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 2026 Rates; Requirements for Quality Programs; and Other Policy Changes

Federal RegisterApr 30, 2025

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 495, and 512

[CMS-1833-P]

RIN 0938-AV45

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 2026 Rates; Requirements for Quality Programs; and Other Policy Changes

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs); update and make changes to requirements for certain quality programs; and make other policy-related changes.

DATES:

To be assured consideration, comments must be received at one of the addresses provided in the

ADDRESSES

section, no later than 5 p.m. EDT on June 10, 2025.

ADDRESSES:

In commenting, please refer to file code CMS-1833-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

Electronically.

You may (and we encourage you to) submit electronic comments on this regulation to

https://www.regulations.gov

. Follow the instructions under the “submit a comment” tab.

By regular mail.

You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1833-P, P.O. Box 8013, Baltimore, MD 21244-8013.

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

By express or overnight mail.

You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1833-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

For information on viewing public comments, we refer readers to the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Donald Thompson, 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, Jim Mildenberger and Hyeyoung Kim,

DAC@cms.hhs.gov

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

Lily Yuan,

NewTech@cms.hhs.gov

, New Technology Add-On Payments Issues.

Mady Hue,

marilu.hue@cms.hhs.gov

, and Andrea Hazeley,

andrea.hazeley@cms.hhs.gov

, MS-DRG Classifications Issues.

Radhika Puri,

Radhika.puri@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.

Jennifer Tate,

jennifer.tate@cms.hhs.gov

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

Kristina Rabarison,

Kristina.Rabarison@cms.hhs.gov

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

Ariel Cress,

Ariel.Cress@cms.hhs.gov

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

Jessica Warren,

jessica.warren@cms.hhs.gov

, and Lisa Marie Gomez,

LisaMarie.Gomez1@cms.hhs.gov

, Medicare Promoting Interoperability Program.

Bridget Dickensheets,

bridget.dickensheets@cms.hhs.gov

and Mollie Knight,

mollie.knight@cms.hhs.gov

, IPPS Market Basket Rebasing.

CMMI_TEAM@cms.hhs.gov

, Transforming Episode Accountability Model (TEAM).

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:

All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received:

https://www.regulations.gov

. Follow the search instructions on that website to view public comments. CMS will not post on

Regulations.gov

public comments that make threats to individuals or institutions or suggest that the commenter will take actions to harm an individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments.

Plain Language Summary:

In accordance with 5 U.S.C. 553(b)(4), a

plain language summary of this proposed rule may be found at

https://www.regulations.gov/

Deregulation Request for Information (RFI):

On January 31, 2025, President Trump issued Executive Order (E.O.) 14192 “Unleashing Prosperity Through Deregulation,” which states the Administration policy to significantly reduce the private expenditures required to comply with Federal regulations to secure America's economic prosperity and national security and the highest possible quality of life for each citizen. We would like public input on approaches and opportunities to streamline regulations and reduce administrative burdens on providers, suppliers, beneficiaries, and other interested parties participating in the Medicare program. CMS has made available an RFI at

https://www.cms.gov/medicare-regulatory-relief-rfi

. Please submit all comments in response to this RFI through the provided weblink.

Tables Available on the CMS Website

The IPPS tables for this fiscal year (FY) 2026 proposed 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 2026 IPPS Proposed rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2026 proposed 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-1833-P. For further details on the contents of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this FY 2026 IPPS/LTCH PPS proposed rule.

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

Michael Treitel, DAC@cms.hhs.gov

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This FY 2026 IPPS/LTCH PPS proposed rule would make 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 would make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This proposed rule also would make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. We are also proposing changes relating to Medicare graduate medical education (GME) for teaching hospitals.

We are proposing several changes across pay for performance programs. In the Hospital Value-Based Purchasing (VBP) Program, we are proposing modifications to the Hospital-Level Total Hip Arthroplasty/Total Knee Arthroplasty (THA/TKA) Complications measure beginning with the FY 2033 program year. We are also providing notice of the technical update to the five National Healthcare Safety Network (NHSN) Healthcare Associated Infection (HAI) measures beginning with the FY 2028 program year, and the technical update to remove the COVID-19 exclusion from the six measures in the Clinical Outcomes domain beginning with the FY 2027 program year. Lastly, we provide previously and newly established performance standards for the FY 2028 through FY 2031 program years for the Hospital VBP Program. In the Hospital Acquired-Conditions (HAC) Reduction Program, we are also providing notice of the technical update to the five Centers for Disease Control National Control (CDC) NHSN healthcare-associated infection (HAI) measures. In the Hospital Readmissions Reduction Program, we are proposing to add Medicare Advantage (MA) beneficiaries to the six Hospital Readmissions Reduction Program (HRRP) measures and make corresponding administrative updates.

In the PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR), we are proposing to modify the public reporting requirements and remove three existing measures.

In the Hospital Inpatient Quality Reporting (IQR) Program, we are proposing to modify four existing quality measures and remove four existing measures.

We also are proposing to update and codify the Extraordinary Circumstances Exception (ECE) policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital in the Hospital IQR, Hospital Readmissions Reduction, PCHQR, HAC Reduction, and Hospital VBP Programs.

In the Medicare Promoting Interoperability Program, we are proposing to define the electronic health record (EHR) reporting period in CY 2026 and subsequent years as a minimum of any continuous 180-day period within that calendar year for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program and to make corresponding revisions at 42 CFR 495.4. We are proposing to modify the Security Risk Analysis measure beginning with the EHR reporting period in CY 2026. We are proposing to modify the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure beginning with the EHR reporting period in CY 2026. We are proposing to add an optional bonus measure under the Public Health and Clinical Data Exchange objective for reporting data to a public health agency (PHA) using the Trusted Exchange Framework and Common Agreement (TEFCA) beginning with the EHR reporting period in CY 2026.

In the LTCH Quality Reporting Program (QRP), we are proposing to remove one item from the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) with respect to patients who have expired in the LTCH. We are also proposing to remove four Social Determinant of Health (SDOH) standardized patient assessment data elements from the LCDS. Next, we are proposing to amend the reconsideration request process in the LTCH QRP. Finally, we include Requests for Information (RFIs) on: (1) future measure concepts for the LTCH QRP; (2) revisions to the data submission deadlines for assessment data collected for the LTCH QRP; and (3) advancing digital quality measurement (dQM) in the LTCH QRP.

The Transforming Episode Accountability Model (TEAM), a mandatory alternative payment model that was finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), aims to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM will test whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries. In this proposed rule, we are proposing updates to TEAM that would modify policies affecting participation of new hospitals, quality measure and assessment, the construction of target prices, the removal of certain health reporting elements, the expansion of the Skilled

Nursing Facility (SNF) 3-Day Rule, and the removal of the Decarbonization and Resilience Initiative (DRI). Additionally, the policies in this proposed rule reflect our commitment to ensuring TEAM's incentives help to drive beneficiary quality of care improvements and reductions in Medicare spending.

Under various statutory authorities, we either discuss continued program implementation or propose to make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2026 and subsequent fiscal years, and other policies and provisions included in this proposed 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, beginning with FY 2015, that CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting period for a cost reporting period shall be paid 100 percent of reasonable costs rather than 101 percent of reasonable costs.

• 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 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 based on their performance on measures 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 if subsection (r) did not apply (“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 2 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 on quality measures 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, which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs.

• Section 1115A of the Act authorizes the testing of innovative payment and service delivery models that preserve or enhance the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries while reducing program expenditures.

2. Summary of the Major Provisions

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

a. Proposed Transition for the Discontinuation 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 indicated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, in order to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We also stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we adopted an extension of the low wage index hospital policy and the related budget neutrality adjustment effective for at least three more years, beginning in FY 2025, in order for sufficient wage data from after the end of the COVID-19 Public Health Emergency to become available.

As discussed in section III.F.5. of the preamble of this proposed rule, on July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary lacked authority under section 1886(d)(3)(E) of the Act or under the “adjustments” language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated.

Bridgeport Hosp.

Becerra,

108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024). After considering the D.C. Circuit's decision in

Bridgeport Hosp.

Becerra,

in the FY 2025 IFC (89 FR 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. In addition, we established an interim transition policy for hospitals significantly impacted by the removal of the FY 2025 low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act.

For FY 2026 and subsequent fiscal years, after considering the D.C. Circuit's decision in

Bridgeport Hosp.

Becerra,

we are proposing to discontinue the low wage index hospital policy and would no longer apply a low wage index budget neutrality factor to the standardized amounts. As discussed in section III.F.7. of the preamble of this proposed rule, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy, that would be implemented in a budget neutral manner. This proposed transitional exception policy would apply to hospitals that benefitted from the FY 2024 low wage index hospital policy and would compare the hospital's proposed FY 2026 wage index to the hospital's FY 2024 wage index. If the hospital's proposed FY 2026 wage index is decreasing by more than 9.75 percent from the hospital's FY 2024 wage index, then the proposed transitional payment exception for FY 2026 for that hospital would be equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent of its FY 2024 wage index. We proposed to make this policy budget neutral through an adjustment applied to the standardized amounts for all hospitals.

b. Proposed Update to the IPPS Labor-Related Share

As discussed in section IV. of the preamble of this proposed rule, we are proposing to rebase and revise the 2018-based IPPS market basket to reflect a 2023 base year. In addition, using the cost category weights from the proposed 2023-based IPPS market basket, we calculated a labor-related share of 66.0 percent, which we are proposing to use for discharges occurring on or after October 1, 2025. The proposed labor-related share of 66.0 percent is 1.6 percentage points lower than the current labor-related share of 67.6 percent. As discussed in section IVB.3. of the preamble of this proposed rule, this downward revision to the labor-related share is primarily the result of incorporating the more recent 2023 Medicare cost report data for Wages and Salaries, Employee Benefits, and Contract Labor costs. This is partially offset by an increase in the Professional Fees: Labor-Related cost weight.

c. Hospital Readmission Reduction Program

We are proposing to make changes to policies for the Hospital Readmissions Reduction Program, which was established under section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payment to account for excess readmissions of selected applicable conditions. In this FY 2026 IPPS/LTCH PPS proposed rule, we are proposing the following policies: (1) Refine all six readmission measures to add Medicare Advantage patient cohort data; (2) remove the COVID-19 diagnosed patients measure denominator exclusion from the all six readmission measures, beginning with the FY 2026 program year; (3) reduce the applicable period from 3-years to 2-years and update codified regulation language; (4) modify the diagnosis-related group (DRG) payment ratios in the payment adjustment formula to include MA beneficiaries; and (5) update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital.

d. Hospital Acquired Condition (HAC) 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 FY 2026 IPPS/LTCH PPS proposed rule, we are making a technical update to the NHSN Healthcare Associated Infection (HAI) measures baseline. We are also proposing to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital.

