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

Section 1833(t)(6)(E) of the Act limits the total projected amount of transitional pass-through payment for drugs, biologicals, and categories of devices for a given year to an “applicable percentage,” currently not to exceed 2.0 percent of total program payments estimated to be made for all covered services under the OPPS furnished for that year. If we estimate before the beginning of the calendar year that the total amount of pass-through payments in that year would exceed the applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a uniform prospective reduction in the amount of each of the transitional pass-through payments made in that year to ensure that the limit is not exceeded. We estimate the pass-through spending to determine whether payments exceed the applicable percentage and the appropriate pro rata reduction to the conversion factor for the projected level of pass- through spending in the following year to ensure that total estimated pass-through spending for the prospective payment year is budget neutral, as required by section 1833(t)(6)(E) of the Act.

For devices, developing a proposed estimate of pass-through spending in CY 2026 entails estimating spending for two groups of items. The first group of items consists of device categories that are currently eligible for pass-through payment and that will continue to be eligible for pass-through payment in CY 2026. The CY 2008 OPPS/ASC final rule with comment period (72 FR 66778) describes the methodology we have used in previous years to develop the pass-through spending estimate for known device categories continuing into the applicable update year. The second group of items consists of devices that we know are newly eligible, or project may be newly eligible, for device pass- through payment in the remaining quarters of CY 2025 or beginning in CY 2026. The sum of the proposed CY 2026 pass-through spending estimates for these two groups of device categories equals the proposed total CY 2026 pass-through spending estimate for device categories with pass- through payment status. We determined the device pass-through estimated payments for each device category based on the amount of payment as required by section 1833(t)(6)(D)(ii) of the Act, and as outlined in previous rules, including the CY 2025 OPPS/ASC final rule with comment period (89 FR 94259 through 94261). We note that, beginning in CY 2010, the pass-through evaluation process and pass-through payment methodology for implantable biologicals newly approved for pass-through payment beginning on or after January 1, 2010, that are surgically inserted or implanted (through a surgical incision or a natural orifice) use the device pass-through process and payment methodology (74 FR 60476). As has been our past practice (76 FR 74335), we include an estimate of any implantable biologicals eligible for pass-through payment in our estimate of pass-through spending for devices. Similarly, we finalized a policy in CY 2015 that applications for pass- through payment for skin substitutes and similar products be evaluated using the medical device pass-through process and payment methodology (76 FR 66885 through 66888). Therefore, as we did beginning in CY 2015, for CY 2026, we also proposed to include an estimate of any skin substitutes and similar products in our estimate of pass-through spending for devices. However, in accordance with the finalized policy in this final rule with comment period to align payment policy for skin substitutes with FDA's regulatory categories, we have separated the pass-through spending estimates into the appropriate pathway, device or drug pass-through. We note that since there are no current skin substitutes eligible for pass-through payments, this estimate for both pathways is zero.

For drugs and biologicals eligible for pass-through payment, section 1833(t)(6)(D)(i) of the Act establishes the pass-through payment amount as the amount by which the amount authorized under section 1842(o) of the Act (or, if the drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and year established under such section as calculated and adjusted by the Secretary) exceeds the portion of the otherwise applicable fee schedule amount that the Secretary determines is associated with the drug or biological. Consistent with current policy, we proposed to apply a rate of ASP plus 6 percent to most drugs and biologicals for CY 2026, and therefore our estimate of drug and biological pass-through payment for CY 2026 for this group of items was $15.2 million.

Payment for certain drugs,\123\ specifically contrast agents without pass-through payment status, is packaged into payment for the associated procedures, and these products are not separately paid. In addition, we policy-package non-pass-through drugs and biologicals that function as supplies when used in a diagnostic test or procedure unless a high-cost diagnostic radiopharmaceutical with a per-day cost greater than the finalized per-day threshold, finalized to be $655 for CY 2026 as outlined in section II.A.3.c. of this final rule with comment period, is used for the test or procedure. We policy-package all drugs and biologicals that function as supplies when used in a surgical procedure or for anesthesia, and other categories of drugs and biologicals, as described in section V.B.1.c. of the CY 2026 OPPS/ASC proposed rule (90 FR 33625 through 33626). Consistent with current policy, for CY 2026, we proposed that policy-packaged drugs and biologicals with pass-through payment status will be paid at ASP+6 percent, like other pass-through drugs and biologicals less the policy- packaged drug APC offset amount described below. Our estimate of pass- through payment for policy-packaged drugs and biologicals with pass- through payment status approved prior to CY 2026 is not $0. This is because the pass-through payment amount and the fee schedule amount associated with the drug or biological will not be the same, unlike for separately payable drugs and biologicals. In the CY 2024 OPPS/ASC final rule with comment period (88 FR 81774 through 81776), we discussed our policy to determine if the costs of certain policy-packaged drugs or biologicals are already packaged into the existing APC structure. If we determine that a policy-packaged drug or biological approved for pass- through payment resembles predecessor drugs or biologicals already included in the costs of the APCs that are associated with the drug receiving pass-through payment, we offset the amount of pass-through payment for the policy-packaged drug or biological. For these drugs or biologicals, the APC offset amount is the portion of the APC payment for the specific procedure performed with the pass-through drug or biological, which we refer to as the policy-packaged drug APC offset amount. Consistent with current policy described in section V.A.5. of the CY 2026 OPPS/ASC proposed rule (90 FR 33619 to 33620), if we determine that an offset is appropriate for a specific policy-packaged drug or biological receiving pass-through payment, we proposed to reduce our estimate of pass-through payments for these drugs or biologicals by the APC offset amount.

\123\ In the CY 2025 OPPS/ASC final rule with comment period, we finalized the high-cost diagnostic radiopharmaceuticals policy to separately pay those products when the per-day costs are greater than a threshold. Please refer to section II.A.3.c. of this final rule with comment period for more information regarding this policy.

Similar to pass-through spending estimates for devices, the first group of drugs and biologicals requiring a pass-through payment estimate consists of those products that were recently made eligible for pass-through payment and that will continue to be eligible for pass-through payment in CY 2026. The second group contains drugs and biologicals that we know are newly eligible, or project will be newly eligible, in CY 2026. The sum of the CY 2026 pass-through spending estimates for these two groups of drugs and biologicals equals the total CY 2026 pass-through spending estimate for drugs and biologicals with pass-through payment status.

We did not receive public comments on this provision, and therefore, we are finalizing as proposed.

For CY 2026, we proposed to set the applicable pass-through payment percentage limit at 2.0 percent of the total projected OPPS payments for CY 2026, consistent with section 1833(t)(6)(E)(ii)(II) of the Act and our OPPS policy from CY 2004 through CY 2025 (89 FR 94260). The pass-through payment percentage limit is calculated using pass-through spending estimates for devices and for drugs and biologicals.

For the first group of devices, consisting of device categories that are currently eligible for pass-through payment and will continue to be eligible for pass-through payment in CY 2026, there are 14 active categories for CY 2026. The active categories are described by HCPCS codes C1600, C1601, C1602, C1603, C1604, C1605, C1606, C8000, C1735, C1736, C1737, C1738, C1739, and C9610. Based on CY 2024 Medicare hospital outpatient claims data available by the time of the proposed rule and information from the device manufacturers provided in their respective pass-through applications regarding the device cost and the projected CY 2026 OPPS utilization, we estimated that HCPCS code C1600 would cost $0.3 million in pass-through expenditures in CY 2026, HCPCS code C1601 would cost $5.0 million in pass-through expenditures in CY 2026, HCPCS code C1602 would cost $0.2 million in pass-through expenditures in CY 2026, HCPCS code C1603 would cost $0.1 million in pass-through expenditures in CY 2026, HCPCS code C1604 would cost $2.0 million in pass-through expenditures in CY 2026, HCPCS code C1605 would cost $113.0 million in pass-through expenditures in CY 2026, HCPCS code C1606 would cost $0.3 million in pass-through expenditures in CY 2026, HCPCS code C8000 would cost $2.9 million in pass-through expenditures in CY 2026, HCPCS code C1735 would cost $16.0 million in pass-through expenditures in CY 2026, HCPCS code C1736 would cost $32.8 million in pass-through expenditures in CY 2026, HCPCS code C1737 would cost $34.1 million in pass-through expenditures in CY 2026, HCPCS code C1738 would cost $0.8 million in pass-through expenditures in CY 2026, HCPCS code C1739 would cost $8.5 million in pass-through expenditures in CY 2026, and HCPCS code C9610 would cost $36.0 million in pass-through expenditures in CY 2026. Therefore, we proposed an estimate for the first group of devices of $252.0 million.

We did not receive any public comments on our proposed estimate. Based on updated CY 2024 Medicare hospital outpatient claims data available for this final rule with comment period and information from the device manufacturers provided in their respective pass-through applications regarding the device cost and the projected CY 2026 OPPS utilization, our final estimated pass through costs are as follows: HCPCS code C1600 will cost

$0.3 million in pass-through expenditures in CY 2026, HCPCS code C1601 will cost $4.7 million in pass-through expenditures in CY 2026, HCPCS code C1602 will cost $0.3 million in pass-through expenditures in CY 2026, HCPCS code C1603 will cost $0.1 million in pass-through expenditures in CY 2026, HCPCS code C1604 will cost $2.1 million in pass-through expenditures in CY 2026, HCPCS code C1605 will cost $113.0 million in pass-through expenditures in CY 2026, HCPCS code C1606 will cost $0.3 million in pass-through expenditures in CY 2026, HCPCS code C8000 will cost $2.9 million in pass-through expenditures in CY 2026, HCPCS code C1735 will cost $16.0 million in pass-through expenditures in CY 2026, HCPCS code C1736 will cost $32.8 million in pass-through expenditures in CY 2026, HCPCS code C1737 will cost $34.1 million in pass-through expenditures in CY 2026, HCPCS code C1738 will cost $0.8 million in pass-through expenditures in CY 2026, HCPCS code C1739 will cost $8.5 million in pass-through expenditures in CY 2026, and HCPCS code C9610 will cost $36.0 million in pass-through expenditures in CY 2026.\124\ Therefore, we have finalized the CY 2026 spending estimate for the first group of devices of approximately $251.9 million.

\124\ Estimated costs are updated to reflect the Medicare hospital outpatient claims data for each HCPCS code as such data becomes available. Prior to the availability of Medicare hospital outpatient claims data, estimated costs are based on the device cost and projected CY OPPS utilization provided by the device manufacturer in the device pass-through application, As such, the final estimated pass-through costs for HCPCS codes C1600, C1601, C1602, C1603 and C1604 are updated based on CY 2024 Medicare hospital outpatient claims data available for this final rule with comment period. The final estimated pass-through costs for HCPCS codes C1605, C1606, C8000, C1735, C1736, C1737, C1738, C1739, and C9610 are based on information provided by the device manufacturers in the respective device pass-through applications regarding the device cost and the projected CY 2026 OPPS utilization.

