 for the applicable Federal fiscal year. We believe this proposed approach is 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. Consistent with past methodology when multiple years of data were used in the Factor 3 methodology, we propose that if a hospital does not have data for all three years, we would determine Factor 3 based on an average of the hospital's available data.

As discussed in the earlier background section describing the methodology used to calculate Factor 3 for FY 2022, since the FY 2014 final rule, we have determined Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals, based on the low-income insured days proxy for uncompensated care costs. In the FY 2022 IPPS/LTCH PPS final rule, we discussed comments we had received from IHS/Tribal hospitals and Puerto Rico hospitals about the significant challenges they face in relation to uncompensated care reporting (86 FR 45242 and45243). For example, a commenter stated that the information technology systems used by IHS and Tribal hospitals are not equipped to collect the necessary data for the Worksheet S-10, noting that while IHS recently received funding to upgrade its information technology system, it will take some time, potentially years, before it is fully functional (86 FR 45242). Another commenter expressed concerns that Puerto Rico hospitals were understating the components of uncompensated care costs, and indicated that technical education is needed to address the challenges Puerto Rico hospitals have regarding charity care and bad debt reporting, which the commenter stated would take years to address (86 FR 45243).

To the extent the commenters have identified specific challenges for IHS/Tribal hospitals and Puerto Rico hospitals in reporting uncompensated care costs on Worksheet S-10, it is possible that after a sufficient number of years these reporting challenges could be addressed. However, despite the reporting challenges described by commenters, we are concerned that the historical 2013-based data on low-income insured days, which has been used as an alternative to data on uncompensated care costs from the Worksheet S-10 to determine Factor 3 for IHS/Tribal hospitals and Puerto Rico hospitals, is no longer a good proxy for the costs of these hospitals in treating the uninsured, given the time that has elapsed since 2013. In 2023, this data will be ten years old and there is no obvious way to update the information given our stated concerns surrounding the differential impact of state Medicaid expansions after 2013. In light of these concerns, we can no longer conclude that alternative data to the data on uncompensated care costs reported on Worksheet S-10 are currently available for IHS/Tribal hospitals and Puerto Rico hospitals that are a better proxy for the costs of these hospitals in treating the uninsured. Accordingly, for FY 2023 and subsequent fiscal years, we are proposing to discontinue the use of low-income insured days as a proxy for the uncompensated care costs of these hospitals and are proposing to use the same data to determine Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals as for other hospitals. Specifically, we would determine Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals based on the average of the uncompensated care data reported on Worksheet S-10 of their FY 2018 and FY 2019 cost reports. However, we are seeking comments on alternatives both to our proposal to use data on uncompensated care costs from the Worksheet S-10 to determine Factor 3 for IHS/Tribal hospitals and Puerto Rico hospitals and to the continued use of low-income insured days as a proxy for the uncompensated care costs of these hospitals. We are also seeking comments on how to best measure and define the uncompensated care costs associated with these hospitals that might not otherwise be captured in Factor 3 calculations based on Worksheet S-10 data. Because we recognize that our proposal to discontinue the use of the low-income insured days proxy and to rely 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 a significant financial disruption for these hospitals, we are proposing to establish a new supplemental payment for IHS/Tribal hospitals and Puerto Rico hospitals, beginning in FY 2023. We refer readers to section IV.E of the preamble of this proposed rule for a complete discussion of the proposed new supplemental payment.

Prior to the proposed rulemaking for FY 2023, CMS consulted with IHS and Tribes regarding our policies for determining uncompensated care payments. They expressed that uncompensated care payments are critical to the providers and should be maintained at their current levels, at a minimum. We have considered this recent input along with previous input from stakeholders in the development of our proposed policies. We also welcome additional input from stakeholders regarding the unique circumstances of IHS/Tribal hospitals and Puerto Rico hospitals and/or any mitigating factors, as this will inform our considerations about our proposal to determine Factor 3 for these hospitals using data from Worksheet S-10 and the related proposal to establish a new supplemental payment for IHS/Tribal hospitals and Puerto Rico hospitals.

For purposes of this FY 2023 proposed rule, we have used the December 2021 HCRIS extract to calculate Factor 3. We note that we intend to use the March 2022 update of HCRIS to calculate Factor 3 for the FY 2023 IPPS/LTCH PPS final rule. However, we may consider the use of more recent data that may become available after March 2022, but prior to the development of the final rule, if appropriate, for purposes of calculating the final Factor 3 for the FY 2023 IPPS/LTCH PPS final rule.

For purposes of determining Factor 3 for FY 2023 and subsequent fiscal years, we will apply the following policies: (1) The merger policies that were initially adopted in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50021), as modified in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58828 and 58829) to incorporate the use of a multiplier to account for merger effective date; (2) the policy for hospitals with multiple cost reports, beginning in the same fiscal year, of using the longest cost report and annualizing uncompensated care data if a hospital's cost report does not equal 12 months of data; (3) the policy, as modified in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58829) and as further modified as proposed in this section, for the rare case where a hospital has a cost report that starts in one fiscal year and spans the entirety of the following fiscal year, such that the hospital has no cost report for that subsequent fiscal year, of using the cost report that spans both fiscal years for the latter fiscal year; (4) the new hospital policy, as modified in the FY 2020 IPPS/LTCH PPS final rule and as further modified as proposed in this section; (5) the newly merged hospital policy, as modified as proposed in this section; and (6) the policies regarding the application of statistical trim methodologies to potentially aberrant CCRs and potentially aberrant uncompensated care costs reported on the Worksheet S-10, as modified as proposed in this section.

Because we are proposing to use multiple years of cost reports to determine Factor 3 starting in FY 2023, we have determined that it is also 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 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. 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 propose 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 would not use the same cost report to determine the hospital's uncompensated care costs for both FY 2018 and FY 2019. Rather, we would use the cost report that spans the entirety of FY 2019 to determine uncompensated care costs for FY 2019 and we would use 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.

• Proposed Scaling Factor

To address the effects of the calculating Factor 3 using data from multiple fiscal years, we are proposing to 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 are proposing to adopt 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 note 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.

• Proposed Modifications to New Hospital Policy for Purposes of Factor 3

We are proposing to modify 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 proposal to use multiple years of cost reports to determine Factor 3, we are proposing to define 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. In other words, 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 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, 2019, would be subject to the new hospital policy in FY 2023.

Under this proposed modification to the new hospital policy, we would continue 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 would not receive interim uncompensated care payments during FY 2023 because we would have no FY 2018 or FY 2019 uncompensated care data on which to determine what those interim payments should be. The MAC will make a final determination concerning whether the hospital is eligible to receive Medicare DSH payments at cost report settlement based on its FY 2023 cost report.

We are also proposing to modify the methodology used to calculate Factor 3 for new hospitals. Specifically, we propose to 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. For example, if a new hospital is ultimately determined to be eligible for Medicare DSH payments for FY 2023, the hospital will receive an uncompensated care payment calculated using a Factor 3, where the numerator is the uncompensated care costs reported on Worksheet S-10 of the hospital's FY 2023 cost report, and the denominator is the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2019 cost reports for all DSH-eligible hospitals. In addition, we are proposing to apply a scaling factor, as discussed previously, to the Factor 3 calculation for a new hospital. 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.

• Proposed Modifications to the Newly Merged Hospital Policy

We will 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, 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 (79 FR 50021). In the FY 2015 IPPS/LTCH PPS final rule, 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 (79 FR 50021 and 50022). Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, we will 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 proposed modification to the methodology used to determine Factor 3 for new hospitals described previously, we are proposing to determine 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 would apply a scaling factor, as discussed previously, to the Factor 3 calculation for a newly merged hospital. 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.

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. In other words, for FY 2023, the eligibility of a newly merged hospital to receive interim uncompensated care payments and the amount of any interim uncompensated care payments, will be based on the uncompensated care costs from the FY 2018 and FY 2019 cost reports available for the surviving CCN at the time the final rule is developed. However, at cost report settlement, we will determine the newly merged hospital's final uncompensated care payment based on the uncompensated care costs reported on its FY 2023 cost report. That is, we will revise the numerator of Factor 3 for the newly merged hospital to reflect the uncompensated care costs reported on the newly merged hospital's FY 2023 cost report. The denominator would be the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2019 cost reports for all DSH-eligible hospitals, which is the most recent fiscal year for which audits have been conducted.

• 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). Consistent with the process for trimming CCRs used in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58831 and 58832), we will apply the following steps to determine the applicable CCR for FY 2018 reports and FY 2019 reports separately:

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”). For this proposed rule, the statewide average CCR was applied to 8 hospitals' FY 2018 reports, of which 3 hospitals had FY 2018 Worksheet S-10 data. The statewide average CCR was applied to 14 hospitals' FY 2019 reports, of which 6 hospitals had FY 2019 Worksheet S-10 data.

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)).

• Proposed Modifications to the 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 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 FY 2018 or FY 2019 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. Specifically, if a hospital's FY 2018 cost report is determined to include potentially aberrant data, data from the FY 2019 cost report will be used for the ratio calculation. Thus, the hospital's uncompensated care costs for FY 2018 will be trimmed by multiplying its FY 2018 total operating costs by the ratio of uncompensated care costs to total operating costs from the hospital's FY 2019 cost report to calculate an estimate of the hospital's uncompensated care costs for FY 2018 for purposes of determining Factor 3 for FY 2023. Because we are proposing to use multiple years of cost reports in the Factor 3 calculation for FY 2023, we would apply this same approach to address potentially aberrant data in the FY 2019 cost report, by trimming based on the hospital's FY 2020 cost report.

We note that we have audited the FY 2018 and the FY 2019 Worksheet S-10 data for a number of hospitals. Because the UCC data for these hospitals have been subject to audit, we believe 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 addition to the UCC trim methodology, we will continue to apply a trim specific to certain hospitals that do not have audited FY 2018 Worksheet S-10 data and/or audited FY 2019 Worksheet S-10 data. We note that 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). Similar to the approach initially adopted in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45245 and 45246), we are proposing to continue to use a threshold of three standard deviations from the mean ratio of insured patients' charity care costs to total uncompensated care costs (line 23 column 2 divided by line 30) and a dollar threshold that is the median total uncompensated care cost reported on most recent audited cost reports for hospitals that were projected to be DSH-eligible. We continue to believe these thresholds are appropriate, in order to address potentially aberrant data. However, we are proposing to modify the calculation to include Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our proposal in this proposed rule to begin using Worksheet S-10 data to determine Factor 3 for these hospitals. We also propose to apply the same thresholds to identify potentially aberrant charity care costs data for all cost reporting years that are used in determining Factor 3. We note that based on calculations from the FY 2019 reports, the threshold amounts were similar to FY 2018 reports; therefore, we believe it is reasonable to use the same thresholds to identify aberrant data for both years. Thus, under this proposal, in FY 2023 we would use the same thresholds to identify potentially aberrant data for both FY 2018 and FY 2019 reports. In addition, we are proposing to apply the same threshold amounts originally calculated for the FY 2018 reports to identify potentially aberrant data for subsequent fiscal years, which we believe will facilitate transparency and predictability. Therefore, for FY 2023 and subsequent fiscal years, we are proposing that in the rare case that a hospital's insured patients' charity care costs 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 would exclude the hospital from the prospective Factor 3 calculation. This trim would 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 would 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.

In addition, we propose to continue to apply the policy adopted in the FY 2022 IPPS/LTCH PPS final rule, for the hospitals that would be subject to this alternative trim and are ultimately determined to be DSH-eligible at cost report settlement. We believe if a hospital subject to this trim 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 2023 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 2023 cost report. We would then 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 2023 cost report, while the denominator would reflect the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2019 costs reports of all DSH-eligible hospitals. In addition, consistent with our proposed approach for new hospitals, we would apply a scaling factor, as discussed previously, to the Factor 3 calculation for these hospitals. 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.

• Summary of Methodology

In summary, for FY 2023, we propose to compute Factor 3 for each hospital using the following steps:

Step 1: Select the hospital's longest cost report from its Federal fiscal year (FY) 2018 cost reports and the longest cost report from its FY 2019 cost reports. (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 yeartime period, 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, then we propose to 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 uncompensated care costs (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 the all DSH eligible hospitals using annualized uncompensated care costs (Worksheet S-10 Line 30) based on FY 2018 cost report data and FY 2019 cost report (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 for FY 2018 and FY 2019 for each hospital, and divide that amount by the number of cost reporting periods with data to compute an average Factor 3 for the hospital. Multiply by a scaling factor.

For FY 2024 and subsequent fiscal years, these steps would be calculated using the most recent three years of audited cost reports. (For example, in FY 2024, the FY 2018, FY 2019, and FY 2020 reports would be used.)

We are proposing to make a conforming change to the existing regulation at § 412.106(g)(1)(iii)(C)( 8 ) and to add a new regulation at § 412.106(g)(1)(iii)(C)( 10 ) to reflect our proposal to calculate Factor 3 based on the most recent two years of audited data on uncompensated care costs in FY 2023. We are also proposing to add § 412.106(g)(1)(iii)(C)( 11 ) to reflect our proposal to calculate Factor 3 for FY 2024 and subsequent fiscal years based on a 3-year average of the most recent available audited data on uncompensated care costs.

(d) Proposal Related to the 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. We have used 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. For the same reason, we are now proposing to modify this calculation for FY 2023 to be based on the average of FY 2018, FY 2019, and FY 2021 historical discharge data, rather than a 3-year average of the most recent three years of discharge data from FY 2019, FY 2020, and FY 2021. We believe that computing a 3-year average using the most recent three years would potentially underestimate the number of discharges for FY 2023, due to the effects of the COVID-19 pandemic in FY 2020, which was the first year of the COVID-19 pandemic. Therefore, we believe the proposed modification may result in a better estimate of the number of discharges during FY 2023, for purposes of the interim uncompensated care payment calculation. In addition, we note that our proposal to include discharge data from FY 2021 to compute this 3-year average is consistent with the proposed use of FY 2021 Medicare claims in the IPPS ratesetting, as discussed in section I.F. of the preamble of this proposed rule. Under this proposal, the resulting 3-year average of the number of discharges would be used to calculate a per discharge payment amount that will be used to make interim uncompensated care payments to each projected DSH-eligible hospital during FY 2023. The interim uncompensated care payments made to a hospital during the fiscal year will be reconciled following the end of the year to ensure that the final payment amount is consistent with the hospital's prospectively determined uncompensated care payment for the FY 2023.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), we finalized a voluntary process through which a hospital may submit a request to its MAC for a lower per discharge interim uncompensated care payment amount, including a reduction to zero, once before the beginning of the Federal fiscal year and/or once during the Federal fiscal year. In conjunction with this request, the hospital must provide supporting documentation demonstrating 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 would 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 FY 2023 discharges. 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 to this proposed rule for a more detailed discussion of 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 will not change how the total uncompensated care payment amount will be reconciled at cost report settlement.

(e) Process for Notifying CMS of Merger Updates and To Report Upload Issues

As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this proposed rule, we will publish on the CMS website a table listing Factor 3 for all hospitals that we estimate will receive empirically justified Medicare DSH payments in FY 2023 (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 have 60 days from the date of public display of this FY 2023 IPPS/LTCH PPS proposed rule in the Federal Register to review the table and supplemental data file published on the CMS website in conjunction with this proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the report submission process (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). Stakeholders may submit issues or concerns that are specific to the information included in the table and supplemental data file by email to the CMS inbox at Section3133DSH@cms.hhs.gov . We will address issues 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 2023 IPPS/LTCH PPS final rule. All other comments submitted in response to our proposed policies for determining uncompensated care payments for FY 2023 must be submitted in one of three ways found in the ADDRESSES section of this proposed rule before the close of the comment period in order to be assured consideration. In addition, this CMS DSH inbox is not intended for Worksheet S-10 audit process related emails, which should be directed to the MACs.

For FY 2023, we are again proposing that hospitals will have 15 business days from the date of public display of the FY 2023 IPPS/LTCH PPS final rule in the Federal Register to review and submit comments on the accuracy of the table and supplemental data file published in conjunction with the final rule. Any changes to Factor 3 would be posted on the CMS website and would be effective beginning October 1, 2022. We continue to believe 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. As discussed in an earlier section, we currently expect to use data from the March 2022 HCRIS extract for the FY 2023 final rule, which contributes to our increased confidence that hospitals would be able to comment on mergers and report any upload discrepancies during the comment period for this proposed rule. However, as previously indicated, we may consider using more recent data that may become available after March 2022, but before the final rule for the purpose of calculating the final Factor 3s for the FY 2023 IPPS/LTCH PPS final rule. In the event that there are any remaining merger updates and/or upload discrepancies after the final rule, the 15 business days from the date of public display of the FY 2023 IPPS/LTCH PPS final rule deadline should allow for the time necessary to prepare and make any corrections to Factor 3 calculations before the beginning of the Federal fiscal year.

We are inviting public comments on our proposed methodology for calculating Factor 3 for FY 2023 and subsequent fiscal years, including, but not limited to, our proposal to use the most recent audited Worksheet S-10 data from FY 2018 and FY 2019 cost reports to determine Factor 3 for FY 2023, and our proposal to begin using the three most recent years of audited Worksheet S-10 data starting in FY 2024.

E. Proposed Supplemental Payment for Indian Health Service and Tribal Hospitals and Puerto Rico Hospitals for FY 2023 and Subsequent Fiscal Years

In the IPPS/LTCH PPS rulemaking for several previous fiscal years, Indian Health Service (IHS) and Tribal hospitals and hospitals located in Puerto Rico have commented about the unique challenges they face 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. We refer the readers to FY 2022 IPPS/LTCH PPS final rule (86 FR 45242 and 45243) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58824 and 58825) for a discussion of these comments. We appreciate the concerns raised and the input offered by commenters regarding the methodology for calculating uncompensated care payments for IHS/Tribal hospitals and the Puerto Rico hospitals. As discussed in greater detail in this section, after taking into consideration stakeholders' longstanding concerns and their input on potential approaches to address these concerns, CMS is proposing to establish a new permanent supplemental payment under the IPPS for IHS/Tribal hospitals and hospitals located in Puerto Rico. As discussed in greater detail in this section, we believe this proposed new supplemental payment would mitigate the anticipated impact on IHS/Tribal hospitals and hospitals located in Puerto Rico from our proposal to discontinue the use of low-income insured days as a proxy for their uncompensated care costs for purposes of determining Factor 3 of the uncompensated care payment methodology by providing for an additional payment to these hospitals that would be determined based upon the difference between the amount of the uncompensated care payment determined for the hospital using Worksheet S-10 data and an approximation of the amount the hospital would have received if we had continued to use low-income days as a proxy for uncompensated care.

As background, beginning in the FY 2018 IPPS/LTCH PPS final rule when we first included Worksheet S-10 data in the calculation of Factor 3, and continuing through the FY 2022 IPPS/LTCH PPS final rule, we relied on the authority under section 1886(r)(2)(C)(i) of the Act to use alternative data that is a better proxy for the costs of hospitals for treating the uninsured in order to determine Factor 3 for IHS/Tribal and Puerto Rico hospitals using low-income insured days as a proxy for uncompensated care costs. Since FY 2019, Factor 3 for these hospitals has been determined using FY 2013 Medicaid days and the most recent available data on SSI days. We have explained our belief that this approach was appropriate as the FY 2013 Medicaid days data reflect the most recent available information regarding these hospitals' low-income insured days before any expansion of Medicaid. In addition, because we continued to use low-income insured patient days as a proxy for uncompensated care for Puerto Rico hospitals and residents of Puerto Rico are not eligible for SSI benefits, we continued to use a proxy for SSI days for Puerto Rico hospitals consisting of 14 percent of the hospital's Medicaid days, as initially adopted in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56953 through 56956). For FY 2023 and subsequent fiscal years, as discussed in the previous section, we are proposing to discontinue the use of low-income insured days as a proxy for uncompensated care costs. We recognize that this proposal would result in a significant financial disruption to the IHS/Tribal hospitals and hospitals located in Puerto Rico. For the vast majority of these hospitals, the proposal to use uncompensated care data reported on Worksheet S-10 to determine Factor 3 of the uncompensated care payment methodology is expected to result in an approximately 90 to 100 percent reduction in uncompensated care payments for FY 2023 compared to FY 2022. For a discussion of the anticipated impact of the proposal to use uncompensated care costs from Worksheet S-10 to determine uncompensated care payments for IHS/Tribal hospitals and Puerto Rico hospitals and the proposal to establish a new supplemental payment for these hospitals, we refer the readers to section I.H. of the Appendix A of this proposed rule.

In consideration of the unique circumstances faced by the hospitals and the comments received from IHS/Tribal hospitals and Puerto Rico hospitals in response to prior rulemaking, raising concerns regarding financial stability in the event of a change in the data used to determine Factor 3, we are proposing to use our exceptions and adjustments authority under section 1886(d)(5)(I) of the Act to establish a new permanent supplemental payment under the IPPS for IHS/Tribal hospitals and hospitals located in Puerto Rico, beginning in FY 2023. Section 1886(d)(5)(I) of the Act authorizes the Secretary to provide by regulation for such other exceptions and adjustments to the payment amounts under section 1886(d) of the Act as the Secretary deems appropriate. We have determined, after taking into consideration stakeholders' comments from prior rulemakings, that the supplemental payment is necessary so as not to cause undue long-term financial disruption to these hospitals as a result of our proposal to discontinue the use of low-income insured days as a proxy for uncompensated care in determining Factor 3 for IHS/Tribal hospitals and Puerto Rico hospitals beginning in FY 2023. We believe the proposed supplemental payment would help to mitigate the anticipated impact of the proposed changes to the uncompensated care payment methodology for these hospitals and therefore prevent undue long-term financial disruption for these providers.

This proposed new supplemental payment would not change in any way the DSH payment methodology under section 1886(d)(5)(F) or the uncompensated care payment methodology under section 1886(r). Therefore, the total uncompensated care payment amount discussed in the previous section of the preamble of this proposed rule, would not be affected by this proposal to establish a supplemental payment for IHS/Tribal and hospitals located in Puerto Rico nor would there be any impact on the amount of the uncompensated care payment determined for each DSH-eligible hospital under § 412.106(g)(1) of the regulations.

For IHS and Tribal hospitals and hospitals located in Puerto Rico for which Factor 3 of the uncompensated care payment methodology was determined using the low-income insured days proxy in FY 2022, we propose to calculate a supplemental payment as follows. We would use the hospital's FY 2022 uncompensated care payment as the starting point for this calculation. We believe using the FY 2022 uncompensated care payment is an appropriate starting point because FY 2022 is the most recent year for which we used low-income insured days data in the determination of uncompensated care payments for IHS/Tribal hospitals and Puerto Rico hospitals and the purpose of the supplemental payment is to avoid undue long-term financial disruption to these hospitals as a result of our proposal to discontinue the use of low-income insured days as a proxy for uncompensated care beginning in FY 2023. The base year amount would be calculated as the hospital's FY 2022 uncompensated care payment adjusted by one plus the percent change in the total uncompensated care amount between the applicable year (for example, FY 2023 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 the applicable year. For the hospitals that were not projected to be DSH eligible in FY 2022, we propose to use the uncompensated care payment that the hospital would receive, if the hospital were to be determined to be DSH eligible in FY 2022 at cost report settlement. For purposes of this proposed rule, the percent change between the proposed FY 2023 uncompensated care amount and final FY 2022 uncompensated care amount is projected to be negative 9.1 percent. (This negative 9.1 percent change is calculated based on the difference between the proposed FY 2023 uncompensated care amount of approximately $6.537 billion and the final FY 2022 uncompensated care amount of approximately $7.192 billion, divided by the final FY 2022 uncompensated care amount). Therefore, we propose to calculate each hospital's base year amount for FY 2023 by multiplying its FY 2022 uncompensated care amount by 0.909 (1-0.091). The hospital's supplemental payment for a fiscal year would then be 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). If the base year amount is equal to or lower than the hospital's uncompensated care payment for the current fiscal year, then the hospital would not receive a supplemental payment because the hospital would not be experiencing financial disruption in that year as a result of the use of uncompensated care data from the Worksheet S-10 in determining Factor 3 of the uncompensated care payment methodology.

We propose to align the eligibility and payment processes for the new supplemental payment with the processes used to make uncompensated care payments. Consistent with the process for determining eligibility to receive interim uncompensated care payments adopted in the FY 2014 IPPS/LTCH final rule, for the supplemental payment, we propose to base eligibility to receive interim supplemental payments on a projection of DSH eligibility for the applicable fiscal year. In addition, consistent with the approach that is used to calculate interim uncompensated care payments on a per discharge basis, for the supplemental payment, we propose to use an average of historical discharges to calculate a per discharge amount for interim supplemental payments. We refer readers to the FY 2014 IPPS/LTCH PPS final rule for additional background and discussion of uncompensated care payment processes (78 FR 50643 through 50647). Consistent with our proposal to use 3-years of historical discharges to determine interim uncompensated care payments for a fiscal year, the amount of a hospital's supplemental payment calculated for a fiscal year would be divided by the hospital's historical 3-year average of discharges computed using the most recent available data to determine an estimated per discharge payment amount.

For FY 2023, we propose to use FY 2018, FY 2019, and FY 2021 discharge data to determine a hospital's historical 3-year average of discharges, because we continue to believe the FY 2020 discharge data would underestimate discharges, due to the effects of the COVID-19 pandemic in FY 2020. In addition, consistent with the policy of including per-discharge uncompensated care payment amounts in the outlier calculation, which was initially adopted in the FY 2014 IPPS/LTCH PPS final rule, we are proposing to use our authority under section 1886(d)(5)(I) to include the per-discharge supplemental payment in the outlier payment determination under section 1886(d)(5)(A) of the Act. We refer readers to the Addendum for further discussion of the outlier payment calculation.

Consistent with the process used to reconcile interim uncompensated care payments, we propose that the MAC would reconcile the interim supplemental payments at cost report settlement to ensure that the hospital receives the full amount of the supplemental payment that was determined prior to the start of the fiscal year. Consistent with the process used for cost reporting periods that span multiple Federal fiscal years, we propose that a pro rata supplemental payment calculation may be made if the hospital's cost reporting period differs from the Federal fiscal year. Thus, the final supplemental payment amounts that would be included on a cost report spanning two Federal fiscal years would be the pro rata share of the supplemental payment associated with each Federal fiscal year. This pro rata share would be determined based on the proportion of the applicable Federal fiscal year that is included in that cost reporting period. We refer readers to the FY 2014 interim final rule for additional background and discussion of the processes for determining pro rata uncompensated care payments (78 FR 61191 through 61196).

We propose that the MAC would 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. We note that if a hospital is determined not to be DSH eligible for a fiscal year then the hospital would not be eligible to receive a supplemental payment for that fiscal year. We believe linking eligibility for the supplemental payment to eligibility for DSH payments and the uncompensated care payment is appropriate because a hospital that is not eligible to receive an uncompensated care payment for a fiscal year would not experience any financial disruption due to the discontinuation of the low-income insured days proxy and the use of Worksheet S-10 data in determining Factor 3 for that fiscal year.

In addition, we propose that IHS/Tribal hospitals and Puerto Rico hospitals that do not have a FY 2022 Factor 3 amount determined under § 412.106(g)(1)(iii)(C)(9) using the low-income insured days proxy or that are new hospitals that begin participating in the Medicare program on or after October 1, 2022, would not be eligible to receive the supplemental payment. These hospitals will not experience any reduction to their uncompensated care payments due to the proposed discontinuation of the low-income insured days proxy because they are not currently receiving uncompensated care payments determined using the proxy.

We propose to redesignate the existing provision at § 412.106(h) as § 412.106(i) and to add a new provision at § 412.106(h) to reflect the methodology for calculating the supplemental payment for FY 2023 and subsequent fiscal years.

We are seeking comments on our proposal to establish a new supplemental payment for IHS/Tribal hospitals and Puerto Rico hospitals. As discussed in section IV.D.3. of the preamble of this proposed rule, which includes our proposed changes to the methodology for determining Factor 3 of the uncompensated care payment methodology for FY 2023 and subsequent fiscal years, we also are seeking comments on alternatives both to our proposal to use data on uncompensated care costs from the Worksheet S-10 to determine Factor 3 for IHS/Tribal hospitals and Puerto Rico hospitals and to the continued use of low-income insured days as a proxy for the uncompensated care costs of these hospitals. In addition, we are also seeking comments on how to best measure and define the uncompensated care costs associated with these hospitals that might not otherwise be captured in Factor 3 calculations based on Worksheet S-10 data.

F. Medicare Disproportionate Share Hospital (DSH) Payments: Counting Days Associated With Section 1115 Demonstrations in the Medicaid Fraction (§ 412.106)

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 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 Social Security Act.)

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 certain patients that receive Medicaid benefits under a section 1115 demonstration in calculating the Medicare DSH adjustment. Previously, hospitals could include only the days for those patients receiving Medicaid benefits under a section 1115 demonstration who were, or could have been made, eligible for Medicaid under the State plan. Patient days of those demonstration expansion groups that were not and could not be made eligible for Medicaid under the State plan were not to be included for purposes of determining Medicaid patient days in calculating the Medicare DSH patient percentage.

Under the policy adopted in the January 2000 interim final rule (65 FR 3136), hospitals could include in the numerator of the Medicaid fraction 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). This policy was effective for discharges occurring on or after January 20, 2000. In the January 2000 interim final rule (65 FR 3137), we explained that allowing hospitals to include patient days for section 1115 demonstration expansion groups in the Medicare DSH calculation is fully consistent with the Congressional goals of the Medicare DSH adjustment to recognize the higher costs to hospitals of treating low-income individuals covered under Medicaid.

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 numerator of the Medicaid fraction. We explained that in allowing hospitals 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 benefits, that are similar to the benefits provided to Medicaid beneficiaries under a State plan. We had become aware, however, that certain section 1115 demonstrations provide expansion groups with benefit packages so limited that the benefits are unlike the relatively expansive health insurance (including insurance for inpatient hospital services) provided under a Medicaid State plan. We explained 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 Medicaid fraction because the benefits granted to the expansion group are too limited. Our intention in discussing family planning benefits under a section 1115 demonstration was to provide a concrete example of how the changes being made in the FY 2004 IPPS final rule would refine the Secretary's policy (set forth in the January 2000 interim final rule (65 FR 3136)) to allow only the days of those demonstration expansion groups who are provided Medicaid benefits, and specifically inpatient hospital benefits, like the health care insurance that Medicaid beneficiaries receive under a State plan, to be included in the numerator of the Medicaid fraction of the Medicare DSH calculation. 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 Medicaid fraction, 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 numerator of the Medicaid fraction only if they are days of patients made eligible for inpatient hospital services under either a State Medicaid plan or a section 1115 demonstration, who are not also entitled to benefits under Medicare Part A.

In 2005, 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 numerator of the Medicaid fraction was contrary to the plain language of the Act. Subsequently, the District Court for the District of Columbia reached the same conclusion, reasoning that if our policy of counting the days of demonstration expansion groups after 2000 was correct, then patients in demonstration expansion groups were necessarily “eligible for medical assistance under a State plan” (that is, Medicaid) and the Act had always required inclusion of their days.

Shortly after these court decisions, Congress, in early 2006, enacted the Deficit Reduction Act of 2005 (the DRA). Section 5002 of the DRA amended section 1886(d)(5)(F)(vi) of the Act to clarify our authority to include or exclude days of expansion groups from the DSH calculation. First, section 5002(a) of the DRA clarified that groups that receive Medicaid benefits through a section 1115 demonstration are not “eligible for medical assistance under a State plan” by referring to them as “not so eligible.” This provision effectively overruled the earlier court decisions that held that expansion groups were, in fact, made eligible for Medicaid. Second, the statute made explicit that the Secretary nevertheless has the discretion to include in the Medicaid fraction days of patients who are not eligible for Medicaid if they “are regarded as” being eligible for Medicaid “because they receive benefits under a demonstration project approved under title XI.” This statutory language endorsed and codified the Secretary's view that it is appropriate to include in the DSH calculation days of patients who are treated as if they were eligible for Medicaid under the authority of section 1115(a)(2). Third, the DRA granted the Secretary the discretion to include or exclude the days of patients who are regarded as being eligible for Medicaid in the numerator of the Medicaid fraction “to the extent and for the period the Secretary determines appropriate.” Finally, section 5002(b) of the DRA expressly ratified our policy on counting demonstration days in the Medicaid fraction. Our pre-2000 policy was not to include days of section 1115 demonstration expansion groups in the numerator of the Medicaid fraction unless they could have been made eligible for Medicaid under a State plan. As discussed previously, we changed our policy in 2000 to permit inclusion in the Medicaid fraction of all patient days of groups made eligible for matching payments under Title XIX through a section 1115 demonstration. By the time the DRA was enacted, CMS had further refined this policy, and we included in the Medicaid fraction the days of only a small subset of demonstration expansion groups regarded as eligible for Medicaid: Those that were eligible to receive inpatient hospital insurance benefits under the terms of a section 1115 demonstration.

Considering this history, and the text of the DRA, we understand the Secretary's authority to include the days of patients who receive benefits through a section1115 demonstration in the numerator of the Medicaid fraction of the DSH calculation as requiring two determinations. First, we must determine whether the patients at issue “are regarded as” being eligible for Medicaid. Second, if they are, the Secretary then has the discretion to determine whether to count those patients in the DSH calculation and for what period.

We do not believe that the DRA gave the Secretary blanket authority to count in the Medicaid fraction any patient who is in any way related to a section 1115 demonstration. Rather, our authority under section 1886(d)(5)(F)(vi) of the Act remains limited to including the days of expansion groups—those for whom a state seeks Federal Medicaid matching funds in order to provide health insurance to individuals through a demonstration that is comparable to Medicaid state plan benefits—that is, patients who “are regarded as” “eligible for medical assistance under a State plan approved under title XIX.” Because the existing language of regulations already addressed the treatment of section 1115 days, 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.

More recently, section 1115 demonstrations have been used to authorize the funding of uncompensated care pools that help to offset hospitals' costs for treating uninsured and underinsured individuals. These pools do not extend health insurance directly to such individuals. Rather, such funding pools benefit patients less directly by helping hospitals treat the uninsured and underinsured and stay financially viable to treat patients eligible for Medicaid under a state plan. Unlike demonstrations that expand the group of people who receive Medicaid benefits beyond those groups eligible under the State plan, uncompensated care pools do not provide inpatient health insurance to patients or, like insurance, make payments on behalf of specific, covered individuals. These uncompensated care pools serve essentially the same function as Medicaid DSH payments under sections 1902(a)(13)(A)(iv) and 1923 of the Act by indirectly subsidizing the cost of treating the uninsured and underinsured.

We also note that demonstrations can simultaneously authorize different programs within a single demonstration, thereby creating a group regarded as Medicaid eligible because they receive health insurance through the demonstration while also creating a separate uncompensated/undercompensated care pool for providers that does not directly extend health insurance to individuals.

Recently, courts have decided a series of cases ( Bethesda Health, Inc. v. Azar , 980 F.3d 121 (D.C. Cir. 2020); Forrest General Hospital v. Azar , 926 F.3d 221 (5th Cir. 2019); HealthAlliance Hospitals, Inc. v. Azar , 346 F. Supp. 3d 43 (D.D.C. 2018)) interpreting the current language of the regulation at § 412.106(b)(4) to require CMS to count in the numerator of the Medicaid fraction patient days for which hospitals have received payment from an uncompensated care pool authorized by a section 1115 demonstration and the days of patients who receive premium assistance under a section 1115 demonstration. Interpreting the regulatory language that was adopted before the DRA was enacted, these courts have concluded that if a hospital received payment for otherwise uncompensated inpatient hospital treatment of a patient, that patient is “eligible for inpatient hospital services” within the meaning of the current regulation. Likewise, a court has 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.

As discussed previously, that was not our intent when we adopted the current language of the regulation, and in the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25459), we stated that we continued to believe that it is not appropriate to include patient days associated with funding pools and premium assistance authorized by section 1115 demonstrations in the Medicaid fraction of the Medicare DSH calculation because the benefits offered under these demonstrations are not similar to Medicaid benefits under a State plan and may offset costs that hospitals incur when treating uninsured and underinsured individuals. In the FY 2022 IPPS/LTCH PPS proposed rule, we proposed a revision to our regulations to more clearly state that in order for an inpatient day to be counted in the Medicaid fraction of the Medicare DSH calculation, the section 1115 demonstration must provide inpatient hospital insurance benefits directly to the individual whose day is being considered for inclusion, and we proposed to revise our regulations to reflect this requirement. 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 calculation of the Medicaid fraction of the Medicare DSH calculation because neither premium assistance nor uncompensated/undercompensated care pools are inpatient hospital insurance benefits directly provided to individuals, nor are they comparable to the level of benefits available under a Medicaid State plan such that the individuals should 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, and thus should be included in calculating the Medicaid fraction. Following review of these comments, in the final rule with comment period published in the Federal Register on December 27, 2021, which finalized certain provisions of the FY 2022 IPPS/LTCH PPS 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 IPPS/LTCH PPS proposed rule, we continue to believe that, in order for days associated with section 1115 demonstrations to be counted in the numerator of the Medicaid fraction, the statute requires those days to be of patients who can be “regarded as” eligible for Medicaid. Accordingly, we propose to modify our regulations to explicitly state our view that “regarded as eligible” for Medicaid only includes 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. Furthermore, we believe that it is appropriate, and therefore propose, to use our discretion under the Act to include only the days of patients “regarded as” eligible for Medicaid who receive health insurance through a section 1115 demonstration that provides essential health benefits (EHB) as set forth in 42 CFR part 440, subpart C, for an Alternative Benefit Plan, which is a uniform benchmark and a standard that is broadly used. This would be a change from the current regulation that requires a demonstration only provide inpatient hospital benefits for days to be counted in the DSH calculation. We believe that by applying the standard of EHB to identify which section 1115 days may be included in the DSH calculation, both providers and CMS contractors will be able to distinguish between section 1115 demonstrations, or parts of demonstrations, that provide benefits to individuals whose patient days are properly counted in the Medicaid fraction from those demonstrations or parts of demonstrations (like uncompensated/undercompensated care pools) that are not properly included.

