Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2026 and Updates to the IRF Quality Reporting Program

Federal RegisterAug 5, 2025

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1829-F]

RIN 0938-AV48

Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2026 and Updates to the IRF Quality Reporting Program

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule updates the prospective payment rates for inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 2026. As required by statute, this final rule includes the classification and weighting factors for the IRF prospective payment system's case-mix groups and a description of the methodologies and data used in computing the prospective payment rates for FY 2026. It also continues the second year of the 3-year phaseout of the rural adjustment, which began in FY 2025. Additionally, the final rule includes updates to the IRF Quality Reporting Program.

DATES:

These regulations are effective on October 1, 2025.

FOR FURTHER INFORMATION CONTACT:

IRFcoverage@cms.hhs.gov,

for general information.

Kimberly Schwartz, (410) 786-2571, for information about the IRF payment policies, payment rates and coverage policies.

Ariel Cress, (410) 786-8571, for information about the IRF quality reporting program.

Availability of Certain Information Through the Internet on the CMS Website

The IRF prospective payment system (IRF PPS) Addenda along with other supporting documents and tables referenced in this final rule are available on the CMS website at

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

We note that prior to 2020, each rule or notice issued under the IRF PPS included a detailed reiteration of the various regulatory provisions that have affected the IRF PPS over the years. That discussion, which has been updated to reflect subsequent years, along with detailed background information for various other aspects of the IRF PPS, is now available on the CMS website at

https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf.

Readers who experience any problems accessing any of these online IRF PPS documents should contact

Patricia.Taft@cms.hhs.gov.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

A. Purpose

This final rule updates the prospective payment rates for inpatient rehabilitation facilities (IRFs) for Fiscal Year (FY) 2026 (that is, for discharges occurring on or after October 1, 2025, and on or before September 30, 2026) under section 1886(j)(3)(C) of the Social Security Act (the Act). As required by section 1886(j)(5) of the Act, this final rule includes the classification and weighting factors for the IRF prospective payment system (PPS) case-mix groups (CMGs), and a description of the methodologies and data used in computing the prospective payment rates for FY 2026.

For the IRF Quality Reporting Program (QRP), this rule finalizes our proposals to remove two quality measures: (1) the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) measure, beginning with the FY 2026 IRF QRP, and (2) the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure, beginning with the FY 2028 IRF QRP. Next, we are finalizing proposals to remove four Standardized Patient Assessment Data Elements under the Social Determinant of Health (SDOH) category from the IRF Patient Assessment Instrument (IRF-PAI) beginning with the FY 2028 IRF QRP. We are also finalizing proposals amending our reconsideration policy. Finally, we provide summaries of the comments received in response to a Request for Information (RFI) on four separate considerations: (1) future measure concepts for the IRF QRP; (2) potential revisions to the IRF-Patient Assessment Instrument (PAI); (3) potential revisions to the data submission deadlines for assessment data collected for the IRF QRP; and (4) advancing digital quality measurement in IRFs.

B. Summary of Major Provisions

In this final rule, we use the methods described in the FY 2025 IRF PPS final rule (89 FR 64276) to update the prospective payment rates for FY 2026 using the most current and complete data available at this time, which is FY 2024 IRF claims and FY 2023 IRF cost report data, as discussed in section VI, of this final rule.

For the IRF QRP, this rule will remove two quality measures, remove four SDOH standardized patient assessment data elements, and amend our reconsideration policy. We also include summaries of comments received in response to Requests for Information (RFIs) on four separate considerations.

C. Summary of Impact

Table 1—Cost and Transfers

Provision description

Transfers/costs

FY 2026 IRF PPS payment rate update

The overall economic impact of this final rule is an estimated $340 million increase in payments from the Federal Government to IRFs during FY 2026.

FY 2026 IRF QRP changes

The overall economic impact of this final rule is an estimated decrease in costs of $504,929.84 for IRFs for proposed measure removal in VII.C.1. and revisions to reconsiderations policy in VII.E. beginning with the FY 2026 IRF QRP.

FY 2028 IRF QRP changes

The overall economic impact of this final rule is an estimated decrease in costs of $1,090,580.75 to IRFs for proposed measure and item removals in VII.C.2 and VII.D. beginning with the FY 2028 IRF QRP.

II. Background

A. Statutory Basis and Scope for IRF PPS Provisions

Section 1886(j) of the Act provides for the implementation of a per-discharge PPS for inpatient rehabilitation hospitals and inpatient rehabilitation units of a hospital (collectively, hereinafter referred to as IRFs). Payments under the IRF PPS encompass inpatient operating and capital costs of furnishing covered rehabilitation services (that is, routine, ancillary, and capital costs), but not direct graduate medical education costs, costs of approved nursing and allied health education activities, bad debts, and other services or items outside the scope of the IRF PPS. A complete discussion of the IRF PPS provisions appears in the original FY 2002 IRF PPS final rule (66 FR 41316) and the FY 2006 IRF PPS final rule (70 FR 47880) and we provided a general description of the IRF PPS for FYs 2007 through 2019 in the FY 2020 IRF PPS final rule (84 FR 39055 through 39057). A general description of the IRF PPS for FYs 2020 through 2025, along with detailed background information for various other aspects of the IRF PPS, is now available on the CMS website at

https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf.

Under the IRF PPS from FYs 2002 through 2005, the prospective payment rates were computed across 100 distinct CMGs, as described in the FY 2002 IRF PPS final rule (66 FR 41316). We constructed 95 CMGs using rehabilitation impairment categories (RICs), functional status (both motor and cognitive), and age (in some cases, cognitive status and age may not be a factor in defining a CMG). In addition, we constructed five special CMGs to account for very short stays and for patients who expire in the IRF.

For each of the CMGs, we developed relative weighting factors to account for a patient's clinical characteristics and expected resource needs. Thus, the weighting factors accounted for the relative difference in resource use across all CMGs. Within each CMG, we created tiers based on the estimated effects that certain comorbidities would have on resource use.

We established the Federal PPS rates using a standardized payment conversion factor (formerly referred to as the budget-neutral conversion factor). For a detailed discussion of the budget-neutral conversion factor, please refer to our FY 2004 IRF PPS final rule (68 FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 47880), we discussed in detail the methodology for determining the standard payment conversion factor.

We applied the relative weighting factors to the standard payment conversion factor to compute the unadjusted prospective payment rates under the IRF PPS from FYs 2002 through 2005. Within the structure of the payment system, we then made adjustments to account for interrupted stays, transfers, short stays, and deaths. Finally, we applied the applicable adjustments to account for geographic variations in wages (wage index), the percentage of low-income patients, location in a rural area (if applicable), and outlier payments (if applicable) to the IRFs' unadjusted prospective payment rates.

For cost reporting periods that began on or after January 1, 2002, and before October 1, 2002, we determined the final prospective payment amounts using the transition methodology prescribed in section 1886(j)(1) of the Act. Under this provision, IRFs transitioning into the PPS were paid a blend of the Federal IRF PPS rate and the payment that the IRFs would have received had the IRF PPS not been implemented. This provision also allowed IRFs to elect to bypass this blended payment and immediately be paid 100 percent of the Federal IRF PPS rate. The transition methodology expired as of cost reporting periods beginning on or after October 1, 2002 (FY 2003), and payments for all IRFs now consist of 100 percent of the Federal IRF PPS rate.

Section 1886(j) of the Act confers broad statutory authority upon the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF PPS final rule (70 FR 47880) and in correcting amendments to the FY 2006 IRF PPS final rule (70 FR 57166), we finalized a number of refinements to the IRF PPS case-mix classification system (the CMGs and the corresponding relative weights) and the case-level and facility-level adjustments. These refinements included the adoption of the Office of Management and Budget's (OMB's) Core-Based Statistical Area market definitions; modifications to the CMGs, tier comorbidities; and CMG relative weights, implementation of a new teaching status adjustment for IRFs; rebasing and revising the market basket used to update IRF payments, and updates to the rural, low-income percentage (LIP), and high-cost outlier adjustments. Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 47917), the market basket used to update IRF payments was a market basket reflecting the operating and capital cost structures for freestanding IRFs, freestanding inpatient psychiatric facilities (IPFs), and long-term care hospitals (LTCHs). Any reference to the FY 2006 IRF PPS final rule in this proposed rule also includes the provisions effective in the correcting amendments. For a detailed discussion of the final key policy changes for FY 2006, please refer to the FY 2006 IRF PPS final rule.

In response to COVID-19 Public Health Emergency (PHE), we published two interim final rules with comment period affecting IRF payment and conditions for participation. The interim final rule with comment period (IFC) entitled “Medicare and Medicaid Programs; Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency,” published on April 6, 2020 (85 FR 19230) (hereinafter referred to as the April 6, 2020 IFC), included certain changes to the IRF PPS medical supervision requirements at 42 CFR 412.622(a)(3)(iv) and 412.29(e) during the PHE for COVID-19. In addition, in the April 6, 2020 IFC, we removed the post-admission physician evaluation requirement at § 412.622(a)(4)(ii) for all IRFs during the PHE for COVID-19. In the FY 2021 IRF PPS final rule, to ease documentation and administrative burden, we permanently removed the post-admission physician evaluation documentation requirement at § 412.622(a)(4)(ii) beginning in FY 2021.

A second IFC, entitled “Medicare and Medicaid Programs, Basic Health Program, and Exchanges; Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency and Delay of Certain Reporting Requirements for the Skilled Nursing Facility Quality Reporting Program,” was published on May 8, 2020 (85 FR 27550) (hereinafter referred to as the May 8, 2020 IFC). Among other changes, the May 8, 2020 IFC included a waiver of the “3-hour rule” at § 412.622(a)(3)(ii) to reflect the waiver required by section 3711(a) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136, enacted on March 27, 2020). In the May 8, 2020 IFC, we also modified certain IRF coverage and classification requirements for freestanding IRF hospitals to relieve acute care hospital capacity concerns in States (or regions, as applicable) experiencing a surge during the PHE for COVID-19. In addition to the policies adopted in our IFCs, we responded to the PHE with numerous blanket waivers

and other

flexibilities,

some of which are applicable to the IRF PPS. CMS finalized these policies in the Calendar Year 2023 Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems final rule with comment period (87 FR 71748). Subsequently, on May 11, 2023, the U.S. Department of Health and Human Services (“HHS”) declared the expiration of the COVID-19 PHE. (See

https://www.hhs.gov/about/news/2023/02/09/fact-sheet-covid-19-public-health-emergency-transition-roadmap.html.

) As a result, the “3-hour rule” waiver at § 412.622(a)(3)(ii) and other IRF flexibilities were terminated.

CMS, “COVID-19 Emergency Declaration Blanket Waivers for Health Care Providers,”

(updated Feb. 19, 2021) (available at

https://www.cms.gov/files/document/summary-covid-19-emergency-declaration-waivers.pdf

CMS, “COVID-19 Frequently Asked Questions (FAQs) on Medicare Fee-for-Service (FFS) Billing,” (updated March 5, 2021) (available at

https://www.cms.gov/files/document/03092020-covid-19-faqs-508.pdf

The regulatory history previously included in each rule or notice issued under the IRF PPS, including a general description of the IRF PPS for FYs 2007 through 2025, is available on the CMS website at

https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf.

B. Provisions of the Affordable Care Act and the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Affecting the IRF PPS in FY 2012 and Beyond

The Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted on March 23, 2010. The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised several provisions of the Patient Protection and Affordable Care Act, was enacted on March 30, 2010. In this final rule, we refer to the two statutes collectively as the “Affordable Care Act” or “ACA”.

The ACA included several provisions that affect the IRF PPS in FYs 2012 and beyond. In addition to what was previously discussed, section 3401(d) of the ACA also added section 1886(j)(3)(C)(ii)(I) of the Act (providing for a “productivity adjustment” for FY 2012 and each subsequent FY). The productivity adjustment for FY 2026 is discussed in section VI. of this final rule. Section 1886(j)(3)(C)(ii)(II) of the Act provides that the application of the productivity adjustment to the market basket percentage increase may result in an update that is less than 0.0 for a FY and in payment rates for a FY being less than such payment rates for the preceding FY.

Section 3004(b) of the ACA and section 411(b) of the MACRA (Pub. L. 114-10, enacted on April 16, 2015) also addressed the IRF PPS. Section 3004(b) of ACA reassigned the previously designated section 1886(j)(7) of the Act to section 1886(j)(8) of the Act and inserted a new section 1886(j)(7) of the Act, which contains requirements for the Secretary to establish a QRP for IRFs. Under that program, data must be submitted in a form and manner and at a time specified by the Secretary. Beginning in FY 2014, section 1886(j)(7)(A)(i) of the Act requires the application of a 2-percentage point reduction to the IRF market basket percentage increase otherwise applicable to an IRF (after application of paragraphs (C)(iii) and (D) of section 1886(j)(3) of the Act) for a FY if the IRF does not comply with the requirements of the IRF QRP for that FY. Application of the 2-percentage point reduction may result in an update that is less than 0.0 for a FY and in payment rates for a FY being lower than payment rates for the preceding FY. Reporting-based reductions to the IRF market basket percentage increase are not cumulative; they only apply for the FY involved. Section 411(b) of the MACRA amended section 1886(j)(3)(C) of the Act by adding paragraph (iii), which required us to apply for FY 2018, after the application of section 1886(j)(3)(C)(ii) of the Act, an increase factor of 1.0 percent to update the IRF prospective payment rates.

C. Operational Overview of the Current IRF PPS

As described in the FY 2002 IRF PPS final rule (66 FR 41316), upon the admission and discharge of a Medicare Part A fee-for-service (FFS) patient, the IRF is required to complete the appropriate sections of a Patient Assessment Instrument (PAI), designated as the IRF-PAI. In addition, beginning with IRF discharges occurring on or after October 1, 2009, the IRF is also required to complete the appropriate sections of the IRF-PAI upon the admission and discharge of each MA patient, as described in the FY 2010 IRF PPS final rule (74 FR 39762) and the FY 2010 IRF PPS correction notice (74 FR 50712). All required data must be electronically encoded into the IRF-PAI software product. Generally, the software product includes patient classification programming called the Grouper software. The Grouper software uses specific IRF-PAI data elements to classify (or group) patients into distinct CMGs and account for the existence of any relevant comorbidities.

The Grouper software produces a five-character CMG number. The first character is an alphabetic character that indicates the comorbidity tier. The last four characters are numeric characters that represent the distinct CMG number. A free download of the Grouper software is available on the CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Software.html.

The Grouper software is also embedded in the internet Quality Improvement and Evaluation System (iQIES) User tool available in iQIES at

https://www.cms.gov/medicare/quality-safety-oversight-general-information/iqies.

Once a Medicare Part A FFS patient is discharged, the IRF submits a Medicare claim as a Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191, 110 Stat. 1936 August 21, 1996) compliant electronic claim or, if the Administrative Simplification Compliance Act of 2002 (ASCA) (Pub. L. 107-105, enacted on December 27, 2002) permits, a paper claim (a UB-04 or a CMS-1450 as appropriate) using the five-character CMG number and sends it to the appropriate Medicare Administrative Contractor (MAC). In addition, once a MA patient is discharged, in accordance with the Medicare Claims Processing Manual, chapter 3, section 20.3 (Pub. 100-04), hospitals (including IRFs) must submit to their MAC an informational-only bill (type of bill (TOB) 111) that includes Condition Code 04. This will ensure that the MA days are included in the hospital's Supplemental Security Income (SSI) ratio (used in calculating the IRF LIP adjustment) for FY 2007 and beyond. Claims submitted to Medicare must comply with- both ASCA and HIPAA.

Section 3 of the ASCA amended section 1862(a) of the Act by adding paragraph (22), which requires the Medicare program, subject to section 1862(h) of the Act, to deny payment under Part A or Part B for any expenses for items or services for which a claim is submitted other than in an electronic form specified by the Secretary. Section 1862(h) of the Act, in turn, provides that the Secretary shall waive such denial in situations in which there is no method available for the submission of claims in an electronic form or the entity submitting the claim is a small provider. In addition, the Secretary also has the authority to waive such denial in such unusual cases as the Secretary finds appropriate. For more information, see the “Medicare Program; Electronic Submission of Medicare Claims” final

rule (70 FR 71008). Our instructions for the limited number of Medicare claims submitted on paper are available at

https://www.cms.gov/manuals/downloads/clm104c25.pdf.

