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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 412, 419, 488, 489, and 495

[CMS-1785-F and CMS-1788-F]

RINs 0938-AV08 and 0938-AV17

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

AGENCY:

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

ACTION:

Final rules.

SUMMARY:

This final rule will: revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs); and make other policy-related changes. This final rule also revises our regulations on the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's disproportionate patient percentage (DPP) used in the disproportionate share hospital (DSH) calculation.

DATES:

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

FOR FURTHER INFORMATION CONTACT:

Donald Thompson, and Michele Hudson, (410) 786-4487 or

DAC@cms.hhs.gov

, Operating Prospective Payment, MS-DRG Relative Weights, Wage Index, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH) Payment Adjustment, Sole Community Hospitals (SCHs), Medicare-Dependent Small Rural Hospital (MDH) Program, Low-Volume Hospital Payment Adjustment, and Inpatient Critical Access Hospital (CAH) Issues.

Emily Lipkin, and Jim Mildenberger,

DAC@cms.hhs.gov

, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Adina Hersko,

NewTech@cms.hhs.gov

, New Technology Add-On Payments and New COVID-19 Treatments Add-on Payments Issues.

Mady Hue,

marilu.hue@cms.hhs.gov

, and Andrea Hazeley,

andrea.hazeley@cms.hhs.gov

, MS-DRG Classifications Issues.

Siddhartha Mazumdar,

siddhartha.mazumdar@cms.hhs.gov

, Rural Community Hospital Demonstration Program Issues.

Jeris Smith,

jeris.smith@cms.hhs.gov

, Frontier Community Health Integration Project (FCHIP) Demonstration Issues.

Lang Le,

lang.le@cms.hhs.gov

, Hospital Readmissions Reduction Program—Administration Issues.

Ngozi Uzokwe,

ngozi.uzokwe@cms.hhs.gov

, Hospital Readmissions Reduction Program—Measures Issues.

Jennifer Tate,

jennifer.tate@cms.hhs.gov

, Hospital-Acquired Condition Reduction Program—Administration Issues.

Ngozi Uzokwe,

ngozi.uzokwe@cms.hhs.gov

, Hospital-Acquired Condition Reduction Program—Measures Issues.

Julia Venanzi,

julia.venanzi@cms.hhs.gov

, Hospital Inpatient Quality Reporting Program and Hospital Value-Based Purchasing Program—Administration Issues.

Melissa Hager,

melissa.hager@cms.hhs.gov

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

Elizabeth Goldstein,

elizabeth.goldstein@cms.hhs.gov

, Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Ora Dawedeit,

ora.dawedeit@cms.hhs.gov

, PPS-Exempt Cancer Hospital Quality Reporting—Administration Issues.

Leah Domino,

leah.domino@cms.hhs.gov

, PPS-Exempt Cancer Hospital Quality Reporting Program-Measure Issues.

Ariel Cress,

ariel.cress@cms.hhs.gov

, Lorraine Wickiser, Lorraine,

Wickiser@cms.hhs.gov

, Long-Term Care Hospital Quality Reporting Program—Data Reporting Issues.

Jessica Warren,

jessica.warren@cms.hhs.gov

and Elizabeth Holland,

elizabeth.holland@cms.hhs.gov

, Medicare Promoting Interoperability Program.

Jennifer Milby,

jennifer.milby@cms.hhs.gov

and Sara Brice-Payne,

sara.brice-payne@cms.hhs.gov

, Special Requirements for Rural Emergency Hospitals (REHs).

Lisa O. Wilson,

Lisa.Wilson2@cms.hhs.gov

, Physician-Owned Hospital Issues.

Frank Whelan,

Frank.Whelan@cms.hhs.gov

, Disclosure of Ownership.

SUPPLEMENTARY INFORMATION:

Tables Available on the CMS Website

The IPPS tables for this fiscal year (FY) 2024 final rule are available on the CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html

. Click on the link on the left side of the screen titled “FY 2024 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2024 final rule are available on the CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html

under the list item for Regulation Number CMS-1785-F. For further details on the contents of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this FY 2024 IPPS/LTCH PPS final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS websites, as previously identified, should contact Michael Treitel,

DAC@cms.hhs.gov

.

Table of Contents

I. Executive Summary and Background

A. Executive Summary

B. Background Summary

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

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

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

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

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

A. Background

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

C. Changes to Specific MS-DRG Classifications

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

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

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

A. Background

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

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the FY 2024 Unadjusted Wage Index

E. Occupational Mix Adjustment to the FY 2024 Wage Index

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

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

H. FY 2024 Wage Index Tables

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

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

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

L. Process for Requests for Wage Index Data Corrections

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

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

A. General Discussion

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

C. Empirically Justified Medicare DSH Payments

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

E. Uncompensated Care Payments

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

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

A. Changes to MS-DRGs Subject to Postacute Care Transfer Policy and MS-DRG Special Payments Policies (§ 412.4)

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

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

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

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

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

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

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

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

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

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

L. Hospital-Acquired Condition (HAC) Reduction Program

M. Rural Community Hospital Demonstration Program

VI. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

C. Annual Update for FY 2024

D. Treatment of Rural Reclassifications for Capital DSH Payments

VII. Changes for Hospitals Excluded From the IPPS

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

B. Report on Adjustment (Exception) Payments

C. Critical Access Hospitals (CAHs)

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

A. Background of the LTCH PPS

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

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

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Overview

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

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

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

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

F. Changes to the Medicare Promoting Interoperability Program

X. Other Provisions Included in This Final Rule

A. Rural Emergency Hospitals (REHs)

B. Physician Self-Referral and Physician-Owned Hospitals

C. Technical Corrections to 42 CFR 411.353 and 411.357

D. Safety Net Hospitals RFI

E. Disclosures of Ownership and Additional Disclosable Parties Information

XI. MedPAC Recommendations and Publicly Available Files

A. MedPAC Recommendations

B. Publicly Available Files

XII. Collection of Information Requirements

A. Statutory Requirements for Solicitation of Comments

B. Collection of Information Requirements

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

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

In this FY 2024 final rule, we are finalizing our changes to the regulation governing the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction of a hospital's DPP that were proposed in CMS 1788-P,

