Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems; Quality Reporting Programs; Overall Hospital Quality Star Rating; Hospital Price Transparency; and Notice of Closure of a Teaching Hospital and Opportunity To Apply for Available Slots

The agency complied with the district court's September 28, 2022 decision by uploading revised OPPS drug files to pay the default rate (generally ASP plus 6 percent) for all CY 2022 claims for 340B-acquired drugs paid from September 28, 2022, through the end of CY 2022.

In the CY 2023 OPPS/ASC final rule with comment period (87 FR 71970), we finalized a policy reversing the 340B Payment Policy so that going forward we would pay for 340B acquired drugs no differently than we pay for drugs that are not acquired through the 340B program. To do so, we first provided that drugs acquired through the 340B Program would be paid at the statutory default rate (generally ASP plus 6

percent) for CY 2023. Second, to ensure budget neutrality for CY 2023 OPPS payment rates as required by statute, we finalized a reduction of 3.09 percent to the 2023 OPPS conversion factor. This one-time adjustment to the conversion factor removed the effect of this aspect of the 340B Payment Policy, as originally adopted in CY 2018, for CY 2023 and subsequent years. This adjustment to the conversion factor reduced the conversion factor to the conversion factor that would have been in place in CY 2023 if the 340B payment policy had never been implemented. For more detail on the payment rate for drugs acquired under the 340B Program for CY 2023 and the corresponding adjustment to the conversion factor to maintain budget neutrality as a result of reversing the 340B adjustment and paying for all separately payable drugs at ASP plus 6 percent (or WAC plus 3 or 6 percent or 95 percent of AWP), we refer readers to the CY 2023 OPPS/ASC final rule with comment period (87 FR 71973 through 71976).

For CYs 2024 and 2025, consistent with our policy finalized for CY 2023, we continued to pay the statutory default rate for 340B acquired drugs (88 FR 81789 through 81791). f. Remedy Payment Adjustment for 340B-Acquired Drugs From CY 2018 Through September 27, 2022

The agency complied with the district court's January 10, 2023, remand order by issuing the Final Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022 (hereinafter referred to as the “Final Remedy rule”) on November 8, 2023 (88 FR 81540). The purpose of this rule was to address the reduced payment amounts to 340B hospitals under the reimbursement rates in effect for CY 2018 through September 27, 2022 and to comply with the statutory requirement to maintain budget neutrality under the OPPS.

To address the reduced payment amounts to 340B hospitals under the reimbursement rates in effect for CY 2018 through September 27, 2022, CMS made one-time lump sum payments to affected 340B covered entity hospitals, calculated as the difference between what an affected 340B covered entity hospital received for 340B-acquired drugs from CY 2018 through September 27, 2022 and what they would have received for those drugs if the 340B adjustment had not been in place. These one-time lump sum payments were issued in early 2024. For more information on the calculation and distribution of the one-time lump sum payments, see the Final Remedy rule (88 FR 77156 through 77170). g. Prospective Adjustment to Payments for Non-Drug Items and Services To Offset the Increased Payments for Non-Drug Items and Services Made in CY 2018 Through CY 2022

As we described under section V.B.7.c. of the CY 2026 OPPS/ASC proposed rule and section I.A.3 of the Final Remedy rule, to comply with statutory budget neutrality requirements, the decreased payments made to 340B hospitals for drugs in CY 2018 through September 27, 2022 were budget neutralized by corresponding increased payments to all hospitals for non-drug items and services starting in CY 2018 through CY 2022. When these past payments were subsequently increased through the one-time lump sum payments in 2024, the same budget neutrality requirements correspondingly required us to decrease the non-drug item and services payments made from CY 2018 through CY 2022.

To reduce the burden on providers of immediately offsetting the estimated $7.8 billion of increased non-drug item and services payments made from CY 2018 through CY 2022, we decided to implement the offset prospectively over the course of several years. As we explained in the CY 2026 OPPS/ASC proposed and Final Remedy rules (88 FR 44088, 88 FR 77172), this approach was similar to the original budget neutrality adjustment in the 340B Payment Policy that increased the payment for every non-drug item and service for CY 2018 through CY 2022 to offset the downward adjustment in the payment rate for drugs acquired under the 340B Program. We finalized in the Final Remedy rule that, beginning in CY 2026, we would reduce the conversion factor for non-drug items and services to all OPPS providers--except any hospital that enrolled in Medicare after January 1, 2018 (as described further below)--by 0.5 percent each year until the total offset was reached (which we estimated would take approximately 16 years (88 FR 77181)).

As we stated in the CY 2026 OPPS/ASC proposed and Final Remedy rule, we believed an annual reduction in the conversion factor would be appropriate because it would balance the need to address the past payments for non-drug items and services to ensure budget neutrality while also ensuring that the offset was not immediately overly financially burdensome on impacted entities, which we believed would be the case if we were to apply an adjustment for the full offset amount in a single year. (88 FR 44087, 88 FR 77170).

Accordingly, the Final Remedy rule finalized changes to the calculation of the OPPS conversion factor applicable to non-drug items and services beginning in CY 2026. Specifically, we codified a 0.5 percent reduction in the OPPS conversion factor applicable to non-drug items and services in the regulations by adding new paragraph (b)(1)(iv)(B)(12) to Sec. [thinsp]419.32. This 0.5 percent reduction would remain in effect until the estimated payment reduction reached $7.8 billion, which we estimated would occur in CY 2041. For a fuller discussion of the CY 2026 adjustment to the conversion factor for non- drug items and services in the Final Remedy rule, see the Final Remedy rule (88 FR 77156 through 77170).

In finalizing our policy to apply a prospective adjustment, we recognized that any hospital that enrolled in Medicare after January 1, 2018 (hereinafter referred to as a “new provider”) received less than the full amount of the increased non-drug item and service payments made during that time than they otherwise would have received if enrolled prior to that date (88 FR 44080). We therefore exempted these providers from the prospective rate reduction, which was predominantly designed to account for non-drug item and service payments made during CY 2018 through CY 2022. As we explained, that meant that we would calculate payment rates for new providers using the conversion factor before applying the 0.5 percent annual reduction to the conversion factor for non-drug items and services that would apply for hospitals that are not “new providers” for purposes of this policy. For the purpose of designating a new provider, we defined the date of enrollment in Medicare as the provider's CMS certification number (CCN) effective date. We codified the exclusion of these new providers from the prospective payment adjustment to the conversion factor for the duration of its application in the regulations by adding new paragraph (b)(1)(iv)(B)(12) to Sec. [thinsp]419.32.

In the CY 2026 OPPS/ASC proposed rule we indicated that we had reviewed our provider enrollment and OPPS billing records, and based on that data, the providers that would be subject to the proposed payment reduction were listed in Addendum R--340B Remedy Offset Providers to the CY 2026 OPPS/ASC proposed rule. We welcomed comment on the providers listed in this Addendum, and based upon those comments, we proposed to publish a final Addendum R--340B Remedy Offset Providers for CY 2026 in the CY 2026 OPPS/ASC final rule with

comment period. We indicated in the CY 2026 OPPS/ASC proposed rule that providers not included on this list (providers that began billing Medicare under the OPPS after January 1, 2018) would not be subject to the proposed payment reduction. For a complete discussion of our exclusion of new providers from the prospective payment adjustment, we refer readers to the Final Remedy rule (88 FR 77182 through 77185).

We did not receive public comments on Addendum R--List of Providers Subject to the Reduction to Non-Drug Item and Service Payments as a Result of the 340B Payment Policy Remedy, and therefore, we are finalizing as proposed. h. CY 2026 Prospective Payment Adjustment

When we considered how to recover the estimated $7.8 billion in increased estimated payments made for non-drug items and services from 2018 through 2022, we considered several alternatives, including those that would fully recover that amount in a single year. For example, in the Proposed Remedy rule, we rejected an aggregate payment approach that would have implemented budget neutrality requirements through an immediate lump sum recoupment that would mirror the lump sum remedy payment because “[s]uch an approach would require immediate, and in many cases large, retroactive recoupments from the majority of OPPS hospitals and would impose a substantial, immediate burden on these hospitals as well as an uncertain impact on beneficiaries” (88 FR 44083). To avoid imposing such a burden, we elected to reduce payments prospectively until the total offset was reached, which we estimated would take approximately 16 years.

As we discussed in the CY 2026 OPPS/ASC proposed rule, we considered various methods to implement this prospective payment reduction. In the Final Remedy rule, we made the prospective payment reduction by applying an annual 0.5-percentage point downward adjustment to the OPPS conversion factor. We stated in the CY 2026 OPPS/ASC proposed rule that we continued to believe that a downward adjustment to the OPPS conversion factor was a fair way to apportion the $7.8 billion reduction amongst hospitals, because relative hospital utilization of non-drug items and services beginning in 2026 would approximately track the relative hospital utilization for non-drug items and services each hospital received from CY 2018 through CY 2022. We stated in the CY 2026 OPPS/ASC proposed rule that the future payment reductions would thus roughly offset the windfall those hospitals received from increased payments from CY 2018 through CY 2022. And we noted our statement in the final rule that the approach of tethering future payments for each non-drug item and service for each hospital “was similar to the original budget neutrality adjustment in the 340B Payment Policy that increased the payment for every non-drug item and service for CY 2018 through CY 2022 to offset the downward adjustment in the payment rate for drugs acquired under the 340B Program” (88 FR 77172). Finally, the methodology does so with minimal administrative burden to hospitals and beneficiaries, because we can effectuate the offset by calculating the appropriate payment reduction in annual rulemaking without requiring any subsequent action by hospitals. Other methodologies--like delivering a series of demand letters to each hospital for a share of the $7.8 billion--would not only require us to recalculate the proper amount to apportion to each hospital but would most likely require large lump-sum payments from hospitals. We expressed concern that hospitals might find it financially disruptive to promptly write such one-time checks depending on their financial circumstances when we issue the demand letters, whereas implementing a percentage reduction in their Medicare OPPS payments over a number of years would be less disruptive. Such one-time payments would impose greater administrative burden on hospitals and possibly introduce complications to our collections efforts if hospitals delay payments.

We stated in the CY 2026 OPPS/ASC proposed rule that while we continued to believe that a reduction to the OPPS conversion factor was the best way to effectuate budget neutrality, we had reconsidered whether the timing we selected--a 0.5-percentage point annual reduction for approximately 16 years--best achieved the overarching goal of the Final Remedy rule, which is to restore hospitals to as close to the financial position they would have been in had the 340B Payment Policy never been implemented as is reasonably feasible. In particular, we indicated that the further away from CY 2018 through CY 2022 the adjustments extend, the less likely that relative hospital utilization of non-drug items and services would correlate to the relative hospital utilization of non-drug items and services from 2018 through 2022. In other words, a hospital's utilization of non-drug items and services is likely going to diverge more from CY 2018 utilization in CY 2041 than it would in CY 2031 or CY 2026. And the more a hospital's utilization of non-drug items and services diverge, the less hospitals would be restored to as close as possible to the approximate financial position as they would have been in had the 340B Payment Policy never been implemented. By beginning the decrease to non-drug item and service payments in CY 2026, there is already an 8-year delay between the first year of the OPPS 340B payment policy and the first year of the prospective offset. Thus, the longer it takes for us to fully recover the $7.8 billion, the less likely that the relative burden on hospitals from the adjustments will match the relevant benefits those hospitals previously received. In addition, it is possible that at least some hospitals that benefited from the increased payments from CY 2018 through CY 2022 will leave the market before 2041, increasing the risk that the remaining hospitals might ultimately account for a larger share of the payment reductions than they would have if the annual reduction to the OPPS conversion factor concluded sooner. We noted that the $7.8 billion dollar figure calculated in the Final Remedy rule (88 FR 77150) does not and will not account for inflation and does not contain interest even though the prospective offset is occurring many years after both the start of the 340B payment policy in CY 2018 as well as the lump sum remedy payments made in CY 2024.

Accordingly, effective January 1, 2026, we proposed to revise the annual reduction to the OPPS conversion factor under Sec. [thinsp]419.32(b)(1)(iv)(B)(12) used to determine the payment amounts for non-drug items and services from 0.5 percent to 2 percent. Under this revised rate, we expected it would take approximately 6 years to reach the total offset of $7.8 billion (see Table 62 in the CY 2026 OPPS/ASC proposed rule (90 FR 33636)). Consistent with the Final Remedy rule, we noted, this reduction would not apply to new providers. We also included on Table 62 in the CY 2026 OPPS/ASC proposed rule, and Table 109 in this final rule with comment period, an alternative policy option with an annual reduction of 5 percent which would reach the total offset of $7.8 billion in approximately 3 years.

