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

Consistent with our established policy, in developing the MS-DRG relative weights for FY 2026, we proposed to use two data sources: claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2024 MedPAR data used in this final rule includes discharges occurring on October 1, 2023, through September 30, 2024, based on bills received by CMS through March 31, 2025, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which at that time were under a waiver from the IPPS).

The FY 2024 MedPAR file used in calculating the relative weights includes data for approximately 6,899,914 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 2025 update of the FY 2024 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2026 also excludes claims with claim type values not equal to “60.” The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. In addition, the data exclude Rural Emergency Hospitals (REHs), including hospitals that subsequently became REHs after the period from which the data were taken. We note that the FY 2026 relative weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure codes from the FY 2024 MedPAR claims data, grouped through the ICD-10 version of the FY 2026 GROUPER (Version 43).

The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the Healthcare Cost Report Information System (HCRIS). In general, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. Specifically, for this final rule, we used the March 2025 update of the FY 2023 HCRIS for calculating the FY 2026 cost-based relative weights. Consistent with our historical practice, for this FY 2026 final rule, we are providing the version of the HCRIS from which we calculated these 19 cost-to charge-ratios (CCRs) on the CMS website at https://www.cms.gov/ Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on the link on the left side of the screen titled “FY 2026 IPPS Final Rule Home Page” or “Acute Inpatient Files for Download.” 2. Methodology for Calculation of the Relative Weights a. General

We calculated the FY 2026 relative weights based on 19 CCRs. The methodology we proposed to use to calculate the FY 2026 MS-DRG cost- based relative weights based on claims data in the FY 2024 MedPAR file and data from the FY 2023 Medicare cost reports is as follows:

To the extent possible, all the claims were regrouped using the FY 2026 MS-DRG classifications discussed in sections II.B. and II.C. of the preamble of this final rule.

The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2024 MedPAR file. (Medicare coverage for heart, heart- lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)

Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis.

Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.

Section 108 of the Further Consolidated Appropriations Act, 2020 provides that, for cost reporting periods beginning on or after October 1, 2020, costs related to hematopoietic stem cell acquisition for the purpose of an allogeneic hematopoietic stem cell transplant shall be paid on a reasonable cost basis. We refer the reader to the FY 2021 IPPS/LTCH PPS final rule for further discussion of the reasonable cost basis payment for cost reporting periods beginning on or after October 1, 2020 (85 FR 58835 through 58842). For FY 2022 and subsequent years, we subtract the hematopoietic stem cell acquisition charges from the total charges on each transplant bill that showed hematopoietic stem cell acquisition charges before computing the average cost for each MS- DRG and before eliminating statistical outliers.

Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $30.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, implantable devices charges, supplies and equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood and blood products charges, anesthesia charges, cardiac catheterization charges, CT scan charges, and MRI charges were also deleted.

At least 92.7 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted.

Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.

Effective October 1, 2008, because hospital inpatient claims include a Present on Admission (POA) field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present

at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost.

To avoid these problems, we reset the POA indicator field to “Y” only for relative weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

In addition, in the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal years, we finalized a policy to treat hospitals that participate in the Bundled Payments for Care Improvement (BPCI) initiative the same as prior fiscal years for the IPPS payment modeling and ratesetting process without regard to hospitals' participation within these bundled payment models (77 FR 53341 through 53343). Specifically, because acute care hospitals participating in the BPCI Initiative still receive IPPS payments under section 1886(d) of the Act, we include all applicable data from these subsection (d) hospitals in our IPPS payment modeling and ratesetting calculations as if the hospitals were not participating in those models under the BPCI initiative. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on our final policy for the treatment of hospitals participating in the BPCI initiative in our ratesetting process. For additional information on the BPCI initiative, we refer readers to the CMS' Center for Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/ LTCH PPS final rule (77 FR 53341 through 53343).