In estimating our proposed CY 2026 pass-through spending for device categories in the second group, we included the following: (1) device categories that we assumed at the time of the development of the CY 2026 OPPS/ASC proposed rule would be newly eligible for pass-through payment in CY 2026; (2) additional device categories that we estimated could be approved for pass-through status after the development of the CY 2026 OPPS/ASC proposed rule and before January 1, 2026; and (3) contingent projections for new device categories established in the second through fourth quarters of CY 2026. For CY 2026, we proposed to use the general methodology described in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66778), while also taking into account recent OPPS experience in approving new pass-through device categories. For the CY 2026 OPPS/ASC proposed rule (90 FR 33656), the proposed estimate of CY 2026 pass-through spending for this second group of device categories was $319.8 million.

We did not receive any public comments on this proposed estimate. As stated earlier in section IV.A.2. of this final rule with comment period, we are approving two devices for pass-through payment status in the CY 2026 rulemaking cycle: VasQ and the SCOUT MDTM Surgical Guidance System.\125\ In addition, we note that HCPCS codes C1740, C1741 and C1742 were preliminarily approved as part of the device pass-through quarterly review process with an effective date of October 1, 2025.126 127 For this final rule with comment period based on information from the device manufacturers provided in their respective pass-through applications regarding the projected CY 2026 OPPS utilization, we estimate that HCPCS code C1740 will cost $31.7 million in pass-through expenditures in CY 2026, HCPCS code C1741 will cost $7.5 million in pass-through expenditures in CY 2026, and HCPCS code C1742 will cost $0.7 million in pass-through expenditures in CY 2026. Therefore, for the reasons explained more below, we are finalizing an estimate of $39.9 million for this second group of devices for CY 2026.

\125\ As discussed in section IV.A.2 of this final rule with comment period, the VasQ pass-through application was preliminarily approved for transitional pass-through payment under the alternative pathway effective October 1, 2024, and the SCOUT MDTM Surgical Guidance System pass-through application was preliminarily approved for transitional pass-through payment under the alternative pathway effective January 1, 2025. We are finalizing the approvals for device pass-through payment status for VasQ and the SCOUT MDTM Surgical Guidance System in this final rule with comment period. Due to the timing of the preliminary approvals, the CY 2026 spending estimate for VasQ and the SCOUT MDTM Surgical Guidance System is included in the CY 2026 spending estimate for the first group of devices.

\126\ Centers for Medicare & Medicaid Services (2025). Pub 100- 04 Medicare Claims Processing, Transmittal 13425, Change Request 14223, dated September 22, 2025. Accessed at https://www.cms.gov/files/document/r13425cp.pdf.

\127\ Per the CY 2016 OPPS/ASC final rule with comment period, device pass-through applications are still submitted to CMS through the quarterly process, but the applications are subject to notice and comment rulemaking in the next applicable OPPS annual rulemaking cycle. Under this process, all applications that are preliminarily approved upon quarterly review will automatically be included in the next applicable OPPS annual rulemaking cycle (80 FR 70417 through 70418). Applications received after the March 3, 2025, deadline for the remaining 2025 quarters (the quarters beginning June 1, September 1, and December 1 of 2025), will be discussed in the CY 2027 OPPS/ASC proposed rule. As such, we expect to include and discuss the device applications associated with HCPCS codes C1740, C1741 and C1742 in the CY 2027 OPPS/ASC proposed and final rules with comment period.

The estimated amount of pass-through spending of $39.9 million for the second group of devices in this final rule with comment period is substantially different from the estimated amount of pass-through spending in the CY 2026 OPPS/ASC proposed rule (90 FR 33656) of $319.8 million because, in the CY 2026 OPPS/ASC proposed rule, we consider that all of the device applications included in that CY 2026 OPPS/ASC proposed rule may receive pass-through status approval in the corresponding CY 2026 OPPS/ASC final rule with comment period, and as such, we include the estimated amount of pass-through spending for each device. For the final rule with comment period, the estimate reflects the estimated amount of pass-through spending for only the devices that were approved for pass-through status. In addition, we updated the estimates to include the estimated pass-through expenditures for any devices that are preliminarily approved as part of the device pass- through quarterly review process after the development of the current CY 2026 OPPS/ASC proposed rule.

To estimate proposed CY 2026 pass-through spending for drugs and biologicals in the first group, specifically those drugs and biologicals recently made eligible for pass-through payment and continuing on pass-through payment status for at least one quarter in CY 2026, we proposed to use the CY 2024 Medicare hospital outpatient claims data regarding their utilization, information provided in their respective pass-through applications, other historical hospital claims data, pharmaceutical industry information, and clinical information regarding these drugs and biologicals to project the CY 2026 OPPS utilization of the products.

For the known drugs and biologicals (excluding policy-packaged contrast agents, drugs, biologicals, radiopharmaceuticals with per-day costs at or below the packaging threshold that function as supplies when used in a diagnostic test or procedure, and drugs and biologicals that function as supplies when used in a surgical procedure) that will be continuing on pass-through payment status in CY 2026, we estimated the pass-through payment amount as the difference between the general payment rate of ASP+6 percent and the payment rate for non-pass-

through drugs and biologicals that would be separately paid. Because we proposed to utilize a payment rate of ASP+6 percent for most separately payable drugs and biologicals in the CY 2026 OPPS/ASC proposed rule, the proposed payment rate difference between the pass-through payment amount and the non-pass-through payment amount was $0 for this group of drugs.

Because payment for policy-packaged drugs and biologicals is packaged if the product is not paid separately due to its pass-through payment status, we proposed to include in the CY 2026 pass-through estimate the difference between payment for the policy-packaged drug or biological at ASP+6 percent (or WAC+6 percent, or 95 percent of AWP, if ASP or WAC information is not available) and the policy-packaged drug APC offset amount, if we determine that the policy-packaged drug or biological approved for pass-through payment resembles a predecessor drug or biological already included in the costs of the APCs that are associated with the drug receiving pass-through payment. Diagnostic radiopharmaceuticals that currently have pass-through status, but would likely be paid separately because of the policy initially established in the CY 2025 OPPS/ASC final rule with comment period (89 FR 93953) to separately pay for diagnostic radiopharmaceuticals with per-day costs greater than the per-day cost threshold and which we are continuing as discussed in section II.A.3.c. of this final rule with comment period, are not considered to be policy-packaged and therefore are not included in this group. For this first group of policy-packaged drugs and biologicals, we estimated a pass-through spending for CY 2026 of $5.2 million.

We did not receive any public comments on our proposed estimate. Using our methodology for this final rule with comment period, we are finalizing the CY 2026 spending estimate for this first group of drugs and biologicals to be $5.2 million.

To estimate proposed CY 2026 pass-through spending for drugs and biologicals in the second group (that is, drugs and biologicals that we knew at the time of development of the proposed rule were newly eligible or recently became eligible for pass-through payment in CY 2025, additional drugs and biologicals that we estimated could be approved for pass-through status subsequent to the development of the proposed rule and before January 1, 2026, and projections for new drugs and biologicals that could be initially eligible for pass-through payment in the second through fourth quarters of CY 2026), we proposed to use utilization estimates from pass-through applicants, pharmaceutical industry data, clinical information, recent trends in the per unit ASPs of hospital outpatient drugs, and projected annual changes in service volume and intensity as our basis for making the CY 2026 pass-through payment estimate. We also proposed to consider the most recent OPPS experience in approving new pass-through drugs and biologicals. Using our proposed methodology for estimating CY 2026 pass-through payments for this second group of drugs, we calculated a proposed spending estimate for this second group of drugs and biologicals of approximately $10 million.

We did not receive any public comments on our proposed estimate. Using our methodology for this final rule with comment period, we are finalizing our estimate of pass-through spending for the second group of drugs and biologicals to be $10 million.

We estimated for the CY 2026 OPPS/ASC proposed rule (90 FR 33656) that the amount of pass-through spending for the device categories and the drugs and biologicals that are continuing to receive pass-through payment in CY 2026 and the amount of pass-through spending for those device categories, drugs, and biologicals that first become eligible for pass-through payment during CY 2026 would be approximately $587.0 million (approximately $571.8 million for device categories and approximately $15.2 million for drugs and biologicals), which represents only 0.59 percent of total projected OPPS payments for CY 2026 (approximately $100 billion). Therefore, we estimated that pass- through spending in CY 2026 will not exceed the 2.0 percent of total projected OPPS CY 2026 program spending limit provided for in section 1833(t)(6)(E) of the Act.

We are finalizing our estimate for this final rule with comment period that the amount of pass-through spending for the device categories and the drugs and biologicals that are continuing to receive pass-through payment in CY 2026 and the amount of pass-through spending for those device categories, drugs, and biologicals that first become eligible for pass-through payment during CY 2026 will be approximately $307.0 million (approximately $291.8 million for device categories and approximately $15.2 million for drugs and biologicals), which represents only 0.30 percent of total projected OPPS payments for CY 2026 (approximately $101.0 billion). Therefore, we estimate that pass- through spending in CY 2026 will not exceed the 2.0 percent of total projected OPPS CY 2026 program spending limit provided for in section 1833(t)(6)(E) of the Act.

The estimated amount of $307.0 million of pass-through spending for the device categories and the drugs and biologicals that are continuing to receive pass-through payment in CY 2026 and the amount of pass- through spending for those device categories, drugs, and biologicals that first become eligible for pass-through payment during CY 2026 in this final rule is substantially different from the estimated amount of pass-through spending in the CY 2026 OPPS/ASC proposed rule (90 FR 33656) of $587.0 million mainly because, the updated estimated amount of pass-through spending for the second group of devices only includes the estimated pass-through spending for the devices that were approved for pass-through status in this final rule and the estimated pass- through expenditures for devices that are preliminarily approved as part of the device pass-through quarterly review process after the development of the CY 2026 OPPS/ASC proposed rule.

Comment: A commenter stated CMS's estimate of aggregate pass- through spending and application of statutory limits should not be allowed to restrict patient access to high-value therapies. The commenter additionally noted that to ensure safeguards are appropriately calibrated, CMS should publish analyses showing how spending caps affect specific categories such as oncology, rare diseases, and advanced diagnostics. The commenter elaborated that this would help interested parties assess whether limits create unintended barriers and inform any mid-course corrections that might be needed.

Response: We note the spending limit for pass-through is not considered during the pass-through application evaluation process and therefore, would not impact our final determination of pass-through payment status for any eligible technology. The spending limit is considered for the purposes of assessing the total amount of pass- through payments in a given calendar year for technologies which are currently eligible for pass-through payment status. If, before the beginning of the calendar year, we estimate that the total amount of pass-through payments in that year will exceed the applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a uniform prospective reduction in the amount of each of the transitional pass- through payments made in that year to ensure that the limit is not exceeded.

