Proposed Rule2026-06642
Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2027 and Updates to the IRF Quality Reporting Program
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Published
April 6, 2026
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This proposed rule would update the prospective payment rates for inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 2027. As required by statute, this proposed rule includes the classification and weighting factors for the IRF prospective payment system's case-mix groups and a description of the methodologies and data used in computing the prospective payment rates for FY 2027. It also continues the third year of the 3-year phaseout of the rural adjustment, which began in FY 2025. This proposed rule includes a solicitation for public comments on alternative data sources for the IRF PPS wage index; proposes to require all therapy treatments or therapy evaluations to begin within 36-hours from midnight on the day of admission; proposes to require a patient's current functional status be documented on the preadmission screening; proposes requirements for the initial Interdisciplinary Team meeting; and includes a request for information on potential future IRF PPS payment reform. Additionally, the proposed rule includes updates to the IRF Quality Reporting Program. Furthermore, the proposed rule includes changes to the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Competitive Bidding Program.
Full Text
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<title>Federal Register, Volume 91 Issue 65 (Monday, April 6, 2026)</title>
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[Federal Register Volume 91, Number 65 (Monday, April 6, 2026)]
[Proposed Rules]
[Pages 17195-17230]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-06642]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412 and 414
[CMS-1845-P]
RIN 0938-AV76
Medicare Program; Inpatient Rehabilitation Facility Prospective
Payment System for Federal Fiscal Year 2027 and Updates to the IRF
Quality Reporting Program
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Proposed rule.
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SUMMARY: This proposed rule would update the prospective payment rates
for inpatient rehabilitation facilities (IRFs) for Federal fiscal year
(FY) 2027. As required by statute, this proposed rule includes the
classification and weighting factors for the IRF prospective payment
system's case-mix groups and a description of the methodologies and
data used in computing the prospective payment rates for FY 2027. It
also continues the third year of the 3-year phaseout of the rural
adjustment, which began in FY 2025. This proposed rule includes a
solicitation for public comments on alternative data sources for the
IRF PPS wage index; proposes to require all therapy treatments or
therapy evaluations to begin within 36-hours from midnight on the day
of admission; proposes to require a patient's current functional status
be documented on the preadmission screening; proposes requirements for
the initial Interdisciplinary Team meeting; and includes a request for
information on potential future IRF PPS payment reform. Additionally,
the proposed rule includes updates to the IRF Quality Reporting
Program. Furthermore, the proposed rule includes changes to the Durable
Medical Equipment, Prosthetics, Orthotics, and Supplies Competitive
Bidding Program.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below by June 1, 2026.
ADDRESSES: In commenting, please refer to file code CMS-1845-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="http://www.regulations.gov/docket/CMS-2026-1024">http://www.regulations.gov/docket/CMS-2026-1024</a>. Follow
the ``Submit a comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1845-P, P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1845-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#71382337121e07140310161431121c025f1919025f161e07"><span class="__cf_email__" data-cfemail="28617a6e4b475e4d5a494f4d684b455b0640405b064f475e">[email protected]</span></a>, for general information.
Kimberly Schwartz, (410) 786-2571, for information about the IRF
payment policies, payment rates and coverage policies.
Patricia Taft, <a href="/cdn-cgi/l/email-protection#a0f0c1d4d2c9c3c9c18ef4c1c6d4e0c3cdd38ec8c8d38ec7cfd6"><span class="__cf_email__" data-cfemail="a2f2c3d6d0cbc1cbc38cf6c3c4d6e2c1cfd18ccacad18cc5cdd4">[email protected]</span></a>, for readers who
experience problems accessing online IRF-PPS documents.
Ariel Cress, (410) 786-8571, for information about the IRF quality
reporting program.
Austin Gutoski, (410) 786-1643, for information about the DMEPOS
CBP.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. CMS will not post on <a href="http://Regulations.gov">Regulations.gov</a> public
comments that make threats to individuals or institutions or suggest
that the commenter will take actions to harm an individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.
Plain Language Summary: In accordance with 5 U.S.C. 553(b)(4), a
plain language summary of this rule
[[Page 17196]]
may be found at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Availability of Certain Information Through the Internet on the CMS
Website
The IRF prospective payment system (IRF PPS) Addenda, along with
other supporting documents and tables referenced in this proposed rule,
are available on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS</a>. The technical
reports that describe the analyses CMS conducted referenced in the
payment reform RFI (Section VIII. of this proposed rule) can be found
at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation/research">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation/research</a>.
We note that prior to 2020, each rule or notice issued under the
IRF PPS included a detailed reiteration of the various regulatory
provisions that have affected the IRF PPS over the years. That
discussion, which has been updated to reflect subsequent years, along
with detailed background information for various other aspects of the
IRF PPS, is now available on the CMS website at <a href="https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf">https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf</a>.
I. Executive Summary
A. Purpose
This proposed rule would update the prospective payment rates for
inpatient rehabilitation facilities (IRFs) for Fiscal Year (FY) 2027
(that is, for discharges occurring on or after October 1, 2026, and on
or before September 30, 2027) under section 1886(j)(3)(C) of the Social
Security Act (the Act). As required by section 1886(j)(5) of the Act,
this proposed rule includes the classification and weighting factors
for the IRF prospective payment system (PPS) case-mix groups (CMGs),
and a description of the methodologies and data used in computing the
prospective payment rates for FY 2027. In addition, the proposed rule
includes a solicitation for public comments on alternative data sources
for the IRF PPS wage index; proposes requirements by revising Sec.
412.622(a)(3)(ii) to require all therapy treatments and/or therapy
evaluations to begin within 36-hours from midnight on the day of
admission (hereafter referred to as the 36-hour rule); proposes to
revise Sec. 412.622(a)(4)(i)(B) to require documentation of a
patient's current functional status in the preadmission screening;
proposes requirements for the initial Interdisciplinary Team (IDT) by
revising Sec. 412.622(a)(5) to require the meeting to occur by the 4th
day of admission to align with the Plan of Care (POC) timeframe; and
includes a Request for Information (RFI) on options to modernize and
revise the primary diagnosis and comorbidity score methodology under
the Skilled Nursing Facility Patient Driven Payment Model (PDPM) for
the IRF PPS.
For the IRF Quality Reporting Program (QRP), this proposed rule
proposes the revision of the IRF QRP data submission deadlines
beginning with the FY 2029 IRF QRP. We are also soliciting public
comments through one RFI on future measure concepts for the IRF QRP.
For the Durable Medical Equipment, Prosthetics, Orthotics, and
Supplies (DMEPOS) Competitive Bidding Program (CBP), this rule proposes
a higher bid surety bond amount for a bidding entity submitting a bid
in Remote Item Delivery (RID) competitive bidding area.
B. Summary of Major Provisions
In this proposed rule, we use the methods described in the FY 2026
IRF PPS final rule (90 FR 37678) to update the prospective payment
rates for FY 2027 using the most current and complete data available at
this time, which is FY 2025 IRF claims and FY 2024 IRF cost report
data, as discussed in section VI. of this proposed rule. In addition,
the proposed rule includes a proposal to revise the 36-Hour Rule at
Sec. 412.622(a)(3)(ii) to require all therapy treatments or therapy
evaluations to begin within 36-hours from midnight on the day of
admission, proposal to revise Sec. 412.622(a)(4)(i)(B) to require
documentation of a patient's current functional status in the
preadmission screening and a proposal for an initial IDT meeting policy
(Sec. 412.622(a)(5)(ii)) to occur by the 4th day of admission to align
with the POC timeframe.
The IRF proposed rule also provides an RFI on options to modernize
the IRF PPS by leveraging and revising the primary diagnosis model and
comorbidity score model used under the Skilled Nursing Facility Patient
Driven Payment Model (PDPM). Additionally, we are soliciting comments
on whether we should consider using alternative data sources to
construct an IRF-specific wage index for potential use in future years
to align with other CMS payment systems.
For the IRF QRP, this proposed rule would propose a revision to the
IRF QRP data submission deadlines beginning with the FY 2029 IRF QRP.
We are also soliciting public comments through one RFI on future
measure concepts for the IRF QRP.
C. Summary of Impact
[GRAPHIC] [TIFF OMITTED] TP06AP26.055
II. Background
A. Statutory Basis and Scope for IRF PPS Provisions
Section 1886(j) of the Act provides for the implementation of a
per-discharge PPS for inpatient rehabilitation hospitals and inpatient
rehabilitation units of a hospital (collectively, hereinafter referred
to as IRFs). Payments under the IRF PPS encompass inpatient operating
and capital costs of furnishing covered rehabilitation services (that
is, routine, ancillary, and capital costs), but not direct graduate
medical education costs, costs of approved nursing and allied health
education activities, bad debts, and other services or items outside
the scope of the IRF PPS. A complete discussion of the IRF PPS
provisions appears in the
[[Page 17197]]
original FY 2002 IRF PPS final rule (66 FR 41316) and the FY 2006 IRF
PPS final rule (70 FR 47880) and we provided a general description of
the IRF PPS for FYs 2007 through 2019 in the FY 2020 IRF PPS final rule
(84 FR 39055 through 39057). A general description of the IRF PPS for
FYs 2020 through 2026, along with detailed background information for
various other aspects of the IRF PPS, is now available on the CMS
website at <a href="https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf">https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf</a>.
Under the IRF PPS from FYs 2002 through 2005, the prospective
payment rates were computed across 100 distinct CMGs, as described in
the FY 2002 IRF PPS final rule (66 FR 41316). We constructed 95 CMGs
using rehabilitation impairment categories (RICs), functional status
(both motor and cognitive), and age (in some cases, cognitive status
and age may not be a factor in defining a CMG). In addition, we
constructed five special CMGs to account for very short stays and for
patients who expire in the IRF.
For each of the CMGs, we developed relative weighting factors to
account for a patient's clinical characteristics and expected resource
needs. Thus, the weighting factors accounted for the relative
difference in resource use across all CMGs. Within each CMG, we created
tiers based on the estimated effects that certain comorbidities would
have on resource use.
We established the Federal PPS rates using a standardized payment
conversion factor (formerly referred to as the budget-neutral
conversion factor). For a detailed discussion of the budget-neutral
conversion factor, please refer to our FY 2004 IRF PPS final rule (68
FR 45684 and 45685). In the FY 2006 IRF PPS final rule (70 FR 47880),
we discussed in detail the methodology for determining the standard
payment conversion factor.
We applied the relative weighting factors to the standard payment
conversion factor to compute the unadjusted prospective payment rates
under the IRF PPS from FYs 2002 through 2005. Within the structure of
the payment system, we then made adjustments to account for interrupted
stays, transfers, short stays, and deaths. Finally, we applied the
applicable adjustments to account for geographic variations in wages
(wage index), the percentage of low- income patients, location in a
rural area (if applicable), and outlier payments (if applicable) to the
IRFs' unadjusted prospective payment rates.
For cost reporting periods that began on or after January 1, 2002,
and before October 1, 2002, we determined the final prospective payment
amounts using the transition methodology prescribed in section
1886(j)(1) of the Act. Under this provision, IRFs transitioning into
the PPS were paid a blend of the Federal IRF PPS rate and the payment
that the IRFs would have received had the IRF PPS not been implemented.
This provision also allowed IRFs to elect to bypass this blended
payment and immediately be paid 100 percent of the Federal IRF PPS
rate. The transition methodology expired as of cost reporting periods
beginning on or after October 1, 2002 (FY 2003), and payments for all
IRFs now consist of 100 percent of the Federal IRF PPS rate.
Section 1886(j) of the Act confers broad statutory authority upon
the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF
PPS final rule (70 FR 47880) and in correcting amendments to the FY
2006 IRF PPS final rule (70 FR 57166), we finalized a number of
refinements to the IRF PPS case-mix classification system (the CMGs and
the corresponding relative weights) and the case-level and facility-
level adjustments. These refinements included the adoption of the
Office of Management and Budget's (OMB's) Core-Based Statistical Area
market definitions; modifications to the CMGs, tier comorbidities; and
CMG relative weights, implementation of a new teaching status
adjustment for IRFs; rebasing and revising the market basket used to
update IRF payments, and updates to the rural, low-income percentage
(LIP), and high-cost outlier adjustments. Beginning with the FY 2006
IRF PPS final rule (70 FR 47908 through 47917), the market basket used
to update IRF payments was a market basket reflecting the operating and
capital cost structures for freestanding IRFs, freestanding inpatient
psychiatric facilities (IPFs), and long-term care hospitals (LTCHs).
Any reference to the FY 2006 IRF PPS final rule in this proposed rule
also includes the provisions effective in the correcting amendments.
For a detailed discussion of the final key policy changes for FY 2006,
please refer to the FY 2006 IRF PPS final rule.
The regulatory history previously included in each rule or notice
issued under the IRF PPS, including a general description of the IRF
PPS for FYs 2007 through 2026, is available on the CMS website at
<a href="https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf">https://www.cms.gov/files/document/irf-regulatory-and-legislative-history.pdf</a>.
B. Provisions of the Affordable Care Act and the Medicare Access and
CHIP Reauthorization Act of 2015 (MACRA) Affecting the IRF PPS in FY
2012 and Beyond
The Patient Protection and Affordable Care Act (Pub. L. 111-148)
was enacted on March 23, 2010. The Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised
several provisions of the Patient Protection and Affordable Care Act,
was enacted on March 30, 2010. In this proposed rule, we refer to the
two statutes collectively as the ``Affordable Care Act'' or ``ACA''.
The ACA included several provisions that affect the IRF PPS in FYs
2012 and beyond. In addition to what was previously discussed, section
3401(d) of the ACA also added section 1886(j)(3)(C)(ii)(I) of the Act
(providing for a ``productivity adjustment'' for FY 2012 and each
subsequent FY). The productivity adjustment for FY 2027 is discussed in
section VI. of this proposed rule. Section 1886(j)(3)(C)(ii)(II) of the
Act provides that the application of the productivity adjustment to the
market basket percentage increase may result in an update that is less
than 0.0 for a FY and in payment rates for a FY being less than such
payment rates for the preceding FY.
Section 3004(b) of the ACA and section 411(b) of the MACRA (Pub. L.
114-10, enacted on April 16, 2015) also addressed the IRF PPS. Section
3004(b) of ACA reassigned the previously designated section 1886(j)(7)
of the Act to section 1886(j)(8) of the Act and inserted a new section
1886(j)(7) of the Act, which contains requirements for the Secretary to
establish a QRP for IRFs. Under that program, data must be submitted in
a form and manner and at a time specified by the Secretary. Beginning
in FY 2014, section 1886(j)(7)(A)(i) of the Act requires the
application of a 2-percentage point reduction to the IRF market basket
percentage increase otherwise applicable to an IRF (after application
of paragraphs (C)(iii) and (D) of section 1886(j)(3) of the Act) for a
FY if the IRF does not comply with the requirements of the IRF QRP for
that FY. Application of the 2-percentage point reduction may result in
an update that is less than 0.0 for a FY and in payment rates for a FY
being lower than payment rates for the preceding FY. Reporting-based
reductions to the IRF market basket percentage increase are not
cumulative; they only apply for the FY involved. Section 411(b) of the
MACRA amended section 1886(j)(3)(C) of the Act by adding paragraph
(iii), which required
[[Page 17198]]
us to apply for FY 2018, after the application of section
1886(j)(3)(C)(ii) of the Act, an increase factor of 1.0 percent to
update the IRF prospective payment rates.
C. Operational Overview of the Current IRF PPS
As described in the FY 2002 IRF PPS final rule (66 FR 41316), upon
the admission and discharge of a Medicare Part A fee-for-service (FFS)
patient, the IRF is required to complete the appropriate sections of a
Patient Assessment Instrument (PAI), designated as the IRF-PAI. In
addition, beginning with IRF discharges occurring on or after October
1, 2009, the IRF is also required to complete the appropriate sections
of the IRF-PAI upon the admission and discharge of each Medicare
Advantage (MA) patient, as described in the FY 2010 IRF PPS final rule
(74 FR 39762) and the FY 2010 IRF PPS correction notice (74 FR 50712).
All required data must be electronically encoded into the IRF-PAI
software product. Generally, the software product includes patient
classification programming called the Grouper software. The Grouper
software uses specific IRF-PAI data elements to classify (or group)
patients into distinct CMGs and account for the existence of any
relevant comorbidities.
The Grouper software produces a five-character CMG number. The
first character is an alphabetic character that indicates the
comorbidity tier. The last four characters are numeric characters that
represent the distinct CMG number. A free download of the Grouper
software is available on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Software.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Software.html</a>. The Grouper software is also embedded in the internet
Quality Improvement and Evaluation System (iQIES) User tool available
in iQIES at <a href="https://www.cms.gov/medicare/quality-safety-oversight-general-information/iqies">https://www.cms.gov/medicare/quality-safety-oversight-general-information/iqies</a>.
