# Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2027 Rates; Requirements for Quality Programs; Other Policy Changes; and Adoption of Updated Versions of Certain Health Information Technology Standards > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2026-15833 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** August 4, 2026 - **Citation:** 91 FR 49570 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 405, 412, 413, 415, 419, 495, and 512 Office of the Secretary 45 CFR Part 170 [CMS-1849-F and CMS-0062-F] RINs 0938-AV79 and 0938-AV44 Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2027 Rates; Requirements for Quality Programs; Other Policy Changes; and Adoption of Updated Versions of Certain Health Information Technology Standards AGENCY: Centers for Medicare & Medicaid Services (CMS) and Office of the National Coordinator for Health Information Technology (ONC), Department of Health and Human Services (HHS). ACTION: Final rule. SUMMARY: This final rule will revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs); update and make changes to requirements for certain quality programs; and make other policy-related changes. ONC also adopts certain health information technology (health IT) standards and specifications on behalf of HHS. DATES: These regulations are effective on October 1, 2026. The incorporation by reference of certain material listed in this rule is approved by the Director of the Federal Register as of October 1, 2026. The incorporation of reference of certain other material listed in the rule was approved by the Director of the Federal Register as of October 1, 2025. FOR FURTHER INFORMATION CONTACT: Donald Thompson, and Michele Hudson, (410) 786-4487 or DAC@cms.hhs.gov, Operating Prospective Payment, MS-DRG Relative Weights, Wage Index, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH) Payment Adjustment, Sole Community Hospitals (SCHs), Medicare-Dependent Small Rural Hospital (MDH) Program, and Low-Volume Hospital Payment Adjustment. Emily Lipkin, Jim Mildenberger and Michael Raftery, DAC@cms.hhs.gov, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues. Lily Yuan, NTAP@cms.hhs.gov, New Technology Add-On Payments Issues. Mady Hue, marilu.hue@cms.hhs.gov, and Andrea Hazeley, andrea.hazeley@cms.hhs.gov, MS-DRG Classifications Issues. David O'Reilly, David.Oreilly@cms.hhs.gov, Rural Community Hospital Demonstration Program Issues. Jeris Smith, jeris.smith@cms.hhs.gov, Frontier Community Health Integration Project (FCHIP) Demonstration Issues. Lang Le, lang.le@cms.hhs.gov, Hospital Readmissions Reduction Program and Hospital Acquired Condition Reduction Program—Administration Issues. Ngozi Uzokwe, ngozi.uzokwe@cms.hhs.gov, Hospital Acquired Condition Reduction Program and Hospital Readmissions Reduction Program—Measures Issues. Julia Venanzi, julia.venanzi@cms.hhs.gov, Hospital Inpatient Quality Reporting Program and Hospital Value-Based Purchasing Program—Administration Issues. Melissa Hager, melissa.hager@cms.hhs.gov, and Ngozi Uzokwe, ngozi.uzokwe@cms.hhs.gov —Hospital Inpatient Quality Reporting Program and Hospital Value-Based Purchasing Program—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues. John Green, john.green1@cms.hhs.gov, PPS-Exempt Cancer Hospital Quality Reporting Program—Administration Issues. Kristina Rabarison, Kristina.Rabarison@cms.hhs.gov, PPS-Exempt Cancer Hospital Quality Reporting Program—Measure Issues. Ariel Cress, ltchqualityquestions@cms.hhs.gov, Long-Term Care Hospital Quality Reporting Program—Administration Issues. Jessica Warren, jessica.warren@cms.hhs.gov, and Lisa Marie Gomez, LisaMarie.Gomez1@cms.hhs.gov, Medicare Promoting Interoperability Program Issues. CMMI_TEAM@cms.hhs.gov, Transforming Episode Accountability Model (TEAM) Issues. CJR-X@cms.hhs.gov, Comprehensive Care for Joint Replacement Expanded (CJR-X) Model Issues. Katherine McDonald, katherine.mcdonald@cms.hhs.gov, Amanda Michael, amanda.michael@cms.hhs.gov, and Kellie Shannon, kellie.shannon@cms.hhs.gov, Organ Acquisition Payment, Reasonable Cost Payment, and Appeals for Independent Organ Procurement Organizations (IOPOs) and Histocompatibility Laboratories (HCLs) Issues. Alexander Baker, (202) 260-2048, for ONC Health Information Technology Standards and Specifications Issues. SUPPLEMENTARY INFORMATION: Tables Available on the CMS Website The IPPS tables for this fiscal year (FY) 2027 final rule are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen titled “FY 2027 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2027 final rule are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation Number CMS-1849-F. For further details on the contents of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this FY 2027 IPPS/LTCH PPS final rule. Readers who experience any problems accessing any of the tables that are posted on the CMS websites, as previously identified, should contact Michael Treitel, DAC@cms.hhs.gov. I. Executive Summary and Background A. Executive Summary 1. Purpose and Legal Authority This FY 2027 IPPS/LTCH PPS final rule will make payment and policy changes under the Medicare inpatient prospective payment system (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it will make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This final rule also will make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. We are also making changes relating to Medicare graduate medical education (GME) and nursing and allied health (NAH) education payments. We are finalizing the adoption of the Advance Care Planning electronic clinical quality measure (eCQM) in the Hospital Inpatient Quality Reporting and Medicare Promoting Interoperability Programs and finalizing the adoption of the Advance Care Planning eCQM, with a modification, in the PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program. We are finalizing the proposal to adopt five modified claims-based, risk-standardized mortality measures in the Hospital Inpatient Quality Reporting Program as a step towards subsequently modifying these measures in the Hospital Value-Based Purchasing Program. Other than these cross-program proposals, we did not propose any updates for the Hospital Value-Based Purchasing Program or the Hospital Acquired-Conditions Reduction Program. In the Hospital Readmissions Reduction Program, we are finalizing the adoption of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure with modifications. In addition to the cross-program proposals previously listed, in the Hospital Inpatient Quality Reporting Program, we are finalizing the adoption of two new quality measures, removal of three measures, and modification of three current measures. We are also finalizing modifications of data reporting and submission requirements for electronic clinical quality measures (eCQMs) and the Maternal Morbidity structural measure. In addition to the cross-program proposal previously listed in the PCH Quality Reporting Program, we are finalizing the adoption of an additional new measure, with a modification, and finalizing the removal of one measure. We are also finalizing the adoption of data reporting and submission requirements for eCQMs. In addition to the cross-program proposal previously listed, in the Medicare Promoting Interoperability Program, we are finalizing the removal of two measures and two attestations; adoption of a measure; modification of one measure; adoption of one additional eCQM in alignment with the Hospital Inpatient Quality Reporting Program; and removal of three eCQMs in alignment with the Hospital Inpatient Quality Reporting Program. In the LTCH Quality Reporting Program (QRP), we are finalizing removal of two measures, beginning with the FY 2028 LTCH QRP. We also finalize a revision of the LTCH QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. Finally, we summarize public comments received on one Request for Information (RFI) on future measure concepts for the LTCH QRP. The Transforming Episode Accountability Model (TEAM), a mandatory alternative payment model that was finalized in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), aims to improve beneficiary care through financial accountability for episodes categories that begin with one of the following procedures: coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM tests whether financial accountability for these episode categories reduces Medicare expenditures while preserving or enhancing the quality of care for Medicare beneficiaries. In this final rule, we are finalizing updates to TEAM that will modify policies affecting episode category triggers, quality measure assessment, and the construction of target prices. We also discuss the public comments received from a Request for Information (RFI) about voluntary opt-in opportunity for hospitals with physician ownership (POHs) and our policy intent for future rulemaking. The Comprehensive Care for Joint Replacement CJR Expanded (CJR-X) Model builds upon the CJR Model test that ran from April 1, 2016 to December 31, 2024. Based on the strength of evidence from the CJR Model, the CMS Innovation Center is expanding the model nationally, including U.S. Territories starting January 1, 2028. The model will focus on improving care and reducing spending for Medicare beneficiaries undergoing lower extremity joint replacement (LEJR) procedures. Participating hospitals will be held accountable for spending and quality of care during an inpatient stay or hospital outpatient procedure and for the 90 days following hospital discharge. The CJR-X Model will be mandatory for acute care hospitals, except for those participating in TEAM, and acute care hospitals located in Maryland. CJR-X includes some modifications to the CJR Model. Some quality measures and payment methodology policies have been updated in response to CJR Model evaluation results, stakeholder feedback, and changes to national care delivery patterns among both CJR and non-CJR hospitals. Under various statutory authorities, we either discuss continued program implementation or changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2027 and subsequent fiscal years, and other policies and provisions included in this final rule. These statutory authorities include, but are not limited to, the following: • Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS). • Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. • Sections 123(a) and (c) of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1) of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of LTCHs described in section 1886(d)(1)(B)(iv) of the Act. • Section 1814(l)(4) of the Act requires, beginning with FY 2015, that CAHs that do not successfully demonstrate meaningful use of certified electronic health record technology (CEHRT) for an EHR reporting period for a cost reporting period shall be paid 100 percent of reasonable costs rather than 101 percent of reasonable costs. • Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. Hospitals paid under the IPPS with approved GME programs are paid for the indirect costs of training residents in accordance with section 1886(d)(5)(B) of the Act. • Section 1886(d)(5)(F) of the Act provides for additional Medicare IPPS payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients (DSH hospitals, or DSH-eligible hospitals). These payments are known as the Medicare disproportionate share hospital (DSH) adjustment, or DSH payment. Section 1886(d)(5)(F) of the Act specifies the methods under which a hospital may qualify for the DSH payment. • Section 1886(r) of the Act, as added by section 3133 of the Affordable Care Act, provides for a reduction to DSH payments under section 1886(d)(5)(F) of the Act and for an