Medicare Program; Medicare Disproportionate Share Hospital (DSH) Payments: Counting Certain Days Associated With Section 1115 Demonstrations in the Medicaid Fraction

(88 FR 12623).

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

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

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

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

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

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

Under various statutory authorities, we either discuss continued program implementation or make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2024 and subsequent fiscal years, and other policies and provisions included in this rule. These statutory authorities include, but are not limited to, the following:

• Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).

• Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.

• Sections 123(a) and (c) of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1) of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of LTCHs described in section 1886(d)(1)(B)(iv) of the Act.

• Section 1814(l)(4) of the Act requires downward adjustments to the applicable percentage increase, beginning with FY 2015, for CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting payment for a payment adjustment year.

• Section 1814(l)(4) of the Act, which requires downward adjustments to the applicable percentage increase, beginning with FY 2015, for CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an electronic health record (EHR) reporting payment for a payment adjustment year.

• Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. Hospitals paid under the IPPS with approved GME programs are paid for the indirect costs of training residents in accordance with section 1886(d)(5)(B) of the Act.

• Section 1886(d)(5)(F) of the Act provides for additional Medicare IPPS payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. These payments are known as the Medicare disproportionate share hospital (DSH) adjustment. Section 1886(d)(5)(F) of the Act specifies the methods under which a hospital may qualify for the DSH payment adjustment.

• Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary.

• Section 1886(b)(3)(B)(ix) of the Act, which requires downward adjustments to the applicable percentage increase, beginning with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico hospitals), for eligible hospitals that do not successfully demonstrate meaningful use of CEHRT for an EHR reporting period for a payment adjustment year.

• Section 1866(k) of the Act, which provides for the establishment of a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as “PPS-exempt cancer hospitals.”

• Section 1886(n) of the Act, which establishes the requirements for an eligible hospital to be treated as a meaningful EHR user of CEHRT for an EHR reporting period for a payment year or, for purposes of subsection (b)(3)(B)(ix) of the Act, for a fiscal year.

• Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value- Based Purchasing (VBP) Program, under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year.

• Section 1886(p) of the Act, which establishes a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions.

• Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act directs the Secretary to compare hospitals with respect to the number of their Medicare-Medicaid dual-eligible beneficiaries in determining the extent of excess readmissions.

• Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, which provides for a reduction to disproportionate share hospital (DSH) payments under section 1886(d)(5)(F) of the Act and for an additional

uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act (“the empirically justified amount”), and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) the hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage.

• Section 1886(m)(5) of the Act, which requires the Secretary to reduce by two percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data in the form, manner, and at a time, specified by the Secretary.

• Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2026.

• Section 1899B of the Act, as added by section 2(a) of the Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) (Pub. L. 113-185), which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs.

• Section 1861(kkk) of the Act requires the Secretary to establish the conditions REHs must meet in order to participate in the Medicare program and which are considered necessary to ensure the health and safety of patients receiving services at these entities.

• Section 1877(i) of the Act, as added by section 6001(a)(3) of the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act) (Pub. L. 111-148) and amended by section 1106 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (Pub. L. 111-152), which requires the Secretary to establish and implement a process under which a hospital that is an “applicable hospital” or a “high Medicaid facility” may apply for an exception from the prohibition on expansion of facility capacity.

2. Summary of the Major Provisions

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

a. Modification to the Rural Wage Index Calculation Methodology

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

b. Continuation of the Low Wage Index Hospital Policy

To help mitigate growing wage index disparities between high wage and low wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326 through 42332), we adopted a policy to increase the wage index values for certain hospitals with low wage index values (the low wage index hospital policy). This policy was adopted in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We also indicated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, in order to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. As discussed in section III.G.4. of the preamble of this final rule, as we only have 1 year of relevant data at this time that we could use to evaluate any potential impacts of this policy, we believe it is necessary to wait until we have useable data from additional fiscal years before making any decision to modify or discontinue the policy. Therefore, for FY 2024, we are finalizing our proposal to continue the low wage index hospital policy and the related budget neutrality adjustment.

c. DSH Payment Adjustment and Additional Payment for Uncompensated Care

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

In this final rule, we are finalizing our proposal to update our estimates of the three factors used to determine uncompensated care payments for FY 2024. We are also finalizing our proposal to continue to use uninsured estimates produced by CMS' Office of the Actuary (OACT) as part of the development of the National Health Expenditure Accounts (NHEA) in conjunction with more recently available data in the calculation of Factor 2. Consistent with the regulation at § 412.106(g)(1)(iii)(C)(

11

), which was

adopted in the FY 2023 IPPS/LTCH PPS final rule, for FY 2024, we will use the 3 most recent years of audited data on uncompensated care costs from Worksheet S-10 of the FY 2018, FY 2019, and FY 2020 cost reports to calculate Factor 3 in the uncompensated care payment methodology for all eligible hospitals.

