Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program

As we noted in the CY 2015 PFS final rule with comment period (79 FR 67640 through 67641), we continue to make improvements to the direct PE input database to provide the number of clinical labor minutes assigned for each task for every code in the database instead of only including the number of clinical labor minutes for the preservice, service, and post service periods for each code. In addition to increasing the transparency of the information used to set PE RVUs, this level of detail would allow us to compare clinical labor times for activities associated with services across the PFS, which we believe is important to maintaining the relativity of the direct PE inputs. This information would facilitate the identification of the usual numbers of minutes for clinical labor tasks and the identification of exceptions to the usual values. It would also allow for greater transparency and consistency in the assignment of equipment minutes based on clinical labor times. Finally, we believe that the detailed information can be useful in maintaining standard times for particular clinical labor tasks that can be applied consistently to many codes as they are valued over several years, similar in principle to physician preservice time packages. We believe that setting and maintaining such standards would provide greater consistency among codes that share the same clinical labor tasks and could improve the relativity of values among codes. For example, as medical practice and technologies change over time, standards could be updated simultaneously for all codes with the applicable clinical labor tasks instead of waiting for individual codes to be reviewed.

In the CY 2016 PFS final rule with comment period (80 FR 70901), we solicited comments on the appropriate standard minutes for the clinical labor tasks associated with services that use digital technology. After consideration of comments received, we finalized standard times for clinical labor tasks associated with digital imaging at 2 minutes for “Availability of prior images confirmed”, 2 minutes for “Patient clinical information and questionnaire reviewed by technologist, order from physician confirmed and exam protocoled by radiologist”, 2 minutes for “Review examination with interpreting MD”, and 1 minute for “Exam documents scanned into PACS” and “Exam completed in RIS system to generate billing process and to populate images into Radiologist work queue.” In the CY 2017 PFS final rule (81 FR 80184 through 80186), we finalized a policy to establish a range of appropriate standard minutes for the clinical labor activity, “Technologist QCs images in PACS, checking for all images, reformats, and dose page.” These standard minutes will be applied to new and revised codes that make use of this clinical labor activity when they are reviewed by us for valuation. We finalized a policy to establish 2 minutes as the standard for the simple case, 3 minutes as the standard for the intermediate case, 4 minutes as the standard for the complex case, and 5 minutes as the standard for the highly complex case. These values were based upon a review of the existing minutes assigned for this clinical labor activity; we determined that 2 minutes is the duration for most services and a small number of codes with more complex forms of digital imaging have higher values. We also finalized standard times for a series of clinical labor tasks associated with pathology services in the CY 2016 PFS final rule with comment period (80 FR 70902). We do not believe these activities would be dependent on the number of blocks or batch size, and we believe that the finalized standard values accurately reflect the typical time it takes to perform these clinical labor tasks.

In reviewing the RUC-recommended direct PE inputs for CY 2019, we noticed that the 3 minutes of clinical labor time traditionally assigned to the “Prepare room, equipment and supplies” (CA013) clinical labor activity were split into 2 minutes for the “Prepare room, equipment and supplies” activity and 1 minute for the “Confirm order, protocol exam” (CA014) activity. We proposed to maintain the 3 minutes of clinical labor time for the “Prepare room, equipment and supplies” activity and remove the clinical labor time for the “Confirm order, protocol exam” activity wherever we observed this pattern in the RUC-recommended direct PE inputs. Commenters explained in response that when the new version of the PE worksheet introduced the activity codes for clinical labor, there was a need to translate old clinical labor tasks into the new activity codes, and that a prior clinical labor task was split into two of the new clinical labor activity codes: CA007 (Review patient clinical extant information and questionnaire) in the preservice period, and CA014 (Confirm order, protocol exam) in the service period. Commenters stated that the same clinical labor from the old PE worksheet was now divided into the CA007 and CA014 activity codes, with a standard of 1 minute for each activity. We agreed with commenters that we would finalize the RUC- recommended 2 minutes of clinical labor time for the CA007 activity code and 1 minute for the CA014 activity code in situations where this was the case. However, when reviewing the clinical labor for the reviewed codes affected by this issue, we found that several of the codes did not include this old clinical labor task, and we also noted that several of the reviewed codes that contained the CA014 clinical labor activity code did not contain any clinical labor for the CA007 activity. In these situations, we believe that the three total minutes of clinical staff time would be more accurately described by the CA013 “Prepare room, equipment and supplies” activity code, and we finalized these clinical labor refinements. We direct readers to the discussion in the CY 2019 PFS final rule (83 FR 59463 through 59464) for additional details.

Following the publication of the CY 2020 PFS proposed rule, a commenter expressed concern with the published list of common refinements to equipment time. The commenter stated that these refinements were the formulaic result of applying refinements to the clinical labor time and did not constitute separate refinements; the commenter requested that CMS no longer include these refinements in the table published each year. In the CY 2020 PFS final rule, we agreed with the commenter that these equipment time refinements did not reflect errors in the equipment recommendations or policy discrepancies with the RUC's equipment time recommendations. However, we believed it was important to publish the specific equipment times that we were proposing (or finalizing in the case of the final rule) when they differed from the recommended values due to the effect these changes can have on the direct costs associated with equipment time. Therefore, we finalized the separation of the equipment time refinements associated with changes in clinical labor into a separate table of refinements. We direct readers to the discussion in the CY 2020 PFS final rule (84 FR 62584) for additional details.

Historically, the RUC has submitted a “PE worksheet” that details the recommended direct PE inputs for our use in developing PE RVUs. The format of the PE worksheet has varied over time, and among the medical specialties developing the recommendations. These variations have made it difficult for the RUC's development and our review of code values for individual codes.

Beginning with its recommendations for CY 2019, the RUC mandated the use of a new PE worksheet for its recommendation development process that standardizes the clinical labor tasks and assigns them a clinical labor activity code. We believe the RUC's use of the new PE worksheet in developing and submitting recommendations helps us simplify and standardize the hundreds of clinical labor tasks currently listed in our direct PE database. As in previous calendar years, to facilitate rulemaking for CY 2026, we are continuing to display two versions of the Labor Task Detail public use file: one version with the old listing of clinical labor tasks and one with the same tasks crosswalked to the new listing of clinical labor activity codes. These lists are available on the CMS website under downloads for the CY 2026 PFS final rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/PFS-Federal-Regulation-Notices.html. b. Updates to Prices for Existing Direct PE Inputs

In the CY 2011 PFS final rule with comment period (75 FR 73205), we finalized a process to act on public requests to update equipment and supply price and equipment useful life inputs through annual rulemaking, beginning with the CY 2012 PFS proposed rule. Beginning in CY 2019 and continuing through CY 2022, we conducted a market-based supply and equipment pricing update using information developed by our contractor, StrategyGen, which updated pricing recommendations for approximately 1300 supplies and 750 equipment items currently used as direct PE inputs. Given the potentially significant changes in payment that would occur, in the CY 2019 PFS final rule, we finalized a policy to phase in our use of the new direct PE input pricing over a 4-year period using a 25/75 percent (CY PFS 2019), 50/50 percent (CY PFS 2020), 75/25 percent (CY PFS 2021), and 100/0 percent (CY PFS 2022) split between new and old pricing. We believe that implementing the proposed updated prices with a 4-year phase-in would improve payment accuracy while maintaining stability and allowing interested parties to address potential concerns about changes in payment for particular items. This 4-year transition period to update supply and equipment pricing concluded in CY 2022; for a more detailed discussion, we refer readers to the CY 2019 PFS final rule with comment period (83 FR 59473 through 59480).

For CY 2026, we proposed to update the price of 35 supplies and seven equipment items in response to the public submission of invoices following the publication of the CY 2025 PFS final rule (89 FR 97722). The 42 supply and equipment items with updated prices are listed in the valuation of specific codes section of the rule under Table A-B6, CY 2026 Invoices Received for Existing Direct PE Inputs.

We received a series of invoices associated with the SD339 supply prior to our February 10th submission deadline and are proposing to update its pricing accordingly for CY 2026 PFS proposed rule (90 FR 32593 through 32597), as detailed in Table A-B6, CY PFS 2026 Invoices Received for Existing Direct PE Inputs. We later received additional invoices associated with this supply several months following our February 10th deadline which arrived too late to be included in the updated pricing for this supply as shown in Table A-B6. Consistent with our previously finalized policy associated with the February 10th deadline (79 FR 67608), we noted in the proposed rule that we will review these invoices during the comment period following the publication of the CY 2026 PFS proposed rule (90 FR 32593) for potential inclusion in this final rule.

The following is a summary of the comments we received and our responses.

Comment: Several comments stated that they supported the proposed changes to supply and equipment pricing and recommended CMS to finalize these items as proposed. Supply and equipment items that commenters supported in their proposed pricing included the flow cytometer (EP014), Biodegradable Material Kit--PeriProstatic (SA126), Rezum delivery device kit (SA128), Esketamine (56 mg vial) (SH109), Esketamine (84 mg vial) (SH110), calibration beads (SL021), Isoton II diluent (SL084), lysing reagent (FACS) (SL089), Antibody Estrogen Receptor monoclonal (SL493), and 34 Beta E12 (SL496).

Response: We appreciate the support for our proposed pricing from the commenters.

Comment: A commenter submitted a yearly sampling of invoices to update the pricing of the “extended external ECG patch, medical magnetic tape recorder” (SD339) supply. The commenter submitted 26 additional invoices which were all priced at $345 and suggested CMS to update the SD339 pricing accordingly.

Response: We appreciate the submission of these additional invoices from the commenter. Also, since we previously received eight invoices associated with the SD339 supply at a price of $285, we will average these two sets of invoices together and finalize a CY 2026 price of $315 for this supply. We continue to welcome the submission of additional pricing data for assistance in valuing the SD339 supply.

Comment: A commenter stated that they previously submitted a request to CMS to update the pricing of the antigen, multi (pollen, mite, mold, cat) (SH007) supply. The commenter stated that based on their submitted invoices, they requested that the cost input for 1 mL of SH007 be increased to $17.07 instead of the $13.00 proposed by CMS. The commenter stated that while they appreciated the proposed increase in pricing, they had significant concerns that the pricing for the SH007 supply continued to be undervalued and was based on flawed assumptions regarding purchase volumes. The proposed pricing was based on averaging together the pricing of the 50 mL invoices while excluding the submitted 5 mL invoices; the commenter stated that allergists often purchase smaller quantities of allergens which may not require larger 50 mL purchases and allergy practices must observe a 1-year beyond-use date which could require them to discard a significant volume at the end of the year if their supplies were purchased in bulk.

Response: Although we appreciate the additional information supplied by the commenter, we continue to believe that our proposed pricing of $13.00 is a more accurate valuation for the SH007 supply. The commenters noted that the SH007 supply is most commonly used in CPT code 95165 (Professional services for the supervision of preparation and provision of antigens for allergen immunotherapy; single or multiple antigens), a high volume service that include 1 mL of the SH007 supply. CPT code 95165 is typically administered in multiple billings for the same patient on the same day; our claims data indicates that 10 billings of CPT code 95165 on the same day is the median result (with a mean of 12.54 billings). Given that each billing of CPT code 95165 includes 1 mL of the SH007 supply, and roughly 10-12 billings are typical for each patient encounter, it strains credulity to suggest that practitioners are typically purchasing the SH007 supply in its more expensive 5 mL quantities. While we agree that some practitioners will purchase the supply in 5 mL quantities, our PE methodology prices supplies based on the typical case, and the larger 50 mL quantity appears far more likely to be typical. We are therefore finalizing our proposed pricing of $13.00 for the

SH007 supply based on an average of the submitted 50 mL invoices. We also note that the $13.00 price still represents a 45 percent increase in the price of the SH007 supply over its previous $8.96 pricing.

Comment: A commenter stated that CMS should use the updated WAC pricing for the Opfolda (65 mg capsule) (SH111) supply, which increased in 2025 to $33.52 per capsule. The commenter stated that they did not agree with the decision to use 3.5 capsules of the SH111 supply in HCPCS code G0138 (Intravenous infusion of cipaglucosidase alfa-atga, including provider/supplier acquisition and clinical supervision of oral administration of miglustat in preparation of receipt of cipaglucosidase alfa-atga) which presumed that the split between two patient weight groupings (40-50 kilograms and 50+ kilograms) is even. The commenter stated that the vast majority of patients (96 percent in clinical trial and 91 percent in assembled data) receive 4 capsules of OPFOLDA which aligns with the recommended dosage for patients weighing 50 kg or more. The commenter requested that CMS should update the SH111 supply quantity from 3.5 to 4 included in HCPCS code G0138 to match these findings.

Response: We agree with the commenter that the SH111 supply should be updated in pricing to match the most current WAC valuation; therefore, we are finalizing an increase in its price from $33.00 to $33.52. Regarding the quantity of the SH111 supply included in HCPCS code G0138, we did not solicit comments regarding this code or nominate it as potentially misvalued. As such, we stand by our previous valuation of G0138, where this same topic of the SH111 supply quantity was discussed and finalized in last year's CY 2025 PFS final rule (89 FR 97816 through 97817).