Section 3 of the ASCA operates in the context of the administrative simplification provisions of HIPAA, which include, among others, the requirements for transaction standards and code sets codified in 45 CFR part 160 and part 162, subparts A and I through R (generally known as the Transactions Rule). The Transactions Rule requires covered entities, including covered healthcare providers, to conduct covered electronic transactions according to the applicable transaction standards. (See the CMS program claim memoranda at

https://www.cms.gov/ElectronicBillingEDITrans/

and listed in the addenda to the Medicare Intermediary Manual, Part 3, section 3600.)

The MAC processes the claim through its software system. This software system includes pricing programming called the “Pricer” software. The Pricer software uses the CMG number, along with other specific claim data elements and provider-specific data, to adjust the IRF's prospective payment for interrupted stays, transfers, short stays, and deaths, and then applies the applicable adjustments to account for the IRF's wage index, percentage of low-income patients, rural location, and outlier payments. For discharges occurring on or after October 1, 2005, the IRF PPS payment also reflects the teaching status adjustment that became effective as of FY 2006, as discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

III. Summary of Provisions of the Final Rule

In this FY 2026 IRF PPS final rule, we are finalizing our proposal to update the IRF PPS for FY 2026 and the IRF QRP for FY 2026 and FY 2028.

The finalized policy changes and updates to the IRF prospective payment rates for FY 2026 will be as follows:

• Update the CMG relative weights and average length of stay values for FY 2026 in a budget neutral manner, as discussed in section V of this final rule.

• Update the IRF PPS payment rates for FY 2026 by the IRF market basket percentage increase, based upon the most current data available, with a productivity adjustment required by section 1886(j)(3)(C)(ii)(I) of the Act, as described in section VI.

• Update the FY 2026 IRF PPS payment rates by the FY 2026 wage index, applying the second year of the phase-out of the rural adjustment for IRFs transitioning from rural to urban, and the labor-related share in a budget-neutral manner, as discussed in section VI.

• Describe the calculation of the IRF standard payment conversion factor for FY 2026, as discussed in section VI.

• Update the outlier threshold amount for FY 2026, as discussed in section VI.

• Update the cost-to-charge ratio (CCR) ceiling and urban/rural average CCRs for FY 2026, as discussed in section VI.

The policy changes and updates to the IRF QRP for FY 2026 will be as follows:

• Remove the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) measure.

• Amend the Reconsideration Policy.

The proposed policy changes and updates to the IRF QRP for FY 2028 will be as follows:

• Remove the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure.

• Remove four SDOH standardized patient assessment data elements items from the IRF-PAI.

We summarize the comments we received on the following four RFIs:

• Request for information on future measure concepts for the IRF QRP.

• Request for information on potential revisions to the IRF-PAI.

• Request for information on potential revisions to the data submission deadlines for assessment data collected for the IRF QRP.

• Request for information on advancing digital quality measurement in IRFs.

IV. Public Comments

A. Analysis of and Responses to Public Comments

We received 69 timely responses from the public, many of which contained multiple comments on the FY 2026 IRF PPS proposed rule (90 FR 18534). We received comments from various trade associations, inpatient rehabilitation facilities, individual physicians, therapists, clinicians, healthcare industry organizations, healthcare consulting firms, technology vendors, academic institutions, and anonymous persons. The following sections, arranged by subject area, include a summary of the public comments that we received, and our responses.

B. General Comments on the FY 20206 IRF PPS Proposed Rule

In addition to the comments we received on specific proposals contained within the proposed rule (which we address later in this final rule), commenters also submitted more general observations on the IRF PPS and IRF care generally.

Comment:

We received comments that were outside the scope of the FY 2026 IRF PPS proposed rule. These comments related to adopting a national healthcare system, updating the facility level adjustments based on a 3-year average that is capped for the teaching coefficient, and considering a future proposal to expand the role of PAs in IRFs and modify paragraphs (a)(3)(iv) and (a)(4)(ii) of § 412.622. Although comments also raised concerns regarding several issues related to MA plans, we did not propose changes to MA and Medicaid managed care plan regulations in this rule. One commenter urged CMS to allow the rehabilitation physician the opportunity to determine which disciplines should provide care within the 3-hour or level of intensity of services rule and recommended recreational therapy interventions (when applicable) to be counted towards the level of intensity rule.

Response:

We thank the commenters for bringing these issues to our attention, and we will take these comments into consideration for potential policy refinements or direct the comments to the appropriate subject matter experts.

V. Updates to the Case-Mix Group (CMG) Relative Weights and Average Length of Stay (ALOS) Values for FY 2026

As specified in § 412.620(b)(1), we calculate a relative weight for each CMG that is proportional to the resources needed for an average inpatient rehabilitation case in that CMG. For example, cases in a CMG with a relative weight of 2, on average, will cost twice as much as cases in a CMG with a relative weight of 1. Relative weights account for the variance in cost per discharge due to the variance in resource utilization among the payment groups, and their use helps to ensure that IRF PPS payments support beneficiary access to care, as well as provider efficiency.

In this final rule, we update the CMG relative weights and ALOS values for FY 2026. Typically, we use the most recent available data to update the CMG relative weights and ALOS values. For FY 2026, we are using the FY 2024 IRF claims and FY 2023 IRF cost report data (CMS Form 2552-10, OMB No 0938-0050). These data are the most current and complete data available at the time of this final rule. Currently, only a small portion of the FY 2024 IRF cost report data is available for analysis, but the

majority of the FY 2024 IRF claims data are available for analysis.

In the FY 2026 IRF PPS proposed rule, we proposed that if more recent data became available after the publication of the proposed rule and before the publication of this final rule, we would use such data to determine the FY 2026 CMG relative weights and ALOS values in this final rule.

We proposed to apply these data using the same methodologies that we have used to update the CMG relative weights and ALOS values each FY since we implemented an update to the methodology. The detailed cost-to-charge ratio (CCR) data from the cost reports of IRF provider units of primary acute care hospitals is used for this methodology, instead of CCR data from the associated primary care hospitals, to calculate IRFs' average costs per case, as discussed in the FY 2009 IRF PPS final rule (73 FR 46372). In calculating the CMG relative weights, we use a hospital-specific relative value method to estimate the operating (routine and ancillary services) and capital costs of IRFs. The process to calculate the CMG relative weights for this final rule is as follows:

Step 1.

We estimate the effects that comorbidities have on costs.

Step 2.

We adjust the cost of each Medicare discharge (case) to reflect the effects found in Step 1.

Step 3.

We use the adjusted costs from Step 2 to calculate CMG relative weights, using the hospital-specific relative value method.

Step 4.

We normalize the FY 2026 CMG relative weights using a normalization factor that results in the average CMG relative weights in FY 2026 being the same as the average CMG relative weights in the FY 2025 IRF PPS final rule (89 FR 64276).

Consistent with the methodology that we have used to update the IRF classification system in each instance in the past, we are updating the CMG relative weights for FY 2026 in such a way that total estimated aggregate payments to IRFs for FY 2026 are the same with or without the changes (that is, in a budget-neutral manner) by applying a budget neutrality factor to the standard payment amount. To calculate the appropriate budget neutrality factor for use in updating the FY 2026 CMG relative weights, we use the following steps:

Step 1.

Calculate the estimated total amount of IRF PPS payments for FY 2026 (with no changes to the CMG relative weights).

Step 2.

Calculate the estimated total amount of IRF PPS payments for FY 2026 by applying the proposed changes to the CMG relative weights (as discussed in this proposed rule).

Step 3.

Divide the amount calculated in Step 1 by the amount calculated in Step 2 to determine the budget neutrality factor of 0.9985 that would maintain the same total estimated aggregate payments in FY 2026 with and without the proposed changes to the final CMG relative weights.

Step 4.

Apply the budget neutrality factor from Step 3 to the FY 2026 IRF PPS standard payment amount after the application of the budget-neutral wage adjustment factor.

In section V of this final rule, we discuss the proposed use of the existing methodology to calculate the proposed standard payment conversion factor for FY 2026.

In Table 2, “Relative Weights and Average Length of Stay Values for Case -Mix Groups,” we present the CMGs, the comorbidity tiers, the corresponding relative weights, and the ALOS values for each CMG and tier for FY 2026. The ALOS for each CMG is used to determine when an IRF discharge meets the definition of a short stay transfer, which results in a per diem case level adjustment.

Table 2—Relative Weights and Average Length of Stay Values for the Case-Mix-Groups

CMG

CMG description

(M=motor, A=age)