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

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

d. Hospital Readmissions Reduction Program

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

e. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. In this final rule, we are finalizing our proposal to adopt modified versions of: (1) the Medicare Spending Per Beneficiary (MSPB) Hospital measure beginning with the FY 2028 program year; and (2) the Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measure beginning with the FY 2030 program year. In addition, we are finalizing our proposal to adopt the Severe Sepsis and Septic Shock: Management Bundle measure in the Safety Domain beginning with the FY 2026 program year.

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

f. Hospital-Acquired Condition Reduction Program

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

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

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

h. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) hospitals are required to report data on measures selected by the Secretary for a fiscal year in order to receive the full annual percentage increase.

In the FY 2024 IPPS/LTCH PPS final rule, we are finalizing several changes to the Hospital IQR Program. We are finalizing the adoption of three new measures: (1) Hospital Harm—Pressure Injury electronic clinical quality measure (eCQM) beginning with the CY 2025 reporting period/FY 2027 payment determination; (2) Hospital Harm—Acute Kidney Injury eCQM beginning with the CY 2025 reporting period/FY 2027 payment determination; and (3) Excessive Radiation eCQM beginning with the CY 2025 reporting period/FY 2027 payment determination. We are also finalizing the modification of three current measures: (1) Hybrid Hospital-Wide All-Cause Risk Standardized Mortality (HWM) measure beginning with the FY 2027 payment determination; (2) Hybrid Hospital-Wide All-Cause Readmission (HWR) measure beginning with the FY 2027 payment determination; and (3) COVID-19 Vaccination Coverage among HCP measure beginning with the Q4 CY 2023 reporting period/FY 2025 payment determination. We are also finalizing the removal of three current measures: (1) Hospital-level Risk-standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty

(THA) and/or Total Knee Arthroplasty (TKA) measure beginning with the April 1, 2025-March 31, 2028 reporting period/FY 2030 payment determination pursuant to Removal Factor 8; (2) Medicare Spending Per Beneficiary (MSPB) Hospital measure beginning with the CY 2026 reporting period/FY 2028 payment determination pursuant to Removal Factor 8; and (3) Elective Delivery (PC-01) measure beginning with the CY 2024 reporting period/FY 2026 payment determination pursuant to Removal Factor 1. We are finalizing the codification of our Measure Removal Factors.

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

i. PPS-Exempt Cancer Hospital Quality Reporting Program

Section 1866(k)(1) of the Act requires, for purposes of FY 2014 and each subsequent fiscal year, that a hospital described in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH) submit data in accordance with section 1866(k)(2) of the Act with respect to such fiscal year. There is no financial impact to PCH Medicare payment if a PCH does not participate.

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

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

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

k. Medicare Promoting Interoperability Program

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

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

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

Consistent with the Administration's goal of advancing health equity for all, including members of historically underserved and under-resourced communities, as described in the President's January 20, 2021 Executive Order 13985 on “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government,”

1

we also continue to be interested in receiving feedback on how we might otherwise foster the documentation and reporting of the diagnosis codes describing social and economic circumstances to more accurately reflect each health care encounter and improve the reliability and validity of the coded data including in support of efforts to advance health equity.

1

Available at

86 FR 7009 (January 25, 2021) (

https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government

).

3. Summary of Costs and Benefits

The following table provides a summary of the costs, savings, and benefits associated with the major

provisions described in section I.A.2. of the preamble of this final rule.

ER28AU23.000

ER28AU23.001

B. Background Summary

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

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

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

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

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

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

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

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

Under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through FY 2024. For discharges occurring on or after October 1, 2007, but before October 1, 2024, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years).

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

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

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Inpatient rehabilitation facility (IRF) hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for IRF hospitals and units, LTCHs, and

psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are included along with the IPPS annual update in this document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa), and RNHCIs continue to be paid solely under a reasonable cost-based system, subject to a rate-of-increase ceiling on inpatient operating costs. Similarly, extended neoplastic disease care hospitals are paid on a reasonable cost basis, subject to a rate-of-increase ceiling on inpatient operating costs.

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

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

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

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

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

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

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

Section 4101 of the CAA 2023 extended through FY 2024 the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals in effect for FYs 2019 through 2022. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2024, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through 2024, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low-volume hospitals with more than 3,800 discharges in the fiscal year.

Section 4102 of the CAA 2023 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to provide for an extension of the MDH program through FY 2024.

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

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

1. FY 2024 IPPS/LTCH PPS Proposed Rule

In the proposed rule that appeared in the

Federal Register

on May 1, 2023 (88 FR 26658), we set forth proposed payment and policy changes to the Medicare IPPS for FY 2024 operating costs and capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. In addition, we set forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2024.

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

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

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

• Proposed changes to MS-DRG classifications based on our yearly review for FY 2024.

• Proposed recalibration of the MS-DRG relative weights.

• A discussion of the proposed FY 2024 status of new technologies

approved for add-on payments for FY 2023, a presentation of our evaluation and analysis of the FY 2024 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting) for applications not submitted under an alternative pathway, and a discussion of the proposed status of FY 2024 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.

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

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

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

• The proposed FY 2024 wage index update using wage data from cost reporting periods beginning in FY 2019.

• Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2024 based on the 2019 Occupational Mix Survey.

• Proposed application of the rural, imputed and frontier State floors, and continuation of the low wage index hospital policy.

• Proposed revisions to the wage index for acute care hospitals, based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.

• Proposed adjustment to the wage index for acute care hospitals for FY 2024 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.

• Proposed labor-related share for the proposed FY 2024 wage index.

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

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

• Proposed calculation of Factor 1 and Factor 2 of the uncompensated care payment methodology.

• Proposed methodological approach for determining the additional payments for uncompensated care for FY 2024, which is the same overall approach as was for FY 2023.

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

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

• Proposed inpatient hospital update for FY 2024.

• Proposed change related to the effective date of sole community hospital (SCH) classification in cases that involve a merger.

• Proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.

• Proposed payment adjustment for low-volume hospitals for FY 2024.

• Discussion of statutory extension of the MDH program through FY 2024.

• Proposed to establish a validation reconsideration process and update the data validation targeting criteria under the HAC Reduction Program for FY 2024.

• Proposed to update the MSPB Hospital and THA/TKA Complications measures, to adopt the new Severe Sepsis and Septic Shock: Management Bundle measure, to update the changes to the data collection and submission requirements for the HCAHPS Survey measure, to revise the scoring methodology to include a health equity scoring adjustment, to modify the Total Performance Score numeric score range to be 0-110, and to codify the measure removal factors, the revised scoring methodology and TPS numeric score range, and the minimum numbers of cases.

• Proposed changes to the regulations for GME payments when training occurs in REHs.

• Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2024.

• Proposed nursing and allied health education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2022.

• Proposal to implement section 4143 of the CAA 2023 which waives the $60 million limit on annual nursing and allied health education program MA payments.

• Proposed update to the payment adjustment for certain clinical trial and expanded access use immunotherapy cases.

e. Proposed FY 2024 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble of the proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2024. In addition, we discuss a proposed change to how hospitals with a rural reclassification are treated for capital DSH payments.

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

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

• Proposed changes to payments to certain excluded hospitals for FY 2024.

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

g. Proposed Changes to the LTCH PPS

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

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

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

• Proposed adoption of a modified version of the COVID-19 Vaccination Coverage among Healthcare Personnel Measure in the Hospital IQR Program, PCHQR Program, and LTCH QRP.

• Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program.

• Proposed changes to the requirements for the PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR Program).

• Proposed changes to the requirements for the Long-Term Care Hospital Quality Reporting Program (LTCH QRP), and a request for information on principles for selecting and prioritizing LTCH QRP quality measures and concepts under consideration for future years. We also provide an update on health equity.

• Proposed changes to requirements pertaining to eligible hospitals and

CAHs participating in the Medicare Promoting Interoperability Program.

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

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

• Proposals to establish requirements for additional information that an eligible facility would be required to submit when applying for enrollment as an REH.

• Proposed changes pertaining to the process for hospitals requesting an exception from the prohibition against facility expansion and program integrity restrictions on approved facility expansion.

• Solicitation of comments on potential approaches to address the challenges faced by safety-net hospitals, including an appropriate mechanism for identifying safety-net hospitals for Medicare policy purposes.

• Proposals to apply certain definitions included in the Disclosures of Ownership and Additional Disclosable Parties Information for Skilled Nursing Facilities proposed rule published in the February 15, 2023

Federal Register

(88 FR 9820) to all provider types that complete the Form CMS-855-A enrollment application.

j. Other Provisions of the Proposed Rule

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

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

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

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

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

In sections II. and III. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2024 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We proposed to establish the threshold amounts for outlier cases. In addition, in section IV. of the Addendum of the proposed rule, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2024 for certain hospitals excluded from the IPPS.

l. Determining Prospective Payment Rates for LTCHs

In section V. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2024 LTCH PPS standard Federal payment rate and other factors used to determine LTCH PPS payments under both the LTCH PPS standard Federal payment rate and the site neutral payment rate in FY 2024. We are proposing to establish the adjustments for the wage index, labor-related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates.

m. Impact Analysis

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

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

In appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2024 for the following:

• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).

• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.

• The LTCH PPS standard Federal payment rate and the site neutral payment rate for hospital inpatient services provided for LTCH PPS discharges.

o. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2023 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We address these recommendations in appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2023 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's website at

https://www.medpac.gov.

2. Section 1115 Demonstration Disproportionate Share Hospital Proposed Rule

In addition, in the proposed rule that appeared in the

Federal Register

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

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

We primarily use two data sources in the IPPS and LTCH PPS ratesetting: claims data and cost report data. The

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

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

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

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

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

In the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26671), we also reviewed the most recent COVID-19 related data and information released by the CDC. We presented this CDC graph which illustrates new inpatient hospital admissions of patients with confirmed COVID-19 from August 1, 2020 through January 20, 2023. (

https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/01202023/images/hospitalizations.PNG?_=24630,

accessed January 20, 2023).

ER28AU23.002

We stated that the graph shows that in the United States, patients continue to be hospitalized with the virus that causes COVID-19. We also noted that the CDC has stated that new variants will continue to emerge. Viruses constantly change through mutation and sometimes these mutations result in a new variant of the virus. Some variants spread more easily and quickly than other variants, which may lead to more cases of COVID-19. Even if a variant causes less severe disease in general, an increase in the overall number of cases could cause an increase in hospitalizations.

