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

Under Sec. 412.308(c)(1), the capital standard Federal rate is updated on the basis of an analytical framework that takes into account changes in a capital input price index (CIPI) and several other policy adjustment factors. Specifically, we adjust the projected CIPI rate of change, as appropriate, each year for case- mix index-related changes, for intensity, and for errors in previous CIPI forecasts. The update factor for FY 2026 under that framework is 2.8 percent based on a projected 2.8 percent increase in the 2023-based CIPI, a 0.0 percentage point adjustment for intensity, a 0.0 percentage point adjustment for case-mix, a 0.0 percentage point adjustment for the DRG reclassification and recalibration, and a forecast error correction of 0.0 percentage point. As discussed in section III.C. of this Addendum, we continue to believe that the CIPI is the most appropriate input price index for capital costs to measure capital price changes in a given year. We also explain the basis for the FY 2026 CIPI projection in that same section of this Addendum. In this final rule, we describe the policy adjustments that we applied in the update framework for FY 2026.

The case-mix index is the measure of the average DRG weight for cases paid under the IPPS. Because the DRG weight determines the prospective payment for each case, any percentage increase in the case-mix index corresponds to an equal percentage increase in hospital payments.

The case-mix index can change for any of several reasons--

The average resource use of Medicare patient changes (“real” case-mix change);

Changes in hospital documentation and coding of patient records result in higher-weighted DRG assignments (“coding effects”); or

The annual DRG reclassification and recalibration changes may not be budget neutral (“reclassification effect”).

We define real case-mix change as actual changes in the mix (and resource requirements) of Medicare patients, as opposed to changes in documentation and coding behavior that result in assignment of cases to higher-weighted DRGs, but do not reflect higher resource requirements. The capital update framework includes the same case- mix index adjustment used in the former operating IPPS update framework (as discussed in the May 18, 2004, IPPS proposed rule for FY 2005 (69 FR 28816)). (We no longer use an update framework to make a recommendation for updating the operating IPPS standardized amounts, as

discussed in section II. of appendix B to the FY 2006 IPPS final rule (70 FR 47707).)

For FY 2026, we are projecting a 0.5 percent total increase in the case-mix index. We estimated that the real case-mix increase would equal 0.5 percent for FY 2026. The net adjustment for change in case-mix is the difference between the projected real increases in case mix and the projected total increase in case mix. Therefore, as proposed, the net adjustment for case-mix change in FY 2026 is 0.0 percentage point.

The capital update framework also contains an adjustment for the effects of DRG reclassification and recalibration. This adjustment is intended to remove the effect on total payments of prior year's changes to the DRG classifications and relative weights, to retain budget neutrality for all case-mix index-related changes other than those due to patient severity of illness. Due to the lag time in the availability of data, there is a 2-year lag in data used to determine the adjustment for the effects of DRG reclassification and recalibration. For example, for this final rule, we have the FY 2024 MedPAR claims data available to evaluate the effects of the FY 2024 DRG reclassification and recalibration as part of our update for FY 2026. We assume for purposes of this adjustment, that the estimate of FY 2024 DRG reclassification and recalibration would result in no change in the case-mix when compared with the case mix index that would have resulted if we had not made the reclassification and recalibration changes to the DRGs. Therefore, as proposed, we are making a 0.0 percentage point adjustment for reclassification and recalibration in the update framework for FY 2026.

The capital update framework also contains an adjustment for forecast error. The input price index forecast is based on historical trends and relationships ascertainable at the time the update factor is established for the upcoming year. In any given year, there may be unanticipated price fluctuations that may result in differences between the actual increase in prices and the forecast used in calculating the update factors. In setting a prospective payment rate under the framework, we make an adjustment for forecast error only if the difference in the actual increase and projected increase of the capital input price index for any year is greater than 0.25 percentage point in absolute terms. There is a 2- year lag between the forecast and the availability of data to develop a measurement of the forecast error. Historically, when a forecast error of the CIPI is greater than 0.25 percentage point in absolute terms, it is reflected in the update recommended under this framework. The forecast error in any given year can be derived as the actual CIPI increase less the forecasted CIPI increase. A forecast error of -0.1 percentage point was calculated for the FY 2024 update, for which there are historical data. That is, current historical data indicate that actual realized price increases (2.8 percent) were 0.1 percentage point lower than the forecasted FY 2024 CIPI increase (2.9 percent) used in calculating the FY 2024 update factor. As this does not exceed the 0.25 percentage point threshold, as proposed, we are not making an adjustment for forecast error in the update for FY 2026.

Under the capital IPPS update framework, we also make an adjustment for changes in intensity. Historically, we calculate this adjustment using the same methodology and data that were used in the past under the framework for operating IPPS. The intensity factor for the operating update framework reflects how hospital services are utilized to produce the final product, that is, the discharge. This component accounts for changes in the use of quality-enhancing services, for changes within DRG severity, and for expected modification of practice patterns to remove noncost-effective services. Our intensity measure is based on a 5-year average.

We calculate case-mix constant intensity as the change in total cost per discharge, adjusted for price level changes (the Consumer Price Index for hospital and related services) and changes in real case-mix. Without reliable estimates of the proportions of the overall annual intensity changes that are due, respectively, to ineffective practice patterns and the combination of quality- enhancing new technologies and complexity within the DRG system, we assume that one-half of the annual change is due to each of these factors. Thus, the capital update framework provides an add-on to the input price index rate of increase of one-half of the estimated annual increase in intensity, to allow for increases within DRG severity and the adoption of quality-enhancing technology.

In this final rule, as proposed, we are continuing to use a Medicare-specific intensity measure that is based on a 5-year adjusted average of cost per discharge for FY 2026 (we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 0436) for a full description of our Medicare-specific intensity measure). Specifically, for FY 2026, we are using an intensity measure that is based on an average of cost-per-discharge data from the 5-year period beginning with FY 2019 and extending through FY 2023. Based on these data, we estimated that case-mix constant intensity declined during FYs 2019 through 2023. In the past, when we found intensity to be declining, we believed a zero (rather than a negative) intensity adjustment was appropriate. Consistent with this approach, because we estimated that intensity declined during that 5-year period, we believe it is appropriate to continue to apply a zero-intensity adjustment for FY 2026. Therefore, as proposed, we are making a 0.0 percentage point adjustment for intensity in the update for FY 2026.

Earlier, we described the basis of the components we used to develop the 2.8 percent capital update factor under the capital update framework for FY 2026, as shown in the following table.

FY 2026 Update Factor to the Capital Federal Rate

Capital Input Price Index *............................. 2.8 Intensity............................................... 0.0 Case-Mix Adjustment Factors:

Projected Case-Mix Change........................... -0.5

Real Across DRG Change.............................. 0.5

Subtotal........................................ 0.0 Effect of FY 2024 Reclassification and Recalibration.... 0.0 Forecast Error Correction............................... 0.0

Total Update........................................ 2.8

* The capital input price index represents the 2023-based CIPI.

Section 412.312(c) establishes a unified outlier payment methodology for inpatient operating and inpatient capital-related costs. A shared threshold is used to identify outlier cases for both inpatient operating and inpatient capital-related payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient capital-related costs be reduced by an adjustment factor equal to the estimated proportion of capital-related outlier payments to total inpatient capital-related PPS payments. The outlier threshold is set so that operating outlier payments are projected to be 5.1 percent of total operating IPPS DRG payments. For FY 2026, as proposed, we continue to incorporate the impact of estimated operating outlier reconciliation payment amounts into the outlier threshold model. (For more details on our methodology to incorporate an estimate of the impact of operating outlier reconciliation payment amounts into the outlier threshold model, see section II.A.4.i. of this Addendum to this final rule.)

For FY 2025, we estimated that outlier payments for capital- related PPS payments will equal 4.23 percent of inpatient capital- related payments based on the capital Federal rate. Based on the threshold

discussed in section II.A. of this Addendum, we estimate that prior to taking into account projected capital outlier reconciliation payments, outlier payments for capital-related costs will equal 3.87 percent of inpatient capital-related payments based on the capital Federal rate in FY 2026. Using the methodology outlined in section II.A.4.i. of this Addendum, we estimate that taking into account projected capital outlier reconciliation payments will decrease the estimated percentage of FY 2026 capital outlier payments by 0.03 percent. Therefore, accounting for estimated capital outlier reconciliation, the estimated outlier payments for capital-related PPS payments will equal 3.84 percent (3.87 percent--0.03 percent) of inpatient capital-related payments based on the capital Federal rate in FY 2026. Accordingly, we applied an outlier adjustment factor of 0.9616 in determining the capital Federal rate for FY 2026. Thus, we estimate that the percentage of capital outlier payments to total capital Federal rate payments for FY 2026 will be lower than the percentage we estimated for FY 2025.