Relative weight

Tier 1

Tier 2

Tier 3

Comorbidity

tier

Average length of stay

Tier 1

Tier 2

Tier 3

Comorbidity

tier

0101

Stroke M >=72.50

0.9669

0.8586

0.7779

0.7379

0102

Stroke M >=63.50 and M <72.50

1.2306

1.0928

0.9901

0.9392

0103

Stroke M >=50.50 and M <63.50

1.5798

1.4029

1.2710

1.2056

0104

Stroke M >=41.50 and M <50.50

2.0177

1.7918

1.6234

1.5398

0105

Stroke M <41.50 and A >=84.50

2.5146

2.2330

2.0231

1.9190

0106

Stroke M <41.50 and A <84.50

2.8325

2.5153

2.2789

2.1616

0201

Traumatic brain injury M >=73.50

1.0614

0.8440

0.7710

0.7244

0202

Traumatic brain injury M >=61.50 and M <73.50

1.3861

1.1021

1.0069

0.9460

0203

Traumatic brain injury M >=49.50 and M <61.50

1.7233

1.3702

1.2518

1.1761

0204

Traumatic brain injury M >=35.50 and M <49.50

2.1239

1.6887

1.5428

1.4495

0205

Traumatic brain injury M <35.50

2.7248

2.1665

1.9793

1.8596

0301

Non-traumatic brain injury M >=65.50

1.1939

0.9462

0.8822

0.8259

0302

Non-traumatic brain injury M >=52.50 and M <65.50

1.5445

1.2241

1.1412

1.0683

0303

Non-traumatic brain injury M >=42.50 and M <52.50

1.8262

1.4474

1.3494

1.2633

0304

Non-traumatic brain injury M <42.50 and A >=78.50

2.1635

1.7147

1.5985

1.4965

0305

Non-traumatic brain injury M <42.50 and A <78.50

2.3699

1.8783

1.7511

1.6393

0401

Traumatic spinal cord injury M >=56.50

1.3548

1.1074

1.0783

0.9757

0402

Traumatic spinal cord injury M >=47.50 and M <56.50

1.6985

1.3883

1.3518

1.2232

0403

Traumatic spinal cord injury M >=41.50 and M <47.50

1.9604

1.6024

1.5602

1.4118

0404

Traumatic spinal cord injury M <31.50 and A <61.50

3.1765

2.5964

2.5281

2.2877

0405

Traumatic spinal cord injury M >=31.50 and M <41.50

2.5161

2.0566

2.0025

1.8121

0406

Traumatic spinal cord injury M >=24.50 and M <31.50 and A >=61.50

3.3100

2.7055

2.6343

2.3838

0407

Traumatic spinal cord injury M <24.50 and A >=61.50

4.5328

3.7050

3.6075

3.2644

0501

Non-traumatic spinal cord injury M >=60.50

1.3090

1.0060

0.9359

0.8625

0502

Non-traumatic spinal cord injury M >=53.50 and M <60.50

1.6251

1.2489

1.1618

1.0707

0503

Non-traumatic spinal cord injury M >=48.50 and M <53.50

1.8402

1.4142

1.3156

1.2124

0504

Non-traumatic spinal cord injury M >=39.50 and M <48.50

2.1989

1.6898

1.5720

1.4487

0505

Non-traumatic spinal cord injury M <39.50

3.1242

2.4009

2.2336

2.0584

0601

Neurological M >=64.50

1.3095

0.9918

0.9341

0.8390

0602

Neurological M >=52.50 and M <64.50

1.6289

1.2337

1.1619

1.0437

0603

Neurological M >=43.50 and M <52.50

1.9370

1.4670

1.3817

1.2411

0604

Neurological M <43.50

2.4498

1.8553

1.7475

1.5696

0701

Fracture of lower extremity M >=61.50

1.2269

0.9809

0.9316

0.8513

0702

Fracture of lower extremity M >=52.50 and M <61.50

1.5165

1.2125

1.1515

1.0523

0703

Fracture of lower extremity M >=41.50 and M <52.50

1.8578

1.4854

1.4108

1.2892

0704

Fracture of lower extremity M <41.50

2.2940

1.8342

1.7420

1.5918

0801

Replacement of lower-extremity joint M >=63.50

1.1781

0.9922

0.8869

0.8310

0802

Replacement of lower-extremity joint M >=57.50 and M <63.50

1.3428

1.1310

1.0109

0.9472

0803

Replacement of lower-extremity joint M >=51.50 and M <57.50

1.4778

1.2447

1.1126

1.0424

0804

Replacement of lower-extremity joint M >=42.50 and M <51.50

1.6788

1.4140

1.2639

1.1842

0805

Replacement of lower-extremity joint M <42.50

2.0910

1.7611

1.5742

1.4749

0901

Other orthopedic M >=63.50

1.2385

0.9381

0.8862

0.8084

0902

Other orthopedic M >=51.50 and M <63.50

1.5733

1.1917

1.1257

1.0270

0903

Other orthopedic M >=44.50 and M <51.50

1.8670

1.4141

1.3358

1.2187

0904

Other orthopedic M <44.5

2.2482

1.7029

1.6086

1.4675

1001

Amputation lower extremity M >=64.50

1.2289

1.0211

0.9268

0.8605

1002

Amputation lower extremity M >=55.50 and M <64.50

1.4929

1.2405

1.1259

1.0454

1003

Amputation lower extremity M >=47.50 and M <55.50

1.7768

1.4764

1.3400

1.2442

1004

Amputation lower extremity M <47.50

2.3634

1.9638

1.7824

1.6550

1101

Amputation non-lower extremity M >=58.50

1.3524

1.2804

1.1019

0.9641

1102

Amputation non-lower extremity M >=52.50 and M <58.50

1.5444

1.4621

1.2582

1.1009

1103

Amputation non-lower extremity M <52.50

1.9344

1.8313

1.5760

1.3789

1201

Osteoarthritis M >=61.50

1.3247

1.0514

0.9396

0.8702

1202

Osteoarthritis M >=49.50 and M <61.50

1.5576

1.2362

1.1047

1.0231

1203

Osteoarthritis M <49.50 and A >=74.50

2.0850

1.6548

1.4788

1.3696

1204

Osteoarthritis M <49.50 and A <74.50

2.1465

1.7037

1.5225

1.4100

1301

Rheumatoid other arthritis M >=62.50

1.2527

1.0015

0.9176

0.8336

1302

Rheumatoid other arthritis M >=51.50 and M <62.50

1.5360

1.2280

1.1252

1.0221

1303

Rheumatoid other arthritis M >=44.50 and M <51.50 and A >=64.50

1.7752

1.4192

1.3004

1.1812

1304

Rheumatoid other arthritis M <44.50 and A >=64.50

2.2912

1.8318

1.6784

1.5246

1305

Rheumatoid other arthritis M <51.50 and A <64.50

2.2867

1.8281

1.6750

1.5216

1401

Cardiac M >=68.50

1.1175

0.9002

0.8323

0.7654

1402

Cardiac M >=55.50 and M <68.50

1.4236

1.1468

1.0603

0.9751

1403

Cardiac M >=45.50 and M <55.50

1.7207

1.3861

1.2816

1.1786

1404

Cardiac M <45.50

2.1468

1.7294

1.5991

1.4705

1501

Pulmonary M >=68.50

1.3103

1.0536

0.9867

0.9432

1502

Pulmonary M >=56.50 and M <68.50

1.6022

1.2883

1.2065

1.1534

1503

Pulmonary M >=45.50 and M <56.50

1.8680

1.5020

1.4066

1.3446

1504

Pulmonary M <45.50

2.3425

1.8835

1.7639

1.6862

1601

Pain syndrome M >=65.50

1.0512

0.9420

0.8617

0.7811

1602

Pain syndrome M >=58.50 and M <65.50

1.2648

1.1335

1.0368

0.9399

1603

Pain syndrome M >=43.50 and M <58.50

1.5317

1.3727

1.2557

1.1382

1604

Pain syndrome M <43.50

2.0049

1.7968

1.6436

1.4898

1701

Major multiple trauma without brain or spinal cord injury M >=57.50

1.3191

1.0450

0.9702

0.8932

1702

Major multiple trauma without brain or spinal cord injury M >=50.50 and M <57.50

1.6260

1.2881

1.1960

1.1010

1703

Major multiple trauma without brain or spinal cord injury M >=41.50 and M <50.50

1.9078

1.5114

1.4033

1.2919

1704

Major multiple trauma without brain or spinal cord injury M >=36.50 and M <41.50

2.1953

1.7392

1.6148

1.4866

1705

Major multiple trauma without brain or spinal cord injury M <36.50

2.5557

2.0247

1.8799

1.7306

1801

Major multiple trauma with brain or spinal cord injury M >=67.50

1.1189

0.9154

0.8421

0.7904

1802

Major multiple trauma with brain or spinal cord injury M >=55.50 and M <67.50

1.4223

1.1636

1.0704

1.0047

1803

Major multiple trauma with brain or spinal cord injury M >=45.50 and M <55.50

1.7694

1.4475

1.3316

1.2498

1804

Major multiple trauma with brain or spinal cord injury M >=40.50 and M <45.50

2.0665

1.6906

1.5552

1.4597

1805

Major multiple trauma with brain or spinal cord injury M >=30.50 and M <40.50

2.4792

2.0282

1.8658

1.7512

1806

Major multiple trauma with brain or spinal cord injury M <30.50

3.5919

2.9385

2.7032

2.5372

1901

Guillain-Barré M >=66.50

1.3407

0.9475

0.8237

0.8240

1902

Guillain-Barré M >=51.50 and M <66.50

1.9505

1.3785

1.1984

1.1987

1903

Guillain-Barré M >=38.50 and M <51.50

2.7597

1.9504

1.6956

1.6960

1904

Guillain-Barré M <38.50

4.2436

2.9991

2.6072

2.6080

2001

Miscellaneous M >=66.50

1.1884

0.9531

0.8864

0.8114

2002

Miscellaneous M >=55.50 and M <66.50

1.4755

1.1833

1.1004

1.0074

2003

Miscellaneous M >=46.50 and M <55.50

1.7326

1.3895

1.2922

1.1830

2004

Miscellaneous M <46.50 and A >=77.50

2.1131

1.6946

1.5760

1.4427

2005

Miscellaneous M <46.50 and A <77.50

2.2118

1.7738

1.6496

1.5101

2101

Burns M >=52.50

1.6061

1.3503

1.0183

0.9765

2102

Burns M <52.50

2.5451

2.1397

1.6136

1.5474

5001

Short-stay cases, length of stay is 3 days or fewer

0.0000

0.1755

5101

Expired, orthopedic, length of stay is 13 days or fewer

0.0000

0.8539

5102

Expired, orthopedic, length of stay is 14 days or more

0.0000

2.0485

5103

Expired, not orthopedic, length of stay is 15 days or fewer

0.0000

0.9118

5104

Expired, not orthopedic, length of stay is 16 days or more

0.0000

2.1881

Generally, updates to the CMG relative weights result in some increases and some decreases to the CMG relative weight values. Table 3 shows how we estimate that the application of the revisions for FY 2026 would affect particular CMG relative weight values, which would affect the overall distribution of payments within CMGs and tiers. We note that, because we implement the CMG relative weight revisions in a budget-neutral manner (as previously described), total estimated aggregate payments to IRFs for FY 2026 would not be affected as a result of the CMG relative weight revisions. However, the revisions would affect the distribution of payments within CMGs and tiers.

Table 3—Distributional Effects of the Changes to the CMG Relative Weights

Percentage change in CMG relative weights

Number of cases affected

Percentage of cases affected (%)

Increased by 15% or more

0.0

Increased by between 5% and 15%

2,634

0.6

Changed by less than 5%

439,183

99.2

Decreased by between 5% and 15%

794

0.2

Decreased by 15% or more

0.0

As shown in Table 3, 99.2 percent of all IRF cases are in CMGs and tiers that would experience less than a 5 percent change (either increase or decrease) in the CMG relative weight value as a result of the revisions for FY 2026. The changes in the ALOS values for FY 2026, compared with the FY 2025 ALOS values, are small and do not show any particular trends in IRF length of stay patterns.

We invited public comment on our proposed updates to the CMG relative weights and ALOS values for FY 2026.

The following is a summary of the public comments received on the proposed updates to the CMG relative weights and ALOS and our responses:

Comment:

Public comments generally supported CMS' update to the CMG relative weights and average length of stay values and encouraged CMS to use the latest available data to update these values in the final rule. A few commenters recommend future refinements to computing the CMGs and use of the ALOS.

Response:

We appreciate these commenters' support for updating the relative weights and ALOS values for FY 2026. We have updated our data between the FY 2026 IRF PPS proposed and this final rule to ensure that we use the most recent available data in calculating IRF PPS payments.

The methodology that we use to update the CMG relative weights uses the most recent cost data reported by IRFs to compute relative weights that reflect the relative costliness of different IRF cases in a budget neutral manner. We increase or decrease relative weights of the CMGs annually, including for those CMGs associated with the 13 conditions that qualify for the 60 percent rule, under 42 CFR 412.29(b)(2), based only on the cost data reported to us by IRFs each year.

We believe that these data accurately reflect the severity of the IRF patient population and the associated costs of caring for these patients in the IRF setting. The CMG relative weights are updated each year based on the most recent available data for the full population of IRF Medicare fee-for-service beneficiaries. This ensures that the IRF case -mix system is as reflective as possible of changes in the IRF patient populations and the associated coding practices and ensures that IRF payments appropriately reflect the relative costs of caring for all types of IRF patients.

Comment:

The Medicare Payment Advisory Commission (MedPAC) submitted a comment recommending that CMS consider using an average-cost weighting method, rather than the current hospital-specific relative value method (HSRV), for calculating the CMG relative weights, to improve the relationship between costs and payments and increase the uniformity of profitability across IRF cases.

Response:

We did not propose any changes to the current HSRV method used to assign payment weights for FY 2025 and believe that a careful evaluation of the advantages and disadvantages of moving to an average-cost weighting method is essential, given the major distributional shifts that would be associated with such a change. The purpose of the HSRV method is, in part, to place a greater emphasis on more efficient IRF providers (that is, those that treat complex IRF patients at lower costs). CMS believes moving to an average-cost weighting method places more emphasis on high cost IRF providers, which could have higher costs because they are operating less efficiently. We will continue evaluating the effects of changing from HSRV weighting to average-cost weighting. The results of this analysis will inform future rulemaking.

After consideration of the comments we received, we are finalizing our proposal to update the CMG relative weights and ALOS values for FY 2026 using the same methodologies that we have used to update the CMG relative weights and ALOS values for each FY since we implemented an update to the methodology in FY 2009, as shown in Table 2 of this final rule. These updates are effective for FY 2026, that is, for discharges occurring on or after October 1, 2025, and on or before September 30, 2026.

VI. FY 2026 IRF PPS Payment Update

A. Background

Section 1886(j)(3)(C) of the Act requires the Secretary to establish an increase factor that reflects changes over time in the prices of an appropriate mix of goods and services for which payment is made under the IRF PPS. According to section 1886(j)(3)(A)(i) of the Act, the increase factor shall be used to update the IRF prospective payment rates for each FY. Section 1886(j)(3)(C)(ii)(I) of the Act requires the application of the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Thus, we proposed to update the IRF PPS payments for FY 2026 by a market basket percentage increase as required by section 1886(j)(3)(C) of the Act based upon the most current data available, with a productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act.

We have utilized various market baskets through the years in the IRF PPS. For a discussion of these market baskets, we refer readers to the FY 2016 IRF PPS final rule (80 FR 47046).

Beginning with FY 2024, we finalized a rebased and revised IRF market basket

to reflect a 2021 base year. The FY 2024 IRF PPS final rule (88 FR 50966 through 50988) contains a complete discussion of the development of the 2021-based IRF market basket.

B. FY 2026 Market Basket Update and Productivity Adjustment

1. FY 2026 Market Basket Update

For FY 2026 (that is, beginning October 1, 2025, and ending September 30, 2026), we proposed to update the IRF PPS payments by a market basket percentage increase as required by section 1886(j)(3)(C) of the Act, with a productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act. For FY 2026, we proposed to use the same methodology described in the FY 2025 IRF PPS final rule (89 FR 64285 through 64286).

Consistent with historical practice, we proposed to estimate the market basket update for the IRF PPS for FY 2026 based on IHS Global Inc.'s (IGI's)

forecast using the most recent available data at the time of rulemaking. IGI is a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the components of the market baskets. Based on IGI's fourth quarter 2024 forecast with historical data through the third quarter of 2024, the proposed 2021-based IRF market basket percentage increase for FY 2026 was projected to be 3.4 percent. We also proposed that if more recent data became available after the publication of the proposed rule and before the publication of this final rule (for example, a more recent estimate of the market basket percentage increase or productivity adjustment), we would use such data, if appropriate, to determine the FY 2026 IRF market basket update in this final rule. Based on IGI's second quarter 2025 forecast with historical data through the first quarter of 2025, the 2021-based IRF market basket percentage increase for FY 2026 is 3.3 percent.

https://www.spglobal.com/en.

2. FY 2026 Productivity Adjustment

According to section 1886(j)(3)(C)(i) of the Act, the Secretary shall establish an increase factor based on an appropriate percentage increase in a market basket of goods and services. Section 1886(j)(3)(C)(ii) of the Act requires that, after establishing the increase factor for a FY, the Secretary shall reduce such increase factor for FY 2012 and each subsequent FY, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the Act sets forth the definition of this productivity adjustment. The statute defines the productivity adjustment to be equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (as projected by the Secretary for the 10-year period ending with the applicable FY, year, cost reporting period, or other annual period) (the “productivity adjustment”). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measures of productivity for the U.S. economy. We note that previously the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act, was referred to by BLS as private nonfarm business multifactor productivity. Beginning with the November 18, 2021, release of productivity data, BLS replaced the term multifactor productivity (MFP) with total factor productivity (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology. As a result of this change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is now published by BLS as private nonfarm business total factor productivity. However, as mentioned above, the data and methods are unchanged. Please see

www.bls.gov

for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on the CMS website at

https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information.

In addition, in the FY 2022 IRF final rule (86 FR 42374), we noted that effective with FY 2022 and forward, CMS changed the name of this adjustment to refer to it as the productivity adjustment rather than the MFP adjustment.

As stated in the proposed rule, using IGI's fourth quarter 2024 forecast, the 10-year moving average growth of TFP for FY 2026 was projected to be 0.8 percent. In accordance with section 1886(j)(3)(C) of the Act, we proposed to base the FY 2026 IRF market basket percentage increase, which is used to determine the applicable percentage increase for the IRF payments, on IGI's fourth quarter 2024 forecast of the 2021-based IRF market basket. We proposed to then reduce the market basket percentage increase by the proposed productivity adjustment for FY 2026 of 0.8 percentage point (the 10-year moving average growth of TFP for the period ending FY 2026 based on IGI's fourth quarter 2024 forecast). Therefore, the proposed FY 2026 IRF market basket update was 2.6 percent (3.4 percent market basket percentage increase reduced by the 0.8 percentage point productivity adjustment). Furthermore, we proposed that if more recent data became available after the publication of the proposed rule and before the publication of this final rule (for example, a more recent estimate of the market basket percentage increase and productivity adjustment), we would use such data, if appropriate, to determine the FY 2026 IRF market basket percentage increase and productivity adjustment in this final rule.

Using IGI's second quarter 2025 forecast, the 10-year moving average growth of TFP for FY 2026 is projected to be 0.7 percent. Thus, in accordance with section 1886(j)(3)(C) of the Act, the FY 2026 market basket percentage increase, which is used to determine the applicable percentage increase for the IRF payments, is equal to 3.3 percent using IGI's second quarter 2025 forecast of the 2021-based IRF market basket. We then reduce this percentage increase by the estimated productivity adjustment for FY 2026 of 0.7 percentage point (the 10-year moving average growth of TFP for the period ending FY 2026 based on IGI's second quarter 2025 forecast). Therefore, more recent data would provide a FY 2026 IRF update equal to 2.6 percent (3.3 percent market basket percentage increase reduced by the 0.7 percentage point productivity adjustment).

In its March 2025 Report to Congress, MedPAC recommended that Congress should reduce the IRF PPS base payment rate by 7 percent for FY 2026.

As discussed, and in accordance with sections 1886(j)(3)(C) and 1886(j)(3)(D) of the Act, the Secretary proposed to update the IRF PPS payment rates for FY 2026 by the proposed IRF market basket update of 2.6 percent.

https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_MedPAC_ReportToCongress_SEC.pdf.

Based on more recent data, the current estimate of the productivity-adjusted IRF market basket increase factor for FY 2026 remains 2.6 percent. Section 1886(j)(3)(C) of the Act does not provide the Secretary with the authority to apply a different update factor to IRF PPS payment rates for FY 2026.

We invited public comments on the proposed FY 2026 market basket percentage increase and productivity adjustment. The following is a summary of the public comments received and our responses.

Comment:

Several commenters expressed agreement with the general strategy of increasing the standard payment conversion factor. However, many raised concerns that the proposed FY 2026 IRF payment increase is insufficient. Respondents indicated that the proposed payment adjustment fails to keep up with the significant cost increases faced by IRFs, including those related to labor, drugs, medical supplies, personal protective equipment (PPE), and capital investments. Additionally, they highlighted other challenges such as staffing shortages, supply chain disruptions, escalating cybersecurity investment needs, higher administrative costs due to MA and commercial plan practices, and uncertain inflation expectations resulting from recent and proposed tariff adjustments on goods like medical supplies and pharmaceuticals from key supplier countries.

Several commenters mentioned that the increasing disparity between payment inflation and cost inflation is exerting significant financial pressure on hospitals, leading to a substantial reduction in their profit margins. A few commenters have expressed that an analysis of the data in CMS' IRF Rate-Setting File suggests that nearly 40 percent of all IRFs are projected to experience negative total PPS profit margins for FY 2025, including over half of hospital-based IRF units and teaching IRFs. Additionally, one commenter referred to MedPAC's March 2025 Report to Congress, which highlighted that non-profit IRFs tend to have lower profit margins compared to for-profit IRFs. The report recommends that Congress reduce the IRF base payment by 7 percent for FY 2026. However, the commenter suggested that this recommendation might not be applicable if the analysis had distinctly considered for-profit and non-profit IRFs, as non-profit IRFs typically exhibit smaller profit margins. One commenter, MedPAC, stated that the Secretary is required to update the IRF PPS rates by the market basket minus a productivity adjustment; however, based on the review of many payment adequacy indicators, including beneficiary access to IRF services, the supply of providers, and aggregate IRF Medicare margins (which have been above 13 percent since 2015), the Commission concluded that Medicare's current payment rates for IRFs are more than adequate.

Most commenters highlighted that persistent labor shortages and high-cost inflation necessitate increased payment rates for all IRFs. They urged CMS to consider the most current inflation data or update the market basket to reflect actual input costs. One commenter noted that rural IRFs face even more cost pressures amplified by severe workforce shortages, heavy dependence on traveling clinicians and contract staff, lack of community-based alternatives leading to longer patient stays, and significant transportation and access issues.

Several commenters indicated that the underlying construction of the IRF market basket may have limitations that do not adequately capture inflation pressures. They stated that it is perplexing how hospitals, especially labor-intensive IRFs, could experience a change in the market basket that is significantly below general inflation. The commenters noted that the IRF market basket relies on projected growth in generalized hospital goods and services, which does not consider the specialized training and experience required by therapists, nurses, and other clinicians in IRFs. Additionally, some commenters highlighted that IRFs often incur higher costs for advanced rehabilitation technologies and specialized medications, which may not be adequately reflected in the market basket. An example the commenter provided was CMS' use of the Employment Cost Index (ECI) to measure changes in labor compensation in the market basket. The commenters stated that the ECI might not fully capture growth in employment and labor costs, as it does not account for changes driven by shifts between different categories of labor. However, the commenters emphasized that this is just one potential issue and encouraged CMS to comprehensively reexamine the market basket to identify other areas for refinement.

