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) 2026 Rates; Changes to the FY 2025 IPPS Rates Due to Court Decision; Requirements for Quality Programs; and Other Policy Changes; Health Data, Technology, and Interoperability: Electronic Prescribing, Real-Time Prescription Benefit and Electronic Prior Authorization

1. Background a. Overview

For background on the Hospital VBP Program, we refer readers to the CMS website at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/hospital-value-based-purchasing. We also refer readers to our codified requirements for the Hospital VBP Program at 42 CFR 412.160 through 412.168. b. FY 2026 Program Year Payment Details

Under section 1886(o)(7)(C)(v) of the Act, the applicable percent for the FY 2026 program year is 2.00 percent. Using the methodology we adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 53573), we estimated in the proposed rule (90 FR 18289) that the total amount available for value-based incentive payments for FY 2026 is approximately $1.7 billion, based on the December 2024 update of the FY 2024 MedPAR file.

As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573 through 53576), we utilize a linear exchange function to translate this estimated amount available into a value-based incentive payment percentage for each hospital, based on its Total Performance Score (TPS). We are publishing proxy value-based incentive payment adjustment factors in Table 16 associated with this final rule (which is available via the internet on the CMS website). We note that these proxy adjustment factors will not be used to adjust hospital payments. These proxy value-based incentive payment adjustment factors were calculated using the proposed FY 2026 Hospital VBP program methodology and historical baseline and performance periods for the FY 2025 Hospital VBP Program and the SEP-1 measure. These proxy factors were calculated using the March 2025 update to the FY 2024 MedPAR file. The slope of the linear exchange function used to calculate these proxy factors was 4.5252441909, and the estimated amount available for value-based incentive payments to hospitals for FY 2026 remains approximately $1.7 billion. We stated our intent to include an update to this table, as Table 16A, with the FY 2026 IPPS/LTCH PPS final rule, to reflect changes based on the March 2025 update to the FY 2024 MedPAR file and the finalized FY 2026 Hospital VBP program methodology as discussed in section VI.L.6. of the preamble of this final rule. We will add Table 16B to display the actual value-based incentive payment adjustment factors, exchange function slope, and estimated amount available for the FY 2026 Hospital VBP Program. We expect that Table 16B will be posted on the CMS website in Fall 2025. 2. Hospital VBP Program Measures a. Proposed Measure Updates to the Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (1) Background

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18290 through 18291), we proposed to adopt substantive measure updates to the Hospital-level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (hereinafter referred to as the COMP-HIP-KNEE measure), beginning with the FY 2033 program year. We proposed these updates contingent on our adopting the same updates to the COMP-HIP- KNEE measure for use in the Hospital IQR Program beginning with the FY 2027 payment determination, which we discuss further in section X.C. of the preamble of this final rule.

We adopted the COMP-HIP-KNEE measure in the FY 2015 IPPS/LTCH PPS final rule beginning with the FY 2019 program year for use in the Hospital VBP Program (79 FR 50062 through 50063). We previously adopted substantive updates to the COMP-HIP-KNEE measure in the FY 2024 IPPS/ LTCH PPS final rule (88 FR 59067 through 59070) to include index admission diagnoses and in-hospital comorbidity data from Medicare Part A claims which expanded the measure outcome to include 26 additional mechanical complications as identified from 10th revision of the International Classification of Diseases (ICD-10) codes. We continue to consider the clinical outcomes of the COMP-HIP-KNEE measure a high priority, providing important data on patient safety and adverse events, which is why we proposed to adopt additional updates to the COMP-HIP-KNEE measure in the Hospital VBP Program under the Clinical Outcomes Domain beginning with the FY 2033 program year. In Table VI.L.-01, we illustrate the program years for which we have adopted the COMP-HIP-KNEE measure, and the modifications we previously adopted, as well as the additional modifications we proposed in the FY 2026 IPPS/ LTCH PPS proposed rule. [GRAPHIC] [TIFF OMITTED] TR04AU25.254

(2) Overview of Measure Updates

The proposed substantive updates to the COMP-HIP-KNEE measure would (1) expand the measure's inclusion criteria to include Medicare Advantage (MA) patients and (2) shorten the performance period from 3 years to 2 years. The addition of MA data to the measure would approximately double the cohort size, demonstrate measure reliability, and more accurately reflect the quality of care for both FFS and MA beneficiaries. Additionally, the proposed update to reduce the performance period from 3 to 2 years would allow for more recent data for assessing performance. Being able to report measures with only 2 years of data with satisfactory reliability would provide more relevant and up to date quality information for actionable quality improvement insights.

With the inclusion of MA patients in the cohort, we assessed whether the reliability of the measure could reach a satisfactory level when the performance period is shortened. Signal-to-noise reliability testing was calculated for all hospitals in the testing sample (n= 3,124) and hospitals with at least 25 cases (n= 1,777), using 2 years of data for analysis (CY 2022/2023). For hospitals with at least 25 cases, the median reliability score was 0.784, ranging from 0.545 to 0.997. The 25th and 75th percentiles were 0.673 and 0.883, respectively. Therefore 75 percent of hospitals exceed a 0.6 reliability score, using the 2 year FFS and MA combined cohort, and we believe that this reliability score demonstrates that 2 years of data provide satisfactory reliability.

The proposed updated COMP-HIP-KNEE measure would use index admission diagnoses and procedure codes from Medicare FFS claims and MA encounter data to determine cohort inclusion criteria, complications outcomes, and present on admission (POA) comorbidities. We would assess additional comorbidities prior to the index (initial) admission using Part A inpatient, outpatient, and Part B office visit Medicare claims and MA encounters in the 12 months prior to index admission. We would obtain enrollment status from the Medicare Enrollment Database which contains beneficiary demographic, benefit/coverage, and vital status information. We refer readers to section X.C. of the preamble of this final rule for more information on the proposed updates. As stated previously, these proposed updates in the Hospital VBP Program are contingent on our adopting them in the Hospital IQR Program. (3) Pre-Rulemaking Process and Measure Endorsement

We listed this updated COMP-HIP-KNEE measure in the publicly available document entitled “List of Measures Under Consideration for December 1, 2024” (the “MUC List”) with identification number MUC2024-042.197 198 199 We refer readers to section X.C. of the preamble of this final rule for a discussion of the Pre-Rulemaking Measure Review (PRMR) meeting for this measure.

\197\ Centers for Medicare & Medicaid Services. (2024) Overview of the List of Measures Under Consideration December 1, 2024. Available at: https://mmshub.cms.gov/sites/default/files/2024-MUC-List-Overview.pdf.

\198\ Centers for Medicare and Medicaid Services. (2024) 2024 MUC List. Available at: https://mmshub.cms.gov/sites/default/files/2024-MUC-List.xlsx.

\199\ We note that the measure denominator of the updated COMP- HIP-KNEE measure, as described in the MUC List, excludes patients with a principal diagnosis code of COVID-19 ICD-10 code (U07.1) or with a secondary diagnosis code of COVID-19 coded as present on admission (POA) on the index admission claim. As discussed further below, we are providing notice of our intent to remove this exclusion from the measure.

The CBE previously re-endorsed the original measure in July of 2021.\200\ We submitted the measure with the proposed modifications (CBE #1550) for re-endorsement for the Fall 2024 cycle. The CBE's Endorsement & Maintenance Cost and Efficiency Committee convened in the Fall 2024 cycle to review the COMP-HIP-KNEE measure that was submitted to the CBE for re-endorsement. The E&M Cost and Efficiency Committee voted on this measure on February 10, 2025, but did not reach consensus because only 73 percent of the committee voted to endorse or endorse with conditions, below the 75 percent required by the CBE to reach consensus.\201\ As a result, the measure was not re-endorsed by the CBE. The E&M Cost and Efficiency Committee discussed concerns about the case mix of patients, noting the shift from inpatient to outpatient for these elective procedures and that healthier patients may be directed to ambulatory surgical centers, leaving acute care hospitals with higher-risk individuals, which could affect case mix and measure outcomes. Another concern discussed was the limited scope of the measure which only includes inpatient complications, and whether this limited scope provides utility and relevance for patients. Additional concerns discussed include the overall approach to adjusting low-volume provider performance to the average, and that scores for lower volume providers may be misleading to patients.

\200\ Centers for Medicare & Medicaid Services. (2022) MAP 2021- 2022 Considerations for Implementing Measures Final Report-- Clinicians, Hospitals, and PAC-LTC. Available at: https://www.qualityforum.org/Publications/2022/03/MAP_2021-2022_Considerations_for_Implementing_Measures_Final_Report_-_Clinicians,_Hospitals,_and_PAC-LTC.aspx.

\201\ Battelle--Partnership for Quality Measurement. (2025). Fall 2024 Cycle Endorsement and

Maintenance (E&M) Technical Report: Management of Acute Events and Chronic Conditions. Available at: https://p4qm.org/sites/default/files/Cost%2C%20Resource%20Use%2C%20and%20Efficiency/material/EM-Fall-2024-Cost-and-Efficiency-Final-Project-Report.pdf.

The measure developer then submitted an appeal of the decision not to re-endorse the measure, citing the following rationales: (1) procedural error in the endorsement process with an excessive focus on outpatient setting exclusions; and (2) misapplication of measure evaluation criteria, particularly risk adjustment. The CBE convened the E&M Fall 2024 Appeals Committee meeting on March 31, 2025. The Appeals Committee voted to grant the appeal request, with a vote of 100 percent for both rationales, and overturn the decision not to re-endorse the measure. Thus, the COMP-HIP-KNEE measure was endorsed with the following conditions: (1) explore the proportion of procedures done in the ambulatory surgical centers and hospital outpatient department setting and evaluate the need for adjustment based on the impact of case mix; and (2) explore additional approaches to the reliability assessment to account for low-volume facilities.

Regarding the impact of case mix, we note that this measure focuses on higher-risk patients and is intentionally narrow to capture significant complications, such as sepsis, pulmonary embolism, or a second surgery, which should be treated in the inpatient setting. We wish to emphasize that those having elective THA or TKA procedures within the inpatient setting must meet certain criteria, resulting in a smaller cohort of patients, and in communities where there are no ambulatory care centers the patient would be treated in the hospital outpatient department and would not be counted in this measure. Regarding the second condition for endorsement, to explore additional approaches to the reliability assessment to account for low-volume facilities, we emphasize that the goal of this measure and adjusting for low volume is to make performance scores available for as many providers as possible while trying to avoid misclassification or profiling of providers. We note that scores are not available for facilities with fewer than 25 cases, because the number of cases may be too small for meaningful results.

We wish to emphasize that this measure has been an important patient safety measure that has provided meaningful quality and patient safety information for patients on the hospital inpatient setting for a substantial period of time. Further, we are committed to continually improving quality and patient safety for as many patients as possible within the inpatient setting. Based on our evaluation of the endorsement criteria, the conditions for endorsement have been met. (4) Data Source, Submission and Public Reporting

To continue to assess clinical outcomes, we proposed to adopt these measure updates to the COMP-HIP-KNEE measure in the Hospital VBP Program under the Clinical Outcomes Domain beginning with the FY 2033 program year, contingent on our adoption of these changes in the Hospital IQR Program as described in section X.C. of the preamble of this final rule. We stated that, if finalized, we would begin posting the updated measure data on the Compare tool beginning in July 2026, which would enable us to post data on the substantive updates to the measure for at least one year before the proposed adoption beginning with the April 1, 2029-March 31, 2031, performance period which is associated with the FY 2033 payment determination, as required by section 1886(o)(2)(C)(i) of the Act.\202\ We also proposed that the performance standards calculation methodology for the updated COMP-HIP- KNEE measure would be the same as that which we currently use for the measure. The performance standards for the updated measure for FY 2033 are not yet available.

