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

In the CY 2020 HPT final rule (84 FR 65524), we established actions that

would address hospital noncompliance with the requirements under Sec. Sec. 180.50 and 180.60, which may include issuing a written warning notice, requesting a corrective action plan (CAP), and imposing CMPs on noncompliant hospitals and publicizing these penalties on a CMS website. In the CY 2022 OPPS/ASC final rule with comment period (86 FR 63941), we increased the amount of CMPs to which a hospital could be subject to a minimum total penalty of $300/day that applies to smaller hospitals with a bed count of 30 or fewer, and a penalty of $10/bed/day for hospitals with a bed count greater than 30, not to exceed a maximum daily dollar amount of $5,500. In the CY 2024 OPPS/ASC final rule with comment period (88 FR 82113), we finalized several enhancements to our enforcement process by updating our methods to assess hospital compliance, requiring hospitals to acknowledge receipt of warning notices, working with health system officials to address noncompliance issues in one or more hospitals that are part of a health system, and publicizing more information about CMS enforcement activities related to individual hospital compliance. We also finalized revisions to Sec. 180.70(a)(2) to add activities that CMS may use to monitor and assess for compliance. Specifically, we revised Sec. 180.70(a)(2)(iii) to indicate that we may conduct an audit and comprehensive compliance review of a hospital's standard charge information posted on a publicly available website. We received comments on our general enforcement activities.

Comment: Several commenters supported our previous regulatory changes to address noncompliance, including the increase in the CMPs for noncompliance, and stated their appreciation of the enforcement efforts taken to address compliance violations to date. Several commenters indicated they desired an enhanced focus on enforcement by CMS to ensure widespread compliance with the HPT rule in an expeditious and efficient manner. Several commenters suggested we increase the CMPs for noncompliant hospitals, while a few commenters opposed the issuance of CMPs or the publicization of compliance actions against hospitals, particularly for those that demonstrate they are making a good faith effort to comply with the requirements immediately following the effective date of new requirements.

Response: We thank commenters for their support of our enforcement activities to date. In a fact sheet, “Hospital Price Transparency Enforcement Updates,” that we posted on April 26, 2023,\488\ we provided updates on improvements we implemented regarding our enforcement process, including streamlining the process to no longer issue a warning notice to a hospital that has not posted an MRF or shoppable services list/price estimator tool. This was intended to encourage hospitals to more quickly comply with our HPT requirements, and especially the fundamental HPT requirements to make public an MRF and a consumer-friendly display of shoppable services.

\488\ https://www.cms.gov/newsroom/fact-sheets/hospital-price-transparency-enforcement-updates. [GRAPHIC] [TIFF OMITTED] TR25NO25.234

Consistent with Executive Order 14221, we continue to believe that it is critically important that all hospitals comply with applicable HPT regulations. As CMS identifies hospitals without an MRF and/or shoppable services file, we will continue to prioritize those cases for immediate compliance by expediting the compliance process and sending hospitals a CAP request letter.

Comment: Several commenters provided suggestions on how to improve the HPT enforcement process for hospitals and for individuals reporting potential noncompliance with the HPT requirements. A few commenters noted the recent CMPs imposed on smaller hospitals and encouraged us to continue providing hospitals with robust technical assistance and sufficient opportunities to correct deficiencies prior to issuance of a CMP. A few commenters recommended increased clarity in warning notices provided to noncompliant hospitals. A few commenters suggested we formally notify hospitals that are deemed to be in compliance with the Hospital Price Transparency requirements following monitoring and assessment. Other commenters offered other ideas,

including: recommending that we establish a hotline for individuals to report potential HPT noncompliance and following up on those reports within 60 days, recommending that we conduct random audits of hospital websites to assess compliance with the requirements, and suggesting that we require hospitals to publicize on their websites the status of their CMS HPT requirements compliance.

Response: We thank commenters for their suggestions on how to improve the HPT requirements and the monitoring and assessment process. We may consider these comments for future rulemaking, guidance, resources, and as part of our HPT monitoring process. 2. Civil Money Penalties: Waiver of Hearing, Automatic Reduction of Penalty Amount

In prior HPT rulemaking,\489\ we issued regulations that established processes to enforce the HPT requirements, including issuance of CMPs when a noncompliant hospital fails to respond to our request to submit a CAP or comply with the requirements of the CAP (Sec. 180.90(a)). The HPT regulations set forth the criteria we use to determine the CMP amount (Sec. 180.90(c)) and permit hospitals to appeal a CMP imposed by us within 30 days of issuance of the notice of imposition of a CMP (Sec. Sec. 180.100 and 180.110). As of September 2025, we have issued CMP notices to 27 hospitals, 22 of which have exercised their right to appeal the CMP to an ALJ.\490\ Hospitals may elect to appeal for many reasons, including disagreeing with our assessment of the law or facts underlying our determination, seeking to protect their reputation and/or avoid other civil or state regulatory actions, or other reasons.

\489\ The CY 2020 HPT final rule (https://www.federalregister.gov/d/2019-24931/p-683), CY 2022 OPPS/ASC final rule (https://www.federalregister.gov/d/2021-24011/p-4135), and CY 2024 OPPS/ASC final rule with comment period (https://www.federalregister.gov/d/2023-24293/p-5090).

\490\ CMS (2025, June) Enforcement Actions. https://www.cms.gov/priorities/key-initiatives/hospital-price-transparency/enforcement-actions.

We are aware that in some other CMS enforcement programs, entities subject to CMPs receive a 35 percent discount to the CMP amount if they waive their appeal rights.\491\ For example, in the FY 2024 Skilled Nursing Facility Prospective Payment System final rule (88 FR 53200, 53326), we discussed our experience over the years with the CMP reduction pertaining to LTC facilities. We noted there how, between CYs 2016 and 2022 (but for CY 2017 that was not referenced), around 80 percent of LTC facilities submitted waivers, with the figure rising to 91 percent in CY 2021 but retreating to 81 percent in CY 2022, while also a considerable percentage of the remaining facilities did not submit a waiver but also not did not contest the penalty and its basis. Throughout the period, between 2 to 6 percent of facilities availed themselves of the full hearing process.

\491\ See, for example, 42 CFR 488.1245(c)(2)(ii) (Hospice); 42 CFR 488.845(c)(2)(ii) (Home Health Agency); 42 CFR 488.436(b) (Long- Term Care (LTC) Facility).

Given respondents' widespread invocation of the LTC facility enforcement appeal waiver provision, we considered whether offering hospitals the opportunity to receive a reduced penalty--in some circumstances, and in exchange for their acknowledging their HPT noncompliance--could expedite timely payment of CMPs. Among our considerations, we believed that hospitals that elect this waiver opportunity pursuant to such a proposal would be demonstrating their acceptance of responsibility for HPT noncompliance, and consequently also their commitment to timely achieving future compliance, which would be key to helping us achieve our overarching HPT goal of ensuring this information, in compliant form, is accessible to healthcare consumers.

We therefore proposed at new Sec. 180.90(c)(4), and subject to the exceptions discussed below, that the amount of a CMP would be reduced by 35 percent should a hospital submit to CMS a written notice waiving its right to a hearing under Sec. 180.100 within 30 calendar days of the date of the notice of imposition of the CMP. We also proposed that if a hospital waives its right to appeal a CMP and receives a 35 percent reduction in accordance with Sec. 180.90(c)(4), the hospital: (1) would not be eligible to receive a 35 percent reduction under Sec. 180.90(c)(4) on any subsequent CMPs issued under Sec. 180.90(f) that result from the same instance(s) of noncompliance (that is, continuing violations); and (2) would waive its right to appeal the subsequent CMPs for any such continuing violations. As discussed above, in waiving its right to appeal and receiving a 35 percent reduction with respect to the initial CMP, we believe a hospital would be demonstrating acceptance of responsibility for HPT noncompliance and a commitment to achieving future compliance without further intervention; further appeal rights or CMP reductions in the face of continuing violations would be not consistent with that underlying rationale for the CMP discount.

At Sec. 180.90(c)(4), we proposed that, in certain situations, CMS would decline to make available to hospitals the opportunity to have a CMP amount reduced. First, we proposed that, should a hospital not affirmatively waive its right to a hearing in accordance with the procedures specified at proposed Sec. 180.90(c)(4), the CMP amount would not be reduced. We explained that the proposed timeframe (within 30 calendar days of the date of notice of imposition of the CMP) would provide a hospital ample opportunity to elect whether to exercise its option to waive a hearing. Second, we proposed that, should CMS impose upon a hospital a CMP for HPT noncompliance going to the core of the HPT requirements--specified as failing to make public either: (1) an MRF as required in Sec. 180.40(a), or (2) any shoppable services in a consumer-friendly format (either in the form of a shoppable services file or an internet price estimator tool) as required in Sec. 180.40(b)--the hospital would be ineligible to avail itself of such an opportunity. As reflected in Table 144, through the compliance review process, CMS has encountered instances where hospitals have not made public an MRF and/or a consumer-friendly list of shoppable services (either a shoppable services file or internet price estimator tool). We stated in the proposed rule that a hospital that fails to abide by such core HPT requirements--entirely depriving the public access to these important tools--would forfeit the opportunity to avail itself of a penalty reduction and would be required to pay in full a CMP. For example, should CMS impose upon a hospital a CMP for failing to make public an MRF as required by Sec. 180.40(a), even if it did have a shoppable services file or internet price estimator tool as required by Sec. 180.40(b), such hospital would not be eligible for a reduction to its CMP by waiving its appeal rights (and the same would pertain were a hospital to have an MRF as required by Sec. 180.40(a), but not a shoppable services file or internet price estimator tool as required by Sec. 180.40(b)). We explained that this exception would be appropriate because we finalized, and codified at 42 CFR part 180, the requirement that hospitals make public their standard charges in two ways (as an MRF and in a consumer-friendly format), effective beginning January 1, 2021; in other words, hospitals have been subject to this requirement for more than 4 years and failing even to try to comply with the requirement renders any effort to

accept responsibility or commit to future compliance less credible than a hospital whose efforts to comply have simply fallen short.

We noted that our proposal would not preclude a hospital, so long as it did not seek a waiver, from requesting a hearing, nor would waiving the right to a hearing remove from the hospital's record the fact of its HPT noncompliance. Rather we proposed that should a hospital choose to waive its right to a hearing, it would accept CMS' determination that it was noncompliant. Significantly, whether or not a hospital would elect to waive the right to a hearing, it would still be required to achieve compliance to avoid the potential imposition of additional CMPs pursuant to Sec. 180.90(f). We also expected that this proposal would benefit both CMS and the hospital by reducing or eliminating the time, resources, expenses, and other potential burden otherwise attributable to prosecuting or defending the administrative appeals processes.

Finally, we also proposed to make conforming revisions to Sec. 180.90(d)(1) and to add a new Sec. 180.90(d)(2) to take into account the proposed provisions at Sec. 180.90(c)(4), which would allow for a reduction to the CMP amount were certain criteria to be met, as discussed above. We proposed to redesignate current Sec. 180.90(d)(2) and (3) as Sec. 180.90(d)(3) and (4), respectively.

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

Comment: A few commenters supported our proposal at new Sec. 180.90(c)(4), that the amount of a CMP be reduced by 35 percent should a hospital submit to CMS a written notice requesting to waive its right to a hearing under Sec. 180.100 within 30 calendar days of the date of the notice of imposition of the CMP. One commenter noted that this proposal strikes a fair balance between accountability and administrative efficiency, encouraging timely resolution of violations while reinforcing the importance of transparency. The commenter indicated their support of the proposal as a constructive incentive to help ensure that patients and stakeholders have access to accurate and actionable pricing information.

Response: We appreciate the commenters' support for our proposal.

Comment: A few commenters indicated that CMS' proposal to reduce penalties by 35 percent puts undue pressure on hospitals to waive their rights to appeal and due process. One commenter requested that CMS consider hospitals' good faith efforts to implement corrective actions addressing ongoing noncompliance to avoid further imposition of CMPs and sought clarification on their understanding that the regulations currently allow for reduced penalties. One commenter stated that the current regulations at Sec. [thinsp]180.90 already permit CMS to reduce CMPs.

Response: We disagree with the commenters that the 35 percent reduction in CMPs described in our proposed rule puts undue pressure on hospitals to waive their rights. By accepting the 35 percent reduction in their CMP amount, a hospital acknowledges and accepts CMS' noncompliance determination and demonstrates its commitment to correct its behavior going forward. Commenters point to no case law finding that crediting acceptance of responsibility for legal violations violates due process, and if a hospital disagrees with the legal or factual basis of our determination, it may exercise its right to appeal as outlined in Sec. 180.100. We thank the commenter who indicated that Sec. [thinsp]180.90 already permits CMS to reduce CMPs, but reinforce that this proposal would benefit both CMS and the hospital by reducing or eliminating the time, resources, expenses, and other potential burden otherwise attributable the administrative appeals processes.