Several commenters suggested that CMS review the current forecasting approach used for determining the IRF PPS market basket update, indicating there may be a systemic issue with IGI's forecasting that tends toward under-forecasting growth. They observed that since the COVID-19 PHE, IGI's forecasted growth for the IRF market basket has consistently been lower than the actual market basket growth. While acknowledging that forecasts are inherently imperfect, they asserted that past forecasts were more balanced. The commenters expressed concern that without action from CMS, these missed forecasts will become permanently embedded in the standard payment rate for IRFs and will continue to accumulate. Additionally, they pointed out that these underpayments affect other payments as well, including those for the growing MA patient population and commercial insurer payment rates. Some commenters mentioned that CMS has provided larger increases to MA plans, such as a recent 5.06 percent rate increase for 2026, and questioned why there is a significant difference between the MA rate increase and the IRF FFS rate increase. One commenter noted that the authorizing statute for the IRF PPS allows CMS to determine a suitable index for the market basket update and to make appropriate adjustments to IRF PPS payments and this implies that CMS is not required to use IGI data, or solely such data, as the basis for the IRF PPS increase factor.

Response:

We acknowledge and appreciate commenters' concerns regarding recent trends in inflation. We are required to update IRF PPS payments by the market basket update adjusted for productivity, as directed by section 1886(j)(3)(C) of the Act. Specifically, section 1886(j)(3)(C)(i) of the Act states that the increase factor shall be based on an appropriate percentage increase in a market basket of goods and services comprising services for which payment is made. In the FY 2024 IRF PPS final rule, we rebased the IRF market basket to reflect a 2021 base year (88 FR 50966 through 50982). We believe the increase in the 2021-based IRF market basket adequately reflects the average change in the price of goods and services hospitals purchase to provide IRF medical services and is technically appropriate to use as the IRF payment update factor.

The IRF market basket is a fixed-weight, Laspeyres-type index that measures the change in price over time of the same mix of goods and services purchased by IRFs in the base period. As we discussed in response to similar comments in the FY 2024 IRF PPS final rule (88 FR 50983) and the FY 2025 IRF PPS final rule (89 FR 64286), the IRF market basket update would reflect the prospective price pressures described by the commenters as increasing during a high inflation period but would inherently not reflect other factors that might increase the level of costs (such as increases in volume or intensity). We note that cost changes (that is, the product of price and quantities) would only be reflected when a market basket is rebased, and the base year weights are updated to a more recent time period.

We respectfully disagree that the IRF market basket does not consider the specialized costs faced by IRFs, as the market basket weights are derived directly from IRF cost report data, which inherently captures and reflects the specific cost structures of inpatient rehabilitation facilities, including expenditures for specialized

rehabilitation technologies, advanced therapeutic equipment, and the unique staffing mix required for IRF services, ensuring that these facility-specific costs are appropriately represented in the market basket calculation. Additionally, we note that the IRF market basket is designed to reflect national-level inflationary price pressures affecting IRFs, and separate payment adjustments, such as rural add-on payments and wage index adjustments, exist to address geographic cost variations and specific challenges faced by rural facilities. Therefore, we believe the 2021-based IRF market basket appropriately reflects IRF cost structures.

To measure price growth for IRF wages and salaries costs in the IRF market basket, since IRF-specific information is unavailable, we use the ECI for Wages and Salaries for All Civilian workers in Hospitals. As stated in the FY 2024 IRF final rule (88 FR 50978) and FY 2025 IRF final rule (89 FR 64286), we believe that this ECI is the best available price proxy to account for the occupational skill mix within IRFs and in the absence of an IRF-specific ECI, we believe that the highly skilled hospital workforce captured by the ECI for Wages and Salaries for All Civilian workers in Hospitals (inclusive of therapists, nurses, other clinicians, etc.) is a reasonable price proxy for the compensation component of the IRF market basket. The FY 2024 IRF and FY 2025 IRF final rules provide a detailed discussion as it relates to contract labor in IRFs and their share of overall IRF compensation costs and hours.

To reflect expected price growth for each of the cost categories in the IRF market basket, we rely on impartial economic forecasts of the price proxies used in the market basket from IGI, which is a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the components of the market baskets. At the time of the FY 2026 IRF PPS proposed rule, based on IGI's fourth quarter 2024 forecast with historical data through the third quarter of 2024, the 2021-based IRF market basket update was forecasted to be 3.4 percent for FY 2026, reflecting forecasted compensation price growth of 3.6 percent. We also note that when developing its forecast for labor prices, IGI considers overall labor market conditions (including rise in contract labor employment due to tight labor market conditions) as well as trends in contract labor wages, which both have an impact on wage pressures for workers employed directly by the hospital.

As is our general practice, in the FY 2026 IRF PPS proposed rule, we proposed that if more recent data became available, we would use such data, if appropriate, to derive the final FY 2026 IRF market basket update for the final rule. For this final rule, we now have an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy and expected price inflation for FY 2026. Based on IGI's second quarter 2025 forecast with historical data through the first quarter of 2025, we are projecting a FY 2026 IRF market basket percentage increase of 3.3 percent (reflecting forecasted compensation price growth of 3.4 percent). Based on IGI's second quarter 2025 forecast, we are also projecting a productivity adjustment of 0.7 percentage point. Therefore, for FY 2026 a final IRF productivity-adjusted market basket update of 2.6 percent (3.3 percent less 0.7 percentage point) will be applicable, this update is unchanged from the proposed IRF market basket update of 2.6 percent. We note that the final FY 2026 IRF market basket increase is slightly lower than in the proposed rule (by 0.1 percentage point) reflecting economic uncertainty. Additionally, the expectation for slower economic growth contributes to a slightly lower productivity adjustment for FY 2026.

CMS understands that the market basket updates may differ from other overall inflation indexes such as the topline CPI; however, we would reiterate that these topline indexes are not comparable since they measure different mixes of products, services, or wages than the IRF market basket. Additionally, the market basket updates appropriately differ from other payment updates (such as projected increase in the average per capita payments to Medicare Advantage organizations) that are not consistent in concept with the statutory requirement as they would reflect anticipated volume and intensity of services.

Regarding whether IRF PPS payments are adequate to cover costs, MedPAC's analysis and recommendations as published in MedPAC's March 2025

Report to Congress concluded that Medicare's current payment rates for IRFs are more than adequate based on aggregate Medicare margins above 13 percent since 2015. With respect to the commenters' concern about payments to non-profits, MedPAC acknowledged that margins continued to vary widely across types of IRFs, with higher margins in IRFs that were freestanding, for profit, urban, larger, and with a greater share of FFS Medicare days.

https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_MedPAC_ReportToCongress_SEC.pdf.

We do not have statutory authority to vary payment under the IRF PPS according to non-profit status but are continuing to explore changes to the IRF PPS within our regulatory authority, such as alternative approaches to case mix groups (replacing the hospital-specific relative value weighting with average cost weighting), which has been recommended by MedPAC's 2024

Report to Congress.

https://www.medpac.gov/document/march-2024-report-to-the-congress-medicare-payment-policy.

Finally, we acknowledge the commenter's recommendation that we reexamine the market basket to identify other potential areas for refinement. We will continue to review the IRF market basket, and any future changes will be proposed in rulemaking.

Comment:

Several commenters recommended that we not apply the productivity adjustment. One commenter urged CMS to consider its regulatory authority to modify the productivity adjustment or make a PHE- and inflation-related exception in its application for the FY 2026 update. Additionally, one commenter requested a temporary suspension of the productivity adjustment to the IRF market basket due to recent declines in hospital productivity. A commenter asserted an imbalance between economy-wide productivity measures and IRF-specific productivity changes, encouraging CMS to explore all available avenues within the agency's existing authority to provide additional financial relief for IRFs. Other commenters requested that CMS carefully monitor the impact of these productivity adjustments on the rehabilitation hospital sector, provide feedback to Congress as appropriate, and reduce the productivity adjustment.

Response:

Section 1886(j)(3)(C)(ii)(I) of the Act requires the application of the productivity adjustment, described in section 1886(b)(3)(B)(xi)(II), to the IRF PPS market basket increase factor. As required by statute, the FY 2026 productivity adjustment is derived based on the 10-year moving average growth in economy-wide, private nonfarm business total factor productivity for the period ending FY 2026. We recognize the concerns of the commenters regarding the appropriateness of the productivity adjustment; however, as we explained in response to similar comments in the

FY 2023, FY 2024 and FY 2025 IRF PPS final rules, we are required under section 1886(j)(3)(C)(ii)(I) of the Act to apply the specific productivity adjustment described here.

We have always made available on the CMS website the general method for calculating the productivity adjustment. This includes providing a link (

http://www.bls.gov/productivity

/) to the most recent BLS historical TFP data, which allows interested parties to obtain historical TFP annual index levels for 1987 through 2024. We also provided the IGI projection model (

https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf

), which is used to derive annual TFP growth rates for 2025 and 2026. The annual index level derived from this method is then interpolated to quarterly levels, and the FY 2026 productivity adjustment is equal to the percent change in the 40-quarter moving average projected level for the period ending September 30, 2026, relative to the 40-quarter moving average projected level for the period ending September 30, 2025. We believe our methodology for the productivity adjustment is consistent with section 1886(b)(3)(B)(xi)(II) of the Act, which states that the productivity adjustment is equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period).

At the time of this final rule, the FY 2026 productivity adjustment reflects BLS historical TFP data through 2024 (released on March 21, 2025) and IGI's forecasted TFP growth for 2025 and 2026. The average annual growth rate of historical TFP published by BLS for 2017 through 2024 is currently 0.9 percent and IGI is projecting average TFP growth of about 0.0 percent for 2025 and 2026 based on IGI's second-quarter 2025 forecast. Combining the historical and projected TFP data over the entire 10-year time period results in a compound annual growth rate of TFP of 0.7 percent for 2026. The productivity adjustment (based on the 10-year period ending with FY 2026) for the FY 2026 IRF final rule is 0.1 percentage point lower than in the FY 2026 IRF proposed rule and primarily reflects the incorporation of a revised outlook from IGI that has lower projected economic growth over 2025 and 2026. The 0.7 percent productivity adjustment in the FY 2026 final rule is larger than the productivity adjustment in prior final rules for FY 2023 and 2024 mainly due to the incorporation of updated BLS historical data.

In response to commenters' concerns about the productivity adjustment only being applied if it reduces the payment update, we note that the productivity adjustment was established under the Affordable Care Act with a specific policy intent to encourage efficiency improvements in healthcare delivery by linking Medicare payment updates to economy-wide productivity gains. The statutory language in section 1886(j)(3)(C)(ii) of the Act requires that the Secretary reduce (not increase) the market basket percentage increase by changes in economy-wide productivity, therefore, only positive productivity adjustments are applied.

Comment:

Many commenters have noted concerns about CMS's estimation of the IRF market basket updates since the COVID-19 pandemic, stating that it has resulted in underpayments to IRF providers. Organizations report cumulative underpayments between 3.5 to 4.6 percentage points for fiscal years 2021 to 2024, with an annual financial impact of approximately $450 million, highlighting discrepancies between forecasted and actual market basket rates. Commenters suggest that CMS address these forecast errors as it does in the Skilled Nursing Facility (SNF) Prospective Payment System and recommend extending this approach to IRFs. Most organizations are requesting a retrospective adjustment of 3.5 to 4.6 percentage points for FY 2026, along with policy changes for ongoing forecast error correction mechanisms like the SNF PPS.

Concerns have been raised about the IGI forecasting methodology, which is perceived to lean towards under-forecasting in the post-pandemic environment. Commenters highlight that inadequate reimbursement may affect patient access to rehabilitation services and challenge the long-term stability of IRF providers, potentially causing care disruptions. According to the commenters, without correction, these forecast errors become embedded in future payment rates, widening the gap between actual costs and reimbursement. The consensus among commenting organizations is that CMS should implement a one-time market basket adjustment for FY 2026 to account for the cumulative underpayments due to market basket forecast errors from recent years and establish mechanisms to prevent similar issues in the future. Commenters assert that CMS has the statutory and regulatory authority to make these adjustments, given the precedent set in the SNF payment system and the agency's general authority over market basket calculations.

Response:

The IRF market basket updates are set prospectively, which means that the update relies on a mix of both historical data for part of the period for which the update is calculated and forecasted data for the remainder. For instance, the FY 2026 market basket update in this final rule reflects historical data through the first quarter of CY 2025 and forecasted data through the third quarter of CY 2026.

The forecast error has been both positive and negative during past years, and over longer periods of time the cumulative forecast has not deviated significantly from the historical measures. Only considering the forecast error for years when the IRF market basket update was lower than the actual market basket update would not fully account for forecast error. After careful consideration of public comments, we are finalizing a FY 2026 IRF productivity-adjusted market basket increase of 2.6 percent based on the most recent data available. This reflects a 3.3 percent market basket percentage increase, less the 0.7 percentage point productivity adjustment required by law.

C. Labor-Related Share for FY 2026

Section 1886(j)(6) of the Act specifies that the Secretary is to adjust the proportion (as estimated by the Secretary from time to time) of IRFs' costs that are attributable to wages and wage-related costs, of the prospective payment rates computed under section 1886(j)(3) of the Act, for area differences in wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the rehabilitation facility compared to the national average wage level for such facilities. The labor-related share is determined by identifying the national average proportion of total costs that are related to, influenced by, or vary with the local labor market. We proposed to continue to classify a cost category as labor-related if the costs are labor-intensive and vary with the local labor market.

Based on our definition of the labor-related share and the cost categories in the 2021-based IRF market basket, we proposed to calculate the labor-related share for FY 2026 as the sum of the FY 2026 relative importance of Wages and Salaries, Employee Benefits, Professional Fees: Labor-Related, Administrative and Facilities Support Services, Installation, Maintenance, and Repair Services, All Other: Labor-

Related Services, and a portion of the Capital-Related relative importance from the 2021-based IRF market basket. For more details regarding the methodology for determining specific cost categories for inclusion in the 2021-based IRF labor-related share, see the FY 2024 IRF PPS final rule (88 FR 50985 through 50988).

The relative importance reflects the different rates of price change for these cost categories between the base year (2021) and FY 2026. We calculate the labor-related relative importance from the IRF market basket, and it approximates the labor-related portion of the total costs after taking into account historical and projected price changes between the base year and FY 2026. The price proxies that move the different cost categories in the market basket do not necessarily change at the same rate, and the relative importance captures these changes. Based on IGI's fourth quarter 2024 forecast of the 2021-based IRF market basket, the sum of the FY 2026 relative importance for Wages and Salaries, Employee Benefits, Professional Fees: Labor-Related, Administrative and Facilities Support Services, Installation Maintenance & Repair Services, and All Other: Labor-Related Services was 70.8 percent. We proposed that the portion of Capital-Related costs that are influenced by the local labor market is 46 percent. Since the relative importance for Capital-Related costs was 8.1 percent of the 2021-based IRF market basket for FY 2026, we proposed to take 46 percent of 8.1 percent to determine the labor-related share of Capital-Related costs for FY 2026 of 3.7 percent. Therefore, we proposed a total labor-related share for FY 2026 of 74.5 percent (the sum of 70.8 percent for the proposed labor-related share of operating costs and 3.7 percent for the proposed labor-related share of Capital-Related costs). We also proposed that if more recent data subsequently became available after publication of the proposed rule and before the publication of this final rule (for example, a more recent estimate of the labor-related share), we would use such data, if appropriate, to determine the FY 2026 IRF labor-related share in this final rule.

Based on IGI's second quarter 2025 forecast for the 2021-based IRF market basket, the sum of the FY 2026 relative importance for Wages and Salaries, Employee Benefits, Professional Fees: Labor-related, Administrative and Facilities Support Services, Installation Maintenance & Repair Services, and All Other: Labor-Related Services is 70.7 percent. The portion of Capital-Related costs that is influenced by the local labor market is estimated to be 46 percent, which is the same percentage applied to the 2016-based IRF market basket (84 FR 39088 through 39089). Since the relative importance for Capital is 8.1 percent of the 2021-based IRF market basket in FY 2026, we took 46 percent of 8.1 percent to determine the labor-related share of Capital-Related costs for FY 2026 of 3.7 percent. Therefore, the total labor-related share for FY 2026 based on more recent data is 74.4 percent (the sum of 70.7 percent for the operating costs and 3.7 percent).

