RIN 0938-AU84

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule will: revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). In addition it will establish new requirements and revise existing requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program; and update 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 will 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 final rule will provide updates on the Rural Community Hospital Demonstration Program and the Frontier Community Health Integration Project.

DATES:

This final rule is effective October 1, 2022.

FOR FURTHER INFORMATION CONTACT:

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

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

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

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

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

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

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

Tyson Nakashima, Tyson.Nakashima@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 Program and Hospital Value-Based Purchasing Program—Administration Issues

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

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

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

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

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

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

Dawn Linn, dawn.linn@cms.hhs.gov, Lela Strong, lela.strong@cms.hhs.gov, and Alpha Wilson, alpha.wilson@cms.hhs.gov, Conditions of Participation (CoP) Requirements for Hospitals and Critical Access Hospitals (CAHs) to Continue Reporting Data for COVID-19 and Influenza After the PHE ends as Determined by the Secretary.

SUPPLEMENTARY INFORMATION:

Tables Available Through the internet on the CMS website

The IPPS tables for this fiscal year (FY) 2023 final 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 Final rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2023 final 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-F. For further details on the contents of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS final rule.

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

Table of Contents

I. Executive Summary and Background

A. Executive Summary

B. Background Summary

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

D. Issuance of Proposed Rulemaking

E. Advancing Health Information Exchange

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

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

A. Background

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

C. FY 2023 MS-DRG Documentation and Coding Adjustment

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

A. Background

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

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the FY 2022 Unadjusted Wage Index

E. Occupational Mix Adjustment to the FY 2023 Wage Index

F. Analysis and Implementation of the Occupational Mix Adjustment and the 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 Budget Neutrality Adjustment

H. FY 2023 Wage Index Tables

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

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

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

L. Process for Requests for Wage Index Data Corrections

M. Labor-Related Share for the FY 2023 Wage Index

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

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

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

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

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

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

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

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

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

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

K. Rural Community Hospital Demonstration Program

VI. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

C. Annual Update for FY 2023

VII. Changes for Hospitals Excluded From the IPPS

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

B. Critical Access Hospitals (CAHs)

VIII. 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. Changes to the LTCH PPS Payment Rates and Other 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. 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 Continue Reporting Data for COVID-19 and Influenza After the PHE Ends 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

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This FY 2023 IPPS/LTCH PPS final rule makes 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 makes payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This final rule also makes policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. In this FY 2023 final rule, we are implementing 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 making changes relating to Medicare graduate medical education (GME) for teaching hospitals and new technology add-on payments.

We are establishing new requirements and revising existing requirements for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

This final rule also acknowledges feedback we received on requests for information on health impacts due to climate change, on overarching principles in measuring healthcare quality disparities in hospital quality programs and value-based purchasing programs, the LTCH QRP, and on advancing the Trusted Exchange Framework and Common Agreement (TEFCA). We thank commenters for their feedback.

Additionally, due to the impact of the COVID-19 PHE on measure data used in the Hospital VBP Program and HAC Reduction Program, we are finalizing our proposals to suppress several measures in both of those programs for purposes of FY 2023 scoring and payment adjustments. For transparency, we will continue to publicly report measure information for all measures, including suppressed measures. In addition to these measure suppressions for the Hospital VBP Program, we are finalizing our proposal 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 MS-DRG payment amount. Similarly, we are finalizing our proposal to suppress all six measures in the HAC Reduction Program for the FY 2023 program year. We are not finalizing our proposal to not calculate measure results or scores for the CMS PSI 90 measure. Although we will not calculate or report the CMS PSI 90 measure results for use in the HAC Reduction Program scoring calculations for the program year, we will still calculate and report CMS PSI 90 that is displayed on the main pages of the Care Compare tool hosted by HHS after confidentially reporting these results to hospitals via hospital-specific reports and a 30-day preview period. Additionally, we will continue to calculate and report measure results for the NHSN CDC HAI measures. For the FY 2023 program year, hospitals participating in the HAC Reduction Program will not be given 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 resuming the use of the one measure (which was previously suppressed for the FY 2023 applicable period) for the FY 2024 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 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 (Public Law (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 regulations the Secretary 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 the Secretary may require.

2. Summary of the Major Provisions

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

a. 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 Pub. L. 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 Public Law 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law 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 making an adjustment of + 0.5 percent to the standardized amount.

b. Use of FY 2021 Data and 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 final rule, we discuss our 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 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 final 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 final 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 finalizing our proposal 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.

c. 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 finalizing our proposals for the low wage index hospital policy to continue for FY 2023, and to apply this policy in a budget neutral manner by applying an adjustment to the standardized amounts.

d. 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 final 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 proposed 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 proposed 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 also proposed to apply the 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. After consideration of the public comments received, we are finalizing these proposals without modification.

e. Application of the Rural Floor

As discussed in section III.G.1. of the preamble of this final rule, based on the district court's decision 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) and the comments we received, we are not finalizing our rural floor wage index policy as proposed, which would have excluded § 412.103 hospitals from the calculation of the rural floor and 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. Rather, we are finalizing a policy that calculates the rural floor as it was calculated before FY 2020. For FY 2023 and subsequent years, we are finalizing a policy to include the wage data of hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Act (as implemented in the regulations at § 412.103) and have no additional form of reclassification (MGCRB or Lugar) in the calculation of the rural floor, and to include the wage data of such hospitals in the calculation of “the wage index for rural areas in the State in which the county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act.

f. DSH Payment Adjustment and Additional Payment for Uncompensated Care

Under section 1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting in FY 2014, Medicare disproportionate share hospitals (DSHs) receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act. The remaining amount, equal to 75 percent of the amount that otherwise would have been paid as Medicare DSH payments, is paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH will receive an additional payment based on its share of the total amount of uncompensated care for all Medicare DSHs for a given time period.

In this final rule, we are updating our estimates of the three factors used to determine uncompensated care payments for FY 2023. We are also continuing 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 using the 2 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 using a 3-year average of the data on uncompensated care costs from Worksheet S-10 for the 3 most recent fiscal years for which audited data are available. Beginning in FY 2023, we are discontinuing 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 implementing certain methodological changes for calculating Factor 3 for FY 2023 and subsequent fiscal years.

We recognize that discontinuing 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 using our exceptions and adjustments authority under section 1886(d)(5)(I) of the Act to establish a new supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico, beginning in FY 2023.

As noted in section IV.F. of this final rule, we are not moving forward with the proposed revisions to the regulations relating to the treatment of section 1115 demonstration days for purposes of the DSH adjustment in this final rule. We expect to revisit the issue of section 1115 demonstration days in future rulemaking, and we encourage interested parties to review any future proposal on this issue and to submit their comments at that time.

g. 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 implement 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 final rule. The modified policy will 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, 2001, we are specifying that if 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.

h. Reduction of Hospital Payments for Excess Readmissions

We are making 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 MS-DRG payment to account for excess readmissions of selected applicable conditions. For FY 2023, the reduction is based on a hospital's risk-adjusted readmission rate during a multi-year period for acute myocardial infarction (AMI), heart failure (HF), 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 final rule, we are discussing the following policies: (1) resuming 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 patients with COVID-19 diagnosis present on admission from the measure numerator (outcome) and denominator (cohort), 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 12 months prior to the index admission beginning with the FY 2023 program year. In the FY 2023 IPPS/LTCH PPS proposed rule we also sought comment on updating the Hospital Readmissions Reduction Program to incorporate provider performance for socially at-risk populations.

i. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. In this final rule, we are finalizing our proposals 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 finalizing our proposal to revise the scoring and payment methodology for the FY 2023 program year such that hospitals will not receive Total Performance Scores (TPSs). Additionally, we are finalizing our proposal 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.

j. Hospital-Acquired Condition (HAC) Reduction Program

In this FY 2023 IPPS/LTCH PPS final rule we are finalizing several 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 final rule, we are not finalizing our proposal to not calculate or report measure results for the CMS PSI 90 measure for the FY 2023 HAC Reduction Program. Although we will not calculate or report CMS PSI 90 measure results for use in the HAC Reduction Program scoring calculations for the program year, we will still calculate and report CMS PSI 90 that is displayed on the main pages of the Compare tool hosted by HHS after confidentially reporting these results to hospitals via CMS PSI 90 specific HSRs and a 30-day preview period. We will continue to calculate and report measure results for the NHSN CDC HAI measures.

In this FY 2023 IPPS/LTCH PPS final rule, we are finalizing our proposals 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) suppress CY 2021 CDC NHSN HAI measures data from the FY 2024 HAC Reduction Program Year; (3) update the measure specification to the minimum volume threshold for the CMS PSI 90 measure beginning with the FY 2023 program year; (4) 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; and (5) update the NHSN CDC HAI data submission requirements for newly opened hospitals beginning in the FY 2024 HAC Reduction Program.

In this FY 2023 IPPS/LTCH PPS final rule, we acknowledge feedback we received on Requests for Information from stakeholders on two topics: (1) 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; and (2) on overarching principles for measuring healthcare quality disparities across CMS Quality Programs. In the FY 2023 IPPS/LTCH PPS proposed rule and this final rule, we also clarified the removal of the no mapped location policy beginning with the FY 2023 program year.

k. 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 final rule, we are finalizing several changes to the Hospital IQR Program. We are adopting 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 eCQM 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 eCQM 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) inclusion in the eCQM measure set beginning with the CY 2024 reporting period/FY 2026 payment determination; (7) Global Malnutrition Composite Score eCQM (NQF #3592e) inclusion in the eCQM measure set 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 measure (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 refining 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 measure; and (2) Excess Days in Acute Care (EDAC) After Hospitalization for Acute Myocardial Infarction (AMI) measure (NQF #2881). In this FY 2023 IPPS/LTCH PPS final rule, we acknowledge feedback we received 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 thank commenters for their feedback.

We are finalizing changes to current policies related to eCQMs and hybrid measures: (1) Modification of 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) removal of the zero denominator declarations and case threshold exemption policies for hybrid measures beginning with the FY 2026 payment determination; (3) adoption of data submission and reporting requirements for patient-reported outcome-based performance measures (PRO-PMs) beginning with the FY 2026 payment determination; and (4) modification of 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 establishing a hospital designation related to maternity care to be publicly-reported on a public-facing website beginning in Fall 2023. In the FY 2023 IPPS/PPS LTCH PPS proposed rule, we sought comments on other potential associated activities regarding this designation (87 FR 28549 through 28550). Additionally, we sought comments on ongoing ways we can advance digital quality measurement and use of Fast Healthcare Interoperability Resources (FHIR) (87 FR 28486 through 28489). We thank commenters for their feedback.

l. 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 final rule, we are finalizing our proposal to adopt a patient safety exception into the measure removal policy. We are also finalizing our proposal to begin public display of the 30-Day Unplanned Readmissions for Cancer Patients measure (NQF #3188) (PCH-36). We are finalizing with modification our proposal to begin public display of 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 respond to comments received on our request for 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.

m. Medicare Promoting Interoperability Program

For CY 2023, we are finalizing several proposed changes to the Medicare Promoting Interoperability Program. Specifically, we are: (1) requiring 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) expanding the Query of PDMP measure to not only include Schedule II opioids but also Schedule III and IV drugs beginning with the CY 2023 EHR reporting period and are adding exclusions; (3) adding 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) modifying 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 with the CY 2024 EHR reporting period; (5) consolidating the current options from three to two levels of active engagement for the Public Health and Clinical Data Exchange Objective, requiring the reporting of the active engagement option selected for the measures under the objective beginning with the CY 2023 EHR reporting period, and modifying the amount of time spent at the option 1 level of active engagement (pre-production and validation) to one EHR reporting period beginning with the CY 2024 EHR reporting period; (6) modifying the scoring methodology for the Medicare Promoting Interoperability Program beginning in CY 2023; (7) instituting public reporting of certain Medicare Promoting Interoperability Program data beginning with the CY 2023 EHR reporting period; (8) removing regulation text for the objectives and measures in the Medicare Promoting Interoperability Program from paragraph (e) under 42 CFR 495.24 and adding new paragraph (f) beginning in CY 2023; and (9) adopting 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 modifying 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 finalized for the Hospital IQR Program.

n. Condition of Participation (CoP) Requirements for Hospitals and CAHs to Continue Reporting Data for COVID-19 and Influenza After the PHE ends as Determined by the Secretary

In this final rule, we are revising the hospital and CAH infection prevention and control CoP requirements to continue COVID-19-related 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 have withdrawn our proposal to establish additional data reporting requirements to address future PHEs related to epidemics and infectious diseases.

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 final rule.

B. Background Summary

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

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

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

If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for 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, beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the new supplemental payment.

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

Under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through FY 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 Implemented in This Final 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. Issuance of Proposed Rulemaking

In the FY 2023 IPPS/LTCH PPS proposed rule appearing in the May 10, 2022 Federal Register (87 FR 28108), 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 proposed to make.

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

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

• Proposed inpatient hospital update for FY 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 the proposed rule, we discussed 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 the proposed rule, we discussed the following:

• 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 the proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2023.

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

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

• Proposed 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 requested information on CMS' overarching principles for measuring healthcare disparities across CMS Quality Programs, including the LTCH QRP. We also requested 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 the Proposed Rule

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

• Proposed codification of 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 the Proposed Rule

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

Section XII. of the preamble to the proposed rule included 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 the 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 the proposed rule, we addressed 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 proposed 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 provided 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 addressed these recommendations in Appendix B of the 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 information 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 a Trusted Exchange Framework and Common Agreement aimed at establishing full network-to-network exchange of health information nationally. On January 18, 2022, ONC announced a significant milestone by releasing the Trusted Exchange Framework and Common Agreement Version 1. The Trusted Exchange Framework is 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 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 LTCHs.

Comment: A commenter expressed support for efforts across HHS to advance health information technology exchange and encouraged use of a standard set of data by providers and health IT vendors, including efforts through the PACIO project. The commenter also noted a recent National Academies report describing technology barriers for PAC settings due to not being eligible for previous incentives to purchase technology certified under the ONC Health IT Certification Program. The commenter supported recommendations in the report for HHS to pursue financial incentives for post-acute care settings to adopt certified health information technology in order to enable health information exchange.

Response: We will take this comment into consideration as we coordinate with Federal partners, including ONC, on interoperability initiatives, and to inform future rulemaking.

F. Use of FY 2021 Data and 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), as discussed in more detail below, 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, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28123 through 28125) we discussed that 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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28123 through 28124), we reviewed the most recent data from the CDC on new inpatient hospital admissions of patients with confirmed COVID-19. We presented this CDC graph which 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).

We stated that 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. We stated that the graph also shows that 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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28124), we also presented information from the CDC on the likelihood of future COVID-19 variants. We noted that the most recent increase in hospitalizations was primarily associated with the Omicron variant of the virus and that the CDC has stated that new variants will continue to emerge. Viruses constantly change through mutation and sometimes these mutations result in a new variant of the virus. 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, in the proposed rule we stated our belief 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 stated that we believe it would be 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 stated our belief that it would be reasonable to assume based on the information available at the 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 anticipated Medicare inpatient hospitalizations for COVID-19 would continue in FY 2023 but at a lower level, we proposed 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 proposed 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 stated in the proposed rule, we believed it is reasonable to assume that there would be fewer COVID-19 hospitalizations among Medicare beneficiaries in FY 2023 than there were in FY 2021; however, we also stated that it is not possible to know precisely how COVID-19 hospitalizations in FY 2023 will compare to FY 2021. We stated our belief 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 the time, and more accurately estimate the relative resource use for the cases treated in FY 2023. Therefore, we proposed 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 believed 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.

We also proposed 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 cost-to-charge ratio (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 2 most recently available years of MedPAR claims data (FY 2020 and FY 2021) that would ordinarily be used for the 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 Provider Specific File (PSF) to the December 2021 update of the PSF that would ordinarily be used for the 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). In the proposed rule, we stated our belief that 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. We also stated our belief that there will be fewer COVID-19 cases in FY 2023 than in FY 2021 and that 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 proposed 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 proposed 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 stated our belief that 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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28740 through 28741) we also requested 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 noted 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 made available supplemental information, including the relative weights and fixed-loss amount calculated without the proposed modifications to our usual methodologies.

The comments we received on our proposal to use FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting were focused on the specific use of FY 2021 data when determining the FY 2023 relative weights or outlier fixed-loss amounts. Therefore, we refer the reader to section II.E. of the preamble of this final rule for our summary and response to comments received on our proposed use of FY 2021 data and our proposed modifications to our usual methodology when determining the FY 2023 IPPS MS-DRG relative weights. We refer the reader to section VIII.B. of the preamble of this final rule for our summary and response to comments received on our proposed use of FY 2021 data and our proposed modifications to our usual methodology when determining the FY 2023 LTCH PPS MS-LTC-DRG relative weights. We refer the reader to section II.A.4. of the addendum to this final rule for our summary and response to comments received on our proposed use of FY 2021 data and our proposed modifications to our usual methodology when determining the FY 2023 outlier fixed-loss amounts for IPPS cases. We refer the reader to section V.D.3. of the Addendum to this final rule for our summary and response to comments received on our proposed use of FY 2021 data and our proposed modifications to our usual methodology when determining the FY 2023 outlier fixed-loss amounts for LTCH PPS standard Federal payment rate cases.

Since the publication of the proposed rule, we have continued to monitor hospitalization data reported by the CDC. This CDC graph illustrates new inpatient hospital admissions of patients with confirmed COVID-19 from August 1, 2020 through July 6, 2022 ( https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/07082022/images/Hospitalizations.png?_=90548, accessed July 08, 2022).

The graph shows that new COVID-19 hospital admissions reached a low point in early April 2022, however have steadily increased since.

After reviewing the latest CDC hospitalization data, coupled with the expectation for future variants, we continue to 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. We also continue to believe that it would be 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 that the current levels of hospitalizations are much lower than the Omicron variant peak in January 2022.

Therefore, after considering the comments received and based on our evaluation of the information available at this time, we are finalizing our proposal to use FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting. (That is, 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).) We are also finalizing, as proposed, modifications to our usual methodology for determining the FY 2023 IPPS MS-DRG relative weights and FY 2023 LTCH PPS MS-LTC-DRG relative weights. Specifically, for FY 2023, we calculated the relative weights 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 final relative weight values. The finalization of our proposal to use FY 2021 data and to modify our 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 final rule. The finalization of our proposal to use FY 2021 data and to modify our 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 final rule.

As discussed in section II.A.4. and section V.D.3. of the addendum to this final rule, we received many comments supportive of our proposed modifications to our usual methodologies for determining the FY 2023 IPPS and LTCH PPS outlier fixed-loss amounts. As discussed in these sections, after considering comments received, we are finalizing our proposal 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 are also finalizing our proposal to adjust the CCRs from the March 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 also received many comments that suggested other modifications CMS should make to our usual methodologies for determining the FY 2023 IPPS and LTCH PPS outlier fixed-loss amounts. As also discussed in section II.A.4. and section V.D.3. of the addendum to this final rule, after consideration of the comments received, we are modifying our proposed methodologies for establishing the FY 2023 IPPS and LTCH PPS outlier fixed-loss amounts by calculating the FY 2023 IPPS and LTCH PPS outlier fixed-loss amounts as averages of the fixed-loss amounts as calculated including and excluding COVID-19 claims. We believe this adjustment to our proposed methodology will better reflect a reasonable estimation of the case mix for FY 2023 based on the information available at this time and is also consistent with the approach we are finalizing for determining the FY 2023 IPPS MS-DRG and LTCH PPS MS-LTC-DRG relative weights.

In addition, as discussed in section II.A.4. of the Addendum to this final rule, after consideration of comments received, we are also further modifying our proposed methodology for establishing the FY 2023 IPPS outlier fixed-loss amount by including the increases in payments for COVID-19 cases provided by the CARES Act in the calculation of the outlier fixed-loss amount.

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

A. Background

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

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

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

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

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/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. 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 Pub. L. 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), the 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. Adjustment for FY 2023

Consistent with the requirements of section 414 of the MACRA, we proposed to implement a 0.5 percentage point positive adjustment to the standardized amount for FY 2023. We stated that this would constitute a permanent adjustment to payment rates. We also stated that 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 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.

We received no public comments on the proposed adjustment for FY 2023 and are finalizing our proposal to implement a 0.5 percentage point positive adjustment to the standardized amount for FY 2023. As indicated, this finalized 0.5 percentage point positive adjustment for FY 2023 is the final adjustment prescribed by section 414 of the MACRA.

D. Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for 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 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 20 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.

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, 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 ), for users 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 note that, beginning April 5, 2022, MEARIS^TM became 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 . As stated in the proposed rule, 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 the proposed rule and this final 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.

We provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 40, in connection with the FY 2023 IPPS/LTCH PPS proposed rule so that the public can better analyze and understand the impact of the proposals included in the proposed rule. We noted that this test software reflected the proposed GROUPER logic for FY 2023. Therefore, it included 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 that were associated with the proposed rule and did not include the diagnosis codes that are invalid beginning in FY 2023 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2023 associated with the proposed rule. We noted that at the time of the development of the proposed rule there were no procedure codes designated as invalid for FY 2023, and therefore, there was no Table 6D—Invalid Procedure Codes—FY 2023 associated with the proposed rule. Those tables were not published in the Addendum to the 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 the proposed rule. Because the diagnosis codes no longer valid for FY 2023 are not reflected in the test software, we made 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 had access to the test software allowing them to build case examples that reflect the proposals that were included in the proposed rule. In addition, users were able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 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 proposed to the MS-DRGs for FY 2023. We invited public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in the proposed rule. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data and consultation with our clinical advisors. In other cases, we proposed 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 the proposed rule, we proposed 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 the 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 referred to these claims data as the “September 2021 update of the FY 2021 MedPAR file.”

In this FY 2023 IPPS/LTCH PPS final rule, we summarize the public comments we received on our proposals, present our responses, and state our final policies. For this FY 2023 final rule, we generally did not perform any further MS-DRG analysis of claims data. Therefore, the MS-DRG analysis is based on ICD-10 claims data from the September 2021 update of the FY 2021 MedPAR file, as set forth in the proposed rule, except as otherwise noted.

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, in the FY 2023 IPPS/LTCH PPS proposed rule we stated 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.

In the FY 2023 IPPS/LTCH PPS proposed rule, we stated that using the September 2021 update of the FY 2021 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would affect the MS-DRG structure beginning in FY 2023. We noted that 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. We further noted that 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 referred the reader to Table 6P.1b associated with the proposed rule 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.

We stated in the proposed rule that 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 proposed to delay application of 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 stated that 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.

Comment: Commenters expressed overwhelming support for our proposal to delay application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2023 and to maintain the current structure of the MS-DRGs. A few commenters who agreed with the proposal to delay the application of the NonCC subgroup criteria also requested that CMS provide interested parties with an opportunity to review and comment on impacts to the relative weights before a proposal is finalized. The commenters stated it would be helpful if CMS made claims data available, including volumes by MS-DRG, that support the proposal to reduce the 123 MS-DRGs.

Response: We thank the commenters for their support. In response to the commenters who requested the opportunity to review and comment on impacts to the relative weights before a proposal is finalized, we intend to provide a comprehensive analysis in future rulemaking based on the comments and feedback we have received. We are providing the claims data from the September 2021 update of the FY 2021 MedPAR file that was reviewed for FY 2023 in our analyses of how applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would have potentially affected the MS-DRG structure beginning in FY 2023. We refer the reader to Table 6P.1b associated with this final rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

Comment: A commenter who strongly agreed with the proposal to delay the application of the NonCC subgroup criteria stated that in addition to providing a detailed explanation and impact files in the future, that CMS should consider clarifying and addressing the following issues: why the list of MS-DRGs that were proposed to be removed in FY 2022 is not the same list of MS-DRGs proposed to be removed for FY 2023, why the list of MS-DRGs that were proposed to become a single, base MS-DRG for FY 2022 now appear to meet the criteria for a three-way severity level split for FY 2023, and why MS-DRGs proposed to maintain a three-way severity level split for FY 2022 now appear to meet the criteria for a two-way or three-way severity level split for FY 2023. This commenter also stated that the MS-DRGs displayed in Table 6P.1b associated with the proposed rule include a list of MS-DRGs that would be subject to deletion and a list of MS-DRGs that would be proposed for creation with XXX for the numbers. According to the commenter, many of the listed MS-DRGs have the same narrative description, however, it appears they would obtain a new MS-DRG number. The commenter questioned why MS-DRGs with the same description would have new MS-DRG numbers assigned. This commenter also suggested that CMS consider patient case-mix with regard to volumes, and stated Medicare would not have the volume for the obstetric related MS-DRGs. The commenter requested that CMS also examine the impact of maternal health quality initiatives and maternity hospital designation in connection with the solicitation for comments on low volume MS-DRGs. Lastly, the commenter recommended that CMS utilize two years of good data to examine the impact of the proposed redistribution in future analyses and determine if the proposed MS-DRG changes and associated relative weights appropriately reflect resource consumption.

Response: We appreciate the commenter's feedback. We acknowledge that the list of MS-DRGs identified as potentially subject to removal for FY 2022 differs from the list of MS-DRGs identified as potentially subject to removal and provided for FY 2023 in connection with the NonCC subgroup criteria discussion. We also acknowledge that the list of MS-DRGs identified as potentially subject to creation for FY 2022 differs from the list of MS-DRGs identified as potentially subject to removal and provided for FY 2023 in connection with the NonCC subgroup criteria discussion. The lists differ as a result of the claims data that was analyzed for our MS-DRG analysis and rulemaking each fiscal year. We provided the results of both the FY 2019 and FY 2020 MedPAR claims data as displayed in Table 6P.11 in association with the FY 2022 IPPS/LTCH PPS final rule (available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS).

By comparison, for FY 2023, consistent with our finalized policy to use the FY 2021 MedPAR data for purposes of this FY 2023 rulemaking, we have provided the FY 2021 MedPAR claims data for the listed MS-DRGs in Table 6P.1b in association with this final rule, as noted earlier in this section. Because there is variation in the claims data reported from year to year, it is expected that there may be fluctuations in the data that could affect the list of MS-DRGs potentially subject to change in connection with the application of the NonCC subgroup criteria for a particular fiscal year. However, we believe that reliability and stability of the data is an important consideration with respect to the application of the NonCC subgroup criteria and will give careful consideration to the number of years of data to analyze in connection with any future proposed policy changes as well as the impacts on relative weights, as we continue to assess all the comments and feedback we have received, particularly in light of the ongoing public health emergency. We also take this opportunity to note that the listed MS-DRGs as displayed in the tables (for both FY 2022 and FY 2023) are for illustrative purposes as the intent was to show the MS-DRGs that would potentially be subject to deletion and the MS-DRGs that would potentially be subject to creation if the NonCC subgroup criteria were to be applied for the applicable fiscal year. Because we did not propose the application of these criteria to existing MS-DRGs with a three-way severity level split for either FY 2022 or FY 2023, and we have not yet completed the comprehensive impact analysis of any such future proposed changes, as previously discussed, we are clarifying that both the MS-DRG numbers and MS-DRG titles that may eventually be subject to change in connection with a future proposal to apply the NonCC subgroup criteria may, in the interim, be subject to further modifications as a result of our annual review of the MS-DRG classifications. As such, any future proposed MS-DRG changes will be considered in connection with the analysis that is performed for application of the MCC, CC and NonCC subgroup criteria to the MS-DRGs that are in effect at that time.

In response to the commenter's question regarding why new MS-DRG numbers would be considered, we note that new MS-DRG numbers are preferred because we anticipate that individuals, payers, and organizations conducting analysis would need to be aware if proposed changes to base DRG concepts are made to allow them time to adjust their programs, analyses, or queries that may have hard coded the DRG numbers. Other agencies that utilize MS-DRGs may perform minimal updates to their relative weights, quality risk adjustment or exclusion criteria and only focus on new MS-DRGs, thereby potentially creating additional operational or system challenges if an existing MS-DRG number were to be reused. To minimize confusion for those who rely on MS-DRG concepts year to year, and avoid unintended consequences from the reuse of an existing DRG number for a different concept, we believe it is appropriate to consider revisions to both the MS-DRG number and corresponding description.

Comment: Other commenters requested CMS consider continuing the delay beyond the period of the public health emergency (PHE). The commenters indicated that hospital claims and cost report data impacted by the COVID-19 pandemic should not be used as the basis of MS-DRG consolidation since utilization may be artificially low during the PHE.

Response: We thank the commenters for their feedback. As stated earlier in this section, we are giving careful consideration to all the recommendations and suggestions we have received in connection with the NonCC subgroup criteria discussion.

Comment: Another commenter expressed concern with regard to how the NonCC subgroup criteria are to be applied. The commenter stated they understood the policy to mean that the NonCC subgroup criteria would only be applied to new requests for MS-DRG splits, not to existing MS-DRGs. The commenter also stated they were unclear when the proposal was finalized since, according to the commenter, CMS would have needed to specify the intent to apply the NonCC subgroup criteria to all existing MS-DRGs versus only for the creation of new MS-DRGs. Additionally, this commenter urged CMS to conduct a full analysis that demonstrates the explanatory power of the proposed new MS-DRGs is an improvement over the current MS-DRGs, similar to the analysis that was performed for the transition from CMS DRGs to MS-DRGs in FY 2008. The commenter indicated that a comprehensive analysis is critical for interested parties to provide meaningful comments.

Response: In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44796), we summarized the discussion pertaining to the NonCC subgroup criteria policy finalized for FY 2021. In that discussion we 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. As discussed in the proposed rule, we applied the nonCC subgroup criteria to each of the MCC, CC, and NonCC subgroups, 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 also note that new requests to subdivide a MS-DRG frequently pertain to existing MS-DRGs which differs from requests to create a new base MS-DRG for which the criteria to create subgroups is subsequently applied. In response to the commenter's recommendation that CMS conduct a full analysis similar to the analysis that was performed for the transition from CMS DRGs to MS-DRGs in FY 2008, we appreciate the commenter's suggestion and will take it under advisement.

Comment: Another commenter who recognized differences between the list of MS-DRGs shown for FY 2022 and FY 2023 requested additional transparency for the data being presented for review and for CMS to consider analyzing data from other databases, such as Medicaid or States, to supplement the MS-DRGs known to have lower volumes among the Medicare population (for example, Obstetric MS-DRGs). This commenter also expressed concern about the potential impact to community hospitals if proposed MS-DRG changes in connection with the NonCC subgroup criteria result in significant MS-DRG redistribution.

Response: We thank the commenter for their feedback. As discussed previously, we intend to conduct a comprehensive analysis of the application of the NonCC subgroup criteria that would be made publicly available for review and comment in connection with any proposed MS-DRG changes for future rulemaking.

After consideration of the public comments we received, we are finalizing our proposal to delay the application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split until FY 2024 or later, and are finalizing for FY 2023 to maintain the current structure of the 41 MS-DRGs that currently have a three-way severity level split.

We are making the FY 2023 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE) Software Version 40, the ICD-10 MS-DRG Definitions Manual files Version 40 and the Definitions of Medicare Code Edits Manual Version 40 available to the public on our CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

2. 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 interested parties 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 final rule for additional information regarding the ICD-10 Coordination and Maintenance Committee meeting process.

As stated in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28130), 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 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.

As stated in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28130), in response to commenters' recommendation that we continue to assess the appropriateness of the therapies assigned to Pre-MDC MS-DRG 018, we provided 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 noted 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 noted 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.

We noted in the proposed rule that in response to our statement in the FY 2022 IPPS/LTCH PPS final rule that we plan to continue engaging with interested parties 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 stated we appreciated this additional feedback and will continue to consider these issues and suggestions in connection with future rulemaking. We also stated we intend to continue engaging with interested parties by sharing updates from our analysis of claims data as we examine and explore potential refinements for these therapies under the IPPS.

Comment: Several commenters expressed support and appreciation that for FY 2023, CMS proposed to maintain the current structure of Pre-MDC MS-DRG 018 that includes “Other Immunotherapies”, and to maintain its current methodology used to determine the relative weight. Some commenters acknowledged that it is difficult to predict what the associated costs will be in the future for CAR T-cell and other immunotherapies that remain under development. These commenters urged CMS to consider factors such as new or different side effects and how other therapeutic agents that could be administered simultaneously in connection with these therapies may potentially lead to toxicity, as continued monitoring of resource utilization and data analysis for Pre-MDC MS-DRG 018 occurs. Other commenters commended CMS for its commitment to engage with interested parties as the agency continues to analyze claims data and consider the feedback that has been received to date for these therapies.

Response: We thank the commenters for their support and appreciate the additional feedback on other factors to consider as we continue to monitor and analyze the data for Pre-MDC MS-DRG 018. As noted in prior rulemaking, we have received several suggestions, recommendations, and options pertaining to how CAR T-cell and other immunotherapies may be classified under the IPPS in the future. We intend to further examine the feedback received and maintain transparency in our approach moving forward, with the shared goal of enabling continued access to these and other vital treatments for Medicare beneficiaries.

Comment: Similar to the public comments received in response to the FY 2022 IPPS/LTCH PPS proposed rule, for FY 2023, some commenters again expressed concerns with the non-CAR T-cell therapies and other immunotherapies that may be assigned to Pre-MDC MS-DRG 018 and stated that these potential assignments could lead to fluctuations in the relative weight. A few commenters requested that Pre-MDC MS-DRG 018 be limited to CAR T-cell therapies. Other commenters encouraged CMS to clarify its methodology and criteria for assigning new procedure codes to Pre-MDC MS-DRG 018. Some commenters expressed continued concern with the revision to the title for Pre-MDC MS-DRG 018 that was finalized effective FY 2022 to include “Other Immunotherapies”.

Response: In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798 through 44806), we provided detailed summaries and responses to these same or similar concerns and comments. In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28129 through 28131), we provided an overview of the assignment of new procedure codes to Pre-MDC MS-DRG 018 and reiterated much of the discussion from FY 2022 rulemaking. As stated in prior rulemaking, 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 have not made any changes to our established processes or methodologies for MS-DRG assignment of new procedure codes, including with regard to case assignment to Pre-MDC MS-DRG 018, and we refer the reader to the detailed discussion related to Pre-MDC MS-DRG 018 in the FY 2022 IPPS/LTCH PPS final rule. We note that additional claims data is needed to fully analyze and consider all the recommendations we have received, and to potentially develop alternative proposals with respect to payment for these therapies under the IPPS. There is also uncertainty with regard to the number and types of therapies currently under development or undergoing studies and how soon they will be available. We recognize the concerns that have been expressed by commenters and we are also continuing to assess the reliability and stability of the data in light of the ongoing public health emergency.

Comment: Many commenters expressed appreciation to CMS for providing transparency with the cases reporting the administration of a CAR T-cell or other immunotherapy in the FY 2021 MedPAR claims data for Pre-MDC MS-DRG 018. However, a commenter indicated there was confusion about the coded claims data as presented in the proposed rule since the procedure codes described as new technology group 7 became effective October 1, 2021 (FY 2022), which is one year later than the FY 2021 data that was shown in the table in the preamble of the proposed rule. The commenter requested that CMS provide clarification to help eliminate any additional confusion for readers and interested parties who also analyze the data for these therapies.

Response: We thank the commenters for their support. The FY 2021 MedPAR claims data were regrouped using the proposed FY 2023 MS-DRG classifications, therefore, coded claims data for the procedure codes describing the administration of CAR T-cell and other immunotherapy agents reported in FY 2021 was mapped from the FY 2021 MedPAR coded claims data to the procedure codes that are effective for FY 2023. Specifically, the codes that were effective for FY 2021 and are no longer valid were mapped to the new procedure codes that are valid for FY 2023. We also note, as generally stated in the preamble of the proposed rule each year, the diagnosis and procedure codes from the specified FY MedPAR claims data are grouped through the applicable version of the proposed FY GROUPER. For example, as discussed in section II.E.1. of the preamble of the proposed rule (87 FR 28197), 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).

Comment: A commenter suggested that CMS consider establishing a timeframe that would enable the public to comment on procedure codes that may be assigned to Pre-MDC MS-DRG 018 upon being approved and finalized after the spring ICD-10 Coordination and Maintenance Committee meeting. The commenter stated that currently, because procedure codes that are discussed at the spring ICD-10 Coordination & Maintenance (C&M) Committee meeting do not receive proposed assignments and are not published with the IPPS proposed rule given the timing, there is no opportunity for interested parties to provide feedback to CMS about MS-DRG assignments for new codes, including assignment to MS-DRG-018. The commenter acknowledged the C&M meeting is not the appropriate forum for the public to provide input on MS-DRG assignment, however, because Pre-MDC MS-DRG 018 currently has a limited number of procedure codes assigned to it, the commenter stated that interested parties should have the opportunity to review and comment on potential assignment to Pre-MDC MS-DRG 018. This commenter also maintained that it has a unique relationship with the therapies currently assigned to Pre-MDC MS-DRG 018 as its membership is the predominant specialty society associated with these therapies and has the experience and clinical understanding related to resource utilization associated with the administration of these therapies.

Response: We appreciate the commenter's feedback. As discussed elsewhere in this rule as well as in prior rulemaking, because the procedure code proposals discussed at the Spring ICD-10 Coordination and Maintenance Committee meeting are not finalized in time to include in Table 6B.—New Procedure codes associated with the proposed rule, CMS uses an established process to determine the most appropriate MS-DRG assignment for these new procedure codes for the upcoming fiscal year. While we understand and acknowledge the uniqueness of CAR T-cell, gene, and cellular therapies, we believe it is necessary to further examine how and when we could alter our current methodology and timelines to provide the opportunity for interested parties to submit comments and feedback in the assignment of new procedure codes that are finalized after the spring meeting. We also note, as discussed in the proposed rule (87 FR 28130), all codes finalized from the fall meeting are subsequently proposed for assignment under the ICD-10 MS-DRGs through rulemaking, therefore, interested parties seeking the opportunity to more fully comment on potential MS-DRG assignment(s) have the opportunity to submit requests for consideration of proposed new procedure codes in association with these therapies to be discussed at the fall meeting versus the spring meeting. Alternatively, interested parties may use current coding information as shown in the ICD-10 Coordination and Maintenance Committee meeting materials to consider the potential MS-DRG assignments for any procedure codes that may be finalized after the March meeting and submit public comments for consideration.

As noted in the proposed rule, for the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting there were two 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 two topics are Administration of afamitresgene autoleucel (afami-cel), a specific peptide enhanced affinity receptor (SPEAR) T-cell therapy and Administration of Tabelecleucel (tab-cel®), an allogeneic Epstein-Barr virus (EBV)-specific T-cell immunotherapy, both of which were approved for new procedure codes following the March 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 these code requests.

Because the diagnosis and procedure code proposals that are presented at the March ICD-10-CM Coordination and Maintenance Committee meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, as we have noted in prior rulemaking, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. As shown in Table 6B.—New Procedure Codes associated with this final rule and available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS, new procedure codes for these two therapies have been finalized for assignment to Pre-MDC MS-DRG 018 effective with discharges on and after October 1, 2022 (FY 2023).

We appreciate the public comments we received, and, as noted, will continue to evaluate the recommendations and options provided by commenters related to these therapies as well as to monitor the available claims data.

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

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).

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28131), 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.

In the proposed rule we noted that 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 referred the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed information regarding the request, including a recording of the discussion and the related meeting materials. Public comments in response to the code proposal were due by April 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, as stated in the proposed rule, in light of the unique circumstances relating to these procedures, for which there was 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 addressed 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 was 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 was 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.

As stated in the proposed rule, 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.

We noted in the proposed rule that 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 were not yet available for inclusion in Table 6B.—New Procedure Codes associated with the 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.

We stated in the proposed rule that 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 was 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 provided 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 were finalized for FY 2023. We also noted that while we discussed the potential MS-DRG assignments for new procedure codes describing LITT, interested parties 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 noted in the proposed rule 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 stated we believe it was 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 stated 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 in the preamble of the proposed rule and earlier in this section of this final 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.

We presented the following ICD-10-PCS table in the proposed rule, which 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 noted in the proposed rule 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. We also noted that 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 referred the reader to Table 6P.2a associated with the 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 noted that Table 6P.2a also includes the predecessor codes that we utilized to inform this analysis. We stated that 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, we noted that 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 referred the reader to section II.D.14. of the preamble of the proposed rule for further information regarding the files.

We note that the proposal to reclassify LITT procedures of the brain, brain stem and other anatomic sites in ICD-10-PCS that was discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting was approved and new procedure codes describing LITT of the brain and other anatomic sites were finalized as reflected in the FY 2023 ICD-10-PCS Code Update files that were made publicly available via the internet on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 on May 26, 2022. We also note that the new procedure codes effective October 1, 2022 describing LITT of the brain and other anatomic sites are displayed in Table 6B.—New Procedure Codes, and the existing codes describing LITT of the brain, brain stem, and other anatomic sites that are being deleted effective October 1, 2022 are reflected in Table 6D.—Invalid Procedure Codes, in association with this FY 2023 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. Below we summarize the public comments we received and present our responses.

Comment: Commenters expressed appreciation that the proposal to reclassify LITT procedures in ICD-10-PCS that was discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting was approved and new procedure codes have been finalized as reflected in the FY 2023 ICD-10-PCS Code Update files that were made publicly available via the internet on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 on May 26, 2022. Commenters also indicated it is appropriate to utilize procedure codes with the root operation Destruction as the predecessor codes for MS-DRG assignment of the new LITT procedure codes for all the anatomic body sites. Several commenters expressed support for the assignment of cases reporting new procedure codes for LITT of brain (includes brain stem) from MS-DRGs 040, 041, and 042 to MS-DRGs 025, 026 and 027 and urged CMS to finalize this assignment. The commenters commended CMS for recognizing the unique clinical circumstances related to LITT procedures of the brain as being more appropriately aligned with MS-DRGs 025, 026 and 027. A commenter acknowledged that the new procedure codes for LITT of brain had not yet been finalized at the time of the development of the proposed rule and therefore, were not reflected in the V40 Test GROUPER software, however, the commenter encouraged CMS to ensure the final V40 GROUPER logic reflects the new procedure codes for LITT of brain and assignment to MS-DRGs 025, 026 and 027.

Response: We thank the commenters for their support. In addition to the new procedure codes describing LITT being made publicly available in the FY 2023 ICD-10-PCS Code Update files via the internet on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10, we note that, as previously stated, the new procedure codes are also reflected in Table 6B.—New Procedure Codes, in association with this final rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS with their finalized MS-DRG assignments. As shown in the table, procedure codes describing LITT of brain (root operation Destruction), are assigned to MS-DRGs 025, 026 and 027 for FY 2023. This assignment is also reflected in the final V40 GROUPER logic. Existing procedure codes D0Y0KZZ (Laser interstitial thermal therapy of brain) and D0Y1KZZ (Laser interstitial thermal therapy of brain stem) will be deleted effective October 1, 2022, as reflected in Table 6D.—Invalid Procedure Codes, in association with this final rule and available via the internet on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

As discussed in the proposed rule and previously discussed in this final rule, 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). We stated in the proposed rule that 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 were 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.

In the proposed rule we stated that 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 noted 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 referred the reader to Table 6P.2b in association with the proposed rule 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.

We noted in the proposed rule that, 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 noted 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 in the proposed rule and previously in this final rule, 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 the 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 the 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.

As discussed in the proposed rule, 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 the 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 associated with the proposed rule 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 noted in the proposed rule 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 stated 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 the proposed rule for the findings from our detailed analysis of these 10 cases.

As shown in Table 6P.2d associated with the proposed rule, 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 in the proposed rule, the requestors indicated that LITT is primarily being performed on intracranial lesions. However, as previously summarized, we identified a limited number of cases reporting LITT procedures for other anatomic sites. We stated in the proposed rule that we are interested in comments regarding the use of and experience with LITT for these other anatomic sites.

As discussed in the proposed rule, 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, in the proposed rule we also stated we 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. As noted in the proposed rule, 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 stated that 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. We noted that 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 noted 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 discussed in the proposed rule, 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 noted 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 stated in the proposed rule that 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, we stated in the proposed rule that 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 were 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 also proposed 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. Lastly, we noted in the proposed rule that we did not receive any comments or requests to reconsider those finalized MS-DRG assignments for FY 2023.

As noted, we stated in the proposed rule that we were 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, in the event there was 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. As the proposed reclassification of the LITT procedures and the corresponding new procedure codes were approved following the March meeting, and the existing procedure codes D0Y0KZZ (Laser interstitial thermal therapy of brain) and D0Y1KZZ (Laser interstitial thermal therapy of brain stem) will be deleted effective October 1, 2022, we are not finalizing the proposed reassignment of these existing codes for FY 2023. As previously noted, and as reflected in Table 6B.—New Procedure Codes associated with this final rule, the new procedure codes describing LITT of brain (root operation Destruction) are assigned to MS-DRGs 025, 026 and 027 for FY 2023. We did not receive any public comments on our proposal 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. As previously noted, the existing procedure codes describing LITT of other anatomic sites will also be deleted effective October 1, 2023; therefore, we are not finalizing the proposed reassignment of these existing codes for FY 2023. The MS-DRG assignments for the newly approved procedure codes describing LITT of other anatomic sites for FY 2023 are displayed in Table 6B in association with this final rule.

As noted in the proposed rule, 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 stated that we are also seeking public comments and feedback on other factors that should be considered in the potential restructuring of these MS-DRGs.

Comment: In response to CMS's request for public comment and feedback on the potential restructuring of the craniotomy MS-DRGs for future consideration, some commenters disagreed and stated that such a restructuring is not necessary. These commenters stated that should CMS consider future modifications to the logic for case assignment to MS-DRGs 023 through 027, the agency provide adequate notice for interested parties to assess the impact of any proposed changes.

Another commenter expressed appreciation that CMS indicated it is continuing to analyze if additional restructuring for MS-DRGs 023 through 027 may be warranted and agreed that the logic for these MS-DRGs has become more complex. The commenter stated they will be performing analyses and plan to submit their findings by the October 20, 2022 deadline. Another commenter urged CMS to also consider the costs of procedures with respect to whether a device is inserted or implanted in combination with the approach and clinical indications because of the various diagnoses and procedures that may group to MS-DRGs 023 through 027. This commenter expressed support for further collaboration to better align resources and clinical characteristics among within these MS-DRGs.

Another commenter who also expressed appreciation that CMS has signaled its intent on analyzing MS-DRGs 023 through 027 recommended that CMS also expand its analysis to include MS-DRGs 020 through 022 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with MCC, with CC, and without CC/MCC, respectively). According to the commenter, the payment rates for a subset of the procedures that group to these MS-DRGs appear to no longer adequately reflect the utilization of resources. The commenter encouraged CMS to analyze these MS-DRGs and determine if additional modifications may be warranted.

Response: We thank the commenters for their feedback and will take these recommendations into consideration as we further examine the logic for case assignment. We note that we would address any proposed modifications to the existing logic in future rulemaking.

As previously described in the proposed rule and this final rule, we are examining procedures by their approach (open versus percutaneous), clinical indications, and procedures that involve the insertion or implantation of a device. We recognize the logic for MS-DRGs 023 through 027 has grown more complex over the years and believe there is opportunity for further refinement. We refer the reader to the ICD-10 MS-DRG Definitions Manual, version 40, 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 final rule at: https://mearis.cms.gov/public/home.

b. Vagus Nerve Stimulation

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28141 through 28151), we discussed a request we received 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. As discussed in section II.F.7. of the preamble of this final rule, the new technology add-on payment application for the VITARIA® System for FY 2023 was withdrawn prior to the issuance of this final rule.

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

We stated in the FY 2023 IPPS/LTCH PPS proposed rule that 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 indicated 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 were not appropriate mappings for these procedures.

We stated in the proposed rule that 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.

We stated 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 noted 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.

In the proposed rule, we stated that 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 stated 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.

We indicated in the proposed rule that the results of the claims analysis demonstrated that there was 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.

As discussed in the proposed rule, in reviewing the requestor's concerns regarding clinical coherence, our clinical advisors acknowledged that heart failure is a complex syndrome involving autonomic nervous system dysfunction, however our clinical advisors disagreed with assigning the diagnosis codes describing heart failure to MDC 01 (Diseases and Disorders of the Nervous System). Our clinical advisors noted 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, we stated these diagnosis codes are appropriately assigned to MDC 05 (Diseases and Disorders of the Circulatory System). Our clinical advisors also stated 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 stated 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 noted 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 noted 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.

We stated in the proposed rule that considering that there was 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 did not believe a reassignment of these cases was appropriate at this time. We stated we could 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 did not propose 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-DRGs 252, 253 and 254 to MS-DRGs 040, 041 and 042.

Comment: Commenters expressed support for CMS' decision to not propose 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-DRGs 252, 253 and 254 to MS-DRGs 040, 041 and 042.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current assignment 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 diagnosis of heart failure to MS-DRGs 252, 253 and 254, without modification, for FY 2023.

We further stated in the proposed rule that 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. We stated that 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 did 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 proposed 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.

Comment: Commenters supported the proposal to add the 24 ICD-10-PCS codes 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).

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal 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) without modification, effective October 1, 2022 for FY 2023.

Also, in the proposed rule we stated that as we examined the GROUPER logic that would determine an assignment of a case to MS-DRG 041, we noted that 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 associated with the proposed rule (which is available via the internet on the CMS website at: http://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 proposed to add the 108 ICD-10-PCS code clusters listed in Table 6P.3a in association with the proposed rule 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.

Comment: Commenters expressed support for CMS' proposal to add the 108 ICD-10-PCS code clusters listed in Table 6P.3a in association with the proposed rule that describe the insertion of a stimulator generator, that is not differentiated by device type, and a neurostimulator lead to MS-DRG 041. A commenter stated that this proposal will clinically align these procedures with other procedures in their respective MS-DRGs.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the 108 procedure code clusters listed in Table 6P.3a in association with the proposed rule that describe the insertion of stimulator generator, not differentiated by device type, and a neurostimulator lead to the GROUPER logic list referred to as “Peripheral Neurostimulators” for MS-DRG 041 (Peripheral, Cranial Nerve and Other Nervous System Procedures with CC or Peripheral Neurostimulator) without modification, effective October 1, 2022 for FY 2023.

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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28151 through 28155), we discussed a request we received to reassign cases reporting diagnosis codes describing central retinal artery occlusion, and the closely allied condition branch retinal artery occlusion, from MS-DRG 123 (Neurological Eye Disorders) in MDC 02 (Diseases and Disorders of the Eye) to MS-DRGs 061, 062, and 063 (Ischemic Stroke Precerebral Occlusion or Transient Ischemia with Thrombolytic Agent with MCC, with CC, and without CC/MCC, respectively) in MDC 01 (Diseases and Disorders of the Nervous System).

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

As noted in the proposed rule, 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.

We stated in the proposed rule that 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.

We stated that 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. We began our analysis by examining 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.

We stated in the proposed rule that 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).

We stated that this data analysis showed that 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 stated that we did not believe the data adequately supported 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 did not believe that the small subset of patients with a diagnosis of CRAO or BRAO receiving a thrombolytic agent or hyperbaric oxygen therapy warranted a separate MS-DRG or reassignment at this time. We stated 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), we stated that it was 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 noted 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 disagreed with assigning the diagnosis codes describing CRAO and BRAO to MDC 01. Our clinical advisors noted 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 stated 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 include 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.

We stated in the FY 2023 IPPS/LTCH PPS proposed rule that 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 have involved 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 have included 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, we found that the data did not support this option. We applied the five criteria as described in section II.D.1.b. of the preamble of the proposed rule and this final 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 the 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 stated that we applied the criteria to create subgroups for the three-way severity level split. We referred the reader to section II.D.1.b. of the preamble of the 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). We stated that our data analysis indicated that the current base MS-DRG 123 maintains the overall accuracy of the IPPS, and that the claims data did not support a three-way or a two-way severity level split for MS-DRG 123.

Lastly, we stated 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 did not propose any MS-DRG changes for cases with a principal diagnosis of CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent or a procedure code describing hyperbaric oxygen therapy.

Comment: Some commenters expressed support for CMS' decision to not propose any MS-DRG changes for cases with a principal diagnosis of CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent or a procedure code describing hyperbaric oxygen therapy.

Response: We appreciate the commenters' support.

Comment: Other commenters opposed or expressed concerns with CMS' decision to not propose any MS-DRG changes for cases with a principal diagnosis of CRAO or BRAO with a procedure code describing the administration of a thrombolytic agent or a procedure code describing hyperbaric oxygen therapy. These commenters stated from a pathophysiologic perspective, CRAO is the same process as a stroke of the brain and that the retina, although located within the eye, is a core component of the central nervous system and consists of brain cells (neurons) that also extend through the entire course of the brain. These commenters also stated that the relationship of any particular tissue to its organ is related to its structure and function, and not its location. According to the commenters, acute CRAO is a medical emergency, equivalent to acute cerebral ischemic stroke, that needs to be treated in the same way with urgent inpatient evaluation, cerebrovascular and cardiac workup, and intervention. The commenters urged CMS to assign cases reporting diagnosis codes describing central retinal artery occlusion with a procedure code describing the administration of a thrombolytic agent or a procedure code describing hyperbaric oxygen therapy to MS-DRGs 061, 062, and 063 to ensure appropriate payment for these cases.

Response: We thank the commenters for their feedback. Our clinical advisors reviewed the commenters' concerns and note that although commenters' state the relationship of any particular tissue to its organ is related to its structure and function, and not its location, in ICD-10, however, the body or organ system is the axis of the classification. By design, the patient characteristics included in the definition of each MS-DRG relate to a common organ system or etiology. Our clinical advisors agree with commenters that the retina is similar to the brain in terms of cellular and functional elements, but they note the retina is a part of the eye. Our clinical advisors state that the presence of CRAO or BRAO, which typically presents sudden, painless monocular loss of visual acuity and peripheral vision, requires input from an ophthalmologist which would not always be expected in a diagnosis of cerebral ischemia, which may or may not involve visual impairment. Our clinical advisors continue to believe CRAO and BRAO are appropriately classified with other eye conditions currently assigned to MDC 02.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal, without modification, to maintain the current assignment 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.

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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28155 through 28156), we discussed a request we received 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.

We stated in the proposed rule that 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 stated in the proposed rule that we agree, 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 proposed to reassign cases reporting ARDS (code J80) as a principal diagnosis from MS-DRG 204 to MS-DRG 189 effective FY 2023.

Comment: Commenters supported the proposal to reassign cases reporting diagnosis code J80 as a principal diagnosis from MS-DRG 204 to MS-DRG 189.

Response: We thank the commenters for their support.

After consideration of the public comments we received, we are finalizing our proposal 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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28156 through 28157), we stated that 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.

As stated in the proposed rule, 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 noted 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.

As noted in the proposed rule, our clinical advisors stated that procedure code 02UG3JE does not describe a PTCA procedure. As also noted in the proposed rule, 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 proposed 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 also proposed 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.

Comment: Commenters agreed with the proposal to remove procedure code 02UG3JE from the GROUPER logic for MS-DRGs 231 and 232 and to maintain the assignment in MS-DRGs 266 and 267.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove procedure code 02UG3JE from the list for PTCA procedures in MS-DRGs 231 and 232 and to maintain the assignment for code 02UG3JE in MS-DRGs 266 and 267 in the GROUPER logic for FY 2023.

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

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28157 through 28162), 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.5.a of the preamble of the proposed rule and this final rule for a discussion regarding the FY 2023 status of technologies approved for FY 2022 new technology add-on payments, including the BAROSTIM NEO^TM System.

For the 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).

We stated in the FY 2023 IPPS/LTCH PPS proposed rule that 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.

We stated in the proposed rule that 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.

We stated that our clinical advisors reviewed this data and noted that was 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. We stated that the results of the claims analysis demonstrated we did not have sufficient claims data on which to base and evaluate any proposed changes to the current MS-DRG assignment. We also stated that 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 noted there is no intravascular component or vascular puncture involved when implanting a BAROSTIM NEO^TM system. Our clinical advisors also noted 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 stated in the proposed rule that 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.

We stated that 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 was 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 stated in the proposed rule that we recognized 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. We noted that 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 noted 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 the proposed rule and this final 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 noted 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 the proposed rule, 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 noted 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 stated that 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 noted 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 referred the reader to section II.D.17 of the proposed rule for a more detailed discussion of this process. We noted 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, as discussed in the proposed rule, 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 stated that we believed that as the number of cases reporting procedure codes describing the implantation of neuromodulation devices for heart failure increases, a better view of the associated costs and lengths of stay on average will be reflected in the data for purposes of assessing any reassignment of these cases. We indicated that 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 proposed 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 also proposed 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.

Comment: Commenters expressed support for CMS' proposal to maintain the assignment of cases reporting procedure codes that describe the implantation of a neuromodulation device for heart failure in MS-DRGs 252, 253 and 254 and 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.

Response: We appreciate the commenters' support.

Comment: A commenter opposed CMS' proposal. The commenter stated that in their own analysis of the MedPAR data, and from their real-world experience, patients with an indication for implantation of a neuromodulation device were not always admitted with a heart failure diagnosis. Many patients presented with multiple comorbidities, and various cardiovascular diagnosis (for example, syncope, tachycardia, atrial fibrillation etc.) which lead to heart failure or are concomitant with heart failure.

This commenter further stated that in their review of the data that CMS presented, the cost of cases with a diagnosis of heart failure with procedure codes describing the implantation of a neuromodulation device without cardiac catheterization and the cost of cases with a procedure code describing placement of the stimulator generator alone are both more than twice that of all cases in MS-DRG 252. The commenter stated even given these disparities, they did not believe that the full costs of the implantation of a neuromodulation device system have been appreciated in the MedPAR data files. According to the commenter, the manufacturer did not charge a cost for the device during clinical trials for the BAROSTIM NEO^TM so such claims do not reflect the full device cost. The commenter also stated that the COVID-19 pandemic has had a negative impact on inpatient hospital uptake of this new technology, which in turn has also limited the data available to support an accurate and appropriate MS-DRG assignment. The commenter stated they believe the fact that there are few cases in the MedPAR data files to date is not a reason to allow an overly mispriced MS-DRG assignment. The commenter stated that while BAROSTIM NEO^TM procedures are typically performed in the outpatient setting, it is important to preserve inpatient access for those patients with comorbidities or other risk factors that necessitate an inpatient level of care. According to this commenter, the current MS-DRG assignments for procedure codes that describe the implantation of a neuromodulation device for heart failure would result in a lower payment than procedures performed in the outpatient setting and could result in barriers to treatment for patients who are not suitable candidates for the outpatient setting.

This commenter urged CMS to reassign the ICD-10-PCS procedure codes that describe the implantation of a neuromodulation device for heart failure from MS-DRGs 252, 253 and 254 to MS-DRGs 222, 223, 224, 225, 226 and 227 as requested. As alternatives, the commenter recommended to CMS, to instead, consider reassigning the ICD-10-PCS procedure codes that describe the implantation of the BAROSTIM NEO^TM System from MS-DRGs 252, 253 and 254 to MS-DRGs 270, 271 and 272 (Other Major Cardiovascular Procedures with MCC, with CC, and without CC/MCC, respectively) or even create a new MS-DRG that appropriately describes these procedures.

Response: We appreciate the commenter's feedback and concern. With regard to the commenter's concern that patients with an indication for the implantation of neuromodulation devices are not always admitted with heart failure diagnoses, we wish to confirm that the examination of 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 neuromodulation devices for heart failure with or without a procedure code describing the performance of a cardiac catheterization, as discussed in the proposed rule, included cases reporting a diagnosis of heart failure as either a principal or secondary diagnosis.

Our clinical advisors reviewed commenter's concerns and continue to note we do not have sufficient claims data on which to base and evaluate any proposed changes to the current MS-DRG assignment, given the difficulties of assessing patterns of complexity and resource intensity based on the limited number of cases identified. Our clinical advisors also continue to express concern in equating the implantation of neuromodulation devices for heart failure 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), as discussed in the proposed rule. In regard to the concern about the implications for payment when these procedures are performed in the outpatient setting as opposed to the inpatient setting, as noted in the proposed rule, and in prior rulemaking, the goals of reviewing the MS-DRG assignments of particular procedures are to better clinically represent the resources involved in caring for these patients and to enhance the overall accuracy of the system.

With regard to the commenter's concern that there may have been other contributing factors that limited the data available to support an accurate and appropriate MS-DRG assignment of these cases, our clinical advisors believe that as the number of cases reporting procedure codes describing the implantation of neuromodulation devices for heart failure increases, the associated resource utilization can be better assessed for purposes of evaluating any reassignment of these cases. As additional claims data becomes available, we will continue to analyze the clinical nature of procedure codes describing the implantation of neuromodulation devices for heart failure and their MS-DRG assignments, including potential alternative MS-DRG assignments, to further improve the overall accuracy of the IPPS payments in future rulemaking.

Therefore, after consideration of the public comments we received, and for the reasons stated earlier, we are finalizing our proposal to maintain the assignment of cases reporting procedure codes that describe the implantation of a neuromodulation device in MS-DRGs 252, 253 and 254, without modification, for FY 2023. We are also finalizing our proposal to maintain the assignment of cases reporting a procedure code describing placement of a stimulator generator alone in MS-DRGs 252, 253 and 254, without modification, effective October 1, 2022 for FY 2023.

In the proposed rule, we also noted that 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.

We stated that 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 referred 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.

In the proposed rule, we stated that our clinical advisors reviewed this issue and believed 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. We noted that in order 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. We stated that our clinical advisors recommended 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 proposed 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.

Comment: Commenters expressed support for CMS' proposal 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.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal 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, without modification, effective October 1, 2022 for FY 2023.

c. Cardiac Mapping

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28162 through 28163), 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.

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, 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. We stated that our clinical advisors reviewed this grouping issue and stated that procedure code 02K80ZZ does not describe a percutaneous cardiovascular procedure. We stated that our clinical advisors supported 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 proposed 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 the proposed rule, we noted that we were providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 40, so that the public could better analyze and understand the impact of the proposals included in the proposed rule. We noted that at the time of the development of the test software this issue was unable to be addressed and therefore, it did 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.

Comment: Commenters agreed with our proposal to reassign 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). A few commenters stated that they appreciate CMS identifying a replication issue from the ICD-9 based MS-DRGs to the ICD-10 based MS-DRGs and supported the reassignment of procedure code 02K80ZZ. A commenter agreed that cardiac mapping is generally performed during open-heart surgery or performed via cardiac catheterization to create detailed maps of electrical signals to identify the location of rhythm disorders.

Response: We thank the commenters for their support.

Comment: Other commenters opposed the proposal. Several commenters noted that CMS stated that code 02K80ZZ affects the MS-DRG to which it is assigned, however, based on their review of the MS-DRG logic, code 02K80ZZ is designated as a non-O.R procedure and does not affect MS-DRG assignment. Other commenters expressed concern that data was not analyzed to see if code 02K80ZZ had been found in MS-DRGs 246, 247, 248, 249, 250 and 251. A commenter stated that should it be determined that code 02K80ZZ had not been found in MS-DRGs 246, 247, 248, 249, 250 and 251, then they agreed with removal of code 02K80ZZ from these MS-DRGs and reassignment to MS-DRGs 273-274. However, should the analysis show code 02K80ZZ assigned to MS-DRGs 246, 247, 248, 249, 250 and 251, this commenter suggested CMS consider if the assignment of code 02K80ZZ to these MS-DRGs should be maintained, and if not, what ramifications the reassignment would have.

A few commenters recommended that CMS consider assigning code 02K80ZZ to MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively) instead. Some commenters stated that they believe that procedures to map conduction mechanism share similar clinical and resource consumption as the surgical ablation procedures performed via an open approach that are currently assigned to MS-DRGs 228 and 229. These commenters further stated that given that 02K80ZZ (Map conduction mechanism, open approach) does not describe a percutaneous cardiovascular procedure, they did not recommend the assignment of the code to MS-DRGs 273 and 274. A commenter stated that based on their own analysis, 02K80ZZ is more often assigned to MS-DRGs 228 and 229 than to MS-DRGs 273 and 274, and furthermore, the ICD-10-PCS codes included in MS-DRGs 273 and 274 are ablation procedures via percutaneous approach. Another commenter asserted that the procedures in MS-DRGs 273 and 274 are all percutaneous approach procedures.

Response: We thank the commenters for their feedback.

We note that in the ICD-10 MS-DRGs Definitions Manual Version 39.1, procedure code 02K80ZZ is in fact recognized as a non-O.R. procedure affecting MS-DRGs 246, 247, 248, 249, 250 and 251, specifically. Under the IPPS MS-DRGs, 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”). 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” because these procedure codes describe procedures that would generally require a greater intensity of resources for facilities to manage the cases included in the definition (logic) of these MS-DRGs. We 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. Procedures designated as “non O.R. affecting the MS-DRG” are listed in Appendix E with an asterisk.

In response to the comments expressing concern that data was not analyzed to determine if there were any cases reported with procedure code 02K80ZZ in MS-DRGs 246, 247, 248, 249, 250 and 251, we refer the reader to Table 6P.1e associated with this final rule and available via the internet at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. This table displays the findings from our analysis of the claims data from the September 2021 update of the FY 2021 MedPAR file to determine if there were any cases reported with procedure code 02K80ZZ assigned to MS-DRGs 246, 247, 248, 249, 250 and 251 and reflects that there were no such cases found.

With regard to the commenters' concerns that procedures to map conduction mechanism share similar clinical and resource consumption as surgical ablation procedures performed via an open approach, our clinical advisors note that while cardiac mapping can be used to identify and localize areas responsible for rhythm disturbances to serve as a target for surgical ablation, each of these procedures are defined by clinically distinct definitions and objectives, which is why there are separate and unique ICD-10-PCS procedure codes within the classification for reporting purposes. Our clinical advisors note that cardiac mapping describes the creation of detailed maps, generally involving the use of electrodes and a mapping system (consisting of amplifiers and a recording and analysis system), 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. Surgical ablation, however, describes the burning or freezing of tissue on the inside of the heart to disrupt faulty electrical signals causing the arrhythmia.

We also note in response to the comments received that percutaneous ablation procedures are not the only procedures assigned to MS-DRGs 273 and 274. Of note, left atrial appendage closure (LAAC) procedures, with and without an implant, are also assigned to MS-DRGs 273 and 274. In response to the commenters who did not agree with the proposal to reassign procedure code 02K80ZZ from MS-DRGs 246, 247, 248, 249, 250 and 251 to MS-DRGs 273 and 274 based on the open approach of the procedure, as noted in the proposed rule, 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, as not only percutaneous procedures are assigned to these MS-DRGs. 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 273 and 274.

Our clinical advisors continue to note that code 02K80ZZ (Map Conduction Mechanism, Open Approach), which is a comparable ICD-10-PCS code translation for ICD-9-CM procedure code 37.27 (Cardiac mapping), was inadvertently excluded in FY 2016 rulemaking when we finalized our proposal to create MS-DRGs 273 and MS-DRG 274 to better reflect utilization of resources and clinical cohesiveness for intracardiac procedures in comparison to intracoronary procedures. Our clinical advisors continue to 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 that are currently assigned to MS-DRGs 273 and 274.

Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to reassign 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, without modification.

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, and 218 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC, with CC, and without CC/MCC, respectively) as well as approximately 31 other MS-DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. We refer the reader to section II.D.1.b. of the FY 2022 IPPS/LTCH PPS final rule (86 FR 44796 through 44798), for related discussion regarding our finalization of the proposal 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, as discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28163), 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 suggested that when open surgical ablation is performed with MVR, or AVR or MVR/AVR + CABG that these procedures are either (1) assigned to a different family of MS-DRGs or (2) assigned to MS-DRGs 216 and 217 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC and with CC, respectively) similar to what CMS did with CABG and open ablation procedures in the FY 2022 rulemaking to better accommodate the added cost of open concomitant surgical ablation.

In the proposed rule we stated 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 stated that we believed more time was 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 continued 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 stated 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 stated that we believed that additional time was 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.

Comment: Commenters expressed support of CMS' decision to allow additional time for the claims data to reflect our FY 2022 finalization before further analysis. Commenters stated that the finalized changes to surgical hierarchy for cardiac procedures were positive and will improve patient access. Other commenters stated that the finalized changes to the MS-DRG assignment of cases with a procedure code describing coronary bypass and a procedure code describing open ablation were timely.

Response: We thank the commenters for their support.

Comment: Some commenters opposed CMS' decision and suggested that Medicare cover both aortic valve replacement surgery and surgical treatment for atrial fibrillation.

Response: We note that the Definitions Manual display of the GROUPER logic assignment for each procedure code is not an indication of whether or not a particular procedure is covered for payment purposes. The MS-DRG logic must specifically require a condition to group based on whether it is reported as a principal diagnosis or a secondary diagnosis, and consider any procedures that are reported, in addition to consideration of the patient's age, sex and discharge status in order to affect the MS-DRG assignment. In other words, cases will group according to the GROUPER logic, regardless of any coding guidelines or coverage policies. It is the Medicare Code Editor (MCE) and other payer-specific edits that identify inconsistencies in the coding guidelines or coverage policies. These data integrity edits address issues such as data validity, coding rules, and coverage policies. Since the inception of the IPPS, the data editing function has been a separate and independent step in the process of determining a DRG assignment. The separation of the MS-DRG grouping and data editing functions allows the MS-DRG GROUPER to remain stable even though coding rules and coverage policies may change during the fiscal year.

Comment: Other commenters opposed CMS' decision and stated CMS needs to finish the work that was started and improve hospital payment for valvular procedures with surgical ablation for atrial fibrillation. These commenters stated that the finalization of the revision to the surgical hierarchy for the MS-DRGs in MDC 05 and the finalization of the assignment of cases with a procedure code describing coronary bypass and a procedure code describing open ablation to MS-DRGs 233 and 234 in FY 2022 rulemaking does not address the increased costs of cases describing open concomitant surgical ablation performed with open valve procedures that are assigned to MS-DRGs 216 through 221. A few commenters asserted that hospitals are forced to lose money on these lifesaving treatments because CMS has not addressed this underpayment. Other commenters stated that CMS did not provide transparent data analysis of cases describing open surgical ablation for atrial fibrillation performed during open valve procedures so the provider community could appropriately evaluate.

Commenters stated that treating atrial fibrillation during the same surgical session as an open valve procedure requires significant device costs, additional operating room time, and specialized staff. A commenter stated that even if the surgical ablation procedure is less technically complex than CABG, MVR, and/or AVR, hospitals still bear significant costs for furnishing the ablation procedure when the additional costs of the innovative device technologies (such as radiofrequency ablation clamps, cryoablation probes, and left atrial appendage management devices) that are used during the procedure are considered. Commenters expressed concern that given the added costs of performing as many as three procedures at the same time, hospitals may more likely schedule the patient for separate procedures even though guidelines of the Society for Thoracic Surgeons and the Heart Rhythm Society recommend performing surgical ablation for atrial fibrillation at the time of open-heart procedures when indicated. These commenters further stated they believed it did not seem financially prudent to compel patients to undergo multiple procedures, potentially costing more in the long run, when their atrial fibrillation could be treated during the same open-heart operation. Many commenters urged CMS to either (1) assign the cases to a different family of MS-DRGs or (2) assign these cases to MS-DRGs 216 and 217 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC and with CC, respectively) as originally requested.

Another commenter stated they respected the position of CMS' clinical advisors given the complexity of the involved procedures and noted that the issue of multiple procedures or interventions performed during a single hospital stay is also a problem in other areas of cardiology and warrants a meaningful solution. This commenter stated they believed that since performing procedures concomitantly is more efficient, more convenient, provides a better prognosis for the patient and could be more cost effective than the procedures being performed in different hospital stays, there should be a mechanism for differentiated payment when procedures are performed concomitantly, when it is best for the patient. This commenter recommended that CMS create a supplemental payment mechanism that could be modeled based on the respective costs of the individual procedures determined by claims data and then adjusted for efficiencies of a single operative session to facilitate incremental payment when two major procedures are performed during the same hospital admission and urged CMS to solicit further comment on possible methodological solutions to accommodate costs when two procedures are performed concomitantly.

Response: We appreciate the commenters' feedback.

We refer readers to Tables 6P.1c and 6P1.d associated with this final rule (which are available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS) for the data analysis of cases reporting procedure code combinations describing open concomitant surgical ablations in the September 2021 update of the FY 2021 MedPAR file. Table 6P.1c associated with this final rule sets forth the list of ICD-10-PCS procedure codes reflecting mitral valve repair or replacement (MVR), aortic valve repair or replacement (AVR), and coronary artery bypass grafting (CABG) procedures that we examined in this analysis. Table 6P.1d associated with this final rule shows the data analysis findings of cases reporting procedure code combinations describing open concomitant surgical ablations assigned to MS-DRGs 216, 217, 218, 219, 220 and 221 from the September 2021 update of the FY 2021 MedPAR file.

As shown in Table 6P.1d associated with this final rule, while the average lengths of stay and average costs of cases reporting procedure code combinations describing open concomitant surgical ablations are higher than all cases in their respective MS-DRG, we found there is variation in the volume, length of stay, and average costs of the cases. For MS-DRG 216, we found 870 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 16.8 days to 20.5 days and average costs ranging from $90,122 to $156,617 for these cases. For MS-DRG 217, we found 168 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 7.5 days to 12 days and average costs ranging from $48,644 to $74,594 for these cases. For MS-DRG 218, we found zero cases reporting procedure code combinations describing open concomitant surgical ablations. For MS-DRG 219, we found 1,940 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 11.2 days to 13.4 days and average costs ranging from $70,816 to $86,805 for these cases. For MS-DRG 220, we found 1,338 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 7.1 days to 8.8 days and average costs ranging from $49,326 to $65,611 for these cases. For MS-DRG 221, we found 60 cases reporting procedure code combinations describing open concomitant surgical ablations with the average length of stay ranging from 5.6 days to 6.3 days and average costs ranging from $44,247 to $47,418 for these cases.

As noted, and similar to our analysis of the data for the FY 2022 IPPS/LTCH PPS rulemaking, the data analysis shows that 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, there is variation in the volume, length of stay, and average costs of the cases. As we discuss later in this section, the analysis also shows that the cases reporting an open concomitant surgical ablation code combination are predominately found in the higher (CC or MCC) severity level MS-DRGs of their current base MS-DRG assignment. Moreover, as also previously noted, the data from the September 2021 update of the FY 2021 MedPAR file does not reflect our FY 2022 finalization. We continue to 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 or other factors may be contributing to the increased length of stay and costs of this subset of cases, as discussed previously.

In response to comments that urged CMS to assign cases reporting procedure code combinations describing open concomitant surgical ablations currently assigned to MS-DRGs 216, 217, 218, 219, 220 and 221 to MS-DRGs 216 and 217 only, MS-DRGs 216, 217 and 218 are defined by the performance of cardiac catheterization. The performance of a cardiac catherization procedure could be also contributing to the increased average costs of cases reporting procedure code combinations describing open concomitant surgical ablations currently assigned to MS-DRGs 216, 217 and 218. Our clinical advisors have expressed concern about the effect on clinical coherence of assigning cases reporting procedure code combinations describing open concomitant surgical ablations that do not also have a cardiac catherization procedure reported to MS-DRGs that are defined by the performance of that procedure.

We also note, as discussed in Section D.1.b of the proposed rule and this final rule, using the September 2021 update of the FY 2021 MedPAR file, we analyzed how applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would affect the MS-DRG structure beginning in FY 2022. Similar to our findings discussed in the FY 2022 IPPS/LTCH final rule, findings from our analysis using the September 2021 update of the FY 2021 MedPAR file indicated that MS-DRGs 216, 217, 218 as well as approximately 40 other MS-DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. While we are finalizing the delay of the application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split until FY 2024 or later, and to 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 note that the total number of cases in MS-DRG 218 is again below 500, and that we may consider consolidating these MS-DRGs into two severity levels based on the application of the NonCC subgroup criteria in future rule-making. We refer the reader to Table 6P.1b associated with the proposed rule and this 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 the list of the 123 MS-DRGs that would be subject to deletion and the list of the 75 new MS-DRGs that would have been proposed for creation under this policy if the NonCC subgroup criteria were applied.

In response to comments that the finalized revision to the surgical hierarchy did not adequately address the increased costs of cases associated with open concomitant surgical ablation and that urged CMS to create new MS-DRGs for these open concomitant procedures as originally requested, our clinical advisors continue to believe additional time is needed to review the clinical nature of cases reporting an open concomitant surgical ablation code combination before exploring a proposal to create new MS-DRGs for this subset of cases currently assigned to MS-DRGs 216 through 221 given the complexity of these code combinations and the corresponding data. Our analysis using the September 2021 update of the FY 2021 MedPAR file reflects that the cases reporting an open concomitant surgical ablation code combination are predominately found in the higher (CC or MCC) severity level MS-DRGs of their current base MS-DRG assignment, suggesting that the patient's co-morbid conditions may also be contributing to higher costs of these cases. Secondly, for the numerous procedure combinations that would comprise an “open concomitant surgical ablation” procedure, the increase in average costs appears to directly correlate with the number of procedures performed. For example, cases that describe “Open MVR + open surgical ablation” generally demonstrate costs that are lower than cases that describe “Open MVR + open AVR + open CABG + open surgical ablation.” Therefore, our clinical advisors continue to believe that additional time is needed to allow for further analysis of the claims data to determine to what extent the patient's co-morbid conditions are also contributing to higher costs and to identify other contributing factors that might exist with respect to the increased length of stay and costs of these cases in these MS-DRGs. Our clinical advisors continue to believe that future data findings may demonstrate additional variance in resource utilization for this patient population.

With respect to commenters' concerns regarding a mechanism for differentiated payment when procedures are performed concomitantly, we agree that the performance of concomitant procedures is an area that warrants more analysis across the MS-DRG classification, as the performance of “concomitant procedures” may affect the consumption of resources in other clinical scenarios as well, especially when the use of devices is involved. 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. It has been difficult to identify other MS-DRGs that would be more appropriate MS-DRG assignments for these concomitant procedures based on the variance in the clinical characteristics and utilization of resources for concomitant procedures, which can depend on the number of procedures being performed concomitantly and the nature of these procedures. We are interested in receiving feedback on possible mechanisms through which we can address concomitant procedures. We are also interested in receiving feedback on how CMS can mitigate any unintended negative payment impacts to providers providing concomitant procedures. Commenters can continue to submit their recommendations via the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

Comment: Some commenters noted that cases describing standalone hybrid percutaneous endoscopic surgical ablation are assigned MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively) and noted that payment for MS-DRGs 228 and 229 has been trending downward over the last six years. These commenters stated that the downward payment trend for MS-DRGs 228 and 229 has resulted in hospitals being undercompensated for the costs of furnishing standalone hybrid percutaneous endoscopic surgical ablation procedures for atrial fibrillation. Other commenters stated that CMS did not provide transparency to the details of its analysis to support why standalone hybrid surgical ablation procedures should not be moved from MS-DRGs 228 and 229.

Some commenters stated that the decline in payment for standalone hybrid percutaneous endoscopic surgical ablation procedures makes it impossible for their facilities to continue to provide these needed procedures to patients suffering from atrial fibrillation. A commenter stated the proposed relative weight does not accurately reflect the costs of these device intensive procedures and that there has been no transparency into the cause for these significant declines. Another commenter stated that their facility has been especially impacted by COVID-19 and stated that for CMS to expect facilities to be able to continue to provide patients with needed medical services such as hybrid percutaneous endoscopic surgical ablation at such a steep decrease in payment is intolerable for hospitals. Other commenters asserted that hospitals will be forced to postpone or “trim back” on providing patients access to more complex, resource intensive procedures such as these, to better align their costs with what they asserted were Medicare's inadequate payment levels. These commenters proposed two possible remedies to this underpayment, that CMS either (1) use its statutory authority to not reduce the relative weight and payment for MS-DRGs 228 and 229, or (2) assign cases reporting procedure codes describing standalone percutaneous endoscopic surgical ablation from MS-DRGs 228 and 229 to the higher (MCC) severity level MS-DRG of its current base MS-DRG assignment, which is MS-DRG 228 (Other Cardiothoracic Procedures with MCC), to prevent underpayment for these procedures and avoid disruptions in beneficiary access.

Response: We appreciate the commenters' feedback. We note that we did not receive a specific request to change the MS-DRG assignment for standalone percutaneous endoscopic surgical ablation procedures for consideration for the FY 2023 IPPS/LTCH PPS proposed rule. We note a request to reassign cases describing standalone percutaneous endoscopic surgical ablation from MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC, respectively) to higher weighted MS-DRGs 219 and 220 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC and with CC, respectively) was discussed in the FY 2022 IPPS/LTCH PPS proposed rule. In the FY 2022 IPPS/LTCH final rule, in response to comments received on the proposed rule, we also discussed the assignment of cases reporting procedure codes describing standalone percutaneous endoscopic surgical ablation from MS-DRGs 228 and 229 to the higher (MCC) severity level MS-DRG of its current base MS-DRG assignment in the FY 2022 IPPS/LTCH PPS final rule. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44844 through 44848) for a complete discussion.

In the request to again review the MS-DRG assignment of surgical ablation procedures in FY 2023 rulemaking, however, the requestor stated in their submission that while surgical ablation represents losses across all procedure types, they recommended focusing on addressing open concomitant surgical ablation in FY 2023 rulemaking and did not request a change to the MS-DRG assignment for standalone percutaneous endoscopic surgical ablation. Therefore, cases describing standalone percutaneous endoscopic surgical ablation were not considered in the FY 2023 IPPS/LTCH PPS proposed rule.

In response to the comment that hospitals may postpone or “trim back” on providing patients access to these procedures in order to better align their costs with Medicare payment levels, as we have stated in prior rulemaking, it is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that potentially involves increased costs.

We acknowledge the reduction in the proposed FY 2023 relative weights for MS-DRGs 228 and 229 (approximately 7% and 4%, respectively from the FY 2022 relative weight), however, we note we did not propose a change to the GROUPER logic of MS-DRGs 228 and 229 for FY 2023. However, there have been previous changes to the structure of MS-DRGs 228 and 229 over the past six years. It is to be expected that when MS-DRGs are restructured, such as when procedure codes are reassigned or the hierarchy within an MDC is revised, resulting in a different case-mix within the MS-DRGs, the relative weights of the MS-DRGs will change as a result. We believe the trending reduction in relative weights for MS-DRGs 228 and 229 over time to be appropriately driven by the underlying data in the six years since CMS began using the ICD-10 data in calculating the relative weights and is reflective of the change in case-mix within these MS-DRGs. Specifically, in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56809 through 56813), we finalized our proposal to collapse MS-DRGs 228, 229, and 230 from three severity levels to two severity levels by deleting MS-DRG 230 and revised the structure of MS- DRG 229. We also finalized our proposal to reassign ICD-9-CM procedure code 35.97 and the cases reporting ICD-10-PCS procedure code 02UG3JZ (Supplement mitral valve with synthetic substitute, percutaneous approach) from MS-DRGs 273 and 274 to MS-DRG 228 and revised the titles of MS-DRG 228 and 229. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42080 through 56813) we finalized our proposal to modify the structure of MS-DRGs 266 and 267 by reassigning ICD-10-PCS procedure code 02UG3JZ describing a transcatheter mitral valve repair with implant procedure from MS-DRGs 228 and 229 to MS-DRGs 266 and 267 and revised the titles of MS-DRGs 266 and 267. Finally, as discussed in the FY 2022 IPPS/LTCH PPS final rule, and earlier in this section, we finalized a revision to the surgical hierarchy for the MS-DRGs in MDC 05 to sequence MS-DRGs 231-236 (Coronary Bypass) above MS-DRGs 228 and 229 for FY 2022. Therefore, the data appear to reflect that the difference in the relative weights shown in Table 5-List of Medicare Severity Diagnosis Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay associated with final rule for the applicable fiscal year can be attributed to the fact that these previously finalized policies resulted in a different case-mix within the MS-DRGs, which is then being reflected in the relative weights. We refer the reader to section II.E. of the preamble of this FY 2023 IPPS/LTCH PPS final rule for a complete discussion of the relative weight calculations for FY 2023, including our finalized policies to 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 to 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.

We appreciate the commenters' support and feedback, and intend to continue to consider these issues. For the reasons summarized earlier, and after consideration of the public comments we received, we are not making any MS-DRG changes for cases involving the open concomitant surgical ablation procedures or for cases describing standalone percutaneous endoscopic surgical ablation for FY 2023.

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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28163 through 28165), we discussed a request we received 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.

In the proposed rule we noted 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 noted in the proposed rule that the deadline for submitting public comments on the diagnosis code proposals discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting was May 9, 2022 and according to the CDC/NCHS staff, the diagnosis code proposals are being considered for an October 1, 2023 implementation (FY 2024). We stated that 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 expressed support for the proposed changes or provided alternative options for consideration, we stated in the proposed rule that we believe it is appropriate to delay any possible MS-DRG modifications for future rulemaking. Therefore, we did not propose a change to the MS-DRG assignment or the current structure for MS-DRGs 338, 339, 340, 341, 342, and 343. Although we did not propose a change to the MS-DRG assignments for FY 2023, we made the findings from our data analysis available for the listed MS-DRGs and the associated diagnosis codes to help inform future comments. We referred the reader to Table 6P.4a associated with the proposed rule (which is available via the internet on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps).

Comment: Commenters agreed with our proposal to maintain the structure of MS-DRGs 338, 339, 340, 341, 342, and 343 including the MS-DRG assignment for diagnosis code K35.20 to MS-DRGs 341, 342, and 343. However, a commenter opposed CMS's proposal and stated they agreed with the requestor that all diagnosis codes describing a ruptured or perforated appendix should group to MS-DRGs 338, 339, and 340. The commenter stated that the condition described by code K35.20 can be associated with the risk of postoperative abscess formation and extended length of hospital stay, thereby warranting classification as a complicated diagnosis. This commenter urged CMS to reassign code K35.20 from MS-DRGs 341, 342, and 343 to MS-DRGs 338, 339, and 340 for FY 2023.

Response: We thank the commenters for their support and feedback. In response to the commenter who urged CMS to reassign diagnosis code K35.20 from MS-DRGs 341, 342, and 343 to MS-DRGs 338, 339, and 340 for FY 2023, we note that the CDC/NCHS staff are in the process of reviewing public comments related to the proposed revision to certain diagnosis codes describing acute appendicitis that was presented at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting, as discussed in the proposed rule. Accordingly, we continue to believe it is appropriate to delay any potential MS-DRG modifications as we do not yet know what the finalized code updates, including any corresponding changes to the Index to Diseases and Injuries and Tabular List of Diseases, might be. We will continue to collaborate with the CDC/NCHS regarding this issue.

After consideration of the public comments we received, we are maintaining the current structure of MS-DRGs 338, 339, 340, 341, 342, and 343 and the MS-DRG assignment of diagnosis code K35.20 for FY 2023.

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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28165), we stated that 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 stated in the proposed rule that 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 noted that MS-DRGs 411, 412, and 413 include cholecystectomy procedures performed by either an open or a percutaneous endoscopic (laparoscopic) approach. We referred 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.

As stated in the proposed rule, 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 in 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 noted in the proposed rule that we will consider if further detailed analysis may be warranted for these cases.

As stated in the proposed rule, 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 proposed 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.

Comment: Commenters agreed with our proposal to redesignate procedure code 0FC94ZZ from a non-O.R. procedure to an O.R. procedure and to add it to the logic list for common bile duct exploration (CDE) procedures in MS-DRGs 411, 412, and 413.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to redesignate procedure code 0FC94ZZ from a non-O.R. procedure to an O.R. procedure and to add it to the logic list for common bile duct exploration (CDE) procedures in MS-DRGs 411, 412, and 413 for FY 2023.

In addition, we noted in the proposed rule 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 stated 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 indicated 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.

Comment: Commenters agreed that there may be an opportunity to further refine the MS-DRGs for cholecystectomy procedures and encouraged CMS to conduct further review and analysis of the procedure codes describing cholecystectomy with common bile duct exploration for consideration in future rulemaking.

Response: We thank the commenters for their support and continue to solicit any additional feedback from the public on this and any alternative recommendations or options to further refine these MS-DRGs for future consideration. As discussed in section II.D.1.b. of the preamble of the proposed rule and this final rule, feedback and other suggestions should be directed to the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home, with any comments and suggestions for consideration for FY 2024 to be submitted by October 20, 2022.

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). In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28167 through 28168) we discussed a request we received 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.

As discussed in the proposed rule, 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 the proposed rule and this final 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 stated in the proposed rule that we are maintaining the current structure for MS-DRGs 628, 629, and 630 for FY 2023, but would 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.

Comment: Commenters agreed with our decision to maintain the current MS-DRG assignment for cases reporting the administration of eladocagene exuparvovec. Other commenters urged CMS to consider appropriate MS-DRG assignment and payment for gene therapy intracerebral infusion therapies. The commenters stated there is anticipated rapid development and potential for these therapies to help patients. The commenters also expressed appreciation for CMS' request for feedback on MS-DRG assignment for rare diseases and stated that gene therapy represents an area of significant innovation in treating these conditions. The commenters suggested that CMS carefully consider the MS-DRG assignment for procedures that involve an intracerebral infusion of gene therapy or stem cell products that are currently under development for several neurologic disorders including Parkinson's, which is very common, and aromatic L-amino acid decarboxylase deficiency, which is very rare. The commenters stated that intracerebral infusion therapies are unique procedures requiring vastly different hospital resources compared to more traditional neurosurgical procedures. According to the commenters, appropriate MS-DRG assignment or consideration for creating new MS-DRG categories will be essential to assuring access to these therapies.

Response: We appreciate the commenters' support and feedback.

Comment: A couple commenters disagreed with CMS's decision to maintain the current MS-DRG assignment for cases reporting the administration of eladocagene exuparvovec. The commenters requested that CMS consider creating a new MS-DRG for neurosurgical gene therapy. A commenter indicated that because eladocagene exuparvovec has not yet been approved by the FDA they are unable to appropriately identify cases in the claims data. This commenter stated that there are currently approximately 68 gene therapy trials for central nervous system disorders, therefore, the decision to create or not create a new MS-DRG may have broader implications.

Response: We appreciate the commenters' feedback. As discussed in the proposed rule, our analysis of claims data, which identified only one case reporting the administration of this therapy, did not support a proposal to create a new MS-DRG. The MS-DRGs are a classification system intended to group together those diagnoses and procedures with similar clinical characteristics and utilization of resources. As discussed previously and in prior rulemaking, we generally prefer not to create a new MS-DRG unless it would include a substantial number of cases, as having large clinical cohesive groups within an MS-DRG provides greater stability for annual updates to the relative payment weights. We acknowledge the complexities related to classifying cases that are represented by low volumes in our claims data and believe that further review of this issue also aligns with our intent to consider how rare diseases or conditions may be classified under the IPPS.

After consideration of the public comments we received, we are maintaining the current MS-DRG assignment for cases reporting the administration of eladocagene exuparvovec for FY 2023. We will continue to explore appropriate mechanisms to address therapies indicated for rare diseases. We also refer the reader to section II.D.19.a of the preamble of this final rule for a discussion of the feedback received in response to the comment solicitation on possible mechanisms to address rare diseases and conditions in the MS-DRG structure.

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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28168 through 28170), we discussed a request we received 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).

In the proposed rule we stated that 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.

We stated that as we examined the GROUPER logic that would determine an assignment of cases to MS-DRG 795, we noted the “only secondary diagnosis” list under MS-DRG 795 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.

As discussed in the proposed rule, in reviewing the ICD-10-CM diagnosis code classification and the GROUPER logic list, we noted 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.

We stated in the proposed rule that our clinical advisors reviewed this issue and agreed 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 stated that we agreed 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 proposed 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.

Comment: Commenters expressed support for CMS' proposal 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).

Response: We appreciate the commenters' support.

Comment: A few commenters opposed CMS's proposal and stated that newborns exposed to communicable diseases often require care and treatment well above that of a normal newborn in terms of requiring increased evaluation, monitoring, testing, and prophylactic treatment. Some commenters stated that these newborns are not “normal newborns” due to the specific exposures they have had. These commenters listed a number of communicable diseases as examples and indicated the specific interventions such as evaluations, screenings, assessments, extra monitoring, laboratory studies, prophylactic treatments and sometimes isolation that can be required to prevent disease or complications when contact or (suspected) exposure occurs. Another commenter noted that there is a substantial difference in the FY 2023 proposed relative weights between MS-DRG 795 and MSDRG 794 and stated that “exposure only” cases fall in between the two MS-DRGs in terms of resource utilization. This commenter stated that a review of the cases at their facility shows that cases assigned to MS-DRG 794 with only a diagnosis code describing contact with and (suspected) exposure to communicable diseases driving the MS-DRG assignment had longer lengths of stay and higher charges than cases assigned to MS-DRG 795, while having shorter lengths of stay and lower charges than other cases assigned to MS-DRG 794 with diagnoses describing conditions other than contact with and (suspected) exposure driving the MS-DRG assignment. This commenter also stated that they believed that the five ICD-10-CM diagnosis codes from ICD-10-CM category Z20 currently listed in the “only secondary diagnosis” list under MS-DRG 795 are currently inappropriately included and requested that either the 13 codes for contact with and (suspected) exposure remain assigned to MS-DRG 794 and the five codes currently in MS-DRG 795 be reassigned to MS-DRG 794 or a new MS-DRG be created that would include newborns that fall into the “exposure only” category, with a relative weight that falls somewhere between the relative weights of MS-DRG 794 and 795 to accurately capture resource utilization.

Response: We thank the commenters for their feedback. Our clinical advisors reviewed the commenters' concerns. While our clinical advisors agree that patients exposed to communicable diseases can require workup or prophylactic treatment, they continue to state these patients are distinct from patients with identified signs or symptoms of a suspected problem or diagnosed with having that communicable disease. Our clinical advisors noted that the subset of newborns with a principal or secondary diagnosis listed in the logic list for MS-DRG 794 (Neonate with Other Significant Problems) are clinically distinct and often represent a more severe set of patients. Accordingly, our clinical advisors continue to believe that the five other diagnosis codes describing contact with, and suspected exposure to, communicable diseases are appropriately assigned to the “only secondary diagnosis” list under MS-DRG 795, and also continue to support adding the 13 diagnosis codes listed previously to the logic of MS-DRG 795 for clinical consistency. We appreciate the commenters' feedback suggesting further review of the newborn MS-DRGs and agree that these groupings warrant special consideration. As discussed in prior rulemaking, we generally do not adopt the same approach to refine the maternity and newborn MS-DRGs because of the extremely low volume of Medicare patients there are in these DRGs.

After consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal 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), without modification, for FY 2023.

In addition, as discussed in the proposed rule, 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 referred 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. We stated that 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.

We stated 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 noted 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 stated 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 proposed 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.

Comment: Commenters expressed support for CMS' proposal to reassign ICD-10-CM diagnosis codes P07.00, P07.20 and P07.26 to MS-DRG 790.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to reassign ICD-10-CM diagnosis codes P07.00, P07.20 and P07.26 to MS-DRG 790, without modification, 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 proposed to move the cases reporting the procedures and/or principal diagnosis codes described in this section of this rule from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis or procedure is assigned.

a. Embolization of Portal and Hepatic Veins

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28170), 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.

We noted that 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:

We stated in the proposed rule that 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”.

As noted in the proposed rule, 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:

As noted in the proposed rule, 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 stated we believed it was 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 stated 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 proposed 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.

Comment: Commenters expressed support for CMS' proposal to add ICD-10-PCS procedure codes 06L43DZ, 06L83DZ, 06V43DZ and 06V83DZ to MDC 07 in MS-DRGs 423, 424 and 425. A commenter stated that this proposal is in line with resources utilized in performing the procedures and also helps organizations better manage their Program for Evaluating Payment Patterns Electronic Report (PEPPER) data related to DRG 981 and 982.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add ICD-10-PCS procedure codes 06L43DZ, 06L83DZ, 06V43DZ and 06V83DZ to MDC 07 in MS-DRGs 423, 424 and 425, without modification, effective October 1, 2022 for FY 2023.

b. Percutaneous Excision of Hip Muscle

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28171), 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 recommended 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.

We stated in the proposed rule that in order to analyze this request, we first identified the similar ICD-10-PCS procedure codes that also describe the excision of hip muscle. We noted 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:

We stated in the proposed rule that 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”.

As noted in the proposed rule, 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.

We stated in the proposed rule that 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 stated in the proposed rule that we examined the data for cases in MS-DRGs 371, 372, and 373, and our findings are shown in the following table:

As discussed in the proposed rule, we reviewed these procedures and our clinical advisors stated 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 stated 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 agreed 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.

We stated that our clinical advisors reviewed this analysis and believed 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 proposed 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.

Comment: Some commenters expressed support for CMS' proposal 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.

Response: We appreciate the commenters' support.

Comment: A commenter opposed CMS' proposal to designate ICD-10-PCS codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, and 0KBP3ZZ as non-O.R. procedures and stated that they did not believe this proposal was warranted based on the work involved in performing the procedures.

Response: We thank the commenter for their feedback. Our clinical advisors reviewed the commenter's concerns and continue to support a non-O.R. designation for procedure codes 0KBN3ZX, 0KBN3ZZ, 0KBP3ZX, and 0KBP3ZZ that describe the percutaneous excision of hip muscle. Our clinical advisors continue to state that procedure codes that describe the percutaneous excision of hip muscle are not surgical in nature and these procedures 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.

After consideration of the public comments we received, for the reasons stated, we are finalizing our proposal 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, without modification, effective October 1, 2022 for FY 2023. Under this final policy, these procedures will no longer impact MS-DRG assignment.

In addition, as discussed in the proposed rule, 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. In the proposed rule, we stated that 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 stated we did not receive any requests suggesting reassignment. Therefore, for FY 2023 we did not propose to move any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987 through 989 or vice versa.