Consistent with our interpretation of the Medicare DSH statute, the evolution of our policy on counting section 1115 demonstration days in the Medicaid fraction of the Medicare DSH calculation as set forth in our regulations, and considering the series of adverse cases interpreting the current regulation, we are proposing to amend the regulation to preclude counting days of patients associated with uncompensated/undercompensated care pools in the numerator of the Medicaid fraction. While these pools may result in hospitals receiving some payment for inpatient hospital services they provide to uninsured or underinsured individuals, such payments are not a form of health insurance and do not entitle any particular individual to any specific benefit. Rather, payments from uncompensated/undercompensated care pools essentially function as supplemental Medicaid DSH payments. As we have consistently stated, individuals eligible for benefits under Title XIX are eligible for specific benefits related to the provision of inpatient hospital services (in the form of inpatient hospital insurance). Because funding pool payments to hospitals do not inure to any specific individual, nor do uncompensated/undercompensated care pools provide any health insurance to any patient, it cannot reasonably be argued that patients associated with uncompensated care for which hospitals are reimbursed through section 1115 demonstration-authorized funding pools may be “regarded as” eligible for Medicaid. Individuals who receive health insurance through a section 1115 demonstration are being treated as if they were eligible for Medicaid. In contrast, uninsured or underinsured individuals, whether or not they benefit from uncompensated care pool payments to hospitals, do not have health insurance provided by the Medicaid program. Thus, we continue to believe that days associated with uncompensated/undercompensated care pools must be excluded from the Medicaid fraction of the Medicare DSH calculation.

Even if the statute could be read to permit patient groups whose uncompensated care is paid for from a section 1115 demonstration-authorized funding pool to be “regarded as” eligible for Medicaid (which the Secretary does not agree the statute permits), those groups may be quite distinct from the groups who are eligible for Medicaid under a State plan, and therefore we are proposing to use our discretion under section 1886(d)(5)(F)(vi) of the Act to exclude from the Medicaid fraction the days of patients whose care costs may be reimbursed to the hospitals through uncompensated/undercompensated care pools.

However, in further considering the comments regarding the treatment of the days of patients provided premium assistance through a section 1115 demonstration, we have concluded that patients receiving premium assistance through a section 1115 demonstration to purchase health insurance can be “regarded as” eligible for Medicaid under section 1886(d)(5)(F)(vi). Indeed, it may be difficult to distinguish between a patient who receives 100 percent, or nearly 100 percent (“all or substantially all,” as defined below), in premium assistance under a section 1115 demonstration to purchase health insurance from a patient who is eligible for medical assistance under the State plan and may be enrolled in a Medicaid managed care plan. Both patients receive health insurance funded through a program of cooperative federalism and paid for with Title XIX funds. Therefore, upon further review we propose, for purposes of the DSH calculation, to “regard as” eligible for Medicaid those patients who use premium assistance they obtain through a section 1115 demonstration to buy and pay for all or substantially all (as defined below) of the cost of the health insurance.

Additionally, using the discretion granted to the Secretary under section 1886(d)(5)(F)(vi) of the Act to determine the extent to which patient days of patients “regarded as” eligible for Medicaid will be included in the Medicaid fraction, we further propose to include in the Medicaid fraction only those days of patients who have bought health insurance that provides EHB using premium assistance obtained through a section 1115 demonstration that is equal to at least 90 percent of the cost of the health insurance. As some commenters pointed out, some section 1115 demonstrations that provide premium assistance to enrollees require the insurance bought to be offered through the State's Health Insurance Exchange, and as a result the insurance that is available under these demonstrations is individual health insurance that is required to provide EHB, including inpatient hospital benefits. Further, we believe “all or substantially all” in the context of purchasing hospital insurance with premium assistance requires the premium assistance be equal to at least 90 percent of the cost of the insurance. We picked people who receive premium assistance of at least 90 percent of the cost of the hospital insurance that provides EHB because this level of benefit is similar to the benefits received by individuals who are eligible for Title XIX programs, and as such, it would be appropriate to include the days of these individuals in the numerator of the Medicaid fraction, if the individual is also not entitled to benefits under Medicare Part A. Individuals who receive less premium assistance are not receiving benefits similar to the benefits received by individuals eligible for Medicaid under a State plan. Therefore, we believe it is appropriate to exclude from the Medicaid fraction days of individuals who use premium assistance to buy health insurance that does not provide EHB or for whom the premium assistance provided by the demonstration accounts for less than 90 percent of the cost of the health insurance. Individual health insurance that is not grandfathered coverage, which is required to identify itself as grandfathered, is generally required to provide EHB. Additionally, depending on the state, information on health insurance that provides EHB may be available directly from individual states (for example, through a state's Insurance Commissioner).

Accordingly, in this proposed rule, we are proposing 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” in section 1886(d)(5)(F)(vi) of the Act, to mean patients who receive health insurance through a section 1115 demonstration itself or purchase such insurance with the use of premium assistance provided by a section 1115 demonstration. Moreover, of the groups we “regard” as Medicaid eligible, we propose that only the days of those individuals that obtain health insurance that provides EHB (defined as meeting the EHB requirements set forth in 42 CFR part 440, subpart C, for an Alternative Benefit Plan), and if bought with premium assistance, for which the premium assistance is equal to or greater than 90 percent of the cost of the health insurance, are included in the Medicaid fraction of the DSH calculation, provided the patient is not also entitled to Medicare Part A.

As discussed previously, uncompensated/undercompensated care pools serve essentially the same function as Medicaid DSH by indirectly subsidizing the cost of treating the uninsured and underinsured, while not extending health insurance to additional groups. Accordingly, we do not interpret the statute as authorizing the Secretary to “regard as” Medicaid eligible patients with uncompensated care costs for which a hospital is reimbursed by a section 1115 demonstration-authorized uncompensated care funding pool. Additionally, even if section 1886(d)(5)(F)(vi) of the Act could be interpreted to permit patients with uncompensated care costs for which a hospital is reimbursed by a demonstration funding pool to be “regarded as” Medicaid eligible, we invoke our discretion to exclude such patient days from being counted in the Medicaid fraction of the DSH payment calculation because uncompensated/undercompensated care pools do not provide health insurance to individuals.

We propose that these changes would be effective for discharges occurring on or after October 1, 2022.

V. Other Decisions and Changes to the IPPS for Operating Costs

A. Proposed Changes in the Inpatient Hospital Update for FY 2022 (§ 412.64(d))

1. Proposed FY 2023 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 2023, we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 2022. (We note that section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.) Specifically, consistent with section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we are setting the applicable percentage increase by applying the following adjustments in the following sequence. The applicable percentage increase under the IPPS for FY 2023 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 are proposing to base the FY 2023 market basket update used to determine the applicable percentage increase for the IPPS on IHS Global Inc.'s (IGI's) fourth quarter 2021 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through third quarter 2021, which is estimated to be 3.1 percent. We also are proposing that if more recent data subsequently become available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2023 market basket update in the final rule.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business MFP (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, calendar 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 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 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 2023, we are proposing a productivity adjustment of 0.4 percent. Similar to the market basket update, for this proposed rule, the estimate of the proposed FY 2023 productivity adjustment is based on IGI's fourth quarter 2021 forecast As noted previously, we are proposing that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2023 productivity adjustment for the final rule.

Based on these data, we have determined four proposed applicable percentage increases to the standardized amount for FY 2023, as specified in the following table:

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised our regulations at 42 CFR 412.64(d) to reflect the current law for the update for FY 2020 and subsequent fiscal years. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we added paragraph (d)(1)(viii) to § 412.64 to set forth the applicable percentage increase to the operating standardized amount for FY 2020 and subsequent fiscal years as the percentage increase in the market basket index, subject to the reductions specified under § 412.64(d)(2) for a hospital that does not submit quality data and § 412.64(d)(3) for a hospital that is not a meaningful EHR user, less a productivity adjustment. (As 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 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 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.

Under current law, the MDH program is effective for discharges on or before September 30, 2022, as discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41429 through 41430). Therefore, under current law, the MDH program will expire at the end of FY 2022. We refer readers to section V.D. of the preamble of this proposed rule for further discussion of the expiration of the MDH program.

For FY 2023, we are proposing the following updates to the hospital-specific rates applicable to SCHs: A proposed update of 2.7 percent for a hospital that submits quality data and is a meaningful EHR user; a proposed update of 0.375 percent for a hospital that submits quality data and is not a meaningful EHR user; a proposed update of 1.925 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and a proposed update of −0.4 percent for a hospital that fails to submit quality data and is not an meaningful EHR user. As noted previously, for this proposed rule, the FY 2023 market basket update is based on IGI's fourth quarter 2021 forecast of the 2018-based IPPS market basket with historical data through third quarter 2021. Similarly, for this proposed rule, the FY 2023 productivity adjustment is based on IGI's fourth quarter 2021 forecast. We are proposing that if more recent data subsequently become available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the update in the final rule.

2. Proposed FY 2023 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 2023, 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 66 2/3 percent reduction to three-fourths 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 2021 forecast of the 2018-based IPPS market basket update with historical data through third quarter 2021, for this FY 2023 proposed rule, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we are proposing a market basket update of 3.1 percent and a productivity adjustment of 0.4 percent. Therefore, for FY 2023, 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, we have determined the following proposed applicable percentage increases to the standardized amount for FY 2023 for Puerto Rico hospitals:

• For a Puerto Rico hospital that is a meaningful EHR user, we are proposing an applicable percentage increase to the FY 2023 operating standardized amount of 2.7 percent (that is, the FY 2023 estimate of the proposed market basket rate-of-increase of 3.1 percent less an adjustment of 0.4 percentage point for the proposed productivity adjustment).

• For a Puerto Rico hospital that is not a meaningful EHR user, we are proposing an applicable percentage increase to the operating standardized amount of 1.15 percent (that is, the FY 2023 estimate of the proposed market basket rate-of-increase of 3.1 percent, less an adjustment of 1.55 percentage point (the proposed market basket rate-of-increase of 3.1 percent × 0.75 × ( 2/3 ) for failure to be a meaningful EHR user), and less an adjustment of 0.4 percentage point for the proposed productivity adjustment).

As noted previously, we are proposing that if more recent data subsequently become available, we would use such data, if appropriate, to determine the FY 2023 market basket update and the productivity adjustment for the FY 2023 IPPS/LTCH PPS final rule.

B. Rural Referral Centers (RRCs) Proposed 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 would permit hospitals that previously qualified as an RRC and lost their status due to OMB redesignation of the county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy all of the other applicable criteria. We use the definitions of “urban” and “rural” specified in subpart D of 42 CFR part 412. One of the criteria under which a hospital may qualify as an RRC is to have 275 or more beds available for use (§ 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum case-mix index (CMI) and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). (We refer readers to § 412.96(c)(1) through (5) and the September 30, 1988, Federal Register (53 FR 38513) for additional discussion.) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if the hospital's—

• CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and
• Number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.

In the FY 2022 final rule (86 FR 45217), in light of the COVID-19 PHE, we amended the regulations at § 412.96(h)(1) to provide for the use of the best available data rather than the latest available data in calculating the national and regional CMI criteria. We also amended the regulations at § 412.96(c)(1) to indicate that the individual hospital's CMI value for discharges during the same Federal fiscal year used to compute the national and regional CMI values is used for purposes of determining whether a hospital qualifies for RRC classification. We also amended the regulations § 412.96(i)(1) and (2), which describe the methodology for calculating the number of discharges criteria, to provide for the use of the best available data rather than the latest available or most recent data when calculating the regional discharges for RRC classification.

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The proposed national median CMI value for FY 2023 is based on the CMI values of all urban hospitals nationwide, and the proposed regional median CMI values for FY 2023 are based on the CMI values of all urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in § 413.75). These proposed values are based on discharges occurring during FY 2021 (October 1, 2020 through September 30, 2021), and include bills posted to CMS' records through December 2021. We believe that this is the best available data for use in calculating the proposed national and regional median CMI values and is consistent with our proposal to use the FY 2021 MedPAR claims data for FY 2023 ratesetting. We refer the reader to section I.F. of the preamble of this proposed rule for a complete discussion regarding our proposal to use the latest available data (that is, the FY 2021 MedPAR data) as the best available data for purposes of this FY 2023 rulemaking.

In this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2022, they must have a CMI value for FY 2021 that is at least—

• 1.8251 (national—all urban); or
• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.

The proposed median CMI values by region are set forth in the table in this section of this rule. We intend to update the proposed CMI values in the FY 2023 final rule to reflect the updated FY 2021 MedPAR file, which will contain data from additional bills received through March 2022.

A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI value (not transfer-adjusted) from its MAC. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG-based payment.

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. For FY 2023, we are proposing to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2020 (that is, October 1, 2019 through September 30, 2020), which are the latest cost report data available at the time this proposed rule was developed. We believe that this is the best available data for use in calculating the proposed median number of discharges by region and is consistent with our data proposal to use cost report data from cost reporting periods beginning during FY 2020 for FY 2023 ratesetting. We refer the reader to section I.F. of the preamble of this proposed rule for a complete discussion regarding our proposal to use the latest available data (that is, cost reports beginning during FY 2020) as the best available data for purposes of this FY 2023 rulemaking. Therefore, we are proposing that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2022, must have, as the number of discharges for its cost reporting period that began during FY 2020, at least—

• 5,000 (3,000 for an osteopathic hospital); or
• If less, the median number of discharges for urban hospitals in the census region in which the hospital is located. We refer readers to the proposed number of discharges as set forth in this table. We intend to update these numbers in the FY 2023 final rule based on the latest available cost report data.

We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this proposed rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

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

1. Expiration of Temporary Changes to Low-Volume Hospital Payment Policy

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 under section 1886(d)(12) of the Act for FYs 2019 through 2022. Beginning with FY 2023, the low-volume hospital qualifying criteria and payment adjustment will revert to the statutory requirements that were in effect prior to FY 2011, and the preexisting low-volume hospital payment adjustment methodology and qualifying criteria, as implemented in FY 2005 and discussed later in this section, will resume. (For additional information on the temporary changes to the low-volume hospital payment policy, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41401). We also note, in that same final rule, we amended the regulations at 42 CFR 412.101 to reflect the provisions of section 50204 of the Bipartisan Budget Act of 2018.) We discuss the proposed payment policies for FY 2023 in section V.C.3. of the preamble of this proposed rule.

2. Background

Section 1886(d)(12) of the Act provides for an additional payment to each qualifying low-volume hospital under the IPPS beginning in FY 2005. The 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.

As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45219 through 45221), 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).

Beginning with FY 2023, 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 defines a low-volume hospital, for FYs 2005 through 2010 and FY 2023 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. 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), and as such the term discharge continues to refer to total discharges for FY 2023 and subsequent years. Furthermore, section 1886(d)(12)(B) of the Act requires, for discharges occurring in FYs 2005 through 2010 and FY 2023 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. Accordingly, under the existing regulations, in order for a hospital to continue to qualify as a low-volume hospital on or after October 1, 2022, 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)). (For additional information on the low-volume hospital payment adjustment prior to FY 2018, we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56941 through 56943). For additional information on the low-volume hospital payment adjustment for FY 2018, we refer readers to the FY 2018 IPPS notice (CMS-1677-N) that appeared in the April 26, 2018, Federal Register (83 FR 18301 through 18308). For additional information on the low-volume hospital payment adjustment for FY 2019 through FY 2022, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41399).)

3. Proposed Payment Adjustment for FY 2023 and Subsequent Fiscal Years

In accordance with section 1886(d)(12) of the Act, beginning with FY 2023, 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 and subsequent legislation. Therefore, effective for FY 2023 and subsequent years, under current policy at § 412.101(b), in order to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. For FY 2023 and subsequent years, the statute specifies that a low-volume hospital must have less than 800 discharges during the fiscal year. However, as required by section 1886(d)(12)(B)(i) of the Act and as discussed earlier, the Secretary has developed an empirically justifiable payment adjustment based on the relationship, for IPPS hospitals with less than 800 discharges, between the additional incremental costs (if any) that are associated with a particular number of discharges. Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent low-volume adjustment to all qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement to provide relief for low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. (Under the policy we established in that same final rule, hospitals with between 200 and 799 discharges do not receive a low-volume hospital adjustment.)

For FYs 2005 through 2010 and FY 2018 and subsequent years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges. The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year (§ 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. We note that, for FYs 2011 through 2018, we used the most recently available MedPAR data to determine the hospital's Medicare discharges because only Medicare discharges were used to determine if a hospital met the discharge criterion for those years.

In addition to the discharge criterion, a hospital must also meet the mileage criterion to qualify for the low-volume payment adjustment. As specified by section 1886(d)(12)(C)(i) of the Act, a low-volume hospital must be more than 25 road miles (or 15 road miles for FYs 2011 through 2022) from another subsection (d) hospital. Accordingly, for FY 2023 and for subsequent fiscal years, in addition to the discharge criterion, the eligibility for the low-volume payment adjustment is also dependent upon the hospital meeting the mileage criterion at § 412.101(b)(2)(i), which specifies that a hospital must be located more than 25 road miles from the nearest subsection (d) hospital, consistent with section 1886(d)(12)(C)(i) of the Act. We define, at § 412.101(a), the term “road miles” to mean “miles” as defined at § 412.92(c)(1) (75 FR 50238 through 50275 and 50414).

4. Process for Requesting and Obtaining the Low-Volume Hospital Payment Adjustment

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414) and subsequent rulemaking, most recently in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45219 through 45221), we discussed the process for requesting and obtaining the low-volume hospital payment adjustment.

Under this previously established process, a hospital makes a written request for the low-volume payment adjustment under § 412.101 to its MAC. This request must contain sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria. The MAC will determine if the hospital qualifies as a low-volume hospital by reviewing the data the hospital submits with its request for low-volume hospital status in addition to other available data. Under this approach, a hospital will know in advance whether or not it will receive a payment adjustment under the low-volume hospital policy. The MAC and CMS may review available data such as the number of discharges, in addition to the data the hospital submits with its request for low-volume hospital status, to determine whether or not the hospital meets the qualifying criteria. (For additional information on our existing process for requesting the low-volume hospital payment adjustment, we refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 through 41401).)

As explained earlier, for FY 2019 and subsequent fiscal years, the discharge determination is made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges, as was the case for FYs 2005 through 2010. Under § 412.101(b)(2)(i) and (iii), a hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume payment adjustment in the current year. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399 and 41400), we use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. (For FYs 2011 through 2018, the most recently available MedPAR data were used to determine the hospital's Medicare discharges because non-Medicare discharges were not used to determine if a hospital met the discharge criterion for those years.) Therefore, a hospital must refer to its most recently submitted cost report for total discharges (Medicare and non-Medicare) to decide whether or not to apply for low-volume hospital status for a particular fiscal year.

As also discussed in the FY 2019 IPPS/LTCH PPS final rule, in addition to the discharge criterion, for FY 2019 and for subsequent fiscal years, eligibility for the low-volume hospital payment adjustment is also dependent upon the hospital meeting the applicable mileage criterion specified in § 412.101(b)(2)(i) or (iii) for the fiscal year. Specifically, to meet the mileage criterion to qualify for the low-volume hospital payment adjustment for FY 2023, a hospital must be located more than 25 road miles from the nearest subsection (d) hospital. (We define in § 412.101(a) the term “road miles” to mean “miles” as defined in § 412.92(c)(1) (75 FR 50238 through 50275 and 50414).) For establishing that the hospital meets the mileage criterion, the use of a web-based mapping tool as part of the documentation is acceptable. The MAC will determine if the information submitted by the hospital, such as the name and street address of the nearest 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 this previously established process, for FY 2023, we are proposing that a hospital must submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, for FY 2023, a hospital must make a written request for low-volume hospital status that is received by its MAC no later than September 1, 2022, in order for the 25-percent, low-volume, add-on payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2022. If a hospital's written request for low-volume hospital status for FY 2023 is received after September 1, 2022, 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 2023 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 2022 may continue to receive a low-volume hospital payment adjustment for FY 2023 without reapplying if it meets both the discharge criterion and the mileage criterion applicable for FY 2023. As discussed previously, for FY 2023 the discharge and the mileage criteria are reverting to the statutory requirements that were in effect prior to FY 2011, and to the preexisting low-volume hospital qualifying criteria, as implemented in FY 2005 and specified in the existing regulations at § 412.101(b)(2)(i). As in previous years, we are proposing that such a hospital must send written verification that is received by its MAC no later than September 1, 2022, stating that it meets the mileage criterion applicable for FY 2023 (that is, is located more than 25 road miles from the nearest “subsection (d)” hospital). For FY 2023, we are further proposing that this written verification must also state, based upon the most recently submitted cost report, that the hospital meets the discharge criterion applicable for FY 2023 (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges). If a hospital's request for low-volume hospital status for FY 2023 is received after September 1, 2022, and if the MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the MAC will apply the 25-percent, low-volume, add-on payment adjustment to determine the payment for the hospital's FY 2023 discharges, effective prospectively within 30 days of the date of the MAC's low-volume hospital status determination.

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through 41401 and 41702), in accordance with the provisions of section 50204 of the Bipartisan Budget Act of 2018, for FY 2023 and subsequent fiscal years, we made conforming changes to the regulations at 42 CFR 412.101 to reflect that the low-volume payment adjustment policy in effect for these years is the same low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010. Under these revisions, beginning with FY 2023, consistent with current law, the low-volume hospital qualifying criteria and payment adjustment methodology will return to the criteria and methodology that were in effect prior to the amendments made by the Affordable Care Act (that is, the low-volume hospital payment policy in effect for FYs 2005 through 2010). Therefore, no further revisions to the policy or to the regulations at § 412.101 are required to conform them to the statutory requirement that the low-volume hospital policy in effect prior to the Affordable Care Act will again be in effect for FY 2023 and subsequent years.

D. Proposed Changes in the Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

1. Background for the MDH Program

Section 1886(d)(5)(G) of the Act provides special payment protections, under the IPPS, to a Medicare-dependent, small rural hospital (MDH). (For additional information on the MDH program and the payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51683 through 51684).) As discussed in section VB of the preamble of this proposed rule, the MDH program provisions at section 1886(d)(5)(G) of the Act will expire at the end of FY 2022. Beginning with discharges occurring on or after October 1, 2022, all hospitals that previously qualified for MDH status will be paid based on the Federal rate.

Since the extension of the MDH program through FY 2012 provided by section 3124 of the Affordable Care Act, the MDH program had been extended by subsequent legislation as follows: Section 606 of the ATRA (Pub. L. 112- 240) extended the MDH program through FY 2013 (that is, for discharges occurring before October 1, 2013). Section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) extended the MDH program through the first half of FY 2014 (that is, for discharges occurring before April 1, 2014). Section 106 of the PAMA (Pub. L. 113-93) extended the MDH program through the first half of FY 2015 (that is, for discharges occurring before April 1, 2015). Section 205 of the MACRA (Pub. L. 114-10) extended the MDH program through FY 2017 (that is, for discharges occurring before October 1, 2017). Section 50205 of the Bipartisan Budget Act (Pub. L. 115- 123) extended the MDH program through FY 2022 (that is for discharges occurring before October 1, 2022). For additional information on the extensions of the MDH program after FY 2012, we refer readers to the following Federal Register documents: The FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53413 through 53414); the FY 2013 IPPS notification (78 FR 14689); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 50649); the FY 2014 interim final rule with comment period (79 FR 15025 through 15027); the FY 2014 notification (79 FR 34446 through 34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 through 50024); the August 2015 interim final rule with comment period (80 FR 49596); the FY 2017 IPPS/LTCH PPS final rule (81 FR 57054 through 57057); the FY 2018 notice (83 FR 18303 through 18305); and the FY 2019 IPPS/LTCH PPS final rule (83 FR 41429).

2. Expiration of the MDH Program

Because section 50205 of the Bipartisan Budget Act extended the MDH program through FY 2022 only, beginning October 1, 2022, the MDH program will no longer be in effect. Because the MDH program is not authorized by statute beyond September 30, 2022, beginning October 1, 2022, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate.

When the MDH program was set to expire at the end of FY 2012, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we revised our sole community hospital (SCH) policies to allow MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. We codified these changes in the regulations at § 412.92(b)(2)(i) and (v). Specifically, the existing regulations at § 412.92(b)(2)(i) and (v) allow for an effective date of an approval of SCH status that is the day following the expiration date of the MDH program. We note that these same conditions apply to MDHs that intend to apply for SCH status with the expiration of the MDH program on September 30, 2022. Therefore, in order for an MDH to receive SCH status effective October 1, 2022, the MDH must apply for SCH status at least 30 days before the expiration of the MDH program; that is, the MDH must apply for SCH status by September 1, 2022. The MDH also must request that, if approved as an SCH, the SCH status be effective with the expiration of the MDH program; that is, the MDH must request that the SCH status, if approved, be effective October 1, 2022, immediately after its MDH status expires with the expiration of the MDH program on September 30, 2022. We emphasize that an MDH that applies for SCH status in anticipation of the expiration of the MDH program would not qualify for the October 1, 2022, effective date for SCH status if it does not apply by the September 1, 2022, deadline. If the MDH does not apply by the September 1, 2022, deadline, the hospital would instead be subject to the usual effective date for SCH classification; that is, as of the date the MAC receives the complete application as specified at § 412.92(b)(2)(i).

We note that the regulations governing the MDH program are found at § 412.108 and the MDH program is also cited in the general payment rules in the regulations at § 412.90. As stated earlier, under current law, the MDH program will expire at the end of FY 2022, which is already reflected in §§ 412.108 and 412.90(j). As such, we are not proposing specific amendments to the regulations at § 412.108 or § 412.90 to reflect the expiration of the MDH program. However, we are proposing that if the MDH program were to be extended by law, similar to how it was extended through FY 2013, by the ATRA (Pub. L. 112-240); through March 31, 2014, by the Pathway for SGR Reform Act of 2013 (Pub. L. 113-167); through March 31, 2015, by the PAMA (Pub. L. 113-93); through FY 2017, by the MACRA (Pub. L. 114-10); and most recently through FY 2022, by the Bipartisan Budget Act of 2018 (Pub. L. 115-123), we would 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 such an extension of the MDH program. These conforming changes would only be made if the MDH program were to be extended by statute beyond September 30, 2022.

E. Proposed Indirect Medical Education (IME) Payment Adjustment Factor (§ 412.105)

Under the IPPS, an additional payment amount is made to hospitals with residents in an approved graduate medical education (GME) program in order to reflect the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The payment amount is determined by use of a statutorily specified adjustment factor. The regulations regarding the calculation of this additional payment, known as the IME adjustment, are located at § 412.105. 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 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. Accordingly, for discharges occurring during FY 2023, the formula multiplier is 1.35. We estimate that application of this formula multiplier for the FY 2023 IME adjustment will result in an increase in IPPS payment of 5.5 percent for every approximately 10 percent increase in the hospital's resident-to-bed ratio.

F. Payment for Indirect and Direct Graduate Medical Education Costs (§§ 412.105 and 413.75 Through 413.83)

1. Background

Section 1886(h) of the Act, as added by section 9202 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99-272) and as currently implemented in the regulations at 42 CFR 413.75 through 413.83, establishes a methodology for determining payments to hospitals for the direct costs of approved graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a methodology for the determination of a hospital-specific base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable direct costs of GME in a base period by its number of full-time equivalent (FTE) residents in the base period. The base period is, for most hospitals, the hospital's cost reporting period beginning in FY 1984 (that is, October 1, 1983 through September 30, 1984). The base year PRA is updated annually for inflation. In general, Medicare direct GME payments are calculated by multiplying the hospital's updated PRA by the weighted number of FTE residents working in all areas of the hospital complex (and at nonprovider sites, when applicable), and the hospital's Medicare share of total inpatient days.

Section 1886(d)(5)(B) of the Act provides for a payment adjustment known as the indirect medical education (IME) adjustment under the IPPS for hospitals that have residents in an approved GME program, in order to account for the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment are located at 42 CFR 412.105. The hospital's IME adjustment applied to the DRG payments is calculated based on the ratio of the hospital's number of FTE residents training in either the inpatient or outpatient departments of the IPPS hospital (and, for discharges occurring on or after October 1, 1997, at non-provider sites, when applicable) to the number of inpatient hospital beds.

The calculation of both direct GME payments and the IME payment adjustment is affected by the number of FTE residents that a hospital is allowed to count. Generally, the greater the number of FTE residents a hospital counts, the greater the amount of Medicare direct GME and IME payments the hospital will receive. In an attempt to end the implicit incentive for hospitals to increase the number of FTE residents, Congress, 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 may 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 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.

a. Direct GME Payment Formula

As mentioned previously, 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(h)(4) of the Act specifies the methodology for determining the amount of FTE residents to be included in a hospital's direct GME payment formula. That is, the number of FTE residents training at a hospital (or in non-provider sites as applicable) would not necessarily equal the sum of those FTE residents used in the hospital's direct GME payment formula, since certain rules and factors are applied to adjust the count of FTE residents for direct GME payment purposes. First, section 1886(h)(4)(C) of the Act requires that a “weighting factor” of either 1.0 or 0.5 be applied to each FTE resident, as follows: In calculating the number of FTE residents in an approved residency program on or after July 1, 1987, for a resident who is not in the resident's initial residency period, the weighting factor is 0.50. Section 1886(h)(5)(F) of the Act defines the term “initial residency period” as the “period of board eligibility,” with certain exceptions. Finally, section 1886(h)(4)(G) of the Act states that the term “period of board eligibility” means, for a resident, the minimum number of years of formal training necessary to satisfy the requirements for initial board eligibility in the particular specialty for which the resident is training. The direct GME calculation and our policy on applying the weighting factors to each FTE resident based on the FTE resident's status within or beyond the initial residency period (IRP) was established in the September 29, 1989, Federal Register (54 FR 40287, 40292, 40305-6), and implemented in the regulations at 42 CFR 413.86(f) (now 42 CFR 413.79(a) and (b)).

Thus, the FTE count used in the direct GME payment formula must be a weighted FTE count when a hospital is training residents beyond their IRPs. However, the direct GME FTE cap is an unweighted number. That is, 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 (that is the hospital's unweighted 1996 FTE cap or FTE cap). Regulations regarding the FTE caps and unweighted FTE counts were first published in the August 29, 1997, Federal Register . To address situations where a hospital's weighted FTE count exceeds its unweighted 1996 FTE cap, we established a policy effective for cost reporting periods beginning on or after October 1, 1997, to bring the weighted FTE count within the unweighted FTE cap using the following ratio on the Medicare cost report: ((1996 unweighted FTE cap/current year unweighted FTE count) × (current year total weighted FTE count)) (see 62 FR 46005 and 63 FR 26,330 (May 12, 1998)). In the August 1, 2001, Federal Register (66 FR 39893 through 39896), we modified this ratio effective for cost reporting periods beginning on or after October 1, 2001, to separately account for a hospital's current year weighted primary care and obstetrics/gynecology (OB/GYN) FTE count and primary care and OB/GYN PRA, and current year weighted other FTE count and other PRA, as follows: (FTE cap/unweighted total FTEs in the cost reporting period) × (weighted primary care and OB/GYN FTEs in the cost reporting period) plus (FTE cap/unweighted total FTEs in the cost reporting period) × (weighted nonprimary care FTEs in the cost reporting period). The sum of the products is the current year allowable weighted FTE count. In addition, effective for cost reporting periods beginning on or after October 1, 2001, the direct GME payment is calculated using two separate rolling averages, one for primary care and OB/GYN FTE residents, and one for nonprimary care FTE residents. These calculations were implemented at 42 CFR 413.86(g)(4) and (5) respectively, currently 42 CFR 413.79(c)(2)(iii) and (d)(3).

2. Milton S. Hershey Medical Center, et al. v. Becerra Litigation

On May 17, 2021, the U.S. District Court for the District of Columbia ruled against CMS's method of calculating direct GME payments to teaching hospitals when those hospitals' weighted FTE counts exceed their direct GME FTE cap. In Milton S. Hershey Medical Center, et al. v. Becerra (Slip. Op., 2021 WL 1966572, May 17, 2021), the court ordered CMS to recalculate reimbursement owed, holding that CMS's regulation impermissibly modified the statutory weighting factors discussed previously. The plaintiffs in these consolidated cases alleged that as far back as 2005, the proportional reduction that CMS applied to the weighted FTE count when the weighted FTE count exceeded the FTE cap conflicted with the Medicare statute, and it was an arbitrary and capricious exercise of agency discretion under the Administrative Procedure Act. The Court held that the proportional reduction methodology improperly modified the weighting factors statutorily assigned to residents and fellows. The court ordered CMS to pay the plaintiffs according to a more favorable method.

For example, a hospital has a direct GME cap of 100, trains 90 FTE residents weighted at 1.0 and 10 FTE fellows weighted at 0.5, for a total unweighted count of 100, and a total weighted FTE count of 95. Under current methodology, the proportional reduction is:

(100 cap/100 current year unweighted count) × 95 (current year weighted count) = 95.

If that hospital adds 10 more fellows and exceeds the cap with an unweighted total of 110 (90 residents and 20 fellows), its weighted FTE count of 100 is reduced as follows:

(100 cap/110 current year unweighted count) × 100 (current year weighted count) = 90.91.

The plaintiffs argued that CMS's proportional reduction method unlawfully reduced the weighting factor of 0.5 to an amount less than that, thereby reducing the capped unweighted FTE amount (100 reduced to 90.91 in the example) to which they were entitled for direct GME payment purposes. The court granted the plaintiffs' motion for summary judgment, denied defendant's, and remanded to the Agency so that it could recalculate plaintiffs' reimbursement payments consistent with the court's opinion. The court held that CMS's proportional reduction methodology, enacted at 42 CFR 413.79(c)(2)(iii), was inconsistent with the statutory weighting factors. In response to the court's decision, we are proposing to implement a modified policy applicable to all teaching hospitals, effective as of October 1, 2001, which would replace the existing policy at 42 CFR 413.79(c)(2)(iii). While the proportional reduction method struck down in Hershey was first effective for cost reports beginning on or after October 1, 1997, we are unaware of any open or reopenable NPRs for the 1997-2001 period where the proportional reduction method caused a provider's payments to be lower than they would be under our proposed new policy, but we welcome comments alerting us of such NPRs. The proportional reduction method was amended to its present form effective for cost reporting periods beginning on or after October 2001. See current 42 CFR 413.79(c)(2)(ii), (iii). We are therefore proposing to modify the policy embodied in 42 CFR 413.79(c)(2)(iii), which the Court found unlawful in Hershey.

Because the Hershey court concluded that § 413.79(c)(2)(iii) was inconsistent with the statute, and the Secretary did not appeal, the Secretary “has no promulgated rule governing” DGME payments to teaching hospitals over the cap for cost reporting periods beginning on or after October 1, 2001. (See Allina Health Servs. v. Price, 863 F.3d 937, 939 (D.C. Cir. 2017).) The Secretary is required to “establish rules consistent with this paragraph for the computation of the number of full-time-equivalent residents in an approved medical residency training program” (42 U.S.C. 1395ww(h)(4)). We believe that, in order to comply with the statutory requirement to make rules governing the computation of FTEs, it is necessary to engage in a retroactive rulemaking to establish the statutorily-required rule effective for cost reporting periods beginning on or after October 1, 2001. Doing so via notice-and-comment rulemaking is in the public interest because it will permit interested stakeholders to comment on the proposed approach and allow the agency to have the benefit of those comments in the development of a final rule. This is particularly true in this situation, where the existing policy was promulgated via an interim final rule with comment period, and the agency received no comments on the policy the court held unlawful and finalized it as originally proposed.

Because we are proposing to establish this policy retroactively, it would cover cost reporting periods for which many NPRs have already been final settled. Consistent with § 405.1885(c)(2), any final rule retroactively adopting the proposed new policy would not be the basis for reopening final settled NPRs.

a. Change to Direct GME Calculation in Response to Decision in Milton S. Hershey Medical Center et al. v. Becerra

After reviewing the statutory language regarding the direct GME FTE cap and the court's opinion, we have decided to propose a modified policy to be applied for cost reporting periods beginning on October 1, 2001, as described previously. The proposed modified policy would address situations for applying the FTE cap when a hospital's weighted FTE count is greater than its FTE cap, but would not reduce the weighting factor of residents that are beyond their IRP to an amount less than 0.5. Section 1886(h)(4)(F) of the Act states that for purposes of a cost reporting period beginning on or after October 1, 1997, the total number of FTE residents before application of weighting factors may not exceed the number of such FTEs for the hospital's most recent cost reporting period ending on or before December 31, 1996. Under current policy, we interpreted this to mean that only a hospital's unweighted (before application of weighting factors) allopathic and osteopathic FTE count was compared to its FTE cap, and if the unweighted allopathic and osteopathic FTE count exceeded the FTE cap, then the proportional reduction is made to the weighted FTE counts. Under this modified proposed policy, in the instance where a hospital's unweighted allopathic and osteopathic FTE count exceeds its FTE cap, we propose to add a step to also compare the total weighted allopathic and osteopathic FTE count to the FTE cap. If the total weighted allopathic and osteopathic FTE count is equal to or less than the FTE cap, then no adjustments would be made to the respective primary care & OB/GYN weighted FTE counts or the other weighted FTE counts. If the total weighted allopathic and osteopathic FTE count exceeds the FTE cap, then we would adjust the respective primary care & OB/GYN weighted FTE counts or the other weighted FTE counts to make the total weighted FTE count equal the FTE cap, as follows:

((primary care & OB/GYN weighted FTEs/total weighted FTEs) × FTE cap)) + ((other weighted FTEs/total weighted FTEs) × FTE cap)).