\202\ We noted that this performance period would only be 2 years instead of 3 if the proposed updates to the COMP-HIP-KNEE measure, which includes shortening of the performance period, are adopted.

We invited public comment on this proposal. Below, we summarize the public comments that we received and our responses.

Comment: Many commenters supported CMS's plans to include MA patients in the COMP-HIP-KNEE measure contingent on adoption of this update in the Hospital IQR Program. The commenters noted that this cohort change will more fully capture care quality in the Medicare Program and more accurately reflect the care quality provided in hospitals with high proportions of MA patients.

Response: We thank the commenters for their support.

Comment: Some commenters cautioned that CMS should ensure MA encounter data provides enough information to assess quality performance.

Response: We have studied the feasibility of incorporating MA encounter data and concluded MA data are feasible for use in CMS's claims-based hospital outcome measures. We refer readers to published methodology of incorporating MA inpatient data \203\ for more information. We will continue monitoring MA encounter data as we incorporate it into the measure's cohort.

\203\ See Kyanko et. al. “Processing and validation of inpatient Medicare Advantage data for use in hospital outcome measures.” Health Services Research, vol. 59, issue 6. Available at: https://doi.org/10.1111/1475-6773.14350.

Comment: A commenter supported CMS's proposal to update quality measure populations to include MA beneficiaries, though the commenter also expressed concern that the new population has the potential to shift performance distributions meaningfully if not accounted for in risk adjustment. The commenter stated that some areas of the country have lower MA penetration and benchmarks, which may impact those hospitals disproportionately. The commenter recommended CMS continue with the proposal and communicate benchmark adjustments transparently, while also ensuring the risk model fully reflects the population's characteristics.

Response: We thank the commenter for their support. We note that the risk adjustment model has been updated to account for case mix in both fee-for-service (FFS) and MA. The clinical variables included in the risk adjustment model were selected based on analyses using a combined FFS and MA cohort, approximately evenly split between FFS and MA beneficiaries. This approach ensures the model captures the key risk factors relevant to the combined population. The model includes an indicator variable for FFS versus MA enrollment status, which accounts for any potential differences in readmission risk between these groups. We found that the prevalence of clinical risk factors and their associations with readmission outcomes were similar across FFS and MA beneficiaries. Stratifying the model by FFS and MA did not yield meaningful improvements in performance, supporting the decision to model them together with an indicator variable. Finally, keeping FFS and MA patients together for purposes of this measure's calculation will keep the hospitals' total volume higher for more precise measure scores.

We proposed for these changes to take effect beginning with the FY 2033 Hospital VBP Program year to provide time and data to monitor for any unintended consequences. We intend to provide hospitals with measure performance data with the expanded measure's patient cohort based on data collected while the `Modification 2' version of the measure is in use in the Hospital IQR Program via annual confidential hospital-specific reports beginning with the FY 2027 program year, as well as via annual Provider Participation Summary Reports under the Hospital VBP Program beginning with the FY 2033 program year. In addition, Hospital VBP Program performance standards for this measure will be published at least 60 days prior to the beginning of each applicable performance period as required by section 1886(o)(3)(C) of the Act.

Comment: Several commenters supported improved measure reliability and accuracy by adding MA patients to the measure calculations, though urged caution given their questions about data collection. The commenters urged CMS to monitor MA data and its impact on quality measures carefully. A commenter expressed concern about data completeness due to the increased likelihood of MA patients having incomplete or missing Medicare Beneficiary Identifiers (MBIs) at the time of submission, which can lead to challenges in claims documentation. While supportive of adding MA data, the commenter stated hospitals could be penalized due to factors outside their control in high-penetration markets for MA beneficiaries.

Response: As stated above, we have studied the feasibility of incorporating MA encounter data and concluded that MA data are feasible for use in CMS's claims-based hospital outcome measures.\204\ We intend to monitor the effects of the updated patient cohort for this measure carefully, including the impact of using MBIs, and will provide as much information as possible to participating hospitals. We would also like to clarify that the MA encounter data and FFS claims used in the measure are submitted by Medicare Advantage Organizations and providers, respectively, and already include MBIs. These data are processed and validated through CMS systems prior to being made available for use in quality measurement. Hospitals are not required to submit any additional data or ensure MBI completeness beyond their usual billing practices. As such, the inclusion of MA data does not introduce a new

responsibility for hospitals with respect to MBI submission. The modifications are intended to increase reliability and more accurately reflect the quality of care for both FFS and MA beneficiaries, thus providing hospitals more accurate data. We will continue working with hospitals to ensure that they fully understand any effects this change may have on their performance assessment under the Hospital VBP Program.

\204\ See Kyanko et. al. “Processing and validation of inpatient Medicare Advantage data for use in hospital outcome measures.” Health Services Research, vol. 59, issue 6. Available at: https://doi.org/10.1111/1475-6773.14350.

Comment: A commenter supported the addition of MA beneficiaries to this measure, noting the measure is episode-specific and reflects all of the major complications that can arise following elective THA/TKA procedures. The commenter recommended CMS consider reporting the inverse complication rate in the future, or the rate without major complications, to support the public's understanding of the measure's results, along with volume of associated procedures and patient risk profiles.

Response: We thank the commenter for this feedback and will consider it as we continue refining our public reporting policies in the future.

Comment: Several commenters requested that CMS conduct a dry run with scoring reports or a phased-in approach showing how the change would affect hospitals' performance before finalizing the update. The commenters requested that CMS provide a clearer understanding of data collections, assess the associated burden, and analyze potential shifts in performance. A few commenters opposing the proposed measure changes suggested, if we choose to move forward, CMS adopt a phased implementation approach focused on the Hospital IQR Program first, including a multi-cycle impact analysis, and postpone public reporting and payment adjustments.

Response: We thank the commenters for this feedback. We would like to clarify that the inclusion of MA data does not require any additional data collection or submission from hospitals beyond what is already reported for administrative and billing purposes. Specifically, the MA encounter data used for this measure are submitted by Medicare Advantage Organizations (MAOs) to CMS. Hospitals that receive disproportionate-share hospital or medical education payments from Medicare are required to submit information-only claims for inpatient stays of MA beneficiaries for years already. Similarly, FFS claims are submitted through existing hospital billing processes. As such, the proposed modifications do not impose additional data submission burden on hospitals.

We have also conducted testing to evaluate the effects of including MA data on the measure cohort and the results are detailed in the 2024 Readmission Measures Supplemental Methodology Report. This analysis found that, overall, more than 80% of hospitals remained in the same performance quintile or shifted by no more than one quintile after the addition of MA data. These findings suggest that the inclusion of MA data results in minimal disruption to hospital performance classification while offering a more comprehensive view of quality for hospitals serving both FFS and MA beneficiaries.

As proposed, we are finalizing these changes to take effect beginning with the FY 2033 Hospital VBP Program year. Per section 1886(o)(2)(C)(i) of the Act, measures must be specified for use in the Hospital IQR Program and publicly reported for at least one year prior to use in the Hospital VBP Program. This updated measure is being adopted in the Hospital IQR Program beginning with the FY 2027 payment determination, and hospitals will be able to preview their data on this measure in the Hospital IQR Program prior to it being publicly reported. This delay will give hospitals time and data to identify any performance impacts before this updated measure impacts payment under the Hospital VBP Program. We intend to continue to monitor and evaluate the performance of this measure for changes that may be a result of the measure updates, along with any unintended consequences.

Comment: A couple of commenters agreed with the reasoning of the Endorsement & Maintenance Cost and Efficiency Committee for not reaching initial consensus on endorsement of the updated measure and expressed concern endorsement was ultimately granted in the appeal process, and recommended CMS reconsider the measure in the Hospital VBP Program.

Response: On February 10, 2025,\205\ the Endorsement & Maintenance Cost and Efficiency Committee voted, and did not reach consensus on this measure, resulting in the measure not being re-endorsed. The decision was appealed and the Appeals Committee unanimously voted to grant the appeal, overturning the initial endorsement decision and endorsing the measure with conditions. The two conditions for endorsement were: (1) explore the proportion of procedures done in the ambulatory surgical centers and hospital outpatient department setting and evaluate the need for adjustment based on the impact of case mix; and (2) explore additional approaches to the reliability assessment to account for low-volume facilities.

\205\ Battelle--Partnership for Quality Measurement. (2025). Fall 2024 Cycle Endorsement and Maintenance (E&M) Technical Report: Management of Acute Events and Chronic Conditions. Available at: https://p4qm.org/articles/now-available-final-fall-2024-e-m-reports.

Comment: A commenter, who generally supported CMS's plans to include MA beneficiaries in the measure's cohort, urged CMS to reconsider the utility of the measure in the Hospital VBP Program given complications may result from a variety of factors outside the hospital's control.

Response: We thank the commenter for their feedback and support. We continue to consider clinical outcomes for this measure a priority, including clinical outcomes for Medicare patients in MA, as the measure provides important patient safety and adverse events data to providers and patients. Empirically, fee for service and MA patients each represent approximately half of the cohort for this measure. The two groups have similar outcome rates, similar risk variable prevalence, and, with the addition of the MA indicator for risk adjustment, model performance and calibration was good in the combined cohort. Using the modified measure not only in the Hospital IQR Program, but also the Hospital VBP Program under which a portion of payments to hospitals is tied to measure performance, serves as an important incentive for quality improvement.

Comment: A commenter expressed concerns with the use of mortality measures and the COMP-HIP-KNEE measure for low reliability results. The commenter suggested that none of those measures reached what the commenter described as the minimum acceptable threshold of 0.7 for reliability.

Response: We thank the commenter for their feedback. The measure developer conducted rigorous testing and concluded that the addition of MA patients into the measure's cohort, in conjunction with the performance period changes, resulted in 75 percent of hospitals exceeding a 0.6 reliability score. Based on measures in the program, a 0.7 reliability score does not represent the minimum threshold for a measure's reliability in the Hospital VBP Program, and we note further that the CBE describes 0.6 as the accepted threshold for reliability when evaluating quality measures.\206\ This result demonstrates the proposed measure

updates balance a focus on more recent data with a sufficiently reliable measure calculation that accurately reflects the quality of care provided by hospitals.

\206\ Table 4, Endorsement and Maintenance (E&M) Guidebook, June 2025. Partnership for Quality Measurement. Available at: https://www.p4qm.org/e-m-guidebook/e-m/e-m-guidebook-version-3-0.

Comment: Some commenters opposed inclusion of MA data in quality measure cohorts until hospitals can validate and become comfortable with the data. While the commenters acknowledged MA enrollment is now over 50 percent of Medicare beneficiaries, the commenters stated that MA encounter data is less accessible and sometimes less accurate than FFS claims data. The commenters also noted that MA plans often use their own utilization management tools like lengthy authorization processes that can alter care patterns and recommended that CMS implement a transition period before fully including MA data in measurement. Other commenters requested that CMS allow time for hospitals to review MA performance data to understand how their performance cohorts have changed, stating that hospitals need time to determine MA patient data will not skew their performance assessments due to issues beyond the hospital's control. The commenters requested CMS delay implementation until CMS can provide more information for hospital's review and understanding or reconsider the proposal entirely.

Response: The Hospital VBP Program intends to drive quality improvement for the entire Medicare population and by extension, to all patients served by hospitals. As MA enrollment grows, it becomes necessary to expand the cohort population to more accurately reflect the quality of care for all beneficiaries. As stated earlier, we conducted testing to evaluate the effects of including MA data on the measure cohort and found more than 80% of hospitals remained in the same performance quintile or shifted by no more than one quintile after the addition of MA data. These findings suggest that the inclusion of MA data results in minimal disruption to hospital performance classification while offering a more comprehensive view of quality for hospitals serving both FFS and MA beneficiaries.