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing the structure of MS-DRGs 981 through 983 and MS-DRGs 987 through 989 for FY 2023 without modification.

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 final 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 multi year 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.

We stated in the proposed rule that 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 stated that we will provide more detail on this analysis and the methodology for conducting this review in future rulemaking.

Comment: Commenters supported CMS' plan to continue to conduct the comprehensive, systematic review of the ICD-10-PCS codes that includes a process for determining when a procedure is designated as O.R. or non-O.R. These commenters expressed support of CMS' decision to allow additional time for the claims data to stabilize prior to selecting the timeframe to analyze for this review in consideration of the ongoing PHE. A commenter stated they appreciate that CMS is taking the appropriate time before deciding whether and how to restructure the current O.R. and non-O.R. designations. Another commenter acknowledged that O.R. and non-O.R. designation determinations are a substantial undertaking that may significantly restructure many MS-DRGs.

Response: We thank the commenters for their support and appreciate their acknowledgement of the magnitude of this effort.

Comment: Other commenters stated that designation of O.R. versus non-O.R. may no longer be the most critical differentiator between resource-intensive procedures for MS-DRG purposes. These commenters noted that medical practice is changing and presently, there are increasingly complex and resource-intensive procedures performed by hospitals that do not involve the use of an operating room. A commenter stated that because of technological advances, sophisticated resource-intensive procedures are no longer confined to the operating room setting.

Other commenters highlighted stem cell transplants (SCT), Chimeric Antigen Receptor (CAR) T-cell therapy, and other novel cell and gene therapies as examples of therapeutic interventions that have similar or greater resource utilization and complexity than some O.R. designated procedures, while not being currently designated as O.R. procedures themselves. Another commenter noted that some procedures performed in interventional radiology suites and cardiac catheterization labs can utilize more advanced equipment and supplies than procedures performed in a traditional operating room with minimally installed equipment. As part of the broader and continuing conversation about future MS-DRG assignments and designations for these procedures and therapies, these commenters encouraged CMS to consider how other factors influence resource utilization, and recommended CMS consider questions such as whether:

• certain types of interventions, such as the administration of certain complex drugs/biologics or therapies (for example, radiation therapy), that demonstrate higher costs and resource utilization, warrant consideration of a designation as an O.R. procedure or another equivalent designation?
• certain types of procedures and therapies make up a substantial percentage of the costs within a particular MS-DRG?
• there is an average amount of cost within the relative weight of a MS-DRG that represents significant resource utilization and complexity?
• complex infusion-type administration of novel and potentially curative cell and gene therapies should be considered for new category of MS-DRGs, to be added to the current categories of Pre-MDC MS-DRGs, Surgical MS-DRGs and Medical MS-DRGs?

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

Comment: Several commenters suggested that CMS work closely with physician specialty societies and interested parties to identify the most important drivers of complexity and resource use in the hospital setting. Other commenters suggested CMS engage the broader community by convening town halls or listening sessions. A few commenters suggested that CMS allow sufficient time for provider review and stated that thorough data analysis with provider input is critical to allow for appropriate insight in provider comments. A commenter recommended that CMS be transparent in its methodology, identify criteria or metrics used to determine what does and does not constitute significant resource utilization and complexity across MS-DRGs, and be receptive to public opinion. Another commenter stated that they look forward to CMS providing more detail on this analysis and expressed that they would appreciate advanced notice for comment in future rulemaking regarding the proposed methodology for conducting this review.

Response: CMS appreciates this feedback. We note that CMS has already convened an internal workgroup comprised of clinicians, coding specialists and other policy analysts, and we look forward to further feedback from the public. Recognizing sufficient time is needed to provide feedback on what factors or criteria to consider in determining whether a procedure should be designated as an O.R. procedure in the ICD-10-PCS classification system, we have provided opportunity for the public to provide feedback beginning with the FY 2018 final rule and we continue to solicit input. We encourage the public to submit comments on other factors to consider in our refinement efforts to recognize and differentiate consumption of resources for the ICD-10 MS-DRGs timely for consideration. We will also explore additional means of eliciting feedback, and will notify the public of any such other opportunities for communication and comment in the future. Once we are in a position to provide more detail on this analysis and the methodology for conducting this comprehensive review, we will do so in future rulemaking.

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28174 through 28175), we received the following requests regarding changing the designation of specific ICD-10-PCS procedure codes from non-O.R. to O.R. procedures. In this section of this rule, as we did in the proposed rule, we summarize these requests and address why we are not considering a change to the designation of these codes at this time and, further, respond to the public comments we received regarding these requests.

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. In the proposed rule, we stated we believed additional time was needed to fully examine the numerous ICD-10-PCS codes in the classification that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs 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 stated 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.

Comment: A commenter stated that they agreed with the request to change the designation of all lCD-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. and stated that these procedures would likely occur in an operating room under general anesthesia. Another commenter stated that while they did not dispute that there may be over 19,000 ICD-10-PCS codes that describe procedures performed using a percutaneous endoscopic approach, they believed that this list could be whittled down substantially by considering only codes describing procedures performed on thoracic and abdominal organs. This commenter stated that even with a smaller list utilizing the criteria they suggested, they could not think of a thoracoscopic or laparoscopic procedure that would not require general anesthesia and be performed in an operating room and urged CMS to designate all ICD-10-PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs as operating room procedures.

Response: We appreciate the commenters' feedback. We also appreciate the commenter's suggestion, however, as stated in the proposed rule, and in prior rulemaking, we plan to conduct a comprehensive, systematic review of the ICD-10-PCS procedure codes. Our clinical advisors recommended that rather than evaluating the procedure codes describing diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs in isolation, analysis should be performed for this subset of procedure codes across the MS-DRGs, as part of the comprehensive procedure code review. As a component of our broader comprehensive procedure code review, we are also reviewing the process for determining when a procedure is considered an operating room procedure. For example, we may restructure the current O.R. and non-O.R. designations for procedures by leveraging the detail that is available in the ICD-10 claims data. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are not making changes in this final rule to the designation of all ICD-10-PCS procedure codes that describe diagnostic and therapeutic percutaneous endoscopic procedures performed on thoracic and abdominal organs, from non-O.R. to O.R. We will provide more detail on the comprehensive procedure code review and the methodology for conducting this review in future rulemaking.

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.

As discussed in the 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. We stated that while our clinical advisors did not disagree with the requestor that these procedures can involve making incisions through the subcutaneous tissue into fascia, they continued 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 stated that the non-O.R. designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as finalized in the FY 2022 final rule better reflects the associated technical complexity and hospital resource use of these procedures.

Comment: Some commenters opposed the non-O.R. designation of the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia as finalized in the FY 2022 final rule and urged that these codes be designated as O.R. procedures for FY 2023. These commenters stated that procedure codes that describe the open drainage of subcutaneous tissue and fascia are indeed performed in the operating room under general anesthesia, are surgical in nature, and an O.R. designation would more accurately capture the utilization of resources. A commenter stated that a review of the cases at their facility shows that approximately 80% of the procedures describing open drainage of subcutaneous tissue and fascia are performed in an O.R. setting requiring anesthesia, with a much lesser percentage performed at the bedside. Another commenter noted in the FY 2018 IPPS proposed rule, these same 22 ICD-10-PCS codes were identified and a commenter opposed the proposal to re-designate these codes at that time. In response to the issues raised by this commenter, CMS agreed in the FY 2018 IPPS final rule to maintain the designation of the 22 procedure codes. This commenter stated the rationale to maintain these 22 codes as O.R. procedures has not changed and that there is no safe way to effectively drain an infection involving the subfascial plane without the resources of an operating room.

Response: Our clinical advisors reviewed the commenters' concerns and continue to state that treatment practices have continued to shift since FY 2018 rulemaking. As stated in the FY 2022 final rule in response to similar comments, procedures describing the open drainage of subcutaneous tissue and fascia can now be safely performed in the outpatient setting and when performed during a hospitalization, it is typically in conjunction with another O.R. procedure. In cases where procedures describing open drainage of subcutaneous tissue and fascia are the only procedures performed in an admission, the admission is quite likely due to need for IV antibiotics as opposed to the need for operating room resources in an inpatient setting.

We refer the reader to Table 6P.1f associated with this 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 the data analysis of cases reporting the 22 procedure codes that describe the open drainage of subcutaneous tissue and fascia in the September 2021 update of the FY 2021 MedPAR file. We note that within each MDC, the MS-DRGs are divided into medical and surgical categories. In general, surgical MS-DRGs are further defined based on the precise surgical procedure performed while the medical MS-DRGs are further defined based on the precise principal diagnosis for which a patient was admitted to the hospital. In Table 6P.1f associated with this final rule, column B displays the category of each MS-DRG in MS-DRG GROUPER Version 39.1. The letter M is used to designate a medical MS-DRG and the letter P is used to designate a surgical MS-DRG. As shown in the table, when the procedure codes that describe the open drainage of the subcutaneous tissue and fascia are reported, approximately 70% of the MS-DRGs assigned are classified as surgical MS-DRGs which indicates at least one procedure code designated as an O.R. procedure was also reported in these cases. 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-Feefor-Service-Payment/AcuteInpatientPPS/MS-DRGClassifications-and-Software) for complete documentation of the GROUPER logic for the listed MS-DRGs.

Our clinical advisors continue to state that procedure codes that describe the open drainage of subcutaneous tissue and fascia do not reflect the technical complexity or resource intensity in comparison to other procedures that are designated as O.R. procedures. They also continue to 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.

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

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

Comment: Commenters stated that they appreciate and agree with CMS' decision not to propose any further changes to the designation of any ICD-10-CM diagnosis codes, including the unspecified codes, at this time. These commenters recommended that CMS allow one to two full years of data availability before proposing any additional changes to the designation of any ICD-10-CM diagnosis code, given that the new MCE edit was recently implemented on April 1, 2022 and stated that having one to two full years of data will afford more meaningful analysis in future rulemaking considerations as part of the comprehensive CC/MCC analysis.

Response: We appreciate the commenters' support. With respect to the commenters who suggested allowing one to two full years of data availability before proposing any additional changes, we appreciate the feedback and will take these suggestions under consideration.

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. Interested parties can submit any comments and recommendations 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 discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28177), 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 noted that this process does not automatically result in the new diagnosis code having the same designation as the predecessor code. We refer the reader to section II.D.14 of this final 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

In the FY 2023 IPPS/LTCH PPS proposed rule, we noted that 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. We stated our clinical advisors believed it was 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 discussed in the proposed rule and noted 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

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28177 through 28181), we solicited public comments on how the reporting of diagnosis codes in categories Z55-Z65 may improve our ability to recognize severity of illness, complexity of service, 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 stated we were also interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data including in support of efforts to advance health equity.

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. We noted that 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.”

As stated in the proposed rule, 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 interested parties 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 of this final rule, as we did in the proposed rule, 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 solicited comments as described in the proposed rule are shown in Table 6P.5a associated with the proposed rule (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 also made 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 the 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.

In the proposed rule, we noted that if SDOH Z codes are not consistently reported in inpatient claims data, our methodology utilized to mathematically measure the impact on resource use, as described previously, may not adequately reflect what additional resources were expended by the hospital to address these SDOH circumstances in terms of requiring clinical evaluation, extended length of hospital stay, increased nursing care or monitoring or both, and comprehensive discharge planning. In the proposed rule, we sought 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 sought 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 noted in the proposed rule that we recognized 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 stated we were 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 also stated we were additionally interested in learning how reporting SDOH Z codes may be used to inform community health need assessment activities required by non-profit hospitals.

In the proposed rule, we also recognized 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 sought comment on which specific SDOH Z codes were most likely to influence (that is, increase) hospital resource utilization related to inpatient care, including any supporting information that correlates inpatient hospital resource use to specific SDOH Z codes. In the proposed rule, we stated CMS believed a potential starting point for discussion was 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. We stated in the proposed rule that 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, in the proposed rule we reviewed the data on the impact on resource use for diagnosis code Z59.0 (Homelessness) when reported as a secondary diagnosis to facilitate discussion for the purposes of the comment solicitation. We noted that prior to FY 2022, homelessness was one of the more frequently reported codes that describe social determinants of health. We also noted that effective FY 2022, the subcategory was expanded and now 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 the proposed rule and this final 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. We stated in the proposed rule that many commenters stated that a patient experiencing homelessness requires significant coordination of social services along with their health care. Another 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.

As discussed in the proposed rule, 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 noted 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 noted 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 noted fluctuations in the C1 values year to year. We stated we were 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 stated we were uncertain if homelessness may be underreported when there is not an available field on the claim when other diagnoses are reported instead. We sought 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 presented 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 stated we would 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 service, 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 stated we were interested in hearing the perspectives of large urban hospitals, rural hospitals, and other hospital types in regard to their experience. We also sought 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.

As discussed in the proposed rule, we stated that 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 noted 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 stated we were 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 invited 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 stated we were 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 stated we would take commenters' feedback into consideration in future policy development.

In this FY 2023 IPPS/LTCH PPS final rule, we present a summation of the comments we received in response to our request for information on SDOH diagnosis codes, including how the reporting of SDOH diagnosis codes may improve our ability to recognize severity of illness, complexity of service, and/or utilization of resources under the MS-DRGs, as well as how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data, including in support of efforts to advance health equity. We thank commenters for sharing their views and their willingness to support CMS in these efforts.

Comment: Many commenters applauded CMS' efforts to encourage documentation and reporting of SDOH diagnosis codes given the impact that social risks can have on health outcomes. These commenters stated that it is critical that physicians, other health care professionals, and facilities recognize the impact SDOH have on the health of their patients. Commenters stated that they agree that better reporting of these SDOH Z codes through inpatient claims could enhance coordination within hospitals across clinical care teams and discharge planning, and with post-acute care providers. A commenter stated that SDOH data can be extremely valuable and powerful tools to improve healthcare, and stated that they were confident that CMS' encouragement of the use of this data would lead to better healthcare for our country.

Some commenters stated that while the documentation and reporting of SDOH diagnosis codes is important to address healthcare inequities, the collection of this data may place significant burden on facilities and providers and have tremendous operational and technology impacts. Commenters stated that hospitals have demonstrated significant variability in screening capabilities and referral practices, and inpatient settings require additional time to develop screening protocols and ensure that screening results are documented in a place where they can be captured for claims. Other commenters stated assigning codes for SDOH can be a time-consuming and labor-intensive process, as many electronic health records (EHRs) do not have easy pathways to add a Z code to the problem or diagnosis list. Other commenters stated that one of the major challenges to providers is ensuring that SDOH information documented in the EHR and reported on the claim is accurate as patients' circumstances are ever changing. A commenter stated that it is not feasible for hospitals to screen for every SDOH due to the time and resources involved for both patients and providers and suggested that rather than require this process be repeated with each encounter, CMS should permit SDOH information to carry forward across encounters until new documentation supports removal or revision to the initial SDOH diagnosis codes to minimize the administrative burden. Commenters also stated that the challenge of increased documentation reviews by coding staff would be further exacerbated by staffing shortages within the industry, as well as coding productivity standards. A few commenters stated for rural hospitals, bandwidth is already low due to workforce shortages and heavy caseloads. These commenters stated that adding any screening and documentation processes for SDOH, on top of existing workloads, may require more than a physician or nurse and instead may require engaging a staff such as social workers or psychologists who may not be standard members of care teams at all rural hospitals.

Many commenters stated there was a lack of standard, nationally accepted definitions of the SDOH Z codes and that there are potential gaps that may come with the use of, and reporting related to SDOH Z codes. Other commenters stated that SDOH Z codes are informative but some descriptions lack specificity and may be too broad to distinctly capture enough detail around the type of care that the patient needs relative to their diagnosis and their SDOH challenges. Commenters also identified the lack of national data and exchange standards for capture of the SDOH Z codes as an additional barrier. Commenters stated that while fully supporting efforts to improve and increase the collection of SDOH data, they believed that other options exist that would make it feasible for hospitals of all sizes and types to consistently collect data in a standardized manner without creating undue burden and suggested that CMS consider developing a broader strategy for collecting SDOH data. A commenter specifically suggested that CMS coordinate with states, which are often requiring their own assessments to identify social risk and needs, to reduce burden. Another commenter stated that they believed that the creation of a new Hierarchical Condition Category for SDOH Z codes could help improve documentation efforts since, according to this commenter, organizations that treat these high-risk patients are reimbursed at higher rates than those patients who are not grouped into these HCCs.

Commenters recommended that CMS consider reimbursement incentives for documenting and reporting of SDOH Z codes to help health care providers build and sustain systemic screening and documentation, which will ultimately lead to better health for patients. Many commenters stated that they agree that codes in category Z59 (Homelessness) have been underreported and that increasing the severity level of the codes that describe homelessness from a NonCC to a CC could prompt more rigorous documentation and reporting. Commenters stated that they believe that homelessness involves a level of care in line with diagnoses currently designated as CCs. Some commenters stated that patients experiencing homelessness can often increase inpatient costs by creating discharge disposition challenges that lead to an extended length of stay. A few commenters noted that in their experience, extended lengths of stay were particularly high for patients experiencing homelessness who underwent surgery. Another commenter stated that based on their own analysis, homelessness has an effect on resource utilization on par with other diagnoses currently designated as MCCs but stated elevation to a CC is the most reasonable first step to help drive the reporting of these SDOH Z codes, and help drive subsequent, meaningful evaluation of outcomes.

Commenters encouraged CMS to examine other SDOH Z codes that describe circumstances such as food insecurity, lack of adequate food and drinking water, extreme poverty, lack of transportation and unemployment, to determine the hospital resource utilization related to addressing these factors and to analyze whether these SDOH Z codes should be considered for designation as CCs as well. Some commenters also pointed to conditions outside of the SDOH Z codes such as: medical debt, malnutrition, elder abuse and neglect, underdosing of medication, personal history of falling and awaiting organ transplant status as examples of other areas where fostering better documentation and reporting could improve health outcomes.

Other commenters expressed concern and stated that they believed that while some SDOH diagnoses could have some impact for MS-DRG assignment due to additional efforts needed around discharge planning, generally SDOH diagnoses should have limited impact on severity of illness. Rather, according to these commenters, the impact is more important for risk adjustment for population-based initiatives, such as a readmissions program. A commenter stated that simply elevating SDOH Z-codes to CCs and marginally increasing reimbursement will be inadequate to meaningfully drive CMS' stated equity mission. Another commenter noted that in some cases, patients experiencing circumstances described by SDOH Z codes may require social services support to address a need post-discharge, but the complexity of the inpatient clinical services is not affected. A commenter, while supportive of the consideration of the change in designation, expressed concern that increasing the severity level of the codes that describe homelessness from a NonCC to a CC could potentially lead to fraudulent or abusive coding practices in order to raise the payment rate for an encounter. Another commenter recommended that safeguards be put in place to disallow oversight agencies (such as Recovery Audit Contractors (RAC) and third-party payer validations) from challenging MS-DRG assignment, and instead honor the reporting of the code when supported by documentation, especially in instances where homelessness might be the only complication or comorbidity coded.

While commending CMS' efforts, many commenters cautioned that mandating the reporting of SDOH Z codes could necessitate making changes to the institutional claim form. Currently, only 25 diagnoses are captured on the electronic claim form. Commenters noted that documenting and reporting the social and economic circumstances patients may be experiencing may require a substantial number of SDOH Z codes, and stated that this could lead to the crowding out of other diagnosis codes that also need to be captured on the claim form such as codes for medical diagnoses, comorbidities, Hierarchical Condition Category (HCC) coding, Hospital Acquired Conditions (HAC), and patient safety indicators (PSI) due to limited space.

Several commenters expressed concern and stated that they did not believe that CMS proposed a clear, compelling, or significant benefit to patients as a result of collecting this data. These commenters cautioned against requiring hospitals to implement the collection of sensitive information for the purposes of analysis, and asserted that CMS will be placing hospitals in the precarious position of asking sensitive and intimate social questions, while often not having solutions to mitigate or eliminate these risks, as they stated the documentation of social risks does not in and of itself improve health outcomes. A commenter stated that studies have shown that many providers are wary of screening for social needs, if they believe they do not also have the ability to make referrals or to connect patients to resources to address their needs. Other commenters expressed concern and stated it is counterproductive for hospitals to collect SDOH data without having resources and pathways in place to offer help. A few commenters stated that by requiring medical facilities to report this data, CMS is diverting resources and time from patient care and stated that CMS should not be pursing an initiative that is meant to collect data on non-medical information. A commenter stated that although the collection of SDOH information can occur during inpatient visits, documentation and reporting of this data may be actually best suited to outpatient office visits, where providers may have a greater opportunity to interact with their patients and the ability to consider more proactive approaches to help address their social needs.

Many other commenters also expressed concern and stated that while SDOH information can be useful for administrative use and payment adjustment, information about an individual's social risk and needs has been shown to be sensitive, and individuals are often hesitant to disclose this information for fear of bias, misuse, or discrimination. Commenters stated patients may not see the relevance of providing information to their providers related to SDOH that may not be directly applicable to why they are seeking care. These commenters stated that there are significant concerns from physicians, other providers, and patients about “medicalizing” SDOH in the electronic health record and stated mechanisms must be established to shield this sensitive information on certain forms, charts, health records, and discharge papers. Commenters noted that when SDOH Z codes are entered via an EHR or other form of collection, those results show up on the patient's after-visit summary, which may be concerning for patients. Commenters also expressed concern that SDOH Z codes may “follow” a patient for too many years and cause potential discrimination, bias, or other misunderstandings in the future. Commenters stated that hospitals must be equipped with tools to communicate the context of SDOH Z codes with patients at the point of screening or self-reporting so that patients understand the rationale for data collection and how it can help address their needs. Several commenters stated that CMS should also put in place Conditions of Participation requiring hospitals to train their staff on how this information can and cannot be used to prevent information being used in discriminatory pricing, care, or other purposes.

Many commenters stated that the most immediate and important action CMS could take to increase the use of SDOH Z codes is to finalize the evidence-based “Screening for Social Drivers of Health” and “Screen Positive Rate for Social Drivers of Health” measures proposed to be adopted in the Hospital Inpatient Quality Reporting (IQR) Program. These commenters stated that these measures create an opportunity to collect inpatient SDOH data at a scale that could significantly improve MS-DRGs' precision and ability to recognize severity and complexity of service and utilization of resources. Many commenters stated that absent these measures and associated data, SDOH Z codes will continue to be underreported and unreliable. We refer the reader to section IX.E.5.b of the preamble of the proposed rule and this final rule for further discussion regarding new measures for the Hospital IQR Program measure set. These commenters urged CMS to start with an incremental approach in requiring the reporting of SDOH Z codes and suggested that reporting should be optional or voluntary for at least two-three years to allow providers and CMS to gain experience in reporting and collecting this data. If the reporting of the SDOH Z codes becomes mandatory, these commenters recommended that the requirement start with the subset of SDOH Z codes that directly align with the social needs identified in the five core domains of the proposed measures.

Response: We again thank commenters for sharing their views and their willingness to support CMS in these efforts. We will take the commenters' feedback into consideration in future policy development.

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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28181) we noted the following tables identify the proposed additions and deletions to the diagnosis code MCC severity levels list and the proposed additions and deletions to the diagnosis code CC severity levels list for FY 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.

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

Response: We appreciate the commenters' support.

The following tables associated with this final rule reflect the finalized severity levels under Version 40 of the ICD-10 MS-DRGs 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; Table 6I. —Complete MCC List—FY 2023; Table 6I.1—Additions to the MCC List—FY 2023; Table 6I.2—Deletions to the MCC List—FY 2022; Table 6J.—Complete CC List—FY 2023; Table 6J.1—Additions to the CC List—FY 2023; and Table 6J.2—Deletions to the CC List—FY 2023.

f. 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.

In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 the proposed rule and set forth in Tables 6G.1, 6G.2, 6H.1, and 6H.2 associated with the proposed rule and available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

As discussed in section II.D.14 of the preamble of this final rule, we are finalizing, without modification, the proposed assignments and designations for the diagnosis codes after consideration of the public comments received. Therefore, the finalized CC Exclusions List as displayed in Tables 6G.1, 6G.2, 6H.1, 6H.2, and 6K, associated with this final rule reflect the severity levels under V40 of the ICD-10 MS-DRGs. We have developed Table 6G.1.—Secondary Diagnosis Order Additions to the CC Exclusions List—FY 2023; Table 6G.2.—Principal Diagnosis Order Additions to the CC Exclusions List—FY 2023; Table 6H.1.—Secondary Diagnosis Order Deletions to the CC Exclusions List—FY 2023; and Table 6H.2.—Principal Diagnosis Order Deletions to the CC Exclusions List—FY 2023; and Table 6K. Complete List of CC Exclusions—FY 2023.

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

The ICD-10 MS-DRGs Version 40 CC Exclusion List is included as Appendix C of the Definitions Manual (available in two formats; text and HTML). The manuals are 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 and each format includes two lists identified as Part 1 and Part 2. Part 1 is the list of all diagnosis codes that are defined as a CC or MCC when reported as a secondary diagnosis. For all diagnosis codes on the list, a link (HTML version) is provided to a collection of diagnosis codes which, when used as the principal diagnosis, would cause the CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of diagnosis codes designated as a MCC only for patients discharged alive; otherwise, they are assigned as a NonCC.

14. 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, Table 6D.—Invalid Procedure Codes, and Table 6E.—Revised Diagnosis Code Titles for this final rule.

These tables are not published in the Addendum to the proposed rule or final 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 final rule. As discussed in section II.D.17. of the preamble of the proposed rule and this final rule, the code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee meeting process. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

We are finalizing the MDC and MS-DRG assignments for the new diagnosis codes and procedure codes as set forth in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes. In addition, the finalized severity level designations for the new diagnosis codes are set forth in Table 6A. and the finalized O.R. status for the new procedure codes are set forth in Table 6B. 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 finalized 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 final rule:

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

15. 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.

In the FY 2023 IPPS/LTCH PPS proposed rule, we discussed the proposals we were making based on our internal review and analysis. We noted that we did not receive any specific MCE requests by the November 1, 2021 deadline. In this FY 2023 IPPS/LTCH PPS final rule, we present a summation of the comments we received in response to the MCE proposals presented based on internal review and analyses in the proposed rule, our responses to those comments, and our finalized policies.

In addition, as a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, we routinely make changes to the MCE. In the past, in both the IPPS proposed and final rules, we have only provided the list of changes to the MCE that were brought to our attention after the prior year's final rule. We historically have not listed the changes we have made to the MCE as a result of the new and modified codes approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting. These changes are approved too late in the rulemaking schedule for inclusion in the proposed rule. Furthermore, although our MCE policies have been described in our proposed and final rules, we have not provided the detail of each new or modified diagnosis and procedure code edit in the final rule. However, we make available the finalized Definitions of Medicare Code Edits (MCE) file. Therefore, we are making available the FY 2023 ICD-10 MCE Version 40 Manual file, along with the link to the mainframe and computer software for the MCE Version 40 (and ICD-10 MS-DRGs), on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

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 the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective as of October 1, 2022. Included in this table are codes currently subject to the External causes of morbidity codes as principal diagnosis edit. We proposed to delete the ICD-10-CM diagnosis codes shown in Table 6P.6a associated with the 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.

Comment: Commenters agreed with CMS's proposal to remove the diagnosis codes listed in Table 6P.6a from the External Causes of Morbidity edit code list since they are no longer valid.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to delete the diagnosis codes listed in Table 6P.6a associated with the proposed rule from the External Causes of Morbidity edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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 the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2022. We proposed 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 the 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.

Comment: Commenters agreed with CMS's proposal to add the diagnosis codes listed in Table 6P.6b to the Maternity diagnoses edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes as shown in Table 6P.6b associated with the proposed rule to the Maternity diagnoses edit code list.

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

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove the diagnosis codes listed in the previous table from the Maternity diagnoses edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

(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 the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the diagnosis codes that have been approved which will be effective with discharges on and after October 1, 2022. We proposed to add the following new ICD-10-CM diagnosis codes to the edit code list for the Adult diagnoses category under the Age conflict edit.

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Adult diagnoses edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove the diagnosis codes listed in the previous table from the Adult diagnoses edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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.

Comment: A commenter requested clarification on how the sex conflict edits consider patients who identify as transgender.

Response: The sex conflict edit under the MCE is consistent with 45 CFR 170.207(n) which states that birth sex must be coded as Male, Female or Unknown. Gender identity is a separate data element under 45 CFR 170.207(o). We note that any proposed changes to account for gender identity on the CMS-1450 form would need to be submitted to the National Uniform Billing Committee (NUBC) for consideration.

Comment: Another commenter expressed concerns about the existing ICD-10 codes and edits that appear to be sex specific (that is, male only or female only). According to the commenter, reporting of these codes for patients who identify as transgender may result in treatment being delayed or denied. The commenter acknowledged the necessity in aligning a patient's historical health data with that of their gender identity and personal anatomy, however, according to the commenter, removal of sex specific codes from the MCE would be beneficial for nonbinary people as well.

Another commenter stated that transgender individuals may be alienated and deterred from seeking medical care in the future as a result of inappropriate claims denial due to the Sex conflict edit. The commenter stated that obstetricians-gynecologists specifically have conveyed the need to document and report a patient's gender identity in combination with their sex to provide quality, patient-centered care. The commenter also stated they have made recommendations to the Office of the National Coordinator for Health Information Technology (ONC) to include the data element “gender” in its minimum certification criteria for electronic health records. The commenter recommended that CMS work with ONC to ensure that automated claim editors, like the MCE, do not require obstetrician-gynecologists and other health care professionals to misrepresent their patients' genders to provide the appropriate clinical care. Lastly, the commenter encouraged CMS to continue its efforts to reduce the administrative burden by adapting the MCE and other systems to fit the needs of all physicians and their patients.

Response: We appreciate the commenters' feedback. We intend to explore alternative options that may help to address the challenges described by the commenters with claims processing for individuals who identify as transgender or nonbinary.. We are interested in feedback and comments on other ways for which these issues could be considered from a process, systems and operational perspective. 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 the proposed rule and this final rule at: https://mearis.cms.gov/public/home by October 20, 2022

(1) Diagnoses for Females Only Edit

As discussed in section II.D.14. of the preamble of the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2022. We proposed 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 the 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.

Comment: Commenters agreed with CMS's proposal to add the diagnosis codes listed in Table 6P.6c to the Diagnoses for females only edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes as shown in Table 6P.6c associated with the proposed rule to the Diagnoses for females only edit code list.

In addition, as discussed in section II.D.14. of the preamble of the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective as of October 1, 2022. We proposed to delete the following codes from the Diagnoses for females only edit code list.

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove the diagnosis codes listed in the previous table from the Diagnoses for female only edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

(2) Procedures for Males Only

As discussed in section II.D.14. of the preamble of the proposed rule and this final 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 proposed to add to the edit code list for the Procedures for males only category under the Sex conflict edit.

Comment: Commenters agreed with CMS's proposal to add the diagnosis codes listed in the previous table to the Procedures for males only edit code list.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Procedures for males only edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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 the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved 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 proposed to add to the edit code list for the Manifestation code as principal diagnosis edit, because the disease itself would be required to be reported first.

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Manifestation code as principal diagnosis edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

In addition, as discussed in section II.D.14. of the preamble of the proposed rule and this final rule, Table 6C.—Invalid Diagnosis Codes, lists the diagnosis codes that are no longer effective as of 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 proposed to delete this code from the Manifestation code as principal diagnosis edit code list.

Comment: Commenters agreed with CMS's proposal to remove diagnosis code F02.81 from the Manifestation code as principal diagnosis edit code list since it is no longer valid.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to remove diagnosis code F02.81 from the Manifestation code as principal diagnosis edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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 the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved which will be effective with discharges on and after October 1, 2022. Additionally, as discussed in section II.D.1.b of the preamble of the proposed rule and this final rule, we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 40, so that the public could better analyze and understand the impact of the proposals included in the proposed rule. We noted that at the time of the development of the test software, a subset of the listed codes (F01.511 through F01.C4) that were proposed for this edit were unable to be included and therefore, the test software does not reflect these codes. We proposed to add the following new ICD-10-CM diagnosis codes to the Unacceptable Principal Diagnosis edit code list.

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Unacceptable Principal Diagnosis edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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

Comment: Commenters agreed with CMS's proposal to remove diagnosis codes Z87.76, Z91.11, and Z91.19 from the Unacceptable principal diagnosis edit code list since they are no longer valid.

Response: We appreciate the commenters' support. After consideration of the public comments we received, we are finalizing our proposal to remove the diagnosis codes listed in the previous table from the Unacceptable Principal Diagnosis edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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 the proposed rule and this final rule, Table 6A.—New Diagnosis Codes, lists the new diagnosis codes that have been approved to date which will be effective with discharges on and after October 1, 2022. We proposed to add the following new ICD-10-CM diagnosis codes to the Unspecified code edit code list.

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

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add the diagnosis codes listed in the previous table to the Unspecified code edit code list under the ICD-10 MCE Version 40, effective October 1, 2022.

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.

Comment: A few commenters requested that CMS continue to include the existing coverage edits in the MCE. According to the commenters, the MACs software and systems may not be consistently updated and current, therefore, coding edits may trigger erroneously only to be dismissed on appeal when it is discovered that the code in question is covered under an NCD. The commenters stated their belief that the national MCE provides important safeguards for claims processing and coverage.

Response: We appreciate the commenters' feedback.

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 the proposed rule and this final rule at: https://mearis.cms.gov/public/home by October 20, 2022.

16. Changes to Surgical Hierarchies

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

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed in this final rule.

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

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

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

Based on the changes that we proposed to make for FY 2023, as discussed in section II.D. of the preamble of the proposed rule and this final rule, we are maintaining 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: http://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: http://www.cms.gov/Medicare/Coding/ICD10/index.html.

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

The ICD-10 Coordination and Maintenance Committee holds its meetings in the spring and fall to update the codes and the applicable payment and reporting systems by October 1 or April 1 of each year. Items are placed on the agenda for the Committee meeting if the request is received at least 3 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS website.

The Committee encourages participation in the previously mentioned process by health- related organizations and other interested parties. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed during the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies. A complete addendum describing details of all diagnosis and procedure coding changes, both tabular and index, is published on the CMS and NCHS websites in June of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers.

The Committee presented proposals for coding changes for implementation in FY 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 was 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 requests 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 the proposed rule and this final 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 were 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 final rule, there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes that are captured in Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes, and Table 6E.—Revised Diagnosis Code Titles for this final 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 and final rules, they are not subject to comment in the proposed or final rule. Because of the length of these tables, they are not published in the Addendum to the proposed or final rule. Rather, they are available via the internet as discussed in section VI. of the Addendum to the proposed rule and this final rule.

Recordings for the virtual meeting discussions of the procedure codes at the Committee's September 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 through the CDC website at: http://www.cdc.gov/nchs/icd/icd10cm_maintenance.html. These websites also provide detailed information about the Committee, including information on requesting a new code, participating in a Committee meeting, timeline requirements and meeting dates.

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

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

We stated in the proposed rule that 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.

As discussed in the proposed rule, 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 associated with the proposed rule and 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 in association with the proposed rule, we solicited public comments on the most appropriate MDC, MS-DRG, and severity level assignments for these codes for FY 2023, as well as any other options for the GROUPER logic.

We did not receive any comments opposing the MDC, MS-DRG, and severity level assignments for the listed codes and are therefore, finalizing the assignments as reflected in Table 6A.—New Diagnosis Codes in association with this final rule.

In addition, we noted in the proposed rule that CMS implemented nine new procedure codes describing the introduction or infusion of therapeutics, including vaccines for COVID-19prevention, 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 in association with the proposed rule and 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 in association with the proposed rule, we solicited public comments on the most appropriate MDC, MS-DRG, and operating room status assignments for these codes for FY 2023, as well as any other options for the GROUPER logic.

We did not receive any comments opposing the MDC, MS-DRG, and operating room status assignments for the listed codes and are therefore, finalizing the assignments as reflected in Table 6B.—New Procedure Codes in association with this final rule.

In the proposed rule we also noted that Change Request (CR) 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 final 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.

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, 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. On January 24, 2022 the Federal Register 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.

Comment: A few commenters expressed concerns with the meeting process and timing for the implementation of new ICD-10-CM diagnosis codes by the CDC/NCHS. The commenters urged CMS to work with the CDC/NCHS on expediting the finalization of proposed new diagnosis codes in light of the option to implement codes on April 1. Another commenter expressed support for the ability of an April implementation and expedited diagnosis codes to improve reporting and health equity. The commenter requested that CMS consider utilizing this April 1 pathway to advance the Agency's and the health care system's equity goals, specifically for diagnosis codes that describe social and economic circumstances to more accurately reflect health care encounters and episodes of care while also contributing to reliability and validity of coded claims data.

Response: We thank the commenters for the feedback. As we have noted in prior rulemaking (85 FR 58556) the CDC/NCHS has lead responsibility for the ICD-10-CM diagnosis classification while CMS has lead responsibility for the ICD-10-PCS procedure classification. Each organization has their own established process in responding to requests for code updates, including when specific topics may appear on the agenda of an ICD-10 Coordination and Maintenance Committee meeting and the fiscal year in which code proposals are considered for implementation.

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.

In the proposed rule we noted that for FY 2022, there are currently 72,750 diagnosis codes and 78,229 procedure codes. We also noted that as displayed in Table 6A.—New Diagnosis Codes and in Table 6B.—New Procedure Codes associated with the proposed rule (and available via the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps), there were 1,176 new diagnosis codes and 45 new procedure codes that had been finalized for FY 2023 at the time of the development of the proposed rule. As discussed in section II.D.14 of the preamble of this final rule, we are making available Table 6A.—New Diagnosis Codes, Table 6B.—New Procedure Codes, Table 6C.—Invalid Diagnosis Codes, Table 6D.—Invalid Procedure Codes and Table 6E.—Revised Diagnosis Code Titles via the internet on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps in association with this final rule. As shown in Table 6B.—New Procedure Codes, there were procedure codes discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting that were not finalized in time to include in the proposed rule and are identified with an asterisk. We refer the reader to Table 6B.—New Procedure Codes associated with this final rule and available via the internet on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps for the detailed list of these additional 286 new procedure codes. The addition of these 286 new procedure codes to the 45 procedure codes that had been finalized at the time of the development of the proposed rule results in a total of 331 (45 + 286 = 331) new procedure codes for FY 2023.

We also note, as reflected in Table 6C.—Invalid Diagnosis Codes and in Table 6D.—Invalid Procedure Codes, there are a total of 287 diagnosis codes and 64 procedure codes that will become invalid effective October 1, 2022. Based on these code updates, effective October 1, 2022, there are a total of 73,639 ICD-10-CM diagnosis codes and 78,496 ICD-10-PCS procedure codes for FY 2023 as shown in the following table.

As stated previously, the public is provided the opportunity to comment on any requests for new diagnosis or procedure codes discussed at the ICD-10 Coordination and Maintenance Committee meeting. The code titles are adopted as part of the ICD-10 Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules.

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. Changes for FY 2023

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, for FY 2023 we proposed not to add any MS-DRGs to the policy for replaced devices offered without cost or with a credit. We proposed to continue to include the existing MS-DRGs currently subject to the policy as displayed in the following table.

We did not receive any public comments opposing our proposal to continue to include the existing MS-DRGs currently subject to the policy. Therefore, we are finalizing the list of MS-DRGs in the table included in the proposed rule and in this final rule that will be subject to the replaced devices offered without cost or with a credit policy effective October 1, 2022. The final list of MS-DRGs subject to the IPPS policy for replaced devices offered without cost or with a credit will be issued to providers in the form of a Change Request (CR).

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 the proposed rule and this final rule, we solicited public comments involving how the reporting of certain diagnosis codes may improve our ability to recognize severity of illness, complexity of service, 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, as discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28195 through 28197) we also solicited comments to explore possible mechanisms through which we could address rare diseases and conditions that are represented by low volumes in our claims data.

We stated in the FY 2023 proposed rule that one subset of our beneficiary population for which we sought comment on potential issues related to patient access in the inpatient setting were patients diagnosed with rare diseases and conditions that are represented by low volumes in our claims data. We noted that 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 stated that we heard from some interested parties, 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 interested parties, one significant barrier that continues to present challenges to manufacturers is accessing formulary coverage for potentially high cost therapeutics for rare diseases. These interested parties 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 interested parties 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 interested parties, 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 the comment solicitation in the proposed rule, we described three selected requests we had 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, in the proposed rule, we discussed a request we received 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.

As discussed in the proposed rule, 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 noted 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 stated 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. We stated that while the average length of stay for the case reporting the administration of Zulresso® (brexanolone) was greater (22 days versus 15.9 days) and the average costs were higher ($67,812 versus $55,459), than all cases in MS-DRG 870 it was unclear if treatment with Zulresso® (brexanolone) was 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 stated we appreciated the requestor's interest in sharing CMS's goal of advancing women's health, however, we noted 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 stated we believed 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. In the proposed rule, we stated that 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. In the proposed rule, we stated that 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 solicited feedback on other mechanisms we could explore through which we can address concerns relating to payment for patients with rare diseases and conditions that are represented by low volumes in our claims data. We stated we were also interested in receiving comments on other meaningful ways in which we might 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 stated we were 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 stated we were interested in hearing the perspectives of large urban hospitals, rural hospitals, and other hospital types in regard to their experience. We also sought 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 stated we would take commenters' feedback into consideration in future policy development.

Comment: Many commenters stated they appreciated CMS' attention and the acknowledgment of the challenging nature of rare diseases as part of a reporting and payment structure. Commenters also expressed that they fully support the Administration's initiatives that champion policies to improve maternal health and equity, especially as it relates to PPD. Most commenters provided recommendations and suggested CMS explore mechanisms such as—

• Creating a “permanent” payment methodology approach which combines the MS-DRG “fixed price” with continued partial payment for the actual cost of treatment per stay;
• Creating new MS-DRGs for certain low-volume therapies or for orphan conditions with more flexible cost outlier funding;
• Creating new MS-DRG categories to ensure access to rapidly expanding transformative therapies like cell and gene therapies;
• Creating a new enhanced new technology add-on payment-like pathway that establishes separate payment for low volume high-cost drugs;
• Reimbursing hospitals for orphan drugs based on the Average Sales Price (ASP) as published in the HOPD Addendum B file using the same authority that the Agency relied on to make the recent COVID-19 payment adjustments;
• Carving-out “clinical trial” inpatient stays to ensure that the MS-DRG payment rate is not adversely impacted by facility-reported costs that do not include acquisition costs;
• Exploring databases outside of the MedPAR to obtain claims data for inclusion analysis;
• Creating a rare disease diagnosis code designation, similar to the complication or comorbidity (CC) and major complication or comorbidity (MCC) severity designations;
• Establishing a central formulary to provide high cost drugs for rare conditions instead of utilizing individual hospital pharmacy formularies to ease burdens of carrying high cost drugs on rural and smaller hospitals, as drug transport can potentially be cheaper then patient transport;
• Waiving the 500 case threshold when deciding whether an MS-DRG change should be proposed.

Specifically, in discussing how cases reporting the administration of Zulresso® (brexanolone) are recognized for payment, commenters stated that if Medicare commits to creating MS-DRGs around the Medicare population giving birth, the impacts of this progress would have far-reaching effects beyond Medicare beneficiaries as it will serve as the foundation for commercial and Medicaid payments.

Response: We appreciate the input provided by commenters in response to this request for information and we thank commenters for the acknowledgment of the challenges rare diseases or conditions that are represented by low volumes present as part of a reporting and reimbursement structure. We thank the commenters for their support and consideration of these issues. We will take the comments received in response to the solicitation into consideration as we continue to explore mechanisms to address concerns relating to payment for patients with rare diseases and conditions that are represented by low volumes in our claims data.

20. Out of Scope Public Comments Received

We received public comments on MS-DRG related issues that were outside the scope of the proposals included in the FY 2023 IPPS/LTCH PPS proposed rule. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.D.1.b. of the preamble of this final rule, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than October 20, 2022 via the new electronic intake system, Medicare Electronic Application Request Information System^TM (MEARIS^TM) at: https://mearis.cms.gov/public/home so that they can be considered for possible inclusion in the annual proposed rule. We will consider these public comments for possible proposals in future rulemaking as part of our annual review process.

II. 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 proposed to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2021 MedPAR data used in this final rule include discharges occurring on October 1, 2020, through September 30, 2021, based on bills received by CMS through March 31, 2022, 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 relative weights includes data for approximately 7,444,003 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 March 2022 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 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 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 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 final rule, we used the March 2022 update of the FY 2020 HCRIS for calculating the FY 2023 cost-based relative weights. Consistent with our historical practice, for this FY 2023 final rule, we are providing the version of the HCRIS from which we calculated these 19 CCRs on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on the link on the left side of the screen titled “FY 2023 IPPS Final Rule Home Page” or “Acute Inpatient Files for Download.”

2. Methodology for Calculation of the Relative Weights

a. General

We calculated the FY 2023 relative weights based on 19 CCRs. The methodology we proposed 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 FY 2023 MS-DRG classifications discussed in sections II.B. and II.D. of the preamble of this final rule.
• The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 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 93.0 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 also proposed to include all applicable data from subsection (d) hospitals participating in the Comprehensive Care for Joint Replacement (CJR) Model in our IPPS payment modeling and ratesetting calculations.

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

The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this final rule and available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. In the FY 2023 IPPS/LTCH PPS proposed rule, we stated that if we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy.

Comment: A commenter requested that CMS create a dedicated cost center line for cell and gene therapy product cost information, which would enable the agency to create a 20th cost center that is separate from the drugs/pharmacy cost center.

Response: We appreciate the commenter's request regarding the creation of new cost centers for cell and gene therapy product cost information and may consider this request in connection with future rulemaking.

After consideration of the comment received, we are finalizing our proposal to use the 19 national cost center CCRs to calculate the relative weights for FY 2023.

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 final rule, this calculation was applied to address non-monotonicity for cases that grouped to 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 invited public comments on our proposals related to recalibration of the proposed FY 2023 relative weights and the changes in the relative weights from FY 2022.

Comment: A commenter requested that CMS study whether it might be appropriate to define the labor portion individually for each of the 19 cost centers and only standardize that portion, particularly if doing so improves the explanatory power of all MS-DRGs. This commenter requested that CMS conduct this study in collaboration with stakeholders and release this analysis in future rulemaking.

Response: We appreciate the commenter's request that CMS study the appropriateness of defining the labor portion individually for each of the 19 cost centers and standardizing only that portion, and we may consider this request in connection with future rulemaking.

After consideration of the comment received, we are finalizing our proposals related to the recalibration of the FY 2023 relative weights. We summarize and respond to comments relating to the methodology for calculating the relative weight for MS-DRG 018 in the next section of this final rule.

b. Relative Weight Calculation for MS-DRG 018

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.2. of this final 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 final 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 proposed 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 final 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 proposed 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 the 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 proposed to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of 0.20 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 the proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by 0.20. As we did for FY 2022, we applied this same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We also proposed to update the value of the adjustor based on more recent data for the final rule.

Comment: Several commenters were supportive of CMS' continued use of MS-DRG 018 as it is currently structured, including the identification and exclusion of CAR T-cell clinical trial and expanded access use cases assigned to MS-DRG 018. Commenters stated that the stability of MS-DRG 018 will help ensure beneficiary access to CAR T-cell therapy services. One commenter stated that analysis of CAR T-cell claims data from FY 2021 through the first quarter of FY 2022 shows significant improvement in patient access to CAR T. Another commenter requested that CMS reevaluate the clinical trial threshold annually as acquisition costs increase and additional therapies are introduced to MS-DRG 018.

Other commenters stated that they were concerned with what they stated were Medicare under-reimbursements for CAR T-cell technology, especially given the array of resources used to treat patients undergoing these complex, novel cell therapies and the adverse impact inadequate reimbursement has on beneficiary access. A commenter stated that payment for MS-DRG 018 is almost 30 percent below the cost of CAR T-cell cases and does not cover the cost of the therapy itself. A commenter recommended that CMS cover the full cost of the CAR T-cell therapy, while another commenter requested that CMS implement a policy solution that will ensure providers recoup at least the invoice cost of the CAR T-cell product. The commenter referenced prior comments about options for such policy solutions. Some commenters stated that the increase in the fixed-loss threshold makes it even more difficult to obtain adequate reimbursement. A commenter requested that CMS closely monitor reimbursement rates for CAR T-cell therapies to ensure that hospital facilities can continue to provide access to these treatments.

Response: We appreciate the support and feedback on our proposal to use the same ratesetting methodology for MS-DRG 018 in FY 2023 as we have in prior years. With regard to the commenter who requested that CMS reevaluate the clinical trial threshold annually, we note that we continue to monitor the data and may engage further with the public and consider this comment in connection with future rulemaking. With regard to the comments that the MS-DRG relative weight for MS-DRG 018 is inadequate and does not result in payment that fully covers the hospital resource costs, we refer readers to the FY 2022 IPPS/LTCH final rule (86 FR 44965) where we responded to similar comments.

Comment: A commenter stated that they understand that outliers are removed in the development of MS-DRGs so that they do not skew the results. The commenter found that in the calculation of the relative weights, MS-DRG 018 has the highest percent of cases removed as statistical outliers. The commenter stated the removal of these cases resulted in a lower standardized cost per inpatient stay. Another commenter requested that CMS monitor the impact that the removal of these statistical outliers has on MS-DRG 018 and other low volume services.

Response: We examined the cases referenced by the commenter that were removed as statistical outliers in the FY 2021 MedPAR claims data. We found that these cases had very high charges and very short lengths of stay, with daily charges in excess of $1.2 million relative to the average daily charge of $114,000 for MS-DRG 018. As described earlier in this section, our standard method to identify and remove statistical outliers excludes cases with total charges and total daily charges that are beyond 3 standard deviations from the geometric mean of the log distribution of both average total charges and average total daily charges of the respective MS-DRG. As described in section III.B.4.b. of the preamble of this final rule with respect to the MS-LTC-DRGs, statistical outliers are removed because we believe that they may represent aberrations in the data that distort the measure of average resource use. For this reason, we believe that the cases identified by the commenters are appropriately excluded as outliers, as their inclusion could distort the measure of average resource use for MS-DRG 018. We will continue to monitor the removal of statistical outliers in calculating the relative weights for MS-DRG 018.

Comment: A commenter recommended that CMS establish a new, alternative payment model under CMMI for gene and cell therapies, outside of the constraints of the IPPS. The commenter stated that this would provide a clearer path to coverage and payment policy that can improve patient access. Another commenter stated that some exceptions to the standard IPPS process are and will continue to be needed to allow hospitals to make lifesaving therapies available at launch to Medicare beneficiaries as soon as possible.

Response: We believe that is premature to make structural changes to the IPPS at this time to pay for gene and cell therapies. We may consider these comments for future rulemaking as we gain more experience in paying for these therapies under the IPPS.

Comment: Some commenters expressed concern that CMS mapped revenue codes 087X for cell and gene therapy services furnished by hospital staff to the drug cost group. One commenter stated that the NUBC definition states this revenue code series is for “[c]harges for procedures performed by staff for the acquisition and infusion/injection of genetically modified cells”. The commenter stated that there is no standard cost center to report staff expense associated with the 087X series, but that it is inappropriate to assign the revenue for cell collection and processing services employed by hospital nursing and laboratory staff to the drug/pharmacy cost center. The commenter stated that if CMS finalizes this proposed mapping, it will be inconsistent with the mapping of revenues and expenses that hospitals are required to adhere to in their cost reports. A commenter suggested that CMS should revise the mapping of the 087X revenue codes to more closely reflect the departments where the staff expenses are recorded on the cost report. Commenters suggested that CMS map revenue codes 0871 and 0874 to the “other” cost center and 0872 and 0873 to the laboratory cost center. A commenter requested that CMS allow providers to bill for cell collection and cell processing services on the day that the services are rendered rather than adding them to the inpatient claim. The commenter stated that these are separate from the manufacturing process and are not included in the acquisition cost of the product.

Response: We disagree with the commenters that revenue center codes 087X are inappropriately mapped to the drug cost center. Cell collection and processing activities are part of the steps required to manufacture the drug, and thus assignment to the drug cost center accurately allocates these costs. Given this, we believe it is appropriate to apply the drug CCR to these charges for purposes of calculating the relative weights. With respect to the commenter who indicated that finalizing the proposed assignment of the 087X codes would be inconsistent with the mapping of revenues and expenses hospitals are required to adhere to in their cost reports, it is unclear to us what requirements are being referred to. With respect to the commenter who requested that CMS allow separate billing for the cell collection and processing services, as we discussed in the CY 2022 OPPS final rule (86 FR 63550), CMS does not believe that separate payment is necessary for the various steps required to collect and prepare the genetically modified T-cells, and Medicare does not generally pay separately for each step used to manufacture a drug or biological product.

Comment: A commenter requested that CMS consider allowing hospitals to use expanded access condition code 90 instead of the remarks field, which would remove a layer of manual work required by the MACs, which would decrease the opportunity for errors.

Response: We agree with the commenter that the availability of condition code 90 obviates the need for the use of the remarks field to identify expanded access claims that group to MS-DRG 018 for the purposes of applying the clinical trial adjustment. Effective October 1, 2022, providers should submit condition code 90 to identify expanded access claims that group to MS-DRG 018, rather than the remarks field. The MACs will no longer flag cases as expanded access claims based on information submitted in the remarks field for claims submitted on or after October 1, 2022.

Comment: A commenter requested that CMS provide additional clarification on the agency's methodology to develop the relative weight for both MS-DRG 018 and its overall ratesetting methodology. This commenter requested that CMS describe the order of operations, including step-by-step instructions of when to exclude certain types of claims. This commenter also requested that CMS clarify whether the agency trims claims first, and then sets aside clinical trial cases, or sets aside clinical trial claims and claims with less than $373,000 and then performs trimming.

Response: In response to the commenter's specific question regarding when CMS removes clinical trial cases from MS-DRG 018, the trims to remove clinical trial cases from MS-DRG 018 are done prior to the elimination of statistical outliers. In response to the commenter's request that we clarify our relative weight methodology more generally, we note that in each year's IPPS/LTCH PPS proposed and final rules, we include a section describing the recalibration of the MS-DRG relative weights and methodology for calculating the relative weights. We refer readers to sections II.E.1. and E.2.a. of the preamble of this final rule, in which we describe the trims we apply to the MedPAR claims to exclude non-IPPS claims, and provide a detailed description of the methodology we use to calculate the relative weights. The order that the trims are applied is consistent with the narrative description of our methodology. In addition, since the creation of MS-DRG 018, we have provided a description of the calculation of the relative weight for MS-DRG 018, including a step-by-step calculation of the CAR T-cell clinical trial adjustment factor, as set forth earlier in this section.

We also note that some commenters requested additional clarifications regarding billing instructions for CAR T-cell therapies, such as appropriate CAR T-cell billing and charges. We do not believe changes to billing guidance are needed at this time but will take these comments into consideration when developing policies and program requirements for future years for CAR T-cell therapy policy.

After consideration of the public comments we received, we are finalizing our proposals regarding the calculation of the relative weight for MS-DRG 018. Applying this finalized methodology, based on the March 2022 update of the FY 2021 MedPAR file used for this final rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($61,540) were 21 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($293,546). Accordingly, as we did for FY 2022, we are finalizing our proposal to adjust the transfer-adjusted case count for MS-DRG 018 by applying the adjustor of 0.21 to the applicable clinical trial and expanded access use immunotherapy cases, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this final rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by 0.21. 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.

c. Averaging of Relative Weights for FY 2023

In section I.F. of the proposed rule and this final 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 an averaging approach for calculating the FY 2023 relative weights. As discussed in the proposed rule, 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 proposed 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 in this section. Given the uncertainty in the number of COVID-19 hospitalizations in FY 2023, we proposed 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 stated that 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 stated that we believe the result would reflect a reasonable estimation of the case mix for FY 2023 based on the information available at the time, as discussed in section I.F. of the preamble to the proposed rule and this final 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 percent of the relative weights as calculated for all applicable cases in the FY 2021 data. For the proposed rule, our proposed calculation was 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 noted that in Step 5 of this proposed calculation, 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, as discussed more fully later in this section. We also noted that we intended to update this calculation for the final rule using the March 2022 update of the FY 2021 MedPAR file.

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

Comment: Several commenters supported our proposal to average the relative weights calculated with and without COVID-19 cases, stating that this would more accurately account for the anticipated change in case mix as COVID-19 cases decline.

Another commenter supported an alternative MS-DRG relative weight methodology, but stated that the proposed methodology does not do enough to control for variability. This commenter requested that CMS use FY 2019 claims or some other alternate blend using the FY 2021 claims to establish the FY 2023 relative weights.

Some commenters expressed concern about policies that may limit the reimbursement for COVID-19 cases. A commenter suggested increasing the relative weights for the MS-DRGs that have documented COVID-19 cases, but recommended that CMS consider a process to differentiate patients who test asymptomatically for COVID-19 from those whose COVID-19 infection is causing clinical symptoms to worsen. The commenter stated that this approach would better target the more resource intensive beneficiaries without artificially constraining reimbursement for their care.

Response: We appreciate commenters' support for and feedback on our proposal. However, we disagree that we should blend other data sources or take additional steps to control for variability in the FY 2023 relative weights. As we stated in the FY 2023 IPPS/LTCH PPS proposed rule, we cannot know the precise number of COVID-19 hospitalizations among Medicare beneficiaries as compared to FY 2021. Our proposal to average the relative weights is intended to reflect a reasonable estimation of the case mix for FY 2023 based on the information available at this time, not to completely remove all variability in the FY 2023 relative weights. Our proposed methodology uses the FY 2021 MedPAR claims file to determine the FY 2023 relative weights, as the most recent available data during the period of the COVID-19 PHE, with modifications to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries at IPPS hospitals as compared to FY 2021. As discussed in section I.F. of this final rule, after reviewing the latest CDC hospitalization data available at this time, we continue to believe that it is reasonable to assume that some Medicare beneficiaries will be hospitalized with COVID-19 at IPPS hospitals in FY 2023, but that there will be fewer COVID 19 hospitalizations as compared to FY 2021. With respect to the commenters' concerns about policies that may limit reimbursement for COVID-19 cases, we note that the majority of cases that include a diagnosis of COVID-19 (ICD-10-CM diagnosis code U07.1) group to MS-DRGs 177 and 871, and that the relative weights calculated using the proposed averaging methodology for FY 2023 are higher than the FY 2022 relative weights for these MS-DRGs. For MS-DRG 177, the relative weight calculated using the proposed averaging approach is also higher than the relative weight calculated using all applicable cases in the FY 2021 MedPAR file. For MS-DRG 871, while the relative weight calculated using the proposed averaging approach is lower than the relative weight calculated using all applicable cases in the FY 2021 MedPAR file, it is still an increase as compared to the relative weight for FY 2022. Moreover, as previously discussed, we believe that use of the proposed averaging methodology would 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, and is consistent with our expectation, based on the information available at this time, that Medicare inpatient hospitalizations for COVID-19 will continue in FY 2023 at a lower level as compared to FY 2021. With regard to the suggestion about differentiating between symptomatic and asymptomatic COVID-19 cases, at this time we do not believe it is operationally feasible to make such a distinction given that separate coding does not exist to differentiate these cases. We may consider this suggestion in connection with future rulemaking.

After consideration of comments received, we are finalizing our proposal to determine the FY 2023 MS-DRG relative weights by averaging the relative weights as calculated with and without COVID-19 cases in the FY 2021 data, as previously described. As previously discussed, for this final rule, we are using the March 2022 update of the FY 2021 MedPAR file to determine the final relative weights for FY 2023. The relative weights, geometric mean length of stay, and average length of stay as calculated using this methodology are set forth in Table 5 associated with this final 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 methodology on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

d. 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 requested that CMS 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.

As we stated in the FY 2023 IPPS/LTCH PPS proposed rule, 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 stated in the proposed rule that 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 proposed a permanent 10-percent cap on the reduction in an 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, we stated that this proposal 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 proposed 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 budget neutrality adjustment, we refer readers to the Addendum of the proposed rule and this final 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 proposed 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 × FY 2022 weight of 1.100). The proposed relative weights for FY 2023 as set forth in Table 5 associated with the 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 20-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 the March 2022 update of the FY 2021 MedPAR claims), while a lower cap, such as a 5-percent cap, would limit declines in the relative weights for more MS-DRGs (92 MS-DRGs in our analysis of the March 2022 update of the FY 2021 MedPAR claims), but with a larger associated budget neutrality adjustment to the standardized amount. On balance, we stated that 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 noted that this proposed policy would limit declines in the relative weight for 27 MS-DRGs, based on the FY 2021 claims data used for the proposed rule; based on the March 2022 update of the FY 2021 claims data used for this final rule, we note that it would limit declines in the relative weights for 31 MS-DRGs.

We noted that this proposed 10-percent cap on reductions to an 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 proposed 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 proposed to modify the regulations at § 412.60(b) to reflect this proposed permanent cap on relative weight reductions. We sought comments on our proposal to apply a 10-percent cap on decreases in an MS-DRG relative weight from one fiscal year to the next.

Comment: Many commenters supported our proposal to cap yearly reductions in an MS-DRG's relative weight to 10%. Commenters stated that significant year-over-year reductions can disrupt patient access to medically necessary treatment, that large swings are inconsistent with the principle of payment stability, and that a permanent 10 percent cap would provide more time for providers to adjust to significant changes in relative weights. A commenter stated that a cap on relative weight decreases could incentivize greater innovation, as hospitals may avoid MS-DRGs with significant declines, even if they offer more innovative, cost-saving treatment approaches. This commenter stated that mitigating large year-to-year payment changes would encourage providers to use the most clinically appropriate care. Commenters also stated that the cap is particularly helpful for low volume services, as they stated that shifts in these MS-DRGs are not reflective of true changes in the cost of care.

Some commenters requested that CMS apply the cap in a non-budget neutral manner. A commenter requested that CMS monitor for any unintended consequences of the cap, given that it is budget neutral.

Many commenters requested that CMS finalize a permanent lower cap, with some commenters expressing concern that with a 10% cap, there are still sizable reductions for high-cost MS-DRGs. Other commenters requested that CMS finalize a one-year cap of 5%, followed by a permanent cap of 10%. Several commenters recommended a permanent 5% cap, while others requested CMS set the floor as low as possible. Some commenters noted that a broad range of MS-DRGs have weight fluctuations in FY 2023 due to unique circumstances, such as the first use of hospital data impacted by the COVID-19 PHE for IPPS ratesetting. A commenter stated that the 10% cap benefits mostly medical MS-DRGs, while many surgical MS-DRGs would experience reductions greater than 5 percent but less than 10 percent. This commenter stated that capping reductions at 5% is consistent with the rationale to blend hospital claims with and without COVID-19, due to the uncertainty around the degree to which FY 2021 will reflect hospitals' costs and case mix in FY 2023. One commenter noted that their analysis of the MS-DRG relative weights showed that the average yearly variation in relative weights was 5%, so a permanent 5% cap is more in line with historical MS-DRG variation. A commenter stated that there is precedent of a 5% cap in other parts of the IPPS, such as the wage index.

One commenter requested that if CMS finalizes a 10% cap, that the agency continue to monitor whether a 10% cap is appropriate. A commenter requested that CMS update this policy clearly and transparently, and with additional stakeholder input, on an annual basis to maintain stability and predictability.

Some commenters acknowledged that setting a lower threshold for the cap would necessitate a larger budget neutrality adjustment, but that the redistributive impact would be minimal overall. These commenters stated that on balance it is still preferable to smooth the impact of steep payment declines for a larger number of services.

One commenter stated that it is premature for CMS to adopt a permanent cap, and recommended that CMS implement the 10% cap for FY 2023 only without a budget neutrality offset. This commenter stated that as COVID-19 becomes more endemic in the population, and less severe and costly in hospitals, Medicare utilization would be expected to return to its former level of annual stability, negating the need for a permanent cap on reductions to relative weights.

A commenter requested that any caps on the maximum annual change to the MS-DRG relative weights should not apply to just decreases but to increases as well.

A commenter stated that any new MS-DRG or modified version of an existing MS-DRG would benefit from the 10% cap in subsequent years following its introduction or modification. This commenter requested that CMS apply the 10% cap to all MS-DRGs once the MS-DRG has been established and gone through at least one year of the relative weight setting process. This commenter also requested that CMS consider how this type of policy could support long term payment stability for relative weights and hospital payments.

One commenter suggested that similar caps on payment reductions would be beneficial under the OPPS and PFS for revised or bundled coding updates.

Response: We appreciate commenters' support for and feedback on our proposal. However, we disagree with the suggestion that the proposed cap be applied in a non-budget neutral manner. As we stated in the IPPS/LTCH PPS proposed rule, our proposal is consistent with 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. Consistent with this budget neutrality requirement for annual updates to the relative weights, 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. This is also consistent with our implementation of similar caps on significant declines in the relative weight for prior fiscal years, as previously summarized.

We appreciate commenters' feedback on the size of the cap on year-to-year declines in an MS-DRG's relative weight, however we disagree that we should finalize a lower cap, whether for one year or on a permanent basis. As discussed in the proposed rule, after considering larger and smaller caps, we determined that on balance, a 10-percent cap would promote predictability and 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. With respect to commenters who stated that we should finalize a five percent cap because there were greater fluctuations due to the first use of the PHE data for ratesetting and that many surgical MS-DRGs would experience declines of between 5 and 10 percent, we note that declines in relative weights between 5 and 10 percent are not uncommon. For example, we note that prior to the PHE, and relative to the 25 medical MS-DRGs and 36 surgical MS-DRGs for which the FY 2023 relative weight is declining between 5 and 10 percent as compared to FY 2022 (based on the March 2022 update of the FY 2021 claims data used for this final rule), for the FY 2020 IPPS/LTCH PPS final rule, 27 surgical MS-DRGs and 21 medical MS-DRGs declined between 5 and 10 percent, and for the FY 2019 IPPS/LTCH PPS final rule, 32 surgical MS-DRGs and 25 medical MS-DRGs declined between 5 and 10 percent. Therefore, we do not believe that the number of MS-DRGs for which the FY 2023 relative weight is declining between 5 and 10 percent is unusual or necessarily related to the first use of the PHE data. We therefore continue to believe that a 10-percent cap strikes the appropriate balance between considerations of promoting predictability and mitigating financial impacts resulting from significant fluctuations in the relative weights, without the larger budget neutrality adjustment associated with a smaller cap. We acknowledge commenters' observation that most MS-DRGs impacted by the cap for FY 2023 are medical MS-DRGs; we note that the particular MS-DRGs impacted in a given year would be expected to fluctuate based on changes in the underlying data or as result of reclassifications.

With respect to the commenters who requested that CMS implement a 10-percent cap for one year only or update the policy on an annual basis, we believe that in order to better promote predictability and stability in hospital payments, it is appropriate to finalize a permanent 10-percent cap on year-to-year declines in the relative weight, beginning with the FY 2023 relative weights. We expect to continue to monitor the effects of this cap, including the number of MS-DRGs subject to the cap for any given fiscal year, and to present in the Addendum to the annual proposed and final rules the budget neutrality adjustment for reclassification and recalibration of the MS-DRG relative weights with application of this cap. We also anticipate continuing to make available on the CMS website a supplemental file demonstrating the application of the permanent 10 percent cap for future years.

With regard to the comment requesting that caps on maximum changes to an MS-DRG's relative weight apply to increases as well, as discussed in the IPPS/LTCH PPS proposed rule, our goal in smoothing year-to-year changes in the relative weights is to mitigate financial impacts associated with significant declines in an MS-DRG's relative weight and allow hospitals more time to adjust to such changes by phasing-in these declines. In cases where the underlying data or MS-DRG reclassifications result in an increase to an MS-DRG's relative weight, we do not believe a such a phase-in is appropriate.

With regard to new or modified MS-DRGs, we are clarifying that after the first fiscal year that these new or modified MS-DRGs take effect, any changes to the relative weights for those MS-DRGs would also be subject to the 10-percent cap.

With regard to the commenter's suggestion about long-term payment stability, we note that the goal of this policy is to smooth year-to-year changes.

With regard to similar caps on payment under other payment systems, we note that this comment is outside the scope of the proposals included in the FY 2023 IPPS/LTCH PPS proposed rule, and we are therefore not addressing this comment in this final rule. We may consider this comment in connection with future rulemaking.

After consideration of comments received, we are finalizing the proposed permanent 10-percent cap on the reduction in an MS-DRG's relative weight in a given fiscal year and the associated budget neutrality adjustment to the standardized amount, as previously described in this section, beginning in FY 2023. We are also finalizing our proposed modifications to the regulations at § 412.60(b) to reflect this permanent cap on relative weight reductions. The final relative weights for FY 2023 as set forth in Table 5 associated with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this finalized cap. For a further discussion of the budget neutrality adjustment for FY 2023, we refer readers to the Addendum of this final rule.

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 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 finalizing our proposal 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 relative weights consistent with these finalized policies, we first created a set of relative weights using all applicable cases in the March 2022 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 1.948410 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 March 2022 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 1.916445.

We then averaged the results of Step 1 and Step 2 (Step 3), and normalized these relative weights by applying an adjustment factor of 1.000212 (Step 4). This normalization adjustment is intended to ensure that this 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 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 FY 2023 relative weight equal to 90 percent of the FY 2022 relative weight. The relative weights for FY 2023 as set forth in Table 5 associated with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS reflect the application of this cap. 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 cap (Step 4), and with the application of this cap (Step 5) along with the other supplemental files for this final rule, on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

The 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 proposed 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 proposed 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.

We did not receive any public comments on our proposals and we are finalizing our proposals without modification.

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% of the standardized amount (increased to reflect the difference between cost and charges) or 75% 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 were presented in a data file that is available on the CMS website, along with the other data files associated with the FY 2023 final rule, by clicking on the FY 2023 IPPS final rule home page at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, 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 the proposed rule and this final rule, we proposed 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 proposed 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 the proposed rule and this final rule, we proposed 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 proposed 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 also proposed 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 I.O. of the appendix of the FY 2023 IPPS/LTCH proposed rule (87 FR 28740 through 28741), we also considered, as an alternative to our proposal, calculating the FY 2023 MS-DRG relative weights without the proposed averaging approach to account for COVID-19 cases. In connection with this alternative approach, we made available the threshold values as calculated without this averaged data on the “FY 2023 Final 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 final rule.

As discussed in section I.F. of the preamble of this final rule, we are finalizing our proposal to use the FY 2021 MedPAR claims data for FY 2023 ratesetting. Also, as discussed in section II.E of this final rule we are finalizing our proposal 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. We did not receive any public comments on our proposal to average the data in the steps of the calculation of the FY 2024 thresholds that use charge data from the calculation of the MS-DRG weights, as discussed in the proposed rule. Accordingly, in this final rule, we are finalizing to use FY 2021 claims data to set the thresholds for applications for new technology add-on payments for FY 2024, and we are also finalizing to average the data in the steps of the calculation of the FY 2024 thresholds that use charge data from the calculation of the MS-DRG weights, as described previously. The finalized 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 this FY 2023 final rule, by clicking on the FY 2023 IPPS Final Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.

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

(3) Substantial Clinical Improvement Criterion

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

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

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

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

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

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

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

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

We note, consistent with the discussion in the FY 2003 IPPS final rule (67 FR 50015), that while FDA has regulatory responsibility for decisions related to marketing authorization (for example, approval, clearance, etc.), we do not rely upon FDA criteria in our evaluation of substantial clinical improvement for purposes of determining what 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 new technology add-on payment 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% of the costs of the new medical service or technology; or (2) 50% 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% of the costs of the new medical service or technology; or (2) 65% 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% of the costs of the new medical service or technology; or (2) 75% 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% of the costs of the new medical service or technology; or (2) 75% 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% (or 75% 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 interested parties (including device/biologic/drug developers or manufacturers, industry consultants, others) engage CMS for coverage, coding, and payment questions or concerns. In order to streamline engagement by centralizing the different innovation pathways within CMS including new technology add-on payments, CMS has established a team of new technology liaisons that can serve as an initial resource for interested parties. This team is available to assist with all of the following:

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

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

f. Application Information for New Medical Services or Technologies

Applicants for add-on payments for new medical services or technologies for FY 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 final 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 the 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 did not summarize the written comments in the proposed rule that are unrelated to the substantial clinical improvement criterion. In section II.F.6. of the preamble of the proposed rule, we summarized comments regarding individual applications, or, if applicable, indicated 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 final rule, in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 final rule for a full discussion of this proposal and the comments received.

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% of the operating outlier threshold for the claim or (2) 65% 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. FY 2023 Status of Technologies Receiving New Technology Add-On Payments for FY 2022

In this section of the final 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®), and our finalized policies, 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 have been 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. In the FY 2023 IPPS LTCH/PPS proposed rule, we stated that if CONTEPO receives FDA marketing authorization prior to July 1, 2022, we were proposing to continue making new technology add-on payments for CONTEPO for FY 2023. We stated that 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. Because CONTEPO did not receive FDA approval by July 1, 2022, no new technology add-on payments will be made for cases involving the use of CONTEPO for FY 2022, and CONTEPO is therefore not eligible for the continuation of new technology add-on payments for FY 2023.

a. 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 and our finalized policies. Specifically, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28210-28212), we presented 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 presented 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).

In the proposed rule, we provided a table listing the technologies for which we proposed to continue making new technology add-on payments for FY 2023 because they would still be considered “new” for purposes of new technology add-on payments (87 FR 28213 through 28214). This table also presented the newness start date, new technology add-on payment start date, 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, proposed maximum add-on payment amount, and coding assignments for each technology. We referred readers to the final rules cited in the table for a complete discussion of the new technology add-on payment application, coding and payment amount for each of these technologies, including the applicable indications and discussion of the newness start date.

We invited public comments on our proposals to continue new technology add-on payments for FY 2023 for the technologies listed in the table in the proposed rule.

Comment: Commenters overwhelmingly supported our proposed continuation of new technology add-on payments 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.

Response: We appreciate the commenters' support.

In the proposed rule, we noted, 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.

We stated in the proposed rule (87 FR 28212) that after further review of the information provided by the applicant, we believed that additional information related to VEKLURY®'s commercial availability is relevant to assessing the start of the newness period for VEKLURY®. We noted that 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 stated in the proposed rule that 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 stated that 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 noted that 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 believed 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 stated that 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 noted 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, we proposed to continue new technology add-on payments for VEKLURY® for FY 2023. We invited 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 welcomed additional comments in the proposed rule.

Comment: The applicant submitted a comment with respect to the start of the newness period for VEKLURY®. The applicant noted that there is no material impact on eligibility for new technology add-on payments for VEKLURY®, regardless of whether CMS uses July 1 2020, the date VEKLURY® became available for sale under the allocation agreement, or October 22, 2020, the date of FDA approval as the start of the newness period for VEKLURY®. The applicant maintained that using either date and applying CMS' standard methodology of calculating the period of eligibility for new technology add-on payments would result in VEKLURY® staying within its newness period through FY 2023 (October 1, 2022-September 30, 2023), and that VEKLURY® would not be eligible for new technology add-on payments in FY 2024 in either circumstance.

The applicant stated that the primary effect of CMS' revisiting of the VEKLURY® newness determination would be to set a precedent that would affect the future eligibility for new technology add-on payments of other EUA products. To this point, the applicant referred to the FY 2022 IPPS final rule where CMS originally finalized the newness date for VEKLURY® and stated that products that do not have FDA approval or clearance, including products available in the U.S. under an EUA, are not eligible for new technology add-on payments (86 FR 45106-07). The applicant also pointed to 42 CFR 412.87(b) which outlines additional eligibility criteria for substantial clinical improvement, cost, and newness that must all be met in order for a product to be eligible for new technology add-on payments. The applicant stated it is reasonable to assume these requirements should not be in conflict with respect to how they are evaluated and implemented, including with respect to the timelines applied to the determination of eligibility for new technology add-on payments.

Furthermore, the applicant stated that CMS confirmed that using the date of FDA approval as the beginning of the newness period for VEKLURY® was consistent with its longstanding policy, with the commenter referencing CMS's statement that generally, its policy is “to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market, when [data] reflecting the costs of the technology begin to become available for the recalibration of the MS-DRGs” (86 FR 45159) (emphasis added). The applicant asserted that using a date prior to FDA approval as the beginning of the newness period would therefore serve as a departure from how CMS has traditionally determined newness for the purposes of new technology add-on payments, as there is no precedent to use a date earlier than FDA approval as the date of market availability.

The applicant stated that VEKLURY®'s distribution and commercialization framework over the course of the COVID-19 pandemic, through which VEKLURY® was available through emergency and compassionate use programs, donations, and a post-donation model in collaboration with the federal government, were all implemented prior to VEKLURY® receiving FDA approval and does not in any way resemble the current distribution and reimbursement paradigm. The applicant further stated that its experience during the EUA period does not reflect the type of distribution and reimbursement environment that would support a newness period that begins prior to the FDA approval date for VEKLURY®. The applicant stated that the data collected on utilization and resource use during the EUA period likely would not be representative of utilization or resource use following FDA approval, given that the EUA period occurred within the context of a global pandemic and a time of extreme uncertainty for the health care system. The applicant pointed to CMS's use of FY 2019 data for FY 2022 ratesetting for circumstances where the FY 2020 data was significantly impacted by the COVID-19 PHE, and reasoned that VEKLURY®'s utilization would be similarly impacted by the PHE as its EUA period occurred almost entirely in FY 2020.

The applicant urged that CMS continue to determine the start of the newness period for VEKLURY® and other products originally available in the U.S. under an EUA using what it stated was the same policy CMS has applied for all other products approved for new technology add-on payment, which is to use the date of FDA approval or, if later, the date of market availability in the U.S. For VEKLURY®, the applicant stated that this date is October 22, 2020, the date of FDA approval. The applicant stated that maintaining this policy aligns to existing precedent, simplifies the newness determination process, and applies a consistent policy across products.

Response: We thank the applicant for its input. As discussed in the FY 2018 IPPS final rule (82 FR 38115), the period of newness does not necessarily start with the approval date for the medical service or technology and instead begins with availability of the product on the U.S. market, which is when data become available. We have consistently applied this standard and believe that it is consistent with the purpose of new technology add-on payments. Therefore, while generally our policy is to begin the newness period on the date of FDA approval or clearance, we may also consider a documented delay in the technology's market availability in our determination of newness (77 FR 53348 and 70 FR 47341). Accordingly, we agree that in general, we have begun the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product onto the US market, based on such a documented delay, as that is when data reflecting the costs of the technology begin to become available. However, as we discussed in the FY 2022 final rule, for a product with an EUA, the data reflecting the costs of that product could become available as soon as the date of EUA issuance, and prior to FDA approval or clearance. Therefore, while a product approved under an EUA and for which there is data reflecting the costs of the technology prior to FDA approval may be factually distinct from a product for which there is a documented delay in marketing availability following FDA approval, we disagree that beginning the newness period on the date of EUA issuance and prior to FDA approval would be inconsistent with our longstanding policy of beginning the newness period with the availability of the product on the U.S. market. With regard to the additional criteria for eligibility for the new technology add-on payment, we refer readers to the FY 2022 final rule for our discussion of the eligibility of a product available only through an EUA for the new technology add-on payment under section 412.87(e)(2) (86 FR 45048 through 45049), as well as the comment solicitation on the new technology add-on payment newness period for products available through an EUA (86 FR 45159 through 45160). With respect to the applicant's comment that VEKLURY®'s utilization may have been impacted by the COVID-19 PHE during the EUA period, we note that the EUA for VEKLURY® was directly related to COVID-19.

We agree with the applicant that regardless of whether VEKLURY's® newness period begins on July 1, 2020, the date VEKLURY® became available for sale under the allocation agreement, or October 22, 2020, the date of FDA approval, the application of CMS' standard methodology for determining the period of eligibility for new technology add-on payments results in VEKLURY® remaining within its newness period through FY 2023 (October 1, 2022-September 30, 2023), and that VEKLURY® would not be eligible for new technology add-on payments in FY 2024 in either circumstance. Accordingly, we are finalizing our proposal to continue new technology add-on payments for VEKLURY® for FY 2023, as reflected in Table II.F.-01 of this final rule. As stated previously, we also recognize that there may be unique considerations associated with determining the start of the newness period for a product available under an EUA prior to receiving FDA approval, including as discussed in the applicant's comments. Accordingly, we will continue to consider the comments received regarding the newness period for products available through an EUA for COVID-19 for future rulemaking.

In the FY 2023 IPPS/LTCH PPS proposed rule, we noted that we also proposed to continue new technology add-on payments for Caption Guidance for FY 2023, a technology sold on a subscription basis. We stated we continued 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 did not receive any comments regarding the appropriate method to determine a cost per case for technologies sold on a subscription basis, and we will continue to consider these issues.

Comment: The applicant for Abecma® submitted a comment stating its strong support for the continuation of new technology add-on payments for Abecma® for FY 2023. The applicant stated that although Abecma® received FDA approval on March 26, 2021, it did not enter the U.S. market until May 10, 2021, when the date of first sale occurred and the new technology was first reflected in claims data. The applicant stated that the newness period for Abecma® should therefore begin on May 10, 2021 as CMS' policy is to begin the newness period on the date of a product's entry onto the U.S. market. The applicant further stated that Abecma®'s new technology add-on payment status should be extended beyond FY 2023, as CMS policy is to extend new technology add-on payments for an additional year when the 3-year anniversary of market entry occurs in the latter half of the fiscal year.

Response: We thank the applicant for its comment. As stated previously, while CMS may consider a documented delay in the technology's market availability in our determination of newness, our policy for determining whether to extend new technology add-on payments for an additional year generally applies regardless of the volume of claims for the technology after the beginning of the newness period (83 FR 41280). We do not consider the date of first sale of a product as an indicator of the entry of a product onto the U.S. market. The applicant states that the date of first sale of Abecma® was May 10, 2021, but it is unclear from the information provided when the technology first became available for sale and, absent additional information from the applicant, we cannot determine a newness date based on a documented delay in the technology's availability on the U.S. market.

We further note that, as discussed in section II.F.6.a. of the preamble of this final rule, because CARVYKTI^TM is substantially similar to ABECMA®, we are using a single cost for purposes of determining the new technology add-on payment amount for CARVYKTI^TM and ABECMA® for FY 2023. As discussed in section II.F.6.a., we determined a weighted average of the cost of CARVYKTI^TM and ABECMA® based upon the projected numbers of cases involving each technology to determine the maximum new technology add-on payment. To compute the weighted cost average, we summed the total number of projected cases for each of the applicants, which equaled 420 cases (241 plus 179). We then divided the number of projected cases for each of the applicants by the total number of cases, which resulted in the following case weighted percentages: 57% for CARVYKTI^TM and 43% for ABECMA®. We then multiplied the cost per case for the manufacturer specific drug by the case-weighted percentage (0.57 * $465,000 = $265,050 for CARVYKTI^TM and 0.43 * $419,500 = $180,385 for ABECMA®). This resulted in a case-weighted average cost of $445,435 for the technology.

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, the maximum new technology add-on payment for a case involving the use of CARVYKTI^TM and ABECMA® is $289,532.75 for FY 2023, as is reflected in Table II.F.-01 of this final rule.

Comment: Several commenters requested that CMS update the maximum new technology add-on payment amount to reflect the current Wholesale Acquisition Cost (WAC) per vial of their respective technologies. The applicant for Zepzelca^TM requested the maximum new technology add-on payment amount for Zepzelca^TM be updated from $8,622.90 to $9,145.50 to reflect the updated WAC of $7,035 per vial of Zepzelca^TM. The applicant for Cosela^TM requested the maximum new technology add-on payment amount for Cosela^TM be updated to reflect the updated WAC of $1,439 per vial of Cosela^TM.

Response: We appreciate the updated cost information. Zepzelca^TM 's current new technology add-on payment amount is $8,622.90 for 2 single-dose vials and reflects the WAC at the time of Zepzelca^TM 's entry onto the U.S. market (2 single-dose vials per dose × $6,633 per vial multiplied by 0.65). For FY 2023, the maximum new technology add-on payment amount using the updated WAC is $9,145.50 (2 single-dose vials per dose × $7,035 per vial multiplied by 0.65), as reflected in Table II.F.-01 in this final rule.

Similarly, Cosela^TM 's current new technology add-on payment amount is $5,526.30 (3 doses of Cosela^TM × 2 single-dose vials per dose × $1,417 per vial multiplied by 0.65). For FY 2023, the maximum new technology add-on payment amount using the updated WAC is $5,612.10 (3 doses of Cosela^TM × 2 single-dose vials × $1,439 per vial multiplied by 0.65) as reflected in Table II.F.-01 in this final rule.

After consideration of the public comments we received, we are finalizing our proposal to continue new technology add-on payments for FY 2023 for the technologies that were approved for new technology add-on payment for FY 2022 and would still be considered “new” for purposes of new technology add-on payments for FY 2023, as listed in the proposed rule and in the following Table II.F.-01 in this section of this final rule.

We note that Table II.F.-01 below is the same as Table II.F.-02 that was presented in the proposed rule, but Table II.F.-01 in this final rule includes the updated cost information for Zepzelca^TM, Cosela^TM, and Abecma®, as discussed previously. Table II.F.-01 also includes updated cost information for aScope Duodeno® to reflect the cost of the technology alone, rather than a case-weighted average with EXALT Model D^TM, as discussed later in this section. The following 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, maximum add-on payment amount, and coding assignments. We refer readers to the final rules cited in the following table for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

In the proposed rule, we provided a table listing the technologies for which we proposed 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 (87 FR 28211). This table also presented the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, relevant final rule citations from prior fiscal years, and coding assignments for each technology. We referred readers to the final rules cited in the table for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

We invited public comments on our proposals to discontinue new technology add-on payments for FY 2023 for the technologies listed in the table in the proposed rule.

Comment: A commenter supported our proposal to discontinue new technology add-on payments for AZEDRA®, which will no longer be considered new as its 3-year anniversary date of entry onto the U.S. market will occur prior to FY 2023.

Response: We appreciate the commenter's support and are finalizing our proposal to discontinue new technology add-on payments for AZEDRA® for FY 2023.

Comment: Many commenters stated their opposition to discontinuing new technology add-on payments for technologies whose 3-year anniversary of entry onto the U.S. market will occur prior to FY 2023 or in the first half of FY 2023. These commenters encouraged CMS to use its legal authority under section 1886(d)(5)(I) of the Act to extend new technology add-on payments through FY 2023 due to a historic decline in utilization during the COVID-19 pandemic.

Response: We thank the commenters for their input. Consistent with the statute and our implementing regulations, a technology is no longer considered as “new” once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). As such, once a technology has been available on the U.S. market for more than 2 to 3 years, we consider the costs to be included in the MS-DRG relative weights regardless of whether the technology's use in the Medicare population has been frequent or infrequent. Therefore, we do not believe that case volume is a relevant consideration for making the determination as to whether a product is “new,” and we are not extending new technology add-on payments for technologies whose 3-year anniversary of entry onto the U.S. market will occur prior to FY 2023 or in the first half of FY 2023. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44975 through 44979) and section II.F.5.b of this FY 2023 final rule for discussion of our policy to allow for a 1-year extension of new technology add-on payments for FY 2022 because of the unique circumstances associated with ratesetting for FY 2022, for which CMS used FY 2019 data instead of FY 2020 data to develop the FY 2022 relative weights.

Comment: Several commenters disagreed with CMS's proposal to discontinue new technology add-on payments for EXALT Model D^TM Single-Use Duodenoscope while continuing payments for aScope® Duodeno through FY 2023 based on the different FDA clearance dates for the two technologies. These commenters recommended that CMS create a single newness date and extend new technology add-on payments for both products through the end of FY 2023. The commenters noted that there is no mechanism for hospitals to distinguish between the two devices when reporting claims to CMS, as the duodenoscopes share one add-on payment amount and are identified using the same ICD-10-PCS codes.

Another commenter, the applicant for EXALT Model D^TM, stated that creating a single newness date and discontinuation date for a combined new technology add-on payment is consistent with prior CMS decision-making regarding substantially similar technologies such as IMFINZI® and TECENTRIQ® from the FY 2021 IPPS final rule, and the LUTONIX® and IN.PACT^TM Admiral^TM drug-coated balloons in the FY 2016 IPPS final rule. The commenter noted that, in these instances, CMS finalized the proposal to discontinue the new technology add-on payment for both technologies on the same date and calculated a case-weighted average cost resulting in the same maximum add-on payment for both technologies. The commenter further noted that CMS determined the drug-coated balloons were identifiable using the same ICD-10-PCS procedure codes, and that IMFINZI® and TECENTRIQ® received a one-year extension through FY 2022 based on CMS' decision to use FY 2019 data (instead of FY 2020 data) for the FY 2022 IPPS rate setting. The commenter requested that CMS discontinue the new technology add-on payments for both EXALT Model D^TM and aScope^TM Duodeno at the same time, preferably at the end of FY 2023. As an alternative, the applicant recommended that CMS recalculate the maximum payment amount from the current case-weighted average of $1,715 per case to reflect 65% of the cost of aScope^TM Duodeno only.

Response: We thank the commenters for their input. As stated previously, a technology is no longer considered “new” once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). As such, once a technology has been available on the U.S. market for more than 2 to 3 years, we consider the costs to be included in the MS-DRG relative weights regardless of whether the technology's use in the Medicare population has been frequent or infrequent. Additionally, we note that under § 412.87(c), applications received for new technology add-on payments for FY 2021 and subsequent fiscal years for medical devices that are part of FDA's Breakthrough Devices Program and received FDA marketing authorization will be considered not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS. Because EXALT Model D^TM and aScope^TM Duodeno both applied under the alternative pathway for transformative new technologies, the applicant's comparison to IMFINZI® and TECENTRIQ® from the FY 2021 IPPS final rule (85 FR 58672 through 58684), and the LUTONIX® and IN.PACT^TM Admiral^TM drug-coated balloons in the FY 2016 IPPS final rule (80 FR 49461 through 49470), where the technologies were determined to be substantially similar and therefore had the same newness period, is not relevant. Thus, we are finalizing our proposal to discontinue new technology add-on payment for EXALT^TM Model D^TM for FY 2023.

We agree with the applicant's alternative recommendation that the maximum new technology add-on payment amount should reflect the cost of aScope^TM Duodeno only. Based on information provided in its application for FY 2022 new technology add-on payment, the cost of the aScope^TM Duodeno is $1,995. 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 finalizing that the maximum new technology add-on payment for a case involving the use of the aScope^TM Duodeno would be $1,296.75 for FY 2022 (that is, 65% of the average cost of the technology). Cases involving the use of aScope^TM Duodeno will continue to be identified by the following ICD-10-PCS procedure codes: XFJB8A7 (Inspection of hepatobiliary duct using single-use duodenoscope, new technology group 7) or XFJD8A7 (Inspection of pancreatic duct using single-use duodenoscope, new technology group).

After consideration of the public comments we received, we are finalizing our proposal to discontinue new technology add-on payments for the technologies as listed in the proposed rule and in the following Table II.F.-02 of this final rule for FY 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, and relevant final rule citations from prior fiscal years. We also refer readers to the final rules cited in the following table for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

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 will 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 (as listed in the proposed rule and in Table II.F.-03 of this final rule) 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 discussed in section I.F. of this final rule, we believe the best available data is the FY 2021 MedPAR file. As discussed in section I.F. of this final rule, for FY 2023, we are finalizing our proposal to use the FY 2021 MedPAR (the best available data at the time of this final 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 final rule for a complete discussion regarding our final policy 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 proposed to use FY 2021 MedPAR data to recalibrate the FY 2023 MS-DRG relative weights, we stated in the proposed rule that we believe the costs of the 13 technologies as listed in the proposed rule (87 FR 28216 through 28217) and in Table II.F.-03 of this final rule, 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 proposed to discontinue new technology add-on payments for these 13 technologies in FY 2023. We also refer readers to the final rules cited in Table II.F.-03 for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

We invited public comments on our proposals to discontinue new technology add-on payments for FY 2023 for these 13 technologies listed in the proposed rule and Table II.F.-03.

Comment: Many commenters, including several applicants for technologies currently receiving new technology add-on payments, stated their opposition to discontinuing new technology add-on payments for technologies that received a one-year extension in FY 2022. These commenters stated that the FY 2021 MedPAR claims data are distorted due to effects of the COVID-19 pandemic and should not be used to recalibrate the MS-DRG relative weights. The commenters encouraged CMS to use its legal authority under section 1886(d)(5)(I) of the Act to extend new technology add-on payments through FY 2023.

Another commenter stated that while it is accurate that the costs of the technologies are reflected in the FY 2021 MedPAR data used for ratesetting purposes, the existence of such claims data does not mean that the costs of the technology are truly captured, nor does it mean that the pandemic has not impacted adoption of the new technologies and services. This commenter referenced several studies to demonstrate the impact of the PHE on hospitals, including critical staff shortages and financial instability due to lower revenues and inflation. The commenter also provided an analysis of FY 2021 claims data that found that the average standardized costs when accounting for cases using its technology or comparable technology reported under the same ICD-10-PCS codes increased by less than 0.5% compared to average standardized costs that do not account for cases reported under these codes.

Response: We thank the commenters for their input. Consistent with the statute and our implementing regulations, a technology is no longer considered as “new” once it is more than 2 to 3 years old, irrespective of how frequently the medical service or technology has been used in the Medicare population (70 FR 47349). As such, once a technology has been available on the U.S. market for more than 2 to 3 years, we consider the costs to be included in the MS-DRG relative weights regardless of whether the technology's use in the Medicare population has been frequent or infrequent. Therefore, we do not believe that case volume is a relevant consideration for making the determination as to whether a product is “new”. Additionally, as previously discussed, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44975 through 44979), we finalized a 1-year extension of new technology add-on payments for FY 2022 in light of the unique circumstances associated with ratesetting for FY 2022, for which CMS finalized the use of the FY 2019 MedPAR data instead of the FY 2020 MedPAR data to develop the FY 2022 relative weights. For FY 2023, because we are finalizing the use of the FY 2021 MedPAR data for FY 2023 ratesetting, including for purposes of developing the FY 2023 relative weights, we believe the costs of these technologies are now reflected in the MedPAR data used to recalibrate the MS-DRG relative weights for FY 2023. Therefore, we are not extending new technology add-on payments for technologies that received a one-year extension in FY 2022. We refer readers to sections section I.F. and II.E. of this final rule for discussion of CMS's finalized policy to use the FY 2021 MedPAR claims data to recalibrate the FY 2023 MS-DRG relative weights, including the finalized modifications to the relative weight setting methodology to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries at IPPS hospitals as compared to FY 2021.

After consideration of the public comments we received, we are finalizing our proposal to discontinue new technology add-on payments for the technologies as listed in the proposed rule and in the following Table II.F.-03 of this final rule for FY 2023. This table also presents the newness start date, new technology add-on payment start date, the 3-year anniversary date of the product's entry onto the U.S. market, and relevant final rule citations from prior fiscal years. We also refer readers to the final rules cited in the following table for a complete discussion of the new technology add-on payment application, coding and payment amount for these technologies, including the applicable indications and discussion of the newness start date.

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 the proposed rule. Subsequently, seven applicants withdrew their respective applications for lifileucel, narsoplimab, TERLIVAZ (terlipressin), teclistamab, mosunetuzumab, XENOVIEW, and treosulfan prior to the issuance of this FY 2023 IPPS/LTCH PPS final rule. In addition, in accordance with § 412.87(c), applicants for new technology add-on payments must have FDA approval or clearance by July 1 of each year prior to the beginning of the fiscal year for which the application is being considered. One applicant, Boehringer Ingelheim Pharmaceuticals, Inc., for spesolimab, did not receive FDA approval for its technology by July 1, 2022. Therefore, spesolimab is not eligible for consideration for new technology add-on payments for FY 2023. Consistent with our standard approach, we are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for consideration for FY 2023 due to not meeting the July 1 deadline, described previously, which were included in the FY 2023 IPPS/LTCH PPS proposed rule. We are also not summarizing nor responding to public comments received regarding these withdrawn or ineligible applications in this final rule. A discussion of the five remaining applications is presented below.

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 final 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 stated 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) or 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, in the registrational trial CARTITUDE 1, 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.

In the FY 2023 IPPS/LTCH PPS proposed rule, as stated in the FY 2022 proposed rule (86 FR 25236), we noted that CARVYKTI^TM may have a similar mechanism of action to that of ABECMA®. We also noted that 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). We stated that although the number of BCMA binding domains of CARVYKTI^TM and ABECMA® differ, it appeared 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 noted 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 were unclear as to 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 stated our belief that the mechanism of action for CARVYKTI^TM may be the same or similar to that of ABECMA®.

We also noted 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, because CARVYKTI^TM 's recent approval stated that it is indicated for fifth line treatment, we questioned whether CARVYKTI^TM treats a new patient population.

Accordingly, as it appeared 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 stated our belief that these technologies may be substantially similar to each other. We noted 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 expressed our interest in information on how these two technologies may differ from each other with respect to the substantial similarity criteria and newness criterion. We invited 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.

Comment: Several commenters voiced their support for CARVYKTI^TM in their general comments supporting all CAR T-cell therapies. The commenters encouraged CMS to consider approving the new technology add-on payment for new CAR T-cell therapies, including CARVYKTI, as they stated this encourages hospitals to adopt breakthrough technologies by helping them recover some of the increased costs associated with offering innovative treatments to patients.

Response: We thank the commenters for their support.

Comment: The applicant submitted a comment in response to concerns raised by CMS in the proposed rule, reiterating that CARVYKTI^TM meets the newness criterion and is not substantially similar to ABECMA® and other multiple myeloma treatments. The applicant stated that, while both CARVYKTI^TM and ABECMA® are CAR T-cell therapies directed against BCMA for the treatment of patients with multiple myeloma, there are mechanistic differences that contribute to a different CAR T-cell dose, pharmacokinetic/pharmacodynamic profile, and a different time frame for the development of cytokine release syndrome (CRS) as compared to ABECMA®'s single binding domain. The applicant presented the following table outlining the key scientific differences between CARVYKTI^TM and ABECMA®.