The outlier reduction factors are not built permanently into the capital rates; that is, they are not applied cumulatively in determining the capital Federal rate. The FY 2026 outlier adjustment of 0.9616 is a 0.41 percent change from the FY 2025 outlier adjustment of 0.9577. Therefore, the net change in the outlier adjustment to the capital Federal rate for FY 2026 is 1.0041 (0.9616/0.9577) so that the outlier adjustment will increase the FY 2026 capital Federal rate by approximately 0.41 percent compared to the FY 2025 outlier adjustment.

Section 412.308(c)(4)(ii) requires that the capital Federal rate be adjusted so that aggregate payments for the fiscal year based on the capital Federal rate, after any changes resulting from the annual DRG reclassification and recalibration and changes in the GAF, are projected to equal aggregate payments that would have been made on the basis of the capital Federal rate without such changes.

As discussed in section III.F.5. of the preamble of this final rule, in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339), we finalized a policy to address wage index disparities between high and low wage index hospitals by increasing the wage index values for hospitals with a wage index value below the 25th percentile wage index. We stated that this policy would be effective for at least 4 years, beginning in FY 2020. This policy was applied in FYs 2020 through 2024. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we adopted an extension of this policy for at least three more years, beginning in FY 2025. However, in the FY 2025 IPPS/LTCH PPS interim final action with comment period (IFC) titled “Medicare Program; Changes to the Fiscal Year 2025 Hospital Inpatient Prospective Payment System (IPPS) Rates Due to Court Decision” (referred to herein as the FY 2025 IFC) (89 FR 80406 through 80408), after consideration of the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we recalculated the FY 2025 hospital wage index to remove the low wage hospital policy for FY 2025. The recalculation of the FY 2025 hospital wage index impacted the FY 2025 GAFs. In the FY 2025 IFC (89 FR 80412), we also modified the calculation of the GAF budget neutrality adjustment factor that ensured budget neutrality for changes to the GAFs due to the lowest quartile hospital wage index adjustment and the 5-percent cap on wage index decreases policy (our policy to place a 5 percent cap on any decrease in a hospital's wage index from the hospital's final wage index in the prior fiscal year). Specifically, we modified this calculation to ensure budget neutrality for changes to the GAFs due only to the 5-percent cap on wage index decreases policy. (We note, after consideration of public comments, we are finalizing the provisions of the FY 2025 IFC without modification, as discussed in section XI.C. of the preamble of this final rule.)

As discussed in section III.F.5. of the preamble of this final rule, for FY 2026 and subsequent fiscal years, as proposed, we are discontinuing the low wage index hospital policy and associated budget neutrality adjustment. In addition, as discussed in section IIII.F.6. of the preamble of this final rule, we recognize that some hospitals that previously benefitted from the low wage index hospital policy would experience decreases of 10 percent or more over the two years from their FY 2024 wage index (with the low wage index hospital policy applied) to their FY 2026 wage index. Therefore, in addition to our permanent 5-percent wage index cap policy at 42 CFR 412.64(h)(7), as proposed, we are establishing a narrow transitional exception to the calculation of FY 2026 payments for hospitals significantly impacted by the discontinuation of the low wage index hospital policy, that will be implemented in a budget neutral manner. Specifically, for hospitals that benefitted from the low wage index hospital policy in FY 2024 and whose FY 2026 wage index is decreasing by more than 9.75 percent from the hospital's FY 2024 wage index, we are establishing a transitional payment exception for FY 2026 for that hospital that will be equal to the additional FY 2026 amount the hospital would be paid under the IPPS if its FY 2026 wage index were equal to 90.25 percent of its FY 2024 wage index. Under this finalized policy, we are making a budget neutral equivalent exception under the capital IPPS. In this section, we refer to this finalized policy as the transition for the discontinuation of the low wage index hospital policy.

As referenced previously, beginning in FY 2023, we finalized at 42 CFR 412.64(h)(7) a permanent 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY regardless of the circumstances causing the decline. That is, under this policy, a hospital's wage index value would not be less than 95 percent of its prior year value (87 FR 49018 through 49021). In this section, we refer to our permanent policy to place a 5-percent cap on any decrease in a hospital's wage index from the hospital's final wage index in the prior fiscal year as the 5-percent cap on wage index decreases policy. We note that the transitional payment exception for FY 2026 discussed previously would be applied after the application of the 5-percent cap on wage index decreases policy. Given these changes, we augmented our historical methodology for computing the budget neutrality factor for changes in the GAFs.

Specifically, we used a 2-step methodology for computing the budget neutrality factor for changes in the GAFs in light of the effect of those wage index changes on the GAFs. In the first step, we calculate a factor to ensure budget neutrality for changes to the GAFs due to the update to the wage data, wage index reclassifications and redesignations, and application of the rural floor policy, consistent with our historical GAF budget neutrality factor methodology. In the second step, we calculate a factor to ensure budget neutrality for changes to the GAFs due to the 5- percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy.

The budget neutrality factors applied for changes to the GAFs due to the update to the wage data, wage index reclassifications and redesignations, and application of the rural floor policy are built permanently into the capital Federal rate; that is, they are applied cumulatively in determining the capital Federal rate. However, the budget neutrality factor for the 5-percent cap on wage index decreases policy is not permanently built into the capital Federal rate. This is because the GAFs with 5-percent cap on wage index decreases policy applied from the previous year are not used in the budget neutrality factor calculations for the current year. Accordingly, and consistent with this approach, prior to calculating the GAF budget neutrality factors for FY 2026, we removed from the capital Federal rate the budget neutrality factor applied in FY 2025 for the 5-percent cap on wage index decreases policy. Specifically, we divided the capital Federal rate by the FY 2025 budget neutrality factor of 0.9992 (89 FR 80412). (We refer the reader to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45552) for additional discussion on our policy of removing from the capital Federal rate the prior year budget neutrality factor(s) that are not used in the budget neutrality factor calculations for the current year.)

We discuss our 2-step calculation of the GAF budget neutrality factors for FY 2026 as follows. To determine the GAF budget neutrality factors for FY 2026, we first compared estimated aggregate capital Federal rate payments based on the FY 2025 MS-DRG classifications and relative weights and the FY 2025 GAFs to estimated aggregate capital Federal rate payments based on the FY 2025 MS-DRG classifications and relative weights and the FY 2026 GAFs without incorporating the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy. To achieve budget neutrality for these changes in the GAFs, we calculated an incremental GAF budget neutrality adjustment factor of 0.9934 for FY 2026.

Next, we compared estimated aggregate capital Federal rate payments based on the FY 2026 GAFs with and without the 5-

percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy. For this calculation, estimated aggregate capital Federal rate payments were calculated using the FY 2026 MS-DRG classifications and relative weights (after application of the 10-percent cap discussed later in this section) and the FY 2026 GAFs (both with and without the 5- percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy). (We note, for this calculation the GAFs included the imputed floor, out- migration, and Frontier State adjustments.) To achieve budget neutrality for the effects of the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy on the FY 2026 GAFs, we calculated an incremental GAF budget neutrality adjustment factor of 0.9989.

The budget neutrality factor for the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy is not permanently built into the capital Federal rate. Consistent with this, we present the budget neutrality factor for the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy calculated under the second step of this 2- step methodology separately from the other budget neutrality factors in the discussion that follows, and this factor is not included in the calculation of the combined GAF/DRG adjustment factor described later in this section.

In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent 10-percent cap on the reduction in an MS-DRG's relative weight in a given fiscal year, beginning in FY 2023. Consistent with our historical methodology for adjusting the capital standard Federal rate to ensure that the effects of the annual DRG reclassification and the recalibration of DRG weights are budget neutral under Sec. 412.308(c)(4)(ii), we finalized to apply an additional budget neutrality factor to the capital standard Federal rate so that the 10-percent cap on decreases in an MS-DRG's relative weight is implemented in a budget neutral manner (87 FR 49436). Specifically, we augmented our historical methodology for computing the budget neutrality factor for the annual DRG reclassification and recalibration by computing a budget neutrality adjustment for the annual DRG reclassification and recalibration in two steps. We first calculate a budget neutrality factor to account for the annual DRG reclassification and recalibration prior to the application of the 10-percent cap on MS-DRG relative weight decreases. Then we calculate an additional budget neutrality factor to account for the application of the 10-percent cap on MS-DRG relative weight decreases.