CMS is finalizing changes to the COMP-HIP-KNEE measure's cohort to take effect with the FY 2033 Hospital VBP Program year, following their implementation in the Hospital IQR Program beginning with the FY 2027 payment determination. This effective date will provide hospitals with sufficient time to understand if and how the new patient cohort will affect their performance assessment under the Hospital VBP Program.

Comment: Several commenters cautioned CMS about incorporating MA outcomes in FFS quality programs, arguing this policy could lead to duplicative penalties on hospitals. The commenters explained MA plans have their own value-based programs and MA patients often experience different post-acute care options due to MA plan structures. A commenter encouraged us to analyze performance variations between MA and FFS beneficiaries and provide annual confidential feedback reports to hospitals on any differences. Another commenter suggested that CMS work to develop improved measures of key outcomes rather than using MA data and requested that it not publicly report current measures by insurance type as such reporting contradicts the stated purpose of combining the populations.

Response: We thank the commenters for sharing their concerns and we intend to monitor the potential for differences between the MA and FFS populations' on this measure. While we understand MA plans have their own quality program, we remain concerned that omitting MA patients from the measure provides an incomplete picture of the care quality provided to Medicare beneficiaries by participating hospitals. As we stated in the proposed rule (90 FR 18290), the addition of MA data in the measure would approximately double the cohort size, and we have concluded that including these patients in the measure provides CMS, providers, patients, caregivers, and others a broader view of care quality. We appreciate the commenter's concern about public reporting and will take it into account as we refine our public reporting policies in the future.

Comment: Some commenters requested CMS release data on the modified THA/TKA measure and how performance changes with the addition of MA patients. The commenters were concerned that MA benefit design means hospitals will have less control over their MA patients' care, especially due to prior authorization requirements. A commenter recommended that CMS tie outcomes to fee-for-service patient performance within the hospital's control. The commenter explained that MA enrollees accept different benefit design than FFS patients and expressed concern that hospitals cannot control MA plans' requirements like prior authorization. The commenters also asked CMS to confirm that it does not intend to use MA payment information to assess hospitals under the Hospital VBP Program and suggested that CMS limit the expanded patient cohort for this measure to the Hospital IQR Program.

Response: We intend to provide annual confidential feedback reports to hospitals on their measured performance that they can use to assess the effects of the cohort change on their measure rates. We acknowledge commenters concerns regarding benefit design differences between MA plans and traditional Medicare, however, adding MA beneficiaries into the cohorts of the Hospital VBP Program measure set will provide a more robust and holistic view of quality of care provided to all Medicare beneficiaries despite these differences. For measure calculation, we identify index and subsequent admissions for patients enrolled in MA plans using MA encounter data and information-only claims for MA inpatient stays. We note, neither of these data sources are dependent on the MA plan's coverage determinations (including bundling or denying coverage) for that admission. Therefore, the measures would continue to encourage hospitals to focus on preventing readmissions, which are often an adverse event for patients and impose a financial burden on the patient and the healthcare system. Because an increasing portion of Medicare beneficiaries are covered by MA plans, including index admissions for these patients in our measure cohorts is an important step in ensuring high-quality, safe care for all Medicare beneficiaries. Including index admissions for Medicare beneficiaries enrolled in MA also increases the cohort size for the Hospital VBP Program measures, which in turn improves the measures' precision for each hospital.

CMS continues to encourage hospitals to work closely with insurers, including MA plans, to coordinate the highest quality care for their patients. We further note that this measure will not incorporate MA payment information into hospitals' assessments.

Comment: Several commenters supported our proposal to shorten the performance period of the COMP-HIP-KNEE measure. Commenters stated the change will more accurately reflect current care and simplify public reporting, thus providing hospitals and patients with more recent data. With this change, the hospitals will see results more quickly from their quality improvement efforts and avoid being scored on older information.

Response: We thank the commenters for their support.

After consideration of the public comments we received, we are finalizing the updates to the COMP-HIP-KNEE measure's cohort and performance period as proposed

beginning with the FY 2033 payment determination. b. Technical Updates to the Specifications of the COMP-HIP-KNEE Measure To Update the Risk Adjustment Model Beginning With the FY 2033 Program Year \207\

\207\ In the proposed rule, the section header was erroneously shown with the FY 2027 Program Year. We corrected this error in a Correction Notice that we published on June 5, 2025 (90 FR 23867).

In addition to the updates discussed previously and further updates we discuss below, we provided notice in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18291 through 18292) of our intent to make a non- substantive modification, as permitted under Sec. 412.164(c)(1), to the COMP-HIP-KNEE measure to update the risk adjustment model to use individual International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs). Under this technical updates policy, we use a subregulatory process to incorporate technical measure specification updates into the measure specifications we have adopted for the Hospital VBP Program (79 FR 50077 through 50079). We continue to believe that this policy, codified at 42 CFR 412.164(c)(1), is the most expeditious manner possible to ensure that quality measures remain fully up to date while preserving the public's ability to comment on substantive updates, which so fundamentally change a measure that it is no longer the same measure that we originally adopted. The current risk adjustment strategy for this measure involves grouping ICD-10 diagnosis codes from CMS's HCC system into clinically relevant categories. We then evaluate the HCCs for statistical association with the measure's outcome.\208\ However, research has indicated that using individual ICD codes in place of HCCs could significantly improve the model performance of the mortality measures.\209\ To better leverage the data and analytical advances since the measure was initially developed, we created a new approach to use individual ICD-10 codes for risk adjustment instead of grouping them into categories. With this new approach, the discriminative performance of the risk adjustment model as measured by c-statistic was significantly better and the calibration performance also proved to be satisfactory.

\208\ Centers for Medicare & Medicaid Services. 2024 Condition- Specific Measure Updates and Specifications Report. Available at: https://qualitynet.cms.gov/inpatient/measures/mortality/methodology.

\209\ Krumholz, H. M., Coppi, A. C., Warner, F., Triche, E. W., Li, S. X., Mahajan, S., Li, Y., Bernheim, S. M., Grady, J., Dorsey, K., Lin, Z., & Normand, S. T. (2019). Comparative Effectiveness of New Approaches to Improve Mortality Risk Models From Medicare Claims Data. JAMA network open, 2(7), e197314. https://doi.org/10.1001/jamanetworkopen.2019.7314.

We received several comments on this technical update.

Comment: Many commenters supported our technical updates, noting that using ICD-10 codes rather than HCCs will allow more granular and individualized risk stratification. Some commenters stated that the increased granularity of ICD-10 coding better captures patients' clinical complexities, which results in fairer and more accurate evaluations of hospitals' performance.

Response: We thank the commenters for their support.

Comment: A commenter also suggested that CMS consider an active diagnosis of COVID-19 as a risk variable where appropriate.

Response: As we discuss in the following subsection of this final rule, we are removing the exclusion of patients with a principal or secondary diagnosis of COVID-19 in the measure denominators. We have concluded a risk variable is not appropriate because the broader patient cohort captured by the updated measures provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program.

Comment: A commenter requested additional transparency when CMS develops new models, including clinical validation and extensive testing before public reporting.

Response: We intend to be transparent in developing models by providing feedback to participating hospitals and will continue providing feedback reports detailing hospitals' performance in the Hospital VBP Program so they fully understand how risk adjustment models affect their measured performance.

Comment: Some commenters expressed concern about CMS's plan to change the risk adjustment model from HCC to ICD-10. Concerns included misalignment of risk adjustment methods across programs and models and potential for unintended consequences. A commenter cautioned this was not a minor technical refinement and instead represented a foundational departure from the methods used in many CMS programs, including the TEAM model, deserving a phased approach to avoid operational risk and threats to data continuity and integrity.

Response: We do not agree that this risk adjustment change represents a foundational departure from prior CMS methods. As we discussed in the proposed rule (90 FR 18292), in depth data analysis conducted by the measure developer has indicated that using individual ICD codes in place of HCCs could significantly improve the model performance of mortality measures. Further, as discussed in the 2024 Condition[hyphen] and Procedure[hyphen]Specific Mortality/Complication Measures Supplemental Methodology Report, the new variable selection approach using ICD-10 codes in place of condition categories significantly improved the discriminative performance of the risk adjustment models, as measured by c-statistics, for stroke mortality while performance remained the same for THA/TKA complications.\210\ Better risk adjustment models help quality measures more accurately reflect the quality of care provided to Medicare beneficiaries, allowing CMS to better leverage data and analytical advances since the measure was initially developed and hospitals and patients to receive more accurate quality data. We intend to keep participating hospitals informed about the effects of this policy change through our customary hospital-specific reports.

\210\ Centers for Medicare & Medicaid Services. 2024 Condition- and Procedure-Specific Mortality/Complication Measures Supplemental Methodology Report, Stroke/Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA). Available at: https://qualitynet.cms.gov/inpatient/measures/complication/methodology

Comment: Some commenters expressed specific concern about the burden imposed on hospitals by the change in risk adjustment model.

Response: We note that hospitals are already submitting these data points through claims and there is no additional burden associated with this change to risk adjustment model. The change will only affect how CMS calculates measured performance.

We thank the commenters for their feedback on this technical update. We will implement the technical updates as notified in the proposed rule. c. Technical Updates to the Specifications of the Five Condition- and Procedure-Specific Mortality Measures and the COMP-HIP-KNEE Measure Beginning With the FY 2027 Program Year

During the COVID-19 public health emergency, in the FY 2022 IPPS/ LTCH PPS final rule, we stated that we were updating the Hospital 30- Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization (MORT-30-AMI), Hospital 30- Day, All-Cause, Risk-

Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery (MORT-30-CABG), Hospital 30-Day, All-Cause, Risk- Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (MORT-30 COPD), Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Heart Failure (HF) Hospitalization (MORT-30-HF), and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (COMP-HIP-KNEE) measures to exclude admissions with either a principal or secondary diagnosis of COVID-19 present on admission from the measure denominators (86 FR 45279 through 45281). In the FY 2023 IPPS/LTCH PPS final rule, we also updated the technical specifications for the Hospital 30-Day, All- Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization (MORT-30-PN) measure to exclude patients with either principal or secondary diagnoses of COVID-19 from the measure denominator (87 FR 49109 through 49110). Additionally, we further modified the technical measure specifications for all six measures in the Clinical Outcomes domain, the MORT-30-AMI, MORT-30-CABG, MORT-30- COPD, MORT-30-HF, MORT-30-PN, and COMP-HIP-KNEE measures, in the FY 2023 IPPS/LTCH PPS final rule to include a covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission beginning with the FY 2023 program year (87 FR 49106 through 49109).

We stated that we were making these updates pursuant to the technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS final rule. We refer readers to the previous section of the preamble of this final rule for more details on our subregulatory technical updates policy.

Accordingly, we are providing notice in this final rule that we intend to remove the COVID-19 exclusions from the five condition- and procedure-specific mortality measures and one procedure-specific complication measure beginning with the FY 2027 program year. This technical update will modify the technical specifications of the MORT- 30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, and MORT-30-PN measures to include the ICD-10 codes that identify patients with a principal diagnosis code of COVID-19 or with a secondary diagnosis code of COVID- 19 coded as present on admission on the index admission claim. The technical update will also modify the technical specifications of the COMP-HIP-KNEE measure to include the ICD-10 codes that identify patients with a principal or secondary diagnosis of COVID-19 in both the measure numerator and denominator. Lastly, the technical update will remove the covariate adjustment for patient history of COVID-19 in the 12 months prior to the admission for all six measures in the Clinical Outcomes domain for the Hospital VBP Program beginning with the FY 2027 program year.