In terms of differences in dosage, the applicant stated the clinical target dose of CARVYKTI^TM is 0.75 ×10⁶ CAR-positive viable T-cells/kg whereas ABECMA® is 300-400 × 10⁶ cells/kg. In terms of differences in expansion of T-cell populations, the applicant stated that CARVYKTI^TM has preferential expansion of CD8 T-cells as opposed to CD4 T-cells for ABECMA®. In terms of the differences in pharmacokinetic and pharmacodynamic properties, the applicant stated that the median time to reach maximum expansion for CARVYKTI^TM was approximately 13 days after infusion, whereas for ABECMA® it was much sooner. According to the applicant, because of this longer lag time for maximal expansion, the highest peak IL-6 levels is around 10 days for CARVYKTI^TM as opposed to 5 days with ABECMA®, which resulted in differences in the side effect profile, as the median time to onset of CRS is 7 days for CARVYKTI^TM as opposed to 1 day for ABECMA®. The applicant stated that patients with CRS of Grade 3 severity had IL-6 peak levels of ~1,000 pg/ml with CARVYKTI^TM as opposed to over 10,000 pg/ml with ABECMA®. The applicant also stated that the return to baseline levels of IL-6 occurred in 2-3 months for patients treated with CARVYKTI^TM as opposed to 1 month with ABECMA®. Lastly, the applicant stated that another important distinction between CARVYKTI^TM and ABECMA® was that CARVYKTI^TM is derived from llama antibodies directed against BCMA whereas ABECMA® is derived from mouse antibodies. We note that the applicant agreed with our assessment that CARVYKTI^TM does not treat a new population.

Another commenter requested that CARVYKTI^TM be considered for a separate new technology add-on payment and should not be combined with other new technologies as the commenter considers the newness, cost, and substantial clinical improvement requirements met for CARVYKTI^TM. Per the commenter, this would ensure the maximum impact for each product for CAR T-cell therapy, which the commenter stated is significantly underpaid.

Response: We appreciate the information submitted by commenters regarding the newness criterion for CARVYKTI^TM. However, we disagree that CARVYKTI^TM has a unique mechanism of action. While the applicant highlighted differences between CARVYKTI^TM and ABECMA®, such as number of domains, dosage, time to CRS onset, pharmacokinetic/pharmacodynamic profile, side effects, source of antibodies, and CD4/CD8 ratios, we do not believe these meaningfully differentiate the mechanism of action of CARVYKTI^TM from other BCMA-directed CAR T-cell therapies such as ABECMA®, as they are both considered genetically modified autologous T-cell immunotherapies that bind to BCMA-expressing cancer cells.

While CARVYKTI^TM has two BCMA binding domains as opposed to one binding domain for ABECMA®, the resulting mechanism of action produces the same therapeutic outcome of CAR expressing CD4 and CD8 T-cells directed against BCMA for the treatment of multiple myeloma. We also disagree with applicant's assertion that CARVYKTI^TM 's preferential expansion of CD8 T-cells leads to a different mechanism of action, as both CARVYKTI^TM and ABECMA® produce a combination of CD4 and CD8 T-cells. While the ratio of these T-cells may vary, it does not substantiate a difference in mechanism of action which, as noted previously, is the targeting of and binding to the BCMA-expressing cancer cells. Lastly, we disagree that a difference in dosage and production represents a different mechanism of action. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44996 through 45000) for a further discussion of this issue, where we determined that BREYANZI® had a similar mechanism of action to KYMRIAH® and YESCARTA®.

After consideration of the comments received, and for the reasons discussed, we believe that CARVYKTI^TM and ABECMA® use the same or a similar mechanism of action to achieve a therapeutic outcome, as both products are BCMA-targeting CAR T-cell immunotherapies that result in similar T-cell activation and killing of malignant myeloma cells. Furthermore, as discussed previously, CARVYKTI^TM maps to the same MS-DRG and treats the same patient population (those with multiple myeloma after 4 or more prior lines of therapy) as ABECMA® and other CAR T-cell therapies. Accordingly, because CARVYKTI^TM meets all three of the substantial similarity criteria, we believe that it is substantially similar to ABECMA®. In accordance with our policy, because these technologies are substantially similar to each other, we use the earliest market availability date submitted as the beginning of the newness period for both technologies. Therefore, we consider the beginning of the newness period for CARVYKTI® to be March 26, 2021, which is the date that ABECMA® received FDA marketing authorization.

Consistent with our policy statements in the past regarding substantial similarity, we will not be making a determination on cost and substantial clinical improvement for CARVYKTI^TM. Specifically, we have noted that approval of new technology add-on payments would extend to all technologies that are substantially similar, and if substantially similar technologies are submitted for review in different (and subsequent) years, we evaluate and make a determination on the first application and apply that same determination to the second application (85 FR 58679). Since ABECMA® was approved for new technology add-on payments for FY 2022 and is still within its newness period for FY 2023, and we have determined that CARVYKTI^TM is substantially similar to ABECMA®, we apply that same approval for new technology add-on payments to CARVYKTI^TM . We note that we received public comments with regard to the cost and substantial clinical improvement criteria for this technology, but because the determination made in the FY 2022 IPPS/LTCH PPS final rule for ABECMA® is applied to CARVYKTI^TM due to their substantial similarity, we are not summarizing comments received or making a determination on those criteria in this final rule.

Cases involving the use of CARVYKTI^TM that are eligible for new technology add-on payments will be identified by procedure codes XW033A7 (Introduction of ciltacabtagene autoleucel into peripheral vein, percutaneous approach, new technology group 7) or XW043A7 (Introduction of ciltacabtagene autoleucel into central vein, percutaneous approach, new technology group 7). In its application, the applicant estimated that the cost of CARVYKTI^TM is $465,000.00 per patient. Because CARVYKTI^TM is substantially similar to ABECMA®, we believe using a single cost for purposes of determining the new technology add-on payment amount is appropriate for CARVYKTI^TM and ABECMA® even though each applicant has its own set of codes. We also believe using a single cost provides predictability regarding the add-on payment when using CARVYKTI^TM and ABECMA® for the treatment of patients with RRMM. As such, we believe that the use of a weighted average of the cost of CARVYKTI^TM and ABECMA® based upon the projected numbers of cases involving each technology to determine the maximum new technology add-on payment would be most appropriate. To compute the weighted cost average, we summed the total number of projected cases for each of the applicants, which equaled 420 cases (241 plus 179). We then divided the number of projected cases for each of the applicants by the total number of cases, which resulted in the following case weighted percentages: 57% for CARVYKTI^TM and 43% for ABECMA®. We then multiplied the cost per case for the manufacturer specific drug by the case-weighted percentage (0.57 * $465,000 = $265,050 for CARVYKTI^TM and 0.43 * $419,500 = $180,385 for ABECMA®). This resulted in a case-weighted average cost of $445,435 for the technology.

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, the maximum new technology add-on payment for a case involving the use of CARVYKTI^TM or ABECMA® is $289,532.75 for FY 2023.

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 submitted a request for a unique ICD-10-PCS code to identify procedures involving the administration of DARZALEX FASPRO®, and was granted approval to identify DARZALEX FASPRO® administration with ICD-10-PCS code XW01318 (Introduction of daratumumab and hyaluronidase-fihj into subcutaneous tissue, percutaneous approach, new technology group 8), effective October 1, 2022. We note that DARZALEX FASPRO® is also approved for multiple indications for the treatment of patients with multiple myeloma, and this PCS code would not uniquely identify use of the technology for the indication for which the applicant has applied for a new technology add-on payment. 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. Therefore, the administration of DARZALEX FASPRO® for the AL amyloidosis indication could be uniquely identified with XW01318, in combination with E85.81.

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.^{72 73} 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 1,000 ml 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 invited public comments on whether DARZALEX FASPRO® is substantially similar to existing technologies and whether DARZALEX FASPRO® meets the newness criterion.

Comment: The applicant submitted a comment reiterating its belief that DARZALEX FASPRO® meets the newness criterion because it was the first drug approved by FDA for patients with newly diagnosed light chain amyloidosis and that the mechanism of action is different from that of any other drug previously used to treat AL amyloidosis in that it is a monoclonal antibody that specifically binds to CD38 on malignant cancer cells. The applicant stated that because of this unique mechanism of action, DARZALEX FASPRO® for AL is not substantially similar to current treatments for AL and therefore meets the newness criterion.

Response: We thank the applicant for its comment. Based on our review of comments received and information submitted by the applicant as part of its FY 2023 new technology add-on payment application for DARZALEX FASPRO®, we agree with the applicant that DARZALEX FASPRO® has a unique mechanism of action as the first FDA approved treatment for AL amyloidosis. Therefore, we believe that DARZALEX FASPRO® is not substantially similar to existing treatment options and meets the newness criterion. We consider the beginning of the newness period to commence when DARZALEX FASPRO® was approved by FDA for the treatment of adult patients with light chain (AL) amyloidosis in combination with bortezomib, cyclophosphamide and dexamethasone in newly diagnosed patients, on January 15, 2021.

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 invited public comment on whether DARZALEX FASPRO® meets the cost criterion.

Comment: The applicant submitted a comment reiterating its belief that because the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount, DARZALEX FASPRO® meets the cost criterion.

Response: We thank the commenter for its comment. We agree the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, 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 = .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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28234 through 28235), after review of the information provided by the applicant, we stated we had the following concerns regarding whether DARZALEX FASPRO® meets the substantial clinical improvement criterion. First, with respect to the ANDROMEDA trial, we noted 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 noted 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 questioned 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 questioned whether a primary endpoint of overall survival would have provided stronger evidence.

Second, we had 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 questioned whether the outcomes for this outpatient population are generalizable to patients who are sufficiently ill to require hospitalization. In regard to subpopulations, we noted 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 noted 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 questioned 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 noted 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 noted that some of the endpoints are still being studied and validated. Specifically, we questioned whether these surrogate endpoints may be used to appropriately evaluate the measure for which they are intended to assess. We requested further information on whether these secondary endpoints have been appropriately validated in relevant clinical settings.

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

Comment: The applicant submitted a comment in response to CMS' concerns pertaining to substantial clinical improvement. With respect to our concern that the open label and unblinded study design of the ANDROMEDA trial may result in a biased treatment effect, the applicant stated that clinical trials designed to evaluate treatment effects in patients with AL amyloidosis need to account for the heterogeneity of the disease, the number of affected organs, including the heart, kidney, and liver, and the severity of organ involvement. Per the applicant, in addition to randomization by chance to the experimental Dara-CyBorD arm or the control CyBorD arm, subjects in the ANDROMEDA trial were randomized by cardiac stage, by whether transplant was typically offered, and by renal function. The applicant stated that efficacy data were adjudicated by an independent review committee whose members were unaware of the trial-group assignments. The applicant stated that patients in the control arm were marginally older and that there were slightly more males than females but that these small differences are not expected to cause a major difference in outcomes. The applicant also stated that the slight increase in males in this study is similar to an analysis of U.S. commercial and Medicare Supplemental claims data that found the prevalence of AL amyloidosis is higher in males (approximately 55% male).

The applicant stated that the percentage of subjects in cardiac stage IIIA was similar in the two treatment arms. Per the applicant, neither the slightly higher percentage of subjects with cardiac stage IIIB (3.1% vs. 1.0%) in the CyBorD arm nor the observed small differences in the ECOG status and renal status between the two arms are expected to have a major difference on the final outcomes.

With regard to the concern regarding higher peripheral sensory neuropathy, upper respiratory infection, and neutropenia in longer term data for the daratumumab group compared to the control group, the applicant stated that the relative incidence of infections like pneumonia as well as peripheral sensory neuropathy and neutropenia should be interpreted in the context of longer treatment exposure for patients receiving Dara-CyBorD vs. CyBorD. The applicant stated that when adjusted for exposure to trial treatment, the incidence of overall and grade 3 or 4 adverse events was lower in the daratumumab group than in the control group.

With regard to the concern regarding hematologic and organ-based laboratory-based outcomes instead of overall survival, the applicant stated that primary treatment is targeted toward suppression of amyloid light chain synthesis in order to improve organ function. The applicant stated that treatment efficacy is typically determined by hematologic response and that the current staging systems for AL amyloidosis are based on circulating markers of cardiac, renal, and B cell clonal disease and are used for clinical trial design and to determine patient management. The applicant stated that because clinical presentation and long-term outcomes depend on adequate organ function, complete response (CR) does not completely describe the clinical efficacy of treatment in patients with AL amyloidosis. The applicant stated that organ response rates can be used but there are limitations with only using these biomarkers to monitor organ response. The applicant stated that, in consultation with and with the approval of the FDA, major organ deterioration-progression free survival (MOD-PFS) and major organ deterioration-event free survival (MOD-EFS) were chosen as secondary endpoints and were calculated as a composite endpoint of clinically observable endpoints. The applicant stated that several clinical studies have demonstrated that hematologic and organ responses were very strong predictors of overall survival.

With regard to the concern for generalizability of the study population in an outpatient setting, the applicant stated that many factors contribute to whether a patient is treated as an outpatient or as an inpatient. Per the applicant, patients with similar clinical status might be treated in the inpatient setting because of the availability of health care personnel, insurance status, and available outpatient resources for patient follow-up. The applicant stated that the ANDROMEDA study was performed in an outpatient setting but there were patients with cardiac organ involvement that might have been hospitalized for treatment of cardiac disease and may have also be receiving treatment for AL amyloidosis, either as initiation of treatment or a part of a subsequent treatment cycle. The applicant stated that although the number of inpatient hospitalized individuals receiving a treatment cycle with Dara-CyBorD is expected to be low, it is important to ensure health care equity and access to the only FDA approved drug for treatment of newly diagnosed AL amyloidosis, regardless of treatment setting.

With regard to the small sample size and large confidence intervals in subgroup studies, the applicant stated that the variability in subgroup sizes could lead to wide confidence intervals, especially in the smaller subgroup sizes. The applicant also stated that there is strong numerical trend for improved outcomes with similar odds ratios in the Dara-CyborD arm across all subgroups.

With regard to the concern that the poster presentation did not match the indication for which the applicant has applied for the new technology add-on payment, the applicant stated that the use of daratumumab monotherapy in cardiac stage IIIB is still under investigation and although related data might be included in supporting documents, this information should be considered investigational. The applicant stated that its request for the new technology add-on payment is limited to the FDA approved indication: treatment of adult patients with newly diagnosed AL amyloidosis with NYHA or Mayo cardiac stage IIIA or less in combination with CyBorD.

With regard to our inquiry about the use of exploratory secondary endpoints in relevant clinical settings, the applicant stated that information about patient reported outcomes assessing the impact of treatment on quality of life provides early positive findings associated with the addition of DARZALEX FASPRO® to the CyBorD treatment combination but agreed that the information is preliminary and additional patient reported outcomes need to be obtained for AL amyloidosis patients at the time of diagnosis, during follow-up, and as the disease progresses. The applicant stated that the exploratory endpoints of iFLC ≤20mg/L and dFLC ≤10 mg/L also confirm the consistency of improved results of adding daratumumab to CyBorD. Finally, the applicant stated that besides the exploratory endpoints, the ANDROMEDA trial used the established primary endpoint of hematologic CR and the secondary endpoint of organ response which are defined in the International Society of Amyloidosis (ISA) guidelines and have been shown to be very good predictors for overall survival.

We also received an additional comment stating that DARZALEX FASPRO® improves progression free survival and organ survival across staging and that its combination with CyBorD has become standard of care and frontline treatment for patients with AL amyloidosis. The commenter further stated that rapidly achieving normalization of circulating immunogloblin free light chain is critical to offer the best chances of organ response and survival as time is of the essence in this disease, and organ response cannot occur in the absence of a hematologic remission. The commenter stated that adequate reimbursement will allow healthcare providers to adequately serve this critically ill patient population in both inpatient and outpatient settings, and will prevent having to withhold or delay the best possible regimen in the face of a requirement for an inpatient stay.

Response: We thank the commenters for their comments regarding the substantial clinical improvement criterion. Based on the additional information received, we agree that DARZALEX FASPRO® represents a substantial clinical improvement over existing technologies for the treatment of AL amyloidosis patients because it demonstrates improved clinical outcomes as compared to the standard of care CyBorD, including a higher rate of hemCR and longer major MOD-PFS.

After consideration of the public comments we received and the information included in the applicant's new technology add-on payment application, we have determined that DARZALEX FASPRO® meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for this technology for FY 2023. Cases involving the use of DARZALEX FASPRO® that are eligible for new technology add-on payments will be identified by ICD-10-PCS code XW01318 (Introduction of daratumumab and hyaluronidase-fihj into subcutaneous tissue, percutaneous approach, new technology group 8) in combination with ICD-10-CM code E85.81 (Light chain (AL) amyloidosis).

In its application, the applicant estimated that the cost of DARZALEX FASPRO® is $7,937.55 per patient. 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, the maximum new technology add-on payment for a case involving the use of DARZALEX FASPRO® is $5,159.41 for FY 2023.

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. The applicant explained that 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.

We stated in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28236 through 28237) that, 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 2 to 3 years that a product comes on the market, during the period when the costs of the new technology are not yet fully reflected in the MS-DRG weights (69 FR 49002). While our policy is, generally, to begin the newness period on the date of FDA approval or clearance or, if later, the date of availability of the product on the U.S. market as discussed in prior rulemaking (77 FR 53348), we have noted that data reflecting the costs of products that have received an 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 final 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 welcomed additional comments in the proposed rule.

Therefore, we stated that 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 questioned 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 invited 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 also invited public comments on whether the Hemolung RAS is substantially similar to existing technologies and whether the Hemolung RAS meets the newness criterion.

Comment: The applicant submitted a public comment regarding the newness date for the Hemolung RAS. The applicant stated that the newness period for COVID-19 Hemolung RAS cases should begin on November 15, 2021 (the date of commercial availability of the De Novo classified device), instead of April 22, 2020 (the date of the Hemolung RAS EUA). The applicant indicated that it provided the Hemolung RAS to hospitals free or at cost to swiftly respond to the global pandemic, and that it did not profit from EUA therapies. The applicant stated that additionally, during the EUA period, hospitals were not seeking payment for Hemolung RAS therapy. The applicant stated that, therefore, cost data collected during the EUA period and prior to FDA clearance do not accurately reflect the added cost of Hemolung RAS therapy.

Response: We thank the applicant for its comment. We note that, as discussed in previous rulemaking, the intent of section 1886(d)(5)(K) of the Act and regulations under § 412.87(b)(2) is to pay for new medical services and technologies for the first 2 to 3 years that a product comes on the market, during the period when the costs of the new technology are not yet fully reflected in the DRG weights. While the commenter stated that it provided the Hemolung RAS to hospitals free or at cost, and that hospitals were not seeking payment for the Hemolung RAS therapy during the EUA period, additional information regarding whether hospitals charged for use of the Hemolung RAS therapy between the date of its EUA and the date of commercial availability of the De Novo classified device, and how it impacts whether use of the technology may be reflected in the data, would be helpful in determining that data reflecting the cost of the product did not become available until the date of commercial availability of the De Novo classified device. However, we note that regardless of whether we consider the beginning of the newness period to commence for the use of the Hemolung RAS for patients with COVID-19 on April 22, 2020 (the date of its EUA) or November 15, 2021 (the date of commercial availability of the De Novo classified device), in both cases, the three-year anniversary date would occur after April 1, 2023, and, therefore, the technology would be considered new for this indication for FY 2023. As we discuss elsewhere in this rule, we also recognize that there may be unique considerations associated with determining the start of the newness period for a product available under an EUA prior to receiving FDA approval, and will continue to consider the comments received regarding the newness period for products available through an EUA for COVID-19 for future rulemaking. We consider the beginning of the newness period to commence for the use of the Hemolung RAS for patients with other causes of hypercapnic respiratory failure unrelated to COVID-19 on the date of commercial availability of the De Novo classified device, November 15, 2021. Accordingly, we consider the Hemolung RAS to be new for FY 2023 for use in patients with both COVID-19 and hypercapnic respiratory failure unrelated to COVID-19, and therefore the product meets the newness criterion for all patient populations indicated in its FDA De Novo marketing authorization.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Hemolung RAS is not substantially similar to existing treatment options and 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 noted that, in the applicant's analysis, it listed ICD-10-PCS code 5A1955Z as 5A1935Z (Respiratory ventilation, greater than 96 consecutive hours), but we believed 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 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 questioned 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 sought comments on whether the Hemolung RAS meets the cost criterion.

Comment: The applicant submitted a public comment and updated cost criterion analysis, which included a subset of cases in MS-DRG 003 and MS-DRG 004 in response to our concerns. The applicant stated that cases mapping to these MS-DRGs included non-extracorporeal membrane oxygenation (ECMO) cases with a tracheostomy, receiving mechanical ventilation, and with a primary diagnosis code for hypercapnia or chronic obstructive pulmonary disease (COPD). The applicant followed the same methodology as its original analysis and stated that even when including the subset of cases in MS-DRGs 003 and 004, the case-weighted standardized charges exceed the threshold amount, and the Hemolung RAS meets the cost criterion.

Response: We appreciate the applicant providing an updated cost criterion analysis that includes a subset of patients who would also require a tracheostomy, which resulted in cases mapping to the Pre-Major Diagnostic Category (Pre-MDC) MS-DRGs 003 or 004 if used with mechanical ventilation. Based on the information provided by the applicant, because the final inflated average case-weighted standardized charge per case exceeded the case-weighted threshold amount in all scenarios presented by the applicant, we agree with the applicant that 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 ECCO2R 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 believed 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 = 30 mEq/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 mmHg. 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 stated that we had the following concerns regarding whether the Hemolung RAS meets the substantial clinical improvement criterion. We noted 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. We stated that 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 noted 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 stated 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 was not clear whether or not the results of these studies are generalizable to the Medicare population. We also noted 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 questioned if there may be differences in treatment guidelines between these countries that may have affected clinical outcomes. Lastly, we noted 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 invited public comments on whether the Hemolung RAS meets the substantial clinical improvement criterion.

Comment: The applicant submitted comments in response to CMS' concerns in the FY2023 IPPS/LTCH PPS proposed rule (87 FR 28243) regarding whether the Hemolung RAS meets the substantial clinical improvement criterion. In response to our concerns as to whether the results of non-controlled data may affect the ability to draw meaningful conclusions regarding treatment outcomes and the use of background studies to support claims of substantial clinical improvement, the applicant stated that it acknowledges randomized controlled trial (RCT) data is the gold standard and the limitations of non-controlled data, but that large RCTs investigating medical devices in the critical care setting present unique enrollment challenges. The applicant stated that it is currently conducting the VENT-AVOID RCT in the US (“the Trial”—NCT03255057) investigating the use of the Hemolung RAS in COPD patients, which has faced slow enrollment since it began in 2018, with the COVID-19 pandemic further slowing enrollment. The applicant explained that one reason for the slow enrollment is the highly specific inclusion and exclusion criteria required by RCTs, which is typical of COPD trials. The applicant cited a study that evaluated the number of patients who would meet the inclusion criteria commonly used in COPD clinical trials, where the results demonstrated only 17% of the COPD population would meet the inclusion criteria.

The applicant stated that it believes a substantial amount of real-world evidence supports the technology's use, and as such, the background studies (with a combined >200,000 mechanically ventilated patients) are included to provide evidence demonstrating the life-threatening clinical sequelae that result from hypercapnia and respiratory acidosis in critically ill patients, including increased risk of ICU and hospital mortality, and longer ICU and hospital lengths of stay. The applicant stated that it believes the Hemolung evidence submitted to demonstrate substantial clinical improvement reflects the real-world use and the true impact the Hemolung RAS will have on the Medicare population, and that it is clear that providing clinicians with a tool to effectively correct pH and PaCO₂ independently of the lungs will have a significant positive impact on the outcomes of acute respiratory failure patients.

In response to our concerns as to whether the results of the Hemolung RAS case studies that included only one or two patients were generalizable to the Medicare population, the applicant stated that the epidemiology of acute respiratory distress and need for mechanical ventilation in older adults is well established. The applicant noted that there is a natural physiologic decline in lung function with age, which makes safely and adequately ventilating older patients, especially those with respiratory disease, challenging. The applicant noted that at generally accepted lung protective ventilation settings, older patients are more susceptible to an accumulation CO₂ due to poor baseline lung function. The applicant also stated that use of the Hemolung RAS in COPD patients is highly generalizable to the Medicare population given that the prevalence of COPD increases with age, and that in COPD patients failing non-invasive ventilation (NIV), avoiding intubation has a substantial mortality benefit (9% vs 27%).

In response to our concern as to whether the potential differences in treatment guidelines between countries of case studies may have affected clinical outcomes, the applicant referenced the consensus guideline in the US and Europe that generally the goal when ventilating patients is to utilize low volumes and pressures, which can result in CO₂ accumulation in the blood. The applicant explained that as CO₂ accumulation is a basic physiologic response to these ventilator settings, patient location does not affect clinical improvements resulting from the Hemolung RAS therapy.

In response to our concern that the ICU and hospital stays were longer with the ECCO₂ R group and there were no differences in mortality or functional outcomes at follow-up, the applicant submitted a recently published RCT with additional data and analysis of its study results on LOS. The applicant cited that the ICU and hospital LOS were both 4-5 days longer with ECCO₂ R than with NIV, which was due to a longer ICU LOS. The applicant noted that time from ICU discharge to home discharge was equal in both groups. The applicant noted that with NIV, nurse-led weaning occurred 24/7, based around arterial blood gases, respiratory rate and patient preference, and that patients were discharged to the ward during the daytime if they had been off NIV overnight. In addition, the applicant stated that patients who consistently declined NIV were discharged to a ward bed regardless of pH and this will have contributed to the lower ICU length of stay in the NIV arm. The applicant noted that the protocol for patients receiving ECCO₂ R did not allow weaning overnight, and there was a median of eight hours from cessation of ECCO₂ R to decannulation and unit protocols required a further overnight stay for observation.

The applicant also explained that the study results showed that time to NIV cessation was significantly shorter in the ECCO₂ R arm than in the NIV arm (7 hrs. vs 24:30 hrs., p = 0.004). The applicant noted that at one-hour post-randomization the pH was significantly higher in the ECCO₂ R arm (p<0.001), and at 4 hours post randomization the PaCO₂ was significantly lower (p<0.001) in the ECCO₂ R arm, compared to the NIV only arm. The applicant stated that ECCO₂ R also resulted in a significant and rapid reduction in subjective discomfort and dyspnea measured using a visual analogue scale (VAS), where a higher score indicates higher subjective discomfort and dyspnea.

Several other commenters also indicated their support for the Hemolung RAS. A commenter stated that the Hemolung RAS was used in their center and proved to be reliable (removing approximately 80 ccs of CO₂ /min) and was well-accepted by staff. The commenter noted that the staff considered it easy to use compared to ECMO, and were generally able to manage it while also managing other ECMO patients. The commenter stated that the Hemolung RAS will occupy an important niche in treating patients with acute hypercapnic respiratory failure, avoiding intubation up front in some patients as well as facilitating weaning off the ventilator in other cases where intubation was necessary initially.

A group of commenters submitted a comment stating that their experience with the Hemolung RAS underscored the importance of this technology in the Medicare population requiring inpatient management of hypercapnic respiratory failure. The commenters stated that IMV not only does not address the underlying clinical condition leading to hypercapnia, but it also compounds it by elevating pressures applied to the lung in an attempt to increase tidal ventilation, which contributes to morbidity and mortality, and that prior to the introduction of the Hemolung, it was the only option available. The commenters stated that they considered the Hemolung RAS a new technology that allows the patient on IMV to be managed with lower pressures instead of higher, earlier removal from mechanical ventilation, or even avoid mechanical ventilation, which the commenter noted is particularly important for patients with a do not intubate order for whom there are no other treatment alternatives. The commenters considered the Hemolung RAS as representing a significant clinical improvement for patients with hypercapnic respiratory failure in the inpatient setting, particularly for Medicare patients due to their age and risk of complications of the current standard of care.

Response: We thank the applicant and other commenters for their comments. Based on the additional information received, we agree with the applicant that the Hemolung RAS represents a substantial clinical improvement over existing technologies because the technology offers a treatment option for hypercapnic respiratory failure due to all causes in adults while avoiding intubation or facilitating extubation. We also agree with the applicant that the Hemolung RAS fills an unmet need for patients ineligible for currently available treatments, such as mechanical ventilation (for example, in patients with a DNI order). The Hemolung RAS provides extracorporeal CO₂ removal from the patient's blood for up to 5 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. For this reason, we agree that the Hemolung RAS offers a valuable treatment option for patients at risk for complications from, unresponsive to, and/or ineligible for, mechanical ventilation.

After consideration of the public comments we received, we have determined that the Hemolung RAS meets the criteria for approval for new technology add-on payments. Therefore, we are approving new technology add-on payments for use of the Hemolung RAS for the indications approved under its FDA De Novo marketing authorization for FY 2023. As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28236) 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 payments, as they do not fall under the patient population indicated in its FDA De Novo marketing authorization. Cases involving the use of the Hemolung RAS that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code 5A0920Z (Assistance with respiratory filtration, continuous).

In its application, the applicant estimated that the cost of Hemolung RAS is $10,000, which includes the $7,500 cost of the cartridge and the $2,500 cost of the catheter. 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, the maximum new technology add-on payment for a case involving the use of Hemolung RAS is $6,500 for FY 2023.

d. 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 following ICD-10-PCS procedure codes were created to uniquely describe the use of LIVTENCITY^TM, effective October 1, 2022: XW0DX38 (Introduction of maribavir anti-infective into mouth and pharynx, external approach, new technology group 8), XW0G738 (Introduction of maribavir anti-infective into upper gi, via natural or artificial opening, new technology group 8), and XW0H738 (Introduction of maribavir anti-infective into lower gi, via natural or artificial opening, new technology group 8).

As previously discussed, if a technology meets all three of the substantial similarity criteria under the newness criterion, it would be considered substantially similar to an existing technology and would not be considered “new” for the 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 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 invited public comments on whether LIVTENCITY^TM is substantially similar to existing technologies and whether LIVTENCITY^TM meets the newness criterion. As noted in the proposed rule, the applicant did not explain the reason for the delay between market authorization and commercial availability, and we requested additional information regarding this point.

Comment: The applicant submitted comments in response to CMS' request for additional information on the delay between market authorization and commercial availability of LIVTENCITY^TM. Per the applicant, between FDA marketing authorization on November 23, 2021 and commercial availability on December 2, 2021, the applicant applied final packaging and labeling and worked to ship the product to specialty pharmacies and distributors as soon as finished goods were available.

Response: We thank the applicant for the additional information regarding the delay between market authorization and commercial availability. We agree with the applicant that the beginning of the newness period for LIVTENCITY^TM is December 2, 2021, the date the product became commercially available.

Comment: A commenter agreed that LIVTENCITY^TM does not meet the first and third substantial similarity criteria as it stated that there are no other antivirals with a similar mechanism of action and LIVTENCITY^TM offers a novel treatment option for patients with no other antivirals currently approved for the treatment of post-transplant CMV refractory to traditional treatments. They agreed with the applicant that LIVTENCITY^TM is likely to share the same MS-DRGs as off-label agents currently used for CMV infection or disease.

Response: We thank the commenter for their input. We agree with the commenter that LIVTENCITY^TM has a unique mechanism of action and offers a novel treatment option for patients with post-transplant CMV refractory to traditional treatments.

Based on information submitted by the applicant in its comment and as part of its FY 2023 new technology add-on payment application for LIVTENCITY^TM, as discussed in the proposed rule (87 FR 28258 through 28259) and previously summarized, we believe that LIVTENCITY^TM has a unique mechanism of action because it inhibits pUL97, which is involved in terminal DNA processing, including DNA elongation, encapsidation, and nuclear egress of viral capsids, whereas existing therapies inhibit CMV DNA polymerase (pUL54) or the CMV DNA terminase complex (pUL51, pUL56, and pUL89) that is required for viral DNA processing and packaging. We also believe that LIVTENCITY^TM is indicated to treat a unique patient population and/or disease, as it is the only FDA-approved antiviral therapy indicated to treat post-transplant patients with CMV disease in solid organ transplant (SOT) and hematopoietic stem cell transplant (HCT). Therefore, LIVTENCITY^TM is not substantially similar to existing treatment options and meets the newness criterion. As stated previously, we consider the beginning of the newness period to commence on December 2, 2021 based on information provided by the applicant that the product first became available for sale on that date.

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

We did not receive any comments on whether LIVTENCITY^TM meets the cost criterion. Based on the information submitted by the applicant as part of its FY 2023 new technology add-on payment application for LIVTENCITY^TM, as discussed in the proposed rule (87 FR 28259 through 28260) and previously summarized, the final inflated average case-weighted standardized charge per case exceeds the average case-weighted threshold amount. Therefore, 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)).

In the proposed rule, we stated we had 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, there were 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 noted 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 noted 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 stated that 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 invited public comments on whether LIVTENCITY^TM meets the substantial clinical improvement criterion.

Comment: We received several comments in support of approving new technology add-on payments for LIVTENCITY^TM. The applicant reiterated four reasons LIVTENCITY^TM meets the substantial clinical improvement criterion, including: (1) being a new treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; (2) more rapid resolution of infection/disease; (3) reduction in at least one clinically significant adverse event, and (4) decreased number of hospitalizations. The applicant also submitted comments in response to CMS' concerns regarding the substantial clinical improvement criterion.

With respect to the concern that there were similar rates of mortality and new-onset CMV between the two treatment groups in the SOLSTICE study, the applicant stated that the study was not sufficiently powered nor was it long enough in duration to detect a difference in these two endpoints. With respect to all-cause mortality, the applicant stated that 8 weeks is often the longest duration permissible due to toxicities associated with the IAT treatment group, and that the underlying medical history of the patients and the short study duration contributed to the similar rate of mortality. The applicant further explained that all-cause mortality rates were assessed based on the randomized treatment group, regardless of LIVTENCITY^TM rescue treatment in the IAT group. With respect to new-onset CMV, the applicant stated that CMV treatment, either via secondary prophylaxis or treatment with LIVTENCITY^TM, was not allowed after 8 weeks which could explain the similar rates between the two groups. They also noted that a higher proportion of LIVTENCITY^TM patients with new onset symptomatic CMV were primary responders to LIVTENCITY^TM treatment versus the IAT patients. Furthermore, the study participants had a history of multiple past recurrences, increasing the likelihood of CMV recurrence. Finally, the applicant emphasized that clinically relevant recurrence is more clinically meaningful than overall recurrence.

Another commenter concurred with the applicant, stating that the SOLSTICE study design and imbalances in certain, therapy-independent baseline characteristics for the LIVTENCITY^TM group (for example, presence of CMV disease) could make it difficult to identify true differences in all-cause mortality and new-onset CMV amongst LIVTENCITY^TM and comparators.

The applicant also responded to CMS' concern that the SOLSTICE study was not sufficiently powered to detect difference in CMV viremia clearance at week 16, one of the study's secondary endpoints. The applicant noted that the study was powered to detect difference in CMV viremia at week 8, which was the primary endpoint of the study.

In response to CMS' concern that overall rate of TEAEs and serious TEAEs in the SOLSTICE trial was similar between the two treatment groups, the applicant stated that the similar rate of TEAEs was due to complexity of the patient population. They noted that the rate of TEAEs in the LIVTENCITY^TM group was driven by mild dysgeusia. Similarly, a commenter stated that while the rate of any TEAEs was similar for LIVTENCITY^TM versus IAT, patients in the LIVTENCITY^TM group primarily experienced dysgeusia which did not result in treatment discontinuation, while patients in the IAT group experienced cytopenias and renal disorders that did lead to treatment discontinuation. The applicant also stated that the rate of TEAEs was not adjusted for drug exposure; drug exposure was longer in the LIVTENCITY^TM group versus the IAT group due to toxicities in the IAT group. Finally, they noted that TEAEs leading to discontinuation was higher in the IAT group versus the LIVTENCITY^TM group.

Another commenter stated, with respect to the same concern, that while the rates of any serious TEAEs were similar between the groups, the rate of treatment-related serious TEAEs was lower in the LIVTENCITY^TM group versus IAT (5.1% vs. 14.7%, respectively), with the benefit persisting when taking into account discontinuation rates. The commenter cited this result in support of a finding that LIVTENCITY^TM is a unique oral therapeutic option for CMV that does not share the same problematic adverse events of currently used off-label agents which the commenter stated often lead to treatment discontinuation and thus, suboptimal treatment of CMV infection and disease.

The applicant also responded to CMS' request for additional information on safeguards taken to minimize or prevent bias from the treating physician in choosing the conventional therapy for patients in the IAT group of the SOLSTICE study. The applicant noted that SOLSTICE was designed as an open-label study because the investigators had to individualize the selection of the effective comparator in medically complex patients with concomitant medications and adjust dosing of the IAT agents based on renal function. Thus, the applicant asserted that an open-label design was a safe and practical way to conduct the study. The applicant also noted that the primary endpoint of the study was assessed based on an objective laboratory endpoint at a fixed timepoint. They stated that multiple sensitivity analyses were conducted to address potential bias due to different rates of early treatment discontinuation and that the primary endpoint was evaluated in subgroups to establish treatment consistency and study generalizability. The results of these sensitivity analyses of the primary efficacy endpoint were consistent with the results of the primary efficacy analysis and the benefit of the technology was also consistent across key subpopulations.

Response: We thank the commenters for their input and appreciate the clarifications in response to our concerns regarding the similar rates of mortality and new-onset CMV between the two treatment groups, the insufficient power to detect a difference in CMV viremia clearance at week 16, and the similar rates of overall TEAEs and serious TEAEs in the SOLSTICE study. Based on the additional information received, we agree that LIVTENCITY^TM represents a substantial clinical improvement over existing technologies because it provides a new treatment option for a patient population unresponsive to, or ineligible for, currently available treatments, and significantly improves the proportion of patients achieving CMV viremia at 8 weeks and maintaining CMV clearance and symptom control at week 8 through week 16, as well as reduces adverse effects such as neutropenia and nephrotoxicity compared to available therapies.

After consideration of the public comments we received, we have determined that LIVTENCITY^TM meets the criteria for approval for new technology add-on payment. Therefore, we are approving new technology add-on payments for LIVTENCITY^TM for FY 2023. Cases involving the use of LIVTENCITY^TM that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure codes XW0DX38 (Introduction of maribavir anti-infective into mouth and pharynx, external approach, new technology group 8), XW0G738 (Introduction of maribavir anti-infective into upper GI, via natural or artificial opening, new technology group 8), or XW0H738 (Introduction of maribavir anti-infective into lower GI, via natural or artificial opening, new technology group 8).

In its application, the applicant estimated that the cost of LIVTENCITY^TM is $50,000 for an 8-week course of therapy. 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, the maximum new technology add-on payment for a case involving the use of LIVTENCITY^TM is $32,500 for FY 2023.

e. 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, the following ICD-10-PCS 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). Effective October 1, 2022, the following ICD-10-PCS procedure codes were created to uniquely describe the use of UPLIZNA®: XW03398 (Introduction of inebilizumab-cdon into peripheral vein, percutaneous approach, new technology group 8) and XW04398 (Introduction of inebilizumab-cdon into central vein, percutaneous approach, new technology group 8).

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

In the proposed rule, we questioned whether the subset of the patient population with NMOSD—specifically, patients who are unvaccinated with the meningococcal vaccine—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 meningitidis are not considered a separate patient population because eligibility can be easily attained via a widely available vaccine (86 FR 45027). Additionally, we questioned 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 invited public comments on whether UPLIZNA® is substantially similar to existing technologies and whether UPLIZNA® meets the newness criterion.

Comment: The applicant submitted a public comment regarding the newness criterion. With respect to the first criterion to determine newness, whether a product uses the same or similar mechanism of action, the applicant reiterated its assertion that UPLIZNA® has a novel mechanism of action which satisfies the newness criterion. The applicant stated that UPLIZNA® is the first and only B-cell depleting monotherapy approved for neuromyelitis optica spectrum disorder (NMOSD) in adult patients who are anti-aquaporin-4 antibody positive. The applicant explained that the mechanism of action of UPLIZNA® involves binding to CD19+ B-cells leading to antibody-dependent, cell-mediated B-cell depletion. As a result, the applicant stated UPLIZNA® reduces the damage caused to the optic nerve, spinal cord, and brain by NMOSD attacks, thus reducing cumulative damage and rates of disability.

With respect to the third criterion to determine newness and our concern that patients who are unvaccinated with the meningococcal vaccine may not represent a new patient population for NMOSD, the applicant stated that in small populations such as those with rare diseases, special considerations such as vaccination status, prior therapies, drug interactions, or contraindications are important as certain nuances related to a particular treatment within these small populations can be uncovered, and providers must often choose one therapy over another due to specific patient attributes and health histories.

Response: We appreciate the applicant's input and agree that UPLIZNA® has a unique mechanism of action when compared to existing technologies for treating NMOSD, as UPLIZNA® is the only CD19+ B-cell depleting monotherapy approved for NMOSD in adult patients who are anti-aquaporin-4 antibody positive, compared to Soliris® which specifically binds to complement protein C5, and ENSPRYNG^TM which binds to soluble and membrane-bound IL-6 receptors. However, we continue to believe that UPLIZNA® does not represent a treatment option for a new patient population. We stated in the FY 2022 IPPS/LTCH PPS final rule that individuals who are not vaccinated against Neisseria meningitidis are not considered a separate patient population because eligibility can easily be attained via a widely available vaccine (86 FR 45027). In addition, ENSPRYNG^TM, another approved medication for the treatment of NMOSD, is also not contraindicated in patients with unresolved serious Neisseria meningitidis infections and therefore, may be a treatment option for patients with meningococcal disease along with UPLIZNA®.

Based on the comments received and the information submitted as part of the FY 2023 new technology add-on payment application for UPLIZNA®, as discussed in the proposed rule (87 FR 28303 through 28304) and in this final rule, we believe that UPLIZNA® has a unique mechanism of action and is not substantially similar to existing treatment options for NMOSD. While the applicant stated that it became commercially available on July 9, 2020, we believe that the beginning of the newness period for UPLIZNA® would be June 11, 2020, which is the date that UPLIZNA® received FDA marketing authorization, as the applicant did not provide documentation of a delay in commercial availability.

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 invited public comments on whether UPLIZNA® meets the cost criterion.

We did not receive any comments on whether UPLIZNA® meets the cost criterion. Based on the information submitted by the applicant as part of its FY 2023 new technology add-on payment application for UPLIZNA®, as discussed in the proposed rule (87 FR 28304) and previously summarized, the final inflated average case-weighted standardized charge per case exceeded the average case-weighted threshold amount. Therefore, 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.

In the proposed rule, we stated we had the following concerns regarding whether UPLIZNA® meets the substantial clinical improvement criterion. First, we noted 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. We stated that 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 noted 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 noted that the use of ENSPRYNG^TM to treat patients with NMOSD does not require a meningococcal vaccination. We noted 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, as stated in the proposed rule, we had 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 stated in the proposed rule that 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, we stated that 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 questioned the strength of the correlation between UPLIZNA's® dosing regimen and these outcomes. We stated our interest 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 questioned 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 noted that the applicant did not provide comparative data on the efficacy of UPLIZNA®, Soliris®, and ENSPRYNG^TM in these populations.

We invited public comments on whether UPLIZNA® meets the substantial clinical improvement criterion.

Comment: We received several comments in support of new technology add-on payments for UPLIZNA®, including one from the applicant, in response to CMS' concerns in the proposed rule. With respect to the concern regarding the lack of data comparing UPLIZNA® to existing FDA-approved treatments, the applicant stated that conducting head-to-head trials is often not possible when studying rare diseases due to the small patient populations and potential delays if trials for the same indication are running simultaneously. The applicant noted that the timing and availability of Soliris® and ENSPRYNG^TM (approved by FDA on June 27, 2019 and August 17, 2020, respectively) did not allow for comparative trials, as there were no approved medications for the treatment of NMOSD for the entirety of the N-MOmentum study. The applicant stated that CMS has granted new technology add-on payments in situations where comparative head-to-head trials were not available, referencing two technologies without comparative clinical data that were granted new technology add-on payments in FY 2019 and FY 2022, as well as two additional examples from FY 2022 that were both FDA-approved based on the results of single-arm clinical trials. We note that the applicant did not identify the specific technologies. The applicant stated that, because these products were granted new technology add-on payments without direct comparative data with their respective clinical competitors, that substantial clinical improvement can be ascertained through product attributes and randomized clinical trial outcomes in the absence of direct, comparative head-to-head trials.

With respect to the concern regarding the lack of data demonstrating improved outcomes over existing FDA approved treatments, the applicant noted that N-MOmentum is the largest-ever clinical trial conducted in patients with NMOSD, the results of which showed that patients taking UPLIZNA® experienced fewer relapses and fewer hospitalizations than patients on placebo. The applicant stated that compared with placebo, patients treated with UPLIZNA® had a reduced risk of 3-month EDSS-confirmed disability progression (CDP). The applicant also noted that although disability outcomes data cannot be compared across therapies, other therapies' disability data were studied using different endpoints as secondary measures and/or were not reported because of lack of statistical significance. The applicant referred to the PREVENT trial for Soliris®, which studied EDSS and mRS as secondary outcome measures up to 211 weeks and noted that there was no significant difference in disability progression between the Soliris® groups and placebo. The applicant also referred to the SakuraStar and SakuraSky trials for ENSPRYNG and noted that no significant effect on disability was observed. In contrast, the applicant stated that UPLIZNA® showed a consistent effect in reducing the risk of disability worsening compared to placebo, regardless of baseline disability status, attack history, or disease duration. The applicant asserted that despite head-to-head studies not being possible at the time registrational trials were conducted, the data and efficacy and clinical efficiency attributes of UPLIZNA® present an improvement for patients over other therapies.

In response to CMS' feedback regarding the comparison of dosing and long-term adherence to other available treatments for NMOSD, the applicant confirmed it had provided details of dosing for Soliris® in its application and included dosing details for ENSPRYNG^TM in its comments, noting that ENSPRYNG^TM requires more frequent administration than UPLIZNA®. The applicant referenced long-term adherence data showing that UPLIZNA® adherence was approximately 85% after two years. The applicant stated that the improved medication adherence data from analogue disease states suggest that twice yearly dosing, as with UPLIZNA®, is associated with improved adherence over other regimens. The applicant also stated that the data suggest that adherence and persistence to therapy may lead to improved clinical outcomes.

In addition, the applicant extrapolated results from a retrospective claims analysis looking at the use of MS disease-modifying therapies (DMTs) that concluded that a twice-yearly dosing schedule achieved superior adherence and persistence at 12, 18, and 24 months versus other dosing regimens or routes of administration. Other commenters also mentioned the convenient dosing schedule of UPLIZNA®, which potentially simplifies the lives of NMOSD patients and thereby improves compliance, which they noted is critical for the prevention of disease relapse and for ensuring good patient outcomes.

The applicant noted that persistence and adherence to a therapy such as UPLIZNA® are important to achieving positive clinical outcomes, and reiterated that studies have shown that relapses can lead to hospitalizations, long-term disability, and permanent harm to the patient. According to a commenter, administration of UPLIZNA® in the hospital setting, immediately after diagnosis and acute treatment of the relapse can be life saving for the patient, as early treatment leads to better outcomes and reduces relapse rate and subsequent disability. Commenters emphasized the potential for permanent damage related to relapses of NMOSD and therefore the importance of timely treatment to prevent relapse.

The applicant also responded to CMS' question regarding the generalizability of the retrospective analysis of the efficacy results of UPLIZNA® among Black/African American patients with NMOSD, which the applicant provided to support its claim that UPLIZNA® is a new treatment option for populations that are more likely to be impacted by health disparities. NMOSD disproportionately affects Black/African American and Asian populations at rates approximately 2-to 3-fold higher than Caucasians. As noted in its application, the applicant stated that the annualized attack rates for Black/African American participants observed in the N-MOmentum study were promising, despite the relatively low number of participants in the study. The applicant noted that the FDA Statistical Review of UPLIZNA® confirmed that the applicant could report subgroup analyses based on sex, race, age, and region and these data suggest that UPLIZNA® is at least as effective in the Black/African American subpopulation as it is in the general patient population. The applicant noted the difficulty of enrolling large numbers of patients in studies for rare conditions, and stated that subgroup data provided can still represent important considerations in identifying a benefit in populations that face disproportionately higher rates of NMOSD. As is often the case with rare diseases such as NMOSD, relatively small numbers of participants result in small subpopulations; however, the applicant noted, interpreting results in small subgroups must be done cautiously.

Response: We thank the commenters for their input. After further review, we continue to have concerns as to whether UPLIZNA® meets the substantial clinical improvement criterion to be approved for new technology add-on payments. We agree with the commenters that timely treatment for relapse prevention in NMOSD is important. However, it is unclear whether UPLIZNA® leads to improved relapse prevention, or other improved outcomes, as compared to other available treatments for NMOSD. We note that the applicant did not provide data comparing outcomes such as time to first relapse and number of relapses with Soliris® or UPLIZNA®. We further note that the applicant stated that, of the available therapies, only UPLIZNA® demonstrated a statistically significant effect on disability progression compared to placebo in its clinical trial. However, as the applicant noted, there were differences between the trials, including size of the trials and disability endpoints assessed. We believe this makes it difficult to demonstrate superior effect on disability progression, especially without a comparison of relapse rates, with which disability is associated. We also note that time-to-first-relapse is one endpoint that was consistent across all three trials, and that the results of a meta analysis comparing published efficacy outcomes for Soliris®, UPLIZNA®, and ENSPRYNG^TM showed that Soliris® demonstrated greater efficacy in prolonging time-to-relapse compared to UPLIZNA® and ENSPRYNGTM. While we agree with the applicant that substantial clinical improvement can be determined without head-to-head trials, we note that we evaluate every application on its own data and merits to determine whether it meets the new technology add-on payment criterion for substantial clinical improvement, and we consider variations in the currently available technologies that an applicant technology is compared against for the purposes of determining whether the technology represents a substantial clinical improvement over existing technologies. We further note that it is unclear which technologies the applicant is referring to in stating that CMS has previously approved new technology add-on payments for technologies without a demonstration of comparative outcomes.

Furthermore, with regard to improved adherence, while the applicant provided information regarding UPLIZNA® adherence, it did not compare these values to adherence for other therapies and therefore this information does not support a finding of substantial clinical improvement. Lastly, the retrospective claims analysis the applicant provided to support a correlation between long-term medication adherence and decreased relapse and hospitalization assessed the adherence and persistence of multiple sclerosis patients treated with a drug that had the same dosing regimen as UPLIZNA®—but not NMOSD patients treated with UPLIZNA®.

After review of the information submitted by the applicant as part of its FY 2023 new technology add-on payment application for UPLIZNA® and consideration of the comments received, we are unable to determine that UPLIZNA® meets the substantial clinical improvement criterion for the reasons discussed in the proposed rule and in this final rule, and therefore we are not approving new technology add-on payments for UPLIZNA® for FY 2023.

7. 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 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 section II.F.6 of preamble of the 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.

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 the proposed rule. Subsequently, five applicants withdrew their respective applications for LigaPASS 2.0 PJK Prevention System, Magnus Neuromodulation System with SAINT Technology, the Precision TAVI^TM Coronary Module, the TOPS^TM System, and the VITARIA® System prior to the issuance of this final rule. Two applicants, Phagenesis Ltd. (the applicant for Phagenyx® System) and Neuro Event Labs, Inc. (the applicant for the Nelli® Seizure Monitoring System), did not meet the July 1 deadline for FDA approval or clearance of the technology and, therefore, the technologies are not eligible for consideration for new technology add-on payments for FY 2023. A discussion of the remaining 6 applications is presented in this final rule, including 5 technologies that have received a Breakthrough Device designation from FDA and 1 that was designated as a QIDP by 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 the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to approve or disapprove each of these six applications for FY 2023 new technology add-on payments. Therefore, in this section of the preamble of this final rule, we provide background information on each of the remaining six alternative pathway applications and our determinations as to whether or not each technology is eligible for new technology add-on payments for FY 2023. Consistent with our standard approach, we are not including in this final rule the description and discussion of applications that were withdrawn or that are ineligible for consideration for FY 2023 due to not meeting the July 1 deadline, described previously, which were included in the FY 2023 IPPS/LTCH PPS proposed rule. We are also not summarizing nor responding to public comments received regarding these withdrawn or ineligible applications in this final rule.

a. Alternative Pathway for Breakthrough Devices

(1) 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 technology received FDA De Novo marketing authorization on May 17, 2022 with an indication for use as a bone void filler in skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement (standard treatment approach to a bone infection) as part of the surgical treatment of osteomyelitis in defects in the extremities. 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 XW0V0P7 (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 10cc. 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 noted previously, 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 stated in the proposed rule that 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 proposed to approve CERAMENT® G for new technology add-on payments for FY 2023.

Based on preliminary information from the applicant at the time of the proposed rule, the total cost of CERAMENT® G for a typical patient was determined to be $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 noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% 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 proposed 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 invited 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.

Comment: We received a public comment urging CMS to finalize its proposals to approve new technology add-on payments for multiple technologies for FY 2023, including CERAMENT G®, in order to foster innovation and make life and ability-saving devices more readily available to patients.

Response: We appreciate the comment.

Based on the information provided in the application for new technology add-on payments, we believe CERAMENT® G meets the cost criterion. The technology received FDA De Novo marketing authorization on May 17, 2022 with an indication for use as a bone void filler in skeletally mature patients as an adjunct to systemic antibiotic therapy and surgical debridement (standard treatment approach to a bone infection) as part of the surgical treatment of osteomyelitis in defects in the extremities, that is covered by its Breakthrough Device designation. Therefore, we are finalizing our proposal to approve new technology add-on payments for CERAMENT® G for FY 2023. We consider the beginning of the newness period to commence on May 17, 2022, the date on which the technology received its FDA De Novo marketing authorization for the indication covered by its Breakthrough Device designation.

Based on the information available at the time of this final rule, the cost per case of CERAMENT® G is $7,567.00. 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 finalizing that the maximum new technology add-on payment for a case involving the use of CERAMENT® G is $4,918.55 for FY 2023 (that is, 65% of the average cost of the technology). Cases involving the use of CERAMENT® G that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7).

(2) GORE® TAG® Thoracic Branch Endoprosthesis (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 anticipated 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). We noted in the proposed rule that since the indication for which the applicant anticipated receiving premarket approval was included within the scope of the EAP designation, it appeared that the proposed PMA indication was appropriate for new technology add-on payment under the alternative pathway criteria. Subsequently, the applicant received premarket approval on May 13, 2022 with an indication for endovascular repair of lesions of the descending thoracic aorta, while maintaining flow into the left subclavian artery, in patients who are at high risk for debranching subclavian procedures and who have appropriate anatomy, which is within the scope of the EAP designation.

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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28324), we noted 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 questioned 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 noted the applicant listed two ICD-10-PCS codes (03S43ZZ and 03SQ3ZZ) in their analysis which are percutaneous procedures and questioned whether the inclusion of these codes was appropriate as the devices currently used to repair the aortic arch require the creation of a bypass performed in an open surgery. We also questioned whether the cases that the applicant identified were appropriately representative of cases eligible for treatment with GORE® TAG® TBE and requested additional information to clarify this issue.

Subject to the applicant adequately addressing these concerns, we stated in the proposed rule that we agreed that the technology meets the cost criterion and therefore proposed 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 the proposed rule, the per-patient anticipated hospital cost of the GORE® TAG® TBE device was $42,780. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% of the average cost of the technology, or 65% of the costs in excess of the MS-DRG payment for the case. In the proposed rule, we stated that in the event we were to 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 invited 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.

Comment: The applicant provided comments and a revised cost analysis in response to CMS' concerns identified in the proposed rule. With respect to the concern that the charges removed for prior technology were based on length of stay in a small study conducted at a single institution, the applicant stated that the pivotal trial for the GORE® TAG® TBE device was conducted at 40 U.S. sites and the separate outcome sub-study was based at a site that had the highest numbers of enrolled participants. In addition, the applicant stated that the length of stay and length of time in the ICU was similar for all sites in the clinical trial and therefore the cost estimates from a single institution are reflective of the cost of care provided at other sites.

With respect to the concern about results being generalizable to the greater Medicare population, the applicant stated that the median age of outcome sub-study participants was 65 years, and that half of all participants were of Medicare-eligible age. The applicant also noted that the outcome sub-study population (24 GORE® TAG® TBE patients and 31 SR-TEVAR patients) represented more than a quarter of a total of 202 GORE® TAG® TBE-eligible cases in the FY 2019 Medicare claims. Per the applicant, this sample of the 202 eligible cases in the FY 2019 Medicare claims is large enough to appropriately estimate the costs associated with the GORE® TAG® TBE procedure and that, based on the median age, the estimate is generalizable to the Medicare population.

With respect to the concern as to whether the cases identified by the applicant were appropriately representative of cases eligible for treatment with GORE® TAG® TBE, the applicant stated that the GORE® TAG® TBE device replaces two separate operating room procedures: a left subclavian artery (SA) bypass procedure, usually an open surgery, and a percutaneous thoracic endograft implant procedure, commonly referred to as SR-TEVAR, because it contains a branched element that is inserted into the left subclavian artery thereby maintaining blood flow and eliminating the need for a SA bypass procedure. The applicant stated that the outcome sub-study provides information on resource use differences between patients undergoing TBE procedures compared to a combination of surgical revascularization and thoracic endograft implant. The applicant stated that including cases that involved both procedures (that is, the SA bypass procedure and the TEVAR procedure) in the cost criterion analysis and removing 100% of device charges as well as other related service charges (19% of OR charges and 48% of routine care charges) better reflects the estimate of the GORE® TAG® TBE standardized charges. In the updated analysis, the applicant removed 100% of all device charges from the MedPAR cases compared to removing 80%, which it did in its original application.

The applicant further indicated that while every patient presentation of aortic disease is unique in length, type, and severity of disease, all patients in the outcome sub-study had serious aortic disease that needed repair in the left subclavian artery, even if cases were characterized as an elective surgery for purposes of the study reporting. The applicant also stated that the ends of the device must exceed the length of the diseased aorta on both ends, the proximal and distal locations of the implanted device varied, depending on the length of the aortic disease, and as such, the devices can span several zones. The applicant further noted that all cases, emergent or elective, had similar resource use.

With respect to the concern that the revenue codes used to identify and remove intensive care unit charges were not specified, the applicant stated that it used CMS revenue codes 020x and 021x to identify intensive care unit charges in the rate-setting methodology. We note that revenue code descriptions for 021x and 021x are Intensive Care Unit and Coronary Care Unit, respectively.

With respect to our inquiry about the inclusion of two codes for percutaneous procedures, the applicant explained that it included the two percutaneous approach codes in its original cost analysis in order to pick up all bypass surgery codes. The applicant then explained that eliminating these two codes from the inclusion criteria for the revised analysis excluded only one case. The applicant noted that removing the one percutaneous SA bypass case limited the revised cost criterion analysis to only those cases where the subclavian artery bypass surgery was coded as an open approach.

The applicant reported that the updated cost criterion analysis resulted in a threshold amount of $217,080 and a new standardized charge estimate of $377,857. The applicant stated that the new standardized charge estimate still greatly exceeds the new technology add-on payment threshold and the GORE® TAG® TBE device meets the cost criterion requirement.

The applicant also stated that upon further consultation with clinical experts, the better combination of ICD-10-PCS codes to identify cases utilizing the technology would be 02VW3DZ (Restriction of thoracic aorta, descending with intraluminal device, percutaneous approach), in combination with 02VX3EZ (restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach) and requested that these codes be used to identify the GORE® TAG® TBE for purposes of new technology add-on payment instead of the codes included in the proposed rule.

Another commenter familiar with the applicant's cost study submitted a public comment reiterating the applicant's statements regarding the characteristics of the single institution upon which the applicant's cost analysis was based, disease severity in the patient population, the uniform requirement of Zone 2 repair despite variation of distal zones treated, and generalizability of the study population to the Medicare population. Based on the results achieved for patients receiving the TBE graft as compared to the TEVAR and subclavian artery bypass, this commenter recommended that CMS approve the GORE® TAG® TBE for new technology add on payments.

Response: We thank the commenters for their comments and appreciate the additional clarification regarding the cost criterion. Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the GORE® TAG® Thoracic Branch Endoprosthesis (TBE) meets the cost criterion. GORE® TAG® TBE received marketing authorization from FDA on May 13, 2022 for the indication covered by its Breakthrough Device designation for endovascular repair of lesions of the descending thoracic aorta, while maintaining flow into the left subclavian artery, in patients who are at high risk for debranching subclavian procedures and who have appropriate anatomy. Therefore, we are finalizing our proposal to approve new technology add-on payments for the GORE® TAG® TBE for FY 2023 and we consider the beginning of the newness period to commence on May 13, 2022, which is the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation.

Based on the information at the time of this final rule, the cost per case of the GORE® TAG® TBE is $42,780. 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 finalizing that the maximum new technology add-on payment for a case involving the use of the GORE® TAG® TBE is $27,807 for FY 2023 (that is, 65% of the average cost of the technology). Cases involving the use of GORE® TAG® TBE that are eligible for new technology add-on payments will be identified by ICD-10-PCS codes: 02VW3DZ (Restriction of thoracic aorta, descending with intraluminal device, percutaneous approach) in combination with 02VX3EZ (Restriction of thoracic aorta, ascending/arch with branched or fenestrated intraluminal device, one or two arteries, percutaneous approach).

(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 stated 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. Subsequently, the iFuse Bedrock Granite Implant System received 510(k) clearance from FDA on May 26, 2022 (K220195) 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 and was granted approval to identify the iFuse Bedrock Granite Implant System using the following procedure codes effective October 1, 2022:

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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28327), we agreed with the applicant that iFuse Bedrock Granite Implant System meets the cost criterion and therefore we proposed 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 the proposed rule, the per-patient anticipated hospital cost of the iFuse Bedrock Granite Implant System was $15,120. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% 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 proposed 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 invited 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.

Comment: We received a few comments supporting CMS' proposal to approve the iFuse Bedrock Granite Implant System for new technology add-on payments. One of the commenters also agreed with CMS that the technology meets the cost criterion.

Response: We appreciate the input from the commenters.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the iFuse Bedrock Granite Implant System meets the cost criterion. The iFuse Bedrock Granite Implant System received marketing authorization from FDA on May 26, 2022 for the indication covered by the Breakthrough Device designation, 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. Therefore, we are finalizing our proposal to approve new technology add-on payments for the iFuse Bedrock Granite Implant System for FY 2023, and we consider the beginning of the newness period to commence on May 26, 2022, which is the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation.

Based on the information at the time of this final rule, the cost per case of the iFuse Bedrock Granite Implant System is $15,120. 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 finalizing that the maximum new technology add-on payment for a case involving the use of the iFuse Bedrock Granite Implant System is $9,828 for FY 2023 (that is, 65% of the average cost of the technology). Cases involving the use of the iFuse Bedrock Granite Implant System that are eligible for new technology add-on payments will be identified by one of the following ICD-10- PCS codes:

(4) Thoraflex^TM Hybrid Device

Terumo Aortic submitted an application for new technology-add on payments for the Thoraflex^TM Hybrid Device 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 received FDA marketing authorization on April 19, 2022 for the same indication as the Breakthrough Device designation. 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.

In the proposed rule, we stated that we agree with the applicant that the Thoraflex^TM Hybrid Device meets the cost criterion and therefore proposed 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 the proposed rule, the cost of the Thoraflex^TM Hybrid Device was $35,000 per patient. We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% 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 proposed 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 invited 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 the 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.

Comment: The applicant submitted a public comment expressing support for the approval of the Thoraflex^TM Hybrid Device for the new technology add-on payment for FY 2023. The applicant emphasized that both 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) need to be reported concurrently to appropriately describe the implant procedure for the Thoraflex^TM Hybrid Device.

Response: We appreciate the applicant's support.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the Thoraflex^TM Hybrid Device meets the cost criterion. The Thoraflex^TM Hybrid Device received marketing authorization from FDA on April 19, 2022 for the indications covered by its Breakthrough Device designation 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. Therefore, we are finalizing our proposal to approve new technology add-on payments for the Thoraflex^TM Hybrid Device for FY 2023, and we consider the beginning of the newness period to commence on April 19, 2022, which is the date on which the technology received FDA marketing authorization for the indication covered by its Breakthrough Device designation.

Based on the information at the time of this final rule, the cost per case of the Thoraflex^TM Hybrid Device is $35,000 per patient. 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 finalizing that the maximum new technology add-on payment for a case involving the use of the Thoraflex^TM Hybrid Device is $22,750 for FY 2023 (that is, 65% of the average cost of the technology). Cases involving the use of the Thoraflex^TM Hybrid Device that are eligible for new technology add-on payments will be identified by the ICD-10-PCS code X2RX0N7 (Replacement of thoracic aorta arch with branched synthetic substitute with intraluminal device, new technology group 7) in combination with the ICD-10-PCS code X2VW0N7 (Restriction of thoracic descending aorta with branched synthetic substitute with intraluminal device, new technology group 7).

(5) 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 became commercially available on April 29, 2022 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 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 and was granted approval for the following procedure code effective October 1, 2022: X0HQ3R8 (Insertion of neurostimulator lead with paired stimulation system into vagus nerve, percutaneous approach, new technology group 8).

The applicant also provided the ICD-10-CM diagnosis codes in the table that follows. 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 ²⁰⁴ includes monoplegia and hemiplegia as a sequela of infarction (stroke), and delineates codes based upon stroke type (hemorrhagic versus ischemic). Therefore, the applicant stated that the ICD-10-CM diagnosis codes in the following table 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, noted previously, 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 would 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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28350), we agreed with the applicant that the ViviStim® Paired VNS System meets the cost criterion and therefore proposed 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 the proposed rule, the total cost of the ViviStim® Paired VNS System to the hospital was $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, we stated that it appeared that capital components were not included in the cost of the technology. We welcomed public comment on the cost information provided by the applicant for the purpose of calculating the new technology add-on payment amount.

We noted that the cost information for this technology may be updated in the final rule based on revised or additional information CMS receives prior to the final rule. Under § 412.88(a)(2), we limit new technology add-on payments to the lesser of 65% 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 proposed 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 invited 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.

Comment: We received a few comments supporting our proposal to approve new technology add-on payments for FY 2023. The applicant also noted that the ViviStim® Paired VNS System received FDA premarket approval on August 27, 2021; however, a manufacturing delay prevented market availability of the device until April 29, 2022. The applicant requested that CMS begin the newness period for the Vivistim® Paired VNS System using the latter market availability date of April 29, 2022. The applicant also supported our proposed maximum new technology add-on payment amount.

Response: We thank the commenters for their support and feedback. We agree that the newness date for this technology is the date on which ViviStim® Paired VNS System became available on the market, April 29, 2022. We note that though, generally, our policy is to begin the newness period on the date of FDA approval or clearance, we may consider a documented delay in the technology's market availability in our determination of newness (77 FR 53348 and 70 FR 47341).

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe the ViviStim® Paired VNS System meets the cost criterion. Therefore, we are finalizing our proposal to approve new technology add-on payments for the ViviStim® Paired VNS System for FY 2023, and we consider the beginning of the newness period to commence on April 29, 2022, which is when the technology became commercially available for the indication covered by its Breakthrough Device designation, 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.

Based on the information at the time of this final rule, the cost per case of the ViviStim® Paired VNS System is $36,000. According to the applicant, this cost represents the entire per-patient cost of the system to hospital providers, specifically for the implantable pulse generator and stimulation lead. 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 finalizing 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). Cases involving the use of the ViviStim® Paired VNS System that are eligible for new technology add-on payments will be identified by the ICD-10-PCS procedure code X0HQ3R8 (Insertion of neurostimulator lead with paired stimulation system into vagus nerve, percutaneous approach, new technology group 8).

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 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 in the third quarter of CY 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).

The applicant applied for and received a unique ICD-10-PCS procedure code to identify cases involving the administration of DefenCath^TM in 2022. Effective October 1, 2022, DefenCath^TM administration can be identified by ICD-10-PCS procedure XY0YX28 (Extracorporeal introduction of taurolidine anti-infective and heparin anticoagulant, new technology group 8).

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/LTCH PPS 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 previously listed 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 following table 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 following table 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.

In the proposed rule, we agreed that the technology meets the cost criterion and therefore proposed to approve DefenCath^TM for new technology add on payments for FY 2023. We stated in the proposed rule that we expected the applicant to submit its cost per case information prior to the final rule, and that we would provide an update regarding the new technology add-on payment amount for the technology in this final rule. We stated that 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 invited 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.

Comment: The applicant submitted a public comment in support of CMS' proposal to approve new technology add-on payments for FY 2023 for DefenCath^TM. The applicant requested that CMS correct erroneous information from the proposed rule, stating that the FDA new device approval date is expected later in the third quarter of 2022, rather than by July 1, 2022, as stated in the proposed rule. The applicant also provided the anticipated cost of DefenCath^TM, which the applicant states is $5,850 to the hospital, per patient.

Response: We appreciate the applicant's support and provision of the cost information. We appreciate the applicant's clarification that the FDA new device approval date is anticipated late in the third quarter of CY 2022 rather than by July 1, 2022 as stated in the proposed rule. This discussion now accurately reflects the anticipated timeline for FDA approval.

Comment: A commenter expressed concern that without information on the cost of DefenCath^TM at the time of the publication of the proposed rule, it is difficult to comment positively or negatively on the cost of the technology. This commenter also expressed concern that, without FDA approval at the time of the publication of the proposed rule, it is likewise difficult to comment on the potential impact of the technology. The commenter raised concerns that applicants under the Alternative Pathway for Transformative New Devices and Alternative Pathway for Certain Antimicrobial Products do not have to meet the substantial clinical improvement criterion under 412.87(d) and recommend that CMS incorporate substantial clinical improvement in its evaluation of applicants under the alternative pathways.

Response: We thank the commenter for its input. As discussed in FY 2020 IPPS/LTCH PPS final rule (84 FR 42294 through 42295), we believe that although there may be less certainty of clinical benefit or data representing the Medicare beneficiary population as compared to the evidence standard for substantial clinical improvement under the current new technology add-on payment policy pathway, the benefits of providing early access to critical and life-saving new cures and technologies that improve beneficiary health outcomes support the alternative pathway. We also stated our belief that the evidence base to demonstrate substantial clinical improvement may not be fully developed at the time of FDA marketing authorization. We refer the reader to the FY 2020 IPPS/LTCH PPS final rule for a further discussion of the development of these alternative pathways.

With respect to cost information, consistent with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, we assess the adequacy of the MS-DRG prospective payment rate otherwise applicable to discharges involving the new medical service or technology by evaluating whether the charges for cases involving the new technology exceed certain threshold amounts. The MS-DRG threshold amounts 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 final rule on the CMS website at: https://www.cms.gov/medicare/acute-inpatient-pps/fy-2022-ipps-final-rule-home-page. As discussed in the proposed rule, we agreed that based on the applicant's cost analysis, the final inflated case-weighted average standardized charge per case for the technology exceeded the applicable average case-weighted threshold amount. We also note that applicants for new technology add-on payment are not required to have FDA approval by the time of the publication of the proposed rule. In addition, and as discussed in the proposed rule and later in this final rule, where cost information is not yet available at the time of the proposed rule, 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.

Based on the information provided in the application for new technology add-on payments, and after consideration of the public comments we received, we believe DefenCath^TM (a single dose vial, solution of Taurolidine (13.5 mg/mL) and Heparin (1000 USP Units/mL)) meets the cost criterion. Therefore, we are granting a conditional approval for DefenCath^TM for new technology add-on payments for FY 2023, subject to the technology receiving FDA marketing authorization by July 1, 2023 (that is, by July 1 of the fiscal year for which the applicant applied for new technology add-on payments (2023)). In the proposed rule we stated 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) (87 FR 28350). If DefenCath^TM receives FDA marketing authorization before July 1, 2023, the new technology add-on payment for cases involving the use of this technology would be made effective for discharges beginning in the first quarter after FDA marketing authorization is granted. If FDA marketing authorization is received on or after July 1, 2023, no new technology add-on payments will be made for cases involving the use of DefenCath^TM for FY 2023.

Based on the information at the time of this final rule, the cost per case of the DefenCath^TM is $5,850. Under § 412.88(a)(2) 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. As a result, we are finalizing that, subject to DefenCath^TM receiving marketing authorization by July 1, 2023, the maximum new technology add-on payment for a case involving the use of DefenCath^TM will be for $4,387.50 for FY 2023 (that is, 75% of the average cost of the technology). Cases involving the use of DefenCath^TM that are eligible for new technology add-on payments will be identified by ICD-10-PCS procedure code XY0YX28 (Extracorporeal introduction of taurolidine anti-infective and heparin anticoagulant, new technology group 8).

c. Other Comments

We received several public comments on new technology add-on payment alternative pathway recommendations that were outside the scope of the proposals included in the FY 2023 IPPS/LTCH PPS proposed rule and we are therefore not addressing them in this final rule. We appreciate these comments and may consider them for possible proposals in future rulemaking.

8. 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, as noted in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28353 through 28355), CMS continued to receive comments from interested parties, 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 noted that over the past 3 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.

As discussed in the proposed rule, 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.

We stated that interested parties had 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 noted 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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28353 through 28355), we stated that we believed that our previous policies regarding the use of NDCs to identify the administration of certain therapeutic agents could be consistently applied toward broader future usage of the NDCs to identify therapeutic agents eligible for the new technology add-on payment. Additionally, we stated that we believed 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 discussed further in this section of the proposed rule and this final rule, we proposed 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 stated that we anticipated 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 stated that we also expected that the 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. We stated it would also reduce efforts associated with determining the disposition of procedure codes describing therapeutic agents that have reached the end of their 3-year new technology add-on payment timeframe.

Furthermore, we stated that we believed that NDCs are a viable alternative to Section X codes for the administration of the new technology add-on payment for therapeutic agents. We stated that we believed inpatient hospital staff are familiar with using NDCs, and as stated earlier, we have 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 proposed a transitional period for FY 2023. During this transitional period, we proposed to utilize NDCs to identify the administration of therapeutic agents for new technology add-on payment purposes. However, we also proposed to 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 proposed to 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 the 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 proposed to 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 proposed 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, we stated 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 stated that 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 further proposed 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 proposed to 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 stated we would continue to use the existing ICD-10-PCS procedure codes to identify the administration of those therapeutic agents. We invited 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.

Comment: We received multiple comments related to the proposed policy. A commenter stated that the ICD-10-PCS coding system is not intended to represent unique therapeutic agents and is not an appropriate code set for this purpose. The commenter also stated that ICD-10-PCS codes have often been created unnecessarily because the therapeutic agent was not approved for a new technology add-on payment, and that in the absence of a new technology add-on payment, administration of therapeutic agents is not typically coded in the hospital inpatient setting. The commenter stated that assignment of ICD-10-PCS codes by coding professionals solely for new technology add-on payment purposes, for services that would not otherwise be coded in the inpatient setting, is administratively burdensome. Another commenter mentioned that using FDA's NDCs would allow for superior data capture methods and eliminate manual intervention to complete coding. Another commenter stated that given the likelihood of continued therapeutic innovation, it viewed this proposed policy as a path toward earlier access to these therapies by Medicare beneficiaries. A commenter stated that as hospitals typically capture all NDCs related to a patient stay within their electronic medical record systems, these codes could easily be included with claims. The commenter requested that CMS configure its system to accept all NDC codes, not just those related to products eligible to receive new technology add-on payments, to significantly reduce administrative burden for hospitals.

Several commenters also suggested that if CMS finalizes this policy, we should establish a process to promote and educate hospitals on this policy change to ensure that they are prepared for billing under the new process, including clearly indicating which NDC(s) should be used to identify a particular therapeutic agent for new technology add-on payment purposes, as some therapeutic agents may have more than one applicable NDC. Multiple commenters also urged CMS to extend the proposed transitional process from one year to two years, that is, through FY 2024, with NDC utilization beginning in FY 2025. Some commenters also suggested that during this two-year transition period, CMS should analyze claims data and obtain feedback from interested parties to understand hospitals' usage of NDCs, prior to eliminating the process for using ICD-10-PCS codes.

A commenter expressed support for our proposal to continue use of ICD-10-PCS codes for cases assigned to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies) because hospitals may not have had experience with submitting NDCs as part of hospital inpatient claim forms for such cases. Another commenter stated that it was concerned with our proposal to use NDCs in lieu of ICD-10-PCS codes for allogeneic HSCT donor sources because providers, such as hospitals, primarily report ICD-10-PCS codes and are unfamiliar with NDCs for these donor sources. The commenter requested that CMS expand our proposed exceptions to the use of NDCs for therapeutic agents to also include the unique ICD-10-PCS codes describing the infusion of therapeutics that begin with the characters XW1, as well as any future advanced cell therapy donor sources.

A commenter explained that it disagreed with creating individual ICD-10-PCS codes for specific drugs because it believed that ICD-10-PCS nomenclature is for surgical procedures and not specific drugs. The commenter expressed that coders do not routinely assign ICD-10-PCS codes for example, for drugs, radiology procedures, and lab tests, and that this would be an administrative burden on coders, as well as billers, to ensure these drugs are identified through ICD-10-PCS coding. The commenter stated that it would be more cost effective to identify these specific drugs by their NDC number and not an ICD-10-PCS code to ensure adequate reimbursement. Another commenter recommended that CMS reevaluate our proposal to transition to the use of NDCs to identify the administration of a therapeutic agent for purposes of new technology add-on payment because the commenter stated that it would add undue burden on coders who typically do not assign ICD-10-PCS codes for drug administration for inpatient cases. The commenter also requested that CMS pursue broader inpatient claims reporting improvements.

Response: We appreciate the input from the commenters on our proposed use of NDCs to identify cases involving use of therapeutic agents approved for new technology add-on payment and have taken these comments into consideration, as discussed later in this section.

Comment: A couple of commenters were grateful to CMS for listening to feedback from interested parties and putting this proposal forward, but had significant questions about implementation and existing hospital resources for CMS to address prior to finalizing the use of NDCs, and recommended that CMS retain the ICD-10-PCS coding for new technology add-on payments. Other commenters stated that CMS does not currently require NDC reporting on Medicare inpatient claims, except in rare cases of previous new technology add-on payments, and that reporting NDCs for only the occasional drug, and on an inpatient claim, would create new operational burdens for hospitals, especially smaller and rural hospitals, that do not currently have a system for concurrent scanning of NDCs upon administration of therapeutic agents. Another commenter stated that some hospitals already have systems that would provide an automated method of capturing NDC codes on inpatient claims, but that other facilities, will face new and laborious manual processes despite reporting NDCs on certain outpatient claims. A commenter noted that a recent analysis of hospitals by Deloitte found that incorrect or missing NDC data had caused inaccurate billing. The commenter further stated that it believed the process to educate hospitals and subsequently require the use of NDCs could possibly create a greater administrative burden than it would save. Some commenters also noted that these burdens would come at a time when hospitals continue to address resource and staffing constraints resulting from the COVID-19 PHE. A commenter explained that the transition to NDCs may create complexity in tracking patient cases, which may make it difficult to perform further valuable research on quality of care issues and health outcomes. Another commenter stated that it believed any changes to the current process should be done in a careful manner to ensure that CMS' efforts to move to a more streamlined system do not have any inadvertent implications on claims data.

A commenter stated that because there are multiple proposed exceptions to the use of NDCs, the streamlining and burden reduction of this policy may be limited. Another commenter stated that this proposal would unnecessarily require two separate standards for devices and drugs.

A commenter stated that hospitals are faced with increasingly complex requirements to report drugs to secure reimbursement with variations based upon code sets and patient status. The commenter stated that for inpatient claims there are two ways of reporting drugs for additional payment: hemophilia products reported with HCPCS codes and billed units per date of service (DOS), and new technology add-on payment-eligible drugs reported with a single ICD-10-PCS code independent of number of doses or days administered. The commenter further stated that outpatient claims are reported with HCPCS code and billed units per DOS, with the exception of self-administered oral drugs that were not assigned HCPCS codes, as well as specific new drugs and biologicals billed under the HCPCS Code C9399 (Unclassified drug or biological) and for which the commenter stated that CMS requires that the drug name, dose, amount of waste and NDC number be manually added to the remarks section of the claim. The commenter stated that hospital pharmacy and billing IT systems need remediation with complex maintenance in order to accurately bill drugs based upon the type of drug, whether it is eligible for new technology add-on payment and the status of the patient, and that many hospitals currently do not bill some new technology add-on payment-eligible drugs due to the cumbersome process and amount of the anticipated reimbursement, which the commenter stated could lead to inadvertent billing errors or omissions when a business decision is made that the anticipated payment will be less than the cost to remediate IT systems and maintain these complex billing rules. The commenter further stated that inaccurate data could lead to erroneous future rate-setting by CMS when data is missing from claims. The commenter recommended that CMS instead consider that new technology add-on payment-eligible drugs be billed on inpatient claims with the same instructions as currently used to report hemophilia products, with HCPCS codes and billing units by DOS. The commenter explained that having one way to bill drugs on inpatient and outpatient claims would reduce IT programming expense and reduce errors with increased standardization. The commenter requested that the CMS HCPCS Working Group assign HCPCS codes to items eligible for new technology add-on payment, even if they normally would not be assigned a HCPCS code. The commenter stated that as HCPCS codes are assigned quarterly, this would eliminate the need for special notification if new NDCs are marketed after the implementation of the new technology add-on payment status and before the next rule-making cycle. The commenter further recommended that if CMS were to finalize its proposal to use NDCs, CMS should work with the National Uniform Billing Committee (NUBC) to clarify how 5010 HIPAA transaction standard units of measure and billing quantities should be calculated and reported. The commenter also recommended that CMS work with NUBC to require all payers to accept NDCs on inpatient claims to avoid payer-specific instructions, which require complex and expensive IT programming.

This commenter and several other commenters also requested CMS provide additional information in rulemaking on how NDCs would be utilized: if a NDC may be reported on multiple DOS, or if multi-day therapies must be combined into a single line; whether units of measures and quantities would be required to be reported; if this policy would apply specifically for therapeutic agents eligible for new technology add-on payment or for all therapeutic agents used in Medicare; how a drug product with multiple NDCs would be handled; and how CMS would publish available NDCs for analysis by interested parties and update NDCs if the codes were changed by FDA post-rulemaking.

Several commenters also emphasized the complexity of information transfer from the 10-digit FDA-assigned NDC number format to the 5010 HIPAA transaction standard required 11-digit NDC number format used for billing on claims, especially when trying to reconstitute the NDC back to its FDA standard. Other commenters noted future concerns with potential changes in FDA assignment of NDC numbers from 10-digits to a new 16-digit format, as well as the modifications needed to the 837I/UB-04 forms to accommodate this change.

In addition, commenters highlighted issues regarding a lack of national standards for correctly coding drugs using NDCs, as well as a lack of acceptance of NDCs by all payers, on inpatient claims. A commenter further stated that without specific guidance, current NDC reporting is often inaccurate, resulting in increasing claim rejections for an invalid NDC number. A couple of commenters explained that currently, Form Locator 43 (FL43) on the UB-04 form is not unique to only the NDC number. A commenter stated that they believed that the proposed usage of this field may not be allowed because FL43 is intended for the reporting of NDCs for Medicaid drug rebates, but not for the new technology add-on payment. Some commenters also stated that there was a potential for claim line limits to be reached if multiple NDCs were reported on one claim. These commenters believed that this policy change should be considered as part of broader inpatient claims reporting improvements, with another commenter further stating that grouping together necessary changes to 837I/UB-04 claim forms, alongside updated instructions on NDC reporting for inpatients, would minimize short-term burden as well as data inaccuracies.

Due to these concerns, a few commenters suggested that CMS further study the feasibility of this proposed policy change though a Technical Advisory Group (TAG), consisting of industry experts, before finalizing and implementing this policy. A commenter further recommended that other suggestions noted by CMS, such as the 3E0 Administration Table within ICD-10-PCS code set and RxNorm, along with other options, such as the HCPCS code set or a revision to the process that allows the ICD-10-PCS code to be pending assignment until the finalization of the new technology add-on payment determination, should be explored by the TAG and presented in an upcoming proposed rule. Another commenter recommended that CMS address alignment with timing for U.S. implementation of ICD-11 codes.

Response: We appreciate the input from commenters on our proposed use of NDCs to identify cases involving use of therapeutic agents approved for new technology add-on payments. We acknowledge that interested parties have continued to share concerns regarding our current use of the ICD-10-PCS classification system to identify therapeutic agents eligible for new technology add-on payments. As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28353 through 28355), we had anticipated that our proposal to use the NDC, with its previously established use as an alternative code set for the purposes of administering the new technology add-on payment, 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. We had also expected that this proposed change would address concerns regarding the creation of duplicative codes within the ICD-10-PCS procedure coding system, 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.

However, as previously summarized, commenters have shared concerns that our proposed use of NDCs for this purpose may impose new administrative burdens to hospitals. For example, commenters indicated that hospital pharmacy and billing IT systems that are not currently required to use NDCs for billing on inpatient Medicare claims may need to use manual processes to report NDCs for the purposes of new technology add-on payments, because they may not have existing automated systems in place.

Furthermore, based on review of comments, it is unclear to us the extent to which hospitals and health care providers would utilize NDCs during a transition period in FY 2023, especially if they believe adding these manual processes may result in inadvertent billing errors for therapeutic agents eligible for new technology add-on payments, which commenters state may be further compounded by staffing shortages due to the COVID-19 pandemic. This may limit our ability to obtain comprehensive feedback from interested parties during the transition period, as suggested by commenters, or perform an analysis of claims data to assess if NDCs are being used, prior to fully transitioning to using NDCs for this purpose.

Therefore, after careful consideration of the concerns raised by commenters, we are not finalizing this proposed policy, and will instead reassess this policy proposal in future rulemaking. We believe that this will allow for adequate time to evaluate and consider the issues raised by commenters. We understand that commenters would be interested in further details on how NDCs would be operationalized for the purposes of any such policy change, along with a process to educate hospitals on these changes to ensure accurate billing throughout a transition period. We appreciate that commenters have raised a number of important questions on our proposal, and we will continue to engage the public in these conversations.

9. Proposal to Publicly Post New Technology Add-On Payment Applications

As noted in section II.F.1.f. of the preamble of this final 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 final 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 stated in the proposed rule that 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 of the proposed rule and this final rule, we stated that 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 stated that 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 proposed in the FY 2023 IPPS/LTCH PPS proposed rule to publicly post online future applications for new technology add-on payments. Specifically, beginning with the FY 2024 application cycle, we proposed to post online the completed application forms and certain related materials (for example, attachments, uploaded supportive materials) that we receive from applicants. Additionally, we proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 invited 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 noted 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 noted 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. We further stated that 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. We emphasized that 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 stated that 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.

We also stated that 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 stated that we do not expect added burdens on prospective applicants as a result of this proposal since we did not propose 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 the proposed policy change is to increase accuracy, transparency, and efficiency for both CMS and stakeholders.

In connection with the proposal to post the new technology applications online, we stated that 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 stated that 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 stated that 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 noted we 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 stated 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. We stated that 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 sought 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.

Comment: We received many public comments regarding this policy proposal. Overall, commenters appreciated the agency's aims in making the proposal of fostering greater transparency and public input, while mitigating increased burdens and workloads associated with the rising complexity and number of new technology add-on payment applications submitted annually. A few commenters were fully supportive of our proposal, while a majority of the remaining commenters supported the proposal, while suggesting modifications to address concerns about the disclosure of certain information. In particular, these commenters were encouraged by CMS' proposal not to include cost and volume information as part of the application materials that would be posted online, but stated that the proposal did not go far enough to protect potentially confidential, commercially sensitive information (for example, biologics license applications (BLA) or nonpublic studies), and recommended that CMS modify the proposal, offering suggestions for ensuring that such information not be posted online.

Some commenters requested that CMS bifurcate the application to allow a section for information that would not be posted online, afford applicants the opportunity to submit a separate file of confidential information, or allow information in the application to be redacted. Other commenters requested that CMS continue the practice of allowing the applicant to mark sensitive proprietary or trade secret information as confidential and not for posting online. Commenters stated that if the full application were posted online, applicants may refrain from submitting certain information necessary to support the application and meet the new technology add-on payment criteria (for example, clinical information cited but not yet in the public domain and prior to FDA approval and information concerning newness, such as engineering specifics), resulting in applications that are less complete or robust, and therefore, would compromise the goals of the new technology add-on payment process. Absent protection of this information, commenters stated that applicants could apply only after FDA approval, creating significant delays in new technology add-on payment approvals and subsequent beneficiary access.

Commenters also acknowledged that CMS generally does not consider confidential or proprietary information in making a determination whether a new technology meets the new technology add-on payment criteria, but believed there could be circumstances where such information could contribute to the agency's overall understanding of a technology, therapeutic area, or other relevant question that arises during its review (for example, pre-publication study results, which are kept from public release pending their publication in peer-reviewed scientific publications). Another commenter asserted that such data can help CMS better understand the technology and make a more informed decision about the application. The commenters also stated that, without protection of such information, companies would no longer be able to submit such studies until after publication. Commenters also stated that the proposed policy puts the onus on the applicant to not submit this type of information without recognizing that a comprehensive application might require such information.

Additionally, commenters were generally supportive of our proposal regarding copyrighted material.

Response: We appreciate the support for our proposal and our efforts toward greater transparency, public input, and streamlining of the new technology add-on application process. In making our proposal, we indicated that applicants should not submit proprietary or trade secret information with the application, to avoid such information being posted online as part of the application. Moreover, we proposed not to continue our practice of allowing applicants to mark such information to be withheld from disclosure given that our general policy is not to consider information that is marked confidential, proprietary, or trade secret when determining whether a technology meets the criteria for new technology add-on payments and given the need for the public to understand the information we are relying on in making such decisions. However, in consideration of public comments, we will provide a mechanism for applicants to submit confidential information, including proprietary or trade secret information, that will not be posted online. We anticipate providing a section on the application where applicants can submit confidential information separately from non-confidential information, or otherwise marking sections or questions in the application for which we will not post the information online. Applicants would still be required to submit cost and volume information in the application since this information is necessary; however, we will indicate in the application that cost and volume information will not be publicly posted but certain cost and volume information may still be summarized and discussed in the proposed rule, as is consistent with our current practice. Applicants should expect that, unless otherwise noted in the application that certain information will not be posted publicly (for example, contact information), everything else may be posted publicly. We emphasize that it is the applicant's responsibility to put confidential information only in the areas of the application designated for confidential information and not elsewhere in the application. However, as previously noted, applicants should consider what they include in a confidential section of the application given that we generally do not consider any information that cannot be made public when determining whether a technology meets the new technology add-on payment criteria. With respect to copyrighted information, we are finalizing our proposal without modification.

Additionally, we note that in the past we have received applications in which all the data and information in an application are marked as proprietary or confidential, or where certain information provided in support of the applicant's assertions regarding eligibility for the new technology add-on payment, for example a claim of substantial clinical improvement, is marked as such. In such cases, we reiterate that we generally will not be able to consider that data and information when determining whether a technology meets the criteria for new technology add-on payments. Our process provides for public input, so it is important that we provide the information needed for the public to meaningfully comment on the new technology add-on payment applications, including the applicants' assertions as to why a technology meets the new technology add-on payment criteria.

Comment: A commenter suggested that CMS further study ways to improve and streamline the annual review process. Another commenter requested that CMS defer a decision until the FY 2025 application cycle, allowing more time for interested parties and the agency to more thoroughly consider the implications and potential options to improve the efficiency and capacity of the review process.

Response: As we stated in the proposed rule, we proposed to publicly post online applications for new technology add-on payments to increase transparency, enable increased engagement with interested parties, and improve and streamline our evaluation process. Through this policy, we also are attempting to address some of the downsides and challenges of our current practice of summarizing the contents of the applications by restating or paraphrasing information, ensuring that sufficient information is provided in the proposed rule, and avoiding misrepresenting or omitting any of the applicants' claims. Posting the application and certain related materials online, subject to certain exceptions as discussed in this section, is a straightforward solution and strikes a balance between affording greater transparency and streamlining the application process. Given the reasons we have noted previously, the overall support for the proposal, and after considering the other feedback and suggestions by commenters, we are finalizing our proposal to post applications online, but as previously discussed, we will provide a mechanism for applicants to submit confidential information that would not be included as part of the application materials posted online. We also continue to welcome feedback on the application and review process, including potential options for improving the efficiency and capacity of this process, and we will continue to consider this issue.

Comment: A few commenters raised concerns about the timing of when applications would be posted online. A commenter questioned whether the agency planned to post all applications and related materials online at the same time, or on a rolling basis as they are received and deemed complete, noting that the specific timing of online posting would be highly relevant to applicants given that under the current process, applicants have the opportunity to amend or withdraw an application prior to presentation at the New Technology Town Hall or issuance of the proposed rule. The commenter believed that any new online posting process should preserve an applicant's ability to withdraw an application prior to posting, noting that many applicants submit materials before certainty that the technology meets the criteria for a new technology add-on payment, and with an intent to either supplement or withdraw the application during the cycle, because the annual application cycle often requires a submission well in advance of market introduction. Another commenter noted the fluidity and frequent updates of the data collection process in these applications, which may occur more quickly than the public notice and comment period and therefore, the information made available by CMS may not be current when it is released.

Response: We agree with the commenter that additional information related to the application may be submitted up until the release of the proposed rule and understand that posting the complete application and supplemental information all at once is preferable to continually updating the application information online. Accordingly, we are clarifying that under the final policy we are adopting, we will publicly post the application and any additional information received (with the exception of certain confidential, cost and volume, or copyrighted information as explained previously) at the time the proposed rule is published and no sooner. With regard to the commenter's concern about an applicant's ability to withdraw applications during the application process, we clarify that the policy we are finalizing would not change an applicant's ability to withdraw its application prior to the proposed rule being published and, in such cases, we would not post those applications online or address them in the proposed rule. In instances, however, where the applicant withdraws its application from consideration after the proposed rule is issued, the application would remain posted online (that is, corresponding to the published discussion of the application in the proposed rule).

After considering the comments, and for the reasons discussed, we are finalizing our proposal to publicly post online new technology add-on payment applications, including the completed application forms, certain related materials (as described previously), and any additional updated application information submitted subsequent to the initial application submission (except certain volume, cost and other information identified by the applicant as confidential), beginning with the application cycle for FY 2024, at the time the proposed rule is published. We are finalizing as proposed our proposal with respect to the treatment of copyrighted information. We are finalizing a modification to our proposal to provide a mechanism for applicants to submit confidential information that would not be posted online, such as in a separate section of the application, or by identifying particular questions for which the information submitted would not be publicly posted. We will not publicly post cost and volume information; however, consistent with our current practice, we will continue to summarize and discuss certain cost and volume information for the proposed rule and will indicate as such in the application. With the exception of information included in a confidential information section of the application, cost and volume information, and materials identified by the applicant as copyrighted and/or not otherwise releasable to the public, the contents of the application and related materials may be posted publicly. We further clarify that we will post these application materials at the time of the proposed rule and no sooner, and that we will not post applications that are withdrawn prior to publication of the proposed rule.

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

A. Background

1. Legislative Authority

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary adjust the standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2023 hospital wage index based on the statistical areas appears under section III.A.2. of the preamble of this final rule.

Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. CMS collects these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-3, Parts II, III, IV. The OMB control number for this information collection request is 0938-0050, which expired on March 31, 2022. A 30-day Federal Register notice published on June 22, 2022 (87 FR 37338) for the reinstatement of the information collection request. The comment period closed July 22, 2022. Section 1886(d)(3)(E) of the Act also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2023 is discussed in section II.B. of the Addendum to this final rule.

As discussed in section III.I. of the preamble of this final rule, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2023 is discussed in section II.A.4.b. of the Addendum to this final rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. (The OMB control number for approved collection of this information is 0938-0907, which expires on October 31, 2022. An extension of the information collection request is currently being developed. The public will have an opportunity to review and submit comments regarding the extension of this PRA package through a public notice and comment period separate from this rulemaking.) A discussion of the occupational mix adjustment that we are applying to the FY 2023 wage index appears under sections III.E. and F. of the preamble of this final rule.

2. Core-Based Statistical Areas (CBSAs) for the FY 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 are continuing 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.

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 final rule which discusses our permanent policy to apply a 5-percent cap on any decrease in a 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, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28359), we proposed to implement these FIPS code updates listed previously, effective October 1, 2022, beginning with the FY 2023 wage indexes. We proposed 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 FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963). We note that while the county update changes listed previously changed the county names, the CBSAs to which these counties map did not change from the prior counties. Therefore, we stated that 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. We invited public comments on our proposals.

We did not receive any public comments on our proposals. Therefore, for the reasons discussed earlier, we are finalizing our proposal, without modification, to implement the FIPS code updates listed previously, effective October 1, 2022, beginning with the FY 2023 wage indexes. As we proposed, we will use these update changes to calculate the area wage indexes in a manner that is generally consistent with the CBSA-based methodologies finalized in the FY 2005 IPPS final rule and the FY 2015 IPPS/LTCH PPS final rule. For FY 2023, Tables 2 and 3 associated with this final rule and the County to CBSA Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care Hospitals File posted on the CMS website reflect these FIPS code updates.

B. Worksheet S-3 Wage Data for the FY 2023 Wage Index

The 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 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 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 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. We did not receive any comments on the discussion in this section.

