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

A 510(k) is a premarket submission made to the FDA generally by the manufacturer of a device to demonstrate that the device to be marketed is substantially equivalent to legally marketed device that is not subject to premarket approval. (FD&C Act sections 510(k),513(i)). Currently, 510(k)-cleared devices that we are considering for purposes of this proposal generally are dressings intended only to cover and protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the 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. When intended only to cover and protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the wound and otherwise meeting the device definition, generally the FDA's Center for Devices and Radiological Health (CDRH) regulates wound dressings composed of natural biomaterials, including animal and human derived tissue as devices, and they are currently subject to 510(k) requirements. At this time, wound dressings have not been 510(k) cleared by FDA for indications such as wound treatment, promotion or acceleration of wound healing, or serving as a skin substitute.\105\ Instead, products for such intended uses generally are subject to PMA or BLA requirements.

\105\ FDA Executive Summary Prepared for the October 26 & 27, 2022 Meeting of the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Panel Classification of Wound Dressings with Animal-derived Materials (Section 3). Available at https://www.fda.gov/media/162539/download.

For the purposes of this policy, we proposed to group any skin substitutes authorized through the De Novo pathway with those cleared under 510(k)s. Similar to products cleared under 510(k)s, De Novo classification is a marketing pathway for medical devices for which general controls alone (class I), or general and special controls (class II), provide reasonable assurance of safety and effectiveness. While products authorized through the De Novo pathway have 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. Because of this, we would expect skin substitutes authorized through the De Novo pathway and those cleared under 510(k)s to be similar for payment purposes. We sought comment on our proposal to group skin substitutes into three FDA approval categories, PMA, 510(k), and 361 HCT/P, to set payment rates and our proposal to group any skin substitutes authorized through the De Novo pathway with those cleared under 510(k)s for payment purposes. c. Products Subject to PMAs

Premarket approval is the most rigorous type of review of a device and generally is required for class III medical devices. Similar to BLA-approved wound care products, PMA-approved wound care products generally are intended to go beyond a simple wound cover to provide some type of direct treatment effect. The FDA has not defined the term “skin substitute.” However, the term has been used as a descriptor for certain wound care constructs that are currently approved under a BLA or PMA for treatment of burns or skin ulcers, including ulcers that appear to have failed to heal after standard of care. The intended uses of these products may include scaffold claims, reference to matrix attributes that promote endogenous cell binding, migration, differentiation, or proliferation, and/or activities mediated by matrix-associated regulatory factors that facilitate wound healing. Currently, wound care products intended to interact with the wound to facilitate, promote, or accelerate wound healing generally require approval of a BLA or, in some instances, a PMA. Approval of these products requires demonstration of safety and efficacy for the intended use, which generally requires the performance of clinical studies. So PMA-approved devices can be readily distinguished from 510(k)-cleared devices and 361 HCT/P products, which are intended mainly to cover and protect the wound. They are clinically different, provide different benefits, and would theoretically be used for patients presenting with different clinical scenarios. As discussed, PMA-approved devices also go through a much more rigorous review process before marketing as compared to the substantial equivalence requirements for 510(k)s and lack of premarket review for registered 361 HCT/Ps. This more rigorous review for PMAs, as well as differences in clinical utility, and the associated costs to manufacturers, suggests that the resources involved in furnishing these products could be distinct from 361 HCT/Ps and 510(k)s. We sought comment on our proposal to group skin substitutes (other than those approved via BLA under section 351 of the PHS Act) into three FDA categories, PMA, 510(k), and 361 HCT/P, to set payment rates.

Section 1833(t)(2) requires the Secretary to establish groups so that services classified within each group are comparable clinically and with respect to the use of resources. To effectuate this categorization into a payment policy under the OPPS, we proposed to create three new APCs for HCPCS codes that describe skin substitute products organized by clinical and resource similarity. These three APCs would divide skin substitutes by their FDA regulatory pathway. Specifically, we proposed to create: APC 6000 (PMA Skin Substitute Products); APC 6001 (510(k) Skin Substitute Products); and APC 6002 (361 HCT/P Skin Substitute Products). In addition, as noted previously, we proposed to assign any skin substitutes approved through the De Novo pathway to APC 6001 (510(k) Skin Substitute Products) based on our proposed policy of categorizing products with these two regulatory statuses together. We also proposed to create three new unlisted Q- codes, one to describe skin substitute products in each approval pathway, for new skin substitute products that have received FDA approval or clearance but do not yet have their own code in effect. We proposed to create HCPCS codes Q4431 (formerly placeholder code QXXX1) (Unlisted PMA skin substitute product) and assign it to APC 6000 (PMA Skin Substitute Products); Q4432 (formerly placeholder code QXXX2) (Unlisted 510(k) skin substitute product) and assign it to APC 6001 (510(k) Skin Substitute Products); and Q4433 (formerly placeholder code QXXX3) (Unlisted 361 HCT/P skin substitute product) and assign it to APC 6002 (361 HCT/P Skin Substitute Products). We proposed to create these unlisted codes to prevent delays in Medicare payments for new FDA-approved or cleared skin substitute products. We note that unlisted codes should only be reported when there is no other existing CPT or HCPCS code that adequately describes the service being performed.

We note that device pass-through payment status would still be available to new skin substitutes that meet the pass-through payment criteria in the hospital outpatient setting. However, while skin substitutes approved under device pass-through payment status are currently assigned to the high-cost category, because our proposal would eliminate the low- and high-cost groups, we proposed to pay for skin substitutes approved under device pass-through payment status consistent with other devices approved under that payment pathway. For the purposes of eligibility of skin substitutes for transitional drug pass-through payment, we proposed to define the term “biological” consistent with our interpretation of the term under section 1847A of the Act. Under this proposal, skin substitutes with an approved BLA would be considered under transitional drug pass-through payment status and skin substitutes with PMA or 510(k) clearance would continue to be evaluated under transitional device pass-through payment status. See section IV.A. of this final rule with comment period for more information on device pass-through payments under the OPPS and see

section V.A. of this final rule with comment period for more information on drug pass-through payments under the OPPS.

Comment: Many commenters support grouping skin substitutes based on their FDA regulatory categories, viewing it as a clear, logical, and transparent approach. They believe this method acknowledges the different levels of scientific rigor and evidence required for each pathway and can serve as a surrogate for CMS' own evidence review. This framework would allow CMS to differentiate payment over time based on product characteristics and clinical value, which could incentivize competition and innovation. Some suggest a tiered payment structure where products with more rigorous review (like PMA) receive the highest rates, followed by 510(k) and then 361 HCT/P products. One commenter noted that utilizing FDA's existing regulatory paths and associated compliance activities avoids unnecessary duplication of product assessment resources.

Response: We appreciate the commenters for their support.

Comment: Many commenters opposed using FDA pathways to determine payment, stating that regulatory status does not correlate with clinical effectiveness, outcomes, or resource use. Some commenters noted that none of the skin substitute products approved via the PMA pathway have indications for wound healing in their Instructions for Use or FDA intended use/indications. They point out that some older PMA devices have outdated clinical data and may not be superior to newer 361 HCT/P products or products cleared via the 510(k) pathway. Several commenters stated that 510(k) clearance follows a less intensive pathway than PMA but emphasized that the FDA would never permit any device for market use unless the 510(k) submission sufficiently demonstrates patient safety and clinical efficacy. Some commenters noted that receiving 510(k) clearance does not imply inferior quality to a PMA product, and that it is inappropriate to consider a PMA product superior simply because it went through more testing. Another commenter explained that a 510(k) device can sometimes be superior to a PMA device for the same indication despite the less rigorous approval process, due to technological advancements, improved materials and design, real-world data, and improved usability and safety features. Several commenters stated that establishing payment based on regulatory pathways creates potential for instability over time because FDA pathway choice is not voluntary--FDA determines which pathway is appropriate for which product. A commenter stated that CMS already determined that FDA approval pathways are not appropriate for Medicare payment policy decisions in its CY 2014 OPPS/ASC final rule with comment period, referencing the discussion at 78 FR 74933 regarding CMS' decision not to use the FDA regulatory pathway to determine OPPS skin substitute payment policy. Overall, some commenters believed this policy could entrench outdated classifications, create perverse incentives to choose products based on reimbursement instead of clinical evidence, and penalize innovative products that use newer, more streamlined regulatory pathways.

