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

We proposed to use the PPI Commodity for Rubber and Plastic Products (BLS series code WPU07) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. m. Paper and Printing Products

We proposed to use a 61/39 blend of the PPI Commodity for Publications Printed Matter and Printing Material (BLS Series Code WPU094) and the PPI Commodity for Converted Paper and Paperboard Products (BLS series code WPU0915) to proxy the price growth of this cost category. The 2017 Benchmark I-O data shows that 61 percent of paper and printing expenses are for Printing (NAICS 323110) and the remaining expenses are for Paper manufacturing (NAICS 322). The 2018- based IPPS market basket (86 FR 45201) used the PPI Commodity for Converted Paper and Paperboard Products (BLS series code WPU0915) as this comprised the majority of expenses as reported in the 2012 Benchmark I-O data. n. Miscellaneous Products

We proposed to use the PPI Commodity for Finished Goods Less Food and Energy (BLS series code WPUFD4131) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. o. Professional Fees: Labor-Related

We proposed to use the ECI for Total Compensation for Private Industry Workers in Professional and Related (BLS series code CIU2010000120000I) to proxy the price growth of this category. It includes occupations such as legal, accounting, and engineering services. This is the same price proxy used in the 2018-based IPPS market basket. p. Administrative and Facilities Support Services

We proposed to use the ECI for Total Compensation for Private Industry Workers in Office and Administrative Support (BLS series code CIU2010000220000I) to proxy the price growth of this category. This is the same price proxy used in the 2018-based IPPS market basket. q. Installation, Maintenance, and Repair Services

We proposed to use the ECI for Total Compensation for All Civilian Workers in Installation, Maintenance, and Repair (BLS series code CIU1010000430000I) to proxy the price growth of this cost category. This is the same proxy used in the 2018-based IPPS market basket. r. All Other: Labor-Related Services

We proposed to use the ECI for Total Compensation for Private Industry Workers in Service Occupations (BLS series code CIU2010000300000I) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. s. Professional Fees: Nonlabor-Related

We proposed to use the ECI for Total Compensation for Private Industry Workers in Professional and Related (BLS series code CIU2010000120000I) to proxy the price growth of this category. This is the same price proxy that we proposed to use for the Professional Fees: Labor-Related cost category and the same price proxy used in the 2018- based IPPS market basket. t. Financial Services

We proposed to use the ECI for Total Compensation for Private Industry Workers in Financial Activities (BLS series code CIU201520A000000I) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. u. Telephone Services

We proposed to use the CPI for Telephone Services (BLS series code CUUR0000SEED) to proxy the price growth of this cost category. This is the same price proxy used in the 2018-based IPPS market basket. v. All Other: Nonlabor-Related Services

We proposed to use the CPI for All Items Less Food and Energy (BLS series code CUUR0000SA0L1E) to proxy the price growth of this cost category. We believe that using the CPI for All Items Less Food and Energy avoids double counting of changes in food and energy prices as they are already captured elsewhere in the market basket. This is the same price proxy used in the 2018-based IPPS market basket.

We received the following comments on our proposed price proxies for the 2023-based IPPS market basket.

Comment: Several commenters urged CMS to adjust its methodology for calculating the annual payment update (including the adoption of additional data elements in the IPPS market basket) to ensure it provides a robust payment update that adequately incorporates the effects of rising workforce costs on hospitals, which they believe is not being captured by the ECI used in the IPPS market basket. The commenters stated that the use of the ECI may not be adequately capturing employment

and labor cost growth. Commenters stated that CMS should identify and use data inputs that better capture these price increases--for example, incorporating more recent wage data that include contract labor expenses, which the ECI currently does not fully reflect. They stated that they continue to stand ready to work with CMS to examine the market basket compensation indices and proxies to improve the accuracy of these measures.

Response: We believe that the ECI for wages and salaries for hospital workers is accurately reflecting the price change associated with the labor used to provide hospital care. The ECI appropriately does not reflect other factors that might affect the rate of price changes associated with labor costs, such as a shift in the occupations that may occur due to increases in case-mix or shifts in hospital purchasing decisions (for instance, to hire or to use contract labor). We believe that the prices of employed staff and contract labor are influenced by the same factors and should generally grow at similar rates. In most periods when there are not significant occupational shifts or significant shifts between employed and contract labor, the data has shown that the growth in the ECI for wages and salaries for hospital workers has generally been consistent with overall hospital wage trends. For example, our more recent analysis of the Medicare cost report data shows from 2018 to 2023, the compound annual growth rate of IPPS Medicare allowable salaries, benefits and contract labor costs per hour was about 4 percent, consistent with the growth rate of the compensation price increases in the 2023-based IPPS market basket as measured by the ECIs for hospital workers over the same period. For this final rule, based on the more recent IGI second quarter 2025 forecast with historical data through the first quarter of 2025, the projected 2023-based IPPS market basket increase factor for FY 2026 reflects a projected increase in compensation prices of 3.4 percent.

After consideration of public comments, we are finalizing the price proxies for the 2023-based IPPS market basket as proposed without modification. Table IV-05 sets forth the 2023-based IPPS market basket, including the cost categories and their respective weights and price proxies. For comparison purposes, the corresponding 2018-based IPPS market basket cost weights also are listed. BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

Table IV-06 compares both the historical and forecasted percent changes in the 2018-based IPPS market basket and the final 2023-based IPPS market basket. The forecasted growth rates in Table IV-06 are based on IHS Global Inc.'s (IGI's) second quarter 2025 forecast with historical data through first quarter 2025. [GRAPHIC] [TIFF OMITTED] TR04AU25.230

The average historical percent change of the 2023-based IPPS market basket is slightly lower than the average percent change of the 2018- based IPPS market basket over the FY 2021 through FY 2024 time period. The average projected percent change of the 2023-based IPPS market basket is equal to the average percent change of the 2018-based IPPS market basket over the FY 2025 through FY 2028 time period. For FY 2026, the 2023-based IPPS market basket is projected to increase 3.3 percent, which is the same as the FY 2026 projected increase of the 2018-based IPPS market basket. This is 0.1 percentage point higher than the FY 2026 projected increase of 3.2 percent that we proposed in the FY 2026 IPPS/LTCH PPS proposed rule. We note that while there are multiple offsetting factors contributing to differences in the forecasts underlying the proposed and final rules, the final FY 2026 IPPS market basket increase is slightly higher due to economic uncertainty.

We summarize and respond to the public comments we received on the adequacy of the proposed IPPS market basket increase in section VI.B.1. of the preamble of this final rule. In this section, we summarize and respond to comments we received regarding the proposal to rebase the IPPS market basket.

Comment: A commenter appreciated CMS' efforts to rebase the IPPS market basket this year, as scheduled, but the commenter expressed concern that CMS' analyses are not fully representative of the input costs for providing care. Another commenter requested CMS rebase the market baskets more frequently and at least

every 3 years to ensure the market basket reflects the appropriate mix of services provided to Medicare beneficiaries.

Several commenters stated that the 3.2 percent market basket increase is lower than what it would have been absent the rebasing and revising of the hospital market basket. They stated that based on the growth in their costs that they expect to experience in the coming federal fiscal year, they are concerned that this rebasing has incorrectly lowered the calculated rate of growth of hospital costs.

Response: We appreciate the commenters' support for the rebasing and revising of the IPPS market basket, which we believe appropriately reflects a more recent input cost structure for IPPS hospitals for providing care. The major cost weights (accounting for about 70 percent of the proposed 2023-based IPPS operating market basket) were derived using 2023 Medicare cost report data for IPPS hospitals. We then supplement these data with Benchmark Input-Output data for NAICS 622000, Hospitals from “The Use Table (Supply-Use Framework)” to derive more detailed cost weights that reflect the complex cost structure of hospitals (reflecting costs such as compensation, food, and medical supplies/equipment). We believe both of these data sources are representative of the cost weights for IPPS hospitals providing services to Medicare beneficiaries.

As discussed in the proposed rule, as published in the FY 2006 IPPS final rule (70 FR 47403), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket. We established a rebasing frequency of every 4 years based on our evaluation of data and methods at the time of the FY 2006 IPPS final rule and we continue to believe a rebasing frequency of every 4 years is appropriate. We refer readers to the FY 2006 IPPS final rule (70 FR 47404 through 47407) for the research we conducted at the time to determine this, which included reviewing the frequency and availability of the data needed to produce the market basket and analyzing the impact on the market basket of determining the market basket weights under various frequencies. Therefore, we proposed to rebase and revise the IPPS market basket effective for the FY 2026 IPPS update since it was last rebased effective for the FY 2022 IPPS update (the base year for the cost weights is being updated from 2018 to 2023). Despite this established frequency, we regularly monitor the Medicare cost report data to assess whether a rebasing is technically appropriate, and we will continue to do so in the future.