Including COVID-19 patients in the measure specifications for the measures in the Clinical Outcomes domain beginning with the FY 2027 program year provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program. Technical specifications of the Hospital VBP Program mortality and complication measures are provided on our website under the Measure Methodology Reports section (available at: https://qualitynet.cms.gov/inpatient/measures/mortality/methodology and https://qualitynet.cms.gov/inpatient/measures/complication/methodology). Additional resources about the measure technical specifications and methodology for the Hospital VBP Program are on the QualityNet website (available at: https://qualitynet.cms.gov/inpatient/hvbp).

We received several public comments on this technical update.

Comment: Many commenters supported the technical update to remove the COVID-19 exclusion from the Hospital VBP Program, a few commenting on the end of the public health emergency (PHE) and minimal impact to data.

Response: We thank the commenters for their support.

Comment: A commenter, supporting the removal of COVID-19 as an exclusion, suggested CMS consider whether an active diagnosis of COVID- 19 should be a risk variable where appropriate.

Response: Given the analysis, we have concluded a risk variable is not appropriate because the broader patient cohort captured by the updated measures provides a more complete picture of the care quality provided in hospitals, which meets the goals of the Hospital VBP Program.

Comment: Some commenters recommended CMS adopt a phased implementation approach to ensure data integrity and support hospitals in adapting to the COVID-19 exclusion removal. The commenters requested CMS provide hospitals with reporting cycles of data for internal review, delay public reporting of measures with COVID-19 as a secondary diagnosis, and exclude these measures from value-based purchasing programs during initial reporting periods to avoid financial implications and ensure data accuracy.

Response: We appreciate concerns regarding the removal of the COVID-19 exclusion and its potential impact on hospital measure scores and financial implications. To inform this discussion, we conducted an analysis of the effect of removing the COVID-19 exclusion for the Hybrid Hospital-Wide Readmission (HKC) measure. Between July 2021 and June 2024, only 371 admissions out of 261,616 total index admissions (approximately 0.14%) were excluded due to a COVID-19 diagnosis. This demonstrates that the exclusion applied to a very small proportion of cases and, therefore, the impact of its removal on hospital-level measure scores is expected to be minimal. Given the limited number of affected admissions, we do not anticipate meaningful shifts in performance results due to this change. We will continue to monitor the impact over time, but current data indicate the removal of the exclusion does not warrant a phased implementation or exclusion from value-based purchasing programs. Hospitals will also have the chance to review their measure data during the 30-day preview period prior to public reporting. Additionally, including COVID-19 patients in the measure's cohort provides a broader view of the care quality hospitals provide to Medicare beneficiaries and meets the goals of the Hospital VBP Program.

Comment: A commenter was concerned about the removal of the COVID- 19 exclusion, stating the clinical and operational impacts of the COVID-19 PHE continue to affect hospital performance, such as the long- term effects of COVID-19 on workforce capacity, patient outcomes, and systemic challenges, including access to post-acute care, all of which can affect quality outcomes independently of provider performance. The commenter suggested removing this exclusion may unfairly penalize hospitals that continue to admit high-acuity, complex patients. Another commenter suggested updated risk adjustment models account for the long-term clinical effects of COVID-19 to avoid unfairly penalizing hospitals with a higher number of post-COVID patients.

Response: We appreciate the commenters' concerns. Given the end of the federal COVID-19 PHE on May 11, 2023, it is important CMS provide hospitals and beneficiaries with a

complete picture of the care quality provided for all patients. While hospitals and other types of health care facilities may face continuing challenges due to the long-term effects of the COVID-19 PHE, we do not agree these challenges represent such a significant threat to health care operations that patients with a secondary COVID-19 diagnosis should be excluded from these measures' cohorts.

We thank the commenters for their feedback on the technical update to remove the COVID-19 exclusion from the five Condition- and Procedure-Specific Mortality Measures and the COMP-HIP-KNEE Measure Beginning with the FY 2027 Program Year. We will implement the updates as outlined in the proposed rule. d. Summary of Previously Adopted Quality Measures for the Hospital VBP Program

We refer readers to the FY 2025 IPPS/LTCH PPS final rule for summaries of the previously adopted measures for the FY 2026 through FY 2030 program years (89 FR 69402). We did not propose any changes to the measure set. Table VI.L.-02 summarizes the previously adopted Hospital VBP Program measure set for the FY-2026 program year. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR04AU25.255

Table VI.L.-03 summarizes the previously adopted Hospital VBP Program measures for the FY 2027 through FY 2031 program years.

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3. Baseline and Performance Periods for the FY 2027 Through FY 2031 Program Years a. Background

We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69403 through 69405) for previously adopted baseline and performance periods for the FY 2026 through FY 2030 program years. We also refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998) in which we finalized a schedule for all future baseline and performance periods. b. Summary of Baseline and Performance Periods for the FY 2027 through FY 2031 Program Years

Tables VI.L.-04, VI.L.-05, VI.L.-06, VI.L.-07, and VI.L.-08 summarize the baseline and performance periods that we have previously adopted.

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BILLING CODE 4120-01-C 4. Performance Standards for the Hospital VBP Program a. Background

We refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59089) for previously established performance standards for the FY 2026 program year. We also refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69406 through 69407) for the previously established performance standards for the FY 2027 program year.

We received one general comment on our performance standards updates.

Comment: A commenter stated their support for the updates to Hospital VBP performance standards for the FY 2027 through FY 2031 program years.

Response: We thank the commenter for their support. b. Technical Update to the Five National Healthcare Safety Network (NHSN) Healthcare-Associated Infection (HAI) Measures

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18296 through 18297), we provided information regarding upcoming changes to the standard population data that are used to calculate the standardized infection ratio (SIR) for the CDC's NHSN measures. These changes are occurring as part of routine measure maintenance.

CDC's NHSN measures are used to monitor hospital performance on prevention of HAIs. For each NHSN measure, CDC calculates the standardized infection ratio (SIR), which compares a hospital's observed number of HAIs to the number of infections predicted for the hospital, adjusting for several risk factors. The predicted number of infections is determined using the amount of exposure (for example, the number of central line days when predicting CLABSI events) for a given hospital according to the relevant observed risk factors and infection rates for the same combination of risk factors that occurred among a standard population during a specified period as reflected by the appropriate risk adjustment model (this is sometimes referred to as a “baseline,” \211\ but referred to here as “standard population data”). This set of rates forms standard population data that promotes timely comparisons to measure change in an outcome. Since 2016, CDC has been using data collected in CY 2015 to determine the standard population and, currently, the 2015 standard population is used to calculate the HAI measures in the Hospital VBP Program.\212\ Prior to 2016, calculated SIRs had different standard population years for each infection type and facility type.\213\

\211\ “Rebaseline” is a term that CDC's NHSN staff use to describe the process of updating the national HAI baseline data and risk adjustment models developed using these data. As part of routine measure maintenance, CDC has updated the baseline to ensure the number of predicted infections used in SIR calculations reflects the current state of HAIs in the United States using CY 2022 data. The CDC released its initial announcement of this rebaseline in June 2023. Resources and training regarding the 2015 and 2022 standard population data can be found at: https://www.cdc.gov/nhsn/nhsnrebaseline/index.html.

\212\ Centers for Disease Control and Prevention. CHARTING THE COURSE: 2022 HAI REBASELINE. Available at: https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf.

\213\ Centers for Disease Control and Prevention. Paving the Path Forward: 2015 Rebaseline. Available at:

https://www.cdc.gov/nhsn/2015rebaseline/index.html.

During this update, HAI SIR calculations of infections reported beginning in CY 2025 will reflect the use of both the new 2022 standard population data and the 2015 standard population data.

Because the Hospital VBP Program calculates improvement points using comparisons between data collected from hospitals in a baseline period and data collected in a performance period, the Hospital VBP Program must treat CDC's baseline update differently than other quality programs. We have determined that we cannot equally compare CDC's new baseline data to the current baseline data to calculate improvement points. If we do not address the CDC's measure update, we will be unable to compare the baseline and performance periods for NHSN measures in the FY 2027 through FY 2028 program years. To address the problem, we intend to use the 2015 baseline data to calculate performance standards as well as to calculate and publicly report measure scores until the FY 2029 program year, as depicted in the table. For the FY 2029 program year and subsequent years, the Hospital VBP Program will use the “new standard population data” (that is, CY 2022 data) to calculate performance standards and calculate and publicly report measure scores.

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We received public comments on the technical update.

Comment: Many commenters supported CMS's notification of the update to the standardized baseline year for the Hospital VBP Program's HAI measures, agreeing 2022 is a reasonable, recent, post-COVID-19 baseline for updated quality measurement. Some commenters acknowledged the importance of updating the baseline year for NHSN measures' risk adjustment. The commenters encouraged CMS to evaluate the potential impacts of CY 2022 data for the commenters' information.

Response: We thank the commenters for their support. Hospitals will receive confidential reports on their measure performance.

We thank the commenters for their feedback on this technical update and we will implement the updates as outlined in the proposed rule. c. Previously and Newly Established Performance Standards for the FY 2027 Program Year

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45294 through 45295), we established performance standards for the FY 2027 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30- HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP- HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB). Additionally, in the FY 2025 IPPS/LTCH PPS final rule, we established the performance standards for the FY 2027 program year for the Safety domain measures (CAUTI, CLABSI, CDI, MRSA Bacteremia, Colon and Abdominal Hysterectomy SSI, and SEP-1) and the Person and Community Engagement Domain (the HCAHPS Survey Dimensions) (89 FR 69406 through 69407).

While we are making technical updates to the measures in the Clinical Outcomes domain beginning with the FY 2027 program year as discussed previously, the FY 2027 performance standards that we previously adopted for measures in this domain are unchanged because the applicable baseline period does not include COVID-19 impacted data after applying the national ECE. For the reader's reference, the performance standards for the measures in the Clinical Outcomes domain for the FY 2027 program year are set out in Table VI.L.-10. [GRAPHIC] [TIFF OMITTED] TR04AU25.263

We have adopted certain measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that we can adopt baseline and performance periods of sufficient length for performance scoring purposes. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49118), we established performance standards for the FY 2028 program year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN, MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB Hospital). However, given the technical update to the measures in the Clinical Outcomes domain beginning with the FY 2027 program year as discussed previously in section VI.L.2.c., we are establishing new performance standards for the measures in the Clinical Outcomes domain for the FY 2028 program year. We note that the performance standards for the MSPB Hospital measure are based on performance period data. Therefore, we are unable to provide numerical equivalents for the standards at this time. The newly established performance standards for these

measures are set out in Table VI.L.-11.\214\

\214\ NOTE TO REVIEWERS: Table VI.L.-11 has been updated.

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BILLING CODE 4120-01-C

We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69507-69508) where we finalized the policy to modify the scoring of the HCAHPS Survey for the FY 2027 through FY 2029 program years while updates to the survey are publicly reported under the Hospital IQR Program. Scoring is modified to only score hospitals on the six unchanged Hospital VBP dimensions of the HCAHPS Survey until the updates to the HCAHPS Survey have been publicly reported for one year. The six unchanged dimensions of the HCAHPS Survey for the Hospital VBP Program are as follows:

“Communication with Nurses”.

“Communication with Doctors”.

“Communication about Medicines”.

“Discharge Information”.

“Cleanliness and Quietness”.

“Overall Rating.”