Response: We disagree. The FDA's regulatory framework in this context provides an objective and consistent basis on which to group these products for purposes of development payment rates. Each regulatory path is distinct and provides a specific level/type of information regarding product content and activity that CMS can leverage to inform payment rate decisions. For example, registered 361 HCT/Ps are not approved, cleared or licensed by FDA. There is no premarket review, and manufacturing controls are focused on prevention of infectious disease transmission. These products are often dressings generally intended only to cover and protect a wound. They are not intended to act on the wound to mediate, facilitate, or accelerate wound healing. Similarly, 510(k)-cleared devices \106\ relevant to this policy generally are dressings intended only to act as a physical cover to protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the wound. As for 361 HCT/Ps relevant to this policy, activity claims are typically limited to that of a physical covering or wrap. They are also not intended to act on the wound to mediate, facilitate, or accelerate wound healing. The 510(k) review assesses equivalence to other 510(k) products and generally does not evaluate activities that otherwise require a PMA or BLA. PMA-approved wound care products generally are intended to go beyond a simple wound cover to provide some type of direct treatment effect. The intended uses of these products may include physical scaffold claims or reference to structural matrix attributes that promote endogenous cell binding, migration, differentiation, or proliferation. Currently, wound care products intended to interact with the wound to facilitate, promote, or accelerate wound healing generally require approval of a BLA or a PMA when it meets the statutory definition of a device. As an example, Integra[supreg] Wound Matrix is indicated for the treatment of certain wounds. Approval of these products requires demonstration of safety and efficacy for the intended use, which generally requires the performance of clinical studies. A determination of pathway is informed, in part, by a sponsor's desired indications and ability to prove them.

\106\ A 510(k) is a premarket submission made to the FDA generally by the manufacturer of a new device 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).

Notably, unless a product has obtained approval through a BLA, non- homologous use marketing claims are not allowed. Such claims would directly contradict the regulatory status of registered 361 HCT/Ps, because of the criteria in 21 CFR 1271.10(a)(2). Similarly, 510(k)- cleared devices relevant to this policy generally are dressings intended only to act as a physical cover to protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the wound. Descriptions of purported biological healing factors in these products have not been evaluated by FDA; and there is no guarantee that these factors are present or active and, if present, their concentration because these products are not requires to have undergone purity or potency assessment performed by FDA. Biological products can differ greatly based on their source material and manufacturing, and it is therefore difficult to generalize any conclusions about their safety and effectiveness beyond those allowed by FDA.

Finally, while we have no obligation to categorize products based on the FDA's current regulatory framework, 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 for purposes of setting payment rates. This methodology can ultimately improve the accuracy of the relative value units under the PFS while also being predictable and efficient.

Comment: Several commenters emphasized that CMS should acknowledge post-FDA clinical investment if considering FDA pathways as a basis for categorization. One commenter noted investing more than $7.5 million over 6 plus years for two seminal RCTs, stating such investment in post-FDA studies alone

exceeds application fees of both PMA and BLA products but is not captured in CMS' FDA pathway analysis. Commenters stated that if an overly generalized distinction is drawn between products approved under different pathways, CMS risks disincentivizing manufacturers from further developing clinical evidence and continuing to innovate improved skin substitute products.

Response: We encourage those entities that have made investments in clinical research to work with the FDA to determine if these studies are sufficient to support approval or clearance through the appropriate FDA regulatory pathway and to ensure that essential manufacturing information and controls are available to support approval of a PMA or BLA.

Comment: Several commenters noted that regulatory pathways for skin substitutes have evolved significantly over time, and since CMS does not oversee FDA regulatory pathways, future changes by FDA could inadvertently affect categorization.

Response: We understand that refinements in categorizations for this policy could be warranted in the future and would, at a minimum, address any potential changes through notice and comment rulemaking.

Comment: Commenters generally supported the use of transitional pass-through (TPT) and other payment pathways, like New Technology Add- on Payments (NTAP), to pay for eligible skin substitute products. One commenter requested that we establish a dedicated pass-through pathway for tribally manufactured skin substitute products.

With regard to the non-facility setting, several commenters urged CMS to leverage existing programs like NTAP and TPT or create a new, parallel program to NTAP/TPT that would provide temporary add-on payments for innovative products used in the physician office setting to ensure site neutrality for new technologies.

Response: We appreciate these comments. We reiterate that drug and device transitional pass-through are available pathways for eligible skin substitute products. With regard to exploring additional payment pathways, we will take commenters' suggestions into consideration as we consider how to incentivize innovation in future rulemaking.

After careful consideration of the comments, we are finalizing our proposal to group skin substitutes (other than those approved via BLA under section 351 of the PHS Act) into three FDA categories, PMA, 510(k), and 361 HCT/Ps, for purposes of developing payment rates in future notice and comment rulemaking, as proposed.

We are also finalizing our proposals regarding drug and device transitional pass-through payments. Specifically, we are finalizing our proposal to pay for skin substitutes approved for device pass-through payment status consistent with other devices approved for device pass- through payment. For the purposes of eligibility of skin substitutes for transitional drug pass-through payment, we are finalizing our proposal to define the term “biological” consistent with our interpretation of the term under section 1847A of the Act.

We are also finalizing our proposals to create three new APCs (APCs 6000-6002) and assign skin substitute products, unless the product is licensed under a BLA pursuant to section 351 of the PHS Act, to one of the three clinical APCs based on their FDA regulatory category. We are finalizing our proposal to create three new unlisted codes (HCPCS codes Q4431-Q4433) to describe skin substitute products that are FDA authorized or cleared but have not yet received a specific individual HCPCS or CPT code. 3. Alternative Payment Categories

As a conceptually possible alternative to our proposal to group skin substitutes based on FDA regulatory categories for purposes of payment, we considered aligning these products based on their composition, for example, whether they are non-synthetic or synthetic. Two examples provided by interested parties include grouping the products as allografts (for example, amniotic products, cellular products), xenografts (for example, collagen products derived from animals), synthetics (for example, artificial products made from various biomaterials) and grouping the products as human living/ cryopreserved tissue, dehydrated human/amniotic tissue, animal xenografts, and synthetics/polymers. However, as noted previously, skin substitutes are a heterogenous group with an increasing intersection between tissue, bioengineered, and synthetic components. With many products now including both non-synthetic and synthetic components, clear categorization of skin substitutes by composition is no longer feasible. This alternative categorization would be extremely complex to implement because it would be necessary to determine which category would be most appropriate for each individual product based on the components of its composition and an assessment of the importance of each component. In addition, it is unclear if grouping products based solely on their composition would provide accurate differentiation with respect to resource or clinical similarity for the purposes of setting an appropriate payment rate.

Other alternatives we considered include grouping all products together to set a single payment rate or creating two or more categories reflecting product cost, similar to the groupings used currently to set payment rates for skin substitutes in hospital outpatient departments. While these options may offer certain operational advantages for their simplicity, neither recognizes the clinical differences among skin substitutes as reflected by their different intended uses. Paying for similar items and services at a comparable rate is a foundational aspect of our payment systems, but hospital outpatient departments paid under the OPPS and physicians and other practitioners paid under the PFS could potentially have a financial incentive to use the least expensive skin substitute or the product offering the greatest discount, which could negatively affect patient outcomes and disincentivize innovation in this space if clinical differences are not recognized and differential payments rates are not set. In addition, dividing products by cost relies on pricing set by manufacturers. Especially in light of the dramatic growth of skin substitutes' ASP-based payment limits, this method is unlikely to accurately reflect skin substitute resource costs or clinical similarity.

We sought comment on whether adding certain subcategories to the three proposed FDA categories would improve clinical or resource similarity. One potential example is creating certain subcategories for payment based on one or more FDA device product codes, which is a categorization process that FDA uses to group similar products together. Other examples that have come to our attention include setting unique payment rates for 361 HCT/Ps based on the number of tissue layers (for example, one layer, two layers, and three or more tissue layers) or entirely synthetic products versus non-synthetic products for 510(k)s. If significant clinical or resource differences were identified between products in one or more of these categories, CMS could create a separate payment grouping for these products for payment purposes.

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

Comment: Many commenters advocated establishing a single payment rate for all non-BLA skin substitutes.

They stated that a single group creates a level playing field, encouraging product selection based on clinical evidence and patient need rather than on which category receives the highest reimbursement. This approach is seen as simpler and avoids the perverse incentives created by past high/low-cost buckets.

Response: While a single rate would result in an administratively simpler policy and likely would result in the most savings, the differentiation of the products in this space supports subgrouping to better ensure access to products in each group. A flat payment rate also reduces the incentive to innovate, perform relevant studies, and seek an FDA approval requiring proof of wound treatment or healing. However, we can continue to evaluate the appropriateness of maintaining a single rate in future rulemaking.

Comment: Many commenters oppose a single flat rate, characterizing it as a “one-size-fits-all” approach that fails to recognize the clinical complexity and diversity of products. They believe it would force providers to use less effective products, stifle innovation, and lead to worse patient outcomes, such as higher amputation rates. They argue that a single rate below acquisition costs for many products will destabilize office-based care and restrict access.

The commenters suggested various alternative categorization schemes:

Several commenters suggested a tiered system with 2-3 tiers based on product technology, clinical evidence, or cost thresholds. For example, a basic collagen matrix could be in a lower tier, while a cellular product with strong RCT data could be in a higher tier. Another proposal suggested tiers based on whether a product requires one or multiple applications to achieve wound closure.