additional uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act if subsection (r) did not apply (“the empirically justified amount”); and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus the percent change in the percent of individuals who are uninsured; and (3) the hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage. • Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2027. • Section 1899B of the Act, which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs. • Section 1886(b)(3)(B)(viii) of the Act, which establishes the Hospital Inpatient Quality Reporting Program, requires the Secretary to reduce the applicable percentage increase that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary. • Section 1886(b)(3)(B)(ix) of the Act, which establishes payment adjustments under the Medicare Promoting Interoperability Program by requiring downward adjustments to the applicable percentage increase, beginning with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico hospitals), for eligible hospitals that do not successfully demonstrate meaningful use of CEHRT for an EHR reporting period for a payment adjustment year. Additionally, Section 1886(n) of the Act establishes the requirements for an eligible hospital to be treated as a meaningful EHR user of CEHRT for an EHR reporting period for a payment adjustment year or, for purposes of subsection (b)(3)(B)(ix) of the Act, for a fiscal year. • Section 1866(k) of the Act, which provides for the establishment of a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as “PPS-exempt cancer hospitals.” • Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program, under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. • Section 1886(p) of the Act, which establishes a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions. • Section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to account for certain excess readmissions. Section 15002 of the 21st Century Cures Act directs the Secretary to assess a hospital's performance relative to other hospitals with a similar proportion of beneficiaries who are dually eligible for both Medicare and full Medicaid benefits. • Section 1886(m)(5) of the Act, which requires the Secretary to reduce by 2 percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data on quality measures in the form, manner, and at a time, specified by the Secretary. • Section 1115A of the Act authorizes the testing of innovative payment and service delivery models that preserve or enhance the quality of care furnished to Medicare, Medicaid, and Children's Health Insurance Program (CHIP) beneficiaries while reducing program expenditures. 2. Summary of the Major Provisions The following is a summary of the major provisions in this final rule. In general, these major provisions are being finalized as part of the annual update to the payment policies and payment rates, consistent with the applicable statutory provisions. A general summary of the changes in this final rule is presented in section I.D. of the preamble of this final rule. a. Requirements To Prohibit Unlawful Discrimination by Graduate Medical Education Programs and Nursing and Allied Health Education Programs In section V.F.2. of the preamble of this final rule, we discuss our finalized proposal to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. In V.G.3. of the preamble of this final rule, we discuss similar policies with respect to approved nursing and allied health education programs and accreditors. b. Modifications to the Criteria for New Residency Programs In section V.F.3. of the preamble of this final rule, we discuss our modifications to the criteria for identifying new residency programs under 42 CFR 413.79(l). Under this policy, in addition to receiving initial accreditation by the appropriate accrediting body, for a residency program to be considered new, at least 90 percent of the individual residents must not have previous experience training in another program in the same specialty. This requirement includes exceptions for small residency programs, displaced residents, and residents admitted via a binding third-party matching program. In determining whether a program is genuinely new for cap-building purposes, we will also no longer consider the previous employment of the program director or faculty. c. Hospital Readmissions Reduction Program (HRRP) In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing the adoption of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure with modifications beginning with 2 years of early look reports for the FY 2028 and FY 2029 program years, and use beginning with the FY 2030 program year. d. Hospital Value-Based Purchasing (VBP) Program In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing modifications to five condition-specific and procedure-specific mortality measures beginning with the FY 2032 program year: (1) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization measure; (2) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery measure. We sought comments on two topics: (1) measuring emergency room access and timeliness in the Hospital Inpatient Quality Reporting and Value-Based Purchasing Programs; and (2) potential future use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure in the Hospital Inpatient Quality Reporting Program. e. Hospital Inpatient Quality Reporting Program In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing several changes to the Hospital Inpatient Quality Reporting Program. We are finalizing the adoption of three new measures: (1) Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination; (2) Advance Care Planning eCQM beginning with the FY 2030 payment determination; and (3) Hospital Harm-Postoperative Venous Thromboembolism eCQM beginning with the FY 2030 payment determination. We are also finalizing the adoption of five modified mortality measures in the Hospital Inpatient Quality Reporting Program beginning with the FY 2028 payment determination before subsequently modifying them in the Hospital Value-Based Purchasing Program: (1) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following AMI Hospitalization measure; (2) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following COPD Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following CABG Surgery measure. We are finalizing modifications to three claims-based measures beginning with the FY 2028 payment determination: (1) Excess Days in Acute Care after Hospitalization for AMI; (2) Excess Days in Acute Care after Hospitalization for Heart Failure; and (3) Excess Days in Acute Care after Hospitalization for Pneumonia. We are finalizing the removal of three measures beginning with the FY 2030 payment determination: (1) Venous Thromboembolism Prophylaxis (VTE-1) eCQM; (2) Intensive Care Unit Venous Thromboembolism Prophylaxis (VTE-2) eCQM; and (3) Discharged on Antithrombotic Therapy (STK-02) eCQM. We are finalizing changes to data reporting and submission requirements for eCQMs and structural measures: (1) mandatory reporting for the Malnutrition Care Score eCQM beginning with the FY 2030 payment determination; (2) mandatory reporting for the Hospital Harm eCQMs after 2 years of self-selected reporting beginning with the FY 2030 payment determination with modifications; and (3) an update to the reporting of the Maternal Morbidity Structural measure beginning with the FY 2028 payment determination. We sought comments on three topics: (1) measuring emergency room access and timeliness in the Hospital Inpatient Quality Reporting and Value-Based Purchasing Programs; (2) potential future use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure in the Hospital Inpatient Quality Reporting Program; and (3) Birthing-Friendly Hospital designation modification to expand designation criteria. f. PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program In this FY 2027 IPPS/LTCH PPS final rule, we are finalizing the adoption of two new measures with modifications: (1) Advance Care Planning eCQM beginning with the FY 2030 program year; and (2) Malnutrition Care Score eCQM beginning with the FY 2030 program year. We are also finalizing the removal of the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP COVID-19 Vaccination) measure beginning with the FY 2028 program year. In addition, we finalized the establishment of reporting and submission requirements for eCQMs in this program. g. Long-Term Care Hospital Quality Reporting Program (LTCH QRP) In the LTCH QRP, we finalize removal of two measures, beginning with the FY 2028 LTCH QRP. We also finalize the revision of the LTCH QRP Data Submission Deadlines beginning with the FY 2029 LTCH QRP. We also summarize public comments received on one Request for Information (RFI) on future measure concepts for the LTCH QRP. h. Medicare Promoting Interoperability Program We are finalizing several changes to the Medicare Promoting Interoperability Program. Specifically, we are finalizing: (1) revisions to the definition of certified EHR technology (CEHRT) for the Medicare Promoting Interoperability Program based on Office of the National Coordinator for Health Information Technology (ONC) proposals to update the ONC Health IT Certification Program; (2) removal of attestations related to ONC Direct Review and ONC-Authorized Certification Body (ONC-ACB) Surveillance; (3) removal of the Support Electronic Referral Loops by Sending Health Information measure and the Support Electronic Referral Loops by Receiving and Reconciling Health Information measure; (4) modification of the Electronic Prior Authorization measure; (5) adoption of the Unique Device Identifiers (UDIs) for Implantable Medical Devices measure within the Public Health and Clinical Data Exchange objective; (6) adoption of two new eCQMs in alignment with the Hospital Inpatient Quality Reporting Program; and (7) removal of three eCQMs in alignment with the Hospital Inpatient Quality Reporting Program. i. Transforming Episode Accountability Model (TEAM) In section X.A. of the preamble of this final rule, we discuss the changes we are finalizing for the Transforming Episode Accountability Model (TEAM). TEAM is a 5-year mandatory model tested under the authority of section 1115A of the Act, that started on January 1, 2026, and will end on December 31, 2030. We are finalizing changes to a few areas of the model, including: (1) adding 3 Medicare Severity Diagnosis Related Groups (MS-DRGs) that would initiate a spinal fusion anchor hospitalization; (2) clarifying quality measure performance periods for certain quality measures; (3) using a rolling concurrent Composite Quality Score (CQS) baseline period for certain quality measures; (4) adding an Ambulatory Payment Classification (APC) and MS-DRG update factor to target prices; and (5) using the full baseline period to construct the prospective normalization factor. We also discuss the public comments received from a RFI about voluntary opt-in opportunity for hospitals with physician ownership (POHs) and our policy intent for future rulemaking. j. Comprehensive Care for Joint Replacement Expanded (CJR-X) Model In section X.C. of the preamble of this final rule, we are finalizing expansion of the CJR Model. The CJR-X Model will be a mandatory model that will be tested under the authority of section 1115A of the Act, beginning on January 1, 2028 for acute care hospitals paid under the IPPS and OPPS with limited exclusions. Participating hospitals will be accountable for the cost and quality of care for LEJR episodes from the hospital inpatient or hospital outpatient admission through 90 days after the beneficiary is discharged from the hospital or hospital outpatient procedure. We are finalizing multiple policies for CJR-X, including: (1) a January 1, 2028 start date; (2) acute care hospitals as the participant and accountable entity; (3) LEJR as the episode of care; (4) five quality measures and a composite quality score (CQS) to assess quality performance; (5) regional risk-adjusted target prices that include capped normalization and trend factors; (6) pricing-specific policies for certain hospitals, such as low volume hospitals and safety net hospitals; (7) provider and beneficiary overlap permitted with most models; (8) allowing participant hospitals to have financial arrangements; (9) waiving certain Medicare Program requirements; (10) permitting beneficiary-identifiable and regional aggregated data sharing; and (11) options for Alternative Payment Model (APM) participation. 