Comment: One commenter requested we withdraw the 35 percent reduction in CMPs described in our proposed rule because it will incentivize noncompliant hospitals to pay reduced CMPs and remain noncompliant as a course of business, rather than come into compliance with the HPT rules. Another commenter called for increased penalties and more enforcement.

Response: We do not agree with commenters that the 35 percent reduction in CMPs will incentivize hospitals to remain noncompliant with our requirements. Hospitals can continue to receive additional CMPs for the same violations if they remain out of compliance, but they will not be eligible to receive a 35 percent reduction in CMPs for the same instance(s) (that is, continuing violations) of noncompliance. Therefore, hospitals cannot remain noncompliant as a course of business and continue to receive a 35 percent CMP reduction. We acknowledge that there is a risk a hospital might take advantage of the 35 percent reduction to the CMP to avoid affirmative efforts to comply with the HPT requirements until CMS conducts an audit and identifies the violations, however, we believe this risk to be minimal and mitigated by the fact that hospitals are not eligible for the 35 percent reduction in CMPs if they receive a subsequent CMP for the same violation. We also note that those hospitals found to not have an MRF or consumer-friendly display of shoppable services would not be eligible for this CMP reduction in the first instance. We remain committed to ensuring that all hospitals comply with the HPT rules, and will continue to assess CMPs for violations, as appropriate. We believe that structuring the 35 percent CMP reduction in this way maximizes the likelihood that the reduction will be used mainly by hospitals that are accepting responsibility for past failures and are committed to coming into compliance. Should that belief prove false, we may revisit the 35 percent CMP reduction. For now, however, we decline to withdraw the proposal.

Comment: One commenter called for stronger enforcement actions and increased penalties for noncompliant hospitals.

Response: We thank the commenters for their suggestion. Currently, we do not see the need to increase penalties as we are seeing increasing compliance rates among hospitals subject to the HPT regulations. As we note above, CMS remains committed to ensuring that all hospitals comply with the HPT rules and will continue to assess CMPs for violations, as appropriate.

Comment: Several commenters noted that the current requirements have achieved high compliance rates through increased enforcement efforts and collaboration. A few commenters noted that this waiver is unnecessary due to the existing high levels of compliance.

Response: We thank commenters and agree with their assessment that the HPT program has achieved increasing levels of compliance since enforcement began in January 1, 2021. However, we do not agree with the commenters' assessment that this proposal is unnecessary. We believe that both CMS and the hospital would benefit from this proposal by reducing or eliminating the time, resource, and expense burden that may be incurred with a protracted appeals process. Further, we believe this will continue to increase hospital compliance as we believe, by virtue of its terms that we describe above, that only hospitals committed to achieving timely compliance will avail themselves of it.

Final Action: After consideration of the public comments received, we are finalizing our proposal at new Sec. 180.90(c)(4) with clarifying edits, with an effective date of January 1, 2026. Specifically, we are adding the word

“subsequent” before the word “civil monetary penalties” in the second sentence so that this sentence now reads, “A hospital that receives a 35 percent reduction in a civil monetary penalty under this paragraph is not eligible to receive a 35 percent reduction for any subsequent civil monetary penalties imposed pursuant to continuing violations according to Sec. 180.90(f) and also waives its right to appeal under Sec. 180.100 any subsequent civil monetary penalties imposed for such continuing violations.” In addition, we are revising the introductory language of the third sentence to clarify that the reduction in “the amount of a civil monetary penalty” referred to this sentence means the “35 percent” reduction in accordance with Sec. 180.90(c)(4).

In addition, we are finalizing, as proposed, conforming revisions to Sec. 180.90(d)(1) and new Sec. 180.90(d)(2) to take into account the final provisions at Sec. 180.90(c)(4). Finally, as proposed, we are redesignating current Sec. 180.90(d)(2) and (3) as Sec. 180.90(d)(3) and (4), respectively.

XX. Market-Based Medicare Severity-Diagnosis Related Groups (MS-DRG) Relative Weight Data Collection and Change in Methodology for Calculating MS-DRG Relative Weights Under the Inpatient Prospective Payment System

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58873 through 58892), we discussed the need for Medicare to reduce its reliance on the hospital chargemaster and develop market-based approaches to payment under the Medicare FFS system. We continue to believe this is the case.

In that rulemaking (85 FR 58891), we adopted a policy that required hospitals to report on the Medicare cost report the median payer- specific negotiated charge that the hospital had negotiated with all of its Medicare Advantage Organizations (MAOs), by MS-DRG, effective for cost reporting periods ending on or after January 1, 2021. In the same final rule, we adopted the use of the median payer-specific negotiated charge by MS-DRG for MAOs in the market-based MS-DRG relative weight methodology finalized for relative weight calculations beginning in FY 2024. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45319), we repealed both the collection of market-based rate information on the Medicare cost report and the market-based MS-DRG relative weight methodology and stated that we would continue to evaluate and consider the usefulness and appropriateness of market-based data for ratesetting purposes. After further consideration, as discussed in section XX.C. of this final rule with comment period, we once again proposed, with modifications (as discussed in section XX.C.2. of this final rule with comment period), to require that hospitals report on the Medicare cost report, beginning January 1, 2026, the median \492\ of the payer- specific negotiated charges (hereinafter referred to as the “median payer-specific negotiated charge”) that the hospital has negotiated with all of its MAOs, by MS-DRG, for use in a market-based MS-DRG relative weight methodology, effective for the relative weights calculated for FY 2029.

\492\ More precisely as discussed later in this section, the weighted median MAO payer-specific negotiated charges where the MAO payer-specific negotiated charges are weighted by the number of inpatient discharges for each of those payers that occurred during the cost reporting period. We simply refer to the median for ease of discussion.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58885), we discussed our authority for adopting a market-based MS-DRG relative weight data collection and MS-DRG relative weight methodology. Sections 1815(a) and 1833(e) of the Act provide authority to collect data for purposes of determining the amount of payments due to a provider under the Medicare program. Specifically, sections 1815(a) and 1833(e) of the Act state that no Medicare payments will be made to a provider unless it has furnished information requested by the Secretary to determine payment amounts due under the Medicare program and pertain to CMS' authority to collect information on the Medicare cost report. We also discussed CMS' authority under section 1886(d)(4) of the Act to assign and update MS- DRG weighting factors to reflect relative resource use. In particular, section 1886(d)(4)(B) of the Act requires that for each diagnosis- related group the Secretary shall assign an appropriate weighting factor which reflects the relative hospital resources used with respect to discharges classified within that group compared to discharges classified within other groups, and section 1886(d)(4)(C)(i) of the Act requires that the weighting factors be adjusted at least annually to reflect changes in treatment patterns, technology, and other factors which may change the relative use of hospital resources.

In the CY 2026 OPPS/ASC proposed rule, we proposed for cost reporting periods ending on or after January 1, 2026, to collect on the Medicare cost report the median payer-specific negotiated charge that the hospital has negotiated with all of its MAOs, by MS-DRG. We proposed to utilize this data within a proposed methodology for calculating the IPPS MS-DRG relative weights to reflect relative market-based pricing, effective in FY 2029. This proposal reflected certain modifications to the policy as finalized in the FY 2021 IPPS/ LTCH PPS final rule (85 FR 58873 through 58892), as discussed further in section XX.C. of this final rule with comment period. As stated previously, and in the CY 2026 OPPS/ASC proposed rule, we continue to believe there is a need for Medicare to reduce its reliance on the hospital chargemaster and develop market-based approaches to payment under the Medicare FFS system. We discuss in further detail in this section our evaluation and reconsideration of the usefulness and appropriateness of market-based data for ratesetting purposes since the FY 2022 IPPS/LTCH PPS final rule. As discussed in greater detail in section XX.C.2. of this final rule with comment period, the CY 2026 OPPS/ASC proposed rule also provided instruction on how hospitals would calculate the median of the payer-specific negotiated charges for an MS-DRG using data from the machine-readable file (MRF) that hospitals are required to disclose under the hospital price transparency regulations at 45 CFR part 180. The CY 2026 OPPS/ASC proposed rule also addressed circumstances when hospitals use something other than MS-DRGs as a basis for reporting under those hospital price transparency requirements.

As described further in section XX.C.2. of this final rule with comment period, we specifically proposed that for the purposes of reporting the data on the cost report, hospitals would report the median of the payer-specific negotiated charges for an MS-DRG that the hospital has disclosed for all of its MAOs on the most recent version of the MRF that the hospital is required to disclose under 45 CFR 180.40(a). If the hospital disclosed the payer-specific negotiated charge for an MS-DRG as a dollar amount, the hospital would use the dollar amount disclosed on its MRF under 45 CFR 180.50(b)(2)(ii)(C) in determining the median of the payer-specific negotiated charges to be reported on its Medicare cost report, as discussed further in section XX.C.2 of this final rule with comment period. If the hospital disclosed the payer-specific negotiated charge as a percentage or algorithm on the MRF, we proposed that the hospital would instead use the proposed “median allowed amount” (as discussed in section XIX. of this final rule with comment period) to calculate the

median of the payer-specific negotiated charges.\493\ The hospital would then report the median payer-specific negotiated charge on its Medicare cost report, as also discussed further in section XX.C.2. of this final rule with comment period. In the CY 2026 OPPS/ASC proposed rule, we stated that we believed this approach of utilizing data required for disclosure on the MRF under 45 CFR 180.50(b)(2)(ii)(C) in determining the median of the payer-specific negotiated charges would help streamline requirements for hospitals and result in less administrative burden overall because hospitals would already be required to calculate and disclose these data in compliance with the hospital price transparency requirements. For additional details on hospital price transparency requirements, including MRF requirements and the modifications to the hospital price transparency requirements, we refer readers to section XIX. of this final rule with comment period and https://www.cms.gov/priorities/key-initiatives/hospital-price-transparency/hospitals.

\493\ As discussed further in section XX.C.2. of this final rule with comment period, we proposed that if CMS did not finalize the proposal to amend 45 CFR 180.50(b)(2)(ii)(C), hospitals would use the “estimated allowed amount” as required under the hospital price transparency regulations for purposes of calculating the median payer-specific negotiated charge that is reported on the cost report.

As described in greater detail in section XX.C. of this final rule with comment period, we proposed that the median payer-specific negotiated charges as reported on the Medicare cost report would be used in a proposed market-based methodology to calculate IPPS MS-DRG relative weights beginning in FY 2029 to reflect the relative hospital resources used to provide inpatient services to patients. The use of the median payer-specific negotiated charges would replace the current use of gross charges that are reflected on a hospital's chargemaster and cost information from Medicare cost reports for the development of the IPPS MS-DRG relative weights.

As discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58873 through 58892), to reduce the Medicare program's reliance on the hospital chargemaster and to support the development of a market-based approach to payment under the Medicare FFS system, we finalized our proposal to require that hospitals report certain market-based payment rate information on their Medicare cost report for cost reporting periods ending on or after January 1, 2021. In that same rulemaking, we also adopted a market-based MS-DRG relative weight methodology using that information. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45319), we repealed both the collection of market-based rate information on the Medicare cost report and the market-based MS-DRG relative weight methodology and stated that we would continue to evaluate and consider the usefulness and appropriateness of market- based data for ratesetting purposes.

As noted in the FY 2022 IPPS/LTCH PPS rulemaking, we have continued to consider the use of market-based rate information for purposes of the IPPS relative weight methodology, including for the reasons discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58874 through 58875) regarding reducing the Medicare program's reliance on the hospital chargemaster and supporting the development of a market-based approach to payment under the Medicare FFS system, as well as additional factors since the repeal of the prior policies.

For example, in the FY 2021 IPPS/LTCH PPS proposed rule we described research that chargemasters are usually highly inflated and that these inflated charges have been used to secure higher payments from Medicare and private payers (85 FR 32790). We indicated that some hospitals' charges do not reflect market rates. Hospital bills that are generated off these chargemaster rates can be inherently unreasonable when judged against prevailing market rates. We stated that recognizing that chargemaster (gross) rates rarely reflect true market costs, we believed that by reducing our reliance on the hospital chargemaster we could adjust Medicare payment rates so that they reflect the relative market value for inpatient items and services. As part of our efforts since the FY 2022 repeal, we have examined more recent research on hospital chargemasters, which is generally consistent with the discussion in the FY 2021 rulemaking regarding whether hospital chargemasters reflect true market costs. Recent research by Linde and Egede \494\ concluded that higher chargemaster markups are associated with higher hospital profitability. They delineated four potential causal pathways that may connect chargemaster markups to hospital profitability. First, chargemaster prices are commonly billed to uninsured patients and therefore may increase profits via higher payments (or payment settlements) with uninsured patients. Second, higher chargemasters may yield higher payments from insured individuals that seek care out-of-network, or who receive care at in-network facilities but are cared for by out-of-network providers. Third, chargemaster prices do in many cases serve as reference prices for the contractual payments between private insurers and hospitals. As such, higher chargemaster prices may yield increased profits by increasing payments from private payors. Fourth, higher chargemaster prices may allow hospitals to increase the cost-saving value of liabilities that end up being written off as bad debt, and therefore increased hospital profits.