Several commenters suggested grouping products based on their composition (for example, human tissue, animal-derived, synthetic) rather than just their FDA pathway. Specific proposals included creating a distinct category for amniotic/placental tissue products or sub-categorizing 361 HCT/P products based on the number of tissue layers (for example, single-layer vs. multi-layer) to better reflect complexity and resource costs.

A commenter suggested greater aggregation into broader categories like “synthetic” vs. “non-synthetic” would be sufficient.

A commenter requested a reimbursement framework that provides higher payment for products supported by product-specific randomized clinical trial (RCT) data.

A commenter suggested implementing a tiered system based on the strength of clinical evidence (for example, number of RCTs) rather than just regulatory pathway.

Another commenter suggested using the product's FDA cleared/approved label information (for example, product description, including mechanism of action, and indications for use) as well as supporting level 1 human clinical data.

Response: We agree that long-term use of a single, flat rate has the potential to create access issues for specific types of products and reduces the incentive to innovate. However, the options suggested here are also problematic. As noted previously, skin substitutes are a heterogenous group with an increasing intersection between tissue, bioengineered, and synthetic components. With many products now including both non-synthetic and synthetic components, clear categorization of skin substitutes by composition is no longer feasible. This makes this alternative extremely complex to implement because it would be necessary to determine which category would be most appropriate for each individual product based on the components of its composition and an assessment of the importance of each. In addition, it is unclear if grouping products based solely on their composition would provide accurate differentiation with respect to resource or clinical similarity for the purposes of setting an appropriate payment rate.

In addition, we have concerns about the quality of many of the studies that are being produced as well as whether the results can accurately be extrapolated more broadly. As previously discussed, unless a product has obtained approval through a BLA, non-homologous use marketing claims are not allowed. Such claims would directly contradict the regulatory status of registered 361 HCT/Ps, because of the criteria in 21 CFR 1271.10(a). Similarly, 510(k)-cleared devices relevant to this policy generally are dressings intended only to act as a physical cover to protect a wound, to absorb exudate, and to maintain appropriate moisture balance within the wound. Descriptions of purported biological healing factors in these products have not been evaluated by FDA; and there is no guarantee that these factors are present and active or, if present, their concentrations, because these products have undergone no purity or potency assessment. Biological products can differ greatly based on their source and manufacturing, and it is therefore difficult to generalize any conclusions about their safety and effectiveness beyond those allowed by FDA. While section 1862(a)(1)(A) of the Act directs CMS to make determinations about what is reasonable and necessary for Medicare coverage. FDA's statutorily- defined mandate includes determining the safety, purity, and potency of products such as these. We neither have the resources nor authority to replicate these functions for payment purposes and we believe it would be an inefficient administration of government resources to duplicate them.

Comment: A few commenters suggested ways to further subdivide the three FDA categories such as:

Creating subcategories for 361 HCT/P products based on tissue composition or number of layers to better reflect resource costs.

Creating a separate category for amniotic/placental tissue products.

Creating separate categories for products using one or more of FDA device product codes.

Response: We will take these comments into consideration for future rulemaking as we implement this policy and begin to gather new cost data.

We also sought comments on whether products that are not in sheet form are appropriately considered skin substitutes for the purposes of providing separate payment under this policy. Examples include gel, powder, ointment, foam, liquid, or injected products listed in the nontraditional units of cc, mL, mg, and cm\3\. We requested feedback on whether these products could be appropriately used as part of the CPT administration codes in the range 15271 through 15278, despite existing CPT coding guidelines limiting their use, and how these units could be paid using the FDA regulatory category groups. For example, assuming these products were appropriate to administer using the noted CPT administration codes or other administration codes, CMS could include products listed in units of cc, mL, or cm\3\ in the applicable FDA categories and equate a single cm\2\ unit to each cc, mL, or cm\3\ for payment purposes. We sought comments on whether other administration codes could be used to appropriately describe services performed using products with units other than cm\2\.

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

Comment: Many commenters recommended CMS include non-sheet product forms (gels, powders, liquids, injectables, 3D-printed constructs etc.) in the definition of skin substitutes eligible for separate payment. They argue these products perform similar

functions to sheets, offer additional treatment options for irregularly shaped or tunneling wounds, and excluding them from separate payment would stifle innovation and limit physician choice.

The commenters highlighted the following significant challenges with billing for non-sheet products under the proposed framework.

The proposed per-cm\2\ payment does not align with products billed by volume (mL) or weight (mg). Commenters stressed the need for a standardized and fair unit conversion methodology (for example, mL to cm\2\ of coverage) to ensure equitable payment and prevent reimbursement misalignment. One commenter suggested that 1 mL of a particular flowable product should be paid at the rate equivalent to 10 cm\2\ of a sheet product.

It is unclear if current surgical application codes (CPT 15271-15278) can be used for non-sheet products, creating a risk they may not be payable at all. The CPT manual explicitly excludes powders and injectables from these codes. Commenters recommended CMS either confirm their eligibility, create alternative CPT/HCPCS G-codes for their application, or develop a crosswalk framework pairing product form with appropriate procedure codes.

Response: We agree that it is important to maintain access to non- sheet products performing similar functions to sheet skin substitutes, in cases where application of these products is part of reasonable and necessary care. These products have the potential to be payable as skin substitutes; but we agree that units, as expressed in a product's coding, are difficult to standardize for payment purposes. Therefore, we will maintain the current coding mechanism for these products and will direct the MACs to determine appropriate payment in the physician office, which is generally consistent with how these products are currently paid. In the OPPS, these products will continue to be paid through their current packaged payment mechanism. However, we will continue to evaluate payments for these products to determine if an alternative payment methodology might be better suited to non-sheet products. For now, we are also revising HCPCS code A4100 (Non-sheet form skin substitute, FDA cleared as a device, not otherwise specified (list in addition to primary procedure) to allow billing for non-sheet form skin substitute products that do not yet have a more specific code.

Comment: A commenter recommended that CMS not pay separately for non-sheet products as skin substitutes. They stated that procedures for these products are reported with different CPT codes and including them could introduce new opportunities for gaming the system. Another commenter stated that for products cleared via the 510(k) pathway that are classified as gels, liquids, or particulates, reimbursement should follow the existing DME pathway, as these products are not skin substitutes and should not be reimbursed under the skin substitute payment framework.

Response: We disagree that form should be the singular determinant of payment for these products.

Comment: Several commenters stated that CMS has never established a formal definition of “skin substitutes,” leading to inconsistent policy, and recommended the agency to develop a comprehensive, clinically grounded definition. Several commenters advocated for defining products based on their clinical function rather than their initial physical form. The commenters cited the cellular, acellular, and matrix-like products (CAMPs) initiative, which defines products by their ability to support tissue regeneration. They stated that a product that forms a “sheet scaffolding for skin growth” in situ (in the wound bed) should be considered functionally equivalent to a product pre-packaged as a sheet. Several commenters recommended that the CPT definition and CAMPS definition be adopted as standard references for skin substitute classification, eliminating outdated distinctions based on initial product form, aligning with scientific consensus, and supporting value-based care focused on clinical outcomes and regenerative functionality. Many commenters stated that the American Medical Association CPT definition of skin substitute grafts explicitly includes “biological products that form a sheet scaffolding for skin growth,” specifying the operative standard as whether the product forms a sheet scaffolding, not whether it is originally formulated as a sheet.

Response: We recognize that skin substitutes have been described but not defined in previous rulemaking. While a formal definition would provide certain advantages, it might also prematurely and unnecessarily limit an evolving category of products. For example, definitions that require products to obtain claims of treatment or healing of wounds or scaffold claims would exclude large numbers of even sheet-form products currently considered by CMS to be skin substitutes for payment purposes. However, we will continue to consider whether a definition or one or more defining characteristics should be identified in future rulemaking.

After careful consideration of the comments and given the significant challenges with billing for non-sheet products under the proposed framework, we are not finalizing changes to the current payment arrangement under the OPPS for products that are not sheet form at this time. While non-sheet products will continue to be packaged with a separately payable service for CY 2026, we will continue to explore the issue and consider whether to provide separate payment for non-sheet products under the OPPS for future rulemaking. 4. Establishing Initial Payment Rates

We proposed to establish initial payment rates for the three FDA regulatory categories based on the volume-weighted average ASP, with no additional markup, for skin substitute products in each category as submitted by manufacturers, when available. We developed initial payment rates for each group based on the weighted, per-unit average of ASPs for the fourth quarter of calendar year 2024. These initial payment rates were listed in the file titled “CY 2026 PFS Proposed Rule Skin Substitute Products by FDA Regulatory Category--Updated 08/ 11/2025” on the CMS website under downloads for the CY 2026 PFS proposed rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/PFS-Federal-Regulation-Notices.html. When ASP was not available, we used the MUC, which we currently use to determine the high-cost/low-cost status for each skin substitute product in the hospital outpatient setting to calculate the proposed initial rates. We considered using only the MUC data to calculate payment rates for these products. However, when ASP is reported, it may serve as a better estimate of cost across both settings as the ASP reflects sales to physicians as well as hospitals. We sought comment on our proposal to calculate payment rates for skin substitute products in each of the three FDA regulatory categories using ASP, or MUC when ASP is not available, using per-unit averaged pricing data from the fourth quarter of 2024. We also sought comments on whether these calculations, if finalized, should be updated with the most recently available data at the time the final rule is drafted.