3. Summary of Costs and Benefits The following table provides a summary of the costs, savings, and benefits associated with the major provisions described in section I.A.2. of the preamble of this final rule. BILLING CODE 4169-69-P ER04AU26.023 BILLING CODE 4169-69-C B. Background Summary 1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) Section 1886(d) of the Act sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these “subsection (d) hospitals.” Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs). The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment (COLA) factor. This base payment rate is multiplied by the DRG relative weight. If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, the disproportionate share hospital (DSH) adjustment discussed earlier in this section, provides for a percentage increase in Medicare payments. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations. The Affordable Care Act revised the Medicare DSH payment methodology and provides for an additional Medicare payment beginning on October 1, 2013, that considers the amount of uncompensated care furnished by the hospital relative to all other qualifying hospitals. Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. In general, to qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. In addition, certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add-on payment, they would be inadequately paid under the regular DRG payment. The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments and, beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the new supplemental payment. Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. SCHs are the sole source of care in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as an isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. With the recent enactment of section 6202 of the Consolidated Appropriations Act (CAA), 2026 (Pub. L. 119-75), under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through December 31, 2026. For discharges occurring on or after October 1, 2007, but before January 1, 2027, an MDH receives the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major source of care for Medicare beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). As section 6202 of the CAA, 2026 extended the MDH program through December 31, 2026, beginning on January 1, 2027, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond December 31, 2026, beginning January 1, 2027, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services in accordance with a prospective payment system established by the Secretary. The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs. The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M. 2. Hospitals and Hospital Units Excluded From the IPPS Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Inpatient rehabilitation facility (IRF) hospitals and units; long-term care hospitals (LTCHs); Inpatient psychiatric hospitals (IPF) and units; children's hospitals; cancer hospitals; extended neoplastic disease care hospitals, and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for IRF hospitals and units, LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are included along with the IPPS annual update in this document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa), and RNHCIs continue to be paid solely under a reasonable cost-based system, subject to a rate-of-increase ceiling on inpatient operating costs. Similarly, extended neoplastic disease care hospitals are paid on a reasonable cost basis, subject to a rate-of-increase ceiling on inpatient operating costs. The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413. 3. Long-Term Care Hospital Prospective Payment System (LTCH PPS) The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123 of the BBRA and section 307(b) of the BIPA (as codified under section 1886(m)(1) of the Act). Section 1206(a) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) established the site neutral payment rate under the LTCH PPS, which made the LTCH PPS a dual rate payment system beginning in FY 2016. Under this statute, effective for LTCH's cost reporting periods beginning in FY 2016 cost reporting period, LTCHs are generally paid for discharges at the site neutral payment rate unless the discharge meets the patient criteria for payment at the LTCH PPS standard Federal payment rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O. Beginning October 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS. 4. Critical Access Hospitals (CAHs) Under sections 1814(l), 1820, and 1834(g) of the Act, payments made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v) of the Act and existing regulations under 42 CFR part 413. 5. Payments for Graduate Medical Education (GME) Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413. Section 1886(d)(5)(B) of the Act provides that prospective payment hospitals that have residents in an approved GME program receive an additional payment for each Medicare discharge to reflect the higher patient care costs of teaching hospitals relative to non-teaching hospitals. The additional payment is based on the indirect medical education (IME) adjustment factor, which is calculated using a hospital's ratio of residents to beds and a multiplier, which is set by Congress. Section 1886(d)(5)(B)(ii)(XII) of the Act provides that, for discharges occurring during FY 2008 and fiscal years thereafter, the IME formula multiplier is 1.35. The regulations regarding the indirect medical education (IME) adjustment are located at 42 CFR 412.105. C. Summary of Provisions of Recent Legislation That Are Implemented in This Final Rule—Consolidated Appropriations Act, 2026 (Pub. L. 119-75) Section 6201 of the Consolidated Appropriations Act (CAA), 2026 extended through the portion of FY 2027 occurring on October 1, 2026, through December 31, 2026, the modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals that had been in effect for FYs 2019 through 2025. Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended, for FYs 2019 through 2026 and the portion of FY 2027 occurring on October 1, 2026 through December 31, 2026, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 3,800 total discharges during the fiscal year. Under section 1886(d)(12)(D) of the Act, as amended, for discharges occurring in FYs 2019 through December 31, 2026, the Secretary determines the applicable percentage increase using a continuous, linear sliding scale ranging from an additional 25 percent payment adjustment for low-volume hospitals with 500 or fewer discharges to a zero percent additional payment for low-volume hospitals with more than 3,800 discharges in the fiscal year. Section 6202 of the CAA, 2026 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to provide for an extension of the MDH program through the first quarter of FY 2027 (that is, through December 31, 2026). D. Issuance of a Notice of Proposed Rulemaking and Summary of the FY 2027 IPPS/LTCH PPS Proposed Provisions The FY 2027 IPPS/LTCH PPS proposed rule appeared in the April 14, 2026 Federal Register (91 FR 19312). In the proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2027 operating costs and capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. In addition, we set forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2027. The following is a general summary of the changes that we proposed to make: 1. Changes to MS-DRG Classifications and Recalibrations of Relative Weights In section II. of the preamble of the proposed rule, we included the following: • Proposed changes to MS-DRG classifications based on our yearly review for FY 2027. • Proposed recalibration of the MS-DRG relative weights. • A discussion of the proposed FY 2027 status of new technologies approved for add-on payments for FY 2026, a presentation of our evaluation and analysis of the FY 2027 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) Pub. L. 108-173, obtained in a town hall meeting for applications not submitted under an alternative pathway) with proposals for certain FDA market authorized technologies that applied under the traditional pathway and a discussion of the proposed status of FY 2027 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products. • A proposal to repeal the alternative pathway for new technology add-on payment and OPPS device pass-through payment applications, and require all applicants for new technology add-on payments and OPPS device pass-through payments to demonstrate that they meet all eligibility requirements to receive add-on payments and/or pass-through payments (as discussed in section II.E.7. of the preamble of the proposed rule). 2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals In section III of the preamble of the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include, but are not limited to, the following: • The proposed FY 2027 wage index update using wage data from cost reporting periods beginning in FY 2023. • Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2027 based on the 2022 Occupational Mix Survey. • Proposed application of the rural, imputed and frontier State floors, and proposed transition for the discontinuation of the low wage index hospital policy. • Proposed revisions to the wage index for acute care hospitals, based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act. • Proposed adjustment to the wage index for acute care hospitals for FY 2027 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index. • The proposed transition for the discontinuation of the low wage index hospital policy. • Proposed labor-related share for applying the FY 2027 wage index. 3. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2027 In section IV. of the preamble of the proposed rule, we discuss the following: • Proposed calculation of Factor 1 and Factor 2 of the uncompensated care payment methodology. • Proposed methodology for determining Factor 3 of the uncompensated care payment for FY 2027. • Proposed methodology for determining the amount of interim uncompensated care payments, using the average of the most recent 3 years of discharge data. 4. Other Decisions and Proposed Changes to the IPPS for Operating Costs In section V. of the preamble of the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR parts 412 and 413, including the following: • Proposed inpatient hospital market basket update for FY 2027. • Proposed updated national and regional case-mix values and discharges for purposes of determining RRC status. • Proposed conforming amendments to reflect the statutory extension of the temporary changes to the low-volume hospital payment adjustment through December 31, 2026. • Proposed conforming amendments to reflect the statutory extension of the MDH program through December 31, 2026. • Proposed requirements to prohibit unlawful discrimination by graduate medical education programs and nursing and allied health education programs. • Proposed modifications to the criteria for identifying new residency programs for purposes of direct graduate medical education (GME) and indirect medical education (IME) payments; proposed clarifications of the methodology for calculating direct GME and IME payments following a teaching hospital merger; and a notice of closure of two teaching hospitals and opportunities to apply for available slots. • Proposed nursing and allied health (NAH) education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CY 2024; and proposed changes to the regulations for determining net costs of approved NAH education programs and changes to the procedures for allocating indirect NAH costs. • Proposed update to and revision to the payment adjustment for certain immunotherapy cases. • Proposed changes to the requirements of the Hospital Readmissions Reduction Program—Updating the proposed estimate of the financial impacts for the FY 2027 Hospital Readmissions Reduction Program. • Proposed changes to the requirements of the Hospital Value-Based Purchasing Program—Updating the proposed estimate of the financial impacts for the FY 2027 Hospital Value-Based Purchasing Program. • Proposed changes to the requirements of the Hospital-Acquired Condition Reduction Program—Updating the proposed estimate of the financial impacts for the FY 2027 Hospital-Acquired Conditions Reduction Program. • Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2027. 5. Proposed FY 2027 Policy Governing the IPPS for Capital-Related Costs In section VI. of the preamble of the proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2027. 6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages In section VIII. of the preamble of the proposed rule, we discuss the following: • Proposed changes to payments to certain excluded hospitals for FY 2027. • Proposed continued implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration. 7. Proposed Changes to the LTCH PPS In section VIII. of the preamble of the proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2027. 8. Proposed Changes Relating to Quality Data Reporting for Specific Providers and Suppliers In section IX. of the preamble of the proposed rule, we proposed the following: • Changes to the requirements for the Hospital Inpatient Quality Reporting Program. • Changes to the requirements for the PCH Quality Reporting Program. • Changes to the requirements for the Long-Term Care Hospital Quality Reporting Program. • Changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program. 9. Other Proposals and Comment Solicitations Included in This Final Rule Section X.A. of the preamble of the proposed rule included changes to TEAM that would affect episodes, quality measure assessment, and pricing methodology. We also solicited comment on an ambulatory surgical center episode RFI and a voluntary hospitals with physician ownership RFI. Section X.B. of the preamble of the proposed rule, included a proposed revision to the provider-based location criteria regulations applicable to off-campus facilities or organizations (§ 413.65). Section X.C. of the preamble of the proposed rule included proposals for the CJR-X Model with policies affecting participation, episodes, quality measure and assessment, pricing methodology, model overlap, financial arrangements, waivers of Medicare Program requirements, data sharing, and APM options. Section X.D. of the preamble of the proposed rule, discussed the following proposals: • To reconcile non-renal organ acquisition costs for independent organ procurement organizations (IOPOs) and histocompatibility laboratories (HCLs), and to require the Medicare Administrative Contractor to establish, adjust if necessary, and publish the IOPO non-renal standard acquisition charges (SACs) and the HCL testing rates. • To change certain existing policy and to codify certain longstanding Medicare reasonable cost reimbursement policies, applicable to all providers reimbursed for all or for some of their services on a reasonable cost basis. • To clarify and codify cost allocation principles. • To codify the discretionary Administrator review of CMS reviewing official determinations with respect to appeals under § 413.420(g) for IOPOs and HCLs. 10. Other Provisions of the Proposed Rule Section XI.A. of the preamble of the proposed rule includes our discussion of the MedPAC Recommendations. Section XI.B. of the preamble of the proposed rule includes a descriptive listing of the public use files associated with the proposed rule. Section XII. of the preamble of the proposed rule includes the collection of information requirements for entities based on our proposals. 11. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals In sections II. and III. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2027 prospective payment rates for operating costs and capital-related costs for acute care hospitals, including cost-of-living adjustment (COLA) factors for IPPS hospitals located in Alaska and Hawaii. We proposed to establish the threshold amounts for outlier cases. In addition, in section V. of the Addendum of the proposed rule, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2027 for certain hospitals excluded from the IPPS. 12. Determining Prospective Payment Rates for LTCHs In section V. of the Addendum of the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2027 LTCH PPS standard Federal payment rate and other factors used to determine LTCH PPS payments under both the LTCH PPS standard Federal payment rate and the site neutral payment rate in FY 2027. We proposed to establish the adjustments for the wage index, labor -related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates. 13. Impact Analysis In Appendix A of the proposed rule, we set forth an analysis of the impact the proposed changes would have on affected acute care hospitals, LTCHs, and other entities. 14. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2027 for the following: • A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs). • Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS. • The LTCH PPS standard Federal payment rate and the site neutral payment rate for hospital inpatient services provided for LTCH PPS discharges. 15. Discussion of Medicare Payment Advisory Commission Recommendations Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2026 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We address these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2026 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's website at https://www.medpac.gov. E. Public Comments Received in Response to the FY 2027 IPPS/LTCH PPS Proposed Rule We received approximately 979 timely pieces of correspondence containing multiple comments on the proposed rule that appeared in the April 14, 2026 Federal Register (91 FR 19312) titled “Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2027 Rates; Requirements for Quality Programs; and Other Policy Changes” (hereinafter referred to as the FY 2027 IPPS/LTCH PPS proposed rule). We note that some of these public comments were outside of the scope of the proposed rule. These out-of-scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those public comments are set forth in the various sections of this final rule under the appropriate heading. F. Adoption of Health Information Technology Standards and Incorporation by Reference In section X.E. of preamble of this final rule, the Office of the National Coordinator (ONC) is finalizing certain provisions that were included in the proposed rule that appeared in the April 14, 2026 Federal Register (91 FR 19890) titled “Medicare and Medicaid Programs; Patient Protection and Affordable Care Act; Interoperability Standards and Prior Authorization for Drugs for Medicare Advantage Organizations, Medicaid Managed Care Plans, State Medicaid Agencies, Children's Health Insurance Program (CHIP) Agencies and CHIP Managed Care Entities, and Issuers of Qualified Health Plans on the Federally-Facilitated Exchanges” (hereinafter referred to as 2026 CMS Interoperability Standards and Prior Authorization for Drugs proposed rule). ONC's proposals included adoption updated versions of certain health IT standards and specifications in 45 CFR 170.215 on behalf of HHS and a January 1, 2028 expiration date for versions of the standards and specifications currently in 45 CFR 170.215(j)(1) through (3), (k)(1), (m), and (n), provided that the proposals to adopt the newer versions of these adopted standards are finalized. Specifically, ONC is finalizing the adoption of certain health IT standards and specifications in 45 CFR 170.215(j) (k), (m), and (n) on behalf of HHS. These standards are referenced in ONC Health IT Certification criteria for electronic prior authorization as well as CMS proposals in the 2026 CMS Interoperability Standards and Prior Authorization for Drugs proposed rule. ONC is finalizing to replace previously adopted versions of corresponding standards in 45 CFR 170.215(j), (k), (m), and (n) with the finalized updated versions upon the effective date of this final rule. II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights A. Background Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs. Section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually to account for changes in resource consumption. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. B. Adoption of the MS-DRGs and MS-DRG Reclassifications For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189). For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011 through 2026 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR 42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through 44961; 87 FR 48800 through 48891; 88 FR 58654 through 58787; 89 FR 69000 through 69109; and 90 FR 36549 through 36649, respectively). For discussion regarding our previously finalized policies (including our historical adjustments to the payment rates) relating to the effect of changes in documentation and coding that do not reflect real changes in case mix, we refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48799 through 48800). Comment: Multiple commenters summarized the statutory and regulatory history regarding the documentation and coding recoupment adjustments required under section (7)(b) of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90), as amended. The commenters contend that the total level of adjustments made by CMS under this section took back more than was authorized by Congress and stated that section 7(b)(2) of Public Law 110-90 requires CMS to increase the standardized amount by 0.9412% to avoid carrying over into FY 2026 the −3.9% reduction to the standardized amount that law required between FY 2013 and FY 2017. Response: As we have discussed in prior rulemaking, including in response to comments in the FY 2026 IPPS/LTCH PPS final rule, as of FY 2023, CMS completed the statutory requirements of section 7(b)(1)(B) of Public Law 110-90 as amended by section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112-240), section 404 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10), and section 15005 of the 21st Century Cures Act (Pub. L. 114-255). As we discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794 through 44795), the FY 2021 IPPS/LTCH PPS final rule (85 FR 58444 through 58445) and in prior rules, we believe section 414 of the MACRA and section 15005 of the 21st Century Cures Act set forth the levels of positive adjustments for FYs 2018 through 2023. Those adjustments added up to +2.9488 percentage points, not +3.9 percentage points, and we see no evidence that Congress enacted