The sum would be the current year total allowable weighted FTE count, which would be reported on Worksheet E-4, line 9, column 3.

More specific to the Medicare cost report, we propose to revise the instructions to Worksheet E-4, line 9 to state: If line 6 is less than or equal to line 5, enter the amounts from line 8, columns 1 and 2, in columns 1 and 2, of this line. Otherwise, if the total weighted FTE count from line 8, column 3 is greater than the amount on line 5, then enter in column 1 the result of ((primary care & OBGYN weighted FTEs/total weighted FTEs) × FTE cap)). Enter in column 2 the result of ((other weighted FTEs/total weighted FTEs) × FTE cap)). Enter in column 3 the sum of

((primary care & OBGYN weighted FTEs/total weighted FTEs) × FTE cap)) + ((other weighted FTEs/total weighted FTEs) × FTE cap)).

Example 1: Hospital with a FTE cap of 100 trains 120 FTEs with a weight of 1.0, and 105 FTEs with a weight of 0.5, consisting of 70 weighted primary care & OBGYN FTEs and 35 weighted other FTEs. Since the total weighted count of 105 (Worksheet E-4, line 8, column 3) exceeds the FTE cap of 100 (Worksheet E-4, line 5), the Hospital reports the following adjusted weighted FTE counts on Worksheet E-4:

Line 9, column 1: ((70 weighted primary care & OBGYN FTEs/105 total weighted FTEs) × 100 cap)) = 66.67.

Line 9, column 2: ((35 weighted other FTEs/105 total weighted FTEs) × 100 cap)) = 33.33.

Line 9, column 3: 66.67 FTEs + 33.33 FTEs = 100.

Example 2: Hospital with a FTE cap of 100 trains 102 unweighted FTEs, equating to 96 weighted FTEs. This 96-weighted count consists of 30 weighted primary care & OBGYN FTEs, and 66 weighted other FTEs. Since the total weighted count of 96 (Worksheet E-4, line 8, column 3) is less than the FTE cap of 100 (Worksheet E-4, line 5), then no further adjustment is needed; enter the amounts from line 8, columns 1 and 2, in columns 1 and 2, of line 9.

Example 3: Hospital with a cap of 100 FTEs trains 90 FTEs with a weight of 1.0, and 20 FTEs with a weight of 0.5. Since the total weighted count is 100 (90 + (20 × 0.5)), then no further adjustment is needed. Enter the amounts from line 8, columns 1 and 2, in columns 1 and 2 of line 9.

Under section 1886(h)(4)(G)(i) and 42 CFR 413.79(d)(3), a hospital's weighted FTE count for payment purposes is the 3-year average of its current year weighted FTEs, prior year weighted FTEs, and penultimate year FTEs (for primary care & OBGYN FTEs and other FTEs respectively). Effective for cost reporting periods beginning on or after October 1, 2001, we are proposing to implement this modified methodology for the purpose of determining the prior year weighted FTE count on line 12 of Worksheet E-4, and for the purpose of determining the penultimate year's weighted FTE count on line 13 of Worksheet E-4, even though the prior and penultimate years' FTE counts would be from cost reporting periods prior to October 1, 2001. In this manner, the modified methodology would be fully applied to determining the direct GME payment for cost reporting periods beginning on or after October 1, 2001. Therefore, we are proposing to modify the cost report instructions on Worksheet E-4, lines 12 and 13, respectively to state that effective for cost reporting periods beginning on or after October 1, 2001, if subject to the cap in the prior year or penultimate year respectively, if the prior/penultimate year total weighted FTE count from line 8, column 3 is greater than the amount on line 5 from the prior/penultimate year, then enter in column 1 the result of ((primary care & OBGYN weighted FTEs/total weighted FTEs) × FTE cap)). Enter in column 2 the result of ((other weighted FTEs/total weighted FTEs) × FTE cap)) plus the amount on line 10, column 2. These instructions do not in any way modify or reopen final-settled prior and penultimate year NPRs.

We are proposing to amend the regulations text at 42 CFR 413.79(c)(2)(iii) to state that, effective for cost reporting periods beginning on or after October 1, 2001, if the hospital's unweighted number of FTE residents exceeds the limit described in this section, and the number of weighted FTE residents in accordance with § 413.79(b) also exceeds that limit, the respective primary care and obstetrics and gynecology weighted FTE counts and other weighted FTE counts are adjusted to make the total weighted FTE count equal the limit. If the number of FTE residents weighted in accordance with § 413.79(b) does not exceed that limit, then the allowable weighted FTE count is the actual weighted FTE count.

3. Reasonable Cost Payment for Nursing and Allied Health Education Programs

a. General

Under section 1861(v) of the Act, Medicare has historically paid providers for Medicare's share of the costs that providers incur in connection with approved educational activities. Approved nursing and allied health (NAH) education programs are those that are, in part, operated by a provider, and meet State licensure requirements, or are recognized by a national accrediting body. The costs of these programs are excluded from the definition of inpatient hospital operating costs and are not included in the calculation of payment rates for hospitals or hospital units paid under the IPPS, IRF PPS, or IPF PPS, and are excluded from the rate-of-increase ceiling for certain facilities not paid on a PPS. These costs are separately identified and “passed through” (that is, paid separately on a reasonable cost basis). Existing regulations on NAH education program costs are located at § 413.85. The most recent 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+Choice 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 Medicare Advantage organizations. Section 541 of the nBBRA 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 CY, 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 of these 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) 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 (h)(3)(D) to total direct graduate medical education payments estimated for the same portions of periods under subsection (h)(3). Accordingly, we made the following statements in the August 1, 2000 IFC:

• Each year, we would determine and publish in a proposed rule and a final rule the total amount of nursing and allied health education payments made across all hospitals during the fiscal year that is 2 years prior to the current calendar year (65 FR 47038). 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) 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 forward, the NAH MA add-on rates will be proposed and included in the IPPS proposed and final rules, and we are also reiterating the data sources we would use.

In this FY 2023 IPPS proposed rule, we are proposing the NAH MA add-on rates as well as the direct GME MA percent reductions for CYs 2020 and 2021. In this proposed rule, we are proposing to issue the rates for CYs 2020 and 2021 because we believe we have sufficient HCRIS data to develop the rates for these years, and these rate years are most needed to ensure accurate and timely cost report settlements of cost reports with portions overlapping with CYs 2020 and 2021. We expect to propose to issue the rates for CY 2022 in the FY 2024 IPPS proposed rule, and the rates for CY 2023 in the FY 2025 IPPS proposed rule, and so forth.

Consistent with the use of HCRIS data for past CYs, for CY 2020, we propose to use data from cost reports ending in FY 2018 HCRIS (the fiscal year that is 2 years prior to the calendar year of 2020) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days. We propose to use data from cost reports ending in FY 2019 HCRIS (the fiscal year that is 2 years prior to the calendar year of 2021) to compile the same national amounts for CY 2021. 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 years, which in this proposed rule, are CYs 2020 and 2021, 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 increase 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 2020, the direct GME projections are based on FY 2019 HCRIS. For CY 2021, the direct GME projections are based on FY 2019 HCRIS. For calendar years 2020 and 2021, the proposed national rates and percentages, and their data sources are set forth in this table. We intend to update these numbers in the FY 2023 final rule based on the latest available cost report data.

We are not proposing any changes to the regulations text at 42 CFR 413.87 at this time, as our proposal to include the nursing and allied health MA rates in the IPPS rulemaking is consistent with current regulations.

4. Proposal To Allow Medicare GME Affiliation Agreements Within Certain Rural Track FTE Limitations

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 49982, 50069), we amended our regulations to require that each Medicare GME affiliation agreement must have a shared rotational arrangement. The term “Medicare GME affiliation agreement” is defined at 42 CFR 413.75(b) as a written, signed, and dated agreement by responsible representatives of each respective hospital in a Medicare GME affiliated group, as defined in § 413.75(b), that specifies—

• The term of the Medicare GME affiliation agreement (which, at a minimum is 1 year), beginning on July 1 of a year;
• Each participating hospital's direct and indirect GME FTE caps in effect prior to the Medicare GME affiliation;
• The total adjustment to each hospital's FTE caps in each year that the Medicare GME affiliation agreement is in effect, for both direct GME and IME, that reflects a positive adjustment to one hospital's direct and indirect FTE caps that is offset by a negative adjustment to the other hospital's (or hospitals') direct and indirect FTE caps of at least the same amount;
• The adjustment to each participating hospital's FTE counts resulting from the FTE resident's (or residents') participation in a shared rotational arrangement at each hospital participating in the Medicare GME affiliated group for each year the Medicare GME affiliation agreement is in effect. This adjustment to each participating hospital's FTE count is also reflected in the total adjustment to each hospital's FTE caps (in accordance with criteria 3); and
• The names of the participating hospitals and their Medicare provider numbers.

We also define the term “Shared Rotational Arrangement” in that section of our rules as a residency training program under which a resident(s) participates in training at two or more hospitals in that program.

To encourage the training of residents in rural areas, section 407(c) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) (BBRA) amended section 1886(h)(4)(H) of the Act to add a provision (subsection (iv)) stating that, in the case of a hospital that is not located in a rural area (an urban hospital) that establishes separately accredited approved medical residency training programs (or rural tracks) in a rural area, or has an accredited training program with an integrated rural track, the Secretary shall adjust the urban hospital's cap on the number of FTE residents under subsection 1886(h)(4)(F), in an appropriate manner in order to encourage training of physicians in rural areas. Historically, the Accreditation Council for Graduate Medical Education (ACGME) has separately accredited family medicine programs in the “1-2 format” (meaning, residents in the 1-2 format receive their first year experience at a core family medicine program, and their second and third year experiences at another site, which may or may not be rural). Section 407(c) of Public Law 106-113 was effective for direct GME payments to hospitals for cost reporting periods beginning on or after April 1, 2000, and for IME payments applicable to discharges occurring on or after April 1, 2000. We refer readers to the August 1, 2000, interim final rule with comment period (65 FR 47025, 47033 through 47037) and the FY 2002 IPPS final rule (66 FR 39828, 39902 through 39909) where we implemented section 407(c) of Public Law 106-113. The regulations for establishing rural track FTE limitations are located at 42 CFR 413.79(k) for direct GME and at 42 CFR 412.105(f)(1)(x) for IME. (We note that additional legislative and regulatory changes were made to Rural Track Programs in the December 27, 2021 final rule, 86 FR 73445.) When we first implemented the rural track regulations in the August 1, 2000 IFC, we specified that the caps associated with rural tracks are separate and distinct from a hospital's general FTE caps. Specifically, we defined Rural track FTE limitation at 42 CFR 413.75(b) as the maximum number of residents training in a rural track residency program that an urban hospital may include in its FTE count and that is in addition to the number of FTE residents already included in the hospital's FTE cap (emphasis added). As a result, the rural track FTE limitations are not part of the regular FTE caps that hospitals may aggregate in Medicare GME affiliation agreements.

The rural track FTE limitations are calculated in the same manner as the adjustments to any allowable new program, in accordance with 42 CFR 413.79(e)(1). That is, at the end of the 5-year cap building window for the rural track program, the urban hospital's and rural hospital respective IME and direct GME rural track FTE limitations are calculated as the product of three factors (limited to the number of accredited slots for each program):

• The highest total number of FTE residents trained in any program year during the fifth year of the first new program's existence at all of the hospitals to which the residents in the program rotate;
• The number of years in which residents are expected to complete the program, based on the minimum accredited length for each type of program.
• The ratio of the number of FTE residents in the new program that trained at the hospital over the entire 5-year period to the total number of FTE residents that trained at all hospitals over the entire 5-year period.

Thus, while the calculated rural track FTE limitations calculated at the end of the 5-year window may reflect the division of the rotations between the urban and rural hospitals over the 5 initial years of the program, the future rotations amounts may change somewhat (albeit adhering to greater than 50 percent of the duration of the training occurring in the rural hospital/rural area). As rotations shift to meet patient care needs, the respective rural track FTE limitations may not quite match the amount of FTEs actually training in the urban and rural hospitals. We have been asked that the same flexibility with cap sharing afforded to teaching hospitals to share general FTE cap slots via Medicare GME affiliation agreements also be afforded to urban and rural teaching hospitals that together train residents in a rural track program. This flexibility would allow the urban and rural hospitals to share their rural track FTE limitations in a manner that best matches the rotations occurring in the urban and rural hospitals. Stakeholders representing urban-rural training partnerships specifically raised this request with regard to separately accredited 1-2 family medicine programs that have existed for a number of years, and either already have established their rural track FTE limitations, or have just recently reached or will reach the end of their 5-year cap building windows.

We have considered this request and agree it would be equitable to allow an urban and rural hospital jointly training residents in a 1-2 separately accredited family medicine program to aggregate their respective IME and direct GME rural track FTE limitations and enter into a “Rural Track Medicare GME Affiliation Agreement” to share those cap slots, and facilitate the cross-training of residents. We are proposing to allow urban and rural hospitals that participate in the same separately accredited 1-2 family medicine rural track program and have rural track FTE limitations to enter into “Rural Track Medicare GME Affiliation Agreements.” We propose that programs that are not separately accredited in the 1-2 format and are not in family medicine would not be permitted to enter into “Rural Track Medicare GME Affiliation Agreements” under this proposal. These Rural Track Medicare GME Affiliation Agreements, which we propose to define in this proposed rule, will be structured similarly to regular Medicare GME affiliation agreements, but we propose two distinct requirements.

First, in an effort to ensure that regular FTE caps and FTE residents in non-rural track programs are not commingled with the rural track FTE residents, and that rural track FTE limitations are not being used to provide additional cap slots for non-rural track FTE residents, we propose that the responsible representatives of each urban and rural hospital entering into the Rural Track Medicare GME Affiliation Agreement must attest in that written agreement that each participating hospital's FTE counts and rural track FTE limitations in the agreement do not reflect FTE residents nor FTE caps associated with programs other than the rural track program. We note this attestation is important for both the urban and rural hospital, as both urban and rural hospitals may have regular FTE caps that could be part of regular Medicare GME affiliation agreements (see 42 CFR 413.79(e)(1)(iv) and (v) and 413.79(f)). Second, we propose to only allow urban and rural hospitals to participate in Rural Track Medicare GME Affiliated Groups if they are separately accredited 1-2 family medicine programs that have rural track FTE limitations in place prior to October 1, 2022. We are proposing to choose these criteria and this date of October 1, 2022, as the date by which eligible hospitals must have rural track FTE limitations in place because the effective date of section 127 of the Consolidated Appropriations Act (CAA) is cost reporting periods beginning on or after October 1, 2022, and we are proposing to limit this proposal to only rural track FTE limitations established under the BBRA of 1999 that are unaffected by section 127 of the CAA. In this proposed rule, we are distinguishing between rural track programs with rural track FTE limitations associated with the BBRA of 1999 in effect prior to October 1, 2022, and Rural Track Programs (RTPs, defined at 42 CFR 413.75(b)) started or expanded to new participating sites under the authority of section 127 of the CAA. We explain this distinction later in this section. First, we refer readers to the December 27, 2021, final rule (86 FR 73445) for details about section 127 of the CAA. Generally, that provision removes the requirement that rural track programs be separately accredited by the ACGME, places in statute (previously in regulation) the requirement that rural track residents must spend greater than 50 percent of their training time in a rural area, and allows urban and rural hospitals to receive adjustments to their rural track FTE limitations for adding new rural training sites to an existing rural track program. In that December 27, 2021, final rule, we addressed a comment (86 FR 73456) asking whether multiple rural hospital training sites added under the new section 127 authority may share their rural track FTE limitations via a Medicare GME affiliation agreement. We responded that effective October 1, 2022, we are not permitting the formation of Medicare GME affiliated groups for the purpose of aggregating and cross-training RTP FTE limitations. First, we explained that we believe Medicare GME affiliated groups for RTPs would be premature, as only starting October 1, 2022, would hospitals have the first opportunity to add additional participating sites. Subsequently, there would be the 5-year cap building period in which Medicare GME affiliations are not permitted, even under existing Medicare GME affiliation agreement rules (42 CFR 413.79(f)). Second, we stated that before we create Medicare GME affiliation agreements unique to RTPs, we believe it would be best to first modify the Medicare cost report form to add spaces for the hospitals to indicate the number of any additional RTP FTEs, and the caps applicable to those FTEs. We also stated that we wish to assess flexibility within a hospital's own total RTP FTE limitation, before sharing those slots with other hospitals. We would need to be vigilant to ensure that the RTP FTE limitations are not comingled with regular FTE cap adjustments currently used in Medicare GME affiliation agreements. Therefore, we concluded with our belief that it is best to reassess allowing Medicare GME affiliation agreements for RTP FTE limitations at some point in the future. For these same reasons, at this time, we believe it is appropriate to only propose to allow rural track Medicare GME affiliation agreements with urban and rural hospitals that have a rural track FTE limitation in place prior to October 1, 2022. We will assess allowing these agreements with RTP FTE limitations established after October 1, 2022, in the future.

We are proposing the following new definitions at 42 CFR 413.75(b) and requirements:

• Rural track Medicare GME affiliated group is an urban hospital and a rural hospital that participates in a rural track program defined in 42 CFR 413.75(b), and that have rural track FTE limitations in effect prior to October 1, 2022, and that comply with 42 CFR 413.79(f)(1) through (6) for Medicare GME affiliated groups.
• Rural track Medicare GME affiliation agreement is a written, signed, and dated agreement by responsible representatives of each respective hospital in a rural track Medicare GME affiliated group, as defined in 42 CFR 413.75(b), that specifies—

++ A statement attesting that each participating hospital's FTE counts and rural track FTE limitations in the agreement do not reflect FTE residents nor FTE caps associated with programs other than the rural track program.

++ The term of the rural track Medicare GME affiliation agreement (which, at a minimum is 1 year), beginning on July 1 of a year;

++ Each participating hospital's direct and indirect GME rural track FTE limitations in effect prior to the rural track Medicare GME affiliation;

++ The total adjustment to each hospital's rural track FTE limitations in each year that the rural track Medicare GME affiliation agreement is in effect, for both direct GME and IME, that reflects a positive adjustment to one hospital's direct and indirect rural track FTE limitations that is offset by a negative adjustment to the other hospital's (or hospitals') direct and indirect rural track FTE limitations of at least the same amount;

++ The adjustment to each participating hospital's FTE counts resulting from the FTE resident's (or residents') participation in a shared rotational arrangement at each hospital participating in the rural track Medicare GME affiliated group for each year the Medicare GME affiliation agreement is in effect. This adjustment to each participating hospital's FTE count is also reflected in the total adjustment to each hospital's rural track FTE limitations (in accordance with criteria 3); and

++ The names of the participating hospitals and their Medicare provider numbers.

In addition, we are proposing to require that no later than July 1 of the residency year during which the rural track Medicare GME affiliation agreement will be in effect, the urban and rural hospital must submit the signed agreement to the CMS contractor or MAC servicing the hospital and send a copy to the CMS Central Office. The hospitals may submit amendments to the adjustments to their respective rural track FTE limitations to the MAC with a copy to CMS by June 30 of the residency year that the agreement is in effect. We propose that eligible urban and rural hospitals may enter into rural track Medicare GME affiliation agreements effective with the July 1, 2023, academic year.

With regard to how the rural track Medicare GME affiliation adjustments would be reported on the Medicare cost report, first, for background, we note that on the previous Medicare cost report CMS-Form-2552-96, the rural track FTE limitation was combined, together with the “cap” add-on for new (non-rural track) programs on Worksheet E, Part A, line 3.05, and on Worksheet E-3, Part IV, line 3.02. On the current cost report CMS-Form-2552-10, the rural track FTE limitation is, likewise, combined together with the “cap” add-on for new (non-rural track) programs on Worksheet E, Part A, line 6, and on Worksheet E-4, line 2. Going forward, we intend to add lines to the cost report to accommodate separate reporting of urban or rural hospital rural track FTE limitations, and the positive or negative adjustments made to the rural track FTE limitations, including those applicable to the affiliated agreements.

In summary, we are proposing to allow urban and rural hospitals that participate in the same separately accredited 1-2 family medicine rural track program and have rural track FTE limitations to enter into “Rural Track Medicare GME Affiliation Agreements”. We propose that programs that are not separately accredited in the 1-2 format and are not in family medicine would not be permitted to enter into “Rural Track Medicare GME Affiliation Agreements” under this proposal. We are proposing to add new definitions at 42 CFR 413.75(b) of rural track Medicare GME affiliated group and rural track Medicare GME affiliation agreement. We are also proposing to require that the responsible representatives of each urban and rural hospital entering into the rural track Medicare GME affiliation agreement must attest in that agreement that each participating hospital's FTE counts and rural track FTE limitations in the agreement do not reflect FTE residents nor FTE caps associated with programs other than the rural track program. In addition, we propose to only allow urban and rural hospitals to participate in rural track Medicare GME affiliated groups if they have rural track FTE limitations in place prior to October 1, 2022. We propose that eligible urban and rural hospitals may enter into rural track Medicare GME affiliation agreements effective with the July 1, 2023, academic year.

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

Effective for FY 2021, we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies, which were reported using ICD-10-PCS procedure codes XW033C3 or XW043C3 (85 FR 58599 through 58600). Effective for FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106). We refer the reader to section II.D.17. of the preamble of this proposed rule for discussion of the agenda items for the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting relating to new procedure codes to describe the administration of a CAR T-cell or another type of gene or cellular therapy product, as well as our established process for determining the MS-DRG assignment for codes approved at the March meeting.

Effective for FY 2021, we modified our relative weight methodology for MS-DRG 018 in order to develop a relative weight that is reflective of the typical costs of providing CAR T-cell therapies relative to other IPPS services. Specifically, under our finalized policy we do not include claims determined to be clinical trial claims that group to MS-DRG 018 when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS-DRG, with the additional refinements that: (a) When the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for MS DRG 018 to the extent such claims can be identified in the historical data; and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for MS-DRG 018 to the extent such claims can be identified in the historical data (85 FR 58600). The term “expanded access” (sometimes called “compassionate use”) is a potential pathway for a patient with an immediately life-threatening condition or serious disease or condition to gain access to an investigational medical product (drug, biologic, or medical device) for treatment outside of clinical trials when no comparable or satisfactory alternative therapy options are available.

Effective FY 2021, we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access immunotherapy cases that group to MS-DRG 018 using the same methodology that we used to adjust the case count for purposes of the relative weight calculations (85 FR 58842 through 58844). (As previously noted, effective beginning FY 2022, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non-CAR T-cell therapies and other immunotherapies (86 FR 44798 through 448106).) Specifically, under our finalized policy we apply a payment adjustment to claims that group to MS-DRG 018 and include ICD-10-CM diagnosis code Z00.6, with the modification that when the CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the payment adjustment will not be applied in calculating the payment for the case. We also finalized that when there is expanded access use of immunotherapy, the payment adjustment will be applied in calculating the payment for the case. This payment adjustment is codified at 42 CFR 412.85 (for operating IPPS payments) and 42 CFR 412.312 (for capital IPPS payments), for claims appropriately containing Z00.6, as described previously, and reflects that the adjustment is also applied for cases involving expanded access use immunotherapy, and that the payment adjustment only applies to applicable clinical trial cases; that is, the adjustment is not applicable to cases where the CAR T-cell, non CAR T-cell, or other immunotherapy product is purchased in the usual manner, but the case involves a clinical trial of a different product. The regulations at 42 CFR 412.85(c) also specify that the adjustment factor will reflect the average cost for cases to be assigned to MS-DRG 018 that involve expanded access use of immunotherapy or are part of an applicable clinical trial to the average cost for cases to be assigned to MS-DRG 018 that do not involve expanded access use of immunotherapy and are not part of a clinical trial (85 FR 58844).

For FY 2023, we are proposing to continue to apply an adjustment to the payment amount for expanded access use of immunotherapy and applicable clinical trial cases that would group to MS-DRG 018 using the same methodology adopted in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), which is the same methodology we are proposing to use to adjust the case count for purposes of the relative weight calculations:

• Calculate the average cost for cases to be assigned to MS-DRG 018 that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000.
• Calculate the average cost for all other cases to be 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.

Additionally, we are proposing to continue to use our finalized methodology for calculating this payment adjustment, such that: (a) 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 claim will be included when calculating the average cost for cases not determined to be clinical trial cases; 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. However, we continue to believe to the best of our knowledge there are 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 note that we are 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. Payer-only condition code “ZC” 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 ).

Consistent with our calculation of the proposed adjustor for the relative weight calculations, and our proposal to use the FY 2021 data for the FY 2023 ratesetting, for this proposed rule we are proposing to calculate this adjustor based on the December 2021 update of the FY 2021 MedPAR file for purposes of establishing the FY 2023 payment amount. Specifically, in accordance with 42 CFR 412.85 (for operating IPPS payments) and 42 CFR 412.312 (for capital IPPS payments), we are proposing to multiply the FY 2023 relative weight for MS-DRG 018 by a proposed adjustor of 0.20 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 are also proposing to update the value of the adjustor based on more recent data for the final rule.

H. Hospital Readmissions Reduction Program: Proposed Updates and Changes (§§ 412.150 Through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, establishes the Hospital Readmissions Reduction Program. Under the Hospital Readmissions Reduction Program, Medicare payments under the acute inpatient prospective payment system (IPPS) for discharges from an applicable hospital, as defined under section 1886(d) of the Act, may be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act requires the Secretary to compare hospitals with respect to the proportion of beneficiaries who are dually eligible for Medicare and full-benefit Medicaid (also known as “dually-eligible beneficiaries”) in determining the extent of excess readmissions. 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).

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 continue to believe the measures we have adopted adequately meet the goals of the Hospital Readmissions Reduction Program. In the FY 2022 IPPS/LTCH PPS final rule, we finalized suppression of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) for the FY 2023 program year due to the impact of the COVID-19 PHE (86 FR 45254 through 45256). In this proposed rule, we propose to resume use of this measure in the Hospital Readmissions Reduction Program beginning with the FY 2024 program year, with an exclusion of patients with principal or secondary COVID-19 diagnoses from both the cohort and the outcome. We are also providing information on technical specification updates for all of the condition/procedure-specific readmission measures in the Hospital Readmissions Reduction Program to include a covariate adjustment for patients with a clinical history of COVID-19 in the 12 months prior to the index admission.

We refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41431 through 41439) for more information about how the Hospital Readmissions Reduction Program supports CMS' goal of bringing quality measurement, transparency, and improvement together with value-based purchasing to the hospital inpatient care setting through the Meaningful Measures Framework.

4. Flexibility for Changes That Affect Quality Measures During a Performance Period in the Hospital Readmissions Reduction Program

In the FY 2022 IPPS/LTCH PPS final rule, we adopted a policy for the duration of the COVID-19 PHE that has allowed us to suppress the use of quality measures via adjustment to the Hospital Readmissions Reduction Program's program calculations if we determine that circumstances caused by the COVID-19 PHE significantly affected those measures and the associated “excess readmissions” calculations (86 FR 45250 through 45253). As described under that finalized policy, if we were to determine that the suppression of a Hospital Readmissions Reduction Program measure was warranted for an applicable period, we would calculate the measure's rates for that program year but then suppress the use of those rates to make changes to hospitals' Medicare payments. In the Hospital Readmissions Reduction Program, this policy would have the effect of temporarily weighting the affected measure at zero percent in the program's scoring methodology until adjustments were made, the affected portion of the performance period for the measure was made no longer applicable to program calculations, or the measure was removed entirely through rulemaking. We also explained that we would provide feedback reports to hospitals as part of program activities, including to inform their quality improvement activities, and to ensure that they were made aware of the changes in performance rates that we observed (86 FR 45251). We stated that we would publicly report a suppressed measure's data with appropriate caveats noting the limitations of the data due to the COVID-19 PHE (86 FR 45251). To provide stakeholders an opportunity to review this proposed rule prior to release of the Hospital Specific Reports (HSRs) that incorporate updates to the CMS 30-Day Pneumonia Readmission Measure (NQF #0506), we are postponing incorporation of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506), which would typically be included in the July update of the Compare website hosted by HHS ( https://www.medicare.gov/care-compare/ ).

In the FY 2022 IPPS/LTCH PPS final rule, we also adopted Measure Suppression Factors to guide our determination of whether to suppress a Hospital Readmissions Reduction Program measure for one or more program years that include discharges during the COVID-19 PHE (86 FR 45251). We adopted these Measure Suppression Factors for use in the Hospital Readmissions Reduction Program, and for consistency, the following other value-based purchasing programs: Hospital Value-Based Purchasing, HAC Reduction Program, Skilled Nursing Facility Value-Based Purchasing Program, and End-Stage Renal Disease Quality Incentive Program. We stated our belief that these Measure Suppression Factors will help us evaluate the Hospital Readmissions Reduction Program's measures and that their adoption in the other value-based purchasing programs, as previously noted, would help ensure consistency in our measure evaluations across programs. The previously adopted Measure Suppression Factors are as follows:

• Significant deviation in national performance on the measure during the PHE for COVID-19, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years.
• Clinical proximity of the measure's focus to the relevant disease, pathogen, or health impacts of the PHE for COVID-19.
• Rapid or unprecedented changes in—

++ Clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials; or

++ The generally accepted scientific understanding of the nature or biological pathway of the disease or pathogen, particularly for a novel disease or pathogen of unknown origin.

• Significant national shortages or rapid or unprecedented changes in—

++ Healthcare personnel;

++ Medical supplies, equipment, or diagnostic tools or materials; or

++ Patient case volumes or facility-level case mix.

We stated our belief that we view this measure suppression policy as necessary to ensure that the Hospital Readmissions Reduction Program did not penalize hospitals based on factors that the program's measures were not designed to accommodate (86 FR 45252).

In this proposed rule, we are not proposing any changes to this policy.

5. Provisions That Address the Impact of COVID-19 on Current Hospital Readmissions Reduction Program Measures

a. Background

As described in V.H.4 of the preamble of this proposed rule, in the FY 2022 IPPS/LTCH PPS final rule, we adopted a measure suppression policy and Measure Suppression Factors to ensure that the Hospital Readmissions Reduction Program did not penalize hospitals based on factors that the program's measures were not designed to accommodate (86 FR 45252).

Additionally, in the FY 2022 IPPS/LTCH PPS final rule, we finalized suppression of the CMS 30-Day Pneumonia Readmissions Measure (NQF #0506) for the FY 2023 program year (86 FR 45254 through 45256). We expressed the belief that the second Measure Suppression Factor (clinical proximity of the measure's focus to the relevant disease, pathogen, or health impacts of the COVID-19 PHE) applied to the CMS 30-Day Pneumonia Readmissions Measure (NQF #0506). In our analysis of the impacts of the COVID-19 PHE on the measures in the Hospital Readmissions Reduction Program, we observed that pneumonia has been identified as a typical characteristic of individuals infected with COVID-19 (86 FR 45254). Using data available during and subsequent to the preparation of the FY 2022 IPPS/LTCH PPS final rule, we found that a substantial portion of the CMS 30-Day Pneumonia Readmissions Measure (NQF #0506) cohort included admissions with a COVID-19 diagnosis, ranging from 13.3 percent in April 2020 to a high of 27.1 percent in December 2020. Furthermore, we noted that at the beginning of the pandemic, the 30-day observed readmission rate for pneumonia patients with a secondary diagnosis of COVID-19 present on admission was lower than the observed readmissions rate for pneumonia patients without a diagnosis of COVID-19 (12.4 percent versus 15.8 percent) because patients with a secondary diagnosis of COVID-19 present on admission had a higher risk of mortality than patients without a COVID-19 diagnosis (86 FR 45254 through 45255).

Additionally, we provided information on technical specification updates for the remaining five condition/procedure-specific readmission measures to exclude patients with a principal or secondary COVID-19 diagnosis from the measures' numerators and denominators beginning in fiscal year (FY) 2023 (86 FR 45256 through 45258). In the FY 2015 IPPS/LTCH PPS final rule, we finalized a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital Readmissions Reduction Program (79 FR 50039). In the FY 2022 IPPS/LTCH PPS final rule, we noted that to continue to account for readmissions as intended, we would use our subregulatory process to update the specifications to exclude patients with a principal or secondary diagnosis of COVID-19 from the denominators (cohorts) and the numerators (outcomes) of the following five condition/procedure-specific readmission measures: (1) Hospital 30-Day All-Cause RSRR Following AMI Hospitalization (NQF #0505); (2) the Hospital 30-Day, All-Cause, Unplanned, RSRR Following CABG Surgery (NQF #2515); (3) the Hospital 30-Day, All-Cause, RSRR Following COPD Hospitalization (NQF #1891); (4) the Hospital 30-Day, All-Cause RSRR Following Heart Failure Hospitalization (NQF #0330); and (5) the Hospital-Level 30-Day, RSRR Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #1551) beginning in FY 2023 (86 FR 45256).

b. Proposed Resumption of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) for the FY 2024 Program Year

Our measure suppression policy, described in section V.H.4 of the preamble of this proposed rule, focuses on a short-term, equitable approach during this unprecedented PHE, and was not intended for indefinite application. While we recognize that performance on some measures may not immediately return to levels seen prior to the PHE, we want to emphasize the long-term importance of value-based care and incentivizing quality care tied to payment. The Hospital Readmissions Reduction Program is an example of our long-standing effort to link payments to healthcare quality in the inpatient hospital setting. Our goal has been to resume the use of measure data for scoring and payment adjustment purposes. We note that in the FY 2022 IPPS/LTCH PPS final rule, we finalized the suppression of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) for the FY 2023 Program Year and stated that we would continue to monitor the claims that form the basis for this measure's calculations to evaluate the effect of the circumstances on quality measurement and to determine the appropriate policies in the future. Additionally, we recognized that it is important to continue tracking the impact of the COVID-19 PHE on the CMS 30-Day Pneumonia Readmission Measure (NQF #0506), as these data will inform our considerations regarding whether future measure suppression is necessary beyond FY 2023. We noted that the measure is important to improving patient safety and quality of care and stated that we would continue to monitor measure data to determine when it may be considered sufficiently reliable such that resuming full implementation of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) is appropriate (86 FR 45256).

Following publication of the FY 2022 IPPS/LTCH PPS final rule, we have continued to monitor the claims that form the basis for this measure's calculations. While pneumonia continues to be a typical characteristic of individuals infected with COVID-19, we believe that coding practices enhanced by the availability of COVID-19-related ICD-10-CM and ICD-10-PCS codes, effective since January 1, 2021, have enabled us to differentiate patients with COVID-19 from pneumonia patients without COVID-19 within certain data periods.

In this proposed rule, we are proposing that beginning in FY 2024, the Pneumonia Readmission Measure (NQF #0506) will no longer be suppressed under the Hospital Readmissions Reduction Program. We would resume the use of the pneumonia readmission measure for FY 2024 because of the following differences between the FY 2023 and FY 2024 performance periods: (1) The improved coding practices; (2) decreased proportion of COVID-19 admissions in the pneumonia readmission measure for this performance period; and (3) sufficient available data to make technical updates to the measure specifications in order to further account for how patients with a COVID-19 diagnosis might impact the quality of care assessed by this measure. These differences lead us to believe that the clinical proximity of the measure's focus is no longer sufficiently close to the health impacts of the COVID-19 PHE for the suppression factor to continue to apply. Specifically, effective January 2021, the ICD-10 code J12.82, pneumonia due to coronavirus disease 2019, was added for use as a secondary diagnosis, along with a principal diagnosis of COVID-19 (U07.1), to identify patients with COVID-19 pneumonia. J12.82 is not included within the cohort of the pneumonia readmission measure, therefore readmission rates for patients with an index admission of COVID pneumonia (J12.82) are not captured by this measure as of January 1, 2021. Whenever new codes are introduced, changes in coding practices are difficult to predict. At the time of the FY 2022 IPPS final rule, we did not have sufficient data to determine the effects of these coding changes on the proportion of COVID-19 patients and readmission rates with pneumonia due to COVID-19 in the pneumonia readmission measure. As additional months of data have become available since early 2021, we have now seen increased use of these codes. Secondly, as these coding changes have occurred and as the COVID-19 PHE has evolved, more recent data show the proportion of COVID-19 admissions in the pneumonia readmission measure have decreased compared to 2020 data. Finally, with the availability of additional data and the decrease in the proportion of COVID-19 admissions in the pneumonia readmission measure, we are now able to make technical updates to the measure specifications in alignment with the technical updates we are making to the five other readmission measures. All of these factors have led us to conclude that the suppression factor no longer applies to the CMS 30-Day Pneumonia Readmissions Measure (NQF #0506) measure.

As previously discussed, we observed that in 2020 following the declaration of the COVID-19 PHE for COVID-19 a substantial proportion of the CMS 30-Day Pneumonia Readmissions Measure (NQF #0506) cohort included admissions with a COVID-19 diagnosis, ranging from 13.3 percent when the COVID-19 ICD-10 diagnosis code became available in April 2020 to a high of 27.1 percent in December 2020. After the J12.82 code was implemented in January 2021, the proportion of patients with COVID-19 diagnosis present on admission in the pneumonia measure dropped to 9.8 percent. Data on the proportion of patients with COVID-19 diagnosis present on admission from April 2020 through December 2020 are detailed in Table V.H.-01. The most recently available data on the proportion of patients with COVID-19 diagnosis present on admission for January through September 2021, which do not include patients with pneumonia due to coronavirus disease 2019 per ICD-10 code J12.82, are detailed in Table V.H-02.