Comment: Several commenters stated that the price and useful life of the platform mounted parallel bars (EQ201) equipment were out of date. The commenters stated that parallel bars are much different today than they were over 20 years ago and in order to best serve the patient, it is typical and standard for clinics to purchase parallel bars that have power adjustable heights and solid bases. The commenters stated that these features are much more expensive to purchase; however, they offer greater safety for patients who are at risk of falling. The commenters requested that CMS update the pricing for the EQ201 parallel bars to $18,956 and change the useful life to 5 years to reflect its mechanical components; they also submitted four invoices to support this pricing.

Response: We appreciate the additional information provided by the commenters, especially the submitted invoices for assistance in pricing. However, the motorized parallel bars described by the commenters and priced on the submitted invoices represent a fundamentally different type of equipment as compared with the platform mounted parallel bars described by EQ201. Our review of current market pricing for platform mounted parallel bars indicates that the current EQ201 pricing of $1599.96 remains accurate for this equipment, as it was readily available for order online at or below this pricing. Therefore, we are not finalizing an update to the price of the EQ201 equipment; however, we will add a new equipment item for “motorized parallel bars” (EQ414) priced at the requested $18,956 and with a useful life of 5 years. This new EQ414 equipment is not currently included in any CPT or HCPCS codes but is available for potential future inclusion in services if the motorized version of the parallel bars is determined to be the typical standard of care.

Comment: Several commenters recommended updating the price for the treadmill (EQ243) equipment to $8,120.64. The commenters stated that modern treadmills have multiple computerized and sensory components that allow for adjustable programs and tracking of vitals, and submitted five invoices to support this pricing update.

Response: Determining the typical market pricing for treadmill equipment is a difficult task due to the wide range of treadmills available for purchase; for example, the prices of the treadmills on the five invoices submitted by the commenters ranged from a low of $7,125.10 to a high of $26,064.00. Based on our review of the current pricing of medical treadmills, it appears that the current EQ243 price of $4,860.79 remains highly typical, including matching the pricing of several other medical treadmill models available from the same manufacturer listed on the submitted invoices. The specific model listed on these invoices is the “performance plus” version of a medical treadmill which appears to be situated at the high end of the market; it does not appear to reflect typical pricing and therefore we are not finalizing an increase to the price of the EQ243 treadmill equipment.

Comment: Several commenters requested that CMS update and modify the price of the exercise equipment (EQ118). The commenters stated that the EQ118 equipment currently reflects exercise equipment and includes a treadmill, bike, stepper, and upper body ergometer (UBE). The commenters recommended removing the treadmill from this package and having it as a stand-alone piece of equipment, while steppers and UBE's are not typical pieces of exercise equipment in a physical therapy clinic any longer. The commenters requested that CMS modify the equipment included in item EQ118 to reflect a total gym, recumbent bike, and cable columns. Commenters stated that pricing for this equipment item should be increased to $16,700 and submitted a series of invoices to support their requested pricing.

Response: The exercise equipment described by the commenters and priced on the submitted invoices represent a fundamentally different type of equipment as compared with the existing EQ118 item. The current EQ118 equipment is based on pricing a treadmill, bike, stepper, UBE, pulleys, and balance board; in contrast, the equipment collection described by the commenters constitutes a total gym, recumbent bike, and cable columns. Therefore, we are not finalizing an update to the price of the EQ118 equipment; however, we will add a new equipment item for “exercise equipment (total gym, recumbent bike, and cable columns)” (EQ415) priced at the requested $16,700. This new EQ415 equipment is not currently included in any CPT or HCPCS codes but is available for potential future inclusion in services if this alternate version of exercise equipment is determined to be the typical standard of care.

Comment: Several commenters stated that the practice of manual therapy (CPT code 97140) and massage therapy (CPT code 97124) typically includes the use of manual therapy hand instruments. The commenters stated that these instruments are not included in the equipment for these codes and requested that CMS add a new equipment item for manual therapy instruments at a price of $1,795 and a useful life of 15 years for CPT codes 97140 and 97124. Commenters submitted one invoice to support this requested pricing.

Response: We concur with the commenters that the submitted invoice at a price of $1,795 appears to be the current market price for manual therapy hand instruments. We will therefore add a new equipment item for “manual therapy hand instruments” (EQ416) priced at the requested $1,795 and with a useful life of 15 years. However, since we do not have any data at the moment

to support the claim from the commenters that the use of these manual therapy hand instruments is typical in CPT codes 97140 and 97124, we are not adding them to the equipment inputs for these two codes. The new EQ416 equipment is not currently included in any CPT or HCPCS codes but is available for potential future inclusion in services if the use of manual therapy hand instruments is determined to be the typical standard of care.

After reviewing the comments, we are finalizing our supply and equipment pricing updates as proposed, with the modifications listed above in response to the comments.

We proposed not to update the price of another eight supplies and one equipment item, which were the subject of public submission of invoices. Our reasons that we proposed not to update to these prices are detailed in the proposed rule, and we solicited additional information from interested parties for assistance in pricing these supplies:

Radiation treatment vault (ER056): We received pricing information associated with the radiation treatment vault from an interested party. However, this pricing information contained numerous costs associated with building construction which would not be included on a traditional invoice, such as surveying, plumbing and HVAC expenses, drywall packaging, and the installation of electrical equipment. As we previously stated in the CY 2021 PFS final rule (85 FR 84482 through 84483) about similar costs associated with proton beam treatment delivery services, the expenses associated with constructing new office facilities fall outside of our direct PE methodology and would be more accurately classified as a form of building maintenance or office rent under indirect PE (85 FR 84626). We do not agree that construction costs should be included as a form of direct PE because they are not individually allocable to a particular patient for a particular service. Therefore, we do not believe that it would serve the interests of relativity to include these building construction costs for the radiation treatment vault as a type of direct PE expense. In the absence of other pricing information associated with the radiation treatment vault, or pricing of the vault absent these building construction costs, we proposed to maintain its current price of $773,104.

Congo red kits (SA110) and UltraView Universal DAB Detection Kit (SL488): We received three invoices from interested parties requesting an increase in the price of the SA110 supply from $6.80 to $20.12 and another three invoices from interested parties requesting an increase in the price of the SL488 equipment from $12.28 to $41.26. In both cases, we do not understand how the typical price of these supplies could be increasing by such a large amount, tripling the current price in both cases, given that the price of both supplies was recently updated. Both the SA110 supply and the SL488 supply had their prices updated in the CY 2024 PFS final rule, with the SA110 supply increasing from $6.16 to $6.80 and the SL488 supply increasing from $9.70 to $12.28 (88 FR 78966 through 78967). We do not believe that the typical price for these supplies would increase to such a great degree given that their pricing was already recently updated for CY 2024; therefore, we proposed not to update.

Catheter, balloon, rectal pressure (SD017); catheter, pressure, urodynamic (SD027); and transducer dome (pressure) (SD125): We received one invoice from interested parties for each of these three supplies. Interested parties requested an increase in the price of the SD017 supply from $35.89 to $74.00, an increase in the price of the SD027 supply from $19.35 to $86.80, and an increase in the price of the SD125 supply from $3.58 to $17.32. However, in each of these three cases, it was unclear if the item on the invoice matched the supply item in question. The invoice for the SD017 supply listed a “Abdominal Sensor Catheter”, the invoice for the SD027 supply listed a “Single Sensor Catheter”, and the invoice for the SD125 supply listed a “transducer cartridge with luer lock”. Given the differences between the names of the items in question, and the significant increases in requested pricing, we proposed not to update the pricing of these three supplies as we cannot verify that the invoices refer to the same supply items.

Electrode, surface (SD062): We received one invoice from interested parties requesting a decrease in the price of the SD062 supply from $1.58 to $0.34. The invoice appeared to state that there are 10 copies of 10 packs of 3 electrodes which, when dividing the total price of $103 by 300 electrodes, results in a price of $0.34 per electrode. We do not believe that the interested parties intended to submit an invoice resulting in a 78 percent decrease in pricing for the SD062 supply, and we are not convinced that we have correctly understood the unit quantity for this item. As a result, we proposed not to change the pricing of the SD062 supply at this time.

Biohazard specimen transport bag (SM008): We received one invoice from interested parties requesting an increase in the price of the SM008 supply from $0.087 to $0.750, an increase of more than 750 percent. However, when we reviewed the invoice, we determined that it referred to a different type of disposal bag than the biohazard specimen transport bag described by the SM008 supply, which explained the disparity in the pricing. We therefore proposed not to update the pricing of the SM008 supply.

Wipes, lens cleaning (per wipe) (Kimwipe) (SM027): We received one invoice from interested parties requesting an increase in the price of the SM027 supply from $0.04 to $0.33, an increase of approximately 700 percent. However, when we reviewed the supply in question, we found that lens cleaning wipes were readily available for purchase at the current price of $0.04 per wipe. We therefore proposed not to update the pricing of the SM027 supply.

The following is a summary of the comments we received and our responses.

Comment: A commenter stated that they supported the CMS decision not to reduce the pricing on the surface electrode (SD062) supply from $1.58 to $0.34. The commenter stated that it was their experience that a single pack of electrodes includes 3-4 electrodes per pack; these electrodes are sometimes sold in bulk orders of ten packs or twenty packs, but not ten sets of ten packs of three electrodes as the interested party indicated.

Response: We appreciate the support for our proposed pricing from the commenter.

Comment: A commenter disagreed with the proposal to maintain the current price of $773,104 for the radiation treatment vault (ER056) equipment. The commenter stated that the radiation treatment vault is unlike anything else in medicine as it is designed and constructed to safely house a specific high-energy radiation treatment machine within its space. The commenter stated that the vault must comply with specific Federal and State licensing regulations to protect patients, clinic staff, and the public from radiation exposure, and the Internal Revenue Service rules treat radiation treatment vaults as medical equipment. The commenter supported maintaining the classification of the vault as a direct PE input and encouraged CMS to consider alternative methods for identifying and valuing the vault separate from general construction expenses.

Response: We appreciate the additional information supplied by the commenter regarding the radiation treatment vault; we have also noted many of the challenges associated with pricing this unusual equipment and remain interested in different sources of data to assist in its valuation.

After reviewing the comments, we are finalizing our proposal not to update the pricing of these supply and equipment items. (1) Invoice Submission

We remind readers that we routinely accept public submissions of invoices as part of our process for developing payment rates for new, revised, and potentially misvalued codes. Often, these invoices are submitted in conjunction with the RUC-recommended values for the codes. To be included in a given year's proposed rule, we generally need to receive invoices by the same February 10th deadline we noted for consideration of RUC recommendations. However, we will consider invoices submitted as public comments during the comment period following the publication of the CY 2026 PFS proposed rule (90 FR 32593 and will consider any invoices received after February 10th or outside of the public comment process as part of our established annual process for requests to update supply and equipment prices. Interested parties are encouraged to submit invoices with their public comments or, if outside the notice and comment rulemaking process, via email at [email protected]. (2) Supply Pack Pricing Update

Interested parties previously notified CMS that they identified numerous discrepancies between the aggregated cost of some supply packs and the individual item components contained within. The interested parties indicated that CMS should rectify these mathematical errors as soon as possible to ensure that the sum correctly matches the totals from the individual items, and they recommended that we resolve these pricing discrepancies in the supply packs during CY 2024 rule. The AMA RUC convened a workgroup on this subject and submitted recommendations to update pricing for a series of supply packs along with the RUC's comment letter for the CY 2024 rule cycle.

We appreciated the additional information and RUC workgroup recommendations regarding discrepancies in the aggregated cost of some supply packs. However, due to the projected significant cost revisions in the pricing of supply packs and because we did not propose to address supply pack pricing in the CY 2024 proposed rule, we stated in the CY 2024 final rule that this issue would be better addressed in future rulemaking. For example, the cleaning and disinfecting endoscope pack (SA042) is included as a supply input in more than 300 HCPCS codes, which could have a sizable impact on the overall valuation of these services, and which was not incorporated into the proposed RVUs published for the CY 2024 proposed rule. We stated that interested parties would be better served if we comprehensively addressed this topic during future rulemaking in which commenters could provide feedback in response to proposed pricing updates (88 FR 78833 through 78834).

For CY 2025, we proposed implementing the supply pack pricing update and associated revisions as recommended by the RUC's workgroup (89 FR 97726 through 97727). We proposed to update the pricing of the “pack, cleaning and disinfecting, endoscope” (SA042) supply from $19.43 to $31.29, to update the pricing of the “pack, drapes, cystoscopy” (SA045) supply from $17.33 to $14.99, to update the pricing of the “pack, ocular photodynamic therapy” (SA049) supply from $16.35 to $26.35, to update the pricing of the “pack, urology cystoscopy visit” (SA058) supply from $113.70 to $37.63, and to update the pricing of the “pack, ophthalmology visit (w-dilation)” (SA082) supply from $3.91 to $2.33. As recommended by the RUC workgroup, we also proposed to delete the “pack, drapes, laparotomy (chest- abdomen)” (SA046) supply entirely. The updated prices for these supply packs were listed in the valuation of specific codes section of this rule under Table A-B6, CY 2025 Invoices Received for Existing Direct PE Inputs (89 FR 97852).

