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 section 1886(d)(8)(E) of the Act, a qualifying prospective payment hospital located in an urban area may apply for rural status for payment purposes separate from reclassification through the MGCRB. Specifically, section 1886(d)(8)(E) of the Act provides that, not later than 60 days after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital that satisfies certain criteria, the Secretary shall treat the hospital as being located in the rural area (as defined in paragraph (2)(D)) of the State in which the hospital is located. We refer readers to the regulations at Sec. 412.103 for the general criteria and application requirements for a subsection (d) hospital to reclassify from urban to rural status in accordance with section 1886(d)(8)(E) of the Act (such hospitals are referred to herein as “Sec. 412.103 hospitals”). The FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes our policies regarding the effect of wage data from reclassified or redesignated hospitals. We refer readers to the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977) for a review of our policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49004) to calculate the rural floor with the wage data of urban hospitals reclassifying to rural areas under Sec. 412.103, and discussion of our modification to the calculation of the rural wage index and its implications for the rural floor.

In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41369 through 41374), we codified certain policies regarding multicampus hospitals in the regulations at Sec. Sec. 412.92, 412.96, 412.103, and 412.108. We stated that reclassifications from urban to rural under Sec. 412.103 apply to the entire hospital (that is, the main campus and its remote location(s)). We also stated that a main campus of a hospital cannot obtain Sole Community Hospital (SCH), Rural Referral Center (RRC), or Medicare Dependent Hospital (MDH) status, or rural reclassification under Sec. 412.103, independently or separately from its remote location(s), and vice versa. In the

FY 2023 IPPS/LTCH PPS final rule (87 FR 49012 and 49013), we added Sec. 412.103(a)(8) to clarify that for a multicampus hospital, approved rural reclassification status applies to the main campus and any remote location located in an urban area, including a main campus or any remote location deemed urban under section 1886(d)(8)(B) of the Act. If a remote location of a hospital is located in a different CBSA than the main campus of the hospital, it is CMS' longstanding policy to assign that remote location a wage index based on its own geographic area to comply with the statutory requirement to adjust for geographic differences in hospital wage levels (section 1886(d)(3)(E) of the Act). Hospitals are required to identify and allocate wages and hours based on FTEs for remote locations located in different CBSAs on Worksheet S- 2, Part I, Lines 165 and 166 of form CMS-2552-10. In calculating wage index values, CMS identifies the allocated wage data for these remote locations in Table 2 with a “B” in the 3rd position of the CCN. These remote locations of hospitals with Sec. 412.103 rural reclassification status in a different CBSA are identified in Table 2, and hospitals should evaluate potential wage index outcomes for their remote location(s) when withdrawing or terminating MGCRB reclassification, or canceling Sec. 412.103 rural reclassification status.

We also note that in the FY 2025 IPPS/LTCH PPS Final Rule (89 FR 69279 through 69280), we reminded hospitals located in rural areas becoming urban under the adoption of the revised OMB delineations in FY 2025 that if they have SCH, MDH, or RRC status, they may choose to apply for a Sec. 412.103 urban to rural reclassification if qualifying criteria are met to maintain the SCH, MDH, or RRC status. We advised hospitals to evaluate their options and if desired, apply for Sec. 412.103 urban to rural reclassification before the beginning of FY 2025, to avoid a lapse in SCH, MDH, or RRC status at the beginning of FY 2025. We note that the “Am I Rural” tool currently available on the Rural Health Information Hub\138\ website at https://www.ruralhealthinfo.org/am-i-rural was updated on November 21, 2024, based on data provided by the Federal Office of Rural Health Policy which is available at https://www.hrsa.gov/rural-health/about-us/what-is-rural/data-files. As discussed at Sec. 412.103(f), the duration of an approved rural reclassification remains in effect without need for reapproval unless there is a change in the circumstances under which the classification was approved. If a hospital located in an urban area was approved for a rural reclassification under Sec. 412.103(a)(1), that reclassification will no longer be valid if the hospital is no longer located within a rural census tract of an MSA as determined by the Federal Office of Rural Health Policy (FORHP) of the Health Resources and Services Administration (HRSA). Therefore, we encourage all hospitals and CAHs with active rural reclassifications under section 1886(d)(8)(E) of the Act to review their original reclassification application and determine whether the reclassification status will still apply.

\138\ The Rural Health Information Hub is supported by the Health Resources and Services Administration (HRSA) of HHS under Grant Number U56RH05539 (Rural Assistance Center for Federal Office of Rural Health Policy Cooperative Agreement). Any information, content, or conclusions on this website are those of the authors and should not be construed as the official position or policy of, nor should any endorsements be inferred by HRSA, HHS or the U.S. Government.

Finally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69280), CMS finalized a policy regarding terminated or “tied-out” hospitals, to address our concerns regarding the impacts these hospitals would have on rural wage index values. Specifically, we finalized a policy that Sec. 412.103 reclassifications would be considered cancelled for the purposes of calculating the area wage index for any hospital with a CCN listed as terminated or “tied-out” as of the date that the hospital ceased to operate with an active CCN. We stated that we will obtain and review the best available CCN termination status lists as of the Sec. 412.103(b)(6) “lock-in” date (60 days after the proposed rule for the FY is displayed in the Federal Register), consistent with the wage index development timeline. The lock-in date is used to determine whether a hospital has been approved for Sec. 412.103 reclassification in time for that status to be included in the upcoming year's wage index development.

We noted that our policy to consider Sec. 412.103 reclassifications cancelled for the purposes of calculating area wage index for any hospital with a CCN listed as terminated or “tied-out” is not intended to alter or affect the qualification for Critical Access Hospital (CAH), Sole Community Hospital (SCH), or Rural Emergency Hospital (REH) statuses or to have other effects unrelated to hospital wage index calculations. The rural reclassification status will remain in effect for any period that the original PPS hospital remains in operation with an active CCN. For REH qualification requirement purposes, this will include the date of enactment of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260), which was December 27, 2020. 2. General Policies and Effects of MGCRB Reclassification and Treatment of Dual Reclassified Hospitals

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (usually by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions not later than the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in Sec. Sec. 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations and the policies for the effects of hospitals' reclassifications and redesignations on the wage index are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596).

In addition, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under Sec. 412.103. In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42332 through 42336), we finalized a policy to exclude the wage data of urban hospitals reclassifying to rural areas under Sec. 412.103 from the calculation of the rural floor, but we reverted to the pre-FY 2020 policy in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49002 through 49004). Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification in accordance with the provisions of Sec. 412.103.

On April 21, 2016, we published an interim final rule with comment period (IFC) in the Federal Register (81 FR 23428 through 23438) that included provisions amending our regulations to allow hospitals nationwide to have simultaneous Sec. 412.103 urban to rural and MGCRB reclassifications. Prior to this amendment to the regulations, hospitals had to choose between a Sec. 412.103 urban to rural reclassification which confers other rural benefits

(Medicare provisions such as payments to disproportionate share hospitals (DSHs), and non-Medicare payment provisions, such as the 340B Drug Pricing Program administered by HRSA) besides the wage index under section 1886(d) of the Act or a reclassification under the MGCRB to solely increase its wage index. Under the amended regulations, a hospital that has an active MGCRB reclassification and is then approved for an urban to rural reclassification under Sec. 412.103 will not lose its MGCRB reclassification. Additionally, a hospital is no longer required to cancel its Sec. 412.103 reclassification in order to be approved for an MGCRB reclassification. By amending the regulations and allowing a hospital to pursue reclassification under the MGCRB while also maintaining a rural reclassification under Sec. 412.103, hospitals are accorded the benefits of a Sec. 412.103 urban to rural reclassification and the ability to use distance and average hourly wage criteria designated for rural hospitals to obtain a higher wage index value through an MGCRB reclassification. We note, for wage index calculation and payment purposes, when there is both a Sec. 412.103 reclassification and an MGCRB reclassification, the MGCRB reclassification controls for wage index calculation and payment purposes.

Prior to FY 2024, we excluded hospitals with Sec. 412.103 urban to rural redesignations from the calculation of the reclassified rural wage index if they also have an active MGCRB reclassification to another area. That is, if an application for urban reclassification through the MGCRB is approved and is not withdrawn or terminated by the hospital within the established timelines, we considered the hospital's geographic CBSA and the urban CBSA to which the hospital is reclassified under the MGCRB for the wage index calculation. We refer readers to the April 21, 2016, IFC (81 FR 23428 through 23438) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930), in which we finalized the April 21, 2016, IFC, for a full discussion of the effect of simultaneous reclassifications under both the Sec. 412.103 and the MGCRB processes on wage index calculations. For FY 2024 and subsequent years, we refer readers to the FY 2024 IPPS/LTCH PPS final rule for discussion of our policy to include hospitals with a Sec. 412.103 reclassification that also have an active MGCRB reclassification to another area in the calculation of the reclassified rural wage index (88 FR 58971 through 58977). 3. MGCRB Reclassification Issues for FY 2026 a. FY 2026 Reclassification Application Requirements and Approvals

As previously stated, under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through 412.280. There are 465 hospitals approved for wage index reclassifications by the MGCRB starting in FY 2026. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2026, hospitals reclassified beginning in FY 2024 or FY 2025 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications for the remainder of their 3-year period. There were 309 hospitals approved for wage index reclassifications in FY 2024 that will continue for FY 2026, and 335 hospitals approved for wage index reclassifications in FY 2025 that will continue for FY 2026. Of all the hospitals approved for reclassification for FY 2024, FY 2025, and FY 2026, 1,109 hospitals (approximately 30 percent of IPPS hospitals) are in a MGCRB reclassification status for FY 2026 (with 258 of these hospitals reclassified back to their urban geographic location). We noted in the proposed rule that several hospitals approved for MGCRB reclassifications may opt to withdraw this status after the proposed rule,\139\ and in some cases prior year reclassification would become effective in its place. There are 88 fewer hospitals in MGCRB reclassification status in this final rule than in the proposed rule due to withdrawals and terminations of MGCRB status. We refer readers to section III.F.3.b. of the preamble of this final rule for information on the effects of implementation of new OMB labor market area delineations on reclassified hospitals.

\139\ We note that in the FY 2026 IPPS/LTCH PPS proposed rule (82 FR 18228), we inadvertently stated that hospitals approved for MGCRB reclassifications beginning in FY 2026 may opt to withdraw this status after the final rule. This was an error, and the correct statement should have read “after the proposed rule”.

Under the regulations at Sec. 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a decision on the application, or after the MGCRB issues a decision, provided the request for withdrawal is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later.

For information about the current process for withdrawing, terminating, or canceling a previous withdrawal or termination of a 3- year reclassification for wage index purposes, we refer readers to Sec. 412.273, as well as section III.E.3.b. of the preamble of this final rule, and the FY 2002 IPPS final rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations was included in the FY 2008 IPPS final rule (72 FR 47333) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148 through 38150).