To determine the DRG budget neutrality factors for FY 2026, we first compared estimated aggregate capital Federal rate payments based on the FY 2025 MS-DRG classifications and relative weights to estimated aggregate capital Federal rate payments based on the FY 2026 MS-DRG classifications and relative weights prior to the application of the 10-percent cap. For these calculations, estimated aggregate capital Federal rate payments were calculated using the FY 2026 GAFs without the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy. The incremental adjustment factor for DRG classifications and changes in relative weights prior to the application of the 10-percent cap is 0.9984. Next, we compared estimated aggregate capital Federal rate payments based on the FY 2026 MS-DRG classifications and relative weights prior to the application of the 10-percent cap to estimated aggregate capital Federal rate payments based on the FY 2026 MS-DRG classifications and relative weights after the application of the 10-percent cap. For these calculations, estimated aggregate capital Federal rate payments were also calculated using the FY 2026 GAFs without the 5 percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy. The incremental adjustment factor for the application of the 10-percent cap on relative weight decreases is 0.9999. Therefore, to achieve budget neutrality for the FY 2026 MS-DRG reclassification and recalibration (including the 10-percent cap), based on the calculations described previously, we applied an incremental budget neutrality adjustment factor of 0.9983 (0.9984 x 0.9999) for FY 2026 to the capital Federal rate. We note that all the values are calculated with unrounded numbers.

The incremental adjustment factor for the FY 2026 MS-DRG reclassification and recalibration (0.9983) and for changes in the FY 2026 GAFs due to the update to the wage data, wage index reclassifications and redesignations, and application of the rural floor policy (0.9934) is 0.9918 (0.9983 x 0.9934). This incremental adjustment factor is built permanently into the capital Federal rates.

To achieve budget neutrality for the effects of the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy on the FY 2026 GAFs, as described previously, we calculated a budget neutrality adjustment factor of 0.9989 for FY 2026. We refer to this budget neutrality factor for the remainder of this section as the cap/ transition adjustment factor.

We applied the budget neutrality adjustment factors described previously to the capital Federal rate. This follows the requirement under Sec. 412.308(c)(4)(ii) that estimated aggregate payments each year be no more or less than they would have been in the absence of the annual DRG reclassification and recalibration and changes in the GAFs.

The methodology used to determine the recalibration and geographic adjustment factor (GAF/DRG) budget neutrality adjustment is similar to the methodology used in establishing budget neutrality adjustments under the IPPS for operating costs. One difference is that, under the operating IPPS, the budget neutrality adjustments for the effect of updates to the wage data, wage index reclassifications and redesignations, and application of the rural floor policy are determined separately. Under the capital IPPS, there is a single budget neutrality adjustment factor for changes in the GAF that result from updates to the wage data, wage index reclassifications and redesignations, and application of the rural floor policy. In addition, there is no adjustment for the effects that geographic reclassification, the 5-percent cap on wage index decreases policy, or the transition for the discontinuation of the low wage index hospital policy described previously have on the other payment parameters, such as the payments for DSH or IME.

The incremental GAF/DRG adjustment factor of 0.9918 accounts for the MS-DRG reclassifications and recalibration (including application of the 10-percent cap on relative weight decreases) and for changes in the GAFs that result from updates to the wage data, the effects on the GAFs of FY 2026 geographic reclassification decisions made by the MGCRB compared to FY 2025 decisions, and the application of the rural floor policy. The cap/transition adjustment factor of 0.9989 accounts for changes that result from the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy. However, these factors do not account for changes in payments due to changes in the DSH and IME adjustment factors.

For FY 2025, we established a capital Federal rate of $512.14 (89 FR 80412). We are establishing an update of 2.8 percent in determining the FY 2026 capital Federal rate for all hospitals. As a result of this final update and the budget neutrality factors discussed earlier, we are establishing a national capital Federal rate of $524.15 for FY 2026. The national capital Federal rate for FY 2026 was calculated as follows:

The FY 2026 update factor is 1.028; that is, the update is 2.8 percent.

The FY 2026 GAF/DRG budget neutrality adjustment factor that is applied to the capital Federal rate for changes in the MS- DRG classifications and relative weights (including application of the 10-percent cap on relative weight decreases) and changes in the GAFs that result from updates to the wage data, wage index reclassifications and redesignations, and application of the rural floor policy is 0.9918.

The FY 2026 cap/transition budget neutrality adjustment factor that is applied to the capital Federal rate for changes due to the 5-percent cap on wage index decreases policy and the transition for the discontinuation of the low wage index hospital policy is 0.9989.

The FY 2026 outlier adjustment factor is 0.9616.

We are providing the following chart that shows how each of the factors and adjustments for FY 2026 affects the computation of the FY 2026 national capital Federal rate in comparison to the FY 2025 national capital Federal rate. The FY 2026 update factor has the effect of increasing the capital Federal rate by 2.8 percent compared to the FY 2025 capital Federal rate. The GAF/DRG budget neutrality adjustment factor has the effect of decreasing the capital Federal

rate by 0.82 percent. The FY 2026 cap/transition budget neutrality adjustment factor has the effect of decreasing the capital Federal rate by 0.02 percent compared to the FY 2025 capital Federal rate. The FY 2026 outlier adjustment factor has the effect of increasing the capital Federal rate by 0.41 percent compared to the FY 2025 capital Federal rate. The combined effect of all the changes will increase the national capital Federal rate by approximately 2.35 percent, compared to the FY 2025 national capital Federal rate.

Comparison of Factors and Adjustments: FY 2025 Capital Federal Rate and the FY 2026 Capital Federal Rate

FY 2025 FY 2026 Change Percent change

Update Factor \1\............................. 1.0310 1.0280 1.0280 2.80 GAF/DRG Adjustment Factor \1\................. 0.9854 0.9918 0.9918 -0.82 GAF Cap/Transition Adjustment Factor \2\...... 0.9992 0.9989 0.9998 -0.02 Outlier Adjustment Factor \3\................. 0.9577 0.9616 1.0041 0.41 Capital Federal Rate.......................... $512.14 $524.15 1.0235 \4\ 2.35

\1\ The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the

capital Federal rate. Thus, for example, the incremental change from FY 2025 to FY 2026 resulting from the

application of the 0.9918 GAF/DRG budget neutrality adjustment factor for FY 2026 is a net change of 0.9918

(or -0.82 percent). \2\ For FY 2025 the GAF Cap/Transition budget neutrality adjustment factor reflects only the FY 2025 budget

neutrality factor for the 5-percent cap on wage index decreases policy. The GAF Cap/Transition budget

neutrality adjustment factor is not built permanently into the capital Federal rate; that is, the factor is

not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting

from the application of the FY 2026 GAF Cap/Transition budget neutrality adjustment factor is 0.9989/0.9992 or

0.9998 (or -0.02 percent). \3\ The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is

not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting

from the application of the FY 2026 outlier adjustment factor is 0.9616/0.9577 or 1.0041 (or 0.41 percent). \4\ Percent change may not sum due to rounding.

For purposes of calculating payments for each discharge during FY 2026, the capital Federal rate is adjusted as follows: (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal rate.

Hospitals also may receive outlier payments for those cases that qualify under the threshold established for each fiscal year. Section 412.312(c) provides for a shared threshold to identify outlier cases for both inpatient operating and inpatient capital- related payments. The outlier threshold for FY 2026 is in section II.A. of this Addendum. For FY 2026, a case will qualify as a cost outlier if the cost for the case is greater than the prospective payment rates for the MS-DRG plus IME and DSH payments (including the empirically justified Medicare DSH payment and the estimated uncompensated care payment), estimated supplemental payment for eligible IHS/Tribal hospitals and Puerto Rico hospitals, and any add-on payments for new technology, plus the fixed-loss amount of $40,397.

Currently, as provided under Sec. 412.304(c)(2), we pay a new hospital 85 percent of its reasonable costs during the first 2 years of operation, unless it elects to receive payment based on 100 percent of the capital Federal rate. Effective with the third year of operation, we pay the hospital based on 100 percent of the capital Federal rate (that is, the same methodology used to pay all other hospitals subject to the capital PPS).

Based on IHS Global Inc.'s (IGI) second quarter 2025 forecast, for this final rule, we are forecasting the 2023-based CIPI to increase 2.8 percent in FY 2026. This reflects a projected 3.4 percent increase in vintage-weighted depreciation prices (building and fixed equipment, and movable equipment), and a projected 3.6 percent increase in other capital expense prices in FY 2026, partially offset by a projected 0.2 percent decline in vintage- weighted interest expense prices in FY 2026. The weighted average of these three factors produces the forecasted 2.8 percent increase for the 2023-based CIPI in FY 2026.

As proposed, we are using the more recent data available to determine the FY 2026 increase in the 2023-based CIPI for this final rule.

Comment: A commenter supported the continued application of a prospective methodology for capital-related payments adjusted by the DRG weight. The commenter stated that the agency should assess whether this approach captures the rising costs associated with necessary infrastructure investments--particularly those related to climate resiliency, cybersecurity modernization, and structural upgrades to accommodate infection control. The commenter stated that many of these costs are long-term in nature and cannot be met through base operating rate adjustments alone.