Once a Medicare Part A FFS patient is discharged, the IRF submits a
Medicare claim as a Health Insurance Portability and Accountability Act
of 1996 (HIPAA) (Pub. L. 104-191, 110 Stat. 1936 August 21, 1996)
compliant electronic claim or, if the Administrative Simplification
Compliance Act of 2002 (ASCA) (Pub. L. 107-105, enacted on December 27,
2002) permits, a paper claim (a UB-04 or a CMS-1450 as appropriate)
using the five-character CMG number and sends it to the appropriate
Medicare Administrative Contractor (MAC). In addition, once an MA
patient is discharged, in accordance with the Medicare Claims
Processing Manual, chapter 3, section 20.3 (Pub. 100-04), hospitals
(including IRFs) must submit to their MAC an informational-only bill
(type of bill (TOB) 111) that includes Condition Code 04. This will
ensure that the MA days are included in the hospital's Supplemental
Security Income (SSI) ratio (used in calculating the IRF LIP
adjustment) for FY 2007 and beyond. Claims submitted to Medicare must
comply with both ASCA and HIPAA.
Section 3 of the ASCA amended section 1862(a) of the Act by adding
paragraph (22), which requires the Medicare program, subject to section
1862(h) of the Act, to deny payment under Part A or Part B for any
expenses for items or services for which a claim is submitted other
than in an electronic form specified by the Secretary. Section 1862(h)
of the Act, in turn, provides that the Secretary shall waive such
denial in situations in which there is no method available for the
submission of claims in an electronic form or the entity submitting the
claim is a small provider. In addition, the Secretary also has the
authority to waive such denial in such unusual cases as the Secretary
finds appropriate. For more information, see the ``Medicare Program;
Electronic Submission of Medicare Claims'' final rule (70 FR 71008).
Our instructions for the limited number of Medicare claims submitted on
paper are available at <a href="https://www.cms.gov/manuals/downloads/clm104c25.pdf">https://www.cms.gov/manuals/downloads/clm104c25.pdf</a>.
Section 3 of the ASCA operates in the context of the administrative
simplification provisions of HIPAA, which include, among others, the
requirements for transaction standards and code sets codified in 45 CFR
part 160 and part 162, subparts A and I through R (generally known as
the Transactions Rule). The Transactions Rule requires covered
entities, including covered healthcare providers, to conduct covered
electronic transactions according to the applicable transaction
standards. (See the CMS program claim memoranda at <a href="https://www.cms.gov/ElectronicBillingEDITrans/">https://www.cms.gov/ElectronicBillingEDITrans/</a> and listed in the addenda to the Medicare
Intermediary Manual, Part 3, section 3600).
The MAC processes the claim through its software system. This
software system includes pricing programming called the ``Pricer''
software. The Pricer software uses the CMG number, along with other
specific claim data elements and provider-specific data, to adjust the
IRF's prospective payment for interrupted stays, transfers, short
stays, and deaths, and then applies the applicable adjustments to
account for the IRF's wage index, percentage of low-income patients,
rural location, and outlier payments. For discharges occurring on or
after October 1, 2005, the IRF PPS payment also reflects the teaching
status adjustment that became effective as of FY 2006, as discussed in
the FY 2006 IRF PPS final rule (70 FR 47880).
III. Summary of Provisions of the Proposed Rule
In this FY 2027 IRF PPS proposed rule, we are proposing to update
the IRF PPS for FY 2027 and the IRF QRP for FY 2027 and FY 2029.
The proposed policy changes and updates to the IRF prospective
payment rates for FY 2027 will be as follows:
<bullet> Update the CMG relative weights and average length of stay
values for FY 2027 in a budget neutral manner, as discussed in section
IV. of this proposed rule.
<bullet> Update the IRF PPS payment rates for FY 2027 by the IRF
market basket percentage increase, based upon the most current data
available, with a productivity adjustment required by section
1886(j)(3)(C)(ii)(I) of the Act, as described in section V. of this
proposed rule.
<bullet> Update the FY 2027 IRF PPS payment rates by the FY 2027
wage index, applying the third year of the phase-out of the rural
adjustment for IRFs transitioning from rural to urban, and the labor-
related share in a budget-neutral manner, as discussed in section V. of
this proposed rule.
<bullet> Solicit public comments on alternative data sources for
the wage index, as discussed in section V. of this proposed rule.
<bullet> Describe the calculation of the IRF standard payment
conversion factor for FY 2027, as discussed in section V. of this
proposed rule.
<bullet> Update the outlier threshold amount for FY 2027, as
discussed in section VI. of this proposed rule.
<bullet> Update the cost-to-charge ratio (CCR) ceiling and urban/
rural average CCRs for FY 2027, as discussed in section VI. of this
proposed rule.
<bullet> Proposal to require all therapy treatments or therapy
evaluations to begin within 36-hours from midnight on the day of
admission (Sec. 412.622(a)(3)(ii)), as discussed in section VII. of
this proposed rule.
<bullet> Proposal to require the patient's current functional
status is documented in the preadmission screening (Sec.
412.622(a)(4)(i)(B)), as discussed in section VII. of this proposed
rule.
<bullet> Proposal to require the initial IDT meeting to occur by
the 4th day of
[[Page 17199]]
admission and align with the POC timeframe (Sec. 412.622(a)(5)(ii)),
as discussed in section VII. of this proposed rule.
<bullet> The RFI on updating the IRF payment system to explore
options to modernize the IRF PPS by leveraging the existing clinical
classification and comorbidity score methodology used by the Skilled
Nursing Facility (SNF) Patient Driven Payment Model (PDPM) to group
patients by case mix, as discussed in section VIII. of this proposed
rule.
The proposed policy changes and updates to the IRF QRP for FY 2029
are as follows:
<bullet> Revise the IRF QRP data submission deadlines.
<bullet> Request for information on future measure concepts.
<bullet> The proposed policy change and update to the DMEPOS
Competitive Bidding Program (CBP) is as follows:
<bullet> Update the bid surety bond requirement to require a higher
bid surety bond amount for a bidding entity submitting a bid under a
Remote Item Delivery competitive bidding program.
IV. Proposed Updates to the CMG Relative Weights and Average Length of
Stay (ALOS) Values for FY 2027
As specified in Sec. 412.620(b)(1), we calculate a relative weight
for each CMG that is proportional to the resources needed for an
average inpatient rehabilitation case in that CMG. For example, cases
in a CMG with a relative weight of 2, on average, will cost twice as
much as cases in a CMG with a relative weight of 1. Relative weights
account for the variance in cost per discharge due to the variance in
resource utilization among the payment groups, and their use helps to
ensure that IRF PPS payments support beneficiary access to care, as
well as provider efficiency.
In this proposed rule, we would update the CMG relative weights and
ALOS values for FY 2027. Typically, we use the most recent available
data to update the CMG relative weights and ALOS values. For FY 2027,
we are using the FY 2025 IRF claims and FY 2024 IRF cost report data
(CMS Form 2552-10, OMB No 0938-0050). These data are the most current
and complete data available at the time of this proposed rule.
Currently, only a small portion of the FY 2025 IRF cost report data is
available for analysis, but the majority of the FY 2025 IRF claims data
are available for analysis.
In this FY 2027 IRF PPS proposed rule, we are proposing that if
more recent data become available after the publication of the proposed
rule and before the publication of the final rule, we would use such
data to determine the FY 2027 CMG relative weights and ALOS values in
the final rule.
We propose to apply these data using the same methodologies that we
have used to update the CMG relative weights and ALOS values each FY
since we implemented an update to the methodology. The detailed CCR
data from the cost reports of IRF provider units of primary acute care
hospitals is used for this methodology, instead of CCR data from the
associated primary care hospitals, to calculate IRFs' average costs per
case, as discussed in the FY 2009 IRF PPS final rule (73 FR 46372). In
calculating the CMG relative weights, we use a hospital-specific
relative value method to estimate the operating (routine and ancillary
services) and capital costs of IRFs. The process to calculate the CMG
relative weights for this proposed rule is as follows:
Step 1. We estimate the effects that comorbidities have on costs.
Step 2. We adjust the cost of each Medicare discharge (case) to
reflect the effects found in Step 1.
Step 3. We use the adjusted costs from Step 2 to calculate CMG
relative weights, using the hospital-specific relative value method.
Step 4. We normalize the FY 2027 CMG relative weights using a
normalization factor that results in the average CMG relative weights
in FY 2027 being the same as the average CMG relative weights in the FY
2026 IRF PPS final rule (90 FR 37678).
Consistent with the methodology that we have used to update the IRF
classification system in each instance in the past, we are proposing to
update the CMG relative weights for FY 2027 in such a way that total
estimated aggregate payments to IRFs for FY 2027 are the same with or
without the changes (that is, in a budget-neutral manner) by applying a
budget neutrality factor to the standard payment amount. To calculate
the appropriate budget neutrality factor for use in updating the FY
2027 CMG relative weights, we use the following steps:
Step 1. Calculate the estimated total amount of IRF PPS payments
for FY 2027 (with no changes to the CMG relative weights).
Step 2. Calculate the estimated total amount of IRF PPS payments
for FY 2027 by applying the proposed changes to the CMG relative
weights (as discussed in this proposed rule).
Step 3. Divide the amount calculated in Step 1 by the amount
calculated in Step 2 to determine the budget neutrality factor of
0.9990 that would maintain the same total estimated aggregate payments
in FY 2027 with and without the proposed changes to the final CMG
relative weights.
Step 4. Apply the budget neutrality factor from Step 3 to the FY
2027 IRF PPS standard payment amount after the application of the
budget-neutral wage adjustment factor.
In section V. of this proposed rule, we discuss the proposed use of
the existing methodology to calculate the proposed standard payment
conversion factor for FY 2027.
In Table 2, ``Proposed Relative Weights and Average Length of Stay
Values for Case -Mix Groups,'' we present the proposed CMGs, the
comorbidity tiers, the corresponding relative weights, and the ALOS
values for each CMG and tier for FY 2027. The ALOS for each CMG is used
to determine when an IRF discharge meets the definition of a short stay
transfer, which results in a per diem case level adjustment.
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Generally, updates to the CMG relative weights result in some
increases and some decreases to the CMG relative weight values. Table 3
shows how we estimate that the application of the proposed revisions
for FY 2027 would affect particular CMG relative weight values, which
would affect the overall distribution of payments within CMGs and
tiers. We note that, because we propose to implement the CMG relative
weight revisions in a budget-neutral manner (as previously described),
total estimated aggregate payments to IRFs for FY 2027 would not be
affected as a result of the proposed CMG relative weight revisions.
However, the proposed revisions will affect the distribution of
payments within CMGs and tiers.
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As shown in Table 3, 99.4 percent of all IRF cases are in CMGs and
tiers that would experience less than a 5 percent change (either
increase or decrease) in the CMG relative weight value as a result of
the proposed revisions for FY 2027. The proposed changes in the ALOS
values for FY 2027, compared with the FY 2026 ALOS values, are small
and do not show any particular trends in IRF length of stay patterns.
The methodology that we use to update the CMG relative weights uses
the most recent cost data reported by IRFs to compute relative weights
that reflect the relative costliness of different IRF cases in a budget
neutral manner. We increase or decrease relative weights of the CMGs
annually, including for those CMGs associated with the 13 conditions
that qualify for the 60 percent rule, under 42 CFR 412.29(b)(2), based
only on the cost data reported to us by IRFs each year. We believe that
these data accurately reflect the severity of the IRF patient
population and the associated costs of caring for these patients in the
IRF setting. The CMG relative weights are updated each year based on
the most recent available data for the full population of IRF Medicare
fee-for-service beneficiaries. This ensures that the IRF case-mix
system is as reflective as possible of changes in the IRF patient
populations and the associated coding practices and ensures that IRF
payments appropriately reflect the relative costs of caring for all
types of IRF patients.
V. FY 2027 IRF PPS Payment Update
A. Background
Section 1886(j)(3)(C) of the Act requires the Secretary to
establish an increase factor that reflects changes over time in the
prices of an appropriate mix of goods and services for which payment is
made under the IRF PPS. According to section 1886(j)(3)(A)(i) of the
Act, the increase factor shall be used to update the IRF prospective
payment rates for each FY. Section 1886(j)(3)(C)(ii)(I) of the Act
requires the application of the productivity adjustment described in
section 1886(b)(3)(B)(xi)(II) of the Act. Thus, we propose to update
the IRF PPS payments for FY 2027 by a market basket percentage increase
as required by section 1886(j)(3)(C) of the Act based upon the most
current data available, with a productivity adjustment as required by
section 1886(j)(3)(C)(ii)(I) of the Act.
We have utilized various market baskets through the years in the
IRF PPS. For a discussion of these market baskets, we refer readers to
the FY 2016 IRF PPS final rule (80 FR 47046).
Beginning with FY 2024, we finalized a rebased and revised IRF
market basket to reflect a 2021 base year. The FY 2024 IRF PPS final
rule (88 FR 50966 through 50988) contains a complete discussion of the
development of the 2021-based IRF market basket.
B. Proposed FY 2027 Market Basket Update and Productivity Adjustment
1. Proposed FY 2027 Market Basket Update
For FY 2027 (that is, beginning October 1, 2026, and ending
September 30, 2027), we propose to update the IRF PPS payments by a
market basket percentage increase as required by section 1886(j)(3)(C)
of the Act, with a productivity adjustment as required by section
1886(j)(3)(C)(ii)(I) of the Act. For FY 2027, we propose to use the
same methodology described in the FY 2026 IRF PPS final rule (90 FR
37687 through 37691).
Consistent with historical practice, we propose to estimate the
market basket update for the IRF PPS for FY 2027 based on the most
recently available data at the time of rulemaking. For this proposed
rule, based on IHS Global Inc.'s (IGI) fourth quarter 2025 forecast
with historical data through the third quarter of 2025, the proposed
2021-based IRF market basket percentage increase for FY 2027 is
projected to be 3.2 percent. IGI is a nationally recognized economic
and financial forecasting firm with which CMS contracts to forecast the
components of the market baskets.\1\ We also propose that if more
recent data become available after the publication of the proposed rule
and before the publication of the final rule (for example, a more
recent estimate of the market basket percentage increase or
productivity adjustment), we would use such data, if appropriate, to
determine the FY 2027 IRF market basket update in the final rule.
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\1\ <a href="https://www.spsglobal.com/en">https://www.spsglobal.com/en</a>.
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2. Proposed FY 2027 Productivity Adjustment
Section 1886(j)(3)(C)(ii) of the Act requires that, after
establishing the increase factor for a FY, the Secretary shall reduce
such increase factor for FY 2012 and each subsequent FY, by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act. Section 1886(b)(3)(B)(xi)(II) of the Act sets forth the
definition of this productivity adjustment. The statute defines the
productivity adjustment to be equal to the 10-year moving average of
changes in annual economy-wide, private nonfarm business multifactor
productivity (as projected by the Secretary for the 10-year period
ending with the applicable FY, year, cost reporting period, or other
annual period) (the ``productivity adjustment'').
The U.S. Department of Labor's Bureau of Labor Statistics (BLS)
publishes the official measures of productivity for the U.S. economy.
The productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of
the Act is published by BLS as private nonfarm business total factor
productivity (TFP) previously referred to as multifactor
productivity).\2\ We refer readers to <a href="https://www.bls.gov/productivity/">https://www.bls.gov/productivity/</a>
for the BLS historical published TFP data. A complete description of
IGI's TFP projection methodology is available on the CMS website at
https://www.cms.gov/data-research/statistics-trends-and-reports/
medicare-program-
[[Page 17205]]
rates-statistics/market-basket-research-and-information.
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\2\ <a href="https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm">https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm</a>.
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For this FY 2027 IRF PPS proposed rule, based on IGI's fourth
quarter 2025 forecast, the 10-year moving average growth of TFP for FY
2027 is projected to be 0.8 percent. In accordance with section
1886(j)(3)(C) of the Act, we propose to base the FY 2027 IRF market
basket percentage increase, which is used to determine the applicable
percentage increase for the IRF payments, on IGI's fourth quarter 2025
forecast of the 2021-based IRF market basket. We propose to then reduce
the market basket percentage increase by the proposed productivity
adjustment for FY 2027 of 0.8 percentage point (the 10-year moving
average growth of TFP for the period ending FY 2027 based on IGI's
fourth quarter 2025 forecast). Therefore, the proposed FY 2027 IRF
market basket update is 2.4 percent (3.2 percent market basket
percentage increase reduced by the 0.8 percentage point productivity
adjustment). Furthermore, we propose that if more recent data become
available after the publication of the proposed rule and before the
publication of the final rule (for example, a more recent estimate of
the market basket percentage increase and productivity adjustment), we
would use such data, if appropriate, to determine the FY 2027 IRF
market basket percentage increase and productivity adjustment in the
final rule.