The IPPS market basket is designed to measure price inflation for IPPS hospitals and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services. As noted by the commenters and stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18244), based on IGI's fourth quarter 2024 forecast with historical data through third quarter 2024, the proposed 2023-based IPPS market basket rate-of-increase was 0.1 percentage point lower (after rounding to a tenth of a percentage point) compared to the 2018-based IPPS market basket rate-of-increase. Based on more recent data available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the 2023-based IPPS market basket rate-of-increase with historical data through the first quarter of 2025), we estimate that the FY 2026 IPPS market basket update used to determine the applicable percentage increase is 3.3 percent (the same percentage increase of the 2018-based IPPS market basket after rounding to a tenth of a percentage point). 3. Labor-Related Share

Under section 1886(d)(3)(E) of the Act, the Secretary estimates from time to time the proportion of payments that are labor-related. Section 1886(d)(3)(E) of the Act states that the Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates. We refer to the proportion of hospitals' costs that are attributable to wages and wage-related costs as the “labor-related share.”

The labor-related share is used to determine the proportion of the national PPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. We proposed to include in the labor-related share the national average proportion of operating costs that are attributable to the following cost categories in the 2023-based IPPS market basket: Wages and Salaries, Employee Benefits, Professional Fees: Labor-Related, Administrative and Facilities Support Services, Installation, Maintenance, and Repair Services, and All Other: Labor-Related Services, as we did in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45204).

Similar to the 2018-based IPPS market basket, for the 2023-based IPPS market basket we proposed to classify expenses into the Professional Fees: Labor-Related cost category using the Benchmark I-O data, and then for this rebasing supplement these estimates with data obtained from the Medicare hospital cost report regarding the proportion of expenses classified as professional fees (for example, advertising, legal services, accounting and auditing, engineering, and management consulting) that are purchased within the local area labor market. The 2018-based IPPS market basket (86 FR 45204 through 45205) used a survey of hospitals conducted by CMS in 2008 (OMB Control Number 0938-1036) to supplement the Benchmark I-O data and determine this proportion. Effective for transmittal 18 (https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r18p240i, the hospital Medicare cost report (CMS Form 2552-10, OMB No. 0938-0050) Worksheet S-2, Part I collects information on whether a hospital purchased professional services (for example, legal, accounting, tax preparation, bookkeeping, payroll, advertising, and management/ consulting services or both) from an unrelated organization and if the majority of these expenses were purchased from unrelated organizations located outside of the main hospital's local area labor market.

For the 2023-based IPPS market basket, we proposed to determine the proportion of expenses classified as professional fees that meet our definition of labor-related services based on the Medicare cost report data. Based on these data, approximately 73 percent of IPPS hospitals (approximately 2,100) purchased professional services from an unrelated organization in 2023 as reported on Worksheet S-2, Part I, column 1, line 123 (that is, answered Yes) and also indicated whether the majority of these expenses are purchased outside their local labor market (reported Yes or No on Worksheet S-2, Part I, column 2, line 123). Of those hospitals, 37 percent of them purchased the majority of these expenses from unrelated organizations located in a CBSA outside of the main hospital CBSA as reported on Worksheet S-2, Part I, column 2, line 123. For these reporters (which accounted for 32 percent of total Medicare allowable operating costs) that indicated they purchased the majority of these services outside of the local labor market, we need to estimate a specific proportion of these services that are purchased inside the local labor market. For these reporters, we use 25 percent

(the median of 1 percent to 49 percent range) to estimate the proportion of these services that are purchased inside of the local labor market. For the remaining reporters (which accounted for 68 percent of total Medicare allowable operating costs) that indicated they purchased the majority of these services inside the local labor market we use 75 percent (the median of 51 percent to 100 percent). To estimate the overall proportion of expenses classified as professional fees that meet our definition of labor-related services (that is, reflects services purchased inside of the local labor market), for the first group of reporters we multiply 32 percent times 25 percent, which yields an estimate of 8 percent, and for the second group of reporters multiply 68 percent times 75 percent, which yields an estimated proportion of 51 percent. Combining these two measures yields 59 percent (8 percent plus 51 percent), which reflects the overall proportion of total Medicare allowable operating expenses that are purchased inside the local labor market and will be reflected in our labor-related measure. Therefore, we proposed to allocate 59 percent of the Benchmark I-O expenses classified as professional fees to estimate Professional Fees: Labor-Related cost weight, and 41 percent of the Benchmark I-O expenses classified as professional fees to estimate Professional Fees: Nonlabor-Related cost weight.

In the 2023-based IPPS market basket, expenses classified as professional fees that are subject to allocation represent approximately 9.8 percent of total operating costs. Based on the Medicare cost report results, we proposed to apportion 5.8 percentage points of the 9.8 percentage point figure into the Professional Fees: Labor-Related cost category (59 percent of 9.8 percent) and designate the remaining approximately 4.0 percentage points into the Professional Fees: Nonlabor-Related cost category (41 percent of 9.8 percent). We note that in the 2018-based IPPS market basket given the data available from the 2008 survey, we classified some expenses from the 2012 Benchmark I-O data as Professional Fees: Labor-Related, some expenses as Professional Fees: Nonlabor-Related, and some expenses as professional fees subject to allocation based on the survey. We then applied the 2008 survey results to the following specific categories of expenses: Legal services, Accounting, tax preparation, bookkeeping, and payroll services, Architectural, engineering and related services, and Management consulting services. However, for the 2023-based IPPS market basket, we proposed to revise the methodology to now use the data as reported on the Medicare cost reports (Worksheet S-2, Part I) to allocate all of the expenses we proposed to classify as professional fees costs from the 2017 Benchmark I-O data. The impact of this proposed change is an increase in the 2023-based Professional Fees: Labor-Related cost weight of about 1 percentage point.

In addition to the professional services listed earlier, we also classify a proportion of the Home Office/Related Organization Contract Labor cost weight into the Professional Fees: Labor-Related cost category as was done in the previous rebasing. We believe that many of these costs are labor-intensive and vary with the local labor market. However, data indicate that not all IPPS hospitals with home offices have home offices located in their local labor market. Therefore, we proposed to include in the labor-related share only a proportion of the Home Office/Related Organization Contract Labor cost weight based on the methodology described in this final rule.

For the 2023-based IPPS market basket, based on Medicare cost report data, we found that approximately 71 percent of IPPS hospitals reported some type of home office information on their Medicare cost report for 2023 (for example, city, State, and zip code). Using the data reported on the Medicare cost report, we compared the location of the hospital with the location of the hospital's home office. We then determined the proportion of home office/related organization contract labor cost that should be allocated to the labor-related share based on the percent of the home office/related organization contract labor costs for those hospitals that had home offices located in their respective local labor markets--defined as being in the same MSA. We determined a hospital's and home office's MSAs using their zip code information from the Medicare cost report.

Based on these data, we determined the proportion of costs that should be allocated to the labor-related share based on the percent of hospital home office/related organization contract labor costs (equal to the sum of Worksheet S-3, Part II, column 4, lines 14.01, 14.02, 25.50, and 25.51). Using this methodology, we determined that 62 percent of hospitals' home office compensation costs were for home offices located in their respective local labor markets. Therefore, we proposed to allocate 62 percent of Home Office/Related Organization Contract Labor cost weight to the labor-related share. The 2018-based IPPS market basket used a 60 percent proportion, which was based on the same methodology and the 2018 Medicare cost report data.

In the 2023-based IPPS market basket, the Home Office/Related Organization Contract Labor cost weight that is subject to allocation based on the home office allocation methodology represented 6.7 percent of total operating costs. Based on the results of the home office analysis, as previously discussed, we apportioned approximately 4.2 percentage points of the 6.7 percentage points figure into the Professional Fees: Labor-Related cost category and designated the remaining approximately 2.6 percentage points into the Professional Fees: Nonlabor-Related cost category.\149\ In summary, based on the two previously mentioned allocations, we apportioned 10.0 percentage points (sum of the professional fees (5.8 percentage points) and Home Office/ Related Organization Contract Labor cost weight (4.2 percentage points)) into the Professional Fees: Labor-Related cost category. Using these two methods, we then apportion 6.6 percentage points (sum of the professional fees (4.0 percentage points) and Home Office/Related Organization Contract Labor cost weight (2.6 percentage points)) to the Professional Fees: Nonlabor-related cost category to be included with other costs classified as Professional Fees: Nonlabor-Related (approximately 0.4 percentage point), resulting in a Professional Fees: Nonlabor-related cost weight of 7.0 percent. The resulting 2023-based Professional Fees: Labor-related cost weight is about 1.4 percentage points higher than the 2018-based Professional Fees: Labor-related cost weight.