In accordance with the RUC workgroup's recommendations, we also proposed to create eight new supply codes, including components contained within previously existing supply packs. Aside from the SB056 supply, which is a replacement in several HCPCS codes for the deleted SA046 supply pack, all of these new supplies are not included as standalone direct PE inputs in any current HCPCS codes, as they are, again, components contained within previously existing supply packs. We proposed to add:

The kit, ocular photodynamic therapy (PDT) (SA137) supply at a price of $26.00 as a component of the SA049 supply pack;

The Abdominal Drape Laparotomy Drape Sterile (100 in x 72 in x 124 in) (SB056) supply at a price of $8.049 as a replacement for the SA046 supply pack;

The drape, surgical, legging (SB057) supply at a price of $3.284 as a component of the SA045 supply pack;

The drape, surgical, split, impervious, absorbent (SB058) supply at a price of $8.424 as a component of the SA045 supply pack;

The post-mydriatic spectacles (SB059) supply at a price of $0.328 as a component of the SA082 supply pack;

The y-adapter cap (SD367) supply at a price of $0.352 as a component of the SA049 supply pack;

The ortho-phthalaldehyde 0.55percent (for example, Cidex OPA) (SM030) supply at a price of $0.554 as a component of the SA042 supply pack; and

The ortho-phthalaldehyde test strips (SM031) supply at a price of $1.556 as a component of the SA042 supply pack.

The new supply pack component items were listed in the valuation of specific codes section of in the rule under Table A-B8, CY 2025 PFS (89 FR 97722) New Invoices (89 FR 97853).

We also proposed the following additional supply substitutions based on the recommendations of the RUC workgroup. We proposed to remove the deleted SA046 supply pack and replace it with the drape, sterile, fenestrated 16in x 29in (SB011) supply for CPT codes 19020, 19101, 19110, 19112, 20101, and 20102. We proposed to remove the deleted SA046 supply pack and replace it with two supplies--the drape, sterile, three-quarter sheet (SB014) and the drape, towel, sterile 18in x 26in (SB019)--for CPT codes 19000 and 60300. We proposed to remove the deleted SA046 supply pack and replace it with 2 supplies--the drape, towel, sterile 18in x 26in (SB019) and the newly created Abdominal Drape Laparotomy Drape Sterile (100 in x 72 in x 124 in) (SB056) supply--for CPT codes 22510, 22511, 22513, and 22514. We proposed to remove the deleted SA046 supply pack without replacing it with anything for CPT code 22526; the RUC workgroup did not make a recommendation on what to do with CPT code 27278, which also previously contained the SA046 supply pack. Therefore, we also proposed not to replace the SA046 supply pack with any supplies for this code. The RUC workgroup also recommended removing the SA046 supply pack from CPT code 64595 with no replacement; however, this code was recently reviewed at the

April 2022 RUC meeting and it no longer includes the SA046 supply.

In the comments on the CY 2025 PFS proposed rule (89 FR 97727), several commenters supported the proposed supply pack pricing update as recommended by the RUC workgroup, however they indicated concern over the proposed decrease in the price of the urology cystoscopy visit pack (SA058) from $113.70 to $37.63. The commenters stated that the proposed pricing reduction in the SA058 supply could result in drastic payment rate cuts for physicians performing cystoscopy services in the office setting. The commenters requested that CMS either delay the pricing update or phase-in the supply pack changes over a 4-year period like it has done for other PE changes with significant redistributive effects, allowing independent urology practices to better prepare for the negative financial impact this change will have.

After considering these comments, we agreed that the use of a phased-in transition period would be appropriate to allow practitioners to adjust to the updated pricing of these supplies. During our previous supply and equipment pricing update in the CY 2019 PFS final rule (83 FR 59475), we finalized a policy to phase in any updated pricing that we established during the 4-year transition period for very commonly used supplies and equipment, such as sterile gloves (SB024) or exam tables (EF023), even if invoices were provided as part of the formal review of a code family. Based on this previously established policy, we finalized the use of a pricing transition for three supply packs in Table A-B4. [GRAPHIC] [TIFF OMITTED] TR05NO25.003

Following the same pattern as our previous supply/equipment and clinical labor pricing updates, we finalized the implementation of this pricing transition over 4 years such that one-quarter of the difference between the current price and the fully phased-in price is implemented for CY 2025 PFS (89 FR 97722), one-third of the difference between the CY 2025 PFS (89 FR 97722) price and the final price is implemented for CY 2026 PFS, and one-half of the difference between the CY 2026 price and the final price is implemented for CY 2027, with the new direct PE prices fully implemented for CY 2028. For the other proposed supply packs, the cystoscopy drapes pack (SA045) is only included in 7 HCPCS codes and the ocular photodynamic therapy pack (SA049) is only included in a single HCPCS code which do not meet these criteria established in previous rulemaking and described previously in this section. Therefore, we finalized each of them at their updated pricing for CY 2025 PFS (89 FR 97722) as proposed in the proposed rule. We believe that the use of this pricing transition will minimize any potential disruptive effects during the 4-year transition period that could be caused by other sudden shifts in RVUs due to the high number of services that make use of these very common supply packs.

Several commenters also stated that although five incomplete packs would have their pricing updated in the proposed rule, mathematical errors still remained for a number of additional supply packs. Commenters stated that only 3 of the 18 affirmed packs were priced correctly to match their components and provided tables showing the pricing of an additional 15 packs that needed mathematical correction by deconstructing the packs to determine the correct price through summing their individual components. Commenters requested that CMS initiate a correction of the packs pricing such that the sum of the individual components match the price of the corresponding pack as detailed in Table A-B5:

[GRAPHIC] [TIFF OMITTED] TR05NO25.004

While we shared the concerns of the commenters regarding the need for accuracy in the pricing of these supply packs, we had reservations about their potential for pricing disruptions. Ten of these supply packs are included in the direct PE inputs for at least 100 HCPCS codes, and three of the packs are included in more than 1000 HCPCS codes. Many of these pricing updates would lead to drastic changes in pricing for these supply packs which are included in hundreds of HCPCS codes, such as the SA051 pelvic exam pack decreasing in price from $20.16 to $2.81 (-86 percent) and the SA048 minimum multi-specialty visit pack decreasing in price from $5.02 to $1.98 (-61 percent). We were particularly concerned that these changes in supply pack pricing could lead to significant shifts in the overall PE RVU for affected HCPCS codes, without these proposed rates appearing in the proposed rule or allowing any opportunity for public comment.

Therefore, we did not finalize pricing updates for these additional 15 supply packs as requested by commenters. We anticipated returning to this subject in future rulemaking to allow any changes in associated pricing for HCPCS codes to appear in the proposed rule and provide an opportunity for the public to comment. Should these supply pack pricing updates be proposed in future rulemaking, we anticipated that we might propose the same pricing transition described above due to the number of potentially affected HCPCS codes. We finalized all of the other supply pack pricing changes as proposed, with the exception of the 4- year pricing transition for three supply packs as described previously in this section.

For CY 2026, we proposed to continue implementing the supply pack pricing update and associated revisions as previously recommended by the RUC's workgroup. We proposed to update the price of the 15 supply packs detailed in Table A-B5 which were received too late in CY 2025 PFS (89 FR 97722) to allow for proposed pricing or public comment. In the case of the surgical instruments cleaning pack (SA043), the moderate sedation pack (SA044) and the small ortho drapes pack (SA081), the proposed pricing update is modest enough that we proposed these supplies move immediately to their final prices for CY 2026.

For the 12 other supply packs, we proposed that they be incorporated into the muti-year supply pack pricing transition finalized in CY 2025 rulemaking. Rather than having two separate 4-year pricing transitions associated with supply packs, we proposed that these 12 additional supply packs fold into the previous pricing transition using the same methodology, such that one-third of the difference between the CY 2025 PFS (89 FR 97722) price and the final price is implemented for CY 2026, and one-half of the difference between the CY 2026 price and the final price is implemented for CY 2027, with the new direct PE prices fully implemented for CY 2028 (89 FR 97728). With the inclusion of the SA042, SA058, and SA082 supply packs which began their pricing transition last year for CY 2025, we proposed the total supply pack pricing update detailed in Table A-B6:

[GRAPHIC] [TIFF OMITTED] TR05NO25.005

This table also includes the hydrophilic guidewire (SD089) supply which we are proposing to transition in pricing over 3 years given its inclusion in approximately 100 HCPCS codes. We continue to believe that the use of this pricing transition will minimize any potential disruptive effects during the transition period that could be caused by other sudden shifts in RVUs due to the high number of services that make use of these very common supply items.

We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: Several commenters stated that they supported the proposals associated with supply pack pricing. Commenters stated that they appreciated the proposal to initiate correction of the remaining packs pricing such that the sum of the individual components will match the price of the corresponding pack by CY 2028. Commenters stated that they supported the proposal to move the prices of the surgical instruments cleaning pack (SA043), the moderate sedation pack (SA044), and the small ortho drapes pack (SA081) to their final prices for CY 2026 due to their modest pricing changes. Commenters also stated that they agreed with the inclusion of the SD089 hydrophilic guidewire supply in the updated pricing transition.

Response: We appreciate the support for our proposals from the commenters.

Comment: Several commenters stated that although they appreciated the 4-year pricing transition for the SA051 pelvic exam pack, they remained concerned that even a phased-in reduction will materially decrease practice expense RVUs for a broad range of services furnished by gynecologists. Commenters stated that the proposed reduction did not reflect the realities of practice expenses in today's environment since supply and labor costs continue to rise due to inflation and market pressures. Commenters stated that they were considering submission of updated invoices and cost data related to the pelvic exam supply pack and would welcome the opportunity to engage with CMS further to ensure pricing accurately reflects costs across a range of practice settings.

Response: We share the concerns of the commenters regarding the large decreases in pricing associated with the SA051 and SA058 supply packs, which is why we finalized the use of a phased-in transition period in the CY 2025 PFS final rule (89 FR 97722). However, we also believe in the importance of valuing supply items at the most accurate market-based pricing available, and therefore we cannot continue to price these supply packs at rates much higher than the cost of the individual components that make up the total packs. We welcome the submission of updated invoices and other cost data associated with these supply packs for potential inclusion in future rulemaking.

Comment: A commenter stated that the proposal to reduce the value of the SA048 minimum multi-specialty visit pack by $1.01 was not the result of a formal, transparent process. The commenter stated that the proposal represented a significant reduction in the PE value of occupational therapy evaluation codes as well as the valuation of 4,565 other codes. The commenter stated that CMS should not finalize any reduction to the SA048 supply pack pricing at this time given the lack of transparency and the significant impact on reimbursement. Another related commenter stated that CMS should not finalize any supply pack pricing updates until invoices have been provided to support such a change.

Response: We noted in last year's CY 2025 PFS final rule (89 FR 97722), that we were particularly concerned that these changes in supply pack pricing could lead to significant shifts in the overall PE RVU for affected HCPCS codes, without these proposed rates appearing in the proposed rule or allowing any opportunity for public comment. Therefore, we delayed any proposals associated with the SA048 supply pack until the CY 2026 PFS proposed rule (90 FR 32593, in the interests of transparency and to create an opportunity for interested parties to provide feedback. We agree with the commenter that a large number of CPT and HCPCS codes will be affected by the proposed pricing changes to the SA048 supply pack. However, as noted previously in this section, we also believe in the importance of valuing supply items at the most accurate market-based pricing available, and therefore we cannot continue to price these supply packs at rates much higher than the cost of the individual components that make up the total packs. We also remind interested parties

that we are transitioning these pricing changes over the next three years to help minimize any potential disruptive effects on valuation.

After consideration of the public comments, we are finalizing our supply pack pricing policies as proposed. c. Technical Corrections to Direct PE Input Database and Supporting Files

Following the publication of the CY 2025 PFS final rule (89 FR 97722), we received a request from the RUC to remove all equipment items priced below $500 from the CMS ratesetting database. The RUC stated that since CMS has defined that medical equipment must be at least $500 and all equipment inputs under $500 are considered indirect expense, the 11 current equipment items under this threshold should no longer be listed as equipment. The RUC requested that CMS remove these items from its equipment list and from the specific HCPCS codes to conform to the definition of direct medical equipment and to ensure that the rule remains consistently applied.

We appreciate the RUC bringing this topic to our attention. However, we proposed not to remove these 11 equipment items that fall under the $500 threshold from the CMS ratesetting database. These equipment items have historically been included as direct PE inputs in their respective HCPCS codes for the last 2 decades and, given the very small valuation associated with their use (such as the ED004 digital camera priced at approximately 0.06 cents per minute of use), we do not believe that it is necessary to remove them from the database. We believe that it better serves relativity by continuing to maintain these equipment items due to their historical inclusion in their associated HCPCS codes, as opposed to the removal of long-standing direct PE inputs which may cause unnecessary confusion and lead to concern that the valuation of these services would be negatively impacted. We solicited comments on whether to maintain or remove these equipment items.

We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: Several commenters continued to disagree with the CMS proposal to retain these 11 historic equipment items in the ratesetting database. The commenters stated that this was faulty reasoning and relativity should be based on actual resource costs using standard definitions, not historical inclusion. The commenters recommended that CMS remove all equipment items under $500 from its equipment list and from the specific codes to conform to the definition of direct medical equipment.

Response: We proposed to maintain these 11 equipment items out of a desire to maintain historical continuity with prior ratesetting and to minimize any disruption on valuation of their associated services. However, since we received no comments requesting that these historic equipment items be maintained, we concur with commenters that these equipment items should be removed from the ratesetting database and any associated CPT and HCPCS codes. The affected equipment items are as follows: [GRAPHIC] [TIFF OMITTED] TR05NO25.006

We are finalizing the removal of these 11 equipment items priced below $500 from the ratesetting database and their associated CPT and HCPS codes.