In its March 2026 Report to Congress, MedPAC recommended that
Congress should reduce the IRF PPS base payment rate by 7 percent for
FY 2027.\3\ As discussed, and in accordance with sections 1886(j)(3)(C)
and 1886(j)(3)(D) of the Act, the Secretary proposes to update the IRF
PPS payment rates for FY 2027 by the proposed IRF market basket update
of 2.4 percent. Section 1886(j)(3)(C) of the Act does not provide the
Secretary with the authority to apply a different update factor to IRF
PPS payment rates for FY 2027.
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\3\ March 2026 Report to the Congress: Medicare Payment Policy.
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We invite public comments on our proposals for the FY 2027 market
basket percentage increase and productivity adjustment.
C. Proposed FY 2027 IRF Labor-Related Share
Section 1886(j)(6) of the Act specifies that the Secretary is to
adjust the proportion (as estimated by the Secretary from time to time)
of IRFs' costs that are attributable to wages and wage-related costs,
of the prospective payment rates computed under section 1886(j)(3) of
the Act, for area differences in wage levels by a factor (established
by the Secretary) reflecting the relative hospital wage level in the
geographic area of the rehabilitation facility compared to the national
average wage level for such facilities. The labor-related share is
determined by identifying the national average proportion of total
costs that are related to, influenced by, or vary with the local labor
market. We propose to continue to classify a cost category as labor-
related if the costs are labor-intensive and vary with the local labor
market.
Based on our definition of the labor-related share and the cost
categories in the 2021-based IRF market basket, we propose to calculate
the labor-related share for FY 2027 as the sum of the FY 2027 relative
importance of Wages and Salaries, Employee Benefits, Professional Fees:
Labor-Related, Administrative and Facilities Support Services,
Installation, Maintenance, and Repair Services, All Other: Labor-
Related Services, and a portion of the Capital-Related relative
importance from the 2021-based IRF market basket. For more details
regarding the methodology for determining specific cost categories for
inclusion in the 2021-based IRF labor-related share, see the FY 2024
IRF PPS final rule (88 FR 50985 through 50988).
The relative importance reflects the different rates of price
change for these cost categories between the base year (2021) and FY
2027. We calculate the labor-related relative importance from the IRF
market basket, and it approximates the labor-related portion of the
total costs after taking into account historical and projected price
changes between the base year and FY 2027. The price proxies that move
the different cost categories in the market basket do not necessarily
change at the same rate, and the relative importance captures these
changes. Based on IGI's fourth quarter 2025 forecast of the 2021-based
IRF market basket, the sum of the FY 2027 relative importance for Wages
and Salaries, Employee Benefits, Professional Fees: Labor-Related,
Administrative and Facilities Support Services, Installation
Maintenance & Repair Services, and All Other: Labor-Related Services is
70.8 percent. We propose that the portion of Capital-Related costs that
are influenced by the local labor market is 46 percent. Since the
relative importance for Capital-Related costs is 8.1 percent of the
2021-based IRF market basket for FY 2027, we propose to take 46 percent
of 8.1 percent to determine the labor-related share of Capital-Related
costs for FY 2027 which is 3.7 percent. Therefore, we propose a total
labor-related share for FY 2027 of 74.5 percent (the sum of 70.8
percent for the proposed labor-related share of operating costs and 3.7
percent for the proposed labor-related share of Capital-Related costs).
We propose that if more recent data subsequently become available after
publication of the proposed rule and before the publication of the
final rule (for example, a more recent estimate of the labor-related
share), we would use such data, if appropriate, to determine the FY
2027 IRF labor-related share in the final rule.
Table 4 shows the current estimate of the proposed FY 2027 labor-
related share and the FY 2026 final labor-related share using the 2021-
based IRF market basket relative importance.
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We invite public comments on the proposed labor-related share for
FY 2027.
D. Proposed Wage Adjustment for FY 2027
1. Background
Section 1886(j)(6) of the Act requires the Secretary to adjust the
proportion of rehabilitation facilities' costs attributable to wages
and wage-related costs (as estimated by the Secretary from time to
time) by a factor (established by the Secretary) reflecting the
relative hospital wage level in the geographic area of the
rehabilitation facility compared to the national average wage level for
those facilities. The Secretary is required to update the IRF PPS wage
index on the basis of information available to the Secretary on the
wages and wage-related costs to furnish rehabilitation services. Any
adjustments or updates made under section 1886(j)(6) of the Act for a
FY are made in a budget-neutral manner.
In the FY 2023 IRF PPS final rule (87 FR 47054 through 47056) we
finalized a policy to apply a 5-percent cap on any decrease to a
provider's wage index from its wage index in the prior year, regardless
of the circumstances causing the decline. We amended IRF PPS
regulations at Sec. 412.624(e)(1)(ii) to reflect this permanent cap on
wage index decreases. Additionally, we finalized a policy that a new
IRF would be paid the wage index for the area in which it is
geographically located for its first full or partial FY with no cap
applied because a new IRF would not have a wage index in the prior FY.
A full discussion of the adoption of this policy is found in the FY
2023 IRF PPS final rule.
For FY 2027, we propose to maintain the policies and methodologies
described in the FY 2026 IRF PPS final rule (90 FR 37678 related to the
labor market area definitions and the wage index methodology for areas
with wage data. Thus, we use the core based statistical areas (CBSAs)
labor market area definitions and the FY 2027 pre-reclassification and
pre-floor hospital wage index data. In accordance with section
1886(d)(3)(E) of the Act, the FY 2027 pre-reclassification and pre-
floor hospital wage index is based on data submitted for hospital cost
reporting periods beginning on or after October 1, 2022, and before
October 1, 2023 (that is, FY 2024 cost report data).
In addition, we will continue to use the same methodology discussed
in the FY 2008 IRF PPS final rule (72 FR 44299) to address those
geographic areas in which there are no hospitals and, thus, no hospital
wage index data on which to base the calculation for the FY 2027 IRF
PPS wage index. For FY 2027, the only rural area without wage index
data available is in North Dakota. For urban areas without specific
hospital wage index data, we will continue using the average wage
indexes of all urban areas within the State to serve as a reasonable
proxy for the wage index of that urban CBSA as proposed and finalized
in FY 2006 (70 FR 47927). For FY 2027, the only urban area without wage
index data available is CBSA 25980, Hinesville Fort Stewart, Georgia.
For FY 2027, we are proposing to continue to use the concurrent
pre-floor, pre-reclassified IPPS hospital wage index as the basis for
the IRF wage index. We continue to consider this an appropriate source
of wage index data to estimate costs per day, consistent with our wage
index policy at Sec. 412.624(e)(1). At the same time, we routinely
assess whether more recent or alternative data sources may further
enhance the accuracy and representativeness of our estimates. We note
that other payment systems have explored and are exploring alternative
wage index methodologies under their specific programmatic and
statutory circumstances. For example, CMS finalized changes to the End-
Stage Renal Disease (ESRD) PPS wage index using the Bureau of Labor
Statistics (BLS) occupation-level wage data in the CY 2025 ESRD PPS
final rule (89 FR 89084). While this approach was developed under the
specific programmatic and statutory circumstances of the ESRD PPS and
may not be directly transferable to the IRF PPS, CMS is interested in
exploring whether similar methodologies using publicly available wage
data could be adapted to reflect the geographic variation in labor
costs for inpatient rehabilitation facilities.
In its 2023 Report to Congress,\4\ MedPAC discussed various
conceptual approaches to Medicare wage indexes, including the use of
county-level wage data from BLS with an occupational mix to construct
wage indexes that are more specific to the payment setting. MedPAC has
previously written about using all-employer, occupation-level
[[Page 17207]]
wage data to establish different weights for setting-specific
occupational labor mixes as one approach to geographic adjustments.
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\4\ <a href="https://www.medpac.gov/document/june-2023-report-to-the-congress-medicare-and-the-health-care-delivery-system/">https://www.medpac.gov/document/june-2023-report-to-the-congress-medicare-and-the-health-care-delivery-system/</a> <a href="https://www.medpac.gov/wp-content/uploads/2022/07/Wage-index-March-2023-SEC.pdf">https://www.medpac.gov/wp-content/uploads/2022/07/Wage-index-March-2023-SEC.pdf</a>.
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We are soliciting comments on whether we should consider using
alternative data sources to construct an IRF-specific wage index for
potential use in future years. CMS seeks feedback to understand the
potential advantages and limitations of using alternative data sources,
such as BLS data and IRF cost reports, as well as other methodologies
that interested parties believe could appropriately reflect the
geographic variation in labor costs for IRFs. In addition, as discussed
elsewhere in the Federal Register, we note that we are also considering
the potential use of alternative data sources in other payment systems
including the Inpatient Facilities PPS, Skilled Nursing Facilities PPS,
and Hospice PPS. We seek feedback on the unique considerations
applicable to IRFs that should inform how CMS considers the potential
use of alternative data sources.
We invite public comments on our proposals regarding the Wage
Adjustment for FY 2027 and on the potential use of alternative data
sources for the IRF PPS Wage index.
2. Core-Based Statistical Areas (CBSAs) for the FY 2027 IRF Wage Index
The wage index used for the IRF PPS is calculated using the pre-
reclassification and pre-floor hospital wage index data and is assigned
to the IRF on the basis of the labor market area in which the IRF is
geographically located. IRF labor market areas are delineated based on
the CBSAs established by the OMB. The CBSA delineations (which were
implemented for the IRF PPS beginning with FY 2016) are based on
revised OMB delineations issued on February 28, 2013, in OMB Bulletin
No. 13-01. OMB Bulletin No. 13-01 established- revised delineations for
Metropolitan Statistical Areas, Micropolitan Statistical Areas, and
Combined Statistical Areas in the United States and Puerto Rico based
on the 2010 Census and provided guidance on the use of the delineations
of these statistical areas using standards published in the June 28,
2010, Federal Register (75 FR 37246 through 37252). We refer readers to
the FY 2016 IRF PPS final rule (80 FR 47068 through 47076) for a full
discussion of our implementation of the OMB labor market area
delineations beginning with the FY 2016 wage index.
Generally, OMB issues major revisions to statistical areas every 10
years, based on the results of the decennial census. Additionally, OMB
occasionally issues updates and revisions to the statistical areas in
between decennial censuses to reflect the recognition of new areas or
the addition of counties to existing areas. In some instances, these
updates merge formerly separate areas, transfer components of an area
from one area to another or drop components from an area. On July 15,
2015, OMB issued OMB Bulletin No. 15-01, which provides minor updates
to and supersedes OMB Bulletin No. 13-01 that was issued on February
28, 2013. The attachment to OMB Bulletin No. 15-01 provides detailed
information on the update to statistical areas since February 28, 2013.
The updates provided in OMB Bulletin No. 15-01 are based on the
application of the 2010 Standards for Delineating Metropolitan and
Micropolitan Statistical Areas to Census Bureau population estimates
for July 1, 2012, and July 1, 2013.
In the FY 2018 IRF PPS final rule (82 FR 36250 through 36251), we
adopted the updates set forth in OMB Bulletin No. 15-01 effective
October 1, 2017, beginning with the FY 2018 IRF wage index. For a
complete discussion of the adoption of the updates set forth in OMB
Bulletin No. 15-01, we refer readers to the FY 2018 IRF PPS final rule.
In the FY 2019 IRF PPS final rule (83 FR 38527), we continued to use
the OMB delineations that were adopted beginning with FY 2016 to
calculate the area wage indexes, with updates set forth in OMB Bulletin
No. 15-01 that we adopted beginning with the FY 2018 wage index.
On August 15, 2017, OMB issued OMB Bulletin No. 17-01, which
provided updates to and superseded OMB Bulletin No. 15-01 that was
issued on July 15, 2015. The attachments to OMB Bulletin No. 17-01
provide detailed information on the update to statistical areas since
July 15, 2015, and are based on the application of the 2010 Standards
for Delineating Metropolitan and Micropolitan Statistical Areas to
Census Bureau population estimates for July 1, 2014, and July 1, 2015.
In the FY 2020 IRF PPS final rule (84 FR 39090 through 39091), we
adopted the updates set forth in OMB Bulletin No. 17-01 effective
October 1, 2019, beginning with the FY 2020 IRF wage index.
On April 10, 2018, OMB issued OMB Bulletin No. 18-03, which
superseded the August 15, 2017 OMB Bulletin No. 17-01, and on September
14, 2018, OMB issued OMB Bulletin No. 18-04, which superseded the April
10, 2018 OMB Bulletin No. 18-03. These bulletins established revised
delineations for Metropolitan Statistical Areas, Micropolitan
Statistical Areas, and Combined Statistical Areas, and provided
guidance on the use of the delineations of these statistical areas. A
copy of this bulletin may be obtained at <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>.
To this end, as discussed in the FY 2021 IRF PPS proposed (85 FR
22075 through 22079) and final (85 FR 48434 through 48440) rules, we
adopted the revised OMB delineations identified in OMB Bulletin No.
1804 (available at <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>) beginning October 1, 2020, including a 1 year
transition for FY 2021 under which we applied a 5-percent cap on any
decrease in an IRF's wage index compared to its wage index for the
prior fiscal year (FY 2020). The updated OMB delineations more
accurately reflect the contemporary urban and rural nature of areas
across the country, and the use of such delineations allows us to
determine more accurately the appropriate wage index and rate tables to
apply under the IRF PPS. OMB issued further revised CBSA delineations
in OMB Bulletin No. 20-01, on March 6, 2020 (available on the web at
<a href="https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf</a>). However, we determined that the changes in OMB Bulletin No.
20-01 do not impact the CBSA-based labor market area delineations
adopted in FY 2021. Therefore, we did not propose to adopt the revised
OMB delineations identified in OMB Bulletin No. 20-01 for FY 2022
through FY 2024.
On July 21, 2023, OMB issued OMB Bulletin No. 23-01 (available at
<a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>) which updates and supersedes OMB Bulletin No. 20-01 based upon
the 2020 Standards for Delineating Core Based Statistical Areas (``the
2020 Standards'') published by OMB on July 16, 2021 (86 FR 37770). OMB
Bulletin No. 23-01 revised CBSA delineations that are comprised of
counties and equivalent entities (for example, boroughs; a city and
borough; and a municipality in Alaska; planning regions in Connecticut;
parishes in Louisiana; municipios in Puerto Rico; and independent
cities in Maryland, Missouri, Nevada, and Virginia). As discussed in
the FY 2025 IRF PPS final rule (89 FR 64291 through 64304), we adopted
the revised OMB delineations identified in OMB Bulletin No. 23-01.
3. Final Year of the 3-Year Phase Out of the Rural Adjustment
For FY 2027, CMS is continuing the 3-year budget-neutral phase-out
of the
[[Page 17208]]
rural adjustment for FY 2024 IRFs transitioning from rural to urban
status in FY 2025 under the revised CBSA delineations. As stated in the
FY 2025 IRF PPS final rule (89 FR 64276), the purpose of this gradual
phase-out of the rural adjustment for these facilities is to reduce the
potential negative financial impacts associated with this
reclassification. In FY 2027, the final year of this phase-out,
affected IRFs will receive the full FY 2027 wage index with no further
FY 2024 rural adjustment. This final step is part of a gradual
reduction of the 14.9 percent rural adjustment over three fiscal years
FYs 2025, 2026 and 2027. Furthermore, this policy does not apply to
urban IRFs transitioning to rural status, as they will receive the full
rural adjustment.
4. IRF Budget-Neutral Wage Adjustment Factor Methodology
To calculate the wage-adjusted facility payment for the payment
rates set forth in this proposed rule, we multiply the unadjusted
Federal payment rate for IRFs by the FY 2027 labor-related share based
on the 2021-based IRF market basket relative importance (74.5 percent)
to determine the labor-related portion of the standard payment amount.
(A full discussion of the calculation of the labor-related share
appears in section VI. of this proposed rule.) We then multiply the
labor-related portion by the applicable IRF wage index. The wage index
tables are available on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html</a>.
Adjustments or updates to the IRF wage index made under section
1886(j)(6) of the Act must be made in a budget-neutral manner. We
calculate a budget-neutral wage adjustment factor as established in the
FY 2004 IRF PPS final rule (68 FR 45689) and codified at Sec.