2

In the proposed rule, we concluded that based on the information available at the time, we believe there will continue to be COVID-19 cases treated at IPPS hospitals and LTCHs in FY 2024, such that it is appropriate to use the FY 2022 data, as the most recent available data, for purposes of the FY 2024 IPPS and LTCH PPS ratesetting. We also stated that based on the information available at the time, we do not believe there is a reasonable basis for us to assume that there will be a meaningful difference in the number of COVID-19 cases treated at IPPS hospitals and LTCHs in FY 2024 relative to FY 2022 to the extent that modifications to our usual ratesetting methodologies would be warranted.

2

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

, accessed January 20, 2023.

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

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

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

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

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

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

A. Background

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

individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

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

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

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

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/rate year (RY) 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2023 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR 42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through 44961; and 87 FR 48800 through 48891, respectively).

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

Comment:

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

Response:

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

C. Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for FY 2024 MS-DRG Updates

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

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

b. Basis for FY 2024 MS-DRG Updates

As discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28127) and final rule (87 FR 48800 through 48801), beginning with FY 2024 MS-DRG classification change requests, we changed the deadline to request changes to the MS-DRGs to October 20 of each year to allow for additional time for the review and consideration of any proposed updates. We also described the new process for submitting requested changes to the MS-DRGs via a new electronic application intake system, Medicare Electronic Application Request Information System

TM

(MEARIS

TM

), accessed at

https://mearis.cms.gov.

We stated that beginning with FY 2024 MS-DRG classification change requests, CMS will only accept requests submitted via MEARIS

TM

and will no longer consider

requests sent via email. Additionally, we noted that within MEARIS

TM

, we have built in several resources to support users, including a “Resources” section available at

https://mearis.cms.gov/public/resources

with technical support available under “Useful Links” at the bottom of the MEARIS

TM

site. Questions regarding the MEARIS

TM

system can be submitted to CMS using the form available under “Contact”, also at the bottom of the MEARIS

TM

site.

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

As noted previously, interested parties had to submit MS-DRG classification change requests for FY 2024 by October 20, 2022. As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. We note in the discussion that follows those topics for which further research and analysis are required, and which we will continue to consider in connection with future rulemaking. Interested parties should submit any comments and suggestions for FY 2025 by October 20, 2023 via MEARIS

TM

at:

https://mearis.cms.gov/public/home.

As we did for the FY 2023 IPPS/LTCH PPS proposed rule, for the FY 2024 IPPS/LTCH PPS proposed rule we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 41, so that the public can better analyze and understand the impact of the proposals included in the proposed rule. We noted that this test software reflected the proposed GROUPER logic for FY 2024. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2024 as reflected in Table 6A.—New Diagnosis Codes—FY 2024 and Table 6B.—New Procedure Codes—FY 2024 that were associated with the proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2024 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2024 associated with the proposed rule. We noted that at the time of the development of the proposed rule there were no procedure codes designated as invalid for FY 2024, and therefore, there was no Table 6D- Invalid Procedure Codes—FY 2024 associated with the proposed rule. Those tables were not published in the Addendum to the proposed rule, but are available on the CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html

as described in section VI. of the Addendum to the proposed rule. Because the diagnosis codes no longer valid for FY 2024 are not reflected in the test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 41 FY 2024 ICD-10-CM codes and the deleted Version 40.1 FY 2023 ICD-10-CM codes that should be used for testing purposes with users' available claims data. Therefore, users had access to the test software allowing them to build case examples that reflect the proposals that were included in the proposed rule. In addition, users were able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 41.

The test version of the ICD-10 MS-DRG GROUPER Software, Version 41, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 41, and the supplemental mapping files in Table 6P.1a of the FY 2023 and FY 2024 ICD-10-CM diagnosis codes are available at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

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

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

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we

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

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

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

In our analysis of the MS-DRG classification requests for FY 2024 that we received by October 20, 2022, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table.

BILLING CODE 4120-01-P

ER28AU23.003

In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for the FY 2024 IPPS/LTCH PPS proposed rule, our initial MS-DRG analysis was generally based on ICD-10 claims data from the September 2022 update of the FY 2022 MedPAR file, with the additional claims data

available in the December 2022 update of the FY 2022 MedPAR file used to assess the case counts and other criteria for determining whether a proposed new base MS-DRG would satisfy the criteria to create subgroups. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent two years of data. This analysis includes 2 years of MedPAR claims data to compare the data results from 1 year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria is satisfied for a three-way split. In applying the criteria for a three-way split, a base MS-DRG is initially subdivided into the three subgroups: MCC, CC, and NonCC. Each subgroup is then analyzed in relation to the other two subgroups using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. In applying the criteria for a two-way split, a base MS-DRG is initially subdivided into two subgroups: “with MCC” and “without MCC” (1_23) or “with CC/MCC” and “without CC/MCC” (12_3). Each subgroup is then analyzed in relation to the other using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits, however we do not also evaluate the criteria for a three-way split.