The participation of hospitals in the BPCI initiative concluded on September 30, 2018. The participation of hospitals in the BPCI Advanced model started on October 1, 2018. The BPCI Advanced model, tested under the authority of section 1115A of the Act, is comprised of a single payment and risk track, which bundles payments for multiple services that beneficiaries receive during a Clinical Episode. Acute care hospitals may participate in BPCI Advanced in one of two capacities: as a model Participant or as a downstream Episode Initiator. Regardless of the capacity in which they participate in the BPCI Advanced model, participating acute care hospitals will continue to receive IPPS payments under section 1886(d) of the Act. Acute care hospitals that are Participants also assume financial and quality performance accountability for Clinical Episodes in the form of a reconciliation payment. For additional information on the BPCI Advanced model, we refer readers to the BPCI Advanced web page on the CMS Center for Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/bpci-advanced. Consistent with our policy for FY 2025, and consistent with how we have treated hospitals that participated in the BPCI Initiative, for FY 2026, we continue to believe it is appropriate to include all applicable data from the subsection (d) hospitals participating in the BPCI Advanced model in our IPPS payment modeling and ratesetting calculations because, as noted previously, these hospitals are still receiving IPPS payments under section 1886(d) of the Act. Consistent with the FY 2025 IPPS/LTCH PPS final rule, we also proposed to include all applicable data from subsection (d) hospitals participating in the Comprehensive Care for Joint Replacement (CJR) Model in our IPPS payment modeling and ratesetting calculations.

The charges for each of the 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. Statistical outliers were then removed. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2023 cost report data.

The 19 cost centers that we used in the relative weight calculation are shown in a supplemental data file, Cost Center HCRIS Lines Supplemental Data File, posted via the internet on the CMS website for this final rule and available at https://www.cms.gov/Medicare/Medicare- Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. In the proposed rule, we stated that if we receive comments about the groupings in this supplemental data file, we may consider these comments as we finalize our policy. We did not receive any comments on the groupings in this table and are finalizing the groupings as proposed.

Consistent with historical practice, we account for rare situations of non-monotonicity in a base MS-DRG and its severity levels, where the mean cost in the higher severity level is less than the mean cost in the lower severity level, in determining the relative weights for the different severity levels. If there are initially non-monotonic relative weights in the same base DRG and its severity levels, then we combine the cases that group to the specific non-monotonic MS-DRGs for purposes of relative weight calculations. For example, if there are two non-monotonic MS-DRGs, combining the cases across those two

MS-DRGs results in the same relative weight for both MS-DRGs. The relative weight calculated using the combined cases for those severity levels is monotonic, effectively removing any non-monotonicity with the base DRG and its severity levels. In the FY 2026 proposed rule, we stated that this calculation was applied to address non-monotonicity for cases that grouped to the following: MS-DRG 016 and MS-DRG 017, MS- DRG 095 and MS-DRG 096, MS-DRG 504 and MS-DRG 505, MS-DRG 797 and MS- DRG 798. In the supplemental file titled AOR/BOR File, we include statistics for the affected MS-DRGs both separately and with cases combined.

We invited public comments on our proposals related to recalibration of the proposed FY 2026 relative weights and the changes in relative weights from FY 2025.

Comment: A commenter requested that CMS clarify whether MS-DRGs 016 and 017 were non-monotonic.

Response: The proposed rule inadvertently included an incorrect list of MS-DRGs where a calculation was applied to address non- monotonicity. This list should have been MS-DRG 095 and MS-DRG 096, MS- DRG 217 and MS-DRG 218.