412.624(e)(1), as described in the steps below. We use the listed steps
to ensure that the FY 2027 IRF standard payment conversion factor
reflects the update to the wage indexes (based on the FY 2023 hospital
cost report data) and the update to the labor-related share, in a
budget-neutral manner:
Step 1. Calculate the total amount of estimated IRF PPS payments
using the labor-related share and the wage indexes from FY 2026 (as
published in the FY 2026 IRF PPS final rule (90 FR 37678).
Step 2. Calculate the total amount of estimated IRF PPS payments
using the FY 2027 wage index values (based on updated hospital wage
data and taking into account the permanent 5-percent cap on wage index
decreases when applicable) and the FY 2027 labor-related share of 74.5
percent.
Step 3. Divide the amount calculated in Step 1 by the amount
calculated in Step 2. The resulting quotient is the proposed FY 2027
budget-neutral wage adjustment factor of 1.0033.
Step 4. Apply the budget neutrality factor from Step 3 to the FY
2027 IRF PPS standard payment amount after the application of the
market basket percentage increase to determine the FY 2027 standard
payment conversion factor.
We discuss the calculation of the standard payment conversion
factor for FY 2027 in section VI.E. of this proposed rule.
We invite public comments on our proposals regarding the wage
adjustment for FY 2027.
E. Description of the Proposed IRF Standard Payment Conversion Factor
Methodology and Payment Rates for FY 2027
To calculate the proposed IRF standard payment conversion factor
for FY 2027, as illustrated in Table 5, we begin by applying the IRF
market basket update for FY 2027, as adjusted in accordance with
sections 1886(j)(3)(C) of the Act, to the standard payment conversion
factor for FY 2026 ($19,371). Applying the 2.4 percent IRF market
basket update for FY 2027 to the standard payment conversion factor for
FY 2026 of $19,371 yields a FY 2027 standard payment amount of $19,836.
Then, we apply the budget neutrality factor for the FY 2027 wage index
(taking into account the policy placing a permanent 5-percent cap on
decreases to a provider's wage index), and labor-related share of
1.0033, which results in an IRF standard payment amount of $19,901. We
next apply the budget neutrality factor for the CMG relative weights of
0.9990, which results in the proposed IRF standard payment conversion
factor of $19,881 for FY 2027.
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We then apply the CMG relative weights described in section V.E of
this rule to the proposed FY 2027 standard payment conversion factor
($19,881), to determine the unadjusted IRF prospective payment rates
for FY 2027. The unadjusted IRF prospective payment rates for FY 2027
are shown in Table 6.
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F. Example of the Methodology for Adjusting the Prospective Payment
Rates
Table 7 illustrates the methodology for adjusting the prospective
payments (as described in section V. of this proposed rule). The
following examples are based on two hypothetical Medicare
beneficiaries, both classified as CMG 0104 (without comorbidities). The
unadjusted prospective payment rate for CMG 0104 (without
comorbidities) appears in Table 6.
Example: One beneficiary is in Facility A, an IRF located in rural
Spencer County, Indiana, and another beneficiary is in Facility B, an
IRF located in urban Harrison County, Indiana. Facility A, a rural non-
teaching hospital has a Disproportionate Share Hospital (DSH)
percentage of 5 percent (which would result in a LIP adjustment of
1.0156), a wage index of 0.8624, and
[[Page 17211]]
a rural adjustment of 14.9 percent. Facility B, an urban teaching
hospital, has a DSH percentage of 15 percent (which would result in a
LIP adjustment of 1.0454), a wage index of 0.9492, and a teaching
status adjustment of 0.0784.
To calculate each IRF's labor and non-labor portion of the
prospective payment, we begin by taking the FY 2027 unadjusted
prospective payment rate for CMG 0104 (without comorbidities) from
Table 6. Then, we multiply the labor-related share for FY 2027 (74.5
percent) described in section VI. of this proposed rule by the
unadjusted prospective payment rate. To determine the non-labor portion
of the prospective payment rate, we subtract the labor portion of the
Federal payment from the unadjusted prospective payment.
To compute the wage-adjusted prospective payment, we multiply the
labor portion of the Federal payment by the appropriate wage index
located in the applicable wage index table. This table is available on
the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html</a>.
The resulting figure is the wage-adjusted labor amount. Next, we
compute the proposed wage-adjusted Federal payment by adding the wage-
adjusted labor amount to the non-labor portion of the Federal payment.
Adjusting the wage-adjusted Federal payment by the facility-level
adjustments involves several steps. First, we take the wage-adjusted
prospective payment and multiply it by the appropriate rural and LIP
adjustments (if applicable). Second, to determine the appropriate
amount of additional payment for the teaching status adjustment (if
applicable), we multiply the teaching status adjustment by the wage-
adjusted and rural-adjusted amount (if applicable). Finally, we add the
additional teaching status payments (if applicable) to the wage, rural,
and LIP-adjusted prospective payment rates. Table 7 illustrates the
components of the adjusted payment calculation.
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Thus, the adjusted payment for Facility A would be $31,798.41 and
the adjusted payment for Facility B would be $32,829.76.
VI. Proposed Update to Payments for High-Cost Outliers Under the IRF
PPS for FY 2027
A. Proposed Update to the Outlier Threshold Amount for FY 2027
Section 1886(j)(4) of the Act provides the Secretary with the
authority to make payments in addition to the basic IRF prospective
payments for cases incurring extraordinarily high costs. A case
qualifies for an outlier payment if the estimated cost of the case
exceeds the adjusted outlier threshold. We calculate the adjusted
outlier threshold by adding the IRF PPS payment for the case (that is,
the CMG payment adjusted by all of the relevant facility-level
adjustments) and the adjusted threshold amount (also adjusted by all of
the relevant facility-level adjustments). Then, we calculate the
estimated cost of a case by multiplying the IRF's overall Cost-to-
Charge Ratio (CCR) by the Medicare allowable covered charge. If the
estimated cost of the case is higher than the adjusted outlier
threshold, we make an outlier payment for the case equal to 80 percent
of the difference between the estimated cost of the case and the
outlier threshold.
In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we
discussed our rationale for setting the outlier threshold amount for
the IRF PPS so that estimated outlier payments would equal 3 percent of
total estimated payments. For the FY 2002 IRF PPS final rule, we
analyzed various outlier policies using 3, 4, and 5 percent of the
total estimated payments, and we concluded that an outlier policy set
at 3 percent of total estimated payments would optimize the extent to
which we could reduce the financial risk to IRFs of caring for high-
cost patients, while still providing for adequate payments for all
other (non-high cost outlier) cases.
Subsequently, we updated the IRF outlier threshold amount in the
FYs 2006 through 2026 IRF PPS final rules and the FY 2011 and FY 2013
notices
[[Page 17212]]
(70 FR 47880, 71 FR 48354, 72 FR 44284, 73 FR 46370, 74 FR 39762, 75 FR
42836, 76 FR 47836, 76 FR 59256, 77 FR 44618, 78 FR 47860, 79 FR 45872,
80 FR 47036, 81 FR 52056, 82 FR 36238, 83 FR 38514, 84 FR 39054, 85 FR
48444, 86 FR 42362, 87 FR 47038, 88 FR 50956, 89 FR 64276 and 90 FR
37678, respectively) to maintain estimated outlier payments at 3
percent of total estimated payments. We also stated in the FY 2009
final rule (73 FR 46370 through 46385) that we would continue to
analyze the estimated outlier payments for subsequent years and adjust
the outlier threshold amount as appropriate to maintain the 3 percent
target.
To update the IRF outlier threshold amount for FY 2027, we propose
to use FY 2025 claims data and the same methodology that we used to set
the initial outlier threshold amount in the FY 2002 IRF PPS final rule
(66 FR 41362 through 41363), which is also the same methodology that we
used to update the outlier threshold amounts for FYs 2006 through 2026.
The outlier threshold is calculated by simulating aggregate payments
and using an iterative process to determine a threshold that results in
outlier payments being equal to 3 percent of total payments under the
simulation. To determine the outlier threshold for FY 2027, we estimate
the amount of FY 2027 IRF PPS aggregate and outlier payments using the
most recent claims available (FY 2025) and the proposed FY 2027
standard payment conversion factor, labor-related share, and wage
indexes, incorporating any applicable budget-neutrality adjustment
factors. The outlier threshold is adjusted either up or down in this
simulation until the estimated outlier payments equal 3 percent of the
estimated aggregate payments. Based on an analysis of the preliminary
data used for the proposed rule, we estimate that IRF outlier payments
as a percentage of total estimated payments will be approximately 2.6
percent in FY 2026. Therefore, we propose to update the outlier
threshold amount from $10,141 for FY 2026 to $8,689 for FY 2027 to
maintain estimated outlier payments at approximately 3 percent of total
estimated aggregate IRF payments for FY 2027.
We note that, with our longstanding practice when developing
previous IRF PPS fiscal year rules, we update our data between the FY
2027 IRF PPS proposed and final rules to ensure that we use the most
recent available data in calculating IRF PPS payments. We are proposing
the outlier threshold amount of $8,689 to maintain estimated outlier
payments at approximately 3 percent of total estimated aggregate IRF
payments for FY 2027.
We invite public comments on the proposed update to the IRF outlier
threshold for FY 2027.
B. Proposed Update to the IRF Cost-to-Charge Ratio (CCR) Ceiling and
Urban/Rural Averages for FY 2027
CCRs are used to adjust charges from Medicare claims to costs and
are computed annually from facility-specific data obtained from
Medicare Cost Reports (MCRs). IRF-specific CCRs are used in the
development of the CMG relative weights and the calculation of outlier
payments under the IRF PPS. In accordance with the methodology
described in the FY 2004 IRF PPS final rule (68 FR 45692 through
45694), we proposed to apply a ceiling to IRFs' CCRs. Using that
methodology, we propose to update the national urban and rural CCRs for
IRFs, as well as the national CCR ceiling for FY 2027, based on
analysis of the most recent data available. We apply the national urban
and rural CCRs to:
<bullet> New IRFs that have not yet submitted their first MCR.
<bullet> IRFs with an overall CCR that exceeds the national CCR
ceiling for FY 2027, as discussed below in this section.
<bullet> Other IRFs for which accurate data to calculate an overall
CCR are not available.
Specifically, for FY 2027, we propose to estimate a national
average CCR of 0.461 for rural IRFs, which we calculated by taking an
average of the CCRs for all rural IRFs using their most recently
submitted cost report data. Similarly, we propose to estimate a
national average CCR of 0.386 for urban IRFs, which we calculated by
taking an average of the CCRs for all urban IRFs using their most
recently submitted cost report data. We applied weights to both of
these averages using the IRFs' estimated costs, meaning that the CCRs
of IRFs with higher total costs factor more heavily into the averages
than the CCRs of IRFs with lower total costs. For this proposed rule,
we used the most recent available cost report data (FY 2024). This
includes all IRFs whose cost reporting periods begin on or after
October 1, 2023, and before October 1, 2024. If, for any IRF, the FY
2024 cost report was missing or had an ``as submitted'' status, we used
the most recent FY for which a settled cost report was available (that
is, from a FY between FY 2004 and FY 2023) for that IRF. We do not use
cost report data from before FY 2004 for any IRF because changes in IRF
utilization since FY 2004 resulting from the 60 percent rule and IRF
medical review activities suggest that these older data do not
adequately reflect the current cost of care. Using updated FY 2024 cost
report data for this proposed rule, we estimate a national average CCR
of 0.461 for rural IRFs and a national average CCR of 0.386 for urban
IRFs.
In accordance with past practice, we propose to set the national
CCR ceiling at 3 standard deviations above the mean CCR. Using this
method, we propose a national CCR ceiling of 1.54 for FY 2027. This
means that, if an individual IRF's CCR were to exceed this ceiling of
1.54 for FY 2027, we will replace the IRF's CCR with the appropriate
proposed national average CCR (either rural or urban, depending on the
geographic location of the IRF). We calculated the national CCR ceiling
by:
Step 1. Taking the national average CCR (weighted by each IRF's
total costs, as previously discussed) of all IRFs for which we have
sufficient cost report data (both rural and urban IRFs combined).
Step 2. Estimating the standard deviation of the national average
CCR computed in Step 1.
Step 3. Multiplying the standard deviation of the national average
CCR computed in Step 2 by a factor of 3 to compute a statistically
significant reliable ceiling.
Step 4. Adding the result from Step 3 to the national average CCR
of all IRFs for which we have sufficient cost report data, from Step 1.
We also propose that if more recent data become available after the
publication of the proposed rule and before the publication of the
final rule, we will use such data to determine the FY 2027 national
average rural and urban CCRs and the national CCR ceiling in the final
rule. Using the FY 2024 cost report data for this proposed rule, we
estimate a national average CCR ceiling of 1.54, using the same
methodology.
We invite public comments on the proposed update to the IRF CCR
ceiling and urban/rural averages for FY 2027.
VII. Proposals To Revise the Basis of Payment Requirements
A. Proposal on the Initiation of Therapies Within 36-Hours From
Admission
In accordance with 42 CFR 412.622(a)(3)(ii), in order for an IRF
claim to be considered reasonable and necessary, the patient's
intensive rehabilitation therapy program must consist of at least 3
hours of therapy (physical therapy, occupational therapy, speech-
language pathology, or prosthetics/orthotics therapy) per day at
[[Page 17213]]
least 5 days per week. Under certain conditions, this program might
consist of at least 15 hours of intensive rehabilitation therapy
provided over 7 days. The required therapy treatments and/or therapy
evaluations for IRF patients must begin within 36 hours from midnight
of the day of admission to the IRF. Sub-regulatory guidance that was
posted by CMS in 2010 may have created ambiguous policy interpretation
as to whether only one therapy or all therapies must be initiated
within 36 hours from the day of admission to the IRF (hereafter
referred to as the 36-hour requirement). Therapy evaluations are
generally considered to constitute the beginning of the required
therapy services and may count towards meeting the 36-hour requirement.
However, all therapies must be initiated, not just one therapy to meet
the policy regulation. For example, if a patient is admitted to the IRF
at 2:00 p.m. on Tuesday, therapy treatment must be initiated by 12:00
p.m. on Thursday (that is, 36 hours after Tuesday at midnight).
For the purposes of this proposed rule, we are proposing to revise
Sec. 416.622(a)(3)(ii) to require all therapy treatments and/or
therapy evaluations must begin no later than 36 hours after midnight of
the day of admission. An IRF claim will not be considered reasonable
and necessary (in accordance with section 1862(a)(1) of the act) if it
does not comply with this coverage criteria.
B. Proposal To Update the Documentation of Current Functional Status in
the Preadmission Screening
IRFs are required to document a comprehensive preadmission
screening in accordance with 42 CFR 412.622(a)(4)(i) in order to
indicate a patient meets the requirements for an IRF admission to be
considered reasonable and necessary and ultimately, to be reimbursed
for an IRF claim. As part of this policy (42 CFR 412.622(a)(4)(i)(B)),
the preadmission screening must ``include a detailed and comprehensive
review of each patient's condition and medical history, including the
patient's level of function prior to the event or condition that led to
the patient's need for intensive rehabilitation therapy, expected level
of improvement, and the expected length of time necessary to achieve
that level of improvement; an evaluation of the patient's risk for
clinical complications; the conditions that caused the need for
rehabilitation; the treatments needed (that is, physical therapy,
occupational therapy, speech-language pathology, or prosthetics/
orthotics); and anticipated discharge destination.''
While the patient's prior level of function is indicated as a
requirement, we believe that in order for an appropriate plan of care
to be developed for a patient, a patient's current functional status
must also be documented in the preadmission screening. The patient's
current level of function provides important information to build a
more complete picture of their rehabilitation trajectory and expected
level of improvement while in the IRF.
For the purposes of this proposed rule, we are proposing to revise
Sec. 412.622(a)(4)(i)(B) to require that the patient's ``current
functional status'' be documented in the patient's preadmission
screening in their medical record at admission.
C. Proposed Initial Interdisciplinary Team Meeting
1. Background
During the IDT meeting, all members of a patient's IRF care team
review the patient's progress toward their rehabilitation goals, while
making recommendations for therapy changes to support discharge goals
(Sec. 412.622(a)(5)). These goals are part of the patient's POC which
collates assessments from each therapy discipline treating the patient
and includes the patient's medical prognosis, anticipated
interventions, functional outcomes, and discharge destination. Per
Sec. 412.622(a)(4)(ii), the POC must be developed by a rehabilitation
physician and documented in the patient's medical record or electronic
health record by day 4 of the patient's admission to the IRF.
