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

Federal RegisterAug 10, 2022

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 482, 485, and 495

[CMS-1771-F]

RIN 0938-AU84

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

AGENCY:

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

ACTION:

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

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.

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.

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.

We note that in the FY 2023 IPPS/LTCH PPS proposed rule we described the policy for FY 2017 and subsequent years, without reference to flexibility due to the COVID-19 PHE. We have updated this information to describe the policy for FY 2023.

We note that in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28113) we inadvertently omitted reference to removing COVID-19 diagnosed patients from the numerator. We have corrected this omission here.

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.

ER10AU22.000

ER10AU22.001

ER10AU22.002

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

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.

3 4

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

HL7 FHIR Release 4. Available at:

https://www.hl7.org/fhir/

HL7 FHIR. PACIO Functional Status Implementation Guide. Available at:

https://paciowg.github.io/functional-status-ig/

PACIO Project. Available at:

http://pacioproject.org/about/

CMS Data Element Library Fact Sheet. Available at:

https://www.cms.gov/newsroom/fact-sheets/cms-data-element-library-fact-sheet

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

Public Law 114-255, sections 4001 through 4008. Available at:

https://www.govinfo.gov/content/pkg/PLAW-114publ255/html/PLAW-114publ255.htm

The Trusted Exchange Framework (TEF): Principles for Trusted Exchange (Jan. 2022). Available at:

https://www.healthit.gov/sites/default/files/page/2022-01/Trusted_Exchange_Framework_0122.pdf

Common Agreement for Nationwide Health Information Interoperability Version 1 (Jan. 2022). Available at:

https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf

The Common Agreement defines Individual Access Services (IAS) as “with respect to the Exchange Purposes definition, the services provided utilizing the Connectivity Services, to the extent consistent with Applicable Law, to an Individual with whom the QHIN, Participant, or Subparticipant has a Direct Relationship to satisfy that Individual's ability to access, inspect, or obtain a copy of that Individual's Required Information that is then maintained by or for any QHIN, Participant, or Subparticipant.” The Common Agreement defines “IAS Provider” as: “Each QHIN, Participant, and Subparticipant that offers Individual Access Services.”

See

Common Agreement for Nationwide Health Information Interoperability Version 1, at 7 (Jan. 2022),

https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf

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).

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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).

https://www.cdc.gov/coronavirus/2019-ncov/variants/omicron-variant.html

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).

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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.

https://www.cdc.gov/coronavirus/2019-ncov/variants/about-variants.html

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

(MEARIS

), 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

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,

and will no longer consider any such requests that are sent via email. We note that, beginning April 5, 2022, MEARIS

became available for users to begin gaining familiarity with this new approach for submitting MS-DRG classification change requests. MEARIS,

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

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

site. Questions regarding the MEARIS

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

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

(MEARIS

) 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.

ER10AU22.005

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.

ER10AU22.006

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

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