We acknowledged that this revised annual reduction would be a change to the approach we finalized in the Final Remedy rule and that, at that time, we considered but did not adopt a

suggestion from a commenter requesting that we recover the amount over a shorter timeframe than 16 years. (88 FR 77179.) We indicated that our basis for not accepting the suggestion in the Final Remedy rule was that the 0.5 percent rate/16-year timeframe “properly reverses the increased payments for non-drug items and services to comply with statutory budget neutrality requirements while at the same time accounting for any reliance interests and ensuring that the offset is not overly burdensome to impacted entities”. We stated in the CY 2026 OPPS/ASC proposed rule that we now thought that this balancing insufficiently accounted for the main premise of the Final Remedy rule, which is to implement the budget neutrality requirement in a manner that restores affected 340B covered entity hospitals to the financial position they would have been in had the 340B Payment Policy not been implemented in 2018. For the reasons explained in the CY 2026 OPPS/ASC proposed rule, we believed that a 6-year time frame better achieved that main goal. We also stated that we believed this time frame balanced better that goal and our budget neutrality obligations against hospital burden and reliance interests. We provided as an example that the 16-year timeframe is more than three times longer than the 5-year period the 340B Payment Policy was in place. The 6 years we expect that the revised policy would be in effect, by contrast, is closer to the timeframe the 340B Payment Policy was in place, and the 2 percent payment reduction we proposed is still well below the 3.19 percent payment increase hospitals received for that time period (82 FR 52624 through 52625). We also stated that because we proposed this policy in advance of CY 2026 and before any rate reductions go into effect for OPPS and Medicare Fee for Service payments, any reliance interests hospitals have in a policy that has not been implemented yet for these payment systems would be minimal and outweighed by the other considerations discussed in the CY 2026 OPPS/ASC proposed rule. BILLING CODE 4120-01-P

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

Comment: Most commenters opposed our proposal. Many of these commenters referenced previous comments they or others made to the Final Remedy rule alleging that CMS lacks the statutory authority to budget neutralize the remedy and that CMS' approach to budget neutrality is inconsistent with its past practices. Based on these reasons, these commenters requested that we abandon the proposal and rescind the regulation codified in that rule, 42 CFR 419.32(b)(1)(iv)(B)(12) to implement the offset.

Response: We direct readers to our responses to those comments in the

Final Remedy rule at 88 FR 77150 through 77194.

Comment: One commenter stated that CMS does not have the legal authority to apply an additional 2.0-percentage point reduction to OPPS rates because, under section 1833(t)(3)(C)(iv) of the Act, CMS is required to update OPPS rates by the same update that applied under the IPPS. Since CMS has already finalized an update of 2.6 percent for the FY 2026 IPPS, the commenter stated that CMS must apply the same update to the OPPS for CY 2026 without further changes.

Response: We disagree with the commenter, who conflates two distinct statutory obligations. Under section 1833(t)(3)(C) of the Act, the Secretary updates the conversion factor used to determine the payment rates under the OPPS on an annual basis by applying the OPD fee schedule increase factor. The commenter is correct that we have implemented that fee schedule increase factor under section 1833(t)(3)(C)(iv) of the Act by applying the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act, subject to sections 1833(t)(17) and (t)(3)(F) of the Act. As we explain in section XXVI. of this final rule with comment period, we continue to do so by increasing the OPD fee schedule for CY 2026 by a factor of 2.6 percent--the same as applicable to hospital discharges for fiscal year 2026 under section 1886(b)(3)(B)(iii) of the Act.

The commenter is incorrect, however, that the statute makes the fee schedule increase factor the only update the Secretary can make to the OPPS conversion factor each year. Section 1833(t)(3)(C)(iii) of the Act, for example, authorizes the Secretary further to modify the conversion factor in certain circumstances based on adjustments to service mix. And many parts of the OPPS statute require the Secretary to budget neutralize particular payments, including sections 1833(t)(2)(E), (t)(9)(B), and (t)(14)(H) of the Act. Since the very first payment rule implementing OPPS, we have implemented OPPS's budget neutrality requirements by adjusting the conversion factor. (65 FR 18476 (implementing budget-neutrality requirement)). We have long rejected the commenter's suggestion that section 1833(t)(3)(C)(iv) of the Act means that the conversion factor cannot account for these budget neutrality requirements, explaining that the “[s]tatute requires us to ensure that a conversion factor for covered OPD services in subsequent years is an amount equal to the conversion factor applicable to the previous year before any increases due to the market- basket increase.” (67 FR 66788.) We accordingly applied that same policy when we first decreased payments for 340B-acquired drugs in the CY 2018 OPPS/ASC final rule with comment period, which we budget neutralized through an upward adjustment of 1.0319 to the OPPS conversion factor on top of the annual OPD fee schedule increase factor under 1833(t)(3)(C)(iv) of the Act. (82 FR 59353 through 59371). Even on the commenter's statutory theory, then, that increase--in place from CY 2018 through CY 2022--was itself unlawful and so should be repaid.

Comment: One commenter stated that the statute does not authorize CMS to impose what the commenter characterized as a compressed repayment schedule or heightened offset and disagreed with CMS' stated justification for it, which the commenter characterizes as “that a shorter offset period is preferable because it more closely aligns with the duration of the unlawful 340B payment policy”. The commenter contended that the statute does not authorize CMS to “calibrate budget neutrality offsets based on temporal symmetry or administrative convenience” and that such an approach ignores the disproportionate impact that a 2 percent annual reduction will have on hospitals that did not receive full remedy payments, including those with high Medicare Advantage penetration or limited exposure to the original 340B cuts.

Response: We disagree with the commenter that the statute prohibits the proposed budget neutrality adjustment schedule or amount, or that our rationale for that proposed schedule is flawed based on hospitals' reduced payments for drug acquired under the 340B program from CY 2018 through 2022. As we explained in the CY 2026 OPPS/ASC proposed rule, the main reason we proposed to shorten the timeframe for the adjustment was to recognize that OPPS utilization changes over time. As we have explained, the purpose of any rate reduction is to unwind the 3.19 percent increase budget neutrality hospitals received from CY 2018 through 2022. (For example, 88 FR 77170.) Current OPPS utilization for a hospital is a reasonable proxy for past OPPS utilization for a hospital, but it becomes a less accurate proxy the longer the recoupment timeframe. The commenter is wrong to suggest that our proposed policy would pursue symmetry for symmetry's sake. By pointing out that adjusting rates by 2 percent for 6 years is similar to the initial policy of adjusting rates by 3.19 percent for 4 years, we meant to illustrate both that the proposed larger decrease would still be the type of “adjustment” to payment rates authorized by sections 1833(t)(2)(E), (9)(B), and (14)(H) of the Act (88 FR 77158 through 77159) and that the reduction would still fall within the type of year- to-year rate fluctuations in OPPS rates that hospitals should reasonably expect in annual ratemaking. Nor was it inherently unreasonable for us to consider how long it will take fully to implement the adjustment; no statute requires us to implement our budget neutrality obligations so that a policy in place only from CY 2018 through 2022 still drives payment rates in 2040. Finally, the commenter is correct that not all hospitals received 340B remedy payments and might have been impacted differently by the payment reductions for 340B-acquired drugs from CY 2018 through 2022. But the commenter is wrong that we should treat those hospitals differently here. We accounted for the fact that some hospitals received payment reductions for 340B-acquired drugs from CY 2018 through 2022 by making remedy payment to those hospitals. By contrast, and as noted above, the payment cuts in 42 CFR 419.32 (b)(1)(iv)(B)(12) unwinds the 3.19 percent budget neutrality increase hospitals received from CY 2018 through 2022. We are applying this cut only to the hospitals who received the full increase. Because hospitals received the 3.19 percent increase from CY 2018 through 2022 regardless of whether they also were paid less for 340B-acquired drugs, we disagree that whether hospitals were paid less for 340B-acquired drugs is relevant here.

Comment: Many commenters noted that in the Final Remedy rule we rejected annual percent reductions greater than 0.5 based on our conclusion that a 0.5 percent reduction “properly reverses the increased payments for non-drug items and services to comply with statutory budget neutrality requirements while at the same time accounting for any reliance interests and ensuring that the offset is not overly burdensome to impacted entities”. (88 FR 77179). These commenters critiqued our subsequent determination in the CY 2026 OPPS/ ASC proposed rule that the 0.5 percent reduction “insufficiently accounted for the main premise of the Final Remedy rule which is to implement the budget neutrality requirement in a manner that restores affected 340B covered entity hospitals to the financial position they would have been in had the 340B Payment Policy

not been implemented in 2018” and our conclusion that “a 6 year time frame better achieves that main goal” and “balances better that goal and our budget neutrality obligations against hospital burden and reliance interests”. These commenters stated that CMS does not sufficiently explain how it reassessed the relationship between budget neutrality obligations, hospital reliance interests, and the financial burden on providers and that CMS has attributed insufficient weight to the reliance interest and hospital burden side of the equation. One commenter accused CMS of a “bait-and-switch” because it changed its position after initially rejecting the proposal for a quicker recoupment and faults CMS for not offering any new facts or circumstances not known to CMS when it published the Final Remedy rule that would warrant a change in policy. That commenter suggested that CMS failed to provide a rational basis for its position change, because another policy best achieves CMS' stated goal: reprocessing of all claims for the period in which the unlawful policy was in effect.

Commenters also raised several alleged reliance interests. They emphasized that we finalized the 0.5 percent reduction in the Final Remedy rule and that they have relied on that amount in good faith in the nearly 2 years since to engage in financial planning and long-term investment decisions. These commenters challenged CMS' contention that any reliance interests hospitals have in a policy that has not been implemented yet would be minimal because the proposal to increase the offset was made in advance of CY 2026 and before any rate reductions go into effect for OPPS and Medicare Fee for Service payments. These commenters stated that this fails to account for the long-term, multi- year nature of hospital budgeting and they described the many expenditures (opening new facilities, buying new medical equipment, hiring staff and expanding services lines, etc.) they have allegedly made based on the 0.5 percent reduction. Commenters maintained that CMS recognized their reliance interests in the Final Remedy rule when it delayed the start of the offset to 2026 so that hospitals could “assess and prepare for the new payment rates that will be calculated using a reduced conversion factor”. One commenter stated that the reliance interest discussed in the Final Remedy rule is “clearly the reliance interest on continued, stable payments in the OPPS” and that CMS took this interest into account by deciding not to impose the 0.5 percent reduction until 2026 “allowing adequate time for impacted parties to assess and prepare for the new payment rates that will be calculated using a reduced conversion factor”. The commenter contended that the CY 2026 OPPS/ASC proposed rule not only entirely fails to address hospitals' reliance interest as envisioned in the Final Remedy rule but also undermines the separate reliance interests that CMS allowed to be built from the date of the Final Remedy rule's publication to the CY 2026 OPPS/ASC rule's publication. The commenter stated that the budget process for CY 2026 is already materially complete and a roughly 2-month planning period (assuming a November OPPS/ASC final rule with comment period release) is simply not reasonable and would have drastic consequences without the ability to plan or adjust. Another commenter argued that CMS cannot ignore these considerations, “which informed CMS' choice in 2023 to adopt a lengthy recovery period and to extend the implementation of even a 0.5 percent reduction from 2025 to 2026, giving hospitals over 2 years to prepare.”

Response: While we disagree with many of the arguments these commenters raise, we are persuaded by the commenters to the extent that we will not finalize in CY 2026 our proposal to increase to 2 percent the 0.5 percent adjustment in 42 CFR[thinsp]419.32(b)(1)(iv)(B)(12). We currently anticipate delaying a change for just 1 year. Thus, while we will retain the original 0.5 percent adjustment in the conversion factor in CY 2026, hospitals should anticipate that we will implement a larger adjustment (such as 2 percent or other adjustment greater than 0.5 percent) beginning in CY 2027. Any change to the adjustment in 42 CFR[thinsp]419.32(b)(1)(iv)(B)(12) that applies beginning in CY 2027 would go through the usual annual rulemaking process.

We do so based on the unique circumstances here. We finalized outside the standard annual rulemaking cycle a 0.5 percent reduction to payment rates that would not begin for 2 years and explained that we were giving hospitals that second year before implementing the payment reduction in part “to provide entities additional time to prepare for the new payment rate” (88 FR 77180). It might not have been unreasonable for hospitals to do just as we suggested and used that additional year to prepare for only a 0.5 percent payment decrease in CY 2026--particularly because our decision to announce the rate adjustment outside the usual calendar year rulemaking process and then delay that rate adjustment was atypical. While hospitals may be correct that they often plan their budgets in advance, section 1833(t)(9)(A) of the Act requires us to update OPPS rates annually, and section 1871(e)(1)(B) of the Act requires only that changes to Medicare payment rates be finalized at least 30 days before they take effect. We therefore often implement policy changes with significant financial impacts for the upcoming year through the annual rulemaking process, and nothing here should be construed to suggest a change to that general practice, nor should hospitals expect us to generally give them additional time to prepare for policy changes beyond what the Congress prescribes in the statute. As we noted above, we changed hospital payments by over 3 percent through the annual ratemaking process for CY 2018 as part of our budget neutralization obligations, and so a 1.5 percentage point change through those same rulemaking procedures falls within the type of annual rate fluctuations hospitals can reasonably expect. Neither the APA nor the Medicare statute imposes a one-way ratchet in which we may increase payments through annual rulemaking but not decrease them through annual rulemaking.