We invited public comments on the proposed labor-related share for FY 2026.

The following is a summary of the public comments received and our responses.

Comment:

One commenter stated that the proposed 0.1 percent increase to the labor-related share is inadequate in the context of the current economic climate of rising labor costs, inflationary pressures, and workforce shortages. The commenter respectfully requests that CMS reconsider the proposed labor-related share allocations to ensure they more accurately reflect the increased resource requirements necessary to maintain compliance and sustain high-quality patient care.

Response:

We proposed to use the FY 2026 relative importance values for the labor-related cost categories from the 2021-based IRF market basket because it accounts for more recent data regarding price pressures and cost structure of IRFs. This methodology is consistent with the determination of the labor-related share since the implementation of the IRF PPS. As stated in the FY 2026 IRF proposed rule, we also proposed that if more recent data became available, we would use such data, if appropriate, to determine the FY 2026 labor-related share for the final rule. Based on IGI's second quarter 2025 forecast with historical data through the first quarter of 2025, the FY 2026 labor-related share for the final rule is 74.4 percent, reflecting expectations of a slight softening of the labor market cost pressures since the proposed rule forecast. We note the FY 2026 labor-related share is unchanged from the FY 2025 labor-related share. After consideration of the public comments we received, we are finalizing a FY 2026 labor-related share of 74.4 percent.

Table 4 shows the estimate of the FY 2026 labor-related share and the FY 2025 final labor-related share using the 2021-based IRF market basket relative importance.

Table 4—FY 2026 IRF Labor-Related Share and FY 2025 IRF Labor-Related-Share

FY 2026 labor-related share

FY 2025 final labor-related share

Wages and Salaries

49.4

Employee Benefits

11.8

Professional Fees: Labor-Related

5.5

Administrative and Facilities Support Services

0.7

Installation, Maintenance, and Repair Services

1.5

All Other: Labor-Related Services

1.8

Subtotal

70.7

Labor-related portion of Capital-Related (46%)

3.7

Total Labor-Related Share

74.4

Based on the 2021-based IRF market basket relative importance, IGI's 2nd quarter 2025 forecast.

Based on the 2021-based IRF market basket relative importance as published in the

Federal Register

(89 FR 64276).

Includes all contract advertising and marketing costs and a portion of accounting, architectural, engineering, legal, management consulting, and home office contract labor costs.

D. Wage Adjustment for FY 2026

1. Background

Section 1886(j)(6) of the Act requires the Secretary to adjust the proportion of rehabilitation facilities' costs attributable to wages and wage-related costs (as estimated by the Secretary from time to time) by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the rehabilitation facility compared to the national average wage level for those facilities. The Secretary is required to update the IRF PPS wage index on the basis of information available to the Secretary on the wages and wage-related costs to furnish rehabilitation services. Any adjustments or updates made under section 1886(j)(6) of the Act for a FY are made in a budget-neutral manner.

In the FY 2023 IRF PPS final rule (87 FR 47054 through 47056) we finalized a policy to apply a 5-percent cap on any decrease to a provider's wage index from its wage index in the prior year, regardless of the circumstances causing the decline. We amended IRF PPS regulations at § 412.624(e)(1)(ii) to reflect this permanent cap on wage index decreases. Additionally, we finalized a policy that a new IRF would be paid the wage index for the area in which it is geographically located for its first full or partial FY with no cap applied because a new IRF would not have a wage index in the prior FY. A full discussion of the adoption of this policy is found in the FY 2023 IRF PPS final rule.

For FY 2026, we proposed to maintain the policies and methodologies described in the FY 2025 IRF PPS final rule (89 FR 64276) related to the labor market area definitions and the wage index methodology for areas with wage data. Thus, we use the core based statistical areas (CBSAs) labor market area definitions and the FY 2026 pre-reclassification and pre-floor hospital wage index data. In accordance with section 1886(d)(3)(E) of the Act, the FY 2026 pre-reclassification and pre-floor hospital wage index is based on data submitted for hospital cost reporting periods beginning on or after October 1, 2021, and before October 1, 2022 (that is, FY 2022 cost report data).

In addition, we will continue to use the same methodology discussed in the FY 2008 IRF PPS final rule (72 FR 44299) to address those geographic areas in which there are no hospitals and, thus, no hospital wage index data on which to base the calculation for the FY 2026 IRF PPS wage index. For FY 2026, the only rural area without wage index data available is in North Dakota. For urban areas without specific hospital wage index data, we will continue using the average wage indexes of all urban areas within the State to serve as a reasonable proxy for the wage index of that urban CBSA as proposed and finalized in FY 2006 (70 FR 47927). For FY 2026, the only urban area without wage index data available is CBSA 25980, Hinesville Fort Stewart, Georgia.

We invited public comments on our proposals regarding the Wage Adjustment for FY 2026.

The following is a summary of the public comments received and our responses on the proposed revisions to the Wage Adjustment for FY 2026.

Comment:

Many commenters supported the existing 5 percent wage index cap and expressed appreciation of having a policy to cap and phase in the wage index changes that a provider can experience in a given year. One commenter expressed frustration that the wage index values of the hospitals subject to the cap differ from the currently published tables and urged CMS to release wage index tables in the final rule that incorporates the cap on Core Based Statistical Areas (CBSAs) that meet the 5 percent decrease criteria.

Response:

We appreciate the commenters' support of the permanent cap on wage index decreases. We realize that the 5-percent cap on annual decreases in the wage index values does not entirely eliminate the effects of annual changes in the wage index, but we believe that it does substantially reduce the financial impact on IRFs of these annual changes. The wage index tables for IRF PPS are provided at the CBSA level. The 5-percent cap policy is applied at the provider level. Hence, when the 5-percent cap is applicable, each IRF should work directly with its Medicare Administrative Contractor (MAC) to understand how the 5-percent cap is applied. MACs have more detailed information about the location of each IRF and the applicability of the 5-percent cap to each IRFs situation, and CMS has provided careful instructions to the MACs on applying the 5-percent cap policy (see publication 100-04 Medicare Claims Processing Manual, Chapter 3).

Comment:

Multiple commenters urged CMS to refine the wage index calculations to create parity across provider types in the same market areas. They expressed concern over the use of the pre-classification and pre-floor IPPS wage index. They noted that since IPPS hospitals can reclassify their wage indices, acute care hospitals across the country are receiving wage index increases higher than would be assigned their Core Based Statistical Areas (CBSAs). One commenter also voiced concerns that IPPS hospitals that have benefited from IPPS-specific geographic reclassification or other wage adjustments no longer put the same resources into the completion of Occupational Mix Surveys. One commenter highlighted rural and low- wage index IRFs are particularly disadvantaged by the use of the pre-floor IPPS wage index.

Another commenter noted IRF distinct part units (DPUs) are particularly impacted by this and urged CMS to leverage existing data to evaluate the policy change using the CMS Form 2552-96, Worksheet S-3, which captures “excluded area” salaries and wage-related costs. They urged CMS to also reconsider its policy on the out-migration adjustment application to IRF DPUs as they noted they face the same challenges in the marketplace as IPPS hospitals. Another commenter suggested that CMS utilize more up to date cost reports to calculate the IRF PPS wage index.

Response:

We appreciate the commenters' suggestion to adopt the IPPS post-classification and post-floor hospital IPPS wage index and other IPPS wage index adjustments for the IRF wage index. We also acknowledge and appreciate the commenters' concerns regarding competition for labor resulting from different applicable wage index policies across different settings of care. While we and other interested parties have explored potential alternatives to the current wage index system in the past, we are not considering a replacement system at this time. These concerns will be taken into consideration while we continue to explore future potential wage index reforms and monitor IRF wage index policies using the most up to date information.

As most recently discussed in the FY 2025 IRF PPS final rule (89 FR 64276), we would like to note that the IRF wage index is derived from IPPS wage data, that is, the pre-reclassification and pre-floor hospital wage index discussed in section VI. of this final rule. As such, any effects of this policy on the wage data of IPPS hospitals would be extended to the IRF setting, as this data would be used to establish the wage index for IRFs in the future. We note that IPPS wage index values are based on historical data and typically lag by 4 years.

As stated in prior years, as we do not have an IRF-specific wage index, we are unable to determine the degree, if any, to which these IPPS policies under the IRF PPS would be appropriate. However, we acknowledge that

commenters have suggested that such data may be available in CMS Form 2552-96, Worksheet S-3 and will take this into consideration. Data pertaining to any IPPS policies that are applied to the pre-reclassification/pre-floor wage index is available in the FY 2025 IRF PPS FR (89 FR 64276). A full history of the IRF PPS rules is available on the CMS website at

https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf.

After consideration of the comments we received, we are finalizing our proposals regarding the wage adjustment for FY 2026.

2. Core-Based Statistical Areas (CBSAs) for the FY 2026 IRF Wage Index

The wage index used for the IRF PPS is calculated using the pre-reclassification and pre-floor hospital wage index data and is assigned to the IRF on the basis of the labor market area in which the IRF is geographically located. IRF labor market areas are delineated based on the CBSAs established by the OMB. The CBSA delineations (which were implemented for the IRF PPS beginning with FY 2016) are based on revised OMB delineations issued on February 28, 2013, in OMB Bulletin No. 13-01. OMB Bulletin No. 13-01 established- revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas in the United States and Puerto Rico based on the 2010 Census and provided guidance on the use of the delineations of these statistical areas using standards published in the June 28, 2010,

Federal Register

(75 FR 37246 through 37252). We refer readers to the FY 2016 IRF PPS final rule (80 FR 47068 through 47076) for a full discussion of our implementation of the OMB labor market area delineations beginning with the FY 2016 wage index.

Generally, OMB issues major revisions to statistical areas every 10 years, based on the results of the decennial census. Additionally, OMB occasionally issues updates and revisions to the statistical areas in between decennial censuses to reflect the recognition of new areas or the addition of counties to existing areas. In some instances, these updates merge formerly separate areas, transfer components of an area from one area to another or drop components from an area. On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which provides minor updates to and supersedes OMB Bulletin No. 13-01 that was issued on February 28, 2013. The attachment to OMB Bulletin No. 15-01 provides detailed information on the update to statistical areas since February 28, 2013. The updates provided in OMB Bulletin No. 15-01 are based on the application of the 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates for July 1, 2012, and July 1, 2013.

In the FY 2018 IRF PPS final rule (82 FR 36250 through 36251), we adopted the updates set forth in OMB Bulletin No. 15-01 effective October 1, 2017, beginning with the FY 2018 IRF wage index. For a complete discussion of the adoption of the updates set forth in OMB Bulletin No. 15-01, we refer readers to the FY 2018 IRF PPS final rule. In the FY 2019 IRF PPS final rule (83 FR 38527), we continued to use the OMB delineations that were adopted beginning with FY 2016 to calculate the area wage indexes, with updates set forth in OMB Bulletin No. 15-01 that we adopted beginning with the FY 2018 wage index.

On August 15, 2017, OMB issued OMB Bulletin No. 17-01, which provided updates to and superseded OMB Bulletin No. 15-01 that was issued on July 15, 2015. The attachments to OMB Bulletin No. 17-01 provide detailed information on the update to statistical areas since July 15, 2015, and are based on the application of the 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates for July 1, 2014, and July 1, 2015. In the FY 2020 IRF PPS final rule (84 FR 39090 through 39091), we adopted the updates set forth in OMB Bulletin No. 17-01 effective October 1, 2019, beginning with the FY 2020 IRF wage index.

On April 10, 2018, OMB issued OMB Bulletin No. 18-03, which superseded the August 15, 2017, OMB Bulletin No. 17-01, and on September 14, 2018, OMB issued OMB Bulletin No. 18-04, which superseded the April 10, 2018 OMB Bulletin No. 18-03. These bulletins established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at

https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf.

To this end, as discussed in the FY 2021 IRF PPS proposed (85 FR 22075 through 22079) and final (85 FR 48434 through 48440) rules, we adopted the revised OMB delineations identified in OMB Bulletin No. 1804 (available at

https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf

) beginning October 1, 2020, including a 1 year transition for FY 2021 under which we applied a 5-percent cap on any decrease in an IRF's wage index compared to its wage index for the prior fiscal year (FY 2020). The updated OMB delineations more accurately reflect the contemporary urban and rural nature of areas across the country, and the use of such delineations allows us to determine more accurately the appropriate wage index and rate tables to apply under the IRF PPS. OMB issued further revised CBSA delineations in OMB Bulletin No. 20-01, on March 6, 2020 (available on the web at

https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf

). However, we determined that the changes in OMB Bulletin No. 20-01 do not impact the CBSA-based labor market area delineations adopted in FY 2021. Therefore, we did not propose to adopt the revised OMB delineations identified in OMB Bulletin No. 20-01 for FY 2022 through FY 2024.

On July 21, 2023, OMB issued OMB Bulletin No. 23-01 (available at

https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf

) which updates and supersedes OMB Bulletin No. 20-01 based upon the 2020 Standards for Delineating Core Based Statistical Areas (“the 2020 Standards”) published by OMB on July 16, 2021 (86 FR 37770). OMB Bulletin No. 23-01 revised CBSA delineations that are comprised of counties and equivalent entities (for example, boroughs; a city and borough; and a municipality in Alaska; planning regions in Connecticut; parishes in Louisiana; municipios in Puerto Rico; and independent cities in Maryland, Missouri, Nevada, and Virginia). As discussed in the FY 2025 IRF PPS final rule (89 FR 64291 through 64304), we adopted the revised OMB delineations identified in OMB Bulletin No. 23-01.

3. Second Year of the 3-Year Phase Out of the Rural Adjustment

For FY 2026, CMS is continuing the 3-year budget-neutral phase-out of the rural adjustment for FY 2024 IRFs transitioning from rural to urban status in FY 2025 under the revised CBSA delineations. As stated in the FY 2025 IRF PPS final rule (89 FR 64276), the purpose of this gradual phase-out of the rural adjustment for these facilities is to reduce the potential negative financial impacts associated with this reclassification. In FY 2026, the second year of this phase-out, affected IRFs will receive the full FY 2026 wage index along with one-third of the FY 2024 rural adjustment. This step is part of a gradual reduction of the 14.9 percent rural adjustment over three fiscal years

-FYs 2025, 2026, and 2027. Furthermore, this policy does not apply to urban IRFs transitioning to rural status, as they will receive the full rural adjustment.

The following is a summary of the public comments received and our responses on the proposal regarding the second year of the 3-year phase out of the rural adjustment.

Comment:

Public comments supported the phase-out policy for IRFs being reclassified from rural to urban CBSAs. Commenters expressed that this phase-out policy for loss of the rural adjustment is a reasonable way to ensure that no IRF faces a dramatic cut to its reimbursement as a result of the new CBSA delineation. One commenter urged CMS to evaluate whether the policy disproportionately impacts rural IRFs with more low-income patients.

Response:

We appreciate the commenters' feedback on the continued phase out policy for IRFs reclassification from rural to urban CBSAs. We will continue to monitor whether CBSA delineation changes disproportionately impact certain provider populations, such as low-income patients. Separately, the low-income patient (LIP) adjustment will continue to be applied because we did not propose to change the low-income patient adjustment (LIP) policy at § 412.624(e)(2).

After consideration of the comments we received, we are finalizing our proposal to continue the 3-year budget-neutral phase-out of the rural adjustment for FY 2024 IRFs transitioning from rural to urban status in FY 2026 under the revised CBSA delineations.

4. IRF Budget-Neutral Wage Adjustment Factor Methodology

To calculate the wage-adjusted facility payment for the payment rates set forth in this rule, we multiply the unadjusted Federal payment rate for IRFs by the FY 2026 labor-related share based on the 2021-based IRF market basket relative importance (74.4 percent) to determine the labor-related portion of the standard payment amount. (A full discussion of the calculation of the labor-related share appears in section VI of this final rule.) We then multiply the labor-related portion by the applicable IRF wage index. The wage index tables are available on the CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html.

Adjustments or updates to the IRF wage index made under section 1886(j)(6) of the Act must be made in a budget-neutral manner. We calculate a budget-neutral wage adjustment factor as established in the FY 2004 IRF PPS final rule (68 FR 45689) and codified at § 412.624(e)(1), as described in the steps below. We use the listed steps to ensure that the FY 2026 IRF standard payment conversion factor reflects the update to the wage indexes (based on the FY 2022 hospital cost report data) and the update to the labor-related share, in a budget-neutral manner:

Step 1.