C. Verification of Worksheet S-3 Wage Data

The wage data for the FY 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 final rule, the OMB control number for this information collection request is 0938-0050, which expired on March 31, 2022. A 30-day Federal Register notice published on June 22, 2022 (87 FR 37338) for the reinstatement of the information collection request. The comment period closed July 22, 2022). 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 FY 2023 wage index includes FY 2019 data submitted to us as of the end of June 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 ratesettings, our policy principles with regard to the wage index include generally using the most current data and information available which is usually data on a 4-year lag (for example, for the FY 2022 wage index we used cost report data from FY 2018) . In section I.F. of the preamble of this final rule, we discuss our analysis of the best available data for use in the development of this FY 2023 IPPS/LTCH PPS final 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 proposed to use the FY 2019 wage data for the FY 2023 wage index.

Comment: A commenter expressed concern that the review and analysis of the FY 2019 wage data with regard to the impact by COVID-19 PHE was unclear. The commenter noted that the proposed rule did not reference tables or files for the public to review to confirm the agency's conclusion. The commenter also stated that it is confusing why CMS stated that the FY 2019 wage data was not impacted by the PHE given that the PHE did not begin until March 2020. The commenter encouraged CMS to share source information so stakeholders can better understand the agency's position, particularly given the review of data suggests that the cost of staffing has increased substantially.

Response: With regard to the commenter that stated that the PHE did not begin until March 2020, we note that the PHE was declared on January 31, 2020 in response to COVID-19. We also note that in March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

As previously stated, our review and analysis of the FY 2019 wage data shows that the data is not significantly impacted by COVID-19 PHE. We use the latest audited data to calculate the wage index. The latest audited data as of the FY 2023 rulemaking cycle is cost reports with a begin date during FY 2019. Because we use audited cost report data with a begin date in FY 2019 (on or after Oct 1, 2018 through on or before September 30, 2019), the latest cost report with a begin date in FY 2019 would be September 30, 2019 which would end typically 12 months later on September 30, 2020 (which would include some months in the PHE). The earlier the cost report begin date the less months of data are included in the period of the PHE. As noted in this section of this rule, there are 3,136 providers included in the wage index for FY 2023.

Approximately 1,300 hospitals have cost report data from FY 2019 that has some months of data touching the PHE in the period of January 31, 2020 through September 30, 2020. We note, while the PHE was declared January 31, 2020, the impact of the PHE began to be felt by hospitals beginning in March 2020 (which is re-enforced by the commenter that stated its belief that the PHE began in March 2020). Of these 1,300 hospitals:

• Approximately 80 hospitals have a cost reporting period of 04/01/2019 through 03/30/2020 (one month of data in the period between March 2020 through September 2020).
• Approximately 1,000 hospitals have a cost reporting period of 07/01/2019 through 06/30/2020 (four months of data in the period between March 2020 through September 2020).
• Approximately 85 hospitals have a cost reporting period of 09/01/2019 through 08/30/2020 (six months of data in the period between April 2020 through September 2020).

Based on the previous, approximately 37 percent of hospitals include data from the period of March 2020 through September 2020. The majority of these hospitals (1,000) have a cost report begin date of July 1, 2019 which accounts for approximately 32 percent of all hospitals cost report data; also, the majority of the cost report data for these hospitals (8 months) is not impacted by the PHE. Therefore, the overwhelming majority of hospitals data has no data from the period of March 2020 through September 2020. While some cost reports included some months of data from the period of March 2020 through September 2020, as previously stated, the data 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. 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. We also note, AHW data by provider and CBSA is readily available in our Public Use Files released with each proposed and final rule each fiscal year. Therefore, any comparisons that CMS made within the current year data and prior year data can easily be replicated by the public. We did not receive any comments questioning whether certain providers or CBSAs AHW were grossly affected by the PHE. Therefore, we continue to believe that the data 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.

We also note, in section G.2.c. of Appendix A of the FY 2023 IPPS/LTCH proposed rule (87 FR 28709), we provided a table showing the projected impact of proposed changes in the area wage index values for urban and rural hospitals. Specifically, the table compares the shifts in wage index values for hospitals due to proposed changes in the average hourly wage data for FY 2023 relative to FY 2022. We refer the commenter to this table as well as a similar table that is published in section G.2.c. of Appendix A in this final rule.

Finally, CMS will be looking at the differential effects of the COVID-19 PHE on the audited wage data in future fiscal years. We plan to review the audited wage data, and the impacts of the COVID-19 PHE on such data and evaluate these data for future rulemaking.

We requested that our MACs 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. However, we stated that if data elements for some of these providers are corrected, we intended to include data from those providers in the final FY 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. For the final FY 2023 wage index, we restored the data of 23 hospitals to the wage index because their data was either verified or improved, and removed the data of 0 hospitals for the first time after the proposed rule due to its data being aberrant. We also restored the data of one provider that we inadvertently excluded from the proposed rule that was not on the delete list in the proposed rule public use file. Thus, 63 hospitals with aberrant data remain excluded from the FY 2023 wage index (86−23 = 63).

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 stated in the proposed rule (87 FR 28630 through 28632) that we believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398); that is, any hospital that is designated as a CAH by 7 days prior to the publication of the preliminary wage index public use file (PUF) is excluded from the calculation of the wage index. For the proposed FY 2023 wage index, 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. Since the proposed rule, we learned of 0 more hospitals that converted to CAH status on or after January 24, 2021, and through and including January 21, 2022, the cut-off date for CAH exclusion from the FY 2023 wage index, for a total of 3 hospitals that were removed from the FY 2023 wage index due to conversion to CAH status. In summary, we calculated the FY 2023 wage index using the Worksheet S-3, Parts II and III wage data of 3,136 hospitals.

For the 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 FY 2023 wage index associated with this final 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 noted 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.

Comment: Commenters opposed the exclusion of hospitals' wage data. These commenters stated that excluding accurate and verified data is inconsistent with the extensive process established by CMS to ensure the accuracy and reliability of hospital wage index data. Commenters also raised concerns about the lawfulness of excluding wage data for these hospitals, stating that section 1886(d)(3)(E) of the Act does not provide the authority for CMS to delete accurately-reported wage data, and doing so is arbitrary and capricious.

Specifically, a commenter opposed the exclusion of hospitals' wage data where hospitals timely submitted corrections or appeals. The commenter stated that where hospitals have available timely-submitted, corrected and verifiable data CMS is obligated to use such data in the wage index calculation. The commenter also stated that there is no statute or regulation authorizing CMS to exclude hospital data based on a unilateral determination that the data is aberrant.

Response: We responded to similar comments in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45168 through 45169). Section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. As previously stated in those final rules in response to similar comments, we believe that, under this section of the Act, we have discretion to exclude aberrant hospital data from the wage index PUFs to help ensure that the costs attributable to wages and wage-related costs in fact reflect the relative hospital wage level in the hospitals' geographic area. We refer commenters to our previous responses to comments at the Federal Register pages cited earlier in this response with regard to the exclusion of hospitals' wage data from the wage index.

Comment: Some commenters urged CMS to lessen the lag of four years in hospitals' cost report data used for the wage index (for example, FY 2019 cost report data used for the FY 2023 wage index) and to consider alternate methods to collect more accurate data.

Another commenter stated that CMS should offer short‐term assistance to the hospital community, considering inflationary updates to the wage index as necessary to preserve current service levels, which the commenter believes is a particular risk point for underserved populations. The commenter recommended a more time‐sensitive and layered approach to wage index updates to account for excess labor costs driven by increased contract labor and reimbursement rates to preserve our critical national hospital system infrastructure. The commenter stated that CMS could accomplish this by leveraging current Medicare cost report surveys to develop a wage adjustment until the labor market stabilizes. This approach would account for regional disparities and impact, use known and accepted survey data, create a standardized and auditable system, and support hospitals without disrupting the baseline Medicare wage index.

Response: CMS used the most recent audited surveys and data to develop the FY 2023 wage index. We are unclear what alternative data or which current surveys and reporting the commenters are referring to. We note, audited cost report data from FY 2020 will be used for FY 2024 and is not available at the time of this final rule. Therefore, we are unable to account for regional differences without audited data. Also, as previously noted, section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary adjust the standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. Uniformly adjusting the salaries and hours for all areas (which is used to calculate an areas AHW) would lead to a commensurate change to the national AHW and not the wage index itself. This is because the wage index is required to be a relative measure. Further, we refer the commenter to the discussion on the market basket in section V. A. 1. of the preamble of this final rule for which we now have an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy (including the more recent historical CPI growth, impacts of the Russia/Ukraine war, current expectations regarding changes to Federal Reserve interest rates, and tight labor markets). Additionally, we note that section 1886(d)(3)(E)(i) of the Act requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments under section 1886(d) are not affected by the change in the wage index. Section 1886(d)(3)(E)(i) of the Act requires that we implement the wage index adjustment in a budget neutral manner. Therefore, since the wage index is subject to budget neutrality, any increases or decreases as a result of the data from one FY to the next FY would be implemented in a budget neutral manner.

D. Method for Computing the FY 2023 Unadjusted Wage Index

As stated in the proposed rule (87 FR 28362 through 28365), the method used to compute the 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 did not propose any changes to this methodology. We have restated our methodology in this section of this final rule.

Step 1. —We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period relevant to the wage index (in this case, for FY 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 previously discussed ratio by the total overhead salaries and hours reported on Lines 26 through 43 of Worksheet S-3, Part II. Next, we compute the amounts of overhead wage-related costs to be allocated to the excluded areas using three steps:

• We determine the “overhead rate” (from Worksheet S-3, Part II), which is the ratio of overhead hours (Lines 26 through 43 minus the sum of Lines 28, 33, and 35) to revised hours excluding the sum of lines 28, 33, and 35 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, 9, 10, 28, 33, and 35). We note that, for the FY 2008 and subsequent wage index calculations, we have been excluding the overhead contract labor (Lines 28, 33, and 35) from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 28, 33, and 35 require that associated wage-related costs be combined with wages on the respective contract labor lines. The formula for the Overhead Rate (from Worksheet S-3, Part II) is the following: (Lines 26 through 43—Lines 28, 33 and 35)/((((Line 1 + Lines 28, 33, 35)−(Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43))−(Lines 9 and 10)) + (Lines 26 through 43−Lines 28, 33, and 35)).
• We compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 17, 22, 25.50, 25.51, and 25.52.
• We multiply the computed overhead wage-related costs by the previously described excluded area hours ratio.

Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3.

Step 5. —For each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 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 did not propose 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 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 final rule for the policy regarding rural areas that do not have IPPS hospitals.

Step 11. —Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 2 listed in section VI. of the Addendum to the final rule and available via the internet on the CMS website.

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 did not propose 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, we stated in the proposed rule (87 FR 28365) that the proposed FY 2023 unadjusted national average hourly wage was $47.77.

We did not receive any comments regarding the discussion of our method for computing the FY 2023 unadjusted wage index. Based on the previously described methodology, the final FY 2023 unadjusted national average hourly wage is the following:

E. 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 October 31, 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 October 31, 2022. An extension of the information collection request is currently being developed. The public will have an opportunity to review and submit comments regarding the extension of this PRA package through a public notice and comment period separate from this rulemaking. 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 2023 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

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28366), for FY 2023, we proposed to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index (76 FR 51582 through 51586) and to apply the occupational mix adjustment to 100 percent of the FY 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 final rule (which is available via the internet on the CMS website), which contains the final 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 final rule for a chart listing the multicampus hospitals and the FTE percentages used to allot their occupational mix data.

Because the statute requires that the Secretary measure the earnings and paid hours of employment by occupational category not less than once every 3 years, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the FY 2023 wage index. For the proposed FY 2023 wage index, we used 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 applied proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586). As a result of applying this methodology, the proposed FY 2023 occupational mix adjusted national average hourly wage was $47.71.

We did not receive any comments on our proposed calculation of the occupational mix adjustment to the FY 2023 wage index. Thus, for the reasons discussed in this final rule and in the FY 2023 IPPS/LTCH PPS proposed rule, we are finalizing our proposal, without modification to calculate the occupational mix adjustment factor using the same methodology that we have used since the FY 2012 wage index and to apply the occupational mix adjustment to 100 percent of the FY 2023 wage index.

For the final FY 2023 wage index, we are using the Worksheet S3, Parts II and III wage data of 3,136 hospitals, and we are using the occupational mix surveys of 3,035 hospitals for which we also have Worksheet S-3 wage data, which is a “response” rate of 97 percent (3,035/3,136). For the final 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 final FY-2023 occupational mix adjusted national average hourly wage is the following:

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

As discussed in section III.E. of the preamble of this final 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 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 national average hourly wage for the entire nurse category is computed in Step 5 of the occupational mix calculation. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2019 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) the following:

We compared the FY 2023 occupational mix adjusted wage indexes for each CBSA to the unadjusted wage indexes for each CBSA. Applying the occupational mix adjustment to the wage data resulted in the following:

These results indicate that a smaller percentage of urban areas (53.6 percent) would benefit from the occupational mix adjustment than would rural areas (57.4 percent).

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 Budget Neutrality Adjustment

1. Rural Floor

Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the rural floor. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) also requires that a national budget neutrality adjustment be applied in implementing the rural floor.

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 was 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 proposed to continue to calculate the rural floor without the wage data of hospitals that have reclassified as rural under § 412.103 (87 FR 28367-28368). Also, for the purposes of applying the provisions of section 1886(d)(8)(C)(iii) of the Act, effective beginning in FY 2020, we removed 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 (84 FR 42333). In the IPPS/LTCH PPS proposed rule (87 FR 28367 and 28368), we proposed to continue to apply this policy for FY 2023.

We noted in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28368) that the FY 2020 rural floor policy and the related budget neutrality adjustment were 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. We stated that 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 stated that we were continuing to evaluate the court's decision, and although we proposed for the rural floor wage index policy (and the related budget neutrality adjustment) to continue for FY 2023, we stated we may decide to take a different approach in the final rule, depending on public comments or developments in the court proceedings.

Comments: Several commenters supported CMS's policy established beginning in FY 2020 to exclude the wage data of § 412.103 hospitals from the rural floor calculation. Some commenters specifically stated that this policy restores fairness in the wage index by preventing certain states from manipulating the wage index system to artificially inflate the wage indexes of hospitals in the state at the expense of all other states, due to the rural floor national budget neutrality adjustment required by section 3141 of Public Law 111-148.

Many commenters urged CMS to acquiesce to the district court's decision in Citrus, discontinue the policy of excluding the wage data of § 412.103 hospitals from the rural floor calculation, and revert to the policy that existed prior to FY 2020. The commenters stated their belief that the court's analysis was thorough and that continuing the rural floor policy would only increase the agency's exposure to future lawsuits. Commenters asserted that the plain language of the statute does not provide for a free-floating rural floor that is not linked to the rural wage index. One of the commenters advocating for CMS to revert to the policy that applied prior to FY 2020 requested that if CMS does choose to continue its current rural floor policy in FY 2023, it should do so in a non-budget neutral manner.

Other commenters also suggested that along with including the wage data of § 412.103 hospitals in the rural floor calculation, CMS should include the wage data of § 412.103 hospitals for purposes of the calculation required by § 1886(d)(8)(C)(ii) of the Act. Two commenters specifically asserted that CMS should include the wage data of § 412.103 hospitals that also have an Medicare Geographic Classification Review Board (MGCRB) reclassification for purposes of the calculation required by § 1886(d)(8)(C)(ii) of the Act. Specifically, these commenters stated that when a geographically rural hospital has an active MGCRB reclassification to another area, CMS includes the wage data of the hospital in calculating the rural wage index of the state in which that hospital is located, if not doing so would reduce the wage index for that rural area, as described in § 1886(d)(8)(C)(ii) of the Act. However, the commenters stated that CMS does not treat the wage data of hospitals with a § 412.103 reclassification in addition to an MGCRB reclassification in the same manner as geographically rural hospitals with an MGCRB reclassification. A commenter stated that treating hospitals with dual § 412.103 and MGCRB reclassifications in the same manner as other rural hospitals for the calculation required by § 1886(d)(8)(C)(ii) would help address rural floor manipulation by mitigating the impact that one or two § 412.103 hospitals remaining rural for wage index purposes would have on the rural wage index and rural floor.

Response: We appreciate the commenters' input. In response to the comments supporting our proposal to continue our policy of excluding the wage data of § 412.103 hospitals from the rural floor calculation for FY 2023, we appreciate the concern regarding wage index manipulation, particularly arising from high wage hospitals in certain states reclassifying as rural under § 412.103 to inflate the rural wage index. However, as noted by a commenter, a national budget neutrality adjustment is required by section 3141 of Public Law 111-148. As stated in response to comments in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45175 through 45176) and in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56920), section 3141 requires that budget neutrality for the rural floor be applied “through a uniform, national adjustment to the area wage index” instead of within each State beginning in FY 2011 (75 FR 50160). Accordingly, we do not have the authority to calculate rural floor budget neutrality in a State-specific manner.

With regard to the comments concerning the district court's decision in Citrus, prior to FY 2020, it was our policy to have the rural wage index set the rural floor, resulting in identical wage index values for a state's rural area and rural floor. We changed that policy in the FY 2020 IPPS/LTCH PPS final rule to prevent inappropriate payment increases under the rural floor due to rural reclassifications under § 412.103 (84 FR 42332 through 42336). We explained that rather than raising the payment of some urban hospitals to the level of the average rural hospital in their State, as we believed was the intent of the rural floor policy, the rural floor calculation prior to FY 2020 enabled urban hospitals to have their payments raised to the relatively high level of one or more geographically urban hospitals reclassified as rural (84 FR 42334). This policy change beginning in FY 2020 to exclude § 412.103 hospitals from the rural floor calculation created a rural area wage index separate from the rural floor, with the rural floor for the state typically lower than the rural wage index.

We understand that our policy of setting a rural floor lower than the rural wage index for a state is inconsistent with the district court's decision in Citrus. Following our review of that decision and the comments we received on the proposed rule, we are finalizing a policy that calculates the rural floor as it was calculated before FY 2020. Specifically, for FY 2023 and subsequent years, we are finalizing a policy to include the wage data of hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Act (as implemented in the regulations at § 412.103) and have no additional form of reclassification (MGCRB or Lugar) in the calculation of the rural floor, and to include the wage data of such hospitals in the calculation of “the wage index for rural areas in the State in which the county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act.

With regard to the application of the hold harmless policy that the commenters referenced at § 1886(d)(8)(C)(ii), the statute requires that a rural area be held harmless from the effects of hospitals reclassifying under Lugar or the MGCRB. Specifically, § 1886(d)(8)(C)(ii) states: “If the application of subparagraph (B) or a decision of the Medicare Geographic Classification Review Board or the Secretary under paragraph (10), by treating hospitals located in a rural county or counties as not being located in the rural area in a State, reduces the wage index for that rural area (as applied under this subsection), the Secretary shall calculate and apply such wage index under this subsection as if the hospitals so treated had not been excluded from calculation of the wage index for that rural area.”

The commenters suggest that CMS should include the wage data of § 412.103 hospitals that also have a MGCRB reclassification for purposes of the calculation required by § 1886(d)(8)(C)(ii), thereby treating hospitals with dual § 412.103 and MGCRB reclassifications no differently than geographically rural hospitals with MGCRB reclassifications for the hold-harmless comparison at § 1886(d)(8)(C)(ii). Specifically, this would involve calculating the rural area wage index including the data of all § 412.103 hospitals, and then comparing it to a wage index with the effect of MGCRB reclassifications and Lugar hospital statuses applied, in order to possibly hold the rural area harmless from the effect of MGCRB reclassifications and Lugar hospital statuses.

As we explained in response to a similar comment in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45181), CMS continues to treat § 412.103 hospitals as rural as required by the statute even if such hospitals have an additional MGCRB reclassification by affording the hospital the benefits of rural status, such as 340B program and RRC eligibility. However, in developing our policies for how hospitals with dual reclassifications would be treated in wage index calculations following our April 21, 2016 IFC (81 FR 23428 through 23438), CMS discussed the effect of simultaneous § 412.103 and MGCRB reclassifications. We stated that when there is both a § 412.103 reclassification and an MGCRB reclassification, the MGCRB reclassification would control for wage index calculation and payment purposes. We explained that “In these circumstances, we believe it is appropriate to rely on the urban MGCRB reclassification to include the hospital's wage data in the calculation of the urban CBSA wage index. Further, we believe it is appropriate to rely on the urban MGCRB reclassification to ensure that the hospital be paid based on its urban MGCRB wage index. While rural reclassification confers other rural benefits besides the wage index under section 1886(d) of the Act, a hospital that chooses to pursue reclassification under the MGCRB (while also maintaining a rural reclassification under § 412.103) would do so solely for wage index payment purposes.” (81 FR 23434). We continue to believe that policy, developed through rulemaking, is appropriate, since MGCRB reclassifications are solely for wage index payment purposes. Furthermore, the approach the commenters suggest would constitute a significant change to our current policy for § 412.103 hospitals that also have a MGCRB reclassification, and would create numerous downstream effects across IPPS ratesetting that might not be favorable to hospitals, contrary to the commenters' intent. For example, some states would experience a decline in their rural wage index if we were to treat hospitals with dual § 412.103 and MGCRB reclassifications no differently than geographically rural hospitals with MGCRB reclassifications. In response to the commenters' assertion that such treatment would address rural floor manipulation, we note that the commenters' suggested treatment of hospitals with dual § 412.103 and MGCRB reclassifications would potentially allow for other forms of wage index manipulation. For example, high-wage hospitals could obtain § 412.103 status, reclassify back to their home area under the MGCRB, in order to have their § 412.103 rural reclassifications raise the rural wage index via the hold harmless provision at § 1886(d)(8)(C)(ii), without lowering the hospitals' own wage index. We did not propose the policy the commenters suggest, and it would constitute a significant change with numerous effects on the IPPS wage index. We do not think it would be appropriate to adopt such a policy without describing it in a proposed rule and obtaining public comments from all interested parties. Therefore, in this final rule we are not adopting the policy the commenters suggest.

Based on the district court's decision in Citrus and the comments we received, we are not finalizing our rural floor wage index policy as proposed, which would have excluded § 412.103 hospitals from the calculation of the rural floor and 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. Rather, we are finalizing a policy that calculates the rural floor as it was calculated before FY 2020. This decision follows our review of the decision in Citrus and the comments received, including comments urging us to revert to our pre-2020 policy. For FY 2023 and subsequent years, we are finalizing a policy to include the wage data of hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Act (as implemented in the regulations at § 412.103) and have no additional form of reclassification (MGCRB or Lugar) in the calculation of the rural floor, and to include the wage data of such hospitals in the calculation of “the wage index for rural areas in the State in which the county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act. We will apply the same policy as prior to the FY 2020 final rule for calculating the rural floor, in which the rural wage index sets the rural floor. Based on the FY 2023 wage index associated with this final rule (which is available via the internet on the CMS website) and based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under § 412.103, we estimate that 275 hospitals would receive an increase in their FY 2023 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 stated that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. We extended the imputed floor policy eight times since its initial implementation, the last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and expired on September 30, 2018. (We refer readers to further discussions of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014 through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80 FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through 38142, and 83 FR 41376 through 41380, respectively) and to the regulations at 42 CFR 412.64(h)(4).) For FYs 2019, 2020, and 2021, hospitals in all-urban states received a wage index that was calculated without applying an imputed floor, and we no longer included the imputed floor as a factor in the national budget neutrality adjustment.

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 now include the wage data of hospitals reclassified under § 412.103 that have no additional form of reclassification (MGCRB or Lugar), according to the rural floor wage index policy finalized in this final rule in which we calculate the rural floor for FY 2023 including 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 (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 final 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).

Comment: Several commenters supported the application of the imputed floor wage index policy, including the policy's definition of all-urban states as well as its non-budget neutral application as required by section 9831 of the American Rescue Plan Act of 2021. A commenter opposed the imputed floor policy, stating that it unfairly manipulates the wage index to benefit a handful of only-urban states and territories, but acknowledged that the imputed floor policy is derived from legislation enacted by Congress.

Response: We appreciate the commenters' support of our application of the statutory imputed floor policy. Responding to the commenter opposed to this policy, we underscore that, as the commenter pointed out, the imputed floor was established by section 9831 of the American Rescue Plan Act of 2021. Accordingly, CMS does not have discretion to not apply the imputed floor.

After consideration of the public comments, we will apply the imputed floor required by section 1886(d)(3)(E)(iv) of the Act for discharges occurring on or after October 1, 2022 in accordance with our existing policies.

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 the FY 2023 IPPS/LTCH PPS proposed rule, we did not propose any changes to the frontier floor policy for FY 2023. In the proposed rule we stated that 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 did not receive any public comments on the application of the State frontier floor for FY 2023. In this final rule, 44 hospitals will receive the frontier floor value of 1.0000 for their FY 2023 wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.0000. The areas affected by the rural and frontier floor policies for the final FY 2023 wage index are identified in Table 2 associated with this final rule, which is available via the internet on the CMS website.

4. Continuation of the Low Wage Index Hospital Policy; 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 noted in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28369) 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. We stated that 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 stated that we were continuing to evaluate the court's decision, and although we proposed the low wage index hospital policy (and the related budget neutrality adjustment, discussed in this section of this rule) to continue for FY 2023, we stated that 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 proposed 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 final 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 final rule, the table displays the 25th percentile wage index value across all hospitals for FY 2023. FY 2023 25th Percentile Wage Index Value 0.8427.

Comment: Many commenters supported the low wage index hospital policy. Commenters praised the low wage index hospital policy for already beginning to reduce wage index disparities and urged the agency to continue with the policy for FY 2023 as proposed. Commenters described dire consequences of the policy ending, with a commenter specifically stating that Medicare payments to hospitals in Puerto Rico could fall drastically. Numerous commenters representing hospitals in a state with relatively low wages indicated that they have used the increased payments resulting from the low wage index hospital policy as CMS intended, by raising compensation for their workers. However, these commenters stated that the national average hourly wage increased at an even higher rate due to COVID-19, indicating that additional time for the policy and continued efforts on behalf of low wage hospitals are required. A commenter requested that CMS consider the effects of COVID-19 as CMS decides how it will appropriately evaluate the effectiveness of its policy to raise low wage hospitals' wage indexes in the near future, and another commenter specifically requested that CMS extend the policy for at least four additional years due to COVID-19. A commenter stated that CMS should maintain the policy until CMS can verify that increased hospital compensation under the policy has led to increased wage indexes, consistent with original intent of the policy.

Response: We appreciate the many comments received in support of our low wage index hospital policy and the feedback regarding achievement of the intended policy goal. We appreciate the commenters' requests to consider the impacts of COVID-19, to extend this policy beyond four years due to COVID-19, and to extend the policy until the intended goals of the policy are reached. We appreciate commenters' suggestions on how we might evaluate the effectiveness of the policy and may consider those suggestions in future rulemaking.

Comment: Many commenters supported increasing the wage index values of low-wage hospitals, but urged CMS to do so in a non-budget-neutral manner. Commenters stated that implementing the policy with a budget neutrality adjustment merely shifts funds from one group to another. Commenters urged CMS to consider wage index reforms that lift low wage hospitals' wage indexes without reducing the standardized operating rate for all hospitals, which commenters indicated already receive Medicare reimbursement at rates that are less than the actual cost of care. A commenter stated that for hospitals between the 22nd and 25th percentile, the reduction due to the budget neutrality adjustment is greater than the benefit received from the quartile adjustment. This commenter suggested holding hospitals under the 25th percentile harmless by slightly reducing the labor-related share for those hospitals that have a wage index greater than 1, or via a graduated reduction to the standardized rate based on wage index percentile. Other alternative methodologies and data suggested by commenters included: reducing the wage indexes of hospitals with wage index values above the 75th percentile through a budget neutrality adjustment; verifying local labor prices with wage data audits; working with Congress to create a new designated pool of funding; working with Congress to minimize wage index cliffs; shortening the lag in hospital wage data used to construct the wage index; and setting a national wage index floor of 1.000.

Response: We disagree with the commenters that the low wage index hospital policy should be implemented in a non-budget neutral manner. As we stated in response to similar comments in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42331 and 42332) and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45180), under section 1886(d)(3)(E) of the Act, the wage index adjustment is required to be implemented in a budget neutral manner. However, even if the wage index were not required to be budget neutral under section 1886(d)(3)(E) of the Act, we would consider it inappropriate to use the wage index to increase or decrease overall IPPS spending. As we stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42331), the wage index is not a policy tool but rather a technical adjustment designed to be a relative measure of the wages and wage-related costs of subsection (d) hospitals. As a result, as we explained in the FY 2020 IPPS/LTCH PPS final rule, if it were determined that section 1886(d)(3)(E) of the Act does not require the wage index to be budget neutral, we invoke our authority at section 1886(d)(5)(I) of the Act in support of such a budget neutrality adjustment.

With regard to the commenter's assertion about a possible reduction to overall payment if the amount of benefit received from the wage index boost is less than the reduction to the standardized amount, we believe we have applied both the quartile policy and the budget neutrality policy appropriately, as we explained in response to comments in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45180). The quartile adjustment is applied to the wage index, which resulted in an increase to the wage index for hospitals below the 25th percentile. The budget neutrality adjustment is applied to the standardized amount in order to ensure that the low wage index hospital policy is implemented in a budget neutral manner. Thus, consistent with our current methodology for implementing wage index budget neutrality under section 1886(d)(3)(E) of the Act and with how we implemented budget neutrality for the low wage index hospital policy in FY 2020, we believe it is appropriate to continue to apply a budget neutrality adjustment to the national standardized amount for all hospitals so that the low wage index hospital policy is implemented in a budget neutral manner for FY 2023.

We appreciate the commenters' range of suggested alternatives. Because we did not propose alternatives with regard to the low wage index hospital policy, we consider these comments to be outside the scope of the FY 2023 IPPS/LTCH PPS proposed rule. We are not addressing them in this final rule but may consider them in future rulemaking.

Comment: Several commenters opposed the low wage index hospital policy, stating that it is inappropriately redistributive, ineffective, and outside the agency's statutory authority under section 1886(d)(3)(E) of the Act. Specifically, a commenter stated that although the policy is intended to help rural hospitals, rural hospitals in certain states do not benefit from this policy. Furthermore, the commenter stated that the policy undermines the intent of the wage index by not recognizing real differences in labor costs.

Response: In response to comments opposing the low wage index hospital policy, we believe we addressed the stated concerns in our responses to comments when we first finalized the policy and the related budget neutrality adjustment in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42332). Concerning the policy's redistributive effect, we refer readers to our response to the comments above about budget neutrality. With regard to the policy's effectiveness, we believe the comments in support of the policy, specifically comments from relatively low-wage hospitals stating that the increased payments under the policy have allowed them to raise compensation for their workers, indicate that many low wage hospitals are benefiting from this policy. Furthermore, we stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328) our intention that this policy will be effective for at least 4 years, until the policy's effects could be reflected in the wage index data. In response to the comment stating that although the policy is intended to help rural hospitals, rural hospitals in certain states do not benefit from this policy, we refer readers to our response to a similar comment in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42328) regarding the policy's effect on rural hospitals.

In response to comments stating the policy exceeds CMS's statutory authority, we refer the commenters to our prior discussion of the authority for the policy in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42332).

In response to the commenter who asserted that the low wage index hospital policy does not recognize real differences in labor costs, we continue to believe, for the reasons stated in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42327-42328), that by preserving the rank order in wage index values, our policy continues to reflect meaningful distinctions between the employee compensation costs faced by hospitals in different geographic areas. Thus, under the low wage index hospital policy, we believe the wage index for low wage index hospitals appropriately reflects the relative hospital wage level in those areas compared to the national average hospital wage level.

Comment: Many commenters noted that the low wage index hospital policy is currently the subject of pending litigation in Bridgeport. A few commenters urged CMS not to finalize the policy for FY 2023, or to wait until a final court decision is reached. One such commenter suggested CMS should eliminate the budget neutrality adjustments for FYs 2020, 2021, and 2022 in light of Bridgeport. Many commenters urged CMS to appeal the district court's decision in Bridgeport. These commenters stated that the consequences of halting the policy would be dire, and that CMS has broad authority under section 1886(d)(3)(E) to make policy adjustments, such as the imputed floor policy implemented in 2005 that was implemented by CMS as a policy measure to address concerns from hospitals in all-urban states. These commenters further stated that this step towards achieving health equity is justified, and that CMS implemented the low wage index hospital policy via notice-and-comment rulemaking.

Response: We appreciate the commenters' input. As we stated in the proposed rule, the FY 2020 low wage index hospital policy and the related budget neutrality adjustment are the subject of pending litigation, including in Bridgeport. As Bridgeport is pending litigation, we are unable to provide further information at this time. We disagree with the district court's conclusion that the Social Security Act does not authorize the Secretary to adopt the low wage index hospital policy, and we note that its decision remains subject to potential appeal. We also note that plaintiffs in Bridgeport only challenged the low wage index hospital and associated budget neutrality adjustment policies for FY 2020.

After consideration of the comments we received, and for the reasons stated above and in the proposed rule, we are finalizing as proposed to continue the low wage index hospital policy and the related budget neutrality adjustment for FY 2023.

H. 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 final 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 final rule for a discussion of the wage index tables for FY 2023.

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

1. General Policies and Effects of Reclassification and Redesignation

Under section 1886(d)(10) of the Act, the Medicare Geographic Classification Review Board (MGCRB) considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (usually by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations and the policies for the effects of hospitals' reclassifications and redesignations on the wage index are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). 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. In section III.G.1 of this final rule, for FY 2023 and subsequent years, we are finalizing a policy that calculates the rural floor as it was calculated before FY 2020. 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 for FY 2020 through FY 2022, we refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336). For a discussion of the effects of reclassifications under § 412.103 on the rural area wage index and the calculation of the rural floor for FY 2023 and subsequent years, we refer readers to section III.G.1 of this final rule.

On May 10, 2021, we published an 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 final rule was drafted, the MGCRB had completed its review of FY 2023 reclassification requests. Based on such reviews, there are 383 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 311 hospitals approved for wage index reclassifications in FY 2021 that will continue for FY 2023, and 315 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 final rule, 1,009 hospitals are in a MGCRB reclassification status for FY 2023 (with 166 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 through 58778), CMS finalized an assignment policy for hospitals reclassified to CBSAs from which one or more counties moved to a new or different urban CBSA under the revised OMB delineations based on OMB Bulletin 18-04. We provided a table in that rule (85 FR 58777 and 58778) which described the assigned CBSA for all the MGCRB cases subject to this policy. For such reclassifications that continue to be active or are reinstated for FY 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.

Comment: A commenter requested that in light of potential actions taken by CMS in response to the Bridgeport or Citrus decisions, CMS should allow an additional 45-day withdrawal/termination period after the publication of this final rule to allow hospitals to select the wage index that would apply for FY 2023. As an alternative, citing a FY 2005 policy exception, the commenter suggested that CMS can assign hospitals to the geographic area that is most advantageous to them.

Response: As previously discussed, in section III.G.4 of this final rule, CMS is finalizing as proposed to continue the low wage index hospital policy and the related budget neutrality adjustment for FY 2023 and is not implementing any changes at this time due to Bridgeport. As previously discussed, in section III.G.1. of the preamble of this final rule, we are modifying for FY 2023 and subsequent years the calculation of the rural floor and “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, based on the Citrus decision. Presumably, the commenter is requesting that we provide an additional 45 days for hospitals with MGCRB reclassifications to submit MGCRB withdrawal or termination requests, or rescind such a request that was already approved. As previously discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49973) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58769—58770), we maintain that information provided in the proposed rule constitutes the best available data to assist hospitals in making reclassification decisions. In the proposed rule, we acknowledged the district court decisions in Bridgeport and Citrus, and we stated that we may decide to take a different approach to our policies in the final rule, depending on public comments or developments in the court proceedings. We believe hospitals had the ability to make informed decisions weighing potential outcomes based on the proposed rule.

In particular, we note that the state rural wage index published in Table 3 of the FY 2023 IPPS/LTCH PPS proposed rule would be the rural floor if we included 412.103 hospitals in the calculation of the rural floor. Therefore, information with regard to what the rural floor would have been if we modified our policy was available in the proposed rule. Further, looking at the states and territories in Table 3 of the proposed rule, 40 states/territories in the proposed rule had a rural floor that equals the rural wage index (which includes Puerto Rico). Four states in the proposed rule are not eligible for the rural floor since they are all urban states and receive the imputed floor instead. Using data from Table 3 of the proposed rule, this leaves the 8 states listed in the table that follows with a difference between the state rural floor and state rural wage index. As demonstrated in the table that follows, hospitals should be able to make these MGCRB decisions based on the data in the proposed rule as usual as an overwhelming majority of the states/territories show no difference between the state rural wage index and state rural floor, and those that do show a difference show a minimal variance. Therefore, we do not believe the data justifies an additional 45 days for hospitals with MGCRB reclassifications to submit MGCRB withdrawal or termination requests or to rescind such a request that was already approved.

In addition, as we discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58769—58770), section 1886(d)(8)(D) of the Act requires the Secretary to adjust the standardized amounts to ensure that the application of certain provisions of the statute, including a decision of the MGCRB or the Secretary under section 1886(d)(10), do not result in aggregate payments under section 1886 that are greater or less than those that would otherwise be made. If hospitals were to withdraw or terminate reclassification statuses after the publication of the final rule, as the commenter suggested CMS permit, any resulting changes in the wage index would not have been taken into account when calculating the IPPS standardized amounts in the final rule in accordance with the statutory budget neutrality requirement. Therefore, it is necessary that the values published in the final rule represent the final wage index values reflective of reclassification decisions.

With regard to the FY 2005 exception referenced by the commenter, CMS did provide an exception to the withdrawal and termination deadline due to the implementation of special reclassifications under section 508 of Pub. L. 108-173 and general concerns regarding the implementation of revised OMB labor market delineations based on the 2000 decennial census (69 FR 49060 and 49061). CMS inferred certain wage index selections for section 508 hospitals where the preferred option (depending on the finalization of proposed wage index policies) was clear and obvious, and hospitals were granted a 30 day window after the final rule to withdraw their reclassification request or to rescind their previous withdrawal or termination request. With the relatively few number of reclassified hospitals in FY 2005, it was plausible for CMS to impute or infer the optimal reclassification status in certain limited circumstances, and potentially allow for an additional window of opportunity for hospitals to review their options to withdraw or terminate MGCRB status. However, when factoring the large number of currently reclassified hospitals and the iterative and compounding impacts of various forms of wage index reclassification policy, various wage index floor policies, and other adjustment policies; it does not support the premise that additional opportunities to modify MGCRB reclassification status would be feasible or would result in more accurate or consistent results.

Comment: A commenter noted that the MGCRB issued determinations for FY 2023 on January 24, 2022. The commenter stated that this was earlier than in the past, when the MGCRB typically issued determinations mid-February, to meet the statutory requirement for decisions to be issued by the end of February. The commenter requested that CMS limit the MGCRB from issuing decisions prior to the first week of February to allow hospitals ample time to submit documentation of rural reclassification, SCH and RRC status to the Board or to submit a request to withdraw an application based on review of the January PUF. The commenter stated that without a more definitive timeline, hospitals face uncertainty if their documentation will be accepted by the MGCRB and could be adversely affected by an early decision being issued by the Board.

Response: We disagree with the commenter that hospitals are disadvantaged by earlier issuance of MGCRB decisions. First, we believe hospitals should submit applications complete with supporting documentation at the time MGCRB applications are due. Hospitals taking advantage of the MGCRB's practice of accepting supporting documentation to supplement applications until the date of the MGCRB's review are aware that the review is not held on the same date annually. Furthermore, rural reclassification may be obtained at any time, and hospitals seeking benefits of rural status for MGCRB reclassification should plan accordingly. Finally, we note that hospitals dissatisfied with the MGCRB's decision may request the Administrator's review under § 412.278. With regard to hospitals requesting to withdraw a pending reclassification application following review of the January PUF, hospitals may withdraw a reclassification after the MGCRB has issued decisions, within 45 days of the date that CMS' annual notice of proposed rulemaking is issued in the Federal Register , per the regulations at § 412.273. Therefore, we do not believe hospitals are disadvantaged by the earlier timing of MGCRB decisions because they can submit supporting documentation timely, obtain a rural reclassification in advance, request the Administrator's review of an MGCRB decision, and withdraw an unwanted reclassification.

Comment: A commenter requested that CMS change the special rule for RRCs applying for reclassification at the MGCRB to afford hospitals the same reclassification opportunities as similar hospitals competing in the same labor market area. The commenter specifically suggested that CMS revise its regulations to state that if a hospital is located within five miles of another acute care hospital in the same CBSA with a lower average hourly wage, the hospital may reclassify to the same area as the lower wage hospital, if the applicable average hourly wage requirements are met, rather than to the area that is closest to the hospital.

Response: We appreciate the commenter's input. We did not propose any changes to the regulation referenced by the commenter, § 412.230(a)(3), the special rules for sole community hospitals and rural referral centers. We are not finalizing any changes to the special rule for RRCs applying for reclassification at the MGCRB in this final rule.

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 proposed 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 proposed to revise § 412.273(d)(2) for timing and process of cancellation requests and § 412.273(e) for withdrawal and termination requests. We proposed 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 also proposed 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 stated that 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.

Comment: A commenter supported the proposed changes to § 412.273. The commenter stated that these changes will eliminate potential confusion, align withdrawals, terminations, and cancellations with the MGCRB application process, and ensure submissions can be processed more efficiently by the MGCRB.

Response: We thank the commenter for supporting the proposed changes. After consideration of the public comment we received, we are finalizing as proposed without modification our changes to the regulations at § 412.273(d)(2) and (e).

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 requested that hospitals 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.

We did not receive any requests to waive or reinstate an eligible hospital's deemed urban status under section 1886(d)(8)(B) of the Act. We did not receive any public comments on this policy for FY 2023.

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

In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). 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 2022 IPPS/LTCH PPS final rule (86 FR 45184), we have applied the same policies, procedures, and computations since FY 2012. We proposed 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 did not propose any changes to the methodology or data source that we used for FY 2016 (81 FR 25071). (We refer readers to a full discussion of the out-migration adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602).)

We did not receive any public comments on this proposed policy for FY 2023. Therefore, for the reasons set forth in this final rule and in the FY 2023 IPPS/LTCH PPS proposed rule, for FY 2023, we are finalizing our proposal, without modification, to continue using the same policies, procedures, and computations that were used for the FY 2012 outmigration adjustment and that were applicable for FYs 2016 through 2022.

Table 2 associated with this final rule (which is available via the internet on the CMS website) includes the out-migration adjustments for the FY 2023 wage index. In addition, Table 4A associated with this final rule, “List of Counties Eligible for the Out-Migration Adjustment under Section 1886(d)(13) of the Act” (also available via the internet on the CMS website) consists of the following: A list of counties that are eligible for the out-migration adjustment for FY 2023 identified by FIPS county code, the final 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 of our policy to calculate the rural floor without the wage data of urban hospitals reclassifying to rural areas under 42 CFR 412.103, and to section III.G.1 of this final rule for a discussion of our decision, for FY 2023 and subsequent years, to calculate the rural floor as it was calculated before FY 2020 by including the wage data of 412.103 hospitals.

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 proposed 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 third 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 final rule. We note that, as of the date this final 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.

Comment: A commenter supported our proposal to clarify that approved rural reclassification applies to a main campus and any remote locations in an urban area. The commenter stated that this policy allows for uniform treatment of all departments and campuses of the same hospital.

Response: We appreciate the commenter's support. Consistent with our clarification regarding multicampus hospitals, we are finalizing as proposed without modification our addition to the regulations at 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. Table 2 associated with this FY 2023 IPPS/LTCH PPS final rule will reflect the 412.103 rural reclassification status for remote locations of hospitals that are located in a different CBSA than the main campus.

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 were given the opportunity to examine Table 2 associated with the proposed rule, which is listed in section VI. of the Addendum to the proposed rule and available via the internet on the CMS website at https://www.cms.gov/medicare/acute-inpatient-pps/fy-2023-ipps-proposed-rule-home-page. Table 2 associated with the proposed rule contained each hospital's proposed adjusted average hourly wage used to construct the wage index values for the past 3 years, including the proposed FY 2023 wage index which was constructed from FY 2019 data. We noted in the proposed rule that the proposed hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by early February 2022.

We posted the final wage index data PUFs on April 29, 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 was given the opportunity to notify both its MAC and CMS regarding why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital was required to send its request to CMS and to the MAC so that it was received no later than May 27, 2022. May 27, 2022, was 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 were 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 were 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 final rule allows hospitals to request corrections to their wage index data within prescribed timeframes. In addition to hospitals' opportunity to request corrections of wage index data errors or MACs' mishandling of data, CMS has the authority under section 1886(d)(3)(E) of the Act to make corrections to hospital wage index and occupational mix data in order to ensure the accuracy of the wage index. As we explained in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act requires the Secretary to adjust the proportion of hospitals' costs attributable to wages and wage-related costs for area differences reflecting the relative hospital wage level in the geographic areas of the hospital compared to the national average hospital wage level. We believe that, under section 1886(d)(3)(E) of the Act, we have discretion to make corrections to hospitals' data to help ensure that the costs attributable to wages and wage-related costs in fact accurately reflect the relative hospital wage level in the hospitals' geographic areas.

We have an established multistep, 15-month process for the review and correction of the hospital wage data that is used to create the IPPS wage index for the upcoming fiscal year. Since the origin of the IPPS, the wage index has been subject to its own annual review process, first by the MACs, and then by CMS. As a standard practice, after each annual desk review, CMS reviews the results of the MACs' desk reviews and focuses on items flagged during the desk review, requiring that, if necessary, hospitals provide additional documentation, adjustments, or corrections to the data. This ongoing communication with hospitals about their wage data may result in the discovery by CMS of additional items that were reported incorrectly or other data errors, even after the posting of the January 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. 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 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 45529-45530). However, consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0000 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0000.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. We include a cost category in the labor related share if the costs are labor intensive and vary with the local labor market. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45204 through 45207), we included in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2018-based IPPS market basket: Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor-related Services. In the proposed rule, for FY 2023, we did not propose to make any further changes to the labor-related share. For FY 2023, we proposed 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 final rule, prior to January 1, 2016, Puerto Rico hospitals were paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As a result, we applied the Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage to the Puerto Rico-specific standardized amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that the payment calculation with respect to operating costs of inpatient hospital services of a subsection (d) Puerto Rico hospital for inpatient hospital discharges on or after January 1, 2016, shall use 100 percent of the national standardized amount. Because Puerto Rico hospitals are no longer paid with a Puerto Rico-specific standardized amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as amended by section 601 of the Consolidated Appropriations Act, 2016, there is no longer a need for us to calculate a Puerto Rico-specific labor-related share percentage and nonlabor-related share percentage for application to the Puerto Rico-specific standardized amount. Hospitals in Puerto Rico are now paid 100 percent of the national standardized amount and, therefore, are subject to the national labor-related share and nonlabor related share percentages that are applied to the national standardized amount. Accordingly, for FY 2023, we did not propose a Puerto Rico-specific labor-related share percentage or a nonlabor-related share percentage.

Comment: Some commenters stated that an analysis comparing hospitals' average hourly wages calculated from data reported on schedule S-3 of their FY 2019 to their 2020 cost reports shows that the average hourly wage rose 4.14 percent among hospitals with a wage index greater than 1.0. The commenters stated that this wage growth occurred at the same time that hospital utilization was decreasing due to the effects of the pandemic, resulting in a considerable increase in the portion of overall hospital costs represented by labor.

In addition to requesting that CMS update the labor share, the commenters requested that CMS modify its methodology to review only the labor costs of hospitals in areas with a wage index greater than 1.0 because hospitals in areas with a wage index lower than 1.0 receive a statutorily defined labor-related share of 62 percent. The commenters stated that changes of the labor share are budget-neutral but updating the share would ensure that a more appropriate amount of funds go to hospitals in areas with a wage index greater than 1.0, where the greatest increases in labor costs have been experienced. The commenters explained that the same comparison of 2019 and 2020 average hourly wages shows that hospitals with a wage index of 1.0 or less experienced an increase of only 2.38 percent during that same period.

For the reasons above, the commenters requested that CMS consider raising the labor-related share for hospitals with wage indexes greater than 1.0 for FY 2023.

A commenter stated that it strongly supports continuing to utilize a labor-related share of 67.6 percent for discharges. The commenter also stated that given the extreme increases in labor costs industry-wide due to the pandemic over the last three years, the commenter urged CMS to re-base again for FY 2023 to reflect a more accurate labor-related share.

A commenter stated that it experienced an exponential increase in the cost of labor as a result of the COVID-19 pandemic and labor shortages. The commenter requested that CMS evaluate the impact of rising labor costs on wage indices.

Response: We appreciate the commenters' concerns regarding how operating expenses for hospitals may have been impacted by the PHE. However, we disagree with the commenters' suggestion to update the labor related share for FY 2023. As published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket, including the labor-related share, of every four years. Therefore, in the FY 2022 IPPS/LTCH final rule, we finalized to update the labor related share to reflect the rebased and revised IPPS market basket, which is based on 2018 data. The labor-related share is equal to 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.

CMS did not propose to rebase and revise the IPPS market basket, including the labor-related share, in the FY 2023 IPPS/LTCH proposed rule. However, we did review the most recent Medicare cost report data available for IPPS hospitals submitted as of March 2022, which includes data for 2019-2020. The Medicare cost report data showed slight decreases in the compensation cost weight (reflecting wages and salaries, employee benefits, and direct patient care contract labor costs as a percent of operating costs) in 2019 and 2020 resulting in a compensation cost weight that is roughly 1 percentage point less than the 2018-based IPPS market basket cost weight. The compensation cost weight accounts for 53.0 percentage points of the 67.6 percentage point labor-related share based on the 2018-based IPPS market basket.

We plan to review the 2021 Medicare cost report data as soon as complete information is available and evaluate these data for future rulemaking. We thank the commenters for their comments and will consider the comments regarding the methodology for deriving the labor-related share for future rulemaking. After consideration of the public comments we received, for the reasons set forth above and in this final rule and in the FY 2022 IPPS/LTCH PPS final rule, we are finalizing our proposals, without modification, to continue to use a labor-related share of 67.6 percent for discharges occurring on or after October 1, 2022 for all hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.0000.

Tables 1A and 1B, which are published in section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflect the national labor-related share. Table 1C, in section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS final rule and available via the internet on the CMS website, reflects the national labor-related share for hospitals located in Puerto Rico. For FY 2023, for all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are less than or equal to 1.0000, we are applying the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are greater than 1.000, for FY 2023, we are applying the wage index to a labor-related share of 67.6 percent of the national standardized amount.

N. Permanent Cap on Wage Index Decreases

1. 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 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 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, in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed a permanent approach to smooth year-to-year decreases in hospitals' wage indexes (87 FR 28377 through 28380). We proposed 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 stated that 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 stated in the proposed rule that 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 stated that 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 stated that 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 stated that we believe it would ensure the wage index is a relative measure of the value of labor in prescribed labor market areas. In the proposed rule, we estimated that applying a 5-percent cap on all wage index decreases would have a very small effect on the budget neutrality factor associated with the cap applied to the standardized amount for FY 2023 (discussed in section III.N.2 of the preamble of the 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 stated that we anticipate that in the absence of policy changes most hospitals will not experience year-to-year wage index declines greater than 5 percent in any given year. Therefore, we stated that we anticipate that the impact to the budget neutrality factor associated with the cap in future years would continue to be minimal. We stated that 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 stated that we believe the impact would be temporary.

For the reasons discussed in the proposed rule, we stated that we believe a 5-percent cap on wage index decreases would be appropriate for the IPPS. Therefore, for FY 2023 and subsequent years, we proposed 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 proposed 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 stated that we would reflect the proposed wage index cap policy at 42 CFR 412.64(h). Specifically, we proposed 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 stated that we have authority to implement the proposed wage index cap policy and the associated proposed budget neutrality adjustment (discussed in section III.N.2. of the preamble of the 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. We also stated that in addition, we have authority to implement the proposed wage index cap policy and the associated proposed budget neutrality adjustment (discussed in section III.N.2. of the preamble of the 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 proposed to apply the 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). We stated that 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 noted in the proposed rule that, 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. We stated that 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 final 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-frtables-2-3-4a-4b.zip). In Table 2 associated with this final 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/fy2022-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 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. In the proposed rule, we identified in Table 2 (posted on the FY 2023 proposed rule web page at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps) all hospitals that 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 column in Table 2 has been revised for this final rule (posted on the FY 2023 final rule web page at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps) 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).

We stated in the proposed rule that 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. We stated that 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 proposed to apply the proposed wage index cap policy 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. We stated in the proposed rule that 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.

In the proposed rule, we noted 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.

We received comments on our proposals and summarize and respond to these comments in section III.N.2. below where we discuss the proposed budget neutrality adjustment associated with the proposed wage index cap policy. As we note below, we are finalizing our proposals regarding the wage index cap policy without modification.

2. Permanent Cap Budget Neutrality

We proposed to implement the proposed wage index cap policy (discussed above in section III.N.1 of the preamble of this final 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 stated that 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 proposed 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 stated that we would 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 final rule, in the propose rule, we stated that we have authority to implement this budget neutrality adjustment under sections 1886(d)(3)(E) and (d)(5)(I)(i) of the Act.

Comment: Commenters were generally supportive of CMS's proposal to limit any decrease in a hospital's wage index value to be no greater than 5 percent as compared to the hospital's wage index value for the prior fiscal year. Commenters supported CMS's goal of increasing the stability and predictability of payments under the IPPS. However, several commenters contend that contrary to CMS's past statements, the statute neither authorizes nor requires budget neutrality to offset adjustments made under section 1886(d)(5)(I)(i). Some commenters suggested that CMS should apply the cap in a manner that would not reduce the wage indexes of other hospitals, contending this would lead to less volatility in wage index values. Several commenters request CMS review and seek alternatives to the proposed national budget neutrality adjustment.

Response: We appreciate commenters' support of the proposed permanent cap on wage index decreases. As discussed above in section III.N.1 of the preamble of this final rule, we have authority to implement the proposed budget neutrality adjustment associated with the proposed cap under sections 1886(d)(3)(E) and (d)(5)(I)(i) of the Act. Section 1886(d)(3)(E) gives the Secretary broad authority to adjust for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level, and requires those adjustments to be applied in a budget neutral manner. However, even if the wage index were not required to be budget neutral under section 1886(d)(3)(E) of the Act, we would not consider it an appropriate alternative to use the wage index and the proposed permanent cap on wage index decreases to increase or decrease overall IPPS spending. The wage index is not a policy tool but rather a technical adjustment designed to be a relative measure of the wages and wage-related costs of subsection (d) hospitals in the United States. Contrary to the commenters' assertion, we also have authority to implement the proposed budget neutrality adjustment associated with the proposed cap 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. Furthermore, our past transition policies involving a 5 percent cap on wage index decreases implemented in a budget neutral manner did not result in wage index volatility, and we expect the same for the overall budget neutrality adjustments associated with the permanent cap policy.

Comment: MedPAC supported the proposal to cap wage index decreases at 5 percent, but suggested also applying a cap to increases of more than 5 percent.

Response: We appreciate MedPAC's suggestion that the cap on wage index changes of more than 5 percent should also be applied to increases in the wage index. However, as we discussed in the proposed rule, one purpose of the proposed policy is to help mitigate the significant negative impacts of certain wage index changes. As we discussed in the proposed rule, we believe applying a 5-percent cap on all wage index decreases would support increased predictability about IPPS payments for hospitals in the upcoming fiscal year, enabling them to more effectively budget and plan their operations. That is, we proposed to cap decreases because we believe that a hospital would be able to more effectively budget and plan when there is predictability about its expected minimum level of IPPS payments in the upcoming fiscal year. We did not propose to limit wage index increases because we do not believe such a policy is needed to enable hospitals to more effectively budget and plan their operations. Therefore, we believe it is appropriate for hospitals that experience an increase in their wage index value to receive that wage index value.

Comment: A commenter suggested that if CMS discontinues the low wage index hospital policy, hospitals that benefitted in the prior year from that policy should not be subject to a 5 percent cap on any decreases.

Response: We appreciate the commenter's suggestion. As discussed in section III. G. 4 of this final rule, CMS is continuing the low wage index hospital policy for FY 2023.

Comment: A commenter did not support CMS's proposed policy approach to the wage index cap policy with regard to newly opened hospitals. While the commenter stated they understand the rationale for CMS's policy approach, they expressed concerns that it will create inequity in Medicare payments for hospitals within the same market. The commenter encouraged CMS to apply the same area wage index value for new and existing hospitals under this policy.

Response: We understand the commenter's concern, but we do not believe the scenario they are alluding to (that is, a labor market where existing hospitals are receiving the cap, and new hospitals are not) would neither be common nor require additional consideration. We believe that on an ongoing basis, relatively few hospitals would receive the cap, and even fewer would receive the cap in consecutive years. As of this final rule, there will be 126 hospitals receiving the cap in FY 2023, and only 12 that will receive a cap increase of greater than 5 percent. Therefore, any potential difference in the wage index value hospitals in the same labor market area receive would likely be minimal and temporary. We proposed to examine the effects of this policy on an ongoing basis to assess whether it effectively and appropriately accomplishes the goal of increasing predictability and stability in IPPS payments, and may reevaluate this issue in the future. However, at this time, we do not believe that creating a policy modification for hospitals that were not assigned a wage index in the prior year is necessary.

After consideration of the public comments we received, for the reasons discussed in this final rule and in the proposed rule, we are finalizing as proposed, without modification, our wage index cap policy and the associated budget neutrality adjustment. We will apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. A hospital's wage index for FY 2023 will not be less than 95 percent of its final wage index for FY 2022, and for subsequent years, a hospital's wage index will not be less than 95 percent of its final wage index for the prior FY. For example, a hospital that received a wage index of 1.0000 on September 30, 2022 could not receive a wage index of less than 0.9500 for FY 2023. If a hospital's prior FY wage index is calculated with the application of the 5-percent cap, the following year's wage index will not be less than 95 percent of the hospital's capped wage index in the prior FY. Except for newly opened hospitals, we will apply the cap for a FY using the final wage index applicable to the hospital on the last day of the prior FY. A newly opened hospital 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.

We are adding 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 will apply the cap in a budget neutral manner through a national adjustment to the standardized amount each fiscal year. Specifically, we will apply a budget neutrality adjustment to ensure that estimated aggregate payments under our 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 wage index cap policy. We note that the budget neutrality adjustment has been updated based on the final rule data. We refer readers to the Addendum of this final rule for further information regarding the budget neutrality calculations.

IV. 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 final 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.

Since FY 2014, section 1886(r) of the Act has required that hospitals that are eligible for DSH payments under section 1886(d)(5)(F) of the Act receive 2 separately calculated payments:

Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital (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.” In brief, the uncompensated care payment for an individual hospital is determined as the product of the following 3 factors:

Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act.

Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or 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 the 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 noted FY 2019 SSI ratios available on the CMS website were the most recent available SSI ratios at the time of developing the proposed rule. If more recent data on DSH eligibility become available before the final rule, we stated that we would use such data in the final rule. For this FY 2023 IPPS/LTCH PPS final rule, the FY 2020 SSI ratios were available at the time of developing this final rule. Our final determination of a hospital's eligibility for uncompensated care payments will be based on the hospital's actual DSH status at cost report settlement for FY 2023.

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 the FY 2023 IPPS/LTCH PPS proposed rule, we discussed 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.

Eligible hospitals include the following:

• Subsection (d) Puerto Rico hospitals that are eligible for DSH payments also are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act (78 FR 50623 and 79 FR 50006).

• 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. 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.

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. We note that there has not been legislation at the time of development of this final 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.

Ineligible hospitals include the following:

• Maryland hospitals are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the payment methodology of section 1886(r) of the Act because they are not paid under the IPPS. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41402 through 41403), CMS and the State have entered into an agreement to govern payments to Maryland hospitals under a new payment model, the Maryland Total Cost of Care (TCOC) Model, 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.

• 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 final 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 final rule, we believe 26 hospitals may participate in the demonstration program at the start of FY 2023.

We received no comments on our policy of using the best available data regarding a hospital's estimated DSH status for purposes of determining eligibility for interim uncompensated care payments for FY 2023. Our final determination of a hospital's eligibility for uncompensated care payments for FY 2023 will continue to be based on the hospital's actual DSH status at cost report settlement for the payment year.

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.

We received public comments that were outside the scope of this proposed rule. Many of these comments related to structural changes to the DSH program. For example, a commenter recommended creating new Conditions of Participation and Conditions of Coverage related to the DSH program. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing them in this final rule.

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 this final rule, we discuss the data sources and methodologies for computing each of these factors, our final policies for FYs 2014 through 2022, and our final policies for FY 2023.

1. 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 the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28383 through 28385), in order to determine Factor 1 in the uncompensated care payment formula for FY 2023, we proposed 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, we proposed that these estimates would not be revised or updated subsequent to the publication of our final projections in this 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 final 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 were discussed in the proposed rule in the table titled “Factors Applied for FY 2020 through FY 2023 to Estimate Medicare DSH Expenditures Using FY 2019 Baseline” (87 FR 28384).

For purposes of calculating the proposed Factor 1 and modeling the impact of the 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 the 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, was 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, was 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 the proposed rule, we proposed that Factor 1 for FY 2023 would be $9,949,258,556.56, which was equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2023 ($13,266 million minus $3,316 million). In the FY 2023 IPPS/LTCH PPS proposed rule, we noted that consistent with our approach in previous rulemakings, OACT intended to use more recent data that may become available for purposes of projecting the final Factor 1 estimates for this FY 2023 IPPS/LTCH PPS final rule.

As we noted in the FY 2023 IPPS/LTCH PPS proposed 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 rules 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 indicated that we expected that the Midsession Review would 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).

Comment: As in previous years, a concern and/or request expressed by some commenters was the need for greater transparency in the methodology used by CMS and OACT to calculate Factor 1. Several commenters specifically requested that a detailed description of the methodology and the data behind the assumptions be made public. Commenters requested that this information be provided in advance of the publication of the final rule and in the IPPS proposed rule each year going forward, so that the data is available to replicate CMS' DSH calculation and comment sufficiently in future years.

In particular, commenters requested further explanation regarding the estimate of the “Other” factor used to estimate Medicare DSH payments. Commenters noted that the rule did not discuss why the “Other” factor varies so much over successive rule making cycles.

Additionally, a commenter asserted that the lack of opportunity afforded to hospitals to review the data used in rulemaking is in violation of the Administrative Procedure Act and expressed concerns about the lack of transparency in how Factor 1 is calculated, arguing that hospitals cannot meaningfully comment on the methodology given the lack of details. In particular, this commenter asserted that the proposed rule neither provided sufficient details nor an explanation of the treatment of Medicaid expansions in the calculation for Factor 1.

Response: We thank the commenters for their input. We disagree with commenters' assertion regarding the lack of transparency with respect to the methodology and assumptions used in the calculation of Factor 1. As explained in the FY 2023 IPPS/LTCH PPS proposed rule and in this section of this final rule, we have been and continue to be transparent about the methodology and data used to estimate Factor 1. Regarding the commenters who reference the Administrative Procedure Act, we note that, under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule or a description of the subjects and issues involved. In this case, the FY 2023 IPPS/LTCH PPS proposed rule did include a detailed discussion of our proposed Factor 1 methodology and the data sources that would be used in making our final estimate. Accordingly, we believe interested parties were able to meaningfully comment on our proposed estimate of Factor 1.

To provide context, we note that Factor 1 is not estimated in isolation from other projections made by OACT. The Factor 1 estimates for the proposed rules are generally consistent with the economic assumptions and actuarial analyses 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. For additional information on the specific economic assumptions used in the Midsession Review of the President's FY 2023 Budget, we refer readers to the “Midsession Review of the President's FY 2023 Budget” also available on the Office of Management and Budget website at: https://www.whitehouse.gov/omb/budget. We recognize that our reliance on the economic assumptions and actuarial analyses used to develop the President's Budget and the Midsession Review of the President's Budget in estimating Factor 1 has an impact on hospitals, health systems, and other impacted parties who wish to replicate the Factor 1 calculation, such as modeling the relevant Medicare Part A portion of the budget. Yet, we believe commenters are able to meaningfully comment on our proposed estimate of Factor 1 without replicating the budget.

For a general overview of the principal steps involved in projecting future inpatient costs and utilization, we refer readers to the “2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” available on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html 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 which is available on the CMS website at: https://www.cms.gov/files/document/2018-report.pdf for a discussion of general issues regarding Medicaid projections. Additionally, as described in more detail later in this section, in the FY 2023 IPPS/LTCH PPS proposed rule, we included information regarding the data sources, methods, and assumptions employed by the actuaries in determining the OACT's estimate of Factor 1. In summary, we indicated the historical HCRIS data update OACT used to identify Medicare DSH payments. We explained that the most recent Medicare DSH payment adjustments provided in the IPPS Impact File were used, and we provided the components of all update factors that were applied to the historical data to estimate the Medicare DSH payments for the upcoming fiscal year, along with the associated rationale and assumptions. This discussion also included a description of the “Other” and “Discharges” assumptions, as well as additional information regarding how we address Medicaid and CHIP expansion.

For further information on our assumptions regarding Medicaid expansion in the Factor 1 calculation, we provide a discussion of more recent estimates and assumptions regarding the Medicaid expansion as part of the discussion of the final Factor 1 for FY 2023. This discussion also incorporates the estimated impact of the COVID-19 public health emergency (PHE.)

Comment: Many commenters questioned the proposed rule's estimate of the “Discharge” component of the Factor 1 calculation. Commenters requested clarity on the Factor 1 calculations, which assume small increases in discharge volume for FY 2022 and FY 2023.

Commenters noted that they are seeing trends that indicate that FY 2022 and FY 2023 discharge volumes, even though lower than pre-PHE levels, will continue to increase substantially. Some commenters urged CMS to reflect the same assumptions that the agency described in the “April 2022 Announcement of CY 2023 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies,” where the agency made assumptions that Medicare “utilization will begin to rebound.” Other commenters referenced a Kaufman Hall study, and stated that adjusted national patient volume has increased by 18 percent from February 2022 to March 2022. A commenter referred to their own analysis of Medicare-Fee-For-service (FFS) claims data from the Chronic Condition Warehouse (CCW), which indicated that non-COVID-19 inpatient hospital discharge volume increased 22 percent from February to March 2022. Other commenters provided anecdotal data from their own hospitals and service regions that show continued sustained volumes in 2022. These commenters urged CMS to carefully monitor changes in discharge volume when estimating Factor 1.

Commenters also urged CMS to use a later update to the claims data to capture more of the increases in utilization that are anticipated for FY 2022. Commenters noted that the “Discharge” factor used by the OACT in estimating DSH expenditures was based on the December 2021 update of the MedPAR file, which includes data impacted by the PHE from FY 2021 and the first three months of FY 2022. Some commenters requested that CMS adjust the data used in the Factor 1 calculation for COVID-19 PHE impacts while others suggested that CMS exclude data from the latter parts of CY 2021 and early CY 2022. Other commenters urged CMS to consider excluding FY 2020 and FY 2021 discharges from the FY 2023 Factor 1 calculation, as data from those years include atypical trends in Medicare discharges due to the COVID-19 PHE.

Commenters pointed out that omitting FY 2020 and FY 2021 data would be consistent with CMS' exclusion of FY 2020 data in setting FY 2022 payment rates and the agency's proposal to exclude FY 2020 data from the per-discharge calculation in the FY 2023 IPPS/LTCH PPS proposed rule. Further, some commenters noted that the completion factor CMS used to estimate discharge volumes for FY 2021 and FY 2022 may not fully account for discharges due to billing delays as a result of PHE-related staffing shortages.

Finally, two commenters requested that for the FY 2024 IPPS/LTCH PPS proposed rule, CMS consider using the latest available data for the factors used to estimate Medicare DSH expenditures for purposes of calculating Factor 1 to avoid as much change in the estimate of Factor 1 between the proposed and final rules for FY 2024.

Some commenters also raised concerns about the “Case Mix” update factor used in the proposed FY 2023 Factor 1 calculation. Commenters stated that the proposed “Case Mix” update factor underestimates the complexity of patients returning to seek care following postponement or deferral of care during the COVID-19 PHE. Commenters also stated that CMS was using assumptions that are inconsistent with those that were used to develop the 2023 Medicare Advantage capitation payments, where the agency indicated an expectation that utilization will rebound in 2022 and finalized a risk score increase of 3.5 percentage points with the underlying assumption that patients put off seeking medical care throughout the PHE. Other commenters cited data from Kaufman Hall that indicate that hospitals are beginning to see more complex patients as shown by a nearly 5 percent increase in the average hospital length of stay in 2022 as compared to 2021.

Response: We thank the commenters for their input on the impact of the COVID-19 PHE on the factors used to estimate DSH payments for FY 2023. In updating our estimate of Factor 1 for this final rule, we considered, as appropriate, the same set of factors that we used in the proposed rule, which reflects the impact of the COVID-19 PHE. We then updated estimates for the “Discharges” and “Case Mix” factors to incorporate the latest available data. We provide further details on the updated Factor 1 estimate and data sources as part of the discussion of the final Factor 1 estimate for FY 2023 in this section of the rule.

Regarding the comments requesting that we exclude and/or mitigate the impacts of the COVID-19 PHE when estimating Factor 1 for FY 2023, we note that the statute specifies that Factor 1 is based on the amount of disproportionate share payments that would otherwise be made to subsection (d) hospitals for the fiscal year. As discussed further in this section, OACT's estimates of Medicare DSH payments used in the development of Factor 1, reflect the estimated impact of the COVID-19 PHE on DSH payments during FY 2023.

We also note that, with regard to the commenters' questions and concerns about the use of completion factors to adjust preliminary data, OACT assumed a discharge completion factor of 0 percent for FY 2020 and 0 percent for FY 2021. We believe these assumptions are consistent with historical patterns of completion factors that have been determined for discharges and appropriately account for incomplete claims data. We do not believe that excluding data from certain periods is necessary to estimate DSH payments during FY 2023 for purposes of the Factor 1 calculation, as required by the statute.

Regarding the comments requesting that CMS apply the same assumptions the agency made when setting Medicare Advantage payment rates, we note that Medicare Advantage and Medicare FFS are distinct programs. Accordingly, the estimates for the “Discharges” and “Case Mix” factors used to estimate Medicare DSH expenditures incorporate OACT's analyses of “Discharges” and “Case Mix” using only claims from the Medicare FFS program rather than claims from the Medicare Advantage program.

In response to commenters' request that CMS use the latest available estimates of historical data to avoid as much change in the DSH Factor 1 estimate between the proposed and final rules for FY 2024, we believe that the use of the most recent available data at the time of the proposed and final rulemaking is appropriate to calculate Factor 1 and consistent with our approach in previous rulemakings. In this final rule, OACT has updated the estimate of Factor 1 with more recent economic assumptions and actuarial analyses.

Comment: Commenters expressed concern regarding the proposed $800 million reduction in the amount available to make uncompensated care payments in FY 2023 compared to FY 2022. Commenters stated that this reduction does not align with CMS' objective to reduce healthcare inequities as the reduction disproportionately impacts safety-net hospitals, which primarily serve low income and vulnerable populations.

Response: The statute specifies that Factor 1 is based on the amount of disproportionate share payments that would otherwise be made to subsection (d) hospitals for the fiscal year. Because our estimate of Factor 1 is based on the best available data regarding the amount of DSH payments that would otherwise be made during FY 2023, we believe it is appropriate and consistent with the requirements of the statute.

After consideration of the public comments we received, we are finalizing, as proposed, the methodology for calculating Factor 1 for FY 2023. We discuss the resulting Factor 1 amount for FY 2023 in this section. For this final rule, OACT used the most recently submitted Medicare cost report data from the March 31, 2022, update of HCRIS to identify Medicare DSH payments and the most recent Medicare DSH payment adjustments provided in the Impact File published in conjunction with the publication of the FY 2023 IPPS/LTCH PPS final rule and applied update factors and assumptions for future changes in utilization and case-mix to estimate Medicare DSH payments for the upcoming fiscal year.

The June 2022 OACT estimate for Medicare DSH payments for FY 2023, without regard to the application of section 1886(r)(1) of the Act, was approximately $13.949 billion. This estimate excluded Maryland hospitals participating in the Maryland All-Payer Model, hospitals participating in the Rural Community Hospital Demonstration, and SCHs paid under their hospital-specific payment rate. Therefore, based on this June 2022 estimate, the estimate of empirically justified Medicare DSH payments for FY 2023, with the application of section 1886(r)(1) of the Act, was approximately $3.487 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, the final Factor 1 for FY 2023 is $10,461,731,029.40, which is equal to 75 percent of the total amount of estimated Medicare DSH payments for FY 2023 ($13,948,974,705.87 minus $3,487,243,676.47).

The Office of the Actuary's estimates of DSH expenditures for FY 2023 for this final rule began with a baseline of $13.814 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 data reflect 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 incorporate the actual impact and estimated future impact of the COVID-19 pandemic. The case-mix column shows the estimated change in case-mix for IPPS hospitals. The case-mix figures for FY 2020 and FY 2021 are based on actual claims data adjusted by a completion factor. We note that these claims data reflect the impact of the pandemic. The case-mix figure for FY 2022 is based on preliminary data and the case-mix figure for FY 2023 is an assumption based on recent trends recovering back to the long-term trend. The case-mix factor figures for FY 2020 to FY 2023 incorporate 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 estimated changes in Medicaid enrollment. We note that this factor 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. In the future, the assumptions regarding Medicaid enrollment may change based on actual enrollment in the States.

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/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/MedicaidReport. We note that, in developing their estimates of the effect of Medicaid enrollment increases on Medicare DSH expenditures, our actuaries have assumed that the increases in the number of Medicaid enrollees result in increases in Medicare DSH expenditures at the same rate as historical relationships have shown. 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 still ongoing.

The following table shows the factors that are included in the “Update” column of the previous table:

2. Calculation of 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 proposed 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 projected growth rates in enrollment for Medicare, Medicaid, and CHIP are developed to be consistent with the 2021 Medicare Trustees Report, updated where possible with more recent data. Projected rates of growth in enrollment for private health insurance and the uninsured are based largely on OACT's econometric models, which rely on a set of macroeconomic assumptions that are generally based on the 2021 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) Factor 2 for FY 2023

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, 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 the 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 proposed 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 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. In the FY 2023 IPPS/LTCH PPS proposed rule, we noted that we might also consider the use of more recent data that might become available for purposes of estimating the rates of uninsurance used in the calculation of the final Factor 2 for FY 2023. In the proposed rule, we outlined the calculation of the proposed Factor 2 for FY 2023 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 proposed that Factor 2 for FY 2023 would be 65.71 percent.

The proposed FY 2023 uncompensated care amount was $9,949,258,556.56 * 0.6571 = $6,537,657,797.52.

In addition, we stated that it had 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 proposed 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 explained that 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 invited 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).

Comment: The majority of commenters discussed Factor 2 in the context of the impact of the temporary COVID-19 PHE provisions, such as the Families First Coronavirus Response Act's Medicaid continuous coverage requirement and the American Rescue Plan's Marketplace enhanced premium tax credits, on the uninsured rate for FY 2023. Commenters questioned CMS' estimates for the FY 2023 uninsured rate and urged the Office of the Actuary (OACT) to update its estimate of Factor 2 to account for the projected increases in the number of uninsured as the COVID-19 PHE provisions expire. Many commenters questioned CMS' estimated decrease in the uninsured rate from 9.6 percent in the FY 2022 IPPS/LTCH PPS final rule to 9.2 percent in FY 2023 IPPS/LTCH PPS proposed rule and stated that they expect increases in the uninsured rates in their communities. Further, many commenters noted that the proposed decrease of $800 million in uncompensated care payments from the level in FY 2022 was likely, in part, driven by the projected uninsured rate. To that end, commenters cited CMS' statement in the proposed rule that the agency might consider more recent data that may have become available for the calculation of Factor 2 in FY 2023 and urged CMS to use more recent data sources to account for the anticipated increase in the uninsured rate. One commenter requested that CMS consider temporarily changing its methodology for calculating Factor 2 to better account for individuals who may lose their healthcare coverage when various PHE provisions expire and noted that CMS has taken similar approaches in other Medicare payment areas affected by the COVID-19 PHE.

Many commenters referenced various data sources and analyses, such as the Kaiser Family Foundation, the Urban Institute, and HHS' Assistant Secretary for Planning and Evaluation (ASPE) which project 5 to 16 million individuals will lose their Medicaid coverage and another 3 million additional individuals will lose their marketplace insurance in FY 2023. Accordingly, these commenters requested that CMS increase Factor 2 to reflect the anticipated increase in the uninsured population as suggested by these sources. In addition, one commenter requested that CMS exclude FY 2020 and FY 2021 data when calculating the uninsured rate to eliminate any irregularities due to the COVID-19 PHE.

Response: We thank the commenters for their input regarding the estimate of Factor 2 for FY 2023 included in the proposed rule. In response to commenters who requested that we update the estimate of the FY 2023 uninsured rate to fully consider any changes due to the anticipated expirations of the PHE and the Marketplace premium tax credits, we note that the rate of uninsurance used for the calculation of Factor 2 for the proposed rule, as well as for this final rule, reflects CMS' latest analyses and projections. The projected enrollment trends across all insurance types, as well as for the uninsured, take into account the expected impacts of current law including the termination of the Families First Coronavirus Response Act's continuous coverage provision for Medicaid (assumed to expire when the PHE ends in 2022 and to be accompanied by a one-year transition of disenrollments from the program for those no longer eligible) and the conclusion of the enhanced Marketplace premium tax credits. We believe that this NHEA projection, on balance, best meets all of our considerations for ensuring that the data source that underlies the Factor 2 calculation of the uninsured rate meets the statutory requirement that the estimate be based on data sources that the Secretary determines to be appropriate, is certified by CMS' Chief Actuary, and provides a reasonable estimate for the rate of uninsurance that is available in conjunction with the IPPS rulemaking cycle. We refer readers to OACT's memorandum “Certification of Rates of Uninsured” and OACT's report titled “Projections of National Health Expenditure: Methodology and Model Specification” for further details on the methodology and updated assumptions used in the calculation of the projected uninsured rate.

We disagree with comments' suggestions that we exclude FY 2020 and FY 2021 data, or any data from the COVID-19 PHE period, for purposes of calculating the uninsured rate for FY 2023. The projections that underlie the FY 2023 Factor 2 calculation should take into consideration, and include, those elements that are expected to influence health insurance enrollment trends during FY 2023, and the resulting rate of uninsured, including the unique circumstance associated with the COVID-19 pandemic.

Comment: Some commenters suggested that CMS use a different estimate of the uninsured rate to calculate Factor 2 for FY 2023, while acknowledging that OACT accounted for the expiration of the COVID-19 PHE provisions in its uninsurance estimates. These commenters indicated that because the uninsured percent change serves as a proxy for the change in the amount of uncompensated care that hospitals provide, it would be appropriate for CMS to apply a case-mix adjuster to the uninsured rate for FY 2023 to account for the rise in resources that will be used by hospitals to provide care to uninsured individuals who may have delayed their care during the COVID-19 PHE.

A few commenters requested that CMS maintain the same level of uncompensated care funding as in FY 2022 ($7.2 billion) while another commenter requested that CMS consider delaying any proposed changes to the uncompensated care payment calculations until analyses can be performed to determine the actual uninsured rate and related costs following the end of the COVID-19 PHE. Other commenters urged CMS to be transparent in its calculation of Factor 2 and how it accounts for Medicaid expansion populations, while others urged CMS to be transparent regarding the data sources used for calculating Factor 2 and the assumptions behind the uninsured rate.

Response: Regarding the commenters that requested modifications to the uninsured rate, such as multiplying by a case-mix factor, we note that these recommendations would not be consistent with the statutory requirements in section 1886(r)(2)(B)(ii). The statute explicitly specifies that Factor 2 be based on 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 and the percent of individuals who were uninsured in the most recent period for which data are available.

Regarding the comments recommending that CMS maintain total uncompensated care payments at the FY 2022 level or delay any changes to the amount available to make uncompensated care payments, we believe estimating Factor 2 based on the best available data regarding the expected rate of uninsurance in FY 2023 is appropriate and consistent with the statute.

In response to the comments concerning transparency, we reiterate that we have been and continue to be transparent with respect to the methodology and data used to estimate Factor 2. The FY 2023 IPPS/LTCH PPS proposed rule included a detailed discussion of our proposed Factor 2 methodology, as well as the data sources that would be used in making our final estimate. For purposes of this final rule, we are using projected rates of uninsurance for CY 2022 and CY 2023, which account for the effects of the COVID-19 PHE and any legislative impacts arising from the end of the COVID-19 PHE on insurance coverage. Section 1886(r)(2)(B)(ii) of the Act permits us to use a data source other than CBO estimates to determine the percent change in the rate of uninsurance beginning in FY 2018. We continue to believe that the NHEA data and methodology used to estimate Factor 2 are transparent and best meet all of our considerations for ensuring reasonable estimates for the rate of uninsurance that are available in conjunction with the IPPS rulemaking cycle. Accordingly, we continue to believe that it is appropriate to calculate Factor 2 based on the NHEA-based projection of the FY 2023 rate of uninsurance as we proposed.

After consideration of the public comments we received, we are finalizing, as proposed, the Factor 2 calculation for FY 2023. The estimates of the percent of uninsured individuals were produced and certified by OACT for purposes of the FY 2023 IPPS proposed rule. Those published CY and estimated FY rates continue to be the latest available projections.

The calculation of the final Factor 2 for FY 2023 using a weighted average of OACT's certified estimates 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).

Therefore, the final Factor 2 for FY 2023 is 65.71 percent. The final FY 2023 uncompensated care amount is $10,461,731,029.40* 0.6571 = $6,874,403,459.42.

We did not receive any comments on our proposed technical change to the regulation governing the calculation of Factor 2. We are finalizing the update to § 412.106(g)(1)(ii), as proposed.

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. For further information, we refer the readers to the following website. https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202206-0938-017.

(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 at 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.

In the FY 2022 IPPS/LTCH PPS final rule, 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) 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 1 year of data to determine Factor 3 would lead to significant variations in year-to-year uncompensated care payments. Some stakeholders recommended the use of 2 years of historical Worksheet S-10 data (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 1 fiscal year under the revised reporting instructions. The audits of FY 2019 cost reports began in 2021 and those audited reports were available in time for the development of the FY 2023 IPPS/LTCH PPS 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, in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to determine Factor 3 for FY 2023 using the average of the audited FY 2018 and audited FY 2019 reports. We stated our belief that this proposal would address 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 3 years of audited data, we indicated that we expect FY 2024 will be the first year that 3 years of audited data will be available at the time of rulemaking. Accordingly, for FY 2024 and subsequent fiscal years, we proposed to use a 3-year average of the uncompensated care data from the 3 most recent fiscal years for which audited data are available to determine Factor 3. 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 3 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. Then, we would calculate an average of those proportions to determine the hospital's Factor 3 for the applicable Federal fiscal year. We explained that we believe the 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 the approach that we followed when multiple years of data were previously used in the Factor 3 methodology, we proposed that if a hospital does not have data for all 3 years used in the Factor 3 calculation, we would determine Factor 3 based on an average of the hospital's available data.

We invited 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 3 most recent years of audited Worksheet S-10 data starting in FY 2024.

Comment: Commenters expressed continued support for the general use of Worksheet S-10 data to calculate each hospital's share of uncompensated care costs in FY 2023 and future years. Some commenters also noted their long-standing support for using audited Worksheet S-10 data to promote an accurate and consistent calculation of uncompensated care costs. One commenter, who supported using Worksheet S-10 data, stressed the importance of ongoing refinements to the audit process to ensure data accuracy, while another recommended that CMS regularly assess and identify unusual or irregular trends in the data.

Response: We appreciate the support for our proposal to use Worksheet S-10 data to calculate Factor 3 for FY 2023 and future years. Regarding those comments that noted the importance of ongoing refinements to the Worksheet S-10 audit process, we reiterate our commitment to continue working with the MACs and providers on audit improvements, including changes to increase the efficiency of the audit process and build on the lessons learned in previous audit years. As noted in the FY 2023 IPPS/LTCH PPS proposed rule, we believe that, on balance, Worksheet S-10 data are the best available data to use for calculating Factor 3 for FY 2023 and subsequent fiscal years.

Comment: An overwhelming majority of commenters expressed support for CMS' proposal to calculate Factor 3 for FY 2023 based on a two-year average of audited FY 2018 and FY 2019 Worksheet S-10 data. These commenters also expressed support for the proposal to transition to use of a three-year average of the most recent available audited Worksheet S-10 data for FY 2024 and subsequent fiscal years. Some commenters explicitly stated that they agreed with CMS that the use of only one year of data could lead to undue fluctuations in year-to-year uncompensated care payments. Supporters of these proposals also specified several benefits from the use of a multi-year average of Worksheet S-10 data, such as minimizing year-to-year volatility, ensuring stability in future uncompensated care payments, and mitigating the effect of irregular trends and data anomalies, like the COVID-19 PHE. One commenter suggested that CMS consider working with hospitals in future years to ensure that Worksheet S-10 data from the COVID-19 PHE period is reported appropriately, given the PHE's significant impact on the utilization of healthcare services. To this end, one commenter recommended that CMS consider incorporating FY 2020 Worksheet S-10 data into the multi-year average for FY 2023 once the data has been audited, as this approach would be more reflective of current healthcare costs.

In contrast, only a handful of commenters expressed opposition to using a two-year average of audited FY 2018 and FY 2019 Worksheet S-10 data for FY 2023 and a three-year average of Worksheet S-10 data to calculate uncompensated care payments moving forward. One commenter indicated that using a three-year average to calculate FY 2024 uncompensated care payments would dilute the impact of the COVID-19 PHE on the FY 2020 Worksheet S-10 data. This commenter asserted that using a multi-year average would benefit hospitals that received the highest amount of Health Resources & Services Administration (HRSA) subsidies and hospitals with lower uncompensated care costs, while harming hospitals with higher uncompensated care cost data in FY 2020. The commenter also requested that CMS provide expedited procedures for reopening and correcting Worksheet S-10 data for the cost reporting periods that will be used to calculate uncompensated care payments in FY 2024 and future years.

Another commenter noted that the FY 2022 methodology based on one year of audited Worksheet S-10 data was adequate and should not be modified to a multi-year average, indicating that inconsistencies in the methodology used to calculate Factor 3 from year to year add a further burden to hospitals' ability to understand and predict their uncompensated care payments. This commenter also urged CMS to reexamine the continued use of FY 2018 Worksheet S-10 data to determine payments for FY 2022, FY 2023, and FY 2024, as it may benefit hospitals that provided elevated levels of uncompensated care in FY 2018, and negatively impact those that provided less uncompensated care.

Finally, some commenters suggested alternative approaches to calculating Factor 3 of the uncompensated care payment calculation that went beyond the blending of historical Worksheet S-10 data for multiple fiscal years.

Response: We thank commenters who expressed their support for our proposal to use a two-year average of audited FY 2018 and FY 2019 Worksheet S-10 data to determine each hospital's share of uncompensated care costs in FY 2023 and to use of a 3-year average of audited Worksheet S-10 data starting in FY 2024. As explained in the FY 2023 IPPS/LTCH PPS proposed rule, we believe that using a multi-year average of Worksheet S-10 data will provide assurance that hospitals' uncompensated care payments remain stable and predictable and will not be subject to unpredictable swings and anomalies in a hospital's uncompensated care costs.

We also believe that our proposal to use multiple years of data is responsive to past commenters' requests for the use of multiple years of audited data. We disagree with the commenter who stated that modifying the uncompensated care payment methodology to use multiple years of data would put undue burden on a hospital's ability to understand, budget, and forecast as we believe that our proposal to use a multi-year average of Worksheet S-10 data to determine Factor 3 for FY 2023 and subsequent fiscal years is responsive to past recommendations for smoothing fluctuations.

In relation to the commenter who noted that the multi-year average will benefit hospitals that received the highest amount of HRSA subsidies and hospitals with lower uncompensated care costs, we note that cost reporting data from the COVID-19 PHE time period is not yet available to be analyzed. We believe it would be premature to attempt, in this rulemaking, to modify the methodology for determining uncompensated care payments for a future year, specifically to address the potential impact of the PHE-related subsidies.

In response to the request that we provide expedited procedures for reopening and correcting Worksheet S-10 data that will be used in the Factor 3 calculation, we note that we do not intend to establish fixed timelines for reopenings across MACs, so we can retain the flexibility to use our limited audit resources to address and prioritize audit needs across all CMS programs each year. However, we note that MACs work closely with hospitals regarding reopenings.

Regarding commenters' suggestions for alternative approaches to calculating Factor 3 beyond the previously considered methodological concepts for the blending of historical Worksheet S-10 data, we appreciate commenters' input and note that we may consider these suggestions in future rulemaking.

After consideration of the comments received, we are finalizing our proposal to use a two-year average of audited FY 2018 and FY 2019 Worksheet S-10 data to calculate Factor 3 in FY 2023 and a three-year average of audited data from the most recent fiscal years for which audited data are available to determine Factor 3 in subsequent years. We also note that the number of audited hospitals continues to increase year to year and, as a result, we believe data from Worksheet S-10 will improve in reliability over time. However, we will continue to audit additional years of the Worksheet S-10 data and monitor the stability of uncompensated care payments as we move forward with using a multi-year average of audited Worksheet S-10 data for Factor 3 calculations.

As discussed in the FY 2023 IPPS/LTCH PPS proposed 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 and 45243). 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).

In the FY 2023 IPPS/LTCH PPS proposed rule, we acknowledged that to the extent 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 expressed our concern 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 10 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 stated that we could 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 proposed to discontinue the use of low-income insured days as a proxy for the uncompensated care costs of these hospitals and proposed to use the same data to determine Factor 3 for IHS and Tribal hospitals and Puerto Rico hospitals as for other hospitals. Specifically, for FY 2023, 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 sought 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 also sought 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 recognized 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 also proposed 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 final rule for a complete discussion of this 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. As we explained in the FY 2023 IPPS/LTCH PPS proposed rule, we considered this recent input along with previous input from stakeholders in the development of our proposed policies. We also welcomed additional input from stakeholders regarding the unique circumstances of IHS/Tribal hospitals and Puerto Rico hospitals and/or any mitigating factors, and noted that this input would 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.

We received comments on 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. Due to the close interrelationship between this proposal and our proposal to establish a new supplemental payment for IHS/Tribal hospitals and Puerto Rico hospitals, we discuss those comments, along with the comments received on the proposed new supplemental payment, and set forth our final policies in Section IV.E of this final rule.

For purposes of the FY 2023 proposed rule, we used the December 2021 HCRIS extract to calculate Factor 3. We noted that we intended to use the March 2022 update of HCRIS to calculate Factor 3 for the FY 2023 IPPS/LTCH PPS final rule. However, we stated that 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 this FY 2023 IPPS/LTCH PPS final rule.

We received comments regarding the uncompensated care costs definition and Worksheet S-10 cost report instructions.

Comment: With regard to the definition of uncompensated care, several commenters urged CMS to include unreimbursed costs (shortfalls) from Medicaid in the definition of uncompensated care. Specifically, some commenters urged CMS to account for Medicaid shortfalls and incorporate Line 31 of Worksheet S-10 along with already-utilized Line 30. In contrast, one commenter agreed with CMS that Medicaid shortfalls, as currently reported on Worksheet S-10, should not be included in the estimation of uncompensated care costs. Instead, the commenter recommended that the agency revise Worksheet S-10 so data on Medicaid shortfalls better resemble actual shortfalls incurred by hospitals. The commenter further noted that such data will be increasingly useful for informational purposes as previously uninsured individuals gain access to Medicaid. Other commenters proposed incorporating social determinants of health methodologies into uncompensated care costs by including variables that describe socioeconomic disadvantage such as accounting for costs incurred by hospitals to improve access to healthy foods, transportation, health screenings, technology assistance, and similar community needs. Notably, another commenter suggested that CMS redefine uncompensated care to align with the definitions used to determine community benefit spending under the Internal Revenue Code.

Response: We appreciate commenters' suggestions for revisions and/or modifications to Worksheet S-10. We will consider the concerns raised by commenters as part of future cost report clarifications and will make modifications as necessary to further improve and refine the information that is reported on Worksheet S-10 to support collection of the information necessary to implement section 1886(r)(2) of the Act.

With regard to the comments requesting that payment shortfalls from Medicaid be included in uncompensated care cost calculations, we continue to believe there are compelling arguments for excluding such shortfalls from the definition of uncompensated care. First, we note that we did not propose any changes to the definition of uncompensated care costs, which was first adopted in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38215 through 38217) 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). Additionally, key interested parties (including MedPAC) do not consider Medicaid shortfalls in their definition of uncompensated care. Furthermore, we continue to believe that it is most consistent with section 1886(r)(2) of the Act for Medicare uncompensated care payments to target hospitals that incur a disproportionate share of uncompensated care for patients with no insurance coverage. We also note that even if we agreed that it would be appropriate to adjust the definition of uncompensated care to include Medicaid shortfalls, this would not be a feasible option at this time due to computational limitations. Specifically, computing such shortfalls is operationally problematic because Medicaid pays hospitals a single DSH payment that, in part, covers the hospital's costs for providing care to the uninsured and in part covers estimates of the Medicaid “shortfalls.” Therefore, it is not clear how CMS would determine how much of the “shortfall” is left after the Medicaid DSH payment is made. In addition, in some States, hospitals return a portion of their Medicaid revenues to the State via provider taxes and receive supplemental payments in return (along with the federal match), making the computation of “shortfalls” even more complex.

Regarding the request that we include costs incurred by hospitals to address social determinants of health in the definition of uncompensated care costs, we have consistently stated in past final rules (85 FR 58826 and 86 FR 45239) in response to similar comments that we believe the purpose of uncompensated care payments is to provide additional payment to hospitals for treating the uninsured, not for other costs incurred, including costs associated with addressing social determinants of health, as commenters have suggested. Accordingly, we do not believe changing the calculation of uncompensated care costs is appropriate, at this time.

Comment: Commenters requested that CMS include all patient care costs when calculating the cost-to-charge ratio (CCR) used in Worksheet S-10 and urged CMS to include costs incurred for graduate medical education (GME), costs of paying provider taxes associated with Medicaid revenue, and costs of providing physician and other professional services when calculating the CCR used to determine uncompensated care costs on Worksheet S-10 in order to improve the accuracy of that CCR.

Response: As we have stated in past rules (84 FR 42378, 85 FR 58826, and 86 FR 45239) in response to similar requests that we modify the CCR used on Worksheet S-10, we continue to believe the CCR calculation that is used in Worksheet S-10 is appropriate. Regarding the request that we include GME costs, costs of paying provider taxes associated with Medicaid revenue, and costs of providing physician and other professional service when calculating CCR used in Worksheet S-10, we note that because the CCR on Line 1 of Worksheet S-10 is obtained from Worksheet C, Part I, and is also used in other IPPS rate setting contexts (such as high-cost outliers and the calculation of the MS-DRG relative weights) from which it is appropriate to exclude the costs associated with supporting GME costs and the costs of physician and professional services and costs of paying provider taxes, we remain reluctant to adjust CCRs in the narrower context of calculating uncompensated care costs. Therefore, as stated in past final rules, we continue to believe that it is not appropriate, at this time, to modify the calculation of the CCR on Line 1 of Worksheet S-10 to include any additional costs in the numerator of the CCR calculation.

Comment: One commenter stated that large teaching hospitals (with 100+ residents) would experience an even larger uncompensated care payment reduction, resulting in underserved and vulnerable populations having less access to transplant programs (as these programs are often operated by large teaching institutions). Another commenter expressed concern that hospitals in Medicaid non-expansion states depend greatly on uncompensated care payments for financial support, and this commenter urged CMS to work with providers and patient advocates in non-expansion states to screen patients for eligibility under either financial assistance policies or premium support under the Affordable Care Act before classifying the case as uncompensated care. The same commenter noted that the equal weighting of bad debt and charity care on the Worksheet S-10 disincentivizes hospitals from ensuring that eligible patients receive charity care, as obtaining the qualification for charity care entails long administrative processes.

Response: We thank commenters for their continued concern regarding the distribution of uncompensated care payments and the impact of reductions in uncompensated care payments on teaching hospitals. However, as stated previously, the purpose of uncompensated care payments is to provide additional payment to hospitals for treating the uninsured. Uncompensated payments are not intended to provide support for other activities that hospitals may undertake. We also note that CMS does not set charity care criteria for hospitals, and within reason, hospitals can establish their own criteria of what constitutes charity care in their financial assistance policies.

Comment: With regard to Worksheet S-10 instructions and guidance, a few commenters commended CMS for its efforts to provide clearer instructions for Worksheet S-10. A few commenters requested that CMS clarify inconsistent Worksheet S-10 instructions so that non-Medicare bad debt is not multiplied by the CCR. These commenters noted that CMS' revised instructions indicate that non-reimbursed Medicare bad debt is not reduced by the CCR, but that CMS' September 2017 transmittal states that non-Medicare bad debt should be multiplied by the CCR. One commenter indicated that such practice is inconsistent with the way non-reimbursable Medicare bad debt is treated.

Response: We appreciate commenters' concerns regarding the need for clarification of the Worksheet S-10 instructions, as well as their suggestions for revisions to improve reporting. We reiterate our commitment to continuing to work with impacted parties to address their concerns regarding Worksheet S-10 instructions and reporting through provider education and further refinement of the instructions as appropriate. We also encourage providers to share with their respective MAC any questions regarding clarifications of instructions, reporting, and submission deadlines.