Also important to our decision is that giving hospitals an additional year before any increase to the adjustment still fulfills the rationale underlying the Final Remedy rule that motivated our proposed change: to implement the budget neutrality requirement in a manner that restores affected 340B covered entity hospitals to the financial position they would have been in had the 340B Payment Policy not been implemented in 2018. We proposed to increase the adjustment to 2 percent so that the hospital utilization that will ultimately determine each hospital's payment reduction would better map onto payment increase from CY 2018 through 2022. We are still beginning the reductions this year, and we doubt that 1 year of reduced reductions will materially undermine that rationale. Nor do we agree that because reprocessing every claim would more perfectly place hospitals in the position they would have been in absent the 340B Payment Policy than the repayment policy we adopt here, it makes relying on that general approach irrational. We already explained the flaws with claims reprocessing (88 FR 77153 through 77154), including significant delays and administrative burden on us and hospitals alike. We anticipate that adopting in future years a larger percent prospective payment reduction will

better serve that goal than a 0.5 percent reduction while still avoiding the pitfalls of full claims reprocessing.

We also disagree with commenters to the extent that they suggest more explanation would be required, including any suggestion that we need to define precisely the relationship between budget neutrality obligations, hospital reliance interests, and the financial burden on providers. As the U.S. Supreme Court recently explained, when changing positions, “the agency does not need to show that the reasons for the new policy are better than the reasons for the old one” or “provide a more detailed justification than what would suffice for a new policy created on a blank slate” so long as it remains “cognizant” that “longstanding” policies might have engendered reliance interests. Food & Drug Admin. v. Wages & White Lion Invs., L.L.C., 604 U.S. 542, 570 (2025) (internal quotation marks omitted and emphasis in original). We identified in the CY 2026 OPPS/ASC proposed rule that we were proposing to change our policy, and we gave an explanation for why we believed our proposed new policy reasonably balanced the relevant interests. We specifically considered reliance interests in the CY 2026 OPPS/ASC proposed rule, and in this final rule with comment period we are finalizing to delay by an additional year any increase in payment reductions to further respect any reliance interest. Any change to the adjustment in 42 CFR[thinsp]419.32(b)(1)(iv)(B)(12) that applies beginning in CY 2027 would go through the usual annual rulemaking process. Nothing more is required.

Comment: One commenter suggested that CMS failed in the CY 2026 OPPS/ASC proposed rule to adequately to grapple with why CMS did not implement a commenter's suggestion to impose percent reductions greater than 0.5 in the Final Remedy rule. In the CY 2026 OPPS/ASC proposed rule, we explained that “[o]ur basis for not accepting the suggestion was that the 0.5 percent rate/16-year timeframe `properly reverses the increased payments for non-drug items and services to comply with statutory budget neutrality requirements while at the same time accounting for any reliance interests and ensuring that the offset is not overly burdensome to impacted entities”. (90 FR 33635 [quoting 88 FR 77179]) In the commenter's estimation, this incorrectly suggests that CMS' response to these comments as being the entire rationale for selecting the 0.5 percent reduction when the Final Remedy rule had additional rationales. The commenter identified these rationales as “potential impact on vulnerable providers and their communities”, “standard remedial principles” and “basic fairness”. The commenter stated that CMS fails to account for these concerns in the CY 2026 OPPS/ASC proposed rule “leaving affected communities without any information about how the proposed rule is lawful, much less fair”.

Response: We disagree that our proposal failed to properly account for the potential impact on vulnerable providers and their communities, standard remedial principles, and basic fairness when proposing a new schedule for the budget neutrality adjustment. As an initial matter, we did not cite any of those rationales as the basis for rejecting a higher reduction rate in the Final Remedy rule. Instead, as we noted in the CY 2026 OPPS/ASC proposed rule, our explanation turned on the fact that a 0.5 percent reduction complies with budget neutrality requirements while accounting for reliance interests and burden on providers. We cited remedial principles and basic fairness when rejecting a suggestion that we recoup the full $10.6 billion payment we were also making to providers who had previously acquired drugs through the 340B program instead of simply unwinding the $7.8 billion payment increase to hospitals from CY 2018 through 2022 to place hospitals in as close to a position as they would have been absent the 340B Payment Policy. We also addressed vulnerable patients and communities in response to a suggestion that we exempt from the budget neutrality policy hospital groups that serve certain communities. We explained in part that the payment reductions were the mirror image of prior payment increases that would otherwise be a windfall to providers--windfalls that those communities would share in the cost of funding through taxes, premiums, and cost sharing. We did not propose to revisit either policy and so there was no reason to revisit those rationales.

In any event, our proposal was consistent with those principles. As we noted, “standard remedial principles and basic fairness support situating hospitals as closely as possible to the financial situation they would have been in absent the 340B Payment Policy” (88 FR 77179)--the same rationale we explained in the CY 2026 OPPS/ASC proposed rule supports a quicker recoupment period (90 FR 33635). And we continue to be sensitive to the potential impact on vulnerable patients, their communities, and providers. The proposed decreases were the mirror image of prior payment increases--in fact, they would be even more so if we ultimately implement a quicker recoupment period. Additionally, as we noted in the Final Remedy rule, the statute authorizes transitional outpatient payments to cancer and children's hospitals that insulate them from the payment impact of policies like these. (88 FR 77181)

Comment: One commenter, reiterating their comments to the Final Remedy rule, suggested that CMS abandon reliance on “inapt” payment rules and its budget neutrality proposal altogether and instead invoke section 1870 of the Act (42 U.S.C. 1395gg), which describes when and how CMS may recover incorrect payments it makes on behalf of an individual. The commenter explained that this authority would allow CMS to forgo recovery where the individual for whom the incorrect payment was made was without fault and making the adjustment would “defeat the purposes of subchapter II or subchapter XVIII or would be against equity and good conscience” and that it would be appropriate for CMS to exercise this discretion as “[c]learly the beneficiaries for whom providers received increased payments from 2018 to 2022 were without fault”. The commenter additionally contended that CMS recovering from recipient hospitals is also against equity and good conscience from a broader economic standpoint. The commenter stated that the increased OPPS payments hospitals received have been incorrectly characterized as a “windfall” and such a characterization “does not square with the modest 3.19 percent adjustment that was in place from 2018 to 2022. Over that time period, even a compounded 3.19 percent adjustment would not have kept up with the rate of inflation.” Finally, the commenter alleged that recoupment is bad policy because it excuses statutory non- compliance. By setting a precedent of financing its remedy payments, the commenter stated that CMS removes an incentive to engage in thoughtful, judicious and textually grounded rulemaking. In the absence of clear statutory authority to offset its remedy payments, the commenter argued that CMS should choose not to do so, and allow the Congress to intervene if it chooses to do so.

Response: We refer readers to our response in the Final Remedy rule to the same commenter's suggestion that we rely on section 1870 of the Act (42 U.S.C. 1395gg) (88 FR 77178). As we explained there, section 1870 of the Act specifies when providers can shift liability to beneficiaries for overpayments, which can in turn be

waived when, among other requirements, liability would “defeat the purposes of . . . subchapter XVIII or would be against equity and good conscience.” Section 1870 is silent about the situation here where CMS adjusts future payments through its budget neutrality authority, and the commenter does not suggest we are required to invoke section 1870 of the Act in this circumstance.

We disagree with the commenter's suggestion that the payment statute that we have invoked to make the lump-sum remedy payments-- section 1833(t)--is comparatively “inapt.” That is the payment statute governing the OPPS, and as we explained in the Final Remedy rule, sections 1833(t)(2)(E) and (14) of the Act authorize the $10.6 billion in payments that compensate hospitals for the reduced payments they received. (88 FR 77156 through 77161.) Those authorities, however, have budget neutrality consequences, which we have implemented through prospective payment decreases. (88 FR 77169 through 77182.) The commenter does not explain how section 1870 of the Act interacts with those authorities, or how abandoning section 1833(t) of the Act in favor of section 1870 of the Act would have allowed us to make billions of dollars in lump-sum remedy payments. And even if the commenter could, we do not find under section 1870 of the Act that honoring the budget neutrality requirements under section 1833 of the Act through our policy here would “defeat the purposes of . . . subchapter XVIII” of the Act. Disregarding the Congress' instruction that OPPS generally be budget neutral here would instead defeat the purposes of subchapter XVIII--one of which is sustainability.

Nor do we find under section 1870 of the Act that honoring the budget neutrality requirements under section 1833 of the Act through the budget neutrality policy we proposed would be against equity and good conscience. It is incongruous to suggest that the 3.19 percent increase from 2018 through 2022 is “modest”, but our proposed 2 percent decrease or finalized 0.5 percent decrease to unwind that increase would be against equity and good conscience. As we have repeatedly stated, even a 2 percent decrease would be within the usual annual payment fluctuations. With regards to inflation, the OPPS primarily accounts for increased costs through other mechanisms like the annual market basket increase and wage index, not through the payment changes for hospitals from budget neutralization requirements. We maintain that allowing hospitals to keep past payment increases due to the 340B Payment Policy would be a windfall in the sense that hospitals would be retaining payment increases after we unwound the corresponding payment decreases that both justified and authorized them. See, for example, windfall, Mirriam Webster Online (“an unearned . . . gain or advantage”).\84\

\84\ https://www.merriam-webster.com/dictionary/windfall.

Finally, we disagree with the commenter's policy statements against budget neutrality. As an initial matter, such arguments cannot overcome the text of the statute. And the commenter is wrong that we are financing remedy payments to the extent the commenter means that we are charging hospitals for the cost of the Final Remedy rule. We rejected comments suggesting that we budget neutralize the full $10.6 billion remedy payments in the Final Remedy rule. Instead, we are simply unwinding the $7.8 billion in payment increases from CY 2018 through 2022 predicated on the invalidated payment decreases to place all parties as close as we can to the situation they would have been in if the 340B Payment Policy had never been adopted. Doing so does not excuse statutory non-compliance or disincentivize us from seeking the best reading of the statute. Rather, as we have noted, it ensures that the only money actually spent is money authorized to be spent by the statute and avoids strategic behavior on behalf of regulated entities. (88 FR 77176.)

Comment: The same commenter stated that section 1833(t)(14)(A) of the Act creates a “workaround” to section 1833(t)(14)(D) of the Act, which requires CMS to conduct acquisition cost surveys to assess in setting the drug APC payment rates, that “absolves” the Secretary from actually using data resulting from the acquisition cost surveys. In the commenter's view, this allows the Secretary to “game the system” for any rates set under section 1395l(t)(14) of the Act. The commenter alleged that there is no information in the CY 2026 OPPS/ASC proposed rule to suggest the pricing information was set with data obtained from compliance with section 1833(t)(14)(D) of the Act or its “workaround” in 1833(t)(14)(A) of the Act. The commenter claimed that this lack of transparency prevents meaningful comment and does not adequately explain the agency's authority to budget neutralize. The commenter concluded that “[a]s the requisite survey is just being rolled out in this same Proposed Rulemaking, these `budget neutrality offset adjustments' should not be allowed to continue because the agency is under no obligation to neutralize the effects of its 340B payments cuts that the Supreme Court found to be in violation of another statute.”

Response: The commenter correctly identifies that 1833(t)(14) of the Act authorizes two options to set drug APC payment rates, depending on the circumstance, though we would not necessarily characterize either as a “workaround” for the other. As the Supreme Court explained, section 1833(t)(14)(A)(III)(i) of the Act “applies if [CMS] collects `hospital acquisition cost survey data' from hospitals” under paragraph (D), and section 1833(t)(14)(A)(III)(ii) of the Act applies if we “do not conduct a survey of hospitals' acquisition costs and if acquisition cost data are therefore `not available.' ” Am. Hosp. Ass'n v. Becerra, 596 U.S. 724, 734 (2022). Because we have not yet completed a survey under paragraph (D), we have set payment rates under section 1833(t)(14)(A)(III)(ii) of the Act, just as we have for two decades. We explained that policy and how we set rates under section 1833(t)(14)(A)(III)(ii) of the Act in the CY 2026 OPPS/ASC proposed rule (88 FR 33628 through 33629) and published for comments the proposed rates in Appendices A and B to that proposed rule.\85\ The commenter does not identify any flaw with those explanations, and we disagree that doing so inadequately explains those rates or failed to provide adequate information for comment, or that by following the statutory process we have “game[d] the system.” As we have previously explained, we do not rely on section 1833(t)(14)(A)(III)(i) or (ii) of the Act for the payment adjustment here, but instead our budget neutralization authority.\86\ We explained at length how we arrived at the reduction and the amount of the total reduction, and the commenter does not identify any flaws with that methodology besides reiterating its disagreement with our statutory interpretation. We therefore disagree that we have provided insufficient information for comment.