For CY 2026, we proposed to continue our current clinic and emergency department (ED) hospital outpatient visit payment policies. For a description of these policies, we referred readers to the CY 2016 OPPS/ASC final rule with comment period (80 FR 70298). We also proposed to continue our payment policy for critical care services for CY 2026. For a description of this policy, we referred readers to the CY 2016 OPPS/ASC final rule with comment period (80 FR 70298), and for the history of this payment policy, we referred readers to the CY 2014 OPPS/ASC final rule with comment period (78 FR 75043).

As we stated in the CY 2022 OPPS/ASC final rule with comment period (86 FR 63663), the volume control method for clinic visits furnished by excepted off-campus provider-based departments (PBDs) applies for CY 2022 and subsequent years. More specifically, we finalized a policy to continue to utilize a PFS-equivalent payment rate for the hospital outpatient clinic visit service described by HCPCS code G0463 when it is furnished by these departments for CY 2022 and subsequent years. The PFS-equivalent rate for CY 2026 is 40 percent of the proposed OPPS payment. Under this policy, these departments will be paid approximately 40 percent of the OPPS rate for the clinic visit service in CY 2026. For CY 2026, we proposed to implement a volume control method for additional services furnished by excepted PBDs. For more information on this policy, we refer readers to section X.A. of this final rule with comment period.

In the CY 2023 OPPS/ASC final rule with comment period (87 FR 71748), we finalized a policy that excepted off-campus PBDs (departments that bill the modifier “PO” on claim lines) of rural Sole Community Hospitals (SCHs), as described under 42 CFR 412.92 and designated as rural for Medicare payment purposes, are exempt from the clinic visit payment policy that applies a PFS-equivalent payment rate for the clinic visit service, as described by HCPCS code G0463, when provided at an off-campus PBD excepted from section 1833(t)(21) of the Act. For the full discussion of this policy, we refer readers to the CY 2023 OPPS/ASC final rule with comment period (87 FR 72047 through 72051). For CY 2026, we proposed to exempt excepted off-campus PBDs (departments that bill the modifier “PO” on claim lines) of rural SCHs, as described under 42 CFR 412.92 and designated as rural for Medicare payment purposes, from any additional services subject to our volume control method payment policy. For more information on this policy, we refer readers to section X.A. of this final rule with comment period.

We did not receive specific public comment on our existing clinic and ED hospital outpatient visits payment policies outside of the context of the proposed expansion of our volume control method to other services, and therefore, we are finalizing as proposed to continue these policies. For discussion of the existing clinic visit policy in the context of the proposed expansion of our volume control method to other services, please see section X.A. of this final rule with comment period.

A partial hospitalization program (PHP) is an intensive outpatient program of psychiatric services provided as an alternative to inpatient psychiatric care for individuals who have an acute mental illness, which includes, but is not limited to, conditions such as depression, schizophrenia, and substance use disorders (SUD). Section 1861(ff)(1) of the Act defines partial hospitalization services as the items and services described in paragraph (2) prescribed by a physician and provided under a program described in paragraph (3) under the supervision of a physician pursuant to an individualized, written plan of treatment established and periodically reviewed by a physician (in consultation with appropriate staff participating in such program), which sets forth the physician's diagnosis, the type, amount, frequency, and duration of the items and services provided under the plan, and the goals for treatment under the plan. Section 1861(ff)(2) of the Act describes the items and services included in partial hospitalization services. Section 1861(ff)(3)(A) of the Act specifies that a PHP is a program furnished by a hospital to its outpatients or by a community mental health center (CMHC), as a distinct and organized intensive ambulatory treatment service, offering less than 24-hour- daily care, in a location other than an individual's home or inpatient or residential setting. Section 1861(ff)(3)(B) of the Act defines a CMHC for purposes of this benefit. We refer readers to sections 1833(t)(1)(B)(i), 1833(t)(2)(B), 1833(t)(2)(C), and 1833(t)(9)(A) of the Act and 42 CFR 419.21, for additional information regarding PHP.

PHP policies and payment have been addressed under OPPS since CY 2000. In CY 2008, we began efforts to strengthen the PHP benefit through extensive data analysis, along with policy and payment changes, by implementing two refinements to the methodology for computing the PHP median. For a detailed discussion on these policies, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66670 through 66676). In CY 2009, we implemented several regulatory, policy, and payment changes. For a detailed discussion on these policies, we refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68688 through 68697). In CY 2010, we retained the two-tier payment approach for partial hospitalization services and used only hospital-based PHP data in computing the PHP APC per diem costs, upon which PHP APC per diem payment rates are based (74 FR 60556 through 60559). In CY 2011 (75 FR 71994), we established four separate PHP APC per diem payment rates: two for CMHCs (APC 0172 and APC 0173) and two for hospital-based PHPs (APC 0175 and APC 0176). We also instituted a 2-year transition period for CMHCs to the CMHC APC per diem payment rates. For a detailed discussion, we refer readers to section X.B. of the CY 2011 OPPS/ASC final rule with comment period (75 FR 71991 through 71994). In CY 2012, we determined the relative payment weights for partial hospitalization services provided by CMHCs based on data derived solely from CMHCs and the relative payment weights for partial hospitalization services provided by

hospital-based PHPs based exclusively on hospital data (76 FR 74348 through 74352). In the CY 2013 OPPS/ASC final rule with comment period, we finalized our proposal to base the relative payment weights that underpin the OPPS APCs, including the four PHP APCs (APCs 0172, 0173, 0175, and 0176), on geometric mean costs rather than on the median costs. For a detailed discussion on this policy, we refer readers to the CY 2013 OPPS/ASC final rule with comment period (77 FR 68406 through 68412).

In the CY 2014 OPPS/ASC proposed rule (78 FR 43621 and 43622) and CY 2015 OPPS/ASC final rule with comment period (79 FR 66902 through 66908), we continued to apply our established policies to calculate the four PHP APC per diem payment rates based on geometric mean per diem costs using the most recent claims data for each provider type. For a detailed discussion on this policy, we refer readers to the CY 2014 OPPS/ASC final rule with comment period (78 FR 75047 through 75050). In the CY 2016 OPPS/ASC final rule with comment period (80 FR 70453 through 70467), we described our extensive analysis of the claims and cost data and ratesetting methodology, corrected a cost inversion that occurred in the final rule with comment period data with respect to hospital-based PHP providers, and renumbered the PHP APCs. In the CY 2017 OPPS/ASC final rule with comment period (81 FR 79687 through 79691), we continued to apply our established policies to calculate the PHP APC per diem payment rates based on geometric mean per diem costs and finalized a policy to combine the Level 1 and Level 2 PHP APCs for CMHCs and for hospital-based PHPs. We also implemented an eight-percent outlier cap for CMHCs to mitigate potential outlier billing vulnerabilities. For a comprehensive description of PHP payment policy, including a detailed methodology for determining PHP per diem amounts, we refer readers to the CY 2016 and CY 2017 OPPS/ASC final rules with comment period (80 FR 70453 through 70455 and 81 FR 79678 through 79680, respectively).

In the CYs 2018 and 2019 OPPS/ASC final rules with comment period (82 FR 59373 through 59381 and 83 FR 58983 through 58998, respectively), we continued to apply our established policies to calculate the PHP APC per diem payment rates based on geometric mean per diem costs, designated a portion of the estimated 1.0 percent hospital outpatient outlier threshold specifically for CMHCs, and proposed updates to the PHP allowable HCPCS codes. We finalized these proposals in the CY 2020 OPPS/ASC final rule with comment period (84 FR 61352).

In the CY 2020 OPPS/ASC final rule with comment period (84 FR 61339 through 61350), we finalized a proposal to use the calculated CY 2020 CMHC geometric mean per diem cost and the calculated CY 2020 hospital- based PHP geometric mean per diem cost, but with a cost floor equal to the CY 2019 final geometric mean per diem costs as the basis for developing the CY 2020 PHP APC per diem rates. Also, we continued to designate a portion of the estimated 1.0 percent hospital outpatient outlier threshold specifically for CMHCs, consistent with the percentage of projected payments to CMHCs under the OPPS, excluding outlier payments.

In the April 30, 2020 interim final rule with comment (85 FR 27562 through 27566), effective as of March 1, 2020 and for the duration of the COVID-19 Public Health Emergency (PHE), hospital and CMHC staff were permitted to furnish certain outpatient therapy, counseling, and educational services (including certain PHP services), incident to a physician's services, to beneficiaries in temporary expansion locations, including the beneficiary's home, as long as the location met all conditions of participation to the extent not waived. A hospital or CMHC could furnish such services using telecommunications technology to a beneficiary in a temporary expansion location if that beneficiary was registered as an outpatient. In the CY 2023 OPPS/ASC final rule with comment period (87 FR 72247), we confirmed that these provisions applied only for the duration of the COVID-19 PHE. On May 11, 2023, the COVID-19 PHE ended, and accordingly, these flexibilities ended as well.

In the CY 2021 OPPS/ASC final rule with comment period (85 FR 86073 through 86080), we continued our current methodology to utilize cost floors, as needed. In the CY 2022 OPPS/ASC final rule with comment period (86 FR 63665 and 63666), as a result of the COVID-19 PHE, we finalized our proposal to calculate the PHP per diem costs using the year of claims consistent with the calculations that would be used for other OPPS services, by using the CY 2019 claims and the cost reports that were used for CY 2021 final rulemaking to calculate the CY 2022 PHP per diem costs. In addition, for CY 2022 and subsequent years, we finalized our proposal to use cost and charge data from the Hospital Cost Report Information System (HCRIS) as the source for the CMHC cost- to-charge ratios (CCRs), instead of using the Outpatient Provider Specific File (OPSF) (86 FR 63666).

In the CY 2023 OPPS/ASC final rule with comment period (87 FR 71995), we finalized our proposal to use the latest available CY 2021 claims but use the cost information from prior to the COVID-19 PHE for calculating the CY 2023 CMHC and hospital-based PHP APC per diem costs. The application of the OPPS standard methodology, including the effect of budget neutralizing all other OPPS policy changes unique to CY 2023, resulted in the final calculated CMHC PHP APC payment rate being unexpectedly lower than the CY 2022 final CMHC PHP APC rate. Therefore, we finalized utilizing the equitable adjustment authority of section 1833(t)(2)(E) of the Act to appropriately pay for CMHC PHP services at the same payment rate as for CY 2022, that is, $142.70. In addition, we clarified the payment under the OPPS for new HCPCS codes that designate non-PHP services provided for the purposes of diagnosis, evaluation, or treatment of a mental health disorder and are furnished to beneficiaries in their homes by clinical staff of the hospital that would not be recognized as PHP services; however, none of the PHP regulations would preclude a patient that is under a PHP plan of care from receiving other reasonable and medically necessary non-PHP services from a hospital (87 FR 72001 and 72002).