We received public comments on these proposals. The following is a

summary of the comments we received and our responses.

Comment: A few commenters supported prioritizing ASP data but raised concerns about the reliability of MUC data as a fallback option. These commenters stated that hospital outpatient MUC is less accurate than ASP data submitted in compliance with statute and regulation, citing longstanding challenges with hospital charge compression where reported charges often do not reflect actual acquisition costs. A commenter noted that in some cases CMS did not use ASP data reported to CMS to set Medicare payment limits and recommended the agency to rely on reported ASP data whenever available, given that manufacturers submit this information quarterly in accordance with statutory requirements established by the Consolidated Appropriations Act, 2021.

Response: When ASP is available and accurately reported, we generally agree that it may serve as a better estimate of acquisition cost across both settings as the ASP reflects sales to physicians as well as hospitals and is net of certain discounts. However, as discussed in the CY 2026 PFS final rule, we have had concerns with the accuracy of some reported ASP data; specifically, that manufacturers could be classifying certain costs as bona fide service fees (BFSFs) when they should instead be classified as price concessions, which would artificially inflate ASP. Additionally, we cannot expect that all manufacturers of skin substitute products will continue to report ASP data to CMS each quarter. We disagree with the statement that the outpatient hospital MUC is an inaccurate measure of actual acquisition costs. We use cost-to-charge ratios specifically to account for variations in hospital markup, and our use of MUC in this case is consistent with how we price other products in hospital outpatient departments. MUC is a useful alternative based on actual claims data when the ASP is not available. Generally, with limited exceptions, when ASP data was available for a product, it was used to calculate a Medicare Part B payment limit and published on the ASP drug pricing files. An exception is for diagnostic radiopharmaceuticals that are above the packaging threshold, which use MUC. However, for the purposes of this policy, payment rates were determined using pricing for the 361 HCT/P products only.

Comment: A few commenters expressed concern that using ASP without markup removes appropriate overhead and handling costs. They noted that drugs and biologicals payable under Medicare Part B are statutorily paid at ASP+6 percent, and using ASP alone eliminates legitimate indirect costs from both OPPS and MPFS systems.

Response: We appreciate these comments and note that overhead costs related to application of these products are included in the facility fees or PE RVUs for the application procedures. A recent Office of the Inspector General report \107\ found that, in the third quarter of 2024, a typical beneficiary received 82 units of skin substitutes, meaning that the typical $74 add-on amount per unit alone was worth over $6,000 per patient. Notably, hospitals have been managing these products without separate markup for years through bundled payments.

\107\ Office of Inspector General, U.S. Department of Health and Human Services. Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse. September 10, 2025.

Comment: A commenter recommended using the arithmetic mean unit cost (AMUC) for products without an ASP, rather than the geometric mean (MUC), to better align with the ASP calculation methodology. Conversely, another recommended using a volume-weighted geometric mean for the overall calculation because it is less influenced by extreme outliers.

Response: We appreciate the commenters for the additional information and may consider these alternatives in future rulemaking.

Comment: A few commenters supported using Q4 2024 ASP data as the foundation for CY 2026 rate calculations.

Response: CMS thanks commenters for their support.

Comment: Several commenters criticized the use of Q4 2024 ASP data. Some suggested using data from before the recent dramatic increases in price (for example, CY 2019, 2022, 2023, or Q4 2023) to establish a more reasonable baseline free from market distortions. Other commenters stated that more current data (for example, Q3 2025) should be used to reflect real-time market conditions, reasoning that using older data could introduce a systemic underpayment.

Response: We agree that much earlier datasets (for example, CY 2019) do not reflect a significant portion of the recent growth in products and payments for this class of products. However, these datasets also do not reflect many new products that might represent quality additions to the market. To avoid this issue, we instead calculated initial rates using hospital outpatient utilization to weight how much each product's price contributes to the final payment rates for skin substitutes. In this setting, skin substitutes are currently paid in two groups (high- and low-cost) to incentivize cost- effective product selection. No similar incentive currently exists in the non-facility setting for physicians and other suppliers billing under the PFS. That is why we consider the hospital outpatient utilization a better source to weight the average among the products. We used the fourth quarter of 2024 because it was the most recent, substantially complete quarter of data and the most complete ASP reporting is typically in the fourth quarter of each year. Finally, use of a later quarter's file would not have allowed us to match up time periods for utilization patterns, and interested parties were given an opportunity to review and comment on that proposed rate.

After careful consideration of the comments, we are finalizing our proposal to establish PE RVUs and initial payment rates for skin substitute products in each of the three FDA regulatory categories using ASP, or MUC when ASP is not available, using per-unit averaged pricing data from the fourth quarter of 2024 as proposed.

As we proposed to implement this policy for CY 2026 in a site- neutral manner across both the non-facility setting under the PFS and hospital outpatient setting under the OPPS, we included all products used in either setting to calculate the rates. However, when product- specific utilization across both settings is used to calculate volume- weighted average payments, the result is an apparent rank order anomaly; despite having a more rigorous regulatory review process and receiving indications to treat and heal wounds, the PMA category has the lowest average payment. We are concerned that the use of the novel pricing practices noted above has resulted in a decoupling of actual resource costs from the ASP. To address this, as a short-term measure, we proposed to weight the product-specific utilization in calculating the proposed rates using the proportions from only the hospital OPPS data and establish, for CY 2026, a single payment rate that would apply to all skin substitute products in the three FDA regulatory categories, or APCs. We believe the OPPS utilization data may better predict utilization patterns under our proposed policies for non-facility settings because, similar to our proposals, these products are already grouped together for payment purposes under the OPPS. By grouping skin substitutes into high- and low-cost groups in the OPPS, hospitals are

incentivized to choose either the lowest-cost, clinically appropriate product in the low-cost group or the lowest-cost, clinically appropriate product in the high-cost group. No similar incentive currently exists in the non-facility setting for physicians and other suppliers billing under the PFS. As the proposed policies are intended to mitigate the current patterns of use in the non-facility setting by establishing payment rates for the products in groups instead of individually, we do not believe it would reflect the expected resource costs involved in providing care if we were to base the initial rates on utilization data from the non-facility setting that may have been skewed by aggressive and/or improper billing practices that would be less likely to exist under our policies. For these reasons, we proposed to initially use hospital outpatient utilization to weigh how much each product's price contributes to the proposed payment rates for skin substitutes cleared through the 510(k) pathway, registered 361 HCT/Ps, or approved under a PMA. We sought comments on the use of these product utilization patterns to set payment rates.

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

Comment: Several commenters, including MedPAC, strongly support using only OPPS utilization data to set the initial rate. They agree with CMS that utilization data from the physician office setting (PFS) has been distorted by profiteering practices of certain skin substitute product manufacturers. They believe OPPS data is a better predictor of use patterns under a grouped payment approach because hospitals are already incentivized to choose lower-cost products within the existing high/low-cost categories.

Response: We thank commenters for their support.

Comment: A majority of commenters strongly opposed the exclusion of physician office data, arguing that this methodology is flawed, biased, and not representative of real-world practice. They make several key points:

The vast majority of skin substitute utilization (nearly 90% in Q4 2024) occurs in the physician office setting, so excluding data from the predominant site of service is unreasonable.

OPPS data is itself skewed. The current bundled payment system in hospitals disincentivizes the treatment of larger wounds in the hospital setting and the use of more advanced, higher-cost products, artificially driving down the average cost in that setting.

Hospitals can negotiate lower prices through GPOs, which are unavailable to smaller physician offices. Basing a national rate on hospital acquisition costs will create a payment rate that is unsustainable for non-facility providers.

Using data from only one setting to create a site-neutral rate for all settings is methodologically unsound and works against the stated goal of a consistent payment approach.

The prevailing recommendation from those opposed to the OPPS-only method is to use a blended approach that incorporates utilization data from both the physician office and hospital outpatient settings. To address CMS' concerns about distorted office data, they suggest using safeguards like trimming outliers or using data from a time period before the recent dramatic spending increases (for example, 2019 or 2022).

Response: Although skin substitute products are more commonly used in the physician office setting, as we stated in the proposed rule, we believe that separate payment for these products in the non-facility setting has led to problematic practices that are mitigated by the current OPPS policy of paying for skin substitute products in either high-cost or low-cost groupings. We believe OPPS utilization data better reflects the utilization associated with grouping these products into categories for purposes of payment. As we stated in the CY 2026 OPPS/ASC proposed rule, we do not believe it would reflect the expected resource costs involved in providing care if we were to base the initial rates on utilization data from the non-facility setting. Once updated use patterns reflecting this policy are available to calculate rates, we proposed to use all relevant products and the combined product utilization patterns (OPPS and non-facility) to determine a weighted average per-unit cost by category to set separate payment rates for each of the three categories.