\494\ Linde S., Egede L.E. Do Chargemaster Prices Matter?: An Examination of Acute Care Hospital Profitability. Med Care. 2022 Aug 1;60(8):623-630.

We have also continued to consider the available research comparing Medicare, MAO, and commercial payment rates since the repeal. As discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58874 through 58877), we reviewed available literature to compare Medicare FFS and MAO payment rates and how those MAO rates may reflect the relative hospital resources used within an MS-DRG differently than our current cost-based methodology.

As discussed in the FY 2021 rulemaking, Berenson et al.\495\ surveyed senior hospital and health plan executives and found that MA plans nominally pay only 100 to 105 percent of traditional Medicare rates and, in real economic terms, possibly less. Respondents broadly identified three primary reasons for near payment equivalence:

\495\ Berenson R.A., Sunshine J.H., Helms D., Lawton E. Why Medicare Advantage plans pay hospitals traditional Medicare prices. Health Aff (Millwood). 2015;34(8):1289-1295.

Statutory and regulatory provisions that limit out-of- network payments to traditional Medicare rates,

De facto budget constraints that MA plans face because of the need to compete with traditional Medicare and other MA plans, and

A market equilibrium that permits relatively lower MA rates as long as commercial rates remain well above the traditional Medicare rates.

As also discussed in the FY 2021 rulemaking, Baker et al.\496\ used data from Medicare and the Health Care Cost Institute (HCCI) to identify the prices paid for hospital services by FFS Medicare, MA plans, and commercial insurers in 2009 and 2012. They

calculated the average price per admission, and its trend over time, in each of the three types of insurance for fixed baskets of hospital admissions across metropolitan areas. After accounting for differences in hospital networks, geographic areas, and case-mix between MA and FFS Medicare, they found that MA plans paid 5.6 percent less for hospital services compared to FFS Medicare. For the time period studied, the authors suggest that at least one channel through which MA plans paid lower prices was by obtaining greater discounts on types of FFS Medicare admissions that were known to have very short lengths-of-stay. They also found that the rates paid by commercial plans were much higher than those of either MA or FFS Medicare, and that this differential was growing. At least some of this difference they indicated came from the much higher prices that commercial plans paid for certain service lines.

\496\ Baker L.C., Bundorf M.K., Devlin A.M., Kessler D.P. Medicare Advantage plans pay less than traditional Medicare pays. Health Aff. (Millwood). 2016;35(8):1444-1451.

Maeda and Nelson \497\ also analyzed data from the HCCI in their research. They compared the hospital prices paid by MA organizations and commercial plans with Medicare FFS prices using 2013 claims from the HCCI. The HCCI claims were used to calculate hospital prices for private insurers, and Medicare's payment rules were used to estimate Medicare FFS prices. The authors focused on stays at acute care hospitals in metropolitan statistical areas (MSAs). They found MA prices to be roughly equal to Medicare FFS prices, on average, but commercial prices were 89 percent higher than FFS prices. In addition, commercial prices varied greatly across and within MSAs, but MA prices varied much less. Although they noted that they used slightly different methods to calculate Medicare FFS prices, the authors considered their results generally consistent with the Baker et al. study findings in that hospital payments by MA plans were much more similar to Medicare FFS levels than they were to commercial payment levels.

\497\ Maeda J.L.K., Nelson L. How Do the Hospital Prices Paid by Medicare Advantage Plans and Commercial Plans Compare with Medicare Fee-for-Service Prices? The Journal of Health Care Organization, Provision, and Financing. 2018;55(1-8).

In their study, Maeda and Nelson also examined whether the ratio of MA prices to FFS prices varied across DRGs to assess whether there were certain DRGs for which MA plans tended to pay more or less than FFS. They ranked the ratio of MA prices to FFS prices and adjusted for outlier payments. The authors found that “there were some DRGs where the average MA price was much higher than FFS and there were some DRGs where the average MA price was a bit lower than FFS.” For example, for the time period in question, on average, MA plans paid 129 percent more than FFS for rehabilitation stays (DRG 945), 33 percent more for depressive neuroses (DRG 881), and 27 percent more for stays related to psychoses (DRG 885). But MA plans paid an average of 9 percent less than FFS for stays related to pathological fractures (DRG 542) and wound debridement and skin graft (DRG 464) (see Online Appendix Table 5 from their study). The authors state these results suggest that there may be certain services where MA plans pay more than FFS possibly because the FFS rates for those services are too low, but that there may be other services where MA plans pay less than FFS possibly because the FFS rates for those DRGs are too high (Maeda, Nelson, 2018 p. 5).

In addition to this research discussed in the FY 2021 rulemaking, we have also considered more recent research comparing Medicare FFS rates, MAO rates, and rates of other commercial payers, some of which used data that was made public under the provisions of the Hospital Price Transparency regulations. Meiselbach et al.\498\ used 2022 price information disclosed by hospitals to examine the ratio of commercial- to-MA prices negotiated by the same insurer and found that median prices were two to three times higher for commercial plans than MA plans in the same hospital for the same service. They attributed the relatively lower MA prices to the same reasons outlined by Berenson et al. Based on price transparency data from 22 dyads of large hospitals and insurers, Randall and Duffy \499\ found that, for a market basket of inpatient services, prices for health insurance exchange plans were 143.3 percent of those for MA organizations and about 89 percent of those for commercial group insurance plans.

\498\ Meiselbach M.K., Wang Y., Xu Jianhui, Bai G., Anderson G.F. Hospital Prices for Commercial Plans Are Twice Those For Medicare Advantage Plans When Negotiated By The Same Insurer. Health Aff. 2023;42(8):1110-1118.

\499\ Randall S., Duffy E.L. Insurers Negotiate Lower Hospital Prices for HIX Than for Commercial Groups. The American Journal of Managed Care. 2022;28(9): e347-e350.

This more recent research does not directly address the relationship between payer-specific charges negotiated between hospitals and MAOs and Medicare IPPS payment rates, but it is generally consistent in other respects to the earlier research we cited in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58876 through 58877) indicating that hospital payments by MAOs are much more similar to Medicare FFS levels than they are to commercial payment levels. We continue to believe that payer-specific charges negotiated between hospitals and MAOs and Medicare IPPS payment rates are generally well-correlated. In the FY 2022 IPPS/LTCH PPS final rule we indicated that we agreed with commenters that we needed to further consider the questions raised by commenters regarding the ability of the payer-specific charges negotiated between hospitals and MAOs to represent market-based pricing given the relationship between Medicare FFS and MAO rates. After considering this issue further since the FY 2022 rulemaking, we do not believe that the current general correlation between the two precludes the ability of this data over time to reflect market-based pricing for at least some services. As discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58883), MA rates to MA contracted inpatient hospitals are not required to be the same as (or based on) Medicare FFS rates; the Medicare statute only requires MAOs to pay FFS rates to a health care provider for services furnished to an MA enrollee when the MAO does not have a contract with the health care provider. We believe that to the extent hospitals and MAOs over time negotiate different relative relationships for some services than the relationships that exist under the IPPS, this information adds value to the IPPS and should be incorporated. For example, in the FY 2021 IPPS final rule we stated that we believe the rates that hospitals negotiate with MAOs capture the relative resource use to provide services to patients in order to maximize profits (or, in the case of not-for-profit hospitals, net income), subject to market constraints and conditions (supply and demand, community benefit requirements, etc.). Therefore, we stated we believed that payer-specific negotiated charges provide greater insight into the resource use of a hospital (85 FR 58886). After further consideration, recognizing that there is currently general correlation between the Medicare FFS and MAO rates, we believe that the ability of the payer specific negotiated charges to provide these insights over time still holds true.

Another factor that we considered in our current proposal is the experience hospitals have gained through the process of disclosing the payer-specific negotiated charge information for the purpose of the hospital price transparency requirements. In calculating the median payer-specific

negotiated charges to be reported on the Medicare cost report for use in the proposed market-based relative weight methodology, hospitals would use the same payer-specific negotiated charge information that hospitals are required to disclose under the requirements (45 CFR 180.40(a)) that we initially finalized in the Hospital Price Transparency final rule (84 FR 65524), beginning January 1, 2021. Over the last four years, hospitals have become increasingly familiar with the hospital price transparency requirements and procedures necessary to disclose payer-specific negotiated charges. CMS has also taken enforcement actions against hospitals that have failed to comply with the price transparency requirements.\500\ We believe that this increased familiarity, experience, and enforcement has improved the data integrity of this information, simplified the initial administrative burden in disclosing this data, and means that this data is now more robust for Medicare ratesetting purposes than it was when we repealed the prior market-based policies.

\500\ For example, see https://www.cms.gov/priorities/key-initiatives/hospital-price-transparency/enforcement-actions.

An additional factor we considered was the ending of the COVID-19 public health emergency (PHE). To the extent commenters previously raised concerns regarding the need for additional flexibilities as hospitals continue to recover from the COVID-19 PHE, as summarized in the FY 2022 IPPS/LTCH final rule (86 FR 45319), the COVID-19 PHE expired on May 11, 2023.

Considering these factors, we proposed to require that hospitals report on the Medicare cost report the median payer-specific negotiated charge that the hospital has negotiated with all of its MAO payers, by MS-DRG, effective for cost reporting periods ending on or after January 1, 2026, and to use this data in a new market-based MS-DRG relative weight methodology, beginning in FY 2029.

We stated in the CY 2026 OPPS/ASC proposed rule that, if the policy were finalized, we intend to make our analysis of this market-based data available for public review prior to the proposed effective date of this market-based relative weight methodology in FY 2029, including the estimated potential payment impact on the MS-DRG relative weights. As under the current methodology, the impact of any MS-DRG relative weight changes on an individual hospital would depend on the mix of services provided by that particular hospital.

Section 1886(d)(4)(A) of the Act states that the Secretary shall establish a classification of inpatient hospital discharges by diagnosis-related groups and a methodology for classifying specific hospital discharges within these groups. Section 1886(d)(4)(B) of the Act states that for each such diagnosis-related group the Secretary shall assign an appropriate weighting factor which reflects the relative hospital resources used with respect to discharges classified within that group compared to discharges classified within other groups. For the reasons previously discussed, we stated in the CY 2026 OPPS/ASC proposed rule that we believe the use of median payer-specific negotiated charge data for a hospital's MAOs, to be collected on the Medicare cost report, may support the development of an appropriate market-based approach to payment under the Medicare FFS system by incorporating such data into the estimation of the relative hospital resources used with respect to discharges classified within a single MS-DRG compared to discharges classified within other MS-DRGs, as required by statute.

As discussed, since the FY 2022 IPPS/LTCH PPS final rule, we have continued to evaluate and consider the usefulness and appropriateness of market-based data for ratesetting purposes. Based on this review, in the CY 2026 OPPS/ASC proposed rule we stated that we believed it would be appropriate to propose the use of hospitals' median payer-specific negotiated charges for MAOs, to be collected on the Medicare cost report as described previously, within a proposed new methodology for calculating the MS-DRG relative weights to reflect a more market-based approach, using our authority under sections 1886(d)(4)(A), 1886(d)(4)(B), and 1886(d)(4)(C) of the Act. 2. Market-Based Data Collection

In order to support the development of a relative market-based payment methodology under the IPPS, we proposed to collect market-based payment rate data on the Medicare cost report for cost reporting periods ending on or after January 1, 2026. This proposed data collection was similar to the market-based data collection as finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 558873 through 58892), with additional modifications to use the payer-specific negotiated charges from the hospital's most recent MRF published prior to the submission of its cost report, to reflect proposed revisions to the hospital price transparency regulations at 45 CFR 180, and to better address when the payer-specific negotiated charge is based on a percentage or algorithm, in response to previous concerns (85 FR 58884).