We note that the surge of COVID-19-related hospitalizations had begun to subside with the rollout of the U.S. vaccination program in early 2021, although hospitalizations began increasing again during late summer 2021 with the COVID-19 Delta variant and increased over the fall and winter with the COVID-19 Omicron variant. We also note that updated data show that the proportion of admissions with a COVID-19 diagnosis for the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) between April 2020 and December 2020 was 13.1 percent, whereas the proportion between January 2021 and September 2021 is substantially lower, at 3.1 percent.

Analyzing data available for the FY 2022 IPPS/LTCH PPS final rule (April 2020 through June 2020), we noted that the 30-day observed readmissions rate for patients with a secondary diagnosis of COVID-19 present on admission at the index admission were lower than the observed readmissions rates for patients without a diagnosis of COVID-19 (12.4 percent versus 15.8 percent). In more recent data, we have found that the observed readmission rate for admissions with a COVID-19 diagnosis are similar to observed readmission rates for admissions without a COVID-19 diagnosis (17.3 percent vs. 17.2 percent, respectively) as depicted in Table V.H.-03.

Because updated data show that following the January 2021 coding update patients with a diagnosis of COVID-19 now make up a smaller proportion of the population of pneumonia admissions than in the analysis described in the FY 2022 IPPS/LTCH PPS final rule, and because observed 30-day readmission rates are similar between admissions with and without a COVID-19 diagnosis, we believe that resuming the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) with a modification to exclude patients with a primary or secondary diagnosis of COVID-19 beginning with the FY 2024 program year would be appropriate. As described in more detail in section V.H.5.c of the preamble of this proposed rule, we will also add a covariate to adjust for a history of COVID-19 diagnosis in the 12 months prior to the admission as a technical update to the measure specifications.

In our analysis, measure scores calculated with the cohort and denominator exclusions and addition of the covariate for a history of COVID-19 diagnosis in the 12 months prior resulted in mean measure scores that were closer to the prior non-COVID-19 affected period compared with the unchanged measure. We note that these measure-specific modifications are in addition to application of the nationwide ECE granted in response to the COVID-19 PHE, which precludes the use of data from January 1, 2020 through June 30, 2020 from measure score calculations. Because these updates are to minimize the effect of COVID-19 on the pneumonia measure, which was not developed to account for COVID-19 diagnosed patients, we believe that these changes do not fundamentally change the measure such that it is no longer the same measure that we originally adopted, and therefore we believe that these are non-substantive updates. We note that in the FY 2015 IPPS/LTCH PPS final rule, we finalized a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital Readmissions Reduction Program (79 FR 50039). We reiterated this policy in the FY 2020 IPPS/LTCH PPS final rule, stating our continued belief that the subregulatory process is the most expeditious manner possible to ensure that quality measures remain fully up to date while preserving the public's ability to comment on updates that so fundamentally change a measure that it is no longer the same measure that we originally adopted (84 FR 42385). We believe that excluding COVID-19 patients from the measure denominator (cohort) and numerator (outcome) and adding a covariate to adjust for a history of a COVID-19 diagnosis in the 12 months prior to an admission (discussed in section V.H.5.c. of the preamble of this proposed rule), will ensure that this condition-specific readmission measure continues to account for readmissions as intended and meets the goals of the Hospital Readmissions Reduction Program. We note that the readmission measure uses three years of data. The performance period for the FY 2023 program year includes admissions from July 1, 2018 through June 30, 2021, exclusive of January 1, 2020 through June 30, 2020 data excluded due to the ECE waiver. Therefore, we continue to believe it is appropriate to suppress the currently implemented measure for use in payment calculations for FY 2023 as finalized in the FY 2022 IPPS/LTCH PPS final rule.

Additional resources about the current measure technical specifications and methodology for the hospital technical specification of the current readmission measures are provided at our website in the Measure Methodology Reports (when the readmission Measure Methodology reports for 2022 public reporting are available, they will be posted on the QualityNet website at https://qualitynet.cms.gov/inpatient/measures/readmission/methodology ). Hospital Readmissions Reduction Program resources are located at the Resources web page of the QualityNet website (available at https://qualitynet.cms.gov/inpatient/hrrp/resources ).

We welcome public comment on our proposal to resume use of the CMS 30-Day Pneumonia Readmissions Measure (NQF #0506) beginning with the FY 2024 program year.

c. Technical Measure Specification Update To Include Covariate Adjustment for COVID-19 Beginning With FY 2023

As discussed in section V.H.5.b of the preamble of this proposed rule, we have previously finalized a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital Readmissions Reduction Program (79 FR 50039) and reiterated this policy in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42385) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45256). As we continue to evaluate the effects of the COVID-19 PHE on our programs, and the effects of COVID-19 on our measures, we have observed that for some patients COVID-19 continues to have lasting effects, including fatigue, cough, palpitations, and others potentially related to organ damage, post-viral syndrome, post-critical care syndrome or other reasons. These clinical conditions could affect a patient's risk factors for being readmitted following an index admission for any of the six conditions/procedures included in the Hospital Readmissions Reduction Program. Therefore, we are modifying the technical measure specifications of each of our six condition/procedure specific risk-standardized readmission measures to include a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission beginning with the FY 2023 program year. This inclusion of the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission will be effective beginning with the FY 2023 program year and for subsequent years for the five non-pneumonia condition- and procedure-specific readmission measures. As described in V.H.5.b, the pneumonia readmission measure remains suppressed from scoring and payment adjustments for the FY 2023 program year and will be resumed for the FY 2024 program year. However, this update will be reflected in the confidential and public reporting of the pneumonia readmission measure for FY 2023. For more information on the application of covariate adjustments, please see the Measure Methodology Reports (when the readmission Measure Methodology reports for 2022 public reporting are available, they will be posted on the QualityNet website at https://qualitynet.cms.gov/inpatient/measures/readmission/methodology ).

6. Definition of “Applicable Period”

We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53375) for discussion of our previously finalized policy for defining “applicable period.” The definition of “applicable period” is also specified at 42 CFR 412.152. The “applicable period” is the 3-year period from which data are being collected in order to calculate excess readmission ratios (ERRs) and payment adjustment factors for the fiscal year; this includes aggregate payments for excess readmissions and aggregate payments for all discharges used in the calculation of the payment adjustment. The “applicable period” for dually-eligible beneficiaries is the same as the “applicable period” that we otherwise adopt for purposes of the Hospital Readmissions Reduction Program.

In order to provide greater certainty around future “applicable periods” for the Hospital Readmissions Reduction Program, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58845 through 58846), we finalized the automatic adoption of “applicable periods” for FY 2023 and all subsequent program years for the Hospital Readmissions Reduction Program.

Beginning in FY 2023, the “applicable period” for the Hospital Readmissions Reduction Program will be the 3-year period beginning 1 year advanced from the previous program fiscal year's start of the “applicable period.” Under this policy, for all subsequent years, we will advance this 3-year period by 1 year unless otherwise specified by the Secretary, which we would convey through notice and comment rulemaking. Similarly, the “applicable period” for dual eligibility will continue to correspond to the “applicable period” for the Hospital Readmissions Reduction Program, unless otherwise specified by the Secretary. We refer readers to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58845 through 58846) for a more detailed discussion of this topic.

In this proposed rule, we are not proposing any updates to this policy.

7. Identification of Aggregate Payments for Each Condition/Procedure and All Discharges

When calculating the numerator (aggregate payments for excess readmissions), we determine the base operating DRG payment amount for an individual hospital for the applicable period for each condition/procedure using Medicare inpatient claims from the MedPAR file with discharge dates that are within the applicable period. Under our established methodology, we use the update of the MedPAR file for each Federal fiscal year, which is updated 6 months after the end of each Federal fiscal year within the applicable period, as our data source.

In identifying discharges for the applicable conditions/procedures to calculate the aggregate payments for excess readmissions, we apply the same exclusions to the claims in the MedPAR file as are applied in the measure methodology for each of the applicable conditions/procedures. For the FY 2023 applicable period, this includes the discharge diagnoses for each applicable condition/procedure based on a list of specific ICD-10-CM and ICD-10-PCS code sets, as applicable, for that condition/procedure.

We identify Medicare fee-for-service (FFS) claims that meet the criteria as previously described for each applicable condition/procedure to calculate the aggregate payments for excess readmissions. This means that services covered by Medicare Advantage are not included in this calculation. This policy is consistent with the methodology to calculate ERRs based solely on admissions and readmissions for Medicare FFS patients.

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38232), we stated that we would determine the neutrality modifier using the most recently available full year of MedPAR data. For the purpose of modeling the estimated FY 2023 readmissions payment adjustment factors for this proposed rule, we would use 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 2023 Hospital Readmissions Reduction Program applicable period (July 1, 2018 through June 30, 2021).

For the FY 2023 program year, applicable hospitals will have the opportunity to review and correct calculations based on the FY 2023 applicable period of July 1, 2018 to June 30, 2021, before they are made public under our policy regarding reporting of hospital-specific information. Again, we reiterate that this period is intended to review the program calculations, and not the underlying data. For more information on the review and corrections process, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53399 through 53401).

We are not proposing any changes to our policies for the identification of aggregate payments for each condition/procedure in this proposed rule.

8. Use of MedPAR Data Corresponding to the Applicable Period

We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53387 through 53390) for discussion of our previously finalized policy for the use of MedPAR claims data as our data source for determining aggregate payments for each condition/procedure and aggregate payments for all discharges during applicable periods. Most recently, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45258), we finalized our policy on the continued use of the MedPAR data corresponding to the applicable period for the Hospital Readmissions Reduction Program calculations for the FY 2022 applicable period.

In addition, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45259), we expressed our continued belief that the use of MedPAR claims data is the appropriate source for identifying aggregate payments for each condition/procedure and all discharges during the corresponding applicable period for the Hospital Readmissions Reduction Program. Therefore, we finalized our proposal to automatically adopt the use of MedPAR data corresponding to the applicable period (the 3-year period beginning 1 year advanced from the previous program fiscal year's MedPAR data) for Hospital Readmissions Reduction Program calculations for FY 2023 and all subsequent program years.

In this proposed rule, we are not proposing any changes to this policy.

9. Calculation and Application of Payment Adjustment Factors

As we discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38226), section 1886(q)(3)(D) of the Act requires the Secretary to group hospitals and apply a methodology that allows for separate comparisons of hospitals within peer groups, based on the proportion of dually eligible beneficiaries served by each hospital, in determining a hospital's adjustment factor for payments applied to discharges beginning in FY 2019. Section 1886(q)(3)(D) of the Act also states that this methodology could be replaced through the application of subclause (E)(i), which states that the Secretary may take into account the studies conducted and the recommendations made by the reports required by section 2(d)(1) of the IMPACT Act of 2014 (Pub. L. 113-185; 42 U.S.C. 1395 note) with respect to risk adjustment methodologies.

Additionally, section 1886(q)(3)(A) of the Act defines the payment adjustment factor for an applicable hospital for a fiscal year as “equal to the greater of: (i) The ratio described in subparagraph (B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” Section 1886(q)(3)(B) of the Act, in turn, describes the ratio used to calculate the adjustment factor. Specifically, it states that the ratio is equal to 1 minus the ratio of aggregate payments for excess readmissions to aggregate payments for all discharges, scaled by the neutrality modifier. The calculation of this ratio is codified at 42 CFR 412.154(c)(l) and the floor adjustment factor is codified at 42 CFR 412.154(c)(2). Section 1886(q)(3)(C) of the Act specifies the floor adjustment factor at 0.97 for FY 2015 and subsequent fiscal years.

Consistent with section 1886(q)(3) of the Act, and codified in our regulations at 42 CFR 412.154(c)(2), for FY 2023, the payment adjustment factor will be either the greater of the ratio or the floor adjustment factor of 0.97. Under our established policy, the ratio is rounded to the fourth decimal place. In other words, for FY 2023, a hospital subject to the Hospital Readmissions Reduction Program would have an adjustment factor that is between 1.0 (no reduction) and 0.9700 (greatest possible reduction).

We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38226 through 38237) for a detailed discussion of the payment adjustment methodology. For additional information on Hospital Readmissions Reduction Program payment calculations, we refer readers to the Hospital Readmissions Reduction Program information and resources available on our QualityNet website.

We are not proposing any changes to our calculation of payment methodology in the proposed rule.

10. Extraordinary Circumstance Exception (ECE) Policy for the Hospital Readmissions Reduction Program

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49542 through 49543), we adopted an ECE policy for the Hospital Readmissions Reduction Program, which recognized that there may be periods of time during which a hospital is not able to submit data (from which readmission measures data are derived) in an accurate or timely fashion due to an extraordinary circumstance beyond its control. When adopting this policy, we noted that we considered the feasibility and implications of excluding data for certain measures for a limited period of time from the calculations for a hospital's excess readmission ratios for the applicable performance period. By minimizing the data excluded from the program, the policy enabled affected hospitals to continue to participate in the Hospital Readmissions Reduction Program for a given fiscal year if they otherwise continued to meet applicable measure minimum threshold requirements. We expressed the belief that this approach would help alleviate the burden for a hospital that might be adversely impacted by a natural disaster or other extraordinary circumstance beyond its control, while enabling the hospital to continue to participate in the Hospital Readmissions Reduction Program. We further observed that section 1886(q)(5)(D) of the Act permits the Secretary to determine the applicable period for readmissions data collection, and we interpreted the statute to allow us to determine that the period not include times when hospitals may encounter extraordinary circumstances. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38239 through 38240), we modified the requirements for the Hospital Readmissions Reduction Program ECE policy to further align with the processes used by other quality reporting and VBP programs for requesting an exception from program reporting due to an extraordinary circumstance not within a provider's control.

In response to COVID-19, we announced relief for clinicians, providers, hospitals, and facilities participating in Medicare quality reporting and value-based purchasing programs. On September 2, 2020, we published the interim final rule with comment period (IFC), “Medicare and Medicaid Programs, Clinical Laboratory Improvement Amendments (CLIA), and Patient Protection and Affordable Care Act; Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency” (85 FR 54820). The IFC updated the ECE we granted in response to the COVID-19 PHE, for the Hospital Readmissions Reduction Program and several other quality reporting programs (85 FR 54827 through 54837). In the IFC, we updated the previously announced application of our ECE policy for the Hospital Readmissions Reduction Program (85 FR 54832 through 54833) to the COVID-19 PHE to exclude any data submitted regarding care provided during the first and second quarters of CY 2020 from our calculation of performance for FY 2022, FY 2023, and FY 2024.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45260 through 45262), we clarified our ECE policy to highlight that an ECE granted under the Hospital Readmissions Reduction Program would exclude claims data during the corresponding ECE period. Although we have considered the feasibility and implications of excluding data under the ECE policy for the Hospital Readmissions Reduction Program, we have never specified the types of data that would be excluded under an ECE granted to an individual hospital. Considering that the Hospital Readmissions Reduction Program only uses claims data, we clarified our ECE policy to specify that claims data will be excluded from calculations of measure performance under an approved ECE for the Hospital Readmissions Reduction Program. We further clarified that although an approved ECE for the Hospital Readmissions Reduction Program would exclude excepted data from Hospital Readmissions Reduction Program payment reduction calculations, we did not waive the data submission requirements of a hospital for claims data (86 FR 45261 through 45262). For example, for claims data, we require a hospital to submit claims to receive payments for the services they provided to patients. Although an individual ECE approval under the Hospital Readmissions Reduction Program would except data submitted by a hospital from Hospital Readmissions Reduction Program calculations, a hospital would still need to submit its claims in order to receive payment outside the scope of the Hospital Readmissions Reduction Program for services provided.

Finally, in the FY 2022 IPPS/LTCH PPS final rule, we clarified that, although an approved ECE for the Hospital Readmissions Reduction Program would exclude excepted data from Hospital Readmissions Reduction Program payment reduction calculations, such an ECE does not exempt hospitals from payment reductions under the Hospital Readmissions Reduction Program (86 FR 45262).

We are not proposing any changes to our previously finalized ECE Policy in this proposed rule.

11. Request for Public Comment on Possible Future Inclusion of Health Equity Performance in the Hospital Readmissions Reduction Program

We are committed to achieving equity in healthcare outcomes for our beneficiaries by supporting providers' quality improvement activities to reduce health inequities, by enabling them to make more informed decisions, and by promoting provider accountability for healthcare disparities. As described in section IX.B. of the preamble of this proposed rule, we discuss and seek comment on overarching principles for measuring health care quality disparities to provide more actionable and comprehensive information on health care disparities across multiple social risk factors and demographic variables. As part of this request for information, we also discuss different approaches for identifying meaningful performance differences and guiding principles for reporting disparity measures.

As previously discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38226), section 1886(q)(3)(D) of the Act requires the Secretary to group hospitals and apply a methodology that allows for separate comparisons of hospitals with differing proportions of dually eligible beneficiaries in determining a hospital's adjustment factor for payments applied to discharges beginning in FY 2019. To implement this provision, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38226 through 38237), we finalized a number of changes to the payment reduction methodology, including our policy to stratify hospitals into quintiles, or peer groups, based on their proportion of dually eligible beneficiaries (82 FR 38229 through 38231) and our policy to use the median excess readmission ratio for the hospital's peer group in place of 1.0 in the payment reduction formula (82 FR 38231 through 38237). In this peer grouping methodology, dual-eligibility status is used as it is an indicator of beneficiaries' social risk. The peer grouping methodology mitigates against disproportionate payment reductions for hospitals serving socially at-risk populations. However, this peer grouping methodology does not directly measure or account for disparities in health care quality between beneficiary groups with heightened social risk and groups with less social risk.

In the FY 2018 IPPS/LTCH PPS final rule, we introduced confidential reporting of hospital quality measure data stratified by social risk factors (82 FR 38403 through 38409). We have created two complementary methods to calculate disparities in condition/procedure-specific readmission measures (the CMS Disparity Methods). The first method (the Within-Hospital disparity method) promotes quality improvement by calculating differences in outcome rates across beneficiary groups within a hospital while accounting for their clinical risk factors. This method also allows for comparison of those differences, or disparities, across hospitals, so hospitals could assess how well they are closing disparity gaps compared to other hospitals. The second methodological approach (the Across-Hospital method) assesses hospitals' outcome rates for subgroups of beneficiaries across hospitals, allowing for a comparison across hospitals on their performance serving beneficiaries with social risk factors. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38405 through 38407) and the Disparity Methods technical report and Updates and Specifications Report posted on the QualityNet website for additional details. The CMS Disparity Methods more directly measure disparities in health care quality between dually eligible and non-dually eligible beneficiary groups than the Hospital Readmissions Reduction Program's peer grouping methodology. For example, when considering the CMS Disparity Methods results calculated using data for the FY 2022 Hospital Readmissions Reduction Program performance period, measures showed not only a range between low and high disparity rates within hospitals, but also worse overall outcome rates for beneficiaries with social risk using beneficiary dual eligibility status as the stratification variable. Of these measures, the most actionable for hospitals were measures that showed overall high readmission rates for dually eligible beneficiaries across hospitals, or a large difference in readmission rates between dually eligible and non-dually eligible beneficiaries. These gaps in care indicated that there is potential for improvement, or a reduction in disparity at poorly performing hospitals if they were able to emulate the performance of strongly performing hospitals.

The Hospital Readmissions Reduction Program currently groups hospitals into one of five peer groups based on their proportion of beneficiaries who are dually eligible for Medicare and full Medicaid benefits. Beneficiaries' dual eligibility for Medicare and Medicaid is a widely used proxy for a beneficiary's financial risk. Medicaid enrollees have incomes and overall wealth below a certain threshold and thus, Medicaid eligibility may be used as a proxy for low socioeconomic status. The use of beneficiaries' dual eligibility in social risk factor analyses was supported by ASPE's First Report to Congress. This report found that in the context of value-based purchasing programs such as the Hospital Readmissions Reduction Program, dual eligibility, as an indicator of social risk, was among the most powerful predictors of poor health outcomes among those social risk factors that ASPE examined and tested. In alignment with the current program, we are considering the use of the beneficiary's dual eligibility status as a measure of beneficiaries' social risk that could be used to incorporate hospitals' performance for socially at-risk populations in the Hospital Readmissions Reduction Program.

As part of our broader goal of achieving equity in healthcare outcomes for our beneficiaries, we are interested in encouraging providers to improve health equity and reduce health care disparities through the Hospital Readmissions Reduction Program. We are seeking comment on approaches to updating the Hospital Readmissions Reduction Program to incorporate performance for socially at-risk populations. For example, we are considering approaches that would account for a hospital's performance on readmissions for socially at-risk beneficiaries compared to all other hospitals, or its performance in treating socially at-risk beneficiaries compared to other beneficiaries within the hospital, or combinations of these approaches. We acknowledge that updating the Hospital Readmissions Reduction Program to encourage improved performance for socially at-risk populations can take many forms, and we seek to explore different approaches so we can find an approach that satisfies our goals without unintended consequences.

In exploring approaches to incorporate performance for socially at risk populations in the Hospital Readmissions Reduction Program, our objective is to encourage providers to improve health equity and reduce health care disparities without disincentivizing hospitals to treat socially at-risk beneficiaries or disproportionately penalizing hospitals that treat a large proportion of socially at-risk beneficiaries. We are seeking comment on approaches that would achieve this objective.

As also discussed in our request for information on overarching principles for measuring health care quality disparities, as described in section IX.C of the preamble of this proposed rule, many non-clinical drivers of health are known to impact beneficiary outcomes, including social risk factors such as socioeconomic status, housing security and adequacy, and food security. The Hospital Readmissions Reduction Program currently uses beneficiaries' dual eligibility for Medicare and Medicaid as a proxy for a beneficiary's social risk and uses dual eligibility, as required by the statute, to divide hospitals into peer groups for comparison under the program. We are seeking comment on variables associated with or measures of social risk and beneficiary demographics that are already collected, as well as broader definitions of dual eligibility, such as those who are enrolled in a Medicare Savings Program or the Medicare Part D Low Income Subsidy, that could be included in the Hospital Readmissions Reduction Program in addition to dual eligibility. We note initially we would use such variables to stratify results within Hospital Specific Reports (HSRs) as confidential feedback to hospitals.

Measures of social risk could also include indices developed for the purpose of identifying socially at-risk populations and measuring the degree of risk. For example, as described in section IX.B, we are considering the University of Wisconsin School of Medicine and Public Health and Health Resources and Services Administration's Area Deprivation Index, Agency for Healthcare Research and Quality Socioeconomic Status Index, and the Centers for Disease Control and Prevention's Social Vulnerability Index. For example, the Area Deprivation Index allows for rankings of neighborhoods by socioeconomic disadvantage in a region of interest (such as at the state or national level), and includes factors for income, education, employment, and housing quality and is used in our Everyone with Diabetes Counts program in order to target seniors in the most disadvantaged neighborhoods for diabetes education. In addition to individual variables or sets of variables we are seeking comment on the addition of one or more of these indices or proposals for other indices or modified indices that capture multiple dimensions of social risk and that have demonstrated relations to health outcomes or access to health care resources, that can be added to the Program along with dual eligibility as factors for stratifying data. We ask commenters to include information on the availability of public data sources and documentation of the methods and testing that establish their applicability and provide supporting information about availability and methods when suggesting variables or indices to measure social risk. Support from a national-level assessment of the impact of social risk can be particularly useful to demonstrate the relevance of a proposed indicator.

Before any changes to the Hospital Readmissions Reduction Program are implemented, we plan to assess the extent to which they address our objective as well as their financial impact on the Hospital Readmissions Reduction Program. Any proposals to update the Hospital Readmissions Reduction Program to account for the extent to which a hospital is able to provide high quality and equitable care for beneficiaries with social risk factors, as previously described, would be made through future rulemaking.

We invite public comment on the following: (1) The benefit and potential risks, unintended consequences, and costs of incorporating hospital performance for beneficiaries with social risk factors in the Hospital Readmissions Reduction Program; (2) the approach of linking performance in caring for socially at-risk populations and payment reductions by calculating the reductions based on readmission outcomes for socially at-risk beneficiaries compared to other hospitals or compared to performance for other beneficiaries within the hospital; and (3) measures or indices of social risk, in addition to dual eligibility, that should be used to measure hospitals' performance in achieving equity in the Hospital Readmissions Reduction Program.

I. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy Changes

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 more of the statutory background and 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.

1. Flexibilities for the Hospital VBP Program in Response to the Public Health Emergency (PHE) Due to COVID-19

a. Measure Suppression Policy for the Duration of the COVID-19 PHE

In the FY 2022 IPPS/LTCH PPS final rule, we finalized a measure suppression policy and several Measure Suppression Factors for the duration of the COVID-19 PHE (86 FR 45266 through 45269). We stated that we had previously identified the need for flexibility in our quality programs to account for the impact of changing conditions that are beyond participating hospitals' control. We identified this need because we would like to ensure that participants in our programs are not affected negatively when their quality performance suffers not due to the care provided, but due to external factors, such as the COVID-19 PHE.

Specifically, we finalized a policy for the duration of the COVID-19 PHE that enables us to suppress the use of data for a number of measures if we determine that circumstances caused by the COVID-19 PHE have affected those measures and the resulting Total Performance Scores (TPSs) significantly. We also finalized the adoption of Measure Suppression Factors which will guide our determination of whether to suppress a Hospital VBP Program measure for one or more program years where the baseline or performance period of the measure overlaps with the COVID-19 PHE. The finalized Measure Suppression Factors are as follows:

• Measure Suppression Factor 1: Significant deviation in national performance on the measure during the PHE for COVID-19, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years.
• Measure Suppression Factor 2: Clinical proximity of the measure's focus to the relevant disease, pathogen, or health impacts of the PHE for COVID-19.
• Measure Suppression Factor 3: Rapid or unprecedented changes in—

++ Clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials; or

++ The generally accepted scientific understanding of the nature or biological pathway of the disease or pathogen, particularly for a novel disease or pathogen of unknown origin.

• Measure Suppression Factor 4: Significant national shortages or rapid or unprecedented changes in—

++ Healthcare personnel;

++ Medical supplies, equipment, or diagnostic tools or materials; or

++ Patient case volumes or facility-level case mix.

We also note that, as part of this measure suppression policy, we stated that we would still provide confidential feedback reports to hospitals on their measure rates on all measures to ensure that they are made aware of the changes in performance rates that we have observed. We also stated that we would publicly report suppressed data with appropriate caveats noting the limitations of the data due to the COVID-19 PHE. We continue to strongly believe that publicly reporting these data will balance our responsibility to provide transparency to consumers and uphold safety while ensuring that hospitals are not unfairly scored or penalized through payment under the Hospital VBP Program. We also note that, due to operational complications associated with the proposed changes to the scoring methodology, and in order to allow enough time for the appropriate notice and comment period process, we may not be able to provide hospitals with the feedback reports for FY 2023 until after August 1, 2022. We intend to provide hospitals with these feedback reports for FY 20223 as soon as possible and estimate that we will be able to provide reports before the end of 2022.

We are not proposing any changes to the measure suppression policy in this proposed rule.

b. Proposals To Suppress Specific Measures for the FY 2023 Program Year

(1) Background and Overview

COVID-19 has had significant negative health effects—on individuals, communities, nations, and globally. Consequences for individuals who have COVID-19 include morbidity, hospitalization, mortality, and post-COVID-19 related conditions (also known as long COVID). As of early- March 2022, over 78 million COVID-19 cases, 4.5 million new COVID-19 related hospitalizations, and 900,000 COVID-19 deaths have been reported in the U.S. One analysis projected that COVID-19 would reduce life expectancy in 2020 by 1.13 years overall, with the estimated impact disproportionately affecting minority communities. According to this analysis, the estimated life expectancy reduction for Black and Latino populations is 3 to 4 times the estimate when comparing to the white population. With a death toll surpassing that of the 1918 influenza pandemic, COVID-19 is the deadliest disease in American history.

Additionally, impacts of the COVID-19 pandemic have continued to accelerate in 2021 as compared with 2020. The Delta variant of COVID-19 (B.1.617.2) surfaced in the United States in early-to-mid 2021. Studies have shown that the Delta variant is up to 60 percent more transmissible than the previously dominant Alpha variant in 2020. Further, in November 2021, the number of COVID-19 deaths for 2021 surpassed the total deaths for 2020. According to CDC data, the total number of deaths involving COVID-19 reached 385,453 in 2020 and 451,475 in 2021. With this increased transmissibility and morbidity associated with the Delta variant as well as new variants like Omicron which have impacted 2021 and worsening staffing shortages in Q3 and Q4 2021 associated with the ongoing PHE, we remain concerned about using measure data that is significantly impacted by COVID-19 for scoring and payment purposes for the FY 2023 program year.

As noted in section V.H.1.a., in the FY 2022 IPPS/LTCH PPS final rule, we finalized a measure suppression policy and several Measure Suppression Factors for the duration of the COVID-19 PHE (86 FR 45266 through 45269). In addition, under this policy, we suppressed the following measures for the FY 2022 program year:

• Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) (NQF #0166)
• Medicare Spending per Beneficiary—Hospital (MSPB) (NQF #2158)
• National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138)
• National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure (NQF #0139)
• American College of Surgeons- Centers for Disease Control and Prevention Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure (NQF #0753)
• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus (MRSA) Bacteremia Outcomes Measure (NQF #1716)
• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure (NQF #1717)

Since the publication of the FY 2022 IPPS/LTCH PPS final rule, we have conducted analyses on all Hospital VBP Program measures to determine whether and how COVID-19 has impacted the validity of the data used to calculate these measures for the FY 2023 program year. We discuss our findings from these analyses that follows. Based on those analyses, we are proposing to suppress the following measures for the FY 2023 program year:

• Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) (NQF #0166)
• National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138)
• National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure (NQF #0139)
• American College of Surgeons—Centers for Disease Control and Prevention Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure (NQF #0753)
• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716)
• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure (NQF #1717)

We also note that in the FY 2022 IPPS/LTCH PPS final rule, we finalized our proposal to suppress the Hospital 30-Day, All Cause, Risk Standardized Mortality Rate Following Pneumonia (PN) Hospitalization measure (NQF #0468) (MORT-30-PN) for the FY 2023 program year (86 FR 45274 through 45276).

(2) Proposal To Suppress the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey Measure (NQF #0166) for the FY 2023 Hospital VBP Program Year

As noted in section V.H.1.b. of the preamble of this proposed rule, in the FY 2022 IPPS/LTCH PPS final rule, we finalized the suppression of the HCAHPS measure for the FY 2022 program year under Measure Suppression Factor 1, significant deviation in national performance on the measures, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years. We refer readers to the FY 2022 IPPS/LTCH PPS final rule for additional details and a summary of public comments we received related to that finalized policy (86 FR 45270 through 45271).

We are proposing to suppress the HCAHPS measure for the FY 2023 program year under Measure Suppression Factor 1, significant deviation in national performance on the measure during the COVID-19 PHE, which could be significantly better or significantly worse as compared to historical performance during the immediately preceding program years, and Measure Suppression Factor 4, significant national shortages or rapid or unprecedented changes in healthcare personnel. We would calculate hospitals' HCAHPS measure rates, but we would not use these measure rates to generate achievement, improvement, or consistency points for this measure. Additionally, because the HCAHPS measure is the only measure included in the Person and Family Engagement domain, we would not calculate hospitals' FY 2023 domain scores for the Person and Family Engagement domain. Participating hospitals would continue to report the measure data to CMS so that we can monitor the effect of the circumstances on quality measurement and consider appropriate policies in the future. We would continue to provide confidential feedback reports to hospitals as part of program activities to allow hospitals to track the changes in performance rates that we observe. We also intend to publicly report CY 2021 measure rate data where feasible and appropriately caveated. As noted in section V.I.1.a. of the preamble of this proposed rule, we believe that publicly reporting suppressed measure data is an important step in providing transparency and upholding the quality of care and safety for consumers.

Based on our analysis of HCAHPS data from Q1 2019 to Q3 2021, we continue to observe a sustained decline in hospital-level HCAHPS scores beginning in Q2 2020. This decline is associated with the COVID-19 PHE in 2020 and 2021. HCAHPS measure results are publicly reported as “top-box”, “bottom-box”, and “middle-box” scores, with “top-box” being the most positive response to HCAHPS Survey items.

In order to determine whether the COVID-19 PHE impacted the HCAHPS measure for the FY 2023 program year and to what extent, we conducted an analysis that compared the Q1 2021, Q2 2021, and Q3 2021 HCAHPS data to the Q1 2019, Q2 2019, and Q3 2019 HCAHPS data. This analysis was similar to the analysis we conducted last year when we compared Q1 2020 and Q2 2020 HCAHPS data to Q1 2019 and Q2 2019 HCAHPS data. As reflected in Table V.I.-01, this analysis showed that HCAHPS measure top-box scores in Q1, Q2, and Q3 2021 compared to the same quarter in pre-COVID-19 2019 were almost always lower. The relatively steady decline in HCAHPS top-box scores that began in Q2 2020 became sharper in Q3 2021. Compared to Q3 2019, HCAHPS scores in Q3 2021 were lower by 1 to 4 top-box points. These changes were statistically significant for all HCAHPS measures in Q2 2021 and Q3 2021 at the p < 0.0001 level, meaning that changes were too large to occur by chance more than one time in 10,000. These changes stand in sharp contrast to the pattern of generally small improvements prior to Q2 2020.

We believe that the analysis of Q1, Q2, and Q3 2021 HCAHPS scores indicates a pattern of significant negative changes in hospital performance from the immediately preceding pre-COVID-19 quarters where HCAHPS scores generally changed by less than 1 top-box point, sometimes increasing and sometimes decreasing, compared to the same quarter one year earlier.

We are also proposing to suppress the HCAHPS measure for the FY 2023 program year under Measure Suppression Factor 4, significant national shortage or rapid or unprecedented changes in healthcare personnel. During the course of the PHE, an unprecedented number of healthcare personnel have left the workforce or ended their employment in hospitals. This healthcare personnel shortage worsened in 2021, with hospitals across the United States reporting 296,466 days of critical staffing shortages, an increase of 86 percent from the 159,320 days of critical staffing shortage hospitals reported in 2020. Healthcare workers, especially those in areas with higher infection rates, have reported serious psychological symptoms, including anxiety, depression, and burnout.

Shortages in hospital healthcare personnel have been shown to affect quality of care and patient satisfaction. Studies have shown that hospitals with greater numbers of hospitalists treating general-medicine patients and greater availability of nursing unit support services have been associated with higher levels of patient satisfaction.

Conversely, nurse burnout has been linked to lower nurse-assessed quality of care and lower patient satisfaction. Nursing shortages have also been linked with negative patient perceptions of care. Therefore, we believe this significant national change in healthcare personnel due to the COVID-19 PHE has significantly impacted hospitals' scores on the HCAHPS measure, which measures patient experience of hospital care, including staff responsiveness, communication with hospital staff, and cleanliness of the hospital environment.

Additionally, reports of hospital staff shortages have varied widely geographically. In January 2021, half of the hospitals in New Mexico and over 40 percent of the hospitals in Vermont, Rhode Island, West Virginia, and Arizona reported staffing shortages. Conversely, in that same week, less than 10 percent of hospitals in Washington, DC, Connecticut, Alaska, Illinois, New York, Maine, Montana, Idaho, Texas, South Dakota and Utah reported staffing shortages. Given the wide variance in reported staffing shortages, and the impact staffing shortages has had on HCAHPS scores, we believe our proposal to suppress the HCAHPS measure fairly addresses the geographic disparity in the impact of the COVID-19 PHE on participating hospitals.

Due to the emergence of COVID-19 variants, such as the Delta variant, which worsened staffing shortages in Q3 and Q4 2021, we anticipate that Q4 2021 data will continue to demonstrate a deviation in national performance such that scoring this measure would not be representative of national or individual hospital quality of care. Additionally, we believe that suppressing the HCAHPS measure is appropriate because the impact of COVID-19 on the measure cannot be addressed through risk-adjustment for two reasons. First, we cannot risk adjust the measure to exclude patients whose admissions were related to COVID-19 because this measure does not capture patient-level diagnosis data. Second, even if we could exclude patients whose admissions were related to COVID-19 from the measure, we believe the HCAHPS calculations would still be impacted because hospital staffing and resource issues affect a hospital's entire patient population. Therefore, we believe that suppressing this measure for the FY 2023 program year will address concerns about the potential unintended consequences of penalizing hospitals that treated COVID-19 diagnosed patients.

For these reasons, we are proposing to suppress the HCAHPS measure for the FY 2023 Hospital VBP program year under Measure Suppression Factors 1 and 4.

We welcome public comment on this proposal.

(3) Proposal To Suppress the Five Healthcare-Associated Infection (HAI) Safety Measures for the FY 2023 Hospital VBP Program Year

As noted in section V.H.1.b. of the preamble of this proposed rule, in the FY 2022 IPPS/LTCH PPS final rule, we finalized the suppression of the five HAI Safety measures (CAUTI, CLABSI, Colon and Hysterectomy SSI, MRSA, and CDI) for the FY 2022 program year under Measure Suppression Factor 1, significant deviation in national performance on the measures, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years. We refer readers to the FY 2022 IPPS/LTCH PPS final rule for additional details on that policy and a summary of public comments we received related to that finalized policy (86 FR 45272 through 45274).