\149\ Note: The cost weights are calculated using 3 decimal places. For presentational purposes, we are displaying one decimal and therefore, the detail may not add to the total due to rounding.

Using the proposed 2023-based IPPS market basket cost weights, we derived a proposed labor-related share of 66.0 percent based on the proposed 2023-based IPPS market basket. We summarize and respond to the public comments we received on our proposed methodology for deriving the proposed labor-related share for FY 2026 here.

Comment: A commenter was supportive of the proposed update to the labor-related share and encouraged CMS to review the labor-related share of all states to ensure that the labor proportion is accurate to current costs incurred by hospitals. Several commenters were concerned about the downward adjustment of the labor-related share from 67.6 percent to 66

percent in FY 2026 stating that they believe it does not reflect hospital labor and non-labor cost pressures. They stated that per- discharge labor costs have dramatically increased in recent years, citing that according to one study, 37 percent from 2019 to 2022.

A few commenters noted the labor-related share has declined in five of the last six rebasings of the hospital market basket. The commenters stated that this continued decline only negatively impacts hospitals with a wage index over 1.0 without a clearly delineated budget neutrality adjustment to ensure overall Medicare hospital reimbursement is maintained. The commenters stated that given the current healthcare workforce crisis and the growing wage demands on hospitals, labor costs as a share of total hospital costs have grown since the 2018 base year, not declined.

A few commenters stated that they understood the need for rebasing the labor share but requested that CMS release additional information on how it arrived at its proposed estimate for the national labor- related share for FY 2026. Commenters stated that to accurately replicate and verify the labor related share, they requested CMS publish a table of their intermediate steps reflective of the numerators and denominators utilized in each cost category and calculation step. These commenters requested CMS include the dollar values used to calculate the percentage of each cost category.

A commenter stated that the proposed reduction in the national labor-related share could lead to lower payments for hospitals with higher wage indexes, as a smaller share of the payment rate will reflect local labor costs. Accordingly, the commenter requested that CMS, at a minimum, reconsider labor expense calculations to provide a more appropriate update based on growing and unsustainable costs.

Response: The purpose of the labor-related share is to reflect the proportion of the national IPPS standardized amount that is adjusted by the hospital's wage index (representing the relative costs of their local labor market to the national average). We proposed to derive the labor-related share using the 2023-based IPPS market basket, reflecting average national cost weights for IPPS hospitals. As stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18239), for each cost weight included in the 2023-based IPPS market basket we utilized reported data from all IPPS hospitals reporting Medicare IPPS payments and facility operating costs with proposed trims to the data to remove outliers. For each of the cost weights, we evaluated the distribution of providers and costs by ownership-type and by urban/rural status to make sure they were nationally representative.

We appreciate the commenters' request to explain the decrease in the labor-related share in more detail. The decrease in the labor- related share from 67.6 percent to 66.0 percent is primarily due to the lower compensation cost weight (calculated using the Medicare cost report data) in the 2023-based IPPS market basket (51.1 percent) compared to the compensation cost weight in the 2018-based IPPS market basket (53.0 percent) as these costs increased at a slower rate than total operating costs. Our analysis of the Medicare cost report data showed that on a per inpatient day basis, compensation costs, which largely reflect direct patient care salaries, grew by about 4 percent per year from 2018 to 2023 while total operating costs grew by about 5 percent per year. The slower growth in compensation costs also reflected slower growth in employee benefit costs (particularly qualified defined benefit plan costs) and overhead employee salaries at about 3 percent per year. Contract labor costs for direct patient care, on the other hand, offset some of this experience as costs grew nearly 18 percent per year over this same period. For noncompensation costs, which grew nearly 6 percent per year from 2018-2023, key contributors were costs for home office contract labor (about 8 percent growth per year) and pharmaceuticals (about 6 percent growth per year). Consistent with some of the commenter's findings, our analysis of the Medicare cost report data shows that compensation costs have been increasing at a faster rate between the 2018 to 2023 time period compared to the prior 4-year period; however, these compensation costs have been growing slower than noncompensation costs, which results in a decrease in the compensation cost weight. In addition, from 2018 to 2023, we have seen faster growth in the Professional Fees costs and Home Office/ Related Organization costs resulting in an increase in the professional fees cost weights and Home Office/Related Organization cost weight, which are partially offsetting the decrease in compensation cost weight as shown in Table IV-05.

In response to commenters' request for additional information on the methodology for calculating the labor related share, as stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18240), we derive the Professional Fees cost weight using the 2017 Benchmark I-O, “The Use Table (Supply-Use Framework),” for NAICS 622000, Hospitals, published by the Bureau of Economic Analysis (BEA). First, to obtain an amount for the Professional Fees costs subject to the allocation percentage from the Medicare cost reports, we calculated the sum of I-O expenses for Professional, Scientific, and Technical Services (NAICS 54) excluding Veterinary services (which we include in the Professional Fees: Nonlabor-Related), I-O expenses for Business Support Services (NAICS 5614), Data Processing, Hosting and Related services (NAICS 5182) and I-O expenses for Lessors of Nonfinancial Intangible Assets (NAICS 533). In addition, we also are adding in 34 percent of Employment Services (NAICS 5613) as Census and BEA data indicate that these expenses reflect more than just direct patient care contract labor (which we directly obtain from Worksheet S-3, Part II, column 4, lines 11, 13, and 15 from the Medicare cost report as noted in the proposed rule). The sum of these costs reflect total Professional Fees from the 2017 Benchmark I-O data that are subject to the allocation percentage from the Medicare cost reports, or 30.2 percent of total “All Other” costs from the 2017 Benchmark I-O data. The “All Other” costs are equal to the sum of the Benchmark I-O data for the detailed cost categories as described in section IV.B.c. of the preamble of the FY 2026 IPPS/LTCH proposed rule.

Second, 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 (for instance, for the Professional Fees category we applied the growth in the ECI for Total Compensation for Private industry workers in Professional and Related). After inflating the 2017 costs to 2023 and calculating the cost shares we determined that the resulting cost share was 29.5 percent of “All Other” costs in 2023 dollars.

Third, these resulting 2023 cost shares were applied to the residual “All Other” cost weight to obtain the detailed cost weights for the proposed 2023-based IPPS market basket. For example, we apply the Professional Fees cost share (29.5 percent of total “All Other” costs) to the residual “All Other” cost weight of 33.2 percent, resulting in a total Professional Fees cost weight from the Benchmark I-O data of approximately 9.8 percent of the 2023-based IPPS market basket.

Lastly, this is then allocated between Professional Fees: Labor- Related and Professional Fees: Nonlabor-Related as

described later in this section. As stated in the FY 2026 IPPS/LTCH proposed rule (90 FR 18245) for the 2018-based IPPS market basket given the data available from the 2008 survey, we classified some expenses from the 2012 Benchmark I-O data as Professional Fees: Labor-Related, some expenses as Professional Fees: Nonlabor-Related, and some expenses as professional fees subject to allocation based on the survey. We then applied the 2008 survey results to the following specific categories of expenses: Legal services, Accounting, tax preparation, bookkeeping, and payroll services, Architectural, engineering and related services, and Management consulting services (all of which are reported in NAICS 54). However, for the 2023-based IPPS market basket, since we proposed to revise the methodology to use the data as reported on the Medicare cost reports (Worksheet S-2, Part I), we proposed to apply the allocation percentage of 59 percent obtained from the Medicare cost reports to all of the professional fees costs we identified from the 2017 Benchmark I- O data as described previously. This proposal to apply the percentage to all of the professional fees costs is a result of the revised scope of expenses captured in the question when we switched to using the Medicare cost report data. Specifically, the professional fees question on Worksheet S-2, Part I of the Medicare cost report stated a wider range of types of costs as an example (legal, accounting, tax preparation, bookkeeping, payroll, advertising, and management/ consulting services) while the survey conducted by CMS in 2009 was more limited and had specific questions for each type of cost (legal services, accounting and auditing, engineering, and management consulting). The impact of this proposed methodology change in order to be consistent with the Medicare cost report professional fees question is an increase in the proposed 2023-based Professional Fees: Labor- Related cost weight of about 1 percentage point.