After consideration of the comments received, we are finalizing our proposals without modifications related to the recalibration of the FY 2026 relative weights. We summarize and respond to comments relating to the methodology for calculating the relative weight for MS-DRG 018 in the next section of this final rule. b. Relative Weight Calculation for MS-DRG 018

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through 58453), we created MS-DRG 018 for cases that include procedures describing CAR T-cell therapies. We also finalized our proposal to modify our existing relative weight methodology to ensure that the relative weight for MS-DRG 018 appropriately reflects the relative resources required for providing CAR T-cell therapy outside of a clinical trial, while still accounting for the clinical trial cases in the overall average cost for all MS-DRGs (85 FR 58599 through 58600). Specifically, we stated that clinical trial claims that group to new MS-DRG 018 would not be included when calculating the average cost for MS-DRG 018 that is used to calculate the relative weight for this MS- DRG, so that the relative weight reflects the costs of the CAR T-cell therapy drug. We stated that we identified clinical trial claims as claims that contain ICD-10-CM diagnosis code Z00.6 or contain standardized drug charges of less than $373,000, which was the average sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological products licensed to treat relapsed/refractory large B-cell lymphoma as of the time of the development of the FY 2021 final rule. In addition, we stated that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will not be included when calculating the average cost for new MS-DRG 018 to the extent such cases can be identified in the historical data.

We also finalized our proposal to calculate an adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs and for purposes of budget neutrality and outlier simulations. We calculate this adjustor by dividing the average cost for cases that we identify as clinical trial cases by the average cost for cases that we identify as non-clinical trial cases, with the additional refinements that (a) when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the claim will be included when calculating the average cost for cases not determined to be clinical trial cases to the extent such cases can be identified in the historical data, and (b) when there is expanded access use of immunotherapy, these cases will be included when calculating the average cost for cases determined to be clinical trial cases to the extent such cases can be identified in the historical data. We stated that to the best of our knowledge, there were no claims in the historical data used in the calculation of this adjustment for cases involving a clinical trial of a different product, and to the extent the historical data contain claims for cases involving expanded access use of immunotherapy we believe those claims would have drug charges less than $373,000.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also finalized an adjustment to the payment amount for applicable clinical trial and expanded access use immunotherapy cases that group to MS-DRG 018, and indicated that we would provide instructions for identifying these claims in separate guidance. Following the issuance of the FY 2021 IPPS/LTCH PPS final rule, we issued guidance \11\ stating that providers may enter a Billing Note NTE02 “Expand Acc Use” on the electronic claim 837I or a remark “Expand Acc Use” on a paper claim to notify the MAC of expanded access use of CAR T-cell therapy. In this case, the MAC would add payer-only condition code “ZB” so that Pricer will apply the payment adjustment in calculating payment for the case. In cases when the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, the provider may enter a Billing Note NTE02 “Diff Prod Clin Trial” on the electronic claim 837I or a remark “Diff Prod Clin Trial” on a paper claim. In this case, the MAC would add payer-only condition code “ZC” so that the Pricer will not apply the payment adjustment in calculating payment for the case.

\11\ https://www.cms.gov/files/document/r10571cp.pdf.

In the FY 2022 IPPS/LTCH PPS final rule, we revised MS-DRG 018 to include cases that report the procedure codes for CAR T-cell and non- CAR T-cell therapies and other immunotherapies (86 FR 44798 through 44806). We also finalized our proposal to continue to use the proxy of standardized drug charges of less than $373,000 (86 FR 44965) to identify clinical trial claims. We also finalized use of this same proxy for the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894).

Following the issuance of the FY 2023 IPPS/LTCH PPS final rule, we issued guidance \12\ stating where there is expanded access use of immunotherapy, the provider may submit condition code “90” on the claim so that Pricer will apply the payment adjustment in calculating payment for the case. We stated that MACs would no longer append Condition Code `ZB' to inpatient claims reporting Billing Note NTE02 “Expand Acc Use” on the electronic claim 837I or a remark “Expand Acc Use” on a paper claim, effective for claims for discharges that occur on or after October 1, 2022.

\12\ https://www.cms.gov/files/document/r11727cp.pdf.