Calculate the total amount of estimated IRF PPS payments using the labor-related-share and the wage indexes from FY 2025 (as published in the FY 2025 IRF PPS final rule (89 FR 64276)).

Step 2.

Calculate the total amount of estimated IRF PPS payments using the FY 2026 wage index values (based on updated hospital wage data and taking into account the permanent 5-percent cap on wage index decreases when applicable) and the FY 2026 labor-related share of 74.4 percent.

Step 3.

Divide the amount calculated in Step 1 by the amount calculated in Step 2. The resulting quotient is the proposed FY 2026 budget-neutral wage adjustment factor of 1.0001.

Step 4.

Apply the budget neutrality factor from Step 3 to the FY 2026 IRF PPS standard payment amount after the application of the market basket percentage increase to determine the FY 2026 standard payment conversion factor.

We discuss the calculation of the standard payment conversion factor for FY 2026 in section VI.E. of this final rule.

We invited public comments on our proposals regarding the Wage Adjustment for FY 2026.

The following is a summary of the public comments received and our responses to the proposed revisions to the Wage Adjustment for FY 2026:

Comment:

Several commenters specified that the wage index cap policy should be implemented without applying a budget neutrality adjustment.

Response:

We do not believe that the permanent 5-percent cap policy for the IRF wage index should be applied in a non-budget-neutral manner. The statute at section 1886(j)(6) of the Act requires that adjustments for geographic variations in labor costs for a FY be made in a budget-neutral manner. We refer readers to the FY 2023 IRF PPS final rule (87 FR 47054 through 47056) for a detailed discussion on the wage index cap policy.

After consideration of the comments we received, we are finalizing our proposals regarding the IRF budget neutral wage adjustment factor methodology for FY 2026 without modification.

E. Description of the IRF Standard Payment Conversion Factor Methodology and Payment Rates for FY 2026

To calculate the IRF standard payment conversion factor for FY 2026, as illustrated in Table 5, we begin by applying the IRF market basket update for FY 2026, as adjusted in accordance with sections 1886(j)(3)(C) of the Act, to the standard payment conversion factor for FY 2025 ($18,907). Applying the 2.6 percent IRF market basket update for FY 2026 to the standard payment conversion factor for FY 2025 of $18,907 yields a FY 2026 standard payment amount of $19,399. Then, we apply the budget neutrality factor for the FY 2026 wage index (taking into account the policy placing a permanent 5-percent cap on decreases to a provider's wage index), and labor-related share of 1.0001, which results in an IRF standard payment amount of $19,401. We next apply the budget neutrality factor for the CMG relative weights of 0.9985, which results in the IRF standard payment conversion factor of $19,371 for FY 2026.

We received no comments on the proposed FY 2026 IRF standard payment conversion factor methodology and are finalizing the FY 2026 IRF standard payment conversion factor methodology as proposed.

Table 5—Calculations To Determine the FY 2026 IRF Standard Payment Conversion Factor

Explanation for adjustment

Calculations

FY 2025 IRF Standard Payment Conversion Factor

$18,907

Market Basket Update for FY 2026 of 2.6 percent *

× 1.026

Budget Neutrality Factor for the Updates to the Wage Index and Labor-Related Share

× 1.0001

Budget Neutrality Factor for the Revisions to the CMG Relative Weights

× 0.9985

FY 2026 Standard Payment Conversion Factor

= $19,371

* Reflects a FY 2026 3.3 percent IRF market basket percentage increase reduced by 0.7 percentage point for the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act.

We then apply the CMG relative weights described in section V.E of this rule to the FY 2026 standard payment conversion factor ($19,371), to determine the unadjusted IRF prospective payment rates for FY 2026. The unadjusted IRF prospective payment rates for FY 2026 are shown in Table 6.

Table 6—FY 2026 IRF PPS Payment Rates

CMG

Payment rate

Tier 1

Payment rate

Tier 2

Payment rate

Tier 3

Payment rate no comorbidity

0101

$18,729.82

$16,631.94

$15,068.70

$14,293.86

0102

23,837.95

21,168.63

19,179.23

18,193.24

0103

30,602.31

27,175.58

24,620.54

23,353.68

0104

39,084.87

34,708.96

31,446.88

29,827.47

0105

48,710.32

43,255.44

39,189.47

37,172.95

0106

54,868.36

48,723.88

44,144.57

41,872.35

0201

20,560.38

16,349.12

14,935.04

14,032.35

0202

26,850.14

21,348.78

19,504.66

18,324.97

0203

33,382.04

26,542.14

24,248.62

22,782.23

0204

41,142.07

32,711.81

29,885.58

28,078.26

0205

52,782.10

41,967.27

38,341.02

36,022.31

0301

23,127.04

18,328.84

17,089.10

15,998.51

0302

29,918.51

23,712.04

22,106.19

20,694.04

0303

35,375.32

28,037.59

26,139.23

24,471.38

0304

41,909.16

33,215.45

30,964.54

28,988.70

0305

45,907.33

36,384.55

33,920.56

31,754.88

0401

26,243.83

21,451.45

20,887.75

18,900.28

0402

32,901.64

26,892.76

26,185.72

23,694.61

0403

37,974.91

31,040.09

30,222.63

27,347.98

0404

61,531.98

50,294.86

48,971.83

44,315.04

0405

48,739.37

39,838.40

38,790.43

35,102.19

0406

64,118.01

52,408.24

51,029.03

46,176.59

0407

87,804.87

71,769.56

69,880.88

63,234.69

0501

25,356.64

19,487.23

18,129.32

16,707.49

0502

31,479.81

24,192.44

22,505.23

20,740.53

0503

35,646.51

27,394.47

25,484.49

23,485.40

0504

42,594.89

32,733.12

30,451.21

28,062.77

0505

60,518.88

46,507.83

43,267.07

39,873.27

0601

25,366.32

19,212.16

18,094.45

16,252.27

0602

31,553.42

23,898.00

22,507.16

20,217.51

0603

37,521.63

28,417.26

26,764.91

24,041.35

0604

47,455.08

35,939.02

33,850.82

30,404.72

0701

23,766.28

19,001.01

18,046.02

16,490.53

0702

29,376.12

23,487.34

22,305.71

20,384.10

0703

35,987.44

28,773.68

27,328.61

24,973.09

0704

44,437.07

35,530.29

33,744.28

30,834.76

0801

22,820.98

19,219.91

17,180.14

16,097.30

0802

26,011.38

21,908.60

19,582.14

18,348.21

0803

28,626.46

24,111.08

21,552.17

20,192.33

0804

32,520.03

27,390.59

24,483.01

22,939.14

0805

40,504.76

34,114.27

30,493.83

28,570.29

0901

23,990.98

18,171.94

17,166.58

15,659.52

0902

30,476.39

23,084.42

21,805.93

19,894.02

0903

36,165.66

27,392.53

25,875.78

23,607.44

0904

43,549.88

32,986.88

31,160.19

28,426.94

1001

23,805.02

19,779.73

17,953.04

16,668.75

1002

28,918.97

24,029.73

21,809.81

20,250.44

1003

34,418.39

28,599.34

25,957.14

24,101.40

1004

45,781.42

38,040.77

34,526.87

32,059.01

1101

26,197.34

24,802.63

21,344.90

18,675.58

1102

29,916.57

28,322.34

24,372.59

21,325.53

1103

37,471.26

35,474.11

30,528.70

26,710.67

1201

25,660.76

20,366.67

18,200.99

16,856.64

1202

30,172.27

23,946.43

21,399.14

19,818.47

1203

40,388.54

32,055.13

28,645.83

26,530.52

1204

41,579.85

33,002.37

29,492.35

27,313.11

1301

24,266.05

19,400.06

17,774.83

16,147.67

1302

29,753.86

23,787.59

21,796.25

19,799.10

1303

34,387.40

27,491.32

25,190.05

22,881.03

1304

44,382.84

35,483.80

32,512.29

29,533.03

1305

44,295.67

35,412.13

32,446.43

29,474.91

1401

21,647.09

17,437.77

16,122.48

14,826.56

1402

27,576.56

22,214.66

20,539.07

18,888.66

1403

33,331.68

26,850.14

24,825.87

22,830.66

1404

41,585.66

33,500.21

30,976.17

28,485.06

1501

25,381.82

20,409.29

19,113.37

18,270.73

1502

31,036.22

24,955.66

23,371.11

22,342.51

1503

36,185.03

29,095.24

27,247.25

26,046.25

1504

45,376.57

36,485.28

34,168.51

32,663.38

1601

20,362.80

18,247.48

16,691.99

15,130.69

1602

24,500.44

21,957.03

20,083.85

18,206.80

1603

29,670.56

26,590.57

24,324.16

22,048.07

1604

38,836.92

34,805.81

31,838.18

28,858.92

1701

25,552.29

20,242.70

18,793.74

17,302.18

1702

31,497.25

24,951.79

23,167.72

21,327.47

1703

36,955.99

29,277.33

27,183.32

25,025.39

1704

42,525.16

33,690.04

31,280.29

28,796.93

1705

49,506.46

39,220.46

36,415.54

33,523.45

1801

21,674.21

17,732.21

16,312.32

15,310.84

1802

27,551.37

22,540.10

20,734.72

19,462.04

1803

34,275.05

28,039.52

25,794.42

24,209.88

1804

40,030.17

32,748.61

30,125.78

28,275.85

1805

48,024.58

39,288.26

36,142.41

33,922.50

1806

69,578.69

56,921.68

52,363.69

49,148.10

1901

25,970.70

18,354.02

15,955.89

15,961.70

1902

37,783.14

26,702.92

23,214.21

23,220.02

1903

53,458.15

37,781.20

32,845.47

32,853.22

1904

82,202.78

58,095.57

50,504.07

50,519.57

2001

23,020.50

18,462.50

17,170.45

15,717.63

2002

28,581.91

22,921.70

21,315.85

19,514.35

2003

33,562.19

26,916.00

25,031.21

22,915.89

2004

40,932.86

32,826.10

30,528.70

27,946.54

2005

42,844.78

34,360.28

31,954.40

29,252.15

2101

31,111.76

26,156.66

19,725.49

18,915.78

2102

49,301.13

41,448.13

31,257.05

29,974.69

5001

3,399.61

5101

16,540.90

5102

39,681.49

5103

17,662.48

5104

42,385.69

F. Example of the Methodology for Adjusting the Prospective Payment Rates

Table 7 illustrates the methodology for adjusting the prospective payments (as described in section V of this final rule). The following examples are based on two hypothetical Medicare beneficiaries, both classified as CMG 0104 (without comorbidities). The unadjusted prospective payment rate for CMG 0104 (without comorbidities) appears in Table 6.

Example:

One beneficiary is in Facility A, an IRF located in rural Spencer County, Indiana, and another beneficiary is in Facility B, an IRF located in urban Harrison County, Indiana. Facility A, a rural non-teaching hospital has a Disproportionate Share Hospital (DSH) percentage of 5 percent (which would result in a LIP adjustment of 1.0156), a wage index of 0.8565, and a rural adjustment of 14.9 percent. Facility B, an urban teaching hospital, has a DSH percentage of 15 percent (which would result in a LIP adjustment of 1.0454), a wage index of 0.9145, and a teaching status adjustment of 0.0784.

To calculate each IRF's labor and non-labor portion of the prospective payment, we begin by taking the FY 2026 unadjusted prospective payment rate for CMG 0104 (without comorbidities) from Table 6. Then, we multiply the labor-related share for FY 2026 (74.4 percent) described in section VI of this final rule by the unadjusted prospective payment rate. To determine the non-labor portion of the prospective payment rate, we subtract the labor portion of the Federal payment from the unadjusted prospective payment.

To compute the wage-adjusted prospective payment, we multiply the labor portion of the Federal payment by the appropriate wage index located in the applicable wage index table. This table is available on the CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html.

The resulting figure is the wage-adjusted labor amount. Next, we compute the wage-adjusted Federal payment by adding the wage-adjusted labor amount to the non-labor portion of the Federal payment.

Adjusting the wage-adjusted Federal payment by the facility-level adjustments involves several steps. First, we take the wage-adjusted prospective payment and multiply it by the appropriate rural and LIP

adjustments (if applicable). Second, to determine the appropriate amount of additional payment for the teaching status adjustment (if applicable), we multiply the teaching status adjustment (0.0784, in this example) by the wage-adjusted and rural-adjusted amount (if applicable). Finally, we add the additional teaching status payments (if applicable) to the wage, rural, and LIP-adjusted prospective payment rates. Table 7 illustrates the components of the adjusted payment calculation.

Table 7—Example of Computing the FY 2026 IRF Prospective Payment

Steps

Rural facility A (Spencer Co., IN)

Urban facility B (Harrison Co., IN)

1. Unadjusted Payment

$29,827.47

2. Labor-Related Share

0.744

3. Labor Portion of Payment

$22,191.64

4. CBSA-Based Wage Index

0.8565

0.9145

5. Wage-Adjusted Amount

$19,007.14

$20,294.25

6. Non-Labor Amount

$7,635.83

7. Wage-Adjusted Payment

$26,642.97

$27,930.08

8. Rural Adjustment

1.149

1.000

9. Wage- and Rural-Adjusted Payment

$30,612.77

$27,930.08

10. LIP Adjustment

1.0156

1.0454

11. Wage-, Rural- and LIP-Adjusted Payment

$31,090.33

$29,198.11

12. Wage- and Rural-Adjusted Payment

$30,612.77

$27,930.08

13. Teaching Status Adjustment

0.0784

14. Teaching Status Adjustment Amount

$0.00

$2,189.72

15. Wage-, Rural-, and LIP-Adjusted Payment

$31,090.33

$29,198.11

16. Total Adjusted Payment

$31,090.33

$31,387.83

Thus, the adjusted payment for Facility A would be $31,090.33 and the adjusted payment for Facility B would be $31,387.83.

VII. Update to Payments for High-Cost Outliers Under the IRF PPS for FY 2026

A. Update to the Outlier Threshold Amount for FY 2026

Section 1886(j)(4) of the Act provides the Secretary with the authority to make payments in addition to the basic IRF prospective payments for cases incurring extraordinarily high costs. A case qualifies for an outlier payment if the estimated cost of the case exceeds the adjusted outlier threshold. We calculate the adjusted outlier threshold by adding the IRF PPS payment for the case (that is, the CMG payment adjusted by all of the relevant facility-level adjustments) and the adjusted threshold amount (also adjusted by all of the relevant facility-level adjustments). Then, we calculate the estimated cost of a case by multiplying the IRF's overall Cost-to-Charge Ratio (CCR) by the Medicare allowable covered charge. If the estimated cost of the case is higher than the adjusted outlier threshold, we make an outlier payment for the case equal to 80 percent of the difference between the estimated cost of the case and the outlier threshold.

In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we discussed our rationale for setting the outlier threshold amount for the IRF PPS so that estimated outlier payments would equal 3 percent of total estimated payments. For the FY 2002 IRF PPS final rule, we analyzed various outlier policies using 3, 4, and 5 percent of the total estimated payments, and we concluded that an outlier policy set at 3 percent of total estimated payments would optimize the extent to which we could reduce the financial risk to IRFs of caring for high- cost patients, while still providing for adequate payments for all other (non-high cost outlier) cases.

Subsequently, we updated the IRF outlier threshold amount in the FYs 2006 through 2025 IRF PPS final rules and the FY 2011 and FY 2013 notices (70 FR 47880, 71 FR 48354, 72 FR 44284, 73 FR 46370, 74 FR 39762, 75 FR 42836, 76 FR 47836, 76 FR 59256, 77 FR 44618, 78 FR 47860, 79 FR 45872, 80 FR 47036, 81 FR 52056, 82 FR 36238, 83 FR 38514, 84 FR 39054, 85 FR 48444, 86 FR 42362, 87 FR 47038, 88 FR 50956, and 89 FR 64276 respectively) to maintain estimated outlier payments at 3 percent of total estimated payments. We also stated in the FY 2009 final rule (73 FR 46370 through 46385) that we would continue to analyze the estimated outlier payments for subsequent years and adjust the outlier threshold amount as appropriate to maintain the 3 percent target.