For even greater transparency, as requested by the commenter, we are posting a table providing the calculations of the detailed cost category weights for the 2023-based IPPS market basket using the publicly available I-O data. This table along with other market basket information can be found at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information.

We believe it is technically appropriate to update the labor- related share to reflect the cost structures of IPPS hospitals from the 2023-based IPPS market basket rather than continue to use the less recent 2018-based IPPS market basket.

Comment: A few commenters were grateful that CMS proposed to use Medicare cost report data to inform the determination of the proportion of expenses classified as professional fees that are purchased within the local area labor market rather than relying on survey data as had been done in previous calculations of the labor-related share. However, the commenters were disappointed that CMS has not revised the calculation to reflect that professional fees purchased outside the local area labor market are also “related to, influenced by, or vary with the local market.” They believe the cost of professional fees purchased outside of the hospital's local area market should be considered labor-related, because providers of these professional services must adjust their pricing to reflect what local markets are able to bear. Commenters stated that an accounting firm will not necessarily charge a hospital located in a major urban area the same that it would charge a hospital in a small rural area for the same services. Several commenters recommended CMS increase the labor-related portion of professional fees from 59 percent (which reflects CMS's estimate of the proportion of professional fees purchased within hospitals' local area labor markets) to a higher percentage. Another commenter stated that CMS should revise its methodology for rebasing the labor-related share, to account for the geographic wage variation inherent in all non-clinical professional services costs.

Response: We appreciate the commenters' support to use the Medicare cost report data to determine the proportion of professional fees that are purchased in the local labor market.

However, we disagree that the proportion of professional fees services costs purchased by hospitals outside the local area labor market should be included in the labor-related share. The labor-related share of the IPPS standardized amount is adjusted to account for geographic differences in area wage levels by applying the applicable IPPS wage index. The purpose of the labor-related share is to reflect the proportion of the national IPPS standardized amount that is adjusted by the hospital's wage index (representing the relative costs of their local labor market to the national average). Therefore, we include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market.

As acknowledged by the commenter and confirmed by the Medicare cost report data for IPPS hospitals, professional services can be purchased from local firms as well as national and regional professional services firms. It is not necessarily the case, as asserted by the commenter, that these national and regional firms have fees that match those in the local labor market even though providers have the option to utilize those firms. That is, fees for services purchased from firms outside the local labor market may differ from those that would be purchased in the local labor market for any number of reasons (including but not limited to, the skill level of the contracted personnel, higher capital costs, etc.). We believe it is reasonable to conclude that the 59 percent of those Professional Fees costs purchased directly within the local labor market are directly related to local labor market conditions and, thus, should be included in the labor-related share. The remaining approximately 41 percent of Professional Fees costs, which are purchased outside the local labor market, reflect different and additional factors outside the local labor market and, thus, should be excluded from the labor-related share. In addition, we note the compensation costs of professional services provided by hospital employees (which would reflect the local labor market) are included in the labor-related share as they are included in the Wages and Salaries and Employee Benefits cost weights. Therefore, for the reasons discussed, we believe our proposed methodology of continuing to allocate only a portion of Professional Fees to the Professional Fees: Labor-Related cost category is appropriate.

After consideration of public comments, we are finalizing the rebasing of the 2023-based IPPS market basket without modification and the derivation of a labor-related share of 66.0 percent based on the final 2023-based IPPS market basket. Table IV-07 presents a comparison of the proposed and final 2023-based labor-related share and the 2018- based labor-related share. As discussed in section IV.B.1.b. of the preamble of this final rule, the Wages and Salaries and Employee Benefits cost weights reflect contract labor costs.

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Using the cost category weights from the 2023-based IPPS market basket, we calculated a labor-related share of 66.0 percent, 1.6 percentage points lower than the current labor-related share of 67.6 percent. This downward revision to the labor-related share is primarily the result of incorporating the more recent 2023 Medicare cost report data for Wages and Salaries, Employee Benefits, and Contract Labor costs. This is partially offset by an increase in the Professional Fees: Labor-Related cost weight.

Therefore, we proposed and are finalizing a labor-related share of 66.0 percent based on the 2023-based IPPS market basket. We continue to believe, as we have stated in the past, that these operating cost categories are related to, influenced by, or vary with the local markets. Therefore, our definition of the labor-related share continues to be consistent with section 1886(d)(3) of the Act. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless 62 percent would result in lower payments to a hospital than will otherwise be made.

As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, and RNHCIs.

Consistent with the regulations at Sec. Sec. 412.23(g) and 413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage increase in the IPPS operating market basket to update target amounts for short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. In the FY 2018 IPPS/LTCH PPS final rule, we rebased and revised the IPPS operating market basket to a 2014 base year, effective for FY 2018 and subsequent fiscal years (82 FR 38158 through 38175), and finalized the use of the percentage increase in the 2014-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2018 and subsequent fiscal years. Effective for the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and revised the IPPS operating market basket to a 2018 base year. Therefore, we used the percentage increase in the 2018-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal years.

As discussed in this section IV. of the preamble of this final rule, we proposed and are finalizing to rebase and revise the IPPS operating market basket to a 2023 base year. We continue to believe that it is appropriate to use the increase in the IPPS operating market basket to update the target amounts for these excluded facilities, as discussed in prior rulemaking. Therefore, we proposed to use the percentage increase in the 2023-based IPPS operating market basket to update the target amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa for FY 2026 and subsequent fiscal years. Accordingly, for FY 2026, the rate-of increase percentage to be applied to the target amount for these hospitals would be the FY 2026 percentage increase in the 2023-based IPPS operating market basket.

We received no comments on this proposal and therefore are finalizing this proposal without modification.

The CIPI was originally described in the FY 1993 IPPS final rule (57 FR 40016). There have been subsequent discussions of the CIPI presented in the IPPS proposed and final rules. The FY 2022 IPPS/LTCH PPS final rule (86 FR 45208 through 45213) described the most recent rebasing and revising of the CIPI to a 2018 base year, which reflected the capital cost structure of IPPS hospitals available at that time.

Effective for FY 2026, we proposed to rebase and revise the CIPI to a 2023 base year to reflect a more current structure of capital costs for IPPS hospitals. This 2023-based CIPI was derived using data from the 2023 cost reports for IPPS hospitals, which includes providers whose cost reporting period began on or after October 1, 2022, and prior to September 30, 2023. We also proposed to start with the same subset of Medicare cost reports from IPPS hospitals as previously described in section IV.B.1.a. of the preamble of this final rule. As with the 2018-based index, we proposed to develop two sets of weights to derive the 2023-based CIPI. The first set of weights identifies the proportion of hospital capital expenditures attributable to each expenditure category, while the second set of weights is a set of relative vintage weights for depreciation and interest. The set of vintage weights is used to identify the proportion of capital expenditures within a cost category that is attributable to each year over the

useful life of the capital assets in that category. A more thorough discussion of vintage weights is provided later in this section.

Using 2023 Medicare cost reports (CMS Form 2552-10, OMB Control number 0938-0050), we are able to obtain capital costs for the following categories: Depreciation, Interest, Lease, and Other. Specifically, we proposed to determine what proportion of total capital costs that each category represents using the data reported by IPPS hospitals on Worksheet A-7, Part III. We proposed that Depreciation costs are equal to the sum of Worksheet A-7, Part III, column 9, lines 1 and 2. We proposed that Interest costs are equal to the sum of Worksheet A-7, Part III, column 11, lines 1 and 2. We proposed that Lease costs are equal to the sum of Worksheet A-7, Part III, column 10, lines 1 and 2. We proposed that Other costs are equal to the sum of Worksheet A-7, Part III, columns 12 through 14, lines 1 and 2. We proposed that Total Capital costs are equal to the sum of Worksheet A- 7, Part III, column 15, lines 1 and 2. We proposed to derive cost weights for each IPPS hospital for each CIPI cost category by calculating the ratio of the costs reported for each cost category (for example, Depreciation) to Total Capital costs. Finally, we proposed to apply a set of simultaneous trims based on these derived cost weights to remove outliers. Specifically, we proposed to only include cost reports for providers where their Depreciation cost weight is between 25 percent and 90 percent; Interest cost weight is between 0 and 75 percent, Lease cost weight is between 0 and 50 percent and Total Capital costs are greater than zero and less than Total Facility Costs reported on Worksheet B, Part I, column 26, line 202. The trimming process is done simultaneously on each cost category so that if a cost weight is outside the specific range for one or more of the cost weight criteria mentioned, the provider is excluded from the sample. We note that these proposed trimming methods are the same types of edits performed for the 2018-based CIPI. We then proposed to sum the costs for each cost category (Depreciation, Interest, Lease, and Other) and divide each sum by the sum of Total Capital costs for this same set of IPPS hospitals. The ratio of the total costs for each category to the sum of Total Capital costs represents the cost weight for each of the Depreciation, Interest, Lease and Other cost categories. This is the same methodology as was used for the 2018-based CIPI. As shown in the left column of Table IV-08, in 2023 depreciation expenses accounted for 67.2 percent of total capital costs, interest expenses accounted for 15.2 percent, leasing expenses accounted for 11.6 percent, and other capital expenses accounted for 6.0 percent.