\85\ Available at https://www.cms.gov/medicare/payment/prospective-payment-systems/hospital-outpatient/regulations-notices/cms-1834-p.

\86\ See 88 FR 77169 through 77181; see also Id. at 77156 through 77161; 90 FR 33633 through 33634.

Comment: One commenter stated that CMS has not provided meaningful notice of its intent to recoup because CMS has not provided affected hospitals with concrete information for review and consideration. To support this contention, the commenter focuses on CMS' use of the words “estimated” and

“approximately” in the CY 2026 OPPS/ASC proposed rule's discussion of payment for non-drug items and services in CY 2018 through CY 2022 and stated that “3 years later the agency is still talking in estimates and approximations”. The commenter alleged a discrepancy between an estimated impact of $1.6 billion that is listed in the narrative and an approximate impact of $1.9B noted for FY 2018 in Table 61 on the same page. The commenter also compared Table 4 in the Final Remedy rule, describing the repayment schedule, scheduled to begin in CY 2026, that would take back 0.5 percent per year from 2026-2041 and Table 62 in the CY 2026 OPPS/ASC proposed rule, describing the repayment schedule that would take back 2 percent per year from 2026-2031 and alleged that “[s]eemingly, something has changed in the math. The 2023 0.5 percent reduction dollar amounts in Table 4 multiplied by 4 yield very different numbers than what appears in Table 62. Yet, no meaningful explanation walks the public through these numbers, nor is there any confirmation that the $7.769 billion was the actual reinstatement. It is referred to as an “estimate” in the Table 62”. The commenter stated that 42 U.S.C. 1395hh(a)(2) requires the agency to undergo notice and comment rulemaking regarding anything that affects a provider's payment and that this is separate from its other obligations regarding notice and comment requirements in the Administrative Procedure Act (APA) (5 U.S.C. 553). The commenter stated that in order for there to be proper notice under either statute, the notice must provide sufficient detail for the reviewer to fully understand the substantive change to be made and that that is not possible because the commenter does not know why CMS is using estimates for data that was completed more than a year ago or why CMS' numbers changed from the 2023 Final Remedy rule to the CY 2026 OPPS/ASC proposed rule.

Response: We disagree that using the terms “estimated” and “approximately” means that this rulemaking fails to meet any requirement to engage in notice-and-comment rulemaking. The commenter does not suggest that we failed adequately to explain how we arrived at our estimations or approximations or that we gave the commenter inadequate information to comment on our methodology or data. Instead, the commenter appears to read into sections 1870 of the Act and the APA a categorical ban on setting policy based on estimations or approximations. We are unaware of any such requirement, nor would one make sense in a prospective payment system where the statute requires us routinely to set policy based on future predictions. We routinely approximate the results of our calculation rather than describe every calculation to the cent. However, for the readers awareness, in the Final Remedy rule, we state that our estimate of the total amount of additional spending on non-drug item and service spending “rounds to $7.8 billion, but is more precisely $7,768,568, 239” (88 FR 77153). And here, it was more precise to refer to estimations when we did. We are unwinding payment increases for non-drug items and services between CY 2018 and 2022 based on the rate increase for those items and services that CMS estimated in 2017 would redistribute the amount it estimated it would save for drugs acquired through the 340B program. We are not recouping the actual amount CMS saved by decreasing payments for drugs acquired through the 340B program, which, as we explained in the Final Remedy rule, exceeded our 2017 expectations. (See 88 FR 77177 and 77187.)

That difference between estimated payments and actual payments also explains the alleged discrepancy between the estimated impact of $1.6 billion for CY 2018 that is listed in the narrative and the approximate impact of $1.9 billion for that year listed in Table 61 on the same page of the CY 2026 OPPS/ASC proposed rule. As we explained in the CY 2026 OPPS/ASC proposed rule, to effectuate the budget neutrality provisions of the OPPS in CY 2018 rulemaking, CMS redistributed the $1.6 billion it estimated in 2017 that it would save in CY 2018 in reduced drug payments to increase nondrug item and service payments (90 FR 33632). That is the $1.6 billion number we reference in the narrative and that contributes to the $7.8 billion we intend to recoup through budget neutrality policy. Again, actual savings on drug payments in CY 2018 through CY 2022 exceeded our projections. (88 FR 77177 and 77187.) Table 61 of the CY 2026 OPPS/ASC proposed rule summarizes the actual reduced 340B drug payment amounts, which we derived from Addendum AAA published with the Final Remedy rule. (90 FR 33632). Thus, adding the amounts in Table 61 together totals to $10.6 billion--the total remedy payments we made to hospitals that acquired drugs through the 340B program at a reduced payment rate. Nor has anything changed in the math between Table 4 in the Final Remedy rule and the projected recoupments in Table 62 in the 2026 OPPS/ASC proposed rule. Since Table 4 was published in 2023, CMS has updated its payment projections for Medicare based on additional data. Table 62 uses those updated projections when estimating the impact of a 2 percent reduction, rather than just multiplying the original 0.5 percent reduction dollar amount by 4 like the commenter.

Comment: One commenter referenced CMS' statement in the CY 2026 OPPS/ASC proposed rule that the main premise of the Final Remedy rule was to implement the budget neutrality requirement in a manner that restored affected 340B covered entity hospitals to the financial position they would have been in had the 340B Payment Policy not been implemented in 2018. The commenter stated that there is no need to restore affected 340B entity hospitals to the financial position they would have been in had the 340B payment policy not been implemented in 2018 because that restoration already occurred with the early 2024 lump sum payments.

Response: We do not agree that the lump sum payments paid to hospitals in 2024 restored 340B covered entity hospitals, or any OPPS- paid hospital, to the financial position they would have been in had the 340B Payment Policy not been implemented from 2018 through 2022. The lump sum payment does not account for the additional payments for non-drug items and services that were made to all hospitals from CY 2018 through CY 2022 to achieve budget neutrality for the reduced 340B drug payments.

Comment: Many commenters stated that CMS' proposal failed to appreciate the financial strain the proposed increased reduction would impose on hospitals that are already operating on tight margins. These commenters claimed that CMS' proposal failed to account for adverse financial trends that have occurred since 2023, such as increased costs of labor, supplies and pharmaceuticals, aging hospital infrastructure, inflation, inadequate government reimbursements that lag behind inflation, eroding margins, supply chain disruptions, an aging population with more complex, chronic conditions, the lingering effects of the COVID-19 PHE and impending economic strains such as the OBBBA's reduction to Medicaid and Health Insurance Marketplace payments, IRA drug reductions, Medicare sequestration, and HRSA's recently noticed 340B Rebate Model. These commenters stated that the financial burden imposed by the proposal would threaten the services that they provide.

Response: We recognize that hospitals may have experienced financial strain in recent years, but other statutory provisions address many of the issues hospitals raise like inflation or the medical complexity of the Medicare population, and we do not believe that relaxing OPPS's budget neutrality provisions is the proper policy response. With respect to interest specifically, we note that the first of the increased payment amounts occurred in 2018, whereas the last of the recoupment amounts may not be until after 2030--in effect a more than 10-year loan without any attached interest. Ultimately, though, we cannot ignore the financial windfall that hospitals received from 2018 to 2022 and our statutory obligation to recover that windfall. We hope that delaying for a year any increase to the 0.5 percent reduction will allow hospitals to do any necessary planning and help to mitigate any financial strain

Comment: One commenter contended that the CY 2026 OPPS/ASC proposed rule fails to address how a 2 percent reduction is not “overly burdensome” when it previously concluded in the Final Remedy rule that reductions of 1.25 percent, 2.25 percent, and 3 percent would have been.

Response: We have addressed above why we reevaluated in the CY 2026 OPPS/ASC proposed rule our burden analysis in the Final Remedy rule and believed a larger offset percentage was more appropriate and better achieved the overarching goal of the Final Remedy rule, which is to restore hospitals as close to the financial position they would have been in had the 340B Payment Policy never been implemented. However, also for the reasons we have described above, we are maintaining the 0.5 percent reduction for CY 2026.

Comment: Many commenters characterized the offset, whether increased or not, as a penalty, arguing that it is unfair for hospitals to be penalized for mistakes or past unlawful actions by CMS.

Response: The offset is not a penalty on hospitals. Rather, it is a rate adjustment under section 1833(t) of the Act that accomplishes an incremental and interest free recovery of windfall payments to hospitals. It is calibrated to the amount of extra money hospitals received and thus achieves payment precision, not punishment. It returns hospitals to the position they would have been absent the unlawful 340B Payment Policy and ensures that the only money ultimately spent is the money authorized to be spent by the statute.

As we stated in the Final Remedy rule, in determining the specific annual percent reduction by which to recover the funds from hospitals, our goal was to appropriately balance our statutory budget neutrality obligations against hospitals' burden and reliance interests. The adjustment we proposed in the CY 2026 OPPS/ASC proposed rule to the percent reduction we finalized in the Final Remedy rule is our attempt to more precisely balance these elements.

Comment: Multiple commenters expressed concern about the disproportionate financial effect the increased rate of recoupment would have on safety-net providers, rural providers, 340B hospitals and teaching hospitals and stated that the recoupment would reduce resources available to provide services to their patients, particularly to low-income, rural, underserved and vulnerable populations.

Response: As we said in response to similar concerns expressed by commenters in the Final Remedy rule, we recognize that our proposal to decrease future payments will have a financial impact across all hospitals paid under the OPPS, except for new providers, and we are particularly mindful of the impact on vulnerable patients and communities. But, as we also stated in the Final Remedy rule, future decreases are, on aggregate, the mirror image of prior payment increases that would otherwise be a windfall to providers and such windfalls are not cost-free; the costs are ultimately borne by beneficiaries and taxpayers--including the vulnerable patients and communities served by the hospitals to which commenters themselves refer. In fact, this remedy will reduce any beneficiary cost sharing obligations, and incrementally reduce beneficiary Part B premiums, for all Medicare beneficiaries, including the vulnerable patients to which the commenters refer. (88 FR 77180 through 77181)

Comment: Many commenters expressed concern that, if implemented, the 2 percent reduction would effectively wipe out the CY 2026 OPPS rate increase. Others referenced recent estimates from the Congressional Budget Office predicting a new 4 percent Medicare sequestration to begin in January 2026 and argued that, coupled with the proposed 2 percent reduction, outpatient hospital services would be reduced by as much as 8 percent in CY 2026.

Response: Commenters are referencing distinct statutory obligations or potential future statutory obligations. Section 1833(t)(3)(C)(ii) of the Act requires the Secretary to update the conversion factor used to determine the payment rates under the OPPS on an annual basis by applying the OPD fee schedule increase factor. Sections 1833(t)(9)(B), (t)(14)(H) and (t)(2)(E) of the Act require that the OPPS be a budget neutral system, and we decline the commenters' invitation to implement those budget neutrality provisions in a way that defeats the purpose of other statutory policies.

Comment: Many commenters recognized CMS' statutory obligation to implement a budget neutral recoupment but, based on concern about the financial impact of a two percent reduction, requested the reduction to remain at 0.5 percent. Some commenters requested that the reduction be no larger than one percent while others requested 0.25 percent. One commenter suggested that if we could not maintain the 0.5 percent reduction then we should exempt non-340B hospitals entirely and specifically, physician owned hospitals. Nearly all commenters opposed our suggested alternative of a 5 percent reduction.

Response: We appreciate commenters' acknowledgement of our statutory obligation to budget neutralize the recoupment and their suggestions for alternative annual percent reductions to do so. With respect to a 0.25 percent reduction, we do not believe that an approximately 40 year recoupment timeframe would appropriately implement the budget neutrality requirement in a manner that restores affected 340B covered entity hospitals to the financial position they would have been in had the 340B Payment Policy not been implemented in 2018. This would be over 6 times the timeframe that the 340B Payment Policy was in place and exacerbates the concern that was driving the proposed 2 percent reduction--that the longer it takes to complete the recoupment, the more likely hospital utilization or other payment factors will change from CY 2018 through 2022, and so the less each hospital's total payment reduction will correspond with that hospitals' payment increase from CY 2018 through 2022.

As for the other suggestions, we are this year finalizing a 0.5 percent reduction for the reasons we discussed previously. That is consistent with these commenters' suggestion of a 0.5 percent reduction, and less than the alternative 1 percent reduction. As we noted above, however, we anticipate implementing a larger adjustment (such as 2 percent or other adjustment greater than 0.5 percent) in next year's rulemaking, and we can consider additional alternatives at that time.