As previously noted, to validate whether the established severity levels within a base MS-DRG are supported, we typically analyze the most recent two years of MedPAR claims data. For the FY 2024 IPPS/LTCH PPS proposed rule, using the December 2022 update of the FY 2022 MedPAR file and the March 2022 update of the FY 2021 MedPAR file, we also analyzed how applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would potentially affect the MS-DRG structure in connection with the proposed FY 2024 MS-DRG classification changes. While, as previously noted, our MS-DRG analysis for the FY 2024 IPPS/LTCH PPS proposed rule was otherwise based on ICD-10 claims data from the September 2022 update of the FY 2022 MedPAR file, we utilized the additional claims data available from the December 2022 update of the FY 2022 MedPAR file for purposes of assessing the application of the NonCC subgroup criteria to these existing MS-DRGs as well as to determine whether a proposed new base MS-DRG satisfies the criteria to create subgroups. In the FY 2024 IPPS/LTCH PPS proposed rule, we noted that findings from our analysis indicated that approximately 45 base MS-DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. Specifically, we found that applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would result in the potential deletion of 135 MS-DRGs (45 MS-DRGs × 3 severity levels =135) and the potential creation of 86 new MS-DRGs. We referred the reader to Table 6P.10—Potential MS-DRG Changes with Application of the NonCC Subgroup Criteria and Detailed Data Analysis- FY 2024 associated with the proposed rule and available on the CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS

for detailed information, including the criteria to create subgroups in Table 6P.10a (as also set forth in the preceding table) and the list of the 135 MS-DRGs that would potentially be subject to deletion and the list of the 86 MS-DRGs that would potentially be created in Table 6P.10b. We noted that we also identified an additional 12 obstetric MS-DRGs (4 base MS-DRGs × 3 severity levels=12) that would be subject to change based on the application of the three-way severity level split criterion, as reflected in our data analysis in Table 6P.10c associated with the proposed rule. However, in response to prior public comments expressing concern about the historical low volume of the obstetric related MS-DRGs being subject to application of the NonCC subgroup criteria and consistent with our discussion in prior rulemaking regarding this population in our Medicare claims data and the development of these MS-DRGs (83 FR 41210), we stated we believed it may be appropriate to exclude these MS-DRGs from application of the NonCC subgroup criteria. The list of 12 obstetric MS-DRGs is shown in the following table.

ER28AU23.004

BILLING CODE 4120-01-C

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

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

As noted in prior rulemaking, any potential MS-DRG updates to be considered for a future proposal in connection with application of the NonCC subgroup criteria would also involve a redistribution of cases, which would impact the relative weights, and, thus, the payment rates proposed for particular types of cases. As such, and in response to prior public comments requesting that further analysis of the application of the NonCC subgroup criteria be made available, in addition to Table 6P.10f, we made available additional files reflecting application of the NonCC subgroup criteria in connection with the proposed FY 2024 MS-DRG changes, using the December 2022 update of the FY 2022 MedPAR file. These additional files included an alternate Table 5—Alternate List of Medicare Severity Diagnosis Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay, an alternate Length of Stay (LOS) Statistics file, an alternate Case Mix Index (CMI) file, and an alternate After Outliers Removed and Before Outliers Removed (AOR_BOR) file. The files are available in association with the proposed rule on the CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS.

For the FY 2024 IPPS/LTCH PPS proposed rule we also provided an alternate test version of the ICD-10 MS-DRG GROUPER Software, Version 41.A, so that the public can better analyze and understand the impact on the proposals included in the proposed rule if the NonCC subgroup criteria were to be applied to existing MS-DRGs with a three-way severity level split. We noted that this alternate test software reflected the proposed GROUPER logic for FY 2024 as modified by the application of the NonCC subgroup criteria. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2024 as reflected in Table 6A.—New Diagnosis Codes—FY 2024 and Table 6B.—New Procedure Codes—FY 2024 associated with the proposed rule and did not include the diagnosis codes that are invalid beginning in FY 2024 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2024 associated with the proposed rule. As previously noted, at the time of the development of the proposed rule there were no procedure codes designated as invalid for FY 2024, and therefore, there was no Table 6D- Invalid Procedure Codes—FY 2024 associated with the proposed rule. These tables were not published in the Addendum to the proposed rule, but are available on the CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html

as described in section VI. of the Addendum to the proposed rule. Because the diagnosis codes no longer valid for FY 2024 are not reflected in the alternate test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 41 FY 2024 ICD-10-CM codes and the deleted Version 40.1 FY 2023 ICD-10-CM codes that should be used for testing purposes with users' available claims data. Therefore, users had access to the alternate test software allowing them to build case examples that reflect the proposals included in the proposed rule

with application of the NonCC subgroup criteria. Because the potential MS-DRG changes with application of the NonCC subgroup criteria are available in Table 6P.10b associated with the proposed rule, an alternate version of the ICD-10 MS-DRG Definitions Manual was not developed.

The alternate test version of the ICD-10 MS-DRG GROUPER Software, Version 41.A, and the supplemental mapping files in Table 6P.1a of the FY 2023 and FY 2024 ICD-10-CM diagnosis codes are available at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

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

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

Comment:

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

Response:

We thank the commenters for their feedback.

Comment:

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

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

Response:

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

Comment:

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

Response:

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

Comment:

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

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

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

Response:

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

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

With regard to the commenter's suggestion that more flexibility should be built into CMS' assessment of severity level subdivisions for both new

and existing MS-DRGs, we note that currently, the minimum case volume requirements were established to avoid overly fragmenting the MS-DRG classification system. With smaller volumes they will be subject to stochastic (unpredictable) effects that may indicate a cost difference within the data sample. Reevaluation in subsequent years may result in those cost differences being insufficient to support the split.