The current IDT meeting policy (42 CFR 412.622(a)(5)) states that
IDT meetings must occur ``at least once per week throughout the
duration of the patient's stay,'' with a ``week'' defined as a period
of 7 consecutive calendar days beginning with the date of admission to
the IRF'' (Sec. 412.622(c)). However, there has been guidance provided
to IRFs that says the initial IDT meeting may occur on day 8 from the
day of admission, which is not aligned with the current policy.
2. Proposed Initial Interdisciplinary Team Meeting
Under the current IDT policy (Sec. 412.622(a)(5)), IRF patients
may have only one IDT meeting occur prior to discharge, which raises
concern about the level of coordinated interdisciplinary care a patient
is receiving. The IDT meeting is a key aspect of the interdisciplinary
care of an IRF patient as it provides the opportunity for the care team
to review together the patient's care and progress, and to ensure the
POC is updated as needed to accurately reflect the patient's needs. For
example, and under the current policy, it is possible for an IRF
patient to receive up to 7 days of care in an IRF without their full
care team coordinating their treatment or discussing progress towards
the patient's goals as outlined in the POC. This could be particularly
concerning as the patient is likely to experience rapid improvement or
decline in functioning within the first 7 days.
By not providing a timely initial IDT meeting with the care team's
input on the patient's progress, the team may be providing suboptimal
treatment or inadvertently worsening the patient's health outcomes.
Also, given the average length of stay in an IRF is typically between
12 to 14 days, for a patient who has their first IDT meeting on day 7,
it is likely that the IDT meeting would focus on discharge planning
rather than making timely updates to the patient's POC based on his/her
progress. Per Sec. 412.622(a)(4)(ii), an individualized overall POC
must be developed by a rehabilitation physician with input from the
interdisciplinary team within 4 days of the patient's admission to the
IRF and documented in the patient's medical record or electronic health
record. By not making more timely checks and updates within the IDT
meeting on the patient's progress, and related POC updates, patients
are at risk for ineffective care that may lead to delayed improvements.
Patient example: A 68-year-old male patient is admitted to an IRF
with an ischemic stroke causing mild hemiparesis, mild aphasia, and
dysphagia. His admission goals were to increase his mobility,
independence with activities of daily living (ADLs), and safety with
swallowing in order to be discharged home to his family. The patient's
POC includes: a physical therapist (PT) to work on gait training and
balance; an occupational therapist (OT) to address his independence
with self-care and dressing; and a speech-language pathologist (SLP) to
manage the aphasia and swallowing. During the patient's course of stay,
the PT, OT and SLP have limited communication with one another. By the
time the patient's interdisciplinary team meeting occurs on day 7 of
his stay, the PT has noted the patient is steady with transfers using a
walker and requires minimal assistance to ambulate with his walker.
Despite the PT's notes, the OT is now training the patient on ADL tasks
that require him to stand without support.
[[Page 17214]]
The patient has been steady when performing these tasks for brief
periods of time but needs to rest often by sitting down. The SLP is
providing the patient with nectar-thick liquids per the swallowing plan
but has not communicated the patient's fatigue levels or the patient's
need for safety cues when swallowing to the rest of the team. The
patient's IDT meeting on Day 7 focuses on his discharge planning with
the rehabilitation physician noting the patient can safely ambulate
independently with his walker and ADLs as he is unaware of the
inconsistencies in the patient's presentation across the OT, SLP, and
PT therapy sessions. As such, the patient returns home with his wife
after 11 days in the IRF. Within two days, the patient sustains a fall
while transferring from the toilet resulting in a hip fracture. He is
readmitted to the acute care hospital with aspiration pneumonia due to
coughing and choking during meals and hip fracture due to difficulty
ambulating with his walker.
In the example, if the initial IDT meeting had occurred earlier
than day 7, the patient's POC could have been adjusted to better match
his functional progress. Additionally, his care team could have
discussed ongoing concerns regarding his fatigue, balance, and
swallowing to coordinate treatment. An earlier IDT meeting may have
prevented this patient's fall and hospital readmission.
In an effort to continuously improve patient-centered care, we
believe the first IDT meeting should occur earlier than day 7 of a
patient's stay, which is current policy. This change will ensure
patients are receiving coordinated, interdisciplinary care aligned with
their POC and tailored in its intensity to the patient's recovery
progress. We propose to revise Sec. 412.622(a)(5)(ii) to specify that
the first IDT meeting shall occur on or before the fourth day from
midnight on the date the patient is admitted to implement appropriate
treatment services; establish or review the patient's stated
rehabilitation goals; and identify any problems that could impede
goals. The initial IDT would be in coordination with the development
and timing of the patient's start of therapy (per the 36-hour rule) and
the POC. Following the initial IDT meeting, we are proposing that a
patient's subsequent IDT meetings occur weekly (for example, within 7
days from the prior IDT meeting). See Figure 1 and Table 8 for examples
of when IDT meetings occur based on the date the prior IDT was
conducted. In addition to the revisions to Sec. 412.622(a)(5)(ii), we
propose to redesignate paragraph (a)(5)(iii) as paragraph (a)(5)(iv)
and add a new paragraph (a)(5)(iii) to clarify that the initial IDT
meeting shall determine the cadence of patient's subsequent IDT
meetings. We also propose to revise the definition of ``Week'' that
appears in Sec. 412.622(c) to specify that, for purposes of Sec.
412.622, a ``week'' means a period of 7 consecutive calendar days.
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Figure 1: Proposed Initial Interdisciplinary Team Meeting Policy
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In requiring the patient's first IDT meeting to occur by Day 4, we
believe the interdisciplinary team can coordinate care and provide
treatment updates more frequently than once during a patient's stay,
which may lead to improved quality of care and health outcomes. As
discussed in the FY 2010 rule (74 FR 39762), conducting the IDT meeting
``for each IRF patient within the first 4 days of admission to develop
the overall plan of care would be good practice.''
To assess the impact of this proposal, we conducted a simulation
exercise. If we assume that IRFs hold a formal IDT meeting on a weekly
basis (per the current policy) to address their caseload and the
prognoses of their patients, an estimated range of 2.1 to 3.8 percent
of IRF patients discharged between FY 2015 through FY 2023 experience
zero IDT meetings during their stay. If we account for patients who
were admitted on the day of the IDT meeting but too late to be
discussed at the meeting, the number of cases with zero IDT meetings
during the stay will increase from 4.2 to 4.8 percent. By CMS
implementing a policy requiring that the patient's first IDT meeting
occurs by Day 4 of their stay, the percentage of cases that did not
have an IDT meeting would decrease to 1 percent. After the initial IDT
meeting, IRFs will need to conduct subsequent IDT meetings beginning on
the 7th day from when the last meeting occurred.
We conducted an estimated impact of the proposed initial IDT policy
on IRFs. To determine the resources needed for one IRF meeting, we
first identified the salaries of the key personnel who attend IDT
meetings using the 2024 Bureau of Labor Statistics' (BLS) national
average wages per hour. For conservative estimation purposes, we
assumed one of each of the following disciplines attend IDT meetings:
rehabilitation physician, PT, OT, SLP, nurse coordinator (filled by an
RN), social worker, and rehabilitation unit manager (filled by an NP).
If the proposed initial IDT meeting policy is finalized, we assume that
most IRFs (depending on the volume of patients) will increase the
frequency of meetings to meet this change. For example, if an IRF has a
patient admitted on a Tuesday, but the team's usual IDT meetings occur
on Mondays, then the IRF will have to meet again by the patient's Day 4
(Friday in this example) to comply with the new policy. We approximated
that a 1-hour IDT meeting would cover approximately 12 IRF patients (5
minutes per patient), resulting in $399.06 per 60-minute IDT meeting.
Assuming the IDT meetings would be 1-hour in duration, for IRFs that
move from once to the twice weekly IDT meeting frequency will face an
additional approximate cost of $399.06 per week.
VIII. Request for Information Regarding Future IRF Payment Reform
CMS is exploring opportunities to modernize the IRF Prospective
Payment System (PPS) established in 2002 (66 FR 41316) to better
reflect evolving clinical practice and align more closely with other
post-acute care settings. This includes potential refinements to
clinical categories and comorbidity groupings. Below, we provide an
overview of the current IRF PPS patient classification system and
request input on future payment reforms to enhance and modernize the
IRF payment structure.
A. Background
Under the IRF PPS, providers report an Impairment Group Code (IGC)
in Item 21A of the IRF Patient Assessment Instrument (IRF-PAI) to
identify the primary reason the patient requires IRF care. Each IGC
maps to a single Rehabilitation Impairment code (RIC), which serves as
the first level of classification in the payment system. The CMS
grouper uses the RIC to assign the patient to a CMG based primarily on
functional status at admission and, for certain CMGs, age.
Functional status is a key predictor of resource use under the IRF
PPS. From FY 2002 through FY 2019, CMG assignment relied on motor and
cognitive scores derived from the FIM<SUP>TM</SUP> instrument. In the
FY 2019 final rule (83 FR 38514), CMS removed the FIM<SUP>TM</SUP>
[[Page 17216]]
instrument and associated Function Modifiers and adopted IRF-PAI
Quality Indicator items to reduce provider burden. Beginning in FY
2020, CMGs have been assigned using functional scores derived from
these IRF-PAI assessment items.
CMGs are further refined to account for clinical complexity.
Patients may be assigned to comorbidity tiers that adjust payment to
reflect higher expected resource use. Additional payment adjustments
apply for special circumstances, such as very short stays or death.
The IRF PPS currently includes 21 Rehabilitation Impairment
Categories and 17 associated Impairment Group Codes, as established in
the FY 2002 final rule (66 FR 41316). IGCs are represented by one or
two-digit codes, sometimes extended with decimals to identify more
specific subgroups.
Additional information is available in the FY 2002 (66 FR 41316),
FY 2006 (70 FR 47880), FY 2007 (71 FR 48354), and FY 2021 (85 FR 48424)
IRF PPS final rules.
B. The Need for IRF Payment Reform
Experience from other Medicare payment reforms demonstrates the
importance of aligning payment with patient characteristics and
expected resource use, rather than service volume, while maintaining
strong safeguards against unintended coding or behavioral responses.
These reforms highlight the need for regular recalibration using
current data, thoughtful and phased implementation of structural
changes, and monitoring to protect beneficiary access. Applying these
principles to IRF payment reform supports continued refinement of CMGs,
functional scores, and comorbidity adjustments to improve payment
accuracy and ensure program integrity.
CMS believes refinements to the IRF clinical categories and
comorbidity groupings are necessary to support continued payment reform
under section 1886(j) of the Act, which would contribute to overall
payment reform. CMS must ensure that the IRF PPS reflects changes in
patient complexity and advances in rehabilitation care since the
system's implementation in 2002. These refinements are intended to
better align payment with patient characteristics and resource use,
strengthen the relationship between spending and value, and support
CMS's broader goal of a more consistent and coordinated approach to
post-acute care (PAC) payment and delivery.
As with any case-mix methodology, shifts in documentation, coding
practices, or assessment completion may influence measured case-mix
independent of true changes in patient acuity. By adopting more
standardized, diagnosis-based classification approaches across PAC
settings, CMS aims to improve consistency, support care delivery
reform, and position the IRF PPS for future payment reforms that better
reflect patient complexity and value. Furthermore, these potential
refinements would move the IRF PPS toward diagnosis-driven grouping
methods similar to those used in other Medicare payment systems,
including the Inpatient Psychiatric Facility PPS (IPF PPS) and the SNF
Patient-Driven Payment Model (PDPM) finalized in the FY 2019 SNF PPS
final rule (83 FR 39162).
MedPAC's recent analyses further support the need for refinement.
In multiple Reports to the Congress on Medicare Payment Policy (March
2023, March 2024, March 2025, and March 2026), MedPAC identified
persistent differences in profitability across clinical categories,
which could provide incentives for admitting specific diagnoses to
improve profitability. MedPAC also found that within RICs, higher
patient severity--measured by functional status and comorbidities--is
associated with higher payment-to-cost ratios, and that case mix varies
meaningfully by IRF ownership and type, particularly for high-volume
conditions such as stroke, other neurological conditions, and debility.
These findings underscore the importance of refining IRF clinical
categories and comorbidity groupings to better reflect patient severity
and improve alignment between payments and resource use. In this RFI,
we seek interested parties' input on potential approaches to ensure
that payments under a revised IRF PPS appropriately reflect underlying
patient severity and costs, particularly in the event of systematic
changes in coding or documentation that are not accompanied by
corresponding changes in clinical complexity or resource utilization.
1. Potential Changes to IRF Patient Clinical Classification
As previously discussed, the IRF PPS currently relies on 17 major
category IGCs, comprising 85 specific IGCs, finalized in the FY 2002
IRF PPS final rule (66 FR 41316) to classify each patient into one of
21 distinct Rehabilitation Impairment Categories (RICs). Under this
framework, up to three ICD-10-CM etiologic diagnosis codes are mapped
through a multi-step process--from IGCs to RICs to CMGs--to determine
payment. Over time, this layered classification approach has created
opportunities for misalignment among the patient's primary reason for
IRF admission, the clinical care delivered, and the resulting payment,
particularly as diagnostic coding practices and patient complexity have
evolved.
To address these limitations, CMS is considering a fundamental
refinement to IRF patient classification by modifying how primary
diagnoses are mapped to clinical categories. Specifically, CMS has
leveraged the existing clinical categories recently implemented under
the SNF PDPM to develop a preliminary set of IRF-specific clinical
categories. These proposed categories would modernize IRF patient
classification by replacing the current mapping of etiologic diagnoses
to IGCs and RICs with a comprehensive and exhaustive crosswalk from
ICD-10-CM diagnosis codes directly to IRF PPS clinical categories. This
approach would strengthen alignment between diagnosis, patient
severity, and payment; improve consistency across post-acute care
settings; and support CMS's broader objectives of payment accuracy,
transparency, and value-based care.
Table 9 provides the 15 valid IRF clinical categories for
consideration. Using a complete ICD-10-CM to clinical category
crosswalk, patients are classified into clinical categories by the ICD-
10-CM code reflecting the primary reason for the IRF stay.
[[Page 17217]]
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We are soliciting public comments on the potential use of these
clinical category assignments under the IRF PPS to classify a patient
for payment purposes. CMS is exploring alternatives to how primary
diagnoses are mapped to clinical categories in the current IRF PPS,
which is documented in a technical report available at: <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation/research">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation/research</a>.
2. Potential Changes to IRF PPS Comorbidities
Drawing on the comorbidity scoring methodology used by the SNF PDPM
Non-Therapy Ancillary (NTA) component, CMS developed a preliminary
comorbidity scoring and binning approach for the IRF PPS accounting for
both the severity and the number of comorbid conditions. This would
also support alignment across post-acute care payment systems. Under
this framework, CMS identifies comorbidities associated with higher IRF
costs using multiple sources, including Hierarchical Condition
Categories (HCCs), Prescription HCCs (RxHCCs), IRF-PAI items, and
selected custom conditions. Each comorbidity would contribute to a
weighted score reflecting its relative impact on resource use, similar
to the methodology applied under the SNF PDPM NTA system.
As shown in Table 10, comorbidity scores would then be grouped into
one of 6 comorbidity score bins: a comorbidity score of 0, 1, 2, 3, 4-
5, and 6 or higher. Each bin groups IRF stays by corresponding
comorbidity score based on estimated similarities in costs. These
scoring and grouping refinements would align spending and value through
improved accuracy while also aligning IRF PPS more closely with other
PAC payment systems.
[GRAPHIC] [TIFF OMITTED] TP06AP26.069
We are soliciting public comments on the potential use of
comorbidity scores and score bins under the IRF PPS to categorize
comorbidities for payment purposes. CMS is exploring alternatives to
the tier comorbidity methodology of the current IRF PPS and relative
performance to the current system, which is documented in a technical
[[Page 17218]]
report. For more details, including a list of the selected
comorbidities and corresponding scores, this technical report is
available at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation/research">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation/research</a>.
IX. Inpatient Rehabilitation Facility (IRF) Quality Reporting Program
(QRP)
A. Background and Statutory Authority
The Inpatient Rehabilitation Facility Quality Reporting Program
(IRF QRP) is authorized by section 1886(j)(7) of the Act, and it
applies to freestanding IRFs, as well as inpatient rehabilitation units
of hospitals or Critical Access Hospitals (CAHs) paid by Medicare under
the IRF PPS. Section 1886(j)(7)(A)(i) of the Act requires the Secretary
to reduce by 2 percentage points the annual increase factor for
discharges occurring during a FY for any IRF that does not submit data
in accordance with the IRF QRP requirements set forth in subparagraphs
(C) and (F) of section 1886(j)(7) of the Act. We have codified our
program requirements in our regulations at Sec. 412.634.