In the CY 2024 OPPS/ASC final rule with comment period (88 FR 81811), we revised the regulation at Sec. 424.24(e)(1)(i) to require the physician certification for PHP services to include a certification that the patient requires such services for a minimum of 20 hours per week, as required by section 1861(ff)(1) of the Act, as amended by section 4124(a) of Division FF of the CAA, 2023. In addition, we modified the regulations for PHP at Sec. 410.43 to include references to SUD. In the same CY 2024 OPPS/ASC final rule with comment period, we also established separate payment rates for PHP days with 3 services and days with 4 or more services. Accordingly, we established four separate PHP APC per diem payment rates: one for CMHCs for 3-service days and another for CMHCs for 4-service days (APC 5853 and APC 5854, respectively), and one for hospital-based PHPs for 3-service days and another for hospital-based PHPs for 4-service days (APC 5863 and APC 5864, respectively). We also finalized a policy to utilize the separate CMHC rates for 3-service and 4-service PHP days as the Medicare Physician Fee Schedule (MPFS) rates, depending upon whether a nonexcepted off-campus

hospital outpatient department furnishes 3 or 4 PHP services in a day. Lastly, we finalized several changes beginning in CY 2024 to align coding, billing, and payment between PHPs and intensive outpatient programs.

In the CY 2025 OPPS/ASC final rule with comment period (89 FR 94266 through 94268), we maintained the coding and billing policies for PHP as established in the CY 2024 OPPS/ASC final rule with comment period. 2. Intensive Outpatient Program Services

Section 4124(b) of the CAA, 2023, amended section 1861(ff) of the Act, establishing Medicare coverage for intensive outpatient services effective for items and services furnished on or after January 1, 2024. An intensive outpatient program (IOP) is a distinct and organized program of psychiatric services for individuals who have an acute mental illness, which includes, but is not limited to, conditions such as depression, schizophrenia, and SUD. Intensive outpatient services are not required to be provided in lieu of inpatient hospitalization. Section 1861(ff)(4) of the Act defines intensive outpatient services as the items and services described in paragraph (2) of section 1861(ff) prescribed by a physician for an individual determined (not less frequently than every other month) by a physician to have a need for such services for a minimum of 9 hours per week and provided under a program described in paragraph (3) under the supervision of a physician pursuant to an individualized, written plan of treatment established and periodically reviewed by a physician (in consultation with appropriate staff participating in such program), which plan sets forth the physician's diagnosis, the type, amount, frequency, and duration of the items and services provided under the plan, and the goals for treatment under the plan. Section 1861(ff)(2) of the Act describes the items and services included in intensive outpatient services. Section 1861(ff)(4)(C) of the Act specifies that an IOP is a program furnished by a hospital to its outpatients, by a CMHC, by a Federally qualified health center (FQHC), or by a rural health clinic (RHC) as a distinct and organized intensive ambulatory treatment service, offering less than 24-hour-daily care, in a location other than an individual's home or inpatient or residential setting. Section 1861(ff)(3)(B) of the Act defines a CMHC for purposes of this benefit. We refer readers to sections 1833(t)(1)(B)(i), 1833(t)(2)(B), 1833(t)(2)(C), and 1833(t)(9)(A) of the Act and 42 CFR 419.21, for additional information regarding IOP.

In the CY 2024 OPPS/ASC final rule with comment period (88 FR 81812 through 81857), we established payment and program requirements for the IOP benefit furnished by a hospital to its outpatients, or by a CMHC, an FQHC, or an RHC. In addition, we established Medicare Part B coverage for IOP services provided by Opioid Treatment Programs (OTPs) for the treatment of opioid use disorder (OUD).

Consistent with the statutory definition of intensive outpatient services under section 1861(ff)(4) of the Act, we finalized regulations at 42 CFR 410.44 to set forth the conditions and exclusions applicable for intensive outpatient services, and at Sec. 424.24 to set forth the content of the certification and plan of treatment requirements for intensive outpatient services. We also revised certain existing regulations at Sec. Sec. 410.2, 410.3, 410.10, 410.27, 410.150, and 419.21 to add a regulatory definition of intensive outpatient services and to include intensive outpatient services in the regulations for medical and other health services paid for under Medicare Part B, and in the case of Sec. 419.21, under the OPPS. Additionally, we created regulations at Sec. 410.111 to establish the requirements for coverage of IOP services furnished in CMHCs, and at Sec. 410.173 to establish conditions of payment for IOP services furnished in CMHCs. Lastly, we revised Sec. 410.155 to exclude IOP services from the outpatient mental health treatment limitation, consistent with the statutory requirement of section 1833(c)(2) of the Act, as amended by section 4124(b)(3) of the CAA, 2023.

In addition, as discussed in greater detail in the following sections, we established coding, billing, and payment policies for IOP that align with the policies established for PHP provided in the same settings. Specifically, we established four separate IOP APC per diem payment rates at the same rates we proposed for the PHP APCs: one for CMHCs for 3-service days and another for CMHCs for 4-service days (APC 5851 and APC 5852, respectively), and one for hospital-based IOPs for 3-service days and another for hospital-based IOPs for 4-service days (APC 5861 and APC 5862, respectively). Similar to the policy finalized for PHP, we finalized a policy to utilize the CMHC rates for 3-service and 4-service IOP days as the MPFS rates, depending upon whether a nonexcepted hospital outpatient department furnishes 3 or 4 IOP services in a day.

For IOP services provided by an RHC or FQHC, we established a 3- service per day payment rate based on the same rate as APC 5861, which is the 3-service hospital-based IOP rate (Sec. 405.2462(j)). In the CY 2025 PFS final rule, we established a 4 or more services per day payment rate for an IOP provided by an RHC or FQHC based on the same rate as APC 5862, which is the 4 or more services hospital-based IOP rate (89 FR 98017 and 98018). Information regarding payment policies for IOP services furnished by FQHCs and RHCs, including information regarding proposed CY 2026 policies for those settings, can be found in the MPFS proposed rule, which is published elsewhere in the Federal Register.

Furthermore, in the CY 2024 OPPS/ASC final rule with comment period, we established a payment adjustment for IOPs provided by an OTP based on three times the payment rate for APC 5861 beginning in CY 2024 (Sec. 410.67(d)(4)(i)(F)). We finalized regulations at Sec. 410.67(d)(4)(ii) to add that the payment amount for OTP intensive outpatient services will be geographically adjusted using the Geographic Adjustment Factor (GAF) described in Sec. 414.26. Lastly, we amended Sec. 410.67(d)(4)(iii) to add that payment for OTP intensive outpatient services is updated annually using the Medicare Economic Index described in Sec. 405.504(d). Payment rates for IOP provided in the OTP setting are updated as part of the OTP fee schedule and are not addressed in this CY 2026 OPPS/ASC proposed rule.

Lastly, in the CY 2025 OPPS/ASC final rule with comment period (89 FR 94266 through 94268), we maintained the coding and billing policies for IOP as established in the CY 2024 OPPS/ASC final rule with comment period.

In the CY 2024 OPPS/ASC final rule with comment period, we finalized a billing requirement that all providers use condition code 41 to indicate that a claim is for partial hospitalization services and use condition code 92 to identify intensive outpatient claims, effective January 1, 2024. Since the statutory definitions of both IOP and PHP generally include the same types of items and services covered, we stated in the CY 2024 OPPS/ASC final rule with comment period that we believe it is appropriate to align the programs using a consistent list of services, so that level of intensity would be the only differentiating factor between partial hospitalization services and intensive outpatient services. The use of condition codes 41 for PHP claims and 92 for IOP claims allows us to

differentiate between these services for billing purposes.

We recognize that the level of intensity of mental health services that a patient requires may vary over time; therefore, we believe utilizing a consolidated list of HCPCS codes to identify services under both the IOP and PHP benefits supports a smooth transition for patients when a change in the intensity of their services is necessary to best meet their needs. For example, a patient receiving IOP services may experience an acute mental health need that necessitates more intense services through a PHP. Alternatively, an IOP patient that no longer requires the level of intensity provided by the IOP can access less intense mental health services, such as individual mental health services. The full list of HCPCs codes recognized under the PHP and IOP benefits can be found in the Medicare Claims Processing Internet Only Manual, Chapter 4, sections 260.1 and 261.1, respectively, and their subsections, available at https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c04.pdf.

To qualify for payment for the IOP APC (5851, 5852, 5861, or 5862) or the PHP APC (5853, 5854, 5863, or 5864), one service provided that day must be from the Partial Hospitalization and Intensive Outpatient Primary list. We refer readers to the CY 2024 OPPS final rule with comment period for further discussion regarding our expectation that at least one of the services on the PHP and IOP Primary list will be indicated per day for patients who need the level of care offered by a PHP or IOP program. The PHP and IOP Primary List can be found in the CY 2024 OPPS/ASC final rule with comment period at 88 FR 81821.

Beginning in CY 2024, we recognized caregiver training services and Principal Illness Navigation (PIN) services as PHP and IOP services. We explained that the reported costs associated with providing such services are included when we calculate the PHP and IOP payment rates; however, these services do not count toward the determination of whether a PHP or IOP day is paid at the 3-service or 4-service rate. We refer readers to the CY 2024 OPPS/ASC final rule with comment period for a detailed discussion of this policy (88 FR 81823 through 81825).

As finalized in the CY 2024 OPPS/ASC final rule with comment period (88 FR 81821 and 81822), if new codes are established that represent the PHP and IOP services described under Sec. Sec. 410.43(a)(4) and 410.44(a)(4), respectively, such codes are added to the list of codes recognized for payment for PHP or IOP through sub-regulatory guidance. We note that coding updates frequently occur outside of the standard rulemaking timeline. We adopted this sub-regulatory process to pay expeditiously when new codes are created that describe any of the services enumerated at Sec. Sec. 410.43(a)(4) and 410.44(a)(4), which PHPs and IOPs, respectively, would provide. We explained that this policy applies to new codes that are cross walked to a previously included code, or whose code descriptor is substantially similar to a descriptor for a code on the list or describes a service on the list. We stated that any additional services not described at Sec. 410.43(a)(4) or Sec. 410.44(a)(4) would be added to the lists in regulation through notice and comment rulemaking.

In the CY 2025 OPPS/ASC final rule with comment period (89 FR 94266 through 94268), we did not add any new services not described at Sec. 410.43(a)(4) or Sec. 410.44(a)(4) to the list of PHP and IOP services.

We did not propose to add any new services to the list of PHP and IOP services for CY 2026. The following is a summary of the comments we received regarding these policies and our responses.

Comment: One commenter expressed support for our coding policies for occupational therapy services furnished in PHPs and IOPs, noting that these policies reinforce the importance of occupational therapy services in PHPs and IOPs. This commenter also advocated for including measures specific to occupational therapy in quality reporting programs.

Response: We thank the commenter for their support of our coding policies for occupational therapy services furnished in PHPs and IOPs. We will take the commenter's suggestions into consideration to potentially inform future rulemaking about quality measures.