Response: The CIPI reflects the structure of capital costs for IPPS hospitals and the associated prices for capital inputs used in providing Medicare services in IPPS hospitals. As stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18247 through 18252), the 2023-based IPPS capital input price index cost weights are based on the Medicare cost report data from Worksheet A-7. The Medicare cost report capital cost data reflects all allowable capital-related costs for land and depreciable assets, with additional recognition of costs for capital-related items and services that are legally obligated by an enforceable contract (See CMS Pub. 15-1, chapter 28, Sec. 2806). The Medicare cost report does not allow us to separately identify detailed costs for infrastructure investment costs that the commenter mentioned; however, we believe these costs could meet the definition of Medicare-allowable capital-related costs and thus be reflected in the base year cost weights. (See section IV of the preamble of this final rule for additional details on the rebasing and revising of the hospital market baskets for acute care hospitals.)

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase Percentages for FY 2026

Payments for services furnished in children's hospitals, 11 cancer hospitals, and hospitals located outside the 50 States, the District of Columbia and Puerto Rico (that is, short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa) that are excluded from the IPPS are paid on the basis of reasonable costs based on the

hospital's own historical cost experience, subject to a rate-of- increase ceiling. A per discharge limit (the target amount, as defined in Sec. 413.40(a) of the regulations) is set for each hospital, based on the hospital's own cost experience in its base year, and updated annually by a rate-of-increase percentage specified in Sec. 413.40(c)(3). In addition, as specified in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38536), effective for cost reporting periods beginning during FY 2018, the annual update to the target amount for extended neoplastic disease care hospitals (hospitals described in Sec. 412.22(i) of the regulations) also is the rate-of-increase percentage specified in Sec. 413.40(c)(3). (We note that, in accordance with Sec. 403.752(a), religious nonmedical health care institutions (RNHCIs) are also subject to the rate-of- increase limits established under Sec. 413.40 of the regulations.)

For the FY 2026 IPPS/LTCH PPS proposed rule, based on IGI's 2024 fourth quarter forecast, we estimated that the proposed 2023-based IPPS operating market basket percentage increase for FY 2026 was 3.2 percent (that is, the estimate of the market basket rate-of- increase). Based on this estimate, the proposed FY 2026 rate-of- increase percentage that would be applied to the FY 2025 target amounts in order to calculate the proposed FY 2026 target amounts for children's hospitals, the 11 cancer hospitals, RNCHIs, short- term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa, and extended neoplastic disease care hospitals was 3.2 percent, in accordance with the applicable regulations at 42 CFR 413.40. We also proposed that if more recent data became available (for example a more recent estimate of the market basket rate-of-increase), we would use such data, if appropriate, to calculate the final IPPS operating market basket update for FY 2026.

More recent data has become available. Based on IGI's second quarter 2025 forecast, we estimate that the 2023-based IPPS operating market basket percentage increase for FY 2026 is 3.3 percent (that is, the estimate of the market basket rate-of- increase). Accordingly, the FY 2026 rate-of-increase percentage that we will apply to the FY 2025 target amounts in order to calculate the FY 2026 target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa is 3.3 percent, which is based on IGI's second quarter 2025 forecast.

We received no comments on this proposal and therefore are finalizing this provision without modification. Incorporating more recent data available for this final rule, as we proposed, we are adopting a 3.3 percent update for FY 2026.

IRFs and rehabilitation distinct part units, IPFs and psychiatric units, and LTCHs are excluded from the IPPS and paid under their respective PPSs. The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We refer readers to section IX. of the preamble and section V. of the Addendum of this final rule for the changes to the Federal payment rates for LTCHs under the LTCH PPS for FY 2026. The annual updates for the IRF PPS and the IPF PPS are issued by the agency in separate Federal Register documents.

In section IX. of the preamble of this final rule, we discuss our annual updates to the payment rates, factors, and specific policies under the LTCH PPS for FY 2026.

Under Sec. 412.523(c)(3) of the regulations, for FY 2012 and subsequent years, we updated the standard Federal payment rate by the most recent estimate of the LTCH PPS market basket at that time, including additional statutory adjustments required by sections 1886(m)(3) (citing sections 1886(b)(3)(B)(xi)(II) and 1886(m)(4) of the Act as set forth in the regulations at Sec. 412.523(c)(3)(viii) through (xvii)). (For a summary of the payment rate development prior to FY 2012, we refer readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38310 through 38312) and references therein.)

Section 1886(m)(3)(A) of the Act specifies that, for rate year 2012 and each subsequent rate year, any annual update to the standard Federal payment rate shall be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act as discussed in section IX.C.2. of the preamble of this final rule. This section of the Act further provides that the application of section 1886(m)(3)(B) of the Act may result in the annual update being less than zero for a rate year, and may result in payment rates for a rate year being less than such payment rates for the preceding rate year. (As noted in section IX.C.2. of the preamble of this final rule, the annual update to the LTCH PPS occurs on October 1 and we have adopted the term “fiscal year” (FY) rather than “rate year” (RY) under the LTCH PPS beginning October 1, 2010. Therefore, for purposes of clarity, when discussing the annual update for the LTCH PPS, including the provisions of the Affordable Care Act, we use the term “fiscal year” rather than “rate year” for 2011 and subsequent years.)

For LTCHs that fail to submit the required quality reporting data in accordance with the LTCH QRP, the annual update is reduced by 2.0 percentage points as required by section 1886(m)(5) of the Act.

Consistent with our historical practice and Sec. 412.523(c)(3)(xvii), for FY 2026, as we proposed, we are applying the annual update to the LTCH PPS standard Federal payment rate from the previous year. Furthermore, in determining the LTCH PPS standard Federal payment rate for FY 2026, we also are making certain regulatory adjustments, consistent with past practices. Specifically, in determining the FY 2026 LTCH PPS standard Federal payment rate, as we proposed, we are applying a budget neutrality adjustment factor for the changes related to the area wage level adjustment (that is, changes to the wage data and labor-related share) as discussed in section V.B.6. of this Addendum.

In this final rule, we are establishing an annual update to the LTCH PPS standard Federal payment rate of 2.7 percent (that is, the most recent estimate of the 2022-based LTCH market basket increase of 3.4 percent less the productivity adjustment of 0.7 percentage point). Therefore, in accordance with Sec. 412.523(c)(3)(xvii), we are applying an update factor of 1.027 to the FY 2025 LTCH PPS standard Federal payment rate of $49,383.26 to determine the FY 2026 LTCH PPS standard Federal payment rate. Also, in accordance with Sec. 412.523(c)(3)(xvii) and (c)(4), we are required to reduce the annual update to the LTCH PPS standard Federal payment rate by 2.0 percentage points for LTCHs that fail to submit the required quality reporting data for FY 2026 as required under the LTCH QRP. Therefore, for LTCHs that fail to submit quality reporting data under the LTCH QRP, we are establishing an annual update to the LTCH PPS standard Federal payment rate of 0.7 percent (or an update factor of 1.007). This update reflects the annual market basket update of 3.4 percent reduced by the 0.7 percentage point productivity adjustment, as required by section 1886(m)(3)(A)(i) of the Act, minus 2.0 percentage points for LTCHs failing to submit quality data under the LTCH QRP, as required by section 1886(m)(5) of the Act. Consistent with Sec. 412.523(d)(4), we are applying an area wage level budget neutrality factor to the FY 2026 LTCH PPS standard Federal payment rate of 1.0021275, based on the best available data at this time, to ensure that any changes to the area wage level adjustment (that is, the annual update of the wage index (including application of the 5-percent cap on wage index decreases, discussed later in this section), and labor-related share) would not result in any change (increase or decrease) in estimated aggregate LTCH PPS standard Federal payment rate payments. Accordingly, we are establishing an LTCH PPS standard Federal payment rate of $50,824.51 (calculated as $49,383.26 x 1.027 x 1.0021275) for FY 2026. For LTCHs that fail to submit quality reporting data for FY 2026, in accordance with the requirements of the LTCH QRP under section 1866(m)(5) of the Act, we are establishing an LTCH PPS standard Federal payment rate of $49,834.74 (calculated as $49,383.26 x 1.007 x 1.0021275) for FY 2026.

In adjusting for the differences in area wage levels under the LTCH PPS, the labor-related portion of an LTCH's Federal prospective payment is adjusted by using an appropriate area wage index based on the geographic classification (labor market area) in which the LTCH is located. Specifically, the application of the LTCH PPS area wage level adjustment under existing Sec. 412.525(c) is made based on the location of the LTCH--either in an “urban area,” or a “rural area,” as defined in Sec. 412.503. Under Sec. 412.503, an “urban area” is defined as a Metropolitan Statistical Area (MSA) (which includes a Metropolitan division, where applicable), as defined by the Executive OMB, and a “rural area” is defined as any area outside of an urban area (75 FR 37246).