To update the IRF outlier threshold amount for FY 2026, we proposed to use FY 2024 claims data and the same methodology that we used to set the initial outlier threshold amount in the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), which is also the same methodology that we used to update the outlier threshold amounts for FYs 2006 through 2025. The outlier threshold is calculated by simulating aggregate payments and using an iterative process to determine a threshold that results in outlier payments being equal to 3 percent of total payments under the simulation. To determine the outlier threshold for FY 2026, we estimated the amount of FY 2026 IRF PPS aggregate and outlier payments using the most recent claims available (FY 2024) and the proposed FY 2026 standard payment conversion factor, labor-related share, and wage indexes, incorporating any applicable budget-neutrality adjustment factors. The outlier threshold is adjusted either up or down in this simulation until the estimated outlier payments equal 3 percent of the estimated aggregate payments. Based on an analysis of the preliminary data used for the proposed rule, we estimated that IRF outlier payments as a percentage of total estimated payments would be approximately 2.8 percent in FY 2025. Therefore, we proposed to update the outlier threshold amount from $12,043 for FY 2025 to $11,971 for FY 2026 to maintain estimated outlier payments at approximately 3 percent of total estimated aggregate IRF payments for FY 2026.

We note that, with our longstanding practice when developing previous IRF PPS fiscal year rules, we update our data between the FY 2026 IRF PPS proposed and final rules to ensure that we use the most recent available data in calculating IRF PPS payments. We are finalizing the outlier threshold amount of $10,062 to maintain estimated outlier

payments at approximately 3 percent of total estimated aggregate IRF payments for FY 2026.

We invited public comment on the proposed update to the IRF outlier threshold for FY 2026.

The following is a summary of the public comments received on our proposed update to the FY 2026 IRF outlier threshold.

Comment:

Commenters were supportive of the update to the outlier threshold for FY 2026 and setting outlier payments at 3 percent of total payments. Several commenters advised CMS to continue to monitor its approach due to the ongoing impacts of the PHE and total cost of care. We received one comment urging CMS to consider a 10 percent cap on IRF's outlier payments (as a percentage of total IRF PPS revenues) due to a concern that a small number of IRF providers are receiving large outlier payments despite their case-mix index being similar to average IRFs. The commenter believed that factors other than patient complexity and case-mix may be driving these payments and presented analysis to support their claim that inefficient cost structures, rather than highly complex patients, appear to be driving the distribution of overall IRF outlier payments, potentially resulting in patients at IRFs that warrant an outlier payment not receiving one.

Response:

We continue to believe that maintaining the outlier pool at 3 percent of aggregate IRF payments optimizes the extent to which we can reduce financial risk to IRFs of caring for highest-cost patients, while still providing for adequate payments for non-outlier cases. We continue to monitor our approach to assess whether IRFs who treat medically complex patients are adequately compensated.

We acknowledge commenters' concerns that outlier payments may be concentrated among a small subset of providers and may not be consistently targeted towards patients with intensive or complex needs. As most recently discussed in the FY 2025 IRF PPS Final Rule (89 FR 64276), our outlier policy is intended to reimburse IRFs for treating extraordinarily costly cases. We appreciate the commenters' suggestions for additional analysis on our methodology and will take them into consideration as we continue to assess our outlier threshold.

Comment:

We received multiple comments that recommended that CMS implement a new methodology to set the outlier fixed loss amount using a 3-year average approach to promote stability in the outlier threshold value and to account for the true cost of care for medically complex patients. One commenter noted this method would be consistent with facility specific adjustments, including teaching, rural, and Low-Income Percentage (LIP). Multiple commenters also suggested that CMS include historical reconciliation dollars in the outlier projection to increase accuracy. Moreover, many commenters expressed concern that outlier payments are being concentrated among an increasingly small number of providers. One commenter suggested that CMS evaluate the variation in outlier spending by provider.

Response:

We thank the commenters for their suggestions regarding the outlier threshold. We appreciate the suggestion to modify the outlier threshold methodology to use a 3-year average; however, it has been our long-standing practice to utilize the most recent full fiscal year of data to update the prospective payment rates and determine the outlier threshold amount as this data is generally considered to be the best overall predictor of experience in the upcoming fiscal year. Any future consideration given to imposing a limit on outlier payments or adjusting the outlier threshold to account for historical outlier reconciliation would need to be carefully assessed and take into consideration the effect on access to IRF care for certain high-cost populations. We continue to believe maintaining the outlier pool at 3 percent of aggregate IRF payments optimizes the extent to which we can reduce financial risk to IRFs of caring for highest-cost patients while still providing for adequate payments for other cases. We appreciate the commenters' suggestions for refinements to the outlier methodology as well as the suggested areas of analysis and will take them into consideration as we continue to assess our outlier methodology.

Comment:

Multiple commenters suggested CMS reduce the 3 percent outlier pool threshold to a lower percentage which would increase the number of complex patients that qualify for the outlier threshold and provide appropriate compensation to IRFs.

Response:

We appreciate the suggestion regarding the outlier threshold methodology. As most recently discussed in the FY 2025 IRF PPS Final Rule (89 FR 64276) our outlier policy is intended to reimburse IRFs for treating extraordinarily costly cases. We continue to believe that maintaining the outlier pool at 3 percent of aggregate IRF payments optimizes the extent to which we can reduce financial risk to IRFs of caring for highest-cost patients, while still providing adequate payments for all other cases. We will continue to examine ways of enhancing the stability and predictability of the outlier threshold from year to year. We appreciate the commenters' suggestion for refinements to the outlier methodology as well as the suggested areas of analysis and will take them into consideration, as we continue to assess our outlier threshold policy to ensure it continues to compensate IRFs' appropriately.

Based on our analysis using this updated data, we estimate that IRF outlier payments as a percentage of total estimated payments are approximately 2.4 percent in FY 2025. Therefore, we will update the outlier threshold amount from $12,043 for FY 2025 to $10,062 for FY 2026 to account for the increases in IRF PPS payments and estimated costs to maintain estimated outlier payments at approximately 3 percent of total aggregate IRF payments for FY 2026. After consideration of the comments received and considering the most recent available data, we are finalizing the outlier threshold amount of $10,062 to maintain estimated outlier payments at approximately 3 percent of total estimated aggregate IRF payments for FY 2026.

B. Update to the IRF Cost-to-Charge Ratio (CCR) Ceiling and Urban/Rural Averages for FY 2026

CCRs are used to adjust charges from Medicare claims to costs and are computed annually from facility-specific data obtained from Medicare Cost Reports (MCRs). IRF-specific CCRs are used in the development of the CMG relative weights and the calculation of outlier payments under the IRF PPS. In accordance with the methodology described in the FY 2004 IRF PPS final rule (68 FR 45692 through 45694), we proposed to apply a ceiling to IRFs' CCRs. Using that methodology, we proposed to update the national urban and rural CCRs for IRFs, as well as the national CCR ceiling for FY 2026, based on analysis of the most recent data available. We apply the national urban and rural CCRs to:

• New IRFs that have not yet submitted their first MCR.

• IRFs with an overall CCR that exceeds the national CCR ceiling for FY 2026, as discussed below in this section.

• Other IRFs for which accurate data to calculate an overall CCR are not available.

Specifically, for FY 2026, we proposed to estimate a national average CCR of 0.467 for rural IRFs, which we calculated by taking an average of the CCRs for all rural IRFs using their most recently submitted cost report data.

Similarly, we proposed to estimate a national average CCR of 0.398 for urban IRFs, which we calculated by taking an average of the CCRs for all urban IRFs using their most recently submitted cost report data. We applied weights to both of these averages using the IRFs' estimated costs, meaning that the CCRs of IRFs with higher total costs factor more heavily into the averages than the CCRs of IRFs with lower total costs. For this final rule, we used the most recent available cost report data (FY 2023). This includes all IRFs whose cost reporting periods begin on or after October 1, 2022, and before October 1, 2023. If, for any IRF, the FY 2023 cost report was missing or had an “as submitted” status, we used the most recent FY for which a settled cost report was available (that is, from a FY between FY 2004 and FY 2022) for that IRF. We do not use cost report data from before FY 2004 for any IRF because changes in IRF utilization since FY 2004 resulting from the 60 percent rule and IRF medical review activities suggest that these older data do not adequately reflect the current cost of care. Using updated FY 2023 cost report data for this final rule, we estimate a national average CCR of 0.463 for rural IRFs and a national average CCR of 0.398 for urban IRFs.

In accordance with past practice, we proposed to set the national CCR ceiling at 3 standard deviations above the mean CCR. Using this method, we proposed a national CCR ceiling of 1.54 for FY 2026. This means that, if an individual IRF's CCR were to exceed this ceiling of 1.54 for FY 2026, we will replace the IRF's CCR with the appropriate proposed national average CCR (either rural or urban, depending on the geographic location of the IRF). We calculated the national CCR ceiling by:

Step 1.

Taking the national average CCR (weighted by each IRF's total costs, as previously discussed) of all IRFs for which we have sufficient cost report data (both rural and urban IRFs combined).

Step 2.

Estimating the standard deviation of the national average CCR computed in Step 1.

Step 3.

Multiplying the standard deviation of the national average CCR computed in Step 2 by a factor of 3 to compute a statistically significant reliable ceiling.

Step 4.

Adding the result from Step 3 to the national average CCR of all IRFs for which we have sufficient cost report data, from Step 1.

We also proposed that if more recent data become available after the publication of the proposed rule and before the publication of this final rule, we would use such data to determine the FY 2026 national average rural and urban CCRs and the national CCR ceiling in the proposed rule. Using the FY 2023 cost report data for this proposed rule, we estimate a national average CCR ceiling of 1.54, using the same methodology.

We invited public comments on the proposed update to the IRF CCR ceiling and the urban/rural averages for FY 2026 and did not receive any comments. Consistent with the methodology outlined in the proposed rule, and using the most recent cost report data, we are finalizing a national average urban CCR at 0.398, the national average rural CCR at 0.463, and the national average CCR ceiling at 1.54 for FY 2026.

VIII. Inpatient Rehabilitation Facility (IRF) Quality Reporting Program (QRP)

A. Background and Statutory Authority

The Inpatient Rehabilitation Facility Quality Reporting Program (IRF QRP) is authorized by section 1886(j)(7) of the Act, and it applies to freestanding IRFs, as well as inpatient rehabilitation units of hospitals or Critical Access Hospitals (CAHs) paid by Medicare under the IRF PPS. Section 1886(j)(7)(A)(i) of the Act requires the Secretary to reduce by 2 percentage points the annual increase factor for discharges occurring during a FY for any IRF that does not submit data in accordance with the IRF QRP requirements set forth in subparagraphs (C) and (F) of section 1886(j)(7) of the Act. We have codified our program requirements in our regulations at § 412.634.

In the proposed rule, we proposed to remove two quality measures: (1) the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) measure, beginning with the FY 2026 IRF QRP, and (2) the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure, beginning with the FY 2028 IRF QRP. We also proposed to remove four items previously adopted as standardized patient assessment data elements under the social determinants of health (SDOH) category beginning with the FY 2028 IRF QRP: one item for Living Situation, two items for Food, and one item for Utilities. We also proposed to amend our reconsideration policy and process.

We also sought public comment on several Requests for Information (RFIs), specifically on: (1) future measure concepts for the IRF QRP in section VII.E of the proposed rule; (2) potential revisions to the IRF-PAI as described in section VII.F of the proposed rule; (3) potential revisions to the data submission deadlines for assessment data collected for the IRF QRP as described in section VII.G of the proposed rule; (4) advancing digital quality measurement in IRFs as described in section VII.H of the proposed rule.

B. General Considerations Used for the Selection of Measures for the IRF QRP

For a detailed discussion of the considerations we use for the selection of IRF QRP quality, resource use, or other measures, we refer readers to the FY 2016 IRF PPS final rule (80 FR 47083 through 47084).

1. Quality Measures Currently Adopted for the IRF QRP

The IRF QRP currently has 17 adopted measures, which are listed in Table 8.

For a discussion of the factors, we use to evaluate whether a measure should be removed from the IRF QRP, we refer readers to our regulations at § 412.634(b)(2). We refer readers to the CY 2013 OPPS/ASC PPS final rule (77 FR 45194 and 45195) for discussion of our policy that allows any quality measure adopted for use in the IRF QRP to remain in effect until the measure is removed, suspended, or replaced, the FY 2018 IRF PPS final rule (82 FR 36276) which applied this policy to standardized patient assessment data we adopt for the IRF QRP, and the FY 2019 IRF PPS final rule (83 FR 38556 and 38557) for more information on the factors we consider for removing measures and standardized patient assessment data.

Table 8—Quality Measures Currently Adopted for the IRF QRP

Short name

Measure name & data source

Inpatient Rehabilitation Facility—Patient Assessment Instrument (IRF-PAI) Assessment-Based Measures

Pressure Ulcer/Injury

Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury.

Application of Falls

Application of Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay).

Discharge Mobility Score

IRF Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation Patients.

Discharge Self-Care Score

IRF Functional Outcome Measure: Discharge Self-Care Score for Medical Rehabilitation Patients.

DRR

Drug Regimen Review Conducted with Follow-Up for Identified Issues—Post Acute Care (PAC) Inpatient Rehabilitation Facility (IRF) Quality Reporting Program (QRP).

TOH-Provider

Transfer of Health Information to the Provider—Post-Acute Care (PAC).

TOH-Patient

Transfer of Health Information to the Patient—Post-Acute Care (PAC).

DC Function

Discharge Function Score.

Patient/Resident COVID-19 Vaccine

COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date.

National Healthcare Safety Network

CAUTI

National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection Outcome Measure.

CDI

National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset

Clostridium difficile

Infection (CDI) Outcome Measure.

HCP Influenza Vaccine

Influenza Vaccination Coverage among Healthcare Personnel.

HCP COVID-19 Vaccine

COVID-19 Vaccination Coverage among Healthcare Personnel (HCP).

Claims-Based

MSPB IRF

Medicare Spending Per Beneficiary (MSPB)—Post Acute Care (PAC) IRF QRP.

DTC

Discharge to Community—PAC IRF QRP.

PPR 30 day

Potentially Preventable 30-Day Post-Discharge Readmission Measure for IRF QRP.

PPR Within Stay

Potentially Preventable Within Stay Readmission Measure for IRFs.

C. Overview of Quality Measure Proposals

In the proposed rule, we proposed to remove two measures: (1) the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) measure, beginning with the FY 2026 IRF QRP and (2) the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure, beginning with the FY 2028 IRF QRP.

1. Removal of the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP) Measure Beginning With the FY 2026 IRF QRP

We refer readers to the FY 2022 IRF PPS final rule where we adopted the COVID-19 Vaccination Coverage among HCP measure (HCP COVID-19 measure) into the IRF QRP (86 FR 42385 through 42396) and the FY 2024 IRF PPS final rule where we modified the HCP COVID-19 measure to account for updated vaccine guidance (88 FR 50999 through 51009). To report this measure, an IRF must report data on COVID-19 vaccination coverage among HCP for at least one week each month. This requires IRFs to track current vaccination status for all employees, licensed independent practitioners, adult students/trainers and volunteers and other contract personnel and log in to the National Healthcare Safety Network (NHSN) to report the data monthly either manually in the NHSN or by uploading a CSV file (86 FR 42388). The estimated burden of collecting this information annually across all 1,166 IRFs is 13,992 hours at a cost of $503,991.84. We refer readers to section VIII.A.1. of this final rule for more details on this estimated burden calculation.

We proposed to remove the HCP COVID-19 measure beginning with the FY 2026 IRF QRP under removal Factor 8, the costs associated with a measure outweigh the benefit of its continued use in the program (§ 412.634(b)(2)(viii)). When we first adopted the HCP COVID-19 measure, the United States was in the midst of a Public Health Emergency (PHE) with millions of cases and over 550,000 COVID-19 deaths (86 FR 42385 and 42386). While preventing the spread of COVID-19 remains a public health goal, the PHE ended on May 11, 2023.

In March 2021, when this measure was being proposed, the United States was averaging over 5,000 deaths per week. In April 2023, the last full month of the PHE, weekly number of deaths due to COVID-19 averaged around 1,300.