In this proposed rule, we are proposing to revise the IRF QRP data
submission deadlines beginning with the FY 2029 IRF QRP, as described
in section IX.D.2 of this proposed rule. Finally, we are soliciting
public comments on one RFI on future measure concepts for the IRF QRP
in section IX.C. of this proposed rule.
B. General Considerations Used for the Selection of Measures for the
IRF QRP
For a detailed discussion of the considerations we use for the
selection of IRF QRP quality, resource use, or other measures, we refer
readers to the FY 2016 IRF PPS final rule (80 FR 47083 and 47084).
1. Quality Measures Currently Adopted for the IRF QRP
The IRF QRP currently has 15 adopted measures, which are listed in
Table 11.
For a discussion of the factors we use to evaluate whether a
measure should be removed from the IRF QRP, we refer readers to our
regulations at Sec. 412.634(b)(2). We refer readers to the CY 2013
OPPS/ASC PPS final rule (77 FR 68502 and 68503) for discussion of our
policy that allows any quality measure adopted for use in the IRF QRP
to remain in effect until the measure is removed, suspended, or
replaced; the FY 2018 IRF PPS final rule (82 FR 36276) which applied
this policy to standardized patient assessment data we adopt for the
IRF QRP; and the FY 2019 IRF PPS final rule (83 FR 38556 and 38557) for
more information on the factors we consider for removing measures and
standardized patient assessment data.
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
C. IRF QRP Measure Concepts Under Consideration for Future Years--RFI
In the FY 2024 IRF PPS proposed rule (88 FR 21000 through 21003),
we included an RFI on a set of principles for selecting and
prioritizing IRF QRP measures, identifying measurement gaps and
suitable measures for filling these gaps. We refer readers to the FY
2024 IRF PPS final rule (88 FR 51036 and 51037) for a summary of the
public comments we received in response to the RFI.
We are seeking input on the importance, relevance, appropriateness,
and applicability of the quality measure concepts related to advanced
care planning. Advance care planning is a continuous process that
supports people in understanding and communicating their goals, values,
and preferences regarding future medical decisions.\5\ The Patient Self
Determination Act of 1990 \6\ supports this process by requiring
healthcare facilities to inform patients of their rights regarding
medical decisions, including advance directives and end of life
care.\7\ In-post acute care (PAC) settings, where patients recover from
acute illness, injury, or major procedures, their needs and goals may
evolve as their condition changes. Factors such as clinical stability,
functional status, therapy tolerance, cognition function, prognosis,
and personal preferences can all shift during recovery. Regular
reassessment and transparent communication are essential to maintaining
person-centered care, while advance care planning facilitates shared
decision-making by documenting patient preferences and ensuring goal-
concordant care throughout care transitions.\8\
---------------------------------------------------------------------------
\5\ McMahan, R.D., Tellez, I., & Sudore, R.L. (2021).
Deconstructing the Complexities of Advance Care Planning Outcomes:
What Do We Know and Where Do We Go? A Scoping Review.Journal of the
American Geriatrics Society, 69(1), 234-244. <a href="https://doi.org/10.1111/jgs.16801">https://doi.org/10.1111/jgs.16801</a>.
\6\ Public Law 101-508, Sec. 4206, 4751.
\7\ <a href="https://www.congress.gov/bill/101st-congress/house-bill/4449">https://www.congress.gov/bill/101st-congress/house-bill/4449</a>. <a href="https://www.congress.gov/bill/101st-congress/house-bill/5835">https://www.congress.gov/bill/101st-congress/house-bill/5835</a>.
\8\ McMahan RD, Tellez I, Sudore RL. Deconstructing the
Complexities of Advance Care Planning Outcomes: What Do We Know and
Where Do We Go? A Scoping Review. J Am Geriatr Soc. 2021
Jan;69(1):234-244. doi: 10.1111/jgs.16801. Epub 2020 Sep 7. PMID:
32894787; PMCID: PMC7856112.
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As we review new measure concepts, we would prioritize evidence-
based outcome measures that promote person-centered care practices. We
are seeking input on the relevant aspects of advanced care planning and
measures appropriate for the IRF setting.
[[Page 17220]]
D. Form, Manner, and Timing of Data Submission Under the IRF QRP
1. Background
We refer readers to the regulatory text at Sec. 412.634(b)(1) for
information regarding the current policies for reporting specified data
for the IRF QRP.
2. Proposal To Revise IRF QRP Data Submission Deadlines Beginning With
the FY 2029 IRF QRP
(a) Background
Sections 1886(j)(7)(E), and 1899B(f) and (g) of the Act require CMS
to provide feedback to IRFs and to publicly report their performance on
IRF quality measures specified under section 1899B(c)(1) of the Act and
resource use and other measures specified under 1899B(d)(1) of the Act.
More specifically, section 1899B(f)(1) of the Act requires the
Secretary to provide confidential feedback reports to IRFs on their
performance on the quality, resource use, and other measures specified
under sections 1899B(c)(1) and (d)(1) of the Act. Section 1899B(f)(2)
of the Act provides that, to the extent feasible, the Secretary must
make these confidential feedback reports available, not less frequently
than on a quarterly basis, except in the case of measures reported on
an annual basis, in which case confidential feedback reports may be
made available annually. Additionally, sections 1886(j)(7)(E) and
1899B(g)(1) of the Act require the Secretary to provide for the public
reporting of each IRF's performance on the quality measures, resource
use, and other measures specified under section 1899B(c)(1) and (d)(1)
of the Act by establishing procedures for making the performance data
available to the public. Section 1899B(g)(2) of the Act specifically
requires that such procedures must ensure that IRFs can review and
submit corrections to the data and other information before it is made
public.
Section 1886(j)(7)(C) of the Act provides the Secretary with
discretion to prescribe the form and manner and the timeframes for IRFs
to submit data as specified for reporting for the IRF QRP.
For IRF-PAI assessment-based measures, in the FY 2016 IRF PPS final
rule (80 FR 47122), we finalized submission deadlines for IRFs to
submit their data approximately 4.5 months (135 days) after the end of
each quarter. We did not receive any comments on the 4.5-month data
submission timeframe at that time. We also finalized data submission
deadlines for IRF QRP measures that are submitted via the Centers for
Disease Control and Prevention's (CDC) National Healthcare Safety
Network (NHSN). In the FY 2014 IRF PPS final rule (78 FR 47917), we
finalized that for the NHSN Catheter Associated Urinary Tract Infection
(CAUTI) and the Facility-wide Inpatient Hospital-onset Clostridium
difficile Infection (CDI) Outcome Measures, each facility's data must
be entered into NHSN no later than 4.5 months after the end of the
reporting quarter. We also finalized that the data collection period
for the Influenza Vaccination Coverage among Healthcare Personnel (HCP)
measure would be October 1 through March 31, with a data submission
deadline of May 15th for each influenza season (78 FR 47917).
Public reporting of data collected under quality programs, such as
the IRF QRP, is designed to provide consumers and their families with
the most current information to empower them to make quality-informed
decisions about where to receive their care. We have identified that
the time between when data on measures is submitted to us and when
those data are publicly reported (approximately nine months) may be too
long to provide the most accurate and up to date information for the
public. For example, we have heard from interested parties that the IRF
QRP measure results are not useful for their quality improvement
efforts due to the aged data and the delay in when they receive these
reports.\9\
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\9\ IRF Listening Session: Revising the Transmission Schedule
for the IRF-PAI. Available in the Downloads section on the IRF QRP
Measures Information web page: <a href="https://www.cms.gov/medicare/quality/inpatient-rehabilitation-facility/irf-quality-reporting-measures-information">https://www.cms.gov/medicare/quality/inpatient-rehabilitation-facility/irf-quality-reporting-measures-information</a>.
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Currently, the largest contributing factor to the nine-month lag
between the end of the data collection period and when measures are
publicly reported is the 4.5-month timeframe for data submission.
Reducing the data submission timeframe from 4.5 months to require data
submission the 15th day of the second month after the end of the
calendar quarter could reduce this lag by up to three months, resulting
in more timely public reporting of data for consumers and increasing
the value of publicly reported data. Additionally, this timeframe
provides IRFs with more recent data in support of their quality
improvement activities.
In the FY 2026 IRF PPS proposed rule, we included a request for
information (RFI) on reducing the assessment data submission deadline
from 4.5 months to 45 days (90 FR 18554). We refer readers to the FY
2026 IRF PPS final rule (90 FR 37712) for a full summary of the public
comments received.
(b) Proposal To Revise the IRF QRP Assessment Data Submission Deadline
Beginning with the FY 2029 IRF QRP, we are proposing that IRFs must
complete their data submissions and make corrections to their IRF-PAI
assessment data where necessary no later than the 15th day of the
second month after the end of the calendar quarter. However, if the
15th day of the second month falls on a Friday, weekend, or Federal
holiday, the date is delayed until 11:59 p.m. EST on the next business
day. We are proposing that IRFs would follow the deadlines presented in
Table 12 for the FY 2029 IRF QRP. We are also proposing that similar
calendar year data submission deadlines would apply to future years'
payment determinations.
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We believe that requiring IRFs to submit IRF-PAI assessment data by
the 15th day of the second month after the end of the calendar quarter
is reasonable. We conducted an analysis on the potential impact of
reducing the timeframe by determining how many assessments are
currently being submitted by this deadline, which is approximately
within 45 days of the end of the quarter. Using 2024 data, we
identified that 99.08 percent of all IRF-PAI assessments were submitted
to CMS within a 45-day timeframe. Of the remaining 0.92 percent
submitted beyond 45 days, 0.20 percent were submitted after the current
4.5-month data submission deadline and would not be further impacted by
a change in the data submission deadline. Therefore, only 0.72 percent
of IRF-PAI assessments would be impacted by changing the data
submission deadline from 4.5 months to require data submission by the
15th day of the second month after the end of the calendar quarter.
(c) Proposal To Revise the CDC NHSN Data Submission Deadlines
Beginning with the FY 2029 IRF QRP, we are proposing that IRFs must
complete their data submissions and make corrections to their CDC NHSN
data where necessary no later than the 15th day of the second month
after the end of the calendar quarter. However, if the 15th day of the
second month falls on a Friday, weekend, or Federal holiday, the date
is delayed until 11:59 p.m. EST on the next business day. We are
proposing that IRFs would follow the deadlines presented in Table 13
for the FY 2029 IRF QRP. We are also proposing that similar calendar
year data submission deadlines would apply to future years' payment
determinations.
[GRAPHIC] [TIFF OMITTED] TP06AP26.072
We believe that requiring IRFs to submit CDC NHSN data by the 15th
day of the second month after the end of the calendar quarter is a
reasonable amount of time. In the FY 2014 IRF PPS final rule (78 FR
47917), we noted that the CDC recommends that a facility report
Healthcare Acquired Infection (HAI) events such as CAUTI as close to
the time of the event as possible, and certainly within 30 days after
the event. We note that there would be no change in the data submission
deadline for the Influenza Vaccination Coverage among HCP measure, as
the previously finalized data submission date is May 15th for each
influenza season.
We conducted an analysis on the potential impact of reducing the
timeframe by determining how many IRFs are currently reporting data by
this deadline, which is approximately within 45 days of the end of the
quarter. Using FY 2025 data, we identified that
[[Page 17222]]
88.5 percent of all IRFs submitted CDC NHSN data within a 45-day
timeframe.
On these bases, we believe revising the IRF QRP data submission
deadline for IRF-PAI and CDC NHSN data to require IRFs to submit CDC
NHSN data by the 15th day of the second month after the end of the
calendar quarter would improve the timeliness of public reporting by
three months, which is beneficial to both consumers and IRFs, with no
change in burden to IRFs.
We invite comment on this proposal to require that IRFs complete
their data submissions and make corrections to their IRF-PAI assessment
and CDC NHSN data where necessary no later than the 15th day of the
second month after the end of the calendar quarter beginning with the
FY 2029 IRF QRP.
E. Policies Regarding Public Display of Measure Data for the IRF QRP
We are not proposing any new policies regarding the public display
of measure data in this proposed rule. For a more detailed discussion
about our policies regarding public display of IRF QRP measure data and
procedures for the opportunity to review and correct data and
information, we refer readers to the FY 2017 IRF PPS final rule (81 FR
52128 through 52131).
X. Proposed Change to the DMEPOS Competitive Bidding Program (CBP)
A. Bid Surety Bond Amount
1. Background
Section 522(a) of the Medicare Access and CHIP Reauthorization Act
of 2015 (Pub. L. 114-10) (MACRA) added a requirement under section
1847(a)(1)(G) of the Act requiring bidding entities to obtain a bid
surety bond for each competitive acquisition area in which the entity
submits the bid in a form specified by the Secretary and in an amount
not less than $50,000 and not more than $100,000. CMS implemented this
requirement as part of the final rule titled, ``Medicare Program; End-
Stage Renal Disease Prospective Payment System, Coverage and Payment
for Renal Dialysis Services Furnished to Individuals With Acute Kidney
Injury, End-Stage Renal Disease Quality Incentive Program, Durable
Medical Equipment, Prosthetics, Orthotics and Supplies Competitive
Bidding Program Bid Surety Bonds, State Licensure and Appeals Process
for Breach of Contract Actions, Durable Medical Equipment, Prosthetics,
Orthotics and Supplies Competitive Bidding Program and Fee Schedule
Adjustments, Access to Care Issues for Durable Medical Equipment; and
the Comprehensive End-Stage Renal Disease Care Model,'' published in
the Federal Register on November 4, 2016 (81 FR 77834) (hereinafter
referred to as the ``2016 ESRD PPS & DMEPOS final rule''). Pursuant to
the CY 2016 ESRD PPS and DMEPOS final rule, and as codified at 42 CFR
414.412(g), a bidding entity may not submit a bid(s) and be awarded a
contract for a competition unless it obtains, in the amount of $50,000,
a bid surety bond for the CBA (as defined at 42 CFR 414.402) from an
authorized surety on the Department of the Treasury's Listing of
Certified Companies and provides proof of having obtained the bond by
submitting a copy to CMS by the deadline for bid submission. These
requirements first applied to Round 2021, the first round of
competitive bidding following the passage of MACRA.
Section 1847(a)(1)(H)(i) of the Act provides that in the event that
a bidding entity is offered a contract for any product category for a
CBA, and its composite bid for such product category and area is at or
below the median composite bid rate for all bidding entities included
in the calculation of the single payment amount (SPA) for the product
category and CBA, and the entity does not accept the contract offered,
the bid surety bond(s) for the applicable CBA(s) will be forfeited and
the Secretary will collect on the bid surety bond(s). As implemented in
regulation at Sec. 414.412(g) (redesignated from Sec. 414.412(h) (see
83 FR 57025)), CMS will collect on the bid surety bond via Electronic
Funds Transfer from the respective bonding company. In instances where
a bidding entity does not meet the bid surety bond forfeiture
conditions for any product category for a CBA as specified in section
1847(a)(1)(H)(i) of the Act, section 1847(a)(1)(H)(ii) of the Act
requires that the bid surety bond liability submitted by the entity for
the CBA will be returned to the bidding entity within 90 days of the
public announcement of the contract suppliers for such product category
and area.
The bid surety bond requirement deters bidding entities from
submitting a low, disingenuous bid amount in order to increase the
probability that they will be offered a DMEPOS contract, as they will
forfeit the bid surety bond if the bid is at or below the median
composite bid rate and the bidding entity does not accept the offered
contract.
2. Current Issues
In the Calendar Year (CY) 2026 Home Health Prospective Payment
System (PPS) Final Rule (see 90 FR 55342-55620) published in the
Federal Register on December 2, 2025, CMS established the Remote Item
Delivery (RID) Competitive Bidding Program (CBP). The term ``remote
item delivery competitive bidding program'' is defined under Sec.
414.402 to mean a competitive bidding program wherein contract
suppliers are responsible for furnishing remote item delivery items
under a product category to all Medicare beneficiaries regardless of
where they live in the CBA. The CBA could be one nationwide CBA that
includes all areas (all States, territories, and the District of
Columbia) or a CBA covering a specific region of the country.
The term ``remote item delivery item is defined under Sec. 414.402
to mean an item falling under a remote item delivery competitive
bidding program that may be shipped or delivered to a beneficiary's
home, regardless of the method of delivery, or picked up at a local
pharmacy or supplier storefront if the beneficiary or caregiver for the
beneficiary chooses to pick the item up in person.