Applications for FY 2027 reclassifications are due to the MGCRB by September 2, 2025 (Note: While the deadline for reclassification applications is not later than 13 months prior to the start of the fiscal year for which reclassification is sought, usually by September 1, the Board has historically allowed submission up to the first business day in September, which is September 2, 2025, due to Labor Day). This is also the current deadline for canceling a previous wage index reclassification withdrawal or termination under Sec. 412.273(d) for the FY 2026 cycle.

Applications and other information about MGCRB reclassifications may be obtained beginning in mid-July 2025 via the internet on the CMS website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information was previously approved under OMB Control Number 0938-0573, which expired on January 31, 2021. A reinstatement of this PRA package is currently being developed. The public will have an opportunity to review and submit comments regarding the reinstatement of this PRA package through a public notice and comment period separate from this rulemaking.

Comment: A commenter stated that the MGCRB decisions for FY 2026 were rendered earlier than in the past, which prevented hospitals from submitting rural or rural referral center (RRC) approval letters prior to the MGCRB's decision. The commenter stated that while the Administrator reversed the MGCRB ruling on appeal, it did not do so in time for the approved reclassification to be reflected in the proposed rule datasets. Therefore, the

commenter contended that the FY 2026 proposed rule included inaccurate or incomplete information that hospitals relied upon for withdrawal decisions. Consequently, the commenter requested that CMS allow hospitals a 15-day window following the release of the final rule to withdraw MGCRB reclassification requests without penalty after reassessing their decisions using the corrected and finalized data.

Response: As we stated in response to a comment in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58983), we believe hospitals should submit applications complete with supporting documentation at the time MGCRB applications are due. We stated that hospitals taking advantage of the MGCRB's practice of accepting supporting documentation to supplement applications until the date of the MGCRB's review are aware that the review is not held on the same date annually. Furthermore, rural reclassification may be obtained at any time, and hospitals seeking the benefits of rural status for MGCRB reclassification purposes should plan accordingly.

In response to the commenter's specific request for CMS to allow hospitals a 15-day window following the release of the final rule to withdraw MGCRB reclassification requests, we stated in response to a similar comment in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58769 through 58770) that we maintain that the information provided in the proposed rule constitutes the best available data to assist hospitals in making reclassification decisions. In addition, section 1886(d)(8)(D) of the Act requires the Secretary to adjust the standardized amounts to ensure that aggregate payments under the IPPS after implementation of the provisions of certain sections of the Act, including section 1886(d)(10) of the Act for geographic reclassifications by the MGCRB, are equal to the aggregate prospective payments that would have been made absent these provisions. If hospitals were to withdraw or terminate reclassification statuses after the publication of the final rule, as the commenter suggested CMS permit, any resulting changes in the wage index would not have been taken into account when calculating the IPPS standardized amounts in the final rule in accordance with the statutory budget neutrality requirement. Therefore, it is necessary that the values published in the final rule represent the final wage index values reflective of reclassification decisions. b. Revisions to Sec. 412.273 To Simplify MGCRB Reinstatements

As discussed in the previous section, under the regulations at Sec. 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications if the request for withdrawal is received by the MGCRB any time before the MGCRB issues a decision on the application, or after the MGCRB issues a decision, provided the request for withdrawal is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later. Hospitals may also terminate an existing approved reclassification, effective for the second and third year of the three year reclassification period or both, provided the request for termination is received by the MGCRB within 45 days of the date of filing for public inspection of the proposed rule at the website of the Office of the Federal Register, or within 7 calendar days of receiving a decision of the Administrator's in accordance with Sec. 412.273, whichever is later.

Furthermore, these withdrawal and termination requests may be cancelled by submitting a request by the next application deadline for MGCRB application, reinstating the withdrawn or terminated reclassification for the remaining years of the reclassification.

We believe this process allows hospitals to maintain flexibility in choosing the optimal reclassification status for any given fiscal year, while balancing the need for consistency and predictability of the wage index system. However, we also believe the regulations Sec. 412.273 can be confusing and contain complicated definitions and language. We proposed revisions to multiple paragraphs of Sec. 412.273 to clarify current policy and revise definitions in a more straightforward and understandable manner.

The first consideration is CMS's definitions of a withdrawal and a termination in Sec. 412.273(a). Termination refers to the termination of an already existing 3-year MGCRB reclassification where such reclassification has already been in effect for 1 or 2 years, and there are 1 or 2 years remaining on the 3-year reclassification. A termination is effective only for the full fiscal year(s) remaining in the 3-year period at the time the request is received. Requests for terminations for part of a fiscal year are not considered. Withdrawal refers to the withdrawal of a 3-year MGCRB reclassification that has not yet gone into effect or where the MGCRB has not yet issued a decision on the application.

Stated generally, a withdrawal is an action taken upon a reclassification that has either not yet been reviewed by the MGCRB, or an approved reclassification due to go into effect in that upcoming fiscal year, and a termination is an action taken on an approved reclassification that has already gone into effect. There are policy considerations for defining withdrawals and terminations separately. For example, county group reclassification withdrawals must include all parties to the application, while a termination may be submitted by any individual hospital that is party to the application. For reasons discussed later in this section, we stated in the proposed rule that we continue to believe this is the appropriate policy. However, we also stated that we believe that specifically citing this policy exception in regulation is more straightforward than maintaining differing definitions for substantially similar actions. Therefore, for consistency and simplicity we proposed to modify the definition of a withdrawal to only include requests made prior to a decision being made by the MGCRB. The definition of termination would encompass all post- decision actions to forgo the upcoming years of an approved reclassification. Specifically, we proposed to modify Sec. 412.273(a) to provide that a termination refers to the termination of an approved 3-year MGCRB reclassification. A termination is effective only for the full fiscal year(s) remaining in the 3-year period at the time the request is received. Requests for terminations for part of a fiscal year are not considered. We also specified that a withdrawal refers to the withdrawal of a 3-year MGCRB reclassification where the MGCRB has not yet issued a decision on the application.

We also proposed to remove Sec. 412.273(c)(1)(i) and (ii) and revise paragraph (c)(1) to indicate that a request for withdrawal must be received by the MGCRB at any time before the MGCRB issues a decision on the application.

There is also a current process for cancelling an eligible withdrawal or termination in order to make the reclassification effective for any remaining years of the 3-year reclassification period. We noted that this process is widely referring to as a request for “reinstatement.” To provide clarity and consistency, we proposed to modify several references in

Sec. 412.273(d) from “cancelling” or a “cancellation” to “reinstating” or “reinstatement.” As we proposed that withdrawals be limited to applications prior to approval, a proposed reinstatement will only apply to the proposed modified definition of a termination. Therefore, we proposed to delete the references to withdrawals from Sec. 412.273(d)(1).

As discussed earlier in this section, we continue to believe that all parties to a county group reclassification must participate on any action prior to the effective date of a group reclassification. Under current policy, this will include whether to withdraw a reclassification in the timeframe described at Sec. 412.273(c)), and whether to cancel an approved reclassification withdrawal request to reinstate the remaining second and third year of the approved group reclassification, as described at Sec. 412.273(d)(2). In the proposed rule, we stated that we believe that requiring these actions to include all parties to the group reclassification reduces the possibility of one or more parties withdrawing from a reclassification to the benefit or detriment of other hospitals reclassified to that labor market area. For example, a hospital may be incentivized to withdraw a potentially beneficial reclassification if the exclusion of its wage data in the reclassified area will increase the wage index value. This type of manipulation of reclassification policy does not encourage stability or predictability of wage index system and is contrary to the concept of providing hospitals in a county an opportunity to obtain a reclassification that they may not be able to obtain through an individual reclassification. Therefore, we proposed to continue the current policy by modifying the current regulation to explicitly state that the proposed modified withdrawal requests and proposed modified termination and reinstatement requests made prior to the effective date of the reclassification (that is, any request made prior to the first year the reclassification goes into effect), must include all parties to the application. Specifically, we proposed to modify Sec. 412.273(e), by modifying paragraph (e)(2) to state that a request to terminate an approved individual reclassification must be submitted in writing to the MGCRB according to the method prescribed by the MGCRB and adding a new paragraph (e)(3) specifying that a request to terminate or reinstate an approved group reclassification must be submitted in writing to the MGCRB according to the method prescribed by the MGCRB. A request to terminate or reinstate an approved group reclassification that has not yet gone into effect must include all hospitals party to the reclassification. Termination requests for group reclassification for the second or third year of the 3-year wage index reclassification period and reinstatement requests for a group reclassification effective for the third year of the 3-year wage index reclassification period may be submitted by any individual hospital that is party to the reclassification.

We stated that we believe that this proposal to explicitly state this policy regarding county group reclassification in regulation reduces confusion for hospitals and more clearly addresses our intent.

To provide clarity, we also proposed to state that a termination of a 3-year reclassification defined at Sec. 412.273(d)(4) is not eligible to be reinstated. This type of termination of an approved reclassification occurs when a hospital receives a different MGCRB reclassification in a subsequent fiscal year. Under current policy, hospitals may effectively choose between accepting a newly approved reclassification, or to withdraw it and “fallback” to a previously approved reclassification. We stated in the proposed rule that we believe this provides sufficient flexibility for hospitals to obtain the most beneficial reclassification. However, once an approved reclassification goes into effect, we believe it is appropriate to permanently terminate other previously approved reclassifications. Doing so provides a degree of predictability and consistency in the wage index calculations by limiting hospitals to a total of two potential MGCRB reclassification options. This is the current policy of CMS and the current practice of the MGCRB. We proposed specifically to state this policy in regulation by providing in Sec. 412.273(d)(4) that the terminated reclassification in such a case is not eligible for reinstatement.

We proposed the preceding changes to become effective for requests made beginning in FY 2026. The current policies and definitions will continue for the remainder of FY 2025. We noted that hospitals currently use the Office of Hearings Case and Document Management System (OH CDMS) to enter and maintain their MGCRB cases, and to correspond with the Office of Hearings. We are aware that the proposed changes would require system changes to the OH CDMS, and there could be some delay in revising certain terminology. However, these changes are not intended to significantly modify current policies and practices. Instead, they serve to clarify and simplify the process of determining whether an approved reclassification should be accepted and applied in a given fiscal year. We also stated that we believe that in making these changes, the regulation will provide clearer instructions to hospitals.

Finally, we noted that under the current and proposed policies, there is no negative effect for a hospital to reinstate (cancel a withdrawal or termination) for a subsequent year, as the reclassification could be terminated in the following year, and hospitals are eligible to reapply for wage index reclassification to a different labor market area. When eligible, a large majority of hospitals already do this, as it provides greater flexibility and options for wage index reclassification. Before the introduction of the OH CDMS, these reinstatement requests were often submitted simultaneously with a withdrawal or termination request. However, in the online system, the option to reinstate is typically only made available after all withdrawal and termination requests have been processed. We stated that we have considered a policy modification to make termination requests effective for only one fiscal year. That is, all requests to withdraw or terminate a reclassification made in the timeframe specified at Sec. 412.273(c) would automatically be reinstated for any remaining fiscal years, without the need of a second action to reinstate it. We have not fully evaluated the impact of such a policy but may consider it in future rulemaking.