Comment: A few commenters recommended using guardrails to ensure the methodology does not inadvertently embed misaligned historical incentives. These commenters believed CMS has several options to mitigate fraudulent and abusive practices, including trimming for outliers that may signal falsely high utilization, using data only from claims that meet established criteria for completeness and accurate coding, and capping counted square centimeters at 120-150 percent of the CPT-implied wound size.

Response: Because we are using OPPS utilization patterns and the OPPS does not currently stratify payment for each individual product, and, by doing so, promote more efficient care, we believe many of these problematic claims will be mitigated. However, as this policy unbundles skin substitutes from their application codes and pays for them separately, we are concerned about the potential for overuse and waste. We invite additional thoughts about how best to mitigate these issues while products are separately paid and note that we will be monitoring usage as compared to CPT coding moving forward.

Comment: A commenter questioned why all outpatient facility volumes were not used for this policy, including critical access hospitals and other providers, noting that coding for products would be on those claims as well.

Response: We appreciate this comment. We developed the proposed rate using hospital OPPS data since, as we stated above, we believe the structure of payment under the OPPS with payment for these products grouped into two categories best reflects use not potentially influenced by the previous system. Using OPPS data only allows for a consistent data set that reflects the majority of Medicare hospital outpatient services, across a wide variety of geographies and areas of the country.

After careful consideration of the comments, we are finalizing our proposal on the use of the hospital outpatient product utilization patterns to set payment rates for these products under the PFS as proposed.

We also proposed for CY 2026 to establish the same initial APC payment rate for each group of skin substitutes, including 510(k)- cleared devices, registered 361 HCT/Ps, and PMA-approved devices. To ensure we are not underestimating the resources involved in using these products in furnishing care, we proposed to use the highest of the calculated volume-weighted average payment amounts for 510(k) cleared devices, 361 HCT/Ps, and PMA-approved devices to set initial payment valuations. As the 361 HCT/Ps have the highest volume-weighted average payment amount, this average payment rate is reflected in the proposed initial payment rate below. However, we note that, in future notice and comment rulemaking, we intend to propose using claims data to set payment rates for products in these three categories, which would likely result in payment valuations that diverge based on the updated data. Another alternative is to set the payment rate for products in these categories at the volume-weighted average for all three categories, resulting

in a lower initial payment rate for all three groups of products. We sought comment on our proposal to use the 361 HCT/P volume-weighted average payment amount to set the initial payment rates for products in all three categories as well as the alternative of using a pooled average of the three categories to set the initial payment rates.

Alternatively, while the ASP Pricing Files show that skin substitutes across all three of the FDA regulatory categories have increased in cost substantially since 2019, unlike the self-determined 361 HCT/Ps and 510(k)-cleared devices, there has not been a substantial increase in the number of skin substitutes with approved PMAs. Consequently, it is possible that the non-facility utilization of the skin substitutes with approved PMAs is not as distorted as the utilization of the other kinds of skin substitutes. Setting a separate payment rate for this category using combined product utilization patterns (from both OPPS and non-facility settings), would result in a higher initial payment rate for the PMA category. This would rationally order the FDA regulatory categories, based on clinical considerations and some indicators of resource cost, until pricing data removed from these aberrant financial incentives can be incorporated. We seek comment on this alternative policy option.

The proposed calculation methodology would result in an initial payment rate of $125.38/cm\2\ for all three proposed new APCs based on the FDA categories including PMA-approved devices, 361 HCT/Ps, and 510(k) devices. Specifically, this proposal would result in an initial payment rate of $125.38/cm\2\ for each HCPCS code assigned to APC 6000 “PMA Skin Substitute Products,” APC 6001 “510(k) Skin Substitute Products,” and APC 6002 “361 HCT/P Skin Substitute Products.” We sought comments on these proposed initial payment rates.

We determined these proposed rates using product pricing and volume for skin substitutes from paid claims with dates of service in the fourth quarter of 2024 because it was the most recent, substantially complete quarter of data available at the time of the CY 2026 OPPS/ASC proposed rule. For professional claims, we excluded claims without a positive line-level allowed amount, so that we did not inadvertently include volume without presumed costs in the calculation. In addition, in reviewing the ASP pricing files from the first quarter of 2017 through the first quarter of 2025, the most complete ASP reporting is in the fourth quarter of each year. To determine the payment rates, we first used a product's ASP if it was available. If the ASP rate was missing, we used the 2024 MUC for the HCPCS code. We then calculated a single rate for each FDA category by taking the volume-weighted average of the rates for the applicable codes using the hospital outpatient utilization to weight each category. We note that if rather than using the final quarter of CY 2024, we alternatively, were to use pricing and volume from all four quarters of 2024 to determine proposed rates, the rate for all categories would be approximately $114.87/cm\2\. Using a pooled payment rate across all three categories would result in a rate of approximately $65.85/cm\2\, while splitting the categories to pay the PMA category using the combined product utilization patterns and the 510(k) and 361 HCT/P categories using the OPPS utilization patterns would result in rates of approximately $259.47/cm\2\ and $125.38/cm\2\ respectively. We sought comment on our proposed process to calculate initial payment rates as well as these alternatives.

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

Comment: Many commenters stated that the proposed payment rate of approximately $125/cm\2\ is far too low and unsustainable. The commenters stated this rate is well below the actual acquisition and operational costs for most providers, especially smaller practices and mobile units without hospital purchasing power. If implemented, they warn it will make offering these therapies financially impossible, forcing practices to close and severely restrict patient access to care, particularly for homebound, rural, and underserved populations. This could lead to worse outcomes, including more amputations, infections, and hospitalizations, ultimately increasing overall Medicare costs.

Instead, many commenters proposed higher rates. A frequently cited alternative, based on independent analyses, was a payment range of approximately $478 to $704/cm\2\. Commenters stated that this range would still generate over $100 billion in Medicare savings over a decade while preserving patient access and innovation. Other suggestions fell within a similar range, such as $500/cm\2\, $500-$640/ cm\2\, or up to $973/cm\2\. Another commenter suggested that CMS calculate the payment rate for skin substitute products using a trimmed mean approach--excluding the top and bottom 10% of reported prices of 130 skin substitute products--to eliminate outliers and better reflect fair value. They suggested that the resulting average price of $865/ cm\2\ would reflect a fair market average and urged CMS to set a higher allowed amount of approximately $1,080/cm\2\ to ensure providers can sustain services under Medicare's 80 percent payment structure. A few commenters also suggested that the 20 percent copayments should be waived for treatment with skin substitute products. Several commenters supported the reimbursement methodology outlined in Senate Bill 2561 (Skin Substitute Access and Payment Reform Act of 2025), which would establish rates based on Q4 2023 ASP data volume-weighted according to actual utilization in both the professional and hospital outpatient settings. Commenters stated that the methodology from this legislation would result in a payment range of approximately $500-700/cm\2\. Some commenters proposed tiered pricing structures for HCT/P 361 products based on configuration, with recommendations ranging from $400-$500/ cm\2\ for single-layer amniotic products to $800-$900/cm\2\ for full- thickness grafts. Other commenters recommended tiered frameworks incentivizing manufacturers to pursue rigorous FDA pathways with reimbursement increases of 25-100 percent over base pricing of $400- $900/cm\2\. Several commenters cited crosswalks to similar products as valid data points. Commenters noted that CPT codes for placing amniotic membrane on ocular surfaces (65778 and 65779) use amniotic membrane allograft supplies reimbursed at $835 and $1,149 in CY 2025. Since typical amniotic tissue grafts placed in eyes are 14mm diameter discs with surface area of approximately 1.5 cm\2\, commenters calculated these rates equal $557-$776 per square centimeter, stating it would be arbitrary and capricious for CMS to price amniotic tissue grafts for eyes at significantly higher rates than same tissues used for chronic wounds. Some suggest using the higher rate CMS calculated for one of the other FDA categories ($259.47/cm\2\) as a more reasonable starting point.