In the FY 2024 IPPS/LTCH PPS final rule, we explained that the MedPAR claims data now includes a field that identifies whether or not the claim includes expanded access use of immunotherapy. We stated that for the FY 2022 MedPAR claims data, this field identifies whether or not the claim includes condition code ZB, and for the FY 2023 MedPAR data and subsequent

years, this field will identify whether or not the claim includes condition code 90. We further noted that the MedPAR files now also include a variable that indicates whether the claim includes the payer- only condition code “ZC”, which identifies a case involving the clinical trial of a different product where the CAR T-cell, non-CAR T- cell, or other immunotherapy product is purchased in the usual manner.

Accordingly, and as discussed further in the FY 2024 IPPS/LTCH PPS final rule, we finalized two modifications to our methodology for identifying clinical trial claims and expanded access use claims in MS- DRG 018 (88 FR 58791). First, we finalized to exclude claims with the presence of condition code “90” (or, for FY 2024 ratesetting, which was based on the FY 2022 MedPAR data, the presence of condition code “ZB”) and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code “ZC” to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we finalized to no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018. Accordingly, we finalized that in calculating the relative weight for MS-DRG 018 for FY 2024, only those claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code “ZC” or (2) contain condition code “ZB” (or, for subsequent fiscal years, condition code “90”) would be excluded from the calculation of the average cost for MS-DRG 018. Consistent with this, we also finalized modifications to our calculation of the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs. We refer readers to the FY 2024 IPPS/ LTCH PPS final rule for further discussion of these modifications (88 FR 58791).

Consistent with the FY 2025 IPPS/LTCH PPS final rule, in the proposed rule, for FY 2026 we proposed to continue to use our methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for identifying clinical trial claims and expanded access use claims in MS- DRG 018, with an additional modification as discussed in this section. First, we exclude claims with the presence of condition code “90” and claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only code “ZC” that group to MS-DRG 018 when calculating the average cost for MS-DRG 018. Second, we no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS-DRG 018.

In section VI.H. of this final rule, we discuss our proposal to apply the payment adjustment for clinical trial and expanded access use immunotherapy cases to other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost. To mirror this proposed change within our relative weight methodology, we proposed to also exclude claims with standardized drug charges below the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 when we calculate the average cost for MS-DRG 018. For the proposed rule, based on the December 2024 update of the FY 2024 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 is $29,819. We proposed to apply this policy for 2 years (that is, in our relative weight methodology for MS-DRG 018 for FYs 2026 and 2027), until the claims data reflects the addition of the condition code indicating that the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, which then would be able to be used to identify these cases such that they can be identified for exclusion from the calculation of the average cost of MS-DRG 018. We also proposed, for the purpose of performing this trim, to update the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 based on more recent data for the final rule.

Accordingly, we proposed that in calculating the relative weight for MS-DRG 018 for FY 2026, in identifying clinical trial claims and expanded access use claims and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, only those claims that group to MS-DRG 018 that (1) contain ICD- 10-CM diagnosis code Z00.6 and do not include payer-only code “ZC”, (2) contain condition code “90”, or (3) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018 would be excluded from the calculation of the average cost for MS-DRG 018.

With respect to claims that group to MS-DRG 018 and are identified as clinical trials or involve expanded access use of the CAR T-cell therapy or other immunotherapy, we noted in the proposed rule that there are some cases that appear to include drug charges similar to cases not identified as clinical trials or involving expanded access use. These charges are generally in revenue center 0891, Cell Therapy Drug Charges. We stated that we are seeking comments on potential reasons for why claims identified as clinical trials or involving expanded access use, in which the provider would typically receive the product at no cost, would have charges in revenue center 0891, Cell Therapy Drug Charges.

We also proposed to continue to use the methodology as modified in the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to account for the CAR T-cell therapy cases identified as clinical trial cases in calculating the national average standardized cost per case that is used to calculate the relative weights for all MS-DRGs, with the same proposed modification as described previously to identify other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost:

Calculate the average cost for cases assigned to MS-DRG 018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code “ZC”, (b) contain condition code “90”, or (c) contain standardized drug charges below the median standardized drug charge of clinical trial cases in MS-DRG 018.