We did not receive any comments regarding the proposed changes to Sec. 412.273 and are finalizing the proposed changes without revision. These changes, including the revised definitions, will be effective for all reclassification requests made on or after October 1, 2026 (FY 2026). 4. Redesignations Under Section 1886(d)(8)(B) of the Act a. Lugar Status Determinations

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS effective for the fiscal year in which the hospital receives the outmigration adjustment. In addition, in that rule, we adopted a minor

procedural change that will allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within 45 days from the issuance of the proposed rule in the Federal Register) to waive its urban status for the full 3-year period for which its out-migration adjustment is effective. By doing so, such a Lugar hospital will no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the out-migration adjustment. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56930), we further clarified that if a hospital wishes to reinstate its urban status for any fiscal year within this 3-year period, it must send a request to CMS within 45 days of the issuance of the proposed rule in the Federal Register for that particular fiscal year. We indicated that such reinstatement requests may be sent electronically to [email protected]. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38147 through 38148), we finalized a policy revision to require a Lugar hospital that qualifies for and accepts the out- migration adjustment, or that no longer wishes to accept the out- migration adjustment and instead elects to return to its deemed urban status, to notify CMS within 45 days from the date of public display of the proposed rule at the Office of the Federal Register. These revised notification timeframes were effective beginning October 1, 2017. In addition, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148), we clarified that both requests to waive and to reinstate Lugar status may be sent to [email protected]. To ensure proper accounting, we request hospitals to include their CCN, and either “waive Lugar” or “reinstate Lugar”, in the subject line of these requests. When applicable, this election will result in a cancelation of a hospital's rural reclassification status under Sec. 412.103, effective October 1, 2025. We also inform hospitals that for the request to be approved, the hospital must withdraw or terminate any active MGCRB reclassification. All requests, once approved, will remain in effect for the remainder of the 3-year out-migration adjustment period.

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42314 and 42315), we clarified that in circumstances where an eligible hospital elects to receive the outmigration adjustment within 45 days of the public display date of the proposed rule at the Office of the Federal Register in lieu of its Lugar wage index reclassification, and the county in which the hospital is located will no longer qualify for an outmigration adjustment when the final rule (or a subsequent correction notice) wage index calculations are completed, the hospital's request to accept the outmigration adjustment will be denied, and the hospital will be automatically assigned to its deemed urban status under section 1886(d)(8)(B) of the Act. We stated that final rule wage index values will be recalculated to reflect this reclassification, and in some instances, after taking into account this reclassification, the out- migration adjustment for the county in question could be restored in the final rule. However, as the hospital is assigned a Lugar reclassification under section 1886(d)(8)(B) of the Act, it will be ineligible to receive the county outmigration adjustment under section 1886(d)(13)(G) of the Act.

We received two timely requests from hospitals to accept the county out-migration adjustment in lieu of its Lugar reclassification. The requests were from CCNs 180056 and 320033. When applicable, we informed the hospital that for the request to be approved, the hospital must withdraw or terminate any active MGCRB reclassification. All requests have been approved and will remain in effect for the remainder of the 3-year county outmigration adjustment period.

We receive one timely request from CCN 390183 to reinstate its Lugar reclassification. This request was approved, and the hospital will be reclassified to CBSA 39740 for FY 2026.

F. Wage Index Adjustments: Rural Floor, Imputed Floor, State Frontier Floor, Out-Migration Adjustment, Low Wage Index Hospital, and Cap on Wage Index Decrease Policies

The following adjustments to the wage index are listed in the order that they are generally applied. First, the rural floor, imputed floor, and state frontier floor provide a minimum wage index. The rural floor at section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that the wage index for hospitals in urban areas of a State may not be less than the wage index applicable to hospitals located in rural areas in that State. The imputed floor at section 1886(d)(3)(E)(iv) of the Act provides a wage index minimum for all- urban states. The state frontier floor at section 1886(d)(3)(E)(iii) of the Act requires that hospitals in frontier states cannot be assigned a wage index of less than 1.0000. Next, the out-migration adjustment at section 1886(d)(13)(A) of the Act is applied, potentially increasing the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county or counties with a higher wage index. For FY 2026 and subsequent fiscal years, as discussed later in this section, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we are finalizing as proposed to discontinue the low wage index hospital policy. Because we are finalizing as proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we are no longer applying a low wage index budget neutrality factor to the standardized amounts. Finally, all hospital wage index decreases are capped at 95 percent of the hospital's final wage index in the prior fiscal year, according to the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021). 1. Rural Floor

Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33) provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the rural floor. Section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) also requires that a national budget neutrality adjustment be applied in implementing the rural floor. Based on the FY 2026 wage index associated with this final rule (which is available on the CMS website), and based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under Sec. 412.103, we estimate that 961 hospitals will receive the rural floor in FY 2026. The budget neutrality impact of the application of the rural floor is discussed in section II.A.4.e. of Addendum A of this final rule.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS finalized a policy change to calculate the rural floor in the same manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in which the rural wage index sets the rural floor. We stated that for FY 2023 and subsequent years, we would include the wage data of Sec. 412.103 hospitals that have no Medicare Geographic Classification Review Board (MGCRB) reclassification in the calculation of the rural floor, and include the wage data of such hospitals in the calculation of “the wage index for rural areas in the State in which the

county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act.

In the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977), we finalized a policy change beginning that year to include the data of all Sec. 412.103 hospitals, even those that have an MGCRB reclassification, in the calculation of the rural floor and the calculation of “the wage index for rural areas in the State in which the county is located” as referred to in section 1886(d)(8)(C)(iii) of the Act. We explained that after revisiting the case law, prior public comments, and the relevant statutory language, we agreed that the best reading of section 1886(d)(8)(E)'s text that CMS “shall treat the [Sec. 412.103] hospital as being located in the rural area” is that it instructs CMS to treat Sec. 412.103 hospitals the same as geographically rural hospitals for the wage index calculation.

Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized a policy to include hospitals with Sec. 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations, and to exclude “dual reclass” hospitals (hospitals with simultaneous Sec. 412.103 and MGCRB reclassifications) that are implicated by the hold harmless provision at section 1886(d)(8)(C)(ii) of the Act. (For additional information on these changes, we refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 through 58977).)

Comment: Some commenters expressed continued support for CMS's treatment of urban hospitals reclassified as rural under Sec. 412.103 in the same manner as geographically rural hospitals for the rural wage index and rural floor calculations. These commenters stated that restoring equality between a state's rural floor and its rural wage index is an appropriate and fair implementation of the statute.

Conversely, several commenters expressed concern that the current rural floor methodology and associated budget neutrality adjustment exacerbates inequities. A commenter stated that the rural floor magnifies Medicare underpayment to hospitals in high-cost regions, since payments to such hospitals are reduced due to the budget neutrality adjustment. Several commenters stated that hospitals in low- wage states are hurt when their payments are reduced to drive inflated reimbursement to hospitals in states gaming the rural floor. These commenters cited examples of states with high-wage urban hospitals reclassifying to rural to set the rural wage index for the state. The commenters urged CMS to reverse its current policy and calculate the rural wage index using wage data only from geographically rural hospitals in the state.

Response: While we did not propose any changes to the rural floor policy in the FY 2026 IPPS/LTCH PPS proposed rule, we appreciate the commenters' continued support.

We understand the commenters' concerns regarding the effect that the rural floor budget neutrality factor has on some hospitals as other hospitals make reclassification decisions to take advantage of the rural floor policy. As we noted in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58975 through 58976) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299), we expect that the number of IPPS hospitals assigned their State's rural wage index will increase in future years as hospitals adjust to the policy and as the relative value of States' rural wage index values increase due to the inclusion of hospitals that strategically obtain Sec. 412.103 reclassification. As a result, the majority of hospitals (if not all) will be assigned identical wage index values within their states. For example, in FY 2025, 58 percent of geographically urban hospitals received a wage index equal to their State's rural floor, imputed floor, or frontier floor prior to any outmigration, or 5 percent decrease cap adjustments. For FY 2026, approximately 70 percent of geographically urban hospitals will receive a wage index equal to their State's rural floor, imputed floor, or frontier floor prior to any outmigration, or 5 percent decrease cap adjustments. As we stated in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58975) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299), as substantially more hospitals receive the rural floor, there will be a consequently greater budget neutrality impact. However, we believe this result would be unavoidable given the requirement of section 1886(d)(8)(E) of the Act to treat Sec. 412.103 hospitals `as being located in the rural area' of the state, as well as the requirement at sections 4410(b) of the BBA 1997 and 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) that a uniform, national budget neutrality adjustment be applied in implementing the rural floor.

Comment: Several commenters disagreed with CMS' current application of the rural floor and rural floor budget neutrality adjustment. These commenters asserted that section 4410(b) of the Balanced Budget Act of 1997 (BBA) exempts urban and reclassified rural hospitals that receive the rural floor from having their wage indexes reduced through the application of the rural floor budget neutrality adjustment. According to these commenters, the rural floor budget neutrality adjustment should be applied only to the wage indexes of hospitals not receiving the rural floor (that is, non- reclassified rural hospitals, and urban hospitals with wage indexes above the rural floor).

Response: As we stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299) in response to similar comments that we had received, we disagree with the commenters' assertion that urban and reclassified rural hospitals that receive the rural floor should be excluded from the application of the rural floor budget neutrality factor. We considered this approach in the FY 2008 IPPS proposed and final rules (72 FR 24787 and 72 FR 47325) and believe we have applied the rural floor budget neutrality adjustment in a manner consistent with the statute. Specifically, in the FY 2008 IPPS proposed rule, we rejected a reading of section 4410(b) of the BBA requiring that the budget neutrality adjustment would be applied only to those hospitals that do not receive the rural floor, because urban hospitals receiving the rural floor would receive a higher wage index than the rural hospitals within the same State (because hospitals receiving the rural floor would not be subject to budget neutrality, whereas rural hospitals would be) (72 FR 24787). We continue to believe that such a reading would not be consistent with the best reading of the statute. The statute sets a floor for urban hospitals. The statute does not instruct CMS to pay urban hospitals a wage index higher than the wage index applicable to rural hospitals and contains no suggestion that the general budget neutrality provisions of section 1886(d)(8)(D)--which expressly apply to the adjustments made in section 1886(d)(C)--should not apply. In the FY 2008 IPPS final rule, we adopted the current approach to implement rural floor budget neutrality by applying a uniform, national adjustment to the wage index (72 FR 47325). Since then, Congress specifically endorsed our approach in section 3141 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), which requires that the rural floor budget neutrality adjustment be applied “in the same manner as the Secretary administered such [adjustment] for discharges occurring during fiscal year 2008 (through a uniform, national adjustment to the area wage index).” In addition, we note that section 4410 of the BBA to which the commenters refer provides

that the rural floor is equal to “the area wage index applicable under [section 1886(d)(3)(E) of the Social Security Act] to hospitals located in rural areas in the State.” Under our existing policy, the rural floor and the rural wage index for the state are the same after application of the rural floor budget neutrality adjustment factor, and nothing in section 4410 of the BBA requires otherwise. Put differently, CMS' methodology amounts to merely calculating the amount of the rural floor such that it is the same as the final rural wage index for the state, rather than reducing the wage indices of low wage urban hospitals or reclassified rural hospitals that receive the rural floor relative to what they would be otherwise--in that way it appropriately implements both section 4410 of the BBA and section 3141 of the ACA. Thus, consistent with our longstanding methodology for implementing the rural floor, we believe it is appropriate to continue to apply a budget neutrality adjustment to all hospitals' wage indexes. 2. Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the imputed floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that have stated that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. We extended the imputed floor policy eight times since its initial implementation, the last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and expired on September 30, 2018. We refer readers to further discussions of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014 through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80 FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through 38142, and 83 FR 41376 through 41380, respectively) and to the regulations at Sec. 412.64(h)(4). For FYs 2019, 2020, and 2021, hospitals in all-urban states received a wage index that was calculated without applying an imputed floor, and we no longer included the imputed floor as a factor in the national budget neutrality adjustment.