Response: We appreciate the many detailed comments we received on this issue, but we do not agree that higher payment rates are warranted at this time for several reasons. First, most of these payment rates use non-facility utilization patterns that have been significantly distorted in recent years by problematic practices. Incorporating this

data into the payment rate would embed these practices into the policy. These practices have largely been mitigated in the OPPS utilization patterns, which is why they were used to develop an initial rate for this policy. Second, manufacturers have demonstrated the ability to offer products well below current ASP levels, which indicates that current prices have considerable room for compression without risking product availability or access. Third, there are a significant number of products with current ASPs below this policy's payment rate already. Finally, many of the more expensive products on the market fall into our 361 HCT/P and 510(k) product categories, but their activity is typically limited to that of a physical covering or wrap. These products are not intended to act on the wound to mediate, facilitate, or accelerate wound healing and the justification for these rates is unclear. However, we do not agree that a product used to cover the cornea and prevent scarring and others used to prevent infection should necessarily be priced at the same rate. Once updated use patterns reflecting this policy are available to calculate rates, we will use all relevant products and the combined product utilization patterns (OPPS and non-facility) to determine a weighted average per-unit cost by category to set separate payment rates for each of the three categories, and we will continue to monitor this product class and propose additional adjustments to the policy as necessary in future rulemaking.

Comment: Many commenters expressed concern that a low, uniform payment rate would stifle innovation. They argued that it would discourage investment in research and development for next-generation products, as manufacturers would be unable to recoup the significant costs associated with bringing novel therapies to market. They stated that this could penalize innovative therapies, favor older and lower- cost alternatives, and ultimately limit patient access to more effective technologies. In contrast, some commenters believe the proposed changes will rightly shift the focus to value-based innovation. They stated that true innovation lies in making highly efficacious products at a reasonable price, not just launching increasingly expensive ones. They contend that manufacturers should be required to show robust clinical evidence to justify payment, and the current proposal encourages this shift.

Response: We agree that our policy should incentivize innovation in this class of products. As noted above, in future notice and comment rulemaking, we intend to use claims data to set separate payment rates for products in the three categories, which would likely result in payment valuations that diverge based on the updated data. As the PMA category is by far the smallest, we would anticipate less competition and potentially higher payment rates for those products. In addition, products marketed under the BLA pathway would continue to receive separate payment under the ASP methodology described in section 1847A of the Act. We also welcome continued dialogue on ways to differentiate a truly innovative product from another that offers no true clinical advance as well as on how to properly recognize innovative products through payment policy under the PFS as we continue to assess how best to identify and value innovative products under the PFS.

Comment: A smaller group of commenters supported the proposed rate, and some even advocated for a lower one. Some commenters cited published cost-effectiveness analyses. A commenter noted a study concluding that interventions using skin substitutes with payment limits below $140/cm\2\ were dominant (less costly, better outcomes) compared to typical care; and, based on cost-effectiveness threshold of $100,000 per quality-adjusted life year, interventions were cost- effective with payment limits up to $430/cm\2\. A commenter stated that a rate of $125/cm\2\ seems “more than reasonable” given that manufacturing costs for some products are much lower. Several ACOs and provider groups recommended that CMS use a “pooled” average across all product categories, which would result in an even lower rate of ~$65/cm\2\, to more accurately reflect resource costs and further curb overspending. Another commenter recommended a rate of $75/cm\2\.

Response: We appreciate the commenters for their feedback. We disagree that further reduction of the initial payment rate is prudent before updated claims data reflecting the results of this policy can be gathered and evaluated.

Comment: There was a split on whether to use a single rate for all products. Many commenters supported finalizing a single, standardized payment rate for all non-BLA products. They argue this creates a level playing field, where clinical choice is driven by evidence and patient need, not by which category has the highest reimbursement. Commenters believe this approach is simpler and less likely to repeat the high- cost/low-cost bucket system of the past. Some commenters requested that after setting an initial rate for 2026, CMS should maintain that single rate for two additional rulemaking cycles before recommending any changes, allowing time to carefully evaluate claims data. Some comments requested moving to tiered payment rates in CY 2027 after setting an initial flat payment rate for CY 2026. Other commenters argued for immediate implementation of a tiered or differentiated payment system in 2026, rather than waiting until 2027. They believe this better reflects product complexity and clinical evidence and avoids treating all products as if they are the same.

Response: While a single rate would result in an administratively simpler policy and likely would result in the most savings, the differentiation of the products in this space argues for subgrouping to better ensure access to products in each group. A flat payment rate also reduces the incentive to innovate, perform relevant studies, and seek an FDA approval requiring proof of wound treatment or healing. While we do intend to use claims data to set separate payment rates for products in the three categories in future notice and comment rulemaking, we are concerned that use of the novel pricing practices noted above has resulted in a decoupling of actual resource costs from the ASP. To address this, as a short-term measure, we proposed to weight the product-specific utilization in calculating the rates using the proportions from only the hospital OPPS data and establish for CY 2026 a single payment rate that would apply to all skin substitute products in the three FDA regulatory categories. We will propose rates for these three categories through notice and comment rulemaking once updated use patterns reflect this policy.

Comment: To avoid sudden market disruption and access issues, some commenters recommended phasing in the payment reduction over several years (for example, 3 years). This would blend the old ASP plus 6 percent payment with the new flat rate over time, giving providers and manufacturers a chance to adapt.

Response: We do not agree that a phased-in approach is necessary. The nearly 40-fold increase in spending on these products has been concentrated in just the past several years. To allow these damaging practices to continue, even in part, for years longer may only serve to unnecessarily delay efficient purchasing, appropriate utilization, and product selection based on clinical need.

Comment: Several commenters opposed applying geographic

adjustments to skin substitute product payments in any setting, arguing that product costs do not vary by location as manufacturer pricing remains consistent regardless of clinical site or geography. Several commenters stated that geographic adjustments would create access disparities, particularly harming rural and underserved communities where patients may have greater need but providers face lower reimbursement rates. A commenter explained that, given the standard OPPS payment methodology, 60 percent of the payment rate for these products would be geographically adjusted, based on the application of the hospital wage index to the labor-related portion of the OPPS conversion factor prior to the application of the APC relative weight. Per the commenter, this would be a significant departure from current policy, where the supply portion of the APC is not geographically adjusted, and would similarly have negative impacts on patients' ability to access products in areas with lower wage index values. Commenters also recommended that CMS exclude skin substitutes from geographic RVU adjustments, noting that while professional service costs may vary by location, product costs do not.

Response: We understand commenters' concerns and are not applying a geographic adjustment to skin substitute products under the OPPS and ASC, where we are not required by statute to do so. With regard to the non-facility setting, section 1848(e) of the Act requires that the PFS include geographic adjustment factors and account for geographic variations in the costs of furnishing services. We refer commenters to the CY 2026 PFS final rule for more information regarding geographic adjustment factors under the PFS.

Comment: Several commenters raised concerns about maintaining payment consistency between PFS and OPPS. Commenters noted that OPPS receives annual market basket adjustments while PFS does not, questioning how CMS would prevent the rates from diverging over time and creating site-of-service incentives.

Response: We appreciate commenters bringing these concerns to our attention, and while we remind readers that variations in the annual update mechanisms for Medicare payment systems are generally determined by statute, we may consider the interaction between the update factors and the development of future proposed rates for these products for future rulemaking.

Comment: Several commenters raised concerns about transparency in CMS's rate calculation. The commenters stated that the information provided was insufficient to understand or recreate CMS' calculations. Some commenters were unable to replicate the proposed $125.38/cm\2\ rate, while others replicated it within 1 percent. A commenter noted that a supplemental document posted August 11, 2025, created additional confusion by describing steps the proposed rule indicated were not performed and contradicting information in the rule itself. Commenters stated CMS did not publish comparison files showing ASP versus MUC values for each product, which are important for evaluating the proposal. Many commenters recommended CMS provide complete methodology details to enable meaningful comment, with some stating that the lack of transparency violates APA requirements for well-reasoned analysis.

Response: We disagree with the commenters' statement that CMS was unclear in the description of the methodology used to calculate the proposed initial payment rate of $125.38/cm\2\. We provided a substantial amount of detail on our calculations in the proposed rule, including the HCPCS codes that were pulled and the data sources to provide even more detail. We released a supplemental document, “Additional Description of Calculation of Proposed Payment Rates for Skin Substitutes” on the CMS website at https://www.cms.gov/medicare/payment/fee-schedules/physician/federal-regulation-notices/cms-1832-p, which further explains the methodology used to calculate the payment rates for skin substitute products Several commenters were able to replicate our methodology and stated that they were able to approximate the proposed payment rate based on the information provided.

Comment: Commenters identified several products that CMS had incorrectly categorized in its published lists, suggesting the agency correct these errors before finalizing any rate-setting based on the categories. Commenters noted that HCPCS codes Q4107, Q4108, Q4116, Q4122, Q4142, Q4146, Q4147, Q4159, Q4198, Q4201, Q4225, Q4226, Q4232, Q4238, Q4276, Q4282, and Q4297 were misclassified into the wrong FDA categories. The commenters stated these errors lead to inaccurate payment rates for all products in affected categories and suggested CMS correct all assignments before finalizing the rule.

Response: We appreciate the comments. We reviewed the information provided and acknowledge there were some discrepancies in the grouping of some HCPCS codes for particular products in the CY 2026 OPPS/ASC proposed rule. We conducted additional analyses shifting those FDA categorizations, including those suggested by commenters, some of which caused volatility resulting in significant reductions compared to the proposed rule rates.