With the end of the PHE and the decrease in COVID-19 deaths, we expect the continued costs and burden to providers of tracking and monthly reporting on this measure to outweigh the benefit of continued information collection on COVID-19 vaccination coverage among HCP in IRFs.

https://www.hhs.gov/coronavirus/covid-19-public-health-emergency/index.html.

Provisional COVID-19 Deaths, by Week, in The United States, Reported to CDC. Accessed on March 27, 2025, via

https://covid.cdc.gov/covid-data-tracker/#trends_weeklydeaths_select_00.

If finalized, IRFs that did not report their CY 2024 reporting period data for the HCP COVID-19 measure would still be considered compliant with the IRF QRP for purposes of their FY 2026 payment determination (that is, IRFs that do not report CY 2024 HCP COVID-19 vaccination data would not be penalized for FY 2026 payments). Any HCP COVID-19 Vaccination measure data received by CMS would not be used for payment determination.

We invited public comment on our proposal to remove the COVID-19 Vaccination Coverage among HCP measure from the IRF QRP beginning with the FY 2026 IRF QRP. The following is a summary of the public comments received and our responses:

Comment:

Many commenters supported the removal of the COVID-19 Vaccination Coverage among HCP measure, agreeing that the burden required to collect this measure outweighs the benefits. Several commenters cited the end of the Public Health Emergency and changes to vaccination and booster recommendations in their support. A few commenters stated that the availability of vaccines, improved treatments, and declining rates of severe

illness have reduced the need for reporting of HCP vaccination rates.

A few commenters stated that confusion about the “up to date” definition led to inaccurate reporting and increased administrative tracking and noted that the requirements were not consistent with federal and state mandates. These commenters also cited concerns about the measure's consideration of medical contraindications and religious beliefs. Another commenter stated that the measure has been administratively challenging, and that the inclusion of non-employees created difficulties for providers.

Response:

We thank these commenters for their support and feedback about the measure. We agree that the costs associated with a measure outweigh the benefit of its continued use in the program, given the end of the PHE.

Comment:

One commenter was opposed to removing the measure, recommending that CMS retain one of the COVID-19 vaccine measures to ensure public health surveillance for vulnerable populations.

Response:

We appreciate the commenter's concerns for the IRF population. However, we note that since the end of the PHE there has been an increase in the availability of treatments, including antiviral medications used to treat mild to moderate COVID-19 infections in vulnerable populations.

Since the number of COVID-19 cases and deaths is declining, and the availability of treatments has increased, we believe the threat to vulnerable populations, such as IRF patients, is also reduced. On these bases, we believe the continued costs and burden to providers of reporting this measure outweigh the benefit of continued information collection on COVID-19 vaccination coverage among HCP in IRFs.

COVID-19 Treatment Options,

https://www.cdc.gov/covid/treatment/index.html.

After consideration of the public comments, we are finalizing our proposal to remove the COVID-19 Vaccination Coverage among HCP measure from the IRF QRP beginning with the FY 2026 IRF QRP.

2. Removal of the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date Measure Beginning With the FY 2028 IRF QRP

We refer readers to the FY 2024 IRF PPS final rule where we adopted the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date (Patient/Resident COVID-19 Vaccine) measure into the IRF QRP (88 FR 51026 through 51035). In the FY 2026 IRF PPS proposed rule (90 FR 18550), we proposed to remove the Patient/Resident COVID-19 Vaccine measure beginning with the FY 2028 IRF QRP under removal Factor 8, the costs associated with a measure outweigh the benefit of its continued use in the program (§ 412.634(b)(2)(viii)). The estimated burden of collecting this information annually across all 1,166 IRFs is 3,111.5 hours at a cost of $218,116.15. We refer readers to section IX.A.2. of this final rule for more details on this estimated burden reduction.

When we adopted the Patient/Resident COVID-19 Vaccine measure, COVID-19 continued to be a major challenge for IRFs, with older adults at a significantly higher risk of mortality, severe disease, and death following infection (88 FR 51026).

IRFs have expressed concerns about data collection challenges and increased provider burden in collecting patient immunization data.

This is especially true considering the shorter length of stay for IRF patients compared to other post-acute settings. While preventing the spread of COVID-19 remains a public health goal, the number of COVID-19 cases and deaths

is declining, and we believe the continued costs and burden to providers of reporting this measure outweigh the benefit of continued information collection on COVID-19 vaccination coverage among patients in IRFs.

Standing Technical Expert Panel for the Development, Evaluation, and Maintenance of Post-Acute Care (PAC) and Hospice Quality Reporting Program (QRP) Measurement Sets Summary Report December 15, 2023.

https://www.cms.gov/files/document/december-2023-pac-and-hospice-cross-setting-tep-summary-report.pdf-1.

Provisional COVID-19 Deaths, by Week, in The United States, Reported to CDC. Accessed on March 18, 2025, via

https://covid.cdc.gov/covid-data-tracker/#trends_weeklydeaths_select_00.

We proposed that, beginning with patients discharged on or after October 1, 2025, IRFs would not be required to collect and submit the Patient/Resident COVID-19 Vaccine measure data to CMS. We proposed to remove the Patient/Resident COVID-19 Vaccine data item (O0350) from the IRF-PAI effective October 1, 2026, since it is not technically feasible to remove this item earlier. However, under our proposal, this item will become voluntary and IRFs would not be required to collect and submit Patient/Resident COVID-19 Vaccine data beginning with patients discharged on or after October 1, 2025.

We invited public comment on our proposal to remove the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure from the IRF QRP beginning with the FY 2028 IRF QRP.

The following is a summary of the public comments received on our proposed update to remove the COVID-19 Vaccine:

Comment:

We received many comments in support of the proposal to remove the Patient/Resident COVID-19 Vaccine measure, agreeing that the administrative burden required to collect this measure outweighs the benefits. Several commenters noted the end of the Public Health Emergency and changes to vaccination and booster recommendations in their support for removing the measure. A few commenters noted that IRF patients are medically complex and appreciated the flexibility to determine how to support infection control among their patients. A few commenters stated that COVID-19 vaccination is driven by primary and acute care providers and was not appropriate for the IRF setting. One commenter asserted that this measure did not have any benefit to the public or Medicare program. A few commenters noted the difficulty of collecting accurate patient vaccination status. A few commenters supported removal, citing issues with the measure response options, including the definition of “up to date” and the lack of an option to indicate patient refusal or exclusion for medical contraindications or religious beliefs. These commenters also noted that some IRFs are not able to provide the vaccine to patients and also noted that vaccine side effects may impede patients from participating in therapy.

Response:

We thank commenters for their support. We acknowledge commenters' difficulty with assessing patient's vaccination status in the IRF, given that the IRF length of stay is shorter compared to other post-acute care settings. We agree that the costs associated with this measure, including the resources spent by IRF staff in trying to ascertain patients' vaccination status, outweigh the benefit of its continued use in the program, given the end of the PHE, the decrease in COVID cases as well as the availability of treatments.

Comment:

We received a few comments that were supportive of the measure removal, but requested an earlier timeframe, citing data collection burden. These commenters requested that CMS not penalize IRFs for failing to report data for the Patient/Resident COVID-19 Vaccine measure for CY 2024 and January through September 2025. Another commenter requested that the Patient/Resident Vaccine item be removed from the IRF-PAI on October

1, 2025, to avoid confusion and workflow delays.

Response:

IRFs have been required to report this measure on the IRF-PAI since October 1, 2024. According to internal CMS analysis of IRF-PAI data, IRFs have a data submission rate of approximately 99 percent with regard to the required IRF QRP data elements on the IRF PAI. We do not anticipate a substantial number of IRFs to be non-compliant with FY 2026 IRF QRP due to non-submission of this measure for CY 2024 quarter 4. We are consistently monitoring these data as they are submitted for trends that may indicate barriers to data submission and will continue to do so as we conclude the FY 2026 IRF QRP program year.

Regarding the suggestion to remove the item from the IRF-PAI on October 1, 2025, it is not operationally feasible to remove this measure from the IRF-PAI, since CMS, IRFs and vendors need more time to prepare for an update to the item set and data specifications. Instead, we proposed, and are finalizing, that reporting the data on this measure using the IRF-PAI will be optional beginning October 1, 2025. Because data collected in Q4 of 2025 (October 1, 2025-December 31, 2025) are used in determining the minimum data completion threshold for the FY 2027 IRF QRP determination, we intend to provide updates to the website to indicate that the Patient/Resident COVID-19 Vaccine data item (O0350) is optional for the final quarter of the data collection period for the FY 2027 Annual Increase Factor Determination (that is, Q4 of 2025) and we will not penalize IRFs who select not complete this item during Q4 of 2025. The item will be optional until it can be removed from the IRF-PAI with the next iteration of the IRF-PAI scheduled for release October 1, 2026.

Comment:

One commenter was opposed to removing the measure, recommending that CMS retain one of the COVID-19 vaccine measures to ensure public health surveillance for vulnerable populations.

Response:

We appreciate the commenter's concerns for the IRF population. However, we wish to clarify that this measure did not provide surveillance data about COVID-19 cases among IRF patients; rather it assessed whether patients in submitting IRFs were up to date in their COVID-19 vaccinations. Removing this measure will not impact the public health surveillance of COVID-19. We also note that since the end of the PHE, there has been an increase in the availability of treatments, including antiviral medications used to treat mild to moderate COVID-19 in vulnerable populations.

As we stated in the proposed rule, because the number of COVID-19 cases and deaths is declining and the availability of treatments has increased, we believe the threat to vulnerable populations, such as IRF patients, is also reduced. On these bases, we believe the continued costs and burden to providers of reporting this measure outweigh the benefit of continued information collection on COVID-19 vaccination coverage among patients in IRFs.

COVID-19 Treatment Options,

https://www.cdc.gov/covid/treatment/index.html.

After consideration of the public comments, we are finalizing our proposal to remove the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure from the IRF QRP beginning with the FY 2028 IRF QRP. Beginning with patients discharged on or after October 1, 2025, IRFs would not be required to collect and submit the Patient/Resident COVID-19 Vaccine measure data to CMS, and IRFs who do not report this data for Q4 of 2025 will not be penalized for the FY 2027 Annual Increase Factor Determination.

D. Removal of Four Standardized Patient Assessment Data Elements Beginning With the FY 2028 IRF QRP

We refer readers to the FY 2025 IRF PPS final rule (89 FR 64310 through 64322) where we finalized the adoption of four items as standardized patient assessment data elements under the SDOH category from the IRF-PAI: one item for Living Situation (R0310); two items for Food (R0320A and R0320B); and one item for Utilities (R0330). As finalized in the FY 2025 IRF PPS final rule, IRFs would be required to report these data elements using the IRF-PAI beginning with patients discharged on or after October 1, 2026 through December 31, 2026 for purposes of the FY 2028 IRF QRP and each program year after (89 FR 64326 through 64327).

In the proposed rule, we proposed to remove these four standardized patient assessment data elements under the SDOH category from the IRF-PAI as we acknowledge the burden associated with these items at this time. We continuously look for ways to balance the need for data collections regarding quality care and the burden that such data collections may have on healthcare providers. One goal we have is to facilitate improved healthcare delivery by requiring different systems and software applications to communicate and exchange data. Therefore, we would like to work towards the workflow for these specific data elements being part of a low burden interoperable electronic system. The focus will turn towards how these data and associated recommendations can improve care coordination, efficiency, reduction in errors and patient experience. As health information technology (IT) advances and interoperability of data becomes more standardized, the burden to collect and share clinical data on these and other relevant patient information will become less burdensome, allowing for better outcomes for IRF patients and their families. The objectives of the IRF QRP continue to be the improvement of care, quality and health outcomes for all patients through transparency and quality measurement, while not imposing undue burden on essential health providers. We proposed that IRFs would not be required to collect and submit Living Situation (R0310), Food (R0320A and R0320B), and Utilities (R0330) items using the IRF-PAI beginning with the patients discharged on or after October 1, 2026, removing the required collection and reporting of these items that we previously finalized. We also proposed that collecting these items would not be required to meet the IRF QRP requirements to avoid a 2 percent payment reduction beginning with the FY 2028 IRF QRP.

In the proposed rule, we calculated that removing these items from the data collection for the FY 2028 IRF QRP would keep the 1,166 IRFs from incurring 12,446 hours of administrative burden at a cost of $872,464.60 (or $748.25 per IRF) at this time (90 FR 18557 and 18558). We refer readers to section IX.A.3. of this final rule for more details on this estimated burden reduction.

We invited public comments on our proposal to remove four standardized patient assessment data elements collected under the SDOH category from the IRF QRP beginning with the FY 2028 IRF QRP.

The following is a summary of the public comments received on our proposal to remove these four standardized patient assessment data elements.

Comment:

Many commenters supported the proposed removal of the four SDOH assessment data elements, citing that these added complexity and administrative burden to the patient assessment process. A few commenters expressed concerns about how these data elements can be time-consuming to collect and detract from direct patient care. Several commenters acknowledged that CMS must work towards a balance of provider burden and data collection efforts for quality, ensuring data adds

value to its program and advances health care.

Many commenters in support of removing the four SDOH data elements noted that these SDOH data are important to patient outcomes and continue to be a priority among IRFs. They stated, however, this information is already part of the best practices for discharge planning, used for uncovering barriers to a safe transition and preventing readmissions. Several of these commenters believed that most IRFs already collect these elements and signaled they will continue to do so as they find it beneficial to their patient population, if they need it to meet accreditation standards, such as The Joint Commission, and for internal quality improvement efforts and population health initiatives. By removing the four SDOH data elements from the IRF QRP, this commenter asserted that we are preserving flexibility in IRFs addressing risk factors in ways that are more clinically relevant.

Response:

We thank commenters for their support. We continue to monitor the IRF QRP data collection requirements to look for ways to reduce the administrative burden where appropriate while maintaining a high standard of quality care. We agree that removing these particular items at this time will alleviate some of the burden on providers associated with IRF QRP data collection and submission. We intend to align the IRF QRP more closely with CMS's overarching goal for improved healthcare delivery through health IT advances and less burdensome interoperable electronic systems. As we stated in the proposed rule (90 FR 18534), we plan to refocus efforts on how data elements can improve care coordination, efficiency, reduction in errors, and patient experience.

Additionally, we acknowledge that many IRF providers have already been tracking SDOH. We agree that collecting this information is beneficial for IRFs regardless of the requirements of the IRF QRP, as it facilitates discharge planning and contributes to quality improvement as well as accreditation efforts.

Comment:

A few commenters support removal of the four SDOH data elements from the IRF-PAI because they are not currently used in any quality measures or risk adjustment models, or being utilized by CMS in an actionable way, and their collection is therefore an unnecessary burden on IRFs participating in the QRP. A few other commenters stated there was no clear evidence that collecting these items has led to measurable improvements in care transitions or outcomes in the IRF setting.

Response:

Regarding the comments stating that the data elements have not been utilized by CMS in an actionable way, we wish to clarify that IRFs have not begun any data collection on the SDOH data elements for the IRF QRP. While we finalized the adoption of the four SDOH data elements in the FY 2025 IRF PPS final rule, IRFs would have been required to report these data elements using the IRF-PAI beginning with patients discharged on or after October 1, 2026 (89 FR 64326 through 64327).

Regarding comments about evidence for measurable improvements in case transitions or outcomes in the IRF setting, while we are not aware of evidence in the IRF setting at this time, we will continue to monitor this topic as we consider future data elements in the IRF QRP. In response to the comments about the SDOH data elements not being used in quality measures or for risk adjustment, we note that the IRF QRP requires data collections that are not strictly limited to quality measures or risk adjustment. Section 1886(j)(7)(F)(ii) of the Act requires IRFs to submit standardized patient assessment data required under section 1899B(b)(1) of the Act.

Comment:

Many commenters were opposed to CMS's proposal to remove the four SDOH data elements from the IRF-PAI and urged CMS to reconsider the proposal. These commenters believe that this data adds value to IRFs, citing existing literature on how SDOH improves health outcomes and how this information facilitates discharge planning by providing a proactive approach to risks and earlier intervention. The commenters felt that clinical care provided by the IRF can be undermined when basic needs are not met. A few commenters noted that these items can help reduce healthcare costs by allowing IRFs to address these factors as part of a comprehensive and preventative approach to care. Other commenters stated the SDOH data elements were particularly important in caring for patie

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