We also received a request from the RUC to update the names of several supplies and equipment items in the CMS ratesetting database. The RUC stated that these naming changes would remove specific products or brand names and more accurately describe the items in question. We agree with the RUC and we proposed naming changes for the following supplies and equipment items:

EQ392: We proposed to rename the “heart failure patient physiologic monitoring equipment package” to “patient physiologic monitoring equipment package”.

ER089: We proposed to rename the “IMRT Accelerator” to “Radiation Treatment Delivery Linear Accelerator”.

SD253: We proposed to rename the “atherectomy device (Spectronetics laser or Fox Hollow)” supply to “atherectomy device”.

SD254: We proposed to rename the “covered stent (VIABAHN, Gore)” to “covered stent (VIABAHN)”.

We received a separate request from the RUC for a technical correction involving CPT code 65780 (Ocular surface reconstruction; amniotic membrane transplantation, multiple layers). The RUC stated that there was a potential issue with the intraservice work time for CPT code 65780, which was recommended by the RUC with 35 minutes of work time and finalized by CMS with no work time refinements. However, CPT code 65780 was listed with 25 minutes of intraservice work time in the work time public use file issued with the CY 2025 PFS final rule (89 FR 97722); the RUC questioned whether this was a potential technical error. We have reviewed CPT code 65780 and concluded that the intraservice work time was unintentionally listed with the incorrect work time of 25 minutes; we proposed to correct this to the intended work time of 35 minutes. We note that the total work time of 192 minutes was listed correctly for CPT code 65780 and does not require a technical correction.

We also received a request from the RUC for a technical correction involving CPT code 15851 (Removal of sutures or staples requiring anesthesia (that is, general anesthesia, moderate sedation)). The RUC stated that CPT code 15851 continued to receive PE RVUs in the non- facility setting despite no longer having any direct PE inputs following its review at the January 2022 RUC meeting. Since CMS finalized the RUC's recommended lack of direct PE inputs for CPT code 15851 in the CY 2023 PFS final rule, the RUC questioned whether this was a potential technical error. We have reviewed CPT code 15851 and concluded that the continued assignment of PE RVUs in the non-facility setting is an unintended technical error; we proposed to correct this code by removing the non-facility PE RVUs for CY 2026.

We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: A commenter stated their support for all three technical corrections. The commenter agreed that the name changes more accurately describe the inputs and appreciated their implementation, as well as appreciated the technical corrections to CPT codes 65780 and 15851. A separate commenter agreed with the shift toward a generic name for the EQ392 equipment and supported the CMS renaming proposal. Another commenter also supported the technical correction to CPT code 65780 and stated that it was appropriate to update the work time public use file to reflect 35 minutes of intraservice time.

Response: We appreciate the support from the commenters for our proposals.

Comment: Several commenters stated that CMS assigned a PC/TC indicator of “5” (incident to) for CPT Code 38228 (Chimeric antigen receptor T-cell (CAR-T) therapy; CAR-T cell administration, autologous) when it was finalized in the CY 2025 PFS final rule. The commenters stated that CPT Code 38228 is not an incident to service, as the physician personally supervises the initiation of the product infusion and is present for the first 15 to 30 minutes. The commenters identified this as a potential technical error and recommended that CMS update the PC/TC indicator for CPT code 38228 from a “5” to a “0” to appropriately capture the nature of the service and to align it with other similar services such as CPT codes 38240 and 38242.

Response: We appreciate the feedback from the commenters and, after reviewing the subject, we agree that this appears to be an unintended technical error. We are therefore finalizing a change in the PC/TC indicator for CPT code 38228 from “5” to “0” for CY 2026.

Comment: A commenter stated that CMS may have inadvertently removed RVUs associated with CPT code 62287 (Decompression percutaneous, of nucleus pulposus of intervertebral disc, any method utilizing needle- based technique to remove disc material under fluoroscopic imaging or other form of indirect visualization, with discography and/or epidural injection(s) at the treated level(s), when performed, single or multiple levels, lumbar). The commenter recommended CMS to restore the RVUs associated with CPT code 62287 as non-CMS patients receive the procedure regularly, and many private payers benchmark their physician fee schedules against Medicare.

Response: CPT code 62287 was listed in the RUC recommendations as being scheduled for deletion by the CPT Editorial Panel starting in CY 2026 due to low utilization. However, as identified by the commenter, the CPT Editorial Panel later removed CPT code 62287 from the deletion list and instead revised its descriptor. We will update our ratesetting files accordingly to indicate that CPT code 62287 will remain in active use for CY 2026.

Comment: A commenter stated that CMS revised the Medically Unlikely Edit (MUE) for HCPCS code G0465 from “1” to “2” in April 2025, acknowledging that when multiple blood-derived wound care treatments are needed in one session, the administration, dressing, phlebotomy centrifugation, mixing, etc. must be performed multiple times, and multiple treatment kits are required. The commenter stated that HCPCS code G0465 is subject to a Multiple Procedure (MPPR) indicator of “2” under which payment is generally based on the 100 percent of the highest valued procedure and 50 percent of the fee schedule amount for the remaining billed procedures. The commenter stated that this indicator is designed to reflect efficiencies that typically occur in either the PE or professional work or both when services are furnished together, however this rationale was not supported for HCPCS code G0465 since over 90 percent of the valuation for the code is based on PE, which is in turn almost wholly based on the cost for the blood-derived wound care treatment kits used in the procedure. The commenter recommended CMS to remove the MPPR by changing the Multiple Procedure indicator from “2” to “0”, which would align payment with the corresponding change in the MUE and reflect the clinical resources necessary to provide care using blood-derived wound care treatments.

Response: We appreciate the additional information supplied by the commenter, however we continue to believe that HCPCS code G0465 has been appropriately assigned a Multiple Procedure indicator of “2”. HCPCS code G0465 is not unique in having approximately 90 percent of its valuation based in PE, and there are several dozen other such codes which follow this pattern while also having a Multiple Procedure indicator of “2” (such as CPT codes 19105, 27278, 33285, 47538, 55874, and HCPCS codes 0446T and 0448T). If the commenter has reason to believe that HCPCS code G0465 is potentially misvalued, we encourage them to consider once again formally nominating the procedure under the misvalued code process.

Comment: Several commenters stated that CPT codes 76017, 76018, and 76019 were recommended by both the CPT Editorial Panel and the RUC to be modifier -51 exempt. The commenters stated that to be consistent with other modifier -51 exempt codes, the multiple procedure indicator (MPPR) for these codes should be updated to “0” while the diagnostic imaging family indicator should be updated to “99”.

Response: We continue to believe that the indicators are appropriately assigned for CPT codes 76017, 76018, and 76019, which currently have a value of “4” for the MPPR indicator and “88” for the diagnostic imaging family

indicator. The indicators for these codes were based on CPT codes 74183 and 75557, similar magnetic resonance imaging procedures that the RUC recommended as source codes in the utilization crosswalk. The current indicators for CPT codes 76017, 76018, and 76019 represent the standard assignments for MR procedures, and as such we are not finalizing any changes to these codes.

After consideration of the public comments, we are finalizing these technical corrections as proposed along with the modifications noted above in response to comments. 5. Development of Strategies for Updates to Practice Expense Data Collection and Methodology a. Background

The AMA PPIS was first introduced in 2007 as a means to collect comprehensive and reliable data on the direct and indirect PEs incurred by physicians (72 FR 66222). In considering the use of PPIS data, the goal was to improve the accuracy and consistency of PE RVUs used in the PFS. The data collection process included a stratified random sample of physicians across various specialties, and the survey was administered between August 2007 and March 2008. Data points from that period of time are integrated into PFS calculations today. In the CY 2009 PFS proposed rule (73 FR 38507 through 3850), we discussed the indirect PE methodology that used data from the AMA's survey that predated the PPIS. In CY 2010 PFS rule, we announced our intent to incorporate the AMA PPIS data into the PFS ratesetting process, which would first affect the PE RVU. In the CY 2010 PFS proposed rule, we outlined a 4- year transition period, during which we would phase in the AMA PPIS data, replacing the existing PE data sources (74 FR 33554). We also explained that our proposals intended to update survey data only (74 FR 33530 through 33531). In our CY 2010 final rule, we finalized our proposal, with minor adjustments based on public comments (74 FR 61749 through 61750). We responded to the comments we received about the transition to using the PPIS to inform indirect PE allocations (74 FR 61750). In the responses, we acknowledged concerns about potential gaps in the data, which could impact the allocation of indirect PE for certain physician specialties and suppliers, which are issues that remain important today. The CY 2010 PFS final rule explains that section 212 of the Balanced Budget Refinement Act of 1999 (Pub. L. 106- 113, November 29, 1999) (BBRA) directed the Secretary to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. BBRA required us to establish criteria for accepting supplemental survey data. Since the supplemental surveys were specific to individual specialties and not part of a comprehensive multispecialty survey, we had required that certain precision levels be met to ensure that the supplemental data was sufficiently valid, and acceptable for use in the development of the PE RVUs. At the time, our rationale included the assumption that because the PPIS is a contemporaneous, consistently collected, and comprehensive multispecialty survey, we do not believe similar precision requirements are necessary, and we did not propose to establish them for the use of the PPIS data (74 FR 61742). We noted potential gaps in the data, which could impact the allocation of indirect PE for certain physician and suppliers. The CY 2010 final rule adopted the proposal, with minor adjustments based on public comments, and explained that these minor adjustments were in part due to non- response bias that results when the characteristics of survey respondents differ in meaningful ways, such as in the mix of practices sizes, from the general population (74 FR 61749 through 61750).

Throughout the 4-year transition period, from CY 2010 to CY 2013, we gradually incorporated the AMA PPIS data into the PFS rates, replacing the previous data sources. The process involved addressing concerns and making adjustments as necessary, such as refining the PFS ratesetting methodology in consideration of interested party feedback. For background on the refinements that we considered after the transition began, we refer readers to discussions in the CY 2011 PFS through 2014 PFS final rules (75 FR 73178 through 73179; 76 FR 73033 through 73034; 77 FR 98892; 78 FR 74272 through 74276).

In the CY 2011 PFS proposed rule, we requested comments on the methodology for calculating indirect PE RVUs, explicitly seeking input on using survey data, allocation methods, and potential improvements (75 FR 40050). In our CY 2011 PFS final rule, we addressed comments regarding the methodology for indirect PE calculations, focusing on using survey data, allocation methods, and potential improvements (75 FR 73178 through 73179). We recognized some limitations of the current PFS ratesetting methodology but maintained that the approach was the most appropriate at the time. In the CY 2012 PFS final rule, we responded to comments related to indirect PE methodology, including concerns about allocating indirect PE to specific services and using the AMA PPIS data for certain specialties (76 FR 73033 through 73034). We indicated that CMS would continue to review and refine the methodology and work with interested parties to address their concerns. In the CY PFS 2014 final rule, we responded to comments about fully implementing the AMA PPIS data. By 2014, the AMA PPIS data had been fully integrated into the PFS, serving as the primary source for determining indirect PE inputs (78 FR 74235). We continued to review data and the PE methodology annually, considering interested party feedback and evaluating the need for updates or refinements to ensure the accuracy and relevance of PE RVUs (79 FR 67548). In the years following the full implementation of the AMA PPIS data, we further engaged with interested parties, thought leaders and subject matter experts to improve our PE inputs' accuracy and reliability. For further background, we refer readers to our discussions in final rules for CY 2016 PFS through 2022 (80 FR 70892; 81 FR 80175; 82 FR 52980 through 52981; 83 FR 59455 through 59456; 84 FR 62572; 85 FR 84476 through 84478; 86 FR 62572).

In our CY 2023 PFS final rule, we issued an RFI to solicit public comment on strategies to update PE data collection and methodology (87 FR 69429 through 69432). We solicited comments on current and evolving trends in health care business arrangements, the use of technology, or similar topics that may affect or factor into PE calculations. As described in previous rulemaking, we have continued interest in developing a roadmap for updates to our PE methodology that account for changes in the health care landscape. Of various considerations necessary to form a roadmap for updates, we reiterate that allocations of indirect PE continue to present a wide range of challenges and opportunities. As discussed in multiple cycles of previous rulemaking, our PE methodology currently relies on AMA PPIS data, which we have maintained represented the best aggregated available source of information at the time of its implementation. We noted in our CY 2023 and CY 2024 rules that there are several competing concerns

that CMS must take into account when considering updated data sources, which also should support and enable ongoing refinements to our PE methodology. b. Refreshed Data and Request for Information on Timing To Effectuate Routine Updates

In the CY 2024 PFS proposed rule, we continued to encourage interested parties to provide feedback and suggestions to CMS that give an evidentiary basis to shape optimal PE data collection and methodological adjustments over time. Considering our ratesetting methodology and prior experiences implementing new data, we issued a follow-up from the CY 2023 PFS comment solicitation for general information. We solicited comments from interested parties on strategies to incorporate information that could address known challenges we experienced in implementing the initial AMA PPIS data. Our current methodology relies on the AMA PPIS data, legislatively mandated supplemental data sources (for, example, we use supplemental survey data collected in 2003, as required by section 1848(c)(2)(H)(i) of the Act to set rates for oncology and hematology specialties), and in some cases crosswalks to allocate indirect PE as necessary for certain specialties and practitioner types. We also sought to understand whether, upon completion of the updated PPIS data collection effort by the AMA, contingencies or alternatives may be necessary and available to address the lack of data availability or response rates for a given specialty, set of specialties, or specific service suppliers who are paid under the PFS.