The geographic classifications (labor market area definitions) currently used under the LTCH PPS are based on the Core Based Statistical Areas (CBSAs) established by OMB. In the July 16, 2021, Federal Register (86 FR 37777), OMB finalized a schedule for future updates based on results of the decennial Census updates to commuting patterns from the American Community Survey. In accordance with that schedule, on July 21, 2023, OMB released Bulletin No. 23- 01. According to OMB, the delineations reflect the 2020 Standards for Delineating Core Based Statistical Areas (“the 2020 Standards”), which appeared in the Federal Register on July 16, 2021 (86 FR 37770 through 37778), and the application of those standards to Census Bureau population and journey-to-work data (that is, 2020 Decennial Census, American Community Survey, and Census Population Estimates Program data). A copy of OMB Bulletin No. 23-01 may be obtained at https://bidenwhitehouse.archives.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf.

In the FY 2025 IPPS/LTCH PPS final rule, we stated that we believe that adopting the CBSA-based labor market area delineations established in OMB Bulletin 23-01 will ensure that the LTCH PPS area wage level adjustment most appropriately accounts for and reflects the relative hospital wage levels in the geographic area of the hospital as compared to the national average hospital wage level based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas (89 FR 69974). We also noted that our adoption of the revised delineations announced in OMB Bulletin No. 23-01 is consistent with the changes under the IPPS for FY 2025. Therefore, in that same final rule, we adopted the updates set forth in OMB Bulletin No. 23-01, under the authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, for the LTCH PPS effective for FY 2025. We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69973 through 69975), for a full discussion of our implementation of the OMB delineations based on OMB Bulletin No. 23- 01 for the LTCH PPS. For additional information on the CBSA-based labor market area (geographic classification) delineations used under the LTCH PPS and the history of the labor market area definitions used under the LTCH PPS, we refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50180 through 50185).

We continue to believe that the CBSA-based labor market area delineations, as established in OMB Bulletin 23-01, ensure that the LTCH PPS area wage level adjustment most appropriately accounts for and reflects the relative hospital wage levels in the geographic area of the hospital as compared to the national average hospital wage level based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas (89 FR 69974). Therefore, for FY 2026, we are continuing to use the CBSA-based labor market area delineations as established in OMB Bulletin 23-01 and adopted in the FY 2025 IPPS/LTCH final rule.

CBSAs are made up of one or more constituent counties. For FY 2026, we are continuing to use the Federal Information Processing Standard (FIPS) county codes, maintained by the U.S. Census Bureau, for purposes of crosswalking counties to CBSAs. The current county- to-CBSA crosswalk was adopted under the LTCH PPS in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69973 through 69975) and is located on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/long-term-care-hospital/other-files-download.

Under the payment adjustment for the differences in area wage levels under Sec. 412.525(c), the labor-related share of an LTCH's standard Federal payment rate is adjusted by the applicable wage index for the labor market area in which the LTCH is located. The LTCH PPS labor-related share currently represents the sum of the labor-related portion of operating costs and a labor-related portion of capital costs using the applicable LTCH market basket. Additional background information on the historical development of the labor- related share under the LTCH PPS can be found in the RY 2007 LTCH PPS final rule (71 FR 27810 through 27817 and 27829 through 27830) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808).

Effective FY 2025, we rebased and revised the 2017-based LTCH market basket to reflect a 2022 base year and determined the labor- related share annually as the sum of the relative importance of each labor-related cost category in the 2022-based LTCH market basket using the most recent available data. (For more details, we refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR 69435 through 69455).)

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18664), consistent with our historical practice, we proposed that the LTCH PPS labor-related share for FY 2026 would be the sum of the FY 2026 relative importance of each labor-related cost category in the LTCH market basket using the most recent available data. Specially, we proposed that the labor-related share for FY 2026 is the sum of the labor-related portion of operating costs from the 2022-based LTCH market basket (that is, the sum of the FY 2026 relative importance shares of Wages and Salaries; Employee Benefits; Professional Fees: Labor-Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; All Other: Labor- Related Services) and a portion of the relative importance of Capital-Related cost weight from the 2022-based LTCH market basket. The relative importance reflects the different rates of price change for these cost categories between the base year (2022) and FY 2026. Based on IHS Global Inc.'s fourth quarter 2024 forecast of the 2022- based LTCH market basket, the sum of the FY 2026 relative importance for Wages and Salaries; Employee Benefits; Professional Fees: Labor- Related; Administrative and Facilities Support Services; Installation, Maintenance, and Repair Services; and All Other: Labor-Related Services was 69.2 percent. The portion of capital- related costs that is influenced by the local labor market was estimated to be 46 percent (that was, the same percentage applied to the 2009-based, 2013-based, and 2017-based LTCH market basket capital-related costs relative importance). Since the FY 2026 relative importance for capital-related costs was 8.4 percent based on IHS Global Inc.'s fourth quarter 2024 forecast of the 2022-based LTCH market basket, we took 46 percent of 8.4 percent to determine the labor-related share of capital-related costs for FY 2026 of 3.9 percent. Therefore, we proposed a total labor-related share for FY 2026 of 73.1 percent (the sum of 69.2 percent for the labor-related share of operating costs and 3.9 percent for the labor-related share of capital-related costs). Consistent with our historical practice, we also proposed that if more recent data became available after the publication of the proposed rule and before the publication of the final rule (for example, a more recent estimate of the relative importance of each labor-related cost category of the 2022-based LTCH market basket), we would use such data, if appropriate, to determine the FY 2026 LTCH PPS labor-related share.

Comment: A few commenters expressed appreciation and support for the proposed FY 2026 labor-related share of 73.1 percent, which represents a 0.3 percentage point increase over last year's 72.8 percent. The commenters stated that health care providers continue to face workforce challenges that were exacerbated during the COVID- 19 pandemic and an increased labor-related share will help reimbursement rates to recognize that pressure. However, some commenters expressed concern that the proposed 0.3 percentage point increase to the labor-related share does not sufficiently account for the dramatic increases in labor costs that LTCHs are incurring.

Several commenters opposed CMS' proposal to increase the labor- related share to 73.1 percent for FY 2026. A commenter

stated that this change--especially coming on top of last year's notable increase from 68.5 percent to 72.8 percent--will adversely affect hospitals in areas with below-average wage indices. The commenter stated that keeping the labor-related share at its current level (72.8 percent)--or lower--would help avoid further penalizing hospitals in low-wage areas and would help mitigate the growing disparity between high-wage and low-wage regions. Therefore, the commenter believed the labor-related share for LTCHs should remain aligned with, or below, that of other inpatient providers to ensure fairness and protect rural and community LTCHs from disproportionate payment cuts.

Response: The total difference between the proposed FY 2026 labor-related share using the 2022-based LTCH market basket (73.1 percent) and the FY 2025 labor-related share (72.8 percent) is a result of incorporating more recent data regarding expected price pressures facing LTCHs. We believe incorporating these more recent data in the LTCH market basket is appropriate, resulting in a corresponding increase in the labor-related share, and appropriately identifies the portion of an LTCH's standard Federal payment rate to be adjusted by the applicable LTCH wage index. This methodology is consistent with the determination of the labor-related share since the implementation of the LTCH PPS.

After consideration of public comments, we are finalizing the FY 2026 labor-related share using the most recently available data. Based on IHS Global Inc.'s second quarter 2025 forecast of the 2022- based LTCH market basket, the sum of the FY 2026 relative importance for Wages and Salaries; Employee Benefits; Professional Fees: Labor- Related; Administrative and Facilities Support Services; Installation, Maintenance, & Repair Services; and All Other: Labor- Related Services is 69.0 percent. The portion of capital-related costs that is influenced by the local labor market is estimated to be 46 percent (that is, the same percentage applied to the 2009- based, 2013-based, and 2017-based LTCH market basket capital-related costs relative importance). Since the FY 2026 relative importance for capital-related costs is 8.4 percent based on IHS Global Inc.'s second quarter 2025 forecast of the 2022-based LTCH market basket, we took 46 percent of 8.4 percent to determine the labor-related share of capital-related costs for FY 2026 of 3.9 percent. Therefore, we are finalizing a total labor-related share for FY 2026 of 72.9 percent (the sum of 69.0 percent for the labor-related share of operating costs and 3.9 percent for the labor-related share of capital-related costs).

Historically, we have established LTCH PPS area wage index values calculated from acute care IPPS hospital wage data without taking into account geographic reclassification under sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The area wage level adjustment established under the LTCH PPS is based on an LTCH's actual location without regard to the “urban” or “rural” designation of any related or affiliated provider. As with the IPPS wage index, wage data for multicampus hospitals with campuses located in different labor market areas (CBSAs) are apportioned to each CBSA where the campus (or campuses) are located. We also employ a policy for determining area wage index values for areas where there are no IPPS wage data.