We continue to believe that, as noted by a commenter, our efforts to refine the instructions and guidance have improved provider understanding of the Worksheet S-10 and added clarity to the instructions. We also recognize that there are continuing opportunities to further improve the accuracy and consistency of the information that is reported on the Worksheet S-10, and to the extent that commenters have raised new questions and concerns regarding the reporting requirements, we will attempt to address them through future rulemaking and/or sub-regulatory guidance and provider outreach. However, as stated in previous rules, we continue to believe that the Worksheet S-10 instructions are now sufficiently clear and allow hospitals to accurately complete Worksheet S-10s.

Regarding the commenters' request that CMS clarify whether non-Medicare bad debt is multiplied by CCR, we believe that the Worksheet S-10 instructions are clear and indicate that the CCR is multiplied by the non-Medicare bad debt amount on line 28.

Regarding the comments requesting specific structural changes to Worksheet S-10 and/or further clarification of the reporting instructions, we note that these comments fall outside the scope of this final rule. We note that a recent PRA package for hospital cost report is available at: https://www.cms.gov/regulations-and-guidancelegislationpaperworkreductionactof1995pra-listing/cms-2552-10.

We received comments regarding Worksheet S-10 data and audits.

Comment: In relation to the accuracy of the Worksheet S-10 data, one commenter urged CMS to refine the instructions for reporting of uncompensated care costs. The commenter's recommendations included that CMS should mitigate the effect of anomalies in the cost data for the COVID-19 PHE period and that CMS should consider the redistributive effects of the COVID-19 PHE for purposes of determining uncompensated care payments in future rulemaking. One commenter recommended that CMS work with impacted providers in upcoming years to ensure that the data from the COVID-19 PHE period is properly understood and correctly reported. Another commenter urged CMS to account for the unpredictability of the COVID-19 PHE, including the emergence of new variants, in determining uncompensated care payments for future years.

Response: In regard to requests for CMS to mitigate the effect of anomalies in FY 2020 through FY 2022 cost report data and account for the unpredictability of the COVID-19 PHE in determining uncompensated care payments for future years, we note that we are finalizing the proposal to use a three-year average of the most recently audited cost report data for FY 2024 and subsequent years. Using the three-year average will smooth the variation in year-to-year uncompensated care payments and lessen the impacts of COVID-19 PHE and future unforeseen events. We also note that the calculations for Factor 1 and Factor 2 reflect the estimated impact of the COVID-19 PHE on DSH payments. Further, we anticipate that there will be less fluctuation in cost report data as the PHE disruptions on healthcare utilization fade. We will continue to monitor the impacts of the PHE and will consider this issue further in future rulemaking, as appropriate.

Comment: Some commenters commended CMS for the agency's efforts to develop and improve the audit process for Worksheet S-10 data. Specifically, one commenter commended CMS for its efforts to audit all hospitals rather than only a portion, while another commenter recommended that CMS expend all the necessary resources to continue to audit Worksheet S-10 data for all DSH eligible hospitals.

Echoing concerns expressed in previous years, commenters encouraged CMS to work with MACs to make the audit process clearer, more consistent, and more complete. The same commenters provided several recommendations, including that CMS establish a standardized process across auditors, develop uniform standards regarding information submission and acceptable documentation to meet audit requirements, develop a transparent timeframe with sufficient lead time, target specific data aspects for the audit, and develop a process for timely appeals. Specifically, one commenter recommended that all hospitals be audited using the same protocols and that having only some hospitals subject to desk reviews is inequitable. A few commenters cited the Medicare wage index audit as a model that CMS could use for Worksheet S-10 audits. One commenter suggested that CMS ensure that Worksheet S-10 audits impose minimal burden and are equitable and uniform across hospitals. The same commenter also suggested that CMS consider making the audit process more transparent by disclosing criteria used to identify hospitals for audits and publishing audit protocols in advance to allow hospitals time and opportunity to respond to audits and address findings. Other recommendations from this commenter included that CMS should conduct audits in advance of using data for payment rate setting such that data are accurate and final, select hospitals for audits in an equitable and systematic way, and review audit findings to ensure that MACs and subcontractors are consistently performing audits according to protocols.

Response: We thank commenters for their feedback on the audits of the FY 2019 Worksheet S-10 data and their recommendations for future audits. As we have stated previously in response to comments regarding audit protocols, these are provided to the MACs in advance of the audit so as to assure consistency and timeliness in the audit process. We began auditing the FY 2019 Worksheet S-10 data for selected hospitals last year so that the audited uncompensated care data for these hospitals would be available in time for use in the FY 2023 IPPS/LTCH PPS proposed rule. We chose to focus the audit on the FY 2019 cost reports in order to maximize the available audit resources. Similarly, as discussed in the FY 2022 IPPS/LTCH PPS final rule, we chose to focus the audits on the FY 2018 cost reports in order to maximize the available audit resources prior to the FY 2022 rulemaking. In response to the consistent feedback from commenters emphasizing the importance of audits in ensuring the accuracy and consistency of data reported on the Worksheet S-10, we have also started the process of auditing FY 2020 Worksheet S-10 data.

We appreciate all commenters' input and recommendations on how to improve our audit process and reiterate our commitment to continue working with the MACs and providers on audit improvements, which include making changes to increase the efficiency of the audit process, building on the lessons learned in previous audit years. We will take these recommendations into consideration for future rulemaking. Regarding commenters' requests for a standard audit timeline, we do not intend to establish a fixed timeline for audits across MACs at this time such that we can retain the flexibility to use our limited audit resources to address and prioritize audit needs across all CMS programs each year. We note that MACs collaborate with providers regarding scheduling dates during the Worksheet S-10 audit process. We also note that MACs work closely with providers to balance the time needed to complete the Worksheet S-10 audits and to minimize the burden on providers and will continue to do so.

Regarding commenters' requests that we make public the audit instructions and criteria, as we previously stated in the FY 2022 IPPS/LTCH final rule and in prior rules, we do not make review protocols public as CMS desk review and audit protocols are confidential and are for CMS and MAC use only. We note that there is no requirement under either the Administrative Procedure Act or the Medicare statute that CMS establish audit protocols through notice and comment rulemaking. Rather, it is sufficient that we provide impacted parties with notice of our proposed methodology and the data sources that will be used, so that they may have a meaningful opportunity to submit their views on the proposed methodology and the adequacy of the data for the intended purpose. Similarly, there is no requirement that we provide an opportunity for comment on the actual findings or audit disallowances determined for each hospital as these results are confidential to each hospital.

Concerning commenters' recommendations that we establish a timely review and appeals process for the Worksheet S-10 audits, we do not plan to introduce such a process at this time in order to maximize limited audit resources. However, we will continue to work with impacted parties to address their concerns regarding the accuracy and consistency of data reported on Worksheet S-10. We will also continue to work to further improve reporting through revised instructions, and will also work with MACs to ensure a more consistent audit process across providers and MACs.

Regarding commenters' recommendations that we establish a similar process to that of the wage index audits, at this point we do not plan to introduce an audit process with such a structure in order to maximize limited audit resources.

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28392), for purposes of determining Factor 3 for FY 2023 and subsequent fiscal years, we are continuing to 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 the FY 2023 IPPS/LTCH PPS proposed rule, 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, with the modifications proposed in the FY 2023 IPPS/LTCH PPS proposed rule; 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 the FY 2023 IPPS/LTCH PPS proposed rule.

Because we proposed to use multiple years of cost reports to determine Factor 3 starting in FY 2023, we determined that it would also be necessary to make a further modification to the policy regarding cost reports that start in one fiscal year and span the entirety of the following fiscal year. Specifically, in the rare cases when we use a cost report that starts in one fiscal year and spans the entirety of the subsequent Federal fiscal year to determine uncompensated care costs for the subsequent Federal fiscal year, we would not use the same cost report to determine the hospital's uncompensated care costs for the earlier fiscal year. We explained that using the same cost report to determine uncompensated care costs for both fiscal years would not be consistent with our intent to smooth year-to-year variation in uncompensated care costs. As an alternative, we proposed 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.

We did not receive comments on this proposed modification. We are finalizing as proposed.

• Scaling Factor

To address the effects of the calculating Factor 3 using data from multiple fiscal years, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28392) we proposed 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 proposed 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. In the proposed rule, we noted that a similar scaling factor methodology was previously used in both FY 2018 (82 FR 38214 and 38215) and FY 2019 (83 FR 41414), when the Factor 3 calculation also included multiple years of data.

We did not receive comments on this proposed scaling factor policy. We are finalizing as proposed.

• Modifications to New Hospital Policy for Purposes of Factor 3

We proposed 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 proposed 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 would be 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 the 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 also proposed to modify the methodology used to calculate Factor 3 for new hospitals. Specifically, we proposed 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 proposed to apply a scaling factor, as discussed previously, to the Factor 3 calculation for a new hospital. We explained that 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.

• Modifications to the Newly Merged Hospital Policy

In the FY 2023 IPPS/LTCH PPS rule, we stated that 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 proposed 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 stated our belief that applying the scaling factor is appropriate for purposes of calculating Factor 3 for all hospitals, including new hospitals and hospitals that are treated as new hospitals, in order to improve consistency and predictability across all hospitals.

We also explained that consistent with past policy, interim uncompensated care payments for the newly merged hospital will be based only on the data for the surviving hospital's CCN available at the time of the development of the final rule. 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, would 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 would 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 would revise the numerator of Factor 3 for the newly merged hospital to reflect the uncompensated care costs reported on the newly merged hospital's FY 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.

Comment: A couple of commenters expressed support for the policy currently in place for newly merged hospitals under which interim uncompensated care payments are based on the data for the surviving hospital's CCN available at the time of development of the final rule. These commenters also indicated support for continuing the policy in place for new hospitals, under which new hospitals with a CCN established on or after October 2019 with a preliminary projection of being eligible for DSH payments would receive interim empirically justified DSH payments. MACs would then make the final determination concerning whether a new hospital is eligible to receive DSH payments at cost report settlement based on the new hospital's FY 2023 cost report. One commenter requested that CMS provide clarification regarding which cost report would be used in the numerator of the Factor 3 calculation for a newly merged hospital or new hospital, and whether the cost report beginning or ending in FY 2023 would be used.

Response: We appreciate the support for our current policies for new and newly merged hospitals. In response to the comment asking for clarification on whether a newly merged hospital or new hospital would use its cost report beginning or ending in FY 2023, we note that the new hospital policy and the newly merged hospital policy are based on the start date of the hospital's cost reporting period. Specifically, the Factor 3 calculation for a new hospital will be based on the hospital's FY 2023 cost report (that is, a cost report with a start date on or after October 1, 2022, and on or before September 30, 2023). The numerator of the hospital's Factor 3 will be the hospital's total uncompensated care costs from the Worksheet S-10 Line 30 of its FY 2023 cost report (annualized, if necessary). The denominator will be the total national uncompensated care costs from the FY 2019 cost reports as calculated in this FY 2023 IPPS/LTCH PPS final rule. In the case of a new hospital or a newly merged hospital that has a cost report that spans multiple Federal fiscal years, if the cost report is a FY 2023 cost report, there is only one denominator in the Factor 3 calculation. In addition, the pro rata calculation ( i.e., the hospital's cost reporting period spans different Federal fiscal years) for a new hospital or a newly merged hospital is calculated using only the FY2023 total uncompensated care amount (that is, the Factor 3 is multiplied by the FY 2023 total uncompensated care amount, as finalized in this final rule.).

After consideration of the comments received, we are finalizing the proposed modifications to the new hospital and newly merged policies.

• 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 explained in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28393) that 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 purposes of both the proposed rule and this final 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)).

We did not receive any comments on the discussion of CCR trim methodology. We are finalizing as 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, in the FY 2023 IPPS LTCH/PPS proposed rule, we explained that 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 its 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 proposed 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.

In the FY 2023 IPPS/LTCH PPS proposed rule, we noted 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 stated our belief that there is increased confidence that if high uncompensated care costs are reported by these audited hospitals, the information is accurate. Therefore, consistent with the policy that was adopted in the FY 2021 IPPS/LTCH PPS final rule, we stated that it would be 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 stated that we would 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 noted 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 proposed to continue to use a threshold of t3 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 stated that we continue to believe these thresholds are appropriate, in order to address potentially aberrant data. However, we proposed to modify the calculation to include Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals consistent with our proposal to begin using Worksheet S-10 data to determine Factor 3 for these hospitals. We also proposed 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 noted that based on calculations from the FY 2019 reports, the threshold amounts were similar to FY 2018 reports; therefore, we explained that we believe it is reasonable to use the same thresholds to identify aberrant data for both years. Thus, under the 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 proposed to apply the same threshold amounts originally calculated for the FY 2018 reports to identify potentially aberrant data for subsequent fiscal years in order to facilitate transparency and predictability. Therefore, for FY 2023 and subsequent fiscal years, we proposed 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. We explained that 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 stated that 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 proposed 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 explained that 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. Then we would calculate Factor 3 for a hospital subject to this alternative trim using the same methodology used to determine Factor 3 for new hospitals. Specifically, the numerator would reflect the uncompensated care costs reported on the hospital's FY 2023 cost report, while the denominator would reflect the sum of the uncompensated care costs reported on Worksheet S-10 of the FY 2019 cost 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 stated that 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.

We did not receive any comments on the proposed modifications to the uncompensated care data trim methodology. We are finalizing as proposed.

• Summary of Methodology

In summary, under the policies we are finalizing in this FY 2023 IPPS/LTCH PPS final rule, for FY 2023, we will 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 year, the previous Federal fiscal year cost report will be used in this step. In the rare case, that using a previous Federal fiscal year cost report results in a period without a report, we will 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 will 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 will use the hospital's FY 2017 report if it spans some of the FY 2018 time period. In other words, we will 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 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 data (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 will be calculated using the most recent 3 years of audited cost reports. (For example, in FY 2024, the FY 2018, FY 2019, and FY 2020 reports would be used.)

In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 also proposed 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.

We did not receive any comments on these proposed changes to regulations. We are finalizing the proposed changes with only minor conforming changes for internal consistency.

(d) Per Discharge Amount of Interim Uncompensated Care Payments

Since FY 2014, we have made interim uncompensated care payments during the fiscal year on a per discharge basis. 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 proposed 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 3 years of discharge data from FY 2019, FY 2020, and FY 2021. We stated that computing a 3-year average using the most recent 3 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 explained our belief that 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 noted that our proposal to include discharge data from FY 2021 to compute this 3-year average was consistent with the proposed use of FY 2021 Medicare claims in the IPPS ratesetting, as discussed in section I.F. of the preamble of the FY 2023 IPPS/LTCH PPS 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. We also explained that 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 that there would likely be a significant recoupment (for example, 10 percent or more of the hospital's total uncompensated care payment or at least $100,000) at cost report settlement if the per discharge amount is not lowered. For example, a hospital might submit documentation showing a large projected increase in discharges during the fiscal year to support reduction of its per discharge uncompensated care payment amount. As another example, a hospital might request that its per discharge uncompensated care payment amount be reduced to zero midyear if the hospital's interim uncompensated care payments during the year have already surpassed the total uncompensated care payment calculated for the hospital.

Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final rule, the hospital's MAC 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 final 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.

Comment: A couple of commenters recommended that CMS use the traditional payment reconciliation process to calculate final payments for uncompensated care costs pursuant to section 1886(r)(2) of the Act. These commenters did not object to CMS using prospective estimates, derived from the best data available, to calculate interim payments for uncompensated care costs. However, the commenters stated that interim payments should be subject to later reconciliation based on estimates derived from actual data from the federal fiscal year. These same commenters also asserted that CMS has failed to provide a meaningful opportunity to review and comment on the more recent data used in developing the final rule before the agency publishes the final rule.

Response: Consistent with the position that we have taken in rulemaking for previous years, we continue to believe that applying our best estimates of the three factors used in the calculation of uncompensated care payments to determine payments prospectively is most conducive to administrative efficiency, finality, and predictability in payments (78 FR 50628; 79 FR 50010; 80 FR 49518; 81 FR 56949; 82 FR 38195; 84 FR 42373; 85 FR 58833 and 86 FR 45246). We continue to believe that, in affording the Secretary the discretion to estimate the three factors used to determine uncompensated care payments and by including a prohibition against administrative and judicial review of those estimates in section 1886(r)(3) of the Act, Congress recognized the importance of finality and predictability under a prospective payment system. As a result, we do not agree with the commenters' suggestion that we should establish a process for reconciling our estimates of uncompensated care payments, which would be contrary to the notion of a prospective payment system. Furthermore, we note that this rulemaking has been conducted consistent with the requirements of the Administrative Procedure Act and Title XVIII of the Act. Under the Administrative Procedure Act, a proposed rule is required to include either the terms or substance of the proposed rule or a description of the subjects and issues involved. In this case, the FY 2023 IPPS/LTCH PPS proposed rule included a detailed discussion of our proposed methodology for calculating Factor 3 and the data that would be used. We made public the best data available at the time of the proposed rule in order to allow hospitals to understand the anticipated impact of the proposed methodology and submit comments, and we have considered those comments in determining our final policies for FY 2023.

(e) Process for Notifying CMS of Merger Updates and To Report Upload Issues

As we have done for every proposed and final rule beginning in FY 2014, in conjunction with this final rule, we will publish on the CMS website a table listing Factor 3 for 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 10 hospitals that would be subject to the alternative trim for hospitals with potentially aberrant data that are not projected to be DSH-eligible, with a N/A in the Factor 3 column.

Hospitals had 60 days from the date of public display of the 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 the proposed rule and to notify CMS in writing of issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the report submission process (for example, report not reflecting audit results due to MAC mishandling or most recent report differs from previously accepted amended report due to MAC mishandling). We stated that comments raising issues or concerns that are specific to the information included in the table and supplemental data file could be submitted by email to the CMS inbox at Section3133DSH@cms.hhs.gov. We indicated that we would address comments related to mergers and/or reporting upload discrepancies submitted to the CMS DSH inbox as appropriate in the table and the supplemental data file that we publish on the CMS website in conjunction with the publication of this 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 have been submitted in one of the three ways found in the ADDRESSES section of the proposed rule before the close of the comment period in order to be assured consideration. In addition, we note that the CMS DSH inbox is not intended for Worksheet S-10 audit process related emails, which should be directed to the MACs.

For FY 2023, we again proposed that hospitals would have 15 business days from the date of public display of this 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 also explained that 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 the proposed rule, we expected to use data from the March 2022 HCRIS extract for the FY 2023 final rule, which contributed to our increased confidence that hospitals would have be able to comment on mergers and report any upload discrepancies during the comment period for the FY 2023 IPPS/LTCH PPS proposed rule. However, we noted that in the event that there were 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 did not receive comments on the notification process for mergers or data upload issues. We are finalizing our proposal to afford hospitals 15 business days from the public display of this FY 2023 IPPS/LTCH PPS final rule to submit via email any updated information on mergers and/or to report upload discrepancies. We also note that the historical FY 2018 and FY 2019 cost reports are publicly available on a quarterly basis on the CMS website for analysis and additional review of cost report data, separate from the supplemental data file published with this final rule.

E. 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. In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28396), we referred readers to the 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 also explained that we appreciated 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. After taking into consideration stakeholders' longstanding concerns and their input on potential approaches to address these concerns, we proposed 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 the proposed rule, we stated our belief that the 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 insured 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 believed 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). However, we recognized that our proposal, which we are finalizing in this final rule, to discontinue the use of low-income insured days as a proxy for uncompensated care costs would result in a significant financial disruption to the IHS/Tribal hospitals and hospitals located in Puerto Rico. We explained that, 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 would be expected to result in an approximately 90 to 100 percent reduction in uncompensated care payments for FY 2023 compared to FY 2022. We referred readers to section I.H. of Appendix A of the proposed rule 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.

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 proposed 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. In the proposed rule, we stated our belief that 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.

We also stated that the proposed new supplemental payment would not change in any way the DSH payment methodology under section 1886(d)(5)(F) of the Act or the uncompensated care payment methodology under section 1886(r) of the Act. Therefore, the total uncompensated care payment amount 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.

We proposed that 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 would 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 explained that using the FY 2022 uncompensated care payment would be 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 proposed 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 example, if a hospital's FY 2022 uncompensated care payment was 1 million, and the percent change between FY 2023 and FY 2022 total uncompensated care payments was negative 9.1 percent, then the hospital's FY 2023 base year amount would be 1 million * (1+(−0.091)), which is 909,000. For the hospitals that were not projected to be DSH eligible in FY 2022, we proposed 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 the proposed rule, the percent change between the proposed FY 2023 uncompensated care amount and final FY 2022 uncompensated care amount was projected to be negative 9.1 percent. (This negative 9.1 percent change was 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 proposed 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). We note that in order to determine the base year amount for a future fiscal year, the calculation would be the hospital's FY2022 uncompensated care amount multiplied by one plus the percent change in total uncompensated care payments between FY 2022 and the applicable fiscal year. 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, 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 proposed 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 proposed 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 proposed to use an average of historical discharges to calculate a per discharge amount for interim supplemental payments. We referred 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, we proposed that 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 proposed to use FY 2018, FY 2019, and FY 2021 discharge data to determine a hospital's historical 3-year average of discharges, because we continued 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 proposed to use our authority under section 1886(d)(5)(I) of the Act to include the per-discharge supplemental payment in the outlier payment determination under section 1886(d)(5)(A) of the Act. We referred readers to the Addendum to the proposed rule for further discussion of the outlier payment calculation.

Consistent with the process used to reconcile interim uncompensated care payments, we proposed 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 proposed 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 referred 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 proposed 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 noted 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. In the proposed rule, we stated our belief that 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 proposed 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. We explained that 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 proposed 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 sought comments on our proposal to establish this new supplemental payment for IHS/Tribal hospitals and Puerto Rico hospitals. As discussed in section IV.D.3. of this final rule, we also solicited 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 sought 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. Given the close interrelationship between our proposed changes to the methodology for determining Factor 3 of the uncompensated care payment methodology for IHS/Tribal hospitals and Puerto Rico hospitals and the proposed new supplemental payment for these hospitals, we discuss the comments received on both proposals in this section of this final rule.

Comment: The majority of commenters expressed appreciation for CMS' creativity in devising the proposed new supplemental payment to mitigate the anticipated financial impact from the discontinuation of low-income insured days as a proxy for uncompensated care costs for IHS and Tribal hospitals and hospitals located in Puerto Rico. Some commenters stated there are longstanding inequities in DSH and uncompensated care calculations for Puerto Rico hospitals due to the lack of an SSI benefit for residents of the U.S. territories. These commenters also suggested an alternative methodology for calculating the supplemental payment for hospitals in Puerto Rico.

Specifically, the commenters recommended that CMS calculate the supplemental payment for Puerto Rico hospitals using a base year amount determined from Medicaid days and an SSI days proxy of at least 40 percent but no less than 35 percent of Medicaid days, instead of the current 14 percent. Commenters further suggested that CMS determine a second empirical DSH eligibility threshold for hospitals in Puerto Rico based on the suggested SSI days proxy of 40 percent of Medicaid days, such that if the sum of the Medicaid fraction and the SSI days proxy exceeds 15 percent, then the hospital would be eligible to receive uncompensated care payments and the new supplemental payment. A commenter, in support of this alternative methodology, noted that, under the proposed supplemental payment methodology, Puerto Rico hospitals would receive an 11.06 percent reduction in Medicare DSH payments in FY 2023 as compared to FY 2022. The same commenter noted that the reduction in DSH payments could also reduce Medicare Advantage (MA) benchmarks for Puerto Rico in 2024 and, as a result, impact approximately 630,000 Medicare beneficiaries enrolled in MA plans, including 280,000 dual-eligible individuals.

Another commenter expressed support for the proposed discontinuation of low-income insured days as a proxy for uncompensated care costs for IHS and Tribal hospitals and hospitals located in Puerto Rico. However, this commenter recommended that CMS reduce the size of supplemental payments to hospitals in Puerto Rico to an empirically justified level. This commenter noted that the continued use of Medicaid days as a proxy for uncompensated care costs in Puerto Rico has resulted in a substantial increase in uncompensated care payments. Further, this commenter stated that maintaining the overall payments at the proposed levels through the supplemental payment would create high Medicare profit margins at Puerto Rico hospitals and distort the MA benchmarks, as it would increase FFS spending by more than 25 percent above what it would have been if Puerto Rico hospitals received uncompensated care payments based only on their reported uncompensated care costs. The commenter also opposed the disbursement of the supplemental payments as an add-on payment to the IPPS payment rates for hospitals in Puerto Rico and recommended that uncompensated care payments not be factored into MA benchmarks.

A few commenters expressed support for the proposed supplemental payment without suggesting enhancements to the policy. One of these commenters emphasized the importance of implementing the supplemental payment as a permanent policy.

A commenter opposed CMS' proposal to discontinue the calculation of uncompensated care costs using low income insured days for hospitals in Puerto Rico without a separate policy in place for receiving the supplemental payment. Instead, the commenter suggested that CMS use a phased approach such that the agency would continue to calculate uncompensated care costs for hospitals in Puerto Rico using low income insured days until a future rulemaking. The commenter further suggested that CMS eventually phase in payments calculated using Worksheet S-10 along with the supplemental payment.

Another commenter specifically opposed the exclusion of new hospitals in Puerto Rico from receiving the supplemental payment. The same commenter noted that because hospitals newly established after October 2013 did not have Medicaid days for the period before the Affordable Care Act was implemented, the uncompensated care costs for these hospitals are already calculated using Worksheet S-10 but with no supplemental payments. The commenter also noted that because hospitals established after October 2013 operate under the same conditions as hospitals established before October 2013, these hospitals should receive the proposed supplemental payments in a manner similar to those hospitals for which we proposed to transition to the use of Worksheet S-10 data to determine uncompensated care costs starting in FY 2023. Finally, this commenter requested that CMS consider calculating uncompensated care costs for an impacted Puerto Rico hospital (established after 2013) for the period from FY 2020 through FY 2022 using Medicaid days and not Worksheet S-10 data.

Response: We appreciate this input from commenters regarding the proposal to establish a new supplement payment for hospitals in Puerto Rico and IHS and Tribal hospitals and the concerns raised regarding the proposed changes to the data used to determine uncompensated care costs for these hospitals. We continue to recognize the unique financial circumstances and challenges faced by Puerto Rico hospitals related to uncompensated care cost reporting on Worksheet S-10. With regard to the recommendation to calculate the supplemental payment using a base year amount determined using Medicaid days and an SSI days proxy of at least 40 percent, we note that since FY 2019, Factor 3 for hospitals in Puerto Rico has been determined using FY 2013 Medicaid days and the most recent available data on SSI days and because 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). We also note that we did not receive comments expressing concerns regarding this policy when it was finalized for FY 2019. However, for the reasons explained in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28391), we have determined that data on low income insured days is no longer a good proxy for the costs of hospitals in treating the uninsured and that we can no longer conclude that alternative data to the data on uncompensated care costs reported on the Worksheet S-10 are available for Puerto Rico hospitals that are a better proxy for the costs of these hospitals in treating the uninsured.

With respect to the comment recommending that we adopt a second eligibility threshold for empirically justified DSH payments based on the suggested SSI days proxy of 40 percent of Medicaid days, we note that in the FY 2023 IPPS/LTCH PPS proposed rule, we did not propose to adopt a proxy for Puerto Rico hospitals' SSI days for purposes of determining eligibility to receive DSH payments and calculating the empirically justified Medicare DSH payment. Therefore, we consider this comment to be outside the scope of the proposed rule. We note, however, that while section 1886(r)(2)(C)(i) of the Act allows for the use of alternative data as a proxy to determine the costs of subsection (d) hospitals for treating the uninsured for purposes of determining uncompensated care payments, section 1886(r)(1) of the Act requires the Secretary to pay an empirically justified DSH payment that is equal to 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. Section 1886(d)(5)(F)(vi) of the Act, which prescribes the disproportionate patient percentage used to determine empirically justified Medicare DSH payments, specifically refers to the SSI days in the Medicare fraction and does not allow the use of alternative data. Accordingly, we disagree with the commenter's assertion that there is legal support for CMS to use a proxy for Puerto Rico hospitals' SSI days in the calculation of the empirically justified Medicare DSH payment.

Regarding the comment that hospitals in Puerto Rico hospitals will receive an 11.06 percent reduction in Medicare DSH payments in FY 2023 as compared to FY 2022, we note that, under the policies we are finalizing in this final rule, the combined amount of uncompensated care payments and supplemental payments for FY 2023 will be less than 11.06 percent below the amount of uncompensated care payments for FY 2022. We refer readers to the discussion of the impact of our final policies regarding Medicare uncompensated care payments and the new supplemental payment in Section I.H. of Appendix A of this final rule. In addition, we note that the base year amount used in calculating the supplemental payment will change over time relative to the total uncompensated care amount. Accordingly, for years in which there is an increase in the total uncompensated care total amount, the hospital's supplemental payment calculation would reflect a higher base year amount, and for the years in which there is a decrease in the total uncompensated care total amount, the hospital's supplemental payment calculation would reflect a lower base year amount.

With regard to the comment that the supplemental payment would impact the Medicare Advantage benchmarks, we believe the combined amount of empirically justified DSH payments, uncompensated care payments, and supplemental payments to IHS/Tribal hospitals and Puerto Rico hospitals will be comparable to the amount these hospitals would have received if CMS had continued to use the low-income days proxy to determine Factor 3 of the uncompensated care payment methodology. As a result, the new supplemental payments are expected to have no impact on MA benchmarks in Puerto Rico. Given that the MA capitation calculations are on a different timeline than the annual rulemaking for the IPPS (that is, calendar year rather than Federal fiscal year), the 2024 MA benchmarks would be the first time any effects would be reflected.

We disagree with the commenter who noted that there is no mechanism in place for receiving the supplemental payment. We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule for additional background and discussion of uncompensated care payment processes (78 FR 50643 through 50647). As discussed in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to determine an estimated per discharge add-on payment amount based on the amount of a hospital's supplemental payment calculated for a fiscal year divided by the hospital's historical three-year average of discharges, computed using the most recently available data.

Regarding the concerns raised with respect to our proposal that hospitals in Puerto Rico established after October 2013 would be ineligible to receive the supplemental payment, we note that, as explained in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to establish the supplemental payment to mitigate any long-term financial disruption as a result of our proposal to discontinue the use of low-income insured days as a proxy for uncompensated care costs in determining Factor 3. Uncompensated care costs for Puerto Rico hospitals established after October 2013 are already determined using Worksheet S-10 data. As a result, 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. Thus, we do not believe it is appropriate to modify the proposed eligibility criteria for the supplemental payment to include these hospitals at this time. However, we intend to monitor uncompensated care payments to these hospitals and may revisit this issue in future rulemaking.

Regarding the commenter that requested that CMS consider calculating the uncompensated care costs for FY 2020 through FY 2022 for a Puerto Rico hospital (established after 2013) using Medicaid days and not Worksheet S-10 data, we believe this comment is out of scope of this rulemaking. We note that the policy for new hospitals in Puerto Rico was initially adopted in the FY 2019 IPPS/LTCH PPS final rule, and we did not propose any modifications to this policy in the FY 2023 IPPS/LTCH PPS proposed rule.

Comment: Commenters expressed support for CMS' proposal to establish a new supplemental payment for IHS and Tribal hospitals to mitigate the anticipated impact of the agency's proposal to discontinue the use of low-income insured days as a proxy to calculate uncompensated care payments for these hospitals. Commenters requested that CMS confirm that the supplemental payments would result in an equal or higher uncompensated care payment amount than in prior years. Commenters also opposed the exclusion of new IHS and Tribal hospitals from receiving the supplemental payment, with another commenter suggesting that CMS finalize the supplemental payment for existing IHS/Tribal hospitals as an interim measure while the agency devises an alternate approach that would be applicable to all IHS/Tribal hospitals. These commenters also urged CMS to provide an option for hospitals to opt out of the new supplemental payment methodology in the future years if they preferred payment in a manner similar to non-Tribal hospitals.

Response: We appreciate the input from commenters on our proposal to establish a new supplemental payment for IHS and Tribal hospitals. We continue to recognize the unique nature of these hospitals and the special circumstances they face.

Regarding commenters' request that CMS confirm that the proposed supplemental payment will result in an overall payment amount that is equal to or higher than the uncompensated care payments for prior years determined using the low-income days proxy, we note that the base year amount used to calculate a hospital's supplemental payment will change over time relative to changes in the total uncompensated care amount. For years in which there is an increase in the total uncompensated care total amount, the hospital's supplemental payment calculation would use a higher base year amount, and for the years in which there is a decrease in the total uncompensated care total amount, the hospital's supplemental payment calculation would use a lower base year amount.

Regarding the concerns raised by commenters with respect to our proposal to limit the new supplemental payment to existing IHS/Tribal hospitals that have a Factor 3 amount for FY 2022 determined using the low-income insured days proxy, we note that, as explained in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to establish the supplemental payment to mitigate any long-term financial disruption as a result of our proposal to discontinue the use of low-income insured days as a proxy for uncompensated care costs in determining Factor 3. However, new IHS/Tribal hospitals for which uncompensated care costs have not previously been determined using the low-income insured days proxy will not experience any reduction to their uncompensated care payments due to the proposed discontinuation of the proxy. Thus, we do not believe it is appropriate to extend the supplemental payment to include new IHS/Tribal hospitals at this time. However, we will monitor uncompensated care payments to these hospitals and may revisit this issue in future rulemaking.

In regard to an option for hospitals to opt out of the new supplemental payment methodology in the future years, we believe that no modification to our proposed methodology is necessary, because, under the proposed supplemental payment methodology, which we are finalizing in this final rule, an IHS/Tribal hospital or Puerto Rico hospital will receive the full uncompensated care payment determined using its Worksheet S-10 data. A hospital will only receive the supplemental payment if it increases the overall amount payable to the hospital, so there does not appear to be a clear reason for a hospital to opt out of the supplemental payment.

After consideration of the comments received, we are finalizing both 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 and our proposal to establish a new supplemental payment for Puerto Rico hospitals and IHS/Tribal hospitals, without modification. We are also finalizing the proposed provision at § 412.106(h) governing the new supplemental payment without modification.

The percent change between the final FY 2023 uncompensated care amount and final FY 2022 uncompensated care amount is negative 4.4 percent. (This negative 4.4 percent change is calculated based on the difference between the final FY 2023 uncompensated care amount of approximately $6.874 billion and the final FY 2022 uncompensated care amount of approximately $7.192 billion, divided by the final FY 2022 uncompensated care amount). Therefore, consistent with the methodology in § 412.106(h)(3)(i), we will calculate each hospital's base year amount for FY 2023 by multiplying its FY 2022 uncompensated care amount by 0.956 (1−0.044).

F. Medicare Disproportionate Share Hospital (DSH) Payments: Counting Days Associated With Section 1115 Demonstrations in the Medicaid Fraction (§ 412.106)

In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed revisions to the regulation relating to the treatment of section 1115 demonstration days for purposes of the DSH adjustment (87 FR 28398 through 28402). The agency received numerous, detailed comments on this proposal. We thank the commenters for their input on the proposal. Due to the number and nature of the comments that we received on our proposal, and after further consideration of the issue, we have determined not to move forward with the current proposal. We expect to revisit the treatment of section 1115 demonstration days for purposes of the DSH adjustment in future rulemaking, and we encourage interested parties to review any future proposal on this issue and to submit their comments at that time.

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

A. Changes in the Inpatient Hospital Update for FY 2023 (§ 412.64(d))

1. 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 stated in the proposed rule that we are setting the applicable percentage increase by applying the adjustments listed in this section in the same sequence as we did for FY 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 stated that we are setting the applicable percentage increase by applying the following adjustments in the following sequence. The applicable percentage increase under the IPPS for FY 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 proposed 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 was estimated to be 3.1 percent. We also proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update), we would use such data, if appropriate, to determine the FY 2023 market basket update in the final rule.

Comment: Several commenters were concerned the proposed market basket update was not accurately reflecting hospital input inflation citing many examples including ongoing labor shortages, supply chain disruptions, prices for medical equipment, and the impact of Ukraine/Russia war. They urged CMS to adjust its market basket update methodology for FY 2023 to adjust for more recent data and to further adjust its estimate to appropriately capture significant inflationary trends that will further fuel rising hospital operating costs but may not yet be fully captured in IGI's updated market basket forecast in the second quarter of 2022. Commenters requested CMS recognize that hospital inflation will generally lag economy-wide inflation and that the expectations for sustained inflation should be recognized in the projection of the hospital market basket for FY 2023. Several commenters stated the proposed market basket update is a time-lagged estimate that uses historical data to forecast into the future. The commenters stated that when historical data is no longer a good predictor of future changes, the market basket becomes inadequate. A commenter stated that the end of calendar year 2021 into calendar year 2022 should not be considered a steady-state economic environment that is a continuance of past trends. A commenter encouraged CMS to err on the side of steadily increasing inflation into 2023 rather than any material deceleration assumption.

Other commenters urged CMS to rely on more recent forecasts to determine the FY 2023 update. A commenter noted CBO May 2022 baseline projections which had a market basket increase that is 1.1 percentage points higher than the proposed FY 2023 IPPS market basket percentage increase. Several commenters requested that CMS review other inflation data sources such as the Consumer Price Index (CPI) and the core Personal Consumption Expenditures deflator, and suggested that the market basket increase at least match or exceed these rates of increases.

Response: Section 1886(b)(3)(B)(iii) of the Act states the Secretary shall update IPPS payments based on a market basket percentage increase that reflects an index of appropriately weighted indicators of changes in wages and prices that are representative of the mix of goods and services included in such inpatient hospital services. The 2018-based IPPS market basket is a fixed-weight, Laspeyres-type price index that measures the change in price, over time, of the same mix of goods and services purchased by hospitals in the base period. The general inflation measures cited by the commenters would not reflect this same mix of goods and services.

We agree with the commenters that recent higher inflationary trends have impacted the outlook for price growth over the next several quarters. At the time of the FY 2023 IPPS/LTCH PPS proposed rule, based on IGI's fourth quarter 2021 forecast with historical data through third quarter 2021, IGI forecasted the 2018-based IPPS market basket update of 3.1 percent for FY 2023 reflecting forecasted compensation prices of 3.8 percent (by comparison, compensation price growth in the 2018-based IPPS market basket averaged 2.2 percent from 2012-2021). As stated previously, in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed that if more recent data became available, we would use such data, if appropriate, to derive the final FY 2023 IPPS market basket update for the final rule. For this final rule, we now have an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy (including the more recent historical CPI growth, impacts of the Russia/Ukraine war, current expectations regarding changes to Federal Reserve interest rates, and tight labor markets). Based on IGI's second quarter 2022 forecast with historical data through first quarter 2022, we are projecting a FY 2023 IPPS market basket update of 4.1 percent (reflecting forecasted compensation price growth of 4.8 percent) and productivity adjustment of 0.3 percentage point. Therefore, as discussed further in this section and after consideration of the comments received, for FY 2023, the final applicable percentage increase for a hospital that submitted quality data and is a meaningful EHR user is 3.8 percent (4.1 percent less 0.3 percentage point), compared to the 2.7 percent that was proposed. We note that the final FY 2023 IPPS market basket growth rate of 4.1 percent would be the highest market basket update implemented in an IPPS final rule going back to FY 1998.

Comment: Several commenters suggested that CMS use alternative sources of data that they stated better reflect input price inflation to calculate the FY 2023 market basket update. A commenter stated that in absence of such data, CMS is urged to consider an alternative approach to better align the market basket updates with increases in the costs needed to care for Medicare beneficiaries. Several commenters encouraged CMS to implement a higher market basket update than proposed, reflecting alternative sources of cost data such as the Medicare cost reports. A commenter requested that CMS provide a market basket update of at least 5 percent.

Several commenters proposed that CMS apply a market basket increase of approximately 8 percent representing estimated trends in allowable Medicare costs per risk-adjusted discharge from the Medicare cost reports from FY 2019 to FY 2020. To support this method, commenters provided the language in the IPPS statute and stated that they believe that Medicare cost report data meets the statutory requirement as these data capture all allowable costs, including personnel costs and excluding non-operating costs that comprise routine, ancillary, and special care unit inpatient hospital services. The commenter stated that given that these data comprise all the costs—on a volume and risk-adjusted basis—necessary to deliver hospital care it represents “appropriately weighted indicators of changes in wages and prices which are representative of the mix of good and services . . .” necessary to provide inpatient hospital care to Medicare beneficiaries. Commenters stated their belief that Medicare cost report data are a more accurate projection of the cost inflation anticipated by hospitals during FY 2023 than the forecast IGI data used in the proposed rule. The commenters further noted that changes in volume and intensity are accounted for in the market basket update when CMS rebases or revises it, which they stated is infrequent, typically occurring once every four years. They believe their proposed methodology of using Medicare cost report data would fully account for changes in volume and acuity annually, thus resulting in a more accurate proxy.

Another commenter analyzed Medicare cost report data and found that compensation costs increased by more than the IPPS market basket updates of 3.0 percent and 2.4 percent for FYs 2020 and 2021, respectively. The commenter recommended that CMS adjust the IGI compensation price indices and the overall inpatient price indices based on the percent change in compensation costs as derived from the Medicare cost reports.

A commenter recommended that CMS use its exceptions and adjustments authority to substitute Premier Inc. data for the IGI forecast to provide hospitals with an increased payment update in FY 2023 to accurately reflect labor costs. Additionally, the commenter recommended that CMS' Office of the Actuary reevaluate the data sources that it uses for calculating labor costs and consider adopting new or supplemental data sources in future rulemaking that more accurately reflect the cost of labor, such as more real time data from the hospital community. While the commenter stated that they were unable to forecast a market basket update for FY 2023, they noted the substantial impact a 10 percent increase in the labor components would have on the historical market basket for FY 2021, increasing the estimate by several percentage points under this hypothetical scenario.

Response: We believe the 2018-based IPPS market basket increase adequately reflects the average change in the price of goods and services hospitals purchase in order to provide IPPS medical services, and is technically appropriate to use as the market basket percentage increase in accordance with section 1886(b)(3)(B)(iii). As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45213), the IPPS market basket is a fixed-weight, Laspeyres-type index that measures price changes over time and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services. As such, the IPPS market basket increase would reflect the prospective price pressures described by the commenters as increasing during a high inflation period (such as faster wage price growth or higher energy prices), but would inherently not reflect other factors that might increase the level of costs, such as the quantity of labor used or any shifts between contract and staff nurses (which would be reflected in the Medicare cost report data). We note that cost changes (that is, the product of price and quantities) would only be captured in the market basket weights when the index is rebased and the base year is updated to a more recent time period.

We disagree with the commenters that costs as reported on the Medicare cost report are suitable for determining the trend in compensation prices for the market basket update. Section 1886(b)(3)(B)(iii) of the Act states the Secretary shall estimate a market basket percentage increase based on an index of appropriately weighted indicators of changes in wages and prices which are representative of the mix of goods and services included in such inpatient hospital services. While the current IPPS market basket percentage increase captures price changes associated with the goods and services hospitals purchase in providing care, the Medicare cost report data also reflects factors that are beyond those that impact wage or price growth. For instance, overall costs as reported by hospitals would also reflect changes in the mix of inputs used to provide services; since 2020, observed IPPS case-mix (and associated higher payments to hospitals) has increased faster than in prior years and would likely reflect the use of more skilled care needed to provide these services.

Regarding commenters' request that CMS consider other methods and data sources to calculate the final rule market basket update, we believe the 2018-based IPPS market basket continues to appropriately reflect IPPS cost structures and we believe the price proxies used (such as those from BLS that reflect wage and benefit price growth) are an appropriate representation of price changes for the inputs used by hospitals in providing services. We further note that we did not propose to use other methods or data sources to calculate the final market basket update for FY 2023. Consistent with our proposal, we have used more recent historical data and an updated forecast (that reflects a revised inflationary outlook) to calculate a final IPPS market basket percentage increase for FY 2023 of 4.1 percent, which is one percentage point higher than the proposed market basket percentage increase of 3.1 percent set forth in the FY 2023 IPPS/LTCH PPS proposed rule.

Comment: Several commenters also expressed concerns regarding the use of BLS' Employment Cost Index (ECI), which accounts for 53 percent of the market basket, stating it did not accurately reflect hospitals' compensation costs after the labor market changes triggered by the PHE. A commenter stated that this claim can be evidenced by comparing growth in labor costs from the Medicare cost report data to the ECI growth. The commenters also state that hospitals have faced a shortage of local labor as the PHE has progressed and have had to increasingly turn to contract labor, particularly for the nursing professions, which in turn has contributed to increased compensation costs. The commenters noted that CMS's proposed market basket update reflected a 3.8 percent increase in compensation, which they believe does not accurately reflect changes in current labor costs that they believe are not transitory.

Commenters noted that the ECI does not capture inflation in contract labor compensation while the hospital market basket does include contract labor costs when calculating the compensation cost weights and stated that including the contract labor costs along with other compensation costs assumes contract labor compensation growth will grow at the same rate as non-contract labor compensation. The commenters stated that this assumption is not supported by evidence citing published studies. Commenters also noted analysis by Premier Inc., which showed faster hourly labor rates than the ECI for FY 2021.

Response: As previously discussed, section 1886(b)(3)(B)(iii) of the Act states the Secretary shall estimate a market basket percentage increase based on an index of appropriately weighted indicators of changes in wages and prices which are representative of the mix of goods and services included in such inpatient hospital services. The 2018-based IPPS market basket is a fixed-weight, Laspeyres-type price index that measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (that is, intensity) purchased over time relative to a base period are not measured. This type of IPPS market basket has been in place since the implementation of the IPPS as well as used for other CMS market baskets.

For the compensation cost weight in the 2018-based IPPS market basket (which includes salaried and contract labor employees), we use the ECI for wages and salaries and benefits for all civilian hospital workers to proxy the price increases of labor for IPPS hospitals. The ECI (published by the BLS) measures the change in the hourly labor cost to employers, independent of the influence of employment shifts among occupations and industry categories. We note that the Medicare cost report data shows contract labor hours account for about 3 percent of total compensation hours (reflecting employed and contract labor staff) for IPPS hospitals in 2020. Data through 2021 are incomplete at this time. Therefore, while we acknowledge that the ECI measures only reflect price changes for employed staff, we believe that the ECI for hospital workers is accurately reflecting the price change associated with the labor used to provide hospital care (as employed workers' hours account for 97 percent of hospital compensation hours) and appropriately does not reflect other factors that might affect labor costs. Therefore, we believe it continues to be an appropriate measure to use in the IPPS market basket. We also note that based on IGI's second quarter 2022 forecast with historical data through first quarter 2022, compensation price growth (using the ECIs) for FY 2023 is now projected to be 4.8 percent, which is 1.0 percentage point higher than projected price growth at the time of the FY 2023 IPPS/LTCH PPS proposed rule (3.8 percent).

Comment: A commenter encouraged CMS to consider whether additional changes are needed regarding the rebasing and revising of the market basket, given data from 2018 was relied upon in the FY 2022 IPPS/LTCH PPS final rule to determine the appropriate mix of goods and services, which may have been impacted by COVID-19. For example, they stated that during the pandemic there has been increased use of personal protective equipment, yet this utilization would not be captured in the market basket, which was rebased and revised in the FY 2022 IPPS/LTCH PPS final rule.

Response: As described previously, the IPPS market basket measures price changes (including changes in the prices for wages and salaries) over time and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services until the market basket is rebased. The IPPS market basket was last rebased in the FY 2022 IPPS/LTCH PPS final rule using 2018 Medicare cost reports (86 FR 45194 through 45207), the most recent year of complete data available at the time of the rebasing. We note that we did not propose to rebase the IPPS market basket in the FY 2023 IPPS/LTCH PPS proposed rule. However, we did review more recent Medicare cost report data available for IPPS hospitals submitted as of March 2022, which includes data for 2019-2020. The Medicare cost report data (which does not allow us to separately identify costs for-PPE) showed slight decreases in the compensation cost weight in 2019 and 2020 resulting in a compensation cost weight that is roughly 1 percentage point less than the 2018-based IPPS market basket cost weight. Data through 2021 are incomplete at this time. The data also showed slight increases over the 2018 to 2020 time period in the pharmaceuticals cost weight and home office cost weight of about 0.3 percentage point each. Based on this preliminary analysis, the impact on the cost weights through 2020 are minimal and it is unclear whether these trends (particularly the compensation cost weight) through 2020 are reflective of sustained shifts in the cost structure for hospitals or whether they were temporary as a result of the PHE. Therefore, we continue to believe it is premature at this time to use more recent Medicare cost report data to derive a rebased and revised IPPS market basket. We will continue to monitor these data and any changes to the IPPS market basket will be proposed in future rulemaking.

Comment: Several commenters expressed concerns about the market basket update calculations. Commenters stated that CMS calculates the percent change by dividing the average input price indices in the most recent four quarters by the average input price index in the previous four quarters as derived from the most recently available IGI forecast. However, the commenter stated that CMS does not consider the difference between the base year estimates (from the time when prior year payment rates are finalized) and updated estimates of the base year indices since the prior year's market basket update calculation. Therefore, they stated this current update method does not account for substantial forecast errors driven by an unusually fast acceleration of the inflation rate such as occurred in FY 2021. They urge CMS to leverage its exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to modify its methodology for FY 2023 to account for the substantial forecast error in FYs 2021 and 2022. A commenter added that it believes the understatement of the hospital market basket for FY 2021 and FY 2022 and potentially FY 2023 as well is such an occasion for using the exceptions and adjustments authority. The commenter stated that Premier data collected directly from hospitals is showing a 10 percent increase in 2022 to date for hospital compensation (67.6 percent of the market basket) compared to the 3.8 percent being forecasted by IGI. The commenter recommended CMS make a one-time only forecast error correction on the FY 2021 and FY 2022 market basket of a combined 1.9 percentage points for FY 2023 using the exceptions and adjustments authority. The commenter also recommended that CMS use its exceptions and adjustments authority to substitute Premier data for the IGI forecast to provide hospitals with an increased payment update in FY 2023 to accurately reflect labor costs.

A commenter urged CMS to consider a one-time adjustment to ensure that the FY 2023 rate increase is applied to a base rate that more accurately incorporates actual inflation during the pandemic. The commenter cited the unprecedented nature of the pandemic and its extraordinary impact on hospital costs alongside record inflation for the basis of this one-time adjustment.

Response: Section 1886(b)(3)(B) of the Act sets forth the update to the standardized amounts based on the applicable percentage increase. Although the statute does not include a forecast error adjustment, commenters requested that CMS use its exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to modify its methodology to account for the forecast error in FYs 2021 and 2022. We note that we did not propose to use our authority under section 1886(d)(5)(I)(i) of the Act to apply a forecast correction in updating the IPPS rates for FY 2023. While there is no precedent to adjust for market basket forecast error in the IPPS operating payment update, the forecast error for a market basket update is equal to the actual market basket increase for a given year less the forecasted market basket increase. Due to the uncertainty regarding future price trends, forecast errors can be both positive and negative. For example, the FY 2020 IPPS forecast error was −1.0 percentage point, and the FY 2021 IPPS forecast error was +0.7 percentage point; FY 2022 historical data are not yet available to calculate a forecast error for FY 2022. As we have discussed in past rulemaking, we believe that an important goal of a PPS is predictability. For these reasons, we do not believe it is appropriate to include adjustments to the market basket update for future years based on the difference between the actual and forecasted market basket increase in prior years. With regard to the comment recommending the use of the Premier data, we refer to our response to this comment as previously discussed earlier in this section, regarding why we believe the 2018-based IPPS market basket increase adequately reflects the average change in the price of goods and services hospitals purchase in order to provide IPPS medical services, and is technically appropriate to use as the market basket percentage increase in accordance with section 1886(b)(3)(B)(iii).

We thank the commenters for their comments. After consideration of the comments received and consistent with our proposal, we are finalizing to use more recent data to determine the FY 2023 market basket update for the final rule. Specifically, based on more recent data available, we determined final applicable percentage increases to the standardized amount for FY 2023, as specified in the table that appears later in this section.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business MFP (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of private nonfarm business productivity for the U.S. economy. We note that previously the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) was published by BLS as private nonfarm business multifactor productivity. Beginning with the November 18, 2021 release of productivity data, BLS replaced the term multifactor productivity (MFP) with total factor productivity (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology. As a result of the BLS name change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) is now published by BLS as private nonfarm business total factor productivity. However, as mentioned, the data and methods are unchanged. Please see www.bls.gov for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch. In addition, we note that beginning with the FY 2022 IPPS/LTCH PPS final rule, we refer to this adjustment as the productivity adjustment rather than the MFP adjustment to more closely track the statutory language in section 1886(b)(3)(B)(xi)(II) of the Act. We note that the adjustment continues to rely on the same underlying data and methodology.

For FY 2023, we proposed a productivity adjustment of 0.4 percent. Similar to the proposed market basket update, for the proposed rule, the estimate of the proposed FY 2023 productivity adjustment was based on IGI's fourth quarter 2021 forecast. As noted previously, we proposed that if more recent data subsequently became available, we would use such data, if appropriate, to determine the FY 2023 productivity adjustment for the final rule.

Comment: Several commenters requested that CMS use its “special exceptions and adjustments” authority under section 1886(d)(5)(I)(i) of the Act to eliminate the productivity adjustment for FY 2023. A commenter requested that CMS work with Congress to permanently eliminate the productivity adjustment to the annual hospital payment updates. Another commenter stated that, if CMS does not use more recent figures from BLS on economy-wide non-farm total factor productivity when determining the adjustment to the IPPS market basket update for FY 2023, then the highly unusual circumstances of the COVID-19 pandemic are sufficient reason for the Secretary to invoke section 1886(d)(5)(I)(i) “exceptions and adjustments” authority to provide a one-time adjustment that offsets application of the otherwise applicable productivity adjustment for FY 2023.

A commenter requested that CMS use its “exceptions and adjustments” authority under section 1886(d)(5)(I)(i) of the Act to remove the productivity adjustment for any fiscal year that was covered under PHE determination (for example, 2020, 2021, and 2022) from the calculation of market basket update for FY 2023 and any year thereafter.

A commenter recommended that CMS withhold the proposed −0.4 percent productivity adjustment until a federal fiscal year in which hospitals are not operating under the public health emergency (PHE).

Response: While we appreciate the commenters' concerns, section 1886(b)(3)(B)(xi)(I) of the Act requires the application of the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act to the IPPS market basket update when determining the applicable percentage increase. Section 1886(d)(5)(I)(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 further note that we did not propose to use our authority under section 1886(d)(5)(I)(i) of the Act in the FY 2023 IPPS/LTCH PPS proposed rule to offset the productivity adjustment for FY 2023. Based on the updated forecast for this final rule, and as discussed elsewhere, we are projecting a FY 2023 IPPS market basket update of 4.1 percent and a productivity adjustment of 0.3 percentage point for this final rule, as compared to the proposed market basket update of 3.1 percent and proposed productivity adjustment of 0.4 percentage point set forth in the proposed rule. Additionally, we note Congress has provided other funding to providers as a result of the COVID-19 PHE. Specifically, the CARES Act provided additional payments for cases of COVID-19 under the IPPS and also created the Provider Relief Fund to reimburse providers, including IPPS providers, for increased expenses or lost revenue attributable to COVID-19.

We thank the commenters for their comments. However, as previously noted, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the Affordable Care Act, requires a productivity adjustment to the IPPS market basket update when determining the applicable percentage increase. Consistent with our proposal, we are using more recent data to determine the FY 2023 productivity adjustment for the final rule. Specifically, based on IGI's second quarter 2022 forecast, we are projecting a FY 2023 IPPS market basket update of 4.1 percent and productivity adjustment of 0.3 percentage point. Therefore, as discussed further in this section and after consideration of the comments received, for FY 2023, the final IPPS applicable percentage increase for a hospital that submitted quality data and is a meaningful EHR user is 3.8 percent (4.1 percent less 0.3 percentage point).

Comment: Several commenters expressed concerns about the productivity adjustment. A commenter stated that the measure of productivity used by CMS is intended to ensure payments more accurately reflect the true cost of providing patient care and effectively assumes the hospital field can mirror productivity gains across the private nonfarm business sector. Several commenters stated that this has not been their experience during the pandemic. Commenters also stated that even before the pandemic, CMS Office of the Actuary questioned the wisdom of the underlying assumption in their analysis that compares private non-farm total factor productivity growth measure and a hospital-specific measure ( https://www.cms.gov/files/document/productivity-memo.pdf). Commenters also stated that the latest data indicates a decrease in productivity, not gains, citing the latest BLS release of labor productivity data. Commenters had strong concerns about the proposed productivity adjustment given the extreme and uncertain circumstances in which their hospitals and health systems are currently operating. Several commenters requested CMS use the latest BLS data when determining the productivity adjustment for FY 2023.

Response: Section 1886(b)(3)(B)(xi)(II) of the Act requires the productivity adjustment be equal to the 10-year moving average of changes in annual economy-wide private nonfarm business total factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period). For the FY 2023 IPPS/LTCH PPS proposed rule, based on IGI's fourth quarter 2021 forecast, the productivity adjustment was projected to be 0.4 percentage point for FY 2023. For this final rule, based on IGI's second quarter 2022 forecast, we are updating the productivity adjustment to reflect more recent historical data as published by BLS as well as a revised economic outlook for FY 2022 and FY 2023. Using this more recent forecast, the FY 2023 productivity adjustment based on the 10-year moving average growth in economy-wide total factor productivity for the period ending FY 2023 is currently estimated to be 0.3 percent.

We thank the commenters for their comments. After consideration of the comments received and consistent with our proposal, we are finalizing as proposed to use more recent data to determine the FY 2023 productivity adjustment for the final rule.

Based on more recent data available for this FY 2023 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2022 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through the first quarter of 2022), we estimate that the FY 2023 market basket update used to determine the applicable percentage increase for the IPPS is 4.1 percent. Based on more recent data available for this FY 2023 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2022 forecast of the productivity adjustment), the current estimate of the productivity adjustment for FY 2023 is 0.3 percentage point.

As previously discussed, based on the more recent data available, for this final rule, we have determined four final applicable percentage increases to the standardized amount for FY 2023. For FY 2023, depending on whether a hospital submits quality data under the rules established in accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital that submits quality data) and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that is a meaningful EHR user), there are four possible applicable percentage increases that can be applied to the standardized amount, as specified in this table.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised our regulations at 42 CFR 412.64(d) to reflect the current law for the update for FY 2020 and subsequent fiscal years. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we added paragraph (d)(1)(viii) to § 412.64 to set forth the applicable percentage increase to the operating standardized amount for FY 2020 and subsequent fiscal years as the percentage increase in the market basket index, subject to the reductions specified under § 412.64(d)(2) for a hospital that does not submit quality data and § 412.64(d)(3) for a hospital that is not a meaningful EHR user, less a productivity adjustment. (As previously noted, section 1886(b)(3)(B)(xii) of the Act required an additional reduction each year only for FYs 2010 through 2019.)

Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs 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 final rule for further discussion of the expiration of the MDH program.

For FY 2023, we proposed 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. We proposed that if more recent data subsequently became available (for example, a more recent estimate of the market basket update and the productivity adjustment), we would use such data, if appropriate, to determine the update in the final rule.

We did not receive any public comments on our proposed updates to hospital-specific rates applicable to SCHs. The general comments we received on the proposed FY 2023 update (including the proposed market basket update and productivity adjustment) are discussed earlier in this section. For FY 2023, we are finalizing the proposal to determine the update to the hospital specific rates for SCHs in this final rule using the more recent available data, as previously discussed.

For this final rule, based on more recent available data, we are finalizing the following updates to the hospital specific rates applicable to SCHs: An update of 3.8 percent for a hospital that submits quality data and is a meaningful EHR user; an update of 0.725 percent for a hospital that submits quality data and is not a meaningful EHR user; an update of 2.775 percent for a hospital that fails to submit quality data and is a meaningful EHR user; and an update of −0.3 percent for a hospital that fails to submit quality data and is not a meaningful EHR user.

2. 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, in the FY 2023 IPPS/LTCH PPS proposed rule, in accordance with section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto Rico hospitals we proposed a market basket update of 3.1 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, we stated there would be two possible proposed applicable percentage increases that could be applied to the standardized amount. Based on these data, we determined the following proposed applicable percentage increases to the standardized amount for FY 2023 for Puerto Rico hospitals:

• For a Puerto Rico hospital that is a meaningful EHR user, we proposed 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 proposed 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).

We did not receive any public comments on our proposed updates to the standardized amount for FY 2023 for Puerto Rico hospitals. The general comments we received on the proposed FY 2023 update (including the proposed market basket update and productivity adjustment) are discussed in greater detail earlier in this section. For FY 2023, we are finalizing the proposal to determine the update to the standardized amount for FY 2023 for Puerto Rico hospitals in this final rule using the more recent available data, as previously discussed.

As previously discussed in section V.A.1, based on more recent data available for this final rule (that is, IGI's second quarter 2022 forecast of the 2018-based IPPS market basket rate-of-increase with historical data through the first quarter of 2022), we estimate that the FY 2023 market basket update used to determine the applicable percentage increase for the IPPS is 4.1 percent and the productivity adjustment is 0.3 percent. 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, accordance with section 1886(b)(3)(B) of the Act, we determined the following 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, an applicable percentage increase to the FY 2023 operating standardized amount of 3.8 percent (that is, the FY 2023 estimate of the market basket rate-of-increase of 4.1 percent less an adjustment of 0.3 percentage point for the productivity adjustment).

• For a Puerto Rico hospital that is not a meaningful EHR user, an applicable percentage increase to the operating standardized amount of 1.75 percent (that is, the FY 2023 estimate of the market basket rate-of-increase of 4.1 percent, less an adjustment of 2.05 percentage point (the market basket rate-of-increase of 4.1 percent × 0.75 × ( 2/3 ) for failure to be a meaningful EHR user), and less an adjustment of 0.3 percentage point for the productivity adjustment).

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

Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at § 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as a rural referral center (RRC). RRCs receive special treatment under both the DSH payment adjustment and the criteria for geographic reclassification.

Section 402 of Public Law 108-173 raised the DSH payment adjustment for RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs also are not subject to the proximity criteria when applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area in which the hospital is located.

Section 4202(b) of Public Law 105-33 states, in part, that any hospital classified as an RRC by the Secretary for FY 1991 shall be classified as such an RRC for FY 1998 and each subsequent fiscal year. In the August 29, 1997, IPPS final rule with comment period (62 FR 45999), we reinstated RRC status for all hospitals that lost that status due to triennial review or MGCRB reclassification. However, we did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the OMB designation of their geographic area as urban. Subsequently, in the August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were revisiting that decision. Specifically, we stated that we 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
• The hospital's number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.

In the FY 2022 final rule (86 FR 45217), in light of the COVID-19 PHE, we amended the regulations at § 412.96(h)(1) to provide for the use of the best available data rather than the latest available data in calculating the national and regional CMI criteria. We also amended the regulations at § 412.96(c)(1) to indicate that the individual hospital's CMI value for discharges during the same Federal fiscal year used to compute the national and regional CMI values is used for purposes of determining whether a hospital qualifies for RRC classification. We also amended the regulations § 412.96(i)(1) and (2), which describe the methodology for calculating the number of discharges criteria, to provide for the use of the best available data rather than the latest available or most recent data when calculating the regional discharges for RRC classification.

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The national median CMI value for FY 2023 is based on the CMI values of all urban hospitals nationwide, and the 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). For the proposed rule, these values were 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 national and regional median CMI values and is consistent with our finalized 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 final rule for a complete discussion regarding our proposal and finalized policy 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 the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28404), we proposed that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 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 were set forth in a table in the proposed rule (87 FR 28405). We stated in the proposed rule that we intended 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.

Comment: Commenters supported our proposal to use FY 2021 data to calculate the national and regional median CMI values for FY 2023.

Response: We appreciate the commenters' support.

Therefore, based on the best available data (FY 2021 bills received through March 2022), 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:

• 1.8262 (national—all urban); or
• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.

The final CMI values by region are set forth in the following table.

A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI value (not transfer-adjusted) from its MAC. Data are available on the Provider Statistical and Reimbursement (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. In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28406), for FY 2023, we proposed 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). We believe that this is the best available data for use in calculating the median number of discharges by region and is consistent with our finalized 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 final rule for a complete discussion regarding our proposal and finalized policy 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.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28405), we proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 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 table set forth in the FY 2023 IPPS/LTCH PPS proposed rule at 87 FR 28406). In the proposed rule, we stated that we intended to update to update these numbers in the FY 2023 final rule based on the latest available cost report data.

Comment: Commenters supported our proposal to use FY 2020 data to calculate median number of discharges by region for FY 2023.

Response: We appreciate the commenters' support.

Therefore, based on the best available discharge data at this time, that is, for cost reporting periods that began during FY 2020, the final median number of discharges for urban hospitals by census region are set forth in the following table.

We note that because the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges, under this final rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic hospitals for which the minimum criterion is 3,000 discharges.

C. 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 of this final rule, 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 payment policies for FY 2023 in section V.C.3. of the preamble of this final 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. 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).

Comment: Several commenters opposed the change to the low-volume hospital policy in FY 2023. Many of those commenters stated that they are concerned about the financial impact resulting from the decrease in payments due to the expiration of the temporary changes to the low-volume hospital payment policy. Some commenters requested that CMS use its authority to extend the use of the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals. Some commenters stated their belief that CMS has the authority to not allow the temporary changes to expire. A commenter requested CMS use its discretion under the Emergency Pandemic Declarations to extend the low-volume hospital payment policy.

Response: We appreciate the commenters' sharing their concerns regarding the financial impact resulting from the expiration of the temporary changes to the low-volume hospital payment policy. As previously discussed, section 1886(d)(12) of the Act sets forth the applicable low-volume hospital policy beginning FY 2023. In response to the comment that requested the temporary changes to the low-volume hospital policy be extended using the discretion under the Emergency Pandemic Declarations, we believe the commenter is referring to the use of waivers under Section 1135 of the Act. While this provision authorizes certain Medicare (and other) program requirements and conditions of participation to be waived during certain emergencies, this authority cannot be used to waive provisions of payment.

Comment: Several commenters support legislative action through the Rural Hospital Support Act (H.R. 1887/S. 4009) to extend or make permanent the modifications to the low-volume hospital payment policy enacted by section 50204 of the Bipartisan Budget Act of 2018. Many commenters urged CMS to collaborate with Congress to extend or make permanent the modifications to the low-volume hospital payment policy. Other commenters stated that it is not the intent of Congress for the low-volume hospital payment policy to revert back to the historical statutory requirements. Some of these commenters believe that CMS is ignoring the congressional intent of this policy and denying a group of IPPS providers low-volume hospital payments with the reversion to the policy that was originally established for FY 2005. These commenters requested expanding eligibility for the discharge criteria to match the statutory requirement to include IPPS providers with 200-799 discharges. These commenters did not provide any data analysis in support of their comments to expand the low-volume hospital adjustment to qualifying hospitals that have more than 200 and less than 800 total discharges. A commenter requested that CMS update its regression analysis. The commenter stated that empirical justification used by CMS to determine the discharge criteria of less than 200 discharges is dated and that no rationale to support the ongoing validity of the previous analysis was provided in the proposed rule. The commenter also noted that even if the low-volume hospital discharge criteria were expanded to less than 800 total discharges, there would still only be a small number of hospitals to qualify for low-volume payment adjustment.

Response: We appreciate the commenters sharing their support for legislative action. We disagree that is contrary to the congressional intent for the low-volume hospital policy to revert back to the policy established under the original historical statutory requirements. As noted earlier in the preamble of this final rule and as discussed in response to public comments in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53408 through 53409), the FY 2014 IPPS/LTCH PPS final rule (78 50612 through 50613), and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38184 through 38189) to implement the original low-volume hospital payment adjustment provision, and as mandated by statute, we developed an empirically justified adjustment based on the relationship between costs and total discharges of hospitals with less than 800 total (Medicare and non-Medicare) discharges. Specifically, we performed several regression analyses to evaluate the relationship between hospitals' costs per case and discharges, and found that an adjustment for hospitals with less than 200 total discharges is most consistent with the statutory requirement to provide for additional payments to low-volume hospitals where there is empirical evidence that higher incremental costs are associated with lower numbers of discharges (69 FR 49101 through 49102). Based on these analyses, we established a low-volume hospital policy under which qualifying hospitals with less than 200 total discharges receive a payment adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of the Act limits the applicable percentage increase adjustment to no more than 25 percent.) In the future, we may reevaluate the low-volume hospital adjustment policy; that is, the definition of a low-volume hospital and the payment adjustment. However, we are not aware of any analysis or empirical evidence that would support expanding the originally established low-volume hospital adjustment policy and we did not make any proposals regarding the low-volume hospital payment adjustment for FY 2023. For these reasons, we are not making any changes to the low-volume hospital payment adjustment policy in this final rule.

Comment: Some commenters urged CMS to expedite any changes to the definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals, should Congress extend the current policy. They requested that low-volume hospital payments be restored quickly so that impacted providers are able to continue to provide quality care.

Response: We appreciate the commenters' request and, as in the past, we will make every effort to implement any extension of the low-volume payment policy as expeditiously as possible.

Comment: A commenter questioned how a hospital would qualify for low-volume payments while also adhering to the inpatient hospitals Conditions of Participation (CoP) since only hospitals with less than 200 total discharges would be eligible for the low-volume hospital adjustment beginning in FY 2023. The commenter argues that IPPS hospitals cannot adhere to the average daily census (ADC) and average length of stay (ALOS) thresholds in the discussion of the factors for state agencies to consider when certifying a facility as an inpatient hospital in the State Operations Manual (SOM). Specifically, the commenter cites “the ALOS of two midnights” benchmark and the expectation “to maintain an average daily census (ADC) of two patients.”

Response: While we appreciate the commenter's concern regarding compliance with the COPs and hospitals' certification as an inpatient hospital, it is not clear to us why a low-volume hospital payment adjustment criterion of less than 200 discharges would prevent a hospital from meeting “the ADC and ALOS thresholds required for maintaining its certification and status as an inpatient facility.” The low-volume payment adjustment provides an additional payment to hospitals that meet the low-volume hospital qualifying criteria and does not directly impact a hospital's ADC or ALOS. We also note that CMS considers multiple factors when determining certification for inpatient hospitals. ADC and ALOS are factors in determining a hospital's eligibility for specialized payment categories. Hospitals are not required to have any specific number of inpatients for certification. A hospital's ability to adhere to the inpatient hospital CoPs is not relevant to the reversion to the low-volume hospital payment requirements that were in effect prior to FY 2011.

After consideration of the public comments we received, we are finalizing our proposals, without modification. Consistent with current law, effective beginning FY 2023, the low-volume hospital definition and payment adjustment methodology will revert back to the policy established under statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and extended through subsequent legislation (most recently the Bipartisan Budget Act of 2018).

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 proposed that a hospital must submit a written request for low-volume hospital status to its MAC that includes sufficient documentation to establish that the hospital meets the applicable mileage and discharge criteria (as described earlier). Specifically, 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 proposed 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 further proposed 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.

We received no comments on our proposed process for requesting and obtaining the low-volume hospital payment adjustment for FY 2023 and therefore are finalizing this proposal without modification.

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

1. Background for the MDH Program

Section 1886(d)(5)(G) of the Act provides special payment protections, under the IPPS, to a Medicare-dependent, small rural hospital (MDH). (For additional information on the MDH program and the payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51683 through 51684).) As discussed in section V.B. of the preamble of this final 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 notice (78 FR 14689).
• The FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 50649).
• The FY 2014 interim final rule with comment period (79 FR 15025 through 15027).
• The FY 2014 notice (79 FR 34446 through 34449).
• The FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 through 50024).
• The August 2015 interim final rule with comment period (80 FR 49596).
• The FY 2017 IPPS/LTCH PPS final rule (81 FR 57054 through 57057).
• The FY 2018 notice (83 FR 18303 through 18305).
• The FY 2019 IPPS/LTCH PPS final rule (83 FR 41429).

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)(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 did not propose specific amendments to the regulations at § 412.108 or § 412.90 to reflect the expiration of the MDH program. However, we proposed 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. We stated that these conforming changes would only be made if the MDH program were to be extended by statute beyond September 30, 2022. As of the time of the development of this final rule, there has been no change in law to extend the MDH program beyond FY 2022. Therefore, in this final rule, we are not making any additional changes to the regulations governing the MDH program at § 412.108 or the general payment rules at § 412.90.

Comment: Many commenters expressed support for extending the MDH program or making the MDH program permanent and noted that they would continue supporting congressional efforts to protect the MDH program. Some commenters also expressed support for an additional base year for calculating MDH payments. A commenter urged CMS to remove the MDH program expiration proposal from the final rule. Several state hospital associations expressed their concern that hospitals in their states would experience significant payment decreases as a result of the expiration of the MDH program. A few commenters urged for action to be taken to ensure that the MDH program is extended, while other commenters urged CMS to explore alternatives and make immediate adjustments within its authority to provide relief and mitigate negative impacts to rural hospitals should Congress not act.

Response: While we appreciate the commenters' concerns about the expiration of the MDH program and the financial impact to affected providers if the MDH program is not extended beyond FY 2022, CMS does not have the authority under current law to extend the MDH program beyond the September 30, 2022 statutory expiration date. Similarly, Section 1886(b)(3)(D) of the Act specifies the applicable base years or “target amounts” for hospitals classified as MDHs. These comments are similar to comments we received previously, prior to the statutory extension of the MDH program for FY 2018 through FY 2022 provided by subsequent legislation, and discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38220 through 38221). In response to the comment urging CMS to explore other relief options should Congress not act, we will consider this for future rulemaking and explore potential ways to provide support to this subset of rural providers.

Comment: Several commenters expressed support for CMS' policy that allows MDHs to apply for SCH status in advance of the expiration of the MDH program and be paid as such under certain conditions. Some commenters also requested that CMS also provide former MDHs with the ability to rescind their newly acquired SCH status and reinstate their MDH status in a seamless manner, if a retroactive extension to the MDH program is made.

Response: We appreciate the commenters' support of our policy allowing MDHs to apply for SCH status in advance of the expiration of the MDH program and to be paid as such under certain conditions and allow for a seamless transition from MDH classification to SCH classification. In response to the suggestion that CMS provide former MDHs with ability to rescind their newly acquired SCH status and reinstate their MDH status in a seamless manner if a retroactive extension to the MDH program is made, we understand the desire on the part of hospitals for certainty in the face of MDH program expiration and will consider for future rulemaking any potential mechanisms to further streamline such transitions in connection with legislative extensions of the MDH program. We note that under the current regulations at § 412.108(b)(4), the effective date for MDH classification is as of the date the MAC receives the complete application. A MDH that applied for and was classified as an SCH in advance of the MDH expiration per the regulations at § 412.92(b)(2)(v) could request a cancellation of its SCH status and simultaneously re-apply for MDH status if the MDH program were to be extended, and the MDH classification would be effective as of the date that the MAC receives the complete application. This would allow a former MDH to maintain special payment status as an SCH and then as an MDH generally without interruption in the event the MDH program is extended.

Comment: Commenters urged CMS to expedite restoration of MDH status, should Congress act to extend these programs, stating that past retroactive restorations have seen delays that caused significant cash flow problems to affected hospitals. They requested that CMS move expeditiously to restore payments so that these rural facilities are able to continue to provide quality care to their communities and that CMS clarify how it might handle program extensions, should Congress enact legislation to extend them.

Response: We appreciate the commenters' sharing their concerns relating to a retroactive restoration of the MDH program. As with past extensions, CMS will evaluate enacted legislation to determine the most appropriate approach to implement changes to the law, including instructions to the MACs to reinstate MDH status to eligible hospitals. As in the past, we will make every effort to implement any extension of the MDH program as expeditiously as possible.

In summary, under current law, beginning October 1, 2022, all hospitals that previously qualified for MDH status will no longer have MDH status.

E. 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.

We did not receive any comments regarding the IME adjustment factor, which, as noted earlier, is statutorily required. Accordingly, for discharges occurring during FY 2023, the IME formula multiplier is 1.35.

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 could include in its FTE resident count for direct GME and IME payment purposes. Under section 1886(h)(4)(F) of the Act, for cost reporting periods beginning on or after October 1, 1997, a hospital's unweighted FTE count of residents for purposes of direct GME may not exceed the hospital's unweighted FTE count for direct GME in its most recent cost reporting period ending on or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit based on the FTE count for IME during that 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.

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 and 40306), 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 (62 FR 45966). 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 stated that CMS's proportional reduction method unlawfully reduced the weighting factor of 0.5 to an amount less than that, thereby reducing the capped weighted 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, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28410 through 28412), we proposed 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 welcomed 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) and (iii).) Therefore, we proposed to modify the policy embodied in 42 CFR 413.79(c)(2)(iii), which the Court found in Hershey was inconsistent with the statute.

The Court's decision in Hershey held that our prior rule governing “computation of the approved number of full-time equivalent residents in an approved medical residency training program” (§ 1886(h)(4) of the Act) was inconsistent with the statute. That statute further requires us to “establish rules consistent with this paragraph” for the computation of FTEs. Following our review of the district court's reasoning in Hershey and the statute, we concluded that our existing formula for computing the number of FTEs was inconsistent with the statutory requirements. It is also our view that the combination of the statutory requirement to “establish rules” and the Hershey court's conclusion that our existing rules are inconsistent with statutory requirements necessitates a new rulemaking. We further note that the Hershey decision does not mandate an alternative payment method, and we do not believe that the decision—or our independent conclusion that the formula should be modified—forecloses alternatives to the calculation method we finalize here. In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28411), we stated our belief 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 modify the statutorily-required rule effective for cost reporting periods beginning on or after October 1, 2001. While Hershey itself does not mandate this conclusion, we believe it would be inconsistent with the statute to calculate past payments for open cost reports based on a rule inconsistent with the law, particularly where a court ordered us to recalculate payments to plaintiffs. Doing so via notice-and-comment rulemaking is in the public interest because it will permit interested stakeholders to comment on the proposed approach, allow the agency to have the benefit of those comments in the development of a final rule, and calculate payments for past open cost years in a transparent, consistent, and efficient manner. 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 found unlawful.

In the proposed rule, we noted that because we proposed to establish this policy retroactively, it would cover cost reporting periods for which many NPRs have already been 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.

After reviewing the statutory language regarding the direct GME FTE cap and the court's reasoning, we 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 was greater than its FTE cap, but would not reduce the weighting factor of residents that are beyond their IRP by 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 proposed 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 proposed 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: [Note—see the comments and responses later in this section for a revised version of this Example 1] Hospital with an 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 an 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.

Comment: We received many comments supporting our proposed revision to the weighted count methodology and to the Medicare cost reporting instructions. Commenters urged CMS to finalize the proposed revision, asserting it is required by the law and the court's order, and to recalculate payments immediately, as over a year has passed since the court order.

Response: We appreciate the commenters' support, and upon issuance of this final rule, we will work with the MACs and other impacted parties to recalculate and issue adjusted payments as soon as possible.

Comment: Many commenters urged CMS to abandon the proposal to use retroactive rulemaking as the means of complying with the decision of the Hershey court. These commenters stated that retroactive rulemaking is strongly disfavored under the Medicare statute and permitted only under limited circumstances as specified in section 1871(e)(1)(A) of the Act, namely, when it is either necessary to comply with statutory requirements (§ 1871(e)(1)(A)(i)) of the Act); or when failure to apply the change retroactively would be contrary to the public interest (§ 1871(e)(1)(A)(ii) of the Act). Commenters asserted that neither of these exceptions applies in the present case.

With respect to the exception at section 1871(e)(1)(A)(i) of the Act, commenters stated that retroactive rulemaking is not necessary for CMS to comply with statutory requirements. Commenters said that the Medicare statute is unambiguous with respect to the weighting of residents and fellows, and that the proposed revision to the methodology is the only way for CMS to comply with the statutory directive and the Hershey decision, neither of which requires any interpretation by the agency. Commenters also stated that the exception at section 1871(e)(1)(A)(ii) does not apply, since it does not serve the public interest for CMS to engage in retroactive rulemaking and to entertain public comments on actions that the agency is required to take under a legally binding court order. According to a commenter, engaging in retroactive rulemaking in this instance implicitly contradicts the court's decision, while others expressed concern that it would create a precedent whereby CMS might invoke public interest in receiving comments as a justification for virtually any retroactive rule change. Commenters also stated that it is not necessary for CMS to engage in retroactive rulemaking to benefit from public comments, pointing out that in the past the agency has made retroactive policy changes via program instruction and only submitted the policies to public comment for purposes of prospective application.

Commenters also rejected the argument that retroactive rulemaking in this instance is necessary to comply with the Supreme Court's ruling in Azar v. Allina Health Services. Commenters observed that the Allina ruling established the need for notice-and-comment rulemaking to change a substantive legal standard governing payment where the agency engages in “gap-filling” an ambiguous statute. However, as previously stated, commenters believed that the statute is unambiguous with regard to the weighting of residents and fellows, and that therefore there are no gaps for the agency to fill. In other words, as stated by a commenter, the proposed policy is already dictated by the statute as explained in Hershey, and there is no room for CMS to substantively change the policy enacted by Congress.

Furthermore, commenters disagreed with CMS's position, as originally stated in the FY 2023 IPPS/LTCH proposed rule, that retroactive rulemaking is necessary in the wake of the Hershey ruling since the Secretary “has no promulgated rule governing” direct GME payments to teaching hospitals over the cap for cost reporting periods beginning on or after October 1, 2001 (87 FR 28411). A number of commenters stated that the Hershey court did not leave CMS with a regulatory void to fill, but merely ruled “that the regulation is unlawful as applied to the Plaintiffs”; even if the court had vacated the existing regulation, these commenters asserted that notice-and-comment rulemaking would not be required or appropriate to acquiesce to the vacatur. By contrast, another commenter stated that the existing regulation is a “legal nullity” in light of the Hershey decision, but nevertheless stated that the statutory payment directive requires no substantive change in policy and can be properly effectuated without rulemaking.

Citing a number of examples, commenters observed that historically, both before and after Allina, CMS has implemented policy changes to resolve appeals or comply with court decisions without engaging in retroactive rulemaking, and invoked its retroactive rulemaking authority only under particular circumstances, such as in response to a natural disaster or when a rule is published after a statute's effective date. Only more recently, according to commenters, has CMS inappropriately begun to engage in retroactive rulemaking in response to litigation. Rather than engage in retroactive rulemaking to comply with the Hershey decision, commenters urged CMS to make the change in regulation prospectively and to employ other appropriate means, such as program instruction to the MACs or settlement with hospitals, to implement the proposed correction for past years.

While urging CMS to abandon retroactive rulemaking as the means of complying with the Hershey decision, commenters stated that, if CMS does engage in retroactive rulemaking, it should specify exactly which hospitals and past cost reporting periods will be eligible for relief under the revised policy. In particular, commenters pointed out that CMS proposed that “certain other providers” will be eligible for relief in addition to the plaintiffs in Hershey, but the preamble does not make it clear who those providers will be. These commenters stated that CMS should reopen all cost reports within the three-year reopening period and recalculate direct GME payments consistent with the statute. At a minimum, however, the “certain other providers” should include any provider that, if applicable, has an appeal pending with the Provider Reimbursement Review Board or in federal court on the same issue as Hershey. In addition, if CMS does not reopen all cost reports that are within the three-year reopening period, it should nonetheless apply the methodology any time a cost report is reopened and the direct GME payment is altered. Other commenters likewise stated that hospitals should be permitted to reopen their cost reports for the purpose of recalculating their direct GME payments according to the revised weighting methodology, and that CMS should not finalize any ongoing cost report audits until the final rule has been issued.

Some commenters expressed concern that CMS's proposal to extend relief to only certain providers is inconsistent with concept of retroactive rulemaking. Another commenter objected to CMS's statement that under 42 CFR 405.1885(c)(2), any final rule retroactively adopting the proposed new policy would not be the basis for reopening final settled NPRs (87 FR 28411). This commenter asserted that § 405.1885(c)(2) does not apply to retroactive rulemaking, and that CMS's proposal has “no real retroactive effect” if it does not serve as the basis for reopening settled cost reports. Another commenter similarly recommended that CMS make the new policy “fully retroactive” so that even final settled NPRs subject to reopening may be reopened for the purpose of applying the revised methodology. This commenter stated that withholding relief from certain providers would be arbitrary and capricious and result in CMS not fully complying with the statute.

Response: We appreciate the comments regarding our proposal to implement the court's decision in Hershey retroactively, but for the reasons that follow (as well as those stated in the proposed rule), we are finalizing our policy as proposed, retroactive to 2001.

We agree with commenters who objected to our statement that there is “no promulgated rule governing” direct GME payments to over-the-cap hospitals. The Hershey court did not vacate the rule. We further agree that the Hershey decision itself does not require us to engage in retroactive rulemaking. However, the statute at issue states that “[t]he Secretary shall establish rules consistent with this paragraph for the computation of the number of full-time equivalent residents in an approved medical residency training program.” Section1886(h)(4)(A) of the Act (emphasis added). And the Hershey court did say that the rules at issue were not consistent with the statute. Following our review of the Hershey court's reasoning and the statutory requirements, we decided that our method for computing FTEs was not consistent with statutory requirements. We therefore conclude that our existing rule, which does not comply with the statute, should be modified retroactively such that our FTE computation rules are consistent with the statute and payments, including payments for open cost years in past, are calculated pursuant to regulation.

Several commenters state that no rule is necessary because of an express statutory mandate that fellows be counted as 0.5 FTE. We disagree, for two reasons. First, there are two express statutory mandates in the section cited by commenters: that the Secretary promulgate rules, and that those rules weight fellows at 0.5 FTE (see sections 1886(h)(4)(A) and 1886(h)(4)(C)(iv) of the Act). In other words, the statutory language cited by commenters describes the content of the rules the Secretary is required to promulgate, rather than setting an independent statutory benchmark. Second, we disagree with the commenters' position that the rule we proposed was the only possible way to compute FTE counts in light of Hershey. Section 1886(h)(4)(C) is not the only relevant statutory provision governing the content of the rule; section 1886(h)(4)(F)(i) of the Act requires the rules to cap the number of unweighted residents based on a hospital's FY 1996 FTE count. In Hershey itself, the court did not mandate a particular method of calculation or require CMS to adopt the plaintiffs' proposed calculation method. We believe that there is more than one way to comply with the statutory requirements and the court's order. Our decision in this rule does not mean that all other alternatives were foreclosed by the Hershey decision. The Hershey court decision held that the prior regulation governing FTE counting for over-the-cap hospitals was unlawful. It did not mandate any particular alternative approach. We further disagree with commenters to the extent they suggest that we compute FTE counts without a rule in place for doing so. As discussed elsewhere, the statute at issue requires the Secretary to establish a rule.

Even if the Hershey decision did mandate a single method of computing FTE counts, it was silent on how to incorporate that computation into the three-year rolling average. Without a rule for determining the inputs to the three-year-rolling average, which we proposed and are now finalizing, it is impossible to calculate a given provider's dollar reimbursement. Therefore, even if we agreed with commenters that the Hershey decision provided sufficient guidance for computing FTE counts and that no further rulemaking on that issue is required, we would nonetheless consider it necessary to undergo rulemaking to implement our response to the decision, that is, use its requirements to develop a method for calculating reimbursement. For these reasons, we disagree with commenters who believe that notice-and-comment rulemaking is unnecessary to implement the Hershey decision, including for past cost years.

We appreciate the comments about retroactive rulemaking here being inconsistent with CMS's historical practice. Many of the examples raised by commenters do not involve judicial decisions calling into question agency rules, which is a key factor here, as we noted in the proposed rule. The governing statute requires the Secretary to promulgate rules governing reimbursement that are consistent with statutory requirements, and the court's decision in Hershey concluded that our existing rule was not consistent with those requirements. We do not believe that using retroactive rulemaking in this instance is inconsistent with our past practice.

We acknowledge that our statutory authority to engage in retroactive rulemaking is limited by section 1871(e)(1)(A) of the Act. As previously discussed, we believe that the explicit statutory requirement that the Secretary promulgate a rule governing GME reimbursement renders retroactive application here “necessary to comply with statutory requirements.” 1871(e)(1)(A)(i). If we promulgated this rule prospectively only, a necessary result would be that some hospitals would receive GME reimbursement based on a computation of FTE equivalents that was not established by rule. We emphasize again that the rule at issue in Hershey and the rule we promulgate here are not merely statutory gap-fillers. The statute affirmatively requires us to promulgate a rule.

In the alternative, and even if it were permissible to compute the number of FTEs without a rule governing the methodology for doing so, we believe that retroactive rulemaking here is in the public interest (section 1871(e)(1)(A)(ii) of the Act). In response to comments, we want to make clear that we believe that public notice-and-comment will benefit the rulemaking process generally. As we noted in the preamble, there was limited public comment on the key provisions of the original rulemaking that the Hershey court found inconsistent with statutory requirements. And we acknowledge—and we do not believe that commenters disagree—that it is necessary to recalculate past payments in light of the Hershey decision. The public interest will be served by having past payments calculated in the same way as future payments, and given our view that it is necessary to engage in notice-and-comment rulemaking to implement the Hershey decision, we believe it is sensible and efficient to calculate past payments based on a formula promulgated with the benefit of notice-and-comment rulemaking. We do not mean to imply that the public interest requires consistency between past payments and future payments in all conceivable situations. However, where—as here— payment was set by a regulation that a court held inconsistent with substantive statutory requirements and the agency engages in new notice-and-comment rulemaking to implement that judicial ruling, there is a public benefit in having past payments calculated via the same method as future payments. This is particularly true where the statute at issue requires that payments be calculated pursuant to a rule. We therefore believe that this is a case where the public interest in having a rule applicable to all payments, both past and future, justifies retroactive rulemaking. It would be contrary to the public interest for plaintiffs in Hershey and other judicial challenges to have their payments calculated by a different methodology (whether more or less generous than the methodology established by regulation) than other providers that are otherwise similarly situated. Retroactive rulemaking in this situation, benefits the public interest by achieving parity in payment among similarly situated hospitals.

We also believe that the public interest is served by having payments for past open cost years calculated in a transparent, efficient, and not administratively burdensome fashion, an interest that is served by promulgating a rule (following notice-and-comment) that applies to those cost years. This rule will allow us to calculate payments to hospitals with open cost reports based on a universal and transparent formula, and it will allow many hospitals (and MACs) to avoid the administrative expense of calculating payments based on a formula that the agency has concluded should not be applied. The public interest is further served by reducing the need for hospitals to file administrative appeals in order to obtain the benefit of the new payment formula.

We appreciate comments regarding the applicability of 42 CFR 405.1885(c)(2) to this rule. We disagree that 405.1885(c)(2) does not apply to retroactive rules. The text of the regulation does not support that proposed carve-out. The rule we proposed—and finalize here—is a “change of legal interpretation or policy by CMS in a regulation . . . made in response to judicial precedent,” and thus it is “not a basis for reopening a CMS or contractor determination.” Some commenters urged us to apply 42 CFR 405.1885(c)(1) to direct contractors to reopen cost reports, but we note that paragraph (c)(1) allows CMS to do so (“CMS may direct a contractor . . . to reopen and revise”) subject to the prohibited reopening's in paragraph (c)(2). We disagree that this rule will have no “real retroactive effect,” as a number of hospitals will receive increased reimbursement for past cost reporting years.

We further disagree that it is arbitrary and capricious to apply 405.1885(c)(2) here. This is not the first time that we have made a policy change that could potentially affect closed cost reports, and we have previously declined to direct reopening of closed cost reports consistent with the policy favoring finality embedded in 405.1885(c)(2). For example, we permitted qualifying hospitals to request application of a policy change made in the FY 2020 IPPS rule to FYs 2011 through 2017, “subject to the reopening rules at 42 CFR 405.1885.” (84 FR 42349) We believe that the policy we finalize here is consistent with our past practice and our general approach toward finality.

Comment: Many commenters appreciated that CMS proposed that “If the number of FTE residents weighted in accordance with paragraph (b) of this section does not exceed [the FTE cap], then the allowable weighted FTE count is the actual weighted FTE count.” However, some commenters pointed out that CMS's proposed change to the instructions for line 9 of Worksheet E-4 does not contain language reflecting this scenario and requested that CMS add a third sentence to the proposed changes to the instructions for line 9. The sentence should state as follows: “If the total weighted FTE count from line 8, column 3 is less than or equal to the amount on line 5, then enter the amounts from line 8, columns 1 and 2, in columns 1 and 2 of this line.”

Response: We agree with the commenters' request and will revise the proposed instructions to Worksheet E-4, line 9 to address the commenters' request. However, since we are adding the sentence requested by the commenters, then we are removing the following: “ 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.” This latter sentence is not necessary, since if line 6 is less than or equal to line 5, then by default line 8, column 3 will also be less than or equal to line 5. We are revising the instructions to Worksheet E-4, line 9 to state: If the total weighted FTE count from line 8, column 3 is less than or equal to the amount on line 5, then enter the amounts from line 8, columns 1 and 2, in columns 1 and 2 of this line (emphasis added).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 columns 1 and 2.

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 proposed 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 proposed 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.

Comment: Some commenters supported CMS's proposal to update the cost report instructions for lines 12 and 13 of Worksheet E-4 to ensure that the weighted resident FTE counts from the prior and penultimate years will be updated to reflect the new direct GME payment formula. However, the commenters pointed out that the proposed language for lines 12 and 13 does not specify how to calculate the weighted FTE count for the prior and/or penultimate years when the unweighted FTE count from those years exceeds the FTE cap, but the weighted FTE count from those years does not, and requested that CMS add a sentence to the instructions for lines 12 and 13 stating: “If the prior/penultimate year total weighted FTE count from line 8, column 3 is less than or equal to line 5 from the prior/penultimate year, then enter the amounts from line 8, columns 1 and 2, in columns 1 and 2 of this line.”

Response: We agree with the commenters' request and are revising the instructions on Worksheet E-4 lines 12 and 13 to state: Effective for cost reporting periods beginning on or after October 1, 2001, if the prior/penultimate year total weighted FTE count from line 8, column 3 is less than or equal to line 5 from the prior/penultimate year, then enter the amounts from line 8, columns 1 and 2, in columns 1 and 2 of this line (emphasis added). 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.

Comment: Several commenters observed that CMS should have also proposed to apply the revised direct GME weighting methodology to the so-called “section 422 MMA (Medicare Modernization Act) cap slots” as well. Specifically, many teaching hospitals received additional FTE caps following a redistribution of unused FTE cap slots mandated by section 422 of the MMA. Similar to the fellowship penalty, CMS applies a proportional methodology when determining payment for section 422 cap FTEs. The commenters suggested that CMS calculate the “Section 422 Allowable Direct GME FTE Resident Count” on Worksheet E-4, line 22 as follows:

• If the weighted FTEs on line 8 are less than or equal to the adjusted FTE cap on line 5, the hospital would have entered the weighted FTEs from line 8 on line 9. In this instance, the additional section 422 cap slots are unnecessary, and the hospital would enter zero on line 22.
• If the weighted FTEs on line 8 are greater than the adjusted FTE cap on line 5, the hospital would have entered the adjusted FTE cap on line 9. In this instance, the hospital would subtract line 9 from line 8 and proceed as follows:

○ If line 9 minus line 8 equals or exceeds the “Section 422 Direct GME FTE Cap” on line 20, then the hospital would enter the amount from line 20 on line 22.

○ If line 9 minus line 8 is less than line 20, the hospital would enter line 9 minus line 8 on line 20.

Response: We agree with the commenters' observation that the revised methodology should apply to the MMA section 422 FTE cap, as the mathematical cap concept is the same for the 422 FTE cap as it is for the regular FTE cap. Accordingly, for portions of cost reporting periods beginning on or after July 1, 2005, the effective date of section 422 under 42 CFR 413.79(c)(4), we will revise Worksheet E-4, line 22, as follows:

For portions of cost reporting periods beginning on or after July 1, 2005, if the weighted FTE count on line 8 is less than or equal to the adjusted FTE cap on line 5, the hospital would have entered the weighted FTEs from line 8 on line 9. In this instance, the additional § 422 cap slots are unnecessary; do not complete lines 22 through 24. If the weighted FTE count on line 8 is greater than the adjusted FTE cap on line 5, the hospital would have entered the adjusted FTE cap on line 9. In this instance, subtract line 9 from line 8. If line 9 minus line 8 equals or exceeds the “Section 422 Direct GME FTE Cap” on line 20, then enter the amount from line 20 on line 22. If line 9 minus line 8 is less than line 20, enter line 9 minus line 8 on line 22. (We note the commenters indicated “enter line 9 minus line 8 on line 20,” but we believe they meant to say “on line 22”).

We proposed 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 of the final rule, 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.

Comment: A commenter requested that CMS make conforming changes to the three-year rolling average regulation at. § 413.79(d)(3) to clarify that the weighted FTE counts for the “preceding two cost reporting periods” must be calculated in accordance with the revised payment formula at § 413.79(c)(2)(iii).

Response: We agree to add a parenthetical to the regulations at § 413.79(d)(3) to state, “For cost reporting periods beginning on or after October 1, 2001, the hospital's weighted FTE counts for the preceding two cost reporting periods are calculated in accordance with the payment formula at 42 CFR 413.79(c)(2)(iii)).”

Comment: A commenter stated they would like to see the three-year rolling average eliminated retroactive to October 1, 2001, as it would delay implementation of CMS's proposed payment formula.

Response: 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 weighted FTEs (for primary care & OBGYN FTEs and other FTEs respectively). Our proposed interpretation of section 1886(h)(4)(F) of the Act regarding application of weighting factors does not change this portion of the statute regarding application of the 3-year rolling average. Therefore, we are not adopting the commenter's request to eliminate application of the rolling average under our proposed payment formula.