Comment: One commenter stated that CMS is required to pay interest under 42 U.S.C. 1395l(j) for the remedy payments from the Final Remedy rule. The commenter stated that section 1395l(j) of the Act provides that interest is due when a provider received an OPPS payment “in excess of or less than the amount of payment that is due” that is not corrected within 30 days and that CMS paid 340B hospitals “less than the amount of payment that [was] due”. The commenter alleged that although the Supreme Court's decision applied only to 2018 and 2019, since CMS has never disputed that the rule was just as unlawful in 2020, 2021, and 2022, CMS must pay affected hospitals interest at the rate determined under 42 U.S.C. 1395l(j), with the clock on interest beginning no later than July 15, 2022.

Response: The amount of the remedy payments, including interest on the remedy payment, is outside the scope of this rulemaking. In any event, we have addressed the issue of interest under 42 U.S.C. 1395l(j) in the Final Remedy rule and in subsequent court briefing in Board of Trustees of University of Alabama v. Becerra, 22-cv-3367 (D.D.C.), which we incorporate here. (88 FR 77167 through 77168.) At least one court has agreed with our interpretation. See Bd. of Trs. of Univ. of Alabama v. Becerra, No. CV 22-3367 (RC), 2025 WL 2239289 (D.D.C. Aug. 6, 2025).

Comment: One commenter stated that for the same reasons we exempted new providers from the adjustment, we should exempt new procedures from the adjustment. The commenter stated that a procedure that did not exist or was not yet billable in CY 2018 through 2022 should be excluded from the reduction. The commenter suggested that recoupment be done “through individual hospital payment terms, not a nonspecific process linked to ongoing or future services”. In the event CMS does not adopt the commenter's suggestion, the commenter alternatively suggested that CMS adopt the 5 percent reduction to expedite repayment.

Response: A similar request was made by a commenter in the Final Remedy rule. As we said in our response to that comment, “exempting new items and services from this payment adjustment may distort providers' incentives to prescribe items and services based on whether they existed between CY 2018 and 2022 rather than whether they are medically appropriate, potentially impacting the care providers give to beneficiaries. And the more exceptions we create, the more complicated we make the payment reduction. Complications increase the risk of delays or errors in implementing this final rule”. (88 FR 77180.) This continues to be true. With respect to the commenter's recommendation that we consider adopting a 5 percent reduction to expedite repayment, we do not believe that it would be appropriate to implement such a reduction in CY 2026 for the same reasons that we are not implementing a 2 percent reduction in CY 2026, as we have explained previously.

Comment: Several commenters offered an alternative method of recoupment in which CMS would incrementally increase the 340B repayment percentage to shorten the overall repayment period but do so in a way that accommodates other financial pressures in the industry. In such a scenario, the commenters suggested, the CY 2026 reduction would remain at 0.5 percent since there are other planned cuts for Medicare providers due to sequestration, and CMS could plan to move to 0.75 and then one percent in future years if the sequester cuts are mitigated by Congress.

Response: We thank the commenter for their suggestions. While we disagree that we should implement our budget neutrality obligations in a way that frustrates other Congressional payment directives such as sequestration, we have partially adopted this commenter's proposed phased approach by retaining a 0.5 percent reduction for CY 2026 while delaying any larger reduction until CY 2027. As we note, we believe an additional year is sufficient time for providers to adequately prepare for the change in policy.

Comment: Many commenters posited that CMS failed to consider a sufficient number of alternative timeframes and adequately explain why it selected 3 years as the one alternative it did consider. As a result of this failure, these commenters stated that the 6-year timeframe CMS did propose is arbitrary, inadequately justified, and does not satisfy the APA's requirement to consider reasonable alternatives. These commenters stated that CMS needs to consider more alternatives, including those longer than 16 years, and explain why 6 years is the appropriate timeframe compared to them.

Response: For the reasons we have explained, we believe that our proposal properly acknowledged that it was shifting course and adequately explained the rationale behind the proposed shift. We disagree that we needed to propose more options to consider. Ultimately, commenters ask us to, but neither the APA nor the Act requires us to, consider every possible alternative. We are just required to consider significant ones. In the CY 2026 OPPS/ASC proposed rule, we discussed the initial 0.5 percent reduction for 16 years, a 2 percent reduction for 6 years, and a 5 percent reduction for 3 years. (90 FR 33636.) We proposed that a 2 percent reduction for 6 years adequately balanced budget neutrality against hospital burden and reliance. (90 FR 33635.) Hospitals have not raised additional interests we failed to consider, but convinced us that we could better account for their reliance interests, which we have done by retaining the 0.5 percent reduction for CY 2026 this while planning to raise the reduction to a larger percentage (such as 2 percent) beginning in CY 2027. In the course of finalizing this rule, we also considered commenters' suggestion that we extend the budget neutrality policy, such as implementing a 0.25 percent reduction for 40 years. As we explained above, any extension would likely exacerbate differences between how much hospitals received in excess payments from CY 2018 through 2022 and their total reductions in CY 2026 and thereafter, thus undermining our goal of returning hospitals as close as reasonably possible to the position they would have been absent the 340B Payment Policy. We have rejected this option.

While there are many possible specific payment reductions, the particular amount is necessarily an exercise in line-drawing. Commenters raise no specific reduction range that we fail to address in this final rule with comment period, and we disagree that there are significant other options commenters do not identify that we have not considered.

Comment: Several commenters requested that CMS establish an appeals process for hospitals that disagree with cost assignments. One commenter indicated that the CY 2026 OPPS/ASC proposed rule states that CMS will direct MACs to remedy the hospital 340B drug underpayments with budget neutrality adjustments between 2026-2031 but it does not clearly state how those remedy payments fit into the existing claims, reimbursement, and appeal structures. The commenter recommended that CMS state in the final rule that (1) dissatisfied hospitals will have a clear path to appeal the amount of CMS' budget neutrality adjustment recoupments and describe the appeals process; and (2) that CMS intends the final rule to be subject to judicial review. Specifically, the commenter stressed, CMS should state that reliance on section 1833(t)(2)(E) of the Act as authority for its proposed adjustments is not intended to create any implication that the adjustments are

not subject to judicial review under section 1833 (t)(12) of the Act.

Response: With respect to a process for hospitals to appeal the amount of CMS' budget neutrality adjustment recoupments, we believe these adjustments, like the initial adjustments in 2018, ultimately adjudicate claims for payment and so any available appeal would follow the procedures set out under section 1869 of the Act and its implementing regulations. We respectfully decline the commenter's request to opine in advance on how the jurisdictional provisions of section 1833(t)(12) of the Act might impact the Departmental Appeals Board's or courts' jurisdiction. Those bodies will adjudicate their jurisdiction in specific cases in the ordinary course with the benefit of appropriate briefing.

Comment: One commenter suggested that if we proceed with the two percent reduction that we should conduct robust monitoring for any unintended consequences and consideration of flexibilities or targeted supports for safety-net and teaching hospitals that may be disproportionately affected.

Response: We agree that it is important to monitor the effects of the increase for any unintended consequences and will take the commenter's suggestion under consideration for future rulemaking. We also appreciate the commenter's suggestion with respect to future consideration of flexibilities or targeted supports for hospitals based on that monitoring. We will consider this for future rulemaking.

Comment: One commenter recommended that CMS consider stronger regulation of the pricing by pharmaceutical companies to allow hospitals to get more of a discount “since pharmaceutical companies continue to have high profit margins while non-profit health systems continue to struggle to provide 340B drugs to many underserved patients.”

Response: This rule implements budget neutralization requirements in section 1833(t)(14) of the Act based on the Final Remedy rule, and the CY 2026 OPPS/ASC proposed rule did not propose additional regulations of pharmaceutical prices. This comment is therefore out of its scope.

Comment: A few commenters supported our proposal to revise the annual reduction to the OPPS conversion factor under Sec. 419.32(b)(1)(iv)(B)(12) used to determine the payment amounts for non- drug items and services from 0.5 percent to 2 percent. One commenter stated that faster repayment would ensure greater certainty in repayment amounts and also, due to the time value of money, reduce the strain on the Federal budget.

Response: We thank commenters for their support of our proposal. As we note, while we are not finalizing that proposal at this time, we anticipate proposing a larger offset beginning in CY 2027.

Comment: Several commenters expressed concern about the implications of the proposed 2 percent reduction in OPPS non-drug payments for providers contracting with Medicare Advantage (MA) organizations. Commenters stated that CMS has provided remedy payments under traditional Medicare following AHA v. Becerra in accordance with the Medicare Program; Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for calendar years 2018-2022 OPPS/ASC rule.\87\ Further, commenters shared that MA organizations, who adopted a similar reimbursement rate for 340B- acquired drugs during that same time period, may not have made the corresponding remedy payments to providers. Commenters emphasized that this could leave hospitals disadvantaged as they may not have received the benefit of a remedy payment from MA organizations, and they may be subject to the new prospective reductions to provider reimbursement for non-drug payments. Several commenters stated that this dynamic unfairly shifts resources to MA organizations and compounds the financial strain on hospitals, particularly given high and growing MA enrollment.

\87\ https://www.federalregister.gov/documents/2023/11/08/2023-24407/medicare-program-hospital-outpatient-prospective-payment-system-remedy-for-the-340b-acquired-drug.

Several commenters recommended that CMS take additional steps in this CY 2026 OPPS/ASC final rule with comment period to mitigate the impact of the proposed adjustment. Commenters specifically urged CMS to clarify that MA organizations are expected to make hospitals whole for 340B-acquired drugs administered between 2018-2022 and to prevent the prospective reductions from being passed through to providers absent repayment by MA organizations.

Response: We appreciate commenters' feedback on this issue. Under the MA program, CMS provides a capitated prospective payment to MA organizations to provide coverage to enrollees, and the MA organizations pay providers for this care. CMS calculated and paid CY 2018-2022 MA rates under the Advance Notice and Rate Announcement,\88\ and those MA rates reflected the FFS policies as of the time they were finalized.

\88\ Prior Advance Notice and Rate Announcement documents are available at https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/announcements-and-documents.

We also appreciate commenters' concerns regarding the potential implications of the Final Remedy rule for MA organizations' payments to providers. We understand from commenters that many MA organizations base their privately contracted reimbursement rates with providers on FFS rates set by CMS and that existing MA contracts may not account for the remedy provisions established in the Final Remedy rule. However, CMS establishes payment policies and payment rates for services payable under FFS through a separate, distinct process that is not directly related to the terms of private contracting arrangements between MA organizations and providers. Further, section 1854(a)(6)(B)(iii) of the Act prohibits CMS from requiring an MA organization to contract with a particular hospital, physician, or other entity to furnish items and services, including 340B-acquired drugs, or requiring a particular price structure for payment under such a contract. Providers and MA organizations may engage in any contract negotiations or re- negotiations independently of CMS.

Section 1852(a)(2) of the Act mandates that MA organizations reimburse non-contract providers at least the amount they would have received under Medicare FFS. We expect that MA organizations will comply with this statutory requirement. We note that the Final Remedy rule excluded providers that enrolled in Medicare after January 1, 2018, from the prospective rate reduction.

After consideration of public comments received, we are finalizing our proposal to adopt Addendum R--340B Remedy Offset Providers for CY 2026. For the reasons discussed above, we are not finalizing for CY 2026 our proposal to revise the reduction to the OPPS conversion factor under 42 CFR 419.32(b)(1)(iv)(B)(12) used to determine the payment amounts for non-drug items and services for hospitals for whom this adjustment applies from 0.5 percent to 2 percent. However, also for the reasons discussed above and in the 2026 OPPS/ASC proposed rule, we anticipate implementing a larger percent reduction (such as 2 percent or other reduction greater than 0.5 percent) beginning in CY 2027. Any change to the adjustment

in 42 CFR 419.32(b)(1)(iv)(B)(12) that applies beginning in CY 2027 would go through the usual annual rulemaking process. Please see Table 110, for an estimate of the impacts of the offset for CY 2026.

We note that the status indicators impacted by this finalized policy include, SI = J1, J2, P, Q1, Q2, Q3, R, S, S1, T, U, V. These status indicators generally capture the non-drug items and services impacted by a change in the OPPS conversion factor. Status indicator S1 will be newly effective starting in CY 2026 per our policy finalized in section V.B. of this final rule with comment period. The new “S1” status indicator represents products that were once packaged into procedures assigned to a status indicator of “S”. This aligns with our goal of reducing non-drug item and service spending to situate hospitals in the approximate financial position they would have been in absent the 340B payment policy. Additionally, we note that although New Technology APCs are assigned to a status indicator of “S” or “T” they are assigned to fixed payment rates that are unaffected by this reduction to the OPPS conversion factor. [GRAPHIC] [TIFF OMITTED] TR25NO25.152

As we noted in the CY 2023 OPPS/ASC final rule with comment period (87 FR 71975), budget neutrality adjustments to the OPPS conversion factor do not impact the ASC conversion factor. However, we also noted in that rule that revisions to the OPPS conversion factor can have an indirect impact on the ASC payment system because the ASC standard rate setting methodology adopts OPPS payment rates and the device portion (or device offset amount). Specifically, because the device portion for device-intensive procedures is held constant with the OPPS and is not calculated with the ASC conversion factor, a reduction to the OPPS conversion factor will lower the device portion for device-intensive procedures, including the payment rates for device-intensive procedures under the ASC payment system. We further clarified, however, that any decline in expenditures for device portions under the ASC payment system would be fully offset through the ASC weight scalar, which would increase payment for the non-device portions of all covered surgical procedures and certain covered ancillary services. Together, that means that reducing the OPPS conversion factor can mean that we pay relatively less for device-intensive procedures and relatively more for other surgical procedures.