Comment: One commenter advocated for coverage for virtual PHPs and IOPs to increase access to services, particularly for patients in rural areas who may have to travel for several hours to access behavioral health or SUD services.

Response: As we have previously discussed in the CY 2023 OPPS/ASC final rule with comment period (87 FR 72000), section 1861(ff)(3)(A) of the Act, which defines partial hospitalization services, specifies that a PHP is a program furnished by a hospital to its outpatients or by a community mental health center (CMHC), as a distinct and organized intensive ambulatory treatment service, offering less than 24-hour- daily care, in a location other than an individual's home or inpatient or residential setting. Section 1861(ff)(4) of the Act defines IOP with reference to that is, IOP services must be furnished in a location other than an individual's home or inpatient or residential setting.

We proposed for CY 2026 to maintain the current payment rate methodology that we use for calculating PHP and IOP payment rates for hospital-based providers. For CMHCs, we proposed to revise our methodology for calculating PHP and IOP payment rates. Specifically, we proposed to apply the 40 percent MPFS Relativity Adjuster to calculate PHP and IOP payment rates for CMHCs. In the CY 2026 OPPS/ASC proposed rule (90 FR 33660), we explained that we would multiply the CY 2026 rates for the hospital-based PHP and IOP APCs by 0.4 to calculate the payment rates for the CMHC PHP and IOP APCs. 1. Background on the Current Payment Rate Methodology for PHP and IOP

Beginning in CY 2024, we established four separate PHP APC per diem payment rates: one for CMHCs for 3-service days and another for CMHCs for 4-service days (APC 5853 and APC 5854, respectively), and one for hospital-based PHPs for 3-service days and another for hospital-based PHPs for 4-service days (APC 5863 and APC 5864, respectively). In addition, for hospital-based PHPs, we finalized a policy to calculate payment rates using the broader OPPS data set, instead of using hospital-based PHP data only. We explained that using the broader OPPS data set allows CMS to capture data from claims not identified as PHP, but that also include the service codes and intensity required for a PHP day. Because we established consistent coding and payment between the PHP and IOP benefits, we considered all OPPS data for PHP days and non-PHP days that include 3 or more of the same service codes. We established four separate IOP APC per diem payment rates at the same rates we proposed for the PHP APCs: one for CMHCs for 3-service days and another for CMHCs for 4-service days (APC 5851 and APC 5852, respectively), and one for hospital-based IOPs for 3-service days and another for hospital-based IOPs for 4-service days (APC 5861 and APC 5862, respectively).

In the CY 2024 OPPS/ASC final rule with comment period (88 FR 81829 and 81830), we noted that the standard PHP

day is typically four services or more per day. We explained that we have historically provided payment for three services a day for extenuating circumstances when a beneficiary would be unable to complete a full day of PHP treatment. As we stated in the CY 2008 OPPS/ ASC final rule with comment period (72 FR 66672), it was never our intention that days with only three units of service should represent the number of services provided in a typical PHP day. Our intention was to cover days that consisted of three units of service only in certain limited circumstances. For example, as we noted in the CY 2009 OPPS/ASC proposed rule (73 FR 41513), we believe 3-service days may be appropriate when a patient is transitioning towards discharge (or days when a patient is at the beginning of his or her PHP stay). Another example of when it may be appropriate for a program to provide only three units of service in a day is when a patient is required to leave the PHP early for the day due to an unexpected medical appointment.

In the same CY 2024 OPPS/ASC final rule with comment period, we also explained that prior to CY 2024, we historically prepared the data by first applying PHP-specific trims and data exclusions and assessing CCRs. We direct the reader to the CY 2016 OPPS/ASC final rule with comment period (80 FR 70463 through 70465) for a more complete discussion of these trims, data exclusions, and CCR adjustments. In prior rules, we typically included a discussion of PHP-specific data trims, exclusions, and CCR adjustments; we did not include that discussion in the CY 2024 OPPS/ASC proposed rule or final rule with comment period. We stated that these PHP-specific data trims and exclusions addressed limitations as well as anomalies in the PHP data. However, as noted earlier, we finalized a methodology for CY 2024 to calculate hospital-based PHP payment rates for 3 services per day and 4 services per day based on cost per day using the broader OPPS data set. Accordingly, we did not apply PHP-specific trims and data exclusions, but rather we applied the same trims and data exclusions consistent with the OPPS.

We stated in the CY 2024 OPPS/ASC final rule with comment period (88 FR 81830) that while no IOP benefit existed prior to the CAA, 2023, the types of items and services included in IOP had been, and were, paid for by Medicare either as part of the PHP benefit or under the OPPS more generally. Additionally, we stated that prior to the CAA, 2023, CMS had begun gathering information from interested parties on IOP under Medicare. In the CY 2023 OPPS/ASC proposed rule (87 FR 44679), we issued a comment solicitation on intensive outpatient mental health treatment, including SUD treatment furnished by IOPs, to collect information regarding whether there are any gaps in coding that may be limiting access to needed levels of care for treatment of mental health disorders or SUDs for Medicare beneficiaries, and specific information about IOP services, such as the settings of care in which these programs typically furnish services, the range of services typically offered, and the range of practitioner types that typically furnish these services.

In addition, in the same CY 2024 OPPS/ASC final rule with comment period, we explained that along with the requirements for IOP mandated by the CAA, 2023, we took into consideration the information we received from the comment solicitation to construct an appropriate data set to develop proposed rates for IOP. Since IOPs furnish the same types of services as PHP, just at a lower intensity, we stated that we believe it was appropriate to use the same data and methodology for calculating payment rates for both PHP and IOP for CY 2024. We explained that although PHP claims can be specifically identified, there was no specific identifier or billing code to indicate IOP services that may have been provided before CY 2024. However, we noted that hospitals have been permitted to furnish and bill for many of these services as outpatient services under the OPPS. Thus, we analyzed a broader set of data that included both PHP and non-PHP days with 3 or more services in order to calculate proposed payment for PHP services. To establish consistent payment between PHP and IOP, we set IOP payment rates at the same rates as PHP. We stated that the primary goal in developing the payment rate methodology for IOP and PHP services was to pay providers an appropriate amount relative to the patients' needs, and to avoid cost inversion in future years. We stated that setting the IOP payment rates equal to the PHP payment rates was appropriate because IOP was a newly established benefit, and we did not have definitive data on utilization. However, we explained that both programs utilize the same services, but furnish them at different levels of intensity, with different numbers of services furnished per day and per week, depending on the program. Therefore, we stated that we expect it would be appropriate to pay the same per diem rates for IOP and PHP services unless future data analysis supports calculating rates independently.

In the CY 2024 OPPS/ASC final rule with comment period (88 FR 81833) we established a policy of applying the 4-service day payment rate (that is, payment for PHP APCs 5854 for CMHCs and 5864 for hospitals, and IOP APCs 5852 for CMHCs and 5862 for hospitals) for days with 4 or more services. For days with three or fewer services, we apply the 3-service day payment rate (that is, payment for PHP APCs 5853 for CMHCs and 5863 for hospitals, and IOP APCs 5851 for CMHCs and 5861 for hospitals). As we noted in the CY 2024 OPPS/ASC final rule with comment period, we expect days with fewer than three services would be very infrequent, and we intend to monitor the provision of these days among providers and individual patients.

In the CY 2025 OPPS/ASC final rule with comment period (89 FR 94269), for beneficiaries in a PHP or IOP, we maintained the payment rate methodology finalized in the CY 2024 OPPS/ASC final rule with comment period. 2. Analysis of PHP and IOP Costs Under the Current Methodology

In the CY 2026 OPPS/ASC proposed rule (90 FR 33661), we explained that when following the current cost structure, the calculated CY 2026 geometric mean per diem cost for hospital-based PHP and IOP providers that provide 3 services per day would be $340.90, which we proposed to use for calculating the payment rate for the 3-service day hospital- based PHP APC 5863 and the 3-service day hospital-based IOP APC 5861, as discussed in the following section. Likewise, the calculated CY 2026 geometric mean per diem cost for hospital-based PHP and IOP providers that provide 4 services per day would be $424.60, which we proposed to use for calculating the payment rate for the 4-service day hospital- based PHP APC 5864 and the 4-service day hospital-based IOP APC 5862, as discussed in the following section.

In the CY 2026 OPPS/ASC proposed rule (90 FR 33661), we explained that the calculated CY 2026 geometric mean per diem cost for CMHC PHP and IOP providers would result in an inversion, with the CMHC 3-service geometric mean per diem costs equaling $191.83 and the CMHC 4-service geometric mean per diem costs equaling $110.39. We stated that we believe the inverted geometric mean per diem costs were influenced by the small number of CMHCs that bill Medicare for PHP and IOP services, as well as CMHCs with

low costs that first began billing Medicare for services in CY 2024. Table 117 summarizes the PHP and IOP geomean costs calculated using the current methodology as set forth in the CY 2026 OPPS/ASC proposed rule. [GRAPHIC] [TIFF OMITTED] TR25NO25.159

For CY 2026, we proposed to maintain our current methodology of calculating separate rates for hospitals and CMHCs. For the four hospital-based PHP and IOP APCs (that is, APCs 5861, 5862, 5863, and 5864), we proposed using the latest available cost information, from cost reports beginning three fiscal years prior to the year that is the subject of the rulemaking, and CY 2024 OPPS claims to update the payment rates. We explained that this proposal was consistent with the overall proposed use of cost data for the OPPS, which is discussed in section II.A.1.a. of the CY 2026 OPPS/ASC proposed rule (90 FR 33485 and 33486).

In accordance with the methodology finalized in the CY 2024 OPPS/ ASC final rule with comment period, we proposed to base the payment rate for each hospital-based PHP APC on the geometric mean per diem cost for days with three services and four or more services. We proposed to use the broader set of OPPS data to calculate the geometric mean costs for hospital outpatient departments, and we proposed to apply the same trims and exclusions consistent with the OPPS. We also proposed to set the payment rates for the hospital-based IOP APCs based on the geometric mean per diem cost for PHP days with three services and four or more services.

For the four CMHC PHP and IOP APCs (that is, APCs 5851, 5852, 5853, and 5854), we proposed to calculate the CY 2026 geometric mean per diem costs based on 40 percent of the corresponding hospital-based PHP and IOP APCs (APCs 5861, 5862, 5863, and 5864, respectively). We proposed this change in methodology for calculating the four CMHC PHP and IOP APCs because using the current methodology would result in inverted costs for CMHCs (that is, the cost for 3-service days would be greater than the cost for 4-service days), as discussed in the preceding section. As we discuss further in the following section of this final rule with comment period, we believe this methodology would be generally appropriate for estimating CMHC costs and would align with the methodology that is used for other nonexcepted OPPS services furnished by a nonexcepted off-campus hospital outpatient department.