that smaller adjustment schedule with the silent intent that CMS would later make a permanent 0.9412% payment adjustment to reach a total +3.9 percentage point adjustment. To the contrary, section 414 of the MACRA instructs the agency to “not make the adjustment (estimated to be an increase of 3.2 percent) that would otherwise apply for discharges occurring during fiscal year 2018 by reason of the completion of the adjustments required under clause (ii).” Because the adjustment “that would otherwise apply” in fiscal year 2018 but for clause (1)(B)(iii) was +3.9%, the commenter's suggestion to complete making that adjustment now is inconsistent with the statute's text. Subparagraph (b)(2) of Public Law 110-90 does not compel a contrary result. As the U.S. Court of Appeals for the D.C. Circuit has explained, that provision simply requires CMS “to ignore recoupment adjustments” when “calculat[ing] and apply[ing] the annual `percentage increase'” to base rates provided for in the Medicare statute to account for inflation. Fresno Community Hospital & Medical Center v. Cochran, 987 F.3d 158, 163 (D.C. Cir. 2021). The Secretary has complied with that instruction. Similarly, the commenters' citations to statements the agency made in the Federal Register about its intent to unwind the reductions to the standardized amount the agency made between FY 2013 and FY 2017 were made before Congress passed clause (1)(B)(iii) and have been countermanded by that provision. We therefore decline the commenters' suggestion to read into section 7(b) of Public Law 110-90 implied authority to increase the standardized payment amount by 0.9412%. For the same reasons, we do not see a basis for exercising the Secretary's exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act. C. Changes to Specific MS-DRG Classifications 1. Discussion of Changes to Coding System and Basis for FY 2027 MS-DRG Updates a. International Classification of Diseases, 10th Revision (ICD-10) Providers use the International Classification of Diseases, 10th Revision (ICD-10) coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system. The ICD-10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting. b. Basis for FY 2027 MS-DRG Updates The deadline for interested parties to submit MS-DRG classification change requests for FY 2027 was October 20, 2025. All requests are submitted to CMS via Medicare Electronic Application Request Information System TM (MEARIS TM ), accessed at https://mearis.cms.gov. Specifically, as indicated on the MEARIS TM site, the MS-DRG classification change request process may be used for requests to create, modify, or delete MS-DRGs, change ICD-10-CM diagnosis code(s) severity level designations, change ICD-10-PCS procedure code(s) Operating Room (O.R.) designations, or to review the CC Exclusions List or the surgical hierarchy. Within MEARIS TM , we have built in several resources to support users, including a “Resources” section available at https://mearis.cms.gov/public/resources with technical support available under “Useful Links” at the bottom of the MEARIS TM site. Questions regarding the MEARIS TM system can be submitted to CMS using the form available under “Contact”, also at the bottom of the MEARIS TM site. We note that the burden associated with this information collection requirement is the time and effort required to collect and submit the data in the request for MS-DRG classification changes to CMS. The aforementioned burden is subject to the Paperwork Reduction Act (PRA) of 1995 and approved under OMB control number 0938-1431 and has an expiration date of January 31, 2029. As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550), beginning with FY 2027 rulemaking, we are no longer summarizing in the proposed and final rules those requests that are not able to be considered for the upcoming FY. We noted that requests that require more extensive analysis may include those involving multiple MS-DRGs, overlapping logic across multiple Major Diagnostic Categories (MDCs), special logic such as diagnosis codes combined with procedure codes, and/or complex logic including code clusters or multiple logic lists. In December 2025, we informed requestors via MEARIS TM if their MS-DRG classification change request was not able to be considered with the FY 2027 rulemaking cycle. Comment: A commenter (technology association) acknowledged the process that CMS utilizes for accepting MS-DRG requests via MEARIS TM and that some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all the data that are relevant to evaluating the potential change. The commenter stated that CMS notified requestors via MEARIS TM if their MS-DRG classification change request was not able to be considered with the FY 2027 rulemaking cycle and they understood that several of their members received such notifications. The commenter also stated that the agency does not publicly disclose the number of MS-DRG applications they receive and review annually. The commenter encouraged CMS to provide greater transparency regarding the overall volume and the nature of the MEARIS TM requests that are submitted to CMS each year. The commenter stated their belief that it is important for CMS to provide transparency into the number of requests that it receives each year to provide stakeholders with an understanding of the volume of requests and potential likelihood of not having their application reviewed in rulemaking the same rulemaking cycle. The commenter further stated that for those applications CMS has stated require additional analysis, CMS should provide the applicant with an expected timeline for review. According to the commenter, absent a clear process for revisiting deferred requests, stakeholders are left without clarity as to when such submissions will receive further consideration. The commenter stated it is important for CMS to establish a transparent timeline for re-evaluation of MS-DRG requests that are not addressed in the year of submission. The commenter stated they identified two circumstances in which the public comment process could function as a necessary supplement to MEARIS TM . In the first example, the commenter stated that when an MS-DRG classification change request has been submitted through MEARIS TM and CMS has been unable to address the request, CMS should recognize the public comment process as an appropriate vehicle for stakeholders to consider the request. The commenter stated they agree that any policy change responsive to public comments, where CMS has not separately proposed the requested change in rulemaking, is appropriately reserved for proposal and finalization in the subsequent rulemaking cycle. The commenter stated this option would be consistent with the agency's general practice for off-cycle ambulatory payment classification, transitional pass-through, and new technology add-on payment determinations. According to the commenter, using this approach would allow the public comment process to operate as a transparency and queue-management mechanism, not as a substitute for proposal and finalization. In the second example, the commenter stated that when CMS has proposed to discontinue the new technology add-on payment for a specific technology, by listing that technology in a designated table within the proposed rule, the agency has put that technology's payment treatment before the public for comment. The commenter stated that the proposed new technology add-on payment discontinuation is itself the proposal. According to the commenter, any public comments addressing the adequacy of the MS-DRG payment for that technology, and a proposed corresponding adjustment to payment when the new technology add-on payment expires, are directly responsive to the action CMS has put before the public; they are not free-standing reassignment requests outside rulemaking. The commenter asserted that MS-DRG assignment is inseparable from the new technology add-on payment action that CMS has proposed. The commenter urged CMS to recognize that for the technologies subject to this scenario, any public comments that include concerns regarding payment adequacy are within the scope of rulemaking and may be considered for action in the same final rule that finalizes a proposed discontinuation of new technology add-on payment. The commenter stated that recognition of these two categories of examples would not displace MEARIS TM as the agency's submission process but could ensure that the public comments function as a supplement because exclusive reliance on MEARIS TM produces outcomes inconsistent with payment accuracy, beneficiary access, and administrative efficiency. The commenter urged CMS to address the public comments submitted for either example to include the requests received, a summary of the supporting evidence, and an explanation of the disposition. Response: We appreciate the commenter's feedback. In response to the commenter's recommendation that CMS provide greater transparency into the number of requests that it receives each year to afford stakeholders a better understanding of the volume of requests received and the potential likelihood of not having an application reviewed in rulemaking during that same rulemaking cycle, we note that, until the current FY 2027 rulemaking cycle, all prior MS-DRG classification change requests received via MEARIS TM since FY 2024 rulemaking have been reflected in the annual IPPS/LTCH PPS rulemakings; therefore, stakeholders were provided with details regarding the number and the nature of the MS-DRG classification change requests. We no longer believe that providing an annual summary as part of the annual rulemaking that outlines the number and nature of MS-DRG classification change requests received and for which we are unable to address for the upcoming fiscal year is beneficial because, as reflected in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550 through 36552), we received public comments in response to such summaries that were included in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18012), urging CMS to finalize changes for requests that we had indicated we were unable to consider for FY 2026 and for which we did not propose a change to the logic for FY 2026. Additionally, providing an annual summary detailing the number and nature of MS-DRG requests received may not completely reflect the complexity of a given request. We continue to believe that we provide sufficient transparency through our established annual notice and comment rulemaking process. We note that, since the implementation of MEARIS TM for the submission of MS-DRG classification change requests, we have continued efforts towards refining our process for MS-DRG classification change requests. For example, as stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36549 through 36550), and the preamble of the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19322) and this final rule, beginning with FY 2027 rulemaking, we inform requestors via MEARIS TM if an MS-DRG classification change request is unable to be considered with the upcoming fiscal year's rulemaking cycle and that we will no longer summarize in the proposed and final rules those requests that are not able to be considered for the upcoming fiscal year. As the commenter acknowledged in its submitted comments, several of their members received such notifications. Specifically, we note that for those requests that were unable to be considered for FY 2027 rulemaking, the requestors received an electronic notification that their MS-DRG classification change request was being deferred for the FY 2027 rulemaking cycle; therefore, requestors were made aware that their MS-DRG classification