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 FY 2026 IPPS/LTCH PPS proposed rule, we are proposing modifications to the THA/TKA Complications measure beginning with the FY 2033 program year. We are also providing notice of the technical update to remove the COVID-19 exclusion from the six measures in the Clinical Outcomes domain beginning with the FY 2027 program year and the technical update to the five NHSN Healthcare Associated Infection (HAI) measures beginning with the FY 2028 program year. We also are proposing to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital. We are also proposing to remove the Program's Health Equity Adjustment. Lastly, we provide previously and newly established performance standards for the FY 2028 through FY 2031 program years for the Hospital VBP Program.

e. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) hospitals are required to report data on measures selected by the Secretary for a fiscal year in order to receive the full annual percentage increase. In this FY 2026 IPPS/LTCH PPS proposed rule, we are proposing several changes to the Hospital IQR Program. We are proposing refinements to four measures currently in the Hospital IQR Program measure set: (1) Hospital-Level, Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) beginning with the April 1, 2023-March 30, 2025 Reporting Period/2027 Payment Determination; (2) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke Severity beginning with the July 1, 2023-June 30, 2025 Reporting Period/2027 Payment Determination; (3) the Hybrid Hospital-Wide Readmission (HWR) measure beginning with the July 1, 2025, through June 30, 2026 Reporting Period/FY 2028 Payment Determination; and (4) the Hybrid Hospital-Wide All-Cause Risk Standardized Mortality (HWM) measure beginning with the July 1, 2025, through June 30, 2026 Reporting Period/FY 2028 Payment Determination. We are also proposing to remove four measures: (1) the Hospital Commitment to Health Equity measure beginning with the CY 2024 reporting period/FY 2026 payment determination; (2) the COVID-19 Vaccination Coverage among HCP measure beginning with the CY 2024 reporting period/FY 2026 payment determination; (3) the Screening for Social Drivers of Health measure beginning with the CY 2024 reporting period/FY 2026 payment determination; and (4) the Screen Positive Rate for Social Drivers of Health measure beginning with the CY 2024 reporting period/FY 2026 payment determination. We are proposing to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital. Additionally, we seek comments regarding measure concepts related to well-being and nutrition for future consideration. We also seek comments on the path forward for digital quality measurement and use of Fast Healthcare Interoperability Resources (FHIR).

f. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 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. In the FY 2026 IPPS/LTCH PPS proposed rule, we are proposing to publicly report PCH data on both the Provider Data Catalog and on Care Compare and to make corresponding changes to regulatory text to replace references to “Provider Data Catalog” with “CMS website”. We are also proposing to remove the (1) Hospital Commitment to Health Equity, (2) the Screening for Social Drivers of Health measure; and (3) the Screen Positive Rate for Social Drivers of Health measure beginning with the CY 2024 reporting period/FY 2026 payment determination. Lastly, we are proposing to update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to an ECE request from a hospital.

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

In the LTCH QRP, we are proposing to remove five items from the LCDS. We are also proposing to amend the reconsideration request process in the LTCH QRP. Finally, we include Requests for Information (RFIs) on: (1) future measure concepts for the LTCH QRP; (2) revisions to the data submission deadlines for assessment data collected for the LTCH QRP; and (3) advancing digital quality measurement (dQM) in the LTCH QRP.

h. Medicare Promoting Interoperability Program

Under sections 1886(b)(3)(B)(ix) and 1814(l)(4) of the Act, respectively, eligible hospitals and CAHs are required to submit data in accordance with section 1886(n) to successfully demonstrate meaningful use of CEHRT for an EHR reporting period to avoid a downward payment adjustment under Medicare for the associated fiscal year. We are proposing several changes to the Medicare Promoting Interoperability Program. Specifically, we are proposing: (1) to 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 EHR reporting period in CY 2026 and subsequent years as a minimum of any continuous 180-day period within that calendar year; (2) to modify the Security Risk Analysis measure to require eligible hospitals and CAHs to attest “yes” to having conducted security risk management in addition to the existing measure requirement to attest “yes” to having conducted security risk analysis, beginning with the EHR reporting period in CY 2026; (3) to modify the SAFER Guides measure by requiring eligible hospitals and CAHs to attest “yes” to completing an annual self-assessment using the eight SAFER Guides published in January 2025, beginning with the EHR reporting period in CY 2026; and (4) to add an optional bonus measure to the Public Health and Clinical Data Exchange objective for eligible hospitals and CAHs that submit health information to a public health agency (PHA) using the Trusted Exchange Framework and Common Agreement

(TEFCA), and consistent with other measure requirements, beginning with the EHR reporting period in CY 2026.

i. Transforming Episode Accountability Model (TEAM)

In section XI.A. of the preamble of this proposed rule, we propose changes to the Transforming Episode Accountability Model (TEAM). TEAM is a 5-year mandatory model that will be tested under the authority of section 1115A of the Act, beginning on January 1, 2026, and ending on December 31, 2030. We are proposing changes to multiple areas of the model, including: (1) a limited deferment period for certain hospitals; (2) addressing the expiration of the Medicare Dependent Hospital program; (3) adding the Information Transfer Patient Reported Outcome-based Performance Measure (Information Transfer PRO-PM); (4) applying a neutral quality measure score for TEAM participants with insufficient quality data; (5) a methodology to construct target prices when there are coding changes; (6) reconstructing the normalization factor and prospective trend factor; (7) replacing the Area Deprivation Index (ADI) with the Community Deprivation Index (CDI); (8) using a 180-day lookback period and Hierarchical Condition Categories (HCC) version 28 for beneficiary risk adjustment; (9) aligning the date range used for episode attribution; (10) removing health equity plans and health related social needs data reporting; (11) expanding the Skilled Nursing Facility (SNF) 3-day rule waiver; and (12) removing the Decarbonization and Resilience Initiative (DRI).

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 proposed rule.

Provision description

Description of costs, transfers, savings, and benefits

Proposed Transition for the Discontinuation of the Low Wage Index Hospital Policy

As discussed in section III.F.7. of the preamble of this proposed rule, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy, that would be implemented in a budget neutral manner. We proposed to make this policy budget neutral through an adjustment applied to the standardized amounts for all hospitals.

Proposed Update to the IPPS Labor-Related Share

Proposed Update to the IPPS Payment Rates and Other Payment Policies

As discussed in Appendix A of this proposed rule, acute care hospitals are estimated to experience an increase of approximately $4.0 billion in FY 2026, primarily driven by the changes in FY 2026 operating payments, uncompensated care payments, and capital payments and the expiration of the temporary changes in the low-volume hospital program and the expiration of the MDH program on October 1, 2025.

Proposed Update to the LTCH PPS Payment Rates and Other Payment Policies

As discussed in Appendix A of this proposed rule, based on the best available data for the 328 LTCHs in our database, we estimate that the proposed changes to the payment rates and factors that we present in the preamble of and Addendum of this proposed rule, which reflect the proposed update to the LTCH PPS standard Federal payment rate for FY 2026, would result in an estimated increase in payments in FY 2026 of approximately $61 million.

Changes to the Hospital Readmission Reduction Program

We estimated that our changes for the Hospital Readmissions Reduction Program will result in no financial impact for the FY 2027 payment determination or subsequent years.

Changes to the Value-Based Incentive Payments under the Hospital VBP Program

We estimated that there will be no net financial impact to the Hospital VBP Program for the FY 2026 program year in the aggregate because, by law, the amount available for value-based incentive payments under the program in a given year must be equal to the total amount of base operating MS-DRG payment amount reductions for that year, as estimated by the Secretary. The estimated amount of base operating MS-DRG payment amount reductions for the FY 2026 program year and, therefore, the estimated amount available for value-based incentive payments for FY 2026 discharges is approximately $1.7 billion.

Proposed Changes to the HAC Reduction Program

We estimated that our changes for the HAC Reduction Program will result in no financial impact for the FY 2027 payment determination or subsequent years.

Changes to the Hospital IQR Program

Across 3,050 IPPS hospitals, we estimated that our changes for the Hospital IQR Program will result in a maximum decrease of 660,577 hours and $18,008,959 to the information collection burden for the FY 2026 payment determination or subsequent years.

Proposed Changes to the PCHQR Program

Across 11 PCHs, we estimated that our changes for the PCHQR Program will result in a maximum decrease of 153 hours and $7,765 to the information collection burden for the FY 2026 program year or subsequent years.

Changes to the LTCH QRP

Across 330 LTCHs, we estimated that our proposed changes for the FY 2026 LTCH QRP would result in a total information collection burden increase of 4 hours and $187.60 associated with updates to our reconsideration policy. We estimated that our proposed changes for the FY 2028 LTCH QRP would result in a decrease of 2,633.51 hours associated with our policies and updated burden estimates and a total cost decrease of approximately $180,016.80.

Changes to the Medicare Promoting Interoperability Program

Across 4,550 eligible hospitals and CAHs, we estimated that our changes for the Medicare Promoting Interoperability Program will not result in a change to the information collection burden for the EHR reporting period in CY 2026 and subsequent years.

Transforming Episode Accountability Model (TEAM)

We estimate for the TEAM proposals included in this proposed rule that there would be no significant change from the savings estimate in the FY 2025 IPPS/LTCH PPS final rule. Therefore, we estimate testing TEAM would result in saving the Medicare program $481 million across the 5 performance years.

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 (COLA) 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.

With the recent enactment of section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025, under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through September 30, 2025. For discharges occurring on or after October 1, 2007, but before October 1, 2025, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 extended the MDH program through FY 2025 only, beginning on October 1, 2025, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond September 30, 2025, beginning October 1, 2025, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate.