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

Comment:

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

Response:

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

Comment:

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

Response:

As discussed in the FY 2024 IPPS/LTCH proposed rule, we provided both a test version of the ICD-10 MS-DRG GROUPER Software, Version 41 and an alternate version of the ICD-10 MS-DRG GROUPER Software, Version 41.A so that the public could better analyze and understand the impact on the proposals included in the proposed rule if the NonCC subgroup criteria were to be applied to existing MS-DRGs with a three-way severity level split. We noted that this alternate test software reflected the proposed GROUPER logic for FY 2024 as modified by the application of the NonCC subgroup criteria. Overall, we believe the explanatory power (R2) for the V41.A alternate GROUPER yields similar results to the proposed V41 GROUPER. Based on our review, the explanatory power (R2) goes down by 0.04 percent with the V41.A alternate GROUPER, explaining less variation when compared to the V41 notice of proposed rulemaking (NPRM) GROUPER, however this result is as we would expect since the MS-DRGs subject to the NonCC subgroup criteria considered for potential adjustment are low volume to begin with.

ER28AU23.005

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

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

Comment:

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

Response:

As discussed in prior rulemaking, in general, once the decision has been made to propose to make further modifications to the MS-DRGs, such as creating a new base MS-DRG, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that we have applied the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of the MS-DRG classification requests

effective FY 2021 (85 FR 58446 through 58448). For example, we applied the criteria to create subgroups, including application of the NonCC subgroup criteria, for a proposed new base MS-DRG as discussed in our finalization of new base MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell Immunotherapy), new base MS-DRG 019 (Simultaneous Pancreas and Kidney Transplant with Hemodialysis), new base MS-DRG 140 (Major Head and Neck Procedures), new base MS-DRG 143 (Other Ear, Nose, Mouth and Throat O.R. Procedures), new base MS-DRG 521 (Hip Replacement with Principal Diagnosis of Hip Fracture) and new base MS-DRG 650 (Kidney Transplant with Hemodialysis) for FY 2021. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new CC or MCC subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split.

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

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798) and FY 2023 IPPS/LTCH PPS final rule (87 FR 48803), we finalized a delay in applying this technical criterion to existing MS-DRGs in light of the PHE. We take this opportunity to clarify that the delay referenced was in applying this technical criterion to existing MS-DRGs with a three-way severity level split. Therefore, while we have made analyses for potential MS-DRG changes with application of the NonCC subgroup criteria publicly available, we have not yet proposed application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split. We note that we will continue to apply the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of MS-DRG classification requests, consistent with our approach since FY 2021 when we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split.

Comment:

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

Response:

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

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

We are making the FY 2024 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE) Software Version 41, the ICD-10 MS-DRG Definitions Manual files Version 41 and the Definitions of Medicare Code Edits Manual Version 41 available to the public on our CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software

.

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

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

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software

for complete documentation of the GROUPER logic for MS-DRG 023.

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

• 0NH00NZ (Insertion of neurostimulator generator into skull, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach);

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

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

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

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58459 through 58462), we discussed a request to reassign cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain from MS-DRG 023 to MS-DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with CC) or to reassign these cases to another MS-DRG for more appropriate payment. We stated that while the results of our claims analysis indicated that the average costs of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), and a principal diagnosis of epilepsy are higher compared to the average costs for all cases in their assigned MS-DRG, we could not ascertain from the claims data

the resource use specifically attributable to the procedure during a hospital stay. We stated that we believed that further analysis of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), and a principal diagnosis of epilepsy was needed prior to proposing any further reassignment of these cases to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped and therefore did not propose to reassign cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) from MS-DRG 023 to MS-DRG 021. We also did not propose to reassign Responsive Neurostimulator (RNS®) System cases to another MS-DRG. We stated we expected that, in future years, we would have additional data that could be used to evaluate the potential reassignment of cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), and a principal diagnosis of epilepsy.

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

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

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

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

We stated in the proposed rule that to begin our analysis, we identified the ICD-10-CM diagnosis codes that describe a diagnosis of epilepsy. We referred the reader to Table 6P.2a associated with the proposed rule (and available at:

https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps

) for the list of the ICD-10-CM codes that we identified.

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

BILLING CODE 4120-01-P

ER28AU23.006

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

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

ER28AU23.007

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

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

ER28AU23.008

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

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

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS

) for the list of the 135 MS-DRGs that would be subject to deletion and the list of the 86 new MS-DRGs that would potentially be created if the NonCC subgroup criteria were applied.

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

ER28AU23.009

BILLING CODE 4120-01-C

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

We noted that while our data findings demonstrated the average costs are higher for the 57 cases with a principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain when compared to all cases in MS-DRG 023, these cases represent a small percentage of the total number of cases reported in this MS-DRG. We stated that while we appreciated the requestor's concerns regarding the differential in average costs for cases describing the insertion of a neurostimulator generator into the skull in combination with the insertion of a neurostimulator lead into the brain when compared to all cases in their assigned MS-DRG, we believe additional time is needed to evaluate these cases as part of our ongoing examination of the case logic for MS-DRGs 023 through 027. As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48808 through 48820), in connection with our analysis of cases reporting LITT procedures performed on the brain or brain stem in MDC 01, we have started to examine the logic for case assignment to MS-DRGs 023 through 027 to determine where further refinements could potentially be made to better account for differences in the technical complexity and resource utilization among the procedures that are currently assigned to those MS-DRGs. In the proposed rule, we stated that specifically, we are in the process of evaluating procedures that are performed using an open craniotomy (where it is necessary to surgically remove a portion of the skull) versus a percutaneous burr hole (where a hole approximately the size of a pencil is drilled) to obtain access to the brain in the performance of a procedure. We are also reviewing the indications for these procedures, for example, malignant neoplasms versus epilepsy to consider if there may be merit in considering restructuring the current MS-DRGs to better recognize the clinical distinctions

of these patient populations in the MS-DRGs.