Section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117- 2), enacted on March 11, 2021, amended section 1886(d)(3)(E)(i) of the Act and added section 1886(d)(3)(E)(iv) of the Act to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. Specifically, section 1886(d)(3)(E)(iv)(I) and (II) of the Act provides that for discharges occurring on or after October 1, 2021, the area wage index applicable to any hospital in an all-urban State may not be less than the minimum area wage index for the fiscal year for hospitals in that State established using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. Unlike the imputed floor that was in effect from FYs 2005 through 2018, section 1886(d)(3)(E)(iv)(III) of the Act provides that the imputed floor wage index shall not be applied in a budget neutral manner. Section 1886(d)(3)(E)(iv)(IV) of the Act provides that, for purposes of the imputed floor wage index under clause (iv), the term all-urban State means a State in which there are no rural areas (as defined in section 1886(d)(2)(D) of the Act) or a State in which there are no hospitals classified as rural under section 1886 of the Act. Under this definition, given that it applies for purposes of the imputed floor wage index, we consider a hospital to be classified as rural under section 1886 of the Act if it is assigned the State's rural area wage index value.

Effective beginning October 1, 2021 (FY 2022), section 1886(d)(3)(E)(iv) of the Act reinstated the imputed floor wage index policy for all-urban States, with no expiration date, using the methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY 2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178) for further discussion of the original imputed floor calculation methodology implemented in FY 2005 and the alternative methodology implemented in FY 2013.

Based on data available for this final rule, States that will be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the Act, and thus hospitals in such States that will be eligible to receive an increase in their wage index due to application of the imputed floor for FY 2026, are identified in Table 3 (which is available on the CMS website) associated with this final rule. States with a value in the column titled “State Imputed Floor” are eligible for the imputed floor.

The regulations at Sec. 412.64(e)(1) and (4) and (h)(4) and (5) implement the imputed floor required by section 1886(d)(3)(E)(iv) of the Act for discharges occurring on or after October 1, 2021. The imputed floor will continue to be applied for FY 2026 in accordance with the policies adopted in the FY 2022 IPPS/LTCH PPS final rule. For more information regarding our implementation of the imputed floor required by section 1886(d)(3)(E)(iv) of the Act, we refer readers to the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176 through 45178).

Comment: We received comments supporting the application of the imputed floor.

Response: We thank the commenters for their input. As discussed earlier, the imputed floor is a statutory requirement under section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-2) which requires the Secretary to establish a minimum area wage index for hospitals in all-urban States for discharges occurring on or after October 1, 2021. We did not propose any changes to the methodology for calculating the imputed floor as set forth in Sec. 412.64(e)(1) and (4) and (h)(4) and (5). Therefore, in accordance with the statute and existing regulations, we are applying the imputed floor for hospitals in all-urban States for FY 2026. 3. State Frontier Floor for FY 2026

Section 10324 of Public Law 111-148 requires that hospitals in frontier States cannot be assigned a wage index of less than 1.0000. (We refer readers to the regulations at Sec. 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/ LTCH PPS final rule (75 FR 50160 through 50161).) In the FY 2026 IPPS/ LTCH PPS proposed rule, we did not propose any changes to the frontier floor policy for FY 2026. In the proposed rule we stated 40 hospitals would receive the frontier floor value of 1.0000 for their FY 2026 proposed wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming.

We did not receive any public comments on the application of the State frontier floor for FY 2026. In this final rule, 23 hospitals will receive the frontier floor value of 1.0000 for their FY 2026 wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. We note that while Nevada meets the criteria of a frontier State, all hospitals within the State currently receive a wage index value greater than 1.0000.

The areas affected by the rural and frontier floor policies for the final FY 2026 wage index are identified in Table 3 associated with this final rule, which is available via the internet on the CMS website. 4. Out-Migration Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established

a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index.

Section 1886(d)(13)(B) of the Act requires the Secretary to use data the Secretary determines to be appropriate to establish the qualifying counties. When the provision of section 1886(d)(13) of the Act was implemented for the FY 2005 wage index, we analyzed commuting data compiled by the U.S. Census Bureau that were derived from a special tabulation of the 2000 Census journey-to-work data for all industries (CMS extracted data applicable to hospitals). These data were compiled from responses to the “long-form” survey, which the Census Bureau used at that time, and which contained questions on where residents in each county worked (69 FR 49062). However, the 2010 Census was “short form” only; information on where residents in each county worked was not collected as part of the 2010 Census. The Census Bureau worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked in 2010, for use in developing a new out-migration adjustment based on new commuting patterns developed from the 2010 Census data beginning with FY 2016.

To determine the out-migration adjustments and applicable counties for FY 2016, we analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the American Community Survey (ACS), an official Census Bureau survey, utilizing 2008 through 2012 (5-year) Microdata. The data were compiled from responses to the ACS questions regarding the county where workers reside and the county to which workers commute. As we discussed in prior IPPS/LTCH PPS final rules, we have applied the same policies, procedures, and computations since FY 2012. We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49500 through 49502) for a full explanation of the revised data source. We also stated that we will consider determining out-migration adjustments based on data from the next Census or other available data, as appropriate.

As discussed previously in section III.A.2., in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69253 through 69266), CMS adopted revised delineations from the OMB Bulletin 23-01, published July 21, 2023. The revised delineations incorporated population estimates based on the 2020 decennial census, as well as updated journey-to-work commuting data. The Census Bureau once again worked with CMS to provide an alternative dataset based on the latest available data on where residents in each county worked, for use in developing a new out- migration adjustment based on new commuting patterns. We analyzed commuting data compiled by the Census Bureau that were derived from a custom tabulation of the ACS, utilizing 2016 through 2020 data. The Census Bureau produces county level commuting flow tables every 5 years using non-overlapping 5-year ACS estimates. The data include demographic characteristics, home and work locations, and journey-to- work travel flows. The custom tabulation requested by CMS was specific to general medical and surgical hospital and specialty (except psychiatric and substance use disorder treatment) hospital employees (hospital sector Census code 8191/NAICS code 6221 and 6223) who worked in the 50 States, Washington, DC, and Puerto Rico and, therefore, provided information about commuting patterns of workers at the county level for residents of the 50 States, Washington, DC, and Puerto Rico.

For the ACS, the Census Bureau selects a random sample of addresses where workers reside to be included in the survey, and the sample is designed to ensure good geographic coverage. The ACS samples approximately 3.5 million resident addresses per year.\140\ The results of the ACS are used to formulate descriptive population estimates, and, as such, the sample on which the dataset is based represents the actual figures that will be obtained from a complete count.

\140\ According to the Census Bureau, the effects of the public health emergency (PHE) on ACS activities in 2020 resulted in a lower number of addresses (~2.9 million) in the sample, as well as fewer interviews than a typical year.

In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301), we finalized that for FY 2025 and subsequent years, the out-migration adjustment will be based on the data derived from the previously discussed custom tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata. As discussed earlier, we believe that these data are the most appropriate to establish qualifying counties, because they are the most accurate and up-to-date data that are available to us. For FY 2026, we did not propose any changes to the methodology or data source for calculating the out-migration adjustment. Specifically, we proposed that the FY 2026 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. We did not receive any comments on this proposal. We are finalizing as proposed that the FY 2026 out-migration adjustments continue to be based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. We have applied these same policies, procedures, and computations since FY 2012, and we believe they continue to be appropriate for FY 2026. We refer readers to a full discussion of the out-migration adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out- migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602). Table 2 of this final rule (which is available on the CMS website) lists the out-migration adjustments for the FY 2026 wage index. In addition, Table 4A associated with this final rule, “List of Counties Eligible for the Out Migration Adjustment under Section 1886(d)(13) of the Act” (also available on the CMS website), consists of the following: A list of counties that are eligible for the outmigration adjustment for FY 2026 identified by FIPS county code, the FY 2026 out-migration adjustment, and the number of years the adjustment will be in effect. We refer readers to section V.I. of the Addendum of this final rule for instructions on accessing IPPS tables that are posted on the CMS websites identified in this final rule. 5. Discontinuation of the Low Wage Index Hospital Policy and Budget Neutrality Adjustment

In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339), we finalized a policy to address increasing wage index disparities, based in part on comments we received in response to our request for information included in our FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20372 through 20377). Accordingly, we finalized a policy that provided certain low wage index hospitals with an opportunity to increase employee compensation without the usual lag in those increases being reflected in the calculation of the wage index (as they would expect to do if not for the lag). We accomplished this

by temporarily increasing the wage index values for certain hospitals with low wage index values and doing so in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We increased the wage index for hospitals with a wage index value below the 25th percentile wage index value for a fiscal year by half the difference between the otherwise applicable final wage index value for a year for that hospital and the 25th percentile wage index value for that year across all hospitals (the low wage index hospital policy).

When we adopted the low wage index hospital policy in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326 through 42328), we stated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We also stated we intended to revisit the issue of the duration of this policy in future rulemaking as we gained experience under the policy. For FY 2024, we continued to apply the low wage index hospital policy and the related budget neutrality adjustment (88 FR 58977 through 58980). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we adopted an extension of the low wage index hospital policy and the related budget neutrality adjustment effective for at least three more years, beginning in FY 2025, in order for sufficient wage data from after the end of the COVID-19 Public Health Emergency to become available.

On July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary lacked authority under section 1886(d)(3)(E) of the Act or under the “adjustments” language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated.\141\ After considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, in the 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 80405 through 80421), we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. We refer the reader to the applicable year final rule discussions (FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 42339); FY 2024 IPPS/LTCH PPS final rule (88 FR 58977 through 58980)) regarding the implementation of the low wage index hospital policy and the FY 2025 IFC for a complete discussion regarding the removal of the low wage index hospital policy for FY 2025.