We also proposed to allocate lease costs across each of the remaining capital cost categories as was done in the 2018-based CIPI. We proposed to proportionally distribute leasing costs among the cost categories of Depreciation, Interest, and Other, reflecting the assumption that the underlying cost structure of leases is similar to that of capital costs in general. As was done for the 2018-based CIPI, we proposed to assume that 10 percent of the lease costs as a proportion of total capital costs represents overhead and to assign those costs to the Other capital cost category accordingly. Therefore, we are assuming that approximately 1.2 percent (11.6 percent x 0.1) of total capital costs represent lease costs attributable to overhead, and we proposed to add this 1.2 percent to the 6.0 percent Other cost category weight. We then proposed to distribute the remaining lease costs (10.4 percent, or 11.6 percent-1.2 percent) proportionally across the three cost categories (Depreciation, Interest, and Other) based on the proportion that these categories comprise of the sum of the Depreciation, Interest, and Other cost categories (excluding lease expenses). For example, the Other cost category represented 6.7 percent of all three cost categories (Depreciation, Interest, and Other) prior to any lease expenses being allocated. This 6.7 percent is applied to the 10.4 percent of remaining lease expenses so that another 0.7 percent of lease expenses as a percent of total capital costs is allocated to the Other cost category. Therefore, the resulting proposed Other cost weight is 7.8 percent (calculated using unrounded numbers, which is approximately equal to 6.0 percent + 1.2 percent + 0.7 percent). This is the same methodology used for the 2018-based CIPI.

We did not receive any comments on the proposed methodology to derive the cost weights of the 2023-based CIPI and therefore are finalizing this methodology without modification. The resulting cost weights of the allocation of lease expenses are shown in the right column of Table IV-08. [GRAPHIC] [TIFF OMITTED] TR04AU25.232

Finally, we proposed to further divide the Depreciation and Interest cost categories. We proposed to separate the Depreciation cost category into the following two categories: (1) Building and Fixed Equipment and (2) Movable Equipment. We also proposed to separate the Interest cost category into the following two categories: (1) Government/Nonprofit; and (2) For-profit. These are the same categories used for the 2018-based CIPI.

To disaggregate the depreciation cost weight, we needed to determine the percent of total depreciation costs for IPPS hospitals (after the allocation of lease costs) that are attributable to building and fixed equipment, which we hereafter refer to as the “fixed percentage.” After applying the trim requiring that the Depreciation cost weight is between 25 percent and 90 percent as described previously, for the providers remaining, we calculate the fixed percentage as the ratio of the sum of building and fixed equipment depreciation (Worksheet A-7, Part III,

column 9, line 1) to the sum of total depreciation (sum of Worksheet A- 7, Part III column 9, lines 1 and 2). Based on the 2023 IPPS Medicare cost reports, we have determined that depreciation costs for building and fixed equipment account for approximately 52 percent of total depreciation costs, while depreciation costs for movable equipment account for approximately 48 percent of total depreciation costs. This is the same methodology used for the 2018-based CIPI. As was done for the 2018-based CIPI, we proposed to apply this fixed percentage to the depreciation cost weight (after leasing costs are included) to derive a Depreciation cost weight attributable to Building and Fixed Equipment and a Depreciation cost weight attributable to Movable Equipment.

To disaggregate the Interest cost weight, we needed to determine the percent of total interest costs for IPPS hospitals that are attributable to government and nonprofit facilities, which we hereafter refer to as the “nonprofit percentage,” because interest price pressures tend to differ between nonprofit and for-profit facilities. After applying the trim requiring that the Interest cost weight is between 0 percent and 75 percent as described previously, for the providers remaining, we calculate the nonprofit percentage as the ratio of the sum of interest costs (Worksheet A-7, Part III, column 11, lines 1 and 2) for government and nonprofit facilities to the sum of total interest costs for all facilities. This is the same methodology used for the 2018-based CIPI. The nonprofit percentage determined using this method is 91 percent.

We did not receive any comments on the proposed methodology to disaggregate the Depreciation and Interest cost weights of the 2023- based CIPI and therefore are finalizing this methodology without modification.

Table IV-09 provides a comparison of the 2018-based CIPI cost weights and the proposed and final 2023-based CIPI cost weights. After the capital cost category weights were computed, it was necessary to select appropriate price proxies to reflect the rate-of-increase for each expenditure category. We proposed to use the same price proxies as were used in the 2018-based CIPI, which are listed in Table IV-09. We also proposed to continue to vintage weight the capital price proxies for Depreciation and Interest to capture the long-term consumption of capital. This vintage weighting method is the same general method that was used for the 2018-based CIPI (with a proposed change to the data source used to derive the vintage weights) and is described later in this section of this final rule.

For the Depreciation--Building and Fixed Equipment cost category, we proposed to continue to use the BEA Chained Price Index for Private Fixed Investment in Structures, Nonresidential, Hospitals and Special Care (BEA Table 5.4.4. Price Indexes for Private Fixed Investment in Structures by Type) as the price proxy. This BEA index is intended to capture prices for construction of facilities such as hospitals, nursing homes, hospices, and rehabilitation centers. For the Depreciation--Movable Equipment cost category, we proposed to continue to use the PPI Commodity for Machinery and Equipment (BLS series code WPU11) as the price proxy. This price index reflects price inflation associated with a variety of machinery and equipment that will be utilized by hospitals including but not limited to communication equipment, computers, and medical equipment. For the Nonprofit Interest cost category, we proposed to continue to use the average yield on domestic municipal bonds (Bond Buyer 20-bond index) as the price proxy. For the For-profit Interest cost category, we proposed to continue to use the iBoxx AAA Corporate Bond Yield index as the price proxy. For the Other capital cost category (including insurances, taxes, and other capital-related costs), we proposed to continue to use the CPI for Rent of Primary Residence (All Urban Consumers) (BLS series code CUUS0000SEHA) as the price proxy. We believe that these price series continue to be the most appropriate proxies for IPPS capital costs that meet our selection criteria of relevance, timeliness, availability, and reliability.

We did not receive any comments on our proposed price proxies for the 2023-based CIPI and therefore are finalizing without modification. [GRAPHIC] [TIFF OMITTED] TR04AU25.233

Because capital is acquired and paid for over time, capital expenses in any given year are determined by both past and present purchases of physical and financial capital. The vintage-weighted 2023- based CIPI is intended to capture the long-term consumption of capital, using vintage weights for depreciation (physical capital) and interest (financial

capital). These vintage weights reflect the proportion of capital purchases attributable to each year of the expected life of building and fixed equipment, movable equipment, and interest.

Vintage weights are an integral part of the CIPI. Capital costs are inherently complicated and are determined by complex capital purchasing decisions, over time, based on such factors as interest rates and debt financing. In addition, capital is depreciated over time instead of being consumed in the same period it is purchased. By accounting for the vintage nature of capital, we are able to provide an accurate and stable annual measure of price changes. Annual nonvintage price changes for capital are unstable due to the volatility of interest rate changes and, therefore, do not reflect the actual annual price changes for IPPS capital costs. The CIPI reflects the underlying stability of the capital acquisition process.