As part of this evaluation, as discussed in the proposed rule, we have begun to analyze the ICD-10 coded claims data from the September 2022 update of the FY 2022 MedPAR file to determine if the patients' diagnoses, the objective of the procedure performed, the specific anatomical site where the procedure is performed or the surgical approach used (for example, open, percutaneous, percutaneous endoscopic, among others) demonstrates a greater severity of illness and/or increased treatment difficulty as we consider restructuring MS-DRGs 023 through 027, including how to better align the clinical indications with the performance of specific intracranial procedures. We refer the reader to Tables 6P.2b through 6P.2f associated with the proposed rule (which is available on the CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS

) for data analysis findings of cases assigned to MS-DRGs 023 through 027 as we continue to look for patterns of complexity and resource intensity.

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

Comment:

Some commenters expressed support for CMS' proposal to maintain the assignment of cases reporting procedure codes that describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) in MS-DRG 023 and to not propose to create a new MS-DRG for cases involving a craniectomy/craniotomy with device implant. A commenter stated they agreed that it was inappropriate to reassign cases that involve craniectomy or craniotomy with the insertion of neurostimulator into the skull in combination with the insertion of a neurostimulator lead into the brain from MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator) to MS-DRG 021 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage with CC). This commenter also stated that due to the low volume of total cases, they agreed that creation of a new MS-DRG was not warranted.

Response:

We appreciate the commenters' support.

Comment:

Another commenter opposed CMS' proposal. The commenter stated CMS' data analysis demonstrated that the average costs of RNS® System cases continue to be substantially higher than the average costs of all cases in their assigned MS-DRG 023. This commenter further stated that they believed the data analysis supports extracting cases reporting procedure codes that describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator) (

e.g.,

Major Device Implant list cases) from MS-DRGs 023 and 024 and creating two new MS-DRGs with logic maintained for cases with a principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain. The commenter stated this refinement would result in a much better alignment of the average costs of these cases compared to their current MS-DRG assignment.

Response:

We thank the commenter for their feedback. We continue to be receptive to concerns about payment for cases reporting procedure codes that describe a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator). While we agree these neurostimulator cases can have average costs that are higher than the average costs of all cases in their respective MS-DRGs, in our analysis of this issue, it was difficult to detect patterns of complexity and resource intensity. As discussed in the proposed rule and earlier in this section, to review for similar utilization of resources, we analyzed the data to identify those cases currently reporting a procedure code combination representing neurostimulator generator and lead code combinations that are captured under the list referred to as “Major Device Implant” in the GROUPER logic for MS-DRGs 023 and 024 since the ICD-10-PCS code combinations that capture the use of the RNS® neurostimulator generator and leads that would determine an assignment of a case to MS-DRGs 023 are also found on the “Major Device Implant” list. In our analysis in MS-DRG 023, we found 90 cases reporting a procedure code combination representing neurostimulator generator and lead code combination captured under the list referred to as “Major Device Implant” with the average length of stay ranging from 1 day to 249 days and average costs ranging from $22,717 to $250,272 for these cases. In MS-DRG 024, we found 395 cases reporting a procedure code combination representing neurostimulator generator and lead code combination captured under the list referred to as “Major Device Implant” with the average length of stay ranging from 1 day to 12 days and average costs ranging from $16,359 to $70,949 for these cases. We continue to believe that additional time is needed to evaluate these cases as part of our ongoing examination of the case logic for MS-DRGs 023 through 027. As part of our ongoing, comprehensive analysis of the MS-DRGs under ICD-10, we will continue to explore mechanisms to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped.

Therefore, after consideration of the public comments we received, and for the reasons stated earlier, we are finalizing our proposal to maintain the current assignment of cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain (including cases involving the use of the RNS® neurostimulator), without modification, for FY 2024.

As noted in the proposed rule, as we continue this analysis of the claims data with respect to MS-DRGs 023 through 027, we continue to seek public comments and feedback on other factors that should be considered in the potential restructuring of these MS-DRGs. As previously described, we are examining procedures by their approach (open versus percutaneous), clinical indications, and procedures that involve the insertion or implantation of a device. We recognize the logic for MS-DRGs 023 through 027 has grown more complex over the years and believe there is opportunity for further refinement. We refer the reader to the ICD-10 MS-DRG Definitions Manual, version 40.1, which is available on the

CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software

for complete documentation of the GROUPER logic for MS-DRGs 023 through 027. Feedback and other suggestions may be submitted by October 20, 2023 and directed to the new electronic intake system, Medicare Electronic Application Request Information System

TM

(MEARIS

TM

), discussed in section II.C.1.b. of the preamble of the proposed rule and this final rule at:

https://mearis.cms.gov/public/home

.

Comment:

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

A commenter mentioned that CMS referred the reader to Tables 6P.2b through 6P.2f associated with the proposed rule (which is available on the CMS website at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS

)

This text is long and has been trimmed here. Open the source document for the complete record.