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

\96\ No premarket authorization is required for 361 HCT/Ps.

\97\ https://www.fda.gov/industry/fda-user-fee-programs/medical-device-user-fee-amendments-mdufa.

\98\ These numbers include either a review within 180 days for decisions without advisory committee input or a review within 320 days for decisions with advisory committee input, respectively.

\99\ PDUFA performance goals call for FDA to review and act on 90 percent of original BLA submissions within 10 months of the 60- day filing date. Other regulatory pathways may have different timelines. See https://www.fda.gov/patients/learn-about-drug-and-device-approvals/fast-track-breakthrough-therapy-accelerated-approval-priority-review; https://www.fda.gov/drugs/development-approval-process-drugs.

\100\ https://www.fda.gov/industry/fda-user-fee-programs/prescription-drug-user-fee-amendments.

We have carefully considered our policy objectives, which include: (1) ensuring a consistent payment approach for skin substitute products across the physician office, hospital outpatient department, and ambulatory surgical center (ASC) settings; (2) ensuring that appropriate HCPCS codes describe skin substitute products; (3) employing a uniform approach across products within the physician office setting, regardless of whether the product is synthetic or comprised of human- or animal-based material; and (4) providing clarity for interested parties on CMS skin substitutes policies and procedures. We proposed, starting January 1, 2026, to separately pay for the provision of certain groups of skin substitute products as incident-to supplies when, for those products that are coverable under Medicare's rules, they are used during a covered application procedure paid under the PFS in the non-facility setting or under the OPPS. This proposal does not apply to biological products licensed under section 351 of the PHS Act, which would continue to be paid as biologicals under the ASP methodology in section 1847A of the Act. While we considered proposing to pay separately for skin substitutes initially under just the PFS in non-facility settings consistent with current practice, one of our primary policy objectives is to ensure a consistent payment approach for skin substitute products across the physician office and hospital outpatient department settings; and so, we ultimately determined that the suite of products referred to as skin substitutes should be treated in a uniform manner across different outpatient care settings, to the extent permitted by applicable law, such as section 1833(t)(2)(B) of the Act. The physician, in consultation with his or her patient, decides the site of service for treatment. While many factors are considered as a part of that decision, substantial differences in payment for the application of the same skin substitute product in one site of service versus another, or between similar skin substitute products, should not be one of them. Establishing a consistent framework for how these products are treated within the non-facility and hospital outpatient settings would empower providers to make the best treatment decisions for their patients, ensure equitable access to needed services, and pay appropriately for these services. We also considered bundling payment for skin substitute products in both the PFS and OPPS as part of this proposal. While supplies are generally bundled into the payment of the service in both the physician office and hospital outpatient departments, for many years skin substitute products

have been paid separately in the physician office setting, where the majority of these products are currently applied. So, we have determined that bundling payment for skin substitute products with their administration procedures across both settings under this new proposal, before efforts are made to address improper utilization patterns, would be premature. Depending on the outcomes of a final policy, we may consider packaging skin substitute products with the related application procedure in both the hospital outpatient setting and non-facility setting in future rulemaking. We sought comments on our proposal to separately pay for the provision of certain groups of skin substitute products as well as on our proposal to implement this policy in both the non-facility and hospital outpatient settings.

In the CY 2014 OPPS/ASC final rule with comment period, we finalized a policy to package the payment for skin substitutes into high- and low-cost administration codes (see 78 FR 74930 through 74931 and 42 CFR 419.2(b)(16)). Under the proposal in the CY 2026 OPPS/ASC proposed rule, the payment for skin substitutes would no longer be packaged into the administration procedures under the OPPS, when performed in the outpatient hospital setting. Rather, we proposed to remove skin substitutes from the list of packaged items and services at 42 CFR 419.2(b)(16) and specify that we will continue to package payment for products that aid wound healing that are not skin substitute products. Accordingly, the C-codes describing the low-cost group, HCPCS codes C5271 through C5278, would be deleted; and skin substitutes assigned to the high-cost group, described by HCPCS codes 15271 through 15278, would remain to describe skin substitute administration procedures. As a result of the unbundling of the skin substitute products from HCPCS codes 15271 through 15278, the costs associated with the HCPCS codes may be impacted, resulting in changes in APC assignments. We refer readers to Addendum B to the CY 2026 OPPS/ ASC proposed rule for the APC assignments and associated payment rates for HCPCS codes 15271 through 15278. We also proposed to combine the existing claims data available for the two sets of current OPPS codes, the low-cost and the high-cost administration groups, to set the initial payment rate for the proposed skin substitute administration procedures described by HCPCS codes 15271 through 15278. We believe it is appropriate to combine the available claims data from both the low- cost and high-cost administration groups to calculate the payment rate for the proposed skin substitute administration procedures as both the low-cost and high-cost groups describe skin substitute administration. While HCPCS add-on administration codes 15272, 15274, 15276, and 15278 would still be packaged in the hospital outpatient setting, because add-on codes are generally packaged in the hospital outpatient setting, we anticipate that many of the concerns expressed by presenters at previous meetings of the Advisory Panel on Hospital Outpatient Payment (HOP Panel) and by public commenters on previous rules that providers are discouraged from treating larger wounds in the hospital outpatient setting (89 FR 94247) would be addressed by our proposal to pay separately for codes describing provision of skin substitute products from their associated administration codes. We sought comment on our proposal to pay separately for provision of skin substitutes as incident-to supplies when used as part of an administration procedure in the hospital outpatient setting.