In the Final Remedy rule (88 FR 77179), a commenter referenced this discussion in the CY 2023 OPPS/ASC final rule with comment period and requested that CMS provide an analysis of the impact of the remedy's proposed OPPS conversion factor reduction on ASC payment rates. Specifically, the commenter requested additional details on the magnitude of the change in payments for device-intensive procedures with and without the OPPS conversion factor reduction. As further discussed in section XIII. of the CY 2026 OPPS/ASC proposed rule, historically, the ASC payment system has generally adopted the final OPPS conversion factor for a calendar year in determining the OPPS payment rates that are used for determining the device portions for device-intensive procedures under the ASC payment system. A 2 percent reduction in OPPS payment rates would otherwise reduce ASC payments for device-intensive procedures by approximately 1 percent; the non-device portions for all covered surgical procedures would otherwise be increased to offset reduction to device portions for device-intensive procedures. For CY 2026, we estimated that the reduction to device portions would be approximately $42 million and would otherwise increase the ASC weight scalar by 0.1 percent.

However, we proposed to set ASC payment rates based on the OPPS payment rates without the remedy's 2 percent prospective offset. In other words, we proposed that these payment rates would be based on OPPS payment rates for hospitals that enrolled in Medicare after January 1, 2018. We acknowledged that in the CY 2023 OPPS/ASC proposed rule we stated that “the revised OPPS conversion factor will have an impact on the ASC payment system”, but we were responding to a comment asking about how unwinding the 340B Payment Policy would reduce the OPPS conversion factor prospectively beginning in CY 2023, not about how we should approach any temporary reduction in the OPPS conversion factor to unwind the 340B Payment Policy in place from CY 2018 through 2022 (87 FR 71975). In this context, we believed that selecting the higher OPPS payment rate is more consistent with the history

and logic of both the ASC payment system as well as the Final Remedy rule.

As for the ASC payment system, including the 2-percent prospective offset would not be an accurate reflection of the device costs of covered surgical procedures in the ASC setting. Further, we are concerned beneficiaries could have access issues to certain device- intensive procedures in the ASC setting, such as total knee arthroplasty and total hip arthroplasty, if we maintained a 2 percent reduction to the payment rates for device-intensive procedures for each calendar year we applied the prospective offset. The total payment for device portions of device-intensive procedures under the ASC payment system is roughly 27 percent of total ASC payments.

We stated in the CY 2026 OPPS/ASC proposed rule that this proposed policy would also be consistent with the logic of the Final Remedy rule. As we explained in that rule, the reduction to the OPPS payment rate is intended to comply with statutory budget neutrality requirements and was implemented in a manner to place hospitals in as close to the financial position they would have been in had this policy not been implemented in CY 2018 as is reasonably feasible. By contrast, it would not satisfy any similar statutory budget neutrality requirements to pass through this reduction to ASC payment rates. Nor would changing ASC payment rates for the next several years help place hospitals affected by the 340B Payment Policy in the same position as they have been absent that policy. Even if the agency wanted to extend the Final Remedy rule's logic to ASCs and try to place ASCs--none of whom ever challenged the 340B Payment Policy--in the same position as they would have been absent that policy, we doubt that passing through the 2 percent OPPS payment reduction to the device portion of ASC payment rates would do so. That is because, as discussed in the CY 2026 OPPS/ASC proposed rule, doing so would have a purely distributional impact on ASC payment rates that financially favors procedures that are less device-intensive. Therefore, as discussed in section XIII.C.4. of the CY 2026 OPPS/ASC proposed rule, we proposed that the OPPS payment rates used for rate setting under the ASC payment system for CY 2026 and subsequent years would not include the two percent prospective offset to the OPPS conversion factor as a result of the 340B remedy offset that we proposed to implement in that rule.

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

Comment: Two commenters supported our proposal to set ASC payment rates based on OPPS payment rates without the two percent prospective offset. Both commenters stated that not doing so would result in inaccurate payments for device costs in covered surgical procedures in the ASC setting.

Response: We thank commenters for their support.

After consideration of public comments, we are finalizing, without modification, our proposal to set ASC payment rates based on the OPPS payment rates without the remedy's prospective offset. 8. All-Inclusive Rate (AIR) Add-On Payment for High-Cost Drugs Provided by Indian Health Service and Tribal Facilities a. Background

In the CY 2000 OPPS final rule (65 FR 18434), CMS implemented the PPS for hospital outpatient services furnished to Medicare beneficiaries, as set forth in section 1833(t) of the Act. In the CY 2000 OPPS final rule, we noted that the OPPS applies to covered hospital outpatient services furnished by all hospitals participating in the Medicare program with a few exceptions. We identified one of these exceptions as “outpatient services provided by hospitals of the Indian Health Service (IHS).” We stated that these services would “continue to be paid under separately established rates which are published annually in the Federal Register” and, in the CY 2002 OPPS/ ASC final rule (66 FR 59856), we finalized a revision to Sec. 419.20 (Hospitals subject to the hospital outpatient prospective payment system) by adding paragraph (b)(4), which specifies that hospitals of the IHS are excluded from the OPPS.

In the intervening years, IHS and tribal facilities have been paid under the separately established All-Inclusive Rate (AIR). On an annual basis, the IHS calculates and publishes, in the Federal Register, calendar year reimbursement rates.\89\ Due to the higher cost of living in Alaska, separate rates are calculated for Alaska and the lower 48 States. For CY 2025, the Medicare Outpatient per visit rate is $718 for the lower 48 States (hereinafter referred to as “the lower 48 AIR”) and $1,193 for Alaska.\90\

\89\ https://www.ihs.gov/BusinessOffice/reimbursement-rates/.

\90\ 89 FR 101607 (December 16, 2024); https://www.federalregister.gov/documents/2024/12/16/2024-29505/reimbursement-rates-for-calendar-year-2025.

In the CY 2025 OPPS/ASC final rule with comment period (89 FR 94280 through 94286), we finalized a policy to separately pay IHS and tribal hospitals for high-cost drugs, biologicals, and radiopharmaceuticals (hereinafter referred to as “drugs” for the purpose of this section) furnished in hospital outpatient departments through an add-on payment in addition to the AIR using the authority under which the AIR is calculated.\91\ We note that the AIR and the add-on payment are paid out of the Part B trust fund and are not subject to OPPS budget neutrality.

\91\ Sections 321(a) and 322(b) of the Public Health Service Act (42 U.S.C. 248(a) and 249(b)), Public Law 83-568 (42 U.S.C. 2001(a)), and the Indian Health Care Improvement Act (25 U.S.C. 1601 et seq.).

We defined high cost drugs (that is, drugs qualifying for the add- on payment) for the purpose of the policy as all drugs covered under Medicare Part B and for which payment would otherwise be made under the OPPS whose per day cost exceeds two times the lower 48 AIR amount in effect at the time of the release of each year's OPPS/ASC final rule. In the CY 2025 OPPS/ASC final rule with comment period, this amount was identified as $1,334 (2) times the CY 2024 lower 48 AIR of $667).

To determine the calculated per day cost for each drug HCPCS code, we employed a methodology similar to our longstanding methodology used to calculate the per day cost of drugs for OPPS payment purposes. Specifically, to calculate the per day cost for CY 2025, we used an estimated payment rate based on the ASP methodology payment rate, which for purposes of the policy was generally ASP plus 0 percent (which is the payment rate for separately payable IHS drugs under the policy). We then used the manufacturer-submitted ASP data from the fourth quarter of CY 2023 to determine the per day cost. For drugs that did not have either an ASP-based payment rate or a payment rate based on WAC, we used mean unit cost (MUC) of the items derived from the CY 2023 hospital claims data to determine their per day cost.

We finalized that the amount of the add-on payment for a high-cost drug would be the average sales price (ASP) for the drug with no additional payment (that is, ASP plus zero percent). We note that this add-on payment was implemented on a per-dose basis. In the event ASP pricing information was not available for a particular drug, we paid the WAC plus 0 percent and if WAC pricing information was not available, we paid 89.6 percent of average

wholesale price (AWP). We also adopted a drug packaging threshold exception for biosimilars in which the add-on payment is made for biosimilars whose per-day costs do not exceed the threshold of two times the lower 48 AIR but whose reference products do exceed the threshold.

To implement this policy, we finalized in the CY 2025 OPPS/ASC final rule with comment period a recurring annual process in which the lower 48 AIR in effect at the time of the release of each year's OPPS/ ASC final rule with comment period would be used to create a list of drugs qualifying for the add-on payment for the following calendar year. Once the drugs qualifying for the add-on payment were determined, the payment rate for a unit of the drug would be determined in accordance with the above described pricing hierarchy. The results of that process for CY 2025 were displayed in Addendum Q to the CY 2025 OPPS/ASC final rule with comment period. We additionally finalized that during the calendar year, the list of drugs would be modified on a quarterly basis to add new-to-market drugs with per-day costs that exceeded two times the lower 48 AIR and to update qualifying drugs' ASPs. For a full discussion of the AIR add-on payment for high cost drugs provided by IHS and tribal hospitals, we refer readers to the CY 2025 OPPS/ASC final rule with comment period (89 FR 94280 through 94286). b. AIR Add-On Payment for High-Cost Drugs Provided by IHS and Tribal Facilities Policy for CY 2026

For CY 2026, we proposed to continue to separately pay IHS and tribal hospitals for high-cost drugs furnished in hospital outpatient departments through an add-on payment in addition to the AIR using the authorities under which the AIR is calculated.

We proposed to continue to define high cost drugs (that is, drugs qualifying for the add-on payment) for the purpose of the policy as any drugs covered under Medicare Part B and for which payment would otherwise be made under the OPPS which have per day costs exceeding two times the lower 48 AIR amount in effect at the time of the release of the CY 2026 OPPS/ASC final rule with comment period. For CY 2026, we proposed that if the CY 2025 lower 48 AIR amount was still in effect at the time of the release of the CY 2026 OPPS/ASC final rule with comment period, this amount would be $1,436 (2 times the CY 2025 lower 48 AIR of $718).

To determine the calculated per day cost for each drug HCPCS code, we proposed to continue using an estimated payment rate based on the ASP methodology payment rate (generally ASP plus 0 percent) and then using the manufacturer-submitted ASP data from the fourth quarter of CY 2024 to determine the per day cost. For drugs that do not have either an ASP-based payment rate or a payment rate based on WAC, we proposed to continue to use the MUC of the items derived from the CY 2024 hospital claims data to determine their per day cost.

With respect to the amount of the add-on payment, we proposed to use the same pricing hierarchy that we adopted in the CY 2025 OPPS/ASC final rule with comment period. For CY 2025, we explained that we adopted a practice of paying the MUC when AWP pricing is not available for a particular drug, and we proposed to continue that practice for CY 2026. We proposed for CY 2026 that the amount of the add-on payment for each dose of a high-cost drug would continue to be the average sales price (ASP) for the drug with no additional payment (that is, ASP plus zero percent). In the event ASP pricing information is not available for a particular drug, we proposed to continue to pay the wholesale acquisition cost (WAC) plus 0 percent. If WAC pricing information is not available, we proposed to continue to pay 89.6 percent of AWP. And, consistent with our practice for purposes of CY 2025, if AWP pricing information is not available, we proposed to pay the MUC. Finally, we proposed to continue the drug packaging threshold exception for biosimilars in which the add-on payment is made for biosimilars whose per-day costs do not exceed the threshold of two times the lower 48 AIR but whose reference products do exceed the threshold. c. List of Drugs Qualifying for the Add-On Payment for CY 2026

Using two times the lower 48 AIR amount of $718 that is in effect for CY 2025 and applying the above described per-day cost methodology and pricing hierarchy, we included as Addendum Q to the CY 2026 OPPS/ ASC proposed rule a preliminary list of the drugs qualifying for the proposed add-on payment and their proposed add on payment rates for CY 2026.