To calculate the vintage weights for depreciation and interest expenses, we first needed a time series of capital purchases for building and fixed equipment and movable equipment. We found no single source that provides an appropriate time series of capital purchases by hospitals for all of the components of capital purchases previously noted. For the 2018-based CIPI, we calculated capital purchases using data on total expenses from the American Hospital Association (AHA) for the years 1964 through 2018 and the method was described in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45210). The data from AHA are no longer available beyond 2020 and, therefore, for the 2023-based CIPI, we proposed to use an alternative data source for deriving the capital purchases needed to calculate the vintage weights. Specifically, we proposed to obtain a time series of building and fixed equipment acquisitions (that is, purchases) and movable equipment acquisitions using two different data sources. For the years 1996 through 2023, we proposed to use data from Worksheet A-7 on the Medicare cost report as reported by IPPS hospitals (with the exception of 2002 through 2004 due to the temporary discontinuation of Worksheet A-7 from the Medicare cost report in those years). For the years 1977 through 1995 we proposed to use the growth rates in the building and fixed equipment and movable equipment acquisitions derived using our previous method used for the 2018-based CIPI (based on AHA data) to extrapolate the levels from the Medicare cost report back in time. We provide the proposed steps for calculating capital acquisitions (that is, capital purchases) used to derive the vintage weights for the 2023-based CIPI.

Step 1--We obtain data from Worksheet A-7 of the Medicare cost reports and apply basic trims. Specifically, for 1996 through 2010 we use the CMS Form 2552-96, OMB Control number 0938-0050 and for 2010 through 2023 we use the CMS Form 2552-10, OMB Control number 0938-0050 (where 2010 data were collected using both forms). Specific cost report references in this discussion are based on the CMS Form 2552-10, OMB Control number 0938-0050. For each of the years 1996 through 2001 and 2005 through 2023, we proposed to apply a set of general trims based on data obtained from Worksheet A-7 requiring that total capital costs (sum of Worksheet A-7, part III, column 15, lines 1 and 2) are greater than zero; beginning values of building and fixed equipment (sum of Worksheet A-7, part I, column 1, lines 2 through 5) and movable equipment (sum of Worksheet A-7, part I, column 1, lines 6 and 7) are greater than zero; ending asset values of building and fixed equipment and movable equipment are greater than zero; building and fixed equipment depreciation is greater than zero; movable equipment depreciation is greater than zero; building and fixed equipment acquisitions are greater than zero; movable equipment acquisitions are greater than zero as well as total facility costs (Worksheet B, part I, column 26, line 202) are greater than zero.

In addition to these basic edits, we also proposed to remove outliers in the data by trimming separately the top and bottom 1 percent building and fixed equipment useful lives and top and bottom 1 percent movable equipment useful lives. We first calculate the building and fixed equipment useful life and movable equipment useful life for each hospital for the years 1996 through 2001 and 2005 through 2023. The expected life of any asset can be determined by dividing the value of the asset (excluding fully depreciated assets) by its current year depreciation amount. This calculation yields the estimated expected life of an asset if the rates of depreciation were to continue at current year levels, assuming straight-line depreciation. We proposed to calculate the building and fixed equipment useful life as the ending value of fixed assets (sum of Worksheet A-7, part I, column 6, lines 2 through 5, less sum of Worksheet A-7, part I, column 7, lines 2 through 5) divided by fixed asset depreciation (Worksheet A-7, part III, column 9, line 1). We proposed to calculate the movable equipment useful life as the ending value of movable assets (sum of Worksheet A-7, part I, column 6, lines 6 through 7, less sum of Worksheet A-7, part I, column 7, lines 6 through 7) divided by movable depreciation (Worksheet A-7, part III, column 9, line 2). For the remaining hospitals (after applying the top and bottom 1 percent trim on useful lives), we obtain a time series of building and fixed equipment acquisitions (sum of Worksheet A-7, part I, columns 2 and 3, lines 2 through 5) and a time series of movable equipment acquisitions (sum of Worksheet A-7, part I, columns 2 and 3, lines 6 through 7).

Step 2--Due to the temporary discontinuation of Worksheet A-7 from the Medicare cost reports for the years 2002 through 2004, we need to derive the building and fixed equipment acquisitions and movable equipment acquisitions using a slightly different methodology. First, for each of the years 1996 through 2001 and 2005 through 2023 we calculate the annual ratio of the sum of building and fixed equipment acquisitions from Worksheet A-7 to the sum of building and fixed equipment ending asset values from Worksheet G. We next estimate these fixed ratios for 2002 through 2004 (when Worksheet A-7 data are not available) by straight-line interpolating the ratios between 2001 and 2005. Finally, we multiply these fixed ratios for 2002 through 2004 by the total ending building and fixed equipment asset values (as reported on Worksheet G). This results in an estimate of building and fixed equipment acquisitions for the years 2002 through 2004. We use this same methodology to derive movable equipment acquisitions using the movable equipment data. We note that the total ending asset values from Worksheet G are calculated after the application of a set of general trims (similar to those in Step 1) requiring total capital costs to be greater than zero and ending asset values of building and fixed equipment and movable equipment (as reported on Worksheet G) to be greater than zero.

Step 3--As done with prior vintage weights (including those used in the 2018-based CIPI), we proposed to use a time series of capital acquisitions of more than 50 years in the derivation of the vintage weights. Since we only have Medicare cost report data back to 1996, we proposed to derive capital acquisitions for the prior period based on the capital acquisitions used to derive the vintage weights for the 2018-based CIPI based on AHA data. Specifically, beginning with the 1996

acquisition level derived in Step 1 (first year of data available from the Medicare cost reports) we proposed to apply the growth rate of acquisitions derived using the prior method going back to 1977. We do this separately for both building and fixed equipment acquisitions and movable equipment acquisitions.

As done in prior CIPI rebasings (including the 2018-based CIPI), in order to derive the proposed vintage weights, we need to calculate the average useful lives for building and fixed equipment and movable equipment based on the most recent Medicare cost report data. As previously described in Step 1, we proposed to calculate the average building and fixed equipment useful life using 2023 Medicare cost report data as the ending asset value of building and fixed equipment (sum of Worksheet A-7, part I, column 6, lines 2 through 5, less sum of Worksheet A-7, part I, column 7, lines 2 through 5) divided by building and fixed equipment depreciation (Worksheet A-7, part III, column 9, line 1). We proposed to calculate the average movable equipment useful life using 2023 Medicare cost report data as the ending asset value of movable equipment (sum of Worksheet A-7, part I, column 6, lines 6 through 7, less sum of Worksheet A-7, part I, column 7, lines 6 through 7) divided by movable equipment depreciation (Worksheet A-7, part III, column 9, line 2). Using this proposed method, we determined the average expected life of building and fixed equipment to be equal to 28 years, and the average expected life of movable equipment to be equal to 12 years. For the expected life of interest, we believe that vintage weights for interest should represent the average expected life of building and fixed equipment because, based on previous research described in the FY 1997 IPPS final rule (61 FR 46198), the expected life of hospital debt instruments and the expected life of buildings and fixed equipment are similar. We note that the 2018-based CIPI was based on an expected average life of building and fixed equipment of 27 years and an expected average life of movable equipment of 12 years.

For the building and fixed equipment and movable equipment vintage weights, we proposed to use the real annual capital-related purchase amounts for each asset type to capture the actual amount of the physical acquisition, net of the effect of price inflation. These real annual capital-related purchase amounts are produced by deflating the nominal annual purchase amount (as calculated in Steps 1 through 3) by the associated price proxy as provided earlier in this final rule. For the interest vintage weights, we proposed to use the total nominal annual capital-related purchase amounts to capture the value of the debt instrument (including, but not limited to, mortgages and bonds). Using these capital purchases time series specific to each asset type, we proposed to calculate the vintage weights for building and fixed equipment, for movable equipment, and for interest.

The vintage weights for each asset type are deemed to represent the average purchase pattern of the asset over its expected life (in the case of building and fixed equipment and interest, 28 years, and in the case of movable equipment, 12 years). For each asset type, we proposed to use the time series of annual capital purchases amounts available from 1977 to 2023. These data allow us to derive twenty 28-year periods of capital purchases for building and fixed equipment and interest, and thirty-five 12-year periods of capital purchases for movable equipment. For each 28-year period for building and fixed equipment and interest, or 12-year period for movable equipment, we proposed to calculate annual vintage weights by dividing the capital-related purchase amount in any given year by the total amount of purchases over the entire 28- year or 12-year period. This calculation was done for each year in the 28-year or 12-year period and for each of the periods for which we have data. We then calculated the average vintage weight for a given year of the expected life by taking the average of these vintage weights across the multiple periods of data. This is the same methodology used for the 2018-based CIPI but using 27 years and 12 years and reflecting data through 2018.

The vintage weights for the 2023-based CIPI and the 2018-based CIPI are presented in Table IV-10. While we proposed an alternative methodology for calculating the vintage weights due to the discontinuation of AHA data, Table IV-10 shows this change had limited impact on the results. We note that using the 2023-based vintage weights instead of the 2018-based vintage weights has a minimal impact on the overall CIPI update (averaging less than 0.1 percentage point over FY 2021 through FY 2026).