Comment: Some commenters requested that CMS correct or clarify certain misstatements in the FY 2023 IPPS/LTCH PPS proposed rule regarding the Hershey case. First, CMS should be clearer about the position of the Hershey plaintiffs. CMS described the position of the Hershey plaintiffs as follows: “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” (87 FR 28410). According to the commenters, this is an incomplete description of the plaintiffs' position. The commenters stated that CMS's proportional reduction also impermissibly reduces the weighted FTE count when the weighted FTE count is less than unweighted FTE cap.

Second, the commenters believed that “Example 1” in the preamble is misstated. In that example, a “Hospital with an 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” (87 FR 28411). The “total weighted count” is “105.” The commenters noted that if the hospital trained 120 FTEs with a weight of 1.0 and 105 FTEs with a weight of 0.5, its unweighted FTE count would be 225 (120 + 105), and its weighted FTE count would be 172.5 ((120 × 1.0) + (105 × 0.5)), not 105. The commenters believed that CMS intended this example to say that the hospital had an unweighted FTE count of 120 and a weighted FTE count of 105. The 105 weighted FTEs would consist of 90 FTEs weighted at 1.0 and 30 FTEs weighted at 0.5.

Response: Regarding the first point about not fully capturing Plaintiffs' position, we acknowledge the commenters' assertion that the plaintiffs in Hershey argued that CMS's proportional reduction impermissibly reduced the weighted FTE count when the weighted FTE count was less than unweighted FTE cap.

Regarding the second point that the commenters believe that Example 1 is misstated, we acknowledge the confusing wording, and we are providing a corrected Example 1 as follows:

Example 1 Revised: Hospital with an FTE cap of 100 trains 120 unweighted FTEs, consisting of 105 weighted FTEs (90 FTEs weighted at 1.0 and 30 FTEs weighted at 0.5 = 105 weighted FTEs). The 105 weighted FTEs further consists 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.

Comment: A commenter requested clarification on the implications of the Medicare direct GME formula change for hospitals that participate in the Children's Hospitals Graduate Medical Education (CHGME) program administered by HRSA.

Response: Since the CHGME program is administered by HRSA and not by CMS, we defer to HRSA to determine the implications of CMS's change to the Medicare direct GME payment formula.

After consideration of comments received, we are finalizing our proposed policy and 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 of the final rule, 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. In response to comments, we are also making a conforming change to the regulations text at 42 CFR 413.79(d)(3) regarding application to the 3-year rolling average to state that for cost reporting periods beginning on or after October 1, 2001, the hospital's weighted FTE counts for the preceding two cost reporting periods are calculated in accordance with the payment formula at § 413.79(c)(2)(iii). In addition, in response to comments, we are applying the new payment methodology to the MMA section 422 FTE cap.

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 MA organizations. Section 541 of the BBRA limits total spending under the provision to no more than $60 million in any calendar year (CY). (In this document, we refer to the total amount of $60 million or less as the payment “pool”.) Section 541 of the BBRA also provides that direct graduate medical education (GME) payments for Medicare+Choice utilization are reduced to the extent that these additional payments are made for nursing and allied health education programs. This provision was effective for portions of cost reporting periods occurring in a CY, on or after January 1, 2000.

Section 512 of the Benefits Improvement and Protection Act (BIPA) of 2000 changed the formula for determining the additional amounts to be paid to hospitals for MA nursing and allied health costs. Under section 541 of the BBRA, the additional payment amount was determined based on the proportion of each individual hospital's nursing and allied health education payment to total nursing and allied health education payments made to all hospitals. However, this formula did not account for a hospital's specific MA utilization. Section 512 of the BIPA revised this payment formula to specifically account for each hospital's MA utilization. This provision was effective for portions of cost reporting periods occurring in a calendar year, beginning with CY 2001, and was implemented in the August 1, 2001 IPPS final rule (66 FR 39909 and 39910).

The regulations at 42 CFR 413.87 codified both statutory provisions. We first implemented the BBRA NAH MA provision in the August 1, 2000 IPPS interim final rule with comment period (IFC) (65 FR 47036 through 47039). In that IFC, we outlined the qualifying conditions for a hospital to receive the NAH MA payment, how we would calculate the NAH MA payment pool, and how a qualifying hospital would calculate its “share” of payment from that pool. Determining a hospital's NAH MA payment essentially involves applying a ratio of the hospital-specific NAH Part A payments, total inpatient days, and MA inpatient days, to national totals of those same amounts, from cost reporting periods ending in the fiscal year that is 2 years prior to the current calendar year. The formula is as follows:

(((Hospital NAH pass-through payment/Hospital Part A Inpatient Days) * Hospital MA Inpatient Days)/((National NAH pass-through payment/National Part A Inpatient Days) * National MA Inpatient Days)) * Current Year Payment Pool.

With regard to determining the total national amounts for NAH pass-through payment, Part A inpatient days, and MA inpatient days, we note that section 1886(l) of the Act, as added by section 541 of the BBRA, gives the Secretary the discretion to “estimate” the national components of the formula noted previously. For example, section 1886(l)(2)(A) of the Act states that the Secretary would estimate the ratio of payments for all hospitals for portions of cost reporting periods occurring in the year under subsection 1886(h)(3)(D) to total direct GME payments estimated for the same portions of periods under subsection 1886(h)(3) of the Act. Accordingly, we made the following statements in the August 1, 2000 IFC:

• Each year, we would determine and publish in a final 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 the FY 2023 IPPS/LTCH PPS proposed rule, we proposed the NAH MA add-on rates as well as the direct GME MA percent reductions for CYs 2020 and 2021. We proposed 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/LTCH PPS proposed rule, and the rates for CY 2023 in the FY 2025 IPPS/LTCH PPS proposed rule, and so forth.

Consistent with the use of HCRIS data for past calendar years, for CY 2020, we proposed to use data from cost reports ending in FY 2018 HCRIS (the fiscal year that is 2 years prior to CY 2020) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days. We proposed to use data from cost reports ending in FY 2019 HCRIS (the fiscal year that is 2 years prior to CY 2021) to compile the same national amounts for CY 2021.

For the proposed rule, we accessed the HCRIS data from the fourth quarterly HCRIS update of 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 final 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 increased these payment amounts from midpoint to midpoint of the appropriate calendar year using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for MA direct GME, and the Consumer Price Index-Urban (CPI-U) increases for Part A direct GME. For CY 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 CYs 2020 and 2021, the proposed national rates and percentages, and their data sources are set forth in this table. We stated in the proposed rule that we intend to update these numbers in the FY 2023 final rule based on the latest available cost report data.

We did not propose any changes to the regulations text at 42 CFR 413.87, as our proposal to include the nursing and allied health MA rates in the IPPS rulemaking was consistent with current regulations.

Comment: A commenter requested clarification on the calculation of the direct GME MA percent reduction and questioned if it is separate from the allocation of funds used for the NAH pass-through payment.

Response: We appreciate the commenter's request for clarification. As explained previously in the background section, under sections 541 of the BBRA and 512 of BIPA, hospitals that operate approved nursing or allied health education programs and receive Medicare reasonable cost reimbursement for these programs would receive additional payments for services associated with MA enrollees. Section 541 of the BBRA limits total spending under the provision to no more than $60 million in any calendar year (CY). Section 541 of the BBRA also provides for estimated reductions in direct GME MA payments, which are to equal the estimated total additional MA NAH payments. Thus, nationally, the estimated reductions to direct GME MA payments would not be more than $60 million in any CY. However, on a hospital-specific basis, the direct GME MA percent reduction is not necessarily tied to receipt of the MA NAH add-on payment. That is, hospitals that are both teaching hospitals receiving direct GME payments and that operate approved NAH programs may be affected by both aspects of these laws; such hospitals may receive both a payment for MA NAH, while also receiving a reduced direct GME MA payment. Hospitals that only operate NAH programs may only receive the MA NAH payment; conversely, teaching hospitals with no approved NAH programs would only receive the reduced direct GME MA payment.

We received numerous comments regarding various aspects of the MA NAH add-on and the direct GME MA percent reduction, expressing opposition to reconciliation of overpayments, voicing concerns regarding reimbursement that does not adequately reflect current costs and nursing and healthcare workforce shortages, and opposing reductions to direct GME payments to fund NAH programs. While concerns expressed in these comments may be important, we did not specifically make proposals related to those concerns. These comments are out of scope, and therefore, we are not responding to them at this time.

For this final rule, consistent with the use of HCRIS data for past calendar years, for CY 2020, we use data from cost reports ending in FY 2018 HCRIS (the fiscal year that is 2 years prior to CY 2020) to compile these national amounts: NAH pass-through payment, Part A Inpatient Days, MA Inpatient Days. We use data from cost reports ending in FY 2019 HCRIS (the fiscal year that is 2 years prior to CY 2021) to compile the same national amounts for CY 2021. For this final rule, we accessed the HCRIS data from the first quarterly HCRIS update of 2022. However, to calculate the “pool” and the direct GME MA percent reduction, we “project” Part A direct GME payments and MA direct GME payments for the current calendar years, which in this final rule, are CYs 2020 and 2021 as the best available cost report data. Next, consistent with the method we described previously from the August 1, 2000 IFC, we increased these payment amounts from midpoint to midpoint of the appropriate calendar year using the increases allowed by section 1886(h) of the Act for these services (using the percentage applicable for the current calendar year for MA direct GME, and the Consumer Price Index-Urban (CPI-U) increases for Part A direct GME. For CY 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 CYs 2020 and 2021, the final national rates and percentages, and their data sources are set forth in this table.

In summary, after consideration of the public comments received, we are finalizing our proposal to use NAH MA add-on rates as well as the direct GME MA percent reductions for CYs 2020 and 2021, based on sufficient HCRIS data to develop the rates for these years. We expect to propose to issue the rates for CY 2022 in the FY 2024 IPPS/LTCH PPS proposed rule, and the rates for CY 2023 in the FY 2025 IPPS/LTCH PPS proposed rule, and so forth.

4. Allowance of 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 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 in accordance with paragraph (3) of this definition); 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 section 1886(h)(4)(F) of the Act, 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. There has been request 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 proposed 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 proposed 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 proposed to define in this final rule, will be structured similarly to regular Medicare GME affiliation agreements, but we proposed 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 proposed 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 noted 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 proposed 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 proposed 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 proposed 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 final 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 of the final rule.

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, 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) that requested 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 proposed the following new definitions and requirements at 42 CFR 413.75(b):

• “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 paragraph (iii) of the definition (regarding the total adjustment to each hospital's rural track FTE limitations previously noted)); and

++ The names of the participating hospitals and their Medicare provider numbers.

In addition, we proposed 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 proposed 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 noted in the proposed rule 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. We stated in the proposed rule that 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 proposed 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 proposed 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 proposed 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 also proposed 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 proposed 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 proposed that eligible urban and rural hospitals may enter into rural track Medicare GME affiliation agreements effective with the July 1, 2023, academic year.

Comment: The majority of commenters strongly supported CMS's proposal to enable rural training flexibilities through Medicare GME affiliation agreements between urban and rural hospitals that have rural track programs. Some commenters “applauded” CMS for its attention to rural GME training, and appreciated additional options for cap flexibilities afforded to rural hospitals. A commenter stated that the proposal will assist urban hospitals in providing flexibilities needed to address disparities affected by geography and other social determinants of care. Some commenters stated that the proposal will help provide care to Medicare beneficiaries and may create interest for future physicians to practice in rural settings. Many commenters who supported the proposal also added that CMS should engage in future rulemaking that will allow any RTP, not just those separately accredited in family medicine that were established prior to October 1, 2022, to also engage in affiliation agreements following the conclusion of the cap-building period.

Response: We thank the commenters for their feedback and support. As we stated in the proposed rule, we proposed 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 stated that 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 effective on or after October 1, 2022. We explained that we are not permitting the formation of Medicare GME affiliated groups for the purpose of aggregating and cross-training RTP FTE limitations effective on or after October 1, 2022, because 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 would not be permitted, even under existing Medicare GME affiliation agreement rules (42 CFR 413.79(f)). In addition, we stated that before we created 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 wished 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 were not comingled with regular FTE cap adjustments currently used in Medicare GME affiliation agreements. We concluded with our belief that it would be 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 separately accredited rural track program and 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.

Comment: A commenter representing a group of organizations opposed CMS's proposal to allow Medicare GME affiliation agreements for rural track programs with FTE limitations prior to October 1, 2022, and did not believe the use of affiliation agreements resolves concerns over the inequity of the current method for determining a cap to be applied to rural track programs. The commenter was concerned that the proposal establishes additional barriers to many programs. The commenter believed that the proposal is too narrow, limited only to family medicine training, and only to separately accredited training tracks established prior to the CAA 2021. Specifically, the commenter observed that currently, CMS counts the time residents spend training at the rural site, across five years, and the time spent in the urban setting, and then counts the highest number (in any program year) during the fifth year of the cap-setting window across all participating hospitals. Because a rural track program typically has its residents train in the urban hospital in year one, rather than in the rural setting, the urban hospital gets more than its fair share of the cap, and the rural site gets less than the actual number of FTEs training in that site. When apportioned this way, rural sites are disadvantaged compared to urban hospital sites. The commenter noted that a mechanism already exists for Medicare affiliated groups to aggregate caps other than “rural FTE limitations,” and stated that they “are aware of multiple occasions where such aggregation has occurred between urban and rural hospitals, always to the disadvantage of the rural hospital that has, for example, been acquired by the larger urban health system. It seems unlikely that urban hospitals would give up “rural FTE limitation” slots to benefit a participating rural hospital's cap . . .” The commenter stated that CMS has the authority to make changes to the calculation of rural cap limitations as section 127 of the CAA states that the Secretary shall “adjust in an appropriate manner the limitation under subparagraph (F) for such hospital and each such hospital located in a rural area that participates in such a training” (emphasis added). As such, beginning with cost reporting periods on or after October 1, 2022, CMS is not restricted to only sharing positions through an affiliation agreement but should set appropriate caps associated with these training programs for the future, rather than institute affiliation agreements. This commenter and another commenter recommended that the solution is to count the highest year, rather than using all five years when determining the ratio for cap apportionment.

Response: We appreciate the concerns raised by the commenter and acknowledge the commenter's unique perspective on rural GME training. We certainly want to initiate a payment mechanism that is inherently equitable, and believe that a policy that we finalize should encourage, rather than hinder, GME training in rural areas. However, we note that the vast majority of commenters, including others with close ties to rural GME training, have submitted comments in support of our proposal, generally stating that this proposal will facilitate training in rural settings.

With regard to the commenter's point that CMS's current methodology of looking at all 5 years to apportion FTE caps disadvantages the rural hospital in a RTP because the method gives more than the fair share of FTE cap to the urban hospital, we acknowledge that there might be other mathematical apportionment methods that, if tailor-made for RTPs, would result in higher caps for the rural hospital. However, we note that this current mathematical apportionment in the regulations at 42 CFR 413.79(e)(1) and (3) was first implemented for all hospitals in the August 1, 2012 LTCH PPS/IPPS final rule (77 FR 53416 through 53424). Then in the August 22, 2016 LTCH PPS/IPPS final rule, we adopted this same cap apportionment methodology for rural track FTE limitations (81 FR 57026 through 57031), without any objection from commenters. Thus, we have established a single, national policy for calculating FTE caps for new programs and RTPs, and we have not proposed a change to this national method in the proposed rule. While a “one-size-fits-all” method may not be optimal in all situations, we do not believe it is advisable to alter the cap calculation for RTPs at this time. With the advent of CAA section 127, and the expectation that RTPs will develop not only in 3-year family medicine programs, but also in many other specialties of differing lengths, it is not the right time to establish an RTP cap calculation method, before we even understand what the RTP landscape will be like over the next 5 or more years. At this point, allowing Medicare GME affiliation agreements between the urban and rural hospitals participating in the same RTP may be the better solution, as it would allow the hospitals to customize their individual caps, rather than CMS instituting yet another national cap calculation methodology. Furthermore, because the majority of commenters supported our proposal to allow Rural Track Medicare GME Affiliation Agreements, we believe it is fair and appropriate to finalize our policy as proposed. In the December 27, 2021 final rule (86 FR 73456), and as reiterated in the proposed rule and in response to other comments in this final rule, we already stated that we expect to reassess allowing Medicare GME affiliation agreements for RTP FTE limitations established after October 1, 2022 at some point in the future. For these same reasons, and in conjunction with observing what we hope will be robust growth and development of RTPs in many specialties, not just family medicine, we are open to reassessing at the appropriate time the viability of Rural Track Medicare GME Affiliation Agreements for appropriate payment for urban and rural hospitals participating in RTPs.

Comment: Another commenter who supported our proposal added that they believe CMS's concerns about hospitals taking advantage of affiliated agreements and comingled caps are misguided, and that placing this limitation on affiliated agreements within RTPs is inappropriate. The commenter asserted that urban and rural hospitals participating in any RTP program for the benefit of rural communities should be permitted this flexibility, as it would promote the adoption of the model partnerships.

Response: As we stated in the proposed rule, 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 the “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. In the proposed rule, we proposed that the responsible representatives of each urban and rural hospital entering into the Rural Track Medicare GME Affiliation Agreement 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 noted 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)). Accordingly, as long as it is possible for a hospital to have both regular FTE caps and rural track FTE limitations, we believe it is appropriate to have mechanisms in place to ensure those caps are not inadvertently comingled. We do not believe these mechanisms limit the flexibility of rural hospitals seeking to create model partnerships, as the commenter asserts.

Comment: A commenter offered one minor suggestion on language used to describe the programs encompassed in the proposal to allow Medicare GME affiliation agreements within certain rural track FTE limitations. The commenter offered these suggestions in the interest of accurate references to ACGME terminology and processes. The commenter suggested eliminating use of the outdated term “1-2” when referring to separately accredited family medicine programs. CMS could instead consider phrasing such as “separately accredited family medicine programs with caps in place as of October 1, 2022.”

Response: We appreciate the commenter's suggestion, and in this final rule, we are finalizing our policy with respect to “separately accredited family medicine programs with rural track FTE limitations in place as of October 1, 2022.”

After consideration of the public comments we received, we are finalizing our proposal, without modification, to allow urban and rural hospitals that participate in the same separately accredited family medicine RTP and have rural track FTE limitations to enter into “Rural Track Medicare GME Affiliation Agreements”.

We are finalizing 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 paragraph (iii)); and

++ The names of the participating hospitals and their Medicare provider numbers.

In addition, we are requiring 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. 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.

G. 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 final 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 proposed to continue to apply an adjustment to the payment amount for expanded access use of immunotherapy and applicable clinical trial cases that would group to MS-DRG 018 using the same methodology adopted in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), which is the same methodology we proposed 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 proposed 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 the proposed rule we proposed 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 proposed 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 also proposed to update the value of the adjustor based on more recent data for the final rule.

We note that a commenter requested that CMS consider allowing hospitals to use expanded access condition code 90 instead of the remarks field, which would remove a layer of manual work required by the MACs, which would decrease the opportunity for errors. As discussed more fully in our response to this comment in section II.E.2.b. of this final rule, we agree with the commenter's request, and effective October 1, 2022, providers should submit condition code 90 to identify expanded access claims that group to MS-DRG 018, rather than the remarks field. We did not receive any comments specifically relating to the proposed payment adjustment for applicable clinical trial and expanded access use immunotherapy cases.

After consideration of the comment we received, we are finalizing our proposal regarding the calculation of this payment adjustment for FY 2023, as described previously. We are also finalizing our proposal to update the value of this adjustor based on more recent data for this final rule. Therefore, using the March 2022 update of the FY 2021 MedPAR data, we are finalizing an adjustor of 0.21 for FY 2023, which will be multiplied by the final FY 2023 relative weight for MS-DRG 018 as part of the calculation of the payment for claims determined to be applicable clinical trial or expanded use access immunotherapy claims that group to MS-DRG 018.

H. Hospital Readmissions Reduction Program: 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 purposes of payment adjustment for the FY 2023 program year due to the impact of the COVID-19 PHE (86 FR 45254 through 45256). In this final rule, we are finalizing resumption of 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 denominator (cohort) and the numerator (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 final 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 the FY 2023 IPPS/LTCH PPS proposed rule, we did not propose any changes to this policy. We did not receive any comments on our previously finalized flexibilities in response to the COVID-19 PHE or our previously finalized Measure Suppression Factors.

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 final 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) denominator (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 present on admission from the measures' numerators (outcomes) and denominators (cohorts) 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 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 present on admission 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).

In the FY 2023 IPPS/LTCH PPS proposed rule, we did not propose any changes to these policies.

b. 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 final 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 by linking provider performance to program 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 as well as cross-continuum care. 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 for 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 final rule, we are finalizing that beginning in FY 2024, the Pneumonia Readmission Measure (NQF #0506) will no longer be suppressed under the Hospital Readmissions Reduction Program. We will 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 present on admission, along with a principal diagnosis of COVID-19 (U07.1) present on admission, to identify patients with COVID-19 pneumonia. J12.82 is not included within the denominator (cohort) of the pneumonia readmission measure, therefore readmission rates for patients with an index admission of COVID-19 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 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) denominator (cohort) included admissions with a COVID-19 diagnosis present on admission. Specifically, the proportion ranged 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 at the time of the proposed rule 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 present on admission 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 was 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 present on admission were 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 for patients with a COVID-19 diagnosis present on admission and patients without a COVID-19 diagnosis present on admission, 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 present on admission 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 final rule, we will also add a covariate to adjust for history of COVID-19 diagnosis in the 12 months prior to the index admission as a technical update to the measure specifications.

In our analysis, measure scores calculated with the numerator (outcome) and denominator (cohort) exclusions and addition of the covariate for 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 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 final rule), will ensure that this condition-specific readmission measure continues to account for readmissions as intended and meets the goals of incentivizing patient safety and better care coordination 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, with data from January 1, 2020 through June 30, 2020 excluded due to the implementation of the nationwide ECE waiver. Therefore, we continue to believe it is appropriate to suppress the currently implemented measure for use in payment reduction 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 (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 welcomed 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. The comments we received, and our responses are set forth in this section of this rule.

Comment: Several commenters supported suppressing the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) from the Hospital Readmissions Reduction Program for the FY 2023 program year.

Response: We thank these commenters for their support.

Comment: A few commenters recommended that in addition to suppressing the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) data from payment adjustments for FY 2023, CMS should also suppress these data from public reporting to avoid presenting information that could potentially confuse consumers regarding the quality of care. Some of these commenters noted their continued support for hospital-specific confidential reporting. A commenter recommended that CMS calculate measure information both with and without the exclusion for patients with a diagnosis of COVID-19 present on admission and provide the measure results from both calculations in hospital-specific reports.

Response: We understand the commenters' concern about publicly reporting measure data from the COVID-19 PHE. However, we will make clear in the public presentation of the data that the measure has been suppressed for FY 2023 for purposes of payment adjustments because of the effects of the COVID-19 PHE. We believe that displaying this information will promote transparency on the impacts of the PHE due to COVID-19, and we will appropriately caveat the data in order to mitigate public confusion. Additionally, the Hospital Readmissions Reduction Program Hospital-Specific Report that is sent to hospitals provides discharge-level data for each condition/procedure. The discharge-level data shows whether, and why, a stay was excluded from the numerator (outcome) or denominator (cohort), including stays that are excluded due to a qualifying COVID-19 diagnosis.

Comment: Some commenters recommended that CMS continue reporting all measure results, regardless of whether the measure was being included in program calculations because these commenters believe this supports transparency and accountability. Some of these commenters specifically recommended public and confidential reporting.

Response: We agree with commenters that public reporting of measure results, regardless of whether the measure results were used for payment adjustments, supports transparency and accountability. Therefore, we will continue to report all data with appropriate caveats for the measure results impacted by the COVID-19 PHE. We will also continue to confidentially report these data to hospitals prior to publicly reporting in accordance with our review and correction process detailed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53399 through 53401).

Comment: Several commenters recommended suppressing the Hospital-Level 30-Day, RSRR Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #1551) measure from payment calculations due to the higher complexity, higher acuity patient population undergoing these procedures on an inpatient basis during the COVID-19 PHE.

Response: We acknowledge that the COVID-19 PHE has impacted the healthcare system in unprecedented ways. However, our analyses of available data to date have found only minimal impacts of COVID-19 on the Hospital-Level 30-Day RSRR Following Elective Primary THA/TKA (NQF #1551) measure results. Furthermore, we believe that the COVID-19 exclusions we have adopted combined with the covariate adjustment for patient history of COVID-19 within 12 months prior to admission described in Section V.H.5.c of this final rule account for the impacts of COVID-19 diagnosed patients. Our analyses have shown that for the FY 2023 program year (that is July 1, 2018 through June 30, 2021 with January 1, 2020 through June 30, 2020 data excluded as a result of implementing the nationwide ECE due to the COVID-19 PHE) reporting results using the updated measure generate very similar measure score distributions compared with FY 2022 program year (that is July 1, 2017 through December 1, 2019) reporting results of the original measure. Additionally, we note that the existing clinical risk adjustments for this measure (available in the Measures Methodology Report at https://qualitynet.cms.gov/inpatient/measures/readmission/methodology) are designed to account for the complexity and acuity of the patient population. Finally, we believe that hospitals which perform fewer of these procedures due to the shift to outpatient settings may no longer meet the 25-case threshold for inclusion of the measure in the Hospital Readmissions Reduction Program. We will, however, continue to monitor the volume of index admissions for the conditions and procedures that the Hospital Readmissions Reduction Program measures address to ensure that the measures remain appropriate.

Comment: Many commenters supported resuming use of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) in the Hospital Readmissions Reduction Program. Some of these commenters observed that publishing hospital quality data allows trending over time and that public information is vital for consumers.

Response: We thank commenters for their support.

Comment: Several commenters who supported resuming use of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) recommended monitoring to evaluate additional effects of COVID-19 on providers and patients. One of these commenters stated that there may be significant changes in Hospital Readmissions Reduction Program penalties for individual providers because of the effects of COVID-19.

Response: We agree with commenters that we should monitor the COVID-19 PHE's ongoing effects carefully and we will work with measure developers to refine measure specifications as circumstances warrant. We will also assess performance periods, performance, and other effects of the COVID-19 PHE carefully, and we will monitor the policy's effects as we implement it.

Comment: Many commenters recommended postponing resumption of the CMS-30 Day Pneumonia Readmission Measure (NQF #0506). Some of these commenters suggested postponing finalization of our proposal to resume use of the pneumonia readmission measure until the FY 2024 IPPS/LTCH PPS rule to provide at least a full year of use of the new ICD-10 codes. A few commenters recommended postponing resumption until the performance period does not include time prior to the adoption of the new ICD-10 codes, specifically until the performance period does not include any dates prior to January 1, 2021. Other commenters recommended postponing resumption until the COVID-19 PHE has ended because many patients have delayed care, resulting in higher acuity when they received care, which affects the case mix.

Response: We recognize that the COVID-19 PHE continues to affect communities and healthcare systems and understand commenters' concerns that data used in the analysis for the proposed rule may not be representative of the prevalence of COVID-19 and associated changes to admissions patterns after September 2021. However, we believe that the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) is an important aspect of our goal to improve patient safety and quality of care and wish to resume the use of this measure in the Hospital Readmissions Reduction Program at the earliest point that allows for a valid and comparable measure. Based on our analysis of data from the start of the PHE through September 2021, we believe that the measure will be valid and comparable beginning with the FY 2024 program year.

More recent data through March 2022 show that across all Hospital Readmissions Reduction Program measures, less than 3 percent of the cohorts have a COVID-19 diagnosis. Commenters are correct that the FY 2024 program year does include six months after the declaration of the PHE for COVID-19 prior to the adoption of the new ICD-10 codes for COVID-19 (specifically July 1, 2020 through December 31, 2020). However, in our analysis, measure scores calculated based on data which include this period using the numerator (outcome) and denominator (cohort) exclusions and addition of the covariate for history of COVID-19 diagnosis in the 12 months prior to the index admission resulted in mean measure scores that were closer to the prior non-COVID-19 affected period compared with the unchanged measure. Therefore, we believe that the measure is sufficiently valid and comparable to resume use in the FY 2024 program year, despite the six months of data not affected by updated coding practices. Additionally, we note that the existing clinical risk adjustments for this measure (available in the Measures Methodology Report at https://qualitynet.cms.gov/inpatient/measures/readmission/methodology) are designed to account for the complexity and acuity of the patient population. Because it is our goal to make hospitals aware of our intent to resume use of the measure as early as feasible, we do not believe it would be appropriate to wait until the FY 2024 IPPS/LTCH PPS final rule to finalize resumption of this measure.

After consideration of the public comments we received, we are finalizing our proposal to resume use of the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) for payment adjustments beginning with the FY 2024 program year.

c. Technical Measure Specification Update To Include a Covariate Adjustment for COVID-19 Beginning with FY 2023

As discussed in section V.H.5.b of the preamble of this final 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 (posted on the QualityNet website at https://qualitynet.cms.gov/inpatient/measures/readmission/methodology).

Although we did not solicit comments on the technical measure specification updates to apply a covariate adjustment for patients with a history of COVID-19 in the 12 months prior to the index hospitalization, we received several comments and have summarized them here. We have also included the comments on our technical measure specification update to exclude COVID-19 patients from the measure denominator (cohort) and numerator (outcome) for the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) here.

Comment: Many commenters supported both the technical update to adopt a covariate adjustment for patients who have had COVID-19 in the 12 months prior to the index admission for each of the six condition/procedure specific readmission measures in the Hospital Readmissions Reduction Program and the technical update to exclude patients with a COVID-19 diagnosis present on admission from the numerator (outcome) and denominator (cohort) of the pneumonia readmission measure.

Response: We thank these commenters for their support.

Comment: Many commenters expressed concern that many patients with a history of COVID-19 would not be captured in ICD-10-CM codes, specifically mentioning the possibility of these patients being diagnosed through at-home or pharmacy-based tests and then receiving care in visits billed with other codes for resulting conditions. These commenters noted that a covariate adjustment based on data that are inconsistently captured could impact the reliability and validity of the measure results and therefore the fairness of the program. Some of these commenters recommended review by a Technical Expert Panel (TEP) convened by the NQF to ensure that COVID-19 adjustments are sufficiently comprehensive and include all appropriate codes. Some commenters recommended further data analysis to ensure appropriate data sources are available for this adjustment.

Response: We understand the commenters' concerns regarding the prevalence of at-home or pharmacy-based testing for COVID-19 and the potential effects on the validity of the covariate adjustment. The history of COVID-19 variable is defined as U07.1 (COVID-19) or Z86.16 (personal history of COVID-19) in the 12 months prior to the admission, or Z86.16 at the index admission. Therefore, the history of COVID-19 variable does not rely solely on the COVID-10 specific ICD-10 code, U07.1, but also includes the “personal history of COVID-19” code (Z86.16) which hospitals can code, even during the index encounter. However, we will consider these concerns and recommendations as we continue to evaluate and update our measure specifications, especially with respect to the ongoing changes to the COVID-19 PHE. We thank commenters for their suggestion of having a special NQF convened TEP review the covariate adjustment methodology to ensure that the adjustments are comprehensive enough to capture the long-term impacts of COVID-19. Any permanent changes to the measure will be submitted for NQF review during the endorsement maintenance process.

Comment: Many commenters observed that the extended effects of COVID-19 on patients are still not known. These commenters recommended continued monitoring to ensure that the 12-month period is appropriate for the covariate adjustment. A commenter recommended adopting a 24-month period as opposed to a 12-month period. A commenter expressed that the effects of the pandemic changing over time may decrease the ability to identify appropriate adjustments, including both the covariate adjustment for patients with a history of COVID-19 in the 12 months prior to index admission and the update to the CMS 30-Day Pneumonia Readmission Measure to exclude patients who have a diagnosis of COVID-19 present at admission from the numerator (outcome) and denominator (cohort). A commenter observed that COVID-19 will likely become an endemic disease. A commenter recommended analyzing cohort-specific risk adjustment and analyses for the COVID-19 patient population due to differences in utilization, infection risk, and readmission risk among these patients.

Response: We thank these commenters for the recommendations. We agree that the extended effects of COVID-19 on patients are still not known. We will consider these recommendations as we continue to evaluate and update our measure specifications, especially with respect to the ongoing changes to the COVID-19 PHE. We note, however, that hospitals can use the “personal history of COVID” code (Z86.16) on the index admission which is not affected by a look-back period. We also note that patients who are admitted with a diagnosis of COVID-19 present on admission are excluded from all measures within the Hospital Readmissions Reduction Program. We will continue to monitor and analyze the appropriateness of this exclusion using available data.

Comment: A commenter observed that the measure methodology reports published on CMS's website in May 2022 demonstrate that history of COVID-19 is negatively correlated to readmissions (that is, patients with history of COVID-19 are less likely to be readmitted) for four out of the of five conditions analyzed and recommended to only include the covariate adjustment for conditions where patient history of COVID-19 is a positive risk variable (that is, patients with history of COVID-19 are more likely to be readmitted) for the performance period.

Response: We thank the commenter for this input. Analyses using data from July 1, 2020 through February 28, 2021 showed that for most of the readmissions measures, observed (unadjusted) 30-day readmission rates for patients without an index admission of COVID-19, but with a history of COVID-19 (defined as U07.1 or Z86.16 in the 12 months prior to the admission, or Z86.16 at the index admission), were higher than patients without a history of COVID-19. Based on the higher odds of readmission for these patients, we decided to add the covariate across all of the readmission measures in the Hospital Readmissions Reduction Program. We are now providing updated information.

Results using more recent data spanning the entire 3-year reporting period (July 1, 2018 through June 30, 2021) showed that for patients without an index admission of COVID-19, those with a history of COVID-19 (defined in the previous paragraph) in the pneumonia and heart failure cohorts have much higher frequencies of some model risk variables compared with patients without a history of COVID-19, suggesting they are sicker. At the same time, in a multivariable model, we found, as the commenter notes, that unlike the bivariate relationship, the adjusted odds ratios for 30-day readmission for the history of COVID-19 variable (the odds ratios in the context of all the variables in the model) were less than one (for all but the Hospital 30-day RSSR following COPD hospitalization measure—NQF #1891). Therefore, in these patients without COVID-19 at the time of admission, but with a history of COVID-19, the non-COVID-19 clinical comorbidities in the risk model are lessening or reversing the effect size of the history of COVID-19 variable. We have decided, however, to keep the history of COVID covariate in the model for reasons of face validity and to account for any future risk adjustment for long COVID that may not be accounted for in the measures' baseline risk models. However, we will consider this recommendation as we continue to evaluate and update our measure specifications

Comment: A commenter opposed updates to measure specifications (that is, inclusion of a covariate adjustment to account for patient history of COVID-19 in the 12 months prior to the index admission and excluding patients with a diagnosis of COVID-19 present on admission from the pneumonia readmission measure) because these patients are vulnerable. This commenter stated that hospitals should be incentivized to care for this patient population.

Response: We agree with the commenter that it is important that these patients receive high quality care when hospitalized. However, we note that the measures in the Hospital Readmissions Reduction Program were developed and adopted to identify excess readmissions for patients hospitalized for specific conditions or procedures. Because COVID-19 did not exist when these measures were developed, the measures are neither intended nor specified to address the clinical needs of patients with a history of COVID-19. We will continue to assess specifications of the measures in the Hospital Readmissions Reduction Program to identify whether further updates to account for care provided to COVID-19 patients are appropriate.

Comment: A commenter requested clarification regarding whether the updates to the measure specifications, specifically inclusion of a covariate adjustment for patients who have had COVID-19 in the 12 months prior to the index admission for each of the six condition/procedure specific readmissions measures in the Hospital Readmissions Reduction Program and updating the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) to exclude patients with a diagnosis of COVID-19 present on admission from the measure denominator (cohort) and numerator (outcome), will be in effect after the end of the PHE or if this is a form of data suppression associated with the PHE.

Response: We have adopted this update as an update to the measure specifications, not as suppression of data related to the COVID-19 PHE. Therefore, the updated measure specifications will not necessarily change with the end of the PHE. However, we will continue to monitor the effects of COVID-19 on each of our measures and on the overall program to ensure that the measure specifications remain appropriate for evolving clinical practices.

Comment: A commenter expressed concern that the measure specifications are not publicly available and therefore commenters were unable to assess the impact of measure updates.

Response: We regret that the commenter was unable to find the measure specification information to assess the impact of measure updates. As described in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28421), the measure specifications, which were posted in May 2022, are available at https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.

Because of the CMS 30 Day Pneumonia Readmission Measure (NQF #0506) being paused from program calculations for FY 2023, the methodology report for FY 2023 is not yet available. However, we believe that past methodology reports provide sufficient information on the measure's specifications that commenters were able to assess the impact of updates on this measure.

Comment: A commenter recommended risk adjusting for COVID-19 during an encounter instead of suppressing data for reporting periods or populations.

Response: We believe this commenter is recommending developing a risk adjustment methodology for patients admitted with a primary or secondary diagnosis of COVID-19 present at admission instead of excluding these patients from the numerator (outcome) and denominator (cohort). We thank the commenter for this suggestion. We will consider this option in the future as we continue to evaluate the effectiveness of our COVID-19 updates for the measures in the Hospital Readmissions Reduction Program.

Comment: Several commenters recommended that CMS publicly report the results of analyses that show that the data being used to capture patients with a history of COVID-19 in the 12 months prior to the index admission are sufficiently reliable. A commenter recommended that CMS publicly report analyses of the impact of COVID-19 patients on measure results to support public understanding of the results of measure updates.

Response: We agree with the commenters that publicly reporting analyses that support our updates to measure specifications advances our objective of transparency in program operations. We note that we have published our analyses to date in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28419 through 28421) and in response to public comments in this final rule.

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 the FY 2023 IPPS/LTCH PPS proposed rule, we did not propose 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 final 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 did not propose any changes to our policies for the identification of aggregate payments for each condition/procedure in the FY 2023 IPPS/LTCH PPS 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 the FY 2023 IPPS/LTCH PPS proposed rule, we did not propose 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 did not propose any changes to our calculation of payment methodology in the FY 2023 IPPS/LTCH PPS 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. We stated that although we had considered the feasibility and implications of excluding data under the ECE policy for the Hospital Readmissions Reduction Program, we had 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 did not propose any changes to our previously finalized ECE Policy in the FY 2023 IPPS/LTCH PPS 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 final rule, we discussed and sought 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 discussed 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 sought 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 sought 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 sought 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 final 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 sought 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 (ADI), Agency for Healthcare Research and Quality Socioeconomic Status Index, and the Centers for Disease Control and Prevention's Social Vulnerability Index. For example, the ADI 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 sought 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 requested 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 invited 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.

We received comments in response to this request for information and have summarized them here.

Comment: Several commenters provided general comments regarding equity in the Hospital Readmissions Reduction Program. Some of these commenters expressed concern that current disparity methods lack actionable information. A commenter recommended providing financial support to prevent readmissions related to social needs, for example, by supporting hospitals' efforts to monitor post discharge outcomes and connect patients with necessary services. A commenter observed that hospitals are still experiencing the effects of the COVID-19 PHE and recommended that CMS wait until these effects have subsided to introduce new payment calculations both to ensure that any calculations are based on reliable data and to prevent further overwhelming hospitals.

Many commenters responded to our request for input on 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. Several commenters expressed that the potential benefits of incorporating equity in the Hospital Readmissions Reduction Program are improved care for at-risk patients, improved understanding of the effects of the social risk factors, and improved care for all patients. A commenter stated that readmissions are a metric for healthcare equity because patients who receive high quality care are generally not readmitted. This commenter expressed that improving healthcare equity could reduce readmissions.

Many commenters expressed the concern that linking payment to performance on equity measures may disproportionately penalize safety net hospitals or other providers that treat high complexity patients which could impact access and quality for these patients. Some of these commenters recommended using bonus points or incentives to avoid penalizing hospitals that treat at-risk patients. A commenter observed that addressing disparities will require a long-term systemic approach.

Many commenters expressed concern that incorporating performance for beneficiaries with social risk factors in the Hospital Readmissions Reduction Program could lead hospitals to be held accountable for factors outside of their control. These commenters specifically noted that there are numerous factors outside of a hospitals' control that affect readmission rates, including community and patient level factors. Some of these commenters recommended developing a mechanism for adjusting for confounding influences to ensure public reporting and payment are based exclusively on the quality of care provided; one of these commenters specifically recommended adopting a risk adjustment for patients who do not take responsibility for their post discharge care. Other commenters recommended against public reporting on stratified or other equity data because this publication could imply that hospitals are solely responsible for 30-day readmissions.

Several commenters observed that analyzing data does not address the underlying disparities, it only allows the extent of the issue to be understood. A commenter stated that publicly reporting all data, both as trend reports and as raw data, allows advocates and other interested parties to perform analyses and evaluate equity.

Several commenters observed that the current peer grouping and stratified reporting are recent changes to the Hospital Readmissions Reduction Program, and that much of the recent data for the Program has been affected by the COVID-19 PHE. These commenters recommended leaving the payment structure unchanged for at least three more years to analyze the effects of the current program prior to modifying the payment structure. A commenter stated the belief that the Hospital Readmissions Reduction Program methodology is flawed because it uses point estimates of risk-standardized readmission rates without respect to the margin of error for each estimate. This commenter requested clarification regarding the expectations for hospitals prior to including care for at-risk patients into the Hospital Readmission Reduction Program methodology. Another commenter observed that the current payment calculations are already complex and expressed concern that further modification to a complex system could lead to unintended consequences.

Several commenters stated that linking payment to equity is inconsistent with the statutory requirements for calculating payment reductions. Some of these commenters observed that the payment system was designed to ensure equitable payments for hospitals that treat high risk patients, not to advance patient level equity in outcomes. Several commenters observed that tracking drivers of health data may increase the burden for providers. A commenter expressed concern that linking payment to performance on equity measures would change hospitals' focus to factors outside of each patient's medical diagnosis, thereby decreasing the quality of care. A commenter expressed concern that the measures in the Hospital Readmissions Reduction Program already require three years of data to ensure sufficient sample sizes, therefore this commenter is concerned that stratification of these measures could lead to samples too small to be reliable.

A commenter stated that without uniformly collected patient-reported sociodemographic data there is not a data source sufficiently reliable for inclusion in payment adjustments. This commenter observed that the NQF is preparing to release guidance on using ADI and other social risk factor data for quality measurement which may provide useful information for the Hospital Readmissions Reduction Program to consider. Another commenter recommended rigorous statistical testing prior to adopting any health equity methodologies.

Several commenters responded to our request for input on 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. Several of these commenters recommended that any use of the Across-Hospital Disparity method comparison should only compare hospitals within similar communities because community resources are an important factor in readmission risk. A commenter recommended starting with the Across-Hospital Disparity method because this is more likely to account for factors outside of a hospital's control that affect readmission rates. Another commenter recommended starting with Within-Hospital Disparity method because these data will be easier for CMS to calculate and easier for hospitals to understand.

Several commenters supported providing both Within- and Across-Hospital Disparity methods, but only in confidential reports for hospitals. One of these commenters stated that CMS does not have the statutory authority to include these data in Hospital Readmissions Reduction Program payment calculations. Other commenters observed that including Within- and Across-Hospital Disparity method performance in a hospital's readmission score (as opposed to in the measures' risk adjustment methodologies) is inconsistent with CMS's approach to clinical risk factors, specifically noting that for clinical risk factors CMS recognizes that these factors are largely beyond a hospital's control and therefore includes them in the risk adjustment methodology.

Many commenters provided input to our request for potential 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. Many commenters observed that the Hospital IQR Program has proposed a Screen Positive Rate for Social Drivers of Health (SDOH) measure in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28503 through 87 28506). These commenters observed that the patient-level data collected by hospitals for these measures may be appropriate for stratification or other analysis in the Hospital Readmissions Reduction Program.

Several commenters expressed concern regarding the use of dual eligibility for Medicare and Medicaid coverage as a proxy variable. These commenters observed that Medicaid eligibility requirements vary from state to state and therefore is not a nationally comparable metric. One of these commenters supported including eligibility for the Medicare Savings Program or the Medicare Part D Low Income Subsidy in analyses. Another commenter expressed concern that disability may be another aspect of dual eligibility that influences readmissions, and that using dual eligibility as a proxy for income may hinder analysis of the effects of disability.

Many commenters supported the use of proxy measures (including dual eligible status, the ADI, the Social Vulnerability Index, the Neighborhood Deprivation Index, the Multidimensional Deprivation Index, or a custom developed index specifically related to health equity) as a short term solution until CMS can report data based on clearly and consistently defined patient-level, patient-collected data (including race, age, disability, sex, sexual orientation, and gender identity, limited English proficiency, primary language, housing instability, and marital status). Several commenters observed that there may be challenges to patient-level data collection, including technological challenges and patient discomfort with sharing sensitive information. A few commenters recommended including the ADI with other, patient-level data in analyses to ensure that use of the ADI does not further disparities such as by providing data indicating specific communities need greater support, but not providing data regarding the subpopulations within those communities that require the most support. A commenter observed that available indices do not account for the role of segregation, gentrification, and hypersegregation in health outcomes. A commenter expressed concern that use of multiple factors or indices could create contradictory analytical findings. Without detailed explanation for these contradictory results, there could be stakeholder confusion. A commenter recommended considering how to incorporate data collected on claims using z-codes to analyze readmissions in the Hospital Readmissions Reduction Program. Another commenter recommended combining the analysis of social and clinical data to identify gaps in care. A commenter observed that the factors that affect disparities are systemic, community, institutional, interpersonal, and intrapersonal and recommended that CMS consider all factors.

Several commenters agreed that non-clinical factors may affect readmissions and recommended conducting analyses to determine which factors and to what degree prior to incorporating these factors into the Hospital Readmissions Reduction Program. Several commenters recommended using patient-level social risk variables (such as race, age, disability, sex, sexual orientation, and gender identity, limited English proficiency, primary language, housing instability, and marital status) for peer grouping. A commenter recommended using stratification for analysis. A commenter recommended that CMS evaluate hospitals' community investments.

Response: We appreciate all of the comments and interest in this topic. We believe that this input is very valuable in the continuing development of the CMS health equity efforts. We will continue to take all concerns, comments, and suggestions into account for future development and expansion of our health equity efforts. For more information on our ongoing effort we refer readers to our recently released CMS National Quality Strategy ( https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/CMS-Quality-Strategy) and the CMS Framework for Health Equity ( https://www.cms.gov/About-CMS/Agency-Information/OMH/equity-initiatives/framework-for-health-equity) in which we describe our five priorities for advancing health equity.

I. Hospital Value-Based Purchasing (VBP) Program: 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 2023 as soon as possible and estimate that we will be able to provide reports before the end of 2022.

We did not propose any changes to the measure suppression policy.

b. Suppression of 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 June 2022, over 86 million COVID-19 cases, 4.8 million new COVID-19 related hospitalizations, and 1 million 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 that 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. Our discussion of the findings from these analyses follows. Based on those analyses, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28426 through 28445), we proposed 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) Suppression of 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 final 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).

In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 (87 FR 28427 through 28429). 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 final 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 also proposed 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 proposed to suppress the HCAHPS measure for the FY 2023 Hospital VBP Program year for purposes of scoring and payment under Measure Suppression Factors 1 and 4.

We welcomed public comment on this proposal.

Comment: Many commenters supported our proposal to suppress the HCAHPS measure, agreeing with our goal of ensuring that hospitals are not penalized or rewarded for quality measurement that was impacted by the COVID-19 PHE.

Response: We thank commenters for their support in suppressing the HCAHPS measure for scoring and payment purposes.

Comment: Several commenters did not support suppressing HCAHPS calculations because they believe that the need for transparency was more important. Commenters noted that patients should be aware of changes in the natural environment including due to the COVID-19 PHE.

Response: We appreciate and agree with commenters' concern about the need for transparency. As discussed in this final rule, although the HCAHPS measure is suppressed for the purposes of scoring and payment adjustments, we will make the data publicly available where feasible and appropriately caveated, recognizing the importance of transparency. We believe that publicly reporting these data will balance our responsibility to provide transparency to consumers, while ensuring hospitals are not unfairly scored or penalized.

Comment: A few commenters did not support our proposal to suppress the HCAHPS measure for the FY 2023 program year because they believe that suppressing measures does not incentivize resilience, noting that hospitals have had two years to adapt to the pandemic.

Response: Although we agree that building a more resilient health care system is necessary to avoid future threats to patient safety, we believe that suppressing the HCAHPS measure for the FY 2023 program year offers hospitals the flexibility to focus on delivery of care while also accounting for the changing conditions during a PHE that are beyond hospitals' control. As we note previously, our goal is to resume the use of measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year.

Comment: A commenter did not support suppressing entire data and reporting periods, noting widespread suppression, and instead recommended that in the absence of rigorous statistical testing we risk-adjust for COVID-19 diagnosis during an encounter. A commenter did not support suppression of the HCAHPS measure out of concern that measure suppression may worsen health inequities if performance is masked.

Response: As noted in section V.I.1.b.2 of the preamble of this final rule, we cannot risk-adjust the HCAHPS measure to exclude patients whose admissions were related to COVID-19 because this measure does not capture patient-level diagnosis data. However, we share the commenter's concern about how measure suppression may impact health equity. We believe that our proposal to continue publicly reporting suppressed measure data will provide important information that could assist in addressing health inequities caused or exacerbated by the COVID-19 PHE and maintain transparency for consumers while ensuring hospitals are not unfairly scored or penalized based on CY 2021 HCAHPS data. We note our intention to resume normal scoring for FY 2024 given the widespread availability of vaccines in CY 2022 as well advances in the treatment of COVID-19.

After consideration of the public comments we received, we are finalizing our proposal to suppress the HCAHPS measure for FY 2023 for scoring and payment purposes as proposed. We will continue to make the HCAHPS data publicly available, recognizing the importance of transparency.

(3) Suppression of 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 final 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 the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 (87 FR 28429 through 28431). 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 final 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 proposed 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 proposed 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 proposed 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 proposed 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 also proposed 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 final 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 final 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 proposed to suppress the CY 2021 HAI measure data.

We welcomed public comment on our proposal to suppress the five HAI Safety domain measures for the FY 2023 program year for purposes of scoring and payment.

Comment: Many commenters supported suppression of the HAI measures and expressed appreciation that suppression would ensure that hospitals are not penalized for challenges brought on by the pandemic which are not representative of the care generally provided.

Response: We thank the commenters for their support of the HAI measure suppression proposals and we agree that suppressing these measures for scoring and payment purposes will ensure that hospitals are not penalized for impacts outside of their control.

Comment: A few commenters recommended we continue analyzing data to determine whether suppressions may be necessary in future fiscal years. A commenter also recommended careful reintroduction of the measures at an appropriate time.

Response: We thank the commenters for their recommendations, and we will continue to monitor the COVID-19 PHE's ongoing effects. As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28433) and section V.I.2 of this final rule, we believe that 2022 has a more promising outlook in the fight against COVID-19 as we enter the third year of the pandemic. Our goal is to resume the use of measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year, given the widespread availability of vaccines and improvement in the treatment of COVID-19, but we will continue to analyze data.

Comment: A commenter supported hospitals continuing to report the measure data to CDC and CMS to ensure ongoing quality improvement monitoring and further recommended that we use those data to assess whether variability in reporting (for example due to relief extended to providers during implicated COVID-19 reporting periods) versus variability in actual performance could be driving variability in HAI rates.

Response: We appreciate the commenter's recommendation and agree that it is essential that hospitals continue to report data. The FY 2023 program year uses data from CY 2021 for the HAI measures. There were no widespread data submission exceptions in CY 2021 like there were for Q1 and Q2 of 2020 (85 FR 54820). Therefore, we believe our analysis of CY 2021 data shows actual variability in performance. With that noted, the COVID-19 PHE has caused a variety of factors to impact hospital performance on the HAI measures, including but not limited to wide variation in case rates by geographic area at different points in time. Therefore, we believe the best approach for the FY 2023 Hospital VBP Program is measure suppression for purposes of scoring and payment. However, in collaboration with the CDC, we will continue to collect, monitor, and analyze the HAI data, as well as continue publicly reporting the data with appropriate caveats as necessary.

Comment: Several commenters did not support suppression of the HAI measures, stating their belief that hospitals should be held accountable for their quality of care. A commenter did not support suppression of infection rates because of concerns around transparency.

Response: As discussed in section V.I.1.a of this final rule, although we are finalizing our proposals to suppress the HAI measures for the purposes of scoring and payment adjustments for the FY 2023 program year, we are also finalizing that we will make the data publicly available, recognizing the importance of transparency. We believe that continuing to make the data publicly available ensures transparency for consumers as they decide where to obtain care. We will also continue to provide confidential feedback reports to hospitals through the previously established processes as part of program activities to ensure that hospitals are made aware of the changes in performance rates that we observe and to inform their quality improvement activities.

Comment: A commenter did not support suppressing entire data and reporting periods, noting concerns about the consequences of widespread suppression and that, in the absence of rigorous statistical testing, instead recommended we risk-adjust for COVID-19 diagnosis during an encounter.

Response: We appreciate the recommendation to risk adjust for COVID-19 diagnosis, but we cannot risk adjust the HAI measures to exclude patients whose admissions were related to COVID-19 because the HAI measures do not capture patient-level diagnosis data. Additionally, we believe the HAI rates would still be impacted even with COVID-19 risk adjustment because the PHE has affected hospital staffing and resource issues which impact a hospital's entire patient population, regardless of a COVID-19 diagnosis.

Comment: A commenter did not support suppressing HAI measures because of the belief that it weakens hospitals' resilience, given that the Measure Suppression Factors justify suppression for a wide variety of environmental shifts, including changes in national performance, guidelines, and case mix. The commenter holds the belief that suppressing payment incentive programs when the environment shifts does not strengthen hospital resilience.

Response: We agree that building a more resilient health care system is necessary to avoid future threats to patient safety. However, we also believe that suppressing the HAI measures for purposes of scoring and payment for FY 2023 balances the need to provide hospitals with the flexibility to focus on delivery of care without penalizing them for the changing conditions of the COVID-19 PHE during the 2021 performance period that were beyond hospitals' control and to maintain access to care for patients. As we noted previously, our goal is to resume the use of measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year.

Comment: A commenter did not support the HAI suppression proposal and expressed concern about the Measure Suppression Factors lacking sufficient definition, and thus transparency, thereby suppressing critically important data on hospital-acquired infection measures. A commenter did not support HAI suppression because it was concerned about CMS adhering to, interpreting, and operationalizing the Measure Suppression Factors given that an ever-changing landscape can be tied to most measures.

Response: We appreciate the commenter's concern regarding the definitions of the Measure Suppression Factors. We note that the Measure Suppression Factors we are employing to suppress the HAI measures for FY 2023 in this final rule were finalized in the FY 2022 IPPS/LTCH PPS final rule, and we did not propose any changes to those Measure Suppression Factors in the FY 2023 IPPS/LTCH PPS proposed rule (86 FR 45266 through 45269). We also note that these Measure Suppression Factors were developed to specifically address challenges that arose due to the COVID-19 PHE, and we considered what circumstances caused by the COVID-19 PHE would affect a quality measure significantly enough to warrant its suppression in the Hospital VBP Program. Although the landscape is ever-changing, the COVID-19 PHE presented unique and unprecedented experiences that challenged hospitals in new ways beyond their control, particularly in 2020 when the virus was initially identified as a global pandemic and then in 2021 as new COVID-19 variants increased infection rates to higher levels than 2020 for many parts of the U.S. Due to these unique challenges, we believe that it would be unfair to score or penalize hospitals based on CY 2021 data for the HAI measures. We note our intention to resume normal scoring for FY 2024 given the widespread availability of vaccines in CY 2022 as well advances in the treatment of COVID-19.

Comment: A commenter did not support HAI suppression because of the belief that being unable to determine the causes of changes in HAI rates is not a rationale for suppression. The commenter stated that, in light of the numerous factors that can potentially impact improvement on a given HAI or other outcome of interest, the commenter believes that CMS is focusing too much on the statistical analysis rather than protecting the lives and health of Medicare beneficiaries and the public at large. The commenter questioned whether these statistical analysis concerns could be used to suppress virtually all measures in virtually all circumstances. A commenter did not support HAI suppression because of the belief that the rationale exceeds CMS authority and recommended CMS retract its stated rationale for the suppression of NHSN CDC HAIs in the FY 2022 IPPS/LTCH PPS final rule.

Response: We believe that, in the face of evolving circumstances of the COVID-19 PHE, the level of detail in the Measure Suppression Factors, which were developed and finalized in the FY 2022 IPPS/LTCH PPS final rule to specifically address challenges that arose due to the COVID-19 PHE, is sufficient and applicable in suppressing the HAI measures. In deciding which measures to suppress, and as discussed in the proposed rule and this final rule, we examined each measure and determined that the evidence showed significant deviation in the individual measure's performance data associated with the COVID-19 PHE. We believe hospitals' experiences during the COVID-19 PHE in 2021 with the rise of new COVID-19 variants have been uniquely challenging, thus warranting the use of Measure Suppression Factors. We note our measure-by-measure assessment in determining the impacts of COVID-19 on each measure and whether we should propose to suppress a measure for scoring and payment purposes in a pay-for-performance program or not. Ultimately, we determined to propose to suppress the HCAHPS and HAI measures for FY 2023 scoring and payment purposes as discussed previously, but we did not propose to suppress the Medicare Spending per Beneficiary or Clinical Outcome measures (mortality and complications), especially if there were technical refinements that could be made to address COVID-19 impacts on a measure.

Comment: A commenter did not support HAI measure suppression because of a concern that suppression policies may worsen health inequities.

Response: We are committed to addressing health inequities, and we believe that our continued requirements for the collection and reporting by hospitals of the HAI data to CMS via the CDC's National Healthcare Safety Network and proposal that we are finalizing to publicly report the FY 2023 program year HAI measure data will provide important performance information that could assist in addressing health inequities caused by the COVID-19 PHE while maintaining transparency for consumers and ensuring hospitals are not unfairly scored or penalized. We also believe that suppressing the HAI measures for purposes of scoring and payment for FY 2023 balances the need to provide hospitals with the flexibility to focus on delivery of care without penalizing them for the changing conditions of the COVID-19 PHE during the 2021 performance period that were beyond hospitals' control and to maintain access to care for patients. We note that it is our intent to resume normal scoring for FY 2024 given the widespread availability of vaccines in CY 2022 as well advances in the treatment of COVID-19.

Comment: A commenter expressed concern over inconsistency in the citation of Measure Suppression Factors across the HAC Reduction Program and the Hospital VBP Program for the same measures, noting that it appeared to be an uneven application of the Measure Suppression Factor policy. The commenter recommended we find ways to adapt the Measure Suppression Factor policy across the programs in order to use the critical safety measures discussed in transparency and value-based purchasing.

Response: We appreciate the commenter's concern regarding consistency. We believe that the Measure Suppression Factors which were applied for the same set of HAI measures used in the Hospital VBP Program and the HAC Reduction Program are relevant and aligned across both programs. We continue to believe that suppressing the HAI measures for purposes of FY 2023 scoring and payment under both the Hospital VBP Program and the HAC Reduction Program will continue to provide flexibility for providers to focus on delivering quality of care to patients during the COVID-19 PHE.

After consideration of the public comments we received, we are finalizing our proposal to suppress the HAI measures for purposes of scoring and payment for FY 2023 as proposed. We will continue to make the HAI data publicly available, recognizing the importance of transparency.

c. 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 final rule, we proposed 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 proposed that we would calculate measure rates for all measures in the FY 2023 program year. For measures for which we have finalized suppression, we will not use the measure rates to generate achievement and improvement points within the Hospital VBP Program's current scoring methodology. We further proposed 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 will 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 will 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 final 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 final 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, in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 (87 FR 28431 through 28434). 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).

In the proposed rule, we also stated our understanding that, if finalized, the FY 2023 special scoring and payment policy proposal for the Hospital VBP Program would have implications for the Merit-Based Incentive Payment System (MIPS) program (87 FR 28432). Under the facility-based measurement option within MIPS described at 42 CFR 414.1380I, 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.

We invited public comment on these proposals.

Comment: Many commenters supported our proposed scoring and payment methodology for the FY 2023 program year. Commenters noted that they believe our approach is proactive and noted that this policy will help ensure providers are not penalized for impacts outside of their control. Commenters also expressed appreciation that we are accounting for the on-going effects of the COVID-19 PHE in hospitals. A commenter noted that they believe we struck the right balance by ensuring transparency of quality performance data, while at the same time, not penalizing hospitals when their performance scores are highly related to the COVID-19 PHE. A few commenters thanked us for recognizing that COVID-19 has significantly impacted quality measures and expressed support for our efforts to prevent skewed payment incentives and inequitable payments in the Hospital VBP Program. Commenters also expressed appreciation for our engagement with hospitals to gauge the impact of COVID-19 on individual measures and programs, and for using a data-driven approach to inform proposals. A few commenters noted that this proposed policy would provide important relief and stability for providers, especially rural providers, regarding compliance concerns so they can focus on the unique challenges of providing care during the COVID-19 PHE.

Response: We thank commenters for their support, and we agree that the policy will help ensure that providers are not penalized for impacts outside of their control. We also agree that our proposed suppression, scoring, and payment policies for the FY 2023 program year were developed using data-driven approaches and are intended to balance the importance of patient safety through data collection, transparency, and public reporting while allowing hospitals to focus on maintaining access and providing quality health care to patients during the COVID-19 PHE.

Comment: Several commenters urged us to continue to carefully review the impact of the COVID-19 PHE and revised technical specifications on measure performance prior to establishing a policy for Hospital VBP Program payment adjustments in future years. A commenter encouraged us to resume full implementation of hospital quality programs as soon as reliable data are available for evaluating hospital performance because the measures used in those programs are intended to promote improvements in critical patient safety and quality of care. A few commenters also encouraged us to engage interested parties in developing a permanent suppression policy that could be used for future PHEs and to include lessons learned from the COVID-19 PHE. A commenter urged us to continue the suppression policy through the end of the PHE and noted their belief that data through at least Q2 2022 should not be used to inform penalties under any of the quality programs. A commenter recommended we ignore all data from CY 2020 and CY 2021.

Response: We thank commenters for these suggestions. We note that the current measure suppression policy, as finalized in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45266 through 45269), has been adopted for the duration of the COVID-19 PHE. Therefore, we may continue to propose to suppress measures through the end of the COVID-19 PHE if we determine that the Measure Suppression Factor criteria have been met and that quality measure data continue to be significantly impacted by the COVID-19 PHE. We note that we did not want to take a blanket approach to the suppression of CY 2020 or CY 2021 data and instead have analyzed CY 2020 and CY 2021 data on a measure-by-measure basis for the measures used in the Hospital VBP Program, and have finalized specific policies based on the data and technical specifications for each particular measure (such as specific measure suppressions and updated baseline periods) to appropriately address any COVID-19 impacted data from those time periods. For example, for certain measures we determined that the data did not warrant proposing to suppress for FY 2023, such as the Medicare Spending per Beneficiary measure.

Comment: Many commenters expressed support for providing suppressed measure data on hospital performance in hospital confidential feedback reports. Commenters noted that it is helpful to continue receiving these reports with measure rates, which allows hospitals to analyze their performance and continue focusing on performance improvements.

Response: We thank commenters for their support and agree that providing hospitals with information related to measure rates for suppressed measures can be a useful tool in evaluating and improving quality of care provided. We will continue to provide confidential reporting of all measures, including those that are suppressed from scoring calculations, via the Payment Percentage Summary Report (PPSR), though we will not calculate domain or Total Performance Scores. Providing confidential measure results to hospitals also serves as an opportunity to preview the data before they are publicly reported on the Compare tool hosted by HHS.

Comment: Several commenters supported publicly reporting suppressed measure data. A few commenters noted that it is important for the public to have access to key hospital safety data. A commenter noted that timely, accurate, comprehensive, and clear public reporting of quality measure data is meaningful for patients. Commenters encouraged us to include information on the Care Compare website explaining the appropriate use and interpretation of the publicly reported data so that others, who might intend to use the data for other purposes, also can consider whether their intended use needs to be adjusted or suppressed for a time period due to COVID-19 impacts.

Response: We appreciate commenters' support and agree that it is important for the public to have access to Hospital VBP Program data through resources such as the Compare tool to continue to make informed health care decisions. As noted in the preamble of the final rule and proposed rule, we intend to publicly report suppressed data with appropriate caveats that explain that performance information has been impacted due to the COVID-19 PHE.

Comment: A few commenters expressed concern with the proposed scoring methodology for the FY 2023 program year because of the implications it would have for the Medicare Incentive Payment System (MIPS) Program for eligible clinicians. Specifically, commenters were concerned that clinicians eligible for facility-based measurement will not be able to base their MIPS quality and cost performance category scores on the Total Performance Score of the applicable hospital from the Hospital VBP Program if we finalize the special scoring methodology for FY 2023 as proposed. A commenter noted that some clinicians may not have the resources or technology to report quality measures through an electronic health record, registry, or quality clinical data registry (QCDR) and suggested that we award TPSs for FY 2023, use TPSs from prior years, or create a hold harmless provision to ensure that hospital-based clinicians are not penalized and do not receive a downward payment adjustment under the MIPS Program. A commenter requested that we align the scoring and payment policies between the Hospital VBP Program and the MIPS Programs such that facility-based providers would receive net neutral payment adjustments under the MIPS program as well. Another commenter suggested that we offer an automatic Extreme and Uncontrollable Circumstances (EUC) exception to facility-based providers for FY 2022 to avoid impacting their cost and quality scores under MIPS.

Response: We understand commenters' concerns around the implications the special scoring methodology for FY 2023 under the Hospital VBP Program would have for clinicians under MIPS. However, because no hospitals will have a FY 2023 Total Performance Score, the clinicians who are normally assessed through facility-based measurement will need to identify another method of participating in MIPS for the CY 2022 MIPS performance period/CY 2024 MIPS payment year or submit an EUC application to request the reweighting of one or more performance categories, if applicable. With regard to the commenter's suggestion that we award TPSs for FY 2023 or use TPSs from prior years, we do not believe it would be an appropriate or meaningful indication of quality to award hospitals TPSs under the Hospital VBP Program based only on the unsuppressed measures in the Efficiency and Cost Reduction and the Clinical Outcomes domains for the FY 2023 program year because we do not believe it would result in nationally comparable assessment of quality of care for overall hospital performance without the inclusion of the suppressed measures. Further, we believe that awarding TPSs under the Hospital VBP Program from prior years would not be useful, equitable, or meaningful as it would not be new information and could potentially cause confusion for some hospitals around their actual performance during the COVID-19 PHE as it would be re-using data from prior to the COVID-19 PHE. Additionally, any changes to the previously established policies for MIPS, such as commenters' suggestions to create a hold harmless provision to ensure that hospital-based clinicians are not penalized and do not receive a downward payment adjustment under the MIPS Program or to offer an automatic EUC exception, would be determined by and communicated through the appropriate channels for MIPS.

Comment: Some commenters did not support the proposed payment methodology for the FY 2023 program year. A commenter expressed concern that the proposed special payment policy for FY 2023 that would result in net neutral payments for hospitals does not recognize investments in and on-going costs of quality infrastructure made by hospitals that maintained strong performance on measures prior to the COVID-19 pandemic. This commenter suggested that we consider establishing alternate performance periods, such as CY 2019 or a blend of prior performance periods, in order to score hospitals for the FY 2023 program year. A few commenters requested that we explore the authority to allow payment adjustments for hospitals that would have earned a positive payment adjustment for the FY 2023 program to reward hospitals that have demonstrated positive performance under the Hospital VBP Program throughout the COVID-19 PHE.

Response: We recognize that many hospitals have made important investments in infrastructure and processes to improve quality of care both before the COVID-19 PHE and during the PHE, and we encourage hospitals to continue investing in quality infrastructure that improves delivery of care. care. Though we recognize that some hospitals have maintained strong performance on measures throughout the COVID-19 PHE, we believe COVID-19 has interfered with the ability to accurately compare measure performance of hospitals side-by-side on a national level due to the variation in the impacts of the COVID-19 PHE in 2021 across time and across geographies, and whether that performance was positive or negative. Additionally, to reward hospitals that have improved quality of care during the PHE would require penalizing hospitals with negative payment adjustments based on measure scores, which we believe to be inappropriate given that we believe these scores are distorted by the COVID-19 PHE during 2021 and, thus, not reflective of the quality of care that the measures in the Hospital VBP Program were designed to assess. As noted previously in this section, we believe that awarding TPSs to hospitals based on prior performance periods would not be useful or meaningful as it would not be new information and could potentially cause confusion for some hospitals around their actual performance during the COVID-19 PHE as it would be re-using data from prior to the COVID-19 PHE. However, the measure data will continue to be publicly reported, which will provide transparency regarding performance during the COVID-19 PHE.

Comment: Several commenters expressed opposition to suppressing measure data from public reporting. A commenter noted that it was firmly against eliminating the reporting of patient safety measures, including HAI and mortality rates, because they are crucial to performance comparisons across healthcare facilities. A few commenters expressed that suppressing measure data from the public would thwart the public's ability to evaluate the strength and resilience of the health care system and make informed decisions regarding health care and public policy. A commenter expressed their belief that the public has a right to know hospital infection rates and other complication rates for hospitals receiving federal funding, regardless of the impact of the COVID-19 PHE. A few commenters noted that the suppressed measure data are important to keep public and could be used to inform future improvements in delivery of care.

Response: We agree with commenters that hospitals should continue collecting and reporting suppressed measure data and that we should continue publicly reporting suppressed measure data, and we will continue to do so under the policy we are finalizing for the FY 2023 program year. As noted in section V.I.1.a. of the preamble of this final rule, we believe that publicly reporting suppressed measure data is an important step in providing transparency.

Comment: Several commenters did not support our proposal to continue publicly reporting suppressed measure data. A commenter noted its belief that the general public does not understand the complex methodology behind the publicly posted data, and the uneven impacts of the COVID-19 PHE across geographical area might further skew how the public interprets the measure data. This commenter also noted that enterprising organizations might continue to use the publicly reported data without considering the effects of the COVID-19 PHE on that data and unfairly penalize hospitals. Several commenters noted that displaying suppressed measure data will have limited value and would likely cause confusion or misinterpretation of quality, even with caveats attached. A few commenters suggested that we provide hospitals with the option to opt-in to public reporting as part of their confidential feedback review. A commenter noted that publicly reporting data is an additional stressor that detracts from hospitals focusing on other priority areas during the COVID-19 PHE. A commenter expressed its belief that interested parties should have the opportunity to provide public comments on the public reporting determination in any future suppression policies.

Response: We understand commenters' concerns with publicly reporting suppressed measure data. However, we disagree that publicly reporting suppressed measure data is not useful for interested parties. We continue to place significant value on being as transparent as possible with the data we collect, and we will make clear with caveats that performance data were affected by the COVID-19 PHE, which impacts occurred in different ways and at different times of the year that we believe impact their national comparability for payment purposes. However, we believe the measures themselves remain reliable and useful for quality improvement purposes. Further, we disagree with the suggestion to allow hospitals the option to opt-in to public reporting. We believe that hospitals would choose to opt-in based on how well they performed, which could cause confusion, distorting the data and providing an incomplete picture of the impact of COVID-19 on performance. We acknowledge there may be limitations of these data, but believe this policy will balance our responsibility to provide transparency to consumers while ensuring that hospitals are not unfairly scored or penalized through FY 2023 payment. We encourage hospitals to continue focusing on providing quality care, using any insight they might gain from their measure rates to inform their own priority areas for improvement.

Comment: A commenter urged us to consider the implications of exempting quarters of data from reporting on measure reliability and accuracy in future public reporting. This commenter urged us to perform measure reliability analyses, using shortened performance periods to ensure CMS has sufficient data to calculate performance accurately, and to make public the results of those analyses.

Response: We thank the commenter for their feedback, and we wish to clarify that we have not proposed to exempt any quarters of measure data or to shorten performance periods for any measures from current or future reporting under the Hospital VBP Program in this rule beyond the exception for Q1 and Q2 of 2020 (85 FR 54820). The only measures still affected by the nationwide COVID-19 related Extraordinary Circumstances Exception (ECE) that CMS issued in March 2020 are the mortality and complications measures. These measures use a 36-month performance period, and our analyses show these measures continue to perform with good reliability even when calculated with 30 months of data. We agree that reporting reliable and accurate data are important, and any future policies that might impact measure reliability and accuracy would be accompanied by relevant and comprehensive analyses.

After consideration of the public comments we received, we are finalizing the scoring and payment methodology for the FY 2023 program year as proposed.

2. FY 2023 Program Year Payment Details

Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce the base operating DRG payment amount for a hospital for each discharge in a fiscal year by an applicable percent. Under section 1886(o)(7)(A) of the Act, the sum of these reductions in a fiscal year must equal the total amount available for value-based incentive payments for all eligible hospitals for the fiscal year, as estimated by the Secretary. We finalized details on how we would implement these provisions in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), and we refer readers to that rule for further details. We note that in section V.I.1.b. of the preamble of this final rule, we are finalizing our proposal 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 final rule, we are finalizing our proposal to apply special scoring and payment adjustment policies for the FY 2023 program year. Because we are finalizing these policies, each hospital will receive the payment reduction for the Hospital VBP Program as required by statute, but every hospital will receive a value-based incentive payment amount that matches the payment reduction amount.

In the FY 2023 IPPS/LTCH PPS proposed rule, we stated that 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. We stated in the FY 2023 IPPS/LTCH PPS proposed rule that 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). Because we are finalizing our proposed measure suppression and scoring and payment policies in response to the COVID-19 PHE, we will not post a Table 16A or a Table 16B.

We continue to be concerned about the impact of the COVID-19 PHE, but we also remain encouraged by the rollout of COVID-19 vaccinations to more age groups and new antiviral treatments for those diagnosed with COVID-19. We also believe that hospitals are better prepared to treat patients with COVID-19 than they were two years ago. 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 36 percent had received at least one dose as of June 29, 2022. On June 17, 2022, the Food and Drug Administration (FDA) also authorized emergency use of the COVID-19 vaccine for children as young as 6 months old, which has opened up eligibility to 18 million children.

Additionally, the 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 did not propose any changes to these policies in the 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 did not propose any changes to these policies in the 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 final rule, please see the Measure Updates and Specifications Reports (available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology).

Comment: Many commenters strongly supported the inclusion of patient history of COVID-19 in the 12 months prior to the index hospitalization as a covariate in the measures' risk adjustment models for the Hospital VBP Program mortality and complication measures starting in FY 2023. One of these commenters specifically agreed that a history of COVID-19 could affect a patient's risk for readmission and mortality. Another commenter added that the covariate for history of COVID-19 infection could allow tracking and better understanding of the effect of `long COVID' on hospital performance and inform other potential pay for performance program changes, if indicated by the data. A few commenters stated that this update to risk-adjust measures for COVID-19 will be helpful to their healthcare organizations in particular, to prevent being unfairly penalized for caring for a high volume of COVID-19 patients.

Response: We thank the commenters for their support for the inclusion of a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission for the mortality and complication measures included in the Hospital VBP Program.

Comment: Among commenters who supported the technical update to the measure specifications for MORT-30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, MORT-30 PN and COMP-HIP-KNEE measures to include a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission, several commenters also strongly encouraged us to continue monitoring and evaluating the data to assess the full impact of COVID-19 on hospital operations, quality measures, and most importantly on patient health and outcomes, as the impact of `long COVID' is still unknown. A few commenters urged us to continue to assess the measures' risk adjustment to determine if a 12-month period fully accounts for the impacts of `long COVID-19' on these mortality measures. Another commenter noted that the most recent measure methodology reports show that history of COVID-19 is negatively correlated for outcomes measured for the five conditions in the domain for FY 2023. This commenter recommended that we only include the covariate adjustment for measures where it is a positive risk variable for the performance period in line with the proposal's intended recognition that history of COVID-19 could affect a patient's risk of mortality or complications.

Response: With regard to the rationale for adding the history of COVID-19 covariate to the model, analyses using data from 7/1/2020-2/28/2021 showed that for most of the mortality measures observed (unadjusted), 30-day mortality for patients without an index admission of COVID-19, but with a history of COVID-19 (defined as U07.1 or Z86.16 in the 12 months prior to the admission, or Z86.16 at the index admission), were higher than patients without a history of COVID-19. Based on the higher odds of death for these patients we decided to add the covariate across all of the condition- and procedure-specific mortality and complications measures in Hospital VBP Program. In the months since the publication of the FY 2023 IPPS/LTCH PPS proposed rule, we have analyzed newly available data and are providing updated information in this final rule. Specifically, results using more recent data spanning the entire 3-year reporting period (7/1/2018-6/30/2021) showed that for patients without an index admission of COVID-19, those with a history of COVID-19 (as defined in technical update) in the pneumonia and heart failure cohorts have much higher frequencies of some model risk variables compared with patients without a history of COVID-19, suggesting they are sicker.

We also found that the adjusted odds ratios for 30-day mortality for the history of COVID-19 variable (the odds ratios in the context of all of the variables in the model) are less than one (for all but the pneumonia mortality measure, where the odds of mortality are not statistically significant). In other words, in these patients without COVID-19, but with a history of COVID-19, the non-COVID-19 clinical comorbidities in the risk model are lessening or reversing the effect size of the history of COVID-19 variable. Nonetheless, we have decided to keep the history of COVID-19 covariate in the model along with the model's baseline risk factors in order to account for hospital case mix differences more effectively and for potential future impacts of long COVID-19 that the current measure does not currently account for.

Comment: Several commenters, while supportive of the technical update to incorporate a history of COVID-19 into the measures' risk adjustment models, raised concerns about the adequacy of the current codes and reliability of the existing data. A few of them specifically expressed concern that the covariate adjustment methodology which relies on the U07.1 or Z86.16 ICD-10-CM codes may not fully capture all patients who have had a history of COVID-19 and recommended further evaluation of additional codes or claims data. The commenters also suggested that the covariate adjustment methodology be reviewed by a special NQF Technical Expert Panel (TEP) to ensure that the adjustments are comprehensive enough to capture the long-term impacts of COVID-19.

Response: We appreciate commenters' concern about the adequacy of the current codes, and the implementation of the covariate in the model. Regarding coding adequacy, the history of COVID-19 variable is defined as U07.1 (COVID-19) or Z86.16 (personal history of COVID-1) in the 12 months prior to the admission, or Z86.16 at the index admission. Therefore, the history of COVID-19 variable does not rely solely on the COVID-19-specific ICD-10 code, U07.1, but also includes the “personal history of COVID” code (Z86.16) which hospitals can code even during the index encounter. With regard to additional variables related to a prior COVID-19 infection, we note that on October 1, 2021, the ICD-10 code U09.9 (Post COVID-19 condition, unspecified) was approved for implementation, which is another code that can be examined for future use in risk adjustment.

We thank commenters for their suggestion that a special NQF TEP review the covariate adjustment methodology to ensure that the adjustments are comprehensive enough to capture the long-term impacts of COVID-19. These changes to the measure, if permanent, will be reviewed by the NQF during the endorsement maintenance process. We will also continue to monitor the claims data and review the covariate adjustment methodology to evaluate the effect of history of COVID-19 on these quality measures and to determine appropriate policies in the future.

Comment: A few commenters supported the inclusion of patient history of COVID-19 in the 12 months prior to the index hospitalization as a covariate in the measures' risk adjustment models for the Hospital VBP Program mortality and complication measures starting in FY 2023 but urged us to conduct further analysis before implementing this change to ensure prior COVID-19 data are captured across hospitals in a complete, consistent, and equitable way. The commenters specifically urged us to examine and share publicly any data on variation in how prior COVID-19 is being captured in claims data. They also encouraged us to explore to what extent history of COVID-19 codes are capturing COVID-19 self-testing that patients may perform at home, and how frequently those codes are being used. The commenters also expressed concern that relying on the history of COVID-19 code could leave out a substantial portion of patients that may have had COVID-19, but did not get tested in an inpatient or ambulatory setting in the prior 12 months. Lastly, they recommended we continue to monitor the evolving evidence around post COVID-19 conditions to determine whether the 12-month timeframe should be lengthened or shortened. As the field continues to learn more about the ways in which `long COVID' manifests itself, and the duration of its impacts, these commenters stated that our current approach may need to change.

Response: We appreciate commenters' recommendations regarding conducting further analysis to ensure prior COVID-19 data are captured across hospitals in a complete, consistent, and equitable way. The history of COVID-19 variable is defined as U07.1 (COVID-19) or Z86.16 (personal history of COVID-1) in the 12 months prior to the admission, or Z86.16 at the index admission. Therefore, the history of COVID-19 variable does not rely solely on the COVID-19-specific ICD-10 code, U07.1, but also includes the “personal history of COVID” code (Z86.16) which hospitals can code even during the index encounter. With regard to additional variables related to a prior COVID-19 infection, we note that on October 1, 2021, the CDC's National Center for Health Statistics implemented the ICD-10 code U09.9 (Post COVID-19 condition, unspecified), which is another code that can be examined for future use in risk adjustment. We will continue monitoring and evaluating additional data as they become available to understand the full impact of COVID-19 on healthcare organizations and patients to inform future program decisions.

Comment: A few commenters did not support risk adjusting for COVID-19 diagnosis within the condition- and procedure-specific mortality and complication Hospital VBP Program measures. They recommended adjusting the benchmarks instead for the achievement thresholds as well as reestablishing baselines inclusive of COVID-19 diagnosis. They also stated that the COVID-19 virus became a part of normal infection prevention care, and therefore its inclusion would inherently risk adjust the 2022 baseline for 2024 outcome data, effectively and appropriately leveling the playing field to the new normal.

Response: We interpret the commenter's statement to be referring to adjustment of an index admission of COVID-19 and not a history of COVID-19, and therefore, we note that COVID-19 admissions have been excluded from the cohorts of these measures as outlined in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45256 through 45258). We thank commenters for their feedback. We will implement the inclusion of the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission effective beginning with the FY 2023 program year for the MORT-30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, MORT-30-PN and COMP-HIP-KNEE measures.

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 of this final 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 final 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).

Comment: Many commenters supported the technical updates to the MORT-30-PN measure to exclude admissions with either a principal or secondary diagnosis of COVID-19 present on admission from the measure denominator and to include a covariate for history of COVID-19 in the 12 months prior to admission. A commenter supported resuming the MORT-30-PN measure in the Hospital VBP Program in FY 2024. A few commenters also applauded our decision to publicly report the measure in January 2023 (2022 reporting period), even though the measure will be suppressed for FY 2023.

Response: We appreciate commenters' support. We note that the MORT-30-PN measure is suppressed in the Hospital VBP Program for FY 2023 and will resume in FY 2024. The October 2022 confidential reporting and January 2023 public reporting of the updated measure is to provide transparency and information to providers and patients on this important measure.

Comment: Many commenters supported the technical updates to the MORT-30-PN measure but urged us not to resume the use of this measure in the Hospital VBP Program for FY 2024 and to further evaluate the impact of COVID-19 prior to resuming this measure. A commenter added that with these technical updates, the measure when considered in isolation appears to be structured appropriately to return to use in the Hospital VBP Program for FY 2024. However, we should consider the combined effects of the multiple program adjustments that have been made that would affect FY 2024 payment year determinations. The commenter recommended that we seriously consider the combined effects of data suppression and shortened performance period, along with any lingering impacts of COVID-19 that are uncovered by our monitoring in the interval prior to FY 2024 proposed rulemaking, in determining whether to again apply scoring and payment adjustments for FY 2024 payment determinations.

A few commenters recommended we conduct further analysis to ensure it has minimized the overlap between this measure and COVID-19-related pneumonia. The commenters also agree that these specification changes are directionally appropriate, and data included in the proposed rule shows a decline in the percentage of pneumonia patients with COVID-19 from January-July 2021. However, the commenters noted there were upticks in these percentages in August and September 2021 and suggested we run the same data for the entirety of 2021 to ensure these increases are anomalies rather than trends before re-introducing the MORT-30-PN measure into the Hospital VBP Program. This would enable agencies and the hospitals to determine whether additional education on the new codes is necessary, or if further measure specification tweaks may be required.

Response: We thank commenters for their feedback to conduct further evaluation of data and monitor the impact of COVID-19 before resuming the MORT-30-PN measure. Admissions for patients with a COVID-19 diagnosis will be removed from the measure, which means that the “upticks” in the percentage of COVID-19 admissions in the unmodified measure will not impact the cohort for the revised MORT-30-PN measure. As previously stated, our goal is to resume the use of measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year. The October 2022 confidential reporting and January 2023 public reporting of the updated measure is to provide transparency and information to providers and patients on this important measure. Additionally, while we shortened the performance period for certain measures under the nationwide COVID-19 ECE, analyses show that the measures have a good reliability even when using a 30-month period versus a 36-month period.

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 of the final rule showing summaries of previously adopted measures for the FY 2024, FY 2025, and FY 2026 program years. We proposed to suppress the HCAHPS and HAI measures for the FY 2023 program year. We did not propose to add new measures at this time. 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. Updated 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 final rule, we proposed 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 proposed several updates to the baseline periods in this final rule for the FY 2025 program year.

We note that we proposed 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 did not propose any changes to the previously established baseline periods for FY 2025.

(2) Updated 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 final 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 proposed 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.

Comment: Many commenters supported our proposal to establish new baseline periods for the HCAHPS measure, which has been impacted by the COVID-19 PHE. Commenters appreciated that our proposal would allow us to use a full-year of data unaffected by the COVID-19 PHE to compare to the CY 2023 performance period.

Response: We thank the commenters for their support of our proposal to update the baseline period for the HCAHPS measure for the FY 2025 program year.

Comment: A few commenters recommended that we continue to evaluate the impact of the pandemic as they set future policy and program adjustments related to baseline periods and performance standards.

Response: We appreciate the commenters' suggestions and note that we will continue to monitor the impact of the COVID-19 PHE on Hospital VBP Program data.

Comment: A commenter did not support our proposal for the HCAHPS 2019 baseline period, stating its belief that the proposed baseline is not reflective of current operations, safety protocols, and staffing. Instead, the commenter recommended we explore using alternative baseline periods, such as using all or part of CY 2021 or CY 2022 performance data as the baseline or using CY 2023 as both the baseline period and the performance period. The commenter also urged us to consider ways to modify the scoring policies for FY 2025 to incentivize improvement over achievement.

Response: We thank the commenter for the recommendation and note that we have chosen the 2019 baseline period to ensure that we have reliable data that are not unfairly affected by the COVID-19 PHE. We believe using data from this period will provide sufficiently reliable data for evaluating hospital performance that can be used for FY 2025 scoring and because it would provide the most consistency for hospitals in terms of the comparable length to previous program years and the performance period. Because the pandemic has impacted hospitals and health systems in many different ways, and at different times, using an alternative baseline may unfairly penalize certain hospitals for circumstances out of their control. We do not believe it would be appropriate to use CY 2021 data as the baseline period because, as noted in section V.I.1.b.(2). of this final rule, we are finalizing the suppression the FY 2022 HCAHPS performance period, which uses CY 2021 data, because we believe that data has been impacted by the COVID-19 PHE. We note that we would not be able to use CY 2022 or CY 2023 data as the baseline period for the FY 2025 program year due to the operational time it takes to calculate performance standards and we would not be able to notify hospitals of the performance standards 60 days prior to the beginning of the performance period. Further, we believe that the current scoring methodology, which takes the higher of the improvement and achievement scores for a given measure, incentivizes hospitals to improve, while also incentivizing hospitals to continue striving for standards of care that would result in high quality of care.

Comment: A commenter did not support the proposed baseline period for the HCAHPS measure for the FY 2025 program year because it excludes COVID-19 data. The commenter recommended adjusting benchmarks and baselines to include COVID-19 diagnoses in the measure data, noting its belief that the COVID-19 virus has become part of normal infection prevention care and its inclusion would inherently risk adjust the 2022 baseline for 2024 outcome data.

Response: We appreciate the commenter's recommendation, but we believe it is not appropriate to use 2021 as the baseline because conditions related to the COVID-19 PHE in 2021 were not alike across the country, with some hospitals experiencing more staff shortages than others and geographic disparities in COVID-19 cases, with certain parts of the country experiencing more cases and greater strains on their health systems than others. Such conditions may have been out of their control and using a 2021 baseline would thus unfairly penalize the hospitals disproportionately impacted. Our proposed suppression, scoring, payment, and updated baseline policies have been developed to provide as much flexibility as we can for providers to focus on delivering care during the COVID-19 PHE. We intend to continue to consider the evolving COVID-19 PHE while also evaluating future policies so as to continue incentivizing hospitals to prioritize high quality of care for patients.

After consideration of the public comments we received, we are finalizing our proposal to update the baseline period for the HCAHPS measure for FY 2025 as proposed.

(3) Updated 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 final 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 proposed 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.

Comment: Many commenters supported our proposal to use updated baseline periods for the Safety Domain measures due to the COVID-19 pandemic, noting that it would allow us to use a full-year of data unaffected by the COVID-19 PHE to compare to the CY 2023 performance period. A few commenters recommended that we consider the impact of COVID-19 in future policies.

Response: We thank the commenters for their support of the updated baseline periods for the Safety Domain measures. We will continue to monitor the impact of the PHE on program data and will take commenters' concerns and recommendations under consideration for future rulemaking.

Comment: A commenter did not support our proposal to use CY 2019 as the updated baseline period for each of the Safety Domain measures because the commenter believes the updated baseline periods are not reflective of current operations and recommended we explore alternative baseline periods. A commenter did not support our proposal because the baseline periods exclude COVID-19 data and the commenter believes that the pandemic has become a part of normal infection prevention care and should thus be included in the 2022 baseline period for 2024 outcome data.

Response: We appreciate the commenter's recommendation, but we believe it is not appropriate to use a more recent baseline period inclusive of COVID-19 data because conditions related to the COVID-19 PHE are not alike across the country, with some hospitals experiencing more staff shortages than others and geographic disparities in COVID-19 cases. Such conditions may have been out of their control and using a more recent baseline inclusive of COVID-19 data would thus unfairly penalize the hospitals disproportionately impacted. Our proposed suppression, scoring, payment, and updated baseline policies have been developed to provide as much flexibility as we can for providers to focus on delivering care during the COVID-19 PHE. We intend to continue to consider the evolving COVID-19 PHE while also evaluating future policies so as to continue incentivizing and prioritizing high quality of care for patients.

After consideration of the public comments we received, we are finalizing our proposal to use updated baseline periods for the 5 HAI measures for FY 2025 as proposed.

c. Summary of Previously Adopted and Newly 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 Finalizing

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 final rule, will not affect the performance standards for the FY 2023 program year. However, as discussed in section V.I.1.c. of this final rule, we proposed 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 final rule, we proposed to update the FY 2025 program year baseline periods for the measures included in the Safety domain and Person and Community Engagement domain, and we have finalized these baseline periods as proposed. In the proposed rule, we stated that 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, in the FY 2023 IPPS/LTCH PPS proposed rule, we stated that 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. As stated in section V.I.4.c. of this final rule, we are finalizing the proposed updates to the baseline period for these measures as proposed.

The previously established and estimated performance standards for the measures in the FY 2025 program year have been updated and 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 final rule, we proposed to update the FY 2025 program year baseline period for the measure included in the Person and Community Engagement domain. We are finalizing that proposal and, 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 did not propose any changes to these domain weights.

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 did not propose any changes to these domain weights.

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 did not propose any changes to these policies.

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 did not propose any changes to these policies.

(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 did not propose any changes to these policies.

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 did not propose any changes to the Hospital VBP Program ECE policy.

8. References to Requests for Information

a. NHSN Digital Quality Measures

We also refer readers to section IX.E.9.a. of this final rule, where we received comments in response to our request for 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 requested 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 final rule where we received input on overarching principles in measuring healthcare quality disparities in hospital quality and value-based purchasing programs.

J. Hospital-Acquired Condition (HAC) Reduction Program: 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 Program, 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).

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28446 through 28449), we proposed changes to this measure suppression policy, which we discuss in section V.J.2.b.(2).

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 54830 through 54832), 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 the CMS Patient Safety and Adverse Events Composite measure (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 final rule, we are finalizing the proposal to further modify some of these applicable periods.

(2) Updates to the FY 2023 HAC Reduction Program

In the FY 2023 IPPS/LTCH proposed rule, we discussed two updates for the FY 2023 HAC Reduction Program's measure suppression policy: (1) We proposed 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 FY 2023 HAC Reduction Program; and (2) For the CMS PSI 90 measure, we proposed to not calculate or report measure results for the FY 2023 HAC Reduction Program.

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, three 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 three to four 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 elaborate further later in the section.

As described in section V.J.2.b.(1). of this final 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 facilities were still adapting to the demands of the PHE and that subsequently national performance deviated from previous performance during CY 2021. Therefore, we proposed 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 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 COVID-19 PHE resulted in changes in HAC Reduction Program measure performance such that we would 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.

In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 proposed 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 proposed 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 proposed 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 was 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 proposed 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 proposed 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 measure 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 proposed 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 final 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, we stated in the proposed rule that 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 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 after confidentially reporting via HSRs and a 30-day preview period and then publicly reporting on the Care Compare tool hosted by Health and Human Services and the Provider Data Catalog. 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 final 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 CY 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 CY 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 ages 5-11, who were not eligible for vaccination for the majority of 2021 and of whom only 36 percent had received at least one dose as of June 29, 2022. 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 invited public comments on our proposals. We received a large volume of input from the public regarding these proposals. We first address the comments related to our proposal 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 FY 2023 HAC Reduction Program, for the purposes of scoring and payment. Next, we address the proposal to suppress calculation and public reporting of measure results for CMS PSI 90 for FY 2023.

Comment: Many commenters supported the proposal 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 FY 2023 HAC Reduction Program. Several commenters agreed that this policy would help ensure hospitals are not penalized for conditions beyond the control of hospitals and providers that may negatively impact hospital performance. Several supported the proposal due to the significant impact of the COVID-19 PHE on quality measures. A few commenters noted that this proposed policy would provide important relief and stability for providers, especially rural providers, regarding compliance concerns so they can focus on the unique challenges of providing care during the COVID-19 PHE. Several commenters supported the proposal because it addresses the significant deviation in national performance across all program measures due to the COVID-19 PHE. Many commenters supported the proposal due to the belief that the COVID-19 PHE negatively impacted hospitals and patients through a number of factors including quickly changing clinical practices, operational changes, increased clinical acuity, staffing and supply shortages, and care capacity concerns. Several commenters supported the proposal because of the disproportionate impacts of the COVID-19 PHE on hospital performance given geographic and temporal variation in surges of cases. A commenter supported the proposal due to the belief that this will provide hospitals more time to focus on training and education rather than public reporting of measure scores. A commenter supported the proposal due to the belief that this will help alleviate hospital administrative burden.

Response: We thank commenters for their support. We agree that the proposed suppression, scoring, and payment policies for the FY 2023 program year were developed using data-driven approaches and are intended to balance the importance of patient safety through transparency and public reporting while allowing hospitals to maintain access to care and focus on providing quality health care to patients during the COVID-19 PHE. Additionally, we agree that suppressing these measures for scoring and payment purposes will ensure hospitals are not penalized for impacts outside of their control and note that hospitals will still be required to report measure data for the five CDC NSHN HAI measures and CMS PSI 90 will be calculated through claims data, so hospital administrative burden will remain unchanged.

Comment: A few commenters expressed support for the proposal to suppress the HAI measures from scoring and payment because they believe that CMS could not feasibly use either risk adjustment or exclusions to account for COVID-19 diagnoses in calculating performance.

Response: We thank commenters for their support and agree that the HAI measures cannot be risk-adjusted due to the reasons described in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28449 through 28450) and in this final rule.

Comment: Many commenters did not support the proposal 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. Many commenters recommended that instead of finalizing the proposal to not score or penalize hospitals for their performance, CMS should penalize the worst performing hospitals to incentivize quality improvement. A few commenters requested that CMS explore the authority to provide payment bonuses for hospitals to create a reward for improved patient care. Many commenters did not support the proposal due to the belief that not instituting payment penalties would not hold hospitals accountable for care delivered to patients. Many commenters did not support the proposal because they believe that suspending payment reduction would be poor financial stewardship of the Medicare Trust Fund and ultimately not help beneficiaries.

Response: We thank the commenters for their feedback. Throughout the COVID-19 PHE, we have prioritized access to safe, comprehensive healthcare, and we continue to make patient safety our primary concern. As part of this dedicated commitment to patient safety, we ensure public access to the highest quality data regarding the performance of health care facilities. We continue to collect and closely monitor performance to ensure safety, and will continue to share that data with the public. We understand commenters' concerns; though we recognize that some hospitals have maintained strong performance on measures throughout the COVID-19 PHE, we do not believe it is appropriate to penalize any hospitals based on measure data that we believe were distorted by the COVID-19 PHE, the impacts of which were geographically and temporally varied during 2021, and, thus, would not ensure an accurate and reliable national comparison of performance on hospital safety for penalty purposes. Meanwhile, we note the HAC Reduction Program statute does not grant the authority to award payment bonuses or incentive payments to hospitals with favorable performance and measure outcomes. Interested parties can view the HAC Reduction Program statute at § 412.172 for more details on the payment requirements. Additionally, we note that the suppression, scoring, and payment policies for the FY 2023 program year were developed using data-driven approaches that are intended to balance the importance of patient safety through transparency and public reporting while allowing hospitals to maintain access to care and focus on providing quality health care to patients during the COVID-19 PHE.

Comment: A commenter expressed concern over the misalignment of the Measure Suppression Factors used across the Hospital VBP and HAC Reduction Programs for the HAI measures.