Calculate the average cost for all other cases assigned to MS-DRG 018.

Calculate an adjustor by dividing the average cost calculated in step 1 by the average cost calculated in step 2.

Apply the adjustor calculated in step 3 to the cases identified in step 1 as applicable clinical trial or expanded access use cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, then add this adjusted case count to the non-clinical trial case count prior to calculating the average cost across all MS-DRGs.

Under our proposal to continue to apply this methodology, with the proposed modification as described, based on the December 2024 update of the FY 2024 MedPAR file used for the proposed rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($88,484) were 23 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($385,147). Accordingly, as we did for FY 2025, we proposed to adjust the transfer-adjusted case count for MS-DRG 018 by applying the proposed adjustor of 0.23 to the applicable clinical trial and expanded access use immunotherapy cases, and

other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of the proposed rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.23. As we did for FY 2025, we applied the same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. We also proposed to update the value of the adjustor based on more recent data for the final rule.

Comment: Commenters supported our proposal to exclude claims in MS- DRG 018 with standardized drug charges below the median standardized drug charges of cases identified as clinical trials in MS-DRG 018. Commenters stated that this proposal ensures that clinical trial and no-cost cases do not distort payment rates across the IPPS. We note a commenter mistakenly referred to our existing policy as still excluding cases that have a standardized drug charge of less than $373,000.

Commenters requested clarification about whether the median standardized drug charges includes all drug revenue lines and all clinical trial claims, including expanded access claims. Some commenters expressed support for the identification of cases involving patient assistance programs, where no cost is incurred, but expressed confusion regarding the language “product not purchased in the usual manner”, stating that is subjective, which can lead to confusion and undue administrative burden for providers and varying interpretations by the MACs. A commenter requested that CMS modify the language to reflect the request in the comment summarized in the FY 2025 IPPS/LTCH PPS final rule, which referred to cases where the immunotherapy is “obtained at no cost”.

Response: We appreciate commenters support for our proposal. While we indicated in the proposed rule that we calculate the median standardized drug charges for cases identified as clinical trial claims including cases that contain ICD-10-CM diagnosis code Z00.6 and do not include payer only code ZC, we note that in calculating the median standardized drug charges for cases identified as clinical trial claims, we included claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain condition code “ZC” or (b) contain condition code “90”. Just as we treat cases identified as clinical trial cases and expanded access use cases in the same manner for payment purposes and in the calculation of the relative weights, we are also including both claims identified as clinical trial cases and claims identified as expanded access use cases in calculating the median drug charges. Since the provider does not incur the cost of the drug in cases identified as clinical trial cases or expanded access use cases, but still incurs costs for other drugs during the inpatient stay, we believe that using the median standardized drug charge for clinical trial and expanded access use cases would appropriately identify other cases involving products not purchased in the usual manner. The drug revenue lines are the same as those used in the relative weight calculations, which are shown in the Cost Center HCRIS Lines Supplemental Data File referenced earlier in this section.

With respect to the commenters who expressed concerns about the language “product not purchased in the usual manner”, we note that this phrasing is not new; we have used the language “product is purchased in the usual manner” in prior rules with respect to MS-DRG 018. Furthermore, we believe that this language is appropriately phrased to include the broad range of scenarios that may fall under it. For example, as described later in this section, commenters raised the possibility of immunotherapy products administered over multiple encounters. Given that we cannot predict all possible scenarios where the product is not purchased in the usual manner, use of a condition code that reflects a broad array of circumstances will facilitate more accurate payment and ratesetting. We further note that the “usual manner” in which a product is purchased may differ for products administered in one dose versus split doses.