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

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

2. Hospitals and Hospital Units Excluded From the IPPS

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

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

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

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

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

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

1. The Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4)

Section 2201 of the Full-Year Continuing Appropriations and Extensions Act, 2025 extended through FY 2025 the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals that had been in effect for FYs 2019 through 2024. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2025, 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 September 30, 2025, 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 2202 of the Full-Year Continuing Appropriations and Extensions Act, 2025 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 2025 (that is, through September 30, 2025).

D. Summary of the Proposed Provisions

In this proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2026 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 2026.

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

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

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

• Proposed changes to MS-DRG classifications based on our yearly review for FY 2026.

• Proposed recalibration of the MS-DRG relative weights.

• A discussion of the proposed FY 2026 status of new technologies approved for add-on payments for FY 2025, a presentation of our evaluation and analysis of the FY 2026 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) Public Law 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 2026 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.

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

In section III. of the preamble of this proposed rule, we propose 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 2026 wage index update using wage data from cost reporting periods beginning in FY 2022.

• Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2026 based on the 2022 Occupational Mix Survey.

• Proposed application of the rural, imputed and frontier State floors, and proposed transition for the discontinuation 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 2026 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 applying the FY 2026 wage index.

3. Proposed Rebasing and Revising of the IPPS Market Baskets

In section IV. of the preamble of this proposed rule, we propose to rebase and revise the IPPS market baskets to reflect a 2023 base year. In section IV.B.3. of the preamble of this proposed rule, using the cost category weights from the proposed 2023-based IPPS market basket, we propose to use a labor-related share of 66.0 percent for the national standardized amounts for all IPPS hospitals (including hospitals in Puerto Rico) that have a wage index value that is greater than 1.0000.

4. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2026

In section V. of the preamble of this 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 Factor 3 of the uncompensated care payment for FY 2026, which is the same methodology that was used for FY 2025.

• Proposed methodological approach for determining the amount of interim uncompensated care payments using the average of the most recent 3 years of discharge data.

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

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

• Proposed inpatient hospital market basket update for FY 2026.

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

• Proposed conforming amendments to reflect the statutory extension of the temporary changes to the low-volume hospital payment adjustment through September 30, 2025.

• Proposed conforming amendments to reflect the statutory extension of the MDH program through September 30, 2025.

• A direct graduate medical education (GME) and indirect medical education (IME) policy proposal for calculating full-time equivalent counts and caps for cost reporting periods other than 12 months; and a notice of closure of two teaching hospitals and opportunities to apply for available slots.

• Proposed nursing and allied health education (NAHE) program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2024; and proposed regulatory changes regarding the calculation of net cost of NAHE.

• Proposed update to and revision to the payment adjustment for certain immunotherapy cases.

• Proposed changes to the requirements of the Hospital Readmissions Reduction Program—Updating the proposed estimate of the financial impacts for the FY 2026 Hospital Readmissions Reduction Program.

• Proposed changes to the requirements of the Hospital Value-Based Purchasing Program—Updating the proposed estimate of the financial impacts for the FY 2026 Hospital Value-Based Purchasing Program.

• Proposed changes to the requirements of the Hospital-Acquired Conditions Reduction Program—Updating the proposed estimate of the financial impacts for the FY 2026 Hospital-Acquired Conditions Reduction Program.

• Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2025.

6. Proposed FY 2026 Policy Governing the IPPS for Capital-Related Costs

In section VII. 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 2025.

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

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

• Proposed changes to payments to certain excluded hospitals for FY 2026.

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

8. Proposed Changes to the LTCH PPS

In section IX. 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 2026.

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

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

• Solicitation of comment on adopting measures across the hospital quality reporting and value-based purchasing programs which capture more forms of unplanned post-acute care and encourage hospitals to improve discharge processes.

• Proposed changes to the requirements for the Hospital IQR Program.

• Proposed changes to the requirements for the PCHQR Program.

• Proposed changes to the requirements for the LTCH QRP, and requests for information on future measure concepts, revisions to the data submission deadlines for assessment data collection, and advancing digital quality measurement (dQM) in the LTCH QRP.

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

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

Section XI. of the preamble of the proposed rule includes proposed changes to TEAM that would affect participation, quality measure and assessment, pricing methodology, health data reporting, waivers of Medicare Program requirements, and the Decarbonization and Resilience Initiative.

11. Other Provisions of the Proposed Rule

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

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

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

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

12. 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 2026 prospective payment rates for operating costs and capital-related costs for acute care hospitals, including cost-of-living adjustment (COLA) factors for IPPS hospitals located in Alaska and Hawaii. We are proposing 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 2026 for certain hospitals excluded from the IPPS.

13. 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 2026 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 2026. 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.

14. Impact Analysis

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

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

In Appendix B of this 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 2026 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.

16. 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 2025 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2024 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

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

A. Background

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

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

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

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

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2025 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; 87 FR 48800 through 48891; 88 FR 58654 through 58787; and 89 FR 69000 through 69109, 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).

C. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed FY 2026 MS-DRG Updates

a. International Classification of Diseases, 10th Revision (ICD-10)

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. 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.

b. Basis for Proposed FY 2026 MS-DRG Updates

The deadline for interested parties to submit MS-DRG classification change requests for FY 2026 was October 20, 2024. All requests are submitted to CMS via Medicare Electronic Application Request Information System

(MEARIS

), accessed at

https://mearis.cms.gov.

Specifically, as indicated on the MEARIS

site, the MS-DRG classification change request process may be used for requests to create, modify, or delete MS-DRGs,

change ICD-10-CM diagnosis code(s) severity level designations, change ICD-10-PCS procedure code(s) Operating Room (O.R.) designations, or to review the CC Exclusions List or the surgical hierarchy.

Within MEARIS

, 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

site. Questions regarding the MEARIS

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

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 OMB control number 0938-1431 and has an expiration date of 09/30/2025.

Interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2027 consideration by October 20, 2025 via MEARIS

at:

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

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. We further note that we also received recommendations and feedback that did not involve requests to create, modify, or delete MS-DRGs, change code designations, or to review the CC Exclusions List or the surgical hierarchy, which therefore are not summarized or addressed in this discussion of the MS-DRG classification change requests received for FY 2026.

We received requests to modify the GROUPER logic in several MS-DRGs under MDC 08 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) and a request to modify the GROUPER logic for MS-DRG 794 (Neonate with Other Significant Problems) under MDC 15 (Newborns and Other Neonates with Conditions Originating in Perinatal Period). Specifically, we received requests to—

• Modify the GROUPER logic of new MS-DRG 426 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device), new MS-DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical with CC), and new MS-DRG 428 (Multiple Level Combined Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC); new MS-DRG 447 (Multiple Level Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically Designed Interbody Fusion Device) and new MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC); and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fusion of a sacroiliac joint using an internal fixation device with tulip connector or insertion of an internal fixation device with tulip connector into a pelvic bone with another spinal fusion procedure code that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG.

• Modify the GROUPER logic of MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand for Musculoskeletal and Connective Tissue Disorders with MCC, with CC, and without CC/MCC, respectively); MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and without CC/MCC, respectively); and MS-DRGs 492, 493, and 494 (Lower Extremity and Humerus Procedures Except Hip, Foot and Femur with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting bone void filler into bones, open approach, new technology group 7) that currently map to the lower severity level MS-DRG to the highest severity level (with MCC) MS-DRG.

• Modify the GROUPER logic of MS-DRG 794. The requestor recommended that ICD-10-CM diagnosis codes P09.6 (Abnormal findings on neonatal screening for neonatal hearing loss), Z13.0 (Encounter for screening for diseases of the blood and blood-forming organs and certain disorders involving the immune mechanism), Z82.5 (Family history of asthma and other chronic lower respiratory diseases) and Z82.79 (Family history of other congenital malformations, deformations and chromosomal abnormalities), be added to the MS-DRG 795 (Normal Newborn) “only secondary diagnosis” list so that they would result in assignment to MS-DRG 795 when coded with a principal diagnosis code from ICD-10-CM category Z38 (Liveborn infants according to place of birth and type of delivery) instead of MS-DRG 794.

We appreciate the submissions and related analyses provided by the requestors for our consideration as we review MS-DRG classification change requests for FY 2026; however, we note the complexity of the GROUPER logic for these MS-DRGs in connection with these requests requires more extensive analyses to identify and evaluate all the data relevant to assessing these potential modifications. Specifically, we note that MS-DRGs 426, 427, 428, 447, and 448 recently became effective October 1, 2024 (FY 2025) and as discussed in the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 35982 through 35983) and final rule (89 FR 69049 through 69053) in consideration of any future modifications to the current structure of the logic for case assignment to MS-DRGs 456, 457, and 458 we noted that additional analysis would be needed because the logic is also defined by diagnosis code logic as well as extensive fusions. We also note that, as discussed further in section II.C.5.c. of the preamble of this FY 2026 IPPS/LTCH PPS proposed rule, we identified additional inconsistencies related to the diagnosis code logic for MS-DRGs 456, 457, and 458 for which we are proposing modifications. In addition, analyzing the impact of restructuring the logic in these MS-DRGs with respect to procedure codes describing fusion of a sacroiliac joint using an internal fixation device with tulip connector necessitates evaluating the impact across numerous other MS-DRGs in MDC 08, as well as MS-DRG 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC) under MDC 01 (Diseases and Disorders of the Nervous System) since the procedure codes describing fusion of a sacroiliac joint using an internal fixation device with tulip connector also map to these MS-DRGs.

With respect to the request to reassign cases reporting procedure code XW0V0P7 from the lower severity level to the highest (with MCC) severity level in the previously listed MS-DRGs, we note that the procedure to insert a bone void filler is designated as a non-operating room (Non-O.R.) procedure and believe that the key factor that

would contribute to resource utilization in these cases is the fact that the patients have an infection(s) which require additional resources. As discussed in section II.C.5.a. of the preamble of this FY 2026 IPPS/LTCH PPS proposed rule, we also received an MS-DRG request related to cases reporting a hip or knee procedure with a diagnosis of periprosthetic joint infection (PJI) in MS-DRGs 463, 464, and 465. In our review of the claims data to address that request we noted that a subset of the cases also reported procedure code XW0V0P7. Consistent with our established process, we must also consider if there are additional factors, such as the severity of illness with other secondary CC/MCC conditions reported and any other O.R. procedures or services provided, such as mechanical ventilation, that may be contributing to the consumption of resources for these cases. For these reasons and those previously described, we believe additional time is needed to review and evaluate potential extensive modifications to the structure of these MS-DRGs.