Lastly, we proposed that if more recent hospital cost data subsequently became available after the publication of the CY 2026 OPPS/ASC proposed rule (90 FR 33476, July 17, 2025), we would consider using such updated data to determine the CY 2026 payment rates for the four PHP APCs and the four IOP APCs.

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

Comment: A few commenters generally supported our proposal to maintain the current methodology of calculating hospital-based and CMHC-based PHP and IOP payment rates for 3 services per day and 4 services per day. One commenter encouraged CMS to continue to pay for those days of service when patients receive only 3 services per day.

Response: We thank commenters for their support. We did not propose any changes to the structure of our payment rate methodology for CY 2026, and we are not finalizing any changes in this final rule with comment period. As we discussed in section VIII.C.1. of this final rule with comment period, we believe utilizing the three-service payment rate (that is, payment for PHP APCs 5853 for CMHCs and 5863 for hospitals, and IOP APCs 5851 for CMHCs and 5861 for hospitals) for days with three or fewer services would accommodate occasional instances when a patient is unable to complete a full day of PHP or IOP.

Comment: Multiple commenters stated that CMHC cost estimates do not reflect the actual costs of providing PHP and IOP and that the resources involved are comparable to those required for hospital-based programs. Commenters stated that CMS' policy of paying separate rates for hospitals and CMHCs creates arbitrary incentives for PHP and IOP services in settings other than CMHCs.

Response: We disagree with the commenters who believe CMS policy creates an incentive for PHP and IOP services in settings other than CMHCs. As discussed earlier in this section and in the CY 2026 OPPS/ASC proposed rule (90 FR 33662), our longstanding payment policies reflect the cost

differences between the CMHC and hospital settings, based on our observation of CMHCs incurring significantly different costs than hospitals in the provision of PHP services. We believe that the stark difference between hospital and CMHC costs for PHP and IOP services that we continue to observe in the data reflects the actual cost structure differences between facility types.

Final Decision: After consideration of public comments, we are finalizing the payment rate methodology for CY 2026 as proposed. 4. CY 2026 PHP and IOP APC Geometric Mean Per Diem Costs

In the CY 2024 OPPS/ASC final rule with comment period (88 FR 81831), we anticipated there would be significant differences between CMHCs' and hospitals' costs of furnishing IOP, based on our observation of CMHCs incurring significantly different costs than hospitals in the provision of PHP services. Our longstanding payment policies reflect those differences. In the CY 2026 OPPS/ASC proposed rule (90 FR 33662), we noted that for CY 2026, we continue to observe significant cost structure differences between hospitals and CMHCs in the provision of PHP and IOP services. That is, we continue to see lower PHP and IOP costs in the CMHC setting as compared to the hospital setting. However, as we noted earlier in this final rule with comment period, if we were to apply our current methodology for calculating the CY 2026 geometric mean per diem costs for CMHC PHP and IOP APCs, those costs would be inverted (that is, the cost for 3-service days would be greater than the cost for 4-service days).

We believe it is appropriate to continue to recognize the differences in cost structures for different providers of PHP and IOP. This is of particular importance not only to the Medicare program, but also for the Medicare beneficiaries that CMHCs serve, who are subject to a 20 percent coinsurance requirement on all PHP and IOP services under Part B. However, as we previously explained, one of our goals is to avoid cost inversion because we would expect that the geometric mean per diem costs when providing three services per day would be lower than the geometric mean per diem costs when providing four or more services per day. We note that our current estimates are significantly impacted by a small number of CMHCs with low estimated costs who first began billing Medicare for services in CY 2024.\128\ In the CY 2026 OPPS/ASC proposed rule (90 FR 33662), we explained that we were concerned that these cost estimates may not best reflect the costs of providing PHP and IOP in CY 2026. As such, we stated that we believe that using CMHC data to establish the CMHC payment rates is not appropriate for CY 2026, given the cost inversion. For CY 2026, we considered alternative methodological approaches to estimate the costs for PHP and IOP services furnished by CMHCs.

\128\ As we discussed in the CY 2023 OPPS/ASC final rule with comment period, our longstanding ratesetting methodology defaults any CMHC CCR that is not available or any CMHC CCR greater than one to the Statewide hospital CCR associated with the provider's urban/ rural designation and their State location.

Section 1833(t)(9)(A) of the Act requires the Secretary to annually review and revise the relative payment weights by considering new cost data, and other relevant information and factors. We note that in creating the original APC for PHP services (APC 0033), the initial relative payment weight for PHP services provided in hospital-based and CMHC-based settings was based on hospital data only. Subsequently, we have, in prior rulemaking, exercised our authority under section 1833(t)(9)(A) of the Act to change the data source for the relative payment weights for hospital-based and CMHC-based PHP services as new cost data became available. We refer readers to the CY 2012 OPPS/ASC final rule with comment period (76 FR 74350 and 74351) for more details on the history of changes in the data sources for relative payment weights for PHP services.

For CY 2026, we considered alternative methodological approaches for calculating the CMHC costs that could avoid cost inversions and provide greater stability for CMHC payment rates. We believe the stability of CMHC payment rates and the avoidance of cost inversions are important for CMHCs to more easily anticipate future payments associated with the PHP and IOP benefits. For CY 2026, we considered whether the 40 percent MPFS Relativity Adjuster would appropriately estimate CMHC PHP and IOP costs.

First, we considered the similarities between CMHCs and nonexcepted off-campus hospital outpatient departments. CMHCs are freestanding entities that are not part of a hospital, but they provide the same PHP and IOP services as hospital-based PHP and IOPs. As we noted in the CY 2017 OPPS/ASC final rule with comment period (81 FR 79717), this is similar to the differences between freestanding entities paid under the MPFS that furnish other services also provided by hospital-based entities. Similarly, to other entities currently paid for their technical component services under the MPFS, we believe CMHCs would typically have lower cost structures than hospital-based PHP and IOPs, largely due to lower overhead costs and other indirect costs such as administration, personnel, and security.

The 40 percent MPFS Relativity Adjuster was established in the CY 2018 PFS final rule (82 FR 53030) and applies to payments for nonexcepted items and services furnished in nonexcepted off-campus provider-based departments, including a hospital outpatient department. In that same final rule, we discussed our rationale for finalizing the MPFS Relativity Adjuster at 40 percent (82 FR 53026 through 53030). We explained that we believe a 40 percent adjuster would reflect a middle ground between the CY 2017 PFS Relativity Adjuster of 50 percent (selected to ensure adequate payment to hospitals) and the proposed CY 2018 PFS Relativity Adjuster of 25 percent (selected to ensure that hospitals are not paid more than others would be paid through the PFS non-facility rate).

Application of the 40 percent MPFS Relativity Adjuster to determine the CMHC geometric mean per diem costs bases the relative payment weights for PHP and IOP services furnished by CMHCs on hospital cost data, which we note has been more stable than CMHC cost data in recent years. In the CY 2026 OPPS/ASC proposed rule (90 FR 33662), we explained that the stability of the hospital cost data is primarily driven by the larger number of providers and the fact that hospital- based providers more consistently bill for PHP and IOP services from one year to the next. We stated that we believe this methodology would appropriately stabilize CMHC payment rates by setting them relative to hospital-based rates, while avoiding cost inversions in future years. We also stated that we believe applying the 40 percent MPFS Relativity Adjuster to calculate payment rates for the CMHC PHP and IOP APCs would support our longstanding goal to pay providers an appropriate amount relative to the patients' needs.

Application of the 40 percent MPFS Relativity Adjuster to the hospital-based PHP and IOP geometric mean per diem costs resulted in proposed CY 2026 CMHC costs of $136.36 for a 3-service day and $169.84 for a 4-service day. These proposed CY 2026 CMHC costs are generally in line with the CY 2025 CMHC costs, which were $112.59 for a 3-service day and $170.37 for a 4-service

day. Additionally, we observed on average, the CY 2024 and CY 2025 geometric mean costs for the CMHC PHP and IOP APCs were 40 percent of the CY 2024 and CY 2025 geometric mean costs for the hospital-based PHP and IOP APCs. Therefore, we stated in the CY 2026 OPPS/ASC proposed rule (90 FR 33663), that applying the 40 percent Relativity Adjuster to hospital-based PHP and IOP costs would better approximate CMHC cost structures than the latest available CMHC cost data would. As we previously noted, the latest available CMHC cost data is influenced by the small number of CMHCs that bill Medicare for PHP and IOP services, as well as by CMHCs with low costs that first began billing Medicare for services in CY 2024.

Therefore, for the reasons discussed in the prior paragraphs, we proposed to apply the 40 percent MPFS Relativity Adjuster to the hospital-based PHP and IOP costs for the purposes of calculating the proposed geometric mean per diem costs for the CMHC PHP and IOP APCs for CY 2026 and subsequent years.

Given the requirements of section 1833(t)(9)(A) of the Act, we stated that we believe it would be appropriate to revise our methodology for setting the relative payment weights for the OPPS rates for PHP and IOP services furnished by CMHCs based on new cost data and other relevant information and factors. Specifically, we proposed to base this calculation on hospital cost data and the observed relationship between PHP and IOP costs in the hospital and CMHC settings, which as we noted earlier has been approximately 40 percent in recent years.

We noted in the CY 2026 OPPS/ASC proposed rule that we intend to monitor the provision of services in both PHP and IOP programs to better understand utilization patterns and would reevaluate our payment rate methodology if necessary. We also explained that if more recent data became available for the CY 2026 OPPS/ASC final rule that mitigated the cost inversion for CMHC geometric mean per diem costs, we may consider using such data as a basis for finalizing a payment rate methodology based on CMHC costs, rather than based on hospital costs adjusted by the 40 percent MPFS Relativity Adjuster.

We solicited comments on our current and proposed payment rate methodologies for PHP and IOP services furnished by CMHCs. We also solicited comments on potential methodological changes or changes to data that could avoid or mitigate future cost inversions and instability for CMHC payment rates. We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: A few commenters generally supported the proposed calculated geometric mean per diem costs for hospital-based PHP and IOP APCs.

Response: We thank commenters for their support.

Comment: Multiple commenters urged CMS to implement a site-neutral payment for CMHCs and hospital-based providers for PHP and IOP services. Some commenters stated that CMHCs are entitled under sections 1832(a)(2)(J) and 1833(a)(2)(B)(iii) of the Act to receive payment for PHP/IOP under the same methodology as hospital outpatient departments. A few commenters cited 1833(t)(2)(B) and stated that CMS has the discretion to create APC codes for different classes of services, but not to create distinct APC codes based on where a service is provided. Some commenters further stated that because of the small number of CMHCs billing for PHP and IOP services, paying CMHCs at the same higher rate as hospitals for these services would have a negligible impact on the Medicare program.