Scoring is modified such that for each of the six unchanged dimensions, Achievement Points (0-10 points) and Improvement Points (0- 9 points) will be calculated, the larger of which will be summed across these six dimensions to create a pre-normalized HCAHPS Base Score of 0- 60 points (as compared to 0-80 points with the current eight dimensions). The pre-normalized HCAHPS Base Score will then be multiplied by \8/6\ (1.3333333) and rounded according to standard rules

(values of 0.5 and higher are rounded up, values below 0.5 are rounded down) to create the normalized HCAHPS Base Score. Each of the six unchanged dimensions will be of equal weight, so that, as currently scored, the normalized HCAHPS Base Score will range from 0 to 80 points. HCAHPS Consistency Points will be calculated in the same manner as the current method and will continue to range from 0 to 20 points. Like the Base Score, the Consistency Points Score will consider scores across the six unchanged dimensions of the Person and Community Engagement domain. The final element of the scoring formula, which will remain unchanged from the current formula, will be the sum of the HCAHPS Base Score and the HCAHPS Consistency Points Score for a total score that ranges from 0 to 100 points. The method for calculating the performance standards for the six dimensions will remain unchanged. We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 through 26512) for our methodology for calculating performance standards. The performance standards for the six unchanged dimensions for the FY 2028 program year are set out in Table VI.L.-12.\215\

\215\ NOTE TO REVIEWERS: Table VI.L.-12 has been updated.

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Under our current Extraordinary Circumstances Exception (ECE) regulations, we have granted exceptions with respect to Hospital VBP Program requirements in the event of certain extraordinary circumstances beyond the control of the hospital. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45298 through 45299) and 42 CFR 412.165(c) for additional details related to the Hospital VBP Program ECE policy. We also refer readers to the QualityNet website for the specific requirements for submission of an ECE request in the Hospital VBP Program.\219\

\219\ https://qualitynet.cms.gov/inpatient/hvbp/participation#tab6.

Our ECE policies provide flexibility for Hospital VBP program participants to ensure continuity of quality care delivery and measure scoring in the event of an extraordinary circumstance. For instance, we recognize that, in circumstances where a full exception is not applicable, it is beneficial for a hospital to report data later than the reporting deadline. Delayed reporting authorized under our ECE policy allows temporary relief for a hospital experiencing an extraordinary circumstance while preserving the benefits of data reporting such as transparency and informed decision-making for beneficiaries and providers alike. Accordingly, we proposed to update our regulations to specify that an ECE could take the form of an extension of time for a hospital to comply with a data reporting requirement if CMS determines that this type of relief would be appropriate under the circumstances. (b) Update to the Extraordinary Circumstances Exception (ECE) Policy for the Hospital VBP Program

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18300 through 18301), we proposed to update the current ECE policy codified at 42 CFR 412.165(c) to include extensions of time as a form of relief and to further clarify the policy. Specifically, at proposed Sec. 412.165(c)(1), we proposed that CMS may grant an ECE with respect to reporting requirements in the event of an extraordinary circumstance-- defined as an event beyond the control of a hospital (for example, a natural or man-made disaster such as a hurricane, tornado, earthquake, terrorist attack, or bombing)--that affected the ability of the hospital to comply with one or more applicable reporting requirements with respect to a fiscal year.

We proposed that the process for requesting or granting an ECE would remain the same as the current ECE process, detailed by CMS at the QualityNet website or a successor website.\220\ At proposed Sec. 412.165(c)(2)(i), we proposed that a hospital may request an ECE within 30 calendar days of the date that the extraordinary circumstance occurred. Our current policy allows a request within 90 days; however, this proposed change would align to CMS systems implementation requirements across all quality reporting programs. Under this proposed codified policy, we clarified that CMS retains the authority to grant an ECE as a form of relief at any time after the extraordinary circumstance has occurred. At proposed Sec. 412.165(c)(2)(ii), we proposed that CMS notify the requestor with a decision in writing. In the event that CMS grants an ECE to the hospital, the written decision would specify whether the hospital is exempted from one or more reporting requirements or whether CMS has granted the hospital an

extension of time to comply with one or more reporting requirements.

\220\ https://qualitynet.cms.gov/inpatient/iqr/participation#tab3.

Additionally, at Sec. 412.165(c)(3), we noted that CMS may grant an ECE to one or more hospitals that have not requested an ECE if CMS determines either of the following: a systemic problem with a CMS data collection system directly impacted the ability of the hospital to comply with a quality data reporting requirement, or that an extraordinary circumstance has affected an entire region or locale. As is the case under our current policy, any ECE granted will specify whether the affected hospitals are exempted from one or more reporting requirements or whether CMS has granted the hospitals an extension of time to comply with one or more reporting requirements.

This ECE policy would provide further reporting flexibility for hospitals and clarify the ECE process.

We invited public comment on our proposals. We received many general comments regarding our ECE-related proposals. However, we did not receive any comments specific to these updates for the Hospital VBP Program. For our responses to general comments, we refer readers to our responses in the Hospital IQR section of this final rule (section X.C).

After consideration of the public comments, we will finalize our ECE proposals as proposed, except for the proposed 30-day deadline. In lieu of the 30-day deadline and as discussed further in the Hospital IQR section of this final rule (section X.C.), we will finalize an ECE deadline of 60 days following an extraordinary circumstance. We are making conforming amendments to our regulation text (at 412.165(c)(2)(i)) to reflect this policy change. 6. Proposed Removal of the Health Equity Adjustment From the Hospital VBP Program

In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59092 through 59106), we adopted a Health Equity Adjustment (HEA) that, beginning with the FY 2026 program year, rewards top performing hospitals that serve higher proportions of patients with dual eligibility status. We codified the HEA at Sec. Sec. 412.160 and 412.165(b) of our regulations. Section 1886(o)(5)(A) of the Act authorizes the Secretary to develop the methodology for assessing hospital performance based on performance standards established with respect to the measures selected for the Hospital VBP Program.

As discussed in the FY 2024 IPPS/LTCH PPS final rule, by providing the HEA to hospitals that serve higher proportions of patients with dual eligibility status and that perform well on quality measures, the HEA would appropriately recognize the resource intensity expended to achieve high performance on quality measures by hospitals that serve a high proportion of patients with dual eligibility status, while also mitigating the worse health outcomes experienced by dually eligible patients through incentivizing better care across all hospitals.

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18301), we proposed to remove the HEA because simplifying the Hospital VBP Program's scoring methodology by removing the HEA would improve hospitals' understanding of the program and provide clearer incentives to hospitals as they seek to improve the quality of care for all patients. As noted in section I.G. of Appendix A of the proposed rule, in Table I.G.6.-01 and Table I.G.6.-02, the overall impact of the HEA on the overall payment adjustments is small. With the HEA, the average net percentage payment adjustment from the Hospital VBP Program for FY 2026 is 0.170 percent and without the HEA, the average net percentage payment adjustment is 0.168 percent. Given this relatively small impact, and in light of the Administration's priority to streamline regulations and reduce burdens on those participating in the Medicare program, we proposed to remove the HEA. We refer readers to “Supplementary Information” section of this final rule for the Unleashing Prosperity Through Deregulation of the Medicare Program-- Request for Information for more information.

We considered altering the structure of the adjustment methodology to simplify it, but that process would require time to develop and test a new adjustment and, if pursued, would be addressed in future rulemaking.

We did not anticipate any serious reliance interests as a result of this proposal since the HEA does not require any additional reporting burden.

We proposed to codify this removal of the HEA by removing the definition of “Health equity adjustment bonus points” in Sec. 412.160 of our regulations and revising Sec. 412.165(b) to remove the calculation and addition of health equity adjustment bonus points from the Total Performance Score calculation beginning with the FY 2026 program year. We referred readers to Table I.G.6.-01 (90 FR 18471 through 18472) and Table I.G.6.-02 (90 FR 18473) in Section 6: Effects of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP) Program in the proposed rule, which reflected an estimated impact analysis of base operating DRG payment amounts resulting from the FY 2026 Hospital VBP Program with and without the HEA, respectively.

We invited public comment on these proposals.

Comment: A few commenters supported the proposal to remove the HEA, while noting their continued commitment to providing high-quality care for all, and did not suggest other alternative adjustments.

Response: We thank the commenters for their feedback and support their commitment to providing high-quality care to all patients.

Comment: Several commenters acknowledged the importance of providing additional resources to hospitals serving a high proportion of dually eligible beneficiaries but did not take a strong position on supporting or opposing the proposal to removal HEA. Instead, the commenters suggested CMS explore other mechanisms, such as the beneficiary economic risk adjustment variable proposed for TEAM, noting the importance of transparency and simplicity. One commenter acknowledged the calculation's complexity but suggested that other policies such as the dual-eligible patient index have also created confusion.

Response: We thank the commenters for this feedback. As stated in the proposed rule (90 FR 18301), it would require time to develop and test an alternative, simplified structure for the HEA's bonus methodology. If we decide to propose a different adjustment in the future, we would review adjustments adopted in other CMS quality programs to enhance cross-program alignment whenever feasible and effective and then propose the adjustment in future rulemaking.

Comment: Most commenters strongly opposed the proposal to eliminate the HEA, noting the HEA shifted much-needed financial support towards hospitals operating on thin margins and serving high-risk, complex communities. Some commenters recommended CMS delay the HEA's removal until a robust, data-driven alternative is in place, and suggested CMS convene stakeholder panels to develop the new adjustment.

Response: As we discussed in the proposed rule (90 FR 18301), the effect of the HEA on the average net percentage payment adjustment provided by the Hospital VBP Program is small. We proposed to remove the adjustment beginning with the FY 2026 program year. This timing avoids burden by removing it before it was implemented for the first time. If we were to delay removal, burden would be incurred in the years the adjustment

was in effect. As described above, if we decide to propose a different payment adjustment in the future, we would review other programs' adjustments as well as stakeholder input and propose in future rulemaking.

Comment: Many commenters opposed the proposal to remove the HEA, stating HEA helps hospitals that face challenges providing care to the patients in their communities. The commenters also suggested that CMS has not had sufficient time to evaluate the adjustment's impact on health outcomes and expressed worry that the removal may have unintended consequences for health outcomes. A commenter recommended that CMS continue the HEA for at least five years to fully evaluate the impact of the adjustment on health outcomes. Other commenters worried that the adjustment's removal would have a disproportionate effect on safety net hospitals that often care for dually eligible beneficiaries and hospitals in rural areas, both of which frequently operate under financial strain because they provide critical but unprofitable services.

Response: As we explained in the proposed rule, we are addressing the additional complexity provided by the HEA in the Hospital VBP Program. As stated in the proposed rule, simplifying the program's scoring methodology by removing the HEA will enhance providers' understanding of the program's quality incentives and its quality improvement goals, and we do not believe it would be appropriate to wait five years to simplify the program. We will continue monitoring safety net hospitals and rural hospitals as part of our monitoring and evaluation work as we work to maintain access to high-quality care for all Medicare beneficiaries. We remind commenters that, as we discussed above, the effect of the HEA on the average net percentage payment adjustment provided by the Hospital VBP Program is small, and by removing it effective for the FY 2026 Hospital VBP program year before it has taken effect, we will avoid burdening participating hospitals with the adjustment's complexity.

Comment: A commenter stated that removing the HEA would return healthcare provision to an era where healthcare systems that provide care for the most medically and socially complex patients are no longer recognized for that additional burden. A few commenters rejected the need to remove HEA as a means of simplifying the scoring methodology, providing clearer incentives to hospitals, or reducing burden, thus opposing HEA removal and disagreeing with the intended goals of its removal. One commenter suggested CMS could resolve that complexity by providing better education to hospitals.

Response: We appreciate the commenters' concerns for hospitals that care for the most medically and socially complex patients. As outlined in the proposal, simplifying the program's scoring methodology by removing the HEA will enhance providers' understanding of the program's quality incentives and its quality improvement goals, and is consistent with the Administration's priority to streamline regulations on those participating in the Medicare program. We intend to continue working to educate participating providers on the mechanics of our quality programs to promote their understanding and their ability to compete for quality incentive payments. We note, however, that the complexity added to the program's scoring methodology by the Health Equity Adjustment makes such educational efforts, particularly for new hospitals, more challenging.