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

Comment: Many commenters expressed strong support for CMS' goal of aligning payment and coding policies across different sites of care. They agree that a consistent, site-neutral payment system empowers providers to choose the most clinically appropriate setting based on patient needs rather than financial incentives. Commenters noted this would reduce the confusion, administrative burden, and disparities in care caused by the current system. They see this policy as a way to establish a fair and uniform standard that centers treatment decisions around the patient.

Many commenters also supported CMS' proposal to pay for skin substitutes separately from the application procedure. Several stated that these products add significant clinical value. They noted that separate payment ensures consistent treatment availability, preserves access for patients, and avoids disincentives for treating larger wounds. Several commenters expressed appreciation that CMS did not move forward with a previous proposal to bundle the products, which they believe would have harmed patients with large wounds. They regarded the proposed policy as a more clinically and operationally sound approach.

Several commenters specifically supported discontinuing the bundling of skin substitute payments in the Hospital Outpatient Department (HOPD) and Ambulatory Surgical Center (ASC) settings. They argued the current system, which bundles payment in the HOPD and ASC settings, but pays separately in the office, has created a disincentive to treat larger wounds in facilities, pushing those cases disproportionately into the physician's office or even more expensive inpatient settings. They applauded the per-square-centimeter methodology for aligning payment with wound size and expanding access across all sites.

Response: We thank commenters for their support.

Comment: Other commenters opposed the move away from bundled payments. MedPAC, for example, did not support unbundling skin substitutes in the facility setting, arguing that paying for items separately undermines payment bundles, can lead to overuse, and shifts financial burden from providers to Medicare and its beneficiaries. Another commenter supported maintaining a bundled approach to align with longstanding policy and statutory authority.

Several commenters recommended that CMS delay any changes to the HOPD payment methodology. They suggested that CMS should first assess the impact of the payment reforms in the non-facility setting before applying them to the hospital outpatient setting to avoid unintended consequences, such as shifting care to more expensive settings.

Response: While we acknowledge the concerns about unbundling raised by commenters, ensuring a consistent payment approach for skin substitute products across the physician office and hospital outpatient department settings has been a long-stated policy objective. As noted above, we determined that it would be premature to bundle payment for skin substitute products with their administration procedures across both settings before efforts are made to address improper utilization patterns. Depending on the outcomes of this policy, we may consider packaging skin substitute products with the related application procedures in the hospital outpatient department setting, ambulatory surgical center setting, and non-facility setting in future rulemaking.

Comment: Many commenters warned that the proposed payment rate for the application codes create a new, major disparity between care settings. They pointed out the large gap between the proposed physician application

payment rate of ~$150 in an office/mobile setting and the combined facility and physician facility setting payment rates of over $800 in an HOPD. They stated this disparity will create a strong financial incentive to shift patient care to the more expensive HOPD setting, which could strain hospital capacity, create access issues for rural and underserved patients, and cause physician offices and mobile practices to shutter. Several commenters highlighted the unique challenges and higher costs faced by providers serving rural and homebound patients. They recommended CMS offer financial incentives, enhance telemedicine reimbursement, and provide add-on payments or grants to ensure these vulnerable populations do not lose access to care. To achieve true site neutrality, they strongly suggested CMS increase the application payment for clinicians in non-facility settings to close this gap.