With respect to the request to modify the GROUPER logic of MS-DRG 794, as discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69061 through 69065), we acknowledged that MS-DRG 794 utilizes “fall-through” logic, meaning if a diagnosis code is not assigned to any of the other MS-DRGs, then assignment “falls-through” to MS-DRG 794. As discussed in the FY 2025 IPPS/LTCH PPS rule, we stated we have started to examine the GROUPER logic that would determine the assignment of cases to the MS-DRGs in MDC 15, including MS-DRGs 794 and 795, to determine where further refinements could potentially be made to better account for differences in clinical complexity and resource utilization. However, as we have noted in prior rulemaking (72 FR 47152), we stated we cannot adopt the same approach to refine the newborn MS-DRGs because of the extremely low volume of Medicare patients there are in these MS-DRGs. We believe it is appropriate to consider the request to add ICD-10-CM diagnosis codes P09.6 (Abnormal findings on neonatal screening for neonatal hearing loss), Z13.0 (Encounter for screening for diseases of the blood and blood-forming organs and certain disorders involving the immune mechanism), Z82.5 (Family history of asthma and other chronic lower respiratory diseases) and Z82.79 (Family history of other congenital malformations, deformations and chromosomal abnormalities) to the MS-DRG 795 (Normal Newborn) “only secondary diagnosis” list in connection with our continued examination of the GROUPER logic that would determine the assignment of cases to the MS-DRGs in MDC 15 in future rulemaking, rather than proposing to change the MS-DRG assignment of individual ICD-10-CM diagnosis codes at this time. Additional time is needed to fully and accurately evaluate cases currently grouping to the MS-DRGs in MDC 15 to consider if restructuring the current MS-DRGs would better recognize the clinical distinctions of these patient populations.

We will continue to monitor the data as we consider these issues in connection with future rulemaking. As we continue the analysis of the claims data with respect to MS-DRGs in MDC 08, MDC 01, and MDC 15, we welcome public comments and feedback on other factors that should be considered in the potential restructuring of these MS-DRGs. Feedback and other suggestions may be directed to MEARIS

at:

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

As noted, interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2027 consideration by October 20, 2025 via MEARIS

at:

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

As we did for the FY 2025 IPPS/LTCH PPS proposed rule, for this FY 2026 IPPS/LTCH PPS proposed rule we are providing a test version of the ICD-10 MS-DRG GROUPER Software, Version 43, so that the public can better analyze and understand the impact of the proposals included in this FY 2026 IPPS/LTCH PPS proposed rule. We note that this test software reflects the proposed GROUPER logic for FY 2026. Therefore, it includes the new diagnosis and procedure codes that are effective for FY 2026 as reflected in Table 6A.—New Diagnosis Codes—FY 2026 and Table 6B.—New Procedure Codes—FY 2026 associated with this FY 2026 IPPS/LTCH PPS proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2026 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2026 and Table 6D.—Invalid Procedure Codes—FY 2026 associated with this FY 2026 IPPS/LTCH PPS proposed rule. These tables are not published in the Addendum to this FY 2026 IPPS/LTCH PPS 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 this FY 2026 IPPS/LTCH PPS proposed rule. Because the diagnosis and procedure codes no longer valid for FY 2026 are not reflected in the test software, we are making available a supplemental file in Table 6P.1a that includes the mapped Version 43 FY 2026 ICD-10-CM codes and the deleted Version 42 FY 2025 ICD-10-CM codes and Table 6P.1b that includes the mapped Version 43 FY 2026 ICD-10-PCS codes and the deleted Version 42.1 FY 2025 ICD-10-PCS codes that should be used for testing purposes with users' available claims data. Therefore, users will have access to the test software allowing them to build case examples that reflect the proposals included in this FY 2026 IPPS/LTCH PPS proposed rule. In addition, users will be able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 43 that contains the documentation for proposed FY 2026 ICD-10 MS-DRG GROUPER Version 43 logic changes and will also be able to view a draft version of the Definitions of Medicare Code Edits (MCE) Manual to review any changes that will become effective October 1 for FY 2026. As a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, any further changes to the MCE will be reflected in the finalized Definitions of Medicare Code Edits (MCE) Manual, made available in association with the annual IPPS/LTCH PPS final rule. We are making available the draft FY 2026 ICD-10 MCE Version 43 Manual file on the CMS website at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

The MCE manual is comprised of two chapters:

Chapter 1: Edit code lists

provides a listing of each edit, an explanation of each edit, and as applicable, the diagnosis and/or procedure codes for each edit, and

Chapter 2: Code list changes

summarizes the changes in the edit code lists (for example, additions and deletions) from the prior release of the MCE software. The public may submit any questions, comments, concerns, or recommendations regarding the MCE to the CMS mailbox at

MSDRGClassificationChange@cms.hhs.gov

for our review and consideration.

The test version of the ICD-10 MS-DRG GROUPER Software, Version 43, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 43, the draft version of the Definitions of Medicare Code Edits Manual, Version 43, and the supplemental mapping files in Tables 6P.1a and 6P.1b of the FY 2025 and FY 2026 ICD-10-CM

diagnosis codes and ICD-10-PCS procedure codes are available at

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

The following are the changes that we are proposing to the MS-DRGs for FY 2026. We are inviting public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in this FY 2026 IPPS/LTCH PPS proposed rule. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we are proposing to maintain the existing MS-DRG classifications based on our analysis of claims data and clinical appropriateness. For this FY 2026 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2024 update of the FY 2024 MedPAR file, which contains hospital bills received from October 1, 2023 through September 30, 2024. In our discussion of the proposed MS-DRG reclassification changes, we refer to these claims data as the “September 2024 update of the FY 2024 MedPAR file.”

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.

As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661), we 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. Accordingly, in our analysis of the MS-DRG classification requests for FY 2026 that we received by October 20, 2024, 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.

Criteria No.

Three-way split

123

(MCC vs CC vs NonCC)

Two-way split

1_23

MCC vs (CC+NonCC)

Two-way split

12_3

(MCC+CC) vs NonCC

1. At least 500 cases in the MCC/CC/NonCC group

500+ cases for MCC group; and 500+ cases for CC group; and 500+ cases for NonCC group

500+ cases for MCC group; and 500+ cases for (CC+NonCC) group

500+ cases for (MCC+CC) group; and 500+ cases for NonCC group.

2. At least 5% of the patients are in the MCC/CC/NonCC group

5%+ cases for MCC group; and 5%+ cases for CC group; and 5%+ cases for NonCC group

5%+ cases for MCC group; and 5%+ cases for (CC+NonCC) group

5%+ cases for (MCC+CC) group; and 5%+ cases for NonCC group.

3. There is at least a 20% difference in average cost between subgroups

20%+ difference in average cost between MCC group and CC group; and 20%+ difference in average cost between CC group and NonCC group

20%+ difference in average cost between MCC group and (CC+NonCC) group

20%+ difference in average cost between (MCC+CC) group and NonCC group.

4. There is at least a $2,000 difference in average cost between subgroups

$2,000+ difference in average cost between MCC group and CC group; and $2,000+ difference in average cost between CC group and NonCC group

$2,000+ difference in average cost between MCC group and (CC+NonCC) group

$2,000+ difference in average cost between (MCC+CC) group and NonCC group.

5. The R2 of the split groups is greater than or equal to 3

R2 >3.0 for the three-way split within the base MS-DRG

R2 >3.0 for the two-way 1_23 split within the base MS-DRG

R2 >3.0 for the two-way 12_3 split within the base MS-DRG.

In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for this FY 2026 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2024 update of the FY 2024 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent two years of data. This analysis includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. 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.

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

We received a request to review the recent MS-DRG assignments to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies) and to clarify how decisions for the assignment of cell and gene therapies will be made moving forward. According to the requestor, for FY 2025, CMS did not assign prademagene zamikeracel (PZ), an autologous genetically engineered cell-based gene therapy, to MS-DRGs that would create clinical homogeneity and therefore, the mapping of these cases to MS-DRG 018 instead implied that estimated post-approval product pricing takes precedent for cell and gene therapies over clinical homogeneity principles. The requestor acknowledged that CMS has previously clarified that therapies mapped to Pre-MDC MS-DRG 018 do not need to be CAR T-cell products or utilized in the treatment of cancer and stated it concurs with that approach. However, the requestor indicated that the mapping of PZ to Pre-MDC MS-DRG 018 for FY 2025 also raised the following questions:

• Why was PZ mapped to Pre-MDC MS-DRG 018 when a different product (eladocagene exuparvovec) that is also delivered via operating room administration methods was mapped to other non-pre-MDC MS-DRGs?

• Why did CMS indicate that Lantidra, a recently approved cellular therapy, would map to the same MS-DRGs as existing insulin delivery therapies and technologies used to treat the subset of patients with hard-to-control Type 1 diabetes complicated by severe hypoglycemia who cannot receive a whole pancreas transplant instead of to Pre-MDC MS-DRG 018?

• Does CMS intend a future split of Pre-MDC MS-DRG 018 between medical and surgical cell and gene therapies to recognize the clinical resource differential between the two modalities, even if the 500 case volume threshold is not reached?

• Why was a product delivered via allogeneic stem cell transplant procedure (Orca-T) mapped to Pre-MDC MS-DRG 018 instead of Pre-MDC MS-DRG 014 (Allogeneic Bone Marrow Transplant)?

• If products delivered via stem cell transplant should be mapped to Pre-MDC MS-DRG 018 based on resource use, per the Orca-T example, why are multiple gene therapy products delivered via stem cell transplant instead mapped to Pre-MDC MS-DRGs 016 and 017 (Autologous Bone Marrow Transplant with CC/MCC and without CC/MCC, respectively)?

The requestor stated the previously listed questions illustrate examples of inconsistencies with the MS-DRG mappings of cell and gene therapy products in recent years. The requestor recommended that CMS review recent MS-DRG assignments for these products and consider refinements to the approach. The requestor also urged CMS to clarify how decisions for cell and gene therapies will be made in the future. The requestor stated that if the intent of CMS is for Pre-MDC MS-DRG 018 to be a broad cell and gene therapy MS-DRG then a modification to the title of Pre-MDC MS-DRG 018 should be proposed and therapies currently assigned to other MS-DRGs should be re-mapped.