\141\ Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024).

For FY 2026 and subsequent fiscal years, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to discontinue the low wage index hospital policy. Because we proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we stated that we would no longer apply a low wage index budget neutrality factor to the standardized amounts.

Comment: Many commenters supported the discontinuation of the low wage index hospital policy in light of the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra. Commenters agreed with the court that the FY 2020 low wage index hospital policy is unlawful. These commenters stated that ending the low wage index hospital policy, under which the wage indexes of hospitals in the bottom quartile were raised at the expense of all hospitals nationwide due to a budget neutrality adjustment, would restore fairness and consistency to the wage index and align the true cost of care within an area.

Other commenters strongly urged CMS to continue the low wage index hospital policy. While most commenters acknowledged the court's decision, they expressed concern regarding the impact of ending the policy on low wage hospitals. They stated that the rationales for implementing the low wage index hospital policy remain, and discontinuing the policy will end critical support to vulnerable low wage and often rural hospitals. Two commenters specifically asked CMS to explore the impacts of discontinuing the low wage index hospital policy on other policies and hospital payment programs before finalizing, report on the effects of this policy change, and examine how concurrent wage index adjustments may compound or offset the effects. Similarly, another commenter supported the discontinuation of the low wage index hospital policy but expressed concern regarding the impact of ending the policy on rural hospitals. The commenter believes that other programs such as the low volume payment adjustment should provide support.

Response: We thank the commenters for their support for our proposal. With regard to the commenters opposing the discontinuation of the low wage index hospital policy, we understand the commenters' concerns that the rationales for implementing the low wage index hospital policy remain. However, as discussed in the FY 2025 IFC (89 FR 80407), although we respectfully disagree with the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra and believed that the low wage index hospital policy and the related budget neutrality adjustment should be effective for at least three more years for the reasons stated in the FY 2025 IPPS rulemaking, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years. In response to concerns regarding the impact of ending the policy on low wage hospitals, we believe we have addressed those concerns with policies to mitigate any large decline in wage indexes. We refer readers to Section III.F.5 and III.F.6 for detailed discussions of the cap on wage index decreases and transition for the discontinuation of the low wage index hospital policy. With regard to comments requesting that we explore and report on the effects of discontinuing the low wage index hospital policy, we believe that Table 2 associated with this final rule (which is available on the CMS website) provides a clear analysis. Specifically, Table 2 contains columns with each hospital's FY 2026 wage index without and with the 5 percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, and the value with the transitional payment exception for the discontinuation of the low wage index hospital policy, if applicable. With regard to examining how concurrent wage index adjustments and payment programs like the low volume payment adjustment may compound or offset the effects of discontinuing the low wage index hospital policy, we believe this is a payment analysis best performed by each hospital individually considering each hospital's unique circumstances and eligibility for different adjustments.

Comment: Many commenters urged CMS to consider alternative policies to help low wage hospitals, specifically permanent solutions that address wage index inequities. Some commenters cited reports from the Office of Inspector General (OIG), the Institute of Medicine (IOM), and MedPAC that recognize flaws in the current wage

index system, and emphasized that comprehensive reform is necessary to protect care in rural and underserved communities in the absence of the low wage index hospital policy. Commenters requested that CMS develop a permanent, statutory solution to address the circularity affecting low wage hospitals by working with Congress to codify the low wage index hospital policy in a manner that complies with the court's decision. A commenter specifically asked CMS to expand on its administrative discretion to assist low wage hospitals. Another commenter encouraged CMS to continue developing policies that address low wage index hospitals without negatively impacting other hospitals by soliciting input from the hospital community. Similarly, many commenters also encouraged CMS to further investigate the specific factors causing wage disparities as part of developing a solution. A few commenters suggested that CMS establish a wage index floor for all hospitals.

Response: We appreciate the varied solutions suggested by commenters to help low wage hospitals and reduce wage index disparities. We note that many of the suggested solutions may require changes to the Medicare statute. We also note that exercising CMS's administrative discretion in a manner that would help low wage hospitals must consider the recent decision and analysis of the D.C. Circuit in Bridgeport Hosp. v. Becerra. Regarding the commenters' suggestions to solicit input from the hospital community and investigate the causes of wage index disparities, we refer readers to the FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20372), in which we invited the public to submit comments, suggestions, and recommendations for regulatory and policy changes to the Medicare wage index, and to the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19393 through 19394) for a summary of the responses received from that request for information (RFI). In response to the commenters' suggesting that CMS establish a wage index floor for all hospitals, we refer readers to the FY 2020 IPPS/LTCH PPS final rule (84 FR 42326), where we considered that alternative. Specifically, we stated that we believe the rank order of wage indexes generally reflects meaningful distinctions between the employee compensation costs faced by hospitals in different geographic areas.

Comment: Many commenters requested that CMS implement a less restrictive reclassification mechanism for the lowest wage index hospitals (for a MGCRB reclassification). Specifically, commenters suggested regulatory changes to Sec. 412.230(d) to allow a low wage index hospital that is within 50 miles of a higher paid wage area (urban or rural) to reclassify to that area and receive the wage index that is paid to hospitals in that area. The commenters also suggested CMS add a low wage hospital exception as Sec. 412.230(d)(6) for any hospital that was in the lowest quartile of wage indexes nationally in any of the FYs 2020 through 2025. As a policy justification, the commenters stated that 50 miles reflect real-world commuting standards, and that altering the average hourly wage comparison test for low wage hospitals advances health equity. Overall, the commenters posited that their suggested regulation text and policy change would reduce disparities and enhance access to care.

Response: We thank the commenters for their suggested policy and regulation changes to implement a less restrictive reclassification mechanism for the lowest wage index hospitals (for a MGCRB reclassification). We did not propose any changes to Sec. 412.230 in the FY 2026 IPPS/LTCH PPS proposed rule. Additionally, under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amount to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. Any changes that would allow more hospitals to reclassify would increase the budget neutrality adjustment under section 1886(d)(8)(D) of the Act and would further increase the adjustment made to the standardized amount for all hospitals. We believe it is important to receive public comments with regard to such changes.

We note that we received comments that were out of scope with regard to our proposal to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years. Therefore, we are not responding to these comments in this final rule.

After consideration of the public comments received and the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, in this final rule, we are finalizing without modification for FY 2026 and subsequent fiscal years, our proposal to discontinue the low wage index hospital policy. Because we are finalizing our proposal to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we will no longer apply a low wage index budget neutrality factor to the standardized amounts. 6. Cap on Wage Index Decreases and Budget Neutrality Adjustment

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021), we finalized a wage index cap policy and associated budget neutrality adjustment for FY 2023 and subsequent fiscal years. Under this policy, we apply a 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. A hospital's wage index will not be less than 95 percent of its final wage index for the prior FY. If a hospital's prior FY wage index is calculated with the application of the 5-percent cap, the following year's wage index will not be less than 95 percent of the hospital's capped wage index in the prior FY. We note, the FY 2025 wage index was established in the FY 2025 IFC which removed the low wage index hospital policy (89 FR 80405 through 80421). Therefore, for FY 2026, the prior year wage index for purposes of the cap will be based on the wage index established in the IFC. We also note that in that same IFC, we established a transitional payment exception for FY 2025. The 5-percent cap for FY 2026 will be applied irrespective of the FY 2025 transitional payment exception. We finally note, as discussed later in this section, that for FY 2026 we proposed a transitional payment exception that addresses the effects of the removal of the low wage index hospital policy. We proposed that this transitional payment exception would be applied after the application of the 5-percent cap.

Except for newly opened hospitals, we apply the cap for a FY using the final wage index applicable to the hospital on the last day of the prior FY. A newly opened hospital will be paid the wage index for the area in which it is geographically located for its first full or partial fiscal year, and it will not receive a cap for that first year, because it will not have been assigned a wage index in the prior year. The wage index cap policy is reflected at Sec. 412.64(h)(7). We apply the cap in a budget neutral manner through a national adjustment to the standardized amount each fiscal year. For more information about the wage index cap policy and associated budget neutrality adjustment, we refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through 49021).

For FY 2026, we will apply the wage index cap and associated budget neutrality adjustment in accordance with the policies adopted in the FY

2023 IPPS/LTCH PPS final rule. We refer readers to the Addendum of this final rule for further information regarding the budget neutrality calculations.

Comment: Commenters, including MedPAC, supported the policy to cap wage index decreases. MedPAC urged CMS to apply a cap to wage index increases as well. Many commenters thanked CMS for recognizing that significant year-to-year changes in the wage index can occur due to external factors beyond a hospital's control and stated that this policy increases predictability in IPPS payments. However, many commenters urged CMS to apply this policy in a non-budget neutral manner.

Response: We thank the commenters for their support. We note that we did not propose any changes to this policy in the FY 2026 IPPS/LTCH PPS proposed rule. We appreciate MedPAC's suggestion that the cap on wage index changes should also be applied to increases in the wage index. However, as we stated in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49021), one purpose of the policy is to help mitigate the significant negative impacts of certain wage index changes. That is, we cap decreases because we believe that a hospital would be able to more effectively budget and plan when there is predictability about its expected minimum level of IPPS payments in the upcoming fiscal year. We do not have a policy to limit wage index increases because we do not believe such a policy is needed to enable hospitals to more effectively budget and plan their operations. Therefore, we believe it is appropriate for hospitals that experience an increase in their wage index value to receive that wage index value. With regard to the commenters requesting that CMS apply this policy in a non-budget neutral manner, we refer readers to our response to similar comments in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58981). 7. Transition for the Discontinuation of the Low Wage Index Hospital Policy

As discussed previously, in the FY 2025 IFC we recalculated the FY 2025 IPPS hospital wage index to remove the low wage index hospital policy for FY 2025. We also removed the low wage index budget neutrality factor from the FY 2025 standardized amounts. For FY 2026 and subsequent fiscal years, consistent with the FY 2025 IFC, after considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to discontinue the low wage index hospital policy. Because we proposed to discontinue the low wage index hospital policy for FY 2026 and subsequent fiscal years, we would no longer apply the low wage index budget neutrality factor to the standardized amounts.

In the past, we have established temporary transition policies when there have been significant changes to payment policies, and we have limited the duration of each transition in order to phase in the effects of those payment policy changes. In taking this temporary approach in the past, we have sought to mitigate short-term instability and payment fluctuations that can negatively impact hospitals consistent with principles of certainty and predictability under prospective payment systems. For example, CMS has recognized that hospitals in certain areas may experience a negative impact on their IPPS payment due to the adoption of revised OMB delineations for wage index purposes and has finalized transition policies to mitigate negative financial impacts and provide stability to year-to-year wage index variations. We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49956 through 49962) for a discussion of the transition period finalized when CMS adopted revised OMB delineations after the 2010 decennial census. For FY 2025, consistent with our past practice, we established an interim transition policy for hospitals significantly impacted by the removal of the FY 2025 low wage index hospital policy using our authority under section 1886(d)(5)(I) of the Act. Specifically, the transitional payment exception for FY 2025 for those hospitals is equal to the additional FY 2025 amount a hospital would have been paid under the IPPS if its FY 2025 wage index were equal to 95 percent of its FY 2024 wage index. For a discussion of the removal of the low wage index hospital policy and the establishment of the interim transition policy, we refer readers to the FY 2025 IFC (89 FR 80405 through 80421).