Other commenters supported the proposed RVUs and payment rates for the application procedure codes in both the HOPD and MPFS settings, finding them to be a fair assessment of clinical resource utilization.

Another commenter stated that CMS should increase the proposed APC payment rates for these procedures in the HOPD setting, as the proposal demotes some codes to lower-paying APCs, which exacerbates existing disincentives for treating wounds in the hospital. The commenter also stated that we had not provided any rationale for reassigning skin substitute application procedures to APCs with lower payment rates. The commenter requested that we revert the APC assignments for CPT code 15271, 15273 and 15275 to the APC assignments finalized in the CY 2025 OPPS/ASC final rule. Specifically, the commenter requested that we assign CPT codes 15271 and 15275 to APC 5054 and assign CPT code 15273 to APC 5055.

One commenter sought clarification on whether APC rates for the skin substitute application procedures, such as CPT codes 15271 through 15278 would be adjusted to maintain budget neutrality.

Response: We acknowledge the disparities in the payment rates for the application codes between settings. As described in section II.B. of this final rule with comment period, we are open to exploring alternative data sources, including use of OPPS cost data, to inform PFS rate setting for certain services in future rulemaking. We also recognize the possibility raised by interested parties that some of the excessive payment for the skin substitute products may have been useful in subsidizing costs associated with providing these services in beneficiaries' home. We look forward to continued dialogue on this point as well as on the point of access to care for homebound and other beneficiaries for whom care is reasonable and necessary.

With regard to specific APC assignments for some of the skin substitute application procedures (HCPCS codes 15271-15278), we remind commenters that we provided a rationale for potential APC reassignments. Specifically, we explained in the CY 2026 OPPS/ASC proposed rule that, as a result of the unbundling of the skin substitute products from HCPCS codes 15271-15278, the costs associated with the HCPCS codes may be impacted, resulting in changes in APC assignments. Such was the case when we ran an updated analysis of the geometric mean costs of HCPCS codes 15271-15278, upon which we update APC assignments, when we unbundled the skin substitute products from the application codes. Once we removed the costs of the skin substitute products, we saw approximately a 50 percent decrease in the geometric mean cost of each of the HCPCS application codes. Stated differently, when skin substitute products were packaged into the payment for the application procedure, they accounted for a significant portion of the cost of the procedure. With the product no longer packaged and instead separately paid, it would be expected that the cost of the procedure would decrease, because the procedure no longer includes the cost of the skin substitute product. Table 113 illustrates this in more granular detail. [GRAPHIC] [TIFF OMITTED] TR25NO25.155

We note that, while additional claims have been processed since the CY 2026 OPPS/ASC proposed rule was released, there have not been significant changes to the geometric mean costs of these codes as outlined in the costs statistics files to this final rule available on the CMS OPPS website.

Finally, we are clarifying that the prospective payments for skin substitute products and skin substitute administration procedures based on our CY 2026 OPPS payment policy would be included in budget neutrality as it is typically applied. For more detail, we refer readers to section II.A.4 of this final rule with comment period.

After careful consideration of the comments, we are finalizing our proposal to pay separately for the

provision of certain groups of skin substitute products as well as our proposal to implement this policy in both the non-facility and hospital outpatient settings as proposed. We are also finalizing the proposed APC assignments for HCPCS codes 15271, 15273, 15275, and 15277. Specifically, we are finalizing our proposal to assign HCPCS codes 15271 and 15272 to APC 5053 (Level 3 Skin Procedures) and HCPCS codes 15273 and 15277 to APC 5054 (Level 4 Skin Procedures). The final CY 2026 payment rates can be found in Addendum B to this final rule with comment via the internet on the CMS website. In addition, we refer readers to Addendum D1 of this final rule with comment period for the status indicator meanings for all codes reported under the OPPS. Addendum D1 can also be found via the internet on the CMS website.

In the CY 2014 OPPS/ASC final rule with comment period, we finalized a policy to treat skin substitutes as biologicals that function as supplies when used in a surgical procedure. Similarly, under this proposal, most skin substitutes would be considered incident-to supplies in accordance with section 1861(s)(2)(A) of the Act. Supplies are a large category of items that typically are either for single use or have a shorter use life span than equipment. Supplies can be anything that is not equipment and include not only minor, inexpensive, or commodity-type items but also include a wide range of products used in outpatient settings, including certain implantable medical devices. “Incident-to supplies” refers to supplies that are furnished as an integral, although incidental, part of the physician's personal professional services in the course of diagnosis or treatment of an injury or illness, among other requirements at 42 CFR 410.26(b). Because a skin substitute must be used to perform any of the procedures described by a CPT code in the range 15271 through 15278, and the procedure of treating the wound and applying a covering to the wound is the independent service, skin substitute products serve as a necessary supply for these surgical repair procedures.