Comment: Some commenters opposed HEA removal and stated that the Hospital VBP Program should consider differences in a provider's patient population, including social risk factors, to counter the challenges faced in achieving good clinical outcomes. The commenters recommended considering an alternative design for the Hospital VBP Program if HEA is removed, with one commenter suggesting a new hospital value incentive program that accounts for social risk factors through a peer grouping approach and another suggesting the alternative design focus on upstream factors related to patients' health.

Response: We thank commenters for their feedback and suggestions on potential Hospital VBP Program methodology adjustments. The program remains a pay-for-performance quality program designed to make the quality of care better for hospital patients and hospital stays a better experience by encouraging hospitals to improve the quality, efficiency, patient experience and safety of care that Medicare beneficiaries receive during acute care inpatient stay. We note further that the program's design is specified by statute and is intended to address the care quality provided by inpatient hospitals. CMS will continue to evaluate the Hospital VBP program and support alignment between the program's goals and methodology.

Comment: Some commenters opposed the proposal to remove HEA, arguing the adjustment helps protect vulnerable and historically underserved populations, including patients with severe mental illness, complex social needs, low socioeconomic status, and dual eligibility status. Multiple commenters noted the adjustment will help underfunded safety net hospitals and hospitals in rural communities drive culture change and serve patients with medical complexities and financial hardships. Other commenters stated that the HEA encourages hospitals to focus on providing high-quality care to vulnerable patients, including maternal and psychiatric patients, and can lead to reduced health care costs in the long run. A commenter stated that hospitals working on care quality issues for vulnerable patients need appropriate infrastructure to be sustainable for all the communities they serve and suggested that eliminating the HEA risks penalizing hospitals that are working to address gaps in health outcomes.

Response: We appreciate the commenters' insights and remarks on safety net hospitals' financial needs, as well as the complexities associated with high-risk patient populations. CMS will continue monitoring the quality of care provided by these hospitals and the effects of the Hospital VBP Program as parts of our monitoring and evaluation efforts. However, as discussed above, we note that the average net percentage payment adjustment provided by the Hospital VBP Program is small. We have concluded that the merits of the additional payment adjustment are outweighed by the complexity it adds to the program's scoring methodology. We expect that all hospitals strive to provide the best possible care to all of their patients and we do not agree that the adjustment's removal will impair those efforts by hospitals, doctors, and other medical staff.

We agree with the commenter that hospitals need appropriate infrastructure to be able to serve all their patient communities. We will continue monitoring the effects of Medicare payment policy on numerous aspects of care quality and delivery, including maternal health and mortality.

Comment: A commenter stated that the Hospital VBP Program represents a step towards a “total cost of care” model, and that removing the HEA would harm hospitals that serve higher proportions of dually eligible patients. The commenter estimated that safety-net hospitals will receive an estimated $29 million in additional payment adjustments from the HEA and that as a result, those hospitals and their patients will bear the brunt of the negative impact if the adjustment is removed. The commenter suggested that the HEA was a notable step to

strengthen value-based care reforms and aligns with the Trump Administration's repeated emphasis on a new approach to health care that factors in nutrition and environmental impacts.

Response: The original intention of the adjustment was to develop a methodology to reward top performing hospitals serving higher proportions of patients with dual eligibility status. However, we do not view the incorporation of these additional topics as a new payment model. CMS intends to identify potential avenues for the Hospital VBP Program to address nutrition, environmental impacts, and other potential factors that may affect the provision of high-quality health care in the inpatient hospital setting in the future. We will continue to evaluate the program's methodology for alignment with the program's objectives.

After consideration of the public comments that we received, we are finalizing our proposal to remove the Health Equity Adjustment from the Hospital VBP Program effective with the FY 2026 program year. We are also finalizing our proposal to codify this policy by removing the definition of “Health equity adjustment bonus points” in Sec. 412.160 of our regulations and revising Sec. 412.165(b) to remove the calculation and addition of health equity adjustment bonus points from the Total Performance Score calculation beginning with the FY 2026 program year. We refer readers to Table I.G.6.-01 in Section 6: Effects of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP) Program, which reflect an estimated impact analysis of base operating DRG payment amounts resulting from the FY 2026 Hospital VBP Program without the HEA.

We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50709) for a general overview of the Hospital-Acquired Condition (HAC) Reduction Program and a detailed discussion of the statutory basis for the Program. We also refer readers to 42 CFR 412.170 through 412.172 for codified HAC Reduction Program requirements. 2. Measures for FY 2026 and Subsequent Years in the HAC Reduction Program a. Current Measures

The previously finalized measures for the HAC Reduction Program for FY 2026 and subsequent years are shown in table VI.M.-01. Technical specifications for the CMS Patient Safety and Adverse Events Composite (CMS PSI 90) measure can be found on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/psi/resources. Technical specifications for the Centers for Disease Control and Prevention's (CDC) National Healthcare Safety Network (NHSN) healthcare-associated infection (HAI) measures can be found at the CDC's NHSN website at: https://www.cdc.gov/nhsn/acute-care-hospital/index.html and on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/hai/resources. These web pages provide measure updates and other information necessary to guide hospitals participating in the collection of HAC Reduction Program data. [GRAPHIC] [TIFF OMITTED] TR04AU25.269

We did not propose to add or remove any measures in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18302). We refer readers to section I.G.7. of Appendix A of this final rule for an updated estimate of the impact of the Program policies on the proportion of hospitals in the worst performing quartile of Total HAC Scores for the FY 2026 HAC Reduction Program. b. Technical Update to CDC's National Healthcare Safety Network Healthcare-Associated Infection Measures for the HAC Reduction Program

In this section, we provide information regarding upcoming changes to the standard population data that are used to calculate the standardized infection ratio (SIR) for the CDC's NHSN measures. These changes are occurring as part of routine measure maintenance.

CDC's NHSN measures are used to monitor hospital performance on prevention of healthcare-associated infections (HAIs). For each NHSN measure, CDC calculates the SIR, which compares a hospital's observed number of HAIs to the number of infections predicted for the hospital, adjusting for several risk factors. The predicted number of infections is determined using the amount of exposure (for example, the number of central line days when predicting CLABSI events) for a given hospital according to the relevant observed risk factors and infection rates for the same combination of risk factors that occurred among a standard population during a specified period as reflected by the appropriate risk adjustment model (this is sometimes referred to as a “baseline,” \221\ but referred to here as

“standard population data”). This set of rates forms standard population data that promotes timely comparisons to measure change in an outcome. Since 2016, CDC has been using data collected in CY 2015 to determine the standard population and, currently, the 2015 standard population is used to calculate the HAI measures in the HAC Reduction Program.\222\ Prior to 2016, calculated SIRs had different standard population years for each infection type and facility type.\223\

\221\ “Rebaseline” is a term that CDC's NHSN staff use to describe the process of updating the national HAI baseline data and risk adjustment models developed using these data. As part of routine measure maintenance, CDC has updated the baseline to ensure the number of predicted infections used in SIR calculations reflects the current state of HAIs in the United States using CY 2022 data. The CDC released its initial announcement of this rebaseline in June 2023. Resources and training regarding the 2015 and 2022 standard population data can be found at: https://www.cdc.gov/nhsn/nhsnrebaseline/index.html.

\222\ Centers for Disease Control and Prevention. CHARTING THE COURSE: 2022 HAI REBASELINE. Available at: https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf.

\223\ Centers for Disease Control and Prevention. Paving the Path Forward: 2015 Rebaseline. Available at: https://www.cdc.gov/nhsn/2015rebaseline/index.html.

During this update, HAI SIR calculations of infections reported beginning in CY 2025 will reflect the use of both the new 2022 standard population data and the 2015 standard population data. We anticipate that the new 2022 standard population data will affect the HAC Reduction Program beginning with the FY 2028 program year when both years of the 2-year applicable period (also referred to as the “performance period” of the measures), CY 2025 and CY 2026, will use the 2022 update to the standard population for the CDC's NHSN measures.

Under the HAC Reduction Program, confidential reports are made available to hospitals with respect to HACs of the hospital during the applicable period (78 FR 50708 through 50709). In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41484 through 41489), we clarified the Scoring Calculations Review and Correction Period (83 FR 41484) for the HAC Reduction Program, which provides hospitals with detailed HAC Reduction Program data and results in confidential Hospital-Specific Reports (HSRs). We give hospitals 30 days to review their HAC Reduction Program data, submit questions about the calculation of their results, and request corrections prior to such information being made public.\224\ The HAI measures using the 2022 update to the standard population in the FY 2028 HAC Reduction Program dataset would be publicly reported on the Provider Data Catalog in early 2028.

\224\ For more information on the Scoring Calculations Review and Correction Period, see: https://qualitynet.cms.gov/inpatient/hac/payment#tab2.

For the HAI measure information publicly reported on the Compare tool on Medicare.gov, it will continue to display on a quarterly basis calculated from a rolling four quarters of data. The HAI measures using the 2022 update to the standard population data will begin to be publicly reported on the Compare tool in fall 2026 using four quarters of CY 2025 data. [GRAPHIC] [TIFF OMITTED] TR04AU25.270

As we stated in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38324), our current policy has been to report data as soon as it is feasible on CMS websites such as the Compare tool and the Provider Data Catalog, after a 30-day preview period.\225\ Table VI.M.-03 summarizes the HAI performance periods, the standard population data year, HAC Reduction Program year, and public reporting timeframe for the CDC's NHSN measures.

\225\ For more information on the Care Compare Preview period, see: https://qualitynet.cms.gov/inpatient/public-reporting/public-reporting/hospital-compare-preview. [GRAPHIC] [TIFF OMITTED] TR04AU25.271

We refer readers to section VI.L.4.b of this final rule, where we provided notice of technical updates to the standard population data for the CDC's NHSN HAI measures in the Hospital Value-Based Purchasing (VBP) Program.

While we are not required to solicit comments on technical updates, we invited public comment on this technical update.

Comment: Many commenters expressed strong support for updating the CDC NHSN HAI measure baseline year from 2015 to 2022 baseline data. Commenters emphasized that utilizing current CDC data not only enhances the accuracy of infection control performance measurement in a post- pandemic context but also aligns benchmarks with modern clinical practices. A commenter recommended that CMS publish comparative data showing the impact of the updated baseline on historical performance, stratified by hospital type and size.

Response: We thank commenters for their support. We agree that utilizing current CDC data enhances the accuracy of infection control performance measurement in a post-pandemic context and aligns benchmarks with modern clinical practices. We appreciate commenters' recommendation to publish comparative data showing the impact of the updated baseline on historical performance, stratified by hospital type and size. We will take this recommendation into consideration to determine the feasibility of providing that data.

Comment: A few commenters expressed support for updating the CDC

NHSN HAI measure baseline year from 2015 to 2022 baseline data but recommended postponing implementation of the technical update. A few of these commenters recommended aligning the baseline year for the HAC Reduction Program with that of the Hospital VBP Program, beginning with FY 2029 for both programs, as it would allow for a coordinated approach that would enhance clarity, reduce administrative burden, and ensure more meaningful comparisons across programs using the same underlying measures. Another commenter stated that there were challenges and delays that had been noted by healthcare providers updating to the new baseline due to technical issues with the NHSN reporting system. These issues include frequent changes to module tables, acceptance of incomplete data, and errors during data uploads. Another commenter noted that some of the rebaseline models were not yet published at the time of the proposed rule. These commenters recommended that CMS delay implementation of the 2022 baseline in the HAC Reduction Program to provide time for hospitals to understand their data and align with federal requirements and reimbursement practices without penalty.