change request was not being considered in the FY 2027 rulemaking cycle. With respect to the commenter's recommendation that CMS should provide the requestors who received notification that their FY 2027 MS-DRG classification change request was deferred with an expected timeline for review, we note that following this FY 2027 rulemaking, we intend to provide additional information to those requestors whose MS-DRG classification change requests were deferred for FY 2027 regarding the status of their FY 2027 MS-DRG classification change request. In response to the commenter's second example where they asserted that any public comments addressing the adequacy of the MS-DRG payment in connection with the proposed discontinuation of a new technology add-on payment for a specific technology, with a proposed corresponding adjustment to payment, are within the scope of rulemaking and may be considered for action in the same final rule that finalizes a proposed discontinuation of a new technology add-on payment technology, we disagree. Specifically, we note that under our established process, requests for consideration of an MS-DRG classification change must be submitted via MEARIS TM as discussed in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28127) and final rule (87 FR 48800 through 48801). We disagree that the use of MEARIS TM produces outcomes inconsistent with payment accuracy, beneficiary access, and administrative efficiency. As reflected in our annual rulemakings, for the MS-DRG classification change requests we are able to consider, we present a summary of the requests received, the relevant MDC(s), MS-DRG(s), ICD-10-CM diagnosis and ICD-10-PCS procedure codes that are analyzed using the designated MedPAR claims data file and the proposals that are set forth based on the findings from our analysis of claims data and clinical review. In connection with our annual proposed rulemakings, we also provide a test version of the ICD-10 MS-DRG GROUPER software, supplemental mapping files, a draft version of the ICD-10 MS-DRG Definitions Manual and, effective with FY 2025 rulemaking, a draft version of the Definitions of Medicare Code Edits (MCE) Manual, and the associated proposed relative weights file so that the public can better analyze and understand the impact of the proposals included in the proposed rule utilizing these available resources. Therefore, we do not believe it would be appropriate to finalize MS-DRG classification changes in connection with the proposed discontinuation of a new technology add-on payment for a specific technology in the absence of providing our standard data analysis and corresponding resources that are made publicly available under our established rulemaking process. To provide further transparency in connection with our MS-DRG request process, beginning with the FY 2028 rulemaking cycle, we intend to send notifications to requestors via MEARIS TM if their MS-DRG classification change request(s) will be considered with a status update of “Under Review”, and for those MS-DRG classification change requests that are unable to be considered for the upcoming fiscal year's rulemaking, we intend to send notifications to requestors via MEARIS TM with a status update of “Deferred”, followed by additional communication as to why the request is unable to be considered for the upcoming fiscal year's rulemaking cycle. Consistent with our process for the FY 2027 MS-DRG classification change requests, we intend to notify requestors by mid-December if their request is or is not able to be considered for the upcoming fiscal year. Interested parties should submit any MS-DRG classification change requests, including any comments and suggestions for FY 2028 consideration by October 20, 2026, via MEARIS TM at: https://mearis.cms.gov/public/home. As noted, we will inform requestors via MEARIS TM if the MS-DRG classification change request is or is not able to be considered with the upcoming fiscal year rulemaking cycle. As we did for the FY 2026 IPPS/LTCH PPS proposed rule, for the FY 2027 IPPS/LTCH PPS proposed rule we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, so that the public can better analyze and understand the impact of the proposals included in the proposed rule. We noted that this test software reflected the proposed GROUPER logic for FY 2027. Therefore, it included the new diagnosis and procedure codes that are effective for FY 2027 as reflected in Table 6A.—New Diagnosis Codes—FY 2027 and Table 6B.—New Procedure Codes—FY 2027 associated with the proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2027 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2027 and Table 6D.—Invalid Procedure Codes—FY 2027 associated with the proposed rule. Those tables were not published in the Addendum to the FY 2027 IPPS/LTCH PPS proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the Addendum to the FY 2027 IPPS/LTCH PPS proposed rule. Because the diagnosis and procedure codes no longer valid for FY 2027 are not reflected in the test software, we made available a supplemental file in Table 6P.1a that includes the mapped Version 44 FY 2027 ICD-10-CM codes and the deleted Version 43 FY 2026 ICD-10-CM codes and Table 6P.1b that includes the mapped Version 44 FY 2027 ICD-10-PCS codes and the deleted Version 43.1 FY 2026 ICD-10-PCS codes that should be used for testing purposes with users' available claims data. Therefore, users had access to the test software allowing them to build case examples that reflect the proposals that were included in the proposed rule. In addition, users were able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44 that contains the documentation for proposed FY 2027 ICD-10 MS-DRG GROUPER Version 44 logic changes and were also able to view a draft version of the Definitions of Medicare Code Edits (MCE) Manual to review any changes that will become effective October 1 for FY 2027. In the proposed rule we also noted that, as a result of new and modified code updates approved after the annual spring ICD-10 Coordination and Maintenance Committee meeting, any further changes to the MCE will be reflected in the finalized Definitions of Medicare Code Edits (MCE) Manual, made available in association with the annual IPPS/LTCH PPS final rule. As such, we made available the draft FY 2027 ICD-10 MCE Version 44 Manual file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We noted in the proposed rule that the MCE manual is comprised of two chapters: Chapter 1: Edit code lists provides a listing of each edit, an explanation of each edit, and as applicable, the diagnosis and/or procedure codes for each edit, and Chapter 2: Code list changes summarizes the changes in the edit code lists (for example, additions and deletions) from the prior release of the MCE software. We also stated that the public may submit any questions, comments, concerns, or recommendations regarding the MCE to the CMS mailbox at MSDRGClassificationChange@cms.hhs.gov for our review and consideration. The test version of the ICD-10 MS-DRG GROUPER Software, Version 44, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44, the draft version of the Definitions of Medicare Code Edits Manual, Version 44, and the supplemental mapping files in Tables 6P.1a and 6P.1b of the FY 2026 and FY 2027 ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software. Comment: Commenters expressed appreciation that we provided a test version of the ICD-10 MS-DRG GROUPER Software, Version 44, along with mapping files to assist with analysis, however, the commenters stated that this version essentially only allows for a case-by-case analysis and a minimal batch analysis. The commenters stated that it would be more beneficial to have a Batch z/OS version of the test GROUPER so that it could be better utilized for broader and more meaningful analysis purposes. The commenters requested that availability of a Batch z/OS version of the test GROUPER be made publicly available for all future rulemaking. Response: We appreciate the commenters' feedback and will take the suggestion into consideration for future rulemaking. Following are the changes that we proposed to the MS-DRGs for FY 2027. We invited public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in the FY 2027 IPPS/LTCH PPS proposed rule. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data and clinical appropriateness. In other cases, we proposed to maintain the existing MS-DRG classifications based on our analysis of claims data and clinical appropriateness. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file, which contains hospital bills received from October 1, 2024, through September 30, 2025. In our discussion of the proposed MS-DRG reclassification changes, we referred to these claims data as the “September 2025 update of the FY 2025 MedPAR file.” As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated we believed that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661), we continue to apply the criteria to create subgroups, including application of the NonCC subgroup criteria, in our annual analysis of MS-DRG classification requests, consistent with our approach since FY 2021 when we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. Accordingly, in our analysis of the MS-DRG classification requests for FY 2027 that we received by October 20, 2025, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table. ER04AU26.024 In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for the FY 2027 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2025 update of the FY 2025 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent two years of data. This analysis includes two years of MedPAR claims data to compare the data results from one year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria is satisfied for a three-way split. In applying the criteria for a three-way split, a base MS-DRG is initially subdivided into the three subgroups: MCC, CC, and NonCC. Each subgroup is then analyzed in relation to the other two subgroups using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. In applying the criteria for a two-way split, a base MS-DRG is initially subdivided into two subgroups: “with MCC” and “without MCC” (1_23) or “with CC/MCC” and “without CC/MCC” (12_3). Each subgroup is then analyzed in relation to the other using the volume (Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in variance (Criteria 5). If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits; however, we do not also evaluate the criteria for a three-way split. We are making the FY 2027 ICD-10 MS-DRG GROUPER and Medicare Code Editor (MCE) Software Version 44, the ICD-10 MS-DRG Definitions Manual files Version 44 and the Definitions of Medicare Code Edits Manual Version 44 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. 