Consistent with our historical methodology, to determine the applicable area wage index values for the FY 2026 LTCH PPS standard Federal payment rate, under the broad authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, as we proposed, we are continuing to employ our historical practice of using the same data we used to compute the FY 2026 acute care hospital inpatient wage index, as discussed in section III. of the preamble of this final rule (that is, wage data collected from cost reports submitted by IPPS hospitals for cost reporting periods beginning during FY 2022) because these data are the most recent complete data available.

Comment: A commenter opposed CMS's use of unadjusted FY 2022 cost report data for determining the applicable area wage index values for the FY 2026 LTCH PPS standard Federal payment rate. The commenter noted that pandemic-driven labor costs, especially contract labor, were unusually high and not representative of future conditions. The commenter argued that using unmodified data from this period will distort wage index values and the data should be adjusted to account for pandemic-related anomalies.

Response: We thank the commenter for the feedback regarding the use of adjusted data in calculating the applicable wage index values for the FY 2026 LTCH PPS standard Federal payment rate. Similar to the FY 2025 wage index (89 FR 69266 through 69268), it is not readily apparent how any changes due to the COVID-19 PHE differentially impacted the wages paid by individual hospitals. Even if changes due to the COVID-19 PHE did differentially impact the wages paid by individual hospitals over time, it is not clear how those changes could be isolated from changes due to other reasons and what an appropriate potential methodology might be to adjust the data to account for the effects of the COVID-19 PHE.

We have not identified any significant issues with the FY 2022 wage data based on our audits. As is standard practice, the Medicare Administrative Contractors (MACs) audited the data, and no major concerns were reported across hospitals. The commenter did not provide specific examples or data to show that certain providers or CBSAs were disproportionately affected by the PHE or contract labor costs. The concerns raised appear to be generalized without evidence of specific distortions in the FY 2022 wage data. Furthermore, even if CMS applied a uniform adjustment to contract labor salaries and hours, it would proportionally affect both area and national average hourly wages (AHW), leaving the wage index--which is a relative measure--essentially unchanged. Lastly, FY 2022 remains the most recent year for which audited wage data is available. FY 2023 wage data has not yet been audited and is therefore not suitable for use in setting the FY 2026 wage index.

Taking all of these factors into account, we believe the FY 2022 wage data is the best available wage data to use for FY 2026. Therefore, as we proposed, consistent with our historical practice, we are using the most recent data available to determine the final applicable area wage index values for the FY 2026 LTCH PPS standard Federal payment rate in this final rule.In addition, as we proposed, we computed the FY 2026 LTCH PPS standard Federal payment rate area wage index values consistent with the “urban” and “rural” geographic classifications (that is, the labor market area delineations as previously discussed in section V.B. of this Addendum) and our historical policy of not taking into account IPPS geographic reclassifications under sections 1886(d)(8) and 1886(d)(10) of the Act in determining payments under the LTCH PPS. As we proposed, we also continued to apportion the wage data for multicampus hospitals with campuses located in different labor market areas to each CBSA where the campus or campuses are located, consistent with the IPPS policy. Lastly, consistent with our existing methodology for determining the LTCH PPS wage index values, for FY 2026, as we proposed, we continued to use our existing policy for determining area wage index values for areas where there are no IPPS wage data. Under our existing methodology, the LTCH PPS wage index value for urban CBSAs with no IPPS wage data is determined by using an average of all of the urban areas within the State, and the LTCH PPS wage index value for rural areas with no IPPS wage data is determined by using the unweighted average of the wage indices from all of the CBSAs that are contiguous to the rural counties of the State.

Based on the FY 2022 IPPS wage data that we used to determine the FY 2026 LTCH PPS area wage index values in this final rule, there are no IPPS wage data for the urban area of Hinesville, GA (CBSA 25980). Consistent with our existing methodology, we calculated the FY 2026 wage index value for CBSA 25980 as the average of the wage index values for all of the other urban areas within the State of Georgia (that is, CBSAs 10500, 12020, 12054, 12260, 15260, 16860, 17980, 19140, 23580, 31420, 31924, 40660, 42340, 46660, and 47580), as shown in Table 12A, which is listed in section VI. of this Addendum.

Based on the FY 2022 IPPS wage data that we used to determine the FY 2026 LTCH PPS area wage index values in this final rule, there are no IPPS wage data for rural North Dakota (CBSA 35). Consistent with our existing methodology, we calculated the FY 2026 wage index value for CBSA 35 as the average of the wage index values for all CBSAs that are contiguous to the rural counties of the State (that is, CBSAs 13900, 22020, 24220, and 33500), as shown in Table 12B, which is listed in section VI. of this Addendum. We note that, as IPPS wage data are dynamic, it is possible that the number of urban and rural areas without IPPS wage data will vary in the future.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49440 through 49442), we finalized a

policy that applies a permanent 5-percent cap on any decrease to an LTCH's wage index from its wage index in the prior year. Consistent with the requirement at Sec. 412.525(c)(2) that changes to area wage level adjustments are made in a budget neutral manner, we include the application of this policy in the determination of the area wage level budget neutrality factor that is applied to the standard Federal payment rate, as is discussed later in section V.B.6. of this Addendum.

Under this policy, an LTCH's wage index will not be less than 95 percent of its wage index for the prior fiscal year. An LTCH's wage index cap adjustment is determined based on the wage index value applicable to the LTCH on the last day of the prior Federal fiscal year. However, for newly opened LTCHs that become operational on or after the first day of the fiscal year, these LTCHs will not be subject to the LTCH PPS wage index cap since they were not paid under the LTCH PPS in the prior year. For example, newly opened LTCHs that become operational during FY 2026 would not be eligible for the LTCH PPS wage index cap in FY 2026. These LTCHs would receive the calculated wage index for the area in which they are geographically located, even if other LTCHs in the same geographic area are receiving a wage index cap. The cap on wage index decreases policy is reflected at Sec. 412.525(c)(1).

For each LTCH we identify in our rulemaking data, we are including in a supplemental data file the wage index values from both fiscal years used in determining its capped wage index. This includes the LTCH's final prior year wage index value, the LTCH's uncapped current year wage index value, and the LTCH's capped current year wage index value. Due to the lag in rulemaking data, a new LTCH may not be listed in this supplemental file for a few years. For this reason, a newly opened LTCH could contact their MAC to ensure that its wage index value is not less than 95 percent of the value paid to it for the prior Federal fiscal year. This supplemental data file for public use will be posted on the CMS website for this final rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

Comment: A commenter stated that while they support the permanent cap on LTCH PPS wage index decreases policy, they urge CMS to implement this policy in a non-budget-neutral manner. to address financial strain that LTCHs continue to face.

Response: Implementation of this policy in a budget neutral manner is consistent with the requirement at Sec. 412.525(c)(2) that changes to area wage level adjustments are made in a budget neutral manner. Consistent with this requirement, we continue to believe that changes to area wage level adjustments, including the 5-percent cap on the decrease on an LTCH's wage index, should not result in any change in estimated aggregate LTCH PPS payments. Furthermore, we also continue to anticipate that, in the absence of wage index policy changes beyond an annual update of the wage data, most LTCHs will experience year-to-year wage index declines less than 5 percent in any given year, and that the overall budget neutrality adjustments associated with the cap on wage index decreases will therefore be relatively small and will not create volatility in LTCH PPS payments. We expect 17 LTCHs to receive the 5-percent cap in FY 2026.

Determining LTCH PPS payments for short-stay-outlier cases (reflected in Sec. 412.529) and site neutral payment rate cases (reflected in Sec. 412.522(c)) requires calculating an “IPPS comparable amount.” For information on this “IPPS comparable amount” calculation, we refer the reader to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49608 through 49610). Determining LTCH PPS payments for LTCHs that do not meet the applicable discharge payment percentage (reflected in Sec. 412.522(d)) requires calculating an “IPPS equivalent amount.” For information on this “IPPS equivalent amount” calculation, we refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439 through 42445).

Calculating both the “IPPS comparable amount” and the “IPPS equivalent amount” requires adjusting the IPPS operating and capital standardized amounts by the applicable IPPS wage index for nonreclassified IPPS hospitals. That is, the standardized amounts are adjusted by the IPPS wage index for nonreclassified IPPS hospitals located in the same geographic area as the LTCH. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49442 through 49443), we finalized a policy that applies a permanent 5-percent cap on decreases in an LTCH's applicable IPPS comparable wage index from its applicable IPPS comparable wage index in the prior year. Historically, we have not budget neutralized changes to LTCH PPS payments that result from the annual update of the IPPS wage index for nonreclassified IPPS hospitals. Consistent with this approach, the cap on decreases in an LTCH's applicable IPPS comparable wage index is not applied in a budget neutral manner.