Response: It has been our longstanding policy since CY 2011 to pay separate PHP APC per diem payment rates for CMHCs and hospital-based PHPs. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71992), we stated that section 1833(t)(9)(A) of the Act requires the Secretary to “review not less often than annually and revise the groups, the relative payment weights, and the wage and other adjustments described in paragraph (2) to take into account changes in medical practice, changes in technology, the addition of new services, new cost data, and other relevant information and factors.” We stated that we believe we have authority to revise the groups and relative payment weights and to make other adjustments to the payment rates for PHP services, including basing rates on hospital-based PHP data only, combined hospital-based PHP and CMHC data, or CMHC data only, to take into account relevant information and factors that would allow us to more appropriately pay providers for the resource costs associated with providing PHP services. Accordingly, we finalized separate PHP APC per diem payment rates for hospital OPDs and CMHCs, and we have maintained that structure for payment since CY 2011. Beginning in CY 2024, we applied this payment structure to IOP because we expected (and subsequently have observed) differences in resource use between CMHCs and hospital OPDs for the provision of both PHP and IOP services.

In response to the commenters who cited to section 1833(t)(2)(B) of the Act, we believe we have authority to create APC codes as shown by our longstanding methodology for PHP and IOP. CMS data shows that PHP and IOP services furnished at hospital OPDs differ with respect to the use of resources from PHP and IOP services furnished at CMHCs; therefore, payment rates that recognize these resource differences are consistent with the statutory requirements under section 1833(t) of the Act.

We also disagree that paying CMHCs at the same higher rate as hospitals for these services would have a negligible impact on the Medicare program. Despite the small number of CMHCs billing Medicare, the volume of PHP and IOP services that they provide is significant. Our data from CY 2024 OPPS claims shows that CMHCs furnished approximately 38 percent of all PHP and IOP days that were paid under the OPPS. If we were to increase payment for these PHP and IOP days by 150 percent, as commenters have suggested, it would cause a significant increase in the total amount of PHP and IOP payments, both from the Medicare program and from Medicare beneficiaries in the form of coinsurance payments.

Comment: Some commenters stated that, given inflation and increased labor costs, the proposed rate is too low for CMHCs to effectively and appropriately staff and deliver PHPs and IOPs. The commenters stated that applying the 40 percent relativity adjuster could reduce CMHC payment rates compared to the hospital-based PHP and IOP payment rates.

Response: We appreciate the commenters' concerns; however, we disagree that the proposed rates are inadequate. We note that the OPPS payment rates are adjusted annually for inflation. In the CY 2026 OPPS/ ASC proposed rule, we explained that the proposed CY 2026 CMHC costs were generally in line with the CY 2025 CMHC costs and noted that the proposed geometric mean per diem cost for CMHC IOP days with 4 or more services was $169.84, calculated by applying the 40 percent MPFS Relativity Adjuster (90 FR 33663). We performed further analysis of CMHC PHP and IOP claims which showed that CMHCs furnish PHP and IOP days with 4 or more services more frequently than days with 3 or fewer services. According to our analysis, the proposed CMHC geometric mean per diem cost for days

with 4 or more services would reimburse CMHCs at or above cost for approximately 75 percent of days with 4 or more services. Therefore, we believe applying the 40 percent MPFS Relativity Adjuster to the hospital-based PHP and IOP costs for the purposes of calculating the proposed geometric mean per diem costs for the CMHC PHP and IOP APCs results in adequate payment rates for CMHCs. We remind readers that due to the OPPS budget neutrality adjustments and the application of the final market basket update for CY 2026, the final APC payment rates may be higher or lower than their estimated APC geometric mean costs.

Comment: Some commenters stated that they do not believe the 40 percent MPFS Relativity Adjuster is relevant for calculating the geometric mean per diem costs for the CMHC PHP and IOP APCs rates.

Response: We disagree with commenters that the 40 percent MPFS Relativity Adjuster is not relevant for calculating the geometric mean per diem costs for the CMHC PHP and IOP APC rates. In the CY 2026 OPPS/ ASC proposed rule (90 FR 33662), we noted the similarities between CMHCs and nonexcepted off-campus hospital outpatient departments. Additionally, we observed on average, the CY 2024 and CY 2025 geometric mean costs for the CMHC PHP and IOP APCs were 40 percent of the CY 2024 and CY 2025 geometric mean costs for the hospital-based PHP and IOP APCs. Therefore, we believe that applying the 40 percent Relativity Adjuster to hospital-based PHP and IOP costs better approximates CMHC cost structures than the latest available CMHC cost data does. We continue to believe this methodology appropriately stabilizes CMHC payment rates by setting them relative to hospital-based rates, while avoiding cost inversions in future years.

We note that the OPPS is subject to budget neutral adjustments to the weight scaler as described in section II.A.5. of this final rule with comment period, and APC payment rates are calculated using the OPPS conversion factor described in section II.B. of this final rule with comment period. As a result of the OPPS budget neutrality adjustments, the proposed and final APC payment rates may be higher or lower than their estimated APC geometric mean costs.

The final payment rates for the PHP and IOP APCs can be found in Addendum A of this CY 2026 OPPS/ASC final rule with comment period.

Comment: Commenters expressed concern that reduced CMHC payments could impact access to PHP and IOP services to patients in underserved communities. In addition, one commenter urged CMS to monitor utilization and outcomes stratified by geography and population characteristics such as age, disability status, and language proficiency to ensure that CMS payment policies translate into improved access to PHP and IOP services for all Medicare beneficiaries.

Response: We appreciate the concerns that commenters raised about Medicare beneficiaries' access to behavioral and mental health services. However, we do not believe that this policy reduces access to behavioral health services, because similarly other entities currently paid for their technical component services under the MPFS, we believe CMHCs typically have lower cost structures than hospital-based PHPs and IOPs, largely due to lower overhead costs and other indirect costs such as administration, personnel, and security. As we noted earlier, we believe the proposed payment rates for CMHCs provide adequate payment that reflects the level of cost in that setting. We intend to continue monitoring access to PHP and IOP services and may consider changes in future rulemaking, as appropriate.

Comment: Multiple commenters voiced concerns that administrative barriers (specifically, conditions of participation), contribute to the low number of CMHCs participating in the PHP and IOP benefits. The commenters suggested CMS change its interpretation, and clarify where needed, to state that the conditions of participation apply only to services that are billed by the CMHC.

Response: We thank commenters for their feedback. However, these comments are outside the scope of this rulemaking.

Final Decision: After consideration of the public comments we received, we are finalizing the payment rate methodology for CY 2026 as proposed. We will monitor the effects of this policy and will consider proposing modifications in future rulemaking if appropriate. Table 118 shows the final calculated geometric mean per diem costs for hospital- based PHP and IOP APCs, and the final geometric mean per diem costs for CMHC PHP and IOP APCs based on the application of the 40 percent MPFS Relativity Adjuster for this CY 2026 OPPS/ASC final rule with comment period. Additional information about the data trims, data exclusions, and CCR adjustments applicable to the data used for this final rule can be found online at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/index.html.\129\

\129\ Click on the link labeled “CY 2026 OPPS/ASC Notice of Final Rulemaking”, which can be found under the heading “Hospital Outpatient Prospective Payment System Rulemaking” and open the claims accounting document link at the bottom of the page, which is labeled “2026 NFRM OPPS Claims Accounting (PDF)”.

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For CY 2026, we proposed to maintain the calculations of the CMHC outlier percentage, cutoff point and percentage payment amount, outlier reconciliation, outlier payment cap, and fixed dollar threshold according to previously established policies to include PHP and IOP services. We refer readers to the CY 2024 OPPS/ASC final rule with comment period (88 FR 81834 through 81836) for more details on CMHC outlier policies, and to section II.G. of this final rule with comment period for our general policies for hospital outpatient outlier payments. 1. Background

As discussed in the CY 2004 OPPS final rule with comment period (68 FR 63469 and 63470), we created a separate outlier policy specific to the estimated costs and OPPS payments provided to CMHCs. We designated a portion of the estimated OPPS outlier threshold specifically for CMHCs, consistent with the percentage of projected payments to CMHCs under the OPPS each year, excluding outlier payments, and established a separate outlier threshold for CMHCs. 2. CMHC Outlier Percentage

In the CY 2018 OPPS/ASC final rule with comment period (82 FR 59267 and 59268), we described the current outlier policy for hospital outpatient payments and CMHCs. We note that we also discussed our outlier policy for CMHCs in more detail in section VIII.C. of that same final rule (82 FR 59381). We set our projected target for all OPPS aggregate outlier payments at 1.0 percent of the estimated aggregate total payments under the OPPS (82 FR 59267). This same policy was also reiterated in the CY 2019 OPPS/ASC final rule with comment period (83 FR 58996), the CY 2020 OPPS/ASC final rule with comment period (84 FR 61350), and the CY 2021 OPPS/ASC final rule with comment period (85 FR 86082). We did not propose any changes to the CMHC outlier percentage policy for CY 2026 and did not receive any public comments on this provision. 3. Cutoff Point and Percentage Payment Amount

Also described in the CY 2018 OPPS/ASC final rule with comment period (82 FR 59381), our policy has been to pay CMHCs for outliers if the estimated cost of the day exceeds a cutoff point. In CY 2006, we set the cutoff point for outlier payments at 3.4 times the highest CMHC PHP APC payment rate implemented for that calendar year (70 FR 68551). For CY 2018, the highest CMHC PHP APC payment rate was the payment rate for CMHC PHP APC 5853. In addition, in CY 2002, the final OPPS outlier payment percentage for costs above the multiplier threshold was set at 50 percent (66 FR 59889). In CY 2018, we continued to apply the same 50 percent outlier payment percentage that applies to hospitals to CMHCs and continued to use the existing cutoff point (82 FR 59381). Therefore, for CY 2018, we continued to pay for partial hospitalization services that exceeded 3.4 times the CMHC PHP APC payment rate at 50 percent of the amount of CMHC PHP APC geometric mean per diem costs over the cutoff point. This same policy was also reiterated in the CY 2019 OPPS/ASC final rule with comment period (83 FR 58996 and 58997), the CY 2020 OPPS/ASC final rule with comment period (84 FR 61351), the CY 2021 OPPS/ASC final rule with comment period (85 FR 86082 and 86083), the CY 2022 OPPS/ASC final rule with comment period (86 FR 63670), the CY 2023 OPPS/ASC final rule with comment period (87 FR 72004), and the CY 2024 OPPS/ASC final rule with comment period (88 FR 81835). In the CY 2024 OPPS/ASC final rule with comment period, we extended this policy to intensive outpatient services. We did not propose any changes to the cutoff point and payment amount policy for CY 2026 and did not receive any public comments on this provision. 4. Outlier Reconciliation

In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68594 through 68599), we established an outlier reconciliation policy to address charging aberrations related to OPPS outlier payments. We addressed vulnerabilities in the OPPS outlier payment system that led to differences between billed charges and charges included in the overall CCR, which are used to estimate cost and apply to all hospitals and CMHCs paid under the OPPS. We initiated steps to ensure that outlier payments appropriately account for the financial risk when providing an extraordinarily costly and complex service but are only being made for services that legitimately qualify for the additional payment.