In the CY 2026 Home Health PPS Final Rule (see 90 FR 55342-55620),
we stated that we plan to implement remote item delivery (RID)
competitive bidding programs (CBPs) for certain items designated under
the DMEPOS CBP, and further explained that competitions for RID items
may involve larger competitive bidding areas (CBAs), including
nationwide CBAs. To discourage DMEPOS suppliers from submitting non-
serious or disingenuous bids and to ensure genuine commitment from
suppliers awarded contracts under a RID CBP, we propose requiring one
bid surety bond at the maximum allowable amount of $100,000 for any and
all bids submitted by a bidding entity for RID CBAs in a round of the
DMEPOS CBP. This maximum bond amount is justified because a RID CBA,
even when structured as a regional competition, can span multiple
States and serve beneficiaries across a vast geographic footprint, far
exceeding the scope of a traditional CBA, which is typically confined
to a single metropolitan statistical area (MSA) within one state. The
significantly greater scale, complexity, and beneficiary population
associated with a RID CBA warrant is the highest available level of
financial commitment from bidders. This higher amount would also
provide a stronger incentive for suppliers bidding on a RID CBA to
submit bona fide bids and accept contract offers, thereby supporting
the core objective of the DMEPOS CBP to reduce the amount Medicare pays
for competitively bid DMEPOS and bring payment amounts more in line
with those of a competitive market. A higher
[[Page 17223]]
bid surety bond amount is further supported by section 1847(b)(4)(A) of
the Act, which directs CMS to consider whether bidders can furnish
sufficient items or services to meet the anticipated needs of
individuals within the contract's geographic area on a timely basis--a
standard that is particularly demanding given the broad, multi-state
reach of a RID CBA.
We propose to maintain the bid surety bond amount of $50,000 for
all non-RID competitions.
Rather than implementing hundreds of separate local CBPs and CBAs--
which would impose unnecessary administrative burden on both the
bidding program and suppliers--we believe the most practical approach
is to consolidate RID competitions into one nationwide RID CBP or
several large regional RID CBPs, covering all areas where a beneficiary
resides or receives covered items under the applicable product
categories, with limited exceptions as described in the CY 2026 Home
Health PPS Final Rule (90 FR 29254). This approach is consistent with
longstanding Federal guidance from a September 2004 GAO report (GAO-04-
765), which recommended that CMS explore mail delivery as a viable
competitive bidding strategy for items provided directly to
beneficiaries in the home, and noted that the Medicare Modernization
Act (MMA) authorizes CMS to designate the entire country as a single
competitive area for select items. The GAO further emphasized that a
consolidated nationwide approach would allow CMS to implement
competitive bidding more quickly and efficiently than a piecemeal
strategy, enabling companies with nationwide mail-order capability to
compete for Medicare beneficiaries' business. The maximum bond
requirement, combined with this consolidated RID CBP framework,
promotes accountability, reduces administrative complexity, and ensures
that only capable and committed suppliers participate in RID
competitive bidding.
B. Provisions of the Proposed Regulation
At Sec. 414.412(g)(2)(i)(H), we are proposing that for future
rounds of the DMEPOS CBP, the bid surety bond amount would remain at
$50,000, and we propose to revise Sec. 412(g)(2)(i)(H) to no longer
use the term ``bid bond value'' and instead use the more common term
``bid surety bond amount.'' However, to submit a bid(s) and be awarded
a contract for a RID CBP, we propose under Sec. 414.412(g)(2)(iii)
that the bidding entity must obtain a bid surety bond of $100,000.
Additionally, we propose under Sec. 414.412(g)(2)(iii) that if
submitting bids for multiple competitions under a RID CBP, only one bid
surety bond is required, regardless of whether the RID CBP competitions
have different CBAs bid. We are soliciting comments on these proposals.
XI. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501-
3520, we are required to provide notice in the Federal Register and
solicit public comment before a collection of information requirement
is submitted to the Office of Management and Budget (OMB) for review
and approval. To fairly evaluate whether an information collection
should be approved by OMB, 44 U.S.C. 3506(c)(2)(A) requires that we
solicit comment on the following issues:
<bullet> The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
<bullet> The accuracy of our estimate of the information collection
burden.
<bullet> The quality, utility, and clarity of the information to be
collected.
<bullet> Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comments on each of these issues for the
following sections of this document that contain information collection
requirements (ICRs):
ICRs for Proposed Updates Related to the IRF QRP
An IRF that does not meet the requirements of the IRF QRP for a
fiscal year will receive a 2-percentage point reduction to its
otherwise applicable annual increase factor for that fiscal year. We
estimate that the burden associated with the IRF QRP is the time and
effort associated with complying with the requirements of the IRF QRP.
The IRF-PAI, in its current form, has been approved under OMB control
number 0938-0842 (expiration 10/31/2027). In section IX.D.2 of this
proposed rule, we are proposing to revise the data submission deadlines
beginning with the FY 2029 IRF QRP. If finalized, this requirement
would not result in additional collection burden for the IRF QRP or
revisions to the currently approved IRF-PAI.
If you comment on this information collection, that is, reporting,
recordkeeping or third-party disclosure requirements, please submit
your comments electronically as specified in the ADDRESSES section of
this proposed rule.
Comments must be received by the date and time specified in the
DATES section of this rule.
XII. Response to Comments
Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.
XIII. Regulatory Impact Analysis
A. Statement of Need
This proposed rule would update the IRF prospective payment rates
for FY 2027 as required under section 1886(j)(3)(C) of the Act and in
accordance with section 1886(j)(5) of the Act, which requires the
Secretary to publish in the Federal Register on or before August 1
before each FY, the classification and weighting factors for CMGs used
under the IRF PPS for such FY and a description of the methodology and
data used in computing the prospective payment rates under the IRF PPS
for that FY. This proposed rule would also implement section
1886(j)(3)(C) of the Act, which requires the Secretary to apply a
productivity adjustment to the market basket percentage increase for FY
2012 and subsequent years.
Furthermore, this proposed rule proposes to adopt policy changes to
the IRF QRP under the statutory discretion afforded to the Secretary
under section 1886(j)(7) of the Act.
B. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866, ``Regulatory Planning and Review''; Executive Order 13132,
``Federalism''; Executive Order 13563, ``Improving Regulation and
Regulatory Review''; Executive Order 14192, ``Unleashing Prosperity
Through Deregulation''; the Regulatory Flexibility Act (RFA) (Pub. L.
96-354); section 1102(b) of the Social Security Act; section 202 of the
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select those regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety,
[[Page 17224]]
and other advantages; and distributive impacts). Section 3(f) of
Executive Order 12866 defines a ``significant regulatory action'' as
any regulatory action that is likely to result in a rule that may: (1)
have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or Tribal governments or
communities; (2) create a serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impact of entitlements, grants, user fees, or loan
programs or the rights and obligations of recipients thereof; or (4)
raise novel legal or policy issues arising out of legal mandates, or
the President's priorities.
We estimate the total impact of the policy updates described in
this proposed rule by comparing the estimated payments in FY 2027 with
those in FY 2026. This analysis results in an estimated $355 million
increase for FY 2027 IRF PPS payments. Based on our estimates, OMB's
Office of Information and Regulatory Affairs has determined this
rulemaking is significant per section 3(f)(1) of E.O. 12866 because it
will have an effect on the economy of $100 million or more in any 1
year. Accordingly, we have prepared an RIA that, to the best of our
ability, presents the costs and benefits of the rulemaking. In
accordance with the provisions of Executive Order 12866, this
regulation was reviewed by OMB.
Executive Order 14192, entitled ``Unleashing Prosperity Through
Deregulation'' was issued on January 31, 2025, and requires that ``any
new incremental costs associated with new regulations shall, to the
extent permitted by law, be offset by the elimination of existing costs
associated with at least 10 prior regulations.'' We estimated that this
proposed rule would only generate approximately $0.02 million
annualized costs at a 7 percent discount rate, discounted relative to
year 2024, over a perpetual time horizon. This proposed rule, if
finalized as proposed, is not expected to be an E.O. 14192 regulatory
action because it would not impose any more than de minimis regulatory
costs.
C. Anticipated Effects on IRFs
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
governmental jurisdictions. Most IRFs and most other providers and
suppliers are small entities, either by having revenues of $9.0 million
to $47.0 million or less in any 1 year depending on industry
classification, or by being nonprofit organizations that are not
dominant in their markets. The SBA defines small specialty hospitals
(except Psychiatric and Substance Abuse) as businesses having less than
$47 million in total annual revenue. (For more details, see the Small
Business Administration's final rule that set forth size standards for
healthcare industries, at 65 FR 69432 and see <a href="https://www.sba.gov/sites/default/files/2023-06/Table%20of%20Size%20Standards_Effective%20March%2017%2C%202023%20%282%29.pdf">https://www.sba.gov/sites/default/files/2023-06/Table%20of%20Size%20Standards_Effective%20March%2017%2C%202023%20%282%29.pdf</a>, effective January 1, 2022, and updated on March 17, 2023.) We
believe NAICS code 622310 (Specialty Hospitals, except Psychiatric and
Substance Abuse) is a reasonable proxy for inpatient rehabilitation
facilities (IRFs) for purposes of contextualizing industry structure
where 40 percent of entities are small business (127 out of 327
entities) according to SUSB data.
According to the MedPAC 2026 Report to Congress,\10\ only 51
percent of IRF stays are Medicare fee-for-service stays. Therefore, we
estimate that Medicare constitutes approximately 51 percent of total
revenue for all 1,175 IRFs. We invite feedback regarding this
assumption.
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\10\ <a href="https://www.medpac.gov/wp-content/uploads/2026/03/Mar26_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2026/03/Mar26_MedPAC_Report_To_Congress_SEC.pdf</a>.
---------------------------------------------------------------------------
As shown in Table 14, according to the 2022 Economic Census, all
Specialty (except Psychiatric and Substance Abuse) Hospitals earned
approximately $59.7 billion, while the small entities earned
approximately $1.73 billion in total. The regulatory review cost is
$341 per entity. Table 15 presents the distribution of $355 million
increase in total annualized monetized transfers from the Federal
Government and States to IRF providers in FY2027.
The Department of Health and Human Services' (HHS) uses a change in
revenue of more than 3 to 5 percent as a measure of economic
significant impact. The agency considers the rule to have a significant
impact on a substantial number of small businesses when more than 5
percent of impacted small entities meet the significant impact
threshold. This proposed rule, if finalized as proposed, would have
impact on a substantial number of small businesses. But the impact
should not be significant. Table 15 presents the detailed annual
transfer payment change from FY 2026 to FY 2027. Taking into account
Medicare revenue accounts for around 51 percent of IRFs revenue, the
change would be less than 3 percent. As such, we believe even though
substantial number of small businesses might be affected, the impact
would not be significant. Finally, the impact implies the increase of
payment which is welcomed by small businesses.
[[Page 17225]]
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Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-04, enacted March 22, 1995) (UMRA) also requires that agencies
assess anticipated costs and benefits before issuing any rule whose
mandates require spending in any 1 year of $100 million in 1995
dollars, updated annually for inflation. In 2026, that threshold was
approximately $193 million. This proposed rule does not mandate any
requirements for State, local, or Tribal governments, or for the
private sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule (and subsequent final
rule) that imposes substantial direct requirement costs on State and
local governments, preempts State law, or otherwise has federalism
implications. As stated, this proposed rule will not have a substantial
effect on State and local governments, preempt State law, or otherwise
have a Federalism implication.
Section 1102(b) of the Act requires us to prepare an RIA if a rule
may have a significant impact on the operations of a substantial number
of small rural hospitals. This analysis must conform to the provisions
of section 603 of the RFA. For the purposes of section 1102(b) of the
Act, we define a small rural hospital as a hospital that is located
outside of a Metropolitan Statistical Area and has fewer than 100 beds.
As shown in Table 15, we estimate that the net revenue impact of this
proposed rule on rural IRFs is to increase estimated payments by
approximately 3.3 percent based on the data of the 127 rural units and
14 rural hospitals in our database of 1,175 IRFs for which data were
available. Considering Medicare revenue accounts for 51 percent of the
total revenue, we estimate an overall impact for rural IRFs in all
areas between 1.2 percent and 2.8 percent of total revenue. Therefore,
the Secretary has determined that this proposed rule will not have a
significant impact on the operations of a substantial number of small
rural IRFs.
D. Detailed Economic Analysis
We have estimated the impact of the proposed rule. This proposed
rule updates the IRF PPS rates contained in the FY 2026 IRF PPS final
rule (90 FR 37678). Specifically, this proposed rule proposes updates
to the CMG relative weights and ALOS values, the wage index, and the
outlier threshold for high-cost cases. This proposed rule would apply a
productivity adjustment to the FY 2027 IRF market basket percentage
increase in accordance with section 1886(j)(3)(C)(ii)(I) of the Act.
1. Impact on IRFs
We estimate that the impact of the changes and updates described in
this proposed rule will be a net estimated increase of $355 million in
payments to IRFs for FY 2027. The impact analysis in Table 14 of this
proposed rule represents the projected effects of the proposed updates
to IRF PPS payments for FY 2027 compared with the estimated IRF PPS
payments in FY 2026. We determine the effects by estimating payments
while holding all other payment variables constant. We use the best
data available, but we do not attempt to predict behavioral responses
to these changes, and we do not make adjustments for future changes in
such variables as number of discharges or case-mix.
We note that certain events may combine to limit the scope or
accuracy of our impact analysis, because such an analysis is future-
oriented and, thus, susceptible to forecasting errors because of other
changes in the forecasted impact time period. Some examples could be
legislative changes made by the Congress to the Medicare program that
would impact program funding, or changes specifically related to IRFs.
Although some of these changes may not necessarily be specific to the
IRF PPS, the nature of the Medicare program is such that the changes
may interact, and the complexity of the interaction of these changes
could make it difficult to predict accurately the full scope of the
impact upon IRFs.
[[Page 17226]]
In updating the rates for FY 2027, we are proposing to implement
the standard annual revisions described in this proposed rule (for
example, the update to the wage index and market basket percentage
increase used to adjust the Federal rates). We are also proposing to
reduce the FY 2027 IRF market basket percentage increase by a
productivity adjustment in accordance with section 1886(j)(3)(C)(ii)(I)
of the Act. We estimate that the total increase in payments to IRFs in
FY 2027, relative to FY 2026, will be approximately $355 million.
This estimate is derived from the application of the FY 2027 IRF
market basket percentage increase, reduced by a productivity adjustment
in accordance with section 1886(j)(3)(C)(ii)(I) of the Act, which
yields an estimated increase in aggregate payments to IRFs of $300
million. In addition, there is an estimated $55 million increase in
aggregate payments to IRFs due to the update to the outlier threshold
amount. We estimate that these updates would result in a net increase
in estimated payments of $355 million from FY 2026 to FY 2027.
The effects of the proposed updates that impact IRF PPS payment
rates are shown in Table 15. The following updates that affect the IRF
PPS payment rates are discussed separately below:
<bullet> The effects of the proposed update to the outlier
threshold amount, from approximately 2.6 percent to 3.0 percent of
total estimated payments for FY 2027, consistent with section
1886(j)(4) of the Act.
<bullet> The effects of the proposed annual market basket update
(using the 2021-based IRF market basket) to IRF PPS payment rates, as
required by sections 1886(j)(3)(A)(i) and (j)(3)(C) of the Act,
including a productivity adjustment in accordance with section
1886(j)(3)(C)(ii)(I) of the Act.
<bullet> The effects of applying the proposed budget-neutral labor-
related share and wage index adjustment, as required under section
1886(j)(6) of the Act, accounting for the permanent cap on wage index
decreases when applicable.
<bullet> The effects of the proposed budget-neutral changes to the
CMG relative weights and ALOS values under the authority of section
1886(j)(2)(C)(i) of the Act.
<bullet> The total proposed change in estimated payments based on
the FY 2027 payment changes relative to the estimated FY 2026 payments.
2. Description of Table 15
Table 15 shows the overall impact on the 1,175 IRFs included in the
analysis. The next 12 rows of Table 15 contain IRFs categorized
according to their geographic location, designated as either a
freestanding hospital or a unit of a hospital, and by type of
ownership; all urban, which is further divided into urban units of a
hospital, urban freestanding hospitals, and by type of ownership; and
all rural, which is further divided into rural units of a hospital,
rural freestanding hospitals, and by type of ownership. There are 1,034
IRFs located in urban areas included in our analysis. Among these,
there are 644 IRF units of hospitals located in urban areas and 390
freestanding IRF hospitals located in urban areas. There are 141 IRFs
located in rural areas included in our analysis. Among these, there are
127 IRF units of hospitals located in rural areas and 14 freestanding
IRF hospitals located in rural areas. There are 539 for-profit IRFs.