Response: We thank commenters for their support. While we understand commenters' recommendation to align with the Hospital VBP Program, we note that the Hospital VBP Program's scoring methodology differs from the HAC Reduction Program in that it uses a one year performance period and that it calculates improvement points using comparisons between data collected from hospitals in a baseline period and data collected in a performance period. At this time, we still anticipate that the new 2022 standard population data will affect the HAC Reduction Program beginning with the FY 2028 program year when both years of the 2-year applicable period, CY 2025 and CY 2026, will use the 2022 update to the standard population for the CDC's NHSN measures.

We appreciate commenters' input on the technical updates to the standard population data for the CDC's NHSN HAI measures for the HAC Reduction Program. 3. Codification of the Extraordinary Circumstances Exception Policy for the HAC Reduction Program a. Background

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45309 through 45310), we clarified that an Extraordinary Circumstances Exception (ECE) granted under the HAC Reduction Program may allow an exception from quality data reporting requirements and may grant a request to exclude any data submitted (whether submitted for claims purposes or to the CDC's NHSN) from the calculation of a hospital's measure results or Total HAC Score for the applicable period or both, depending on the exact circumstances under which the request was made. We intend to provide relief for a hospital whose ability to accurately collect quality measure data and to report those data in a timely manner has been negatively impacted as a direct result of experiencing a significant disaster or other extraordinary circumstance beyond the control of a hospital (80 FR 49579 through 49581) or both. An exception may be granted for extraordinary circumstances including, but not limited to, natural disasters or systemic problems with data collection systems.\226\ We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49579 through 49581), FY 2018 IPPS/LTCH PPS final rule (82 FR 38276 through 38278), and FY 2022 IPPS/LTCH PPS final rule (86 FR 45308 through 45310) for further background and details of our ECE policy. We also refer readers to the QualityNet website for the specific requirements for submission of an ECE request in the HAC Reduction Program.\227\ Hospitals can request a CMS Quality Program ECE for multiple programs based on the same extraordinary circumstance using one ECE request form, including the Hospital IQR Program, the Hospital VBP Program, and the Hospital Readmissions Reduction Program.

\226\ Centers for Medicare & Medicaid Services (CMS) Quality Program Extraordinary Circumstances Exceptions (ECE) Request Form. (2025). QualityNet. Available at: https://qualitynet.cms.gov/files/677e843f50ed8df7419f60e1?filename=HQR_ECE_Req_Form_CY_2025.pdf.

\227\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hac/participation#tab2.

Our ECE policy provides flexibility for HAC Reduction Program participants to ensure continuity of quality care delivery and measure reporting in the event of an extraordinary circumstance. For instance, we recognize that, in circumstances where an exclusion of any data submitted from the calculation of a hospital's measure results or Total HAC Score for the applicable period is not applicable, it may be beneficial for a hospital to report data later than the reporting deadline. Delayed reporting authorized under the ECE policy would allow temporary relief for a hospital experiencing an extraordinary circumstance, while preserving data reporting benefits such as transparency and informed decision-making for beneficiaries and providers alike. Accordingly, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18303 and 18304), we proposed to specify that an ECE could take the form of an extension of time for a hospital to comply with a data reporting requirement if CMS determines that this type of relief would be appropriate under the circumstances. b. Codification of the Extraordinary Circumstances Exception (ECE) Policy for the HAC Reduction Program

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18303 and 18304), we proposed to codify the ECE policy at 42 CFR 412.172(c) and include extensions of time as a form of relief. Specifically, at Sec. 412.172(c)(1), we proposed that CMS may grant an ECE with respect to reporting requirements in the event of an extraordinary circumstance-- defined as an event beyond the control of a hospital (for example a natural or man-made disaster such as a hurricane, tornado, earthquake, terrorist attack, or bombing)--that affected the ability of the hospital to comply with one or more applicable reporting requirements with respect to a fiscal year.

We proposed that the process for requesting or granting an ECE would remain the same as the current ECE process, detailed by CMS at the QualityNet website or a successor website.\228\ At Sec. 412.172(c)(2)(i), we proposed that a hospital may request an ECE within 30 calendar days of the date that the extraordinary circumstance occurred. Under this proposed policy, we clarify that CMS retains the authority to grant an ECE as a form of relief at any time after the extraordinary circumstance has occurred. At Sec. 412.172(c)(2)(ii), we proposed that CMS notify the requestor with a decision in writing, via email. In the event that CMS grants an ECE to the hospital, the written decision will specify whether the hospital is exempted from one or more reporting requirements or whether CMS has granted the hospital an extension of time to comply with one or more reporting requirements.

\228\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/iqr/participation#tab3.

Additionally, at Sec. 412.172(c)(3), we note that CMS may grant an ECE to one or more hospitals that have not requested an ECE if CMS determines that: a systemic problem with a CMS

data collection system directly impacted the ability of the hospital to comply with a quality data reporting requirement, or that an extraordinary circumstance has affected an entire region or locale. Any ECE granted will specify whether the affected hospitals are exempted from one or more reporting requirements or whether CMS has granted the hospitals an extension of time to comply with one or more reporting requirements.

The ECE policy is intended to provide hospitals with further reporting flexibility and clarity regarding expectations when submitting ECE requests for participants of the HAC Reduction Program. We refer readers to sections X.C.8, VI.L.5, VI.K.3.c., and X.D.4. of the preamble of this final rule for similar ECE policy changes in the Hospital IQR Program, Hospital VBP Program, Hospital Readmissions Reduction Program, and PCHQR Program, respectively.

We invited public comment on our proposals.

Comment: Many commenters supported the proposal to formally codify and clarify the ECE policy in the HAC Reduction Program. Commenters stated that this policy will provide hospitals with needed clarity and flexibility when facing events beyond their control that impede timely data submission, is practical, and recognizes the varying needs of different facilities and different circumstances.

Response: We thank commenters for their support.

Comment: Several commenters recommended that CMS explicitly include cyber-attacks as a qualifying event for granting an ECE because cyber- attacks can disable data systems for extended periods. Another commenter recommended that ECE include infectious disease emergencies due to their downstream impacts on health care systems.

Response: We thank commenters for their recommendations. We note that extraordinary circumstances are not limited to the examples provided in the CFR language and proposal. We have received and accepted multiple ECE requests due to cyber-attacks across reporting programs. We recommend that hospitals submit an ECE request anytime an event beyond the control of a hospital affected the ability of the hospital to comply with one or more reporting requirements with respect to a fiscal year regardless of whether it was included in the examples provided in the CFR language and proposal.

Comment: Several commenters, while supporting this proposal, expressed concern that CMS may replace reporting exemptions with extensions, regardless of the circumstances, and recommended that CMS continue to grant complete reporting exemptions in the case of an extraordinary circumstance, and to use extensions when appropriate. Commenters requested that CMS provide additional details on how the determination of an exception versus an extension will be made.

Response: We thank commenters for their recommendation. We will continue to consider ECE applications on a case-by-case basis and offer any exception or extension based on the nature of the extraordinary circumstance and the capacity of the provider, as well as CMS operational feasibility to grant an exception versus an extension. We note our preference to grant an extension when it can be feasibly granted because of the importance of having quality measure data particularly for public reporting purposes, as transparency is a paramount goal of the program.

Comment: A few commenters recommended that CMS produce publicly available guidance for ECE requests to set consistent expectations to ensure that ECE eligibility criteria are applied equitably across all facilities, with particular attention to hospitals serving medically complex, high-risk, or underserved patient populations in order to maintain fairness in the HAC Reduction Program that carries financial penalties for hospitals in the bottom quartile of performance. One commenter requested CMS provide additional clarification on its processes and policies associated with approving ECE requests related to cyberattacks, including publicly posting any supplemental ECE questionnaires that could aid a hospital in an initial ECE application.

Response: We thank commenters for their recommendations. We note that QualityNet provides the ECE Request Form, ECE Information and Resources document, and ECE Quick Reference document, all of which are updated as necessary. We will continue to update these documents to provide updated information, resources, and references.\229\

\229\ We note that the HACRP ECE QualityNet site is available at: https://qualitynet.cms.gov/inpatient/hac/participation#tab2, which links to the Hospital IQR ECE web page, available at: https://qualitynet.cms.gov/inpatient/iqr/participation#tab3 for reference materials.

Comment: Several commenters did not support the reduced timeframe for hospitals to submit an ECE request from 90 days to 30 days. Commenters stated that, following these extraordinary events, hospitals focus on staying operational and continuing to provide care for their patients and communities, and they do not have sufficient bandwidth to assess the impact on quality data submissions and complete the necessary paperwork within 30 days. For example, one commenter cited recent flooding in Virginia and North Carolina, noting that hospitals remained in crisis mode even 30 days after the event, and suggested that a 60-day deadline might be a more realistic compromise. Another commenter cited a significant ransomware attack which adversely affected their Certified Electronic Health Record Technology (CEHRT) applications and multiple data systems across their health system which caused them to request multiple ECEs related to various data reporting requirements during that time. Commenters also recommended that CMS retain the discretion to accept late requests in truly extraordinary circumstances, thereby safeguarding hospitals from unfair penalties for delayed submissions amid disasters.

A few commenters supported the 30-day time period to request an exemption.

Response: We appreciate commenters' responses. After reviewing the concerns raised by commenters regarding the timeframe for making an ECE request, we have further considered what constitutes an appropriate number of days based on commenters' feedback and examples. Nevertheless, we wish to reduce the timeframe for ECE applications across hospital settings for operational improvement while balancing the possible need for additional time by providers depending on the particular extraordinary circumstance. Therefore, we are finalizing a modified policy that states that a hospital may request an ECE within 60 calendar days of the date that the extraordinary circumstance occurred. We believe this timeframe will provide significant time for hospitals to assess the impact on quality reporting without disrupting operational and care needs.

After consideration of the public comments we received, we are finalizing our proposal to codify and update our ECE proposal with modification. After consideration of concerns identified in public comments regarding the proposed 30 calendar day timeframe during which a hospital may request an ECE, and for the reasons described above, we are finalizing a different timeframe in which an ECE can be requested. We will allow up to 60 calendar days for ECE requests after the precipitating event. We amended the

proposed CFR text to reflect this extended deadline.

The Rural Community Hospital Demonstration was originally authorized by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). The demonstration has been extended three times since the original 5-year period mandated by the MMA, each time for an additional 5 years. These extensions were authorized by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148), section 15003 of the 21st Century Cures Act (Pub. L. 114-255) (Cures Act) enacted in 2016, and most recently, by section 128 of the Consolidated Appropriations Act, 2021 (Pub. L. 116- 260), which also reauthorized the RCHD for five years. Later in this section we summarize the status of the demonstration program and the current methodologies for implementation and calculating budget neutrality, and propose the amount to be subtracted from the national IPPS payment rates to account for the costs of the demonstration in FY 2026. The amount would include the reconciled amount of demonstration costs for FY 2020 in the FY 2026 IPPS/LTCH final rule. All finalized cost reports for FY 2020 were available for the FY 2026 IPPS/LTCH final rule at this time.

Last year we published a new solicitation (89 FR 105049, December 26, 2024) to select 10 additional qualifying hospitals to participate in the Rural Community Hospital Demonstration. We only accepted applications to this solicitation from hospitals in the 20 least densely populated States, according to data for 2020 from the U.S. Census Bureau. These States are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming. We did not accept applications from hospitals located in other States or in the U.S. territories. Applications were due March 1, 2025; 11 additional hospitals were selected to join the demonstration on a rolling basis beginning May 1, 2025. Given the upcoming statutory termination of the model, we are aligning performance dates for the selected hospitals with the last performance day for the currently authorized extension; therefore, although previous agreements ran for 5-year periods, agreements for hospitals selected under the December 26, 2024 solicitation will run until June 30, 2028. 2. Background

Section 410A(a) of the MMA (Pub. L. 108-173) required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals under a reasonable cost- based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that--

Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act;

Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report;

Provides 24-hour emergency care services; and

Is not designated or eligible for designation as a CAH under section 1820 of the Act.