We currently have a wage index cap policy at 42 CFR 412.64(h)(7), under which we apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY in a budget neutral manner, regardless of the circumstances causing the decline, so that a hospital's final wage index for the upcoming fiscal year will not be less than 95 percent of its final wage index from the prior fiscal year. In accordance with 42 CFR 412.64(e)(1)(ii), CMS applies a budget neutrality adjustment to offset the increase in total payments resulting from the application of that cap.

We stated in the proposed rule 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 proposed FY 2026 wage index (that is, approximately 5 percent or more per year over that time period). Similar to how 42 CFR 412.64(h)(7) operates, and how our interim transitional policy established in the FY 2025 IFC for these hospitals operates in FY 2025, we proposed to establish a narrow transitional exception to the calculation of FY 2026 payments for these hospitals.

As described previously, if the combined payment effect of the FY 2025 wage index and the transitional payment exception for FY 2025 had been attributable solely to the FY 2025 wage index, then the wage index cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2026 wage index decreases and would have done so in a budget neutral manner under our current regulations. As discussed in the FY 2025 IFC (89 FR 80407-80408), while CMS is not necessarily required by the statute to budget neutralize every exception or adjustment under section 1886(d)(5)(I), it has often done so by exercising its discretion under section 1886(d)(5)(I) of the Act twice: first to adopt an exception or adjustment, and then again to make that exception or adjustment budget neutral.\142\ For the FY 2025 interim transition policy, under the unique circumstances and due to the timing of the appellate court's decision in Bridgeport Hosp. v. Becerra so close to the beginning of FY 2025, we declined to exercise our discretion to budget neutralize that interim FY 2025 transition policy. We stated that unlike most policies relevant to the calculation of the hospital wage index, the timing of the court's decision shortly before the beginning of the fiscal year necessitated swift action by the agency via an IFC, rather than providing for prior notice and opportunity for comment. The agency's action in that IFC was intended to promote certainty regarding FY 2025 IPPS payments in light of the reasoning of Bridgeport, which risked creating ongoing confusion for hospitals extending into FY 2025 about the amount of their IPPS payments. In that circumstance, the lack of an opportunity to notify interested parties in a notice of proposed rulemaking about changes to their wage index that would result from

budget neutralizing the transition policy, and for the agency to consider before the policy's effective date issues hospitals might raise when commenting on those changes, weighed in favor of an approach that did not adversely affect the significant majority of hospitals. For these reasons, and as discussed in the IFC, we declined to budget neutralize the interim FY 2025 transition policy.

\142\ For example, CMS has stated in the past that it would exercise its discretion under section 1886(d)(5)(I) of the Act to make the low wage index hospital policy budget neutral even if budget neutrality were not required by statute (88 FR 58979).

In contrast, we proposed the FY 2026 transition policy under very different circumstances. We are not facing the timing constraints of a court decision issued shortly before the beginning of a fiscal year that necessitated swift action through an IFC to promote certainty and prevent ongoing confusion by hospitals. Rather, we proposed the FY 2026 transition policy through the normal course of our annual rulemaking for the IPPS, which allows both for advance notice of the policy and for us to consider issues interested parties might raise in comments on the proposed rule. We proposed to make this policy budget neutral through an adjustment applied to the standardized amount for all hospitals because: (1) the wage index cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2026 wage index decreases had the combined payment effect of the FY 2025 wage index and the transitional payment exception been reflected solely in the FY 2025 wage index, and it would have done so in a budget neutral manner under our current regulations; and (2) the circumstances described previously that caused us to decline to budget neutralize the interim FY 2025 transition policy are not applicable to the proposed FY 2026 transition policy. In addition, we noted that implementing the proposed FY 2026 transition policy in a budget neutral manner would be consistent with past practice. For example, we budget neutralized the FY 2015 wage index transition budget neutrality policy discussed earlier (79 FR 49956 through 49962). As we have discussed in other instances (89 FR 19398), we believed, and continue to believe, that transition policies should not increase estimated aggregate Medicare payments beyond the payments that would be made had we never proposed these transition policies. Therefore, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act twice. First, we proposed to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy. Second, we proposed to exercise our authority again to do so in a budget neutral manner.143 144 We refer the reader to section II.A.4.g. of the Addendum of this final rule for complete details regarding the application of the transition for the discontinuation of the low wage index hospital policy budget neutrality factor.

\143\ We note that even more so than was the case for the FY 2025 interim transition policy, the scope and magnitude of the FY 2026 transitional policy are much smaller than the low wage index hospital policy. As discussed in section VI. of the preamble of this final rule, we estimate only 54 hospitals out of the over 3,000 hospitals paid under the IPPS will receive FY 2026 transitional exception payments, and the total payment impact of the transitional policy is an increase in IPPS operating payments by approximately $27 million. For the FY 2025 interim transition policy the corresponding figures were 113 hospitals and an increase in IPPS operating payments by approximately $37 million (89 FR 80417).

\144\ We note that because creating an exception to the calculation of the FY 2026 payments is in this circumstance functionally equivalent to adjusting the FY 2026 payments, the transitional exception can be alternatively considered a transitional adjustment.

The transitional exception policy we proposed applies to hospitals that benefitted from the FY 2024 low wage index hospital policy. For those hospitals, we stated that we would compare the hospital's proposed FY 2026 wage index to the hospital's FY 2024 wage index. If the hospital is significantly impacted by the discontinuation of the low wage index hospital policy, meaning the hospital's proposed FY 2026 wage index is decreasing by more than 9.75 percent \145\ from the hospital's FY 2024 wage index, then the transitional payment exception for FY 2026 for that hospital would 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 \146\ of its FY 2024 wage index.\147\ We noted this proposed transitional payment exception would be applied after the application of the 5-percent cap described at 42 CFR 412.64(h)(7). We provided the following example in the proposed rule: assume the FY 2024 wage index for a hospital that benefitted from the low wage index hospital policy is 0.7600, and the hospital's proposed FY 2026 wage index is 0.6500. (If applicable, this proposed FY 2026 wage index value would include the 5-percent cap based on a comparison of the hospital's FY 2026 wage index prior to application of the 5- percent cap, to the hospital's FY 2025 wage index. We noted that the FY 2025 wage index that will be used in this comparison is generally the FY 2025 wage index listed in Table 2 from the FY 2025 IFC in the column labeled “FY 2025 Wage Index With Cap”. We noted that all hospitals, regardless of whether the cap was applied to their FY 2025 wage index, have a value in the column “FY 2025 Wage Index With Cap”. Hospitals that did not have a cap applied to their FY 2025 wage index will display a wage index in this column without the cap.) The hospital's proposed FY 2026 wage index is decreasing by more than 9.75 percent from the hospital's FY 2024 wage index [that is, 0.6500 https://www.cms.gov/Regulations-and-Guidance/Guidance/ManuFals/Paper-Based-Manuals-Items/CMS021935).

The major types of costs underlying the 2023-based IPPS market basket are derived from the Medicare cost reports (Form 2552-10, OMB Control Number 0938-0050). Specifically, we proposed to use the Medicare cost reports for seven specific types of costs: Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, Professional Liability Insurance (Malpractice), Blood and Blood Products, and Home Office/Related Organization Contract Labor. A residual category is then estimated and reflects all remaining costs not captured in the seven types of costs identified previously. The 2018-based IPPS market basket similarly used the Medicare cost reports.

In order to create a market basket that is representative of IPPS hospitals serving Medicare patients and to help ensure the major cost weights accurately reflect the percent of total Medicare-allowable operating costs, as defined in this final rule, we proposed to apply edits to remove reporting errors and outliers. Specifically, the IPPS Medicare cost reports used to calculate the market basket cost weights exclude any providers that reported costs less than or equal to zero for the following categories: total Medicare inpatient costs (Worksheet D-1, Part II, column 1, line 49); Medicare PPS payments (Worksheet E, Part A, column 1, line 59); Total salary costs (Worksheet S-3, Part II, column 2, line 1). We also limited our sample to providers that had a Medicare cost reporting period that was between 10 and 14 months. The final sample used includes roughly 2,900 Medicare cost reports (about 93 percent of the universe of IPPS Medicare cost reports for 2023). The sample of providers is representative of the national universe of providers by ownership-type (proprietary, nonprofit, and government) and by urban/rural status.

In the proposed rule, we proposed to calculate total Medicare- allowable operating costs for each hospital to be equal to noncapital costs (Worksheet B, Part I, column 26 less Worksheet B, Part II, column 26) that are attributable to the Medicare-allowable cost centers of the hospital. We proposed that Medicare-allowable cost centers are lines 30 through 35, 50 through 60, 62 through 76, 90, 91, 92.01, 93, 96 and 97. This is the same methodology that was used for the 2018-based IPPS market basket. (1) Wages and Salaries Costs

To derive wages and salaries costs for the Medicare-allowable cost centers, we proposed to first calculate total unadjusted wages and salaries costs as reported on Worksheet S-3, Part II, column 4, line 1. We then proposed to remove the wages and salaries attributable to non- Medicare-allowable cost centers (that is, excluded areas) as well as a portion of overhead wages and salaries attributable to these excluded areas. This is the same methodology that was used to derive wages and salaries costs for the 2018-based IPPS market basket.

Specifically, we proposed to calculate excluded area wages and salaries as equal to the sum of Worksheet S-3, Part II, column 4, lines 3, 4.01, 5, 6, 7, 7.01, 8, 9, and 10 less Worksheet A, column 1, lines 20 and 23. Overhead wages and salaries are attributable to the entire IPPS facility. Therefore, we proposed to only include the proportion attributable to the Medicare-allowable cost centers. Specifically, we proposed to estimate the proportion of overhead wages and salaries that are not attributable to Medicare-allowable cost centers (that is, excluded areas) by first calculating the ratio of total Medicare- allowable operating costs (as previously defined) to total facility operating costs (Worksheet B, Part I, column 26, line 202 less Worksheet B, Part I, column 0, lines 1 and 2). We then proposed to multiply this ratio by total overhead wages and salaries (Worksheet S- 3, Part II, column 4, lines 26, 27, 29 through 32, 34, and 36 through 43) to estimate Medicare allowable overhead wages and salaries. The difference between total overhead wages and salaries and Medicare allowable overhead wages and salaries is equal to the overhead wages and salaries attributable to the excluded areas.