2. MDC 04 (Diseases and Disorders of the Respiratory System) a. Short-term External Heart Assist Systems In the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19324 through 19328), we discussed a request we received to reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRG 215 (Other Heart Assist System Implant). According to the requestor, when patients are admitted with pulmonary conditions, such as pulmonary embolism, and have Impella® Ventricular Support Systems inserted for cardiac support during a thrombectomy procedure, MS-DRGs 163, 164, or 165 are assigned. The requestor stated that cases reporting procedure codes describing the insertion of Impella® Ventricular Support Systems that are assigned to MS-DRGs 163, 164, or 165 require resources similar to cases that are assigned to MS-DRG 215. The requestor further requested that if CMS did not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device to MS-DRG 215, in the alternative, CMS should consider creating new MS-DRGs for cases reporting procedure codes describing the insertion of a short-term external heart assist device and major chest procedures. As discussed in the proposed rule, in reviewing this request, we noted that acute massive pulmonary embolism can lead to right ventricular (RV) failure and cardiogenic shock, requiring urgent treatment. Thrombolytic therapy is the standard treatment for high-risk pulmonary embolism in hemodynamically unstable patients. However, in cases where thrombolytics are contraindicated or ineffective, mechanical circulatory support can serve as a rescue therapy. While extracorporeal membrane oxygenation (ECMO) is commonly utilized, Impella® Ventricular Support Systems can offer right ventricular support in patients with pulmonary embolism-induced cardiogenic shock. 1 Impella® Ventricular Support Systems are temporary heart assist devices intended to provide mechanical circulatory support by temporarily assisting the pumping function of the heart to provide adequate circulation of blood to critical organs while also allowing damaged heart muscle the opportunity to rest and recover in patients who need short-term support. 1 Pandey, Asim MBBS a,* ; Parajuli, Samriddhi MBBS b ; Khanal, Prajwal MBBS c ; Khanal, Kunjan MBBS d ; Yadav, Ramsinhasan Prasad MBBS e . Hemodynamic improvement with Impella RP in acute massive pulmonary embolism: a narrative review of cardiovascular outcomes and pulmonary catheter pressure assessment. Annals of Medicine & Surgery 87(7):p 4303-4309, July 2025. | DOI: 10.1097/MS9.0000000000003431 We noted in the proposed rule that the requestor identified cases reporting procedure codes describing the insertion of a short-term external heart assist device as reporting ICD-10-PCS codes 02HA3RZ (Insertion of short-term external heart assist system into the heart, percutaneous approach) and 5A0221D (Assistance with cardiac output using impeller pump, continuous). We stated that while we agree with the requestor that procedure code 02HA3RZ describes the insertion of a short-term external heart assist device, we note that there are additional ICD-10-PCS codes in the classification that also describe the insertion of a short-term external heart assist device. Therefore, in reviewing this request, we identified the five additional ICD-10-PCS procedure codes that also describe the insertion of a short-term external heart assist device listed in the following table and included these codes in our analysis. ER04AU26.025 To begin our analysis, as discussed in the proposed rule, we examined claims data from the September 2025 update of the FY 2025 MedPAR file for MS-DRGs 163, 164, and 165 to identify cases reporting ICD-10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ. We stated in the proposed rule that we agreed with the requestor that when a patient is admitted and has an Impella® external heart assist device inserted, two ICD-10-PCS codes are assigned: a code that describes the insertion of the short-term external heart assist device and code 5A0221D that describes assistance with an impeller pump. Because the assistance with an Impella® is always coded with ICD-10-PCS code 5A0221D, we did not include this code in our analysis as the presence of the code would be expected to be identified in all cases. Our findings are shown in the following table. ER04AU26.307 As shown in the table, we identified a total of 13,396 cases within MS-DRG 163 with an average length of stay of 8.2 days and average costs of $40,641. Of these 13,396 cases, there were 17 cases that reported a procedure code describing the insertion of a short-term external heart assist device with an average length of stay of 8.4 days and average costs of $81,960. There were zero cases reporting a procedure code describing the insertion of a short-term external heart assist device in MS-DRGs 164 and 165. The data analysis shows that for the cases in MS-DRG 163 reporting a procedure code describing the insertion of a short-term external heart assist device, the average length of stay is longer, and the average costs are higher when compared to all cases in that MS-DRG. As discussed in the proposed rule, to further review the consumption of hospital resources for cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis of a pulmonary condition, we reviewed the claims data to identify cases reporting ICD-10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ in other MS-DRGs in MDC 04 (Diseases and Disorders of the Respiratory System), specifically MS-DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) and MS-DRG 173 (Ultrasound Accelerated and Other Thrombolysis with Principal Diagnosis Pulmonary Embolism). We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software ) for a complete listing of the MS-DRGs in MDC 04. There were zero cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis of a pulmonary condition in MS-DRGs 166, 167, 168 or MS-DRG 173. We then reviewed the claims data to further identify the principal diagnoses that were reported to determine what factors may also be contributing to the higher average costs for the subset of cases that reported a procedure code describing the insertion of a short-term external heart assist device in MS-DRG 163. Our findings for the principal diagnoses that were reported within the claims data from the September 2025 update of the FY 2025 MedPAR file for this subset of cases are shown in the following table: ER04AU26.026 As reflected in the table, all 17 cases reported a principal diagnosis of pulmonary embolism. While the results of the claims analysis as previously summarized indicate that the average costs of cases that reported a procedure code describing the insertion of a short-term external heart assist device are higher compared to the average costs for all cases in MS-DRG 163, we stated in the proposed rule that we could not ascertain from the claims data the additional resource use specifically attributable to the insertion of the short-term external heart assist device during the hospital stay as compared to the severity of illness of the patient and other circumstances of the admission. We stated that these data show that while cases that reported a procedure code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism required greater resource utilization, there is a wide variance in average costs and average length of stay depending on the ICD-10-CM code reported as principal diagnosis. For example, the three cases that reported a principal diagnosis of I26.02 (Saddle embolus of pulmonary artery with acute cor pulmonale) had an average length of stay of 7.3 days and average costs of $61,956, while the two cases that reported a principal diagnosis of I26.92 (Saddle embolus of pulmonary artery without acute cor pulmonale) had an average length of stay of 11.5 days and average costs of $111,452. When reviewing consumption of hospital resources for this subset of cases, it is unclear to what degree the higher average costs for these cases are attributable to the severity of illness of the patient and other circumstances of the admission as opposed to the insertion of a short-term external heart assist device. There may have been other factors contributing to the higher costs. As discussed in the proposed rule, during our review of this issue and the examination of the cases reporting procedure codes describing the insertion of a short-term external heart assist device found in MS-DRG 163, as noted previously, we found these cases all reported a principal diagnosis of pulmonary embolism. The ICD-10-codes that describe pulmonary embolism are currently assigned to MDC 04 (Diseases and Disorders of the Respiratory System). The diagnoses assigned to MDC 04 reflect conditions associated with the respiratory system. In ICD-10, the body or organ system is the axis of the classification, and diagnosis codes are classified by the body or organ system affected. The concept of clinical coherence generally requires that the patient characteristics included in the definition of each MS-DRG relate to a common organ system or etiology and that a specific medical specialty should typically provide care to the patients in the DRG. These diagnosis codes would require reassignment to MDC 05 (Diseases and Disorders of the Circulatory System) to group to MDC 05 MS-DRG 215. Although MDC 04 diagnoses such as pulmonary embolism can lead to RV failure and cardiogenic shock, which might be reasonable indications for the insertion of a short-term external heart assist device, we stated it would not be appropriate to move these diagnoses into MDC 05 because it could inadvertently cause cases reporting these same MDC 04 diagnoses with a respiratory system procedure to be assigned to an “unrelated” MS-DRG because whenever there is a surgical procedure reported on the claim that is unrelated to the MDC to which the case was assigned based on the principal diagnosis, it results in a MS-DRG assignment to a surgical class referred to as “unrelated operating room procedures”. To further examine the impact of moving the diagnosis codes describing pulmonary embolism into MDC 05, we stated we analyzed claims data for cases reporting a respiratory system O.R. procedure and a principal diagnosis of pulmonary embolism. Our findings are reflected in the following table. ER04AU26.027 As shown in the table, we identified 8,652 cases reporting a respiratory system O.R. procedure and a principal diagnosis of pulmonary embolism. We reviewed this issue and noted in the proposed rule if we were to move the diagnosis codes describing pulmonary embolism to MDC 05, these cases would be assigned to the surgical class referred to as “unrelated operating room procedures” as an unintended consequence because the surgical procedure reported on the claim would be considered unrelated to the MDC to which the case was assigned based on the principal diagnosis. We noted the data also indicates that there were more cases that reported an O.R. procedure assigned to MDC 04 with a principal diagnosis describing pulmonary embolism than there were cases that reported a procedure code describing the insertion of a short-term external heart assist device, and a principal diagnosis of pulmonary embolism in MDC 04 (8,652 cases versus 17 cases) demonstrating that inpatient admissions for pulmonary embolism more typically have an O.R. procedure assigned to MDC 04 performed and do not report a procedure code describing the insertion of a short-term external heart assist device. In the proposed rule, we stated we also reviewed the cases reporting an O.R. procedure assigned to MDC 04 and a principal diagnosis describing pulmonary embolism to identify the top ten O.R. procedures assigned to MDC 04 that were reported within the claims data for these cases. Our findings are shown in the following table: ER04AU26.028 As noted previously, if we were to move the diagnosis codes describing pulmonary embolism to MDC 05, cases reporting one of the O.R. procedures assigned to MDC 04 shown in the table would be assigned to the surgical class referred to as “unrelated operating room procedures” as an unintended consequence. Based on the results of our analysis, we stated we believe that the diagnosis codes describing pulmonary embolism are most clinically aligned with the other diagnosis codes assigned to MDC 04 (where they are currently assigned). Considering the impact that moving the diagnoses describing pulmonary embolism to MDC 05 from MDC 04 would have, we stated we also believe it would not be appropriate to move these