Response: We appreciate the commenter's concern regarding consistency. To promote alignment across our value-based purchasing programs, in both the Hospital VBP and HAC Reduction Programs, we proposed 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 suppress the SSI measure under Measure Suppression Factor 4, significant national shortages or rapid or unprecedented changes in patient case volumes; and to suppress the CDI 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. We applied these measure suppression factors with both program-specific considerations in mind as well as cross-program alignment. We continue to believe that suppressing the HAI measures under the HAC Reduction Program and the Hospital VBP Program for purposes of scoring and payment will provide flexibility for providers to focus on delivering quality of care to patients during the COVID-19 PHE. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45301 through 45304) for more information on the HAC Reduction Program's measure suppression factors and the FY 2022 IPPS/LTCH PPS final rule (86 FR 45266 through 45269) for more information on the Hospital VBP Program's measure suppression factors.

Comment: Many commenters recommended that we not suppress future measures without seeking public comment which gives the public an opportunity to provide feedback.

Response: We appreciate the commenters' recommendation. Consistent with our previously finalized measure suppression policy in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45301 through 45304), we intend to provide interested parties with the opportunity to comment on future suppression through the rulemaking process.

Comment: A commenter did not support the proposal to suppress the HAI measures from scoring and payment and recommended that we evaluate whether the HAC Reduction Program is sufficiently committed to ensuring a deeply embedded safety culture.

Response: We thank the commenter for sharing their input, and we agree on the importance of safety culture. We also believe building a more resilient health care system is necessary to avoid future threats to patient safety. Specifically, as to the use of 2021 HAI data for assessing HAC Reduction Program penalties, based on data analyses by the CDC, we believe that suppressing the HAI measure for the FY 2023 program year offers hospitals and health systems the flexibility to focus on delivery of care while also accounting for the changing conditions during a PHE that are beyond hospitals' control. In addition, we are committed to the continued collection, reporting, and public availability of the HAI measure data, focusing on transparency, upholding quality care, and helping patients make informed decisions about their care. As we note previously, our goal is to resume the use of 2022 HAI measure data for scoring and payment adjustment purposes beginning with the FY 2024 program year as we believe that 2022 has a more promising outlook in the fight against COVID-19 as we enter the third year of the pandemic.

Comment: Many commenters supported our proposal to continue to publicly and confidentially report HAI measure results. Several commenters supported our proposal because they believe it would promote transparency in reporting of HAI measure data to help interested parties understand the healthcare landscape and the impact of the COVID-19 PHE. A few commenters supported our proposal because of their belief that the public access to the HAI data would allow them to make informed decisions about care. A commenter supported our proposal and recommended that we provide hospitals the option to opt-in to public reporting of the HAI measures.

Response: We thank the commenters for their support and agree that it is important for the public to have access to the HAI measure data to continue to make informed health care decisions. As noted in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28448) and in this final rule, we intend to publicly report HAI measure results with appropriate caveats that explain that performance information has been impacted due to the COVID-19 PHE. We continue to place significant value on being as transparent as possible with the performance information that we collect, and we will make clear with caveats that performance information was affected by the COVID-19 PHE.

We disagree with the commenter's suggestion to allow hospitals the option to opt-in to public reporting. We believe this may cause greater confusion and would provide an incomplete picture of the impact of COVID-19 on performance data since mostly only hospitals that performed well might choose to opt-in. Additionally, we believe that providing transparent performance information to the public throughout the COVID-19 PHE and beyond is a priority, and we do not believe publicly reporting suppressed measure data places additional burden on providers above the processes providers already have in place that are used to collect and report the data to CMS and the CDC. We encourage hospitals to continue focusing on providing quality care, and we believe that the continued collection and public reporting of performance information can be a useful tool to inform future quality improvements for health care providers.

Comment: Many commenters did not support suppression of the CDC NHSN HAI measures from the calculation of measure scores and the Total HAC Score for the FY 2023 HAC Reduction Program out of concerns relating to access to publicly reported measure data. Many commenters expressed their belief that the proposal to suppress the CDC NHSN HAI measures from the calculation of measure scores and the Total HAC Score would prevent patients from making informed decisions on where to receive care, especially those at high risk for the measure. Similarly, several commenters did not support the proposal because they believe it violates CMS' commitment to public safety by not granting the public access to hospital performance data. Several commenters stated that the proposal would not hold hospitals accountable for patient safety and the level and quality of care delivered. A few commenters stated that suppressing the HAI measures would create the perception that the government is not disclosing information, reducing public trust and transparency.

Response: We thank the commenters for expressing their concerns. As discussed in section V.J.2.b.(2)., we wish to clarify that we are continuing to publicly report the CDC NSHN HAI measure results—the suppression proposal related to the five CDC NHSN HAI measure results was limited to suppression of the measures from the calculation of measure scores and the Total HAC Score for purposes of assessing HAC Reduction Program penalties for FY 2023. As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28448) and section V.J.2.b.(2). of this final rule, we intend to publicly report the suppressed CDC NHSN HAI measure data with appropriate caveats, as we recognize the importance of transparency, promoting public trust, and empowering individuals to make data-informed decisions using the publicly reported HAI measure data. We will also continue to provide confidential feedback reports to hospitals through the previously established processes, including the information available to hospitals via the CDC's National Healthcare Safety Network, as part of program activities to ensure that hospitals are made aware of the changes in performance rates that we observe. We believe that continuing to make the data publicly available ensures that hospitals are still held accountable for their quality of care as consumers decide where to obtain care based on the publicly available data on hospital performance.

Comment: A commenter did not support HAI suppression out of concern that we might have difficulty adhering to, interpreting, and operationalizing the Measure Suppression Factors, given the ever-changing landscape. A commenter did not support HAI suppression, believing that being unable to determine the causes of changes in HAI rates is not a rationale for suppression. A commenter did not support HAI suppression, stating that the rationale exceeds program authority and recommending that CMS retract its stated rationale for the suppression of NHSN CDC HAIs in this final rule.

Response: We appreciate the concern surrounding the operationalizing of the measure Suppression Factors. We believe that, in the face of evolving circumstances of the COVID-19 PHE, the level of detail in the Suppression Factors, which were developed and finalized in the FY 2022 IPPS/LTCH PPS final rule to specifically address challenges that arose due to the COVID-19 PHE, is sufficient and applicable in suppressing the HAI measures. In deciding which measures to suppress, and as discussed in the proposed rule and this final rule, we examined each measure and determined that the evidence showed significant deviation in the individual measure performance data associated with the COVID-19 PHE and/or a low reporting volume. Additionally, the COVID-19 PHE in 2021 presented unique and unprecedented experiences that challenged hospitals in new ways beyond their control. We believe that it would be unfair to score or penalize hospitals through payment during these unique challenges, thus warranting the use of Measure Suppression Factors. We do not anticipate implementing the Measure Suppression Factors in other instances outside of such an unprecedented and unique circumstance as the COVID-19 pandemic.

Comment: A commenter questioned whether we would be publicly reporting the HAI measure results in the aggregate form (that is, deidentified).

Response: We appreciate the commenter's question. CDC collects data for the HAI measures at the ward level rather than the patient level, and then provides aggregate results at the individual hospital CCN level. Therefore, the data reported publicly will not have patient identifiable information, but will be identifiable by hospital aggregated to the same CCN.

Comment: A commenter did not support publicly reporting the HAI measure results until the HAI measures can be risk adjusted for COVID-19.

Response: We appreciate the commenter's recommendation. However, due to the nature of the HAI measure data being collected at the ward level rather than the patient level, we cannot feasibly risk adjust or exclude for COVID-19 diagnoses in calculating hospital performance on the HAI measures. Additionally, we believe the HAI rates could potentially still be impacted even with COVID-19 risk adjustment because pandemic-related hospital staffing and resource issues affect a hospital's entire patient population. We continue to place significant value on being as transparent as possible with the performance information that we collect, and we will make clear with caveats that performance information was affected by the COVID-19 PHE.

Comment: A few commenters recommended that the HAI measures continue to be suppressed until the end of the COVID-19 PHE. A few commenters recommended that we continue to evaluate the impact of the COVID-19 PHE on the data as the PHE subsides. A commenter recommended that we suppress CY 2020 and CY 2021 data from the HAI measure to address the impact of the COVID-19 PHE. A few commenters expressed concern about publicly reporting the HAI measure results because the data will be distorted and of little value to the public. Several commenters believed that publicly reporting the data would cause confusion or be misinterpreted by consumers due to the impacts of the COVID-19 PHE outside of facilities control. A commenter recommended that we delay public reporting of the HAI measures so that we can evaluate how to best communicate the impacts of the COVID-19 PHE to consumers.

Response: We thank the commenters for their recommendations and will continue to monitor the PHE's ongoing effects carefully on the measures within the HAC Reduction Program. In the September 2, 2020 IFC, we finalized exclusion of data submitted regarding care provided during the first and second quarters of CY 2020 from calculation of scoring and payment adjustments in the HAC Reduction Program. In the FY 2022 IPPS/LTCH final rule (86 FR 45307 through 45307), we finalized suppression of the third and fourth quarters of CY 2020 CDC NSHN HAI data for purposes of scoring and payment adjustments. In the FY 2023 IPPS/LTCH proposed rule (87 FR 28446 through 28450), we proposed to suppress CY 2021 CDC NHSN HAI measure data from the FY 2024 HAC Reduction Program for purposes of scoring and payment adjustments. Therefore, we have suppressed CY 2020 and CY 2021 HAI measure data from the HAC Reduction Program for scoring and payment purposes.

We understand commenters' concerns with publicly reporting measure data that were suppressed for purposes of calculating the measure scores and Total HAC Score. However, we disagree that publicly reporting suppressed measure data is not useful for consumers and interested parties. We continue to place significant value on being as transparent as possible with the performance information that we collect, and we will make clear with caveats that that performance information was affected by the COVID-19 PHE. We encourage hospitals to continue focusing on providing quality care, and we believe that the continued collection and public reporting of performance information can be a useful tool to inform future quality improvements for health care providers.

Comment: Many commenters supported the proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Several commenters supported the proposal because they believe the impacts of the COVID-19 PHE affected the accuracy of the data. Several commenters supported the proposal due to the potential for distorted measure results because of discrepancies in the reference and applicable periods among hospitals impacted by COVID-19. A few commenters supported the proposal, noting their belief that because hospitals are seeing COVID-19 hospitalizations increase again, hospital care will likely be substantially impacted by these trends for the foreseeable future. A commenter recommended suppressing CMS PSI 90 through at least Q2 2022.

Response: We thank the commenters for their support, and we understand and acknowledge commenter's concerns regarding the impact of the COVID-19 PHE on the CMS PSI 90 measure. In light of the comments received and in alignment with our continued commitment to transparency, we are not finalizing our proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Additional detail on how the measure will be adjusted to exclude patients with a diagnosis of COVID-19 is discussed at the end of this section in this rule. In public and confidential reporting, we intend to annotate measure data to indicate that performance was affected by the COVID-19 PHE. We thank the commenters for their recommendations, and we will continue to monitor the PHE's ongoing effects carefully.

Comment: A few commenters expressed support for the proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program, noting that consumers may not fully understand the caveats on Care Compare and that third party organizations may misuse the data. A commenter expressed their belief that public reporting is not of any value, even with the appropriate caveats on data limitations.

Response: We appreciate the commenters' support and concerns. We have always believed that public reporting of measure data is an invaluable tool for patients, providers, and the public. Public reporting of measure data fosters transparency and provides safety information to the public in order to assist them with their healthcare decisions. While we proposed to not calculate or publicly report the CMS PSI 90 measure unadjusted for any impacts of COVID-19, since the publication of the proposed rule, we have been able to determine a method for excluding patients with a diagnosis of COVID-19 that will allow us to calculate and publicly report valid and reliable measure results. Therefore, based on this measure adjustment and stakeholder support for continued public reporting, we are not finalizing our proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. We believe that publicly reporting the CMS PSI 90 measure data with these adjustments is of value and an important step in providing transparency and upholding quality of care and safety for consumers. Additional detail is discussed later in this rule.

Comment: A few commenters recommended three methods we could employ to preserve the integrity of the CMS PSI 90 measure for the FY 2023 program year including: applying a measure exclusion for COVID-19 diagnosis, excluding cases with a COVID-19 diagnosis 12 months prior to admission, or including a COVID-19 diagnosis at admission variable in the risk adjustment methodology. A commenter recommended that for version 12 of the CMS PSI 90 software CMS extend the applicable period to include more data from 2021 to increase the number of hospitals measured and increase measure reliability. Several commenters recommended that we should continue to report CMS PSI 90 measure data on Care Compare with the caveat that the values are not adjusted for COVID-19 diagnosis.

Response: We appreciate commenters' recommendations regarding alternatives to suppressing CMS PSI 90 measure results for the FY 2023 program year. We note that for the FY 2023 program year, we will be applying an exclusion to CMS PSI 90 for patients with a diagnosis of COVID-19 as a few of the commenters suggested. Since the publication of the proposed rule, we have been able to determine a method for excluding patients with a diagnosis of COVID-19 that will allow us to calculate and publicly report valid and reliable measure results. We refer readers to section V.J.3.c.(2) of this final rule for more detail on the updates to the measure specifications being made for the FY 2024 to risk-adjust for COVID-19 diagnoses (in any position) present on admission. We note that risk adjustment details are released to the public when each version of the software is completed and made available. The Risk Adjustment methodology report will be posted on the QualityNet website for CMS PSI 90 Resources at https://qualitynet.cms.gov/inpatient/measures/psi/resources . The risk adjustment methodology is part of the routine annual process to update the CMS PSI 90 measure, where the measure developer will submit an annual update to NQF that includes updates to the risk adjustment model. We appreciate the commenters' recommendation to extend the applicable period to include more data from 2021 to increase the measure reliability and will consider it as we continue to assess the impact of the COVID-19 PHE on our measure data.

Comment: A number of commenters did not support the proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Many commenters did not support the proposal because they believe the data should remain publicly available in order for patients to make informed decisions on where to receive care. Several commenters did not support the proposal because they believe it would reduce the usefulness of the data displayed on Care Compare.

Response: We thank the commenters for sharing their concerns. As discussed, since the publication of the proposed rule, we have been able to determine a method for excluding COVID-19 patients from program calculations that will allow us to calculate and publicly report valid and reliable measure results. This exclusion method uses fields available in the claims form to identify patients with a diagnosis of COVID-19. After identifying these patients, we will exclude them from our measure calculation for our CMS PSI 90 measure. We agree that we should continue publicly reporting the CMS PSI 90 measure so patients can make informed decisions about where they receive care. Ultimately, we believe that publicly reporting this measure data with these exclusions is of value and an important step in providing transparency and upholding quality of care and safety for consumers. In light of the comments received and in alignment with our continued commitment to transparency, we are not finalizing our proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 program year. Additional detail is discussed at the end of this section in this rule. We intend to confidentially report and publicly report the measure results, annotated to identify where performance was affected by the COVID-19 PHE.

Comment: Many commenters did not support the proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program because they believe the proposal violates the public trust in both CMS and the medical community and also reduces transparency in the Medicare program. Commenters also suggested that this proposal could erode patient safety infrastructure and ultimately hurt patients. Many commenters did not support the proposal and expressed concern about public awareness of potentially increasing rates of medical errors and infections. A few commenters did not support the proposal due to the belief that suppression of these data from reporting will not improve staffing shortages or clinical training, which have been critical contributors to poor hospital performance on the measures.

Response: We thank the commenters for sharing their concerns. As discussed, since the publication of the proposed rule, we have been able to determine a method for excluding COVID-19 patients from program calculations that will allow us to calculate and publicly report valid and reliable measure results. This exclusion method uses fields available in the claims form to identify patients with a diagnosis of COVID-19. After identifying these patients, we will exclude them from our measure calculation for our CMS PSI 90 measure. We agree with commenters that we should continue publicly reporting measure data for CMS PSI 90. Therefore, we note, that after consideration of the public comments we received, we are not finalizing our proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Additional details are discussed later in this section of the rule. Ultimately, 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 also believe that publicly reporting CMS PSI 90 will help enforce patient safety infrastructure and benefit the patient-provider relationship. Additionally, we believe that confidentially reporting these measure data will help empower hospitals to better understand their performance and make improvements to staffing, education, and training.

Comment: Many commenters did not support the proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program due to the belief that there is no other publicly available source for data on the complications included in PSI 90 and if we do not publicly report this data interested parties will not have access to the data to inform their decisions. Many commenters did not support the proposal because they believe that public reporting of CMS PSI 90 measure data helps interested parties understand the patient safety landscape and prevent more adverse events from occurring. Many commenters did not support the proposal due to the belief that public reporting of the CMS PSI 90 measure helps employers and health plans analyze care delivery and promote robust health plan networks. Several commenters recommended that CMS report CMS PSI 90 measure data so that regulators and researchers can learn from the COVID-19 PHE and develop an action plan to improve hospital performance. Many commenters recommended that CMS report the PSI 90 measure data to align with the recommendations focused on expanding focus and resources on patient safety contained in the 2018 Office of the Inspector General Report on Adverse Events in Hospitals.

Response: We agree with the commenters concerns and recommendations regarding the public and confidential reporting of the CMS PSI 90 measure and recognize that interested parties should have access to this data to make data-informed decisions. Therefore, we note, that since we were able to determine a method for excluding COVID-19 patients from program calculations that will allow us to calculate and publicly report valid and reliable measure result, we are not finalizing our proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. This exclusion method uses fields available in the claims form to identify patients with a diagnosis of COVID-19. After identifying these patients, we will exclude them from our measure calculation for our CMS PSI 90 measure. Additional detail is discussed at the end of this section in this rule. We encourage hospitals to continue maintaining access and focusing on providing quality care, and we believe that the continued collection, analysis, and public reporting of patient safety performance information can be a useful tool to inform future quality improvement for health care systems, maintain focus on patient safety, and ultimately improve patient care.

Comment: Many commenters did not support the proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program due to their belief that CMS PSI 90 data provides essential information about significant health care disparities that exist in patient safety. These commenters stated that not reporting on the CMS PSI 90 measure will perpetuate these health inequities and prevent quality improvement efforts to decrease disparities. Many commenters noted that the suppression of the CMS PSI 90 measure would impede decision-making specifically for those populations that are high-risk for adverse patient safety events.

Response: We share the commenters' concern about health equity and high-risk patients and note that as discussed, we are not finalizing our proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Additional detail is discussed at the end of this section in this rule.

We believe that by continuing to publish the data for these measures, in a way that is accessible to consumers and researchers, patients can make informed decisions about their care. Additionally, we refer readers to section IX.B. focused on our Request for Information, Overarching Principles for Measuring Quality Disparities Across CMS Quality Programs, where we requested information on healthcare quality disparities in hospital quality and value-based purchasing programs, which will inform our Equity Plan for Improving Quality in Medicare. We are committed to promoting health equity through our CMS National Quality Strategy and CMS Framework for Health Equity 2022-2032, which focuses on advancing health equity and addressing the health disparities that underlie our health system.

Comment: A few commenters did not support the proposal to suppress CMS PSI 90 because they believe that we did not justify suppression based on any of the measure suppression factors in the FY 2023 IPPS/LTCH PPS proposed rule.

Response: We acknowledge the commenters' concerns, however, in the FY 2023 IPPS/LTCH proposed rule, we discussed our rationale that our analysis of the CMS PSI 90 measure suggested that comparability of performance on the measure has also been impacted by the PHE and our analysis found that there was a decrease in volume across all component PSI measures, especially those related to surgical procedures. We stated that this rationale falls under Measure Suppression Factor 4, “significant national or regional shortages or rapid or unprecedented changes in patient case volumes or case mix” (87 FR 28446 through 28447; and 28452). Additionally, we stated that the CMS PSI 90 reference period does not include data affected by the COVID-19 PHE and the applicable period does include such data. We stated 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 (87 FR 28448). We believe we have appropriately applied the Measure Suppression Factors in this rulemaking to address the impacts of the COVID-19 PHE on the HAC Reduction Program measures.

Comment: A few commenters did not support the proposal to suppress CMS PSI 90 and not calculate or report CMS PSI 90 measure results for the FY 2023 HAC Reduction Program due to their belief that the proposal does not align with our priorities outlined in the 2022 CMS Strategic Framework. A few commenters did not support the proposal because they believed that hospitals do not want outdated data to represent their performance especially since some facilities have made quality improvements during the COVID-19 PHE.

Response: We acknowledge the commenters' concerns regarding alignment with our 2022 CMS Strategic Framework as well as outdated measure data representing hospital performance. We note, however, that after consideration of the public comments we received, we are not finalizing our proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Additional detail is discussed at the end of this section in this rule. We strongly believe that publicly reporting these data aligns with our Strategic Plan and will balance our responsibility to provide transparency to consumers while ensuring hospitals are not unfairly scored or penalized. Also, since we will calculate updated measure results for CMS PSI 90, hospitals will not have outdated information representing performance on the measure.

Comment: A commenter recommended that if the CMS PSI 90 measure is suppressed from the FY 2023 HAC Reduction Program that we instead report the PSI 03 measure as a stand-alone measure because this will help maintain hospital focus on pressure ulcers and injuries and would lead to better reporting and improved patient care since the measure has a sole focus.

Response: We agree with the commenter on the importance of measuring pressure ulcers and injuries which is the intent of the PSI 03 measure. Because we are not finalizing the proposal to suppress the calculating and public reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program, data on pressure ulcers and injuries will continue to be reported publicly and confidentially as part of the PSI 90 measure results. We also note that PSI 03 will be publicly available in the Provider Data Catalog.

Comment: Many commenters recommend that we continue to report CMS PSI 90 data and publish previous CMS PSI 90 data since it is important that interested parties have access to all previous CMS PSI 90 data from CY 2019 and past years. A few commenters recommended that we consider continuing to publicly report the CMS PSI 90 measure using hospital's pre-pandemic data. A few commenters recommended that we report CMS PSI 90 measure data on the Provider Data Catalog since this is valuable data for health systems to learn from but not on Care Compare because the data impacted by the COVID-19 PHE should not be used for scores, grades, or ratings.

Response: We acknowledge the commenters' recommendations regarding public reporting of CMS PSI 90. We note, that after consideration of the public comments we received and because we identified a method for excluding COVID-19 patients from program calculations that will allow us to calculate and publicly report valid and reliable measure results, we are not finalizing our proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Although we will not calculate or report CMS PSI 90 measure results for use in the HAC Reduction Program scoring calculations for the program year, we will still calculate and publicly report the CMS PSI 90 measure displayed on the main pages of the Care Compare tool hosted by HHS after confidentially reporting these results to hospitals via CMS PSI 90-specific HSRs and a 30-day preview period. We will also be reporting these results on the Provider Data Catalog. We strongly believe that publicly reporting these data will balance our responsibility to provide transparency to consumers while ensuring hospitals are not unfairly penalized.

We acknowledge the commenter's recommendation to continue public reporting of CMS PSI 90 using hospital's pre-pandemic data and understand that hospitals have been impacted by the pandemic. For this reason, for the FY 2023 HAC Reduction Program, we are not assessing payment penalties for hospitals which report HAC Reduction Program measures. This policy in combination with calculating and publicly reporting CMS PSI 90 ensures that interested parties can access the measure data but hospitals are not penalized for the differential effects of the COVID-19 PHE outside of their control.

We also acknowledge the commenters recommendation to report historic CMS PSI 90 data, and note that CMS PSI 90 data is available from the last seven years on the Provider Data Catalog's Data Archive at this website: https://data.cms.gov/provider-data/archived-data/hospitals.

Comment: A few commenters recommended that we begin to resume normal reporting of the CMS PSI 90 measure publicly and confidentially when hospitals are less burdened by the impacts of the COVID-19 PHE. A few commenters recommended that we not publicly report PSI 90 measure data but calculate the measure and report the data confidentially so hospitals can gain insight into their performance.

Response: We appreciate the commenters' recommendation to not publicly report CMS PSI 90 until the COVID-19 PHE recedes, and to report the CMS PSI 90 measure confidentially so that hospitals can understand their performance. We note, that after consideration of the public comments we received and because we identified a method for excluding COVID-19 patients from program calculations that will allow us to calculate and publicly report valid and reliable measure results, we are not finalizing our proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Additional detail is discussed at the end of this section in this rule. We will ensure the appropriate caveats are applied to public reporting of the measure so that interested parties understand the data was impacted by the COVID-19 PHE. We also will be confidentially reporting these results to hospitals via CMS PSI 90-specific HSRs so that hospitals can evaluate their performance on the measure.

We reiterate that ensuring patient safety, and access to safe, equitable, quality health care is high priority and a primary concern. We continue to place significant value on being as transparent as possible with the performance information that we collect to support the decision making of consumers, healthcare providers, researcher, and other interested parties. After consideration of the public comments we received, and because since the publication of the proposed rule, we have determined a methodology to exclude COVID-19 patients from the CMS PSI 90 measure that will allow us to calculate and publicly report valid and reliable measure results, we are not finalizing our proposal to suppress the calculating and reporting of CMS PSI 90 measure results for the FY 2023 HAC Reduction Program. Although we will not calculate or report CMS PSI 90 measure results for use in the HAC Reduction Program scoring calculations for the program year, we will still calculate and report the measure displayed on the main pages of the Care Compare tool hosted by HHS after confidentially reporting these results to hospitals via CMS PSI 90-specific HSRs and a 30-day preview period. We will continue to calculate and report measure results for the five CDC NSHN HAI measures. Further, we are finalizing our proposal to suppress the CMS PSI 90 measure and the five CDC NHSN HAI measures from the calculation of measure scores and Total HAC Scores for the FY 2023 program year, thereby not penalizing any hospital under the FY 2023 HAC Reduction Program. We thank the commenters for their comments and suggestions, which we will take into consideration when assessing potential future measure reporting and scoring decisions.

(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 final 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 final 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 invited public comments on this proposal to suppress CY 2021 CDC NHSN HAI Measure data from the FY 2024 HAC Reduction Program.

Comment: Many commenters supported the proposal to suppress the CY 2021 data from the five CDC NHSN HAI measures for the FY 2024 program year. A few commenters supported the proposal due to the belief that suppression of the CY 2021 data from the five CDC NHSN HAI measures would address significant deviation in national performance due to continued disruptions in the health care system and care delivery process caused by the COVID-19 PHE, including staffing and supply shortages. A few commenters supported the proposal due to the belief that it would prevent hospitals from being penalized and incentivized based on measure data impacted by the COVID-19 PHE. A few commenters suggested to monitor the CDC NHSN HAI measures for fluctuations in performance due to the suppression of the CY 2021 data and ensure continued measure reliability.

Response: We thank commenters for their support, and we agree that suppressing the CY 2021 data from these measures will ensure that hospitals are not penalized for the impacts of the COVID-19 PHE on the healthcare delivery system and subsequently the HAI measure data. We will continue to monitor performance in the CDC NHSN HAI measures and will consider any such issues we identify for future rulemaking.

Comment: Several commenters did not support the suppression of the CY 2021 data from the five CDC NHSN HAI measures for FY 2024. A few commenters did not support the proposal due to the belief that suppressing the CY 2021 data from the five CDC NHSN HAI measures would prevent patients from assessing hospital performance and making informed decisions on where to receive care.

Response: We acknowledge the commenters concern about suppression of the CY 2021 data from the CDC NHSN HAI measure for FY 2024. However, we continue to be concerned about measure performance and the national comparability of such performance during CY 2021. Under the 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.

Further, we understand commenters' concern regarding patients' ability to make informed decisions on where to receive care. We continue to place significant value on being transparent as possible with the performance information that we collect with caveats of the performance information impacted by the COVID-19 PHE. As discussed in section V.J.2.b.(3) of this final rule, for the FY 2024 program year, we will continue to report the measure data for CY 2021, both in confidential reporting via HSR's and public reporting methods on Care Compare, as part of program activities to ensure that consumers and interested parties are able to assess facility performance and quality of care.

Comment: A commenter did not support the proposal because of the concern regarding hospital accountability, asserting that hospitals utilize the data to improve the patient treatment delivery process and eliminate preventable medical error. A commenter believed that despite the impacts from the COVID-19 PHE this emergency only increases the need to collect and measure the HAI measure data. A commenter recommended to continue to report CY 2021 data including notations of mitigating circumstances and data abnormalities.

Response: We thank commenters for expressing concerns regarding holding facilities accountable for the standard and quality of care of services furnished and the urgency of retaining this requirement during the COVID-19 PHE. We agree that the PHE underscored the importance of measuring hospital acquired infections to promote patient safety. We believe that although the collection, monitoring, and public reporting of COVID-19 impacted data with the appropriate caveats is important, such data should not be used to assess hospital performance and utilized for payment determination or penalties. 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, thus we proposed to suppress the CY 2021 data in order to account for COVID-19 diagnoses in the CDC NHSN HAI data. We agree that the HAI measure data should be confidentially reported and made available to facilities to support improvement initiatives within the patient delivery process, and we will report the measure results, both in confidential reporting via HSR's and public reporting methods on Care Compare, to ensure hospitals are made aware of the changes in performance rates that we observe, as discussed in section V.J.2.b.(2) of this final rule.

We thank the commenter for the suggestion to report the CY 2021 data including notations of data abnormalities. As noted in the preamble of the final rule, we intend to publicly report suppressed data with appropriate caveats that explain that performance information has been impacted due to the COVID-19 PHE.

Comment: A commenter questioned if CMS intends to continue the policy of not assessing payment penalties for the FY 2024 program year. Several commenters recommended that we extend this payment and scoring policy to the FY 2024 program year to account for the continued impact of the COVID-19 PHE. A few commenters recommended that CMS provide additional outreach and educational materials to understand the data-related changes and scoring impacts. Another commenter recommended that CMS provide HAI measure scores to hospitals to allow for evaluation of hospital performance.

Response: In the FY 2023 IPPS/LTCH proposed rule (87 FR 28446 through 28450), we did not propose to not assess payment penalties in the FY 2024 program year, but we understand commenters' concerns regarding the impact of the COVID-19 PHE and will ensure that we monitor and evaluate the data to determine if further suppression is warranted in the future. We want to emphasize the long-term importance of value-based care and incentivizing quality care tied to 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. Additionally, we will work to ensure that hospitals and providers receive additional outreach and educational material that clearly communicates the updates and changes to the HAC Reduction Program. Finally, hospitals will be able to evaluate their performance using the HAI measure results that they receive in their Hospital Specific Reports which we will provide for the FY 2023 program year.

Comment: A commenter did not support the proposal due to belief that it would create the perception that the government is not disclosing information, reducing public trust and transparency.

Response: We understand commenters' concerns regarding public reporting of the HAI measure data to promote public trust and transparency. We continue to place significant value on being transparent as possible with the performance information that we collect with caveats of the performance information impacted by the COVID-19 PHE. Therefore, to address challenges in national comparability of these data and to retain transparency with consumers and interested parties, we proposed to suppress the CY 2021 data for program calculations for payment purposes, but continue to report, both in confidential reporting via HSR's and public reporting methods on Care Compare, the five HAI measures for the FY 2024 program year with the resulting applicable 12-month period of January 1, 2022 to December 31, 2022. Under the 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 we proposed to suppress the CY 2021 data in order to account for COVID-19 diagnoses and ensure that hospitals are not unfairly scored or penalized through payment due to the COVID-19 PHE.

Comment: Many commenters did not support the proposal due to the belief that the program would be heavily reliant on CMS PSI 90 if the CY 2021 data from the CDC NHSN HAI measures are suppressed. A few commenters recommended to include some limited data for the CDC NHSN HAI measures or to suppress all the measures for FY 2024. A few commenters suggested that CMS evaluate the impacts on hospital performance if hospitals are only scored on CMS PSI 90 for the FY 2024 program year.

Response: We understand the commenters' concern about the program being heavily reliant on CMS PSI 90 for FY 2024 due to the proposed suppression of the CY 2021 data for the CDC NHSN HAI measure. However, we disagree that FY 2024 program year performance will be too heavily dependent on the PSI 90 measures. We intend to continue to report all five HAI measures for the FY 2024 program year with the resulting applicable 12-month period of January 1, 2022 to December 31, 2022 and to report CMS PSI 90 risk adjusted for COVID-19. We will continue to monitor the impacts of these policies and will consider any such issues we identify for future rulemaking.

After consideration of the public comments we received, we are finalizing our proposal to suppress CY 2021 CDC NHSN HAI measure data from the FY 2024 HAC Reduction Program.

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 final rule, we did not 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 final 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 final 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 final rule, we did make 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 final 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.

While we did not solicit comments on this technical measure specification update, we received some comments, which are summarized in this final rule.

Comment: Several commenters supported the technical measure specification update to the minimum volume threshold for CMS PSI 90 beginning with the FY 2023 HAC Reduction Program. A commenter expressed its belief that the update will minimize the unintended consequence of penalizing smaller or low volume hospitals based on scores that that may not demonstrate sufficient reliability.

Response: We thank commenters for their support of the technical measure specification update to increase the minimum volume threshold for CMS PSI 90 beginning with the FY 2023 program year.

Comment: A commenter expressed concern that the updated minimum volume threshold might omit many hospitals from being rated on CMS PSI 90 and would remove these hospitals from accountability.

Response: We appreciate commenter's position, however, as discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28451) the impact analysis of the threshold change indicated that it would impact the scoring of a small number of low-volume hospitals who have a CMS PSI 90 measure reliability close to zero. Approximately just five percent of hospitals included in the HAC Reduction Program would no longer receive a CMS PSI 90 composite score (and, subsequently, a CMS PSI 90 measure score) and approximately just 2.5 percent of all hospitals would no longer receive a Total HAC Score. It should be noted CMS PSI 90 is unreliable for these very low-volume hospitals, as their computed scores from prior program years are tightly clustered around one (that is, the mean value for all hospitals).

Comment: A commenter suggested that we obtain all-payer claims to drive up the denominators, increase reliability, and reduce the number of hospitals who do not qualify for a score. Another commenter recommended that we examine the ICC at minimum threshold rather than at the median and set the minimum volume at a number that will produce an ICC of 0.6 or higher.

Response: We appreciate commenters' recommendations for additional refinements to the technical measure specification update to the minimum volume threshold for CMS PSI 90 beginning with the FY 2023 program year. We will consider the feedback we received for future rulemaking.

Comment: A commenter recommended that since the update to the minimum volume threshold would yield approximately 5 percent of hospitals no longer receiving a CMS PSI 90 score and half of those hospitals would no longer receive a Total HAC Score, CMS should reduce the number of hospitals penalized by a similar factor. The commenter also recommended given these changes to the measure specifications, CMS PSI 90 should be suppressed for the FY 2024 program year to allow time to evaluate the impacts of these specification updates.

Response: We appreciate the suggestion to reduce the number of hospitals penalized for the FY 2024 HAC Reduction Program. We note that the HAC Reduction Program is statutorily required to penalize the worst-performing quartile (that is, the worst-performing 25 percent) of hospitals based on their Total HAC Score in a given program year. Hospitals that do not receive a Total HAC Score are not included in the distribution of hospitals used to determine the 75th percentile. Therefore, a decrease in the number of hospitals receiving a Total HAC Score will also lead to a decrease in the number of hospitals in the worst-performing quartile. We note that we did acknowledge this impact in the FY 2023 IPPS/LTCH proposed rule where we stated that this increase to the minimum volume threshold for CMS PSI 90 would likely yield a reduction in the number of hospitals in the worst-performing quartile for the HAC Reduction Program (87 FR 28451).

We thank the commenter for their suggestion to suppress CMS PSI 90 for the FY 2024 program year. Impact analyses have shown that this update to CMS PSI 90 measure specifications improves overall measure reliability, which in turn improves comparison between hospitals' CMS PSI 90 scores for HAC Reduction Program scoring purposes. Because this measure specification update improves the overall scoring process, we will not suppress CMS PSI 90 for the FY 2024 program year.

(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 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.

While we did not solicit comments on this technical measure specification update, we received some comments, which are summarized in this final rule.

Comment: Many commenters supported the technical measure specification update to risk-adjust for COVID-19 diagnosis in CMS PSI 90 beginning with the FY 2024 program year. Several commenters believed that the update will help address the lingering impacts of the COVID-19 PHE.

Response: We thank commenters for their support of the technical measure specification update to risk-adjust for COVID-19 diagnosis present on admission in CMS PSI 90 beginning with the FY 2024 program year.

Comment: A commenter recommended that CMS continue to monitor whether the PHE would necessitate additional measure changes. Another commenter recommended that CMS review model performance before reinstituting payment penalties.

Response: We agree with commenters' recommendations regarding continued monitoring of the effects of the COVID-19 PHE. We intend to work with measure developers to refine measure specifications as necessary and feasible for future rulemaking. We appreciate the commenter's feedback regarding reinstituting payment penalties under the HAC Reduction Program. As noted in section V.J.2.b.(2), we understand commenters' concerns regarding the impact of the COVID-19 PHE and will ensure that we monitor and evaluate the data to determine if further suppression is warranted in the future. Though, 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 HACRP Program. Any proposal to suppress payment penalties for additional program years would be made through future notice-and-comment rulemaking.

Comment: A commenter does not support the technical measure specification update to risk-adjust for COVID-19 diagnosis in CMS PSI 90 beginning with the FY 2024 program year and instead recommended that patients diagnosed with COVID-19 be included in measurement of preventable harms.

Response: We appreciate the commenter's concern, however, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45305) where we conducted an analysis on the impacts of the COVID-19 PHE on CMS PSI 90, we 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. In order to address the impact of the COVID-19 PHE on CMS PSI 90, we are implementing the technical measure specification update to risk adjusts for the COVID-19 to mitigate the impacts on measure results and ensure that hospitals are not unfairly scored or penalized through payment due to the COVID-19 PHE.

Comment: A few commenters recommended that CMS release additional details on the CMS PSI 90 risk-adjustment methodology like whether risk-adjustment of COVID-19 diagnosis pertains to a patient's primary or secondary diagnosis. Several commenters recommended that CMS further assess CMS PSI 90 COVID-19 risk adjustment methodology and convene an NQF Technical Expert Panel to evaluate the methodology.

Response: We seek to clarify that risk-adjustment details are released to the public when each version of the software is completed and made available. The first software version that would incorporate COVID-19 risk-adjustment would be version 13. The Risk Adjustment methodology report will be posted on the QualityNet site for CMS PSI 90 Resources at https://qualitynet.cms.gov/inpatient/measures/psi/resources . We appreciate commenters' recommendations regarding the technical measure specification update to risk-adjust for COVID-19 diagnosis present on admission in CMS PSI 90 beginning with the FY 2024 program year. We note that the update to the risk adjustment methodology is part of the routine annual process to update CMS PSI 90. As part of that process, the measure developer will submit an annual update to NQF that includes updates to the risk adjustment model.

Comment: A few commenters recommended that CMS implement the COVID-19 risk-adjustment as well as suppress CMS PSI 90 for the first two quarters of CY 2021 of the FY 2024 program year due to the impact of the COVID-19 PHE on hospitals.

Response: We appreciate the commenter's recommendations to risk adjust for COVID-19 and suppress CMS PSI 90 in FY 2024. We will monitor performance in CMS PSI 90 and will consider any issues we identify for future rulemaking.

Comment: A commenter suggested that CMS consider suppression of CMS PSI 90 for the FY 2024 program year based on the evaluation of the technical update impacts as well as impacts from the COVID-19 PHE.

Response: We appreciate the commenter's recommendations to suppress CMS PSI 90 for the FY 2024 program year based on evaluation of the CMS PSI 90 risk adjustment for COVID-19. We will monitor performance in CMS PSI 90 and will consider any issues we identify for future rulemaking.

Comment: A few commenters expressed concern that CMS PSI 90 COVID-19 risk adjustment would reduce the amount of attention and monitoring for patients diagnosed with COVID-19. A commenter recommended that CMS not risk adjust for COVID-19 to address this concern.

Response: We appreciate the commenters concern that CMS PSI 90 COVID-19 risk adjustment would reduce the amount of attention and monitoring for patients diagnosed with COVID-19. However, in the FY 2023 IPPS/LTCH proposed rule, we stated that our analysis of CMS PSI 90 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. We note that rates for the component PSI 90 measures among patients without COVID-19 were virtually unchanged through the COVID-19 PHE. We have found that adjusting for COVID-19 at the patient level entirely removes the incremental risk associated with this diagnosis (87FR 28450). In order to address the impact of the COVID-19 PHE on CMS PSI 90, we are implementing this technical measure specification update to ensure that hospitals are not unfairly scored or penalized through payment due to the COVID-19 PHE. Additionally, due to the potentially geographically disparate impacts of the COVID-19 PHE, we believe that risk-adjusting CMS PSI 90 is appropriate to ensure hospitals are not unevenly penalized due to their location.

Comment: A commenter recommended that CMS only confidentially report, without publicly reporting, CMS PSI 90 due to the impacts of COVID-19 for the FY 2024 program year.

Response: We appreciate the commenter's recommendation to not publicly report data for CMS PSI 90 in the FY 2024 program year. To account for the impact of the COVID-19 PHE on CY 2021 data in CMS PSI 90, however, we are updating the measure specifications to risk-adjust for COVID-19 diagnoses present on admission. As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28450), 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 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 believe that modifying our proposal to publicly report the CMS PSI 90 measure data for the FY 2023 HAC Reduction Program and continuing to publicly report measure data for the FY 2024 HAC Reduction Program will maintain transparency and support consumers in making informed decisions on where to receive care.

Comment: A commenter expressed concern that the modified PSI 90 measure and the partially suppressed HAI measure will not allow for equitable and meaningful Total HAC Scores for FY 2024.

Response: We appreciate the commenters' concern about the meaningfulness of the Total HAC Score for FY 2024 due to the proposed measure suppression and technical measure specification updates. As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28450), we continue to be concerned about measure performance and the national comparability of such performance during the CY 2021 (87 FR 28450). We believe national comparability of hospital performance is very significant, so we are pursuing suppression of the CY 2021 data of the CDC NHSN HAI measures and risk adjustment for COVID-19 diagnosis in CMS PSI 90 to account for COVID-19 diagnosis in the CY 2021.

Comment: A commenter suggested that the COVID-19 risk adjustment may not accurately capture COVID-19 diagnosis due to at-home testing and absence of diagnosis codes.

Response: We acknowledge the commenter's concern about the accuracy of risk adjusting for COVID-19 in CMS PSI 90. Although COVID-19 diagnoses may be under-reported to public health authorities due to at-home testing, this concern does not apply to inpatient hospitals that routinely repeat at-home test results.

d. HAC Reduction Program Requests for Information

(1) Digital CDC NHSN Measures

We refer readers to section IX.E.9.a. of this final rule, for a discussion of the comments received regarding this cross-program request for 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 requested 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 final rule where we sought 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.

We proposed 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 would 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). we proposed 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 invited public comments on this proposal to update the newly-opened hospital definition for CDC NHSN HAI measures beginning in the FY 2023 program year.

Comment: A commenter supported the proposal to update the CDC NHSN HAI data submission requirements for newly opened hospitals beginning in the FY 2023 HAC Reduction Program and recommended that CMS ensure the proposal does not increase hospital compliance burden.

Response: We thank the commenter for its support and note that the proposal does not affect requirements for data submission, but only affects which hospitals receive a measure score.

After consideration of the public comments we received, we are finalizing our 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 final rule we are not making any changes to the Scoring Calculations Review and Correction Period process.

We note that in the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to temporarily suppress all measures from the FY 2023 HAC Reduction Program. We proposed 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 proposed to not calculate measure results for the 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 also proposed 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 invited 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 the FY 2023 IPPS/LTCH PPS proposed rule, we proposed 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 therefore are not making any changes to the policies regarding measure validation in this final 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 final 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.

While we did not solicit comments on this clarification, we received some comments, which are summarized later in this section.

Comment: A commenter supported the clarification of the removal of the No Mapped Locations policy and recommended that targeted outreach to affected hospitals be expanded beyond email.

Response: We thank the commenter for its support for the removal of the No Mapped Locations policy and we will take into consideration the recommendation to expand targeted outreach to additional modalities beyond email correspondence.

Comment: A commenter did not support the requirement for hospitals to submit an IPPS Measure Exception Form to be exempt from CLABSI and CAUTI reporting for our programs when they have no applicable locations.

Response: We appreciate the commenter's concern; however, we believe that this requirement is necessary to maintain alignment with the CDC's recommendations as well as ensure clear and transparent hospital reporting.

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 have not made any changes to our previously finalized ECE Policy in this final 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 (ACA) (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 of 2021 (Pub. L. 116-260). In this final rule, we follow upon the FY 2023 IPPS proposed rule, and summarize the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality.

We are also stating the finalized 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), 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 of 2021) follows upon that for the previous extensions, under the ACA (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 Pub. L. 111-148 (ACA) 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 Public Law 111-148 (ACA)). Specifically, section 15003 of Public Law 114-255 (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 Public Law 114-255 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 Public Law 108-173 (as amended by section 15003 of Pub. L. 114-255) 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 Public Law 111-148 (ACA) elected to continue in the 5-year extension period authorized by Public Law 114-255 (Cures Act). Therefore, for these hospitals, this third 5-year period of participation 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 FY 2020, while for 11 of the previously participating hospitals, the end date fell 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 the Consolidated Appropriations Act of 2021 (CAA), 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 Public Law 114-255 (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 the FY 2022 IPPS final rule (86 FR 45314), we stated our interpretation of the statute as providing for an additional 5-year period under the reasonable cost-based reimbursement methodology for the demonstration for the 26 hospitals whose effective participation extended back to December 30, 2019.

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 will 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 note that 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 CAA, 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 FR 19452 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 Public Law 114-255 (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 ACA). 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 2022

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 demonstration for the fiscal year. 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 that with cost report period end date in CY 2020. We sum these hospital-specific amounts to arrive at a total general amount representing the costs for covered inpatient hospital services, including swing beds, across the total 26 hospitals eligible to participate during FY 2023.

Then, we multiply this amount by the FYs 2021, 2022 and 2023 IPPS market basket percentage increases, which are calculated by the CMS Office of the Actuary. (Unlike in the proposed rule, where used the proposed market basket percentage increase for FY 2023, for this final rule, we use the final market basket percentage increase, which can be found at section X.XX of the preamble to this final rule). The result for the 26 hospitals is the general estimated reasonable cost amount for covered inpatient hospital services for FY 2022.

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 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 final applicable percentage increase for FY 2023, per section X.XX of the preamble of this final rule). This methodology differs from Step 1, in which we apply the market basket percentage increases to the hospitals' applicable estimated reasonable cost amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid 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 will be the general estimated amount of the costs of the demonstration for FY 2023.

For this final rule, the resulting amount is $72,449,896, 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 update factors for cost and payment. In the proposed rule, we stated that if updated data become available prior to the final rule, we would use them as appropriate to estimate the costs for the demonstration program for FY 2023 in accordance with our methodology for determining the budget neutrality estimate. Accordingly, we are using the specific market basket and applicable percentage increases identified in this final rule in estimating the budget neutrality offset amount for FY 2023. In future years, we will 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. As we stated in 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. This amount is unchanged from the proposed rule.

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 our plan to 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, as described in the 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.

(4) Total Proposed Budget Neutrality Offset Amount for FY 2023

Therefore, for this FY 2023 IPPS/LTCH PPS final rule, the budget neutrality offset amount for FY 2023 is based on the sum of two amounts:

(a) the amount determined under section X.4.c.(2) of the preamble of this final 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 $72,449,896.

(b) the amount determined under section X.4.c.(3) of the preamble of this final 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 exceed the estimated amount identified in the 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)

Thus, we are subtracting the sum of these amounts ($108,439,824) from the national IPPS rates for FY 2023.

Comment: The parent company for two of the participating hospitals expressed support for the continuation of the Rural Community Hospital Demonstration program, but noted that it does not offer long-term financial stability needed to maintain health care access in rural areas. The commenter requests that the demonstration be made a permanent program, and, in addition, requests several technical modifications to how payment is conducted and costs are audited under the demonstration:

Response: We appreciate the first comment. We have conducted the demonstration program in accordance with Congressional mandates. Title XVIII does not extend authority to make the demonstration a permanent program. With regard to the further comments, we will work with the entire group of hospitals participating in the demonstration in examining the relevant policy and administrative issues.

VI. 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. Annual Update for FY 2023

The 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 final rule.

In section II.C. of the preamble of this FY 2023 IPPS/LTCH PPS final 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 making 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 making a similar adjustment to the national capital Federal rate (or to the hospital-specific rates).

VII. Changes for Hospitals Excluded From the IPPS

A. 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 the FY 2023 IPPS/LTCH PPS proposed rule, based on IGI's 2021 fourth quarter forecast, we estimated that the 2018-based IPPS operating market basket update for FY 2023 would be 3.1 percent (that is, the estimate of the market basket rate-of-increase). However, we proposed that if more recent data became 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. We did receive updated data. Therefore, for this FY 2023 IPPS/LTCH PPS final rule, based on IGI's 2022 second quarter forecast, we estimate that the 2018-based IPPS operating market basket update for FY 2023 is 4.1 percent. Based on this estimate, the FY 2023 rate-of-increase percentage that will 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 will be 4.1 percent, in accordance with the applicable regulations at 42 CFR 413.40.

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 2023 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 2023, 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 was 3.1 percent, which was based on IGI's fourth quarter 2021 forecast. Furthermore, we proposed that if more recent data became 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. For this FY 2023 IPPS/LTCH PPS final rule, based on IGI's second quarter 2022 forecast, we estimate that the 2018-based IPPS operating market basket update for FY 2023 is 4.1 percent.

We received no comments on this proposal and therefore are finalizing this provision without modification. Incorporating more recent data available for this final rule, as we proposed, we are adopting a 4.1 percent update for FY 2023.

B. Report on Adjustment (Exception) Payments

Section 4419(b) of Public Law 105-33 requires the Secretary to publish annually in the Federal Register a report describing the total amount of adjustment payments made to excluded hospitals and hospital units by reason of section 1886(b)(4) of the Act during the previous fiscal year.

The process of requesting, adjusting, and awarding an adjustment payment is likely to occur over a 2-year period or longer. First, generally, an excluded hospital must file its cost report for the fiscal year in accordance with § 413.24(f)(2) of the regulations. The MAC reviews the cost report and issues a notice of provider reimbursement (NPR). Once the hospital receives the NPR, if its operating costs are in excess of the ceiling, the hospital may file a request for an adjustment payment. After the MAC receives the hospital's request in accordance with applicable regulations, the MAC or CMS, depending on the type of adjustment requested, reviews the request and determines if an adjustment payment is warranted. This determination is sometimes not made until more than 180 days after the date the request is filed because there are times when the request applications are incomplete and additional information must be requested in order to have a completed request application. However, in an attempt to provide interested parties with data on the most recent adjustment payments for which we have data, we are publishing data on adjustment payments that were processed by the MAC or CMS during FY 2021.

The table that follows includes the most recent data available from the MACs and CMS on adjustment payments that were adjudicated during FY 2021. As indicated previously, the adjustments made during FY 2021 only pertain to cost reporting periods ending in years prior to FY 2020. Total adjustment payments made to IPPS-excluded hospitals during FY 2021 are $25,950,692. The table depicts for each class of hospitals, in the aggregate, the number of adjustment requests adjudicated, the excess operating costs over the ceiling, and the amount of the adjustment payments.

C. Critical Access Hospitals (CAHs)

1. Background

Section 1820 of the Act provides for the establishment of Medicare Rural Hospital Flexibility Programs (MRHFPs), under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participation under 42 CFR part 485, subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare beneficiaries are located in 42 CFR part 413.

2. Frontier Community Health Integration Project Demonstration

a. Introduction

The Frontier Community Health Integration Project Demonstration was originally authorized by section 123 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). The demonstration has been extended by section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) for an additional 5 years. In this final rule, we are summarizing the status of the demonstration program, and the ongoing methodologies for implementation and budget neutrality for the demonstration extension period.

b. Background and Overview

As discussed in the FY 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 Pub. L. 110-275 required that the demonstration be budget neutral. Specifically, this provision stated that, in conducting the demonstration project, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary estimates would have been paid if the demonstration project under the section were not implemented. Furthermore, section 123(i) of Public Law 110-275 stated that the Secretary may waive such requirements of titles XVIII and XIX of the Act as may be necessary and appropriate for the purpose of carrying out the demonstration project, thus allowing the waiver of Medicare payment rules encompassed in the demonstration. CMS selected CAHs to participate in four interventions, under which specific waivers of Medicare payment rules would allow for enhanced payment for telehealth, skilled nursing facility/nursing facility beds, ambulance services, and home health services. These waivers were formulated with the goal of increasing access to care with no net increase in costs.

Section 123 of Public Law 110-275 initially required a 3-year period of performance. The FCHIP Demonstration began on August 1, 2016, and concluded on July 31, 2019 (referred to in this section of the final rule as the “initial period”). Subsequently, section 129 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) extended the demonstration by 5 years (referred to in this section of the final rule as the “extension period”). The Secretary is required to conduct the demonstration for an additional 5-year period. CAHs participating in the demonstration project during the extension period 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) of the Act. 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) of the Act, respectively) would be eligible to bill for distant site telehealth services furnished by these physicians and practitioners. Additionally, CAHs billing under the Optional Method would be reimbursed based on 101 percent of reasonable costs, rather than paid based on the Medicare physician fee schedule, for the distant site telehealth services furnished by physicians and practitioners who have reassigned their billing rights to the CAH. For distant site telehealth services furnished by physicians or practitioners who have not reassigned billing rights to a participating CAH, payment to the distant site physician or practitioner would continue to be made as usual under the Medicare physician fee schedule. 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) of the Act. We received no comments on this proposal and therefore are finalizing this provision without modification.

(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. We received no comments on this proposal and therefore are finalizing this provision without modification.

(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. We received no comments on this proposal and therefore are finalizing this provision without modification.

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, we proposed to adopt the same budget neutrality policy contingency plan used during the demonstration initial period to ensure that the budget neutrality requirement in section 123 of Public Law 110 275 is met during the demonstration extension period. If analysis of claims data for Medicare beneficiaries receiving services at each of the participating CAHs, as well as from other data sources, including cost reports for the participating CAHs, shows that increases in Medicare payments under the demonstration during the 5-year extension period are not sufficiently offset by reductions elsewhere, we would recoup the additional expenditures attributable to the demonstration through a reduction in payments to all CAHs nationwide.

As explained in the FY 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. In the FY 2023 IPPS/LTCH PPS proposed rule, we sought public comment on this proposal, since we were 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 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. We received no comments on this proposal and therefore are finalizing this provision without modification.

(2) FCHIP Budget Neutrality Methodology and Analytical Approach

As explained in the FY 2022 IPPS/LTCH PPS final rule, we finalized a policy to address the demonstration budget neutrality methodology and analytical approach for the initial period of the demonstration. In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to adopt the budget neutrality methodology and analytical approach used during the demonstration initial period to ensure budget neutrality for the extension period. The analysis of budget neutrality during the initial period of the demonstration identified both the costs related to providing the intervention services under the FCHIP Demonstration and any potential downstream effects of the intervention-related services, including any savings that may have accrued.

The budget neutrality analytical approach for the demonstration initial period incorporated two major data components: (1) Medicare cost reports; and (2) Medicare administrative claims. As described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS computed the cost of the demonstration for each fiscal year of the demonstration initial period using Medicare cost reports for the participating CAHs, and Medicare administrative claims and enrollment data for beneficiaries who received demonstration intervention services.

In addition, in order to capture the full impact of the interventions, CMS developed a statistical modeling, Difference-in-Difference (DiD) regression analysis to estimate demonstration expenditures and compute the impact of expenditures on the intervention services by comparing cost data for the demonstration and non-demonstration groups using Medicare administrative claims across the demonstration period of performance under the initial period of the demonstration. The DiD regression analysis would compare the direct cost and potential downstream effects of intervention services, including any savings that may have accrued, during the baseline and performance period for both the demonstration and comparison groups.

Second, the Medicare administrative claims analysis would be reconciled using data obtained from auditing the participating CAHs' Medicare cost reports. We would estimate the costs of the demonstration using “as submitted” cost reports for each hospital's financial fiscal year participation within each of the demonstration extension period performance years. Each CAH has its own Medicare cost report end date applicable to the 5-year period of performance for the demonstration extension period. The cost report is structured to gather costs, revenues and statistical data on the provider's financial fiscal period. As a result, we would determine the final budget neutrality results for the demonstration extension once complete data is available for each CAH for the demonstration extension period. We received no comments on this proposal and therefore are finalizing this provision without modification.

d. 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. In the FY 2023 IPPS/LTCH PPS proposed rule, we proposed to adopt the same budget neutrality methodology and analytical approach used during the demonstration initial period to be used for the demonstration extension period.

Comment: A commenter expressed support of CMS implementation of the FCHIP demonstration initial period of performance, the demonstration intervention payment waivers and of the budget neutrality methodology for the extension period. The commenter urged CMS to continue implementing the five-year extension period of the demonstration project with the same budget neutrality and analytical approach as it used in the demonstration initial period. In addition, the commenter requested that CMS increase the number of CAHs participating in the demonstration extension period. The commenter explained that several other CAH service areas have unique topography that could benefit by participation in the demonstration extension period, specifically, special consideration should be granted to allow additional participants within the demonstration ambulance service intervention.

Response: We appreciate the commenter's support of the demonstration project and the budget neutrality methodology. We acknowledge the commenter's request for CMS to expand the number of CAHs participating in the demonstration extension period. However, we note that section 129(b)(C) of Public Law 116-260, stipulates “[a]n entity shall only be eligible to participate in the demonstration project under this section during the extension period if the entity participated in the demonstration project under this section during the initial period.” As such, expanding the number of CAHs participating within the demonstration extension period would require legislative action to the eligible entities, as defined in section 129(b)(C) of Public Law 116-260. After consideration of the public comments we received, we are finalizing our proposal to adopt the same budget neutrality methodology and analytical approach used during the demonstration initial period to be used for the demonstration extension period without modification.

e. Total Budget Neutrality Offset Amount for FY 2023

At this time, for the FY 2023 IPPS/LTCH PPS proposed rule, while this discussion represents our anticipated approach to assessing the financial impact of the demonstration extension period based on upon receiving data for the full demonstration extension period, we may update and/or modify the FCHIP Demonstration budget neutrality methodology and analytical approach to ensure that the full impact of the demonstration is appropriately captured.

Therefore, we did not propose to apply a budget neutrality payment offset to payments to CAHs in FY 2023. This policy will have no impact for any national payment system for FY 2023. We received no comments on this proposal and therefore are finalizing this provision without modification.

VIII. 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 final rule, when we refer to discharges, we describe Medicare discharges.) The August 30, 2002 final rule further details the payment policy under the TEFRA system (67 FR 55954).

In the August 30, 2002 final rule, we provided for a 5-year transition period from payments under the TEFRA system to payments under the LTCH PPS. During this 5-year transition period, an LTCH's total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decrease in the percentage of the LTCH PPS payment that is based on reasonable cost concepts, unless an LTCH made a one-time election to be paid based on 100 percent of the Federal rate. Beginning with LTCHs' cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate. In addition, in the August 30, 2002 final rule, we presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, 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 final rule for our discussion on our use of 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 final rule we also discuss our modification of our ratesetting methodology for FY 2023 to account for the ongoing COVID-19 PHE.

Comment: We received several comments unrelated to LTCH PPS proposals included in the proposed rule. For example, some commenters requested changes to the structure of the site neutral payment policy or the calculation of the average length of stay.

Response: We appreciate the commenters' feedback and will keep these comments in mind for future rulemaking.

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 will be 767 MS-DRG, and by extension, MS-LTC-DRG, groupings based on the changes, as discussed in section II.E. of the preamble of this final rule.

Although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in relative weights under the LTCH PPS that reflect the 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 are required to use the ASC X12 Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or equivalent encounter information transaction (45 CFR 162.1102(c)).

HIPAA requires covered entities to use the applicable medical data code sets when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure codes from the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, both of which were required to be implemented October 1, 2015 (45 CFR 162.1002(c)(2) and (3)). For additional information on the implementation of the ICD-10 coding system, we refer readers to section II.F.1. of the preamble of the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56790) and section II.E.1. of the preamble of this final rule. Additional coding instructions and examples are published in the AHA's Coding Clinic for ICD-10-CM/PCS.

To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base DRGs were subdivided according to the presence of specific secondary diagnoses designated as complications or comorbidities (CCs) into one, two, or three levels of severity, depending on the impact of the CCs on resources used for those cases. Specifically, there are sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or a major complication or comorbidity (MCC). We refer readers to section II.D. of the preamble of the FY 2008 IPPS final rule with comment period for a detailed discussion about the creation of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175).

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. 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 final rule, as proposed, we updated the MS-LTC-DRG classifications effective October 1, 2022 through September 30, 2023 (FY 2023) consistent with the changes to specific MS-DRG classifications presented in section II.D. of the preamble of this final rule. Accordingly, the MS-LTC-DRGs for FY 2023 are the same as the MS-DRGs being used under the IPPS for FY 2023. In addition, because the MS-LTC-DRGs for FY 2023 are the same as the MS-DRGs for FY 2023, the other changes that affect MS-DRG (and, by extension, MS-LTC-DRG) assignments under GROUPER Version 40, as discussed in section II.D. of the preamble of this final rule, including the changes to the MCE software and the ICD-10-CM/PCS coding system, are also applicable under the LTCH PPS for FY 2023.

3. General Summary of the FY 2023 MS-LTC-DRG Relative Weights Methodology

In this section of this final rule, we provide a general summary of our modifications to the methodology for determining the FY 2023 MS-LTC-DRG relative weights under the LTCH PPS.

a. Averaging of Relative Weights for FY 2023

In section I.F. of the preamble to this final rule, we discuss our use of FY 2021 claims data for the FY 2023 LTCH PPS ratesetting. As we discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28466), 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 final 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. In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28466), we proposed 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 proposed an averaging approach to determine the MS-LTC-DRG relative weights for FY 2023. Specifically, we proposed to calculate the relative weights both including and excluding COVID-19 cases, and then average the two sets of relative weights together. We stated our belief that this would be appropriate as it would reduce, but not remove entirely, the effect of COVID-19 cases on the relative weight calculations, particularly given the uncertainty in the number of COVID-19 cases in FY 2023. By averaging the relative weights in this manner, we stated our belief that the result would reflect a reasonable estimation of the mix of cases for FY 2023 based on the information available at the time on the trajectory of the COVID-19 PHE (as discussed in section I.F. of the preamble to this final 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 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. As discussed in section I.O of Appendix A of the 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 determining the FY 2023 MS-LTC-DRG weights using all applicable LTCH cases without any modifications to account for COVID-19 cases.

Comment: We received comments that were supportive of our proposal to use FY 2021 data when determining the FY 2023 MS-LTC-DRG relative weights. We also received comments that were supportive of our proposal to calculate the relative weights both including and excluding COVID-19 cases, and then averaging the two sets of relative weights together. A commenter stated that this is a sensible approach to account for the effects of COVID-19 on the data CMS uses for ratesetting.

Some commenters disagreed with the proposed approach for determining the FY 2023 MS-LTC-DRG relative weights. These commenters believe a more appropriate approach would be to determine the relative weights based on an average of the relative weights calculated using FY 2019 data and FY 2021 data. These commenters stated that COVID-19 has not only influenced LTCH costs of care through higher direct input costs, but also through other factors such as challenges in discharging patients. Since it is uncertain whether these factors will remain in FY 2023, these commenters believe their suggested approach, which blends claims data prior to the PHE with claims data during the PHE, better reflects the overall uncertainty of the future impact of COVID-19.

We did not receive any comments in support of the alternative approach that we discussed in section I.O of Appendix A of the proposed rule.

Response: We thank the commenters for their support. With respect to the commenters who suggested we determine the relative weights based on an average of the relative weights calculating using FY 2019 and FY 2021 data, we recognize that there is uncertainty regarding the utilization and costs that LTCHs will experience in FY 2023. While the commenters' approach for addressing this uncertainty is not unreasonable, we believe that our proposed approach will result in a more accurate reflection of the types of cases expected to be treated by LTCHs in FY 2023. Specifically, we believe that the mix and resource use of non-COVID-19 cases is better represented by more recent MedPAR claims data than is reflected in the cases in the FY 2019 data. Therefore, while we considered this alternative approach, we continue to believe that the relative weights determined as an average of the relative weights calculated with and without the COVID-19 cases reflected in the FY 2021 MedPAR data are a more reasonable estimation of the mix and relative resource use of cases that will be treated at LTCHs in FY 2023.

Therefore, after consideration of the public comments we received, we are finalizing our proposal to use FY 2021 MedPAR claims data to calculate the FY 2023 MS-LTC-DRG relative weights. We also are finalizing our proposal to establish the FY 2023 MS-LTC-DRG relative weights as an average of the relative weights calculated both including and excluding COVID-19 cases identified in the FY 2021 MedPAR claims. The technical details of the relative weight calculations are discussed in section VIII.B.4. of the preamble to this final rule. We note this averaging approach for the calculation of the FY 2023 MS-LTC-DRG relative weights is consistent with the approach being adopted under the IPPS for FY 2023, as discussed in section II.E.c. of the preamble to this final rule.

b. Cap on Relative Weight Decreases

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28466 through 28467), we discussed comments we have received in recent years about significant fluctuations in the relative weights for some MS-LTC-DRGs. We stated that some commenters have requested that CMS establish a transition policy to mitigate the negative effects of significant year-to-year reductions to relative weights. We stated that predictability and stability of rates is one of the fundamental principles of a prospective payment system. Instability in the relative weights for MS-LTC-DRGs can reduce the predictability and stability of an individual LTCH's Medicare payments from year to year. Therefore, given the concerns commenters have raised about the financial impacts of significant year-to-year fluctuations in MS-LTC-DRGs relative weights, we proposed 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, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28466 through 28467), we proposed to establish a permanent 10-percent cap on the reduction to a MS-LTC-DRG's relative weight in a given year, beginning in FY 2023. We proposed that this 10-percent cap would be applied to the relative weights for MS-LTC-DRGs with applicable LTCH cases. Under this policy, 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 stated our belief that 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 also proposed that the 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year be budget neutral, meaning 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. We stated that our application of 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).

In the proposed rule, we stated our belief that 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 for our proposal, we explained that 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 20-percent cap, would limit declines in the relative weights for fewer MS-LTC-DRGs while a lower cap, such as a 5-percent cap, would limit declines in the relative weights for more MS-LTC-DRGs, but would also result in a larger budget neutrality adjustment. We stated our belief that on balance, 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 noted 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 existing MS-LTC-DRGs as part of its annual reclassifications resulting in renumbering of one or more MS-LTC-DRGs, we proposed 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 10-percent cap would not apply to the relative weight for any new or renumbered MS-LTC-DRGs for the fiscal year).

Comment: Commenters generally agreed with our proposal to cap MS-LTC-DRG relative weights decreases at 90 percent of the value of the MS-LTC-DRG relative weight in the previous year. However, several commenters questioned the appropriateness of applying a budget neutrality adjustment to the 10-percent cap on relative weight reductions. These commenters expressed concern that the budget neutrality adjustment could result in a decrease to the relative weights for the most commonly used MS-LTC-DRGs (the ”high-volume” MS-LTC-DRGs).

Although none of the proposed relative weights for the top five high volume MS-LTC-DRGs would decrease by more than 10-percent in FY 2023, commenters noted, the proposed budget neutrality adjustment to offset the 10-percent cap on relative weight decreases for other MS-LTC-DRGs will reduce the relative weights for these five most commonly used MS-LTC-DRGs. A commenter stated that “high-volume” MS-LTC-DRGs are less likely than “low-volume” MS-LTC-DRGs to decrease more than 10-percent, in which case applying the proposed 10-percent cap in a budget neutral manner would generally result in increases to the relative weights of low-volume MS-LTC-DRGs at the expense of decreases to the relative weights of high-volume MS-LTC-DRGs. A commenter recommended that CMS should only apply the 10-percent cap to an MS- LTC-DRG relative weight if it is one of the top five MS-LTC-DRGs, by volume, of LTCH discharges. This, the commenter stated, would target payment relief where it is most needed and would have more of a beneficial effect on payment stability from year to year.

A number of commenters who disagreed with applying a budget neutrality adjustment to relative weights after application of the 10-percent cap maintained that CMS has the statutory authority to make adjustments, including waiving the budget neutrality adjustment to the cap, under section 123 of the BBRA, as amended by section BIPA 307(b)(1).

Response: We appreciate the comments in support of the proposed 10-percent cap on MS-LTC-DRG relative weight decreases. We agree that CMS has the statutory authority to implement this policy in a non-budget neutral manner. However, we continue to believe it is appropriate to implement this policy in a budget neutral manner, 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).

However, we understand commenters' concerns regarding potential negative impacts of the budget neutrality adjustment on the highest volume MS-LTC-DRG relative weights. We recognize, as commenters stated, that the application of a 10-percent cap on decreases in MS-LTC-DRG relative weights, applied in a budget neutral manner, may inadvertently partially negate our stated intent to stabilize and increase predictability to LTCH payments. In response to these concerns, we conducted additional analysis regarding the cap on MS-LTC-DRG weights and the impact of the budget neutrality adjustment. Based on the March 2022 update of the FY 2021 MedPAR file used for calculating the MS-LTC-DRG relative weights in this final rule, under our proposal, 139 MS-LTC-DRGs would be subject to the 10-percent cap in FY 2023.

These 139 MS-LTC-DRGs accounted for approximately 5.1 percent of all standard Federal payment rate cases in FY 2021. After application of the cap to these 139 MS-LTC-DRGs, the budget neutrality adjustment, based on the data used for this final rule, would have reduced the relative weights of all MS-LTC-DRGs by 0.34 percent. We note that the proposed budget neutrality adjustment we calculated in the proposed rule was similar in magnitude and reduced the proposed relative weights by 0.33 percent. When developing this policy for the proposed rule, we considered the magnitude of the proposed budget neutrality adjustment against the overall benefits of our stated policy goal. As discussed in the proposed rule and noted previously, we believed the proposed policy would provide LTCHs more predictable and stable MS-LTC-DRG relative weights from year to year. When we made our proposal, it was our belief that the overall benefits of the policy would outweigh the effect of the corresponding budget neutrality adjustment on the MS-LTC-DRG relative weights. However, based on public comments received, it clear that not all commenters share this belief.

Therefore, we have explored whether placing a limit on MS-LTC-DRGs subject to the cap, similar to the approach suggested by a commenter, would reduce both the number of MS-LTC-DRGs capped and the size of the budget neutrality adjustment. We found that limiting the application of the 10-percent cap to MS-LTC-DRGs with at least 25 cases resulted in a significant decrease to the number of MS-LTC-DRGs subject to the cap, from 139 to 25. The MS-LTC-DRGs capped under such policy accounted for 3.9 percent of all standard Federal payment rate cases in FY 2021, and the associated budget neutrality adjustment for this cap would result in a much smaller reduction to the relative weights of all MS-LTC-DRGs (that is, −0.13 percent).

We believe that modifying our proposed policy so that the 10-percent cap on MS-LTC-DRG relative weight decreases only applies to MS-LTC-DRGs with 25 or more cases addresses commenters' concerns about the destabilizing impact of the budget neutrality adjustment, as the budget neutrality adjustment associated with this more limited cap policy (−0.13 percent reduction to the relative weights) is meaningfully less than the budget neutrality adjustment associated with our proposed cap policy. We believe that 25 cases is an appropriate threshold since that threshold is already used in establishing the low-volume MS-LTC-DRGs that are grouped into quintiles for purposes of calculating the MS-LTC-DRG relative weights (As discussed in section VIII.B.4. of the preamble to this final rule, for purposes of calculating the MS-LTC-DRG relative weights, we group low-volume MS-LTC-DRGs, that is those MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases, into five categories (quintiles) based on average charges). We also believe that modifying our proposed policy to limit the application of the 10-percent cap to MS-LTC-DRGs with 25 or more cases will still result in more predictable and stable MS-LTC-DRG relative weights from year to year, especially for high-volume MS-LTC-DRGs that generally have the largest financial impact on an LTCH's operations. We note that this modification to our 10-percent cap policy will treat MS-LTC-DRGs with 1-24 cases (low-volume MS-LTC-DRGs) the same as we proposed to treat no-volume MS-LTC-DRGs. That is, the 10-percent cap will not apply to either MS-LTC-DRGs with 1-24 cases (low-volume) or no-volume MS-LTC-DRGs.

Comment: MedPAC, while agreeing with the proposal to cap decreases in MS-LTC-DRG weights at 90 percent of the MS-LTC-DRG relative weight from the previous year, recommended extending this policy to MS-LTC-DRG relative weights increasing by more than 10 percent, as well.

Response: We appreciate the suggestion that the cap should apply to increases in MS-LTC-DRG relative weights as well as decreases. However, as we discussed in the proposed rule, our goal in smoothing year-to-year changes in MS-LTC-DRG relative weights is to increase predictability for LTCHs to enable them to better plan; when hospitals have more time to adjust to significant changes to relative weights, they can mitigate financial impacts. We did not propose to limit increases in MS-LTC-DRG relative weights because we do not believe such a policy is needed to enable hospitals to more effectively budget and plan their operations.

In this final rule, after consideration of public comments received, we are finalizing our proposed policy to cap decreases in MS-LTC-DRG relative weights to 10 percent of the previous year's relative weight, with a modification that limits the application of the cap to only MS-LTC-DRGs with at least 25 applicable LTCH cases in the claims data used to calculate the relative weights for the fiscal year. We also are finalizing our proposal that the 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year will be budget neutral. As an example, if the relative weight for an MS-LTC-DRG with at least 25 applicable LTCH cases was 1.100 in FY 2022 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 relative weight for FY 2023 would be 0.9900 (that is, 0.90 × FY 2022 weight of 1.100) prior to the application of the budget neutrality adjustment (as described later in this section in Step 13 of our methodology). 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 finalizing our proposal that this the 10-percent cap will not apply to the relative weight for any new or renumbered MS-LTC-DRGs for the fiscal year.

Consequently, we are amending our proposed regulation at 42 CFR 412.515 to reflect the modification we are adopting in this final rule to limit the application of the 10-percent cap on MS-LTC-DRG relative weight reductions to only MS-LTC-DRGs with at least 25 applicable LTCH cases in the claims data used to calculate the relative weights for the fiscal year. The technical details of this provision are discussed in section VIII.B.4. of the preamble to this final rule. We note that this provision is similar to the permanent 10-percent cap on decreases to a MS-DRG relative weight being adopted under the IPPS, as discussed in section II.E.d. of the preamble of this final rule.

c. Conforming Changes to Other Components of the FY 2023 MS-LTC-DRG Relative Weights Methodology

In general, for FY 2023, we continue to apply 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 final rule) that are not impacted by our previously described modifications to our methodology. As discussed previously, we are establishing the FY 2023 MS-LTC-DRG relative weights using an average of the relative weights calculated both including and excluding the COVID-19 claims to align with an assumption that there will be fewer, but not zero, COVID-19 cases in FY 2023 compared to FY 2021. We note that in conjunction with this modification, we applied 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 applied 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 final rule.

4. 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 or 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 methodology) and assigned the relative weight of the quintile); and (3) no-volume MS-LTC-DRGs that are cross-walked to other MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the cross-walked MS-LTC-DRG (as described later in this section in Step 8 of our methodology). For FY 2023, we are continuing 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 final rule, for FY 2023, we are establishing 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 final rule, we also are establishing a 10-percent cap on the reduction in a MS- LTC-DRG's relative weight, beginning in FY 2023 for MS-LTC-DRGs with at least 25 applicable LTCH cases in the claims data used to calculate the relative weights for the fiscal year.

b. Development of the MS-LTC-DRG Relative Weights for FY 2023

In this section, we present our methodology for determining the MS-LTC-DRG relative weights for FY 2023. In general, we are continuing to apply the components of our existing methodology that are not impacted by our 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, as discussed in section VIII.B.3 of the preamble to this final rule. For example, we are continuing 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 in our establishment of 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 are 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 steps for determining the FY 2023 MS-LTC-DRG relative weights. Each 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 MS-LTC-DRG relative weights. For FY 2023, we are preparing 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 performing 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 performing 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 performing 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 performing this step on each set of claims data (claims dataset that includes COVID-19 cases and claims dataset that excludes COVID-19 cases).

• Step 6—Calculate the relative weights on an iterative basis using the hospital-specific relative weights methodology. In this step, we use our established hospital-specific relative value (HSRV) methodology, which is an iterative process, to calculate the relative weights. For FY 2023, we are using the HSRV methodology to calculate relative weights using the claims that include COVID-19 cases and again using the claims that exclude the COVID-19 cases.

• Step 7— Adjust the relative weights to account for nonmonotonically increasing relative weights. In this step, we make adjustments that ensure that within each base MS-LTC-DRG, the relative weights increase by MS-LTC-DRG severity. For FY 2023, we are adjusting each set of relative weights (that is, the relative weights calculated including COVID-19 cases and the relative weights calculated excluding COVID-19 cases).

• Step 8—Determine a relative weight for MS-LTC-DRGs with no applicable LTCH cases. In this step, we cross-walk each no-volume MS-LTC-DRG to another MS-LTC-DRG for which we calculated a relative weight. For FY 2023, we are cross-walking no-volume MS-LTC-DRGs in each set of relative weights (that is, the set of relative weights calculated including COVID-19 cases and the set of relative weights calculated excluding COVID-19 cases).

• Step 9—Normalize each set of relative weights. In this step, we make a normalization adjustment so that the recalibration of the MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases the average case-mix index. For FY 2023, we are normalizing the set of relative weights calculated including COVID-19 cases and the set relative weights calculated excluding COVID-19 cases.

Step 10—Average the two sets of normalized relative weights. In this step, we average the set of normalized relative weights calculated including COVID-19 cases and the set of normalized relative weights calculated excluding COVID-19 cases. In addition to the relative weights, we also average the geometric mean length of stays and arithmetic mean length of stays.

Step 11—Budget neutralize the averaged relative weights. In this step, to ensure budget neutrality in the annual update to the MS-LTC-DRG classifications and relative weights, we adjust the relative weights by a normalization factor and budget neutrality factor that ensures estimated aggregate LTCH PPS payments will be unaffected by the updates to the MS-LTC-DRG classifications and relative weights. This step is performed prior to applying the 10-percent cap.

Step 12—Apply the 10-percent cap to decreases in MS-LTC-DRG relative weights. In this step we limit the reduction of the relative weight for a MS-LTC-DRG to 10 percent of its prior year value. This 10-percent cap does not apply to zero-volume MS-LTC-DRGs or low-volume MS-LTC-DRGs.

Step 13—Calculate the MS-LTC-DRG cap budget neutrality factor. In this step, to ensure budget neutrality in the application of the MS-LTC-DRG cap policy, we adjust the relative weights by a budget neutrality factor that ensures estimated aggregate LTCH PPS payments will be unaffected by our application of the cap to the MS-LTC-DRG relative weights.

Later in this section we describe each of the 13 steps for calculating the FY 2023 MS-LTC-DRG relative weights in greater detail. In this discussion, we note when the step was performed twice under our provisions for averaging relative weights calculated including COVID-19 cases and relative weights calculated excluding COVID-19 cases.

Step 1—Prepare data for MS-LTC-DRG relative weight calculation.

In the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28469), consistent with our proposals regarding the calculation of the proposed MS-LTC-DRG relative weights for FY 2023, we obtained total charges from FY 2021 Medicare LTCH claims data from the December 2021 update of the FY 2021 MedPAR file, which was the best available data at that time, and we proposed to use Version 40 of the GROUPER to classify LTCH cases. Consistent with our historical practice, we proposed that if better data became available, we would use those data and the finalized Version 40 of the GROUPER in establishing the FY 2023 MS-LTC-DRG relative weights in the final rule. Accordingly, for this final rule, we are establishing the FY 2023 MS-LTC-DRG relative weights based on updated FY 2021 Medicare LTCH claims data from the March 2022 update of the FY 2021 MedPAR file, which is the best available data at the time of development of this final rule, and the finalized Version 40 of the GROUPER to classify LTCH cases.

To calculate the FY 2023 MS-LTC-DRG relative weights under the dual rate LTCH PPS payment structure, as we proposed, we continue to use applicable LTCH data, which includes our policy of only using cases that meet the criteria for exclusion from the site neutral payment rate (or would have met the criteria had they been in effect at the time of the discharge) (80 FR 49624). Specifically, we began by first evaluating the LTCH claims data in the March 2022 update of the FY 2021 MedPAR file to determine which LTCH cases would meet the criteria for exclusion from the site neutral payment rate under § 412.522(b) or had the dual rate LTCH PPS payment structure applied to those cases at the time of discharge. We identified the FY 2021 LTCH cases that were not assigned to MS-LTC-DRGs 876, 880, 881, 882, 883, 884, 885, 886, 887, 894, 895, 896, 897, 945, and 946, which identify LTCH cases that do not have a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation; and that either—

• The admission to the LTCH was “immediately preceded” by discharge from a subsection (d) hospital and the immediately preceding stay in that subsection (d) hospital included at least 3 days in an ICU, as we define under the ICU criterion; or
• The admission to the LTCH was “immediately preceded” by discharge from a subsection (d) hospital and the claim for the LTCH discharge includes the applicable procedure code that indicates at least 96 hours of ventilator services were provided during the LTCH stay, as we define under the ventilator criterion. Claims data from the FY 2021 MedPAR file that reported ICD-10-PCS procedure code 5A1955Z were used to identify cases involving at least 96 hours of ventilator services in accordance with the ventilator criterion. We note that we have previously addressed the treatment of cases that would have been excluded from the site neutral payment rate under the statutory provisions that provided for temporary exception from the site neutral payment rate under the LTCH PPS for certain spinal cord specialty hospitals or for certain severe wound care discharges from certain LTCHs provided by sections 15009 and 15010 of Public Law 114-255, respectively. These statutory provisions were not in effect for any discharges occurring in FY 2021 (or beyond), so it is no longer necessary to address their treatment for purposes of developing the MS-LTC-DRG relative weights. We also note that section 3711(b)(2) of the CARES Act, which provided a waiver of the application of the site neutral payment rate for LTCH cases admitted during the COVID-19 PHE period, was in effect for the entirety of FY 2021. Therefore, all LTCH PPS cases in FY 2021 were paid the LTCH PPS standard Federal rate regardless of whether the discharge met the statutory patient criteria. However, for purposes of setting rates for LTCH PPS standard Federal rate cases for FY 2023 (including MS-LTC-DRG relative weights), we used FY 2021 cases that meet the statutory patient criteria without consideration to how those cases were paid in FY 2021.

Furthermore, consistent with our historical methodology, we excluded any claims in the resulting data set that were submitted by LTCHs that were all-inclusive rate providers and LTCHs that are paid in accordance with demonstration projects authorized under section 402(a) of Public Law 90-248 or section 222(a) of Public Law 92-603. In addition, consistent with our historical practice and our policies, we excluded any Medicare Advantage (Part C) claims in the resulting data. Such claims were identified based on the presence of a GHO Paid indicator value of “1” in the MedPAR files.

In addition, as discussed in section VIII.B.3.a. of this final rule, for FY 2023, we are establishing the MS-LTC-DRG relative weights as an average of the relative weights calculated both including and excluding the COVID-19 claims. To calculate the set of relative weights based on claims that excluded COVID-19 cases, we performed an additional trim to remove COVID-19 cases. We identified COVID-19 cases as any claim in the FY 2021 MedPAR file with a principal or secondary diagnosis of COVID-19 (ICD-10-CM diagnosis code U07.1).

In summary, in general, we identified the claims data used in the development of the FY 2023 MS-LTC-DRG relative weights in this final rule by trimming claims data that would have been paid the site neutral payment rate had the provisions of the CARES Act not been in effect. We trimmed the claims data of all-inclusive rate providers reported in the March 2022 update of the FY 2021 MedPAR file and any Medicare Advantage claims data. There were no data from any LTCHs that are paid in accordance with a demonstration project reported in the March 2022 update of the FY 2021 MedPAR file, but, had there been any, we would have trimmed the claims data from those LTCHs as well, in accordance with our established policy.

We used the remaining data (that is, the applicable LTCH data) in the subsequent steps to calculate the set of relative weights based on claims that include COVID-19 cases. In addition, we performed a trim to remove COVID-19 cases based on a principal or secondary diagnosis of COVID-19. We used these data in the subsequent steps to calculate the set of relative weights based on claims that exclude COVID-19 cases.

Step 2—Remove cases with a length of stay of 7 days or less.

The next step in our calculation of the FY 2023 MS-LTC-DRG relative weights is to remove cases with a length of stay of 7 days or less. The MS-LTC-DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay of 7 days or less do not belong in an LTCH because these stays do not fully receive or benefit from treatment that is typical in an LTCH stay, and full resources are often not used in the earlier stages of admission to an LTCH. If we were to include stays of 7 days or less in the computation of the FY 2023 MS-LTC-DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at an LTCH by including data from these very short stays. Therefore, as we proposed, consistent with our existing relative weight methodology, in determining the FY 2023 MS-LTC-DRG relative weights, we removed LTCH cases with a length of stay of 7 days or less from applicable LTCH cases for both sets of claims (that is the applicable LTCH claims that include COVID-19 cases and the applicable LTCH claims that exclude COVID-19 cases). (For additional information on what is removed in this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 3—Establish low-volume MS-LTC-DRG quintiles.

To account for MS-LTC-DRGs with low-volume (that is, with fewer than 25 applicable LTCH cases), consistent with our existing methodology, as we proposed, we are continuing to employ the quintile methodology for low-volume MS-LTC-DRGs, such that we grouped the “low-volume MS-LTC-DRGs” (that is, MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases into one of five categories (quintiles) based on average charges (67 FR 55984 through 55995; 72 FR 47283 through 47288; and 81 FR 25148)). Under our provision in section VIII.B.3.a. of the preamble to this final rule to establish the FY 2023 MS-LTC-DRG relative weights as an average of the relative weights calculated both including and excluding the COVID-19 claims, we employed our quintile methodology when calculating the relative weights for each set of claims (that is the claims that include COVID-19 cases and the claims that exclude COVID-19 cases).

In this final rule, based on the best available data (that is, the March 2022 update of the FY 2021 MedPAR files), we identified 233 MS-LTC-DRGs that contained between 1 and 24 applicable LTCH cases in the claims data that included COVID-19 cases, and 232 MS LTC-DRGs that contained between 1 and 24 applicable LTCH cases in the claims data that excluded COVID-19 cases. These lists of MS-LTC-DRGs were then divided into 1 of the 5 low-volume quintiles. We assigned the low-volume MS-LTC-DRGs to specific low-volume quintiles by sorting the low-volume MS-LTC-DRGs in ascending order by average charge in accordance with our established methodology. Based on the data available for this final rule, the number of MS-LTC-DRGs with less than 25 applicable LTCH cases in each set of claims was not evenly divisible by 5. The quintiles based on the claims data that included COVID-19 cases each contained at least 46 MS-LTC-DRGs (233/5 = 46 with a remainder of 3). Meanwhile, the quintiles based on the claims data that excluded COVID-cases also each contained at least 46 MS-LTC-DRGs (232/5 = 46 with a remainder of 2). We employed our historical methodology of assigning each remainder low-volume MS-LTC-DRG to the low-volume quintile that contains an MS-LTC-DRG with an average charge closest to that of the remainder low-volume MS-LTC-DRG.

For the claims that include COVID-19 cases, the application of our quintile methodology resulted in 2 low-volume quintiles containing 46 MS-LTC DRGs (Quintiles 1 and 5) and 3 low-volume quintiles containing 47 MS-LTC-DRGs (Quintiles 2, 3, and 4). For the claims that excluded COVID-19 cases, the application of our quintile methodology resulted in 3 low-volume quintiles containing 46 MS-LTC DRGs (Quintiles 1, 3, and 5) and 2 low-volume quintiles containing 47 MS-LTC-DRGs (Quintiles 2 and 4). In cases where these initial assignments of low-volume MS-LTC-DRGs to quintiles results in nonmonotonicity within a base-DRG, we are making adjustments to the resulting low-volume MS-LTC-DRGs to preserve monotonicity, as discussed in Step 7 of our methodology.

To determine the FY 2023 relative weights for the low-volume MS-LTC-DRGs, consistent with our historical practice, we used the five low-volume quintiles from each set of claims described previously. We determined a relative weight and (geometric) average length of stay for each of the five low-volume quintiles using the methodology described in Step 6 of our methodology. We assigned the same relative weight and average length-of-stay to each of the low-volume MS-LTC-DRGs that make up an individual low-volume quintile. These calculations were performed separately for the relative weight set based on claims that include COVID-19 cases and the relative weight set based on claims that exclude COVID-19 cases. We note that, as this system is dynamic, it is possible that the number and specific type of MS-LTC-DRGs with a low-volume of applicable LTCH cases would vary in the future.

Furthermore, we note that we continue to monitor the volume (that is, the number of applicable LTCH cases) in the low-volume quintiles to ensure that our quintile assignments used in determining the MS-LTC-DRG relative weights result in appropriate payment for LTCH cases grouped to low-volume MS-LTC-DRGs and do not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases. In the proposed rule, we noted our description in previous rules did not specify the point in our methodology when the low-volume MS-LTC-DRG quintiles are established. We stated that although we are now including this step explicitly, this is not a change to our historical methodology for determining the MS-LTC-DRG relative weights.

For this final rule, we are providing the lists of the composition of the low-volume quintiles for low-volume MS-LTC-DRGs in a supplemental data file for public use posted via the internet on the CMS website for this final rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html to streamline the information made available to the public that is used in the annual development of Table 11. This supplemental data file includes the composition of low-volume quintiles for low-volume MS-LTC-DRGs based on the claims that include COVID-19 cases and the composition of the low-volume quintiles for low-volume MS-LTC-DRGs based on the claims that exclude COVID-19 cases.

Step 4—Remove statistical outliers.

The next step in our calculation of the FY 2023 MS-LTC-DRG relative weights is to remove statistical outlier cases from the LTCH cases with a length-of-stay of at least 8 days. Consistent with our existing relative weight methodology, as we proposed, we are continuing to define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each MS-LTC-DRG. These statistical outliers are removed prior to calculating the relative weights because we believe that they may represent aberrations in the data that distort the measure of average resource use.

Including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among those MS-LTC-DRGs. (For additional information on what is removed in this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.) This step was performed on both sets of claims (that is the applicable LTCH claims that include COVID-19 cases and the applicable LTCH claims that exclude COVID-19 cases). After removing cases with a length of stay of 7 days or less and statistical outliers, in each set of claims, we were left with applicable LTCH cases that have a length of stay greater than or equal to 8 days. In this final rule, we refer to these cases as “trimmed applicable LTCH cases.”

Step 5—Adjust charges for the effects of Short Stay Outliers (SSOs).

As the next step in the calculation of the FY 2023 MS-LTC-DRG relative weights, consistent with our historical approach, as we proposed, we adjusted each LTCH's charges per discharge for those remaining cases in each set of claims (that is, trimmed applicable LTCH cases that include COVID-19 cases and the trimmed applicable LTCH cases that exclude COVID-19 cases) for the effects of SSOs (as defined in § 412.529(a) in conjunction with § 412.503). Specifically, as we proposed, we made this adjustment by counting an SSO case as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay of all cases grouped to the MS-LTC-DRG. This has the effect of proportionately reducing the impact of the lower charges for the SSO cases in calculating the average charge for the MS-LTC-DRG. This process produces the same result as if the actual charges per discharge of an SSO case were adjusted to what they would have been had the patient's length of stay been equal to the average length of stay of the MS-LTC-DRG.

Counting SSO cases as full LTCH cases with no adjustment in determining the FY 2023 MS-LTC-DRG relative weights would lower the relative weight for affected MS-LTC-DRGs because the relatively lower charges of the SSO cases would bring down the average charge for all cases within a MS-LTC-DRG. This would result in an “underpayment” for non-SSO cases and an “overpayment” for SSO cases. Therefore, we are continuing to adjust for SSO cases under § 412.529 in this manner because it would result in more appropriate payments for all LTCH PPS standard Federal payment rate cases. (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 6—Calculate the relative weights on an iterative basis using the hospital-specific relative value (HSRV) methodology.

By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients. Some case types (MS-LTC-DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. This nonrandom distribution of cases with relatively high (or low) charges in specific MS-LTC-DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, consistent with the methodology we have used since the implementation of the LTCH PPS, in this FY 2023 IPPS/LTCH PPS final rule, as we proposed, we are continuing to use a hospital-specific relative value (HSRV) methodology to calculate the MS-LTC-DRG relative weights for FY 2023. We believe that this method removes this hospital-specific source of bias in measuring LTCH average charges (67 FR 55985). Specifically, under this methodology, we reduced the impact of the variation in charges across providers on any particular MS-LTC-DRG relative weight by converting each LTCH's charge for an applicable LTCH case to a relative value based on that LTCH's average charge for such cases.

Under the HSRV methodology, we standardize charges for each LTCH by converting its charges for each applicable LTCH case to hospital-specific relative charge values and then adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, average 1.0 for each LTCH). The average relative weight for an LTCH is its case-mix; therefore, it is reasonable to scale each LTCH's average relative charge value by its case-mix. In this way, each LTCH's relative charge value is adjusted by its case-mix to an average that reflects the complexity of the applicable LTCH cases it treats relative to the complexity of the applicable LTCH cases treated by all other LTCHs (the average LTCH PPS case-mix of all applicable LTCH cases across all LTCHs). In other words, by multiplying an LTCH's relative charge values by the LTCH's case-mix index, we account for the fact that the same relative charges are given greater weight at an LTCH with higher average costs than they would at an LTCH with low average costs, which is needed to adjust each LTCH's relative charge value to reflect its case-mix relative to the average case-mix for all LTCHs. By standardizing charges in this manner, we count charges for a Medicare patient at an LTCH with high average charges as less resource-intensive than they would be at an LTCH with low average charges. For example, a $10,000 charge for a case at an LTCH with an average adjusted charge of $17,500 reflects a higher level of relative resource use than a $10,000 charge for a case at an LTCH with the same case-mix, but an average adjusted charge of $35,000. We believe that the adjusted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account.

Consistent with our historical relative weight methodology, as we proposed, we calculated the FY 2023 MS-LTC-DRG relative weights using the HSRV methodology, which is an iterative process. Under our provision in section VIII.B.3.a. of the preamble to this final rule to establish the FY 2023 MS-LTC-DRG relative weights as an average of the relative weights calculated both including and excluding the COVID-19 claims, we applied the HSRV methodology when calculating the relative weights for each sets of claims (that is the claims that include COVID-19 cases and the claims that exclude COVID-19 cases).

Therefore, in accordance with our established methodology, for FY 2023, we continued to standardize charges for each applicable LTCH case by first dividing the adjusted charge for the case (adjusted for SSOs under § 412.529 as described in Step 5 of our methodology) by the average adjusted charge for all applicable LTCH cases at the LTCH in which the case was treated. The average adjusted charge reflects the average intensity of the health care services delivered by a particular LTCH and the average cost level of that LTCH. The average adjusted charge was then multiplied by the LTCH's case-mix index to produce an adjusted hospital-specific relative charge value for the case. We used an initial case-mix index value of 1.0 for each LTCH.

For each MS-LTC-DRG, we calculated the FY 2023 relative weight by dividing the SSO-adjusted average of the hospital-specific relative charge values for applicable LTCH cases for the MS-LTC-DRG (that is, the sum of the hospital-specific relative charge value, as previously stated, divided by the sum of equivalent cases from Step 5 for each MS-LTC-DRG) by the overall SSO-adjusted average hospital-specific relative charge value across all applicable LTCH cases for all LTCHs (that is, the sum of the hospital-specific relative charge value, as previously stated, divided by the sum of equivalent applicable LTCH cases from Step 5 for each MS-LTC-DRG). Using these recalculated MS-LTC-DRG relative weights, each LTCH's average relative weight for all of its SSO-adjusted trimmed applicable LTCH cases (that is, its case-mix) was calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative weights by its total number of SSO-adjusted trimmed applicable LTCH cases. The LTCHs' hospital-specific relative charge values (from previous) are then multiplied by the hospital-specific case-mix indexes. The hospital-specific case-mix adjusted relative charge values were then used to calculate a new set of MS-LTC-DRG relative weights across all LTCHs. This iterative process continued until there was convergence between the relative weights produced at adjacent steps, for example, when the maximum difference was less than 0.0001.

Step 7—Adjust the relative weights to account for nonmonotonically increasing relative weights.

The MS-DRGs contain base DRGs that have been subdivided into one, two, or three severity of illness levels. Where there are three severity levels, the most severe level has at least one secondary diagnosis code that is referred to as an MCC (that is, major complication or comorbidity). The next lower severity level contains cases with at least one secondary diagnosis code that is a CC (that is, complication or comorbidity). Those cases without an MCC or a CC are referred to as “without CC/MCC.” When data do not support the creation of three severity levels, the base MS-DRG is subdivided into either two levels or the base MS-DRG is not subdivided. The two-level subdivisions may consist of the MS-DRG with CC/MCC and the MS-DRG without CC/MCC. Alternatively, the other type of two-level subdivision may consist of the MS-DRG with MCC and the MS-DRG without MCC.

In those base MS-LTC-DRGs that are split into either two or three severity levels, cases classified into the “without CC/MCC” MS-LTC-DRG are expected to have a lower resource use (and lower costs) than the “with CC/MCC” MS-LTC-DRG (in the case of a two-level split) or both the “with CC” and the “with MCC” MS-LTC-DRGs (in the case of a three-level split). That is, theoretically, cases that are more severe typically require greater expenditure of medical care resources and would result in higher average charges. Therefore, in the three severity levels, relative weights should increase by severity, from lowest to highest. If the relative weights decrease as severity increases (that is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher relative weight than one with MCC, or the MS-LTC-DRG “without CC/MCC” has a higher relative weight than either of the others), they are nonmonotonic. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments because the payment for the cases in the higher severity level in a base MS-LTC-DRG (which are generally expected to have higher resource use and costs) would be lower than the payment for cases in a lower severity level within the same base MS-LTC-DRG (which are generally expected to have lower resource use and costs). Therefore, in determining the FY 2023 MS-LTC-DRG relative weights based on each set of claims (that is claims that include COVID-19 cases and the claims that exclude COVID-19 cases), consistent with our historical methodology, as we proposed, we continued to combine MS-LTC-DRG severity levels within a base MS-LTC-DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. For a comprehensive description of our existing methodology to adjust for nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). For both sets of weights, the one based on claims that include COVID-19 cases and the one based on claims that exclude COVID-19 cases, any adjustments for nonmonotonicity that were made in determining the FY 2023 MS-LTC-DRG relative weights by applying this methodology are denoted in Table 11, which is listed in section VI. of the Addendum to this final rule and is available via the internet on the CMS website.