Therefore, we proposed wages and salaries costs used for the 2023- based IPPS market basket are equal to total wages and salaries costs less: (a) excluded area wages and salaries costs; and (b) overhead wages and salaries costs attributable to the excluded areas. (2) Employee Benefits Costs

We proposed to derive employee benefits costs using a similar methodology as the wages and salaries costs; that is, reflecting employee benefits costs attributable to the Medicare-allowable cost centers. First, we calculate total unadjusted employee benefits costs as the sum of Worksheet S-3, Part II, column 4, lines 17, 18, 20, 22, and 25.52.

We then exclude those employee benefits attributable to the overhead wages and salaries for the non-Medicare-allowable cost centers (that is, excluded areas). Employee benefits attributable to the non- Medicare-allowable cost centers are derived by multiplying the ratio of total employee benefits (equal to the sum of Worksheet S-3, Part II, column 4, lines 17, 18, 19, 20, 21, 22, 22.01, 23, 24, 25, 25.50, 25.51, 25.52, and 25.53) to total wages and salaries (Worksheet S-3, Part II, column 4, line 1) (which we hereafter refer to as the “IPPS benefits ratio”) by excluded overhead wages and salaries (as previously described in section IV.B.1.a.(1). of the preamble of this final rule for wages and salaries costs). The same methodology was used in the 2018-based IPPS market basket.

Therefore, we proposed employee benefit costs used for the 2023- based IPPS market basket are equal to total employee benefit costs less: (a) excluded area benefit costs; and (b) overhead benefit costs attributable to the excluded areas. (3) Contract Labor Costs

Contract labor costs are primarily associated with direct patient care services. Contract labor costs for services such as accounting, billing, and legal are estimated using other government data sources as described in this final rule. We proposed to derive contract labor costs for the 2023-based IPPS market basket as the sum of Worksheet S- 3, Part II, column 4, lines 11, 13, and 15. The same methodology was used in the 2018-based IPPS market basket. (4) Professional Liability Insurance Costs

We proposed that professional liability insurance (PLI) costs (often referred to as malpractice costs) be equal to premiums, paid losses, and self-insurance costs reported on Worksheet S-2, Part I, columns 1 through 3, line 118.01. The same methodology was used for the 2018-based IPPS market basket.

(5) Pharmaceuticals Costs

We proposed to calculate pharmaceuticals costs as total costs reported for the Pharmacy cost center (Worksheet B, Part I, column 0, line 15) and Drugs Charged to Patients cost center (Worksheet B, Part I, column 0, line 73) less wages and salaries attributable to these two cost centers (Worksheet S-3, Part II, column 4, line 40 and Worksheet A, column 1, line 73) less estimated employee benefits attributable to these two cost centers. We proposed to estimate the employee benefits costs by multiplying the IPPS benefits ratio as described in section IV.B.1.a.(2) of the preamble of this final rule by total wages and salaries costs for the Pharmacy and Drugs Charged to Patients cost centers (equal to the sum of Worksheet S-3, Part II, column 4, line 40 and Worksheet A, column 1, line 73). The same methodology was used for the 2018-based IPPS market basket. (6) Blood and Blood Products Costs

We proposed to calculate blood and blood products costs as total costs reported for the Whole Blood & Packed Red Blood Cells cost center (Worksheet B, Part I, column 0, line 62) and the Blood Storing, Processing, & Transfusing cost center (Worksheet B, Part I, column 0, line 63) less wages and salaries attributable to these two cost centers (Worksheet A, column 1, lines 62 and 63) less estimated employee benefits attributable to these two cost centers. We estimate these employee benefits costs by multiplying the IPPS benefits ratio as described in section IV.B.1.a.(2) of the preamble of this final rule by total wages and salaries for the Whole Blood & Packed Red Blood Cells and Blood Storing, Processing, & Transfusing cost centers (equal to the sum of Worksheet A, column 1, lines 62 and 63). The same methodology was used for the 2018-based IPPS market basket. (7) Home Office/Related Organization Contract Labor Costs

We proposed to determine home office/related organization contract labor costs using data reported on Worksheet S-3, Part II, column 4, lines 14.01, 14.02, 25.50, and 25.51. The same methodology was used for the 2018-based IPPS market basket. b. Final Major Cost Category Computation

After we derived costs for the major cost categories for each provider using the Medicare cost report data as previously described, we proposed to address data outliers using the following steps.

First, for each of the major cost weights except the Home Office/ Related Organization Contract Labor cost weight, we proposed to trim the data to remove outliers (a standard statistical process) by: (step 1) requiring that major expenses (such as Wages and Salaries costs) and total Medicare-allowable operating costs be greater than zero; (step 2) dividing the costs for each of the six categories (calculated as previously described in this section) by total Medicare-allowable operating costs to obtain cost weights for each PPS hospital; and (step 3) excluding the top and bottom 5 percent of the major cost weight (for example, Wages and Salaries costs as a percent of total Medicare- allowable operating costs). We note that missing values are assumed to be zero consistent with the methodology for how missing values were treated in the 2018-based IPPS market basket.

For the Home Office/Related Organization Contract Labor cost weight, we proposed to exclude outliers using a slightly different method by (step 1) requiring that total Medicare-allowable operating costs are greater than zero; (step 2) dividing the home office/related organization contract labor costs (calculated as previously described in this section) by total Medicare-allowable operating costs to obtain a cost weight for each PPS hospital; and (step 3) applying a trim that excludes those reporters with a Home Office/Related Organization Contract Labor cost weight above the 99th percentile. This allows all providers' Medicare-allowable costs to be included, even if their home office/related organization contract labor costs were reported to be zero. The Medicare cost report data (Worksheet S-2, Part I, line 140) indicate that not all hospitals have a home office. IPPS hospitals without a home office would report administrative costs that might typically be associated with a home office in the Wages and Salaries and Employee Benefits cost weights, or these costs would be reflected in the residual cost weight if they purchased these types of services from external contractors. We believe the trimming methodology that excludes those who report a Home Office/Related Organization Contract Labor cost weight above the 99th percentile is appropriate as it removes extreme outliers while also allowing providers with zero home office/related organization contract labor costs to be included in the Home Office/Related Organization Contract Labor cost weight calculation.

After the outliers have been removed, we sum the costs for each category across all remaining providers. We then divide this by the sum of total Medicare-allowable operating costs across all remaining providers to obtain a cost weight for the 2023-based IPPS market basket for the given category. This is the same methodology used for the 2018- based IPPS market basket.

The trimming process is done individually for each cost category so that providers excluded from one cost weight calculation are not automatically excluded from another cost weight calculation. We note that these proposed trimming methods are the same types of edits performed for the 2018-based IPPS market basket, as well as other PPS market baskets (including but not limited to SNF market basket and home health market basket). We note that for each of the cost weights we evaluated the distribution of providers and costs by ownership-type, and by urban/rural status. For all of the cost weights, the trimmed sample was nationally representative.

Finally, we calculate the residual “All Other” cost weight that reflects all remaining costs that are not captured in the seven cost categories listed.

We received the following comments on our proposed methodology for deriving the major cost weights of the proposed 2023-based IPPS market basket.

Comment: A commenter stated that contract labor has been substituted for employed labor in recent years and accelerated with the COVID-19 PHE, and as a result their expectation would be that any decrease in labor costs for employee benefits would be more than offset by the increased costs for contract labor. The commenter requested that CMS reexamine its methodology for allocating home office costs to contract labor to ensure that it is appropriately resulting in an increase that offsets the decline in employee benefits as contract labor now represents a significantly higher share of total hospital labor costs. The commenter stated that the Employee Benefits cost weight is the largest factor in the decreasing labor-related share (1.2 percentage points).

Response: We note that the discussion of the labor-related share as mentioned by the commenter is provided in section IV.B.3. of the preamble of this final rule. Our analysis of the Medicare cost report data indicates that the increase in the Home Office/Related Organization Contract Labor cost weight of 0.8 percentage point from 2018 to 2023 is more than offset by the estimated overhead compensation cost weight (excluding Home Office/Related Organization Contract Labor costs), which decreased about 1.4 percentage points over the same period. Overhead

compensation costs (as indicated in the FY 2026 IPPS/LTCH proposed rule (90 FR 18238)) would be reflected in the Wages and Salaries and Employee Benefits cost weights. Therefore, it is possible that hospitals are substituting some of their in-house administrative compensation costs for Home Office/Related Organization administrative compensation costs as the commenter alluded. We note that direct patient care contract labor costs are allocated to the Wages and Salaries and Employee Benefits cost weights based on their relative proportions for employed labor under the assumption that direct patient care contract labor costs are comprised of both wages and salaries and employee benefits and then these cost weights are proxied by the ECI for All Civilian Workers in Hospitals. As stated in the FY 2026 IPPS/ LTCH proposed rule (90 FR 18245 through 18246), we proposed to allocate the Home Office/Related Organization Contract Labor cost weight to the Professional Fees: Labor-Related and Professional Fees: Nonlabor- related cost weights (both of which are proxied by ECI for Total Compensation for Private Industry Workers in Professional and Related).

After consideration of public comments, we are finalizing the major cost weights without modification. We note that comments we received on the overall market basket method (including frequency of rebasings), transparency of the method, and resulting market basket updates are discussed in section IV.B.2. of the preamble of this final rule and comments on the labor-related share are discussed in section IV.B.3 of the preamble of this final rule. Table IV-01 shows the resulting proposed and final cost weights for these major cost categories of the 2023-based IPPS market basket compared to the 2018-based IPPS market basket. [GRAPHIC] [TIFF OMITTED] TR04AU25.224

From 2018 to 2023, the Wages and Salaries and Employee Benefits cost weights as calculated directly from the Medicare cost reports decreased by 1.9 percentage points and 1.5 percentage points, respectively, while the Contract Labor cost weight increased by 1.6 percentage points.

As we did for the 2018-based IPPS market basket (86 FR 45198), we proposed to allocate contract labor costs to the Wages and Salaries and Employee Benefits cost weights based on their relative proportions for employed labor under the assumption that contract labor costs are comprised of both wages and salaries and employee benefits. The contract labor allocation proportion for wages and salaries is equal to the Wages and Salaries cost weight as a percent of the sum of the Wages and Salaries cost weight and the Employee Benefits cost weight. Using the 2023 Medicare cost report data, this percentage is 79 percent. Therefore, we proposed to allocate approximately 79 percent of the Contract Labor cost weight to the Wages and Salaries cost weight and 21 percent to the Employee Benefits cost weight. The 2018-based IPPS market basket allocated 78 percent of the Contract Labor cost weight to the Wages and Salaries cost weight. We received no comments on the proposed methodology to allocate the Contract Labor cost weight to the Wages and Salaries cost weight and Employee Benefits cost weight and therefore, are finalizing this methodology without modification.