In this proposed rule, we are proposing to suppress the five HAI Safety measures (CAUTI, CLABSI, Colon and Hysterectomy SSI, MRSA, and CDI) for the FY 2023 program year under Measure Suppression Factor 1, significant deviation in national performance on the measures, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years, Measure Suppression Factor 3, rapid or unprecedented changes in clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials, and Measure Suppression Factor 4, significant national shortages or rapid or unprecedented changes in healthcare personnel and patient case volumes. We are concerned that the COVID-19 PHE affected measure performance on the HAI measures in 2021 such that we will not be able to score hospitals fairly or reliably for national comparison and payment adjustment purposes. As part of this proposal, we would calculate hospitals' five HAI measure rates, but we would not use these measure rates to generate achievement or improvement points for these measures. Additionally, because these five measures make up the entirety of the Safety domain, we would not calculate hospitals' FY 2023 Safety domain score. Participating hospitals would continue to report the measure data to the CDC and CMS so that we can monitor the effect of the circumstances on quality measurement and consider appropriate policies for the future. We would continue to provide confidential feedback reports to hospitals as part of program activities to ensure that they are made aware of the changes in performance rates that we observe. Though we are concerned that the COVID-19 PHE has affected measure performance on the HAI measures in 2021, patient safety remains a priority in our value-based purchasing programs. Therefore, we also intend to publicly report CY 2021 data where feasible and appropriately caveated. As noted in section V.I.1.a. of the preamble of this proposed rule, we believe that publicly reporting suppressed measure data is an important step in providing transparency and upholding quality of care and safety for consumers.

We are proposing to suppress three of the five CDC NHSN HAI measures (CLABSI, CAUTI, and MSRA bacteremia) under Measure Suppression Factor 1, significant deviation in national performance on the measures, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45272 through 45274) for previous analysis on the HAI Safety measures that showed that measure rates for the CLABSI, CAUTI, and MRSA measures increased during the CY 2020 pandemic year as compared to the pre-COVID-19 CY 2019 year immediately preceding the COVID- 19 PHE. To determine whether the CLABSI, CAUTI, and MRSA measure rates would continue to show increases for CY 2021, the CDC analyzed changes in standardized infection ratios (SIRs) for Q1 and Q2 of CY 2021 as compared to the SIRs in Q1 and Q1 of CY 2019. This analysis found that the CLASBI, CAUTI, and MSRA measures had statistically significant measure rate increases during Q1 and Q2 of CY 2021 as compared to pre-pandemic levels in Q1 and Q2 of CY 2019. For Q1 2021, the national SIR increased by approximately 45 percent for the CLABSI measure, approximately 12 percent for the CAUTI measure, and approximately 39 percent for the MRSA measure as compared to Q1 2019. For Q2 2021, the national SIR increased by approximately 15 percent for the CLABSI measure and approximately 8 percent for the MRSA measure. The SIRs for the CAUTI measure showed no statistically significant difference for Q2 2021 as compared to Q2 2019.

For the CDI measure, the national SIR decreased by approximately 16 percent for Q1 2021 as compared to Q1 2019 and by approximately 14 percent for Q2 2021 as compared to Q2 2019. The SSI measure showed no significant increase or decrease during Q1 2021 and Q2 2021 as compared to Q1 2019 and Q2 2019. Though the changes in the national SIRs for SSI and CDI were not as large as compared to the other Safety domain measures, we are proposing to suppress these measures under Measure Suppression Factor 4, significant national shortages or rapid or unprecedented changes in patient case volumes and Measure Suppression Factor 3, rapid or unprecedented changes in clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials, respectively. Specifically, for the SSI measure, we are proposing to suppress the measure for FY 2023 under Measure Suppression Factor 4, rapid or unprecedented changes in patient case volumes. We note that the SSI measure has historically had a low procedure volume for many hospitals, which impacts our ability to produce SIRs for that measure. For CY 2019, 2,087 hospitals (61 percent) did not have sufficient procedure-level data needed to calculate SSI SIRs for abdominal hysterectomy, and 1,262 hospitals (37 percent) did not have sufficient data to calculate SIRs for colon surgery. However, nationally, procedure volumes declined even further during the COVID-19 PHE in 2020, compared to 2019, with decreases of up to 23 percent for colon procedures and 39 percent for abdominal hysterectomy procedures. As of July 2021, abdominal hysterectomy procedures were still 6 percent below predicted levels. These changes in patient volumes for the SSI measure limit our ability to calculate SSI SIRs for hospitals that do not have sufficient data in FY 2023, which may impact the accuracy and reliability of overall national comparison on performance for this measure.

For the CDI measure, we are proposing to suppress the measure under Measure Suppression Factor 3, rapid or unprecedented changes in clinical guidelines, care delivery or practice, related protocols, or equipment or diagnostic tools or materials. Pandemic-related improvements to typical CDI prevention practices such as hand hygiene, PPE practices, and environmental cleaning could have contributed to the declines seen in the CDI SIR in 2021 compared to 2019. In addition, a decline in outpatient antibiotic prescribing was observed starting in 2020 as healthcare utilization decreased during the COVID-19 pandemic. This, combined with the continued use of inpatient antibiotic stewardship programs in hospitals, may also have contributed to the decline in the national CDI SIRs, as reducing patient antibiotic exposure is a recommended strategy for CDI prevention. More information about CDI prevention strategies can be found at https://www.cdc.gov/cdiff/clinicians/cdi-prevention-strategies.html .

Additionally, because we cannot identify all potential elements that could be impacting the overall HAI experience at facilities during an unprecedented PHE as well as potential geographic disparities in the impact of the PHE that could cause uneven impact on facilities based on their location, and in order to reduce bias toward only those measures that are performing well at the national level, we believe all five CDC NHSN HAI measures should be suppressed. Therefore, we believe it is appropriate to suppress all five HAI measures in the Safety domain to ensure an accurate and reliable national comparison of performance on hospital safety.

We are also proposing to suppress the five CDC NHSN HAI measures for the FY 2023 program year under Measure Suppression Factor 4, significant national shortage or rapid or unprecedented changes in healthcare personnel. As discussed in section V.I.1.b.(2). of the preamble of this proposed rule, during the course of the COVID-19 PHE, an unprecedented number of healthcare personnel have left the workforce or ended their employment in hospitals. This healthcare personnel shortage worsened in 2021, with hospitals across the United States reporting 296,466 days of critical staffing shortages, an increase of 86 percent from the 159,320 days of critical staffing shortage hospitals reported in 2020. Healthcare workers, especially those in areas with higher infection rates, have reported serious psychological symptoms, including anxiety, depression, and burnout.

Healthcare personnel staffing shortages and burnout has been shown to be significantly associated with hospital-associated infections, including urinary tract infections and surgical site infections. Along with being shown to impact quality of care, healthcare staffing shortages impact a hospital's ability to investigate infections and take corrective action. As discussed in section V.I.1.b.(2). of the preamble of this proposed rule, reports of hospital staff shortages have varied widely geographically, ranging from 10 to 50 percent of hospitals in any particular state reporting staffing shortages. Given the wide variance in reported staffing shortages, and the impact staffing shortages may have on CDC NHSN HAI scores, we believe our proposal to suppress the CDC NHSN HAI measures fairly addresses the geographic disparity in the impact of the COVID-19 PHE on participating hospitals.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45272 through 45274), we stated our belief that the distortion in measure performance may be due to circumstances unique to the effects of the pandemic such as staffing shortages and turnover, patients that are more susceptible to infections due to increased hospitalization stays, and longer indwelling catheters and central lines. We believe that the continued distortion in measure performance is impacted by similar circumstances unique to the effects of the COVID-19 PHE as hospitals and researchers have investigated the impact of COVID-19 on HAIs and found that COVID-19 is associated with increases in HAIs, with changes in the SIR varying geographically and over time. Additionally, we believe that suppressing the HAI measures is appropriate because the impact of COVID-19 on the measure cannot be addressed through risk-adjustment. Under current collection requirements for the CDC NHSN HAI measures, the data used for risk-adjustment are collected at the ward or facility level, meaning that the hospital submits infection data for a given ward or the entire facility rather than at the individual patient level. Accordingly, we are not able to identify the number of patients with HAIs who also had COVID-19 and therefore cannot risk-adjust for or otherwise account for COVID-19 diagnoses. In order to address the impact of the ongoing COVID-19 PHE on HAI incidence, we are proposing to suppress the CY 2021 HAI measure data.

We welcome public comment on our proposal to suppress the five HAI Safety domain measures for the FY 2023 program year.

c. Proposed Scoring and Payment Methodology for the FY 2023 Program Year Due to the COVID-19 PHE

As described in section V.I.1.b. of the preamble of this proposed rule, we are proposing to suppress six measures in the Hospital VBP Program for FY 2023 and use a special rule for FY 2023 scoring, which we would codify in our regulations at 42 CFR 412.168. Specifically, we are proposing that we would calculate measure rates for all measures in the FY 2023 program year. For measures that we have proposed to suppress or measures for which we have finalized suppression, we would not use the measure rates to generate achievement and improvement points within the Hospital VBP Program's current scoring methodology. We further propose under this special rule that we would only calculate achievement and improvement points, as well as a domain score, for remaining measures in the Clinical Outcomes domain and the Efficiency and Cost Reduction domain that have not been proposed for suppression and that, because no other domains receive scores for the FY 2023 program year, we would not award TPSs to any hospital for FY 2023.

Because no hospital would receive a TPS for FY 2023, we further propose that we would reduce each hospital's base-operating DRG payment amount by two percent, as required under section 1886(o)(7)(B) of the Act, and then assign to each hospital a value-based incentive payment amount that matches the two percent reduction to the base operating DRG payment amount. The net result of these payment adjustments would be neutral for hospitals. We have stated that value-based payment systems should rely on a mix of standards, processes, outcomes, and patient experience measures (76 FR 26491). As such, the Hospital VBP Program scoring methodology was developed to be used with several measures across multiple domains and aims to score hospitals on their overall achievement relative to national benchmarks. Unlike other hospital value-based purchasing programs that are intentionally designed to focus on specific aspects of quality, such as the HAC Reduction Program and the Hospital Readmissions Reduction Program, the Hospital VBP Program is uniquely designed to address a comprehensive set of quality and efficient metrics that evaluate multiple facets of quality. However, as discussed in the measure suppression proposals in section V.I.1.b. of the preamble of this proposed rule, the data from several measures has been significantly impacted by the COVID-19 PHE. Awarding negative or positive incentive payment adjustment percentages using TPSs calculated using the current scoring methodology would not provide a representative score of a hospitals' overall performance in providing quality of care during a pandemic. We believe that the current scoring methodology remains a balanced and comprehensive approach for tying payment to hospitals for their performance on a set of diverse measures that depict quality of care provided. However, we understand that the COVID-19 PHE has led to sudden and unexpected changes to healthcare systems. Our measure suppression policy was designed as a non-permanent approach to provide flexibility for changing conditions outside of participating hospitals' control and to avoid penalizing hospitals on measure scores that we believe are distorted by the COVID-19 PHE and are thus not truly reflective of quality of care. As we enter the third year of the pandemic, we believe that the updated knowledge of the virus and access to various treatment and mitigation efforts in place have provided hospitals with various tools to adapt to this virus. Therefore, as we discuss further in section V.I.2. of the preamble of this proposed rule, our goal is to continue resuming the use of measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year.

In order to ensure that hospitals are aware of changes in their performance rates that we have observed, we are proposing to provide FY 2023 confidential feedback reports that contain the measure rates we have calculated for the FY 2023 program year, along with achievement and improvement scores for all the measures in the Cost and Efficiency Reduction domain and the Clinical Outcomes domain that have not been finalized for suppression and a Cost and Efficiency Reduction domain and a Clinical Outcomes domain score. However, as previously discussed, we would not calculate TPSs for the purpose of adjusting hospital payments under the FY 2023 Hospital VBP Program. We note that the proposed special scoring methodology for FY 2023 generally aligns with the special scoring methodology finalized in for FY 2022 in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45295 through 45296).

We invite public comment on these proposals.

We also understand that, if finalized, the FY 2023 special scoring and payment policy proposal for the Hospital VBP Program has implications for the MIPS program. Under the facility-based measurement option within MIPS described at 42 CFR 414.1380(e), clinicians eligible for facility-based measurement may have their MIPS quality and cost performance category scores based on the Total Performance Score of the applicable hospital from the Hospital VBP Program as determined under 42 CFR 414.1380(e)(5). As described at 42 CFR 414.1380(e)(1)(ii) and in the CY 2019 PFS final rule, the scoring methodology applicable for MIPS eligible clinicians scored with facility-based measurement is the Total Performance Score methodology adopted for the Hospital VBP Program, for the fiscal year for which payment begins during the applicable MIPS performance period. Thus, for the CY 2022 MIPS performance period/CY 2024 MIPS payment year, the Total Performance Score under the Hospital VBP Program for the FY 2023 program year would be applied. If a hospital does not have a Total Performance Score under the Hospital VBP Program for FY 2023, facility-based measurement would not be available for the MIPS eligible clinicians to whom that hospital's Total Performance Score would be applicable. If our proposed special scoring policy for the Hospital VBP Program for FY 2023 is finalized, hospitals would not have a FY 2023 Total Performance Score, and the clinicians who would normally be assessed through facility-based measurement would need to identify another method of participating in MIPS for the CY 2022 MIPS performance period/CY 2024 MIPS payment year or submit an application for reweighting a performance category or categories, if applicable.

2. FY 2023 Program Year Payment Details If Proposed Special Scoring and Payment Adjustment Policies Are Not Finalized

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. We note that in section V.I.1.b. of the preamble of this proposed rule, we are proposing to suppress several measures in the Hospital VBP Program for the FY 2023 program year, and in section V.I.1.c. of the preamble of this proposed rule, we are proposing to apply special scoring and payment adjustment policies for the FY 2023 program year. If these policies are finalized, each hospital would receive the payment reduction for the Hospital VBP Program as required by statute, but every hospital would receive a value-based incentive payment amount that matches the payment reduction amount. However, if the policies in section V.I.1. of the preamble of this proposed rule are not finalized, the FY 2023 program year payment details would be as described in this section. Under section 1886(o)(7)(C)(v) of the Act, the applicable percent for the FY 2023 program year is two 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 2023 is approximately $1.7 billion, based on the December 2021 update of the FY 2021 MedPAR file. We would update this estimate for the FY 2023 IPPS/LTCH PPS final rule using the March 2022 update of the FY 2021 MedPAR file.

As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573 through 53576), we would 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 would then calculate a value-based incentive payment adjustment factor to apply to the base operating DRG payment amount for each discharge occurring in FY 2023, on a per-claim basis. Applying the current scoring methodology without any modifications reflecting the proposals in this proposed rule, we are publishing proxy value-based incentive payment adjustment factors in Table 16 associated with this proposed rule (which is available via the internet on the CMS website). The TPSs from the FY 2021 program year are the basis for the proxy factors. These FY 2021 performance scores are the most recently available performance scores because FY 2022 TPSs were not calculated due to the measure suppressions and special scoring policy finalized for the FY 2022 program year. We note that the FY 2021 TPSs were calculated using measure data from before the COVID-19 PHE was declared. Actual TPSs for the FY 2023 program year may be more variable than the FY 2021 TPSs due to the impacts of the COVID-19 PHE on FY 2023 data. We refer readers to section V.I.1.b. of the preamble of this proposed rule for additional information on the impacts of the COVID-19 PHE on the Hospital VBP Program. The slope of the linear exchange function used to calculate the proxy value-based incentive payment adjustment factors in Table 16 is 2.6279472273. This slope, along with the estimated amount available for value-based incentive payments, is also published in Table 16.

If our proposals to suppress measures and award each hospital a value-based payment amount that matches the reduction to the base operating DRG payment amount are finalized, we would not update Table 16 as Table 16A in the final rule. However, if those proposals are not finalized, we would update this table as Table 16A in the final rule (which will be available on the CMS website) to reflect changes based on the March 2022 update to the FY 2021 MedPAR file. We would also update the slope of the linear exchange function used to calculate those updated proxy value-based incentive payment adjustment factors. The updated proxy value-based incentive payment adjustment factors for FY 2023 in the FY 2023 IPPS/LTCH PPS final rule would continue to be based on historic FY 2021 program year TPSs because hospitals will not have been given the opportunity to review and correct their actual TPSs for the FY 2023 program year before the FY 2023 IPPS/LTCH PPS final rule is published. After hospitals have been given an opportunity to review and correct their actual TPSs for FY 2023, we would post Table 16B (which would be available via the internet on the CMS website) to display the actual value-based incentive payment adjustment factors, exchange function slope, and estimated amount available for the FY 2023 program year.

If our proposals to suppress measures and award each hospital a value-based payment amount that matches the reduction to the base operating DRG payment amount are finalized, we would also not post Table 16B (which we typically do to display the actual value-based incentive payment adjustment factors, exchange function slope, and estimated amount available for the applicable program year, after hospitals have been given an opportunity to review and correct their actual TPSs).

We continue to be concerned about the impact of the COVID-19 PHE, but are encouraged by the rollout of COVID-19 vaccinations and treatment for those diagnosed with COVID-19 and we believe that hospitals are better prepared to treat patients with COVID-19. Our measure suppression policy focuses on a short-term, equitable approach during this unprecedented PHE, and was not intended for indefinite application. Additionally, we want to emphasize the long-term importance of value-based care and incentivizing quality care tied to payment. The Hospital VBP Program is an example of our long-standing effort to link payments to healthcare quality in the inpatient hospital setting.

We understand that the COVID-19 PHE is ongoing and unpredictable in nature, however, we believe that 2022 has a more promising outlook in the fight against COVID-19. As we enter the third year of the pandemic, healthcare providers have gained experience managing the disease, surges of COVID-19 infection, and adjusting to supply chain fluctuations. In 2022 and the upcoming years, we anticipate continued availability and increased uptake in the use of vaccinations, including the availability and use of vaccination for young children ages 5-11, who were not eligible for vaccination for the majority of 2021 and for whom only 32 percent had received at least one dose as of February 23, 2022 Additionally, the Food and Drug Administration (FDA) has expanded availability of at-home COVID-19 treatment, having issued the first emergency use authorizations (EUAs) for two oral antiviral drugs for the treatment of COVID-19 in December 2021. Finally, the Biden-Harris Administration has mobilized efforts to distribute home test kits, N-95 masks, and increase COVID-19 testing in schools, providing more treatment and testing to the American people. Therefore, we note that our goal is to continue resuming the use of measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year. That is, for FY 2024, for each hospital, we would plan to calculate measure scores for the measures in the Hospital VBP Program for which the hospital reports the minimum measure requirements, as well as domain scores for the Hospital VBP Program domains for which the hospital reports the minimum number of measures. We would then calculate a TPS for each eligible hospital and use the established methodology for converting the TPSs to value-based incentive payments for the given fiscal year.

3. 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, the statute does not require that the measure continue to remain in the Hospital IQR Program. We are not proposing any changes to these policies in this proposed rule.

b. Measure Removal Factors for the Hospital VBP Program

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41441 through 41446), we finalized measure removal factors for the Hospital VBP Program, and we refer readers to that final rule for details. We are not proposing any changes to these policies in this proposed rule.

c. Technical Measure Specification Updates To Include Covariate Adjustment for COVID-19 Beginning With the FY 2023 Program Year

In the FY 2022 IPPS/LTCH PPS final rule, we stated that we were updating the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization (MORT-30-AMI), Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery (MORT-30-CABG), Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (MORT-30 COPD), Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure (HF) Hospitalization (MORT-30-HF), and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (COMP-HIP-KNEE) measures to exclude admissions with either a principal or secondary diagnosis of COVID-19 present on admission from the measure denominators beginning in FY 2023 (86 FR 45256 through 45258). We stated that we were making these updates pursuant to the technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS final rule. Under this policy, we use a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital VBP Program (79 FR 50077 through 50079). As we stated in the FY 2022 IPPS/LTCH PPS final rule, we continue to believe that this subregulatory process is the most expeditious manner possible to ensure that quality measures remain fully up to date while preserving the public's ability to comment on updates that so fundamentally change a measure that it is no longer the same measure that we originally adopted (84 FR 42385).

As we continue to evaluate the effects of COVID-19 on the Hospital VBP Program measure set, we have observed that for some patients COVID-19 continues to have lasting effects, including fatigue, cough, palpitations, and others potentially related to organ damage, post viral syndrome, post-critical care syndrome or other reasons. These clinical conditions could affect a patient's risk of mortality or complications following an index admission and, as a result, impact a hospital's performance on one or more of the four condition-specific mortality measures or the procedure-specific complication measure included in the Hospital VBP Program. In order to account for case mix among hospitals, the current risk adjustment approach for these measures include covariates for clinical comorbidities present on admission (POA) and in the 12 months prior to the index admission that are relevant and have relationships with the outcome, for example patient history of coronary artery bypass (CABG) surgery or history of mechanical ventilation. In accordance with the principles used during measure development and to adequately account for patient case mix, we are further modifying the technical measure specifications for the MORT-30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, and COMP-HIP-KNEE measures to include a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission.

This inclusion of the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission will be effective beginning with the FY 2023 program year for the MORT-30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, and COMP-HIP-KNEE measures. We will also include the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission for the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization (MORT-30-PN) measure. We note that, even though we previously finalized that we would suppress the MORT-30-PN measure for the FY 2023 program year, we would still publicly report the measure, and therefore, the inclusion of the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission will still be effective beginning with the FY 2023 program year. We will delay sending MORT-30-PN confidential hospital feedback reports until October 2022 and delay public reporting until January 2023 to allow time for hospitals to become informed about this measure update and their hospital-level results. We will resume including hospital performance on the MORT-30-PN measure in the payment adjustment calculations, using the updated MORT-30-PN measure, beginning in FY 2024. We believe that making these updates to the MORT-30-PN measure for FY 2023 in hospitals' confidential feedback reports will allow hospitals the opportunity to preview these updates to the measure specifications in FY 2023 before they are used as part of payment adjustments for the FY 2024 program year.

For more information on the application of covariate adjustments, including the technical updates we are announcing in this proposed rule, please see the Measure Updates and Specifications Reports (available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology ).

d. Technical Updates to the Specifications for the MORT-30-PN Measure Beginning With the FY 2024 Program Year

In the FY 2022 IPPS/LTCH PPS final rule, pursuant to the measure suppression policy finalized in that rule and described in section V.I.1. of the preamble this proposed rule, we finalized suppression of the MORT-30-PN measure (NQF #0468) for the FY 2023 program year (86 FR 45274 through 45276), and we refer readers to that final rule for additional information.

Since the publication of the FY 2022 IPPS/LTCH PPS final rule, we have continued to monitor the MORT-30-PN measure and have found that several factors, such as improved coding practices and decreased proportion of COVID-19 admissions for the MORT-30-PN cohort, have mitigated some of the impact of COVID-19 on this measure within certain data periods. Beginning in FY 2024 the MORT-30-PN measure will no longer be suppressed under the Hospital VBP Program. We are resuming the use of the MORT-30-PN measure for FY 2024 because of the following differences between the FY 2023 and FY 2024 performance periods: (1) The improved coding practices; (2) decreased proportion of COVID-19 admissions in the MORT-30-PN measure for this performance period; and (3) sufficient available data to make technical updates to the measure specifications in order to further account for how patients with a COVID-19 diagnosis might impact the quality of care assessed by this measure. Specifically, effective January 2021 the ICD10 code J12.82, Pneumonia due to coronavirus disease 2019, was added for use as a secondary diagnosis, along with a principal diagnosis of COVID-19 (U07.1), to identify patients with COVID-19 pneumonia. J12.82 is not included within the cohort of the MORT-30-PN measure, therefore mortality rates with pneumonia due to COVID-19 are not captured by this measure as of January 1, 2021. Whenever new codes are introduced, changes in coding practices are difficult to predict. At the time of the FY 2022 IPPS/LTCH PPS final rule, we did not have sufficient data to determine the effects of these coding changes on the proportion of COVID-19 patients and mortality rates with pneumonia due to COVID-19 in the MORT-30-PN measure. As additional months of data have become available since early 2021, we have now seen increased use of these codes. Secondly, as these coding changes have occurred and as the COVID-19 PHE has evolved, more recent data show the proportion of COVID-19 admissions in the MORT-30-PN measure have decreased compared to 2020 data. Finally, with the availability of additional data and the decrease in the proportion COVID-19 admissions in the MORT-30-PN measure, we are now able to make technical updates to the measure specifications in alignment with the technical updates we are making to four other mortality measures and one complication measure. Specifically, we are updating the technical specifications for the MORT-30-PN measure to exclude patients with either principal or secondary diagnoses of COVID-19 from the measure denominator beginning with the FY 2024 program year.

We are also updating the technical specifications for the MORT-30-PN measure to add a covariate that adjusts the measure outcome for a history of COVID-19 diagnosis in the 12 months prior to the admission (as discussed in section V.I.3.c. of the preamble of this proposed rule) and ensures alignment with the other four mortality and one complication measures. In our analysis, hospital-level MORT-30-PN measure scores calculated with the cohort and denominator exclusions and the addition of the covariate for a history of COVID-19 diagnosis in the 12 months prior (using data from July 1, 2018 through June 30, 2021, excluding admissions from December 2, 2019 through June 30, 2020 to apply the nationwide ECE granted due to the COVID-19 PHE (85 FR 54833 through 54835)), resulted in mean measure scores that were closer to the prior pre-COVID-19 period (July 1, 2017 through December 2, 2019) compared with the unchanged measure. We believe that excluding COVID-19 patients from the measure denominator, in addition to adjusting for a prior infection with COVID-19, will mitigate the impact of COVID-19 on this measure as much as is currently feasibly possible given the unpredictable nature of the pandemic, and ensure that this measure continues to reflect mortality rates as intended and meet the goals of the Hospital VBP Program beginning in FY 2024. We note that the MORT-30-PN measure uses three years of data. The performance period for the FY 2023 program year includes admissions from July 1, 2018 through June 30, 2021, exclusive of January 1, 2020 through June 30, 2020 data excluded due to the ECE waiver. Therefore, we continue to believe it is appropriate to suppress the currently implemented measure for use in payment calculations as finalized in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45274 through 45276). The MORT-30-PN measure is also included in confidential feedback reports and public reporting on CMS' Care Compare website separate from the Hospital VBP Program use of the measure. Technical specifications of the Hospital VBP Program measures are provided on our website under the Measure Methodology Reports section (available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). Additional resources about the measure technical specifications and methodology for the Hospital VBP Program are on the QualityNet website (available at https://qualitynet.cms.gov/inpatient/hvbp ).

e. Summary of Previously Adopted Measures for FY 2023 Through FY 2026 Program Years

We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45281 through 45284) for summaries of previously adopted measures for the FY 2024 and FY 2025 program years, and to Table V.I.-03 in this section showing summaries of previously adopted measures for the FY 2024, FY 2025, and FY 2026 program years. We are proposing to suppress the HCAHPS and HAI measures for the FY 2023 program year. We are not proposing to add new measures at this time. If these measure suppression proposals are finalized as proposed, the Hospital VBP Program measure set for the FY 2023, FY 2024, FY 2025 and FY 2026 program years would contain the following measures:

4. Previously Adopted Baseline and Performance Periods

a. Background

Section 1886(o)(4) of the Act requires the Secretary to establish a performance period for the Hospital VBP Program that begins and ends prior to the beginning of such fiscal year. We refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998 through 57003) for a previously finalized schedule for all future baseline and performance periods for previously adopted measures. We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38256 through 38261), the FY 2019 IPPS/LTCH PPS final rule (83 FR 41466 through 41469), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42393 through 42395), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58850 through 58854), and FY 2022 IPPS/LTCH PPS final rule (86 FR 45284 through 45290) for additional previously adopted baseline and performance periods for the FY 2024 and subsequent program years.

b. Proposal To Update Baseline Periods for Certain Measures Due to the COVID-19 PHE

(1) Background

We previously finalized baseline periods for the FY 2024, 2025, 2026, 2027, and 2028 program years for all the measures included in the Hospital VBP Program, and we refer readers to Tables V.I.-04 through V.I.-08 for those previously adopted baseline periods. However, subsequent to finalizing those baseline periods and, as described further in section V.I.1.b. of the preamble of this proposed rule, we are proposing to suppress the HCAHPS and five HAI measures for the purposes of scoring and payment for FY 2023. Because these baseline periods are used to determine achievement thresholds and are used in awarding improvement scores to hospitals, we are concerned with using COVID-19 impacted data for the FY 2025 baseline periods for scoring and payment purposes.

Accordingly, to ensure that we have reliable data that are not unfairly affected by the COVID-19 PHE for baselining purposes, we are proposing several updates to the baseline periods in this proposed rule for the FY 2025 program year.

We note that we are proposing to update the baseline periods for certain measures under the Hospital VBP Program that have a 1-year baseline period. However, for measures that have baseline periods that span across multiple years, we believe the previously established baseline periods provide enough data from before and after CY 2021 to still calculate baseline scores that would be reliable for scoring and payment purposes. Specifically, for the measures in the Clinical Outcomes domain (MORT-30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, MORT-30-PN, and COMP-HIP-KNEE), which have 36-month baseline periods, we are not proposing any changes to the previously established baseline periods for FY 2025.

(2) Proposal To Update the FY 2025 Baseline Period for the Person and Community Engagement Domain Measure (HCAHPS Survey)

In the FY 2017 IPPS/LTCH PPS final rule, we finalized that the baseline period for Person and Community Engagement Domain Measure (HCAHPS Survey) for the FY 2025 program year would be January 1, 2021 through December 31, 2021 (81 FR 56998). However, as more fully described in section V.I.1.b. of the preamble of this proposed rule, we have determined that the top-box scores for hospitals are significantly lower in Q1 and Q2 of CY 2021 than they were in Q1 and Q2 of CY 2019 (pre-pandemic), demonstrating the impact of COVID-19 on hospital performance for this measure. Therefore, in order to best mitigate the impact of using measure data affected by the COVID-19 PHE when determining achievement thresholds or awarding improvement points, we are proposing to use a baseline period of January 1, 2019 through December 31, 2019 for the FY 2025 program year. This baseline period would be paired with a performance period of January 1, 2023 through December 31, 2023. We believe using data from this period will provide sufficiently reliable data for evaluating hospital performance that can be used for FY 2025 scoring. We are selecting this revised data period because it would provide the most consistency for hospitals in terms of the comparable length to previous program years and the performance period, and it would capture a full year of data, including any seasonal effects.

(3) Proposal To Update the FY 2025 Baseline Period for the Safety Domain Measures

In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57000), we finalized the performance period for all measures in the Safety domain to run on the calendar year two years prior to the applicable program year and a baseline period that runs on the calendar year four years prior to the applicable program year for the FY 2019 program year and subsequent program years. For FY 2025, the baseline period for the Safety domain measures would be January 1, 2021 through December 31, 2021. However, as more fully described in section V.I.1.b. of the preamble of this proposed rule, we have determined that the national measure rates for the HAI measures have significantly deviated in national performance in CY 2021, indicating that the COVID-19 PHE has impacted performance on this measure. Therefore, in order to mitigate the impact of using measure data affected by the COVID-19 PHE when determining achievement thresholds or awarding improvement points, we are proposing to use a baseline period of January 1, 2019 through December 31, 2019 for the FY 2025 program year. This baseline period would be paired with a performance period of January 1, 2023 through December 31, 2023. We believe using data from this period will provide sufficiently reliable data for evaluating hospital performance that can be used for FY 2025 scoring. We are selecting this revised data period because it would provide the most consistency for hospitals in terms of the comparable length to previous program years and the performance period, and it would capture a full year of data, including any seasonal effects.

c. Summary of Previously Adopted and Newly Proposed Baseline and Performance Periods for the FY 2024 Through FY 2028 Program Years

Tables V.I.-04 through 08 summarize the baseline and performance periods that we have previously adopted and those that we are proposing to adopt.

5. Performance Standards for the Hospital VBP Program

a. Background

We refer readers to sections 1886(o)(3)(A) through 1886(o)(3)(D) of the Act for the statutory provisions governing performance standards under the Hospital VBP Program. We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513) for further discussion of achievement and improvement standards under the Hospital VBP Program. We refer readers to the FY 2013 IPPS/LTCH PPS final rule, FY 2014 IPPS/LTCH PPS final rule, and FY 2015 IPPS/LTCH PPS final rule (77 FR 53599 through 53605; 78 FR 50694 through 50699; and 79 FR 50077 through 50081, respectively) for a more detailed discussion of the general scoring methodology used in the Hospital VBP Program. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45290 through 45292) for previously established performance standards for the FY 2024 program year. We note that the measure suppression proposals for the FY 2023 program year, discussed more fully in section V.I.1.b. of this proposed rule, will not affect the performance standards for the FY 2023 program year. However, as discussed in section V.I.1.c. of this proposed rule, we are proposing to not generate achievement or improvement points for any suppressed measures for FY 2023.

We refer readers to the FY 2021 IPPS/LTCH PPS final rule for further discussion on performance standards for which the measures are calculated with lower values representing better performance (85 FR 58855).

b. Previously Established and Estimated Performance Standards for the FY 2025 Program Year

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42398 through 42399), we established performance standards for the FY 2025 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30- CABG, and COMP-HIP-KNEE) and for the Efficiency and Cost Reduction domain measure (MSPB). We note that the performance standards for the MSPB measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. As discussed in section V.I.4.b. of this proposed rule, we are proposing to update the FY 2025 program year baseline periods for the measures included in the Safety domain and Person and Community Engagement domain. If these proposals are finalized, we would use data from January 1, 2019 through December 31, 2019 to calculate performance standards for the FY 2025 program year for these measures.

In accordance with our methodology for calculating performance standards discussed more fully in the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513) and codified at 42 CFR 412.160, we are estimating additional performance standards for the FY 2024 program year. We note that the numerical values for the performance standards for the Safety domain and Person and Community Engagement domain for the FY 2025 program year in Tables V.I.-09 and V.I.-10 were calculated using data from January 1, 2019 through December 31, 2019. Therefore, if our proposed updates to the baseline periods for these measures are finalized, we will not update the numerical values in the FY 2023 IPPS/LTCH PPS final rule.

The previously established and estimated performance standards for the measures in the FY 2025 program year are set out in Tables V.I.-09 and V.I.-10.

The HCAHPS Base Score is calculated using the eight dimensions of the HCAHPS measure. For each of the eight dimensions, Achievement Points (0-10 points) and Improvement Points (0-9 points) are calculated, the larger of which is then summed across the eight dimensions to create the HCAHPS Base Score (0-80 points). Each of the eight dimensions is of equal weight; therefore, the HCAHPS Base Score ranges from 0 to 80 points. HCAHPS Consistency Points are then calculated, which range from 0 to 20 points. The Consistency Points take into consideration the scores of all eight Person and Community Engagement dimensions. The final element of the scoring formula is the summation of the HCAHPS Base Score and the HCAHPS Consistency Points, which results in the Person and Community Engagement domain score that ranges from 0 to 100 points. As discussed in section V.I.4.b.(2). of this proposed rule, we are proposing to update the FY 2025 program year baseline period for the measure included in the Person and Community Engagement domain. If finalized, according to our established methodology for calculating performance standards, we will use data from January 1, 2019 through December 31, 2019 to calculate performance standards for the FY 2025 program year for this measure.

c. Previously Established Performance Standards for Certain Measures for the FY 2026 Program Year

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and Efficiency and Cost Reduction domain for future program years in order to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58858 through 58859), we established performance standards for the FY 2026 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB). We note that the performance standards for the MSPB measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The previously established performance standards for these measures are set out in the Table V.I.-11.

d. Previously Established Performance Standards for Certain Measures for the FY 2027 Program Year

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years in order to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45294 through 45295), we established performance standards for the FY 2027 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB). We note that the performance standards for the MSPB measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The previously established performance standards for these measures are set out in Table V.I.-12.

e. Newly Established Performance Standards for Certain Measures for the FY 2028 Program Year

As discussed previously, we have adopted certain measures for the Clinical Outcomes domain (MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain (MSPB) for future program years in order to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In accordance with our methodology for calculating performance standards discussed more fully in the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513), which is codified at 42 CFR 412.160, we are establishing the following performance standards for the FY 2028 program year for the Clinical Outcomes domain and the Efficiency and Cost Reduction domain. We note that the performance standards for the MSPB measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these measures are set out in Table V.I.-13.

6. Data Requirements

a. Domain Weighting for Hospitals That Receive a Score on All Domains

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38266), we finalized our proposal to retain the equal weight of 25 percent for each of the four domains in the Hospital VBP Program for the FY 2020 program year and subsequent years for hospitals that receive a score in all domains. We are not proposing any changes to these domain weights in this proposed rule.

b. Domain Weighting for Hospitals Receiving Scores on Fewer Than Four Domains

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50084 through 50085), we adopted a policy that hospitals must receive domain scores on at least three of four quality domains in order to receive a TPS, for the FY 2017 program year and subsequent years. Hospitals with sufficient data on only three domains will have their TPSs proportionately reweighted (79 FR 50084 through 50085). We are not proposing any changes to these domain weights in this proposed rule.

c. Minimum Numbers of Measures for Hospital VBP Program Domains

We refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38266) for our previously finalized requirements for the minimum numbers of measures for hospitals to receive domain scores. We are not proposing any changes to these policies in this proposed rule.

d. Minimum Numbers of Cases for Hospital VBP Program Measures

(1) Background

Section 1886(o)(1)(C)(ii)(IV) of the Act requires the Secretary to exclude for the fiscal year hospitals that do not report a minimum number (as determined by the Secretary) of cases for the measures that apply to the hospital for the performance period for the fiscal year. For additional discussion of the previously finalized minimum numbers of cases for measures under the Hospital VBP Program, we refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26527 through 26531); the CY 2012 OPPS/ASC final rule (76 FR 74532 through 74534); the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 53610); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50085 through 50086); the FY 2016 IPPS/LTCH PPS final rule (80 FR 49570); and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38266 through 38267) . We are not proposing any changes to these policies in this proposed rule.