In response to the CY 2024 RFI, most commenters stated that CMS should defer significant changes until the AMA PPIS results become available. For further background, refer to 88 FR 78841 through 78843. In responding to our RFI, the AMA RUC provided a set of responses, which many other commenters echoed in separate comments. In summary, the AMA RUC letter submission from CY 2024 PFS suggested that CMS should not consider further changes until PPIS data collection and analysis is complete. Overall, the AMA comments generally do not support any change to the methodology and stated that CMS should wait to consider any further changes until PPIS updates become available. Further, we noted that through its contractor, Mathematica, the AMA secured an endorsement for the PPIS updates from each State society, national medical specialty society, and others prior to fielding the survey (88 FR 78843). Refer to the AMA's summary of the PPIS, available at https://www.ama-assn.org/system/files/physician-practice-information-survey-summary.pdf. The AMA stated that it expects analysis, reporting, and documentation to be completed by the end of CY 2024 and would share data with CMS when results become available.

Some commenters did not recommend that CMS defer significant changes until the AMA PPIS results become available. These commenters stated that reliance on the PPIS updates may not improve the accuracy and stability of the PE methodology because of the survey design, possible implementation challenges, and a possible lack of transparency or granularity in resulting datasets. Other commenters stated that dependence on the PPIS or survey data in general, due to timing and frequency constraints, may continue to jeopardize independent practice and discourage fair competition among suppliers and providers of services paid under the PFS. These commenters stated that if current trends continue, it will result in far fewer independent practices and more consolidation before the availability of updated survey data, undermining the sampling methodology of any survey and the general goals of our PE methodology updates.

As we stated in the CY 2025 PFS proposed rule (89 FR 61614), we believe the AMA's approach may possibly mitigate nonresponse bias, which created challenges using previous PPIS data. However, we remain uncertain about whether endorsements prior to fielding the survey may inject other types of bias in the validity and reliability of the information collected. We believe it remains important to reflect on the challenges with our current methodology, and to continue to consider alternatives that improve the stability and accuracy of our overall PE methodology. We reiterate our discussion summarizing the responses to previous years' RFIs in each of the CY 2023 PFS and CY 2024 PFS final rules (refer to 87 FR 69429 through 69432 and 88 FR 78841 to 78843). We also requested general information from the public on ways that CMS may continue to work to improve the stability and predictability of any future updates. Specifically, we requested feedback from interested parties regarding scheduled, recurring updates to PE inputs for supply and equipment costs. We stated that we believe that establishing a cycle of timing to update supply and equipment cost inputs every 4 years may be one means of advancing shared goals of stability and predictability. CMS would collect available data, including, but not limited to, submissions and independent third-party data sources, and propose a phase-in period over the following 4 years. The phase-in approach maps to our experience with previous updates. Additionally, we stated that more frequent updates may have the unintended consequence of disproportionate effects of various supplies and equipment that have newly updated costs.

Further, we solicited feedback in the CY 2025 proposed rule RFI (89 FR 61614) on possible mechanisms to establish a balance whereby our methodology would account for inflation and deflation in supply and equipment costs. We stated that we remain uncertain how economies of scale (meaning a general principle that cost per unit of production decreases as the scale of production increases) should or should not factor into future adjustments to our methodology. We stated that there remains a diversity of perspectives among interested parties about such effects. We sought information about specific mechanisms that may be appropriate, and in particular, approaches that would leverage verifiable and independent third-party data that is not managed or controlled by active market participants.

In response to our CY 2025 proposed rule RFI (89 FR 97737), numerous commenters expressed concerns regarding CMS' current PE methodology, particularly highlighting its perceived inadequacies in accommodating modern medical technologies and services, such as Software as a Service (SaaS) and artificial intelligence (AI). These commenters stated that there is a need for CMS to revise its PE methodology to better reflect the actual costs of running medical practices today, which includes more frequent updates and the incorporation of direct costs for software and innovative technologies. Many also supported the AMA's PPIS efforts to ensure updated and accurate data informs PE calculations. The commenters recommended CMS to collaborate closely with medical associations and incorporate broad interested parties feedback without increasing reporting burdens, particularly for smaller practices.

We note that we have an ongoing contract with the RAND Corporation to analyze and develop alternative methods for measuring PE and related inputs for implementation of updates to

payment under the PFS. We will continue to study possible alternatives and have included analysis of the updated PPI and CPI Survey data in the proposed rule, as part of our ongoing work.

As previously stated in this section and discussed in sections II.N. and VI. of the proposed rule, we acknowledge that, at the time of publication of the proposed rule, the AMA concluded their data collection efforts and submitted the data to CMS for us to consider implementing the PE/HR data and cost shares in PFS ratesetting for CY 2026. In the current system, accurate measurement of the indirect to direct PE ratio and the PE/HR for each specialty is critical to ensure that allocated indirect PE RVUs (and therefore total PE RVUs) accurately estimate service-level PE as defined by PFS ratesetting steps described previously in this section. Because the PE methodology is budget neutral, inaccuracies in the PE/HR data for some specialties can significantly impact the overall pool of PE available to distribute across all services, and therefore overall valuation and payment.

We appreciate the AMA's PPI and CPI Survey data collection efforts, and recognize the significant costs incurred to collect the data. However, our initial review of the new data raises substantive concerns about their accuracy, utility, and suitability as an immediate replacement for the current PE/HR data and cost shares for use in allocating nearly $91 billion in payments across PFS services. These concerns relate to issues including:

Low Response Rates and Representativeness: A primary concern is the low response rate of the surveys. The 2024 PPI Survey had a response rate of 3 to 7 percent, depending on whether practices that did not click through the invitation email link were counted as non-respondents. The CPI Survey had a slightly higher response rate between 7 to 9 percent. In comparison, the 2008 PPIS had a response rate of 12 percent. Low response rates raise concerns as to whether responding practices are systematically different from sampled practices that did not or could not respond. Additionally, in response to lower-than-expected response rates, the AMA allowed 102 practices to volunteer to participate in the survey. Although most of these volunteer practices did not complete the survey, allowing practices to volunteer data adds to concerns about the representativeness of the data.

Additionally, the 2008 PE/HR estimates were based on the observations (about half of responses) that had no missing expense data, whereas the 2024 PE/HR estimates and the shares are based on observations that had at least some non-missing data where the missing data was imputed as described in the Survey Methods Report (Step 6).\1\ It should be noted that some expense categories were reported more consistently by survey respondents. For example, 97 percent of the respondents reported compensation (physician work) compared to only 69 percent that were able to report non-billable drugs (direct expense under supplies) and information technology (indirect expense). Similarly, many survey respondents were not able to separately report expenses for qualified health providers (QHPs). Nearly 40 percent of the responses used in the calculation of the PE/HR estimates reported that they had nurse practitioners or physician assistants in their practice, but only 27 percent were able to separately report non- physician compensation expenses.

\1\ https://www.ama-assn.org/system/files/ppi-survey-methods-report.pdf.

Small Sample Sizes and Sampling Variation: Due in part to the low response rates, the number of respondents was small for many specialties included in the 2024 PPI and CPI data. For example, the PE/ HR measures for Vascular Surgery are based upon responses from only 20 practices. Moreover, the PPI and CPI survey estimates give more weight to responses from practice types that would otherwise be under- represented in the sample, relative to the population of all eligible practices in a given specialty. For example, such an adjustment would be applied if the sample contained a higher proportion of facility- based practices than there are in the full population of practices in a given specialty. Applying such weights generally results in estimates that are less precise than an unweighted sample of a given size. One way to quantify this is via the effective sample size, which estimates the sample size from an unweighted sample that would be required to produce survey estimates that are as precise as those from the weighted sample. The effective sample size can be estimated as the ratio of the sample size to the design effect, which is reported in the PPI/CPI Methods Reports.2 3 For Vascular Surgery, the reported design effect is 1.82, meaning that the 20 observations correspond to an effective sample size of only 11 (calculated as 11.0=20/1.82). For 12 of 18 broad specialty groupings reported in the 2024 PPI Survey, the effective sample size is less than 18.0 and for four of these specialties the effective sample size is less than 10.0. Similarly, in the CPI Survey data, the effective sample sizes are also small, with all but one below 20.0, and as low as 6.2 for Oral Surgery. Not including practices that volunteered, only 327 sampled practices completed the 2024 PPI Survey compared to 3,088 anticipated completions.

\2\ https://www.ama-assn.org/system/files/ppi-survey-methods-report.pdf.

\3\ https://www.ama-assn.org/system/files/cpi-survey-methods-report-main-report.pdf.

The low sample sizes contribute to substantial statistical uncertainty regarding the true specialty-level PE/HR measures. Figure A-B1 illustrates the 95 percent confidence intervals for direct and indirect PE/HR as reported in the 2024 PPI/CPI Surveys. The large points represent the new PE/HR estimates, the bars indicate the confidence intervals, and the smaller points show the current PE/HR estimates used in PFS ratesetting from the 2008 PPIS. The 2024 CPI and PPI Survey confidence intervals are so broad that they cover most of the original 2008 PPI PE/HR values in nominal dollars (that is, not adjusted for inflation). Therefore, in most cases, the new data are unable to establish statistically significant changes from the status quo, especially since the old PE/HR measures were themselves estimated with substantial levels of statistical uncertainty. Even so, the new PE/HR estimates differ enough from the old ones that many specialty- level impacts of adopting the new data are quite large. When translated into RVUs, the PE/HR standard errors for specialties such as Cardiology, Pathology, Ophthalmology, and Vascular Surgery correspond to a wide range of payments for services provided by those specialties meaning that the new data are compatible with a wide range of specialty impacts for many specialties.

Lack of Comparability to Previous Survey Data: The 2024 PPI and CPI Survey data groups specialties in a considerably different way from the current structure, with 29 specialty groupings compared to 51 in the 2008 data. We found that using the 2008 PE/HR data averaged within the 2024 PPI Survey specialty groupings would lead to large specialty-level impacts in some cases, further complicating comparisons between the old and new data and indicating that the new 2024 specialty groupings is impactful on redistribution among the PFS alone. We refer readers to section VI. of the proposed rule for discussion of the impacts of the 2024 PPI Survey specialty groupings on PFS ratesetting. It is also unclear why some specialties were collapsed into

relatively broad groups for the purposes of data collection and reporting while others were not.

Potential Measurement Error: We are concerned that sampled practices were not able to accurately report the data necessary to respond to the PPI and CPI Surveys. For example, the survey contractor found that practices frequently had challenges reporting the number of physicians working in the practice. One may expect that the number of physicians in a practice is relatively easier for practices to measure than some of the specific costs integral to reporting PE/HR. However, the contractor noted that--prior to an adjustment--their estimate of the total number of physicians was nearly three times as large as the number of physicians in their sampling frame which “indicated a large potential for measurement error in this estimate.” \4\ Also, because information on the number of physicians in each practice was available from external data which were obtained before survey data were collected, to inform the survey design, we believe it is likely that the number of physicians was highlighted as having high potential measurement error because it was possible to compare this measure against external data. Moreover, some responding practices reported that it took more than 40 hours to complete the survey, which suggests that the required data are not readily captured by their accounting systems and therefore may not be fully reliable.

\4\ https://www.ama-assn.org/system/files/ppi-survey-methods-report.pdf.

Thus, we are left with doubts about not just the amount of data collected, but its quality as well.

Missing and Incomplete Data Submission: The PPI Survey summary data was submitted to CMS in January 2025 and the CPI Survey summary data in February 2025. These initial submissions were missing from many of the elements required to analyze the data and determine their usability in our PE methodology. We inquired about these elements and have since received some additional information, but some of the information was not available due to the survey contract concluding, such as estimates based solely on the survey responses that had no missing expense data or the impact of the trims and edits of the data described in the PPI Survey Methods Report. Additionally, some data is completely missing from the submission, therefore we had to utilize old PE/HR data in analyses for specialties such as Independent Diagnostic Testing Facilities (IDTFs) when developing models to incorporate the data. Additionally, the American Occupational Therapists Association (AOTA) requested the continued crosswalk of PE/HR data from Physical Therapy to Occupational Therapy because the CPI respondents may have indirectly reported the salaries of occupational therapy assistants with provider compensation rather than including their salaries in clinical staff compensation.

Additionally, there is summary data provided from the PPI Survey \5\ that are not provided for the CPI Survey.\6\ For example, the PPI Survey summary data include two lines--“MEI shares” and “All [specialties]”--that could presumably be used to establish the share of total RVUs that should be attributed to work, practice expense, and malpractice, but we do not believe that they reflect the specialties' data from the CPI Survey, even though those specialties are included in PFS ratesetting, account for a significant portion of the PFS PE RVU pool, and draw from the same pool of RVUs as the PPI Survey specialties. Similarly, we do not have the corresponding CPI Survey specialty weighting information provided to CMS for the PPI Survey specialties, therefore, we have limited information to develop an approach for calculating shares for all CMS specialties accounted for in both the PPI and CPI Surveys.

\5\ https://www.ama-assn.org/system/files/table-1-results-from-ppi.pdf.

\6\ https://www.ama-assn.org/system/files/table-1-results-from-cpi-final.pdf.