Specifically, we proposed that hospitals would report on their cost report the median of the payer-specific negotiated charges that the hospital negotiated with its MAOs, by MS-DRG, beginning with cost reporting periods ending on or after January 1, 2026. Sections 1815(a) and 1833(e) of the Act provide that no Medicare payments will be made to a provider unless it has furnished the information, as may be requested by the Secretary, to determine the amount of payments due to the provider under the Medicare program. We require that providers follow reasonable cost principles under section 1861(v)(1)(A) of the Act when completing the Medicare cost report. Under the regulations at 42 CFR 413.20 and 413.24, we define adequate cost data and require cost reports from providers on an annual basis. As previously discussed, the collection of this market-based data on the Medicare cost report would allow for the adoption of a market-based strategy to determine the appropriate weighting factors to reflect the relative hospital resources used with respect to hospital discharges, as required under sections 1886(d)(4)(B) and 1886(d)(4)(C) of the Act.

As discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58877), Medicare certified providers, such as Medicare certified hospitals, are required to submit an annual cost report to their Medicare Administrative Contractor (MAC). The Medicare cost report contains provider information such as facility characteristics, cost and charges by cost center, in total and for Medicare, Medicare settlement data, and financial statement data. The cost report must be submitted in a standard (ASCII) electronic cost report (ECR) format. CMS maintains the cost report data in the Healthcare Cost Report Information System (HCRIS) data set. The HCRIS data supports our payment policymaking, congressional studies, legislative health care reimbursement initiatives, Medicare profit margin analysis, and relative weight updates. As such, data from hospital cost reports beginning on or after May 1, 2010 is reflected on the HCRIS dataset, and available for public access and use.

In the CY 2026 OPPS/ASC proposed rule, we stated that if we were to finalize the proposal to collect the proposed market-based information (specifically, the median payer-specific

negotiated charges negotiated between a hospital and all its MAOs, by MS-DRG) on the cost report, the data would become publicly accessible on the HCRIS dataset in a de-identified manner and would be usable for analysis by third parties. The data would, by definition, be de- identified since we proposed that the hospital calculate the median rate (that is, the specific rate that is negotiated between a hospital and a specific MAO for an MS-DRG would not be reported and need to be de-identified). For more information or to obtain HCRIS data we refer readers to https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reports/cost-reports-fiscal-year.

We proposed that the hospital would determine the weighted median of the payer-specific negotiated charges that the hospital negotiated with its MAOs, by MS-DRG, as follows:

Step 1. Using the hospital's most recent MRF as of the hospital's cost report filing date identify the following information: (a) each MAO payer-specific negotiated charge under 45 CFR 180.50(b)(2)(ii) that the hospital has negotiated with its MAOs for inpatient items or services (for example, discharges), and (b) the code under 45 CFR 180.50(b)(2)(iv)(A) for each payer-specific negotiated charge. If the payer-specific negotiated charge is based on a percentage or algorithm, the hospital would identify and substitute the dollar amount in the MRF required under 45 CFR 180.50(b)(2)(ii)(C) for the percentage or algorithm. Exclude any payer-specific negotiated charges that represent capitated payment.

Step 2. For the cost reporting period, sum the number of inpatient discharges for each MAO for each MS-DRG. Exclude inpatient discharges where payment was made on a capitated basis.

Step 3. For each MS-DRG, list each MAO payer-specific negotiated charge (from Step 1) the number of times as there were inpatient discharges that occurred during the cost reporting period for that MAO (from Step 2).

Step 4. For each MS-DRG, compute the median \501\ of the MAO payer- specific negotiated charge in the list from Step 3. To compute the median, using the list in Step 3, order the list in Step 3 from the lowest MAO payer-specific negotiated charge to the highest; if the list contains an odd number of charges the median is the middle value in the list, or if the list contains an even number of charges the median is the mean of the two middle values. For each MS-DRG, this median is the weighted median MAO payer-specific negotiated charge for that MS-DRG.

\501\ The middle number; found by ordering all data points and selecting the one in the middle (or if there are two middle numbers, taking the mean of those two numbers).

As we discussed in the FY 2021 rulemaking, we recognize that the payer-specific negotiated charges negotiated between MAOs and hospitals may in some cases be based on a system other than MS-DRGs. If there are codes identified in (b) of Step 1 that are not MS-DRG codes, or discharges in Step 2 that are not classified to MS-DRGs, the hospital would crosswalk those codes or classify those discharges to MS-DRGs. Hospitals can utilize the CMS GROUPER and associated definitions manual for this purpose. Hospitals have access to the publicly available version of the CMS Grouper used to group ICD-10 diagnosis and procedure codes to MS-DRGs. \502\ This software and associated definitions manual can be used to crosswalk the code(s) in the MRF or classify the discharge to an MS-DRG code.

\502\ https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

We note that, in section XIX. of the CY 2026 OPPS/ASC proposed rule, we proposed to amend the regulations at 45 CFR 180 as they relate to a standard charge that is based on a percentage or algorithm. Specifically, we proposed in section XIX. of the CY 2026 OPPS/ASC proposed rule, that, beginning January 1, 2026, hospitals would be required to report a new data element, the “median allowed amount,” instead of the “estimated allowed amount” reported at present, and that the median allowed amount would be defined as the median of the total allowed amount that the hospital has historically received from a third-party payer (including MAOs) for an item or service. We also proposed in section XIX. of the CY 2026 OPPS/ASC proposed rule that if a payer-specific negotiated charge is based on a percentage or algorithm, the hospital's MRF would have to describe the percentage or algorithm that determines the dollar amount for the item or service and the hospital would have to calculate and encode the median allowed amount in dollars for that item or service. We proposed in section XIX. of the CY 2026 OPPS/ASC proposed rule that, to calculate the `median allowed amount,' hospitals would be required to use electronic remittance advice transaction data, and that the dollar amount would reflect no longer than a 12-month time period prior to the posting of the most recent MRF. Accordingly, we proposed that the dollar amount in the MRF required under 45 CFR 180.50(b)(2)(ii)(C) for the percentage or algorithm in Step 1 would be the “median allowed amount” if the proposed amendment was finalized. We also proposed that if CMS did not finalize changes to 45 CFR 180.50(b)(2)(ii)(C), the dollar amount would be the “estimated allowed amount” under the current regulations. We note that in section XIX. of this final rule with comment period, CMS is finalizing, with modification, that beginning January 1, 2026, if a hospital's payer specific negotiated amount is based on an algorithm or percentage, the hospital would be required to describe the percentage or algorithm and report a new data element, the “median allowed amount”, instead of the “estimated allowed amount”, and that the “median allowed amount” is defined as the median of the total allowed amounts the hospital has historically received from a third-party payer for an item or service for a time period no less than 12 months and no longer than 15 months prior to the date the MRF is posted. Should the calculated median fall between two observed allowed amounts, the median allowed amount is the next highest observed value. In section XIX. of this final rule with comment period, CMS is finalizing as proposed that if a payer-specific negotiated charge is based on a percentage or algorithm, the hospital must describe the algorithm or percentage and calculate and encode the median allowed amount in dollars for that item or service. Finally, in section XIX. of this final rule with comment period, CMS is finalizing, with modification, that hospitals must use EDI 835 ERA transaction data or an alternative equivalent source of remittance data that includes the same information as EDI 835 ERA transaction data would include, to calculate and encode the allowed amounts for items and services based on a percentage or algorithm in the MRF. We refer readers to section XIX. of this final rule with comment period for more information regarding the specific final policy.

A simplified example for the purpose of illustrating this process is as follows:

For its cost reporting period ending on September 30, 2026, a hospital had MAO payer-specific negotiated charges for MS-DRG 123 for five MAOs: MA1, MA2, MA3, MA4, and MA5.

The hospital filed its cost report on February 28, 2027.

The hospital made available to the public its MRF on January 1, 2027. This MRF did not contain MAO payer-specific negotiated charges for MA5 because the hospital stopped contracting with MA5 and began contracting with a new MAO, MA6.

Step 1. The hospital identified the following MAO payer-specific negotiated charge information for MS-DRG 123 from its January 1, 2027 MRF:

MA1: $7,400

MA2: $7,200

MA3: $7,500

MA4: $7,300 (algorithm-based)

MA6: $7,400

Note, as the payer-specific negotiated charge for MA4 was based on an algorithm, the hospital substituted the dollar amount in the MRF required under 45 CFR 180.50(b)(2)(ii)(C) for the algorithm.

Step 2. The hospital summed the number of inpatient discharges that occurred during the cost report period ending September 30, 2026, for each MAO for MS-DRG 123.

MA1: 2 discharges

MA2: 1 discharge

MA3: 1 discharge

MA4: 3 discharges

MA5: 2 discharges

Step 3. The hospital listed each MAO payer-specific negotiated charge (from Step 1) the number of times as there were inpatient discharges that occurred during the cost reporting period for that MAO (from Step 2).

MA1: $7,400, $7,400

MA2: $7,200

MA3: $7,500

MA4: $7,300, $7,300, $7,300

For example, the $7,400 MA1 charge from Step 1 was listed two times because there were two discharges for MS-DRG 123 that occurred during the cost report period ending September 30, 2026, for MA1; the MRF charge of $7,200 for MA2 was listed once because there was one discharge; the MRF charge of $7,500 for MA3 was listed once because there was one discharge; the MRF charge of $7,300 for MA4 was listed three times because there were three discharges, there is no MRF charge for MA5 as the hospital no longer contracted with that MAO, and the MRF charge of $7,400 for MA6 was not listed as there were no discharges during the cost reporting period for that MAO.

Step 4. The median charge for MS-DRG 123 is $7,300 because that is the median of the charges in the list from Step 3.\503\ (Note that if the list had contained an even number of charges, the median would have been the mean of the two middle numbers).\504\

\503\ Ordering the payer-specific negotiated charges from Step 3 from lowest to highest as {$7,200, $7,300, $7,300, $7,300, $7,400, $7,400, $7,500{time} the median, or middle, charge in that list is the fourth charge of $7,300.

\504\ For example, if the list had been {$7,300, $7,300, $7,400, $7,500{time} the median would have been $7,350, the mean of $7,300 and $7,400 (the two middle values are the second and third charges of $7,300 and $7,400).

$7,200-MA2

$7,300-MA4

$7,300-MA4

$7,300-MA4

$7,400-MA1

$7,400-MA1

$7,500-MA3

For purposes of this calculation, we proposed to define the term “payer-specific negotiated charge” as the charge that a hospital has negotiated with a MAO for an item or service. We proposed to use this definition of payer-specific negotiated charge because it would capture the charges that are negotiated between hospitals and MAOs and be able to provide the data needed to support the use of market-based information for payment purposes within the MS-DRG relative weight calculation. For consistency, the definition of “payer-specific negotiated charge” that we proposed is the same as the definition at 45 CFR 180.20 for purposes of our requirements for hospitals to make their standard charges available to the public. We also proposed to define “items and services” as all items and services, including individual items and services and service packages, that could be provided by a hospital to a patient in connection with an inpatient admission for which the hospital has established a standard charge.\505\ (With respect to service packages, we note that an MS-DRG, as established by CMS under the MS-DRG classification system, is a type of service package consisting of items and services based on patient diagnosis and other characteristics.) We proposed this definition of “items and services” because we believe it captures the types of items and services, including service packages, that a hospital would use to calculate and report the median payer-specific negotiated charge for each MS-DRG to support the use of market-based rate information by MS-DRG within the MS-DRG relative weight calculation. For purposes of this calculation, an MAO is defined as in 42 CFR 422.2 and means a public or private entity organized and licensed by a State as a risk- bearing entity (with the exception of provider-sponsored organizations receiving waivers) that is certified by CMS as meeting the MA contract requirements. We note that these definitions are the same as those finalized in the FY 2021 IPPS/LTCH PPS final rule.

\505\ We noted in the CY 2026 OPPS/ASC proposed rule that our proposed definition here of “items and services” is the same as the definition at 45 CFR 180.20, but for the examples included there and omitting the reference to outpatient department visits, as here we would not require hospitals to calculate the median of their payer-specific negotiated charges for items and services provided in the hospital outpatient setting.

As finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58888), we proposed that subsection (d) hospitals in the 50 states and DC, as defined at section 1886(d)(1)(B) of the Act, and subsection (d) Puerto Rico hospitals, as defined under section 1886(d)(9)(A) of the Act, would be required to report the median payer-specific negotiated charge information. In the CY 2026 OPPS/ASC proposed rule, we noted that hospitals that do not negotiate payment rates and only receive non- negotiated payments for service would be exempted from this proposed data collection. Examples of subsection (d) hospitals that only receive non-negotiated payment rates include hospitals operated by an Indian Health Program as defined in section 4(12) of the Indian Health Care Improvement Act or Federally owned and operated facilities. In the CY 2026 OPPS/ASC proposed rule, we noted that the proposed data collection requirement would apply to a smaller subset of hospitals as compared to the public reporting requirements under the hospital price transparency regulations. We recognized that Critical Access Hospitals (CAHs) may, in some instances, negotiate payment rates; however, because CAHs are not subsection (d) hospitals and are not paid on the basis of MS-DRGs, CAHs would not be subject to the proposed data collection requirement. We also noted that rural emergency hospitals would not be subject to the proposed data collection requirement given that they do not provide inpatient services.