Comment: Commenters noted that some immunotherapy products may be administered over multiple encounters (including in an outpatient setting). A commenter requested that CMS confirm that a reduced payment for MS-DRG 018 does not apply when a hospital purchases an immunotherapy product (that is, incurs a cost), irrespective of whether it is administered in multiple encounters. This commenter requested that if CMS has specific requirements for how providers should handle these situations, it should clarify them or state that it is up to the individual provider to determine how to develop charges for multiple administrations of a single product obtained from a manufacturer. A commenter stated that unless manufacturers change their processes for products administered over multiple encounters, hospitals will continue to receive a single invoice and require guidance about how to report the charges.

Response: CMS does not dictate a provider's charge structure or how they itemize their charges. As stated in Chapter 22, Section 2203 of the Provider Reimbursement Manual (https://www.cms.gov/regulations-and-guidance/guidance/manuals/paper-based-manuals-items/cms021929), providers “should have an established charge structure which is applied uniformly to each patient as services are furnished to the patient and which is reasonably and consistently related to the cost of providing the services”. Providers should bill in the manner that they customarily bill for split-dose administration and the charges should be reasonably and consistently related to the cost of providing the service in a split-dose administration circumstance. A split-dose administration should not result in twice the amount of payment just by virtue of the fact it is a split-dose administration. For example, we remind hospitals that Chapter 3, Inpatient Hospital Billing, section 40.2.5 of the Medicare Claims Processing Manual (https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c03.pdf) states that hospitals may place a patient on a leave of absence when readmission is expected and the patient does not require a hospital level of care during the interim period. Placing a patient on a leave of absence will not generate two payments. Only one bill and one DRG payment are made.

Comment: A commenter stated that a potential reason why claims identified as clinical trials or involving expanded access use, in which the provider would typically receive the product at no cost, would have charges in revenue center 0891, is that the case involves a clinical trial of another product. The commenter stated that given the two-step and manual process in flagging these claims, (that is, the provider includes “Diff Prod Clin Trial” in the Remarks field and the MAC adds a payer-only condition code of “ZC”), there is likely a percentage of cases where the condition code was not applied as it should be. The commenter noted that CMS' recent billing instructions that automate the application of “ZC” should reduce the number of claims with this profile.

Response: We appreciate the feedback on our comment solicitation and will continue to monitor CAR T-cell therapy claims for such potential anomalies.

Comment: Some commenters expressed concern that CMS no longer uses the $373,000 threshold to identify clinical trial cases and requested that CMS continue to refine its methodology to also consider standardized drug charges to correctly identify clinical trial cases. Commenters expressed concern that due to incorrect coding or incorrect application of condition codes, cases below the $373,000 threshold may be identified as clinical trials when the provider incurs the cost of the drug. The commenter stated that as a result, these cases would be included in ratesetting for MS-DRG 018 and these cases could be underpaid, particularly as more hospitals administer cell and gene therapies. The commenter requested that CMS publish information on future cases that are below the $373,000 threshold given the likely impact on the payment rate for MS-DRG 018.

Response: As we stated in the FY 2024 (88 FR 58791) and FY 2025 IPPS/LTCH PPS (89 FR 69112) final rules, while there continues to be a small percentage of claims that report standardized drug charges of less than $373,000 and do not report ICD-10-CM code Z00.6, we do not believe it is necessary to continue the use of the proxy until the number of cases reaches zero. In addition, our proposal to exclude claims with standardized drug charges below the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 (that is, claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code “ZC” or (b) contain condition code “90”) is expected to reduce the number of cases with low standardized drug charges that group to MS-DRG 018. We note that information on obtaining the MedPAR Limited Data Set is available on the CMS website, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/MEDPARLDSHospitalNational.

Comment: A few commenters expressed confusion about CMS' differentiation between clinical trial and expanded access use cases. A commenter stated that it does not believe this differentiation is CMS' intent because expanded access use of CAR T-cell or other therapies that are grouped to MS-DRG 018 must occur as part of an Investigational New Device (IND) study, which would have a National Clinical Trial number and would meet criteria for routine costs of the clinical trial NCD 310.1. This commenter cited the FDA website \13\ in support of these statements. Another commenter requested that CMS clarify that expanded access cases are a type of clinical trial.