diagnoses into MDC 05 because it would inadvertently cause cases reporting pulmonary embolism with O.R. procedures assigned to MDC 04 to be assigned to an unrelated MS-DRG. We then explored alternative options, as was requested, as discussed in the proposed rule. We noted that the 17 cases reporting a procedure code describing the insertion of a short-term external heart assist device had an average length of stay of 8.4 days and average costs of $81,960, as compared to the 13,396 cases in MS-DRG 163 that had an average length of stay of 8.2 days and average costs of $40,641. While these cases reporting a procedure code describing the insertion of a short-term external heart assist device had average costs that were $41,319 higher than the average costs of all cases in MS-DRG 163 (the highest severity level “with MCC” MS-DRG), there were only a total of 17 cases. We stated that the results of the claims analysis demonstrate that there are not sufficient claims data in the MedPAR file on which to assess the resource use of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04 to consider the creation of a new MS-DRG. As noted previously, we could not ascertain from the claims data the resource use specifically attributable to the insertion of a short-term external heart assist device during the hospital stay. Accordingly, we stated we do not believe that the small subset of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04 warrants the creation of a new MS-DRG for these cases at this time. Lastly, we explored reassigning cases reporting a procedure code describing the insertion of a short-term external heart assist device with an O.R. procedure assigned to MDC 04 and a principal diagnosis from MDC 04 to other MS-DRGs within MDC 04. However, we stated in the proposed rule our review did not support reassignment of these cases to any other surgical MS-DRGs in MDC 04, as MS-DRGs 163, 164 and 165, where the cases are currently assigned, represent the highest surgical class in the surgical hierarchy of MDC 04. The surgical hierarchy is an ordering of surgical classes from most resource-intensive to least resource-intensive. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class. We note that discussion of the surgical hierarchy is in section II.C.14. of the preamble of this final rule. As discussed in the proposed rule, while the data analysis reflects that cases that report a procedure code describing the insertion of a short-term external heart assist device with an O.R. procedure assigned to MDC 04 and a principal diagnosis from MDC 04 demonstrate higher average costs in their respective MS-DRGs, as discussed in prior rulemaking (86 FR 44878), the MS-DRG system is a system of averages and it is expected that within the diagnostic related groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs. We further note that section 1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-participating hospitals in addition to the basic prospective payments for cases incurring extraordinarily high costs. We stated we will continue to evaluate the clinical coherence and resource consumption costs that impact this subset of cases and their current MS-DRG assignment. Therefore, for the reasons stated previously, we did not propose to reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant) for FY 2027. Comment: Many commenters expressed support for CMS' proposal to not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant) for FY 2027. These commenters stated they support CMS' decision not to proceed with reassignment of these cases. Response: We thank the commenters for their support. Comment: Another commenter stated they recognize that CMS appropriately relies on diagnosis and procedure coding, as well as average costs, lengths of stay, and case counts in determining whether a cohort is sufficiently distinct to warrant a different MS-DRG assignment or subgrouping but stated, for the rare subset of pulmonary embolism cases requiring short-term external heart assist devices, high early mortality may materially distort the data by shortening length of stay and lowering total costs for some of the sickest patients. This commenter requested that, in addition to its standard analysis of average costs, lengths of stay (LOS), variance, and volume, CMS evaluate cases by taking into account patient discharge status in order to consider mortality-stratified cost analyses (for example, survivors versus non-survivors) before concluding that cases are not sufficiently distinct to justify further MS-DRG refinement or other payment adjustments. Response: We thank the commenter for sharing their view and recommendation. As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on clinical factors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. We will take the commenters' feedback into consideration in future policy development. Comment: Another commenter recommended that CMS move the assignment of the procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, 165 to MDC 05 (Diseases and Disorders of the Circulatory System) MS-DRG 215 (Other Heart Assist System Implant) to reflect the severity of the patient's condition and the complexity of care provided as well as the incremental resources consumed. Response: We thank the commenter for its recommendation. As discussed in the proposed rule, in reviewing this request, we identified six ICD-10-PCS procedure codes that describe the insertion of a short-term external heart assist device. In response to the recommendation that CMS move the assignment of the procedures codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, 165 to MDC 05 MS-DRG 215, we note that these procedure codes are not assigned to MDC 04 in the ICD-10 MS-DRG Definitions Manual Version 43.1. The six ICD-10-CM procedure codes reviewed, as well as their current MDC assignments, are found in the table: ER04AU26.029 As reflected in the ICD-10 MS-DRG Definitions Manual, we note that for the subset of cases reporting a procedure code describing the insertion of a short-term external heart assist device with a principal diagnosis from MDC 04, the logic for case assignment to MDC 04 MS-DRGs 163, 164, 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) is driven by also reporting a procedure code assigned to these MS-DRGs. We refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete documentation of the GROUPER logic for MS-DRGs 163, 164, and 165. We appreciate the commenters' concern regarding ensuring that these cases are assigned to an MS-DRG that reflects the severity of the patient's condition, the complexity of care provided, as well as the incremental resources consumed. We acknowledge the results of the claims analysis as summarized in the proposed rule and this final rule indicate that the average costs of cases that reported a procedure code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism are higher compared to the average costs for all cases in their assigned MS-DRG. However, considering the impact that moving the diagnoses describing pulmonary embolism to MDC 05 from MDC 04 would have, we continue to believe it would not be appropriate to move these diagnoses into MDC 05 because it would inadvertently cause cases reporting pulmonary embolism with O.R. procedures assigned to MDC 04 to be assigned to an unrelated MS-DRG. Additionally, as discussed in the proposed rule, we examined the MS-DRGs within MDC 04 and noted that MS-DRGs 163, 164, and 165 represent the highest surgical class in the surgical hierarchy of MDC 04. Therefore, the cases reporting procedure codes describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism are most suitably assigned to MS-DRGs 163, 164, and 165, where the cases are currently assigned. There is no other alternative assignment for these procedures in MDC 04. While the data do not support creating a new MS-DRG for cases reporting a procedure code describing the insertion of a short-term external heart assist device and a principal diagnosis of pulmonary embolism, we will continue to monitor the claims data to determine if refinements may be warranted in the future. We note that we will address any proposed modifications in future rulemaking. Therefore, after consideration of the public comments we received, and for the reasons discussed, we are finalizing our proposal to not reassign cases reporting procedure codes describing the insertion of a short-term external heart assist device from MDC 04 MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant), without modification, for FY 2027. b. Fluorescence Guided Procedures of the Trunk Region Using Pafolacianine CYTALUX® (pafolacianine) is a folate receptor-targeted fluorescent optical imaging agent used as an adjunct for the identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected lung cancer. CYTALUX® binds to the folate receptors on these cancer cells and is endocytosed into folate receptor positive cancer cells. CYTALUX® is administered intravenously prior to thoracic resection procedures and requires use of a near-infrared imaging (NIR) system to illuminate, thereby making cancer visible within the surgical field. CYTALUX® received FDA approval and is indicated as an adjunct for intraoperative identification of malignant and non-malignant pulmonary lesions in adult patients with known or suspected cancer in the lung. In the FY 2027 IPPS/LTCH PPS proposed rule, we noted that CYTALUX® for the lung indication was approved for new technology add-on payments for FY 2024 (88 FR 58810 through 58818), FY 2025 (89 FR 69120 through 69126), and FY 2026 (90 FR 36668). We refer readers to section II.E.5 of the preamble of this final rule for a discussion regarding the FY 2027 status of technologies approved for FY 2026 new technology add-on payments, including CYTALUX® for the lung indication. As discussed in the FY 2027 IPPS/LTCH PPS proposed rule (91 FR 19328 through 19330, we received a request from the manufacturer of CYTALUX® to modify the GROUPER logic of MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) by reassigning cases with an ICD-10-PCS code that describes fluorescence guided surgery using CYTALUX® (pafolacianine) for the lung indication that currently map to the lower severity level MS-DRG 165 (without CC/MCC) to the higher severity level MS-DRG 163 (with MCC) or MS-DRG 164 (with CC). According to the requestor, the utilization of CYTALUX® does not change the surgical procedure but adds significant value and cost to the procedure by improving the surgeon's ability to identify and completely resect malignant tissue. The requestor performed their own analysis of Medicare claims data from October 1, 2023, through March, 31, 2025, and stated they found approximately 135 cases that used CYTALUX® in thoracic resections and that they expect adoption to accelerate as NIR systems become more widely available. Additionally, the requestor stated they found 35 percent of the cases using CYTALUX® within MS-DRG 165, and the average costs of these cases exceeded the average costs of cases that did not report the usage of CYTALUX®. When controlling for procedural and facility variation, the requestor stated they found that CYTALUX cases in MS-DRG 165 were $1,515 (8 percent) higher in cost and that 60 percent of the cases using CYTALUX® in MS-DRG DRG 165 received new technology add-on payments averaging approximately $2,300. The requestor further asserted that their review of the inpatient Standard Analytical Files (SAF) indicated underreporting of CYTALUX® costs due to unclear inpatient drug billing guidance. The requestor stated they fou [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2026-15833. Public record. Not legal advice.