(2) Summary of Previously Adopted Minimum Numbers of Cases

The previously adopted minimum numbers of cases for these measures are set forth in Table V.I.-14.

e. Summary of Previously Adopted Administrative Policies for NHSN Healthcare-Associated Infection (HAI) Measure Data

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42400 through 42402), we finalized our proposal to use the same data to calculate the CDC NHSN HAI measures for the Hospital VBP Program that the HAC Reduction Program uses for purposes of calculating the measures under that program, beginning on January 1, 2020 for CY 2020 data collection, which would apply to the Hospital VBP Program starting with data for the FY 2022 program year performance period. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42402), we also finalized our proposal for the Hospital VBP Program to use the same processes adopted by the HAC Reduction Program for hospitals to review and correct data for the CDC NHSN HAI measures and to rely on HAC Reduction Program validation to ensure the accuracy of CDC NHSN HAI measure data used in the Hospital VBP Program. We are not proposing any changes to these policies in this proposed rule.

7. Extraordinary Circumstance Exception (ECE) Policy for the Hospital VBP Program

We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45298 through 45299) for additional details related to the Hospital VBP Program ECE policy. We are not proposing any changes to the Hospital VBP Program ECE policy in this proposed rule.

8. References to Requests for Information

a. NHSN Digital Quality Measures

We also refer readers to section IX.E.9.a. of this proposed rule, where we are requesting information on the potential future adoption of the National Healthcare Safety Network (NHSN) Healthcare-Associated Clostridioides difficile Infection Outcome Measure and the National Healthcare Safety Network (NHSN) Hospital-Onset Bacteremia & Fungemia Outcome Measure into the Hospital IQR Program. In addition, we are requesting information on the potential future inclusion of these digital CDC NHSN measures in the Hospital VBP Program. This request for information supports our goal of moving fully to digital quality measurement in CMS quality reporting and value-based purchasing programs, including the Hospital VBP Program.

b. Reference to the Request for Information: Overarching Principles for Measuring Healthcare Quality Disparities Across CMS Quality Programs

We refer readers to section IX.B. of this proposed rule where we are seeking input on overarching principles in measuring healthcare quality disparities in hospital quality and value-based purchasing programs.

J. Hospital-Acquired Condition (HAC) Reduction Program: Proposed Updates and Changes (42 CFR 412.170)

1. Regulatory Background

We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50708) for a general overview of the HAC Reduction Program and to the same final rule (78 FR 50708 through 50709) for a detailed discussion of the statutory basis for the Program. For additional descriptions of our previously finalized policies for the HAC Reduction Program, we also refer readers to the following final rules:

• The FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50729);
• The FY 2015 IPPS/LTCH PPS final rule (79 FR 50087 through 50104);
• The FY 2016 IPPS/LTCH PPS final rule (80 FR 49570 through 49581);
• The FY 2017 IPPS/LTCH PPS final rule (81 FR 57011 through 57026);
• The FY 2018 IPPS/LTCH PPS final rule (82 FR 38269 through 38278);
• The FY 2019 IPPS/LTCH PPS final rule (83 FR 41472 through 41492);
• The FY 2020 IPPS/LTCH PPS final rule (84 FR 42402 through 42411);
• The FY 2021 IPPS/LTCH PPS final rule (85 FR 58860 through 58865); and
• The FY 2022 IPPS/LTCH PPS final rule (86 FR 45300 through 45310).

We have also codified certain requirements of the HAC Reduction Program at 42 CFR 412.170 through 412.172.

2. Flexibility for Changes That Affect Quality Measures During a Performance or Measurement Period in the HAC Reduction Program

a. Measure Suppression Policy for the Duration of the COVID-19 PHE

In the FY 2022 IPPS/LTCH PPS final rule, we adopted a policy for the duration of the COVID-19 PHE enabling us to suppress a number of measures from the Total HAC Score calculations for the HAC Reduction Program if we determine that circumstances caused by the COVID-19 PHE have affected these measures and the resulting Total HAC Scores significantly (86 FR 45301 through 45304). We refer readers to the FY 2022 IPPS/LTCH PPS final rule for further details on our measure suppression policy (86 FR 45301 through 45304).

In the FY 2022 IPPS/LTCH PPS final rule, we also adopted Measure Suppression Factors to guide our determination of whether to propose to suppress HAC Reduction Program measures for one or more program years that overlap with the PHE for COVID-19 (86 FR 45302). We adopted these Measure Suppression Factors for use in the HAC Reduction Program, and, for consistency, in the following other value-based purchasing programs: Hospital Value-Based Purchasing, Hospital Readmissions Reduction Program, Skilled Nursing Facility Value-Based Purchasing Program, and End-Stage Renal Disease Quality Incentive Program. We continue to believe that these Measure Suppression Factors will help us evaluate the HAC Reduction Program's measures, and that their adoption in the other value-based purchasing programs will help ensure consistency in our measure evaluations across programs. The previously adopted Measure Suppression Factors are as follows:

• Significant deviation in national performance on the measure during the COVID-19 PHE, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years.
• Clinical proximity of the measure's focus to the relevant disease, pathogen, or health impacts of the COVID-19 PHE.
• Rapid or unprecedented changes in—

++ Clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials; or

++ The generally accepted scientific understanding of the nature or biological pathway of the disease or pathogen, particularly for a novel disease or pathogen of unknown origin.

• Significant national shortages or rapid or unprecedented changes in—

++ Healthcare personnel;

++ Medical supplies, equipment, or diagnostic tools or materials; or

++ Patient case volumes or facility-level case mix.

We stated that we view this measure suppression policy as necessary to ensure that the HAC Reduction Program does not reward or penalize facilities based on factors that the Program's measures were not designed to accommodate (86 FR 45302).

We are proposing changes to this measure suppression policy in section V.J.2.b.(2). below.

b. Proposals To Apply the Measure Suppression Policy to FY 2023 and FY 2024 HAC Reduction Program Years

(1) Background

Through memoranda released in March 2020 and an interim final rule with comment (IFC) published in September 2020 (85 FR 54827 through 54828), in response to the COVID-19 PHE, we excluded, by application of our Extraordinary Circumstances Exception (ECE) policy, all data submitted regarding care provided during the first and second quarters of CY 2020 from our performance calculations for FY 2022 and FY 2023. We excluded such data because of our concerns about the national comparability of these data due to the geographic differences of COVID-19 incidence rates and hospitalizations, along with different impacts resulting from different State and local laws and policy changes implemented in response to COVID-19.

Additionally, in the FY 2022 IPPS/LTCH PPS final rule, we finalized our policy suppressing the third and fourth quarters of CY 2020 CDC NHSN HAI and CMS PSI 90 data from our performance calculations for FY 2022, FY 2023, and FY 2024 under the proposed Measure Suppression Factor 1, “significant deviation in national performance on the measure, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years”; and the Measure Suppression Factor 4 subfactor, “significant national or regional shortages or rapid or unprecedented changes in patient case volumes or case mix” (86 FR 45304 through 45307). We explained that although Q3 and Q4 2020 data would be suppressed from the Total HAC Score calculation, hospitals would still be required to submit such data and such data would be used for public reporting purposes.

These policies resulted in the following applicable periods for calculating Total HAC Scores for FY 2022, FY 2023, and FY 2024 HAC Reduction Programs:

In sections V.J.2.b.(2). and (3), of this proposed rule, we are proposing to further modify some of these applicable periods.

(2) Proposed Updates to the FY 2023 HAC Reduction Program

In this proposed rule, we are proposing two updates for the FY 2023 HAC Reduction Program's measure suppression policy: (1) We are proposing to suppress the CMS PSI 90 measure and the five CDC NHSN HAI measures from the calculation of measure scores and the Total HAC Score, thereby not penalizing any hospital under the HAC Reduction Program FY 2023 program year; and (2) For the CMS PSI 90 measure, we are proposing to not calculate or report measure results for the HAC Reduction Program FY 2023 program year.

COVID-19 has had significant negative health effects—on individuals, communities, and the nation as a whole. Consequences for individuals who have COVID-19 include morbidity, hospitalization, mortality, and post-COVID conditions (also known as long COVID). As of mid-December 2021, over 50 million COVID-19 cases, 3 million new COVID-19 related hospitalizations, and over 800,000 COVID-19 deaths have been reported in the U.S. One analysis projected that COVID-19 would reduce life expectancy in 2020 by 1.13 years overall, with the estimated impact disproportionately affecting members of historically underserved and under-resourced communities. According to this analysis, the estimated life expectancy reduction for Black and Latino populations is 3 to 4 times the estimate when comparing to the white population. Indeed, COVID-19 has overtaken the 1918 influenza pandemic as the deadliest disease event in American history. Impacts of the pandemic have continued to accelerate in 2021. The Delta variant of COVID-19 (B.1.617.2), which was first identified in India, surfaced in the United States in early-to-mid 2021. It was found that the Delta variant is 60 percent more transmissible compared to the previously dominant Alpha variant. Further, in November 2021, the number of COVID-19 deaths for 2021 surpassed the total deaths for 2020. According to CDC data, the total number of deaths involving COVID-19 reached 385,453 in 2020 and 451,475 in 2021. We continue to monitor and evaluate the measures in the HAC Reduction Program for impacts due to COVID-19 and the emergence of COVID-19 variants, such as Delta and Omicron variants, and will elaborate further below.

As described in section V.J.2.b.(1). of this proposed rule, we previously excluded or suppressed all quarters of CY 2020 data from the calculation of the Total HAC Score, in part, because of concerns about the national comparability of these data and significant deviation in national performance on the measure compared to historical performance. We acknowledge that the time needed to adapt to the strains of the PHE and national performance deviated from previous performance during CY 2021 and therefore are proposing to suppress all HAC Reduction Program measures (CMS PSI 90, CAUTI, CLABSI, Colon and Hysterectomy SSI, MRSA, and CDI) from the calculation of the Total HAC Score for the FY 2023 HAC Reduction Program under Measure Suppression Factor 1 significant deviation in national performance on the measure, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years; Measure Suppression Factor 3, rapid or unprecedented changes in clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials; and the Measure Suppression Factor 4, significant national or regional shortages or rapid or unprecedented changes in patient case volumes or case mix.

We are concerned that the COVID19 PHE resulted in changes in HAC Reduction Program measure performance such that we will not be able to score hospitals fairly. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45304 through 45305) for previous analysis on the HAC Reduction Program measures that showed that measure rates for the CLABSI, CAUTI, and MRSA measures increased during the CY 2020 pandemic year as compared to the pre-COVID CY 2019 year immediately preceding the COVID-19 PHE.

We are proposing to suppress three of the five CDC NSHN HAI measures (CLABSI, CAUTI, and MRSA) under Measure Suppression Factor 1, significant deviation in national performance on the measures, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years. To determine whether the CLABSI, CAUTI, and MRSA measure rates would continue to show increases for CY 2021, the CDC analyzed changes in standardized infection ratios (SIRs) for Q1 and Q2 of CY 2021 as compared to the SIRs in Q1 and Q2 of CY 2019. This analysis found that the CLASBI, CAUTI, and MSRA measures had statistically significant measure rate increases during Q1 and Q2 of CY 2021 as compared to pre-pandemic levels in Q1 and Q2 of CY 2019. For Q1 2021, the national SIR increased by approximately 45 percent for the CLABSI measure, approximately 12 percent for the CAUTI measure, and approximately 39 percent for the MRSA measure as compared to Q1 2019. For Q2 2021, the national SIR increased by approximately 15 percent for the CLABSI measure and approximately 8 percent for the MRSA measure. The SIRs for the CAUTI measure showed no statistically significant difference for Q2 2021 as compared to Q2 2019.

For the CDI measure, the national SIR decreased by approximately 16 percent for Q1 2021 as compared to Q1 2019 and by approximately 14 percent for Q2 2021 as compared to Q2 2019. The SSI measure showed no significant increase or decrease in SIRs during Q1 2021 and Q2 2021 as compared to Q1 2019 and Q2 2019, however there has been an appreciable decrease in procedure volume for the measure. We are proposing to suppress the SSI and CDI measures under Measure Suppression Factor 4, significant national shortages or rapid or unprecedented changes in patient case volumes and Measure Suppression Factor 3, rapid or unprecedented changes in clinical guidelines, care delivery or practice, treatments, drugs, or related protocols, or equipment or diagnostic tools or materials, respectively. Specifically, for the SSI measure, we are proposing to suppress the measure for FY 2023 under Measure Suppression Factor 4, rapid or unprecedented changes in patient case volumes. We note that the SSI measure has had a low procedure volume for many hospitals during the PHE, which impacts our ability to produce SIRs for that measure. For CY 2019, 2,087 hospitals (61 percent) did not have sufficient procedure-level data needed to calculate an SSI SIR for abdominal hysterectomy, and 1,262 hospitals (37 percent) did not have sufficient data to calculate an SIR for colon surgery. However, nationally, procedure volumes declined even further during the COVID-19 PHE in 2020, compared to 2019, with decreases of up to 23 percent for colon procedures and 39 percent for abdominal hysterectomy procedures. As of July 2021, abdominal hysterectomy procedures were still 6 percent below predicted levels. These changes in patient volumes for the SSI measure limit our ability to calculate SSI SIRs for hospitals that don't have sufficient data in FY 2023, which may impact the accuracy and reliability of overall national comparison on performance for this measure.

For the CDI measure, we are proposing to suppress the measure under Measure Suppression Factor 3, rapid or unprecedented changes in clinical guidelines, care delivery or practice, related protocols, or equipment or diagnostic tools or materials. Pandemic-related improvements to typical CDI prevention practices such as hand hygiene, PPE practices, and environmental cleaning could have contributed to the declines seen in the CDI SIR in 2021 compared to 2019. In addition, a decline in outpatient antibiotic prescribing was observed starting in 2020 as healthcare utilization decreased during the COVID-19 pandemic. This, combined with the continued use of inpatient antibiotic stewardship programs in hospitals, may also have contributed to the decline in the national CDI SIRs, as reducing patient antibiotic exposure is a recommended strategy for CDI prevention. More information about CDI prevention strategies can be found at https://www.cdc.gov/cdiff/clinicians/cdi-prevention-strategies.html.

Additionally, because we cannot identify all potential elements that could be impacting the overall HAI experience at hospitals during an unprecedented PHE as well as potential geographic disparities in the impact of the PHE that could cause uneven impact on facilities based on their location, like shortages of healthcare personnel, we believe all five CDC NHSN HAI measures should be suppressed. Therefore, we believe it is appropriate to suppress all five HAI measures from the HAC Reduction Program for the FY 2023 program year, to ensure an accurate and reliable national comparison of performance on hospital safety.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45304 through 45305), we observed that the skewed measure performance may be due to circumstances unique to the effects of the pandemic such as staffing shortages and turnover, patients who are more susceptible to infections due to increased hospitalization stays, and longer indwelling catheters and central lines. We believe that the continued skewed measure performance is impacted by similar circumstances unique to the effects of the COVID-19 PHE. We further believe that our proposal to suppress the HAI measure data from CY 2021 is appropriate because the impact of the COVID-19 PHE on the measures cannot be addressed through risk-adjustment. Under current data collection requirements for the CDC NHSN HAI measures the data are collected at each hospital's ward level, meaning that the hospital submits infection data for a given ward rather than at the individual patient level. Accordingly, we are not able to identify the number of patients with HAIs who also had COVID-19 and therefore cannot risk-adjust for or otherwise account for COVID-19 diagnoses. Modifying CDC's risk adjustment methodology is a multi-year process that requires substantial time to review, analyze, and implement updated methodology for the calculation of the SIR. In order to address the impact of the ongoing COVID-19 PHE on HAI incidence, as reported to CDC NHSN, we believe suppression of the CY 2021 measure data is the best path forward for participating hospitals. Therefore, we are proposing to suppress all five HAI measures in the HAC Reduction Program for the FY 2023 program year.

In accordance with the previously adopted measure suppression policy (86 FR 45301 through 45304), we are proposing to suppress the CMS PSI 90 measure and the five CDC NHSN HAI measures for the HAC Reduction Program FY 2023 program year. We will continue to provide the measure results for the CDC NHSN HAI measures to hospitals via their hospital-specific reports (HSRs). We will also continue providing information regarding hospital performance to hospitals and other interested persons via the Care Compare tool hosted by Health and Human Services, currently available at https://www.medicare.gov/care-compare , and the Provider Data Catalog. As previously noted, under this policy, we would continue to use claims data for the CMS PSI 90 measure and participating hospitals would continue to report CDC NHSN HAI measure data to the CDC, so that we can monitor the effect of the circumstances on quality measurement and determine appropriate policies in the future.

Similarly, our analysis of the CMS PSI 90 measure suggested that comparability of performance on the measure has also been impacted by the PHE. Additionally, after the nationwide ECE (85 FR 54827 through 54828) and the FY 2022 IPPS/LTCH PPS final rule measure suppression policies (86 FR 45304 through 45307) the CMS PSI 90 reference period for the FY 2023 program year does not include data affected by the COVID-19 PHE. Conversely, the applicable period for the CMS PSI 90 measure does include data affected by COVID-19 PHE. Due to the fact that the reference period for this measure does not include data affected by the COVID-19 PHE and the applicable period does include such data, this would result in risk adjustment parameters that do not account for the impact of COVID-19 on affected patients. We believe that this misalignment would produce distorted measure results and potentially yield biased CMS PSI 90 measure results among hospitals highly impacted by the COVID-19 PHE. Therefore, for the FY 2023 program year we propose to not calculate measure results for CMS PSI 90, to not provide the measure results for the CMS PSI 90 measure to hospitals via their hospital-specific reports (HSRs), and to not publicly report those measure results on the Care Compare tool hosted by Health and Human Services and the Provider Data Catalog. We refer readers to section V.J.3.c.(1). and (2) of this proposed rule where we discuss the impact of the COVID-19 PHE on the CMS PSI 90 measure and a technical update to the measure specifications to risk-adjust for COVID-19 diagnoses.

For the remaining measures, specifically the CDC NHSN HAI measures, we would use the previously finalized applicable periods to calculate measure results (that is, SIRs for each of the CDC NHSN HAI measures) the FY 2023 program year. We would use those measure results in feedback reports to hospitals and as part of program activities, fulfilling our obligation under section 1886(p)(5) of the Act to provide confidential reports to applicable hospitals with information on their performance on measures with respect to hospital-acquired conditions. Consumers may continue to access information on hospital performance with regards to hospital-acquired conditions through several channels, including the Care Compare tool hosted by Health and Human Services, currently available at https://www.medicare.gov/care-compare , the Provider Data Catalog, available at https://data.cms.gov/provider-data/ .

Ultimately, if we finalize our proposals, all hospitals would receive a Total HAC Score of zero, and no hospitals would receive a penalty for FY 2023. We would confidentially and publicly report the measure scores of “N/A”, Total HAC Score of zero and payment reduction indicators of “no penalty” for all hospitals for the FY 2023 program year. For the five CDC NHSN HAI measures, we would also report the measure results, both via HSRs and public reporting methods. For the CMS PSI 90 measure results, we would not calculate or report on the measure results and would indicate `N/A' in confidential and public reporting. We would resume calculating measure scores in the FY 2024 program year, as discussed in section V.J.2.b.(3). of this proposed rule.

In determining how to address the impact of the COVID-19 PHE on hospital performance and calculating Total HAC Scores for FY 2023, we also considered suppressing some CY 2021 quality measure data as an alternative to suppressing all measures. Under this alternative, we considered suppressing the CY 2021 data for the CLABSI, CAUTI, and MRSA measures on the basis that performance on those measures continued to be affected by the COVID-19 PHE. We considered scoring hospitals based solely on their performance on SSI, CDI, and CMS PSI 90; however, we had concerns about running the HAC Reduction Program on only half of the program's measures as this may result in measure scores that are significantly better or worse than in immediately preceding years. In addition, a Total HAC score based on only three program measures would be less reliable, with more random noise in identification of bottom quartile hospitals, than a score based on six program measures. Therefore, we believe it is appropriate to suppress all five CDC NSHN HAI measures and the CMS PSI 90 measure from the calculation of measure scores and Total HAC Scores for the FY 2023 program year.

We also considered making no modifications to the program and suppressing no additional measure data from the FY 2023 Total HAC Scores rather than extending the measure suppression policy. As discussed, when considering this approach in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45305), this alternative would be operationally easier to implement, but would mean assessing participating hospitals using quality measure data that have been distorted by the COVID-19 PHE without additional adjustments to the measure. Additionally, given the geographic disparities in the COVID-19 PHE's effects, this policy could place hospitals in regions that were hit harder by the pandemic in CY 2021 at a disadvantage compared to hospitals in regions that were more heavily affected in CY 2020. Ultimately, we believe that our proposal to suppress all measures from the FY 2023 HAC Reduction Program more fairly addresses the impact of the COVID-19 PHE for participating hospitals.

Finally, we considered reusing a previous fiscal year's applicable period to serve as the applicable period for FY 2023. Although this option would enable us to continue operating the program, it has the disadvantage of double penalizing hospitals that were in a prior fiscal year's worst performing quartile even if the hospital had implemented policy and operational changes to improve their performance in future program years. Under this option, no new quality data would be used to inform hospitals or drive quality improvement.

We continue to be concerned about the pandemic, but are encouraged by the development and rollout of prevention techniques like COVID-19 vaccinations and treatment for those diagnosed with COVID-19. Our measure suppression policy focuses on a short-term, equitable approach during this unprecedented PHE, and was not intended for indefinite application. We also recognize that measure performance for some measures may not immediately return to levels seen prior to the PHE, particularly for the CDC NHSN HAI measures for which we do not receive patient-level data. Additionally, we wanted to emphasize the long-term importance of value-based care and incentivizing quality care tied to payment. The HAC Reduction Program is an example of our long-standing effort to link payments to healthcare quality in the inpatient hospital setting payment. Therefore, we note that our goal is to continue resuming the use of measure data for the purposes of scoring and payment adjustment beginning with the FY 2024 program year.

We understand that the COVID-19 PHE is ongoing and unpredictable in nature, however, we believe that 2022 has a more promising outlook in the fight against COVID-19. As we enter the third year of the pandemic, healthcare providers and systems have gained experience managing the disease, surges of COVID-19 infection, and adjusting to supply chain fluctuations. In 2022 and the upcoming years, we anticipate continued availability and increased uptake in the use of vaccinations and the associated boosters, including vaccination for children which was not available for most of 2021. Additionally, the FDA issued emergency use authorizations (EUAs) for the first oral antiviral COVID-19 pill on December 22, 2021, and later approved a second the following day, expanding access to at-home COVID-19 treatment options. Finally, the Biden-Harris Administration has mobilized efforts to distribute home test kits, N-95 masks, and increase COVID-19 testing in schools, providing more treatment and testing to the American people. Given these developments, we will continue to assess the impact of the PHE on measure data used for the HAC Reduction Program.

We invite public comments on our proposals.

(3) Proposal To Suppress CY 2021 CDC NHSN HAI Measure Data From the FY 2024 HAC Reduction Program Year

As described in section V.J.2.b.(1). of this proposed rule, we previously excluded or suppressed all quarters of CY 2020 data for all the program measures from the calculation of the Total HAC Score, in part, because of concerns about the national comparability of these data and significant deviation in national performance on the measure compared to historical performance. The exclusion and suppression of those data resulted in a shortened applicable period for the CMS PSI 90 measure for the FY 2024 HAC Reduction Program, specifically the 18-month period of January 1, 2021 through June 30, 2022. The applicable period for the CDC NHSN HAI measures for the FY 2024 program year was unaffected and remained as the 24-month period of January 1, 2021, through December 31, 2022.

As described previously, we continue to be concerned about measure performance and the national comparability of such performance during CY 2021. We therefore are proposing to suppress CY 2021 CDC NHSN HAI data from the FY 2024 HAC Reduction Program under Measure Suppression Factor 1, “significant deviation in national performance on the measure, which could be significantly better or significantly worse compared to historical performance during the immediately preceding program years”; and the Measure Suppression Factor 4 subfactor, “significant national or regional shortages or rapid or unprecedented changes in patient case volumes or case mix.” Under current data collection processes for the CDC NHSN HAI measures, we are not able to risk-adjust for or otherwise account for COVID-19 diagnoses and therefore must suppress the CY 2021 data in order to account for COVID-19 diagnoses in the CDC NHSN HAI data. For the FY 2024 program year, the resulting applicable period for CDC NHSN HAI measures would be the 12-month period of January 1, 2022, to December 31, 2022.

To account for the impact of the COVID-19 PHE on CY 2021 data in the CMS PSI 90 measure, we are updating the measure specifications to risk-adjust for COVID-19 diagnoses, as described in section V.J.3.c.(2). of this proposed rule, beginning with the FY 2024 program year. Our analysis of the COVID-19 PHE impacts on CY 2021 data found that the decrease in volume continued in CY 2021 across nearly all component Patient Safety Indicator (PSI) measures, especially those related to surgical procedures (for which the denominator volume was 8 percent to 45 percent lower in the first two quarters of CY 2021 than in the corresponding quarters of CY 2019). Our analysis also found that unadjusted rates continued to be high in CY 2021 for patients with a COVID-19 diagnosis compared to patients without a COVID-19 diagnosis. We refer readers to section V.J.3.c.(2). for more information about COVID-19 impacts on the CMS PSI 90 measure.

For the CMS PSI 90 measure, the applicable period remains unchanged from January 1, 2021, through June 30, 2022. If finalized, these policies would result in the following applicable periods for FY 2023, FY 2024, and FY 2025 HAC Reduction Programs:

We invite public comments on this proposal to suppress CY 2021 CDC NHSN HAI Measure data from the FY 2024 HAC Reduction Program year.

3. Measures for FY 2023 and Subsequent Years

We refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41472 through 41474) for more information about how the HAC Reduction Program supports our goal of bringing quality measurement, transparency, and improvement together with value-based purchasing to the hospital inpatient care setting through the Meaningful Measures Framework.

a. Current Measures

The HAC Reduction Program has adopted six measures to date. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized the use of five CDC NHSN HAI measures: (1) CAUTI; (2) CDI; (3) CLABSI; (4) Colon and Abdominal Hysterectomy SSI; and (5) MRSA bacteremia. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57014), we finalized the use of the CMS PSI 90 measure. These previously finalized measures, with their full measure names, are shown in this table.

Technical specifications for the CMS PSI 90 measure can be found on the QualityNet website at https://qualitynet.cms.gov/inpatient/measures/psi/resources . Technical specifications for the CDC NHSN HAI measures can be found at CDC's NHSN website at https://www.cdc.gov/nhsn/acute-care-hospital/index.html . Both websites provide measure updates and other information necessary to guide hospitals participating in the collection of HAC Reduction Program data.

In this proposed rule, we are not proposing to add or remove any measures. However, we discuss our proposal to suppress all of the measures for the FY 2023 program year, as discussed in section V.J.2.b.(2). of the preamble of this proposed rule, and our proposal to suppress CY 2021 CDC NHSN HAI data from the FY 2024 program year, as discussed in section V.J.2.b.(3). of the preamble of this proposed rule.

b. Measure Removal Factors Policy

We refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42404 through 42406) for information about our measure removal and retention factors for the HAC Reduction Program. In this proposed rule, we are not proposing any measure removal and retention factor policy changes.

c. Technical Measure Specification Updates to the CMS PSI 90 Measure

(1) Technical Measure Specification Update to the Minimum Volume Threshold for the CMS PSI 90 Measure beginning With the FY 2023 Program Year

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50100 through 50101), we finalized a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the HAC Reduction Program. We stated our belief that this policy adequately balances our need to incorporate updates to HAC Reduction Program measures in the most expeditious manner possible while preserving the public's ability to comment on updates that so fundamentally change an endorsed measure that it is no longer the same measure that we originally adopted.

Currently, the minimum volume threshold for the CMS PSI 90 measure requires hospitals to have three or more eligible discharges for at least one component indicator in order to receive a CMS PSI 90 measure score for the HAC Reduction Program (81 FR 57012). Although the CMS PSI 90 measure surpasses the accepted reliability standard, based on an Intracluster Correlation Coefficient (ICC) for hospital-level reporting of at least 0.60 (in a standard 24-month performance period, the CMS PSI 90 measure demonstrated median reliability of 0.74), a small subset of hospitals have a reliability close to zero for their CMS PSI 90 composite score due to the current minimum volume threshold for the measure.

To address this subset of hospitals with a CMS PSI 90 composite score with reliability close to zero, we are instituting a stricter minimum volume threshold for the measure, which would prevent those small hospitals from receiving a CMS PSI 90 composite score. Consistent with the current minimum volume threshold policy, hospitals that do not meet the threshold criteria would not receive a measure result or, subsequently, a measure score (that is, a Winsorized z-score) for the CMS PSI 90 measure and it would not factor into the calculation of their Total HAC Score. Accordingly, in this proposed rule, we are announcing an increased minimum volume threshold for the CMS PSI 90 measure, under which hospitals would be required to meet both of the following criteria in order to receive a CMS PSI 90 composite score:

• One or more component PSI measure with at least 25 eligible discharges; and
• Seven or more component PSI measures with at least three eligible discharges.

We note that this change to the CMS PSI 90 minimum volume threshold criteria will be applied to both the version of the measure used in HAC Reduction Program scoring calculations as well as the version of the measure displayed on the main pages of the Care Compare tool hosted by the U.S. Department of Health and Human Services, currently available at https://www.medicare.gov/care-compare , via updates to the next version of the CMS PSI 90 software. Additional information regarding the technical specifications for the CMS PSI 90 measure can be found on the QualityNet website at https://qualitynet.cms.gov/inpatient/measures/psi/resources .

An analysis of the impact of this threshold change on HAC Reduction Program results indicates that it would impact the scoring of a small number of low-volume hospitals. As a result of this threshold change, approximately five percent of hospitals would no longer receive a CMS PSI 90 composite score (and, subsequently, a CMS PSI 90 measure score) and approximately half of those hospitals, or 2.5 percent of all hospitals, would no longer receive a Total HAC Score. Accordingly, there will be a decrease in the number of hospitals in the worst-performing quartile. We anticipate that the majority of the hospitals no longer receiving a Total HAC Score will be small hospitals with fewer than 100 beds. Rural hospitals, which tend to have lower capacity, are also more impacted by the change than urban hospitals. The threshold change only impacts a small number of hospitals in the HAC Reduction Program while improving overall measure reliability.

(2) Technical Measure Specification Update to Risk-Adjust for COVID-19 Diagnoses in the CMS PSI 90 Measure Beginning With the FY 2024 HAC Reduction Program Year

We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45305) for previous analysis on the impact of the COVID-19 PHE on the CMS PSI 90 measure. Our analysis found that the decrease in volume continued in CY 2021 across all component Patient Safety Indicator (PSI) measures, especially those related to surgical procedures for which the denominator volume was 8 percent to 45 percent lower in the first two quarters of CY 2021 than in the corresponding quarters of CY 2019. Our analysis also found that unadjusted rates continued to be high in CY 2021 for patients with a COVID-19 diagnosis compared to patients without a COVID-19 diagnosis, across most of the 10 component measures in CMS PSI 90. However, PSI 90 component rates among patients without COVID-19 were virtually unchanged through the COVID-19 PHE. CMS has found that adjusting for COVID-19 at the patient level entirely removes the incremental risk associated with this diagnosis. After risk-adjustment for COVID-19, PSI component rates appear consistently flat across the first two quarters of 2021.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50100 through 50101), we finalized a subregulatory process to make nonsubstantive updates to measures used for the HAC Reduction Program. To address the impact of the COVID-19 PHE on the CMS PSI 90 measure, we are announcing a technical update to the CMS PSI 90 software to include COVID-19 diagnosis as a risk-adjustment parameter for the FY 2024 program year and subsequent years.

d. HAC Reduction Program Requests for Information

(1) Digital CDC NHSN Measures

We refer readers to section IX.E.9.a. of this proposed rule, where we request information on the potential future adoption of two digital NHSN measures, the NHSN Healthcare-associated Clostridioides difficile Infection Outcome Measure and the NHSN Hospital-Onset Bacteremia & Fungemia Outcome Measure, into the Hospital IQR Program, PCHQR Program, and the LTCH QRP. In addition, we request information on the potential inclusion of these digital CDC NHSN measures in the HAC Reduction Program. This request for information supports our goal of moving fully to digital quality measurement in CMS quality reporting and value-based purchasing programs, including the HAC Reduction Program.

(2) Overarching Principles for Measuring Healthcare Quality Disparities Across CMS Quality Programs

We refer readers to section IX.B. of this proposed rule where we are seeking input on overarching principles in measuring healthcare quality disparities in hospital quality and value-based purchasing programs.

4. Proposal To Update the CDC NHSN HAI Data Submission Requirements for Newly Opened Hospitals Beginning in the FY 2023 HAC Reduction Program Year

In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57013), we finalized CDC NHSN HAI data submission requirements for newly-opened hospitals under the HAC Reduction Program that referred to the date that a hospital filed a notice of participation (NOP) with the Hospital IQR Program. At the time, the HAC Reduction Program obtained measure results that hospitals submitted to the CDC NHSN from the Hospital IQR Program. However, in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41545 through 41553), we transferred our collection of the CDC NHSN HAI measures from the Hospital IQR Program to the HAC Reduction Program beginning with CY 2020 data. Given the transition from the Hospital IQR Program, the NOP requirements noted in the FY 2017 IPPS/LTCH PPS final rule do not apply.

In this proposed rule, we are proposing to update the definition of “newly-opened hospitals” for the CDC NHSN HAI measures to include hospitals with a Medicare Accept Date within the last 12 months of the performance period. Under the HAC Reduction Program scoring methodology, hospitals that are defined as newly-opened hospitals for the CDC NHSN HAI measures do not receive a measure score for any of the CDC NHSN HAI measures.

The number of hospitals impacted by this change in criteria is small, less than one-quarter percent of hospitals. Hospitals with a Medicare Accept Date between the 12th and the 6th month before the end of the HAI performance period (January 1, 2021 to June 30, 2021 for the FY 2023 program year) do not meet the current criteria for newly-opened hospitals for the CDC NHSN HAI measures, but would meet the updated criteria. In addition, all of these hospitals do not have 12 months of CMS PSI 90 data and because of this already do not receive a measure score for that measure. Therefore, all impacted hospitals would not receive a Total HAC Score for the program year and could not be subject to the one percent payment reduction. As per the measure suppression policy discussed in section V.J.2.b.(2). above we are proposing to suppress all six measures in the program for the FY 2023 program year, so no hospitals will be impacted by this change for the FY 2023 program year.

An analysis of the number of hospitals not meeting the current definition of “new hospitals” that would meet the criteria under this new proposed definition indicate that 0.22 percent of hospitals would have been affected by this definition change in the FY 2021 program year and 0.09 percent in the FY 2020 program year.

We invite public comments on this proposal to update the newly-opened hospital definition for CDC NHSN HAI measures beginning in the FY 2023 program year.

5. HAC Reduction Program Scoring Methodology and Scoring Review and Corrections Period

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41484 through 41489), we adopted the Equal Measure Weights approach to scoring and clarified the Scoring Calculations Review and Correction Period (83 FR 41484) for the HAC Reduction Program. Hospitals must register for a QualityNet website's secure portal account in order to access their annual hospital-specific reports. In this proposed rule we are not proposing to make any changes to the Scoring Calculations Review and Correction Period process.

We note that in section V.J.2.b.(2). of this proposed rule, we are proposing to temporarily suppress all measures from the FY 2023 HAC Reduction Program. We are proposing to calculate the measure results for the five CDC NHSN HAI measures for the FY 2023 HAC Reduction Program, but to not use those measure results to calculate measure scores (that is, Winsorized z-scores) for any of the measures because of our concerns regarding the comparability of measure results. Additionally, we are proposing to not calculate measure results for CMS PSI 90 measure nor publicly report the measure on the Care Compare tool hosted by Health and Human Services and the Provider Data Catalog. We are also proposing that all hospitals would receive a Total HAC Score of zero, and no hospitals would receive a penalty for FY 2023. We intend to resume the previously adopted HAC Reduction Program scoring methodology in FY 2024 (with the proposed suppression of CY 2021 CDC NHSN HAI data as discussed in section V.J.2.b.(3).) and for subsequent years. In section V.J.2.b.(2)., we invite public comment on the proposal to temporarily suppress all measures from the FY 2023 HAC Reduction Program.

6. Validation of HAC Reduction Program Data

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41478 through 41484), we adopted processes to validate the CDC NHSN HAI measure data used in the HAC Reduction Program, because the Hospital IQR Program finalized its proposals to remove CDC NHSN HAI measures from its program. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42406 through 42410), we provided additional clarification to the validation selection and scoring methodology. We also refer readers to the QualityNet website for more information regarding chart-abstracted data validation of measures. In the FY 2020 IPPS/LTCH PPS final rule (85 FR 58862 through 58865), we finalized our policy to align the HAC Reduction Program validation process with that of the Hospital IQR Program. Specifically, we aligned the hospital selection and submission quarters beginning with CY 2021 data for the FY 2024 Hospital IQR and HAC Reduction Programs validation so that we only require one pool of hospitals to submit data for validation. Additionally, we finalized a policy requiring hospitals to submit digital files when submitting medical records for validation of HAC Reduction Program measures, for the FY 2024 program year and subsequent years.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58862 through 58865), we finalized our policy that for the FY 2024 program year and subsequent years, we will use measure data from all of CY 2021 for both the HAC Reduction Program and the Hospital IQR Program, which must be reported using the validation schedule posted on the QualityNet Secure Portal (also referred to as the Hospital Quality Reporting (HQR) System.