After careful consideration of the comments, for CY 2026 we are finalizing rates consistent with the groupings illustrated in the CY 2026 OPPS/ASC proposed rule in the interest of transparency and consistency. Prospectively, however, we will designate these HCPCS to the groupings suggested by commenters. We are finalizing our proposal to use the 361 HCT/P volume-weighted average payment amount, based on the grouping of HCPCS codes in the CY 2026 OPPS/ASC proposed rule, to set the initial payment rates for products in all three categories and calculate the initial payment rates as proposed. We also note, that consistent with the proposed rule, we maintained use of hospital claims volume from services incurred during the fourth quarter 2024. We used an updated version of the hospital claims volume as this is the most recent data available as of the time of drafting this final rule with comment period. We also used fourth quarter 2024 ASP data and 2026 MUC data (based on 2024 claims data), when ASP data was not available, as proposed. Given the volatility around skin substitute products due in part to gaming and the proliferation of coding already discussed in this final rule with comment period, even small changes to the methodologies, such as using a different quarter of ASP data or updating the regulatory categories of only 17 of over 200 skin substitute products, can result in significant changes to the payment rate. Accordingly, we believe maintaining the same framework for setting the payment rate that was used for the CY 2026 OPPS/ASC proposed rule, including the FDA regulatory categorizations and the same time periods for pricing, is consistent with the proposed rate on which the public had an opportunity to comment on compared to the volatility that could occur using different definitions. Prospectively, one of our policy goals is to promote greater stability in the payment for skin substitute products. Therefore, consistent with the framework for the methodology proposed in the CY 2026 OPPS/ASC proposed rule, we are

finalizing a final payment rate for CY 2026 of $127.14/cm\2\.

The full list of codes with the payment groupings used in developing the proposed and final rate calculations are available on the CMS website. Likewise, the full list of codes and their payment groupings prospectively are available on the CMS website and in Addendum B to this final rule with comment period.

After careful consideration of the comments, we are finalizing our proposal to use the 361 HCT/P volume-weighted average payment amount to set the initial payment rates for products in all three categories and calculate the initial payment rates as proposed with the exception of updating the calculation with more recent utilization data available as of the time of drafting this final rule with comment period, which resulted in a final payment rate for CY 2026 of $127.14/cm\2\. Specifically, we also used fourth quarter 2024 ASP data and 2026 MUC data (based on 2024 claims data), when ASP data was not available, weighted by more up to date hospital outpatient claims volume.

We proposed to maintain the current structure of HCPCS codes for skin substitutes, including a process to introduce new product-specific codes and proposed initial valuation based on the typical resource costs (that is, those reflected in ASP and MUC data) of the groups associated with each skin substitute's HCPCS code. We proposed to assign each current HCPCS code that describes an individual skin substitute product to one of the three new APCs based on the product's appropriate FDA regulatory category. For a complete list of codes and FDA categories, please see file entitled “Skin Substitute Products by FDA Regulatory Category” available on the CMS website under downloads for the CY 2026 PFS final rule at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/PFS-Federal-Regulation-Notices.html. Individual HCPCS coding remains necessary to provide identification on claims and track each product's cost. This will also allow effectuation of any applicable coverage policies and improve our ability to determine if any refinements in payment categories would be appropriate in future rulemaking.

For the most part, materials or supplies furnished incident to a service (for example, a suture, customized surgical kit, scalpel, or clip, other than a radiological site marker) are not paid separately under the OPPS. However, separate payment for products is not novel, since Medicare pays for various components of services through the use of separate HCPCS codes and/or payment modifiers. The most obvious examples of these kinds of payment and coding splits occur in diagnostic tests, radiation treatment services, and blood product services. For example, under the OPPS, blood products receive specific HCPCS codes and are paid separately from other services. In this case, the procedure of applying or administering a skin substitute product would not be described or paid for by a single code. Rather, when a skin substitute product is applied, both the application code as well as the HCPCS code of the skin substitute that is being applied would be billed under the OPPS. For example, when CPT Code 15271 (application of skin substitute graft, leg or ankle) is billed, we would expect for the hospital outpatient department to also report a skin substitute HCPCS code, which would be paid at a payment rate that includes the resources involved in using the skin substitute product. We proposed for skin substitute products to receive a separate payment independent from the payment for the application procedure. To effectuate this proposed payment policy under the OPPS, we proposed to create a new status indicator for HCPCS codes describing skin substitutes that are assigned to one of the three new APCs for skin substitutes based on FDA regulatory pathway. Specifically, we proposed to create status indicator “S1” to indicate that the skin substitute product is paid separately from other procedure codes under the OPPS. We proposed to assign all existing HCPCS codes describing skin substitute products to status indicator “S1” for CY 2026. The proposed status indicator “S1,” along with its descriptor and payment status, is listed in Table 114. [GRAPHIC] [TIFF OMITTED] TR25NO25.156

We also sought comments on whether we should consider treating the codes describing skin substitute products as add-on codes to the current CPT administration codes (CPT codes 15271-15278). This would more clearly indicate that the only skin substitute products to be paid for and treated as supplies by Medicare are those used in conjunction with the already existing CPT administration codes. If we were to treat these codes as add-on codes to the administration codes, we would effectuate this by revising the code descriptors of the skin substitute products to state “list separately in addition to the primary procedure.” While we would normally assign the add-on codes to a status indicator that indicates that payment is packaged (that is, status indicator “N” (Items and Services Packaged into APC Rates)), given our proposal to pay separately for skin substitute products as incident-to supplies, we would still propose to assign status indicator “S1,” to the skin substitute codes.

We received comments on whether we should treat the skin substitute product codes as add-on codes to the current CPT administration codes. The following is a summary of the comments we received and our responses.

Comment: Some commenters suggested that CMS' alternative approach of establishing payment for skin substitute products as an add-on code to current CPT application codes could have the added benefit of eliminating the bifurcated HCPCS coding system for skin substitute products (that is, Q-codes vs. A-codes), which has created significant administrative burdens and confusion for physicians and MACs, and streamline administrative requirements when physicians utilize and submit claims for skin substitute products. One commenter supported paying for skin substitute products as an add-on service

rather than as a standalone service to allow for packaged payments.

Response: We appreciate the information provided by commenters as to whether skin substitute codes should be considered add-on codes. We note that, for the non-facility setting, we are finalizing conversion of all skin substitute products to add-on codes. To ensure alignment across payment systems, we are also finalizing this change to classify skin substitute products as add-on codes in the hospital outpatient setting. Operationally, this would have the effect of requiring providers to bill an administration code when a skin substitute product is furnished. While we are converting skin substitute product codes to add-on codes, given the proposal to pay separately for skin substitute products as incident-to supplies that we are finalizing, we are assigning skin substitute products to status indicator “S1” to indicate separate payment.

Based on the input we received from commenters, we are finalizing classifying skin substitute products as add-on codes in the hospital outpatient setting. Since we are making this change to align with the corresponding change in the non-facility setting but we are still finalizing separate payment for skin substitute products, we are revising 42 CFR 419.2(b)(18) to clarify that skin substitute product add-on codes are not among the “certain services” described by add-on codes for which packaged payment is made.

We proposed that new HCPCS codes describing skin substitutes would be categorized based on whether they are PMA-approved, 510(k)-cleared, or registered 361 HCT/Ps and the payment rates that apply to that category would be applied to the new code at the next quarterly update. Currently, HCPCS Level II coding applications are submitted and reviewed during our quarterly and biannual coding cycles. We post our coding determinations for drugs and biologicals on a quarterly basis, and do not routinely review those applications at a HCPCS public meeting. For non-drugs and non-biologicals, we post our coding decisions on a biannual basis. For our biannual cycles for non-drugs and non-biologicals, we post preliminary coding determinations then invite feedback on those preliminary coding determinations at a biannual HCPCS public meeting; final coding determinations are posted following the HCPCS public meeting. CMS has been reviewing skin substitutes marketed as 361 HCT/Ps in the quarterly drugs and biologicals coding cycle and 510(k)-cleared skin substitutes in the biannual, non-drugs and non-biologicals coding cycle. Beginning January 1, 2026, we proposed to review HCPCS Level II coding applications for all skin substitutes marketed as 361 HCT/Ps through our biannual coding cycle for non-drugs and non-biological products, rather than on a quarterly basis. Skin substitutes that received a 510(k) clearance, PMA approval, or a granted De Novo request would continue to be evaluated in the biannual HCPCS Level II coding cycles. Therefore, under this proposal, CMS would evaluate all complete HCPCS Level II applications for skin substitutes in our biannual cycles. Should any products come to market under the BLA, NDA, or ANDA pathways that could potentially be considered skin substitutes, CMS would instead review them in a quarterly HCPCS Level II drugs and biologicals coding cycle.