Under this policy, an LTCH's applicable IPPS comparable wage index will not be less than 95 percent of its applicable IPPS comparable wage index for the prior fiscal year. An LTCH's applicable IPPS comparable wage index cap adjustment is determined based on the wage index value applicable to the LTCH on the last day of the prior Federal fiscal year. However, for newly opened LTCHs that become operational on or after the first day of the fiscal year, these LTCHs will not be subject to the applicable IPPS comparable wage index cap since they were not paid under the LTCH PPS in the prior year. For example, newly opened LTCHs that become operational during FY 2026 would not be eligible for the applicable IPPS comparable wage index cap in FY 2026. This means that these LTCHs would receive the calculated applicable IPPS comparable wage index for the area in which they are geographically located, even if other LTCHs in the same geographic area are receiving a wage cap. The cap on IPPS comparable wage index decreases policy is reflected at Sec. 412.529(d)(4)(ii)(B) and (d)(4)(iii)(B).

Similar to the information we are making available for the cap on the LTCH PPS wage index values (described previously), for each LTCH we identify in our rulemaking data, we are including in a supplemental data file the wage index values from both fiscal years used in determining its capped applicable IPPS comparable wage index. Due to the lag in rulemaking data, a new LTCH may not be listed in this supplemental file for a few years. For this reason, a newly opened LTCH could contact its MAC to ensure that its applicable IPPS comparable wage index value is not less than 95 percent of the value paid to them for the prior Federal fiscal year. This supplemental data file for public use will be posted on the CMS website for this final rule at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

Historically, the LTCH PPS wage index and labor-related share are updated annually based on the latest available data. Under Sec. 412.525(c)(2), any changes to the area wage index values or labor- related share are to be made in a budget neutral manner such that estimated aggregate LTCH PPS payments are unaffected; that is, will be neither greater than nor less than estimated aggregate LTCH PPS payments without such changes to the area wage level adjustment. Under this policy, we determine an area wage level adjustment budget neutrality factor that is applied to the standard Federal payment rate to ensure that any changes to the area wage level adjustments are budget neutral such that any changes to the area wage index values or labor-related share would not result in any change (increase or decrease) in estimated aggregate LTCH PPS payments. Accordingly, under Sec. 412.523(d)(4), we have applied an area wage level adjustment budget neutrality factor in determining the standard Federal payment rate, and we also established a methodology for calculating an area wage level adjustment budget neutrality factor. (For additional information on the establishment of our budget neutrality policy for changes to the area wage level adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771 through 51773 and 51809).)

For FY 2026, in accordance with Sec. 412.523(d)(4), we are applying an area wage level budget neutrality factor to adjust the LTCH PPS standard Federal payment rate to account for the estimated effect of the adjustments or updates to the area wage level adjustment under Sec. 412.525(c)(1) on estimated aggregate LTCH PPS payments, consistent with the methodology we established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51773). As discussed in section V.B.5. of this Addendum, consistent with, Sec. 412.525(c)(2), we include the application of the 5-percent cap on wage index decreases in the determination of the area wage level budget neutrality factor. Specifically, as we proposed, we determined an area wage level adjustment budget neutrality factor that is applied to the LTCH PPS standard Federal payment rate under Sec. 412.523(d)(4) for FY 2026 using the following methodology:

Step 1--Simulate estimated aggregate LTCH PPS standard Federal payment rate payments using the FY 2025 wage index values and the FY 2025 labor-related share of 72.8 percent.

Step 2--Simulate estimated aggregate LTCH PPS standard Federal payment rate payments using the FY 2026 wage index values (including the application of the 5-percent cap on wage index decreases) and the FY 2026 labor-related share of 72.9 percent. (As noted previously, the changes to the wage index values based on updated hospital wage data are discussed in section V.B.4. of this Addendum and the labor-related share is discussed in section V.B.3. of this Addendum.)

Step 3--Calculate the ratio of these estimated total LTCH PPS standard Federal payment rate payments by dividing the estimated total LTCH PPS standard Federal payment rate payments using the FY 2025 area wage level adjustments (calculated in Step 1) by the estimated total LTCH PPS standard Federal payment rate payments using the FY 2026 updates to the area wage level adjustment (calculated in Step 2) to determine the budget neutrality factor for updates to the area wage level adjustment for FY 2026 LTCH PPS standard Federal payment rate payments.

Step 4--Apply the FY 2026 updates to the area wage level adjustment budget neutrality factor from Step 3 to determine the FY 2026 LTCH PPS standard Federal payment rate after the application of the FY 2026 annual update.

As we proposed, we used the most recent data available, including claims from the FY 2024 MedPAR file, in calculating the FY 2026 LTCH PPS standard Federal payment rate area wage level adjustment budget neutrality factor. We note that, because the area wage level adjustment under Sec. 412.525(c) is an adjustment to the LTCH PPS standard Federal payment rate, consistent with historical practice, we only used data from claims that qualified for payment at the LTCH PPS standard Federal payment rate under the dual rate LTCH PPS to calculate the FY 2026 LTCH PPS standard Federal payment rate area wage level adjustment budget neutrality factor.

For this final rule, using the steps in the methodology previously described, we determined a FY 2026 LTCH PPS standard Federal payment rate area wage level adjustment budget neutrality factor of 1.0021275. Accordingly, in section V.A. of this Addendum, we applied the area wage level adjustment budget neutrality factor of 1.0021275 to determine the FY 2026 LTCH PPS standard Federal payment rate, in accordance with Sec. 412.523(d)(4).

Under Sec. 412.525(b), a cost-of-living adjustment (COLA) is provided for LTCHs located in Alaska and Hawaii to account for the higher costs incurred in those States. Specifically, we apply a COLA to payments to LTCHs located in Alaska and Hawaii by multiplying the nonlabor-related portion of the standard Federal payment rate by the applicable COLA factors established annually by CMS. Higher labor- related costs for LTCHs located in Alaska and Hawaii are taken into account in the adjustment for area wage levels.

The current methodology used to determine the COLA factors for Alaska and Hawaii is based on the 2009 OPM COLAs (which are the last COLA factors OPM published prior to transitioning from COLA to locality pay) by a comparison of the growth in the Consumer Price Indexes (CPIs) for Urban Alaska and Urban Hawaii, relative to the growth in the CPI for the average U.S. city as published by the Bureau of Labor Statistics (BLS). We use the comparison of the growth in the overall CPI relative to the growth in the CPI for those areas to update the COLA factors for all areas in Alaska and Hawaii, respectively, because BLS publishes CPI data for only Urban Alaska and Urban Hawaii. Using the respective CPI commodities index and CPI services index and using the approximate commodities/ services shares obtained from the IPPS market basket, we create reweighted CPIs for each of the respective areas to reflect the underlying composition of the IPPS market basket nonlabor-related share. The methodology also includes our discretionary authority to adjust payments to hospitals in Alaska and Hawaii by incorporating the statutorily mandated cap of 25 percent that was applied when determining OPM's COLA factors (77 FR 53482). Under this policy, we have updated the COLA factors using this methodology every 4 years (at the same time as the update to the labor-related share of the IPPS market basket) beginning in FY 2014. We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482) for a detailed description of this methodology.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45559 through 45560), we last updated the COLA factors for LTCHs using the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482) and CPI data through 2020. We utilized these COLA factors for FYs 2022 through 2025 to adjust the nonlabor-related portion of the standardized amount for hospitals located in Alaska and Hawaii. (We note the same COLA methodology and factors were used under the IPPS and LTCH PPS for FYs 2022 through 2025.)

As stated previously, we have historically updated the COLA factors at the same time as the update to the labor-related share of the IPPS market basket (77 FR 53482). In section III.H. the preamble of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18236), we proposed to update the labor-related share of the IPPS market basket. In section V.C. the Addendum of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18448), we presented a table for comparison purposes between the COLA factors for Alaska and Hawaii hospitals as calculated under the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482), using updated CPI data through 2024 and the approximate 60 percent commodities/40 percent services shares obtained from the proposed 2023-based IPPS market basket and the COLA factors utilized for FYs 2022 through 2025.

In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18449), we also proposed maintaining the current COLA factors for FY 2026 to be consistent with the approach proposed under the IPPS as discussed in section II.B.2. the Addendum of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18438). We believed that it would be appropriate to maintain the current COLA factors for FY 2026 to allow us to consider whether it would be appropriate to incorporate additional data sources or other methodology changes in determining the adjustment we make to LTCH PPS payments to account for the unique circumstances of LTCHs located in Alaska and Hawaii.

We solicited public comments on the proposal regarding maintaining the current COLA factors under the LTCH PPS for FY 2026. We received no comments on this proposal and are finalizing the use of the current COLA factors for FY 2026 without modification. We also summarize comments regarding the proposed COLAs under the IPPS in section II.B.2. of the Addendum of this final rule. Therefore, under the broad authority conferred upon the Secretary by section 123 of the BBRA, as amended by section 307(b) of the BIPA, to determine appropriate payment adjustments under the LTCH PPS, for FY 2026 we continue to use the FY 2025 COLA factors (which were originally established in the FY 2022 IPPS/LTCH PPS final rule, as described previously). The following table lists the finalized FY 2026 COLA factors.