One purpose of the new proposed policy was to limit some of the current profiteering practices occurring in this industry. For example, as reflected in the last several years of CMS' ASP Pricing Files, we have observed a dramatic increase in launch prices. It is unclear how these prices could be attached to realistic changes in resource costs as many of these new products are allegedly minimally manipulated tissues. Our policy is likely to disincentivize this practice, as well as several other novel industry practices that have come to our attention, by preventing exploitation of skin substitute pricing under section 1847A of the Act, overuse of expensive skin substitute products, and waste resulting from use of more expensive skin substitute products over clinically-appropriate, less expensive alternatives. Notably, there has not been significant growth in payments for skin substitutes in the OPPS, due in part to our packaging principles. We note that the relevant statutory provisions, when considered together, do not require all of these kinds of products to be paid as biologicals under section 1847A of the Act. Therefore, under this policy, unless a skin substitute is approved as a biological product under section 351 of the PHS Act, in which case we would continue to pay for it consistent with section 1847A of the Act, we would consider it a supply for payment purposes under the OPPS with definitions and rates described below. For Medicare purposes, we proposed to codify the definition of “biological” as “a product licensed under section 351 of the Public Health Service Act” at Sec. Sec. 414.802 and 414.902. We sought comments on our proposal to limit the application of section 1847A of the Act to skin substitutes that are approved as a biological product under section 351 of the PHS Act and our proposed edits to the regulations.

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

Comment: Many commenters opposed classifying skin substitutes, particularly amniotic and placental-derived products, as supplies. They stated this classification is a misstep that diminishes the products' clinical value, calling the products advanced, life-changing biologic therapies, not simple bandages or dressings. Some stated CMS lacks legal authority, as skin substitutes do not meet the statutory definition of an “incident-to supply.” They stated the reclassification is legally, clinically, and definitionally incorrect, as these products are the primary intervention, not an incidental part of a service, and interact directly with body tissues.

Response: Section 1861(s)(2)(A) of the Act defines “medical and other health services” as services and supplies furnished incident to a physician's professional service that are commonly furnished in physicians' offices and provided either without charge or as part of a physician's bill. As stated above, supplies are a large category of items that typically are either for single use or have a shorter use life span than equipment. Supplies can be anything that is not equipment and include not only minor, inexpensive, or commodity-type items but also include a wide range of products used in outpatient settings, including certain implantable medical devices such as class III medical devices requiring premarket approval, which is the most rigorous review required of a skin substitute that is also a medical device. “Incident-to supplies” refers to supplies that are furnished as an integral part of the physician's professional services in the course of diagnosis or treatment of an injury or illness, among other requirements at 42 CFR 410.26(b). Because a skin substitute must be used to perform any of the procedures described by a CPT code in the range 15271 through 15278, and the procedure of treating the wound and applying a covering to the wound is the independent service, skin substitute products serve as a necessary supply for these surgical repair procedures.

Comment: Many commenters strongly supported the classification of non-BLA skin substitutes as incident-to supplies. They see it as an essential, rational approach to realign incentives away from overuse and toward more clinically appropriate care. They stated that this classification is expected to curb the significant fraud, waste, and abuse that has plagued the current system.

Response: We appreciate the commenters for their feedback on our proposal to treat and pay for all skin substitute products as incident- to supplies. We agree that this proposal will help to resolve issues such as exorbitant price increases and curb fraud, waste, and abuse.

After careful consideration of the comments, we are finalizing our proposal to pay separately for the provision of skin substitutes as incident-to supplies under the OPPS in the hospital outpatient department as proposed.

We received divided comments on our proposal to codify the definition of “biological” in regulation. The following is a summary of the comments we received and our responses.