The requestor also suggested that CMS clarify the process by which interested parties can submit comments on potential or proposed procedure code mappings to the MS-DRGs for code proposals discussed at the Spring ICD-10 Coordination and Maintenance (C&M) Committee meeting since, given the timing, proposed code assignments are not published in association with the annual IPPS/LTCH PPS proposed rule. Specifically, the requestor stated there is no opportunity for interested parties to provide feedback to CMS about the assignment of new codes to Pre-MDC MS-DRG 018. The requestor stated that because MS-DRG 018 is a Pre-MDC MS-DRG with a limited number of procedure codes mapping to it, it is important for interested parties to have the ability to preview potential assignments to this MS-DRG and provide feedback to CMS prior to any final mapping decisions being made. The requestor acknowledged that CMS previously responded to prior comments regarding the process of commenting on the assignment of newly created codes; however, the requestor suggested that CMS provide additional clarification. Specifically, the requestor stated that the primary comment period with respect to the Spring procedure code requests is the timeframe following the ICD-10 C&M Committee meeting and that the materials provided in association with the meeting do not contain mapping requests submitted by the code requestor. The requestor indicated that if it is to assume any new procedure code request could potentially be mapped to Pre-MDC MS-DRG 018 and submits comments accordingly, that would create an undue burden. The requestor submitted the following questions regarding the process by which interested parties may submit comments on potential procedure code mappings to MS-DRGs:

• Can mapping requests be submitted as part of the request for a new ICD-10-PCS procedure code or do mapping requests need to go through the MS-DRG modification process with an annual October deadline?

• Can CMS provide information on mapping requests as part of the ICD-10 C&M Committee meeting materials?

• Will comments submitted to the ICD-10 C&M Committee about potential mappings be shared with the CMS teams associated with MS-DRG mapping decisions?

• Should interested parties include the same comments that are submitted to the ICD-10 C&M Committee in their proposed rule comments?

• Will comments submitted as part of the proposed rule be considered within scope for proposed codes presented during the spring meeting that are subsequently finalized but not listed in Table 6A.—New Diagnosis codes and Table 6B.—New Procedure Codes with proposed mappings?

• Do CMS' prior responses indicate that interested parties who submit comments on procedure code mappings should request code proposals presented at the spring meeting be delayed until the fall meeting?

The requestor recommended that CMS address the previously listed

questions and seek input on the process by which interested parties may submit comments on potential procedure code mappings.

We appreciate the requestor's feedback and suggestions regarding the classification of therapies to Pre-MDC MS-DRG 018 and the broader topic of MS-DRG mappings of cell and gene therapy products for the future. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69008 through 69010), we summarized and responded to comments regarding the mapping of procedure codes describing the application of PZ and other newly established procedure codes to Pre-MDC MS-DRG 018. We note that we previously addressed similar comments in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48806 through 48807), and we also noted that we provided detailed summaries and responses to these same or similar comments in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798 through 44806). We also refer the reader to the discussion in section II.D. of this FY 2026 IPPS/LTCH PPS proposed rule, regarding the proposed relative weight methodology for cases mapping to Pre- MDC MS-DRG 018 effective October 1, 2025, for FY 2026.

With respect to the requestor's suggestion that a modification to the title of Pre-MDC MS-DRG 018 be proposed, we note that the requestor did not provide a specific recommendation for FY 2026 consideration; however, we acknowledge that there has been discussion related to requests to revise the title to Pre-MDC MS-DRG 018 in prior rulemaking, most recently in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69008 through 69010), and we continue to be interested in obtaining input from members of the public on options to consider, recognizing there are additional types of cell and gene therapies now mapping to Pre-MDC MS-DRG 018. We will continue to review additional feedback and suggestions in connection with future rulemaking.

In response to the requestor's assertion that there is no opportunity for interested parties to submit feedback about MS-DRG assignments, as we have discussed in prior rulemaking (87 FR 48807 through 48808) and as noted in the request, interested parties may use current coding information as shown in the ICD-10 C&M Committee meeting materials to consider the potential MS-DRG assignments for any procedure codes that may be finalized after the Spring meeting and submit public comments for consideration. As we have noted in prior rulemaking, because the diagnosis and procedure code proposals that are presented at the Spring ICD-10-CM C&M Committee meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. In response to the question regarding the inclusion of information on mapping requests as part of the ICD-10 C&M Committee meeting materials, we note that, as announced at each ICD-10 C&M Committee meeting, there is no discussion of MS-DRGs, payment, coverage, or billing at the ICD-10 C&M Committee meetings; therefore, we do not include such information in the meeting materials made publicly available in association with the meeting. Rather, we state that any issues related to MS-DRGs or payment are addressed through IPPS rulemaking. The purpose of the ICD-10 C&M Committee meeting is to present code proposals based on requests received regarding coding updates (that is, additions, deletions, or revisions). Therefore, while mapping requests may be included in the submission of an ICD-10-PCS procedure code request, that information is not included in the meeting materials, nor is there any discussion about any mapping request(s) during the meeting.

In response to the requestor's question regarding whether comments submitted to the ICD-10 C&M Committee about potential mappings are shared with the CMS staff associated with MS-DRG mapping decisions, we note that the comments are shared. With respect to whether interested parties should include the same comments submitted to the ICD-10 C&M Committee in the comments submitted in response to the proposed rule, we note that what comments to include and submit for each process is up to the commenter. In response to the question of whether comments submitted in response to the proposed rule would be considered within scope for proposed codes presented during the Spring meeting that are subsequently finalized but not listed in Table 6A.—New Diagnosis codes and Table 6B.—New Procedure Codes with proposed mappings, we note that the procedure code update files reflecting the newly finalized codes are made publicly available following the receipt and review of public comments received by the established deadline for the Spring coding topics, and that interested parties may choose to submit public comments on MS-DRG assignment for the agency's consideration. Lastly, in response to the question of whether interested parties considering submitting comments on procedure code mappings should request code proposals associated with the Spring meeting be delayed until the Fall meeting, we similarly note that the decision on what comments a commenter decides to include and submit in response to a code proposal is up to the commenter. We refer the reader to section II.C.11. of the preamble of this FY 2026 IPPS/LTCH PPS proposed rule for additional information regarding the ICD-10 C&M Committee meeting process.

In connection with the comments and questions about how products are grouped under the IPPS MS-DRGs, specifically with respect to cell and gene therapies under Pre-MDC MS-DRG 018, for FY 2026, we also received a request to create a new neurosurgical gene therapy MS-DRG to more accurately reflect the clinical characteristics and resource intensity required for the administration of neurosurgical gene therapies, including eladocagene exuparvovec, for patients diagnosed with Aromatic L-amino acid decarboxylase (AADC) deficiency. We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895) and the FY 2023 IPPS/LTCH PPS final rule (87 FR 48853 through 48854) for discussion regarding eladocagene exuparvovec.

The requestor (the manufacturer), expressed its appreciation for CMS' efforts to reassign cases reporting procedure code XW0Q316 (Introduction of eladocagene exuparvovec into cranial cavity and brain, percutaneous approach, new technology group 6) to a surgical MS-DRG as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895). According to the requestor, the decision appropriately reclassified cases involving eladocagene exuparvovec from a Non-O.R. procedure to an operating room (O.R.) procedure due to

the requirement for intraputaminal administration via a burr hole in the skull. However, the requestor did not agree with the current assignment to MS-DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC 10, or MS-DRGs 987, 988, and 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without MCC/CC, respectively). According to the requestor, the clinical characteristics and average costs of the cases currently assigned to MS-DRGs 628, 629, and 630 are significantly different from those associated with eladocagene exuparvovec neurosurgical gene therapy for rare disease.

The requestor stated that CMS denied the request to create a new MS-DRG for FY 2023, stating that it would continue to explore appropriate mechanisms to address low volume MS-DRGs indicated for rare diseases; however, after receiving responses to the Request for Information (RFI), the requestor stated that there have not been any changes proposed to the IPPS. The requestor stated its belief that assigning cases for this gene therapy and the rare disease indicated to a new MS-DRG is both appropriate and warranted. According to the requestor, the current MS-DRGs that eladocagene exuparvovec cases group to do not adequately reflect the clinical characteristics or resource needs associated with treatment which may deter hospitals from providing this therapy.

The requestor also stated there are approximately 68 gene therapy trials in the U.S. for central nervous system disorders for which over 30 of the 68 trials involve the gene therapy being administered directly into the brain parenchyma. According to the requestor, gene therapies administered surgically, including with neurosurgery, are extremely complicated, resource-intensive procedures for hospitals to undertake. These procedures require highly specialized surgeons, surgical equipment, and staff. Patients undergoing these procedures may also require continuous monitoring and longer hospital stays. The requestor stated the more intensive needs of these patients are not adequately captured in existing MS-DRGs and the creation of a new MS-DRG for neurosurgical gene therapy would help CMS proactively shape payment policy for this evolving class of therapies, thus allowing appropriate payment to support patient access to these treatments.

Our analysis of the September 2024 update of the FY 2024 MedPAR file yielded zero cases reporting the administration of eladocagene exuparvovec, therefore, we believe it would be premature to consider the creation of a new neurosurgical gene therapy MS-DRG at this time. We appreciate the detailed clinical information that the requestor provided and acknowledge that cases involving neurosurgery are technically complex and that patients undergoing these procedures tend to be critically ill, many with rare diseases.

We note that we did receive a new procedure code request to identify and describe the Smartflow® Neuro Cannula as the delivery mechanism to administer eladocagene exuparvovec that was included as a topic in the Spring 2025 ICD-10 Coordination and Maintenance Committee Update materials. We refer the reader to the CMS website at:

https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials

for additional detailed information regarding the request, and the related materials.

We continue to welcome additional feedback and comments on other options to consider on how to appropriately address low volume, high-cost treatments for rare diseases.

We also note, as discussed in prior rulemaking, that this category of therapies continues to evolve, and we are in the process of carefully considering the feedback we have previously received about ways in which we can continue to appropriately reflect resource utilization while maintaining clinical coherence and stability in the relative weights under the IPPS MS-DRGs. We appreciate the recommendations and suggestions for consideration we have received and will continue to examine these complex issues in connection with future rulemaking. We acknowledge that there may be distinctions to account for as we continue to gain more experience in the use of these therapies and have additional claims data to analyze.