In an effort to incorporate PPI and CPI Survey specialties' data despite the lack of analogous summary data, we developed possible methods to weight the data for all CMS specialties in a cohesive manner for use in the PFS PE methodology such as estimates of total RVUs and total service time by specialty used for CY 2026 PFS ratesetting. We refer readers to section VI. of the proposed rule for discussion of the different weighting methodologies and their resulting shares of work, PE, and MP.

Overall, the small sample sizes and the apparent presence of high levels of measurement error in data elements that could be compared to external estimates suggest that specialty-level PE/HR measures may be challenging to measure reliably through voluntary surveys alone. We note that the interested parties may concur with this statement based on the Methods Report, which states considerations for future data collection efforts that may forego the survey structure and rely on other practice expense sources such as tax returns. We believe that a more efficient and transparent system that could be updated on a regular basis may be possible using available administrative data (such as Medicare claims; hospital cost reports; publicly-reported tax information such as from IRS Form 990; and data collected by other agencies, such as the Census Bureau's Service Annual Survey (SAS)) to the fullest extent possible and relying on survey data only to fill gaps only where available data do not exist. An alternative to collecting any survey data would be to modify the PE allocation system so that it only relies only on data that can be measured accurately and on an on-going basis. For example, if there are components of indirect PE that are not captured in administrative data, those expense categories could potentially be re-classified as direct costs and accounted for in a manner similar to how direct costs are currently considered.

Beyond the use of the data in our PE methodology, we need information on the total share of PFS payments that should be allocated for work, PE, and MP. Data collected in the 2024 PPI and CPI Surveys could be used for this purpose, as well as potentially be considered in a construction of the MEI in the future; however, there still remain underlying concerns with the sample representativeness for these purposes. The AMA has stated that shares derived from data collected from the Service Annual Survey (SAS) for the 2017-based MEI miss many physicians who work in facility settings and thereby understate the percent of total PFS payments that should be allocated to physician work. The data needed to derive the three component shares (work, PE, and MP) are more aggregated than the specialty-level PE/HR data required for the PE methodology, so we have fewer concerns with the small sample sizes for this application. However, we continue to have similar concerns with the data related to measurement error and sample representativeness for purposes of the shares.

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At the time of the publication of CY 2026 PFS proposed rule (90 FR 32593 through 32597), we continue to conduct ongoing analyses on the potential impact of the AMA's PPI and CPI Survey data on PFS ratesetting. Due to overarching concerns with the data described earlier and our previously described policy goal to balance PFS payment stability and predictability with incorporating new data through routine updates to the MEI, we reiterate that we proposed not to implement the PE/HR data or cost shares from the AMA's survey data at this time, and proposed instead to maintain the current PE/HR data and cost shares for CY 2026 PFS (90 FR 32593) ratesetting. At the same time, we remain focused on proposals that reflect evolutions in practice, including the site of service payment differential discussed later in this section, while we continue to hold strong interest in specialty-level practice expense updates. Consequently, we intend to work with interested parties, including the AMA, to understand whether and how such data should be used in PFS ratesetting in future rulemaking.

We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: Many commenters opposed CMS' decision to continue using 18-year-old survey data from 2007, stating that it no longer reflects current healthcare practice costs. Additionally,

many commenters expressed concern about CMS' proposal to delay implementation of the PPI Survey data for CY 2026, emphasizing that reliance on outdated data undermines CMS' stated goal of improving payment accuracy and ignores the reality that the healthcare system has fundamentally changed over the past two decades.

The commenters highlighted significant methodological improvements in the 2024 survey that make it superior to the 2007 approach. Commenters stated that the 2024 PPI Survey represented a fundamental shift from individual physician-level data collection to practice-level data collection, encompassing 18,086 physicians across 831 departments in 380 practices compared to the original 2,795 individual physicians surveyed in 2007. Commenters stated that this change emphasized practice attributes such as size, ownership, and care delivery settings rather than individual physician characteristics, reflecting the evolution of healthcare delivery models. Commenters stated that the survey implemented several improvements including better representation through sampling focused on practice characteristics that correlate with practice expense per hour, more sophisticated imputation techniques to address missing data, and the ability to analyze department-level data by specialty.

The commenters recommended that the practice-level approach provides a more accurate representation of modern healthcare delivery. They stated that the survey addressed methodological biases present in the 2007 data, where MEI shares were skewed toward practices with higher expense levels, and provided data for all physicians rather than just those reporting expenses at the individual level. Many commenters emphasized that continuing to use 18-year-old data systematically undervalues current practice costs while ignoring significant changes in healthcare infrastructure, including substantial new information technology expenses.

Addressing response rates, a commenter stated that approach used to calculate the 7 percent response rate “was equivalent to the American Association of Public Opinion Research (AAPOR) standard response rate calculation” as it relates to whether delivered but unopened email invitations should be included in the denominator of the response rates. A commenter stated that non-reporting of specific data requested by the PPI Survey “indicates that practices often do not organize their financial data in a way that easily translates to the methodology underlying the physician payment schedule.” We agree with this point and believe that this indicates that it may be necessary to implement a change in the PFS ratesetting so that it only requires input that can be measured reliably.

The commenters suggested that there was concrete evidence demonstrating substantial cost changes over time. They emphasized that the 2024 survey revealed important cost trends, with overall direct practice expense per hour increasing by almost 40 percent from 2007 while indirect expenses only increased by 5 percent, providing valuable insights into specific expense category changes that reflect the reality of contemporary medical practice and justify the need for updated payment methodologies. A commenter requested that CMS convene listening sessions to validate and incorporate the 2024 PPI data and ensure the methodology is fully vetted, transparent, and reflective of real-world practice.

Several commenters supported CMS' cautious approach, with some expressing concerns about inappropriate specialty grouping that combined unrelated specialties in a category called “Office Based Proceduralists” despite having no meaningful correlation in practice economics. A commenter stated that the payment rates resulting from the use of this combined category would be “disastrous for practices' financial sustainability and patient access to care” and expressed appreciation for CMS' decision to maintain current data while working toward better methodological approaches. A commenter requested that CMS phase in any future implementation of revisions to the practice expense methodology or inputs.

Response: Regardless of how many physicians are members of the responding practices, the new PE/HR estimates and standard errors are compatible with a wide range of true underlying PE/HR measures. According to our calculations, the survey data cannot rule out PE/HR values that would imply a range of at least 10 percentage points of specialty-level impacts for 22 of 56 specialties, when measured through 95 percent confidence intervals. While we agree that the purpose of new data is not to test changes in underlying PE/HR measures, utilizing the PPI data would mean, in some cases, changing a specialty's total PFS payments by 10 percentage points or more based on data that cannot rule out PE/HR values consistent with no underlying change.

These assessments of sampling variation all assume no selection bias or measurement error. While we agree that the survey design itself is an improvement over the 2007 PPI Survey in terms of weighting for practice characteristics, we believe there still is substantial risk of measurement error. As an example, physician headcounts were the one survey data element that could be externally validated, and it appears to be the case that those data were substantially misreported. In its report to the RUC, Mathematica indicates that “the total number of physicians was estimated to be 2,056,784, nearly three times larger than the total number of physicians from the two sample frames, which was 693,502.” \7\ The inaccuracy in the data of the one survey element that could be externally validated raises concerns about the quality of data elements that cannot be externally validated.

\7\ https://www.ama-assn.org/system/files/ppi-survey-methods-report.pdf, page 37.

Regarding the AAPOR response rate, we note that AAPOR publishes six definitions for the response rate. The version that the commenters reference as the “most-common AAPOR response rate” uses an estimate of the proportion of unknown eligibility cases that would, in fact, be eligible. The assumption by the RUC and its contractor, Mathematica, that none of the emails that were delivered but left unopened were for eligible practices results in an “upper bound” response rate, not the “most common” rate. Nonetheless, our primary concern is with the total number of responses that the data collection effort produced. Against a planned 3,188 responses, only 380 were obtained. This low survey yield means that even after grouping many specialties together, the estimates are still highly exposed to sampling variation.

Regarding the perceived biases of the 2007 methodology toward the expense allocation of practices with higher levels of expenses (even if they had the same number of physicians who worked the same number of hours as in practices with lower levels of expenses), we note that, as. it relates to the PFS, the MEI is used to establish the size of the pools of work, PE, and MP. Because specialties that have higher expense levels also receive a larger share of total PFS payments, data from high-expense specialties should have greater influence on the pools than data from low-expense specialties, when measured on a per- physician basis. In summary, the MEI should produce a sensible split of total PFS dollars

between work, MP, and MP. This is done by aggregating total expenses across practices, not by averaging shares at the physician level.

After consideration of the comments we received, we are finalizing our proposal not to implement the PE/HR data or cost shares from the AMA's survey data at this time, and to maintain the current PE/HR data and cost shares for CY 2026 PFS ratesetting. We remain interested in further information that could help inform updates to the PE/HR data or cost shares through future rulemaking. c. Updates To Practice Expense (PE) Methodology--Site of Service Payment Differential

While we proposed not to incorporate the PPI and CPI Survey data into PFS ratesetting for CY 2026, we proposed a significant refinement to our PE methodology to better reflect trends in physician practice settings. As detailed previously in the description of the practice expense methodology, many services have a site of service payment differential between the facility (F) and non-facility (NF) settings under the PFS. Services furnished in the non-facility setting, such as a physician's office, include the physician work RVUs, direct costs for supplies, clinical staff, and equipment, and indirect costs allocated based on the direct costs and the greater of either the clinical labor costs or the physician work RVUs. In the facility setting, the payment rate includes physician work RVUs and the indirect practice expense allocated based on the physician work RVU. The direct costs in the facility setting are paid under a different payment system than the PFS, such as the OPPS. Indirect costs allocated to services furnished in the facility setting are meant to reflect the typical costs associated with practice expenses in that setting of care.

In the decades since implementing the PE methodology, there have been significant transformations to the landscape of the healthcare delivery system in the United States, particularly regarding physician practice patterns. Historically, private practice was the dominant model for physicians, offering them autonomy, flexibility, and the opportunity to build independent practices. Specifically, in 1988, approximately 72 percent of physicians were full or part owners in their practice.\8\ This percentage had dropped to 35.4 percent by 2024, representing a 52 percent decrease, with a corresponding rise in physicians in hospital-owned practices and physicians employed directly by a hospital. The percentage of physicians in hospital-owned practices has increased by over 47 percent, from 23.4 percent in 2012 to 34.5 percent in 2024. Similarly, 12.2 percent of physicians were employed directly by a hospital (or contracted directly with a hospital) in 2024, up from 5.6 percent in 2012.\9\ In their June 2025 Report to Congress,\10\ MedPAC notes that there are 9 specialties where 60 percent of the clinicians who billed Medicare furnished 90 percent or more of their services in the facility setting. These trends indicate a steady decline in the percentage of physicians working in private practice, with a corresponding rise in physician employment by hospitals; and growth in the percentage of physicians who practice exclusively, or almost exclusively, in the facility setting. When the PFS was established, the methodology for allocating indirect practice expense was based in part on an assumption that the physician maintained an office-based practice even when also practicing in a facility setting. In that context, the PE methodology has allocated the same amount of indirect costs per work RVU, without regard to setting of care.

\8\ Kane CK. Emmons, DW. New data on physician practice arrangements: private practice remains strong despite shifts toward hospital employment. Chicago (IL): American Medical Association; 2013. Policy Research Perspective 2013-2.

\9\ Kane CK. Physician Practice Characteristics in 2024: Private Practices Account for Less Than Half of Physicians in Most Specialties. American Medical Association.

\10\ MedPAC. (2025). June 2025 Report to the Congress: Medicare Payment Policy. Chapter 1 Reforming physician fee schedule updates and improving the accuracy of relative payment rates. https://www.medpac.gov/wp-content/uploads/2025/06/Jun25_MedPAC_Report_To_Congress_SEC.pdf.

We note that, in the AMA's comment letter on the CY 2023 PFS proposed rule,\11\ they stated that physician practices maintain some indirect practice expense costs for physicians who are solely facility- based such as coding, billing, and scheduling. We acknowledge that these indirect costs should be accounted for in PFS payment through PE RVUs, but we believe that allocating the same amount of indirect practice expense based on work RVUs in both settings may overstate the range of indirect costs incurred by facility-based physicians if it is now less likely that they would maintain an office-based practice separate from their facility practice. In a 2018 report developed under contract with CMS, RAND noted that “operating from the perspective of paying for the `typical' instance of a procedure, these analyses suggest that the current system could be improved by shifting more of the allocation of PE RVUs to the physician office setting”.\12\ As MedPAC notes in their June 2025 report, “In cases when clinicians practice exclusively or almost exclusively in a facility, or where a facility is financing indirect PE for clinicians, payment to both entities for indirect PE costs may be duplicative and unnecessary”. While the relative relationship between the PE allocated to services furnished in a facility and non-facility setting may have been more reflective of the actual expenses incurred by physicians when the PE methodology was originally established, maintenance of that element of the methodology in the face of changing practice patterns likely represents an imbalance of the practice expense allocated to the facility relative to the non-facility. Within the PFS relative value system, any overstatement of practice expenses in the facility setting would affect the allocation of indirect costs in the non-facility setting. This dynamic, in which relative resources involved in furnishing PFS services may not be adequately reflected in facility and non-facility settings, has the potential to contribute to broader undesirable financial incentives toward higher-priced settings of care, like hospitals, and away from more efficient settings, like physician offices.13 14 15 This could result in unnecessary costs for payers and beneficiaries, and obstacles to physicians and other professionals operating independent practices.