Comment: Several commenters stated that CMS's proposal to narrow the definition of “biological” to only include products licensed under section 351 of the PHS Act is a misapplication of the law and conflicts with the Act. They contend that the of the Act itself provides a broader definition in section 1861(t)(1) of the Act, which includes products listed in the U.S. Pharmacopoeia (USP) or approved by hospital P&T committees--a definition

that many skin substitutes meet. Commenters state that if Congress had intended to limit the term “biological” to section 351 of the PHS Act products in the payment statute (section 1847A of the Act), it would have done so explicitly, as it has in other parts of the law. Furthermore, they noted that the Consolidated Appropriations Act of 2021 referred to these products as “drugs and biologicals,” signaling that the Congress considers them as such for payment purposes. Commenters stated that for decades CMS has appropriately classified and paid for CTPs/skin substitutes as drugs or biologicals under section 1847A of the Act. They state the proposal to abruptly reclassify them is an unexplained reversal of this long-standing policy and is therefore “arbitrary and capricious.”

Response: Section 1861(t)(1) of the Act states, in relevant part, that the term “drugs” and the term “biologicals” include only products that are included (or approved for inclusion) in the U.S. Pharmacopoeia, the National Formulary, or the United States Homeopathic Pharmacopoeia, or in New Drugs or certain products listed in the Accepted Dental Remedies, or as are approved by the pharmacy and drug therapeutics committee (or equivalent committee) of the medical staff of the hospital furnishing such drugs and biologicals for use in such hospital; subparagraph (t)(2) adds that the term “drugs” includes any drugs or biologicals used in certain anticancer chemotherapeutic regimens in the definition. The definition of these terms does not include certain medical supplies. Reliance on this provision to determine that a skin substitute is a biological payable under section 1847A of the Act is problematic for several reasons. To begin, we note that this provision does not require that all products included in the listed compendia are deemed drugs and biologicals. Instead, it states that “drugs” and “biologicals” include only such drugs and biologicals as are included in the compendia. Second, only one of the listed compendia in section 1861(t)(1) of the Act that is still in publication, a combination compendium containing USP and the National Formulary (USP-NF), which contains standards for medicines, dosage forms, drug substances, excipients, biologics, compounded preparations, medical devices, dietary supplements and other therapeutics.\101\ The compendia issued a statement in 2018 that it would no longer develop new monographs for biologics unless there is other interested parties consensus supporting its creation, including the support of FDA.\102\ As a result, very few of CMS' paid biologicals actually have product- specific monographs in that compendium. Instead of product-specific monographs, the USP primarily develops performance standards and general guidelines to support the quality assessment of biologics. This is also true in the case of skin substitutes. References to these types of products in the USP are not product-specific monographs. Instead, these references are general descriptions of product types. As the source and manufacture of products with biological activity can dramatically change their safety and efficacy, these general references are not sufficient to describe any product with specificity. Therefore, we rely on the language in section 1847A of the Act to authorize payment for products described therein.

\101\ https://www.uspnf.com/purchase-usp-nf.

\102\ https://www.usp.org/news/statement-on-monographs-for- biologics#:~:text=Rockville%2C%20MD%20%E2%80%93%20April%202%2C,About% 20USP.

The Consolidated Appropriations Act, 2021, Public Law 116-260, division CC, section 401(c), amended section 1847A(f)(A) to state that, manufacturers of drugs or biologicals including items, services, supplies, and products that are payable under Medicare Part B as a drug or biological, that have not entered into a National Medicaid Drug Rebate Agreement are required to report ASP (and WAC) data to CMS. Under this policy, as finalized, skin substitute products (other than those approved via BLA under section 351 of the PHS Act) will no longer be paid as biologicals and will no longer be required to report ASP to us.

Finally, as noted previously, we outlined our HCPCS Level II coding and payment policy objectives for skin substitutes in the CY 2023 PFS proposed rule (87 FR 46249) and stated we believed that our existing payment policies were unsatisfactory, unsustainable over the long term, and rooted in historical practice established two decades ago prior to significant evolutions in medical technology and practice. CMS also hosted a town hall to provide an opportunity for public input, including discussion of potential approaches to the methodology for payment of skin substitute products, and reviewed several years of comments in response to CY rulemaking in 2023, 2024, and 2025 on this subject before developing this proposal to address our stated objectives as well as many of the comments we have received.