Table IV-02 shows the Wages and Salaries and Employee Benefits cost weights after contract labor allocation for the 2018-based IPPS market basket and the proposed and final 2023-based IPPS market basket. In aggregate, the Compensation cost weight (calculated using more detailed decimal places) decreased from 53.0 percent to 51.1 percent, or 1.9 percentage points. [GRAPHIC] [TIFF OMITTED] TR04AU25.225

To further divide the “All Other” residual cost weight estimated from the 2023 Medicare cost report data into more detailed cost categories, we proposed to use the 2017 Benchmark I-O, “The Use Table (Supply-Use Framework),” for NAICS 622000, Hospitals, published by the Bureau of Economic Analysis (BEA). These data are publicly available at the following website: https://www.bea.gov/industry/input-output-accounts-data. The BEA Benchmark I-O data are generally scheduled for publication every 5 years on a lagged basis, with the most recent data available for 2017. The 2017 Benchmark I-O data are derived from the 2017 Economic Census and are the building blocks for BEA's economic accounts. Therefore, they represent the most comprehensive and complete set of data on the economic processes or mechanisms by which output is produced and distributed.\148\ BEA also produces Annual I-O estimates. However, while based on a similar methodology, these estimates reflect less comprehensive and less detailed data sources and are subject to revision when benchmark data become available. Instead of using the less detailed Annual I-O data, we proposed to inflate the detailed 2017 Benchmark I-O data forward to 2023 by applying the annual price changes from the respective price proxies to the appropriate market basket cost categories that are obtained from the 2017 Benchmark I-O data and calculated the cost shares that each cost category represents using the inflated data. These resulting 2023 cost shares were applied to the residual “All Other” cost weight to obtain the detailed cost weights for the 2023-based IPPS market basket. For example, the cost for Food: Direct Purchases represents 4.0 percent of the sum of the residual “All Other” 2017 Benchmark I-O Hospital Expenditures inflated to 2023. Therefore, the Food: Direct Purchases cost weight represents 4.0 percent of the 2023-based IPPS market basket's “All Other” cost category (33.2 percent), yielding a Food: Direct Purchases proposed cost weight of 1.3 percent in the 2023-based IPPS market basket (0.040 x 33.2 percent = 1.3 percent). For the 2018-based IPPS market basket (86 FR 45198), we used the same methodology utilizing the 2012 Benchmark I-O data (aged to 2018).

\148\ https://www.bea.gov/papers/pdf/IOmanual_092906.pdf.

Using this methodology, we proposed to derive 17 detailed cost categories from the 2023-based IPPS market basket residual cost weight (33.2 percent). These categories are: (1) Fuel: Oil and Gas; (2) Electricity and Other Non-Fuel Utilities; (3) Food: Direct Purchases; (4) Food: Contract Services; (5) Chemicals; (6) Medical Instruments; (7) Rubber and Plastics; (8) Paper and Printing Products; (9) Miscellaneous Products; (10) Professional Fees: Labor-Related; (11) Administrative and Facilities Support Services; (12) Installation, Maintenance, and Repair Services; (13) All Other: Labor-Related Services; (14) Professional Fees: Nonlabor-Related; (15) Financial Services; (16) Telephone Services; and (17) All Other: Nonlabor-Related Services. We note that these are the same categories that were used in the 2018-based IPPS market basket.

We received a few specific comments on our derivation of the Professional Fees: Labor-related and Professional Fees: Nonlabor- related cost weights as they relate to the proposed labor-related share. Those comments are summarized and responded to in section IV.B.3. of the preamble of this final rule. 2. Selection of Proposed Price Proxies

After computing the 2023 cost weights for the IPPS market basket, it was necessary to select appropriate wage and price proxies to reflect the rate of price change for each expenditure category. With the exception of the proxy for professional liability insurance (PLI), all the proxies we proposed are based on Bureau of Labor Statistics (BLS) data and are grouped into one of the following BLS categories:

Producer Price Indexes--Producer Price Indexes (PPIs) measure the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services (https://www.bls.gov/ppi/).

Consumer Price Indexes--Consumer Price Indexes (CPIs) measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services (https://www.bls.gov/cpi/). CPIs are only used when the purchases are similar to those of retail consumers rather than purchases at the producer level, or if no appropriate PPIs are available.

Employment Cost Indexes--Employment Cost Indexes (ECIs) measure the rate of change in employee wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and strictly measure the change in wage rates and employee benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) as price proxies for input price indexes because they are not affected by shifts in occupation or industry mix, and because they measure pure price change and are available by both occupational group and by industry. The industry ECIs are based on the NAICS and the occupational ECIs are based on the Standard Occupational Classification System (SOC).

We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance:

Reliability. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Widely accepted statistical methods ensure that the data were collected and aggregated in a way that can be replicated. Low sampling variability is desirable because it indicates that the sample reflects the typical members of the population. (Sampling variability is variation that occurs by chance because only a sample was surveyed rather than the entire population.)

Timeliness. Timeliness implies that the proxy is published regularly, preferably at least once a quarter. The market basket levels are updated quarterly, and therefore, it is important for the underlying price proxies to be up-to-date, reflecting the most recent data available. We believe that using proxies that are published regularly (at least quarterly, whenever possible) helps to ensure that we are using the most recent data available to update the market basket. We strive to use publications that are disseminated frequently, because we believe that this is an optimal way to stay abreast of the most current data available.

Availability. Availability means that the proxy is publicly available. We prefer that our proxies are publicly available because this will help ensure that our market basket updates are as transparent to the public as possible. In addition, this enables the public to be able to obtain the price proxy data on a regular basis.

Relevance. Relevance means that the proxy is applicable and representative of the cost category weight to which it is applied.

We believe the proposed PPIs, CPIs, and ECIs selected meet these criteria. Therefore, we believe that they continue to be the best proxy of price changes for the cost categories to which they would be applied.

In this final rule, we present a detailed explanation of the price proxies that we proposed for each cost category weight.

We proposed to use the ECI for Wages and Salaries for All Civilian Workers in Hospitals (BLS series code CIU1026220000000I) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. b. Employee Benefits

We proposed to use the ECI for Total Benefits for All Civilian Workers in Hospitals to proxy the price growth of this cost category. This ECI is calculated using the ECI for Total Compensation for All Civilian Workers in Hospitals (BLS series code CIU1016220000000I) and the relative importance of wages and salaries within total compensation. This is the same price proxy used in the 2018-based IPPS market basket. c. Fuel: Oil and Gas

For the 2023-based IPPS market basket, we proposed to use a blend of the PPI Industry for Petroleum Refineries (NAICS 3241), PPI for Other Petroleum and Coal Products (NAICS 32419) and the PPI Commodity for Natural Gas. Our analysis of the Bureau of Economic Analysis' 2017 Benchmark I-O data for NAICS 622000 Hospitals shows that Petroleum Refineries expenses account for approximately 86 percent, Other Petroleum and Coal Products expenses account for about 7 percent and Natural Gas expenses account for approximately 7 percent of Hospitals' (NAICS 622000) total Fuel: Oil and Gas expenses. Therefore, we proposed to use a blend of 86 percent of the PPI Industry for Petroleum Refineries (BLS series code PCU324110324110), 7 percent of the PPI for Other Petroleum and Coal Products (BLS series code PCU32419) and 7 percent of the PPI Commodity Index for Natural Gas (BLS series code WPU0531) as the price proxy for this cost category. The 2018-based IPPS market basket used a 90/10 blend of the PPI Industry for Petroleum Refineries and PPI Commodity for Natural Gas, reflecting the 2012 I-O data (86 FR 45199). We believe that the three proposed price proxies are the most technically appropriate indices available to proxy the price growth of the Fuel: Oil and Gas cost category in the 2023-based IPPS market basket. d. Electricity and Other Non-Fuel Utilities

We proposed to use the PPI Commodity for Commercial Electric Power (BLS series code WPU0542) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. e. Professional Liability Insurance

We proposed to proxy price changes in hospital professional liability insurance premiums (PLI) using percentage changes as estimated by the CMS Hospital Professional Liability Index. To generate these estimates, we collect commercial insurance medical liability premiums for a fixed level of coverage while holding nonprice factors constant (such as a change in the level of coverage). This is the same price proxy used in the 2018-based IPPS market basket. f. Pharmaceuticals

We proposed to use the PPI Commodity for Pharmaceuticals for Human Use, Prescription (BLS series code WPUSI07003) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. g. Food: Direct Purchases

We proposed to use the PPI Commodity for Processed Foods and Feeds (BLS series code WPU02) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. h. Food: Contract Services

We proposed to use the CPI for Food Away From Home (All Urban Consumers) (BLS series code CUUR0000SEFV) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. i. Chemicals

Similar to the 2018-based IPPS market basket, we proposed to use a four-part blended PPI as the proxy for the Chemicals cost category in the 2023-based IPPS market basket. The proposed blend is composed of the PPI Industry for Industrial Gas Manufacturing, Primary Products (BLS series code PCU325120325120P), the PPI Industry for Other Basic Inorganic Chemical Manufacturing (BLS series code PCU32518-32518), the PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series code PCU32519-32519), and the PPI Industry for Other Miscellaneous Chemical Product Manufacturing (BLS series code PCU325998325998). For the 2023-based IPPS market basket, we proposed to derive the weights for the PPIs using the 2017 Benchmark I-O data. The 2018-based IPPS market basket used the 2012 Benchmark I-O data to derive the weights for the four PPIs (86 FR 45200). We did not receive comments on the proposed methodology to derive the blended Chemicals price proxy using the 2017 Benchmark I-O and therefore are finalizing this methodology without modification.

Table IV-03 shows the proposed and final weights for each of the four PPIs used to create the blended index compared to those used for the 2018-based IPPS market basket. [GRAPHIC] [TIFF OMITTED] TR04AU25.226

We proposed to use the PPI Industry for Blood and Organ Banks (BLS series code PCU621991621991) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. k. Medical Instruments

We proposed to use a blended price proxy for the Medical Instruments category, as shown in Table IV-04. The 2017 Benchmark I-O data shows the majority of medical instruments and supply costs are for NAICS 339112--Surgical and medical instrument manufacturing costs (approximately 64

percent) and NAICS 339113--Surgical appliance and supplies manufacturing costs (approximately 36 percent). To proxy the price changes associated with NAICS 339112, we proposed using the PPI Commodity for Surgical and medical instruments (BLS series code WPU1562). To proxy the price changes associated with NAICS 339113, we proposed to use a 50/50 blend of the PPI Commodity for Medical and surgical appliances and supplies (BLS series code WPU1563) and the PPI Commodity for Miscellaneous products, Personal safety equipment and clothing (BLS series code WPU1571). We proposed to include the latter price proxy as it would reflect personal protective equipment including but not limited to face shields and protective clothing. The 2017 Benchmark I-O data does not provide specific expenses for these products. However, we recognize that this category reflects costs faced by IPPS hospitals. These are the same price proxies used in the 2018- based IPPS market basket. We did not receive comments on the proposed methodology to derive the blended Medical Instruments price proxy using the 2017 Benchmark I-O data and therefore are finalizing this methodology without modification. [GRAPHIC] [TIFF OMITTED] TR04AU25.227