We did not receive any comments on our proposed vintage weights and therefore are finalizing without modification.

[GRAPHIC] [TIFF OMITTED] TR04AU25.234

The process of creating vintage-weighted price proxies requires applying the vintage weights to the price proxy index where the last applied vintage weight in Table IV-10 is applied to the most recent data point. We have provided on the CMS website an example of how the vintage weighting price proxies are calculated, using example vintage weights and example price indices. The example can be found under the following CMS website link: https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information in the zip file titled “Weight Calculations as described in the IPPS FY 2010 Proposed Rule.”

Table IV-11 in this section of this final rule compares both the historical and forecasted percent changes in the 2018-based CIPI and the 2023-based CIPI. Over the most recent historical period, the 2023- based CIPI increases at a slightly lower rate, on average, than the 2018-based CIPI primarily due to rebasing the CIPI from 2018 to 2023 and updating the base year cost weights.

[GRAPHIC] [TIFF OMITTED] TR04AU25.235

IHS Global, Inc. forecasts a 2.8 percent increase in the 2023-based CIPI for FY 2026, as shown in Table IV-11. This is 0.2 percentage point higher than in the proposed rule due to higher projected price inflation for machinery and fixed investment as well as higher expected interest rates. The underlying vintage-weighted price increases for depreciation (including building and fixed equipment and movable equipment) and interest (including government/nonprofit and for-profit) based on the 2023-based CIPI are included in Table IV-12. [GRAPHIC] [TIFF OMITTED] TR04AU25.236

The FY 2026 percentage increase based on the 2023-based CIPI is 0.1 percentage point lower than the increase based on the 2018-based CIPI when rounded, as shown in Table IV-11, primarily due to rebasing the CIPI to reflect 2023 costs.

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals \150\ that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to patients with low incomes. This method is commonly referred to as the “Pickle method.” The second method for qualifying for the DSH payment adjustment, which is the more commonly used method, is based on the hospital's disproportionate patient percentage (DPP), described later in this section, under which the DSH payment adjustment is based a complex statutory formula which includes the hospital's geographic designation, the number of

beds in the hospital, and the level of the hospital's DPP.

\150\ See section 1886(d)(1)(B) of the Act for the definition of a “subsection (d) hospital”.

A hospital's DPP is the sum of two fractions: the “Medicare fraction” and the “Medicaid fraction.” The Medicare fraction (also known as the “SSI fraction” or “SSI ratio”) is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period. [GRAPHIC] [TIFF OMITTED] TR04AU25.237

Because the DSH payment adjustment is part of the IPPS, the statutory references to “days” in section 1886(d)(5)(F) of the Act have been interpreted to apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under Sec. 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the IME adjustment under Sec. 412.105(b).

Section 3133 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by section 10316 of the same Act and section 1104 of the Health Care and Education Reconciliation Act (Pub. L. 111-152), added a section 1886(r) to the Act that modifies the methodology for computing the Medicare DSH payment adjustment. We refer to these provisions collectively as section 3133 of the Affordable Care Act. Beginning with discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments on the basis of the hospital's DPP under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of the Act.

The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals who are uninsured, is available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year are based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year.

Since FY 2014, section 1886(r) of the Act has required that hospitals that are eligible for DSH payments under section 1886(d)(5)(F) of the Act receive 2 separately calculated payments:

Medicare DSH Payment.............. An empirically justified DSH payment

equal to 25% of the amount

determined under the statutory

formula in section 1886(d)(5)(F) of

the Act. Medicare DSH Uncompensated Care An uncompensated care payment

Payment. determined as the product of 3

factors, as discussed in this

section.

Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such subsection (d) hospital 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for DSH payments, which represents the empirically justified amount for such payment, as determined by the MedPAC in its March 2007 Report to Congress.\151\ We refer to this payment as the “empirically justified Medicare DSH payment.”

\151\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/.

In addition to this empirically justified Medicare DSH payment, section 1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the Secretary shall pay to such subsection (d) hospitals an additional amount equal to the product of three factors. The first factor is the difference between the aggregate amount of payments that would be made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act if subsection (r) did not apply and the aggregate amount of payments that are made to subsection (d) hospitals under section 1886(r)(1) of the Act for such fiscal year. In other words, the first factor of the uncompensated care payment calculation is 75 percent of the payments that would otherwise be made as Medicare DSH payments under section 1886(d)(5)(F) of the Act.

The second factor is, for FY 2018 and subsequent fiscal years, 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau

or other sources the Secretary determines appropriate, and certified by the Chief Actuary of CMS) and the percent of individuals who were uninsured in the most recent period for which data are available (as so estimated and certified). As discussed in a later section, we note that the second factor is computed based on estimates of the total U.S population.

The third factor is a percent that, for each subsection (d) hospital, represents the quotient of the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data), including the use of alternative data where the Secretary determines that alternative data are available which are a better proxy for the costs of subsection (d) hospitals for treating the uninsured, and the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act. Therefore, this third factor represents a hospital's uncompensated care amount for a given time period relative to the uncompensated care amount for that same time period for all hospitals that receive Medicare DSH payments in the applicable fiscal year, expressed as a percent.

For each hospital, the product of these three factors represents its additional payment for uncompensated care for the applicable fiscal year. We refer to the additional payment determined by these factors as the “uncompensated care payment.” In brief, the uncompensated care payment for an individual hospital is determined as the product of the following 3 factors:

Factor 1.......................... 75% of the total amount of DSH

payments that would otherwise be

made under section 1886(d)(5)(F) of

the Act. Factor 2.......................... 1 minus the percent change in the

percent of individuals who are

uninsured. Factor 3.......................... The hospital's uncompensated care

amount relative to the

uncompensated care amount for all

hospitals that receive DSH

payments, expressed as a

percentage.

Section 1886(r) of the Act applies to FY 2014 and each subsequent fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 through 50647) and the FY 2014 IPPS interim final rule with comment period (78 FR 61191 through 61197), we set forth our policies for implementing the required changes to the Medicare DSH payment methodology made by section 3133 of the Affordable Care Act for FY 2014. In those rules, we noted that, because section 1886(r) of the Act modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR part 412, subpart M, which was established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act.

Finally, section 1886(r)(3) of the Act provides that there shall be no administrative or judicial review under section 1869, section 1878, or otherwise of any estimate of the Secretary for purposes of determining the factors described in section 1886(r)(2) of the Act or of any period selected by the Secretary for the purpose of determining those factors. Therefore, there is no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or of the periods selected to develop such estimates.

The payment methodology under section 3133 of the Affordable Care Act applies to “subsection (d) hospitals” that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act. Therefore, hospitals must receive empirically justified Medicare DSH payments in a fiscal year to receive an additional Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, in addition to the empirically justified Medicare DSH payment made to a subsection (d) hospital under section 1886(r)(1) of the Act, the Secretary shall pay to “such subsection (d) hospitals” the uncompensated care payment. Section 1886(r)(2)'s reference to “such subsection (d) hospitals” refers to hospitals that receive empirically justified Medicare DSH payments under section 1886(r)(1) for the applicable fiscal year.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 2014 IPPS interim final rule with comment period (78 FR 61193), we explained that hospitals that are not eligible to receive empirically justified Medicare DSH payments in a fiscal year will not receive uncompensated care payments for that year. We also specified that we would make a determination concerning eligibility for interim uncompensated care payments based on each hospital's estimated DSH status (that is, eligibility to receive empirically justified Medicare DSH payments) for the applicable fiscal year (using the most recent data that are available). For the IPPS/LTCH PPS proposed rule (90 FR 18254), we estimated DSH status for all hospitals using the most recent available SSI ratios and information from the most recent available Provider Specific File. We noted that FY 2021 SSI ratios available on the CMS website were the most recent available SSI ratios at the time of developing the proposed rule.\152\ We stated that if more recent data on DSH eligibility became available before the final rule, we would use such data in the final rule. The FY 2022 SSI ratios are the most recent data available at the time of developing this FY 2026 IPPS/ LTCH PPS final rule, and so we have used this data to estimate DSH status for all hospitals.

\152\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.

Our final determinations of a hospital's eligibility for uncompensated care and empirically justified Medicare DSH payments will be based on the hospital's actual DSH status at cost report settlement for FY 2026.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the rulemakings for subsequent fiscal years, we have specified our policies for several specific classes of hospitals within the scope of section 1886(r) of the Act. Eligible hospitals include the following:

Subsection (d) Puerto Rico hospitals that are eligible for DSH payments also are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act (78 FR 50623 and 79 FR 50006).