In section V.J.2.b.(2). and V.J.2.b.(3). of this proposed rule, we are proposing to suppress all measures from the FY 2023 program and CY 2021 CDC NHSN HAI data from the FY 2024 HAC Reduction Program, respectively. As discussed in those sections, hospitals are still required to submit such data and such data will be used for validation purposes. If hospitals do not submit measure data for validation during the FY 2024 program year, then those hospitals will automatically receive the maximum Winsorized z-score for the measure in the FY 2024 program year payment calculation. We are not proposing any changes to the policies regarding measure validation in this proposed rule.

7. Clarification of the Removal of the No Mapped Locations Policy Beginning With the FY 2023 Program Year

Under the HAC Reduction Program, hospitals have historically been able to receive a “no mapped locations (NML)” exemption for the CLABSI and CAUTI measures. This exemption has been applied when hospitals do not map an applicable ward (that is, Intensive Care Units (ICUs), surgical, medical, and medical-surgical wards) in the NHSN system, do not submit data for the measures, and do not submit an IPPS Measure Exception Form.

In this proposed rule we would like to clarify the removal of the No Mapped Locations (NML) policy. The CDC has confirmed that the NML exemption does not indicate that a hospital does not need to report data, and that hospitals requesting to be exempt from reporting for CMS quality programs including the HAC Reduction Program, should submit an IPPS Measure Exception Form on the QualityNet website at https://qualitynet.cms.gov/files/5e3459aa152a7d001f93d36c?filename=IPPS_MeasureExceptionForm_CY2020.pdf . Therefore, we want to clarify that beginning in FY 2023 and subsequent years, the NML designation will no longer apply, and hospitals will be required to appropriately submit data to the NHSN or, if hospitals do not have the applicable locations for the CLABSI and CAUTI measures, the hospital must submit an IPPS Measure Exception Form to be exempt from CLABSI and CAUTI reporting for CMS programs. If the hospitals do not submit an IPPS Measure Exception Form and continue to not submit data to the NHSN, these hospitals would receive the maximum measure score (that is, Winsorized z-score) under the HAC Reduction Program for not reporting data. In the FY 2020 IPPS/LTCH PPS final rule, we instructed hospitals that do not have adequate locations for CLABSI or CAUTI reporting to submit the IPPS Measure Exception Form to the HAC Reduction Program beginning on January 1, 2020 (84 FR 42406), and the removal of the NML policy has previously been communicated in the FY 2022 HAC Reduction Program Frequently Asked Questions and the FY 2022 HAC Reduction Program HSR User Guide. Additionally, because NML only applies to a small subset of hospitals, we plan to execute targeted outreach via email to those hospitals that had received the exception in the past two program years notifying them of the removal of the NML policy.

For more details on the NML designation and policy, we refer readers to the FY 2022 Hospital Specific Report (HSR) User Guide located on QualityNet website at https://qualitynet.cms.gov/files/61152cf0a248cb001efce449?filename=FY_2022_HACRP_HSR_User_Guide.pdf and the FY 2022 HAC Reduction Program Frequently Asked Questions website at https://qualitynet.cms.gov/files/61152d1252b92f00229e9717?filename=FY_2022_HACRP_FAQ.pdf .

8. Extraordinary Circumstances Exception (ECE) Policy for the HAC Reduction Program

We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49579 through 49581) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38276 through 38277) for discussion of our Extraordinary Circumstances Exception (ECE) policy. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49579 through 49581), we adopted an ECE policy for the HAC Reduction Program, which recognized that there may be periods of time during which a hospital is not able to submit data in an accurate or timely fashion due to an extraordinary circumstance beyond its control. When adopting this policy, we noted that we considered the feasibility and implications of excluding data for certain measures for a limited period of time from the calculations for a hospital's measure results or Total HAC Score for the applicable performance period. By minimizing the data excluded from the program, the policy enabled affected hospitals to continue to participate in the HAC Reduction Program for a given fiscal year if they otherwise continued to meet applicable measure minimum threshold requirements. We expressed the belief that this approach would help alleviate the burden for a hospital that might be adversely impacted by a natural disaster or other extraordinary circumstance beyond its control, while enabling the hospital to continue to participate in the HAC Reduction Program. In developing this policy, we considered a policy and process similar to that for the Hospital IQR Program, as finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51651), modified by the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836) (designation of a non-CEO hospital contact), and further modified in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277) (amended § 412.40(c)(2)) to refer to “extension or exemption” instead of the former “extension or waiver”). We also considered how best to align an extraordinary circumstance exception policy for the HAC Reduction Program with existing extraordinary circumstance exception policies for other IPPS quality reporting and payment programs, such as the Hospital Value-Based Purchasing (VBP) Program, to the extent feasible. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38276 through 38277), we modified the requirements for the HAC Reduction Program ECE policy to further align with the processes used by other quality reporting and value-based purchasing programs for requesting an exception from program reporting due to an extraordinary circumstance not within a provider's control.

In response to the COVID-19 PHE, we announced relief for clinicians, providers, hospitals, and facilities participating in Medicare quality reporting and value-based purchasing programs. On September 2, 2020, we published the interim final rule with comment period (IFC), “Medicare and Medicaid Programs, Clinical Laboratory Improvement Amendments (CLIA), and Patient Protection and Affordable Care Act; Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency” (85 FR 54820). The IFC updated the ECE we granted in response to the COVID-19 PHE, for the HAC Reduction Program and several other quality reporting programs (85 FR 54827 through 54838). In the IFC, we updated the previously announced application of our ECE policy for the HAC Reduction Program (85 FR 54830 through 54832) to the COVID-19 PHE to exclude any CDC NHSN HAI data submitted regarding care provided during the first and second quarters of CY 2020 from our calculation of performance for FY 2022 and FY 2023.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45308 through 45310), we clarified our ECE policy to highlight that an ECE granted under the HAC Reduction Program may allow an exception from quality data reporting requirements and may grant a request to exclude any data submitted (whether submitted for claims purposes or to the CDC NHSN) from the calculation of a hospital's measure results or Total HAC Score for the applicable period, depending on the exact circumstances under which the request was made.

Finally, in the FY 2022 IPPS/LTCH PPS final rule we clarified that, although an approved ECE for the HAC Reduction Program would exclude excepted data and grant an exception with respect to data reporting requirements for the period during which performance or ability to submit data was impacted or both, a hospital would still be evaluated for the remainder of the applicable period during which performance and ability to submit data was not impacted (to the extent that enough data are available to ensure that the calculation is statistically sound) or both. We clarified that an approved ECE for the HAC Reduction Program does not exempt hospitals from payment reductions under the HAC Reduction Program (86 FR 45309 through 45310).

We are not proposing any changes to our previously finalized ECE Policy in this proposed rule.

K. Rural Community Hospital Demonstration Program

1. Introduction

The Rural Community Hospital Demonstration was originally authorized by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). The demonstration has been extended three times since the original 5-year period mandated by the MMA, each time for an additional 5 years. These extensions were authorized by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148), section 15003 of the 21st Century Cures Act (Pub. L. 114-255) (Cures Act) enacted in 2016, and most recently, by section 128 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260). In this proposed rule, we summarize the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality.

We are also proposing the amount to be applied to the national IPPS payment rates to account for the costs of the demonstration in FY 2023, and, in addition, the reconciled amount of demonstration costs for FY 2017, the most recent year for which finalized cost reports have become available.

2. Background

Section 410A(a) of Public Law 108-173 required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals under a reasonable cost-based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1) Public Law 108-173, is a hospital that—

• Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act;
• Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report;
• Provides 24-hour emergency care services; and
• Is not designated or eligible for designation as a CAH under section 1820 of the Act.

3. Policies for Implementing the 5-Year Extension Period Authorized by Public Law 116-260

Our policy for implementing the 5-year extension period authorized by Public Law 116-260 (the Consolidated Appropriations Act, 2021) follows upon that for the previous extensions, under the Affordable Care Act (Pub. L. 111- 148) and the Cures Act (Pub. L. 114-255).

Section 410A of Public Law 108-173 (MMA) initially required a 5-year period of performance. Subsequently, sections 3123 and 10313 of Public Law 111-148 required the Secretary to conduct the demonstration program for an additional 5-year period, to begin on the date immediately following the last day of the initial 5-year period.

Public Law 111-148 required the Secretary to provide for the continued participation of rural community hospitals in the demonstration program during this 5-year extension period, in the case of a rural community hospital participating in the demonstration program as of the last day of the initial 5-year period, unless the hospital made an election to discontinue participation. In addition, Public Law 111-148 limited the number of hospitals participating to no more than 30.

Section 15003 of the Cures Act required the Secretary to conduct the demonstration for a 10-year extension period (in place of the 5-year extension period required by the Affordable Care Act. Specifically, section 15003 of the Cures Act amended section 410A(g)(4) of Public Law 108-173 (MMA) to require that, for hospitals participating in the demonstration as of the last day of the initial 5-year period, the Secretary would provide for continued participation of such rural community hospitals in the demonstration during the 10-year extension period, unless the hospital made an election, in such form and manner as the Secretary may specify, to discontinue participation. In addition, section 15003 of the Cures Act added subsection (g)(5) to section 410A of Public Law 108-173 to require that, during the second 5 years of the 10-year extension period, the Secretary would apply the provisions of section 410A(g)(4) of Public Law 108-173 to rural community hospitals not described in subsection (g)(4) but that were participating in the demonstration as of December 30, 2014, in a similar manner as such provisions apply to hospitals described in subsection (g)(4).

In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38280), we finalized our policy with regard to the effective date for the application of the reasonable cost-based payment methodology under the demonstration for those previously participating hospitals choosing to participate in the second 5-year extension period. According to our finalized policy, each previously participating hospital began the second 5 years of the 10-year extension period and payment for services provided under the cost-based payment methodology under section 410A of the MMA (as amended by section 15003 of the Cures Act) on the date immediately after the period of performance ended under the first 5-year extension period.

Seventeen of the 21 hospitals that completed their periods of participation under the extension period authorized by the Affordable Care Act elected to continue in the 5-year extension period authorized by the Cures Act. Therefore, for these hospitals, the period of participation under this second 5-year extension started on dates ranging from May 1, 2015, through January 1, 2017, depending on when they had initially started.

On November 20, 2017, we announced that 13 additional hospitals were selected to participate in the demonstration in addition to these 17 hospitals continuing participation from the first 5-year extension period. (These two groups are referred to as “newly participating” and “previously participating” hospitals, respectively.) We announced that each of these newly participating hospitals would begin its 5-year period of participation effective with the start of the first cost-reporting period on or after October 1, 2017. One of the newly participating hospitals withdrew from the demonstration program prior to beginning participation in the demonstration on July 1, 2018. In addition, one of the previously participating hospitals closed effective January 2019, and another withdrew effective October 1, 2019. Therefore, 27 hospitals were participating in the demonstration as of October 1, 2019—15 previously participating and 12 newly participating.

Each hospital has had its own end date applicable to this third five-year period for the demonstration. For four of the previously participating hospitals, this end date fell within FY2020, while for 11 of the previously participating hospitals, the end date would fall within CY 2021. (One of the hospitals within this group chose in February of 2020 to withdraw effective September of the previous year). The newly participating hospitals were all scheduled to end their participation either at the end of FY 2022 or during FY 2023.

Section 128 of Public Law 116-260 requires a 15-year extension period, to begin on the date immediately following the last day of the initial 5-year period, instead of the 10-year extension period mandated by the Cures Act. In addition, the statute provides for continued participation for all hospitals participating in the demonstration program as of December 30, 2019. Therefore, in FY 2022 IPPS final rule (86 FR 45314), we stated that we interpreted the statute as providing for an additional 5-year period under the reasonable cost-based reimbursement methodology for the demonstration for the hospitals that were participating as of this date.

Given that four hospitals ended the 5-year period authorized by the Cures Act during FY 2020, we finalized the policy from previous extensions, that is, to apply the cost-based reimbursement methodology to the date following the last day of this previous period for each hospital that elects to continue participation. Likewise, each of the 22 hospitals with a scheduled end date during 2021, 2022, or 2023 is eligible for an additional 5-year period starting from the day after the specified end date. Accordingly, the period of participation for the last hospital in the demonstration under this most recent legislative authorization would extend until June 30, 2028.

4. Budget Neutrality

a. Statutory Budget Neutrality Requirement

Section 410A(c)(2) of Public Law 108-173 requires that, in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount that the Secretary would have paid if the demonstration program under this section was not implemented. This requirement is commonly referred to as “budget neutrality.” Generally, when we implement a demonstration program on a budget neutral basis, the demonstration program is budget neutral on its own terms; in other words, the aggregate payments to the participating hospitals do not exceed the amount that would be paid to those same hospitals in the absence of the demonstration program. We note that the payment methodology for this demonstration, that is, cost-based payments to participating small rural hospitals, makes it unlikely that increased Medicare outlays would produce an offsetting reduction to Medicare expenditures elsewhere. Therefore, in the 12 IPPS final rules spanning the period from FY 2005 through FY 2016, we adjusted the national inpatient PPS rates by an amount sufficient to account for the added costs of this demonstration program, thus applying budget neutrality across the payment system as a whole rather than merely across the participants in the demonstration program. (A different methodology was applied for FY 2017.) As we discussed in the FYs 2005 through 2017 IPPS/LTCH PPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR 53449, 78 FR 50740, 77 FR 50145; 80 FR 49585; and 81 FR 57034, respectively), we believe that the statutory language of the budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner.

b. General Budget Neutrality Methodology

We have generally incorporated two components into the budget neutrality offset amounts identified in the final IPPS rules in previous years. First, we have estimated the costs of the demonstration for the upcoming fiscal year, generally determined from historical, “as submitted” cost reports for the hospitals participating in that year. Update factors representing nationwide trends in cost and volume increases have been incorporated into these estimates, as specified in the methodology described in the final rule for each fiscal year. Second, as finalized cost reports became available, we determined the amount by which the actual costs of the demonstration for an earlier, given year differed from the estimated costs for the demonstration set forth in the final IPPS rule for the corresponding fiscal year, and incorporated that amount into the budget neutrality offset amount for the upcoming fiscal year. If the actual costs for the demonstration for the earlier fiscal year exceeded the estimated costs of the demonstration identified in the final rule for that year, this difference was added to the estimated costs of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. Conversely, if the estimated costs of the demonstration set forth in the final rule for a prior fiscal year exceeded the actual costs of the demonstration for that year, this difference was subtracted from the estimated cost of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. We have calculated this difference for FYs 2005 through 2016 between the actual costs of the demonstration as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years.

c. Budget Neutrality Methodology for the Extension Period Authorized by Public Law 116-260

For the newly enacted extension period, under the Consolidated Appropriations Act, 2021, we continue upon the general budget neutrality methodology used in previous years, and to specifically follow upon the determinations for the previous extension period, under the Cures Act.

(1) Budget Neutrality Methodology for Previous Extension Period Under the Cures Act

We finalized our budget neutrality methodology for periods of participation under this previous 5-year extension period in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38285 through 38287). Similar to previous years, we stated in this rule, as well as in the FY 2019 and FY 2020 IPPS/LTCH PPS proposed and final rules (83 FR 20444 and 41503, and 84 FR19452 and 42421, respectively) that we would incorporate an estimate of the costs of the demonstration, generally determined from historical, “as submitted” cost reports for the participating hospitals, and appropriate update factors, into a budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year. In addition, we stated that we would continue to apply our general policy from previous years of including, as a second component to the budget neutrality offset amount, the amount by which the actual costs of the demonstration for an earlier, given year (as determined from finalized cost reports, when available) differed from the estimated costs for the demonstration set forth in the final IPPS rule for the corresponding fiscal year.

In these proposed and final rules, we described several distinct components to the budget neutrality offset amount for the specific fiscal years of the extension period authorized by the Cures Act.

We included a component to our overall methodology similar to previous years, according to which an estimate of the costs of the demonstration for both previously and newly participating hospitals for the upcoming fiscal year is incorporated into a budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year. In the FY 2019 IPPS final rule (83 FR 41506), we included such an estimate of the costs of the demonstration for each of FYs 2018 and 2019 into the budget neutrality offset amount for FY 2019. In the FY 2020 IPPS final rule (84 FR 42421), we included an estimate of the costs of the demonstration for FY 2020 for 28 hospitals. In the FY 2021 IPPS final rule (85 FR 58873), we included an estimate of the costs of the demonstration for FY 2021 for the 22 hospitals for which the cost-based reimbursement methodology was to apply for all or part of FY 2021. In the FY 2022 IPPS final rule (86 FR 45316), we included an estimate of the costs of the demonstration for FY 2022 for the 26 hospitals expected to participate in that fiscal year.

Similar to previous years, we continued to implement the policy of determining the difference between the actual costs of the demonstration as determined from finalized cost reports for a given fiscal year and the estimated costs indicated in the corresponding year's final rule, and including that difference as a positive or negative adjustment in the upcoming year's final rule. (For each previously participating hospital that decided to participate in the 5-year extension period under the Cures Act, the cost-based payment methodology under the demonstration began on the date immediately following the end date of its period of performance for the still previous extension period (under the Affordable Care Act). In addition, for previously participating hospitals that converted to CAH status during the time period of the second 5-year extension period, the demonstration payment methodology was applied to the date following the end date of its period of performance for the first extension period to the date of conversion). In the FY 2020 final rule, we included the difference between the amount determined for the cost of the demonstration in each of FYs 2014 and 2015 and the estimated amount included in the budget neutrality offset in the final rule for each of these respective fiscal years. In the FY 2022 final rule, we included the difference between the amount determined for the cost of the demonstration in FY 2016 and the estimated amount included in the budget neutrality offset in the final rule for that fiscal year.

(2) Methodology for Estimating Demonstration Costs for FY 2023

We are using a methodology similar to previous years, according to which an estimate of the costs of the demonstration for the upcoming fiscal year is incorporated into a budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year, that is, FY 2023. We are conducting this estimate for FY 2023 based on the 26 hospitals that are continuing participation in the demonstration for fiscal year 2023. The methodology for calculating this amount for FY 2023 proceeds according to the following steps:

Step 1: For each of these 26 hospitals, we identify the reasonable cost amount calculated under the reasonable cost-based methodology for covered inpatient hospital services, including swing beds, as indicated on the “as submitted” cost report for the most recent cost reporting period available. For each of these hospitals, the “as submitted” cost report is defined as the submitted report with a cost report period end date in CY 2020. We sum these hospital-specific amounts (derived from the cost for each hospital for inpatient hospital services, including swing beds, based on the CY 2020 “as submitted” cost reports) to arrive at a total general amount representing the sum of the costs for covered inpatient hospital services applicable for 2020 across the 26 hospitals eligible to participate during FY 2023. Then, we multiply the 2020 amount (for inpatient hospital services including swing beds) by the IPPS final market basket percentage increases for FY 2021 and FY 2022, and then again by the proposed FY 2023 IPPS market basket increase. The proposed market basket percentage increase for FY 2023 is 3.1 percent, explained in more detail in section II.A of the Addendum to this proposed rule). The result for the 26 hospitals is the general estimated reasonable cost amount for covered inpatient hospital services for FY 2023.

Consistent with our methods in previous years for formulating this estimate, we are applying the IPPS market basket percentage increases for FYs 2021 through 2023 to the applicable estimated reasonable cost amount (previously described) in order to model the estimated FY 2023 reasonable cost amount under the demonstration. We believe that the IPPS market basket percentage increases appropriately indicate the trend of increase in inpatient hospital operating costs under the reasonable cost methodology for the years involved.

Step 2: For each of the participating hospitals, we identify the estimated amount that would otherwise be paid in FY 2023 under applicable Medicare payment methodologies for covered inpatient hospital services, including swing beds (as indicated on the same set of “as submitted” cost reports as in Step 1), if the demonstration were not implemented. We sum these 2020 hospital-specific amounts, and, in turn, multiply this sum by the FYs 2021, 2022 and 2023 IPPS applicable percentage increases. (For FY 2023, we are using the proposed applicable percentage increase, per section II.A of the Addendum of this proposed rule.) This methodology differs from Step 1, in which we apply the market basket percentage increases to the hospitals' applicable estimated reasonable cost amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid without the demonstration. This is because IPPS payments constitute the majority of payments that would otherwise be made without the demonstration and the applicable percentage increase is the factor used under the IPPS to update the inpatient hospital payment rates.

Step 3: We subtract the amount derived in Step 2 from the amount derived in Step 1. According to our methodology, the resulting amount indicates the total difference for the 26 hospitals (for covered inpatient hospital services, including swing beds), which would be the general estimated amount of the costs of the demonstration for FY 2023.

For this proposed rule, the resulting amount is $71,955,710, which we are incorporating into the budget neutrality offset adjustment for FY 2023. This estimated amount is based on the specific assumptions regarding the data sources used, that is, recently available “as submitted” cost reports and historical and projected update factors for cost and payment. We propose that if more recent data subsequently become available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate to estimate the costs for the demonstration program for FY 2023 in accordance with our methodology for determining the budget neutrality estimate. We would also incorporate any statutory change that might affect the methodology for determining hospital costs either with or without the demonstration.

(3) Reconciling Actual and Estimated Costs of the Demonstration for Previous Years

As described earlier, we have calculated the difference for FYs 2005 through 2016 between the actual costs of the demonstration, as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years.

At this time, for the FY 2023 proposed rule, all of the finalized cost reports are available for the 17 hospitals that completed cost report periods beginning in FY 2017 under the demonstration payment methodology; these cost reports show the actual costs of the demonstration for this fiscal year to be $35,989,928. We note that the FY 2017 IPPS final rule included no budget neutrality offset amount for that fiscal year. The final rule for FY 2017 preceded the re-authorization of the demonstration under the Cures Act. Anticipating that the demonstration would end in 2016, we projected no demonstration cost estimate for the upcoming fiscal year, FY 2017, while we stated that we would continue to reconcile actual costs when all finalized cost reports for previous fiscal years under the demonstration became available (81 FR 57037). Thus, keeping with past practice, for this proposed rule we are including the actual costs of the demonstration as determined from finalized cost reports for FY 2017 within the budget neutrality offset amount for this upcoming fiscal year.

We observe that the cost amounts shown by finalized cost reports may change in the case of revised settlements by the MACs. We propose that if such a re-settlement of any of the FY 2017 finalized cost reports occurs ahead of the FY 2023 IPPS final rule, we would accordingly adjust the amount for the actual costs of the demonstration for FY 2017 when compiling the total budget neutrality offset amount for the FY 2023 final rule.

(4) Total Proposed Budget Neutrality Offset Amount for FY 2023

Therefore, for this FY 2023 IPPS/LTCH PPS proposed rule, the proposed budget neutrality offset amount for FY 2023 is based on the sum of two amounts:

• The amount determined under section X.4.c.(2) of the preamble of this proposed rule, representing the difference applicable to FY 2023 between the sum of the estimated reasonable cost amounts that would be paid under the demonstration for covered inpatient services to the 26 hospitals participating in the fiscal year and the sum of the estimated amounts that would generally be paid if the demonstration had not been implemented. This estimated amount is $71,955,710.

• The amount determined under section X.4.c.(3) of the preamble of this proposed rule, indicating the amount by which the actual costs of the demonstration in FY 2017 (as shown by finalized cost reports from that fiscal year) differ from the amount determined for FY 2017. Since no budget neutrality offset was conducted in FY 2017, the amount of this difference is the actual cost amount for FY 2017 $35,989,928.

We propose to subtract the sum of these amounts ($107,945,638) from the national IPPS rates for FY 2023.

However, we note that the total amount of the adjustment may change if there are any revisions prior to the final rule to the data used to formulate this estimate. We would also revise the budget neutrality offset amount in case of any re-settlement to finalized cost reports or changes to statutory provisions that affect the methodology for determining the budget neutrality estimate for the upcoming year.

VI. Proposed Changes to the IPPS for Capital Related Costs

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services in accordance with a prospective payment system established by the Secretary. Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital-related costs. We initially implemented the IPPS for capital-related costs in the FY 1992 IPPS final rule (56 FR 43358). In that final rule, we established a 10-year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based payment methodology to a prospective payment methodology (based fully on the Federal rate).

FY 2001 was the last year of the 10-year transition period that was established to phase in the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all acute care hospitals (other than hospitals receiving certain exception payments and certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 through 39914) for additional information on the methodology used to determine capital IPPS payments to hospitals both during and after the transition period.)

The basic methodology for determining capital prospective payments using the Federal rate is set forth in the regulations at 42 CFR 412.312. For the purpose of calculating capital payments for each discharge, the standard Federal rate is adjusted as follows:

(Standard Federal Rate) × (DRG Weight) × (Geographic Adjustment Factor (GAF) × (COLA for hospitals located in Alaska and Hawaii) × (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable).

In addition, under § 412.312(c), hospitals also may receive outlier payments under the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds established for each fiscal year.

B. Additional Provisions

1. Exception Payments

The regulations at 42 CFR 412.348 provide for certain exception payments under the capital IPPS. The regular exception payments provided under § 412.348(b) through (e) were available only during the 10-year transition period. For a certain period after the transition period, eligible hospitals may have received additional payments under the special exceptions provisions at § 412.348(g). However, FY 2012 was the final year hospitals could receive special exceptions payments. For additional details regarding these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).

Under § 412.348(f), a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control. Additional information on the exception payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).

2. New Hospitals

Under the capital IPPS, the regulations at 42 CFR 412.300(b) define a new hospital as a hospital that has operated (under previous or current ownership) for less than 2 years and lists examples of hospitals that are not considered new hospitals. In accordance with § 412.304(c)(2), under the capital IPPS, a new hospital is paid 85 percent of its allowable Medicare inpatient hospital capital related costs through its first 2 years of operation, unless the new hospital elects to receive full prospective payment based on 100 percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for additional information on payments to new hospitals under the capital IPPS.

3. Payments for Hospitals Located in Puerto Rico

In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised the regulations at 42 CFR 412.374 relating to the calculation of capital IPPS payments to hospitals located in Puerto Rico beginning in FY 2017 to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, for discharges occurring on or after January 1, 2016, made by section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section 601 of Public Law 114-113 increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. As such, under revised § 412.374, for discharges occurring on or after October 1, 2016, capital IPPS payments to hospitals located in Puerto Rico are based on 100 percent of the capital Federal rate.

C. Proposed Annual Update for FY 2023

The proposed annual update to the national capital Federal rate, as provided for in 42 CFR 412.308(c), for FY 2023 is discussed in section III. of the Addendum to this FY 2023 IPPS/LTCH PPS proposed rule.

In section II.C. of the preamble of this FY 2023 IPPS/LTCH PPS proposed rule, we present a discussion of the MS-DRG documentation and coding adjustment, including previously finalized policies and historical adjustments, as well as the adjustment to the standardized amount under section 1886(d) of the Act that we are proposing for FY 2023, in accordance with the amendments made to section 7(b)(1)(B) of Public Law 110-90 by section 414 of the MACRA. Because these provisions require us to make an adjustment only to the operating IPPS standardized amount, we are not proposing to make a similar adjustment to the national capital Federal rate (or to the hospital-specific rates).

VII. Proposed Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2023

Certain hospitals excluded from a prospective payment system, including children's hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) receive payment for inpatient hospital services they furnish on the basis of reasonable costs, subject to a rate-of-increase ceiling. A per discharge limit (the target amount, as defined in § 413.40(a) of the regulations) is set for each hospital based on the hospital's own cost experience in its base year, and updated annually by a rate-of-increase percentage. For each cost reporting period, the updated target amount is multiplied by total Medicare discharges during that period and applied as an aggregate upper limit (the ceiling as defined in § 413.40(a)) of Medicare reimbursement for total inpatient operating costs for a hospital's cost reporting period. In accordance with § 403.752(a) of the regulations, religious nonmedical health care institutions (RNHCIs) also are subject to the rate-of-increase limits established under § 413.40 of the regulations discussed previously. Furthermore, in accordance with § 412.526(c)(3) of the regulations, extended neoplastic disease care hospitals also are subject to the rate-of-increase limits established under § 413.40 of the regulations discussed previously.

As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, and RNHCIs. Consistent with the regulations at §§ 412.23(g) and 413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage increase in the IPPS operating market basket to update target amounts for short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. In the FY 2018 IPPS/LTCH PPS final rule, we rebased and revised the IPPS operating basket to a 2014 base year, effective for FY 2018 and subsequent fiscal years (82 FR 38158 through 38175), and finalized the use of the percentage increase in the 2014-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2018 and subsequent fiscal years. As discussed in section IV. of the preamble of the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and revised the IPPS operating basket to a 2018 base year. Therefore, we used the percentage increase in the 2018-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal years.

For this FY 2023 IPPS/LTCH PPS proposed rule, based on IGI's 2021 fourth quarter forecast, we estimate that the 2018-based IPPS operating market basket update for FY 2023 is 3.1 percent (that is, the estimate of the market basket rate-of-increase). Based on this estimate, the FY 2023 rate-of-increase percentage that would be applied to the FY 2022 target amounts in order to calculate the FY 2023 target amounts for children's hospitals, the 11 cancer hospitals, RNCHIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa would be 3.1 percent, in accordance with the applicable regulations at 42 CFR 413.40. However, we are proposing that if more recent data become available for the FY 2023 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the final IPPS operating market basket update for FY 2023.

In addition, payment for inpatient operating costs for hospitals classified under section 1886(d)(1)(B)(vi) of the Act (which we refer to as “extended neoplastic disease care hospitals”) for cost reporting periods beginning on or after January 1, 2015, is to be made as described in 42 CFR 412.526(c)(3), and payment for capital costs for these hospitals is to be made as described in 42 CFR 412.526(c)(4). (For additional information on these payment regulations, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38321 through 38322).) Section 412.526(c)(3) provides that the hospital's Medicare allowable net inpatient operating costs for that period are paid on a reasonable cost basis, subject to that hospital's ceiling, as determined under § 412.526(c)(1), for that period. Under § 412.526(c)(1), for each cost reporting period, the ceiling was determined by multiplying the updated target amount, as defined in § 412.526(c)(2), for that period by the number of Medicare discharges paid during that period. Section 412.526(c)(2)(i) describes the method for determining the target amount for cost reporting periods beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for cost reporting periods beginning during fiscal years after FY 2015, the target amount will equal the hospital's target amount for the previous cost reporting period updated by the applicable annual rate-of-increase percentage specified in § 413.40(c)(3) for the subject cost reporting period (79 FR 50197).

For FY 2023, in accordance with §§ 412.22(i) and 412.526(c)(2)(ii) of the regulations, for cost reporting periods beginning during FY 2022, the proposed update to the target amount for extended neoplastic disease care hospitals (that is, hospitals described under § 412.22(i)) is the applicable annual rate-of-increase percentage specified in § 413.40(c)(3) for FY 2022, which would be equal to the percentage increase in the hospital market basket, which is estimated to be the percentage increase in the 2018-based IPPS operating market basket (that is, the estimate of the market basket rate-of-increase). Accordingly, the proposed update to an extended neoplastic disease care hospital's target amount for FY 2023 is 3.1 percent, which is based on IGI's 2021 fourth quarter forecast. Furthermore, we are proposing that if more recent data become available for the FY 2023 IPPS/LTCH PPS final rule, we would use such data, if appropriate, to calculate the IPPS operating market basket update for FY 2023.

B. Critical Access Hospitals (CAHs)

1. Background

Section 1820 of the Act provides for the establishment of Medicare Rural Hospital Flexibility Programs (MRHFPs), under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participation under 42 CFR part 485, subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare beneficiaries are located in 42 CFR part 413.

2. Frontier Community Health Integration Project Demonstration

a. Introduction

The Frontier Community Health Integration Project Demonstration was originally authorized by section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). The demonstration has been extended by section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) for an additional 5 years. In this proposed rule, we are summarizing the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality for the demonstration extension period.

b. Background and Overview

As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), section 123 of the Medicare Improvements for Patients and Providers Act of 2008, as amended by section 3126 of the Affordable Care Act, authorized a demonstration project to allow eligible entities to develop and test new models for the delivery of health care services in eligible counties in order to improve access to and better integrate the delivery of acute care, extended care and other health care services to Medicare beneficiaries. The demonstration was titled “Demonstration Project on Community Health Integration Models in Certain Rural Counties,” and commonly known as the Frontier Community Health Integration Project (FCHIP) Demonstration.

The authorizing statute stated the eligibility criteria for entities to be able to participate in the demonstration. An eligible entity, as defined in section 123(d)(1)(B) of Public Law 110-275, as amended, is a Medicare Rural Hospital Flexibility Program (MRHFP) grantee under section 1820(g) of the Act (that is, a CAH); and is located in a state in which at least 65 percent of the counties in the state are counties that have 6 or less residents per square mile.

The authorizing statute stipulated several other requirements for the demonstration. In addition, section 123(g)(1)(B) of Public Law 110-275 required that the demonstration be budget neutral. Specifically, this provision stated that, in conducting the demonstration project, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project under the section were not implemented. Furthermore, section 123(i) of Public Law 110-275 stated that the Secretary may waive such requirements of titles XVIII and XIX of the Act as may be necessary and appropriate for the purpose of carrying out the demonstration project, thus allowing the waiver of Medicare payment rules encompassed in the demonstration. CMS selected CAHs to participate in four interventions, under which specific waivers of Medicare payment rules would allow for enhanced payment for telehealth, skilled nursing facility/nursing facility beds, ambulance services, and home health services. These waivers were formulated with the goal of increasing access to care with no net increase in costs.

Section 123 of Public Law 110-275 initially required a 3-year period of performance. The FCHIP Demonstration began on August 1, 2016, and concluded on July 31, 2019 (referred to in this section as the “initial period”). Subsequently, section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) extended the demonstration by 5 years (referred to in this section as the “extension period”). The Secretary is required to conduct the demonstration for an additional 5-year period. CAHs participating in the demonstration project during the extension period shall begin such participation in the cost reporting year that begins on or after January 1, 2022.

As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), 10 CAHs were selected for participation in the demonstration initial period. The selected CAHs were located in three states—Montana, Nevada, and North Dakota—and participated in three of the four interventions identified in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57064 through 57065), the FY 2018 IPPS/LTCH PPS final rule (82 FR 38294 through 38296), and the FY 2019 IPPS/LTCH PPS final rule (83 FR 41516 through 41517), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42427 through 42428) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58894 through 58896) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328). Each CAH was allowed to participate in more than one of the interventions. None of the selected CAHs were participants in the home health intervention, which was the fourth intervention.

In the FY 2022 IPPS/LTCH PPS final rule, CMS concluded that the initial period of the FCHIP Demonstration (covering the performance period of August 1, 2016, to July 31, 2019) had satisfied the budget neutrality requirement described in section 123(g)(1)(B) of Public Law 110-275. Therefore, CMS did not apply a budget neutrality payment offset policy for the initial period of the demonstration.

Section 129 of Public Law 116-260, stipulates that only the 10 CAHs that participated in the initial period of the FCHIP Demonstration are eligible to participate during the extension period. Among the eligible CAHs, six have elected to participate in the extension period. The selected CAHs are located in two states—Montana and North Dakota—and are implementing three of the four interventions. The eligible CAH participants elected to change the number of interventions and payment waivers they would participate in during the extension period. CMS accepted and approved the CAHs intervention and payment waiver updates. For the extension period, five CAHs are participants in the telehealth intervention, four CAHs are participants in the skilled nursing facility/nursing facility bed intervention, and three CAHs are participants in the ambulance services intervention. As with the initial period, each CAH was allowed to participate in more than one of the interventions during the extension period. None of the selected CAHs are participants in the home health intervention, which was the fourth intervention.

c. Intervention Payment and Payment Waivers

As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS waived certain Medicare rules for CAHs participating in the demonstration initial period to allow for alternative reasonable cost-based payment methods in the three distinct intervention service areas: Telehealth services, ambulance services, and skilled nursing facility/nursing facility (SNF/NF) beds expansion. The payments and payment waiver provisions only apply if the CAH is a participant in the associated intervention. Given updates to Medicare payment rules and regulations, CMS has modified and/or updated the Intervention Payment and Payment Waivers for the extension period. The FCHIP payment waivers for the demonstration extension period consist of the following:

(1) Telehealth Services Intervention Payments

CMS waives section 1834(m)(2)(B) of the Act, which specifies the facility fee to the originating site. CMS modifies the facility fee payment specified under section 1834(m)(2)(B) of the Act to make reasonable cost-based reimbursement to the participating CAH where the participating CAH serves as the originating site for a telehealth service furnished to an eligible telehealth individual, as defined in section 1834(m)(4)(B). CMS would reimburse the participating CAH serving as the originating site at 101 percent of its reasonable costs for overhead, salaries and fringe benefits associated with telehealth services at the participating CAH. CMS would not fund or provide reimbursement to the participating CAH for the purchase of new telehealth equipment.