\13\ https://www.fda.gov/drugs/investigational-new-drug-ind-application/ind-applications-clinical-treatment-expanded-access-overview.

A commenter requested that CMS clarify that expanded access use would also be excluded from ratesetting because facilities do not incur the cost of these products. A few commenters requested that CMS clarify that the agency would expect to see clinical trial billing indicators on expanded access claims (that is, diagnosis code Z00.6, condition code 30, value code D4, and the NCT number), in addition to condition code 90, which would help identify which clinical trial claims are expanded access claims.

Response. The FDA states, at the link provided by the commenter, “Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options”. While we utilize separate condition codes to identify clinical trial claims and expanded access use cases, we note that they are treated the same for payment purposes and in the calculation of the relative weights for MS-DRG 018.

Comment: A commenter stated that the MS-DRG payment for CAR T-cell therapy services has never been sufficient and provided various reasons for this, including problems with hospital chargemasters, CCRs, and charge compression. Commenters provided various suggestions to mitigate these concerns and increase the payment rate for MS-DRG 018. Commenters stated that the percentage of cases in MS-DRG 018 that are eligible for outlier payments has increased since FY 2021, which, the commenter stated, if left unaddressed, places a constraint on the outlier pool, which negatively impacts all hospitals.

A commenter stated that hospitals should not be targeted for having high outlier payments given that it is the “new norm” for cell and gene therapies, and that hospitals should not be questioned if they set their charges consistent with their CCRs. This commenter stated that CMS needs to provide more clarity so that stakeholders understand that hospitals have no choice but to mark up product charges, and that patients do not bear the cost of those charges. This commenter also requested that CMS consider other methodologies to pay for immunotherapies and expand CMMI's cell and gene therapy model.

Commenters requested that CMS explore the integration of Medicare Advantage claims into the ratesetting process for MS-DRG 018 to improve the sample size available for low volume products, which could improve the robustness and reliability of cost estimates. A commenter noted that as the percentage of enrollees in Medicare fee-for-service decreases, the number of claims used in the ratesetting process will decrease and become less representative for predicting resource utilization.

Response: Regarding the comments that the MS-DRG relative weight for MS-DRG 018 is inadequate and does not result in payment that fully covers the hospital resource costs, as well as comments regarding hospital charging practices, we refer readers to the FY 2022 IPPS/LTCH final rule (86 FR 44965) where we responded to similar comments. With respect to the commenter's statement about hospitals being “targeted” for having high outlier payments, we are unaware of the issue the commenter is raising. We note our proposal, as discussed in the CY 2026 OPPS proposed rule (90 FR 33476), to collect payer-specific negotiated charge data from MA organizations by MS-DRG for use in the MS-DRG relative weight setting, would, if finalized, obviate many of the concerns that commenters raised, including challenges with hospital charging practices and the potential role of MA claims in the ratesetting process.

Comment: Commenters requested that CMS revise its cost reporting instructions for cell and gene therapy products (revenue codes 0891 and 0892) to instruct providers to use cost center 78. A commenter requested that CMS also instruct providers to leave the services associated with these therapies in their original cost centers. This commenter stated that there is a precedent for CMS to define a cost center based on a revenue code, like it did for the implantable devices cost center. The commenter also requested that CMS clarify whether hospitals are allowed to use product charges and expenses as valid statistics to allocate administrative and general expenses to cost report line 78.

Response: We do not believe changes to billing guidance are needed at this time but will take these comments into consideration when developing policies and program requirements for future years for CAR T-cell therapy policy. We further note that under the proposal in

the CY 2026 OPPS proposed rule to collect payer-specific negotiated charge data from MA organizations by MS-DRG for use in the MS-DRG relative weight setting, an additional cost center would not impact the relative weight for MS-DRG 018.