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

a. Logic for MS-DRGs 023 Through 027

For this FY 2026 IPPS/LTCH PPS proposed rule, we received three separate but related requests to review the MS-DRG assignments for a subset of procedures assigned to MS-DRGs 023 through 027. In this section of the preamble of this FY 2026 IPPS/LTCH PPS proposed rule, we discuss each of these separate, but related requests.

The first request was to create a new MS-DRG for cases involving “chemotherapy implants” and cases involving “epilepsy with neurostimulator.” The requestor noted chemotherapy implants are used to treat patients with brain tumors. They are implanted into the brain during the craniotomy procedure at the time of tumor resection. Upon implantation, these devices immediately release radiation or chemotherapeutic agents. This approach enables treatment to be initiated at the time of tumor resection without undue delay. “Epilepsy with neurostimulator” cases involve devices used in the treatment of medically intractable epilepsy. The neurostimulator is implanted in the skull via a craniotomy and is connected to electrodes that are implanted on the surface of the brain or in the brain through either a craniotomy or a burr hole(s). According to the requestor, like the procedure to insert a chemotherapy implant, the craniotomy procedure to insert the neurostimulator lead is performed under general anesthesia and the procedure typically takes four hours.

The requestor performed their own analysis of Medicare claims data and stated they found that the average costs of cases involving chemotherapy implants and cases involving epilepsy with neurostimulators are significantly higher than the average costs of other procedures currently grouped within MS-DRG 023. The requestor asserted that as a result, these cases are not being adequately paid under the current MS-DRG. Therefore, given the limited options within the existing MS-DRG structure, the requestor recommended that CMS extract cases reporting the insertion of a chemotherapy implant and cases reporting a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain, and a principal diagnosis of epilepsy from MS-DRG 023 and create a new MS-DRG for these cases with a payment rate that better aligns with the resource utilization associated with these procedures. The requestor stated that this recommendation appeared to be reasonable, given that CMS has already determined that these two subsets of cases are clinically coherent by virtue of them being currently assigned to the same MS-DRG.

To begin our analysis, we reviewed the GROUPER logic for MS-DRGs 023 and 024. The requestor is correct that currently, cases involving “chemotherapy implants” and cases involving “epilepsy with neurostimulator” are assigned to the higher severity level MS-DRG 023. MS-

DRGs 023 and 024 contain a logic list referred to as “Chemotherapy Implant.” This logic list includes the following four ICD-10-PCS codes:

ICD-10-PCS

code

Description

00H004Z

Insertion of radioactive element, cesium-131 collagen implant into brain, open approach.

3E0Q005

Introduction of other antineoplastic into cranial cavity and brain, open approach.

3E0Q305

Introduction of other antineoplastic into cranial cavity and brain, percutaneous approach.

3E0Q705

Introduction of other antineoplastic into cranial cavity and brain, via natural or artificial opening.

The “Chemotherapy Implant” logic list was created for cases reporting the implantation of a chemotherapeutic agent and devices implanted in the brain, such as implantable chemotherapeutic wafers. Additionally, MS-DRGs 023 and 024 contain a logic list referred to as “Epilepsy Principal Diagnosis” that includes 58 ICD-10-CM diagnosis codes that describe epilepsy, and a logic list referred to as “Neurostimulator” that includes the following three ICD-10-PCS procedure code combinations:

• 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).

These two logic lists were created to capture cases involving the use of the RNS® neurostimulator, a treatment option for persons diagnosed with medically intractable epilepsy. The RNS® neurostimulator includes a cranially implanted programmable neurostimulator connected to one or two depth and/or subdural cortical strip leads that are surgically placed in or on the brain at the seizure focus. The implanted neurostimulator continuously monitors brain electrical activity and is programmed by a physician to detect abnormal patterns of electrical activity that the physician believes may lead to seizures (epileptiform activity).

We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software

) for complete documentation of the GROUPER logic for MS-DRGs 023 and 024.

We then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRG 023 and compared the results to cases reporting one of the four procedure codes that appear under the logic list referred to as “Chemotherapy Implant” in MS-DRG 023 and for all 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. The following table shows our findings:

MS-DRG 023—All Cases Compared to Cases Reporting the Insertion of a Chemotherapy Implant and Cases Reporting a Neurostimulator Generator Inserted Into the Skull With the Insertion of a Neurostimulator Lead Into the Brain and a Principal Diagnosis of Epilepsy

MS-DRG

Number of

cases

Average

length

of stay

Average

costs

MS-DRG 023—All cases

12,136

$51,132

Cases reporting the insertion of a chemotherapy implant

176

6.4

49,743

Cases with principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain

2.4

66,303

As shown in the table, for MS-DRG 023, we identified a total of 12,136 cases, with an average length of stay of 10 days and average costs of $51,132. Of the 12,136 cases in MS-DRG 023, there were 176 cases reporting the insertion of a chemotherapy implant with an average length of stay of 6.4 days and average costs of $49,743. Additionally, there were 68 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 with an average length of stay of 2.4 days and average costs of $66,303.

As the data show, the 68 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 higher than the average costs of all cases in MS-DRG 023 ($66,303 compared to $51,132), and they have an average length of stay that is shorter (2.4 days compared to 10 days). The 176 cases in MS-DRG 023 reporting the insertion of a chemotherapy implant have average costs that are lower than the average costs of all cases in MS-DRG 023 ($49,743 compared to $51,132), and they have an average length of stay that is shorter (6.4 days compared to 10 days).

We reviewed the claims data, and do not believe the data support creating a new MS-DRG for cases reporting the insertion of a chemotherapy implant and 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. The results of the claims analysis as

previously summarized indicate the cases reporting the insertion of a chemotherapy implant demonstrate comparable resource utilization with other cases in their currently assigned MS-DRG. Further, the claims data analysis indicates that these two subsets of cases, that is cases reporting the insertion of a chemotherapy implant and 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 and cases reporting the insertion of a chemotherapy implant, do not demonstrate comparable resource utilization. The cases in MS-DRG 023 reporting the insertion of a chemotherapy implant have average costs that are lower than the average costs of cases describing a neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain and a principal diagnosis of epilepsy ($49,743 compared to $66,303), and they have an average length of stay that is longer (6.4 days compared to 2.4 days).

Therefore, based on review of the claims data, we are not proposing to create a new-MS-DRG for cases reporting the insertion of a chemotherapy implant and 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 for FY 2026. However, while our analysis of the claims data does not support creating a new MS-DRG for cases reporting the insertion of a chemotherapy implant and 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, as discussed, 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 have average costs that are higher than the average costs of all cases in MS-DRG 023, with a shorter average length of stay. Accordingly, we determined 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 conjunction with the separate but related requests we received to review the MS-DRG assignments for a subset of procedures also assigned to MS-DRGs 023 through 027 for this FY 2026 IPPS/LTCH PPS proposed rule to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped, as discussed later in this section.

As noted previously, MS-DRGs 023 and 024 contain a logic list referred to as “Chemotherapy Implant” that includes the following four ICD-10-PCS codes:

ICD-10-PCS

code

Description

00H004Z

Insertion of radioactive element, cesium-131 collagen implant into brain, open approach.

3E0Q005

Introduction of other antineoplastic into cranial cavity and brain, open approach.

3E0Q305

Introduction of other antineoplastic into cranial cavity and brain, percutaneous approach.

3E0Q705

Introduction of other antineoplastic into cranial cavity and brain, via natural or artificial opening.

During our review of the GROUPER logic for MS-DRGs 023 and 024, we identified that the following four ICD-10-PCS procedure codes describing the insertion of a radioactive element were inadvertently excluded from the “Chemotherapy Implant” logic list:

ICD-10-PCS

code

Description

00H001Z

Insertion of radioactive element into brain, open approach.

00H005Z

Insertion of radioactive element, palladium-103 collagen implant into brain, open approach.

00H031Z

Insertion of radioactive element into brain, percutaneous approach.

00H041Z

Insertion of radioactive element into brain, percutaneous endoscopic approach.

In review of this finding, we analyzed claims data from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 023, 024, 025, 026, and 027 for all cases and for cases reporting procedure codes 00H001Z, 00H005Z, 00H031Z, or 00H041Z. The findings from our analysis are shown in the following table.

MS-DRG

Number of

cases

Average

length

of stay

Average

costs

023

All cases

12,136

$51,132

Cases reporting 00H001Z, 00H005Z, 00H031Z, or 00H041Z

024

All cases

4,624

35,516

Cases reporting 00H001Z, 00H005Z, 00H031Z, or 00H041Z

025

All cases

21,059

8.6

40,215

Cases reporting 00H001Z, 00H005Z, 00H031Z, or 00H041Z

3.8

40,199

026

All cases

5,833

4.1

28,404

Cases reporting 00H001Z, 00H005Z, 00H031Z, or 00H041Z

027

All cases

7,049

1.9

23,059

Cases reporting 00H001Z, 00H005Z, 00H031Z, or 00H041Z

As the data show, we found four cases reporting procedure code 00H001Z, 00H005Z, 00H031Z, or 00H041Z in MS-DRG 025, with average costs of $40,199 and an average length of stay of 3.8 days. We reviewed this issue and note radioactive elements are inserted into the brain to deliver a targeted concentrated dose of radiation directly to a brain tumor or tumor bed. They are primarily used to treat recurrent brain metastases or other aggressive brain cancers, as it allows for high-dose radiation delivery specifically to the tumor site while minimizing damage to surrounding healthy brain tissue. Although we did not identify many cases, we believe the four procedure codes describing the insertion of a radioactive element into the brain are clinically aligned with the procedure codes currently included in the “Chemotherapy Implant” logic list in MS-DRGs 023 and 024.

Therefore, for clinical consistency we are proposing to add procedure codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z to the “Chemotherapy Implant” logic list in MS-DRGs 023 and 024, effective October 1, 2025, for FY 2026. We are also proposing to change the description of the logic list in MS-DRGs 023 and 024 from “Chemotherapy Implant” to “Antineoplastic Implant” to better reflect the GROUPER logic that includes ICD-10-PCS procedure codes describing antineoplastic agents implanted in the brain.