We proposed to create a final Addendum Q in the CY 2026 OPPS/ASC final rule with comment period using the claims data (units used per day) and ASPs available at that time. We also proposed that for HCPCS codes for drugs that are proposed for separate payment in CY 2026, but then have per day costs equal to or less than $1,436 (2 times $718) in the CY 2026 OPPS/ASC final rule with comment period, based on the updated ASPs and hospital claims data used for the CY 2026 OPPS/ASC final rule with comment period, those drugs would still receive separate payment in CY 2026.

Finally, during CY 2026, as we did during CY 2025, we proposed to modify the list on a quarterly basis (January, April, July, October) to add new-to-market drugs with per-day costs that exceed two times the lower 48 AIR and to update qualifying drugs' ASPs.

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

Comment: All commenters supported our proposal to continue to separately pay IHS and tribal hospitals for high-cost drugs furnished in hospital outpatient departments through an add-on payment in addition to the AIR using the authorities under which the AIR is calculated.

Response: We thank commenters for their support.

Comment: One commenter suggested that CMS consider whether the current threshold and payment methodology adequately supports access to the full range of cell and gene therapies (CGTs) that may become available for outpatient administration. The commenter recommends that as experience with CGT delivery in these settings grows, CMS should be prepared to make additional adjustments to ensure that payment policies continue to support access to innovative therapies for underserved populations. The commenter stated that this may include evaluating whether additional reimbursement support is needed for the specialized infrastructure and training requirements associated with CGT administration.

Response: We thank the commenter for their input and will keep it in mind for future rulemaking.

After consideration of the public comments we received, we are finalizing our proposed policy without modification to continue to separately pay IHS and tribal hospitals for high-cost drugs furnished in hospital outpatient departments through an add-on payment in addition to the AIR using the authorities under which the AIR is calculated. 9. Payment for Skin Substitutes

For the public's awareness: as the policies discussed in this section are closely aligned with those addressed in the CY 2026 PFS final rule, the preamble language is largely consistent

across both rules. Because we proposed to apply these policies across both the HOPD, ASC, and non-facility setting, we believe it is important for us to address the issues raised by commenters in a comprehensive way and provide the public with a unified understanding of how these policies would apply under both the PFS and OPPS/ASC payment systems.

While the majority of the discussion is the same in both rules, we have also included additional information specific to technical payment issues that commenters raised in response to the OPPS proposals and did not include certain highly technical issues unique to the PFS that were not proposed or included in the CY 2026 OPPS/ASC proposed rule. That said, our approach here is to provide a comprehensive discussion of the payment for skin substitute products in both the facility and non- facility settings. This approach promotes transparency, consistency, and reflects CMS' strong interest in aligning payment policies across care settings when appropriate. Finally, because the proposals under both rules are substantively the same apart from technical differences arising from the distinct characteristics of each payment system, such as geometric mean costs of APCs and Practice Expense RVUs, we believe it is reasonable and efficient to present a unified discussion of the policy. a. Background

The CY 2014 Hospital Outpatient Prospective Payment System (OPPS)/ Ambulatory Surgical Center (ASC) final rule with comment period describes skin substitutes as “a category of products that are most commonly used in outpatient settings for the treatment of diabetic foot ulcers and venous leg ulcers” (78 FR 74930 through 74931). When a procedure utilizing a skin substitute product is performed, providers bill one or more Healthcare Common Procedure Coding System (HCPCS) codes to describe the preparation of the wound, the use of at least one skin substitute product, and application of the skin substitute product through suturing or various other techniques. Specifically, CPT codes 15271 through 15278 describe the application of skin substitutes to various size wounds and anatomical locations.

Recently, several novel industry practices have come to our attention, likely driving substantial and unusual increases in the number of available skin substitute products, the sales and distribution structure for these products, and the rapidity of products changing manufacturer ownership. These industry changes are causing a significant increase in spending under Medicare Part B for skin substitute products in the non-facility setting. According to Medicare claims data, Part B spending for these products rose from approximately $250 million in 2019 to over $10 billion in 2024, a nearly 40-fold increase, while the number of patients receiving these products only doubled. Increases in payment rates, and launch prices for skin substitutes, especially newer products, account for the majority of observed Medicare spending increases on these products. Of note, as part of its workplan, the U.S. Department of Health and Human Services' Office of the Inspector General announced, in November 2024, plans to review Medicare Part B claims for skin substitutes to identify payments that were at risk for noncompliance with Medicare requirements with an expected issue date of fiscal year 2026.\92\

\92\ https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000894.asp.

We outlined our HCPCS Level II coding and payment policy objectives for skin substitutes in the CY 2023 OPPS/ASC proposed rule (87 FR 71985) because we concluded it would be beneficial for interested parties to understand our priorities as we work to create a consistent approach for the suite of products we have referred to as skin substitutes. As discussed in the CY 2023 OPPS/ASC proposed rule, we have a number of objectives related to refining our Medicare policies in this area, including: (1) ensuring a consistent payment approach for skin substitute products across the physician office and hospital outpatient department settings; (2) ensuring that appropriate HCPCS codes describe skin substitute products; (3) employing a uniform benefit category across products within the physician office setting, regardless of whether the product is synthetic or comprised of human- or animal-based material, so we can incorporate payment methodologies that are more consistent; and (4) promoting clarity for interested parties on CMS skin substitutes policies and procedures. Interested parties have asked CMS to address what they have described as inconsistencies in our payment and coding policies, indicating that treating clinically similar products (for example, animal-based and synthetic skin products) differently for purposes of payment is confusing and problematic for healthcare providers and patients. These concerns exist specifically within the non-facility setting; however, interested parties have also indicated that further alignment of our policies across the non-facility and hospital outpatient department settings would reduce confusion.

On April 25, 2024, the Medicare Administrative Contractors (MACs) released a proposed Local Coverage Determination (LCD) to provide appropriate coverage for skin substitute grafts used for chronic non- healing diabetic foot and venous leg ulcers. The MACs issued the collaborative proposed Skin Substitute Grafts/Cellular and Tissue-Based Products for the Treatment of Diabetic Foot Ulcers and Venous Leg Ulcers LCD to make sure that Medicare covers, and people with Medicare have access to, skin substitute products that are supported by evidence that shows that they are reasonable and necessary for the treatment of diabetic foot and venous leg ulcers in the Medicare population and that coverage aligns with professional guidelines for appropriately managing these wounds. All of the MACs have delayed the effective date of the final LCDs for cellular and tissue-based products for wounds, or skin substitutes, in diabetic foot ulcers and venous leg ulcers, moving the implementation date across all MAC jurisdictions to January 1, 2026. For details, please see the final LCD, titled: Skin Substitute Grafts/ Cellular and Tissue-Based Products for the Treatment of Diabetic Foot Ulcers and Venous Leg Ulcers at: https://www.cms.gov/medicare-coverage-database/basket/basket.aspx?loadBasketLink=Y&basketLinkId=552. We note that additional coverage determinations may apply to skin substitute products.

The Medicare statute, regulations, and manual provisions empower the Medicare program to determine if a product is reasonable and necessary for the treatment of a beneficiary's condition and safe and effective, not experimental or investigational, and appropriate and therefore eligible for coverage under Part B. (See, for example, section 1833(e) of the Act (42 U.S.C. 1395l(e)), section 1862(a)(1)(A) of the Act (42 U.S.C. 1395y(a)(1)(A)), 42 CFR 411.15(k)(1), 424.5(a)(6), Medicare Program Integrity Manual section 3.6.2.2, Medicare Benefit Policy Manual chapter. 15, section 50.4.1-50.4.3, and Medicare Program Integrity Manual, chapterch.13 section 13.5.3, 13.5.4.) Coverage is a threshold determination that must be satisfied before payment considerations arise. The inclusion of a product in this payment rule or in any payment file does not necessarily imply that a determination has been made by CMS or its contractors that it is reasonable and necessary and meets the other preconditions to Medicare coverage. Any skin substitute could not

be covered if it were determined to be unreasonable or unnecessary for a particular beneficiary. Similarly, the use of short descriptors and associated FDA regulatory categories \93\ may reflect current FDA regulation but are not intended to imply that FDA has determined that a product meets any specific FDA statutory or regulatory requirements. FDA's statutory and regulatory framework, including, for example, FDA's findings that a product is “safe and effective,” is not controlling of Medicare's determination under its own authorities of whether a product is “reasonable and necessary” for a Medicare beneficiary and meets all preconditions for Medicare coverage and payment. FDA does not make Medicare coverage or payment determinations, nor do FDA statutes and regulations govern Medicare coverage or payment determinations.

\93\ The term “FDA regulatory categories” is used in this final rule with comment period when referring to the basis for CMS' payment policies but is not intended to reflect or imply that the products discussed within this final rule with comment period are characterized as such or grouped together by FDA.

Medicare coverage and payment are also governed under separate statutory authorities and serve fundamentally different purposes. Coverage determinations under section 1862(a)(1)(A) of the Act (and related provisions) of the Act establish whether a service is reasonable and necessary while payment methodologies under section 1848 of the Act (and other applicable payment provisions) of the Act establish the amount Medicare will pay for covered physician services based on considerations such as resource similarity. CMS has determined that setting payment rates on a prospective basis is a different inquiry and exercise with a different set of considerations and that it makes sense here to consider how FDA regulates skin substitute products as a factor in grouping those products in various categories as described below.

We continue to believe that our existing payment policies are unsatisfactory, unsustainable over the long term, and rooted in historical practice established two decades ago prior to significant evolutions in medical technology and practice. After holding a town hall \94\ to provide an opportunity for public input, including discussion of potential approaches to the methodology for payment of skin substitute products, as well as reviewing several years of comments in response to CY rulemaking in 2023, 2024, and 2025 on this subject, we developed a proposal that addressed our stated objectives as well as many of the comments we have received.

\94\ CMS Skin Substitutes Town Hall, which was held virtually on January 18, 2023. More information regarding the CMS Skin Substitutes Town Hall such as links to recording and transcripts is available at https://www.cms.gov/medicare/payment/fee-schedules/ physician/skin- substitutes#:~:text=The%20CMS%20Skin%20Substitutes%20Town,Physician%2 0Fee%20Schedule%20(PFS).

b. Medicare Part B Payment for Skin Substitutes (1) Payment for Skin Substitutes When Used During a Covered Application Procedure Under the PFS in the Non-Facility Setting

CMS has historically considered skin substitutes to be biologicals for payment purposes under Medicare Part B. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) (MMA) established a payment methodology for drugs and biologicals under section 1847A of the Act. Under this methodology, a vast majority of drugs and biologicals separately paid under Medicare Part B are paid at the Average Sales Price (ASP) plus six percent. Section 303 of the MMA, titled “Payment reform for covered outpatient drugs and biologicals,” amended Title XVIII of the Act by adding new section 1847A of the Act. In part, this section established the use of the ASP to determine the payment limit for drugs and biologicals described in section 1842(o)(1)(C) of the Act (42 U.S.C. 1395u(o)(1)(C)) (that is, drugs or biologicals billed by a physician, supplier, or any other person and not paid on a cost or prospective payment basis) furnished on or after January 1, 2005. Because Medicare is currently paying for most skin substitutes as biologicals using the methodology under section 1847A of the Act, each skin substitute product receives a unique billing code (typically, a Level II HCPCS code) and payment limit.

Section 401 of Division CC, Title IV of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) (CAA, 2021) amended section 1847A of the Act to add new section 1847A(f)(2) of the Act, which requires certain manufacturers without a Medicaid drug rebate agreement, such as certain manufacturers of skin substitutes, to report ASP data to CMS for calendar quarters beginning on January 1, 2022, for drugs or biologicals payable under Medicare Part B and described in sections 1842(o)(1)(C), (E), or (G) or 1881(b)(14)(B) of the Act (42 U.S.C. 1395rr(b)(14)(B)), including items, services, supplies, and products that are payable under Part B as a drug or biological. Because most skin substitutes are currently paid as biologicals using the methodology described in section 1847A of the Act, manufacturers of these products are currently required to report their ASP data to CMS every quarter. Prior to this, section 1927(b)(3)(A)(iii)(I) of the Act only required manufacturers with a Medicaid drug rebate agreement to report ASP data to CMS for drugs or biologicals described in section 1842(o)(1)(C) of the Act.

Section 1847A of the Act also includes several relevant definitions. While the definition of “single-source drug or biological” provided at section 1847A(c)(6)(D) of the Act includes “a biological,” sections 1847A(c)(6)(H) and (I) of the Act offer more insight into the meaning of the term for purposes of this section. Subparagraph (I) of such section defines the term “reference biological product” as a biological product licensed under section 351 of the PHS Act (42 U.S.C. 262). Subparagraph (H) of section 1847A(c)(6) defines the term “biosimilar biological product” as “a biological product approved under an abbreviated application for a license of a biological product that relies in part on data or information in an application for another biological product licensed under section 351 of the Public Health Service Act.”