\11\ https://downloads.regulations.gov/CMS-2023-0121-2694/attachment_1.pdf.

\12\ Burgette, Lane F., Jodi L. Liu, Benjamin M. Miller, Barbara O. Wynn, Stephanie Dellva, Rosalie Malsberger, Katie Merrell, et al. “Practice Expense Methodology and Data Collection Research and Analysis.” RAND Corporation, April 11, 2018. https://www.rand.org/pubs/research_reports/RR2166.html.

\13\ https://pmc.ncbi.nlm.nih.gov/articles/PMC4191490/ #:~:text=Using%20generally%20accepted%20accounting%20practices,to%20m ore%20intense%20resource%20use.

\14\ https://healthcostinstitute.org/hcci-originals-dropdown/all-hcci-reports/shifting-care-office-to-outpatient.

\15\ https://www.bcbs.com/dA/392da3b5a7/fileAsset/BHI%20Issue%20Brief%20December_121323_SiteNeutral.pdf.

We share MedPAC's concerns regarding the potential for duplicative payment under the current PE methodology for allocating indirect costs for physicians practicing in the facility setting. Allocating the same amount of indirect PE per work RVU for services furnished in the facility setting as the non-facility setting may no longer reflect contemporary physician practice trends. As we noted in the proposed rule, data suggests that fewer than half

of physicians currently own their practices, but the underlying assumption embedded in the PFS payment methodology presumed that physicians generally maintained office practices (and incurred associated indirect costs) even when they furnished care in facility settings. For these reasons, for each service valued in the facility setting under the PFS, we proposed to reduce the portion of the facility PE RVUs allocated based on work RVUs to half the amount allocated to non-facility PE RVUs beginning in CY 2026. This change will occur in step 8 of the PE RVU Methodology described earlier in this section, in which indirect allocators (direct costs, clinical labor, and work RVUs) are assigned. For example, the work RVU for CPT code 33533 (Coronary artery bypass, using arterial graft(s); single arterial graft) is 33.75. For CY 2025, using the full work RVU as an indirect allocator, CPT code 33533 had approximately 12 indirect PE RVUs. Under this change to the methodology, where we will reduce the portion of the facility PE RVUs allocated based on work RVUs to half the amount allocated to non-facility PE RVUs, CPT code 33533 would have approximately 7.2 indirect PE RVUs.

We noted in the proposed rule that this change to the indirect cost allocation methodology is intended to better recognize the relative resources involved in furnishing services paid under the PFS in facility and non-facility settings. We compare this change to our current methodology, which functionally presumes approximately equal indirect costs incurred by physicians across sites of service. This presumption was initially made in the context of most practitioners maintaining office practices independent of the facilities in which they provided care, and as we discussed in the proposed rule, appears to be inconsistent with contemporary trends in physician practice. We understand from the AMA's comment letter on the CY 2023 PFS proposed rule noted earlier that physician practices may incur some indirect PE costs (such as coding, billing, and scheduling) for physicians who are facility-based. To better inform our consideration of how to account for any such costs in the PE RVU methodology, we sought comment on the specific types and magnitude of indirect PE costs incurred that are attributable to physicians who practice in part or exclusively in a facility setting, and any variables that affect whether and to what extent a practice would incur them. We also sought comments on whether our proposal to reduce the portion of the facility PE RVUs allocated based on work RVUs to half the amount allocated to non-facility PE RVUs is an appropriate reduction or whether we should consider a different percentage reduction for CY 2026 or in future years. While our change to the methodology represents a starting point to correcting potential historic distortions in the allocation of indirect PE costs across settings of care, we intend to further examine our methodology and consider additional refinements based upon public comments received and any studies or data sources identified. We solicited comments on whether there are additional data sources that might help identify a more precise site of service difference in the allocation of indirect PE RVUs. We believe the implementation of this update will more accurately account for the resource costs involved in physicians furnishing care across all settings and correct potential distortions in the allocation of indirect PE under our current methodology. We refer readers to section VI. of the proposed rule for discussion of the impacts of this proposal on CY 2026 PFS ratesetting.

We specifically solicited comments on whether and how this policy should apply to codes with MMM global periods (maternity services) and how it could specifically impact access to maternity services, given our understanding that many of the patient encounters across those services occur in the office setting. As we noted in the CY 2024 PFS final rule (88 FR 78949), maternity services are unique within the PFS in that they are the only global codes that provide a single payment for almost 12 months of services, which include a relatively large number of E/M visits performed along with delivery services and imaging; and were valued using a building-block methodology as opposed to the magnitude estimation method. Given that the work RVUs for maternity services encompass significant care during this lengthy period that may be furnished in the non-facility setting, we also solicited comment on whether we should include these services in our policy to reduce the allocation of PE based on work in the facility setting.

We requested comments on all aspects of this proposal, including ways to improve the allocation of facility and non-facility PE RVUs in the future. We also solicited comments on alternative approaches to improving the allocation of indirect PE as outlined in Chapter 1 of MedPAC's June 2025 Report to the Congress (pages 27 through 33).

We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: Some commenters strongly supported CMS' proposal. These supporters indicated that the proposed change increases the accuracy of the PFS and/or advances site-neutral payments. These commenters applauded CMS' efforts to align payments between sites of care, stating that payment differentials by site of care increase costs without accompanying quality improvements. The commenters also noted that overall pay differences between hospital outpatient departments and physician offices for the same services put independent practices at a competitive disadvantage. Some commenters suggested that CMS should reduce the allocation further, allocating only one third of the indirect PE from the work RVU in developing PE RVUs, given that only 35.4 percent of physicians own their own practice.

Response: We appreciate these comments on the proposal. We agree that updating these assumptions will improve the accuracy of the RVUs assigned to different settings of care. We also recognize that reducing unnecessary or unwarranted payment differences across settings of care would likely have significant benefits in leveling the playing field. We appreciate commenters' interest in reducing the allocation of indirect PE RVUs beyond the proposal for the reasons the commenter suggested. We note that we will continue to seek and be open to information regarding how to refine the allocation methodologies in future notice and comment rulemaking.

Comment: Several commenters opposed the proposal. Some of these commenters stated that the proposal lacks face validity and is based on arbitrary assumptions rather than empirical data. The commenters stated that CMS should explore more sophisticated methodologies, grounded in actual cost data and reflecting real-world complexity of physician practice arrangements, rather than implementing the proposed blanket reduction approach that relies on broad generalizations. Many commenters requested that if CMS does implement this proposal, it allocates 75 percent of the indirect PE based on the work RVUs, and/or that the proposal be phased in over 3 to 4 years. Some of these commenters noted that PE changes of similar magnitude have historically been implemented over several years, such as clinical labor pricing adjustments and supply/package corrections. A commenter stated that

CMS declined to adopt the 2024 AMA PPI survey data due to representativeness concerns yet simultaneously proposed sweeping methodological changes that also haven't been validated. Multiple commenters stated that CMS should not finalize this provision without conducting comprehensive additional data analysis to understand the full implications of the proposed changes.

Response: We appreciate these commenters and their concerns. We acknowledge that the proposal recognizes a change in the underlying assumptions that are made in the PE methodology based on broad changes in the marketplace that have occurred in the three decades since the methodology was originally established. The underlying assumptions in the methodology, both the status quo that assumes no variation whatsoever in indirect costs per work RVU between settings of care and under the proposal that would allocate half the amount of indirect costs, are not driven by precise numbers, and the proposed change will better recognize the relative resources involved in furnishing services paid under the PFS in facility and non-facility settings. We are also eager to consider more precise data to help refine the allocation methodologies for future rulemaking, should such data become available. We also recognize that we have historically phased in some significant changes in PE data and methodology over several years. However, in the case of this proposed change, we note that we consider our proposal itself to be a tempered one, considering (as other commenters have noted) that significantly fewer than 50 percent of practitioners own their own practice. Furthermore, while a multi-year transition would mean mitigating reductions for facility services, it would also reduce the increases in payment that would otherwise be made for non-facility services. Such a phase-in would perpetuate the overall site of service payment disparities that have clearly contributed to significant distortions in the market where the difference between overall payment for services in facility settings compared to non-facility settings continues to grow.

Comment: Some commenters raised concerns about disproportionate impacts on providers in rural and underserved areas, stating that these providers already face significant challenges in providing specialized care to vulnerable Medicare populations. Other commenters specifically noted that the proposal would improve access, particularly in rural areas, where maintaining independent practices is often the only way patients can access timely treatment. A commenter stated that the lack of comprehensive impact analysis on different geographic regions, practice types, and patient populations represents a significant oversight that could lead to unintended access problems and practice closures in areas where healthcare resources are already scarce.

Response: We share commenters' interest in the care of beneficiaries in rural and underserved areas. We believe that updating the assumptions that underly the methodology will result in more accurate valuation across settings and agree with commenters that improved valuation that better recognizes the costs of care in non- facility settings will be beneficial to many of those that practice in rural communities. We acknowledge that facility-based care can also be an important part of care in rural and underserved communities, and we note CMS' efforts to mitigate risks for rural providers in the context of the OPPS and related policies. For these reasons we remain interested in understanding the impact of PFS payment on both rural providers and physicians and other practitioners. We believe that on balance, this policy will support independent practices, including in rural areas, and that for these practices, it may be all the more urgent that we update the assumptions embedded in the PE methodology to better reflect current practice. We did not receive comments addressing the specific types and magnitude of indirect PE costs incurred that are attributable to physicians who practice in part or exclusively in a facility setting, and any variables that affect whether and to what extent a practice would incur them. While we received comments suggesting that we should allow a higher percentage for indirect PE allocation based on work RVUs, such as 75 percent, commenters did not provide a justification for this figure. In contrast, commenters that suggested that CMS only allocate one third of the indirect PE allocation based on work RVUs in the facility setting stated that this was justified given that 35.4 percent of physicians own their own practice. As stated in the CY 2026 PFS proposed rule (90 FR 32593), we believe that 50 percent is a conservative estimate of the actual indirect practice expense that should be allocated based on the work RVU. Several commenters acknowledged that they did not have any evidence suggesting that the 50 percent reduction is inaccurate. We note that we, as well as interested parties such as MedPAC, have long been concerned about the allocation of indirect PE in the facility setting given our imperative to establish RVUs that reflect the relative resources involved in furnishing services, and have been developing policy approaches to address this issue for several years. We carefully considered analyses done over several years by MedPAC and RAND and believe this proposal is a relatively measured step toward addressing the overstatement of indirect costs incurred by facility- based physicians.

Comment: Several commenters stated that CMS' fundamental assumptions regarding employed physician costs are disconnected from the reality of modern healthcare practice arrangements. These commenters stated that despite the documented trend toward declining private practice ownership and increasing physician employment by larger health systems, the assumption that employed physicians do not incur significant administrative and overhead costs is incorrect. The commenters stated that physicians providing care in facility settings continue to face substantial indirect costs including coding, billing, scheduling, and administrative overhead, regardless of their employment status. The commenters stated that the AMA's PPI survey data provides a concrete quantification of these costs, with estimates of indirect costs of $57 per hour for hospital-based medicine and $62 per hour for hospital-based surgery. The commenters stated that many hospital- employed physicians operate under arrangements where practice expense costs are charged back to their departments, including rent or leasing space based on square footage used, staffing costs, billing infrastructure, and administrative support. Another commenter noted that some independent medical groups have professional service contracts with hospitals, rather than employment arrangements. The commenters stated that the proposed flat 50 percent reduction to the work RVU allocator fails to account for these varied arrangements and represents an oversimplified approach to a complex issue. The commenters requested that CMS focus on collecting up-to-date information on the true cost of practicing in facility vs. non-facility settings before assuming differences warrant a 50 percent reduction.

Response: We appreciate these comments, and we acknowledge that practice arrangements vary significantly in current practice. Again, we remain open to more specific data that addresses the variability, as well as

feedback on how to update the valuation and payment methodologies to better reflect the relative resources involved in furnishing the services. In the meantime, we continue to believe the underlying assumptions within the methodology should be reasonably grounded in the best information available. We agree with commenters that physicians generally incur indirect costs in the facility setting, and that is why we retained allocating significant amounts of indirect PE RVUs per work RVUs in the facility setting. As some commenters pointed out, in many cases the proposed allocation may still overestimate indirect costs. Under the current methodology, there are only two sites of service where PE RVUs vary (nonfacility and facility). . We believe that the proposed policy more accurately reflects indirect PE in the facility setting compared with the previous assumption that the indirect costs are relatively equal. With respect to comments about the PPI survey data, as detailed in section II.B of this final rule, we are concerned that given the low response rate of the PPI survey data, the indirect cost estimates are not an accurate reflection of the typical indirect PE costs faced by physicians who furnish most of their services in the facility setting.

Comment: A commenter stated that CPT codes with bundled post- operative visits often have follow-up visits performed in a physician office even when surgery is performed in facility settings, and that the proposal does not account for these indirect PEs. The commenter also noted that CMS includes direct PE inputs for several thousand services valued in the facility setting, and these direct costs correlate with indirect costs, stating that the presence of these direct costs indicate that indirect PEs are incurred for services furnished in the facility setting.