As mentioned previously, for this FY 2026 IPPS/LTCH PPS proposed rule, we received three separate but related requests to review and reconsider the MS-DRG assignments for a subset of procedures assigned to MS-DRGs 023 through 027. The second and third request involve the MS-DRG assignment of cases reporting procedure codes describing the insertion of deep brain stimulators (DBS). Deep brain stimulation is a surgical treatment that involves the implantation of a neurostimulator, used in the treatment of essential tremor, Parkinson's disease, dystonia, epilepsy, obsessive-compulsive disorder and chronic pain. A DBS system consists of one or two leads that are placed stereotactically at defined targets deep within the brain via one or two burr holes created in the skull. The lead is then connected to an extension that is tunneled under the skin, down the neck, and connected to a programmable neurostimulator generator that is placed under the skin.

The second request we received was to reassign cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023, even if there is no MCC reported. The requestor suggested that if finalized, the title for MS-DRG 023 should be revised to reflect “Craniotomy with Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant or Major Device Implant or Epilepsy with Neurostimulator.”

The requestor performed their own analysis and stated they found that the majority of cases reporting the implantation of a DBS system are assigned to the lower severity level MS-DRG 024. The requestor also stated that in their analysis, the cases reporting the implantation of a DBS system assigned to MS-DRG 024 have average costs that are 20% greater than all cases in MS-DRG 024. The requestor asserted that reassigning cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (with MCC) severity level MS-DRG 023, even if there is no MCC reported, would better recognize hospital resource utilization when the DBS systems are inserted.

The requestor identified cases reporting the implantation of a DBS system by the presence of the following procedure code combinations:

• 0JH60DZ (Insertion of multiple array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach);

• 0JH60DZ (Insertion of multiple array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach);

• 0JH60EZ (Insertion of multiple array rechargeable stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); and

• 0JH60EZ (Insertion of multiple array rechargeable stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach).

To begin our analysis, we again reviewed the GROUPER logic for MS-DRGs 023 and 024. The GROUPER logic for MS-DRGs 023 and 024 also contains 78 procedure code combinations representing the insertion of neurostimulator generator and a neurostimulator lead that are captured under a list referred to as “Major Device Implant.” The procedure codes describing the insertion of a neurostimulator generator on this list describe insertion of the neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen, as well as into the skull. The procedure codes describing the insertion of a neurostimulator lead describe the insertion of the lead into the brain or the cerebral ventricle. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software

) for complete documentation of the GROUPER logic for MS-DRGs 023 and 024.

In our analysis of this issue, we agree that the four procedure code combinations discussed previously that were identified by this requestor are included in the “Major Device Implant” logic list of MS-DRGs 023 and 024, but we note that 32 additional procedure code combinations exist on the “Major Device Implant” logic list that also describe the implantation of a DBS system by describing the insertion of a neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. We refer the reader to Table 6P.2a associated with this FY 2026 IPPS/LTCH PPS proposed rule (and available at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps

) for the list of the 36 ICD-10-PCS procedure code combinations in the logic of MS-DRGs 023 and 024 in the “Major Device Implant” logic list that we identified that describe the implantation of a DBS system and therefore were included in our analysis.

We then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRGs 023 and 024 and compared the results to cases reporting the implantation of a DBS system by reporting a procedure code combination that describes the insertion of a neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. The following table shows our findings:

MS-DRGs 023 and 024—All Cases Compared to Cases Reporting the Insertion of a Deep Brain Stimulation System

MS-DRG

Number of

cases

Average

length

of stay

Average

costs

MS-DRG 023—All cases

12,136

$51,132

Cases reporting the implantation of a DBS system

8.3

81,947

MS-DRG 024—All cases

4,624

35,516

Cases reporting the implantation of a DBS system

432

1.7

43,032

As shown in the table, for MS-DRG 023, we identified a total of 12,136 cases, with an average length of stay of 10 days and average costs of $51,132. Of the 12,136 cases in MS-DRG 023, there were 26 cases reporting the implantation of a DBS system with an average length of stay of 8.3 days and average costs of $81,947. For MS-DRG 024, we identified a total of 4,624 cases, with an average length of stay of 5 days and average costs of $35,516. Of the 4,624 cases in MS-DRG 024, there were 432 cases reporting the implantation of a DBS system with an average length of stay of 1.7 days and average costs of $43,032.

We reviewed the claims data, and the data do not support reassignment of the cases reporting the implantation of a DBS system from MS-DRG 024 to MS-DRG 023 even if there is no MCC reported. The results of the claims analysis as previously summarized indicate the cases reporting the implantation of a DBS system, without reporting a secondary diagnosis designated as an MCC, that are currently assigned to MS-DRG 024, have average costs that are lower than the average costs of all cases in MS-DRG 023 ($43,032 compared to $51,132), and they have an average length of stay that is shorter (1.7 days compared to 10 days). While the average costs of these cases are higher than the average costs of all cases in MS-DRG 024 ($43,032 compared to $35,516), we believe it would not be appropriate to reassign these cases into the higher severity level MS-DRG 023, even if there is no MCC reported, because the cases would not be coherent with regard to resource utilization. The cases reporting the implantation of a DBS system, without reporting a secondary diagnosis designated as an MCC, that are currently assigned to MS-DRG 024 have average costs that are $8,100 lower than the average costs of all cases in MS-DRG 023. Therefore, we are not proposing to reassign cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (with MCC) severity level MS-DRG 023, even if there is no MCC reported. However, while the analysis of the claims data does not support reassigning the cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if there is no MCC reported, as discussed, our analysis of the claims data found the average costs of the cases reporting the implantation of a DBS system are higher than all cases in their respective MS-DRGs, while the average lengths of stay are shorter. Accordingly, and as discussed later in this section, we determined that further analysis of cases reporting the implantation of a DBS system is needed in conjunction with the separate but related requests we received to review the MS-DRG assignments for a subset of procedures also assigned to MS-DRGs 023 through 027 for this FY 2026 IPPS/LTCH PPS proposed rule to ensure clinical coherence between these cases and the other cases with which they may potentially be grouped.

The third request we received was to have all cases reporting the concomitant insertion of a DBS generator and lead assigned to MS-DRGs 023 and 024. This requestor performed their own analysis and stated they found 76 claims reporting procedure codes describing the insertion of a DBS generator and a lead assigned to MS-DRGs 026 and 027 (Craniotomy and Endovascular Intracranial Procedures with CC, and without CC/MCC, respectively) and found that the average costs of these cases were 54% and 63% higher than the average of all cases in MS-DRGs 026 and 027, respectively. The requestor stated that placement of a complete DBS system, which requires placement of both the generator and the lead, during a single procedure, appears to be an efficacious and well-tolerated procedure. The requestor asserted that the relatively low reimbursement in MS-DRGs 026 and 027 can limit patient access to a single stage procedure.

This requestor identified cases reporting the implantation of a DBS system by the presence of the following procedure code combinations:

• 0JH60BZ (Insertion of single array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H00MZ (Insertion of neurostimulator lead into brain, open approach); and

• 0JH60BZ (Insertion of single array stimulator generator into chest subcutaneous tissue and fascia, open approach), in combination with 00H03MZ (Insertion of neurostimulator lead into brain, percutaneous approach).

To begin our analysis, we again reviewed the GROUPER logic for MS-DRG 023 and 024. As mentioned previously, the GROUPER logic for MS-DRGs 023 and 024 contains 78 procedure code combinations representing the insertion of neurostimulator generator and a neurostimulator lead that are captured under a list referred to as “Major Device Implant.” The procedure codes describing the insertion of a neurostimulator generator on this list describe insertion of the neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen, as well as into the skull.

In reviewing this request, we noted that the procedure code combinations in MS-DRG 023 and 024 captured under the “Major Device Implant” logic list that describe the insertion of a neurostimulator generator into the subcutaneous areas of the chest, back, or abdomen, all describe the insertion of a multiple array stimulator generator or a rechargeable multiple array stimulator generator. Procedure code combinations describing the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen and a neurostimulator lead are not captured under the “Major Device Implant” logic list, therefore MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively) are assigned based on the reporting of the ICD-10-PCS procedure code describing the insertion of the neurostimulator into the brain. We refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS website at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software

) for complete documentation of the GROUPER logic for MS-DRGs 023, 024, 025, 026, and 027.

We identified 36 ICD-10-PCS procedure code combinations that would describe the implantation of a DBS system with a single array stimulator generator or a rechargeable single array stimulator generator and the insertion of a neurostimulator lead into the brain. We refer the reader to Table 6P.2b associated with this FY 2026 IPPS/LTCH PPS proposed rule (and available at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps

) for the list of the 36 ICD-10-PCS procedure code combinations we identified that describe the implantation of a DBS system with a single array stimulator generator or a rechargeable single array stimulator generator and the insertion of a neurostimulator lead into the brain.

We then examined claims data from the September 2024 update of the FY 2024 MedPAR file for all cases in MS-DRGs 025, 026, and 027 and compared the results to cases reporting a procedure code combination that describes the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain. The following table shows our findings:

MS-DRGs 025, 026, and 027—All Cases Compared to Cases Reporting the Insertion of a Single Array Generator and Insertion of Neurostimulator Lead Into Brain

MS-DRG

Number of

cases

Average

length

of stay

Average

costs

MS-DRG 025—All cases

21,059

8.6

$40,215

Cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain

73,168

MS-DRG 026—All cases

5,833

4.1

28,404

Cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain

2.3

42,002

MS-DRG 027—All cases

7,049

1.9

23,059

Cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain

1.4

39,381

As shown in the table, for MS-DRG 025, we identified a total of 21,059 cases, with an average length of stay of 8.6 days and average costs of $40,215. Of those 21,059 cases, there were 5 cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 025 ($73,168 compared to $40,215) and a shorter average length of stay (5 days compared to 8.6 days). In MS-DRG 026, we identified a total of 5,833 cases, with an average length of stay of 4.1 days and average costs of $28,404. Of the 5,833 cases in MS-DRG 026, there were 25 cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 026 ($42,002 compared to $28,404) and a shorter average length of stay (2.3 days compared to 4.1 days). In MS-DRG 027, we identified a total of 7,049 cases, with an average length of stay of 1.9 days and average costs of $23,059. Of the 7,049 cases in MS-DRG 027, there were 78 cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain with average costs higher than the average costs in the FY 2024 MedPAR file for MS-DRG 027 ($39,381 compared to $23,059) and a shorter average length of stay (1.4 days compared to 1.9 days). As the data show, the cases in MS-DRGs 025, 026, and 027 reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher than the average costs of all cases in their respective MS-DRGs.