Section 1927 of the Act (42 U.S.C. 1396r-8), which is referred to multiple times in section 1847A of the Act, also references section 351 of the PHS Act when referencing biologicals. The title of section 303 of the MMA, which added section 1847A to the Act, refers to “covered outpatient drugs,” defined in section 1927(k)(2) of the Act. Subparagraph (B) of section 1927(k)(2) adds biological products to this definition when those products are licensed under section 351 of the PHS Act, among other requirements.

In the CY 2022 PFS final rule, to address the need to establish a payment mechanism for synthetic skin substitutes in the physician office setting and to be responsive to feedback received from commenters, we finalized an approach for payment of each synthetic skin substitute for which we had received a HCPCS Level II coding application. We finalized that those products would be payable in the physician office setting and billed separately from the procedure to apply them using HCPCS A-codes (86 FR 65120).

(2) Payment for Skin Substitutes Under the Outpatient Prospective Payment System (OPPS)

Prior to CY 2014, all products considered to be skin substitutes were separately paid under the OPPS as if they were biologicals according to the ASP methodology (78 FR 74930 through 74931). In the CY 2014 OPPS/ASC final rule with comment period (78 FR 74938), we unconditionally packaged skin substitute products furnished in the hospital outpatient setting into their associated application procedures as part of a broader policy to package all drugs and biologicals that function as supplies when used in a surgical procedure. As part of the policy to package skin substitutes, we also finalized a methodology that divides the skin substitutes into a high- cost group and a low-cost group, to ensure adequate resource homogeneity among Ambulatory Payment Classification (APC) assignments for the skin substitute application procedures (78 FR 74933). In the CY 2015 OPPS/ASC final rule with comment period (79 FR 66886), we stated that skin substitutes are best characterized as either surgical supplies or devices because of their required surgical application and because they share significant clinical similarity with other surgical devices and supplies.

Skin substitutes assigned to the high-cost group are described by CPT codes 15271 through 15278. Skin substitutes assigned to the low- cost group are described by HCPCS codes C5271 through C5278. Claims billed with primary CPT codes 15271, 15273, 15275, or 15277 are used to calculate the geometric mean costs for procedures assigned to the high- cost group, and claims billed with primary HCPCS codes C5271, C5273, C5275, or C5277 are used to calculate the geometric mean costs for procedures assigned to the low-cost group (78 FR 74935). The graft skin substitute administration add-on codes, which include “each additional 25 sq cm” in the description (that is, CPT codes 15272, 15274, 15276, and 15278; HCPCS codes C5272, C5274, C5276, and C5278), are packaged into the payment rates for the primary administration codes.

For CY 2025, each of the HCPCS codes described earlier are assigned to one of the following three skin procedure APCs according to the geometric mean cost for the code: APC 5053 (Level 3 Skin Procedures): HCPCS codes C5271, C5275, and C5277; APC 5054 (Level 4 Skin Procedures): HCPCS codes C5273, 15271, 15275, and 15277; or APC 5055 (Level 5 Skin Procedures): HCPCS code 15273. In CY 2025, the payment rate for APC 5053 (Level 3 Skin Procedures) is $612.13, the payment rate for APC 5054 (Level 4 Skin Procedures) is $1,829.23, and the payment rate for APC 5055 (Level 5 Skin Procedures) is $3,660.97. Table 111 lists the APC assignments and CY 2025 payment rates for the HCPCS codes describing the skin substitute application procedures. This information is also available in Addenda A and B of the CY 2025 final OPPS/ASC rule with comment period (the Addenda A and B are available on the CMS website https://www.cms.gov/medicare/payment/prospective-payment-systems/hospital-outpatient/regulations-notices). [GRAPHIC] [TIFF OMITTED] TR25NO25.153

Beginning in CY 2016, we adopted a policy where we determine the high-cost/low-cost status for each skin substitute product based on either a product's geometric mean unit cost (MUC) exceeding the geometric MUC threshold or the product's per day cost (PDC), which is calculated as the total units of a skin substitute multiplied by the mean unit cost and divided by the total number of days, exceeding the PDC threshold. We assign each skin substitute that exceed either the MUC threshold or the PDC threshold to the high-cost group. In addition, we assign any skin substitute with a MUC or a PDC that does not exceed either the MUC threshold or the PDC threshold to the low-cost group (87 FR 71976). We also assign skin substitutes with pass-through payment status to the high-cost category.

We assign skin substitutes with some pricing information but without claims data for which to calculate a geometric MUC or PDC to either the high-cost or low-cost category based on the product's ASP plus 6 percent payment rate as compared to the MUC threshold. If ASP is not available, we use the wholesale acquisition cost (WAC) plus 3 percent to assign a product to either the high-cost or low-cost category. Finally, if neither ASP nor WAC is available, we use 95 percent of average wholesale price (AWP) to assign a skin substitute to either the high-cost or low-cost category.

In the CY 2021 OPPS/ASC final rule with comment period, after the first entirely synthetic skin substitute products were introduced into the market, we revised our description of skin substitutes to include both biological and synthetic products (85 FR 86064 through 86067). Any skin substitute product that is assigned to a code in the HCPCS A2XXX series is assigned to the high-cost skin substitute group, including new products without pricing information. New skin substitutes without pricing information that are not assigned a code in the HCPCS A2XXX series are assigned to the low-cost category until pricing information is available to compare to

the MUC and PDC thresholds (89 FR 94247).

In the CY 2014 OPPS/ASC final rule, we also noted that several skin substitute products are applied as either liquids or powders per milliliter or per milligram and are employed in procedures outside of CPT codes 15271 through 15278. We stated that these products “. . . will be packaged into the surgical procedure in which they are used.” (78 FR 74930 through 74931).

We also clarified that our definition of skin substitutes does not include bandages or standard dressings, and that, under the OPPS, these items cannot be assigned to either the high-cost or low-cost skin substitute groups or be reported with either CPT codes 15271 through 15278 or HCPCS codes C5271 through C5278 (85 FR 86066). c. Current FDA Regulation of Products CMS Considers To Be Skin Substitutes

The FDA regulates products that CMS considers to be skin substitutes based on a variety of factors, including product composition, mode of action, and intended use. Relevant categories of FDA regulation for skin substitute products include the following:

(1) Self-Determination Under Section 361 of the PHS Act and the Regulations in 21 CFR 1271 (361 HCT/Ps)

Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/ Ps) are defined in 21 CFR 1271.3(d) as articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient. Examples include bone, ligament, skin, dura mater, heart valve, cornea, hematopoietic stem/progenitor cells derived from peripheral and cord blood, manipulated autologous chondrocytes, epithelial cells on a synthetic matrix, and semen or other reproductive tissue. Pursuant to section 361 of the Public Health Service (PHS) Act, FDA promulgated regulations at 21 CFR 1271, et seq. that create an electronic registration and listing system for establishments that manufacture HCT/Ps, regulate donor eligibility, and establish current good tissue practice and other procedures to prevent the introduction, transmission, and spread of communicable diseases by HCT/Ps.

A subset of HCT/Ps are those that are regulated solely under section 361 of the PHS Act and the regulations in 21 CFR 1271 (361 HCT/ Ps). The FDA has taken a risk-based, tiered approach in regulating HCT/ Ps; as the potential risk posed by a product increases, so does the level of oversight (63 FR 26745). Although FDA is authorized to apply the applicable requirements in the Federal Food, Drug, and Cosmetic Act (FD&C Act) and/or the PHS Act to those products that meet the definition of drug, biological product, or device, under a tiered, risk-based approach, HCT/Ps that meet specific criteria or fall within detailed exceptions do not require premarket review and approval. HCT/ Ps that do not meet all the criteria in 21 CFR 1271.10(a) are not regulated solely under section 361 of the PHS Act and the regulations in 21 CFR part 1271. Unless an exception in 21 CFR 1271.15 applies, such products are regulated as drugs, devices, and/or biological products under the FD&C Act and/or the PHS Act and are subject to additional regulation, including applicable premarket review and approval. An HCT/P is regulated solely under section 361 of the PHS Act and 21 CFR part 1271 if it meets all of the following criteria (21 CFR 1271.10(a)):

The HCT/P is minimally manipulated;

The HCT/P is intended for homologous use only, as reflected by the labeling, advertising, or other indications of the manufacturer's objective intent;

The manufacture of the HCT/P does not involve the combination of the cells or tissues with another article, except for water, crystalloids, or a sterilizing, preserving, or storage agent, provided that the addition of water, crystalloids, or the sterilizing, preserving, or storage agent does not raise new clinical safety concerns with respect to the HCT/P; and

Either:

++ The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function; or

++ The HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function, and:

-- Is for autologous use;

-- Is for allogeneic use in a first-degree or second-degree blood relative; or

-- Is for reproductive use.

Establishments that manufacture 361 HCT/Ps, as defined by 21 CFR 1271.3(e), must register and list their 361 HCT/Ps in the FDA's electronic Human Cell and Tissue Establishment Registration System (eHCTERS), but premarket review and approval by FDA is not needed. However, FDA acceptance of an establishment registration and 361 HCT/P listing form does not constitute a determination that an establishment is compliant with applicable FDA rules and regulations, that the FDA has agreed with the manufacturer's self-determination as a 361 HCT/P, or that the HCT/P is licensed or approved by FDA (21 CFR 1271.27(b)). When this proposed rule refers to 361 HCT/Ps, it generally refers to products where an establishment has self-determined that their product is a 361 HCT/P.\95\ If an HCT/P does not meet the criteria set out in 21 CFR 1271.10(a), and the establishment that manufactures the HCT/P does not qualify for any of the exceptions in 21 CFR 1271.15, the HCT/P will be regulated as a drug, device, and/or biological product under the FD&C Act, and/or section 351 of the PHS Act (42 U.S.C. 262), and applicable regulations, including 21 CFR part 1271, and premarket review generally is required.

\95\ We note that establishments may seek feedback from FDA regarding their self-determination analysis and conclusion that a particular product is a 361 HCT/P. See, for example, https://www.fda.gov/vaccines-blood-biologics/tissue-tissue-products/tissue-reference-group.

(2) 510(k) Premarket Notification Submissions, Premarket Approval Applications, and De Novo Requests

“Devices,”, as defined under 21 U.S.C. 321(h)(1), do not achieve their primary intended purposes through chemical action and are not dependent upon being metabolized for the achievement of their primary intended purposes. Devices may be subject to premarket review through: (1) a 510(k) premarket notification submission (510(k)) in accordance with section 510(k) of the FD&C Act and implementing regulations in subpart E of 21 CFR part 807; (2) a premarket approval application (PMA) under section 515 of the FD&C Act and regulations in 21 CFR part 814; or, potentially, (3) a De Novo classification request (De Novo request) under section 513(f)(2) of the FD&C Act and regulations in subpart D of 21 CFR part 860. A 510(k) is a premarket submission made to the FDA to demonstrate that the device to be marketed is substantially equivalent to a legally marketed device that is not subject to premarket approval (sections 510(k) and 513(i) of the FD&C Act). Premarket approval is the most rigorous type of review and generally is required for class III medical devices. Class III devices are those devices for which insufficient information exists to determine that general controls and special controls would provide a reasonable assurance of safety and effectiveness and are purported or represented to be for a use in supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health, or present potential unreasonable risk of illness or injury (section 513(a)(1)(C) of the FD&C Act). De Novo classification is a marketing

pathway for novel medical devices for which general controls alone (class I), or general and special controls (class II), provide reasonable assurance of safety and effectiveness, but for which there is no legally marketed predicate device. Devices that are classified into class I or class II through a De Novo request may be marketed and used as predicates for future premarket notification (that is, 510(k)) submissions, when applicable. (3) Biologics License Application

To lawfully introduce or deliver for introduction into interstate commerce a drug that is a biological product, a valid biologics license application (BLA) must be in effect under section 351(a)(1) of the PHS Act, 42 U.S.C. 262(a)(1), unless exempted under 42 U.S.C. 262(a)(3). Such licenses are issued only after showing that the product is safe, pure, and potent. Approval of a biologics license application or issuance of a biologics license shall constitute a determination that the establishment(s) and the product meet applicable requirements to ensure the continued safety, purity, and potency of such products (21 CFR 601.2(d)). Potency has long been interpreted to include effectiveness (21 CFR 600.3(s)).

The definition of the term “biological product” in section 351(i) of the PHS Act is: “a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein, or analogous product . . . applicable to the prevention, treatment, or cure of a disease or condition of human beings.” (42 U.S.C. 262(i)). In contrast to the registration and listing requirements for a 361 HCT/P or the substantial equivalence requirements for 510(k)s, products licensed under section 351 of the PHS Act are required to meet stringent pre-and post-market requirements to ensure the products' safety and efficacy when marketed. Table 112 lists several other notable differences between the relevant FDA regulatory categories for products CMS considers to be skin substitutes. [GRAPHIC] [TIFF OMITTED] TR25NO25.154