Comment: Other commenters agreed with CMS' interpretation. They supported the proposal to reserve the payment methodology under section 1847A of the Act for products that have undergone the rigorous FDA Biologics License Application (BLA) process under section 351 and agreed that non-BLA products do not meet the statutory definition of biologicals contemplated for payment under section 1847A of the Act, making the “incident-to supply” classification a rational approach. They believe this accurately reflects the statutory definition of a biological and rightly rewards manufacturers who invest in the highest level of regulatory review. Other commenters requested that CMS clarify that skin substitute products do not fall under the discarded drug or inflation rebate policies.

Response: We appreciate the commenters for their support. We clarify that skin substitute products that are not regulated as biological products under section 351 of the PHS Act and that are paid as incident to supplies are not subject to the Medicare discarded drug policy. At this time, skin substitutes are excluded from Part B inflation rebates as described at Sec. 427.101(b)(5) and as finalized in the CY 2025 PFS final rule (89 FR 98235).

Comment: A commenter warned that continuing to pay for the few BLA- approved products under section 1847A of the Act while moving all others to a flat rate would create a perverse incentive for those manufacturers to continue increasing prices.

Response: As previously described, we believe that the payment methodology described in section 1847A of the Act applies to drugs and biological products approved under a BLA. Further, such licenses are issued only after showing that the product is safe, pure, potent, and may justify a higher payment rate. Finally, between the longer time required to bring these products to market, potential rebate requirements, and the changes to ASP reporting described in the CY 2026 PFS final rule, we believe opportunities for dramatic pricing increases will be significantly curtailed. However, we will continue to monitor pricing trends for products approved under a BLA.

Comment: A commenter requested that CMS codify in regulation that biological products licensed by the FDA under the section 351 BLA process are not considered skin substitutes, are not considered incident-to supplies under the CY 2026 OPPS/ASC proposed rule, and will continue to be eligible for separate payment under section 1847A of the Act (generally, ASP plus 6 percent).

Response: While products licensed under section 351 of the PHS Act may properly be used along with skin substitute application codes, they will continue to be separately paid as biological products using the methodology described in section 1847A of the Act. We also received many comments on the growth in payments for this class of products.

Comment: Many commenters, including ACOs, primary care providers, and health systems, stated that they have witnessed an explosive and unsustainable growth in skin substitute spending, which they attribute to fraud, waste, and abuse. They report seeing products used in clinically questionable circumstances, often by third-party mobile wound clinics that operate without coordination with the patient's primary care team. The commenters identified the ASP-based payment limits as a primary driver of abuse, as it creates financial incentives to use more expensive products, regardless of clinical need. They described a system where manufacturers can launch new, clinically undifferentiated products at inflated prices and offer deep discounts to providers, who then profit from the spread between their acquisition cost and the high Medicare reimbursement rate. Commenters provided examples of significant patient harm resulting from this misuse, including failure to treat the underlying causes of wounds, unnecessary applications, severe infections, sepsis, and even death. They noted a troubling pattern of skin substitutes being applied to vulnerable and terminally ill patients, including those on hospice, where such treatment is inappropriate.

Response: We appreciate the commenters for their input. We believe this policy will dramatically reduce these problematic behaviors in both the physician office and hospital outpatient settings. We also believe this policy has the potential to prevent these harmful practices from occurring in different settings of care, including hospice and home health.

Comment: Several commenters referenced analyses indicating that the vast majority of the spending is driven by a very small number of outlier providers. Commenters referenced one analysis by Tettelbach et al.\103\ that found that in 2023, fewer than 3 percent of providers accounted for nearly two-thirds of all Medicare spending on these products. The commenters suggested the problem is not broad utilization but isolated misuse by a few bad actors. Based on the concentration of abuse, some commenters stated that CMS should use targeted program integrity measures, such as audits of outlier providers, NPI-level analytics, and stricter enforcement--rather than implementing sweeping payment cuts that penalize all providers and risk harming patient access. Beyond targeted enforcement, commenters recommended systematic oversight mechanisms. A commenter suggested CMS recognize site accreditation through a self-regulatory organization (SRO) to verify adherence to standard of care, documentation protocols, and product handling, analogous to DMEPOS and CLIA accreditation models. The SRO would conduct inspections, publish outcomes dashboards, and impose sanctions. The commenters contend that slashing payment rates is not a fraud control measure and will disproportionately harm compliant providers and the patients who need these products.

\103\ Tettelbach W, Armstrong DG, Driver V, et al. Safeguarding access, fiscal responsibility and innovation: a comprehensive reimbursement framework for CAMPs to preserve the Medicare Trust Fund. J Wound Care. 2025;34(10):Ahead of Print. doi:10.12968/ jowc.2025.0396.