Before a code is assigned to describe the skin substitute product, not otherwise classified (NOC) codes would be used and the CMS MACs would assign the appropriate payment based on the product's FDA category. We proposed to create three new unlisted codes to describe skin substitute products that are FDA authorized or cleared but have not yet received a specific individual HCPCS or CPT code: HCPCS codes Q4431 (Unlisted PMA skin substitute product), Q4432 (Unlisted 510(k) skin substitute product), and Q4433 (Unlisted 361 HCT/P skin substitute product). We proposed to assign the unlisted HCPCS codes to the appropriate APCs based on the product's FDA approval or clearance. Specifically, we proposed to assign HCPCS code Q4431 to APC 6000 (PMA Skin Substitute Products); Q4432 to APC 6001 (Unlisted 510(k) Skin Substitute Products); and HCPCS Code Q4433 to APC 6002 (Unlisted 361 HCT/P Skin Substitute Products). We proposed to create these unlisted codes to prevent delays in Medicare payments for new FDA-approved or cleared skin substitute products that do not yet have a specific HCPCS or CPT code.

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

Comment: Multiple commenters expressed support for CMS' proposal to maintain the current structure of HCPCS codes for skin substitutes. Several commenters recommended that CMS eliminate the bifurcated coding system where some products have “Q” codes and others have “A” codes. They urged CMS to reassign all skin substitute products to “Q” codes to reduce administrative burden and confusion for providers and MACs.

Response: We appreciate the feedback. We will take comments about the coding differences between the products into consideration for future rulemaking.

Comment: Several commenters opposed CMS's proposal to shift the HCPCS Level II coding application review for 361 HCT/P products from a quarterly to a biannual cycle. Commenters argued that maintaining the quarterly cycle is essential for timely patient access to new therapies, supporting innovation, and aligning with the faster review cadence used for drugs and biologics. Commenters stated a biannual cycle would create lengthy delays (18 months or more) for new products to get a code and be reimbursed, creating a barrier to market entry. Commenters stated that all skin substitutes, regardless of regulatory status, should have the same quarterly review process to maintain a level playing field.

Response: We disagree. We post our coding decisions for all non- drugs and non-biologicals on a biannual basis. While CMS has been reviewing skin substitutes marketed as 361 HCT/Ps in the quarterly drugs and biologicals coding cycle, under this policy, unless a skin substitute is approved as a biological product under section 351 of the PHS Act, we would consider it an incident-to supply for payment and coding purposes under the PFS. Beginning January 1, 2026, CMS will review HCPCS Level II coding applications for all skin substitutes marketed as 361 HCT/Ps through our biannual coding cycle for non-drugs and non-biological products, rather than on a quarterly basis. Skin substitutes that received a 510(k) clearance, PMA approval, or a granted De Novo request will continue to be evaluated in the biannual HCPCS Level II coding cycles.

After careful consideration of the comments, we are finalizing our proposal to evaluate all complete HCPCS Level II applications for skin substitutes in our biannual cycles as proposed.

If skin substitutes that are not licensed under section 351 of the PHS Act are no longer paid as biologicals using the methodology under section 1847A of the Act, as proposed, then the manufacturers of these products would no longer be required to report ASP data to CMS under section 1847A(f)(2) of the Act. However, when ASP data is reported, it may serve as a better estimate of resources across the hospital outpatient and non-facility settings than hospital outpatient MUC data. We proposed to update the rates for the skin substitute categories annually through

rulemaking using the most recently available calendar quarter of ASP data, when available, to set the rates. However, we have concerns that using a single, scheduled quarter of ASP data to set payment rates could encourage gaming. We sought comment on the use of a longer timeframe, such as the most recently available four calendar quarters, to set payment rates in future years. In the event ASP is not available for a particular product, we proposed to use the MUC data. If MUC is not available, we proposed to use the product's WAC or 89.6 percent of AWP if WAC is also unavailable, similar to other products for which ASP is used to calculate a payment rate.\108\ Once updated use patterns reflecting this policy are available to calculate rates, we proposed using all relevant products and the combined product utilization patterns (OPPS and non-facility) to determine a weighted average per- unit cost by category to set separate payment rates for each of the three new APC groups. We sought comments on our proposed methodology to set and update the payment rates for skin substitutes as well as the rates themselves.

\108\ 89.6 percent of AWP was calculated by first reducing the usual 95 percent of AWP price by 6 percent to generate a value that is similar to WAC with no percentage markup.

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

Comment: The most common recommendation was that CMS should update the payment rates annually using an inflation index, such as the Consumer Price Index for Urban Consumers (CPI-U) or the Producer Price Index (PPI), rather than recalculating them based on new ASP data. Commenters stated that an inflationary update would provide stability and predictability for providers and manufacturers, avoiding the significant rate variability that would occur with annual ASP recalculations, and reduce the regulatory burden on both manufacturers and CMS. Also, since the proposal would no longer require manufacturers to report ASP data for these products, commenters stated there would be very little reliable data to use for future updates. They stated that relying on ASP would perpetuate the same system that has been susceptible to gaming and abuse.

Several commenters recommended CMS to abandon any reliance on ASP data for setting future payment rates. They stated that the ASP system itself is flawed and has led to the pricing distortions and “profiteering” that CMS is trying to correct. Because the data is distorted, using it to set future rates--even if based on claims--will perpetuate the problem. In contrast, one commenter encouraged CMS to continue collecting ASP data for transparency and to support future reimbursement refinements, even if it is not the primary basis for payment.

Response: We appreciate the commenters for their input. We believe that, over time, the ASP data will more accurately reflect the market impacts of our policy to treat skin substitute products as incident-to supplies. By relying on ASP, payment updates will be responsive to changes in the actual cost of skin substitute products as a result of market pressures, whereas an index like the CPI-U is a general inflation measure that does not account for pricing dynamics. Therefore, we believe that updating the payment rates, based on ASP data will more likely result in payment rates that reflect the changing dynamics of the market rather than anchoring the cost to the initial payment rate for CY 2026 based on data collected prior to the implementation of this policy.

Comment: Several commenters expressed concern that using a single, scheduled quarter of ASP data for updates would encourage gaming. MedPAC recommended that if ASP data is used, it should be from a longer timeframe, such as four calendar quarters, to avoid manipulation.

Response: We agree that, moving forward, using a longer timeframe for collection of ASP data would reduce the opportunity for manipulation. While we may be unable to use a longer timeframe if we propose updated rates for 2027, we will look to use additional quarters of data to set rates in future years.

Comment: Several commenters argued the proposal may violate the Administrative Procedure Act (5 U.S.C. 706(2)(A)), which requires well- reasoned analysis for major policy changes. A commenter argued the drastic reimbursement reduction constitutes a de facto adverse National Coverage Determination without following statutory NCD requirements: public notice, consultation with advisory committees, evidence consideration, and clear basis statements (42 U.S.C. 1395y(l)(3)-(4)).

Response: This rule finalizes a proposed change to payment policy. It neither constitutes, nor is akin to, a national coverage determination as it does not make any coverage determinations but merely makes a change to the amount of payment made for certain covered skin substitutes. Section 1869(f)(1)(B) of the Act (that is, 42 U.S.C. 1395ff(f)(1)(B)) defines the term “national coverage determination” as “a determination by the Secretary with respect to whether or not a particular item or service is covered nationally under this subchapter, but does not include a determination of what code, if any, is assigned to a particular item or service covered under this subchapter or a determination with respect to the amount of payment made for a particular item or service so covered”. The provision the commenters cite, 42 U.S.C. 1395y (section 1862 of the Act) expressly incorporates this definition of the term. See 42 U.S.C. 1395y(a)(25) (section 1862(a)(25) of the Act). Because this is not a “national coverage determination”, the requirements set forth in 42 U.S.C. 1395y(l)(3)- (4) do not apply on their own terms.

Moreover, we believe our proposal satisfies the requirements of the Administrative Procedure Act and is not arbitrary and capricious because we have, for example: (1) Explicitly considered and responded to a dramatic increase in Medicare spending for this class of products, (2) Provided a reasoned explanation for our classification of non- section 351 products as incident-to supplies rather than biologicals separately payable under section 1847A of the Act, (3) Articulated our rationale for using OPPS utilization data and excluding non-facility utilization because of the profit-maximizing incentives distorting the latter, (4) Explained the methodology for calculating the final payment rate with sufficient detail to allow verification by the public, (5) Offered and analyzed several alternatives and explained why our final approach better serves statutory objectives, (6) Acknowledged potential access concerns while reasonably concluding that a sufficient number of manufacturers have demonstrated the ability to provide these products at or below the final payment rate and the assurance that we will monitor and adjust the policy in future rulemaking as necessary, and, finally, (7) Described and responded to the comments CMS received in response to the CY 2026 OPPS/ASC proposed rule.

Several comments, including those related to coverage and the skin substitute LCDs and requests to change how the FDA regulates products CMS considers skin substitutes for payment purposes were out of scope for purposes of this rulemaking.