Our policy for implementing the 5-year extension period authorized by the CAA, 2021 (Pub. L. 116-260) follows upon the previous extensions under the Affordable Care Act (Pub. L. 111-148) and the Cures Act (Pub. L. 114-255). Section 410A of the MMA (Pub. L. 108-173) initially required a 5-year period of performance. Subsequently, sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148) required the Secretary to conduct the demonstration program for an additional 5-year period, to begin on the date immediately following the last day of the initial 5-year period. In addition, the Affordable Care Act (Pub. L. 111-148) limited the number of hospitals participating to no more than 30. Section 15003 of the Cures Act (Pub. L. 114-255) required a 10-year extension period in place of the 5-year extension period under the Affordable Care Act (Pub. L. 111-148), thereby extending the demonstration for another 5 years. Section 128 of CAA, 2021 (Pub. L. 116-260), in turn, revised the statute to indicate a 15-year extension period, instead of the 10-year extension period mandated by the Cures Act (Pub. L. 114-255). Please refer to the FY 2023 IPPS proposed and final rules (87 FR 28454 through 28458 and 87 FR 49138 through 49142, respectively) for an account of hospitals entering into and withdrawing from the demonstration with these re-authorizations. In CY 2025, there are currently 30 hospitals participating in the demonstration. In addition to the ten selected initially, one additional hospital was selected to replace one that voluntarily withdrew from the demonstration; in total, we added 11 new hospitals from the new solicitation. 2. Budget Neutrality a. Statutory Budget Neutrality Requirement

Section 410A(c)(2) of the MMA (Pub. L. 108-173) requires that, in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount that the Secretary would have paid if the demonstration program under this section was not implemented. This requirement is commonly referred to as “budget neutrality.” Generally, when we implement a demonstration program on a budget neutral basis, the demonstration program is budget neutral on its own terms; in other words, the aggregate payments to the participating hospitals do not exceed the amount that would be paid to those same hospitals in the absence of the demonstration program. We note that the payment methodology for this demonstration, that is, cost-based payments to participating small rural hospitals, made it unlikely that increased Medicare outlays would produce an offsetting reduction to Medicare expenditures elsewhere. Therefore, in the IPPS final rules spanning the period from FY 2005 through FY 2016, we adjusted the national IPPS rates by an amount sufficient to account for the added costs of this demonstration program, thus applying budget neutrality across the payment system as a whole rather than merely across the participants in the demonstration program. (We applied a different methodology for FY 2017, with the demonstration expected to end prior to the Cures Act extension.) As we discussed in the FYs 2005 through 2017 IPPS/LTCH PPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR 53449, 78 FR 50740, 77 FR 50145; 80 FR 49585; and 81 FR 57034, respectively), we believe that the statutory language of the budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner.

We resumed this methodology of offsetting demonstration costs against the national payment rates in the IPPS final rules from FY 2018 through FY 2025. Please see the FY 2025 IPPS final

rule for an account of how we applied the budget neutrality requirement for these fiscal years (89 FR 69412 through 69413). b. General Budget Neutrality Methodology

We have generally incorporated two components into the budget neutrality offset amounts identified in the final IPPS rules in previous years. First, we have estimated the costs of the demonstration for the upcoming fiscal year, generally determined from historical, “as submitted” cost reports for the hospitals participating in that year. Updated factors representing nationwide trends in cost and volume increases have been incorporated into these estimates, as specified in the methodology described in the final rule for each fiscal year. Second, as finalized cost reports became available, we determined the amount by which the actual costs of the demonstration for an earlier, given year differed from the estimated costs for the demonstration set forth in the final IPPS rule for the corresponding fiscal year, and incorporated that amount into the budget neutrality offset amount for the upcoming fiscal year. If the actual costs for the demonstration for the earlier fiscal year exceeded the estimated costs of the demonstration identified in the final rule for that year, this difference was added to the estimated costs of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year. Conversely, if the estimated costs of the demonstration set forth in the final rule for a prior fiscal year exceeded the actual costs of the demonstration for that year, this difference was subtracted from the estimated cost of the demonstration for the upcoming fiscal year when determining the budget neutrality adjustment for the upcoming fiscal year.

We note that we have calculated this difference for FYs 2005 through 2018 between the actual costs of the demonstration as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years. c. Budget Neutrality Methodology for the Extension Period Authorized by CAA, 2021

For the most-recently enacted extension period, under the CAA, 2021, we have continued upon the general budget neutrality methodology used in previous years, as described previously in the citations to earlier IPPS final rules. In this final rule, we outline the methodology to be used for determining the offset to the national IPPS payment rates for FY 2026. (1) Methodology for Estimating Demonstration Costs for FY 2026

Consistent with the general methodology from previous years, we are estimating the costs of the demonstration for the upcoming fiscal year, and proposing to incorporate this estimate into the budget neutrality offset amount to be applied to the national IPPS rates for the upcoming fiscal year, that is, FY 2026. We are conducting this estimate for FY 2026 based on 20 hospitals. The methodology for calculating this amount for FY 2026 proceeds according to the following steps:

Step 1: For each of these 20 hospitals, we identify the reasonable cost amount calculated under the reasonable cost-based methodology for covered inpatient hospital services, including swing beds, as indicated on the “as submitted” cost report for the most recent cost reporting period available. The “as submitted” cost report, submitted by each of the 20 hospitals, with a report end date in CY2023 is used. We sum these hospital -specific amounts to arrive at a total general amount representing the costs for covered inpatient hospital services, including swing beds, across the total 20 hospitals eligible to participate during FY 2026.

Then, we multiply the total general amount by the FYs 2024, 2025, and 2026 IPPS market basket percentage increases, which are calculated by the CMS Office of the Actuary. (We are using the final market basket percentage increase for FY 2026, which can be found at section VI.B.1. of the preamble to this final rule). The result for the 20 hospitals is the general estimated reasonable cost amount for covered inpatient hospital services for FY 2026.

Consistent with our methods in previous years for formulating this estimate, we are applying the IPPS market basket percentage increases for FYs 2024 through 2026 to the applicable estimated reasonable cost amount (previously described) to model the estimated FY 2026 reasonable cost amount under the demonstration. We believe that the IPPS market basket percentage increases appropriately indicate the trend of increase in inpatient hospital operating costs under the reasonable cost methodology for the years involved.

Step 2: For each of the participating hospitals, we identify the estimated amount that would otherwise have been paid in FY 2026 under applicable Medicare payment methodologies for covered inpatient hospital services, including swing beds (as indicated on the same set of “as submitted” cost reports as in Step 1), if the demonstration had not been implemented. We sum these hospital specific-amounts, and, in turn, multiply this sum by the FYs 2024, 2025, and 2026 IPPS applicable percentage increases. (For FY 2026, we are using the final applicable percentage increase, per section VI.B.1. of the preamble of this final rule). This methodology differs from Step 1, in which we apply the market basket percentage increases to the hospitals' applicable estimated reasonable cost amount for covered inpatient hospital services. We believe that the IPPS applicable percentage increases are appropriate factors to update the estimated amounts that generally would otherwise be paid without the demonstration because IPPS payments constitute the majority of payments that would otherwise be made without the demonstration and the applicable percentage increase is the factor used under the IPPS to update the inpatient hospital payment rates.

Step 3: We subtract the amount derived in Step 2 from the amount derived in Step 1. According to our methodology, the resulting amount indicates the total difference for the 20 hospitals (for covered inpatient hospital services, including swing beds), which will be the general estimated amount of the costs of the demonstration for FY 2026.

For this final rule, the resulting amount is $47,586,847 and will be incorporated into the budget neutrality offset adjustment for FY 2026. An offset of $47,527,557 was proposed in the FY 2026 IPPS/LTCH PPS proposed rule, and this has adjusted slightly based on the incorporation of the final FY 2026 market basket percentage increase (0.1 percentage point higher than the proposed rule) and the final FY 2026 applicable percentage increase (0.2 percentage point higher than the proposed rule). This estimated amount is based on the specific assumptions regarding the data sources used, that is, recently available “as submitted” cost reports and historical update factors for cost and payment. We proposed to include final costs of the demonstration for FY 2026 for all participating hospitals, to include those participating as a result of the current solicitation, in the budget neutrality offset adjustment in the FY 2026 IPPS proposed and final rules.

(2) Reconciling Actual and Estimated Costs of the Demonstration for Previous Years

As described earlier, we have calculated the difference for FYs 2005 through 2018 between the actual costs of the demonstration, as determined from finalized cost reports once available, and estimated costs of the demonstration as identified in the applicable IPPS final rules for these years.

At this time, for the FY2026 final rule, all of the FY2020 finalized cost reports are available and will be reconciled in FY2026. (3) Total Proposed Budget Neutrality Offset Amount for FY 2026

For this FY 2026 IPPS/LTCH PPS final rule, the proposed budget neutrality offset amount for FY 2026 is the amount determined under section X.2.c.(2). of the preamble of this final rule, representing the difference applicable to FY 2026 between the sum of the estimated reasonable cost amounts that would be paid under the demonstration for covered inpatient services to the 20 hospitals eligible to participate in the fiscal year and the sum of the estimated amounts that would generally be paid if the demonstration had not been implemented. This amount is $47,586,847.

After consideration of the public comments we received, primarily requesting to expand the number of hospitals participating in the program, we are finalizing our policy without modification.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services in accordance with a prospective payment system established by the Secretary. Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital-related costs. We initially implemented the IPPS for capital-related costs in the FY 1992 IPPS final rule (56 FR 43358). In that final rule, we established a 10-year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based payment methodology to a prospective payment methodology (based fully on the Federal rate).

FY 2001 was the last year of the 10-year transition period that was established to phase in the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all acute care hospitals (other than hospitals receiving certain exception payments and certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 through 39914) for additional information on the methodology used to determine capital IPPS payments to hospitals both during and after the transition period.)

The basic methodology for determining capital prospective payments using the Federal rate is set forth in the regulations at 42 CFR 412.312. For the purpose of calculating capital payments for each discharge, the standard Federal rate is adjusted as follows:

(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor (GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable).

In addition, under Sec. 412.312(c), hospitals also may receive outlier payments under the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds established for each fiscal year.

The regulations at 42 CFR 412.348 provide for certain exception payments under the capital IPPS. The regular exception payments provided under Sec. 412.348(b) through (e) were available only during the 10-year transition period. For a certain period after the transition period, eligible hospitals may have received additional payments under the special exceptions provisions at Sec. 412.348(g). However, FY 2012 was the final year hospitals could receive special exceptions payments. For additional details regarding these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).

Under Sec. 412.348(f), a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control. Additional information on the exception payment for extraordinary circumstances in Sec. 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186). 2. New Hospitals

Under the capital IPPS, the regulations at 42 CFR 412.300(b) define a new hospital as a hospital that has operated (under previous or current ownership) for less than 2 years and lists examples of hospitals that are not considered new hospitals. In accordance with Sec. 412.304(c)(2), under the capital IPPS, a new hospital is paid 85 percent of its allowable Medicare inpatient hospital capital related costs through its first 2 years of operation, unless the new hospital elects to receive full prospective payment based on 100 percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for additional information on payments to new hospitals under the capital IPPS. 3. Payments for Hospitals Located in Puerto Rico

In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised the regulations at 42 CFR 412.374 relating to the calculation of capital IPPS payments to hospitals located in Puerto Rico beginning in FY 2017 to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, for discharges occurring on or after January 1, 2016, made by section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section 601 of Pub. L. 114-113 increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. As such, under revised Sec. 412.374, for discharges occurring on or after October 1, 2016, capital IPPS payments to hospitals located in Puerto Rico are based on 100 percent of the capital Federal rate.