We reviewed the clinical issues and note a deep brain stimulator typically has one or two leads implanted in the brain, depending on whether one or both sides of the brain need treatment. A single array stimulator generator has one port where one lead can be connected. A multiple array stimulator generator has two or more ports where two or more leads can be connected. We believe the procedure code combinations that describe the insertion of a single array stimulator generator or a rechargeable single array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain are clinically coherent with the procedure code combinations in MS-DRG 023 and 024 captured under the “Major Device Implant” logic list that describe the insertion of a multiple array stimulator generator or a rechargeable multiple array stimulator generator into the subcutaneous areas of the chest, back, or abdomen in combination with a code describing the insertion of a neurostimulator lead into the brain.

To determine how the resources for this subset of cases compared to cases in MS-DRGs 023 and 024 as a whole, we examined the average costs and length of stay for cases in MS-DRGs 023 and 024. Our findings are shown in this table.

MS-DRG

Number of

cases

Average

length

of stay

Average

costs

MS-DRG 023—All cases

12,136

$51,132

MS-DRG 024—All cases

4,624

35,516

We reviewed the data and note the cases in MS-DRGs 025, 026, and 027 reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher and the average length of stay is shorter than all cases in MS-DRGs 023 and 024. We agree with the requestor that cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain are more resource intensive and are clinically distinct from other cases currently assigned to MS-DRGs 025, 026, and 027. However, we do not believe proposing to reassign all cases reporting the procedure code combination describing a single array generator and insertion of neurostimulator lead into brain to MS-DRGs 023 and 024, would fully address the difference in resource utilization in these cases.

To explore other mechanisms to address this request, we then reexamined the separate but related requests discussed previously to review the MS-DRG assignments for a subset of procedures assigned to MS-DRGs 023 through 027. In examining these requests, we note that the first request was to reassign cases involving “chemotherapy implants” and cases involving “epilepsy with neurostimulator” from MS-DRG 023 and to create a new MS-DRG for these cases. While analysis of the claims data do not support creating a new MS-DRG for cases reporting the insertion of a chemotherapy implant and 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, our analysis of that request found 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 have average costs that are higher than the average costs of all cases in MS-DRG 023, with a shorter average length of stay.

The second request we received was to reassign cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if there is no MCC reported. While analysis of the claims data does not support reassigning the cases reporting the implantation of a DBS system from the lower (without MCC) severity level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if there is no MCC reported, our analysis of that request found the average costs of the cases reporting the implantation of a DBS system are higher than all cases in their respective MS-DRGs, while the average lengths of stay are shorter. Lastly, our analysis of the third request demonstrates the cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain have average costs that are higher than the average costs of all cases in their respective MS-DRGs, while the average lengths of stay are shorter.

We reviewed these issues and note intracranial neurostimulator implants, such as deep brain stimulators and RNS® neurostimulators, are similar in that these intracranial neurostimulators are implanted surgically and include placement of a neurostimulator generator and insertion of leads into specific brain regions to deliver electrical stimulation. Additionally, based on our data analysis, cases reporting the insertion of intracranial neurostimulator implants are clinically coherent in that they are similar in terms of technical complexity and hospital resource use as reflected by the similarity in average costs and average lengths of stay.

We explored creating a new base MS-DRG for cases reporting the insertion of an intracranial neurostimulator implant and compared the analysis discussed previously using the claims data from the September 2024 update of the FY 2024 MedPAR file. The following table illustrates our findings for all 654 cases reporting procedure codes describing the insertion of an intracranial neurostimulator implant.

Cases Reporting the Insertion of an Intracranial Neurostimulator Implant

Number of

cases

Average

length

of stay

Average

costs

Cases with principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain

2.4

$66,303

Cases reporting the implantation of a DBS system (insertion of a multiple array generator and insertion of neurostimulator lead into brain)—with MCC

8.3

81,947

Cases reporting the insertion of a multiple array generator and insertion of neurostimulator lead into cerebral ventricle—with MCC

44,475

Cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain—with MCC

73,168

Cases reporting the insertion of a multiple array generator and insertion of neurostimulator lead into cerebral ventricle—with CC

2.2

81,517

Cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain—with CC

2.3

42,002

Cases reporting the implantation of a DBS system (insertion of a multiple array generator and insertion of neurostimulator lead into brain)—without MCC

432

1.7

43,032

Cases reporting the insertion of a multiple array generator and insertion of neurostimulator lead into cerebral ventricle—without CC/MCC

1.7

48,258

Cases reporting the insertion of a single array generator and insertion of neurostimulator lead into brain—without CC/MCC

1.4

39,381

Total

654

2.1

47,163

We reviewed these data and do not believe proposing a new base MS-DRG for these cases would better reflect hospital resource use. Because there were only 654 cases identified, the analysis demonstrates both a three-way and a two-way split of a new base MS-DRG would fail the criterion that there be at least 500 cases for each subgroup. The analysis also demonstrates the cases reporting a principal diagnosis of epilepsy with neurostimulator generator inserted into the skull and insertion of a neurostimulator lead into brain, and cases reporting the insertion of a single or multiple array generator with a secondary diagnosis designated as an MCC, would continue to have average costs that are higher when compared to all other cases reporting the insertion of an intracranial neurostimulator implant in a new MS-DRG. We therefore explored an alternative mechanism to address these requests.

We note that in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38015 through 38019), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58459 through 58462) and the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661 through 58667), we discussed requests we received 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). While acknowledging 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® neurostimulators) and a principal diagnosis of epilepsy have average costs that are similar to the average costs of cases in MS-DRG 021, we have stated we did 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® neurostimulators) and a principal diagnosis of epilepsy from MS-DRG 023 to MS-DRGs 020, 021, and 022 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage, with MCC, with CC, without CC/MCC, respectively), as the cases in MS-DRGs 020, 021, and 022 are defined by a principal diagnosis of a hemorrhage. We stated that RNS® neurostimulators are not used to treat patients with diagnosis of a hemorrhage and that we 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.

However, after further consideration, to explore other mechanisms to address this request, we examined MS-DRGs 020, 021, and 022 to reconsider the possibility of reassigning the cases reporting the insertion of an intracranial neurostimulator implant as we have been 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 procedures.

The GROUPER logic for MS-DRGs 020, 021, and 022 contains a list of procedure codes describing intracranial vascular procedures that are captured under a logic list referred to as “Intracranial Vascular Procedures” and a list of diagnosis codes describing a diagnosis of a hemorrhage that are captured under a logic list referred to as “Hemorrhage Principal Diagnosis.” During our review of MS-DRGs 020, 021, and 022, we identified 57 ICD-10-PCS procedure codes describing the intracranial vascular procedures and 66 diagnosis codes describing a diagnosis of intracranial hemorrhage that were inadvertently excluded from these logic lists. We refer the reader to Table 6P.2c and Table 6P.2d associated with this FY 2026 IPPS/LTCH PPS proposed rule (and available at:

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

) for the lists of the 57 ICD-10-PCS procedure codes and 66 ICD-10-CM diagnosis codes that we identified.

As these 57 procedure codes describe the intracranial vascular procedures and the 66 diagnosis codes describe a diagnosis of intracranial hemorrhage, we believe these codes are clinically aligned with the codes currently included in the “Intracranial Vascular Procedures” and the “Hemorrhage Principal Diagnosis” logic lists, respectively in MS-DRGs 020, 021, and 022. Therefore, for clinical consistency we are proposing to add the 57 procedure codes “Intracranial Vascular Procedures” logic list, and the 66 diagnosis codes to the “Hemorrhage Principal Diagnosis” logic list of MS-DRGs 020, 021, and 022, effective October 1, 2025, for FY 2026.

In reviewing the claims data from the September 2024 update of the FY 2024 MedPAR file and examining the clinical considerations, we believe that the cases reporting the insertion of an intracranial neurostimulator implant could more suitably group to MS-DRGs 020, 021, and 022 and would lead to a grouping that is more coherent and better reflects the clinical severity and resource use involved in these cases. While we previously have stated that we believe it would be inappropriate to reassign cases representing a principal diagnosis of epilepsy to a MS-DRG that contains cases that represent the treatment of intracranial hemorrhage, after further consideration, we no longer believe maintaining a difference in assignment based on the indication is warranted in this subset of cases based on the fact that both treatments involve intracranial procedures and demonstrate comparable resource utilization.

We also believe that cases reporting the insertion of an intracranial neurostimulator implant, regardless of principal diagnosis, share similar resource utilization such that it is no longer necessary to subdivide these cases based on the diagnosis codes reported. Accordingly, we believe it is appropriate to remove the special logic defined as “Epilepsy Principal Diagnosis” from the definition for assignment to the proposed modified MS-DRGs, as the cases can be appropriately grouped along with cases reporting any MDC 01 diagnosis when reported with qualifying procedures, as part of the proposed restructured MS-DRGs.

Therefore, we are proposing to add 114 procedure code combinations to a new “Intracranial Neurostimulator

Implant” logic list in MS-DRGs 020, 021, and 022 that describe (1) the insertion of multiple or single array neurostimulator generators with the insertion of a neurostimulator lead into the brain or the cerebral ventricle and (2) the insertion of neurostimulator generator inserted into the skull with the insertion of a neurostimulator lead into the brain. We are also proposing to delete the “Major Device Implant,” “Epilepsy Principal Diagnosis,” “Neurostimulator” logic lists from MS-DRGs 023 and 024. We refer the reader to Table 6P.2e associated with this FY 2026 IPPS/LTCH PPS proposed rule (and available at:

https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps

) for the list of the 114 ICD-10-PCS procedure code combinations we propose to add to a new “Intracranial Neurostimulator Implant” logic list in MS-DRGs 020, 021, and 022.

To compare and analyze the impact of these potential modifications, we ran a simulation using the claims data from the September 2024 update of the FY 2024 MedPAR file. The following table reflects the simulation of our proposed changes in MS-DRGs 020, 021, and 022.

MS-DRG

Number of

cases

Average

length

of stay

Average

costs

020

All Cases

2,322

12.5

$71,

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