Some commenters caution that increased use of skin substitutes is not, in itself, a negative trend. They stated that the growth also reflects expanded access to care for previously underserved populations (like homebound patients) and increased provider awareness of the products' efficacy in healing chronic wounds.

Response: We agree that not all increased use of skin substitutes is improper. However, it is clear that the dramatic growth in spending is not statutorily required and comes without a clear, consistent, and corresponding benefit. The Agency has a responsibility to the public to be good stewards to the Medicare Trust Fund, so CMS has implemented a coordinated effort across several Centers, such as the Center for Medicare, the Center for Clinical Standards and Quality, and the Center for Program Integrity, to address this issue.

Comment: Several commenters offered feedback on skin substitute billing as it relates to value-based care programs such as the Medicare Shared Savings Program. These comments acknowledged support for the proposals relating to the changes in skin substitute payment policy, but expressed concern related to negative impacts to some ACOs who may be disproportionately impacted by skin substitute billing compared to the national trend. Some commenters also made recommendations for revisions to value-based care programs that could address skin substitute billing and similar future scenarios that may not be captured by the Significant, Anomalous, and Highly Suspect (SAHS) billing activity policy which was finalized in the CY2025 PFS.

Response: As the commenters referenced, on November 1, 2024, we issued the CY 2025 Medicare PFS final rule (89 FR 97710), which included policies discussed under the “Mitigating the Impact of Significant, Anomalous, and Highly Suspect (SAHS) Billing Activity on Shared Savings Program Financial Calculations in Calendar Year 2024 or Subsequent Calendar Years” section of the final rule (89 FR 98191). These policies give us the ability to determine that the billing of one or more HCPCS or CPT codes represents significant, anomalous, and highly suspect billing activity for a calendar year that warrants adjustment to calculations made under 42 CFR part 425. Generally, a level of billing for a given HCPCS or CPT code is considered SAHS billing activity when a given HCPCS or CPT code exhibits a level of billing that represents a significant claims increase, either in the volume or dollars, with national or regional impact, and represents a deviation from historical utilization trends that is unexpected and is not clearly attributable to reasonably explained changes in policy or the supply or demand for covered items or services. The billing level must be significant and represent billing activity that would cause significantly inaccurate and inequitable payments and repayment obligations in the Shared Savings Program if not addressed (89 FR 98195).

We assessed the impact of an increase in billing to Medicare for skin substitutes and determined that the billing activity for these services does not represent SAHS billing activity for Performance Year (PY) 2024. Skin Substitute billing can have varying impacts on ACOs' performance and could either contribute to increasing or decreasing shared savings and losses, dependent on ACO-level expenditures and national/regional billing activity impacts.

We established the SAHS billing policy to address certain unexplained billing anomalies that could impact program wide calculations, to be invoked in rare and extreme cases when we identify a code that meets the high bar to be defined as SAHS billing activity (89 FR 98196). Payments that are not excluded under the SAHS policy are also reviewable at the ACOs' request if improper payments are identified after the initial determination is made under the reopening policy (42 CFR 425.315).

We will continue to monitor this area with our program integrity partners and to explore options that could mitigate extreme deviations in costs that are outside of the ACOs' control and not addressed through the SAHS policy.

Comment: Some commenters acknowledged that truncation in Medicare Shared Savings Program calculations greatly mitigates a significant amount of outlier billing for skin substitutes. A portion of these commenters also suggested that CMS should apply a lower stop loss truncation threshold in the Medicare Shared Savings Program to address skin substitutes.

Response: To minimize variation in catastrophically large claims, the Medicare Shared Savings Program truncates an assigned beneficiary's total annual Medicare Parts A and B fee-for-service (FFS) per capita expenditures at the 99th percentile of national Medicare Parts A and B FFS expenditures as determined for the applicable performance year for assignable beneficiaries identified for the 12-month calendar year corresponding to the performance year (42 CFR 425.605(a)(3) and 425.610(a)(4)(ii)).