Step 8—Determine a relative weight for MS-LTC-DRGs with no applicable LTCH cases.

Using the trimmed applicable LTCH cases, consistent with our historical methodology, we identified the MS-LTC-DRGs for which there were no claims in the March 2022 update of the FY 2021 MedPAR file and, therefore, for which no charge data was available for these MS-LTC-DRGs. Because patients with a number of the diagnoses under these MS-LTC-DRGs may be treated at LTCHs, consistent with our historical methodology, we generally assign a relative weight to each of the no-volume MS-LTC-DRGs based on clinical similarity and relative costliness (with the exception of “transplant” MS-LTC-DRGs, “error” MS-LTC-DRGs, and MS-LTC-DRGs that indicate a principal diagnosis related to a psychiatric diagnosis or rehabilitation (referred to as the “psychiatric or rehabilitation” MS-LTC-DRGs), as discussed later in this section of this final rule). (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 43960.)

Consistent with our existing methodology, as we proposed, we cross-walked each no-volume MS-LTC-DRG to another MS-LTC-DRG for which we calculated a relative weight (determined in accordance with the methodology as previously described). Then, the “no-volume” MS-LTC-DRG was assigned the same relative weight (and average length of stay) of the MS-LTC-DRG to which it was cross-walked (as described in greater detail in this section of this final rule).

For this final rule, there was only one claim grouped to MS-LTC-DRG 273 (Percutaneous and other intracardiac procedures with MCC) in the March 2022 update of the FY 2021 MedPAR file. This claim had a COVID-19 diagnosis code. Therefore, when determining relative weights based on all applicable LTCH claims, a relative weight was computed for MS-LTC-DRG 273. However, when determining relative weights based on the set of claims that excluded COVID-19 cases, a relative was not computed for MS-LTC-DRG 273. When establishing the relative weights based on claims that exclude COVID-19 cases, instead of assigning a cross-walked relative weight for MS-LTC-DRG 273, as we proposed, we assigned MS-LTC-DRG 273 the relative weight calculated using all applicable LTCH cases. In the absence of a non-COVID-19 claim for this MS-LTC-DRG, we believe the relative weight based on a COVID-19 claim grouped to this same MS-LTC-DRG would more accurately reflect the relative resource use of this MS-LTC-DRG than a relative weight based on a cross-walked MS-LTC-DRG.

Of the 767 MS-LTC-DRGs for FY 2023, we identified 427 MS-LTC-DRGs for which there were no trimmed applicable LTCH cases. We do not include MS-LTC-DRG 273, discussed previously, in this count. The 427 MS LTC DRGs for which there were no trimmed applicable LTCH cases includes the 11 “transplant” MS-LTC-DRGs, the 2 “error” MS-LTC-DRGs, and the 15 “psychiatric or rehabilitation” MS-LTC-DRGs, which are discussed in this section of this rule, such that we identified 399 MS-LTC-DRGs that for which, we assigned a relative weight using our existing “no-volume” MS-LTC-DRG methodology (that is, 427−11−2−15 = 399). As we proposed, we assigned relative weights to each of the 399 no-volume MS-LTC-DRGs based on clinical similarity and relative costliness to 1 of the remaining 340 (767−427 = 340) MS-LTC-DRGs for which we calculated relative weights based on the trimmed applicable LTCH cases in the FY 2021 MedPAR file data using the steps described previously. (For the remainder of this discussion, we refer to the “cross-walked” MS-LTC-DRGs as one of the 340 MS-LTC-DRGs to which we cross-walked each of the 399 “no-volume” MS-LTC-DRGs.) Then, in general, we assigned the 399 no-volume MS-LTC-DRGs the relative weight of the cross-walked MS-LTC-DRG (when necessary, we made adjustments to account for nonmonotonicity).

We cross-walked the no-volume MS-LTC-DRG to a MS-LTC-DRG for which we calculated relative weights based on the March 2022 update of the FY 2021 MedPAR file, and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. (For more details on our process for evaluating relative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in the rare event that there would be a few LTCH cases grouped to one of the no-volume MS-LTC-DRGs in FY 2023, the relative weights assigned based on the cross-walked MS-LTC-DRGs would result in an appropriate LTCH PPS payment because the crosswalks, which are based on clinical similarity and relative costliness, would be expected to generally require equivalent relative resource use.

Then we assigned the relative weight of the cross-walked MS-LTC-DRG as the relative weight for the no-volume MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-DRG) have the same relative weight (and average length of stay) for FY 2023. We note that, if the cross-walked MS-LTC-DRG had 25 applicable LTCH cases or more, its relative weight (calculated using the methodology as previously described in Steps 1 through 4) is assigned to the no-volume MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG was cross-walked had 24 or less cases and, therefore, was designated to 1 of the low-volume quintiles for purposes of determining the relative weights, we assigned the relative weight of the applicable low-volume quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-DRG) have the same relative weight for FY 2023. (As we noted previously, in the infrequent case where nonmonotonicity involving a no-volume MS-LTC-DRG resulted, additional adjustments are required to maintain monotonically increasing relative weights.)

For this final rule, we are providing the list of the no-volume MS-LTC-DRGs and the MS-LTC-DRGs to which each was cross-walked (that is, the cross-walked MS-LTC-DRGs) for FY 2023 in a supplemental data file for public use posted via the internet on the CMS website for this final rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html to streamline the information made available to the public that is used in the annual development of Table 11.

To illustrate this methodology for determining the relative weights for the FY 2023 MS-LTC-DRGs with no applicable LTCH cases, we are providing the following example.

Example: There were no trimmed applicable LTCH cases in the FY 2021 MedPAR file that we are using for this final rule for MS-LTC-DRG 061 (Ischemic stroke, precerebral occlusion or transient ischemia with thrombolytic agent with MCC). We determined that MS-LTC-DRG 070 (Nonspecific cerebrovascular disorders with MCC) is similar clinically and based on resource use to MS-LTC-DRG 061. Therefore, we assigned the same relative weight (and average length of stay) of MS-LTC-DRG 70 of 0.837 for FY 2023 to MS-LTC-DRG 061 (we refer readers to Table 11, which is listed in section VI. of the Addendum to this final rule and is available via the internet on the CMS website).

Again, we note that, as this system is dynamic, it is entirely possible that the number of MS-LTC-DRGs with no volume would vary in the future. Consistent with our historical practice, as we proposed, we used the best available claims data to identify the trimmed applicable LTCH cases from which we determined the relative weights in the final rule.

For FY 2023, consistent with our historical relative weight methodology, as we proposed, we are establishing a relative weight of 0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG 001); Heart Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG 002); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 005); Liver Transplant without MCC (MS-LTC-DRG 006); Lung Transplant (MS-LTC-DRG 007); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 008); Simultaneous Pancreas/Kidney Transplant with Hemodialysis (MS-LTC-DRG 019); Pancreas Transplant (MS-LTC-DRG 010); Kidney Transplant (MS-LTC-DRG 652); Kidney Transplant with Hemodialysis with MCC (MS-LTC-DRG 650), and Kidney Transplant with Hemodialysis without MCC (MS LTC DRG 651). This is because Medicare only covers these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. At the present time, we include these 11 transplant MS-LTC-DRGs in the GROUPER program for administrative purposes only. Because we use the same GROUPER program for LTCHs as is used under the IPPS, removing these MS-LTC-DRGs would be administratively burdensome. (For additional information regarding our treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final rule (74 FR 43964).) In addition, consistent with our historical policy, we are establishing a relative weight of 0.0000 for the 2 “error” MS-LTC-DRGs (that is, MS-LTC-DRG 998 (Principal Diagnosis Invalid as Discharge Diagnosis) and MS-LTC-DRG 999 (Ungroupable)) because applicable LTCH cases grouped to these MS-LTC-DRGs cannot be properly assigned to an MS-LTC-DRG according to the grouping logic.

Additionally, we are establishing a relative weight of 0.0000 for the following “psychiatric or rehabilitation” MS-LTC-DRGs: MS-LTC-DRG 876 (O.R. Procedure with Principal Diagnoses of Mental Illness); MS-LTC-DRG 880 (Acute Adjustment Reaction & Psychosocial Dysfunction); MS-LTC-DRG 881 (Depressive Neuroses); MS-LTC-DRG 882 (Neuroses Except Depressive); MS-LTC-DRG 883 (Disorders of Personality & Impulse Control); MS-LTC-DRG 884 (Organic Disturbances & Mental Retardation); MS-LTC-DRG 885 (Psychoses); MS-LTC-DRG 886 (Behavioral & Developmental Disorders); MS-LTC-DRG 887 (Other Mental Disorder Diagnoses); MS-LTC-DRG 894 (Alcohol/Drug Abuse or Dependence, Left Ama); MS-LTC-DRG 895 (Alcohol/Drug Abuse or Dependence, with Rehabilitation Therapy); MS-LTC-DRG 896 (Alcohol/Drug Abuse or Dependence, without Rehabilitation Therapy with MCC); MS-LTC-DRG 897 (Alcohol/Drug Abuse or Dependence, without Rehabilitation Therapy without MCC); MS-LTC-DRG 945 (Rehabilitation with CC/MCC); and MS-LTC-DRG 946 (Rehabilitation without CC/MCC). We are establishing a relative weight 0.0000 for these 15 “psychiatric or rehabilitation” MS-LTC-DRGs because the blended payment rate and temporary exceptions to the site neutral payment rate would not be applicable for any LTCH discharges occurring in FY 2023, and as such payment under the LTCH PPS would be no longer be made in part based on the LTCH PPS standard Federal payment rate for any discharges assigned to those MS-LTC-DRGs.

Step 9—Normalize the two sets of relative weights.

The next step in our calculation of the FY 2023 MS-LTC-DRG relative weights is to normalize the set of relative weights that were calculated using claims that include COVID-19 cases and to normalize the set of relative weights that were calculated using claims that excluded COVID-19 cases. The normalization adjustment is intended to ensure that the recalibration of the MS- LTC-DRG relative weights (that is, the process itself) neither increases nor decreases the average case-mix index. To calculate the normalization factors, we grouped applicable LTCH cases from each set of claims using the FY 2023 Version 40 GROUPER, and used the FY 2023 MS-LTC-DRG relative weights associated with each set to calculate the average case-mix index (CMI) for each set; we grouped the same applicable LTCH cases from each set of claims using the FY 2022 GROUPER Version 39 and MS-LTC-DRG relative weights and calculated the average CMI for each set; and computed the ratio by dividing the average CMI for each set for FY 2022 by the average CMI for each set for FY 2023. These ratios are the normalization factors that were applied to each respective set of unnormalized weights. Because the calculation of the normalization factor involves the relative weights for the MS-LTC-DRGs that contained applicable LTCH cases to calculate the average CMIs, any low-volume MS-LTC-DRGs are included in the calculation (and the MS-LTC-DRGs with no applicable LTCH cases are not included in the calculation). The table displays the normalization factors that were calculated and applied for each set of relative weights.

Step 10—Average the two sets of normalized relative weights.

After each set of relative weights was normalized, we computed a simple average of the normalized relative weights and geometric mean length of stays from each set, by using 50 percent of the relative weights calculated using applicable LTCH cases that include COVID-19 cases and 50 percent of the relative weights calculated using applicable LTCH cases that exclude COVID-19 cases.

Step 11— Budget neutralize the averaged relative weights.

In accordance with the regulations at § 412.517(b) (in conjunction with § 412.503), the annual update to the MS-LTC-DRG classifications and relative weights is done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS-LTC-DRG classification and relative weight changes. (For a detailed discussion on the establishment of the budget neutrality requirement for the annual update of the MS-LTC-DRG classifications and relative weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 26881 and 26882).

To achieve budget neutrality under the requirement at § 412.517(b), under our established methodology, for each annual update the MS-LTC-DRG relative weights are uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that provision, as we proposed, we continued to apply budget neutrality adjustments in determining the FY 2023 MS-LTC-DRG relative weights so that our update the MS-LTC-DRG classifications and relative weights for FY 2023 are made in a budget neutral manner. In addition, as discussed in section VIII.B.3.b. of the preamble to this final rule, we are finalizing our proposal that the 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year be budget neutral. Therefore, for FY 2023, we are applying two budget neutrality factors to determine the MS-LTC-DRG relative weights. In this step, we describe the determination of the budget neutrality adjustment that accounts for the update of the MS-LTC-DRG classifications and relative weights prior to the application of the 10-percent cap. In steps 12 and 13, we describe the application of the 10-percent cap policy (step 12) and the determination of the budget neutrality factor that accounts for the application of the 10-percent cap policy (step 13).

As described previously, the relative weights constructed up to this point in our methodology were calculated based on two different set of claims (the applicable LTCH cases that included COVID-19 cases and the applicable LTCH cases that excluded COVID-19 cases) and then averaged together. However, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28475), when modeling payments for determining the budget neutrality factors, we proposed to use the set of LTCH cases that include COVID-19 cases. In the absence of a set of MedPAR claims that reflect our expectation that there will be fewer (but not zero) COVID-19 cases in FY 2023 as compared to the COVID-19 cases in the FY 2021 claims data, we stated our belief that this is the best data available for determining the budget neutrality factors. We solicited feedback from commenters on alternative ways to use the FY 2021 claims data for purposes of calculating the FY 2023 budget neutrality factors. We received no comments on this proposal and are finalizing this proposal without modification. Therefore, for this final rule, when modeling payments for determining the budget neutrality factors we used the set of LTCH cases that include COVID-19 cases.

In this final rule, to ensure budget neutrality for the update to the MS-LTC-DRG classifications and relative weights prior to the application of the 10-percent cap (that is, uncapped relative weights), under § 412.517(b), we continued to use our established two-step budget neutrality methodology. Therefore, in the first step of our MS-LTC-DRG update budget neutrality methodology, for FY 2023, we calculated and applied a normalization factor to the recalibrated relative weights (the result of Steps 1 through 10 discussed previously) to ensure that estimated payments are not affected by changes in the composition of case types or the changes to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases the average case-mix index.

To calculate the normalization factor for FY 2023, we used the following three steps: (1.a.) use the applicable LTCH cases from the best available data (that is, LTCH discharges from the FY 2021 MedPAR file, including the COVID-19 cases as discussed previously) and group them using the FY 2023 GROUPER (that is, Version 40 for FY 2023) and the recalibrated FY 2023 MS-LTC-DRG uncapped relative weights (determined in Steps 1 through 10 discussed previously) to calculate the average case-mix index; (1.b.) group the same applicable LTCH cases (as are used in Step 1.a.) using the FY 2022 GROUPER (Version 39) and FY 2022 MS-LTC-DRG relative weights and calculate the average case-mix index; and (1.c.) compute the ratio of these average case-mix indexes by dividing the average case-mix index for FY 2022 (determined in Step 1.b.) by the average case-mix index for FY 2023 (determined in Step 1.a.). As a result, in determining the MS-LTC-DRG relative weights for FY 2023, each recalibrated MS-LTC-DRG uncapped relative weight was multiplied by the normalization factor of 0.99884 (determined in Step 1.c.) in the first step of the budget neutrality methodology, which produces “normalized relative weights.”

In the second step of our MS-LTC-DRG update budget neutrality methodology, we calculated a budget neutrality adjustment factor consisting of the ratio of estimated aggregate FY 2023 LTCH PPS standard Federal payment rate payments for applicable LTCH cases (the sum of all calculations under Step 1.b. stated previously) before reclassification and recalibration to estimated aggregate payments for FY 2023 LTCH PPS standard Federal payment rate payments for applicable LTCH cases after reclassification and recalibration (that is, the sum of all calculations under Step 1.a. stated previously).

That is, for this final rule, for FY 2023, we determined the budget neutrality adjustment factor using the following three steps: (2.a.) simulate estimated total FY 2023 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the uncapped normalized relative weights for FY 2023 and GROUPER Version 40 (as described previously); (2.b.) simulate estimated total FY 2023 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the FY 2022 GROUPER (Version 39) and the FY 2022 MS-LTC-DRG relative weights in Table 11 of the FY 2022 IPPS/LTCH PPS final rule; and (2.c.) calculate the ratio of these estimated total payments by dividing the value determined in Step 2.b. by the value determined in Step 2.a. In determining the FY 2023 MS-LTC-DRG relative weights, each uncapped normalized relative weight was then multiplied by a budget neutrality factor of 0.9937739 (the value determined in Step 2.c.) in the second step of the budget neutrality methodology.

Step 12—Apply the 10-percent cap to decreases in MS-LTC-DRG relative weights.

As discussed in section VIII.B.3.b. of the preamble to this final rule, we are establishing a 10-percent cap on the reduction in a MS-LTC-DRG's relative weight in a given year, beginning in FY 2023. Specifically, in cases where the relative weight for a MS-LTC-DRG would decrease by more than 10-percent in a given year, we are limiting the reduction to 10-percent for that year. Under this provision, this 10-percent cap will only be applied to the relative weights for MS-LTC-DRGs with 25 or more applicable LTCH cases and will not be applied to the low-volume MS-LTC-DRGs identified in Step 3 or the no-volume MS-LTC-DRGs identified in Step 8. Therefore, in this step, for each FY 2023 MS-LTC-DRG with 25 or more applicable LTCH cases (excludes low-volume and zero-volume MS-LTC-DRGs) we compared its FY 2023 relative weight (after application of the normalization and budget neutrality factors determined in Step 11), to its FY 2022 MS-LTC-DRG relative weight. For any MS-LTC-DRG where the FY 2023 relative weight would otherwise have declined more than 10 percent, we established a capped FY 2023 MS-LTC-DRG relative weight that would be equal to 90 percent of that MS-LTC-DRG's FY 2022 relative weight (that is, we set the FY 2023 relative weight equal to the FY 2022 weight × 0.90).

Step 13—Calculate the MS-LTC-DRG cap budget neutrality factor.

As discussed in section VIII.B.3.b. of the preamble to this final rule, we also are applying a budget neutrality adjustment to the MS-LTC-DRG relative weights so that the 10-percent cap on relative weight reductions is implemented in a budget neutral manner. Therefore, we are determining the budget neutrality adjustment factor for our 10-percent cap on relative weight reductions using the following three steps: (a) simulate estimated total FY 2023 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the capped relative weights for FY 2023 (determined in Step 12) and GROUPER Version 40; (b) simulate estimated total FY 2023 LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the uncapped relative weights for FY 2023 (determined in Step 11) and GROUPER Version 40; and (c) calculate the ratio of these estimated total payments by dividing the value determined in step (b) by the value determined in step (a). In determining the FY 2023 MS-LTC-DRG relative weights, each capped relative weight was then multiplied by a budget neutrality factor of 0.998734 (the value determined in step (c)) to achieve the budget neutrality requirement.

Table 11, which is listed in section VI. of the Addendum to this final rule and is available via the internet on the CMS website, lists the MS-LTC-DRGs and their respective relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (used to identify SSO cases under § 412.529(a)) for FY 2023. We also are making available on our website the two sets of relative weights that were averaged together in determining the FY 2023 MS-LTC-DRG relative weights. That is, the set of relative weights based on applicable LTCH cases that included COVID-19 cases and the set of relative weights based on applicable LTCH cases that excluded COVID-19 cases. We also are making available on the website the MS-LTC-DRG relative weights prior to the application of the 10-percent cap on MS-LTC-DRG relative weight reductions and corresponding cap budget neutrality factor.

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

1. Overview of Development of the LTCH PPS Standard Federal Payment Rates

The basic methodology for determining LTCH PPS standard Federal payment rates is currently set forth at 42 CFR 412.515 through 412.533 and 412.535. In this section of the final rule, we discuss the factors that we used to update the LTCH PPS standard Federal payment rate for FY 2023, that is, effective for LTCH discharges occurring on or after October 1, 2022 through September 30, 2023. Under the dual rate LTCH PPS payment structure required by statute, beginning with discharges in cost reporting periods beginning in FY 2016, only LTCH discharges that meet the criteria for exclusion from the site neutral payment rate are paid based on the LTCH PPS standard Federal payment rate specified at 42 CFR 412.523. (For additional details on our finalized policies related to the dual rate LTCH PPS payment structure required by statute, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623).)

Prior to the implementation of the dual payment rate system in FY 2016, all LTCH discharges were paid similarly to those now exempt from the site neutral payment rate. That legacy payment rate was called the standard Federal rate. For details on the development of the initial standard Federal rate for FY 2003, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037). For subsequent updates to the standard Federal rate from FYs 2003 through 2015, and LTCH PPS standard Federal payment rate from FY 2016 through present, as implemented under 42 CFR 412.523(c)(3), we refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42445 through 42446).

In this FY 2023 IPPS/LTCH PPS final rule, we present our policies related to the annual update to the LTCH PPS standard Federal payment rate for FY 2023.

The update to the LTCH PPS standard Federal payment rate for FY 2023 is presented in section V.A. of the Addendum to this final rule. The components of the annual update to the LTCH PPS standard Federal payment rate for FY 2023 are discussed in this section of the final rule, including the statutory reduction to the annual update for LTCHs that fail to submit quality reporting data for FY 2023 as required by the statute (as discussed in section VIII.C.2.c. of the preamble of this final rule). As we proposed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28476), we also made an adjustment to the LTCH PPS standard Federal payment rate to account for the estimated effect of the changes to the area wage level for FY 2023 on estimated aggregate LTCH PPS payments, in accordance with 42 CFR 412.523(d)(4) (as discussed in section V.B. of the Addendum to this final rule).

2. FY 2023 LTCH PPS Standard Federal Payment Rate Annual Market Basket Update

a. Overview

Historically, the Medicare program has used a market basket to account for input price increases in the services furnished by providers. The market basket used for the LTCH PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS uses a single payment rate for both operating and capital-related costs. We adopted the 2017-based LTCH market basket for use under the LTCH PPS beginning in FY 2021 (85 FR 58907 through 58909). For additional details on the historical development of the market basket used under the LTCH PPS, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 through 53476), and for a complete discussion of the LTCH market basket and a description of the methodologies used to determine the operating and capital-related portions of the 2017-based LTCH market basket, we refer readers to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58909 through 58926).

Section 3401(c) of the Affordable Care Act provides for certain adjustments to any annual update to the LTCH PPS standard Federal payment rate and refers to the timeframes associated with such adjustments as a “rate year.” We note that, because the annual update to the LTCH PPS policies, rates, and factors now occurs on October 1, we adopted the term “fiscal year” (FY) rather than “rate year” (RY) under the LTCH PPS beginning October 1, 2010, to conform with the standard definition of the Federal fiscal year (October 1 through September 30) used by other PPSs, such as the IPPS (75 FR 50396 through 50397). Although the language of sections 3004(a), 3401(c), 10319, and 1105(b) of the Affordable Care Act refers to years 2010 and thereafter under the LTCH PPS as “rate year,” consistent with our change in the terminology used under the LTCH PPS from “rate year” to “fiscal year,” for purposes of clarity, when discussing the annual update for the LTCH PPS standard Federal payment rate, including the provisions of the Affordable Care Act, we use “fiscal year” rather than “rate year” for 2011 and subsequent years.

b. Annual Update to the LTCH PPS Standard Federal Payment Rate for FY 2023

As previously noted, we adopted the 2017-based LTCH market basket for use under the LTCH PPS beginning in FY 2021. The 2017-based LTCH market basket is primarily based on the Medicare cost report data submitted by LTCHs and, therefore, specifically reflects the cost structures of only LTCHs. (For additional details on the development of the 2017-based LTCH market basket, we refer readers to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58909 through 58926).) We continue to believe that the 2017-based LTCH market basket appropriately reflects the cost structure of LTCHs for the reasons discussed when we adopted its use in the FY 2021 IPPS/LTCH PPS final rule. Therefore, in this final rule, as we proposed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28476), we used the 2017-based LTCH market basket to update the LTCH PPS standard Federal payment rate for FY 2023.

Section 1886(m)(3)(A) of the Act provides that, beginning in FY 2010, any annual update to the LTCH PPS standard Federal payment rate is reduced by the adjustments specified in clauses (i) and (ii) of subparagraph (A), as applicable. Clause (i) of section 1886(m)(3)(A) of the Act provides for a reduction, for FY 2012 and each subsequent rate year, by “the productivity adjustment” described in section 1886(b)(3)(B)(xi)(II) of the Act. Clause (ii) of section 1886(m)(3)(A) of the Act provided for a reduction, for each of FYs 2010 through 2019, by the “other adjustment” described in section 1886(m)(4)(F) of the Act; therefore, it is not applicable for FY 2023.

Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of section 1886(m) of the Act may result in the annual update being less than zero for a rate year, and may result in payment rates for a rate year being less than such payment rates for the preceding rate year.

c. Adjustment to the LTCH PPS Standard Federal Payment Rate Under the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

In accordance with section 1886(m)(5) of the Act, the Secretary established the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). The reduction in the annual update to the LTCH PPS standard Federal payment rate for failure to report quality data under the LTCH QRP for FY 2014 and subsequent fiscal years is codified under 42 CFR 412.523(c)(4). The LTCH QRP, as required for FY 2014 and subsequent fiscal years by section 1886(m)(5)(A)(i) of the Act, applies a 2.0 percentage points reduction to any update under 42 CFR 412.523(c)(3) for an LTCH that does not submit quality reporting data to the Secretary in accordance with section 1886(m)(5)(C) of the Act with respect to such a year (that is, in the form and manner and at the time specified by the Secretary under the LTCH QRP) (42 CFR 412.523(c)(4)(i)). Section 1886(m)(5)(A)(ii) of the Act provides that the application of the 2.0 percentage points reduction may result in an annual update that is less than 0.0 for a year, and may result in LTCH PPS payment rates for a year being less than such LTCH PPS payment rates for the preceding year. Furthermore, section 1886(m)(5)(B) of the Act specifies that the 2.0 percentage points reduction is applied in a noncumulative manner, such that any reduction made under section 1886(m)(5)(A) of the Act shall apply only with respect to the year involved, and shall not be taken into account in computing the LTCH PPS payment amount for a subsequent year. These requirements are codified in the regulations at 42 CFR 412.523(c)(4). (For additional information on the history of the LTCH QRP, including the statutory authority and the selected measures, we refer readers to section VIII.C. of the preamble of this final rule.)

d. Annual Market Basket Update Under the LTCH PPS for FY 2023

Consistent with our historical practice, we estimate the market basket increase and the productivity adjustment based on IGI's forecast using more recent available data. Based on IGI's fourth quarter 2021 forecast, the proposed FY 2023 market basket update for the LTCH PPS using the 2017-based LTCH market basket was 3.1 percent. The proposed productivity adjustment for FY 2023 based on IGI's fourth quarter 2021 forecast was 0.4 percent. For FY 2023, section 1886(m)(3)(A)(i) of the Act requires that any annual update to the LTCH PPS standard Federal payment rate be reduced by the productivity adjustment, described in section 1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute, we proposed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28477), to reduce the FY 2023 market basket increase by the FY 2023 productivity adjustment. To determine the proposed market basket increase for LTCHs for FY 2023, as reduced by the proposed productivity adjustment, consistent with our established methodology, we subtracted the proposed FY 2023 productivity adjustment from the FY 2023 market basket increase. (For additional details on our established methodology for adjusting the market basket increase by the productivity adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771).)

For FY 2023, section 1886(m)(5) of the Act requires that, for LTCHs that do not submit quality reporting data as required under the LTCH QRP, any annual update to an LTCH PPS standard Federal payment rate, after application of the adjustments required by section 1886(m)(3) of the Act, shall be further reduced by 2.0 percentage points. Therefore, for LTCHs that fail to submit quality reporting data under the LTCH QRP, the proposed 3.1 percent market basket update to the LTCH PPS standard Federal payment rate for FY 2023 would be reduced by the 0.4 percentage point productivity adjustment as required under section 1886(m)(3)(A)(i) of the Act and by the additional 2.0 percentage points reduction required by section 1886(m)(5) of the Act.

In the FY 2023 IPPS/LTCH PPS proposed rule, in accordance with the statute, we proposed to reduce the proposed FY 2023 market basket update of 3.1 percent (based on IGI's fourth quarter 2021 forecast of the 2017-based LTCH market basket) by the proposed FY 2023 productivity adjustment of 0.4 percentage point (based on IGI's fourth quarter 2021 forecast). Therefore, under the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, consistent with 42 CFR 412.523(c)(3)(xvii), we proposed to establish an annual market basket update to the LTCH PPS standard Federal payment rate for FY 2023 of 2.7 percent (that is, more recent estimate of the LTCH PPS market basket increase of 3.1 percent less the productivity adjustment of 0.4 percentage point). For LTCHs that fail to submit quality reporting data under the LTCH QRP, under 42 CFR 412.523(c)(3)(xvii) in conjunction with 42 CFR 412.523(c)(4), we proposed to further reduce the annual update to the LTCH PPS standard Federal payment rate by 2.0 percentage points, in accordance with section 1886(m)(5) of the Act. Accordingly, we proposed to establish an annual update to the LTCH PPS standard Federal payment rate of 0.7 percent (that is, 2.7 percent minus 2.0 percentage points) for FY 2023 for LTCHs that fail to submit quality reporting data as required under the LTCH QRP. Consistent with our historical practice, we proposed in the FY 2023 IPPS/LTCH PPS proposed rule (86 FR 28477) to use a more recent estimate of the market basket and the productivity adjustment, if appropriate, in the final rule to establish an annual update to the LTCH PPS standard Federal payment rate for FY 2023. We note that, consistent with historical practice, we also proposed to adjust the FY 2023 LTCH PPS standard Federal payment rate by an area wage level budget neutrality factor in accordance with 42 CFR 412.523(d)(4) (as discussed in section V.B.5. of the Addendum to the proposed rule).

Comment: A number of commenters expressed concern that the proposed 2017-based LTCH market basket growth rate of 3.1 percent was inadequate and did not reflect current inflationary trends. These commenters cited several reasons why they believe the proposed market basket was underestimated, including significant rises in hospital labor costs (especially contract nursing costs), as well as rises in other hospital costs (such as equipment and supplies). Several commenters cited recent growth in the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) as evidence of the inflationary pressures inflicted upon hospitals.

Several commenters expressed that, since the market basket is a time-lagged estimate that uses historical data to forecast into the future, it is most suitable for forecasting changes in a steady-state economy with small and stable changes in inflation and costs. However, these commenters believe the current inflationary environment is not a typical economic environment and therefore the resulting market basket estimates are inadequate. A commenter stated that the construction of the market basket itself does not allow it to fully capture unexpected shocks because it is a time-lagged rolling average estimate.

Commenters requested CMS to ensure that the market basket and update factor reflect the actual experiences of LTCHs and be modified accordingly. Several commenters urged CMS to identify more accurate and up-to-date data inputs to calculate a market basket update that better represents the inflationary pressures that hospitals are facing.

Response: CMS has historically used a market basket to account for input price increases in the services furnished by fee-for-service providers. The market basket used for the LTCH PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS uses a single payment rate for both operating and capital-related costs. We adopted the 2017-based LTCH market basket for use under the LTCH PPS beginning in FY 2021 (85 FR 58907 through 58909). We believe the 2017-based LTCH market basket increase adequately reflects the average change in the price of goods and services hospitals purchase in order to provide LTCH medical services, and is appropriate to use as the market basket percentage increase. As described in the FY 2021 final rule (86 FR 45194 through 45213), the LTCH market basket is a fixed-weight, Laspeyres-type index that measures price changes over time and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services. As such, the LTCH market basket increase would reflect the prospective price pressures described by the commenters as increasing during a high inflation period (such as faster wage price growth or higher energy prices), but would inherently not reflect other factors that might increase the level of costs, such as the quantity of labor used or any shifts between contract and staff nurses. We note that cost changes (that is, the product of price and quantities) would only be captured in the market basket weights when the index is rebased and the base year is updated to a more recent time period. Comments requesting that CMS rebase the LTCH market basket and our response are discussed later in this section.

We agree with the commenters that recent higher inflationary trends have impacted the outlook for price growth over the next several quarters. At the time of the FY 2023 IPPS/LTCH proposed rule, based on IGI's fourth quarter 2021 forecast with historical data through the third quarter of 2021, IGI forecasted the 2017-based LTCH market basket update of 3.1 percent for FY 2023 reflecting forecasted compensation prices of 3.9 percent (by comparison, compensation price growth in the 2017-based LTCH market basket averaged 2.1 percent from 2012-2021). In the FY 2023 IPPS/LTCH proposed rule, we proposed that if more recent data became available, we would use such data, if appropriate, to derive the final FY 2023 LTCH market basket update for the final rule. For this final rule, we now have an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy (including the more recent historical CPI growth, impacts of the Russia/Ukraine war, current expectations regarding changes to Federal Reserve interest rates, and tight labor markets). Based on IGI's second quarter 2022 forecast with historical data through the first quarter of 2022, we are projecting a FY 2023 LTCH market basket update of 4.1 percent (reflecting forecasted compensation price growth of 4.8 percent) and productivity adjustment of 0.3 percentage point. Therefore, for FY 2023, we are finalizing an LTCH update of 3.8 percent (4.1 percent less 0.3 percentage point), compared to 2.7 percent that we had proposed. We note that the final FY 2023 LTCH market basket growth rate of 4.1 percent would be the highest market basket update implemented in an IPPS/LTCH final rule going back to RY 2004.

Comment: Some commenters maintained that, in consideration of rapidly increasing labor costs, it would be appropriate for CMS to implement a temporary payment adjustment increase or add-on payment to LTCH payments for FY 2023. The commenters stated their belief that CMS has the authority to determine appropriate adjustments to the LTCH PPS under section 123 of the BBRA as amended by section 307(b)(1) of the BIPA. A commenter requested that such a payment adjustment continue to be applied until CMS rebases the LTCH PPS market basket.

Response: We disagree with the commenters that CMS should apply a temporary payment adjustment or add-on payment to the LTCH PPS to account for the increases in labor costs at LTCHs that they believe were not being captured in the market basket. As discussed earlier, we believe the LTCH market basket increase appropriately reflects the input price growth (including compensation price growth) that LTCHs incur in providing medical services. As also described earlier, we are using an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy (including the more recent historical CPI growth, impacts of the Russia/Ukraine war, current expectations regarding changes to Federal Reserve interest rates, and tight labor markets). As a result, the update for FY 2023 of 3.8 percent is 1.1 percentage points higher than the proposed update of 2.7 percent.

Comment: Several commenters requested that CMS apply a retrospective payment adjustment that accounts for the difference between the 2.6 percent market basket increase that was implemented in FY 2022 and what the market basket is currently projected to be for FY 2022. Several commenters stated that the FY 2022 market basket increase that was used to determine the annual update did not capture significant increases in labor expenses that occurred in FY 2022.

Response: Under the law, the LTCH PPS is a per-discharge prospective payment system that uses a market basket increase to set the annual update prospectively. This means that the update relies on a mix of both historical data for part of the period for which the update is calculated and forecasted data for the remainder. For instance, the 2017-based LTCH market basket growth rate for FY 2023 in this final rule is based on IGI's second quarter 2022 forecast with historical data through the first quarter of 2022. While there is currently no mechanism to adjust for market basket forecast error in the LTCH payment update, the forecast error for a market basket update is equal to the actual market basket increase for a given year less the forecasted market basket increase. Due to the uncertainty regarding future price trends, forecast errors can be both positive and negative. We note that FY 2022 historical data are not yet available to calculate a forecast error for FY 2022. For this final rule, we have incorporated more recent historical data and forecasts to capture the price and wage pressures facing LTCHs and believe the market basket increase that we are finalizing is the best available projection of inflation to determine the applicable percentage increase for the LTCH payments in FY 2023. For these reasons we are not adopting the commenters' suggestion to adjust for the difference between the currently projected market basket increase for FY 2022 and the forecasted market basket increase used in determining the FY 2022 update.

Comment: We received numerous comments about our proposed productivity adjustment to the FY 2023 LTCH market basket update. Commenters generally stated that a negative productivity adjustment is inappropriate because evidence suggests that productivity for LTCHs has decreased, rather than increased over the past year. Commenters requested CMS to use its existing statutory authority to remove the productivity adjustment for FY 2023. A commenter requested that we remove the productivity adjustment for FY 2023, and any fiscal year during which the PHE for COVID-19 was in effect.

A subset of these commenters also requested that CMS reconsider the appropriateness of the productivity adjustment to LTCHs more broadly. They stated that the productivity adjustment, based on a 10-year moving average of changes in the annual economy-wide private nonfarm business total factor productivity, is not representative of the cost structure of LTCHs. These commenters expressed concern that hospital work is extremely dependent on human capital and that increased operational efficiencies are relatively limited for LTCHs compared with industries that are able to produce greater efficiencies through automation. Commenters specifically cited evidence for why they believe it is unrealistic for hospitals to achieve the same productivity gains as the private nonfarm business sector in FY 2023. For example, a commenter cited the significant decrease in hospital employment levels that have occurred during the pandemic and the resulting reliance on contract staffing firms to address staffing shortages as a reason why they believe hospitals are experiencing declines in productivity during the pandemic.

Response: Section 1886(m)(3)(A)(i) of the Act requires that any annual update to the LTCH PPS standard Federal payment rate be reduced by the productivity adjustment, described in section 1886(b)(3)(B)(xi) of the Act; therefore, we do not have the authority to eliminate the productivity adjustment. In section V.A.1. of this preamble, in response to similar comments, we explained that we do not believe it is appropriate to eliminate the productivity adjustment for FY 2023 in this final rule. In that same section, we discuss the methodology for calculating and applying the productivity adjustment required by section 1886(b)(3)(B)(xi) of the Act that we finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692). As we explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act defines this productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period) and BLS publishes the official measures of private nonfarm business productivity for the U.S. economy. (We note, beginning with the November 18, 2021 release of productivity data, BLS replaced the term multifactor productivity (MFP) with total factor productivity (TFP), and beginning with the FY 2022 IPPS/LTCH PPS final rule, we refer to this adjustment as the productivity adjustment rather than the MFP adjustment. The adjustment continues to rely on the same underlying data and methodology.)

For the FY 2023 IPPS/LTCH proposed rule, based on IGI's fourth quarter 2021 forecast, the productivity adjustment was projected to be 0.4 percentage point for FY 2023. For this final rule, based on IGI's second quarter 2022 forecast, we are updating the productivity adjustment to reflect more recent historical data as published by BLS as well as a revised economic outlook for FY 2022 and FY 2023. Using this more recent forecast, the FY 2023 productivity adjustment based on the 10-year moving average growth in economy-wide total factor productivity for the period ending FY 2023 is 0.3 percent.

Comment: Several commenters requested that CMS rebase and revise the 2017-based LTCH market basket for FY 2023 using the most recent LTCH data on labor costs in order for the FY 2023 market basket estimate to accurately reflect recent inflationary trends. A commenter stated that the unprecedented COVID-19 pandemic has drastically changed hospital operations and the costs associated with operating a hospital. This commenter also stated its view that the market basket update that CMS applies each year is simply unable to account for many of the changes to hospital operations and costs since the pandemic.

Response: As described previously, the LTCH market basket measures price changes (including changes in the prices for wages and salaries) over time and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services until the market basket is rebased. The LTCH market basket was last rebased in the FY 2021 IPPS/LTCH PPS final rule using 2017 Medicare cost reports (85 FR 58909 through 58926), the most recent year of complete data available at the time of the rebasing. We note that we did not propose to rebase the LTCH market basket in the FY 2023 IPPS/LTCH proposed rule; however, we did review the most recent Medicare cost report data available for LTCHs submitted as of March 2022, which includes data for 2018-2020. The Medicare cost report data showed that between 2017 and 2019 the compensation cost weight (which reflects expenses for wages and salaries, employee benefits, and contract labor) was relatively unchanged, decreasing by roughly 1.2 percentage points relative to the 2017-based LTCH market basket compensation cost weight. We note that data through 2021 are incomplete at this time and therefore, we are not able to estimate a compensation cost share weight for 2021 at this time. We have concluded that based on this preliminary analysis it is unclear whether these trends through 2020 are reflective of sustained shifts in the cost structure for long-term care hospitals or whether they were temporary as a result of the COVID-19 PHE. Therefore, we believe it is premature at this time to use more recent Medicare cost report data to derive a rebased and revised LTCH market basket. We will continue to monitor these data and any changes to the LTCH market basket will be proposed in future rulemaking.

Comment: A few commenters expressed concern that the 2023 rate increase CMS finalized for Medicare Advantage plans was significantly higher than the proposed FY 2023 update for LTCH PPS payments. These commenters believe this difference supports their view that the proposed FY 2023 update for LTCH PPS payments was inadequate.

Response: As stated previously, the Medicare program has historically used a market basket to account for input price increases in the services furnished by fee-for-service providers; in most instances, basing these updates on input price indexes is statutorily required. For the LTCH PPS we adopted a similar approach of using a market basket to update PPS payments, and beginning in FY 2021 this update reflected the percentage change in the 2017-based LTCH market basket (85 FR 58907 through 58909). For this FY 2023 IPPS/LTCH final rule, based on a more recent forecast than was used for the proposed rule, the LTCH market basket increase is 4.1 percent (one percentage point higher than the estimated market basket increase published in the FY 2023 IPPS/LTCH proposed rule).

After consideration of public comments, we are finalizing the LTCH payment update using more recent forecast of the market basket and productivity adjustment. As such, based on IGI's second quarter 2022 forecast, the FY 2023 market basket update for the LTCH PPS using the 2017-based LTCH market basket is 4.1 percent. The current estimate of the productivity adjustment for FY 2023 based on IGI's second quarter 2022 forecast is 0.3 percent. Therefore, under the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, consistent with 42 CFR 412.523(c)(3)(xvii), we are establishing an annual market basket update to the LTCH PPS standard Federal payment rate for FY 2023 of 3.8 percent (that is, more recent estimate of the LTCH PPS market basket increase of 4.1 percent less the productivity adjustment of 0.3 percentage point).

For LTCHs that fail to submit quality reporting data under the LTCH QRP, under § 412.523(c)(3)(xvii) in conjunction with 42 CFR 412.523(c)(4), as we proposed, we further reduced the annual update to the LTCH PPS standard Federal payment rate by 2.0 percentage points, in accordance with section 1886(m)(5) of the Act. Accordingly, we are establishing an annual update to the LTCH PPS standard Federal payment rate of 1.8 percent (that is, 3.8 percent minus 2.0 percentage points) for FY 2023 for LTCHs that fail to submit quality reporting data as required under the LTCH QRP.

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

In section IX. of the preamble of the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28477 through 28612), we sought public comment on the following focus areas and proposed changes to the Medicare quality reporting programs:

• In section IX.A., assessment of the impact of climate change and health equity.
• In section IX.B., overarching principles in measuring healthcare quality disparities in hospital quality programs.
• In section IX.C., advancement of digital quality measurement and use of Fast Healthcare Interoperability Resources (FHIR) in hospital quality programs.
• In section IX.D., advancing the Trusted Exchange Framework and Common Agreement (TEFCA).
• In section IX.E., the Hospital IQR.
• In section IX.F., the PCHQR Program.
• In section IX.G., the LTCH QRP.
• In section IX.H. the Medicare Promoting Interoperability Program for Eligible Hospitals and Critical Access Hospitals (CAHs) (previously known as the Medicare EHR Incentive Program).

A. Current Assessment of Climate Change Impacts on Outcomes, Care, and Health Equity—Request for Information

1. Background

A recent consensus statement signed by more than 200 medical journals noted climate change represents the greatest threat to global public health of the coming century. Pollution associated with the burning of fossil fuels is known to cause serious harm and loss in productivity, and resultant climate instability introduces a combination of catastrophic weather events and chronic disease impacts that create serious burdens on organizations providing health care. There is also evidence that climate change disproportionately harms underserved populations (for example, racial and ethnic minority groups, indigenous people, members of religious minorities, people with disabilities, sexual and gender minorities, individuals with limited English proficiency, older adults, and rural populations). Long-term discrimination and disparities based on social determinants of health mean that these groups are often less equipped to withstand climate threats and are more susceptible to associated harm. For example, Black Americans are much likelier to experience premature mortality as a result of extreme heat, and childhood asthma rates related to warming temperatures will be much higher in minority communities, as well. Out of concern for the health of individuals, and to maintain uninterrupted operations in service of patients, we believe the healthcare sector more fully explore how to effectively prepare for climate threats. Because healthcare facilities also emit greenhouse gases (GHGs) that contribute to climate change and its impacts, we believe that they study how best to reduce those emissions, as well.

2. Solicitation of Comments on the Current State of Health System Climate Change Efforts

In the Request for Information (RFI) in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28478 through 28479), we sought comment on how hospitals, nursing homes, hospices, home health agencies, and other providers can better prepare for the harmful impacts of climate change on their patients, and how we can support them in doing so. Because research has shown that climate change causes harm to individuals (through both catastrophic events and chronic disease) and because there is evidence to show that climate change will disproportionately harm underserved populations, we believe that it is critical to study and prepare for these impacts.

Generally, we sought input on what the U.S. Department of Health and Human Services (HHS) and CMS can do to support hospitals, nursing homes, hospices, home health agencies, and other providers in more effectively: (a) Determining likely climate impacts (that is, both immediate impacts associated with climate-related disasters and long-term chronic disease implications of climate change) on their patients, residents and consumers so that they can develop plans to mitigate those impacts; (b) understanding exceptional threats that climate-related emergencies (for example., storms, floods, extreme heat, wildfires) present to continuous facility operations (including potential disruptions in patient services associated with catastrophic events as a result of power loss, limited transportation, evacuation challenges, etc.) so they can better address those; and (c) understanding how to take action on reducing their emissions and tracking their progress in this regard. We believe this will inform the development and updating of policies that can assist providers in responding to climate-related challenges (for example, policies related to emergency preparedness) as well as the updating of HHS climate-health tools and resources.

We also invited public comments on the following topics (understanding that some provider types might have done more work in this area than others):

• The availability of information, such as analyses of climate change impacts (whether developed internally or collected from outside sources), that hospitals, nursing homes, hospices, home health agencies, and other providers can access to better understand climate threats to their patients, community, and staff.
• The degree to which different provider types currently complete comprehensive climate change risk assessments to better understand risks to their patient populations and the costs incurred due to catastrophic climate events and climate-related chronic disease.
• The degree to which facility efforts to prepare for climate impacts overlap with the work they already complete to meet CMS's Emergency Preparedness Requirements for Medicare and Medicaid Participating Providers and Suppliers, and the degree to which related CMS requirements sufficiently (or insufficiently) prepare them for the threats created by climate change and help or hinder these efforts.
• The degree to which hospitals, nursing homes, hospices, home health agencies, and other providers measure and share performance associated with their response to climate-related catastrophes (for example, measuring harm to vulnerable populations as a result of such events, or extent of disruption in service).
• The nature of facility plans for assisting the community and patients to prepare for and recover from climate-related events, as well as the nature of plans for evacuating patients with differing needs, including those with disabilities.
• The degree to which climate change, and climate change linked to health equity, is publicly addressed in strategic plans and objectives in your facility or system, and the degree to which hospital leadership regularly reviews progress on goals related to climate preparedness and mitigation and invests in health professional training on this topic.
• Whether health systems and facilities have time-bound, public aims for GHG emissions reduction, and, if yes, whether those aims relate to direct facility emissions, emissions associated with purchased energy, emissions associated with supply chain or some combination of these.
• The measures that health systems and facilities use to track their progress on GHG emissions reduction and use of renewable energy, as well as the data collection tools that they may use support this tracking.
• The tools and supports that health systems and facilities most heavily rely on to support their efforts to reduce GHG emissions.

• How HHS and CMS can support hospitals, nursing homes, hospices, home health agencies, and other providers in their efforts to more fully prepare for climate change's catastrophic and chronic impacts on their operations and the people they serve, as well as what incentives (for example, recognition, payment, reporting) might assist them in taking more action on climate readiness and emissions reduction.

• Whether accrediting organizations assess facilities' readiness for climate-related threats and their efforts to reduce GHG emissions.

We received comments on these topics.

Comment: We received many comments expressing support for this request for information on health impacts due to climate change and how we could potentially support hospitals, nursing homes, hospices, home health agencies, and other providers to more effectively determine and plan for climate impacts. Many commenters underscored the impacts of climate change, particularly on specific disease and services lines, as well as on underserved populations. Many commenters provided sources of public data and analyses that depict healthcare's impact on climate. Many commenters also identified pledges to which they committed in pursuit of reducing their climate impact.

The vast majority of commenters suggested that we incentivize and provide funding for participation in climate change initiatives. Several commenters proposed a value-based purchasing program as a potential format for such participation. A commenter suggested projects that reduce climate footprint could count towards community benefit.

Many commenters provided feedback and insights regarding how we can assess the impact of climate change on patients. Many commenters recommended undertaking additional analysis as the first step towards helping the healthcare industry understand and impact climate change. A commenter recommended hospitals study their internal patient level data to identify climate impacts on patients. A few commenters also recommended updating screening tools to include climate change health impact topics.

Commenters identified many initiatives and projects they are pursuing to reduce their footprint. Commenters recommended that we develop a repository of data and projects that have addressed climate change; highlight the impact of single use products versus reprocessing medical equipment and forced device obsolescence; encourage the reduction and recycling of anesthesia gases; leverage lessons learned from the reduction of highly enriched uranium; understand data storage and its impact on the environment; update aging healthcare infrastructure and building codes, especially on temperature regulation requirements; update guidance for on-site alternative energy sources and micro-grids; and add education on climate topics for clinicians. Many commenters also identified the need to update hospital emergency preparedness plans to include responses to climate-related disasters, including short-term, long-term, and post-disaster responses.

Commenters emphasized that climate change is not just a hospital issue. They recommended the that we engage with relevant groups including suppliers, advocacy groups, and other government agencies. A few commenters suggested that we work with interested parties to perform a life cycle analysis to identify high emission, low value clinical devices or services. A few commenters suggested that we continue to consider, and perhaps expand, the definition of climate change.

A few commenters cautioned us about considering new initiatives against the backdrop of the challenges stemming from the COVID-19 pandemic. A commenter specifically encouraged us to ensure that our work on addressing climate change does not detract from the mission of improving health. A commenter shared that climate related initiatives are funded through tax-exemption, which is not available to non-profit healthcare entities. Furthermore, A commenter questioned whether HHS has the authority to impose climate-change requirements. Finally, a commenter advised that any expansion of emergency preparedness requirements be non-burdensome.

In summary, the organizations and individuals that submitted comments almost uniformly embraced the importance of setting goals for reduced emissions and increased climate resilience but also repeatedly requested the following:

• More timely data to understand threats and health impacts associated with climate change, especially for vulnerable and marginalized populations, as well as information on cost impacts for care providers.
• Financing supports and incentives to help deepen their work in this area (with attention to the needs of different provider types).
• Technical assistance tools to assist operational and clinical improvements in this area (with attention to frontline specialties whose work intersects with climate health).
• Standardized measures and measurement frameworks to help with progress tracking and reporting (with mixed views on whether such reporting be mandatory or voluntary).
• Updates to/simplification of emergency preparedness requirements, conditions of participation and other regulations to help all provider and supplier types to be more responsive to climate-related challenges.
• Attention to the challenges different provider types, already under strain from the pandemic, must address to take on this work and ensure no compromise in the quality of care delivery.
• Attention to the importance of engaging supply chain stakeholders in order to fully address the challenge of reducing emissions.

Response: We thank the commenters for their input, recommendations, and many ideas. We will consider all the feedback received as we continue to understand how hospitals, nursing homes, hospices, home health agencies, and other providers can better prepare for the harmful impacts of climate change on their patients, and how we can support them in doing so. We additionally appreciate the many commenters who would like to volunteer to be a part of groups to help develop any future policies on this topic. We will continue to engage all interested parties via multiple avenues including future notice-and-comment rulemaking.

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

1. Background

Significant and persistent inequities in healthcare outcomes exist in the United States (U.S.). Belonging to a racial or ethnic minority group; being a member of a religious minority; living with a disability; being a member of the lesbian, gay, bisexual, transgender, and queer (LGBTQ+) community; living in a rural area; or being near or below the poverty level, are often associated with worse health outcomes. We are committed to achieving equity in healthcare outcomes for our beneficiaries by supporting healthcare providers' quality improvement activities to reduce health disparities, enabling beneficiaries to make more informed decisions, and promoting healthcare provider accountability for healthcare disparities.

Health equity is an important component of an equitable society. Equity, as defined in Executive Order 13985, is “the consistent and systematic fair, just, and impartial treatment of all individuals, including individuals who belong to underserved communities that have been denied such treatment, such as Black, Latino, and Indigenous and Native American persons, Asian Americans and Pacific Islanders and other persons of color; members of religious minorities; LGBTQ+ persons; persons with disabilities; persons who live in rural areas; and persons otherwise adversely affected by persistent poverty or inequality.” We define health equity as the attainment of the highest level of health for all people, where everyone has a fair and just opportunity to attain their optimal health regardless of race, ethnicity, disability, sexual orientation, gender identity, religion, socioeconomic status, geography, preferred language, or other factors that affect access to care and health outcomes. We are working to advance health equity by designing, implementing, and operationalizing policies and programs that support health for all the people served by our programs, eliminating avoidable differences in health outcomes experienced by people who are disadvantaged or underserved, and providing the care and support that our beneficiaries need to thrive.

Advancing health equity will require a variety of efforts across the healthcare system. The reduction in healthcare disparities is one aspect of improving equity that we have prioritized. In a RFI that we included in the FY 2022 IPPS/LTCH PPS final rule, titled “Closing the Health Equity Gap in CMS Hospital Quality Programs” (86 FR 45349 through 45360), we described programs and policies we have implemented over the past decade with the aim of identifying and reducing healthcare disparities, including: the CMS Mapping Medicare Disparities Tool and the CMS Disparity Methods stratified reporting. CMS has also supported HHS' efforts to implement the National Standards for Culturally and Linguistically Appropriate Services (CLAS) in Health and Health Care (78 FR 58539); as well as improvement of the collection of drivers of health in standardized patient assessment data in four post-acute care settings and the collection of health-related social need data by model participants in the Accountable Health Communities Model.

Measuring healthcare disparities and reporting these results to healthcare providers is a cornerstone of our approach to advancing healthcare equity. It is important to consistently measure differences in care received by different groups of our beneficiaries, and this can be achieved by methods to stratify quality measures. Measure stratification is defined for this purpose as calculating measure results for specific groups or subpopulations of patients. Assessing healthcare disparities through stratification is only one method for using healthcare quality measurement to address health equity, but it is an important approach that allows healthcare providers to tailor quality improvement initiatives, decrease disparity, track improvement over time, and identify opportunities to evaluate upstream drivers of health. The use of measure stratification to assess disparities has been identified by our Office of Minority Health as a critical component of an organized response to health disparities. To date, we have performed analyses of disparities in our quality programs by using a series of stratification methodologies identifying quality of care for patients with heightened social risk or with demographic characteristics with associations to poorer outcomes. In 2015, we began providing entity-level quality and member experience data to all Medicare Part C/D health plans stratified by race and ethnicity. In 2018, we introduced confidential reporting of hospital quality measure data stratified by dual eligibility in the Hospital IQR Program (81 FR 25199; 82 FR 38403 through 38409).

We are continuing to evaluate opportunities to expand our measure stratification reporting initiatives using existing sources of data. Our goal is to provide comprehensive and actionable information on health disparities to healthcare providers participating in our quality programs to support quality improvement efforts. We are doing this, in part, by starting with confidential reporting of stratified measure results that highlight potential gaps in care between groups of patients. This includes examining the possibility of reporting disparities in care based on additional social risk factors and demographic variables associated with historic disadvantage in the healthcare system, and examining disparities through the use of stratified healthcare quality measures across a variety of care settings. As we consider expanding our disparity measurement initiatives through the use of measure stratification, we believe that we model these efforts on existing best practices, such as considering feedback and making use of lessons learned through the development of our existing disparity reporting efforts.

There are several key elements that we intend to take into account as we consider advancing the use of measurement and stratification as tools to address healthcare disparities and advance healthcare equity. In the FY 2023 IPPS/LTCH PPS proposed rule, we sought input on key considerations in five specific areas that could inform our approach (87 FR 28479 through 28486). Each is described in more detail later in this section:

• Identification of Goals and Approaches for Measuring Healthcare Disparities and Using Measure Stratification Across CMS Quality Programs —This section identifies potential approaches for measuring healthcare disparities through measure stratification in CMS quality reporting programs.

• Guiding Principles for Selecting and Prioritizing Measures for Disparity Reporting Across CMS Quality Reporting Programs —This section describes considerations that could inform the selection of healthcare quality measures to prioritize for stratification.

• Principles for Social Risk Factor and Demographic Data Selection and Use —This section describes several types of social risk factor and demographic data that could be used in stratifying measures for healthcare disparity measurement.

• Identification of Meaningful Performance Differences —This section reviews several strategies for identifying meaningful differences in performance when measure results are stratified.

• Guiding Principles for Reporting Disparity Results —This section reviews considerations we could take into account in determining how quality programs will report measure results stratified by social risk factors and demographic variables to healthcare providers, as well as the ways different reporting strategies could hold healthcare providers accountable for identified disparities.

2. Identification of Goals and Approaches for Measuring Healthcare Disparities and Using Measure Stratification Across CMS Quality Programs

One of our goals in developing methods to measure disparities in care for beneficiaries is to provide actionable and useful results to healthcare providers. By quantifying healthcare disparities (for example, through quality measure stratification), we aim to provide useful tools for healthcare providers to drive improvements. We hope that these results support healthcare provider efforts to examine the underlying drivers of disparities in their patients' care and to develop their own innovative and targeted quality improvement interventions. With stratified disparity information available, it may be possible to drive system-wide advancement through incremental, provider-level improvement.

There are multiple conceptual approaches to stratifying measures. Since 2018, we have focused on illuminating healthcare disparities by reporting stratified results of existing quality measures by dual eligible status in two complementary ways. First, after stratification by dual eligible status, measure results for subgroups of patients served by an individual healthcare provider can be directly compared. This type of comparison identifies such disparities, or gaps in care or outcomes between groups at a hospital. This approach is sometimes referred to as “within-provider” disparity and can be done for most measures that include patient-level data for most care settings. “Within-provider” disparities are a helpful means by which to quantitatively express disparities in care at the provider level. Second, a healthcare provider's performance on a measure for only dual eligible patients is compared to other healthcare providers' performance for that same subgroup of patients (sometimes referred to as “across-provider” disparities measurement). This type of comparison illuminates the healthcare provider's performance for only the dual eligible subgroup, allowing comparisons for specific performance to be better understood and compared to peers, or against state and national benchmarks.

Taken separately, each approach may provide an incomplete picture of disparities in care for a particular measure, but when reported together with overall quality performance, these results can give detailed information about where differences in care exist. Using dual eligibility as an example, a healthcare provider may underperform when compared to national averages for their dual eligible population (“across-provider” disparity), but if they also underperform for patients who are not dual eligible, the measured difference, or “within-provider” disparity, could be negligible even though performance for the group that has been historically marginalized remains poor. In this case, simply providing stratified within-provider results could show little difference in care between patient groups seen by the provider but the combined results show the provider is underperforming on care for some patients compared to other providers.

Similar approaches have been recommended by the Assistant Secretary of Planning and Evaluation (ASPE) as ways to measure health equity in their 2020 Report to Congress. In their report, ASPE suggested measuring and reporting quality specifically for beneficiaries with social risk factors, stratifying measures by social risk factors, and encouraging the development of health equity measures such as these for incorporation into quality reporting programs.

We are especially sensitive to the need to ensure all disparity reporting avoids measurement bias. Stratified results must be carefully examined for potential measurement or algorithmic bias that is introduced through stratified reporting. Furthermore, results of stratified reporting must be evaluated for any type of selection bias that fails to capture disparity due to inadequate representation of subgroups of patients in measure cohorts. As part of the implementation of any type of measure stratification, we would carefully examine stratified results and methods to mitigate the potential for drawing incorrect conclusion from results.

3. Guiding Principles for Selecting and Prioritizing Measures for Disparity Reporting Across CMS Quality Reporting Programs

We are considering expanding our efforts to provide stratified reporting for additional clinical quality measures, provided they offer meaningful and valid feedback to healthcare providers on their care for populations that may face social disadvantage or other forms of discrimination or bias. Further development of stratified reporting of healthcare quality measures can provide healthcare providers with more granular results that support targeting resources and initiatives to improve health equity as a means to improving the overall quality of care. We are mindful that it may not be possible to calculate stratified results for all quality measures, or that there may be situations where stratified reporting may not be desired. To help inform prioritization of the next generation of candidate measures for stratified reporting, we solicited feedback on several systematic principles under consideration that we believe will help us prioritize measures for disparity reporting across quality programs.

These considerations would help guide the use of stratified measure results to provide information on healthcare disparities broadly across our quality programs. While we aim to standardize approaches where possible, disparity identification requires an understanding of the specific context and measures used by each program. To ensure that results provide the most actionable data possible, and to limit the potential for the introduction of bias, we believe decisions about how to identify and prioritize measures for possible stratification be made at the program level.

• Prioritize Existing Clinical Quality Measures —When considering disparity reporting of stratified quality measures, there are several advantages to focusing on measures that we have already, through notice and comment rulemaking, adopted for one or more CMS quality programs. These measures assess the quality of care on agreed upon topics for quality measurement specific to a quality program setting. These measures have gone through an extensive development process and validation testing with significant opportunity for public input. Adapting these existing quality measures to measure disparity through stratification maintains adherence to the measurement priorities identified through expert review and validation completed through measure development and testing. The application of measure stratification to these measures would also minimize any new reporting burden on healthcare providers.

• Prioritize Measures with Identified Disparity in Treatment or Outcomes for the Selected Social or Demographic Factor —Candidate measures for stratification be supported by evidence of underlying healthcare disparities in the procedure, condition, or outcome being measured. A review of peer-reviewed research studies be conducted to identify disparities related to treatment, procedure, or outcome associated with the measure, and carefully consider both social risk factors and patient demographics. In addition, analysis of Medicare-specific data be done to demonstrate evidence of disparity in care among the Medicare population. In addition, consideration also be given to conditions that have highly disproportionate prevalence in certain populations.

• Prioritize Measures with Sufficient Sample Size to Allow for Reliable and Representative Comparisons —Sample size holds specific significance for statistical calculations; however, it holds additional importance in the context of disparity reporting. Candidate measures for stratification will need to have sufficient cohort sample size to ensure that reported results of the disparity calculation are reliable and representative of the healthcare provider's patient population. This may be challenging if cohorts with a given social risk factor are small.

Carefully establishing reliability and representation standards for measure reporting is important for considering measures to stratify. Reliability, in this case, refers to the minimum case count needed to achieve reliable results. Metrics for reliability are used in non-stratified quality measure reporting, such as when measures require a certain number of procedures for their rates to be considered reliable. The use of a reliability standard for disparity reporting will ensure consistently reliable results are calculated.

Representation standards are also important and may involve requiring a minimum number or percent of healthcare providers or patients to be eligible to receive stratified results with reliable estimates before a measure is considered for disparity reporting. This requirement aims to ensure that meaningful comparisons can be made. As we noted previously, when only a small proportion of healthcare providers can receive statistically significant results, it may not be prudent for quality programs to pursue stratified reporting for that particular measure. Doing so can create challenges when generalizing rates of disparity for conditions or procedures when only a small proportion of a healthcare provider's results are considered. If, for example, only 10 percent of healthcare providers can report results, results must be clearly presented to ensure they are not understood to represent disparity in care for the measurement taking place in all care settings, as shown in this example, where 90 percent of them would not be included in reporting.

Quality programs may further consider measures for disparity reporting based on the size of the calculated disparity by prioritizing measures for stratification that show large differences in care between patient groups. Large differences in care for patients along social or demographic lines may indicate high potential that targeted initiatives could be effective. However, measures with disparities of smaller magnitude but with large cohorts affect many patients because they may have very large aggregate impacts on the national scale.

• Prioritize Outcome Measures and Measures of Access and Appropriateness of Care— Quality measurement in CMS programs often focus on outcomes of care, such as mortality or readmission. Outcomes measures remain a priority in the context of disparities measurement. However, measures that focus on access to care, when available, are also critical tools for addressing healthcare disparities. Measures that address healthcare access can counterbalance the risk of creating perverse incentives. If only differences in care between groups are measured, performance on a measure of disparity could be improved by limiting access to care for high-risk patients in the populations that are historically underserved or marginalized.

To complement stratification of measures focused on clinical outcomes, quality programs may consider prioritizing measures with a focus on access to or the appropriateness of care. These measures, when reported in tandem with clinical outcomes, would provide a broader picture of care provided by a healthcare provider, illuminate potential drivers of performance, and highlight organizations that fail to address barriers in access to care for groups that have been historically marginalized. We acknowledge that the measurement of access and appropriateness of care is a growing field, and that there are currently a limited number of developed quality measures on these topics. However, as our ability to measure these facets of healthcare improves, we expect that they will be high priority for measure stratification.

4. Principles for Social Risk Factor and Demographic Data Selection and Use

There are a wide array of non-clinical drivers of health known to impact patient outcomes, including social risk factors such as socioeconomic status, housing availability, and nutrition, as well as marked inequity in outcomes based on patient demographics such as race and ethnicity, being a member of a minority religious group, geographic location, sexual orientation, and gender identity, religion, and disability status. The World Health Organization (WHO) defines social risk factors as “non-medical factors that influence health outcomes. They are the conditions in which people are born, grow, work, live, and age, and the wider set of forces and systems shaping the conditions of daily life.” These include factors such as income, education, job security, food security, housing, social inclusion and non-discrimination, access to affordable health services, and any others. Research has indicated that these social factors may have as much or more impact on health outcomes as clinical care itself. Additionally, differences in outcomes based on patient race and ethnicity have been identified as significant, persistent, and of high priority for CMS and other federal agencies.

Identifying and prioritizing specific indicators of social risk or demographic variables to consider for stratified analyses and measure reporting can be challenging due to the large number of variables identified in the literature as potential risk factors for disparities in health care and poorer health outcomes. And yet, the limited availability of data for many self-reported social risk factors and demographic factors across the healthcare sector further complicates our ability to choose effective metrics to evaluate disparity.

Disparity reporting in the Hospital IQR Program has focused on stratification by dual eligibility for Medicare and Medicaid. Dual eligibility has been used in this and other CMS quality programs as an indicator of financial risk, as the majority of Medicaid beneficiaries are eligible based on meeting thresholds for low patient income and/or assets. The use of dual eligibility is consistent with recommendations from ASPE's First Report to Congress which was required by the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 (Pub. L. 113-185). This report found that, in the context of value-based purchasing (VBP) programs, 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.

Financial risk is only one metric of social risk, and stratification of quality measures by additional social risk factors and demographics (such as race, ethnicity, language, religion, sexual orientation, and gender identity) or disability, is important to provide more granular information for healthcare providers to act upon. As we consider prioritizing and expanding the variables used for measure stratification, we will carefully consider both social risk factors and patient demographics as well as other variables associated with historic disadvantage in healthcare, such as disability status.

As noted previously, a growing body of literature identifies the association between social risk factors and demographic variables with poorer health outcomes. While social risk factors and demographic variables are both associated with worse healthcare outcomes and experiences, they are distinct constructs, and be identified, measured, and reported as such. Patient demographic variables such as race and ethnicity are often identified as indicators of social risk driven by the differences in care received by persons who belong to minority racial and ethnic groups. The disparity in outcomes can be attributed to many factors, including discrimination in the healthcare system, challenges accessing quality healthcare, and societal inequity in other factors connected to social risk. Attributing differences in outcomes to race may inappropriately place the driver of poorer health outcomes on the patient, rather than on structural factors, such as racism in society and the healthcare system that drive the provision of lower quality care. It is important, in identification of non-clinical drivers of health, to identify that race and ethnicity are not the social risk factor, but markers of exposure to other factors.

In prioritizing among social risk factors and demographic variables, disability, and other markers of disadvantage for stratified reporting, we anticipate that each individual quality program would design an approach appropriate to their care setting. We strive to operationalize our programs consistently where possible to decrease the burden on healthcare providers, however, the deeply contextual nature of this type of reporting may require the development of an approach specific to the quality programs based on care setting, patient population, and data availability.

The availability of data is a crucial consideration when examining data sources for use in stratified quality reporting. In many cases, the lack of available patient-reported data on patient social risk or demographic variables limits the ability to conduct disparity analyses. While improving the collection of patient-reported demographic information and information on social risk is an ongoing goal, other methods and data sources for estimating social risk (as described further in this section) could potentially fill in gaps in existing data sets, and could include area-based indicators or imputation techniques that use existing information about patient populations to estimate approximations about related population information. Each of these types of data sources have advantages and disadvantages.

Patient-reported data are considered to be the gold standard for evaluating care for patients with social risk factors or who belong to certain demographic groups as this is an accurate and preferred way to attribute social risk. Currently, there are many efforts underway to further develop data standards for collection for self-reported patient social risk and demographic variables. Yet, given that national data sources of reliable, self-reported data are not yet available, we also intend to consider other options for social risk factor data. We note efforts to standardize the collection of demographic and social risk factor data include prior work done by both CMS and the Office of the National Coordinator for Health Information Technology (ONC) with federal and private partners to better collect and leverage data on social risk. This work includes: (1) The development of an Inventory of Resources for Standardized Demographic and Language Data Collection; (2) CMS' work to support specialized International Classification of Diseases, (ICD) 10th Revision, Clinical Modification (ICD-10-CM) codes for describing the socioeconomic, cultural, and environmental drivers of health; and (3) the CMS sponsorship of several initiatives to statistically estimate race and ethnicity information when it is absent.

One example of improving sources of data come from the certified health IT utilized by hospitals to meet the requirements of the Promoting Interoperability program. This includes health IT certified to the “demographics” certification criterion (45 CFR 170.315(a)(5)), which provides for the capability to record race and ethnicity at a detailed level of granularity consistent with the Centers for Disease Control and Prevention's (CDC) Race & Ethnicity—CDC code system. This code system includes more than 900 concepts for race and ethnicity, which gives patients very specific options for self-identifying their demographic information. The 900 concepts are organized in a way to eventually “roll up” to the Office of Management and Budget's (OMB) minimum categories for race and ethnicity, which can support aggregation and reporting needs when the OMB standard is necessary. It also includes social, psychological, and behavioral standards in health IT certification criteria (80 FR 62601), providing interoperability standards (LOINC [Logical Observation Identifiers Names and Codes] and SNOMED CT [Systematized Nomenclature of Medicine—Clinical Terms]) for financial strain, education, social connection and isolation, and others. The Agency for Healthcare Research and Quality (AHRQ) has also worked with the Gravity Project which is a multistakeholder effort to expand capabilities to capture additional drivers of health data elements, to identify and harmonize social risk factor data for interoperable electronic health information exchange for electronic health record (EHR) fields, and make recommendations on the expansion of the ICD-10 (International Classification of Diseases, 10th Revision) Z-codes, the alphanumeric codes used worldwide to represent diagnoses, to include additional social risk diagnoses.

We expect to continue evaluating patient-reported sources of social risk and demographic information. We are also considering three sources of social risk and demographic data that would allow us to report stratified measure results:

• Billing and Administrative Data —The majority of quality measurement tools used in our quality programs focus on utilizing existing claims and administrative data for Medicare beneficiaries. Using these existing data to assess disparity, for example by the use of dual enrollment for Medicare and Medicaid, allows for high impact analyses with negligible healthcare provider burden. There are, however, limitations in these data's usability for stratification analysis. CMS's current administrative race and ethnicity data have been shown to have historical inaccuracies due to limited collection classifications and attribution techniques, and are generally considered not to be accurate enough for stratification and disparity analyses. International Classification of Diseases, 10th Revision (ICD-10) codes for socioeconomic and psychosocial circumstances (“Z codes” Z55 to Z65) represent an important opportunity to document patient-level social risk factors in Medicare beneficiaries, however, they are rarely used in clinical practice, limiting their usability in disparities measurement. If the collection of social risk factor data improves in administrative data, we will continue to evaluate its applicability for stratified reporting in the future.

Dual eligibility is a widely used proxy for low socioeconomic status and is an exception to the previously discussed limitations, making it an effective indicator for worse outcomes due to low socioeconomic status. The use of dual eligibility in social risk factor analyses was supported by ASPE's First and Second Reports to Congress. These reports found that in the context of VBP programs, dual eligibility, as an indicator of social risk, was among the most powerful predictor of poor health outcomes among those social risk factors that ASPE examined and tested.

• Area-based Indicators of Social Risk Information and Patient Demographics —Area-based indicators pool area-level information to create approximations of patient risk or describe the neighborhood or context that a patient resides in. Popular among them are the use of the American Community Survey (ACS), which is commonly used to attribute social risk to populations at the ZIP code or Federal Information Processing Standards (FIPS) county level. Several indices, such as the Agency for Healthcare Research and Quality (AHRQ) Socioeconomic Status (SES) Index, Centers for Disease Control and Prevention/Agency for Toxic Substances and Disease Registry Social Vulnerability Index (CDC/ATSDR SVI), and Health Resources and Services Administration Area Deprivation Index, combine multiple indicators of social risk into a single score which can be used to provide multifaceted contextual information about an area and may be considered as an efficient way to stratify measures that include many social risk factors.

• Imputed Sources of Social Risk Information and Patient Demographics —Imputed data sources use statistical techniques to estimate patient-reported factors, including race and ethnicity. In the case of race and ethnicity, indirect estimation improves upon imperfect and incomplete data by drawing on information about a person's name and address and the linkage of those variables to race and ethnicity. One such tool is the Medicare Bayesian Improved Surname Geocoding (MBISG) method (currently in version 2.1), which combines information from administrative data, surname, and residential location to estimate patient race and ethnicity. We have customized this tool for the Medicare population to improve our existing administrative data on race and ethnicity.

The MBISG 2.1 method does not assign a single race and ethnicity to an individual; instead, it generates a set of six probabilities, each estimating how the individual would self-identify if provided with a set of racial and ethnic groups to choose from including: American Indian or Alaska Native, Asian or Pacific Islander, Black, Hispanic, Multiracial, and White. In no case would the estimated probability be used for making inferences about a specific beneficiary; only self-reported data on race and ethnicity be used for that purpose. However, in aggregate, these results can provide insight and accurate information at the population level, such as the patients of a given hospital, or the members of a given plan. MBISG 2.1 is currently used by our Office of Minority Health (OMH) to undertake various analyses, such as comparing scores on clinical quality of care measures from the Healthcare Effectiveness Database and Information Set (HEDIS) by race and ethnicity for Medicare Part C/D health plans, and in developing a Health Equity Summary Score (HESS) for Medicare Advantage (MA) health plans.

While the use of area-based indicators and imputed data sources are not meant to replace efforts to improve patient-level data collection, we are considering how they might be used to begin population-level disparity reporting of stratified measure results while being conscientious about data limitations.

Imputed data sources, particularly when used to identify patient populations for measurement, must be carefully evaluated for their potential to negatively affect the populations being studied. For this reason, imputed data sources only be considered after a significant validation study has been completed, including evaluation by key stakeholders for face validity, and any calculations that incorporate these methods be continuously evaluated for the accuracy of their results and the necessity of their use. While neither imputed nor area-level geographic data be considered a replacement for improved data collection, researchers have found their use to be a simple and cost-efficient way to make general estimations of social risk at a community level. In place of patient-level information when it is not available, the combination of several sources of imputed or area-level data can provide actionable estimations of social risk of a population.

5. Identification of Meaningful Performance Differences

In examining potential ways to report healthcare disparity data, that is, the results of quality measure stratification, we expect to consider different approaches to identifying meaningful differences in performance. Stratified results can be presented in several ways to describe to providers how well or poorly they are performing, or how they perform when compared to other care facilities. For this reason, it is important to identify how best to present meaningful differences in performance for measures of disparity reporting. While we aim to use standardized approaches where possible, we also expect that decisions about how to identify meaningful differences in performance would ultimately be tailored to each individual program. We welcomed feedback on the benefits and limitations of the possible disparity reporting approaches we described in this RFI.

• Statistical Differences —When aiming to examine differences in disparities results among healthcare providers, the use of statistical testing can be helpful. There are many statistical approaches that can be used to reliably group results, such as using confidence intervals, creating cut points based on standard deviations, or using a clustering algorithm. Importantly, these approaches may result in groupings that are statistically different, but not meaningfully different depending on the distribution of results.

• Rank Ordering and Percentiles —Ordering healthcare providers in a ranked system is another option for reporting disparity results in a meaningful way. In this system, healthcare providers could be ranked based on their performance on disparity measures to quickly allow them to compare their performance to other similar healthcare providers. We may consider using an ordered system to report healthcare provider results by categorizing healthcare providers into groups, for example, into quintile or decile groups. This approach works well as a way for healthcare providers to easily compare their own performance against others; however, a potential drawback is that it does not identify the overall magnitude of disparity. For example, if a measure shows large disparity in care for patients based on a given factor, and that degree of disparity has very little variation between healthcare providers, the difference between the top and bottom ranked healthcare providers would be very small even if the overall disparity is large.

• Threshold Approach —A categorization system could also be considered for reporting disparity results. In this system, healthcare providers could be grouped based on their performance using defined metrics, such as fixed intervals of results of disparity measures, indicating different levels of performance. Using a categorized system may be more easily understood by stakeholders by giving a clear indication that outcomes are not considered equal. However, this method does not convey the degree of disparity between healthcare providers or the potential for improvement based on the performance of other healthcare providers. Furthermore, it requires a determination of what is deemed `acceptable disparity' when developing categories.

• Benchmarking —Benchmarking, or comparing individual results to, for example, state or national averages, is another potential reporting strategy. This type of approach could be done, especially in combination with a ranked or threshold approach, to give healthcare providers more information about how they compare to the average care for a patient group.

Another consideration for each of these approaches is grouping similar care settings together for comparison through a peer grouping step, especially if a ranked system is used to compare healthcare providers. Some stakeholders have stated that comparisons between healthcare providers have limited meaning if the healthcare providers are not similar, and that peer grouping would improve their ability to interpret results. Overall, the value of peer grouping must be weighed against the potential to set different standards of meaningful disparity among different care settings.

6. Guiding Principles for Reporting Disparity Results

Confidential reporting for a short period that is not followed by public reporting of the same measure data is one approach we have used for newly adopted measures in a CMS quality program to give healthcare providers an opportunity to become more familiar with calculation methods and to begin improvement activities before their measure results are publicly reported. Providing early results to healthcare providers is an important way to provide healthcare providers the information they need to design impactful strategies to reduce disparity. Public reporting is a statutory requirement in all of our quality programs. Public reporting provides all stakeholders with important information on healthcare provider quality, and in turn, relies on market forces to incentivize healthcare providers to improve and become more competitive in their markets.

Payment accountability for performance is also statutorily required in some of our quality programs. Payment accountability refers to tying payment to the results of quality measure performance, and in general rewards better performance with higher payment rates. Payment accountability allows us to reward healthcare providers for having low disparity rates and performing well for vulnerable patient groups.

We are exploring whether it would be prudent to first confidentially report all stratified measure results, where adopted into a quality reporting program, to give healthcare providers an opportunity to understand those results so they can begin to implement programs to reduce disparities before we report the results publicly.

We also believe it is important to report stratified measure data alongside overall measure results. Review of both overall measure results along with stratified results can illuminate greater levels of detail about quality of care for subgroups of patients, providing important information to drive quality improvement. Unstratified quality measure results address general differences in quality of care between healthcare providers and promote improvement for all patients, but unless stratified results are available, it may be unclear whether there are subgroups of patients that would benefit most from targeted quality improvement initiatives. Notably, even if overall quality measure scores were to improve, without identifying and measuring differences in outcomes between groups of patients, it could be impossible to track progress in reducing disparity between patients with and without heightened risk of poor outcomes due to social factors.

7. Solicitation of Comments

The goal of this RFI was to describe key considerations in determining how to develop future policies around the use of measure stratification as one quality measurement tool to address healthcare disparities and advance health equity across our quality programs. This is important as a means of setting priorities and expectations for the use of stratified measure results.

We invited general comments on the principles and approaches listed previously, as well as additional recommendations about disparity measurement or stratification guidelines suitable for overarching consideration across our quality programs. Specifically, we invited comment on:

• Overarching goals for measuring disparity that be considered across CMS quality programs, including the importance of pairing stratified results with overall measure results to evaluate gaps in care among groups of patients attributed to a given healthcare provider and comparison of care for a subgroup of patients across healthcare providers.
• Principles to consider for prioritization of measures for disparity reporting, including prioritizing stratification for: valid clinical quality measures; measures with established disparities in care; measures that have adequate sample size and representation among healthcare providers; and, measures that consider access and appropriateness of care.
• Principles to be considered for the selection of social risk factors and demographic data for use measuring disparities, include the importance of identifying new social risk factor and demographic variables to use to stratify measures. We also sought comment on the use of imputed and area-based social risk and demographic indicators for measure stratification when patient reported data are unavailable.
• Preferred ways that meaningful differences in disparity results can be identified or be considered.
• Guiding principles for the use and application of the results of disparity measurement such as providing confidential reporting initially.

We received comments on these topics.

Comment: Many commenters responded to the overarching goals for measuring disparity across CMS quality programs described in the RFI. In general, commenters supported the goals of measure stratification set out in the proposed rule and suggested that these efforts could lead to a better understanding of longitudinal, geographic and provider disparity trends. Commenters noted that stratification of applicable measures by social risk factors will support hospital decision making and encourage CMS to be more explicit in describing the relationship between stratification methods and the concept of “health equity,” as well as the implications of those views for the specific proposals being made. Commenters also suggested that these methods be designed to have the greatest impact possible on patient care and experience.

Many commenters supported considering multiple approaches to measuring healthcare disparities, specifically, using the existing “within-provider” and “across-provider” approaches included in the CMS Disparity Methods. Commenters supported the current use of dual-eligibility for Medicare and Medicaid as a stratification variable, but suggested stratification by additional social risk factors and noted that appropriate considerations for confounding factors be accounted for.

Many commenters urged that CMS consider any additional provider burden associated with disparity measurement and that CMS acknowledge the need to provide actionable, useful, consistent, valid, reliable, comparable, and robust measures and data. A commenter recommended that CMS establish consistent measures across CMS's various quality programs to reduce reporting burden and to enhance robustness of the data collected; however, other commenters agreed that approaches may need to be tailored to individual settings. Commenters expressed that there are many challenges in the implementation of stratified measure reporting and offered several comments and suggestions. Commenters noted the need for CMS to contextualize disparity results, the need for more resources for providers to address disparity results, and the potential utility of peer grouping especially when using approaches that compare performance across providers to allow for more `like to like' comparisons.

A commenter suggested using performance thresholds and benchmarking for the entire patient population instead of performance threshold by subgroup like the “across-provider” approach.” Another commenter suggested that, in order not to reward low-quality care, reductions in disparities be measured against total quality of care.

A commenter noted that the inclusion of health equity as a strategic goal in the FY 2023 IPPS/LTCH PPS proposed rule assumes a meaningful relationship between the processes and outcomes of care at the inpatient hospital level and the broad measures of population health that are generally subsumed under the concept of “health equity.” The commenter encouraged CMS to be more explicit in describing its views of this relationship, and the implications of those views for the specific proposals being made.

A few commenters opposed measure stratification or the direction of CMS's health equity efforts noting that ranking and comparing provider performance may lead to performance competition and gaming but may not result in improved care for patients. Another commenter noted that CMS could potentially create a healthcare provider ranking system based on the results of the nonmedical, social risk factors included in the stratification method but that this would be an unacceptable and inappropriate use of the healthcare system's resources.

Response: We appreciate the feedback and suggestions provided by the commenters regarding overarching goals for measuring disparity across CMS quality programs; particularly, the importance of balancing the pursuit of meaningful impact with burden reduction in implementation. We will take commenters' feedback into consideration in future policy development.

Comment: Several commenters emphasized the importance of avoiding measurement bias as a key goal for measuring disparity. Commenters expressed concerns that stratification, specifically when combined with the use of imputed data to identify demographic and social risk factors and variables, could lead to measurement bias, and potentially deepen inequities. Commenters recommended that CMS disclose methods and algorithms for imputed data to maintain consumer trust and confidence.

Several commenters suggested that methods be introduced to adjust quality measures and measurement tools for patient social risk or race and ethnicity. These commenters noted that this is important to ensure that providers, such as safety-net hospitals, who care for large proportions of patients with social risk factors are not unfairly penalized under these performance metrics.

Response: We appreciate the feedback and suggestions provided by the commenters regarding attention to the importance of avoiding measurement bias when stratifying measures in CMS programs. We will take commenters' feedback into consideration in future policy development.

We would also like to clarify that the RFI does not directly address risk adjustment for patient social factors or demographic variables within measures, which may set different expected quality results for persons with certain social risk factors, but rather discusses approaches to distinguish performance between groups to highlight underlying disparities.

Comment: Commenters responding to principles for the prioritization of measures for disparity reporting supported using existing clinical quality measures, particularly outcome measures and measures of access and appropriateness of care, as a guiding principle in selecting and prioritizing measures for quality reporting across CMS quality reporting programs.

A commenter expressed support for the proposed prioritization of existing clinical quality measures for disparity stratification, particularly those classified as outcomes measures and measures of access and appropriateness of care, rather than developing entirely new disparity-focused measures. The commenter stated that this will limit any additional administrative burden for facilities to understand, implement, and report new quality measures while focusing on the most meaningful results for patients.

A commenter appreciated CMS's efforts to test and validate these measures, though others cautioned the agency to balance reducing the burden of developing purpose-fit measures with potential problems or limitations in many existing measures and recommended that existing clinical measures be further reviewed and validated prior to implementation within CMS's reporting programs. Other commenters cautioned that individual measures' risk-adjustment methods must be assessed for their impact on disparity results.

Many commenters supported using measures with identified disparity in treatment or outcomes for the selected social or demographic factor as a guiding principle in selecting and prioritizing measures for quality reporting across CMS quality reporting programs. A commenter urged CMS to prioritize measures that relate to the conditions in which the inequities are starkest. Another commenter cautioned that measures with known disparities in care be judged carefully—that is, that reporting disparity results must be actionable, and not just be descriptive of large disparities. Several additional topics and conditions were suggested for disparity measurement, including maternal morbidity and mortality, sickle cell disease, cancer, cardiovascular disease, chronic kidney disease and End-Stage Renal Disease.

Response: We appreciate the feedback and suggestions provided by the commenters regarding the prioritization of quality measures for stratification; again, with particular appreciation for the importance of reducing burden in implementation. We will take commenters' feedback into consideration in future policy development.

Comment: Many commenters commented on priorities for selecting measures for stratification particularly related to sample size and reliability of measures. They supported using measures with sufficient sample size to allow for reliable and representative comparisons to be made.

Commenters noted that focusing on statistical reliability and representation meets two important criteria. First, the reportability and reliability of a measure will have an impact on how appropriate different types of reporting will be, and second, not reporting results for all providers due to statistical considerations risks drawing conclusions about disparity from an incomplete set of results. For example, disparity in hospitals with low sample sizes may not be calculated and reported, even if differences in care in this setting are the greatest. The commenters stated that unintended consequences of this approach could allow for disparities to go unnoticed in communities already historically disadvantaged and marginalized by the healthcare system.

Commenters suggested that CMS consider innovative applications of statistical methodologies for the design and analysis of small sample data including: (1) Research designs and analytic methods that can maximize statistical power for analyses of interventions conducted with small, culturally distinct samples—including dynamic wait list research designs, Bayesian approaches, matching, imputation, or increasing look back periods, (2) strategies for reducing error and bias in measures applied in studies with culturally distinct samples such as the Rasch Measurement Model, and (3) use of qualitative methods and mixed methods combining qualitative and quantitative data.

A commenter noted that statistical reliability and representative sampling are important but could prove difficult (depending on census composition) for facilities to maintain with fluctuating demographics and recommended that any representation standards be applied over the duration of the performance year to maximize the chance of capturing data on individuals with social risk factors.

A commenter noted that while blending performance across years also encourages sustained high quality, pooling data across years could dampen a provider's drive to improve if their recent better results are blended with older, poorer performance. The commenter noted that in such a case, the provider's improved performance would not be fully recognized in its payment incentive payment for several years and suggested that, in order to counter this disincentive, CMS could consider weighting the more recent years more heavily or CMS could also pool data across years only for low-volume providers, while reporting just the most recent year's performance for providers that meet a minimum count in a single year.

Response: We appreciate the feedback and suggestions provided by the commenters regarding sample size and representation in disparity analyses. We will take commenters' feedback into consideration in future policy development.

Comment: Commenters on principles for prioritizing measurement suggested that measures be prioritized for stratification based on many criteria, such as identifying measures that: target the most high-value and impactful measures; meaningfully advance health equity or reduce healthcare disparities; provide a person-centered and holistic view of quality, including consideration of Social Drivers of Health (SDOH) and experience of care; provide meaningful and usable information, or are linked to an intervention; are tailored to specific community needs and socioeconomic circumstances that focus on improvements within those populations rather than exist as flat standards to meet; and, incentivize work on disparities reduction and improvement rather than penalize providers and payers who serve more patients that are socially-disadvantaged.

A commenter stated that CMS not prioritize measures for stratification based on the type of measure (for example, structure, process, outcome, access), but that CMS instead prioritize measures for stratification if disparities exist in these measures and they can be measured accurately and reliably. This commenter noted that while the trend has been towards prioritizing outcome and access measures, these measures are also highly susceptible to factors outside a provider's control.

Response: We appreciate the feedback and suggestions provided by the commenters regarding prioritization of measures for disparity reporting. We will take commenters' feedback into consideration in future policy development.

Comment: Commenters offered a variety of views regarding principles for social risk factor and demographic data selection and use in stratification. A commenter expressed support for CMS's ongoing work to collect and make data publicly available related to social risk factors that affect patient outcomes.

Commenters agreed with the examples of social risk factors in the proposed rule (88 FR 28482 through 28483), including our current use of dual eligibility for Medicare and Medicaid as a social risk factor. Commenters also recommended that CMS use other financial risk factors in addition to dual eligibility, because the commenters believed that dual eligibility is better understood as a proxy for extreme financial risk.

Commenters suggested that CMS work to enhance the use of SDOH Z-codes for use in disparity reporting. that CMS work to enhance the capture of standardized data sets, and that CMS conduct research to identify the factors that have disproportionate impact on health outcomes and prioritize their collection. Commenters also suggested CMS review tools used to capture patient demographic and social risk factors that are validated and widely used but noted that ideally providers have the ability to choose the tool that best suit their patient population. Other commenters recommended that CMS explore using existing data, such as SSDOH Z-codes, before imposing new data reporting requirements.

Commenters suggested the use of additional social risk factors such as broadband internet access, social isolation, vision, mental health status, immigration status, and health literacy. Commenters suggested using gender as a social risk factor (as well as a demographic variable).

Commenters recommended that CMS explore using existing data before imposing new data reporting requirements.

Response: We appreciate the feedback and suggestions provided by the commenters regarding selection of social risk factors to use for measure stratification. We will take commenters' feedback into consideration in future policy development.

In addition we want to note that conceptually, equity related terms, such as “health related social needs”, “social determinants of health”, and “social risk factors” are all used to describe upstream factors that can adversely affect the health of individuals and communities (87 FR 28497). These terms are often conflated and used interchangeably and the variety of terms can create confusion, prompting some leaders in the field to adopt “drivers of health” instead. In the future, CMS is considering using “drivers of health” terminology to more holistically capture aforementioned and related concepts, while minimizing potential misinterpretation or negative connotation.

Comment: Several commenters addressed the identification of new demographic variables. Many commenters agreed that the collection of race and ethnicity data as well as data regarding the other demographic variables discussed in the preamble of the proposed rule was needed and will be essential for tracking disparities as well as guiding the design and application of culturally specific public health approaches. A commenter suggested that CMS add tribal membership as a variable.

Other comments suggested using current OMB race and ethnicity standards. A few commenters believed that CMS ensure collection of data on race and ethnicity, as well as certain other demographic data including patients' disability status, sexual orientation, gender identity, and physical and cogitative disabilities.

A commenter believed that “race” and “ethnicity” are so overly broad, vague, and ill-defined that, even in combination with other indicators, they are unlikely to provide useful information and may even obscure individual experience to the detriment of individualized patient care.

Some commenters supported using imputation, or estimation, methods for demographic variables. A commenter stated that CMS use strong, vetted algorithms for indirect/imputed data attribution. Another commenter noted that the indirect estimations as described in the proposed rule have very high predictiveness statistics and are often used in other facets of health research and analysis, including the annual report on Racial, Ethnic, & Gender Disparities in Health Care in Medicare Advantage. The commenter believed that these estimations are largely built on assumptions and that such algorithms often have issues with how race and ethnicity is defined and how the data are collected. Because self-reported race and ethnicity data are the gold standard and not be replaced with less reliable estimations, this commenter recommended that CMS move away from utilizing indirect estimations to collect race and ethnicity data and rather focus on efforts to promote collection of self-reported data in hospital settings.

Some commenters did not support using estimated patient race and ethnicity. Several commenters believed that estimating an individual's race or ethnicity based on name and geography is inappropriate. A commenter expressed several specific concerns regarding CMS's potential use of the Medicare Bayesian Improved Surname Geocoding (MBISG) model to estimate race and ethnicity for the purpose of risk stratification, and recommended CMS review the Urban Institute's Design Thinking Workshop on the Ethics of Imputation and Related Methods and subsequent report, “Five Ethical Risks to Consider before Filling Missing Race and Ethnicity Data.”

Response: We appreciate the feedback and suggestions provided by the commenters regarding selection of demographic variables to use for measure stratification, and acknowledge the complexities involved in accurately capturing race, ethnicity, and other nuanced demographic information. While we will continue to explore rigorous estimation methods, we are committed to improving the collection and reporting of self-reported data as well as its use for risk stratification and other quality measurement purposes. We will take commenters' feedback into consideration in future policy development.

Comment: Several commenters expressed appreciation for CMS's identification of systemic racism as a driver of inequitable health. A commenter believed that data analysis include proactive steps to explicitly name racism and longstanding structural racism as root causes of inequities when interpreting and communicating findings, and whenever possible, make clear that observed health inequities are not due to biological traits, gender identities or other characteristics of ethnically and racially diverse individuals or groups.

Commenters suggested CMS be wary of quality adjustment policies based on race or ethnicity due to the potential of measurement bias or other unintended consequences related to the implementation of well-intentioned models that may be biased.

Commenters believed that regular and ongoing implicit and explicit bias training for all healthcare team members is critical to addressing disparities and pursuing equity, and additional training will be necessary to support collecting patient-reported social risk and demographic data.

Response: We appreciate the feedback and suggestions provided by the commenters regarding the identification of structural racism as a driver of inequitable health, and agree that addressing the impact of racism, bias, and other forms of discrimination must be centered in the pursuit of health equity across CMS quality programs. We will take commenters' feedback into consideration in future policy development.

Comment: Commenters agreed with CMS that the availability of data on patient demographics and social risk factors is a crucial consideration when choosing variables to use for stratifying quality measures. Commenters agreed that patient self-reported data are preferred and are the gold standard because they are the most accurate and reflect a patient-centered focus; however, many clinicians already find it difficult to collect this information from their patients due to workflow issues, resource constraints, and the reluctance of some patients to self-report demographic and social risk data.

Commenters offered suggestions regarding how to improve data self-reporting. Commenters suggested CMS consider opportunities for consumer education and notification on the importance of self-reported data, and that any entities that will be collecting and using these data also be prepared to address the privacy and security of the data.

Commenters noted the difficulty in collecting patient data. A commenter recommended that CMS consider how it can support hospitals and other providers to improve the collection of patient self-reported social risk and demographic data, potentially by working with stakeholders to identify and share best practices on consumer-centered data collection approaches and workflows to expand and improve available options for demographic and social risk data collection. The commenter also recommended that CMS make efforts to ensure the data can be collected and reported efficiently and without undue burden.

A commenter stated that while that patient-level data remain the gold standard, depending on the proposed application, imputed data could have some potential utility to fill gaps in availability. The commenter expressed reluctance to support the use of imputed indices with approaches like risk adjustment, peer grouping, and other comparative performance applications unless CMS tests their use on specific measures and scoring methodologies.

Several commenters expressed some support for the use of the Health Resources and Services Administration Area Deprivation Index (ADI). A commenter stated that tools like the ADI have shown some utility and are worth consideration, but that the literature is less clear on the validity and utility of imputing individual race, ethnicity, or other variables. Commenters suggested that CMS avoid public reporting of disparity reports that use imputed data sources because this could unintentionally introduce measurement bias or discourage patients from selecting providers that care for patients in communities that have been marginalized.

Commenters urged that CMS adopt and endorse the Office of the National Coordinator for Health Information Technology's (ONC's) 2015 Edition standards for collecting disaggregated data for all hospitals and for all CMS quality programs. A commenter noted that the ONC's 2015 Edition Health Information Technology Certification Criteria Final Rule, the “2015 Edition” establishes HIT certification requirements that include full disaggregation of race and ethnicity, language, sexual orientation, gender identity, and social and behavioral risk factors.