For a comprehensive description of outlier reconciliation, we refer readers to the CY 2023 OPPS/ASC and CY 2019 OPPS/ASC final rules with comment period (83 FR 58874 and 58875 and 81 FR 79678 through 79680, respectively). We did not propose any changes to the outlier reconciliation policy for CY 2026

and did not receive any public comments on this provision. 5. Outlier Payment Cap

In the CY 2017 OPPS/ASC final rule with comment period, we implemented a CMHC outlier payment cap to be applied at the provider level, such that in any given year, an individual CMHC will receive no more than a set percentage of its CMHC total per diem payments in outlier payments (81 FR 79692 through 79695). Our analysis of CY 2014 claims data found that CMHC outlier payments began to increase similarly to the way they had prior to CY 2004. This was due to inflated costs from three CMHCs that accounted for 98 percent of all CMHC outlier payments that year and received outlier payments that ranged from 104 percent to 713 percent of their total per diem payments. To balance our concern about disadvantaging CMHCs with our interest in protecting the benefit from excessive outlier payments and to mitigate potential inappropriate outlier billing vulnerabilities, we finalized the CMHC outlier payment cap at 8 percent of the CMHC's total per diem payments (81 FR 79694 and 79695) to limit the impact of inflated CMHC charges on outlier payments. This cap was established after detailed analysis of claims data, which showed that a cap set at 8 percent would effectively address excessive outlier payments while minimally impacting CMHCs with legitimate high-cost cases. The cap applies to each CMHC's total per diem payments, which include both the Medicare payment portion and the beneficiary cost-sharing amount. The 8 percent cap continues to be calculated and applied on a calendar year basis, with outlier payments monitored throughout the year to ensure compliance with the cap.

This outlier payment cap only affects CMHCs; it does not affect other provider types (that is, hospital-based PHPs) and is in addition to and separate from the current outlier policy and reconciliation policy in effect. We did not propose any changes to the outlier payment cap for CY 2026 and did not receive any public comments on this provision. 6. Fixed-Dollar Threshold

In the CY 2018 OPPS/ASC final rule with comment period (82 FR 59267 and 59268), for the hospital outpatient outlier payment policy, we set a fixed-dollar threshold in addition to an APC multiplier threshold. Fixed-dollar thresholds are typically used to drive outlier payments for very costly items or services, such as cardiac pacemaker insertions. Currently, for CY 2025, CMHC PHP APCs (5853 or 5854) and IOP APCs (5851 or 5852) are the only APCs for which CMHCs may receive payment under the OPPS, and these APCs are for providing a defined set of services that are relatively low cost when compared to other OPPS services. Because of the relatively low cost of CMHC services that are used to comprise the structure of CMHC PHP APCs (5853 or 5854) and IOP APCs (5851 or 5852), it is not necessary to also impose a fixed-dollar threshold on CMHCs. Therefore, in the CY 2018 OPPS/ASC final rule with comment period, we did not set a fixed-dollar threshold for CMHC outlier payments (82 FR 59381). This same policy was also reiterated in the CY 2020 OPPS/ASC final rule with comment period (84 FR 61351), the CY 2021 OPPS/ASC final rule with comment period (85 FR 86083), the CY 2022 OPPS/ASC final rule with comment period (86 FR 63508), the CY 2023 OPPS/ASC final rule with comment period (87 FR 72004), the CY 2024 OPPS/ASC final rule with comment period (88 FR 81836), and the CY 2025 OPPS/ASC final rule with comment period (89 FR 94271). We did not propose any changes to the fixed-dollar threshold policy for CY 2026 and did not receive any public comments on this provision.

The Inpatient Only (IPO) list was established in rulemaking as part of the initial implementation of the Outpatient Prospective Payment System (OPPS) in 2000, pursuant to the Secretary's authority under section 1833(t)(1)(B)(I) of the Act (65 FR 18455). The IPO list was created to identify services for which Medicare will make payment only when furnished in the inpatient hospital setting because of the invasive nature of the procedures, the underlying physical condition of the Medicare patient, or the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged (70 FR 68695). The creation of the IPO list was based on the premise (rooted in the practice of medicine at that time) that Medicare should not pay for procedures furnished as outpatient services which are performed on an inpatient basis virtually all of the time for the Medicare population because performing these procedures on an outpatient basis would not be safe or appropriate, and therefore not reasonable and necessary under Medicare rules (86 FR 63671; 63 FR 47571). Designation of a service as inpatient only does not preclude the service from being furnished in a hospital outpatient setting but means that Medicare will not make payment for the service if it is furnished to a Medicare beneficiary in the hospital outpatient setting (65 FR 18443). Conversely, the absence of a procedure from the list should not be interpreted as identifying that procedure as appropriately performed only in the hospital outpatient setting (70 FR 68696). Rather, from the beginning, we have emphasized our expectation that, in every case, the physician or surgeon and hospital will exercise their professional judgment and assess the risk of the procedure or service to the individual patient, taking into account the site of service and act in that patient's best interest (65 FR 18456). We have also previously stated that for procedures that are not included on the inpatient list, we rely on the practitioner's judgment to determine on a patient-by-patient basis whether or not a particular procedure would be most appropriately performed in the inpatient setting (70 FR 68698).

The IPO list policy has elicited both opposition and support in public comments since its establishment in CY 2000. In 2000, some commenters stated that they believed that CMS (then, the Health Care Financing Administration) was making decisions, such as the site of service for a particular medical procedure, which should be left to the discretion of surgeons and their patients (65 FR 18455). In 2011, certain comments suggested that regulations should not supersede the physician's level of knowledge and assessment of the patient's condition, and that the physician can appropriately determine whether a procedure can be performed in a hospital outpatient setting, and many commenters suggested that the inpatient only list be eliminated in its entirety (76 FR 74354). Again, in 2013, some commenters requested that the IPO list be eliminated in its entirety (78 FR 75055). From the beginning, several interested parties have also stated that the exclusion of services from payment under the OPPS is unnecessary and could have an adverse effect on advances in surgical care (65 FR 18442). Others have noted that the existence of the IPO list suggests that services that are not on the list or have been removed from the list should be/must be provided in the outpatient setting, regardless of the clinical judgment of the physician or the needs of the patient (85 FR 86084). Other commenters have defended the need for the list, stating that the IPO list serves as an important programmatic safeguard and maintains a

common standard in the Medicare program (85 FR 86086).

In the CY 2021 OPPS/ASC final rule with comment period, published in the Federal Register on December 29, 2020 (85 FR 86084 through 86088), we finalized a policy to eliminate the IPO list over the course of 3 years (85 FR 86093). We revised our regulation at 42 CFR 419.22(n) to state that, effective January 1, 2021, the Secretary shall eliminate the list of services and procedures designated as requiring inpatient care through a 3-year transition. As part of the first phase of this elimination of the IPO list, we removed 298 codes, including 266 musculoskeletal-related services, from the list beginning in CY 2021.

In the 2022 OPPS/ASC final rule with comment period, published on November 16, 2021, we halted the elimination of the IPO list and, after clinical review of the services removed from the IPO list in CY 2021 as part of the first phase of eliminating the IPO list, we returned most services removed from the IPO list in 2021 back to the IPO list beginning in CY 2022 (86 FR 63671 through 63736). We amended the regulation at Sec. 419.22(n) to remove the reference to the elimination of the list of services and procedures designated as requiring inpatient care through a 3-year transition. We also finalized our proposal to codify the five longstanding criteria for determining whether a service or procedure should be removed from the IPO list in the regulation at Sec. 419.23 (86 FR 63678). For CY 2023 through CY 2025, we maintained the IPO list and continued to evaluate services brought forth by interested parties for removal using the five longstanding criteria (87 FR 72004 through 72012; 88 FR 81858 through 81863; and 89 FR 94271 through 92475).

Currently, there are approximately 1,731 services on the IPO list. Under our longstanding policy and current regulations, we annually review the IPO list to identify any services that should be removed from, or added to, the list, based on the most recent data and medical evidence available. We have established five criteria to determine whether a procedure should be removed from the IPO list (65 FR 18455), which we codified in the CY 2022 OPPS/ASC final rule with comment period (86 FR 63676). As noted in the CY 2012 OPPS/ASC final rule with comment period (76 FR 74353), we assess whether a procedure or service met these criteria to determine if it should be removed from the IPO list and assign to an APC group for payment under the OPPS when provided in the hospital outpatient setting. We have explained that while we only require a service to meet one criterion to be considered for removal, satisfying only one criterion does not guarantee that the service will be removed; instead, the case for removal is strengthened with the more criteria the service meets. The criteria for assessing procedures for removal from the IPO list are:

Most outpatient departments are equipped to provide the service or procedure to the Medicare population.

The simplest service or procedure described by the code may be performed in most outpatient departments.

The service or procedure is related to codes that CMS has already removed from the Inpatient Only list.

CMS determines that the service or procedure is being performed in numerous hospitals on an outpatient basis.

CMS determines that the service or procedure can be appropriately and safely performed in an ambulatory surgical center, and is specified as a covered ambulatory surgical procedure, or CMS has proposed to specify it as a covered ambulatory surgical procedure.

We encouraged interested parties, including professional societies, hospitals, surgeons, hospital associations, and beneficiary advocacy groups, to evaluate the IPO list and determine whether services should be added to or removed from the list. We requested that they submit corresponding evidence in support of their claims that a code or group of codes met the longstanding criteria for removal from the IPO list and is safe to perform on the Medicare population in the hospital outpatient setting--including, but not limited to case reports, operative reports of actual cases, peer-reviewed medical literature, medical professional analysis, clinical criteria sets, and patient selection protocols (67 FR 66740). Our clinicians thoroughly reviewed all information submitted within the context of the established criteria and if, following this review, we determined that there was sufficient evidence to confirm that the medical procedure represented by the code could be safely and appropriately performed on an outpatient basis, we assigned the service to an APC and included it as a payable procedure under the OPPS (67 FR 66740). We determined the APC assignment for services removed from the IPO list by evaluating the clinical similarity and resource costs of the service compared to other services paid under the OPPS and reviewing the Medicare Severity Diagnosis Related Groups (MS-DRG) rate for the service under the IPPS. It should be noted, however, that we would generally expect the cost to provide a service in the outpatient setting to be less than the cost to provide the service in the inpatient setting (67 FR 66740).

As we have stated in prior rulemaking, over time, given advances in technology and surgical technique, we will continue to evaluate services to determine whether they should be removed from the IPO list. We have made it clear that, insofar as advances in medical practice mitigate concerns about these procedures being performed on an outpatient basis, we are prepared to remove procedures from the IPO list and provide for payment for them under the OPPS (65 FR 18443).