CMS waives section 1834(m)(2)(A) of the Act, which specifies the payment made for a telehealth service furnished by the distant site practitioner. CMS modifies the distant site payment specified under section 1834(m)(2)(A) of the Act to make reasonable cost-based reimbursement to the participating CAH for telehealth services furnished by a physician or practitioner located at distant site that is a participating CAH that is billing for the physician or practitioner professional services. Whether the participating CAH has or has not elected Optional Payment Method II for outpatient services, CMS would pay the participating CAH 101 percent of reasonable costs for telehealth services when a physician or practitioner has reassigned their billing rights to the participating CAH and furnishes telehealth services from the participating CAH as a distant site practitioner. This means that participating CAHs that are billing under the Standard Method on behalf of employees who are physicians or practitioners (as defined in section 1834(m)(4)(D) and (E), respectively) would be eligible to bill for distant site telehealth services furnished by these physicians and practitioners. Additionally, CAHs billing under the Optional Method would be reimbursed based on 101 percent of reasonable costs, rather than paid based on the Medicare physician fee schedule, for the distant site telehealth services furnished by physicians and practitioners who have reassigned their billing rights to the CAH. For distant site telehealth services furnished by physicians or practitioners who have not reassigned billing rights to a participating CAH, payment to the distant site physician or practitioner would continue to be made as usual under the Medicare physician fee schedule. Currently these services are eligible to be furnished and paid in this way due to a waiver issued during the PHE. Except as described herein, CMS does not waive any other provisions of section 1834(m) of the Act for purposes of the telehealth services intervention payments, including the scope of Medicare telehealth services as established under section 1834(m)(4)(F).

(2) Ambulance Services Intervention Payments

CMS waives 42 CFR 413.70(b)(5)(D) and section 1834(l)(8) of the Act, which provides that payment for ambulance services furnished by a CAH, or an entity owned and operated by a CAH, is 101 percent of the reasonable costs of the CAH or the entity in furnishing the ambulance services, but only if the CAH or the entity is the only provider or supplier of ambulance services located within a 35-mile drive of the CAH, excluding ambulance providers or suppliers that are not legally authorized to furnish ambulance services to transport individuals to or from the CAH. The participating CAH would be paid 101 percent of reasonable costs for its ambulance services regardless of whether there is any provider or supplier of ambulance services located within a 35-mile drive of the participating CAH or participating CAH-owned and operated entity. CMS would not make cost-based payment to the participating CAH for any new capital (for example, vehicles) associated with ambulance services. This waiver does not modify any other Medicare rules regarding or affecting the provision of ambulance services.

(3) SNF/NF Beds Expansion Intervention Payments

CMS waives 42 CFR 485.620(a), 42 CFR 485.645(a)(2), and section 1820(c)(2)(B)(iii) of the Act which limit CAHs to maintaining no more than 25 inpatient beds, including beds available for acute inpatient or swing bed services. CMS waives 1820(f) of the Act permitting designating or certifying a facility as a critical access hospital for which the facility at any time is furnishing inpatient beds which exceed more than 25 beds. Under this waiver, if the participating CAH has received swing bed approval from CMS, the participating CAH may maintain up to ten additional beds (for a total of 35 beds) available for acute inpatient or swing bed services; however, the participating CAH may only use these 10 additional beds for nursing facility or skilled nursing facility level of care. CMS would pay the participating CAH 101 percent of reasonable costs for its SNF/NF services furnished in the 10 additional beds.

d. Budget Neutrality

(1) Budget Neutrality Requirement

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), we finalized a policy to address the budget neutrality requirement for the demonstration initial period. We also discussed this policy in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57064 through 57065), the FY 2018 IPPS/LTCH PPS final rule (82 FR 38294 through 38296), the FY 2019 IPPS/LTCH PPS final rule (83 FR 41516 through 41517), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42427 through 42428) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58894 through 58996). As explained in the FY 2022 IPPS/LTCH PPS final rule, we based our selection of CAHs for participation in the demonstration with the goal of maintaining the budget neutrality of the demonstration on its own terms meaning that the demonstration would produce savings from reduced transfers and admissions to other health care providers, offsetting any increase in Medicare payments as a result of the demonstration. However, because of the small size of the demonstration and uncertainty associated with the projected Medicare utilization and costs, the policy we finalized for the demonstration initial period of performance in the FY 2022 IPPS/LTCH PPS final rule provides a contingency plan to ensure that the budget neutrality requirement in section 123 of Public Law 110-275 is met.

For the FY 2023 proposed rule, CMS is proposing to adopt the budget same neutrality policy contingency plan used during the demonstration initial period to ensure that the budget neutrality requirement in section 123 of Public Law 110 275 is met during the demonstration extension period. If analysis of claims data for Medicare beneficiaries receiving services at each of the participating CAHs, as well as from other data sources, including cost reports for the participating CAHs, shows that increases in Medicare payments under the demonstration during the 5-year extension period are not sufficiently offset by reductions elsewhere, we would recoup the additional expenditures attributable to the demonstration through a reduction in payments to all CAHs nationwide.

As explained in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), because of the small scale of the demonstration, we indicated that we did not believe it would be feasible to implement budget neutrality for the demonstration initial period by reducing payments to only the participating CAHs. Therefore, in the event that this demonstration extension period is found to result in aggregate payments in excess of the amount that would have been paid if this demonstration extension period were not implemented, CMS policy is to comply with the budget neutrality requirement finalized in the FY 2022 IPPS/LTCH PPS final rule, by reducing payments to all CAHs, not just those participating in the demonstration extension period.

In the FY 2022 IPPS/LTCH PPS final rule, we stated that we believe it is appropriate to make any payment reductions across all CAHs because the FCHIP Demonstration was specifically designed to test innovations that affect delivery of services by the CAH provider category. We explained our belief that the language of the statutory budget neutrality requirement at section 123(g)(1)(B) of Public Law 110-275 permits the agency to implement the budget neutrality provision in this manner. The statutory language merely refers to ensuring that aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project was not implemented, and does not identify the range across which aggregate payments must be held equal.

Under the policy finalized in the FY 2022 IPPS/LTCH PPS final rule, we adopted the policy finalized in the FY 2017 IPPS/LTCH PPS final rule, in the event the demonstration initial period was found not to have been budget neutral, any excess costs would be recouped over a period of 3 cost reporting years. For the FY 2023 proposed rule, we seek public comment on this proposal, as we are revising an aspect of the policy finalized in the FY 2022 IPPS/LTCH PPS final rule. Our new proposed policy is in the event the demonstration extension period is found not to have been budget neutral, any excess costs would be recouped within one fiscal year. We believe our new proposed policy is a more efficient timeframe for the government to conclude the demonstration operational requirements (such as analyzing claims data, cost report data and/or other data sources) to adjudicate the budget neutrality payment recoupment process due to any excess cost that occurred as result of the demonstration extension period.

(2) FCHIP Budget Neutrality Methodology and Analytical Approach

As explained in the FY 2022 IPPS/LTCH PPS final rule, we finalized a policy to address the demonstration budget neutrality methodology and analytical approach for the initial period of the demonstration. For this FY 2023 proposed rule, CMS is proposing to adopt the budget neutrality methodology and analytical approach used during the demonstration initial period to ensure budget neutrality for the extension period. The analysis of budget neutrality during the initial period of the demonstration identified both the costs related to providing the intervention services under the FCHIP Demonstration and any potential downstream effects of the intervention-related services, including any savings that may have accrued.

The budget neutrality analytical approach for the demonstration initial period incorporated two major data components: (1) Medicare cost reports; and (2) Medicare administrative claims. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS computed the cost of the demonstration for each fiscal year of the demonstration initial period using Medicare cost reports for the participating CAHs, and Medicare administrative claims and enrollment data for beneficiaries who received demonstration intervention services.

In addition, in order to capture the full impact of the interventions, CMS developed a statistical modeling, Difference-in-Difference (DiD) regression analysis to estimate demonstration expenditures and compute the impact of expenditures on the intervention services by comparing cost data for the demonstration and non-demonstration groups using Medicare administrative claims across the demonstration period of performance under the initial period of the demonstration. The DiD regression analysis would compare the direct cost and potential downstream effects of intervention services, including any savings that may have accrued, during the baseline and performance period for both the demonstration and comparison groups.

Second, the Medicare administrative claims analysis would be reconciled using data obtained from auditing the participating CAHs' Medicare cost reports. We would estimate the costs of the demonstration using “as submitted” cost reports for each hospital's financial fiscal year participation within each of the demonstration extension period performance years. Each CAH has its own Medicare cost report end date applicable to the five-year period of performance for the demonstration extension period. The cost report is structured to gather costs, revenues and statistical data on the provider's financial fiscal period. As a result, we would determine the final budget neutrality results for the demonstration extension once complete data is available for each CAH for the demonstration extension period.

d. Proposed Policies for Implementing the 5-Year Extension and Provisions Authorized by Section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260)

As stated in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), our policy for implementing the 5-year extension period for section 129 of Public Law 116-260 follows same budget neutrality methodology and analytical approach as the demonstration initial period methodology. While we expect to use the same methodology that was used to assess the budget neutrality of the FCHIP Demonstration during initial period of the demonstration to assess the financial impact of the demonstration during this extension period, upon receiving data for the extension period, we may update and/or modify the FCHIP budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured. For the FY 2023 proposed rule, CMS is proposing to adopt the same budget neutrality methodology and analytical approach used during the demonstration initial period to be used for the demonstration extension period.

e. Total Proposed Budget Neutrality Offset Amount for FY 2023

At this time, for the FY 2023 proposed rule, while this discussion represents our anticipated approach to assessing the financial impact of the demonstration extension period based on upon receiving data for the full demonstration extension period, we may update and/or modify the FCHIP Demonstration budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured.

Therefore, we do not propose to apply a budget neutrality payment offset to payments to CAHs in FY 2023. This policy would have no impact for any national payment system for FY 2023.

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2023

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002.

Section 1886(d)(1)(B)(iv)(I) of the Act originally defined an LTCH as a hospital that has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days. Section 1886(d)(1)(B)(iv)(II) of the Act also provided an alternative definition of LTCHs (“subclause II” LTCHs). However, section 15008 of the 21st Century Cures Act (Pub. L. 114-255) amended section 1886 of the Act to exclude former “subclause II” LTCHs from being paid under the LTCH PPS and created a new category of IPPS-excluded hospitals, which we refer to as “extended neoplastic disease care hospitals,” to be paid as hospitals that were formally classified as “subclause (II)” LTCHs (82 FR 38298).

Section 123 of the BBRA requires the PPS for LTCHs to be a “per discharge” system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resource use and costs in LTCHs.

Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment.

In the August 30, 2002, Federal Register , we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR 55954). For the initial implementation of the LTCH PPS (FYs 2003 through 2007), the system used information from LTCH patient records to classify patients into distinct long-term care-diagnosis-related groups (LTCDRGs) based on clinical characteristics and expected resource needs. Beginning in FY 2008, we adopted the Medicare severity-long-term care-diagnosis related groups (MS-LTC-DRGs) as the patient classification system used under the LTCH PPS. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register .

The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97248) for payments for inpatient services provided by an LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA reasonable-cost-based payment provisions are located at 42 CFR part 413.) With the implementation of the PPS for acute care hospitals authorized by the Social Security Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital specific ceiling on payments was determined by multiplying the hospital's updated target amount by the number of total current year Medicare discharges. (Generally, in this section of the preamble of this proposed rule, when we refer to discharges, we describe Medicare discharges.) The August 30, 2002, final rule further details the payment policy under the TEFRA system (67 FR 55954).

In the August 30, 2002, final rule, we provided for a 5-year transition period from payments under the TEFRA system to payments under the LTCH PPS. During this 5-year transition period, an LTCH's total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decrease in the percentage of the LTCH PPS payment that is based on reasonable cost concepts, unless an LTCH made a one-time election to be paid based on 100 percent of the Federal rate. Beginning with LTCHs' cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate.

In addition, in the August 30, 2002, final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the budget neutrality requirements mandated by section 123 of the BBRA. The same final rule that established regulations for the LTCH PPS under 42 CFR part 412, subpart O, also contained LTCH provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements. We refer readers to the August 30, 2002 final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS (67 FR 55954).

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623), we implemented the provisions of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), which mandated the application of the “site neutral” payment rate under the LTCH PPS for discharges that do not meet the statutory criteria for exclusion beginning in FY 2016. For cost reporting periods beginning on or after October 1, 2015, discharges that do not meet certain statutory criteria for exclusion are paid based on the site neutral payment rate. Discharges that do meet the statutory criteria continue to receive payment based on the LTCH PPS standard Federal payment rate. For more information on the statutory requirements of the Pathway for SGR Reform Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57068 through 57075).

In the FY 2018 IPPS/LTCH PPS final rule, we implemented several provisions of the 21st Century Cures Act (“the Cures Act”) (Pub. L. 114-255) that affected the LTCH PPS. (For more information on these provisions, we refer readers to 82 FR 38299.)

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41529), we made conforming changes to our regulations to implement the provisions of section 51005 of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which extends the transitional blended payment rate for site neutral payment rate cases for an additional 2 years. We refer readers to section VII.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule for a discussion of our final policy. In addition, in the FY 2019 IPPS/LTCH PPS final rule, we removed the 25-percent threshold policy under 42 CFR 412.538, which was a payment adjustment that was applied to payments for Medicare patient LTCH discharges when the number of such patients originating from any single referring hospital was in excess of the applicable threshold for given cost reporting period.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439), we further revised our regulations to implement the provisions of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) that relate to the payment adjustment for discharges from LTCHs that do not maintain the requisite discharge payment percentage and the process by which such LTCHs may have the payment adjustment discontinued.

2. Criteria for Classification as an LTCH

a. Classification as an LTCH

Under the regulations at § 412.23(e)(1), to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare. Furthermore, § 412.23(e)(2)(i), which implements section 1886(d)(1)(B)(iv) of the Act, requires that a hospital have an average Medicare inpatient length of stay of greater than 25 days to be paid under the LTCH PPS. In accordance with section 1206(a)(3) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), as amended by section 15007 of Public Law 114-255, we amended our regulations to specify that Medicare Advantage plans' and site neutral payment rate discharges are excluded from the calculation of the average length of stay for all LTCHs, for discharges occurring in cost reporting period beginning on or after October 1, 2015.

b. Hospitals Excluded From the LTCH PPS

The following hospitals are paid under special payment provisions, as described in § 412.22(c) and, therefore, are not subject to the LTCH PPS rules:

• Veterans Administration hospitals.
• Hospitals that are reimbursed under State cost control systems approved under 42 CFR part 403.
• Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of the Social Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1), section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-603) (42 U.S.C. 1395b1 (note)) (Statewide-all payer systems, subject to the rate-of increase test at section 1814(b) of the Act), or section 3201 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) (42 U.S.C. 1315a).
• Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries.

3. Limitation on Charges to Beneficiaries

In the August 30, 2002 final rule, we presented an in-depth discussion of beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). This discussion was further clarified in the RY 2005 LTCH PPS final rule (69 FR 25676). In keeping with those discussions, if the Medicare payment to the LTCH is the full LTC-DRG payment amount, consistent with other established hospital prospective payment systems, § 412.507 currently provides that an LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under §§ 409.82, 409.83, and 409.87, and for items and services specified under § 489.30(a). However, under the LTCH PPS, Medicare will only pay for services furnished during the days for which the beneficiary has coverage until the short-stay outlier (SSO) threshold is exceeded. If the Medicare payment was for a SSO case (in accordance with § 412.529), and that payment was less than the full LTC-DRG payment amount because the beneficiary had insufficient coverage as a result of the remaining Medicare days, the LTCH also is currently permitted to charge the beneficiary for services delivered on those uncovered days (in accordance with § 412.507). In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49623), we amended our regulations to expressly limit the charges that may be imposed upon beneficiaries whose LTCHs' discharges are paid at the site neutral payment rate under the LTCH PPS. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57102), we amended the regulations under § 412.507 to clarify our existing policy that blended payments made to an LTCH during its transitional period (that is, an LTCH's payment for discharges occurring in cost reporting periods beginning in FYs 2016 through 2019) are considered to be site neutral payment rate payments.

4. Best Available Data

We refer readers to section I.F. of the preamble of this proposed rule for our discussion on our proposal to use the most recent data available for the FY 2023 LTCH PPS ratesetting, including the FY 2021 MedPAR claims and FY 2020 cost report data. In section I.F. of the preamble of this proposed rule we also discuss our proposal to modify our ratesetting methodology for FY 2023 to account for the ongoing COVID-19 PHE.

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2023

1. Background

Section 123 of the BBRA required that the Secretary implement a PPS for LTCHs to replace the cost-based payment system under TEFRA. Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine the feasibility and the impact of basing payment under the LTCH PPS on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients.

Under both the IPPS and the LTCH PPS, the DRG-based classification system uses information on the claims for inpatient discharges to classify patients into distinct groups (for example, DRGs) based on clinical characteristics and expected resource needs. When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system utilized at that time under the IPPS. We referred to this patient classification system as the “long-term care diagnosis-related groups (LTC-DRGs).” As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), we adopted the MS-DRGs and the Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs) under the IPPS and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 2008). For a full description of the development, implementation, and rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that, in that same final rule, we revised the regulations at § 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of 42 CFR part 412, subpart O, applicable to LTCHs for policy descriptions and payment calculations, all references to LTC-DRGs would be considered a reference to MS-LTC-DRGs. For the remainder of this section, we present the discussion in terms of the current MS-LTC-DRG patient classification system unless specifically referring to the previous LTC-DRG patient classification system that was in effect before October 1, 2007.)

Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and § 412.515 of the regulations, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and estimated resource needs. As noted previously, we adopted the same DRG patient classification system utilized at that time under the IPPS. The MS-DRG classifications are updated annually, which has resulted in the number of MS-DRGs changing over time. For FY 2023, there would be 767 MS-DRG, and by extension, MS-LTC-DRG, groupings based on the proposed changes, as discussed in section II.E. of the preamble of this proposed rule.

Although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in relative weights under the LTCH PPS that reflect the differences in patient resource use of LTCH patients, consistent with section 123(a)(1) of the BBRA. That is, we assign an appropriate weight to the MS-LTC-DRGs to account for the differences in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients.

2. Patient Classifications Into MS-LTC-DRGs

a. Background

The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under the LTCH PPS) are based on the CMS DRG structure. As noted previously in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs although they are structurally identical to the MS-DRGs used under the IPPS.

The MS-DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER software program does not recognize all ICD-10-PCS procedure codes as procedures affecting DRG assignment. That is, procedures that are not surgical (for example, EKGs) or are minor surgical procedures (for example, a biopsy of skin and subcutaneous tissue (procedure code 0JBH3ZX)) do not affect the MS-LTC-DRG assignment based on their presence on the claim.

Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge that varies based on the MS-LTC-DRG to which a beneficiary's discharge is assigned. Cases are classified into MS-LTC-DRGs for payment based on the following six data elements:

• Principal diagnosis.
• Additional or secondary diagnoses.
• Surgical procedures.
• Age.
• Sex.
• Discharge status of the patient.

Currently, for claims submitted using the version ASC X12 5010 format, up to 25 diagnosis codes and 25 procedure codes are considered for an MS-DRG assignment. This includes one principal diagnosis and up to 24 secondary diagnoses for severity of illness determinations. (For additional information on the processing of up to 25 diagnosis codes and 25 procedure codes on hospital inpatient claims, we refer readers to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127).)

Under the HIPAA transactions and code sets regulations at 45 CFR parts 160 and 162, covered entities must comply with the adopted transaction standards and operating rules specified in subparts I through S of part 162. Among other requirements, on or after January 1, 2012, covered entities were required to use the ASC X12 Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or equivalent encounter information transaction (45 CFR 162.1102(c)).

HIPAA requires covered entities to use the applicable medical data code set requirements when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure codes from the most current version of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, both of which were required to be implemented October 1, 2015 (45 CFR 162.1002(c)(2) and (3)). For additional information on the implementation of the ICD-10 coding system, we refer readers to section II.F.1. of the preamble of the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56790) and section II.E.1. of the preamble of this proposed rule. Additional coding instructions and examples are published in the AHA's Coding Clinic for ICD-10-CM/PCS.

To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base DRGs were subdivided according to the presence of specific secondary diagnoses designated as complications or comorbidities (CCs) into one, two, or three levels of severity, depending on the impact of the CCs on resources used for those cases. Specifically, there are sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or a major complication or comorbidity (MCC). We refer readers to section II.D. of the preamble of the FY 2008 IPPS final rule with comment period for a detailed discussion about the creation of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175).

MACs enter the clinical and demographic information submitted by LTCHs into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS-LTC-DRG can be made. During this process, certain types of cases are selected for further explanation (74 FR 43949).

After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). The GROUPER software used under the LTCH PPS is the same GROUPER software program used under the IPPS. Following the MS-LTC-DRG assignment, the MAC determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG assignments made by the MAC and to submit additional information within a specified timeframe as provided in § 412.513(c).

The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the MS-LTC-DRG relative weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible MS-DRG and MS-LTC-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during our annual update under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively.

b. Proposed Changes to the MS-LTC-DRGs for FY 2023

As specified by our regulations at § 412.517(a), which require that the MS-LTC-DRG classifications and relative weights be updated annually, and consistent with our historical practice of using the same patient classification system under the LTCH PPS as is used under the IPPS, in this proposed rule, we are proposing to update the MS-LTC-DRG classifications effective October 1, 2022 through September 30, 2023 (FY 2023) consistent with the proposed changes to specific MS-DRG classifications presented in section II.F. of the preamble of this proposed rule. Accordingly, the proposed MS-LTC-DRGs for FY 2023 presented in section II.F. of the preamble of this proposed rule are the same as the MS-DRGs being proposed for use under the IPPS for FY 2023. In addition, because the proposed MS-LTC-DRGs for FY 2023 are the same as the proposed MS-DRGs for FY 2023, the other proposed changes that affect MS-DRG (and by extension MS-LTC-DRG) assignments under proposed GROUPER Version 40, as discussed in section II.E. of the preamble of this proposed rule, including the proposed changes to the MCE software and the ICD-10-CM/PCS coding system, are also applicable under the LTCH PPS for FY 2023.

3. General Summary of the FY 2023 MS-LTC-DRG Relative Weights Methodology

In this section of this proposed rule, we provide a general summary of our proposed modifications to the methodology for determining the FY 2023 MS-LTC-DRG relative weights under the LTCH PPS.

a. Proposed Averaging of Relative Weights for FY 2023

In section I.F. of the preamble to this proposed rule, we discuss our proposal to use FY 2021 claims data for the FY 2023 LTCH PPS ratesetting. We recognize the impact COVID-19 cases in the FY 2021 claims data have on the relative weight calculations for a few COVID-19-related MS-LTC-DRGs. Specifically, we have determined that the COVID-19 cases grouped to a few MS-LTC-DRGs have, on average, meaningfully different costs than the non-COVID-19 cases grouped to these MS-LTC-DRGs. As a result, for these MS-LTC-DRGs, the relative weights calculated using all cases will be meaningfully different than the relative weights calculated excluding COVID-19 cases. For example, using the FY 2021 MedPAR data, the relative weight for MS-LTC-DRG 870 (Septicemia or severe sepsis with MV >96 hours) is approximately 3.1 percent higher when the relative weights are calculated including COVID-19 cases compared to when the relative weights are calculated excluding COVID-19 cases. In section I.F. of the preamble to this proposed rule, we also discuss that we believe it is reasonable to assume there will be fewer COVID-19 hospitalizations among Medicare beneficiaries in LTCHs in FY 2023 than there were in FY 2021, although we cannot know the actual number of COVID-19 hospitalizations among Medicare beneficiaries in LTCHs in FY 2023. We are proposing to modify our relative weight methodology for FY 2023 to align with an assumption that there will be fewer, but not zero, COVID-19 cases in FY 2023 compared to FY 2021. To account for this assumption, we are proposing an averaging approach to determine the MS-LTC-DRG relative weights for FY 2023. Specifically, we are proposing to calculate the relative weights both including and excluding COVID-19 cases, and then average the two sets of relative weights together. We believe this proposal is appropriate as it will reduce, but not remove entirely, the effect of COVID-19 cases on the relative weight calculations. Given the uncertainty in the number of COVID-19 cases in FY 2023, we believe this proposal is appropriate. By averaging the relative weights in this manner, we believe the result would reflect a reasonable estimation of the mix of cases for FY 2023 based on the information available at this time on the trajectory of the COVID-19 PHE (as discussed in section I.F. of the preamble to this proposed rule), and a more accurate estimate of the relative resource use for cases treated in FY 2023. We believe the relative weights calculated using our proposed modified methodology would be more accurate than if we applied our standard methodology, that is, with relative weights calculated based on 100 percent of the relative weights calculated using all applicable LTCH cases. The technical details of this proposal are discussed in section VIII.B.4. of the preamble to this proposed rule. As discussed in section I.O of Appendix A of this proposed rule, as an alternative to our proposed approach, we considered following our historical approach for calculating the relative weights and not proposing this modification. That is, we considered proposing to determine the FY 2023 MS-LTC-DRG weights using all applicable LTCH cases without any modifications to account for COVID-19 cases. We note, this proposed averaging approach and alternative considered for the calculation of the FY 2023 MS-LTC-DRG relative weights are consistent with the proposed approach and alternative considered under the IPPS for FY 2023 as discussed in section II.E.c. of the preamble and section I.O of Appendix A, respectively, to this proposed rule.

b. Proposed Cap on Relative Weight Decreases

In recent years, we have received comments about significant fluctuations in the relative weights for some MS-LTC-DRGs. Some commenters requested that CMS establish a transition policy to mitigate the negative effects of significant year-to-year reductions to relative weights. In addition, we acknowledge long-standing concerns of commenters about fluctuations in low-volume MS-LTC-DRGs, which consistently fluctuate more significantly than higher volume MS-LTC-DRGs. In general, typical year-to-year fluctuations in case mix and the presence of some very high-cost or very low-cost cases (that are not statistical outliers) do not have a significant impact on the relative weights for most MS-LTC-DRGs with at least 25 cases (that is, MS-LTC-DRGs that are not low-volume or no-volume as discussed later in section VIII.B.4. of this preamble). However, for some MS-LTC-DRGs, particularly those with low volume, these fluctuations in the volume or mix of cases and the presence of a few high-cost or low-cost cases can have a disproportionate impact on both, thus resulting in greater instability in the relative weights for these MS-LTC-DRGs, which can reduce the predictability and stability of an individual LTCH's Medicare payments from year to year.

Predictability and stability of rates is one of the fundamental principles of a prospective payment system. We have reconsidered requests made by commenters that we mitigate the financial impacts of significant year-to-year fluctuations in relative weights. We note that in section V.B.5. of the addendum to this proposed rule, we are proposing a permanent 5 percent cap on yearly decreases to an LTCH's wage index to mitigate the financial impacts of wage index decreases to increase predictability and stability in LTCH PPS payments. Given the concerns commenters have raised about the financial impacts of significant year-to-year fluctuations in MS-LTC-DRGs relative weights, we are revisiting the appropriateness of establishing a policy to address these concerns.

Consistent with the broad authority conferred upon the Secretary by section 123 of the BBRA, as amended by section 307(b) of the BIPA, to determine appropriate payment adjustments under the LTCH PPS, including adjustments to DRG weights, we are proposing a permanent 10-percent cap on the reduction to a MS-LTC-DRG's relative weight in a given year, beginning in FY 2023. (The details on the application of this proposed adjustment are discussed in section VIII.B.4. of the preamble to this proposed rule.) For example, if the relative weight for MS-LTC-DRG XYZ in FY 2022 is 1.100 and the relative weight for FY 2023 would otherwise be 0.9350, which would represent a decrease of 15 percent from FY 2022, the reduction would be limited to 10 percent such that the proposed relative weight for FY 2023 would be 0.9900 (that is, 0.90 × FY 2022 weight of 1.100). We are proposing that this 10-percent cap would be applied to the relative weights for MS-LTC-DRGs with applicable LTCH cases. Under this proposal, the 10-percent cap would not apply to no-volume MS-LTC-DRGs (that is an MS-LTC-DRG with no applicable LTCH cases) whose relative weight was determined by a cross-walk to another MS-LTC-DRG's relative weight. We believe it is not necessary to apply the 10-percent cap to no-volume MS-LTC-DRGs because the financial impact of fluctuations in the relative weights for these no-volume MS-LTC-DRGs is extremely small as evident by there being zero applicable LTCH cases grouped to these MS-LTC-DRGs in the MedPAR claims data.

We are also proposing that the 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year be budget neutral. This means we would apply a budget neutrality adjustment to the MS-LTC-DRG relative weights, after application of the 10-percent cap, to ensure that our proposed 10-percent cap on relative weight reductions policy results in no change in aggregate LTCH PPS standard Federal rate payments. Our proposal to apply the proposed 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year in a budget neutral manner is consistent with the existing budget neutrality requirement for annual MS-LTC-DRG reclassification and recalibration, which we adopted to mitigate estimated fluctuations in estimated aggregate LTCH PPS payments (72 FR 26881-26882).

We believe the impact of the application of a cap on relative weight reductions on an LTCH's total LTCH PPS payments in a given year would be relatively small because a change in the relative weight would be applied to a single MS-LTC-DRG, unlike the impact of the wage index adjustment, which adjusts the payment for each discharge and impacts approximately two-thirds of an LTCH's total LTCH PPS payments in a given year. In considering the amount of the cap we should propose, we balanced the number of MS-LTC-DRGs that would receive the cap with the magnitude of the budget neutrality factor that would be applied to all MS-LTC-DRGs, while also maintaining an accurate reflection of the relative resource use across the MS-LTC-DRG weights overall. We considered that a higher cap, such as twenty percent cap, would limit declines in the relative weights for fewer MS-LTC-DRGs while a lower cap, such as a five percent cap, would limit declines in the relative weights for more MS-LTC-DRGs, but would also result in a larger budget neutrality adjustment. On balance, we believe that a 10-percent cap would mitigate financial impacts resulting from fluctuations in the relative weights, particularly for low-volume MS-LTC-DRGs, without the larger budget neutrality adjustment associated with a smaller cap, and without distorting the integrity of the MS-LTC-DRG relative weights overall as a reflection of relative resource use. We note that this proposed 10-percent cap on reductions to a MS-LTC-DRG's relative weight would apply only to a given MS-LTC-DRG with its current MS-LTC-DRG number. In cases where CMS creates new MS-LTC-DRGs or modifies the MS-LTC-DRGs as part of its annual reclassifications resulting in renumbering of one or more MS-LTC-DRGs, we are proposing that this limit on the reduction in the relative weight would not apply to any MS-LTC-DRGs affected by the renumbering (that is, the proposed 10-percent cap would not apply to the relative weight for any new or renumbered MS-LTC-DRGs for the fiscal year). The technical details of this proposal are discussed in section VIII.B.4. of the preamble to this proposed rule. This proposal is consistent with the proposed permanent 10-percent cap on decreases to a MS-DRG relative weight under the IPPS as discussed in section II.E.d. of the preamble of this proposed rule.

We are proposing to amend our regulations at 42 CFR 412.515 to reflect this proposed permanent cap on MS-LTC-DRG relative weight reductions. We are seeking comments on our proposal to establish a permanent 10-percent cap on decreases to a MS-LTC-DRG relative weight each year.

c. Proposed Conforming Changes to Other Components of the Proposed FY 2023 MS-LTC-DRG Relative Weights Methodology

In general, for FY 2023, we are proposing to continue applying the other components of our existing methodology for determining the MS-LTC-DRG relative weights (as discussed in greater detail in section VIII.B.4. of the preamble of this proposed rule) that are not impacted by our previously described proposed modifications to our methodology. We note that in conjunction with our proposal to establish the MS-LTC-DRG relative weights using an average of the relative weights calculated both including and excluding the COVID-19 claims, as described in greater detail later in this section, to align with an assumption that there will be fewer, but not zero, COVID-19 cases in FY 2023 compared to FY 2021 (as discussed previously), under our proposed modification to our relative weight methodology for FY 2023, we would calculate the MS-LTC-DRG relative weights methodology, described later in this section, twice—once to determine the relative weights based on claims data that include COVID-19 cases and again to determine the relative weights based on claims data that exclude COVID-19 cases. Specifically, in determining the relative weights based on both sets of claims, we are proposing to apply our established policies related to the hospital-specific relative value methodology, the treatment of severity levels in the MS LTC DRGs, low-volume and no-volume MS LTC DRGs, and adjustments for nonmonotonicity, only using data from applicable LTCH cases (which includes our policy of only using cases that would meet the criteria for exclusion from the site neutral payment rate). We discuss all components of our MS-LTC-DRG relative weight methodology in greater detail in section VIII.B.4.g. of the preamble of this proposed rule.

4. Proposed Development of the FY 2023 MS-LTC-DRG Relative Weights

a. General Overview of the MS-LTC-DRG Relative Weights

One of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is costlier (67 FR 55984). To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment rate by the applicable relative weight in determining payment to LTCHs for each case. Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a relative weight of 2 would, on average, cost twice as much to treat as cases in an MS-LTC-DRG with a relative weight of 1.

The established methodology to develop the MS-LTC-DRG relative weights is generally consistent with the methodology established when the LTCH PPS was implemented in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). However, there have been some modifications of our historical procedures for assigning relative weights in cases of zero volume and nonmonotonicity or both resulting from the adoption of the MS-LTC-DRGs, along with the change made in conjunction with the implementation of the dual rate LTCH PPS payment structure beginning in FY 2016 to use LTCH claims data from only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases that would have qualified for payment under the LTCH PPS standard Federal payment rate if the dual rate LTCH PPS payment structure had been in effect at the time of the discharge). (For details on the modifications to our historical procedures for assigning relative weights in cases of zero volume and nonmonotonicity or both, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through 48550).) For details on the change in our historical methodology to use LTCH claims data only from LTCH PPS standard Federal payment rate cases (or cases that would have qualified for such payment had the LTCH PPS dual payment rate structure been in effect at the time) to determine the MS-LTC-DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49614 through 49617).

For purposes of determining the MS-LTC-DRG relative weights, under our historical methodology, there are three different categories of MS-LTC-DRGs based on volume of cases within specific MS-LTC-DRGs: (1) MS-LTC-DRGs with at least 25 applicable LTCH cases in the data used to calculate the relative weight, which are each assigned a unique relative weight; (2) low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases that are grouped into quintiles (as described later in this section in Step 3 of our proposed methodology) and assigned the relative weight of the quintile); and (3) no-volume MS-LTC-DRGs that are cross-walked to other MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the cross-walked MS-LTC-DRG (as described later in this section in Step 8 of our proposed methodology). For FY 2023, we are proposing to continue to use applicable LTCH cases to establish the same volume-based categories to calculate the FY 2023 MS-LTC-DRG relative weights.

As discussed in section VIII.B.3.a. of the preamble to this proposed rule, for FY 2023, we are proposing to establish the MS-LTC-DRG relative weights as an average of the relative weights calculated both including and excluding the COVID-19 claims. As discussed in section VIII.B.3.b. of the preamble to this proposed rule, we also are proposing a 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year, beginning in FY 2023.

b. Proposed Development of the MS-LTC-DRG Relative Weights for FY 2023

In this section, we present our proposed methodology for determining the MS-LTC-DRG relative weights for FY 2023. In general, we are proposing to continue to apply the components of our existing methodology that are not impacted by our proposed modifications to use an average of the relative weights calculated both including and excluding the COVID-19 claims and the application of a 10-percent cap on the reduction in a MS-LTC-DRG's relative weight, discussed in section VIII.B.3 of the preamble to this proposed rule. For example, we are proposing to continue with the application of established policies related to the hospital-specific relative value methodology, the treatment of severity levels in the MS-LTC-DRGs, low-volume and no-volume MS-LTC-DRGs, adjustments for nonmonotonicity, and only using data from applicable LTCH cases (which includes our policy of only using cases that would meet the criteria for exclusion from the site neutral payment rate). We note that under our proposal to establish the MS-LTC-DRG relative weights using an average of the relative weights calculated both including and excluding the COVID-19 claims, particular components of our existing relative weight methodology would be performed twice (once when determining relative weights based on claims data that include COVID-19 cases and again when determining relative weights based on claims data that exclude COVID-19 cases). Later in this section we list and provide a brief description of our proposed steps for determining the FY 2023 MS-LTC-DRG relative weights. Each proposed step is discussed in greater detail later in this section.

• Step 1—Prepare data for MS-LTC-DRG relative weight calculation. In this step, we select and group the applicable claims data used in the development of the proposed MS-LTC-DRG relative weights. For FY 2023, we are proposing to prepare two sets of claims: A claims dataset that includes COVID-19 cases and a claims dataset that excludes COVID-19 cases.

• Step 2—Remove cases with a length of stay of 7 days or less. In this step, we trim the applicable claims data to remove cases with a length of stay 7 days or less. For FY 2023, we are proposing to perform this step on each set of claims data (claims dataset that includes COVID-19 cases and claims dataset that excludes COVID-19 cases).

• Step 3—Establish low-volume MS-LTC-DRG quintiles. In this step, we employ our established quintile methodology for low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs with less than 25 cases). For FY 2023, we are proposing to perform this step on each set of claims data (claims dataset that includes COVID-19 cases and claims dataset that excludes COVID-19 cases).

• Step 4—Remove statistical outliers. In this step, we trim the applicable claims data to remove statistical outlier cases. For FY 2023, we are proposing to perform this step on each set of claims data (claims dataset that includes COVID-19 cases and claims dataset that excludes COVID-19 cases).

• Step 5—Adjust charges for the effects of Short Stay Outliers (SSOs). In this step, we adjust the number of applicable cases in each MS-LTC-DRG (or low-volume quintile) for the effect of SSO cases. For FY 2023, we are proposing to perform this step on each set of claims data (claims dataset that includes COVID-19 cases and claims dataset that excludes COVID-19 cases).