On March 12, 2025, CMS announced the intention to end the Maryland Total Cost of Care Model.\506\ We proposed that hospitals in Maryland, which are currently paid under the Maryland Total Cost of Care Model, would be exempted from this data collection requirement during the performance period of that Model. Following the end of the performance period of the Maryland Total Cost of Care Model, Maryland hospitals would no longer be exempt from this data collection requirement.

\506\ https://www.cms.gov/priorities/innovation/innovation-models/md-tccm.

In the CY 2026 OPPS/ASC proposed rule, we stated that further instructions for the reporting of the proposed market-based data collection requirement on the Medicare cost report would be discussed in a forthcoming new Information Collection Request, which we stated was currently under development.

In the CY 2026 OPPS/ASC proposed rule, we stated that we believed that the administrative burden for the proposal was reduced by utilizing data that hospitals would disclose under existing and proposed hospital price transparency requirements relative to if hospitals did not already have this data compiled. We referred readers to section XXII.E. of the CY 2026 OPPS/ASC proposed rule for discussion of the

estimated burden for hospitals as a result of the proposed policy.

We also proposed to amend 42 CFR 413.20(d)(3) to reflect this proposed requirement. Specifically, we proposed to amend Sec. 413.20(d)(3) to require hospitals to report the median payer-specific negotiated charge by MS-DRG for MAOs on the Medicare cost report. We proposed to capture this proposed data collection requirement in regulation at Sec. 413.20(d)(3)(i)(B). We proposed that this requirement would be effective for cost reporting periods ending on or after January 1, 2026. 3. Market Based MS-DRG Relative Weight Methodology

As previously discussed, we proposed a new market-based methodology for estimating the MS-DRG relative weights, beginning in FY 2029. We noted that the proposed market-based MS-DRG relative weight methodology would be the same market-based MS-DRG relative weight methodology that was initially adopted in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58879 through 58881). Specifically, we proposed to implement a methodology for calculating the MS-DRG relative weights using the median payer-specific negotiated charge for MAOs for each MS-DRG, as described in this section and reported on the cost report. For the reasons discussed in section XX.B. of the CY 2026 OPPS/ASC proposed rule and this final rule with comment period, based on our further review, in the CY 2026 OPPS/ASC proposed rule we stated we believed that using the median payer-specific negotiated charge for MAOs within the MS-DRG relative weight calculation would allow for a more market- based approach to determining Medicare FFS reimbursement.

Below is a description of the steps for the proposed MS-DRG relative weight methodology change using the payer-specific negotiated charge data. We refer readers to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58880 through 58881) for additional discussion of the finalized methodology which we reproposed.

Step One: Standardize the Median Payer-Specific Negotiated Charges: In order to make the median payer-specific negotiated charges from the cost reports more comparable among hospitals, we would standardize the median payer-specific negotiated charges reported on the cost report by removing the effects of differences in area wage levels, and cost-of living adjustments for hospital claims from Alaska and Hawaii, in the same manner as under the current MS-DRG relative weight calculation for those effects.

Step Two: Create a Single Weighted Average Standardized Median MAO Payer-Specific Negotiated Charge by MS-DRG Across Hospitals: For each MS-DRG, we would create a single weighted average across hospitals of the standardized median payer-specific negotiated charges. We would weight the standardized payer-specific negotiated charge for each MS-DRG for each hospital using that hospital's Medicare transfer- adjusted case count for that MS-DRG, with transfer adjusted case counts calculated the same way as under the current MS-DRG relative weight methodology. We note that, as discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69109), the current MS-DRG relative weight methodology does not include MA cases as discharges for Medicare beneficiaries enrolled in a MA managed care plan are excluded from the relative weight methodology. We believe that using the Medicare transfer-adjusted case counts would be a reasonable approach to combining the data across hospitals because it would reflect relative volume and transfer activity (that is, larger hospitals responsible for more discharges would be weighted more heavily in the calculation, hospitals that transfer more often would be weighted less heavily).

Step Three: Create a Single National Weighted Average Standardized MAO Payer-Specific Negotiated Charge Across all MS-DRGs: We would create a single national weighted average across MS-DRGs of the results of Step Two, where the weights are the national Medicare transfer adjusted case counts by MS-DRG.

Step Four: Calculate the Market-based Relative Weights: For each MS-DRG, the market-based relative weight would be calculated as the ratio of the single weighted average standardized median MAO payer-specific negotiated charge for that MS-DRG across hospitals from Step Two to the single national weighted average standardized median MAO payer-specific negotiated charge across all MS-DRGs from Step Three.

Step Five: Normalize the Market-based Relative Weights: We noted that as under the current cost-based MS-DRG relative weight methodology, the market-based relative weights would be normalized by an adjustment factor so that the average case weight after recalibration would be equal to the average case weight before recalibration. We stated that as under the current cost-based relative weight estimation methodology, the normalization adjustment is intended to help ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

In the CY 2026 OPPS/ASC proposed rule, we stated that we believed initially there would be minimal impacts to the relative weights calculated under the proposed market based MS-DRG relative weight methodology (which would utilize the median payer-specific negotiated charge data negotiated between hospitals and their MAOs) beginning in FY 2029, given the relationship between the MAO rates and Medicare FFS rates (as evidenced by feedback from commenters as discussed in the FY 2021 IPPS/LTCH PPS final rule and the results of our literature review). In the CY 2026 OPPS/ASC proposed rule we stated that, if the proposed policy were finalized, we would expect, for some period of time following implementation of the proposed market-based MS-DRG relative weight methodology, to continue to estimate and publicly provide, for informational purposes, the MS-DRG relative weights as calculated using our current cost-based estimation methodology.

In addition, similar to our discussion in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58886 through 58887), in the CY 2026 OPPS/ASC proposed rule we stated that, if the proposed policy were finalized, we would intend to provide additional opportunity for the public to review the MAO median payer-specific negotiated charge data received prior to the utilization of this data in the market-based MS-DRG relative weight methodology beginning in FY 2029. We continue to believe this would allow for additional discussions, public review, and conversation about utilizing this market-based data in the MS-DRG relative weight methodology.

We sought comment on all elements of the proposed market-based data collection for cost reporting periods ending on or after January 1, 2026, and market-based methodology for estimating the MS-DRG relative weights beginning in FY 2029. We also sought comments on potential unintended consequences of the proposal, if any, including special considerations if needed to mitigate those potential consequences for certain hospitals. We also sought comment on how these or other market- based strategies could be utilized in additional Medicare FFS payment systems and the benefits of these market-based approaches.

In this section, we summarize and respond to the public comments received on these proposals. Commenters included individuals, consumer and patient advocacy organizations, hospitals and health

systems, hospital and State hospital associations, medical associations, health benefits consultants, health information technology (IT) organizations, and academic institutions, among others.

Comment: The vast majority of commenters were opposed to the proposals that hospitals report median payer specific negotiated charges for MAOs on the Medicare cost report and that CMS use that data to recalibrate the IPPS MS-DRG relative weights. Commenters asserted that the proposals are not authorized by and conflict with CMS's statutory authority, are arbitrary and capricious, and require new unsupported expansive interpretations of the statute. Commenters indicated that the statute requires the MS-DRG weights reflect “the relative hospital resources used”--that is a resource-based system-- not market rates negotiated with MA plans. Commenters stated that the cost reporting provisions CMS invoked authorize collection only of information necessary to determine appropriate payment amounts due to a provider--not the collection of information that they asserted cannot lawfully be used to set payments.

More specifically, many commenters stated that the text of section 1886(d)(4)(B) of the Act compels a resource-based, not a market-based methodology. Commenters discussed the statutory requirements that CMS assign to each MS-DRG “an appropriate weighting factor which reflects the relative hospital resources used.” They stated that the negotiated rates are influenced by many factors, including bargaining leverage, patient populations, network needs, utilization management practices, local market concentration, out-of-network Medicare payment requirements, quality and value initiatives, episodes of care, and other contract and pricing dynamics rather than relative hospital resource use at the MS-DRG level.

With respect to the data collection proposal, commenters stated that sections 1815(a) and 1833(e) of the Act permit CMS to require providers to furnish information necessary to determine amounts due (for example, to process claims and compute legally authorized payments) but establish no broader authority. Commenters asserted that these statutory authorities do not authorize and cannot be interpreted to authorize a policy to collect third party negotiated rates because CMS cannot lawfully use that data to set IPPS payments.

In contrast to the proposed approach, many commenters indicated that the current MS-DRG cost-based methodology established in the FY 2007 IPPS rulemaking is a longstanding and better framework for improving the MS-DRG relative weights consistent with the statute. Commenters indicated that although CMS is focused on the charges in the hospital chargemaster as being inflated and not reflecting resource use, the current methodology is not based on charges, but rather on charges converted to cost.

Some commenters who opposed finalizing our proposal agreed with CMS that conceptually a methodology that relies more on market-based concepts would be preferable to the current system of administered pricing, but disagreed that our current proposal was an appropriate approach because they asserted that it risked circular and destabilizing effects across both FFS and MA and could create uncertainty within the MA program, FFS program, and value-based payment models that depend on a stable FFS baseline. They indicated CMS should engage with interested parties through multiple avenues to identify effective, stable alternatives. Examples of suggested alternatives included more sophisticated cost accounting systems, improved cost reporting, and CMS demonstrations.

A few commenters expressed support for our proposal in terms of improving the efficiency of care, ensuring payments are set appropriately, better reflecting hospital resources for inpatient items and services and improving the accuracy of MS-DRGs. One commenter who supported our proposal stated it would result in greater alignment of the MS-DRG relative weights with the statutory requirements. The commenter stated that MA rates are more likely to reflect the relativity of hospitals' true resources because those rates represent the ending point of the negotiations between hospitals and plans, as opposed to the chargemasters which may reflect the starting point of the negotiations. The commenter also indicated that although Medicare Advantage is not a market-based system, the proposal would create an opportunity for negotiations to reflect market dynamics even if the immediate impact of the proposal is minimal due to the current extremely close correlation between the MS-DRG relative weights and the MA rates.

Response: We agree with commenters that CMS is required to assign and update MS-DRG weighting factors to reflect relative resource use. Section 1886(d)(4)(A) of the Act states that the Secretary shall establish a classification of inpatient hospital discharges by diagnosis-related groups and a methodology for classifying specific hospital discharges within these groups. Section 1886(d)(4)(B) of the Act states that for each such diagnosis-related group the Secretary shall assign an appropriate weighting factor which reflects the relative hospital resources used with respect to discharges classified within that group compared to discharges classified within other groups. Section 1886(d)(4)(C)(i) of the Act states that the Secretary shall adjust the weighting factors at least annually to reflect changes in treatment patterns, technology, and other factors which may change the relative use of hospital resources. As indicated by commenters with respect to the current methodology, relative resources are accounted for when hospitals establish the costs of services. We continue to believe that the costs of services are considered when hospitals and payers negotiate rates. Commenters noted that the negotiated rates are influenced by many factors, including bargaining leverage, patient populations, network needs, utilization management practices, local market concentration, out-of-network Medicare payment requirements, quality and value initiatives, episodes of care, and other contract and pricing dynamics. While the negotiated rates may reflect a variety of factors, it does not follow that the resources necessary to perform the services based on these negotiated rates would not be considered in the negotiations. As an extreme example for purposes of illustration, in contract negotiations hospitals would not generally negotiate payments of $1,500 for heart transplant cases and MA organizations would not generally negotiate payments of $150,000 for simple pneumonia cases because those rates would not reflect the relative resources required to provide those services. Furthermore, as network needs (e.g. network adequacy) are considerations in the negotiations between hospitals and payers and network needs involve anticipated patient utilization, we do not believe that hospitals and payers would consider anticipated patient utilization when negotiating contracts without considering the resources necessary (that is, costs) to provide those items and services for that level of patient utilization anticipated. We continue to believe that payer-specific negotiated charges that hospitals negotiate with MA organizations capture the relative resources used to provide services to patients in order to maximize profits (or, in the case of not-for-profit hospitals, net income), subject to market

constraints and conditions (supply and demand, community benefit requirements, etc.).