After consideration of the public comments we received, we are finalizing our proposals without modifications regarding the calculation of the relative weight for MS-DRG 018. We note that for this final rule, based on the March 2025 update of the FY 2024 MedPAR file, we estimated that the median standardized drug charge of claims identified as clinical trials in MS-DRG 018 (that is, claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code “ZC” or (b) contain condition code “90”) is $27,466. Applying this finalized methodology, based on the March 2025 update of the FY 2024 MedPAR file used for this final rule, we estimated that the average costs of cases assigned to MS-DRG 018 that are identified as clinical trial cases ($61,643.46) were 16 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as nonclinical trial cases ($384,471.59).

Accordingly, as we did for FY 2025, we are finalizing our proposal to adjust the transfer-adjusted case count for MS-DRG 018 by applying the adjustor of 0.16 to the applicable clinical trial and expanded access use immunotherapy cases, and other cases where the immunotherapy product is not purchased in the usual manner, such as obtained at no cost, and to use this adjusted case count for MS-DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. Therefore, in calculating the national average cost per case for purposes of this final rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case, and other cases where immunotherapy product is not purchased in the usual manner, such as obtained at no cost, was adjusted by 0.16. As we did for FY 2025, we are applying this same adjustor for the applicable cases that group to MS-DRG 018 for purposes of budget neutrality and outlier simulations. d. Cap for Relative Weight Reductions

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. We also finalized a budget neutrality adjustment to the standardized amount for all hospitals to ensure that application of the permanent 10-percent cap does not result in an increase or decrease of estimated aggregate payments. We refer the reader to the FY 2023 IPPS/LTCH PPS final rule for further discussion of this policy. In the Addendum to this IPPS/LTCH PPS final rule, we present the budget neutrality adjustment for reclassification and recalibration of the FY 2026 MS-DRG relative weights with application of this cap. We are also making available on the CMS website a supplemental file demonstrating the application of the permanent 10 percent cap for FY 2026. For a further discussion of the final budget neutrality adjustment for FY 2026, we refer readers to the Addendum of this final rule. 3. Development of National Average Cost-to-Charge Ratios (CCRs)

We developed the national average CCRs as follows:

Using the FY 2023 cost report data, we removed CAHs, REHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. Then we created CCRs for each provider for each cost center (see the supplemental data file for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. Then we took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge- weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight. The final FY 2026 cost-based relative weights were then normalized by an adjustment factor of 1.922881 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act. We then applied the permanent 10-percent cap on the reduction in a MS- DRG's relative weight in a given fiscal year; specifically for those MS-DRGs for which the relative weight otherwise would have declined by more than 10 percent from the FY 2025 relative weight, we set the FY 2026 relative weight equal to 90 percent of the FY 2025 relative weight. The final relative weights for FY 2026 as set forth in Table 5 associated with this final rule and available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ AcuteInpatientPPS reflect the application of this cap.

The 19 national average CCRs for FY 2026 are as follows:

[GRAPHIC] [TIFF OMITTED] TR04AU25.134

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We proposed to use that same case threshold in recalibrating the proposed MS-DRG relative weights for FY 2026. In this final rule, using data from the FY 2024 MedPAR file, there are 9 MS-DRGs that contain fewer than 10 cases. For FY 2026, because we do not have sufficient MedPAR data to set accurate and stable cost relative weights for these low-volume MS-DRGs, we proposed to compute relative weights for the low-volume MS-DRGs by adjusting their final FY 2025 relative weights by the percentage change in the average weight of the cases in other MS-DRGs from FY 2025 to FY 2026. The crosswalk table is as follows. [GRAPHIC] [TIFF OMITTED] TR04AU25.135

We did not receive any public comments on this proposal and therefore are finalizing it for FY 2026 without modification.