Response: We did not propose to change the allocation of indirect costs based on direct costs in the facility setting. Instead we proposed that beginning in CY 2026 we would combine the direct PE inputs with 50 percent of the work RVU, and we believe this provides a reasonable basis on which to allocate the indirect PE for services furnished in the facility, including those that have postoperative visits that occur in the non-facility setting. We also note that we retain interest in developing improved approaches to valuing and paying for care furnished during global surgery periods, and we are particularly interested in how to best address the lack of site of service differential for post-operative visits under the current construct.

Comment: Some commenters stated that the proposed reductions threaten medical education infrastructure critical to addressing physician shortages. The commenters indicated that many primary care residencies, physician assistant programs, nursing education programs, and behavioral health training sites operate in facility-affiliated clinics and depend on current payment structures for financial viability. The commenters expressed concern that given existing primary care and behavioral health workforce shortages, the policy could lead to program closures, reduced training capacity, and fewer healthcare providers serving Medicare beneficiaries.

Response: We appreciate the concerns from commenters regarding health care infrastructure costs. As a general matter, we believe that the PE RVUs under the PFS are required to reflect the costs incurred by physician and professional practices, not by larger institutions.

Comment: Several commenters recommended CMS consider exemptions for particular services, such as for:

Services provided by training programs, to preserve the educational mission while still achieving the policy's intended goals.

Specific behavioral health codes, which are critical for developmental, neuropsychological, and chronic illness management.

Rural physicians who split time between office and facility settings.

Retinal specialists requested an exception given that 76 percent of retinal specialists are in private practice.

Hospital inpatient and observation services (CPT codes 99221-99239) and nursing facility E/M services (CPT codes 99304-99316). Commenters specifically noted the unexpected payment differential between E/M services provided to patients in skilled nursing facility (which is a facility setting under the PFS) versus nursing facility (which is a nonfacility setting under the PFS) stays.

Response: We acknowledge the comments requesting exemptions for specific services or providers. While we have reviewed these requests, we are not persuaded that there are exceptions to be implemented that are consistent with the assignment of PE RVUs that reflect the relative resources involved in furnishing the services. However, we are interested in objective data that would help us understand and improve how indirect PE is allocated across settings of care, both in general and for specific kinds of services. We would consider such information in future rulemaking.

Comment: A commenter supported our proposal as a broad-based improvement but also suggested that we work toward a more precise process for adjusting valuations and payments over time. Some commenters suggested policy alternatives, such as:

Utilizing targeted adjustments, such as a facility-based physician modifier or separate reimbursement formulas for independent physicians.

Eliminating indirect PE allocations for facility-based ZZZ add-on codes, as these services would not require any additional practice expense allocation beyond what is already captured in the base procedure codes.

Establishing minimum indirect allocation thresholds for codes, with requirements for detailed justification when amounts exceed these minimums.

Considering the specific characteristics of different procedure types, the actual resource utilization patterns, and the varying practice arrangements under which these services are provided. This could include developing separate allocation methodologies for different categories of services, implementing minimum thresholds below which indirect PE allocation would not apply, or creating specialty- specific adjustments that better reflect the actual cost structures within different medical disciplines.

Response: We appreciate the commenters' suggestions for policy alternatives and are particularly interested in interested parties' input regarding a facility-based physician modifier. We note that this proposal supports our goals toward site neutrality and that we will continue to consider other approaches that would further those goals. As such, we may consider these suggestions in future rulemaking.

Comment: A commenter recommended that services billed with the 26 modifier should be exempt from the proposed reduction, as these services incur similar indirect costs across both facility and non- facility settings.

Response: At this time, services billed with the 26 modifier are not impacted by the proposed change in the allocation of indirect PE in the facility setting Our longstanding approach has been to value services billed with the 26 modifier the same in the facility and nonfacility setting, and we did not propose a change to this aspect of our methodology... We could consider how this change might apply to them in future rulemaking.

Comment: Several commenters recommended that CMS not apply the

proposed policy to codes with MMM global periods to avoid negatively impacting access to maternity care services.

Response: We agree with commenters that, for the reasons indicated in the CY 2026 PFS proposed rule (90 FR 32593), the indirect PE reduction should not apply to codes with MMM global periods, and therefore, we are finalizing excluding codes with MMM global periods from this adjustment.

Comment: Some commenters stated that this proposal would create substantial financial disruption across multiple medical specialties. The commenters indicated that these impacts extend beyond individual physician income to broader healthcare system effects, including financial harm to independent physicians while simultaneously promoting higher-cost, hospital-based service utilization across the United States healthcare system. The commenters stated that this proposal would create a perverse incentive structure that contradicts CMS' stated goals of supporting independent practice and controlling healthcare costs. The commenters suggested that the policy risks accelerating physician employment by hospitals and health systems, leading to increased utilization of hospital-based services that carry higher facility fees and overall costs to the Medicare program. Other commenters stated that the proposal supports small, independent practices and mitigates hospital-driven cost escalation.

Response: We agree with the commenters who stated that the proposal would be expected to mitigate hospital-driven cost escalation, and that this proposal will incentivize utilization in the most appropriate setting. Reducing overvaluation of physician services furnished in the facility would be expected to reduce incentives to furnish these services in the facility setting due to the higher payment in that setting. Similarly, the increased valuation for services furnished in the nonfacility setting would be expected to enable independent practitioners to maintain their practices, rather than to facilitate the acceleration of physician employment as the commenter suggests. We note that the payment rates to hospitals under the OPPS are outside the scope of PFS rulemaking and are not impacted by this proposal. We will continue to explore site neutral payment policies in future rulemaking. We appreciate commenters' perspectives regarding the complexity of financial relationships between hospitals and physician practices and, for those reasons among others, intend to continue to consider appropriate refinements in future rulemaking. However, we believe finalizing this policy represents a significant improvement in the accuracy of payment for physician services furnished in the facility setting overall.

Comment: Several commenters stated that the proposal fails to account for the reality that many procedures cannot be safely performed in office settings and that patient safety considerations, rather than financial incentives, should drive site-of-service decisions. Commenters stated that as currently written, the rule could significantly reduce payments for services performed in Ambulatory Surgery Centers (ASCs), most of which are owned and operated by independent physicians and often function as extensions of physicians' offices.

Response: We agree with the commenters that patient safety considerations, rather than financial incentives resulting from inaccurate valuation, should drive site-of-service decisions. We believe that this proposal will avoid incentivizing site-of-service decisions based solely on financial incentives. The statements regarding ASC ownership by physicians support our understanding that there are duplicative payments being made to the same entity for many services furnished in the facility setting.

Comment: Several commenters emphasized that the main driver of site-of-service payment differentials has been the lack of inflationary updates to physician payment, unlike facility payment schedules. Multiple commenters noted that hospitals receive routine market basket updates while Medicare PFS updates have been far below inflation, making this a structural problem that PE methodology changes alone cannot resolve.

Response: We appreciate these comments and acknowledge that differential payment updates can play a significant role in evolving disparities in payment across settings of care. This proposal is not intended to address those disparities in whole. Instead, this policy would help offset the portion of the payment disparity that is driven by outdated and inaccurate assumptions that drive the way indirect PE RVUs are allocated by setting of care.

After consideration of the comments we received, we are finalizing our proposal to reduce the portion of the facility PE RVUs allocated based on work RVUs to half the amount allocated to non-facility PE RVUs beginning in CY 2026. d. Use of OPPS Data for PFS Ratesetting

For several kinds of PFS services, we proposed to deviate from the use of the AMA survey data, and instead utilize data from auditable, routinely updated hospital data to set either relative or absolute rates, especially for technical services paid under the PFS. This approach promotes price transparency across settings, offers more predictable ratesetting outcomes, and limits the influence of anecdotal/survey data. We refer readers to sections II.E.24 and II.E.30 of the proposed rule for specific proposals related to radiation treatment delivery and superficial radiation therapy services and remote patient monitoring and remote therapeutic monitoring services respectively and section II.K. of the final rule for specific skin substitutes. Although we proposed different methodologies for use of OPPS data based on service type, we solicited comments on whether it would be preferable to adopt a single methodology, such as a scaler and how such a methodology would account for differences in practice expenses between services, such as services with extensive clinical staff time versus services where the valuation is primarily driven by the equipment costs.

We appreciate commenters' feedback on the use of OPPS data for PFS ratesetting and refer readers to sections II.E.25 and II.E.32 of this final rule for comment summaries and responses related to the proposals for radiation treatment delivery and superficial radiation therapy services and remote monitoring services respectively, and section II.K. of this final rule for comment summaries and responses related to the proposals for skin substitutes. 6. Payment for Services in Urgent Care Centers

In the CY 2025 PFS proposed rule (89 FR 61746 through 61747), we sought comment on urgent care centers, noting that interested parties describe that hospital emergency departments are often used by beneficiaries to address non-emergent urgent care needs that could be appropriately served in less acute settings, but where other settings, such as physician offices, urgent care centers or other clinics, are not available or readily accessible. Patients enter EDs to treat common conditions like allergic reactions, lacerations, sprains and fractures, common respiratory illnesses (for example, flu or RSV), and bacterial infections (for example, strep throat, urinary tract infections or foodborne illness). Conditions like these often can

be treated in less acute settings. We stated that we were interested in system capacity and workforce issues broadly and are interested in hearing more on those issues, including how entities such as urgent care centers can play a role in addressing some of the capacity issues in emergency departments.

In response to our CY 2025 PFS proposed rule (89 FR 61746 through 61747) question about whether the current “Urgent Care Facility” Place of Service code (POS 20) adequately identify and define the scope of services furnished in such settings other than the existing place of service codes, commenters stated that the current place of service (POS) definitions are inadequately differentiated, especially if CMS wishes to encourage proliferation of the type of urgent care centers that can provide suitable alternatives to EDs, noting that POS 11 generally refers to physician offices that provide diagnostic and therapeutic care in an office setting, by appointment, typically during regular business hours; POS 17 generally refers to clinics that are attached to retail operations, such as pharmacies, grocery stores or big box stores, and provide low-acuity primary and preventive health care, such as vaccinations; and POS 20 refers to Urgent Care Facilities but does not adequately differentiate between those that offer services more akin to the typical general practitioner's office and those that offer enhanced diagnostic and therapeutic services and extended hours. They recommended that the creation of a new POS code describing “enhanced”' urgent care centers that offer specific diagnostic and therapeutic services and that operate outside typical business hours could fill this need. In response to our CY 2025 PFS proposed rule (89 FR 61746 through 61747) question about whether the current “Urgent Care Facility” Place of Service code (POS 20) adequately identify and define the scope of services furnished in such settings other than the existing code set and valuation, they stated that Medicare's fee-for- service payment systems do not recognize and adequately value services furnished in Urgent Care Clinics (UCCs) and stated that while there is some overlap in the types of professional services furnished in UCCs and physician offices, UCCs that operate for extended hours and that have enhanced diagnostic and therapeutic capabilities incur additional costs to provide these services.

In recent months, an interested party has requested that for CY 2026, we consider adopting a new Place of Service code for “enhanced” urgent care centers as well as create a new add-on G-code to describe the resource costs involved when practitioners furnish certain services in enhanced urgent care centers that offer extended hours and certain diagnostic and therapeutic services. The interested party suggested the following descriptor: “Visit complexity inherent to evaluation and management associated with medical care services that serve as the immediate focal point for all needed urgent, non-emergent health care services and/or with urgent, non-emergent medical care services that are related to diagnosis and treatment of an unscheduled, ambulatory patient's urgent, non-emergent conditions. (Add-on code, list separately in addition to office/outpatient evaluation and management visits, new or established)” and recommended that it be valued based on a crosswalk to HCPCS code G2211 (Visit complexity inherent to evaluation and management associated with medical care services that serve as the continuing focal point for all needed health care services and/or with medical care services that are part of ongoing care related to a patient's single, serious condition or a complex condition. (add- on code, list separately in addition to office/outpatient evaluation and management visit, new or established) and made billable with all levels of office/outpatient E/M visits for both new and established patients when services are furnished in an enhanced urgent care center.

We sought comments from the public regarding whether separate coding and payment is needed for evaluation and management visits furnished at urgent care centers, including whether or not an add-on code would be appropriate or if a new set of visit codes would be more practical. We note that the process for requesting new place of service codes or modification of existing place of service codes is described on the CMS website at https://www.cms.gov/medicare/coding-billing/place-of-service-codes/process-requesting-new-codes-modification-existing-codes. Additionally, as discussed in section II.B. of the proposed rule, many PFS services have a site of service payment differential between the facility and non-facility settings under the PFS. Services furnished in the non-facility setting, such as a physician's office, include direct costs for supplies, clinical staff, and equipment, the physician work RVU and indirect practice expense allocated based on the direct costs and the physician work RVU. In the facility setting, the payment rate includes physician work, and the indirect practice expense allocated based on physician work. The direct costs in the facility setting are paid under a different payment system other than the PFS, such as the OPPS. PE allocated to services furnished in the facility setting is meant to reflect typical costs associated with practice expenses in that setting of care. We note that we proposed a change in our PE RVU methodology to better recognize variations in indirect costs between facility and non-facility settings of care in section II.B. of the proposed rule. We note here that we are likewise interested in understanding how practice costs, including but not limited to indirect costs, may vary among different non-facility settings of care. We requested feedback regarding how either the code set, or the PE methodology might be improved to better recognize the relative resources involved in furnishing services across these kinds of settings.

We received public comments on this comment solicitation. We appreciate the commenters for their comments. After consideration of public comments, we will take the comments into consideration for possible future rulemaking.