Because we believe the payer-specific negotiated charges reflect relative resources used (i.e. costs) for the reasons described earlier, our proposal is entirely consistent with and based on longstanding interpretations of the statute with respect to the relationship between resources and costs. We disagree with commenters that our proposed policy is in any way arbitrary or capricious or relies on new expansive unsupported interpretations of the statute. For the same reasons, we also disagree with commenters who stated we lack authority and did not articulate a sufficient policy basis for our data collection policy. As discussed in the CY 2026 OPPS/ASC proposed rule, sections 1815(a) and 1833(e) of the Act provide us with the authority to collect data for purposes of determining the amount of payments due to the provider under the Medicare program. We proposed to collect this negotiated charge data so that it may be used in determining relative weights for purposes of payment under the IPPS. We also note that we referenced the requirement that providers follow reasonable cost principles under section 1861(v)(1)(A) of the Act when completing Medicare cost reports and reiterate that section 1861(v)(1)(A) of the Act requires reporting of data elements beyond just cost, including non-cost items and items used to determine the cost of services.

In response to comments that the current approach for establishing the MS-DRG relative weights involves estimating cost from charges, we note that it still relies on data derived from hospital chargemasters as input and it still relies on an estimation methodology to convert those charges to cost. As we indicated in the FY 2007 IPPS rulemaking (71 FR 47894-95) when initially adopting a charges-to-cost methodology, no payment methodology can be perfect because DRG-specific costs cannot be determined. We indicated that we believed that the cost-based methodology represented an improvement over the prior charge-based methodology. Similarly, we believe that while a market-based methodology, a different type of cost-based methodology, may also not be perfect, it would be an improvement over the current methodology. By using payer specific negotiated charges, we can reduce our reliance on the hospital chargemaster and utilize this data in Medicare payment methodologies so that payments more closely reflect the market cost and therefore the relative market value and resource utilization for inpatient items and services.

In response to comments that our proposed approach risks circular and destabilizing effects across both FFS and MA and could create uncertainty within the MA program, FFS program, and value-based payment models that depend on a stable FFS baseline, we disagree. We continue to believe that if market-based data (median payer-specific negotiated charges for MA organizations) are incorporated into the calculation of the MS-DRG relative weights, initially there will be limited impact on the relative weights given the current similarity between MA organization rates and Medicare FFS rates. As discussed in the CY 2026 OPPS/ASC proposed rule, we intend to provide an opportunity for the public to review the data we collect prior to use of these data in a market-based relative weight methodology. To the extent the data shows that there would be more than a limited impact on the relative weights initially, which we do not believe will be the case, CMS will be able to further consider the impact and appropriate approach to utilizing this market-based data in the MS-DRG relative weight methodology. We will continue to provide impact analyses of changes in the MS-DRG relative weights in the annual IPPS rulemaking. Also, as discussed in the CY 2026 OPPS/ASC proposed rule we expect for some period of time following implementation of this market-based MS-DRG relative weight methodology to continue to estimate and publicly provide the MS-DRG relative weights calculated using the current methodology for informational purposes. We also note that our adoption of a market- based methodology does not preclude continued engagement with interested parties to identify further improvements to our payment systems.

Comment: Commenters stated that the research CMS cited in the CY 2026 OPPS/ASC proposed rule does not analyze relative hospital resource utilization at the MS-DRG level and that CMS cannot use this research to support that the MA negotiated payment rates capture relative resource use. Furthermore, some commenters stated that the MA non- interference clause at section 1854(a)(6)(B)(iii) of the Act bars CMS from requiring particular price structures in MA provider contracts and therefore prohibits CMS from ever ensuring any correlation between MA rates and resource use.

Response: As previously discussed in this final rule with comment period, we believe the payer-specific negotiated charges would better reflect relative resources used because the rates that hospitals negotiate with MAOs capture the relative resource use to provide services to patients in order to maximize profits (or, in the case of not-for-profit hospitals, net income), subject to market constraints and conditions (supply and demand, community benefit requirements, etc.). Therefore, for the reasons previously discussed, we believe that payer-specific negotiated charges provide greater insight into the resource use of a hospital. The primary focus of the literature discussion in this context is the correlation between the payer specific charges negotiated between hospitals and MA organizations and Medicare IPPS payment rates and the implications of that correlation to analyze the impacts of the use of these data in a market-based relative weight methodology, as discussed in section XXV.C.7 of this final rule with comment period, both initially and over time, for the relative weights to the extent that the MA rates and the FFS rates differ for some services. In the CY 2026 OPPS/ASC proposed rule, we described research that chargemasters are usually highly inflated and that inflated charges have been used to secure higher payments; we discussed available literature to compare Medicare FFS and MAO payment rates and how those MAO payment rates may (emphasis added) reflect the relative hospital resources used within an MS-DRG differently than our current cost-based system, and we indicated that we considered more recent research comparing Medicare FFS rates, MAO rates, and rates of other commercial payers, some of which used data that was made public under the provisions of the Hospital Price Transparency regulations (90 FR 33805-33807). In the FY 2021 IPPS final rule we stated that taken as a whole, we continued to believe that the body of research discussed in that rulemaking suggests that payer specific charges negotiated between hospitals and MA organizations are generally well-correlated with Medicare IPPS payment rates, and payer-specific charges negotiated between hospitals and other commercial payers are generally not as well-correlated with Medicare IPPS payment rates. With respect to either type of payer-specific negotiated charges, there may be instances where those negotiated charges may (emphasis added) reflect the relative hospital resources used within an MS-DRG differently than our current cost-based methodology (85 FR 58877). As

discussed in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58883) and the CY 2026 OPPS/ASC proposed rule (90 FR 33807), the MA rates to MA contracted inpatient hospitals are not required to be the same as (or based on) Medicare FFS rates; the Medicare statute only requires MAOs to pay FFS rates to a health care provider for services furnished to an MA enrollee when the MAO does not have a contract with the health care provider. Recognizing that there is currently a general correlation as shown by the research we cited, we believe that to the extent hospitals and MAOs over time negotiate different relative relationships for some services than the well correlated relationships that currently exist under the IPPS, this information adds value to the IPPS regarding resource use and should be incorporated (90 FR 33807).

We agree with commenters that the MA non-interference clause at section 1854(a)(6)(B)(iii) of the Act generally bars CMS from requiring particular price structures in MA provider contracts. However, our proposal does not create any requirements for particular price structures in MA provider contracts.

Comment: Commenters stated that the proposals would create distortions in the MS-DRG relative weights and that CMS has not modelled the impacts of or otherwise accounted for these distortions in the proposed policy. Commenters asserted these distortions are evidence as to why the proposed approach would be unlawful if adopted (that is, not resource-based), as well as evidence as to why the proposed approach is inappropriate even if CMS had the authority to adopt it. Commenters discussed the statutory requirement at section 1886(d)(4)(C)(i) of the Act to update the relative weights at least annually to reflect “changes in treatment patterns, technology . . . and other factors which may change the relative use of hospital resources” and asserted that the proposal failed to do so. Commenters stated that because MA rates are often based on Medicare FFS rates the proposal would over time lock in outdated weights in a closed loop that adds no independent information on these factors. According to the commenters, this locked in “circularity” would contradict the statutory requirement to update weights to reflect changes in resource use. Some commenters stated that over time as the MS-DRG weights become outdated MA plans and hospitals would rely more on non-MS-DRG based approaches. Commenters further stated that even absent circularity, the MA negotiated rates cannot assist with determining when changes to the MS-DRG classification system itself are necessary (for example splitting MS-DRGs) because unlike the current case-level methodology the MA negotiated rates do not provide information on resource use variations within an MS-DRG. Commenters also stated that the MS-DRG relative weights could be distorted by a lag between when a hospital updates its price transparency data and when it submits its cost report.

Commenters stated that in cases where MA plans pay hospitals for inpatient services based on charges, MS-DRG relative weights would be distorted by different cost-to-charge ratios across departments. Commenters stated the proposed process would yield higher relative weights for MS-DRGs that had higher mark-ups of charges relative to costs to the extent some MA plans still pay hospitals a rate based on discounts off charges.

Commenters stated that the combined data across hospitals would not be nationally representative for a variety of reasons. Commenters stated that in cases where MA plans pay hospitals for inpatient services as a percentage of FFS Medicare payments, MS-DRG relative weights would be distorted by existing FFS Medicare policy-based payments that do not correspond to the relative cost of providing the service. Commenters cited the example of FFS Medicare payments to hospitals including uncompensated care payments to help support hospitals' costs of treating the uninsured as well as wage index policies reflected in the current payment rates. Commenters stated the proposal would yield higher relative weights for MS-DRGs for procedures disproportionately performed at hospitals that receive these additional policy-based payments. Commenters indicated that the proposed methodology would use no data from subsection (d) providers that exclusively contract with MAOs on a capitated basis and/or have no MA network participation agreements. They also stated payment elements that are excluded from the payer-specific negotiated rates for MAOs may skew the data. For example, they stated that the payer-specific negotiated rate would exclude components of the total payment amount that are based on risk-sharing or value-based payment methodologies, and the use of those payment methodologies is not uniformly distributed across hospitals. Commenters stated that using Medicare data on fee- for-service case counts to develop a single weighted average standardized median MAO payer-specific negotiated rate by MS-DRG across hospitals means that data from hospitals with less MA penetration, which have less at stake in MA negotiations, is weighted more heavily than data from hospitals with high MA penetration that have more at stake. Commenters also stated that the impact of stoploss provisions and prior authorizations are similarly not uniformly distributed and would skew the relative weights. Commenters also asserted that the proposed approach is not actually market-based due to a lack of competing hospitals and/or a lack of competing MAOs in many areas.

Commenters also stated that CMS has not and cannot analyze the impacts of its proposed policy because it has not yet collected the data and contrasted the impact analysis of this proposed policy with the impact analysis performed when CMS adopted the current cost-based MS-DRG methodology. Commenters stated that the policy could reduce access to care, particularly for high-cost new technologies such as innovative cell and gene therapies, and in rural communities.

Response: With respect to the comments that our proposals would create distortions in the MS-DRG relative weights, we note that there is some similarity between these comments and the comments that we received during the FY 2021 rulemaking (85 FR 58883). We appreciate the additional feedback from commenters regarding differences in payment methodologies and other factors that influence the contracts between MA organizations and hospitals. We thank commenters for their concerns regarding the comparability of payer-specific negotiated charges by MS- DRG due to these and other factors and the potential impact on the MS- DRG relative weights. We believe, as discussed earlier, based on the literature review we conducted and feedback from commenters, that MA rates and Medicare FFS rates are often similar and/or are highly reliant on one another. However, as previously discussed, MA rates to MA contracted inpatient hospitals are not required to be the same as (or based on) Medicare FFS rates. We continue to believe that if market-based data (median payer-specific negotiated charges for MA organizations) are incorporated into the calculation of the MS-DRG relative weights, initially there will be limited impact on the relative weights given the current similarity between MA organization rates and Medicare FFS rates, but that over time the proposal would create an opportunity for negotiations to reflect market dynamics, as noted by a commenter who supported our proposed policy. As discussed

earlier, to the extent the data shows that there would be more than a limited impact on the relative weights initially, which we do not believe will be the case, we intend to provide an opportunity for additional public input and will continue to provide impact analyses of changes in the MS-DRG relative weights in the annual IPPS rulemaking. We remain open to adjusting our finalized policy for the MS-DRG relative weights through future rulemaking prior to the effective date if appropriate.

We note that we did not propose modifications to the process for making adjustments to the MS-DRG classification system itself, nor did we propose changes to the new technology or outlier payment policies at this time. We may revisit these issues in future rulemaking as part of our larger goal of reducing reliance on the hospital chargemaster.

Comment: Commenters indicated that the proposed data collection on Worksheet S-12 would be administratively burdensome and that it was often unclear how the hospital should perform the required calculations. For example, commenters indicated that it was not clear from the proposed instructions how hospitals should (1) crosswalk the MAO's payment methodology to an MS-DRG for payers that do not use the MS-DRG as a basis of payment and (2) calculate the cases for the weighted median.

With respect to the crosswalking issue, commenters indicated that hospitals will not readily be able to crosswalk an MAO's rate for an item or service (or bundle of items and services) to a particular MS- DRG when the MAO does not use an MS-DRG-based rate. For example, commenters indicated that the proposed instructions do not provide information about how a provider would determine an MS-DRG rate for an MAO that pays for an inpatient stay based on a per-diem rate where the length of stay for cases that map to a particular MS-DRG will vary between patients.