FY 2026 Cost-of-Living Adjustment Factors: Alaska and Hawaii Under the

LTCH PPS

Area COLA

Alaska:

City of Anchorage and 80-kilometer (50-mile) radius 1.22

by road............................................

City of Fairbanks and 80-kilometer (50-mile) radius 1.22

by road............................................

City of Juneau and 80-kilometer (50-mile) radius by 1.22

road...............................................

Rest of Alaska...................................... 1.24 Hawaii:

City and County of Honolulu......................... 1.25

County of Hawaii.................................... 1.22

County of Kauai..................................... 1.25

County of Maui and County of Kalawao................ 1.25

From the beginning of the LTCH PPS, we have included an adjustment to account for cases in which there are extraordinarily high costs relative to the costs of most discharges. Under this policy, additional payments are made based on the degree to which the estimated cost of a case (which is calculated by multiplying the Medicare allowable covered charge by the hospital's overall hospital CCR) exceeds a fixed-loss amount. This policy results in greater payment accuracy under the LTCH PPS and the Medicare program, and the LTCH sharing the financial risk for the treatment of extraordinarily high-cost cases.

We retained the basic tenets of our HCO policy in FY 2016 when we implemented the dual rate LTCH PPS payment structure under section 1206 of Public Law 113-67. LTCH discharges that meet the criteria for exclusion from the site neutral payment rate (that is, LTCH PPS standard Federal payment rate cases) are paid at the LTCH PPS standard Federal payment rate, which includes, as applicable, HCO payments under Sec. 412.523(e). LTCH discharges that do not meet the criteria for exclusion are paid at the site neutral payment rate, which includes, as applicable, HCO payments under Sec. 412.522(c)(2)(i). In the FY 2016 IPPS/LTCH PPS final rule, we established separate fixed loss amounts and targets for the two different LTCH PPS payment rates. Under this bifurcated policy, the historic 8-percent HCO target was retained for LTCH PPS standard Federal payment rate cases, with the fixed-loss amount calculated using only data from LTCH cases that would have been paid at the LTCH PPS standard Federal payment rate if that rate had been in effect at the time of those discharges. For site neutral payment rate cases, we adopted the operating IPPS HCO target (currently 5.1 percent) and set the fixed-loss amount for site neutral payment rate cases at the value of the IPPS fixed-loss amount. Under the HCO policy for both payment rates, an LTCH receives 80 percent of the difference between the estimated cost of the case and the applicable HCO threshold, which is the sum of the LTCH PPS payment for the case and the applicable fixed-loss amount for such case.

To maintain budget neutrality, consistent with the budget neutrality requirement at Sec. 412.523(d)(1) for HCO payments to LTCH PPS standard Federal rate payment cases, we also adopted a budget neutrality requirement for HCO payments to site neutral payment rate cases by applying a budget neutrality factor to the LTCH PPS payment for those site neutral payment rate cases. (We refer readers to Sec. 412.522(c)(2)(i) of the regulations for further details.) We note that, during the 4-year transitional period, the site neutral payment rate HCO budget neutrality factor did not apply to the LTCH PPS standard Federal payment rate portion of the blended payment rate at Sec. 412.522(c)(3) payable to site neutral payment rate cases. (For additional details on the HCO policy adopted for site neutral payment rate cases under the dual rate LTCH PPS payment structure, including the budget neutrality adjustment for HCO payments to site neutral payment rate cases, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49617 through 49623).)

As noted previously, CCRs are used to determine payments for HCO adjustments for both payment rates under the LTCH PPS and are also used to determine payments for site neutral payment rate cases. As noted earlier, in determining HCO and the site neutral payment rate payments (regardless of whether the case is also an HCO), we generally calculate the estimated cost of the case by multiplying the LTCH's overall CCR by the Medicare allowable charges for the case. An overall CCR is used because the LTCH PPS uses a single prospective payment per discharge that covers both inpatient operating and capital-related costs. The LTCH's overall CCR is generally computed based on the sum of LTCH operating and capital costs (as described in section 150.24, Chapter 3, of the Medicare Claims Processing Manual (Pub. 100-4)) as compared to total Medicare charges (that is, the sum of its operating and capital inpatient routine and ancillary charges), with those values determined from either the most recently settled cost report or the most recent tentatively settled cost report, whichever is from the latest cost reporting period. However, in certain instances, we use an alternative CCR, such as the statewide average CCR, a CCR that is specified by CMS, or one that is requested by the hospital. (We refer readers to Sec. 412.525(a)(4)(iv) of the regulations for further details regarding CCRs and HCO adjustments for either LTCH PPS payment rate and Sec. 412.522(c)(1)(ii) for the site neutral payment rate.)

The LTCH's calculated CCR is then compared to the LTCH total CCR ceiling. Under our established policy, an LTCH with a calculated CCR in excess of the applicable maximum CCR threshold (that is, the LTCH total CCR ceiling, which is calculated as 3 standard deviations from the national geometric average CCR) is generally assigned the applicable statewide CCR. This policy is premised on a belief that calculated CCRs in excess of the LTCH total CCR ceiling are most likely due to faulty data reporting or entry, and CCRs based on erroneous data should not be used to identify and make payments for outlier cases.

Our general methodology for determining the statewide average CCRs used under the LTCH PPS is similar to our established methodology for determining the LTCH total CCR ceiling because it is based on “total” IPPS CCR data. (For additional information on our methodology for determining statewide average CCRs under the LTCH PPS, we refer readers to the FY 2007 IPPS final rule (71 FR 48119 through 48120).) Under the LTCH PPS HCO policy at Sec. 412.525(a)(4)(iv)(C), the SSO policy at Sec. 412.529(f)(4)(iii), and the site neutral payment rate at Sec. 412.522(c)(1)(ii), the MAC may use a statewide average CCR, which is established annually by CMS, if it is unable to determine an accurate CCR for an LTCH in one of the following circumstances: (1) New LTCHs that have not yet submitted their first Medicare cost report (a new LTCH is defined as an entity that has not accepted assignment of an existing hospital's provider agreement in accordance with Sec. 489.18); (2) LTCHs whose calculated CCR is in excess of the LTCH total CCR ceiling; and (3) other LTCHs for whom data with which to calculate a CCR are not available (for example, missing or faulty data). (Other sources of data that the MAC may consider in determining an LTCH's CCR include data from a different cost reporting period for the LTCH, data from the cost reporting period preceding the period in which the hospital began to be paid as an LTCH (that is, the period of at least 6 months that it was paid as a short-term, acute care hospital), or data from other comparable LTCHs, such as LTCHs in the same chain or in the same region.)

Consistent with our historical practice of using the best available data, in this final

rule, as we proposed, we are using our established methodology for determining the LTCH PPS statewide average CCRs, based on the most recent complete IPPS “total CCR” data from the March 2025 update of the PSF. As we proposed, we are establishing LTCH PPS statewide average total CCRs for urban and rural hospitals that will be effective for discharges occurring on or after October 1, 2025, through September 30, 2026, in Table 8C listed in section VI. of this Addendum (and available via the internet on the CMS website).

Under the current LTCH PPS labor market areas, all areas in the District of Columbia, New Jersey, and Rhode Island are classified as urban. Therefore, there are no rural statewide average total CCRs listed for those jurisdictions in Table 8C. This policy is consistent with the policy that we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 48121) and is the same as the policy applied under the IPPS. In addition, consistent with our existing methodology, in determining the urban and rural statewide average total CCRs for Maryland LTCHs paid under the LTCH PPS, as we proposed, we are continuing to use, as a proxy, the national average total CCR for urban IPPS hospitals and the national average total CCR for rural IPPS hospitals, respectively. We are using this proxy because we believe that the CCR data in the PSF for Maryland hospitals may not be entirely accurate (as discussed in greater detail in the FY 2007 IPPS final rule (71 FR 48120)).

Furthermore, although Connecticut, Massachusetts, and North Dakota have areas that are designated as rural under the current LTCH PPS labor market areas, in our calculation of the LTCH statewide average CCRs, there were no trimmed CCR data available from IPPS hospitals located in these rural areas as of March 2025. We refer the reader to section II.A.4.i.(2). of this Addendum for details on the trims applied to the IPPS CCR data from the March 2025 update of the PSF, which are the same data used to calculate the LTCH statewide average total CCRs. Therefore, consistent with our existing methodology, we used the national average total CCR for rural IPPS hospitals for rural Connecticut, Massachusetts, and North Dakota in Table 8C. We note that there were no LTCHs located in these rural areas as of March 2025.

We did not receive any public comments on our proposals. We are finalizing our proposals as described previously.