For all benchmark years and performance years, CMS provides ACOs with the number of assigned beneficiaries with truncated expenditures, the total dollar amount truncated, and the percentage of total annualized expenditures truncated. We also provide this truncation information for the National Assignable FFS population. We have examined the impact of the truncation policy on skin substitute expenditures and found that over 50 percent of PY 2024 Part B expenditures for skin substitutes were addressed by truncation. Skin substitute expenditures, on average for PY 2024, represent roughly 1 percent of total Parts A and B expenditures for ACOs, and with truncation applied, the average skin substitute expenditures equate to less than 0.5 percent of total Parts A and B expenditures for ACOs. This information indicates that truncation effectively mitigates large spending associated with skin substitute billing.

Comment: Some commenters also provided feedback requesting a formal process and direct channel for ACOs to report fraud.

Response: Medicare Shared Savings Program ACOs are encouraged to report potential fraud or abuse by submitting a complaint to the CMS Center for Program Integrity (CPI), Fraud Investigations Group (FIG), Division of Provider Investigations (DPI) at [email protected]. ACOs can also report potential fraud or abuse by submitting a complaint to the Office of Inspector General (OIG) website at https://oig.hhs.gov/fraud/report-fraud/, OIG hotline at 1-800-HHS-TIPS (1-800- 447-8477), TTY at 1-800-377-4950, by fax at 1-800-223-8164, or by mailing to: Office of Inspector General ATTN: OIG HOTLINE OPERATIONS P.O. Box, 23489 Washington, DC 20026. ACOs suspecting healthcare fraud, waste, or abuse are encouraged to visit the CMS Center for Program Integrity (CPI) website at https://www.cms.gov/medicare/medicaid-coordination/center-program-integrity for more information.

After careful consideration of public comments, we are finalizing our proposal to limit application of section 1847A of the Act to skin substitutes that are approved as a biological product under section 351 of the PHS Act and we are finalizing our proposed edits to the regulations as proposed. 2. Payment Categories Based on FDA Regulatory Pathways

Paying separately for skin substitutes in the non-facility setting has led to dramatic price increases for these products, as noted above. Grouping similar products or services into a single billing code and using a single payment amount for them, as we do with many services under the OPPS, some services under the PFS, and all multiple-source drugs under section 1847A of the Act, incentivizes hospitals and prescribers to make more cost-efficient, clinically effective decisions. However, we recognize that grouping dissimilar products and/ or services to set payment rates, can limit beneficiaries' access to appropriate care, especially when some groups encompass products and services with significant clinical and resource variability. In the case of skin substitutes, no single product among the wide range of products stands out as typical; so, we have reviewed several methods to group or classify skin substitutes to determine which best reflects clinical and resource similarities between these products.

We proposed that only skin substitute products licensed under section 351 of the PHS Act will be considered drugs and biologicals for Medicare payment purposes. Furthermore, we proposed that, to reflect relevant product characteristics, we would group skin substitutes that are not drugs or biologicals (that is, anything that is not a section 351 product) using three CMS payment categories based on FDA regulatory categories ((PMAs, 510(k)s, and 361 HCT/Ps) to set payment rates. We have previously noted in rulemaking that CMS has no obligation to categorize products based on the FDA's current regulatory framework (74 FR 60476); but, in this case, we have determined that the FDA regulatory categories provide an appropriate level of distinction for a heterogeneous category of products that exhibit clinical and resource variability and that categorizing products based on these categories can ultimately improve the accuracy of payment under the OPPS. Proposing a payment policy that aligns with FDA's current regulatory framework also provides predictability and efficiency for purposes of Medicare payment. Payment for new products, as discussed below, could be achieved quickly and consistently by CMS' capacity to immediately recognize the FDA regulatory categories. a. 361 HCT/Ps

As described previously, 361 HCT/Ps are a subset of HCT/Ps that are regulated solely under section 361 of the PHS Act and the regulations in 21 CFR 1271 and listed in the FDA's eHCTERS. Currently, registered 361 HCT/Ps generally are dressings intended only to cover and protect a wound. They are not intended to act on the wound to mediate, facilitate, or accelerate wound healing. Their activity is typically limited to that of a physical covering or wrap. A structural tissue intended for wound care is generally limited to the homologous use of cover and protect in order to be a 361 HCT/P.\104\ Intended uses such as wound treatment, promotion or acceleration of wound healing, or serving as a skin substitute would generally be non-homologous uses of structural tissues. Instead, products for such intended uses (for example, the treatment of wounds) generally are subject to PMA or BLA requirements.

\104\ See Regulatory Considerations for HCT/Ps: Minimal Manipulation and Homologous Use, July 2020 (pg. 19).