Commenters also indicated that an MAO's payment methodology might bundle different cases together such that some cases within an MS-DRG are paid at one rate and others that map to that same MS-DRG are paid at a different rate or such that a single rate is applied to a range of discharges that map to multiple MS-DRGs. Commenters stated the proposed instructions assume that it would be a simple matter of crosswalking one rate to a single discharge and provide no guidance on how the MAO's rate should be determined for a particular MS-DRG when this is not the case. Commenters indicated that to the extent that a hospital would be required to identify each patient discharge to which a particular rate applied, then determine the MS-DRG that would have applied to that case, and then calculate or determine an MS-DRG rate for that payer based on that claims history, CMS severely understates the hospital burden in completing Worksheet S-12 and that this burden and approach is wholly unsupported.

Commenters indicated the calculation of the weighted median for each MS-DRG requires summing the number of inpatient discharges for each MAO for each MS-DRG, but a hospital might get a different result depending on whether inpatient discharges are counted as (1) all inpatient discharges for the MAO's members, (2) those inpatient discharges where the MAO made payment (whether inpatient or otherwise), or (3) those inpatient discharges where the MAO paid for the care at the inpatient rate.

Response: In response to comments that it was not clear from the proposed instructions how hospitals should crosswalk the MAO's payment methodology to an MS-DRG for payers that do not use the MS-DRG as a basis of payment, as discussed in the CY 2026 OPPS/ASC proposed rule (90 FR 33808) if there are codes identified that are not MS-DRG codes, or discharges that are not classified to MS-DRGs, the hospital would crosswalk those codes or classify those discharges to MS-DRGs. Hospitals can utilize the CMS GROUPER and associated definitions manual for this purpose. Hospitals have access to the publicly available version of the CMS Grouper used to group ICD-10 diagnosis and procedure codes to MS-DRGs.\507\ This software and associated definitions manual can be used to crosswalk the code(s) in the MRF or classify the discharge to an MS-DRG code.

\507\ https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.

In response to comments that a hospital would be required to (1) identify each patient discharge to which a particular rate applied, then (2) determine the MS-DRG that would have applied to that case, and then (3) calculate or determine an MS-DRG rate for that payer based on that claims history, we agree with the first two statements, but is it unclear what the commenters mean by the third statement with respect to the claims history. The rates associated with the discharge would come from the MRF and would not be recalculated from the claims history for this purpose. For example, if the rate associated with an MS-DRG discharge was strictly based on a per diem, the hospital would multiply the per diem amount from the MRF by the number of days of the hospital stay. More specifically, as discussed in the CY 2026 OPPS/ASC proposed rule (90 FR 33808) and applied to this situation, in Step 1 the hospital would use its most recent MRF as of the hospital's cost report filing date to identify the MAO payer-specific negotiated charge under 45 CFR 180.50(b)(2)(ii) that the hospital has negotiated with its MAOs for the discharge. Because the payer-specific negotiated charge is based on an algorithm, the hospital would identify and substitute the dollar amount in the MRF required under 45 CFR 180.50(b)(2)(ii)(C) for the algorithm. In this example, that means that the hospital would identify the per diem amount in the MRF and substitute the per diem amount times the length of stay for that discharge for the algorithm.

In response to the comments indicating that the calculation of the weighted median for each MS-DRG requires summing the number of inpatient discharges for each MAO for each MS-DRG, and stating that a hospital might get a different result depending on whether inpatient discharges are counted as (1) all inpatient discharges for the MAO's members, (2) those inpatient discharges where the MAO made payment (whether inpatient or otherwise), or (3) those inpatient discharges where the MAO paid for the care at the inpatient rate, the hospital should use (3) those inpatient discharges where the MAO paid for the care at the inpatient rate as the sole purpose of the discharges in the calculation is to weight the rates contained in the MRF.

We continue to believe that hospitals have the capacity, based on the instructions provided within this final rule with comment period, and the forthcoming revision of the Information Collection Request currently approved under OMB control number 0938-0050 to report this data on the Medicare cost report for cost reporting periods ending on or after January 1, 2026. We may provide additional guidance as appropriate or as determined necessary. Absent additional guidance, we believe that hospitals have the capability to report this market-based data for cost reporting periods ending on or after January 1, 2026.

The burden associated with our proposal is discussed in section XXII of this final rule with comment period.

Comment: Commenters stated that proposing a methodology for one payment system within the CY 2026 OPPS/ASC proposed rule of a different payment system does not reflect the intent of the annual rulemaking cycles as it will not result in the amount or kind of interested party feedback necessary to properly evaluate the proposal.

Response: We may, in certain circumstances, propose policies in a rule associated with a different payment system, including when those policies have cross-cutting implications or when statutory or operational considerations necessitate timely implementation. We believe that the established notice-and-comment rulemaking process for the OPPS provides interested parties with the opportunity to review the proposal and affords all interested parties the ability to submit feedback. We also note the substantial overlap between subsection (d) hospitals and hospitals subject to the OPPS.

After consideration of the comments received, and for the reasons previously discussed, we are finalizing our proposed market-based data collection requirement as proposed. Specifically, we are finalizing that hospitals would report on the Medicare cost report the median payer-specific negotiated charge that the hospital has negotiated with all of its MA organization payers, by MS-DRG, for cost reporting periods ending on or after January 1, 2026. We are also finalizing our proposal that if the hospital disclosed the payer-specific negotiated charge as a percentage or algorithm on the MRF, the hospital would use the “median allowed amount” (as finalized in section XIX. of this final rule with comment period) to calculate the median of the payer- specific negotiated charges. To determine the median payer-specific negotiated charge for MA organizations for a given MS-DRG, a hospital would follow the process as outlined in section XX.C.2. of this final rule with comment period. We are finalizing our definitions of “payer- specific negotiated charge,” “MA organization” and “items and services,” as proposed. For the purposes of calculating and reporting the median payer-specific negotiated charge the hospital has negotiated with all of its MA organization payers, by MS-DRG, we define an MA organization the same way as proposed, and defined in 42 CFR 422.2; namely, an MA organization means a public entity or private entity organized and licensed by a State as a risk-bearing entity (with the exception of provider-sponsored organizations receiving waivers) that is certified by CMS as meeting the MA contract requirements. We are finalizing as proposed that subsection (d) hospitals in the 50 States and DC, as defined at section 1886(d)(1)(B) of the Act, and subsection (d) Puerto Rico hospitals, as defined under section 1886(d)(9)(A) of the Act, would be required to report this median payer-specific negotiated charge information. As discussed in the CY 2026 OPPS/ASC proposed rule, hospitals that do not negotiate payment rates and only receive non-negotiated payments for service would be exempted from this data collection.

We are finalizing our proposed amendment to the regulations to reflect this data collection requirement at 42 CFR 413.20(d)(3), without modification. Specifically, we are finalizing our proposal to amend Sec. 413.20(d)(3) to require hospitals to report the median payer-specific negotiated charge by MS-DRG for MAOs on the Medicare cost report. This data collection requirement is effective for cost reporting periods ending on or after January 1, 2026. As stated in the CY 2026 OPPS/ASC proposed rule, further instructions for the reporting of this market-based data collection requirement on the Medicare cost report will be discussed in a forthcoming new Information Collection Request. This new information collection request will be submitted to OMB for review under control number 0938-1486 (CMS-10935). The OMB control number will not be valid until formally approved by OMB. Please see section XXII.E. of this final rule with comment period for further details. We may provide additional guidance regarding this data collection policy as determined appropriate or necessary. However, absent additional guidance, we believe that hospitals have the capability to report this market-based data, as required, for cost reporting periods ending on or after January 1, 2026.

We are also finalizing the adoption of a market-based MS-DRG relative weight methodology effective for FY 2029. We are finalizing the market-based MS-DRG relative weight methodology, as described within the CY 2026 OPPS/ASC proposed rule, without modification. Specifically, we will begin using the median payer-specific negotiated charge by MS-DRG for MA organizations in the market-based MS-DRG relative weight methodology beginning with the relative weights calculated for FY 2029. We also remain open to making modifications and refinements to this market-based methodology, through rulemaking prior to the FY 2029 effective date. We are not finalizing, at this time, a transition period to this market-based MS-DRG relative weight methodology. We may, however, consider this in future rulemaking prior to FY 2029. We expect, for some period of time, following implementation of this market-based MS-DRG relative weight methodology, as discussed in the CY 2026 OPPS/ASC proposed rule, to continue to estimate and publicly provide the MS-DRG relative weights calculated using the cost-based estimation methodology for informational purposes.

We will continue to consider ways to reduce the role of hospital chargemasters in Medicare IPPS payments, as we described in the CY 2026 OPPS/ASC proposed rule, to further reflect market-based approaches in Medicare FFS payments, to the extent permitted by law.

Executive Order 14279 (April 23, 2025), entitled “Reforming Accreditation to Strengthen Higher Education,” directs the Attorney General, in consultation with the Secretary of Health and Human Services, to “investigate and take appropriate action to terminate unlawful discrimination by American medical schools or graduate medical education entities that is advanced by the Liaison Committee on Medical Education or the Accreditation Council for Graduate Medical Education or other accreditors of graduate medical education, including unlawful `diversity, equity, and inclusion' requirements under the guise of accreditation standards.” \508\ The Executive Order further directs that standards for training doctors should focus solely on providing the highest quality care, and should not require or encourage educational institutions to discriminate unlawfully on the basis of race.

\508\ 90 FR 17529. https://www.federalregister.gov/documents/2025/04/28/2025-07376/reforming-accreditation-to-strengthen-higher-education.

The Accreditation Council for Graduate Medical Education (`ACGME') is the primary organization in the United States that currently conducts accreditation for Graduate Medical Education (`GME') Programs. While ACGME accreditation is a voluntary process, programs that are not accredited by the ACGME generally do not receive Medicare funding from CMS for Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME). Additionally, if the ACGME withdraws accreditation, residents generally must receive assistance to

continue their education from other ACGME-accredited programs.\509\

\509\ https://www.acgme.org/about/acgme-frequently-asked-questions/.

Historically, the ACGME identified `diversity, equity, and inclusion' as a primary value of the organization and a central component of its vision for graduate medical education.\510\ The ACGME's Common Program Requirements required that institutions “must engage in practices that focus on mission-driven, ongoing, systematic recruitment and retention of a diverse and inclusive workforce of residents, fellows (if present), faculty members, senior administrative staff members,” and that organizations' “programs implement policies and procedures related to recruitment and retention of individuals underrepresented in medicine and medical leadership.” \511\ In practice, many such diversity, equity, and inclusion programs unlawfully discriminate against Americans on the basis of race. In Students for Fair Admissions v. President and Fellows of Harvard College (2023), the U.S. Supreme Court held that race-based admissions policies, even when focused on the goal of diversity, violate the Equal Protection Clause of the Fourteenth Amendment unless they satisfy strict scrutiny.\512\ While the ruling applies specifically to admissions decisions at institutions of higher education, its broader reasoning--especially the requirement that any use of race be narrowly tailored to a compelling interest--strongly suggests that race- conscious elements in Diversity, Equity, and Inclusion (DEI) initiatives in Federally funded education programs are generally impermissible. These programs raise particular concerns in the medical context, where patients and the larger society have a compelling need for medical education to be focused primarily on excellence and delivering the best possible care to patients.

\510\ ACGME, Policies and Procedures, February 2, 2025. https://www.acgme.org/globalassets/pdfs/ab_acgmepoliciesprocedures.pdf.

\511\ ACGME, Guide to the Common Program Requirements, March 2024, https://www.acgme.org/globalassets/pdfs/guide-to-the-common-program-requirements-residency.pdf?utm_source=chatgpt.com.

\512\ Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, June 2023. https://www.supremecourt.gov/opinions/22pdf/20-1199_hgdj.pdf.

Section 1886(h) of the Act, as added by section 9202 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99-272), and as currently implemented in CMS regulations at 42 CFR 413.75 through 413.83, establishes a methodology for determining payments to hospitals for the direct costs of approved graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a methodology for the determination of a hospital-specific base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable direct costs of GME in a base period by its number of full- time equivalent (FTE) residents in the base period. In general, Medicare direct GME payments are calculated by multiplying the hospital's updated PRA by the weighted number of FTE residents working in all areas of the hospital complex (and at non-provider sites, when applicable), and the hospital's Medicare share of total inpatient days.

Section 1886(d)(5)(B) of the Act provides for a payment adjustment known as the indirect medical education (IME) adjustment under the IPPS for hospitals that have residents in an approved GME program, to account for the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment are located at 42 CFR 412.105. The hospital's IME adjustment applied to the DRG payments is calculated based on the ratio of the hospital's number of FTE residents training in either the inpatient or outpatient departments of the IPPS hospital (and, for discharges occurring on or after October 1, 1997, at non-provider sites, when applicable) to the number of inpatient hospital beds.

Hospitals may receive direct GME and IME payments for residents in “approved medical residency training programs.” Section 1886(h)(5)(A) of the Act defines an “approved medical residency training program” as “a residency or other postgraduate medical training program participation in which may be counted toward certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine approved by the Secretary.”