Sole community hospitals (SCHs) that are paid under the IPPS Federal rate receive interim payments based on what we estimate and project their DSH status to be prior to the beginning of the fiscal year (based on the best available data at that time) subject to settlement through the cost report. If they receive interim empirically justified Medicare DSH payments in a fiscal year, they will also be eligible to receive interim

uncompensated care payments for that fiscal year on a per discharge basis. Final eligibility determinations will be made at the end of the cost reporting period at settlement, and both interim empirically justified Medicare DSH payments and uncompensated care payments will be adjusted accordingly (78 FR 50624 and 79 FR 50007).

Medicare-dependent, small rural hospitals (MDHs) are paid based on the IPPS Federal rate or, if higher, the IPPS Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the updated hospital-specific rate from certain specified base years (FY 2012 IPPS/LTCH PPS final rule 76 FR 51684). The IPPS Federal rate that is used in the MDH payment methodology is the same IPPS Federal rate that is used in the SCH payment methodology. Because MDHs are paid based on the IPPS Federal rate, they continue to be eligible to receive empirically justified Medicare DSH payments and uncompensated care payments if their DPP is at least 15 percent, and we apply the same process to determine MDHs' eligibility for interim empirically justified Medicare DSH and interim uncompensated care payments as we do for all other IPPS hospitals. Recently enacted legislation has extended the MDH program through September 30, 2025. We refer readers to section V.F. of the preamble of this final rule for further discussion of the MDH program. We will continue to make a determination concerning an MDH's eligibility for interim empirically justified Medicare DSH and uncompensated care payments based on the hospital's estimated DSH status for the applicable fiscal year.

IPPS hospitals that elect to participate in the Bundled Payments for Care Improvement Advanced (BPCI Advanced) model, will continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments until the Model's final performance year, which ends on December 31, 2025. For further information regarding the BPCI Advanced model, we refer readers to the CMS website at https://innovation.cms.gov/innovation-models/bpci-advanced.

Transforming Episode Accountability Model (TEAM) is a new episode-based payment model. Hospitals participating in TEAM would continue to be paid under the IPPS and, therefore, are eligible to receive empirically justified Medicare DSH payments and uncompensated care payments. The model's start date is January 1, 2026.

Ineligible hospitals include the following:

Maryland hospitals are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the payment methodology of section 1866(r) of the Act because they are not paid under the IPPS. As discussed in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41402 through 41403), CMS and the State have entered into an agreement to govern payments to Maryland hospitals under a new payment model, the Maryland Total Cost of Care (TCOC) Model, which began on January 1, 2019. Under the Maryland TCOC Model, which concludes on December 31, 2026, Maryland hospitals are not paid under the IPPS and are ineligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act.

SCHs that are paid under their hospital-specific rate are not eligible for Medicare DSH and uncompensated care payments (78 FR 50623 and 50624).

Hospitals participating in the Rural Community Hospital Demonstration Program are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under section 1886(r) of the Act because they are not paid under the IPPS (78 FR 50625 and 79 FR 50008). The Rural Community Hospital Demonstration Program was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173).\153\ The period of participation for the last hospital in the demonstration under this most recent legislative authorization will end on June 30, 2028. Under the payment methodology that applies during this most recent extension of the demonstration program, participating hospitals do not receive empirically justified Medicare DSH payments, and they are excluded from receiving interim and final uncompensated care payments. At the time of development of the proposed rule, we stated we believed 16 hospitals may participate in the demonstration program at the start of FY 2026. We noted that if at the time of developing the final rule there is a different number of hospitals projected to participate in the demonstration program during FY 2026, we would use updated information in the FY 2026 final rule. At the time of developing this FY 2026 final rule, we believe 30 hospitals may participate in the demonstration program during FY 2026.

\153\ The Rural Community Hospital Demonstration Program was extended for a subsequent 5-year period by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148). The period of performance for this 5-year extension period ended on December 31, 2016. Section 15003 of the 21st Century Cures Act (Pub. L. 114-255), enacted on December 13, 2016, again amended section 410A of Public Law 108-173 to require a 10-year extension period (in place of the 5-year extension required by the Affordable Care Act), therefore requiring an additional 5-year participation period for the demonstration program. Section 15003 of Public Law 114-255 also required a solicitation for applications for additional hospitals to participate in the demonstration program. The period of performance for this 5-year extension period ended December 31, 2021. The Consolidated Appropriations Act, 2021 (Pub. L. 116-260) amended section 410A of Public Law 108-173 to extend the demonstration program for an additional 5-year period.

We received comments that are outside the scope of the proposed rule. For example, we received comments related to the eligibility of SCHs paid under hospital-specific rate and MDHs to receive DSH payments, our policy related to patient days associated with Section 1115 demonstrations, and determination of patient SSI eligibility. Because we consider these public comments to be outside the scope of the proposed rule, we are not addressing these comments in this final rule.

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051), we established a new supplemental payment for IHS/Tribal hospitals and hospitals located in Puerto Rico for FY 2023 and subsequent fiscal years. This payment was established to help to mitigate the impact of the decision to discontinue the use of low- income insured days as a proxy for uncompensated care costs for these hospitals and to prevent undue long-term financial disruption for these providers. The regulations located at 42 CFR 412.106(h) govern the supplemental payment. In brief, the supplemental payment for a fiscal year is determined as the difference between the hospital's base year amount and its uncompensated care payment for the applicable fiscal year as determined under Sec. 412.106(g)(1). The base year amount is the hospital's FY 2022 uncompensated care payment adjusted by one plus the percent change in the total uncompensated care amount between the applicable fiscal year (that is, FY 2026 for purposes of this rulemaking) and FY 2022, where the total uncompensated care amount for a fiscal year is determined as the product of Factor 1 and Factor 2 for that year. If the base year amount is equal to or lower than the hospital's uncompensated care payment for the current fiscal year, then the hospital would not receive a supplemental payment because the hospital would not be experiencing financial disruption in that year as a result of the use of uncompensated care data from the Worksheet S-10 in determining Factor 3 of the uncompensated care payment methodology.

In the FY 2026 IPPS/LTCH PPS proposed rule, we did not propose any changes to the methodology for determining the amount of or hospital eligibility for supplemental payments. For FY 2026, we will calculate the supplemental payments to eligible IHS/Tribal and Puerto Rico hospitals consistent with the methodology described in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and Sec. 412.106(h).

As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048 and 49049), the eligibility and payment processes for the supplemental payment are consistent with the processes for determining eligibility to receive interim and final uncompensated care payments adopted in FY 2014 IPPS/LTCH PPS final rule. We note that the MAC will make a final determination with respect to a hospital's eligibility to receive the supplemental payment for a fiscal year, in conjunction with its final determination of the hospital's eligibility for DSH payments and uncompensated care payments for that fiscal year.

Comment: A commenter reiterated their prior recommendation that was submitted in response to the proposal to establish these supplemental payments in the FY 2023 IPPS/LTCH PPS proposed rule. The commenter recommended that CMS calculate the supplemental payment for Puerto Rico hospitals using a base year amount determined using a Medicare SSI days proxy of at least 42 percent, consistent with the local poverty level, instead of the current value of 14 percent which incorporates the proxy that was applied from FY 2017 through FY 2022 of 14 percent of the hospital's Medicaid days and that was based on national data on the relationship between Medicare SSI days and Medicaid days.

Another commenter reiterated similar comments submitted in response to the FY 2025 IPPS/LTCH PPS proposed rule, thanking CMS for the supplemental payments but requesting that CMS evaluate alternatives to better support hospitals in Puerto Rico if uninsured days increased. This commenter suggested reverting to the previous method of using a proxy to determine uninsured days for hospitals in Puerto Rico, citing ongoing challenges with collecting reliable Worksheet S-10 data for hospitals in Puerto Rico.

Response: In the proposed rule, we did not propose any changes to our methodology for calculating or determining hospital eligibility for supplemental payments. Therefore, we consider these comments to be outside the scope of the proposed rule. However, we refer readers to our responses to substantially similar comments in the FY 2025 IPPS/ LTCH PPS final rule (89 FR 69314, FY 2024 IPPS/LTCH PPS final rule (88 FR 58992-58993) and FY 2023 IPPS/LTCH PPS final rule (87 FR 49047- 49048) for fulsome discussion on these issues.