Among these, there are 500 IRFs in urban areas and 39 IRFs in rural
areas. There are 541 non-profit IRFs. Among these, there are 457 urban
IRFs and 84 rural IRFs. There are 95 government-owned IRFs. Among
these, there are 77 urban IRFs and 18 rural IRFs.
The remaining four parts of Table 15 show IRFs grouped by
geographic location within a region, by teaching status, and by DSH
patient percentage (PP). First, IRFs located in urban areas are
categorized for their location within a particular one of the nine
Census geographic regions. Second, IRFs located in rural areas are
categorized for their location within a particular one of the nine
Census geographic regions. In some cases, especially for rural IRFs
located in the New England, Mountain, and Pacific regions, the number
of IRFs represented is small. IRFs are then grouped by teaching status,
including non-teaching IRFs, IRFs with an intern and resident to
average daily census (ADC) ratio less than 10 percent, IRFs with an
intern and resident to ADC ratio greater than or equal to 10 percent
and less than or equal to 19 percent, and IRFs with an intern and
resident to ADC ratio greater than 19 percent. Finally, IRFs are
grouped by DSH PP, including IRFs with zero DSH PP, IRFs with a DSH PP
less than 5 percent, IRFs with a DSH PP between 5 and less than 10
percent, IRFs with a DSH PP between 10 and 20 percent, and IRFs with a
DSH PP greater than 20 percent.
The estimated impacts of each policy described in this proposed
rule to the facility categories listed are shown in the columns of
Table 15. The description of each column is as follows:
<bullet> Column (1) shows the facility classification categories.
<bullet> Column (2) shows the number of IRFs in each category in
our FY 2027 analysis file.
<bullet> Column (3) shows the number of cases in each category in
our FY 2027 analysis file.
<bullet> Column (4) shows the estimated effect of the adjustment to
the outlier threshold amount.
<bullet> Column (5) shows the estimated effect of the FY 2027
update to the IRF labor-related share, wage index with the 5-percent
cap on wage index decreases when applicable, and final year of the 3-
year phase-out of the rural adjustment finalized in the FY 2026 IRF PPS
final rule, in a budget-neutral manner.
<bullet> Column (6) shows the estimated effect of the update to the
CMG relative weights and ALOS values, in a budget-neutral manner.
<bullet> Column (7) compares our estimates of the payments per
discharge, incorporating all of the policies reflected in this proposed
rule for FY 2027 to our estimated payments per discharge in FY 2026.
The average estimated increase in payments for all IRFs is
approximately 2.8 percent. This estimated net increase includes the
effects of the IRF market basket update for FY 2027 of 2.4 percent,
which is based on an IRF market basket percentage increase of 3.2
percent, less a 0.8 percentage point productivity adjustment, as
required by section 1886(j)(3)(C)(ii)(I) of the Act. It also includes
the approximate 0.4 percent overall increase in estimated IRF outlier
payments from the update to the outlier threshold amount. Since we are
updating the IRF wage index, labor-related share and the CMG relative
weights in a budget-neutral manner, we estimate there is no expected
impact to total estimated IRF payments in aggregate from these changes.
However, as described in more detail in each section, we estimate there
will be expected impacts to the estimated distribution of payments
among providers.
BILLING CODE 4120-01-P
[[Page 17227]]
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[[Page 17228]]
[GRAPHIC] [TIFF OMITTED] TP06AP26.075
BILLING CODE 4120-01-C
3. Impact of the Update to the Outlier Threshold Amount
The estimated effects of the update to the outlier threshold
adjustment from FY 2026 to FY 2027 are presented in column 4 of Table
15.
For this FY 2027 proposed rule, we used preliminary FY 2025 IRF
claims data and based on that preliminary analysis, we estimated that
IRF outlier payments as a percentage of total estimated IRF payments
would be 2.6 percent in FY 2026. Thus, we are adjusting the outlier
threshold amount in this proposed rule from $10,141 in FY 2026 to
$8,689 in FY 2027 to maintain total estimated outlier payments equal to
3 percent of total estimated payments in FY 2027. The estimated change
in total IRF payments for FY 2027, therefore, includes an approximate
0.4 percentage point increase in payments because the estimated outlier
portion of total payments is estimated to increase from approximately
2.6 percent to 3.0 percent. The impact of this update to the outlier
threshold amount (as shown in column 4 of Table 15) is to increase
estimated overall payments to IRFs by 0.4 percentage point.
4. Impact of the Wage Index, Labor-Related Share, and Wage Index Cap
In column 5 of Table 15, we present the effects of the budget-
neutral update of the wage index and labor-related share, taking into
account the permanent 5-percent cap on wage index decreases when
applicable. The changes to the wage index and the labor-related share
are discussed together because the wage index is applied to the labor-
related portion of payments, so the changes in the two have a combined
effect on payments to providers. As discussed in section V.C. of this
proposed rule, the FY 2027 labor-related share is 74.5 percent, 0.1
percentage point higher than the labor-related share for FY 2026.
In the aggregate, since these proposed updates to the wage index
and the labor-related share are applied in a budget-neutral manner as
required under section 1886(j)(6) of the Act, we do not estimate that
these updates will affect overall estimated payments to IRFs. However,
we estimate that these changes will have distributional effects. For
example, we estimate the largest increase in payments of 5.6 percent
for rural IRFs in the New England region. We estimate the largest
decrease in payments from the update to the wage index and labor-
related share to be a 0.8 percent decrease for urban IRFs in the East
South Central region.
5. Impact of the Update to the CMG Relative Weights and ALOS Values
In column 6 of Table 15, we present the effects of the proposed
budget-neutral update of the CMG relative weights and ALOS values. In
the aggregate, we do not estimate that these proposed updates will
affect overall estimated payments of IRFs. However, we do expect these
updates to have small distributional effects between -0.3 percent to
0.1 percent.
6. Effects of Requirements for the IRF QRP
In accordance with section 1886(j)(7)(A) of the Act, the Secretary
must reduce by 2 percentage points the annual market basket increase
factor otherwise applicable to an IRF for a fiscal year if the IRF does
not comply with the requirements of the IRF QRP for that fiscal year.
In section IX.A. of this proposed rule, we discussed the method for
applying the 2-percentage points reduction to IRFs that fail to meet
the IRF QRP requirements. In section IX.D.2. of this proposed rule, we
are proposing to revise the data submission deadlines beginning with
the FY 2029 IRF QRP. If finalized, this requirement would not result in
additional collection burden for the IRF QRP.
7. DMEPOS Competitive Bidding Program
This rule proposes a change to the DMEPOS CBP to further enhance
its effectiveness in achieving the objectives of the program as
mandated by section 1847(a) of the Act. Specially, we are proposing to
increase the bid surety bond amount from $50,000 to $100,000 for any
and all bids submitted by a bidding entity for remote item delivery
(RID) competitive bidding program areas (CBAs) in a round of the DMEPOS
CBP while maintaining $50,000 for all other CBAs. The primary factor
for surety bond premiums is the bidder's credit score, with premiums
typically ranging from 1 percent to 10 percent of the bid surety bond
amount. However, there is no reliable way to estimate how program
changes or market conditions because the last round may have impacted
bidders' credit profiles. Importantly, the overall financial burden may
be reduced for many suppliers because Round 2021 included 130
competitive bidding areas (CBAs) requiring separate bid surety bonds
for each CBA, whereas Round 2028 will include a nationwide RID CBA
requiring one bid surety bond. While the cost of
[[Page 17229]]
one RID bid surety bond would increase because of a $50,000 increase in
the bid surety bond amount, suppliers that previously bid in multiple
CBAs would likely experience net savings by needing only one bid surety
bond instead of multiple bid surety bonds. The actual cost impact will
vary significantly based on individual credit scores, past performance,
and the number of CBAs a supplier would have participated in under a
prior round of the DMEPOS CBP. Given these variables, the true impact
cannot be precisely quantified and cost estimates should present a
range using a 1 percent to 10 percent premium rate framework with
caveats about individual variation and the offsetting effect of
requiring fewer bid surety bonds.
E. Alternatives Considered
1. IRF PPS
The following is a discussion of the alternatives considered for
the IRF PPS updates contained in this proposed rule. As noted
previously in this proposed rule, section 1886(j)(3)(C) of the Act
requires the Secretary to update the IRF PPS payment rates by an
increase factor that reflects changes over time in the prices of an
appropriate mix of goods and services included in the covered IRF
services and section 1886(j)(3)(C)(ii)(I) of the Act requires the
Secretary to apply a productivity adjustment to the market basket
percentage increase for FY 2027. Thus, in accordance with section
1886(j)(3)(C) of the Act, we are proposing to update the IRF
prospective payments in this proposed rule by 2.4 percent (which equals
the proposed 3.2 percent IRF market basket percentage increase for FY
2027 reduced by a proposed 0.8 percentage point productivity adjustment
as determined under section 1886(b)(3)(B)(xi)(II) of the Act (as
required by section 1886(j)(3)(C)(ii)(I) of the Act)).
We also considered making no changes to the current IDT meeting
policy (42 CFR 412.622(a)(5)) and allow the initial IDT meetings to
occur within 7 consecutive calendar days beginning with the date of
admission to the IRF (42 CFR 412.622(c)). However, we declined to take
this approach given the importance of the IDT meetings for coordinated
patient care early in their stay and in shaping revisions to the plan
of care if there are problems that could impede the patient's progress
toward their rehabilitation goals.
2. IRF QRP
Regarding the proposal to revise the IRF QRP assessment data
submission deadline from 4.5 months to no later than the 15th day of
the second month after the end of each quarter, we considered keeping
the deadline unchanged. We determined that the revised timeframe is a
reasonable amount of time for IRFs to submit data and make any
necessary corrections, and that the benefits of this shortened
timeframe include making the data timelier and more actionable which
increases the value of publicly reported data both for consumers and
their families and for IRFs to use in their quality improvement
activities.
F. Regulatory Review Costs
If regulations impose administrative costs on private entities,
such as the time needed to read and interpret this proposed rule, we
should estimate the cost associated with regulatory review. Due to the
uncertainty involved with accurately quantifying the number of entities
that will review the rule, we assume at least one staff in IRFs would
read the rule. The total number of IRFs would be the proxy of number of
reviewers for this rule. We acknowledge that this assumption may
understate or overstate the costs of reviewing the proposed rule. We
also assume that each reviewer reads 100 percent of the rule.
Using the national median hourly wage data from the May 2024 BLS
for Occupational Employment and Wage Statistics (OEWS) for medical and
health service managers (SOC 11-9111), we estimate that the cost of
reviewing this rule is $113.42 per hour, including other indirect costs
and fringe benefits (<a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>).
Assuming an average reading speed, we estimate that it will take
approximately 3 hours for the staff to review the proposed rule. For
each reviewer of the rule, the estimated cost is $340.26 (3 hours x
$113.42). Therefore, we estimated that the total cost of reviewing this
regulation is $399,805.5 ($340.26 x 1,175 reviewers).
G. Accounting Statement and Table
Consistent with OMB Circular A-4 (available at <a href="https://www.reginfo.gov/public/jsp/Utilities/a-4.pdf">https://www.reginfo.gov/public/jsp/Utilities/a-4.pdf</a>), in Table 16, we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of the proposed rule. Table
15 provides our best estimate of the increase in Medicare payments
under the IRF PPS as a result of the updates presented in this proposed
rule based on the data for IRFs in our database.
[GRAPHIC] [TIFF OMITTED] TP06AP26.076
H. Conclusion
Overall, the estimated payments per discharge for IRFs in FY 2027
are projected to increase by 2.8 percent, compared with the estimated
payments in FY 2026, as reflected in column 7 of Table 15.
IRF payments per discharge are estimated to increase by 2.8 percent
in urban areas and 3.3 percent in rural areas, compared with estimated
FY 2026 payments. Payments per discharge to rehabilitation units are
estimated to increase 3.5 percent in urban areas and 3.4 percent in
rural areas. Payments per discharge to freestanding rehabilitation
hospitals are estimated to increase 2.5 percent in urban areas and 3.2
percent in rural areas.
Overall, IRFs are estimated to experience a net increase in
payments as a result of the policies in this proposed rule. The largest
payment increase is estimated to be 5.6 percent for IRFs in Rural New
England. The analysis above, together with the remainder of this
preamble, provides an RIA.
[[Page 17230]]
Mehmet Oz, Administrator of the Centers for Medicare & Medicaid
Services, approved this document on March 31, 2026.
List of Subjects
42 CFR Part 412
Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.
42 CFR Part 414
Administrative practice and procedure, Biologics, Diseases, Drugs,
Health facilities, Health professions, Medicare, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth
below:
PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
0
1. The authority citation for part 412 continues to read as follows:
Authority: 42 U.S.C. 1302 and 1395hh.
0
2. Section 412.622 is amended--
0
a. By revising paragraphs (a)(3)(ii), (a)(4)(i)(B), and (a)(5)(ii);
0
b. By redesignating paragraph (a)(5)(iii) as paragraph (a)(5)(iv);
0
c. By adding new paragraph (a)(5)(iii); and
0
d. In paragraph (c) by revising the definition of ``Week''.
The revisions and addition read as follows:
Sec. 412.622 Basis of Payment.
(a) * * *
(3) * * *
(ii) Except during the emergency period described in section
1135(g)(1)(B) of the Act, generally requires and can reasonably be
expected to actively participate in, and benefit from, an intensive
rehabilitation therapy program. Under current industry standards, this
intensive rehabilitation therapy program generally consists of at least
3 hours of therapy (physical therapy, occupational therapy, speech-
language pathology, or prosthetics/orthotics therapy) per day at least
5 days per week. In certain well-documented cases, this intensive
rehabilitation therapy program might instead consist of at least 15
hours of intensive rehabilitation therapy per week. Benefit from this
intensive rehabilitation therapy program is demonstrated by measurable
improvement that will be of practical value to the patient in improving
the patient's functional capacity or adaptation to impairments. All
required therapy treatments and/or therapy evaluations ordered must
begin no later than 36 hours from midnight the day of admission to the
IRF.
* * * * *
(4) * * *
(i) * * *
(B) It includes a detailed and comprehensive review of each
patient's condition and medical history, including the patient's level
of function prior to the event or condition that led to the patient's
need for intensive rehabilitation therapy, current functional status,
the expected level of improvement, and the expected length of time
necessary to achieve that level of improvement; an evaluation of the
patient's risk for clinical complications; the conditions that caused
the need for rehabilitation; the treatments needed (that is, physical
therapy, occupational therapy, speech language pathology, or
prosthetics/orthotics); and anticipated discharge destination.
* * * * *
(5) * * *
(ii) The initial interdisciplinary team meeting must occur on or
before the fourth day from midnight of the date the patient is admitted
to implement appropriate treatment services; establish or review the
patient's stated rehabilitation goals; and identify any problems that
could impede goals.
(iii) The date of the initial interdisciplinary team meeting shall
be used to determine the patient's subsequent team meetings. The
remaining IDT meetings must occur at least once per week after the date
of the prior team meeting to implement appropriate treatment services;
review the patient's progress toward stated rehabilitation goals;
identify any problems that could impede progress towards those goals;
and, where necessary, reassess previously established goals in light of
impediments, revise the treatment plan in light of new goals, and
monitor continued progress toward those goals.
* * * * *
(c) * * *
* * * * *
Week means a period of 7 consecutive calendar days.
PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES
0
3. The authority citation for part 414 continues to read as follows:
Authority: 42 U.S.C. 1302, 1395hh, and 1395rr(b)(l).
0
4. Section 414.412 is amended by--
0
a. Revising paragraph (g)(2)(i)(H); and
0
b. Adding paragraph (g)(2)(iii).
The revision and addition read as follows:
Sec. 414.412 Submission of bids under a competitive bidding program.
* * * * *
(g) * * *
(2) * * *
(i) * * *
(H) The bid surety bond amount of $50,000.
* * * * *
(iii) Notwithstanding the above, to submit a bid(s) and be awarded
a contract for a RID CBP, the bidding entity must obtain a bid surety
bond of $100,000. If submitting bids for multiple competitions under a
RID CBP, only one bid surety bond is required, regardless of whether
the RID CBP competitions have different CBAs.
* * * * *
Robert F. Kennedy, Jr.,
Secretary, Department of Health and Human Services.
[FR Doc. 2026-06642 Filed 4-2-26; 4:15 pm]
BILLING CODE 4120-01-P
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</html>Indexed from Federal Register on April 6, 2026.
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