The regulations at Sec. 413.75(b) define an “approved medical residency program” for purposes of direct GME payment as a program that meets one of four criteria: (1) is approved by one of the national organizations specified in the regulations at Sec. 415.152; (2) may count towards certification of the participant in a specialty or subspecialty listed in the current edition of certain publications specified in the regulations; (3) is approved by the ACGME as a fellowship program in geriatric medicine; or (4) is a program that would be accredited except for the accrediting agency's reliance upon an accreditation standard that involves induced abortions, regardless of whether the standard provides exceptions or exemptions. The regulations at Sec. 412.105(f)(1)(i) define an “approved teaching program” similarly for purposes of IME payment.

The regulations at Sec. 415.152 define an “approved graduate medical education program” as a residency program approved by one of the following national organizations (or their predecessors): The Accreditation Council for Graduate Medical Education (ACGME), the American Osteopathic Association (AOA), the Commission on Dental Accreditation (CODA) of the American Dental Association, and the Council on Podiatric Medical Education (CPME) of the American Podiatric Medical Association. Thus, in general, under Sec. Sec. 413.75(b) and 412.105(f)(1)(i), an “approved” program can be a program that is accredited by one of these national organizations, or one that leads toward board certification by the American Board of Medical Specialties (ABMS).

The statute gives CMS authority to specify additional criteria for approved GME programs. Therefore, to ensure that accreditation for approved medical residency programs is in compliance with applicable laws related to race-based admission policies and to improve the accreditation process, in the CY 2026 OPPS/ASC proposed rule (90 FR 33811 through 33812), we proposed that accreditors may not require as part of accreditation, or otherwise encourage institutions to put in place, diversity, equity, and inclusion programs that encourage unlawful discrimination on the basis of race or other violations of Federal law. The effective date of this proposed policy would be January 1, 2026. Additionally, we noted that the Secretary may recognize other organizations that meet or exceed Medicare's requirements as accreditors to increase the potential for competition in the accreditation space and improve the quality of the accreditation process.

Our intent in issuing this proposal was to ensure that accreditors of academic medical institutions are focused on the mission of ensuring excellence in graduate medical education, of improving the potential for competition in the accreditation space, and of eliminating unlawful and discriminatory DEI programs. We invited commenters' feedback on this proposal. The following is a summary of

the comments we received and our responses.

Comment: CMS received numerous comments in support of our proposal to modify the definition of “approved medical residency program” so that accreditors may not require as part of accreditation, or otherwise encourage institutions to put in place, diversity, equity, and inclusion programs that encourage unlawful discrimination on the basis of race or other violations of Federal law. A majority of these commenters also expressed support for the Secretary's authority to recognize other organizations as accreditors of graduate medical education programs.

Many commenters that supported the proposal also recommended that CMS expand the policy to explicitly prohibit the use of accreditation standards that violate Federal healthcare conscience laws, including the Church Amendments (42 U.S.C. 300a-7), the Coats-Snowe Amendment (42 U.S.C. 238n), certain provisions of the Affordable Care Act (Pub. L. 111-148), and the Weldon Amendment. These statutory provisions generally prohibit discrimination against recipients of certain Federal funding who refuse to perform abortions or provide other services in violation of their moral or religious convictions. Specifically, a commenter recommended defining an approved program at Sec. 412.105(f)(1)(i)(A) as one that “[i]s approved by one of the national organizations listed in Sec. 415.152 of this chapter, provided that the national organization does not use accreditation criteria that promote or emphasize diversity, equity, inclusion, or awareness based on race, color, sex, sexual orientation or identity, national origin, or any other characteristic which serves as a proxy to achieve the same ends, or that would cause entities or individuals to act contrary to objections protected by Federal conscience and nondiscrimination statutes, including 42 U.S.C. 300a-7, 42 U.S.C. 238n, 42 U.S.C. 18113, or the Weldon Amendment, for example, Consolidated Appropriations Act, 2023, Public Law 117-328, div. H, title V General Provisions, section 507(d)(1) (Dec. 29, 2022)) [sic].” The commenter recommended similar language for other sections of the regulations subject to this proposal. Other commenters stated that the existing regulations at Sec. Sec. 413.75(b) and 412.105(f)(1)(i)(D), which recognize approved programs that would be accredited except for the accrediting agency's reliance upon an accreditation standard that requires an entity to perform an induced abortion, should be expanded to include other services, such as in vitro fertilization, surrogacy, certain forms of family planning, sterilization, sex-rejecting procedures, assisted suicide, euthanasia, medical aid in dying, voluntary stopping of eating and drinking, and inducing death for organ harvesting. A commenter also urged CMS to require that abortion training be offered under an opt-in only model, as opposed to the ACGME's current opt-out requirement.

Commenters stated that these additional provisions are necessary to protect individuals and other healthcare entities from discrimination on the basis of their moral and religious beliefs. Some commenters argued that, as a result of current requirements, individual physicians and faith-based institutions are effectively forced to act in violation of their conscientious objections in order to complete their training or secure Medicare GME funding; several respondents described instances in which they or others experienced allegedly discriminatory treatment as a result of their objections to certain training requirements.

A commenter that supported the proposal also expressed concern that Medicare GME funding may be used to pay for abortions, in violation of the Hyde Amendment, which generally prohibits the use of Federal funding for abortion except under limited circumstances.

Another commenter that supported the proposal encouraged CMS to add language to the regulations that would prevent accreditors from engaging in word play as a means of circumventing the proposed policy. Specifically, the commenter recommended defining an approved program at Sec. 412.105(f)(1)(i)(A) as one that “[i]s approved by one of the national organizations listed in Sec. 415.152 of this chapter, provided that the national organization does not use accreditation criteria that either promote or emphasize diversity, equity, inclusion, or awareness based on race, color, sex, sexual orientation or gender identity, national origin, or any other characteristic which serves as a proxy to achieve the same ends or would cause the hospitals to violate, or reasonably cause the hospitals to believe that they would violate, Federal civil rights laws if adopted by the hospitals.” The commenter recommended similar language for other sections of the regulations subject to this proposal.

Response: We thank the commenters for their support of our proposal.

In response to comments recommending further expansion of the proposed policy, we may take these comments into consideration for future rulemaking. We emphasize that regardless of the inclusion of explicit language in the GME regulations, no entity or individual may be forced to act contrary to objections protected by Federal conscience and nondiscrimination statutes. We also note with regard to the Hyde Amendment that both direct GME and IME payments are made only with respect to services otherwise payable under Medicare, and that abortion services are not payable under Medicare except under the limited circumstances specified in the Hyde Amendment.

In response to a commenter's concerns regarding potential circumvention of the proposed regulations, we believe the language we proposed is sufficiently clear to prevent gaming. However, as we also note in response to a subsequent comment, we agree that the regulations should more explicitly specify the types of practices that will be prohibited under our finalized policy. Therefore, we are finalizing, with modification, our proposed change to the definition of “approved medical residency program” and equivalent terms in the regulations at 42 CFR 412.105(f)(1)(i), 413.75(b) and 415.152, to state that accrediting organizations may not use accreditation criteria that promote or encourage discrimination on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits.

In connection with this policy, we emphasize the independent obligation of all recipients (and subrecipients) of Federal financial assistance to comply with all applicable Federal civil rights laws and, thus, not to discriminate on the bases prohibited by such laws. Thus, we further note that prohibited practices include all other conduct in violation of Federal antidiscrimination laws, including any “unlawful practices” under the Attorney General's Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination (July 29, 2025). Any person or entity that believes that they have been subjected to discrimination in violation of Federal civil rights/antidiscrimination laws can file a complaint with HHS' Office for Civil Rights; information can be located at https://www.hhs.gov/ocr/complaints/index.html.

As we gain more experience with this policy, we may revisit this issue in future rulemaking if we determine that

it is necessary to further refine the regulations to prevent gaming.

Comment: Several commenters opposed our proposed change to the definition of “approved medical residency programs”. Commenters expressed concern that the proposal would create uncertainty for hospitals, disrupt residency training, and potentially exacerbate physician shortages in various specialties. A few commenters emphasized the importance of a diverse physician workforce in achieving positive health outcomes, addressing upstream drivers of health (such as housing and food insecurity), and reducing health disparities, with a commenter adding that the shift away from training informed by diverse American experiences risks eroding trust in healthcare institutions, especially among underserved groups. Another commenter cited studies that they believe demonstrate the continuing adverse effects of implicit bias and systemic racism on public health, as well as the positive impacts that increased diversity and inclusion have on innovation, research, and patient outcomes.

A commenter stated that the proposed policy is unnecessary in light of developments within the GME community that have taken place since the publication of the CY 2026 OPPS/ASC proposed rule. The commenter reported that on September 5, 2025, the ACGME announced that, in response to Federal directives related to diversity, equity and inclusion, it was removing its DEI-related accreditation requirements and closing its Department of DEI. The commenter added that they are not aware of any other GME accrediting organization that includes DEI- related standards within its requirements.

Another commenter requested that, if the proposed policy were to be finalized, CMS should explicitly specify what sort of activities remain permissible for accreditors under the regulations, and whether these include activities such as holistic applicant review, targeted mentorship and coaching, curricula on language access, cultural humility, upstream drivers of health, and outreach that does not rely on impermissible classifications.

Response: We respectfully disagree with the commenters' objections. As we stated in the CY 2026 OPPS/ASC proposed rule, we believe that race-conscious elements of diversity, equity and inclusion policies such as those historically required by the ACGME are generally impermissible under Federal law, as strongly suggested by the Supreme Court's ruling in Students for Fair Admissions v. President and Fellows of Harvard College. In addition, we are unpersuaded by commenters' arguments that diversity, equity and inclusion programs are necessary for achieving positive health outcomes or maintaining trust in healthcare institutions: rather, as we stated in the CY 2026 OPPS/ASC proposed rule, we believe that patients and the larger society have a compelling need for medical education to be focused primarily on excellence and delivering the best possible care to patients.

While our understanding is that the ACGME has removed its DEI- related accreditation standards, we do not believe this renders the proposed policy unnecessary, since the ACGME or another accrediting body might seek to reinstate such requirements in the future. Regarding what activities would remain permissible for accreditors under the proposal, the regulatory text that we are finalizing in this final rule with comment period states that an accrediting organization must not use accreditation criteria that promote or encourage discrimination on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. We emphasize that accrediting bodies should review their requirements to ensure that any activities such as those mentioned by the commenter do not serve as a proxy for unlawful discrimination based on race or other characteristics.

Comment: Several commenters objected to our statement in the CY 2026 OPPS/ASC proposed rule that the Secretary may recognize other organizations that meet or exceed Medicare's requirements as accreditors to increase the potential for competition in the accreditation space and improve the quality of the accreditation process. Commenters expressed concern that the recognition of new accrediting bodies with divergent standards would create uncertainty for hospitals, undermine the rigor of the accreditation process, and jeopardize patient care by diminishing the quality of residency training. A commenter stated that if CMS recognizes additional accreditors, such organizations should be required to: (1) Publish transparent standards and conflict-of-interest safeguards; (2) Demonstrate parity or improvement in patient-safety and competency expectations compared to existing accrediting bodies; and (3) Ensure grandfathering protections so that residents currently in training are not disrupted.

Response: We disagree that the recognition of additional accreditors for graduate medical education programs would lead to the circumstances described by commenters. For instance, we have not observed that the existence of multiple accreditors for various specialties of nursing and allied health education programs has undermined the quality of training or patient care in those specialties. Any new GME accreditors recognized by the Secretary would be subject to the same requirements as current accreditors, including the requirements we are adopting in this final rule with comment period.

After consideration of public comments, we are finalizing, with modification, our proposed change to the definition of “approved medical residency program” and equivalent terms at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152, to specify that accrediting organizations must not use accreditation criteria that promote or encourage discrimination on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits.

We also note that, in line with the Administration's commitment to preventing and reducing chronic disease through improved diet and public health measures, we are considering for future rulemaking how best to encourage accrediting bodies to incorporate nutrition education requirements into the accreditation standards for graduate medical education programs. These efforts would build on the Secretary's recent request to U.S. medical education organizations to submit written plans detailing the scope, timeline, standards alignment, measurable milestones, and accountability measures of their nutrition education commitments.\513\

\513\ https://www.hhs.gov/press-room/hhs-education-nutrition-medical-training-reforms.html.

XXII. Payment for Indirect and Direct Graduate Medical Education Costs (Sec. Sec. 412.105 and 413.75 Through 413.83)

Notice of Closure of Teaching Hospital and Opportunity To Apply for Available Slots