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Proposed Rule2026-06675

Medicare Program; FY 2027 Inpatient Psychiatric Facilities Prospective Payment System-Rate Update

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Published

April 7, 2026

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This rulemaking proposes to update the prospective payment rates, the outlier threshold, and the wage index for Medicare inpatient hospital services provided by Inpatient Psychiatric Facilities (IPFs), which include psychiatric hospitals and excluded psychiatric units of an acute care hospital or critical access hospital. This rulemaking also proposes refinement of the IPF PPS outlier policy. These changes would be effective for IPF discharges occurring during the fiscal year beginning October 1, 2026, through September 30, 2027. We are also proposing the implementation of a standardized IPF patient assessment instrument, and the removal of two measures used in the Inpatient Psychiatric Facilities Quality Reporting Program.

Full Text

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<title>Federal Register, Volume 91 Issue 66 (Tuesday, April 7, 2026)</title>
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[Federal Register Volume 91, Number 66 (Tuesday, April 7, 2026)]
[Proposed Rules]
[Pages 17720-17756]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-06675]

[[Page 17719]]

Vol. 91

Tuesday,

No. 66

April 7, 2026

Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 412

Medicare Program; FY 2027 Inpatient Psychiatric Facilities Prospective
Payment System--Rate Update; Proposed Rule

Federal Register / Vol. 91 , No. 66 / Tuesday, April 7, 2026 /
Proposed Rules

[[Page 17720]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1847-P]
RIN 0938-AV77

Medicare Program; FY 2027 Inpatient Psychiatric Facilities
Prospective Payment System--Rate Update

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This rulemaking proposes to update the prospective payment
rates, the outlier threshold, and the wage index for Medicare inpatient
hospital services provided by Inpatient Psychiatric Facilities (IPFs),
which include psychiatric hospitals and excluded psychiatric units of
an acute care hospital or critical access hospital. This rulemaking
also proposes refinement of the IPF PPS outlier policy. These changes
would be effective for IPF discharges occurring during the fiscal year
beginning October 1, 2026, through September 30, 2027. We are also
proposing the implementation of a standardized IPF patient assessment
instrument, and the removal of two measures used in the Inpatient
Psychiatric Facilities Quality Reporting 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-1847-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="https://www.regulations.gov/docket/CMS-2026-1123">https://www.regulations.gov/docket/CMS-2026-1123</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-1847-P, P.O. Box 8010,
Baltimore, MD 21244-8010.
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-1847-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: The IPF Payment Policy mailbox at
<a href="/cdn-cgi/l/email-protection#ce879e889eafb7a3aba0ba9ea1a2a7adb78eada3bde0a6a6bde0a9a1b8">[email&#160;protected]</a>, for general information.
Nick Brock, (410) 786-5148, for information regarding the inpatient
psychiatric facilities prospective payment system (IPF PPS) and
regulatory impact analysis.
Kaleigh Emerson, <a href="/cdn-cgi/l/email-protection#6209030e070b050a4c070f0710110d0c5322010f114c0a0a114c050d14">[email&#160;protected]</a>, for information
regarding the IPF Quality Reporting Program.

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 may be found at <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>.

Availability of Certain Tables Exclusively Through the Internet on the
CMS Website

Addendum A to this proposed rule summarizes the fiscal year (FY)
2027 IPF PPS payment rates, outlier threshold, cost of living
adjustment factors (COLA) for Alaska and Hawaii, national and upper
limit cost-to-charge ratios, and adjustment factors. In addition,
Addendum B to this proposed rule shows the complete listing of ICD-10
Clinical Modification (CM) and Procedure Coding System (PCS) codes, the
FY 2027 IPF PPS comorbidity adjustment, and electroconvulsive therapy
(ECT) procedure codes. Addenda A and B to this proposed rule are
available on the CMS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-
and-worksheets.
Tables setting forth the FY 2027 Wage Index for Urban Areas Based
on Core Based Statistical Area (CBSA) Labor Market Areas, the FY 2027
Wage Index Based on CBSA Labor Market Areas for Rural Areas, and the FY
2027 CBSA Labor Market Areas are available exclusively through the
internet, on the CMS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility/wage-index">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility/wage-index</a>.

I. Executive Summary

A. Purpose

This proposed rule would update the prospective payment rates, the
outlier threshold, and the wage index for Medicare inpatient hospital
services provided by Inpatient Psychiatric Facilities (IPFs) for
discharges occurring during fiscal year (FY) 2027 (beginning October 1,
2026, through September 30, 2027). This proposed rule includes a
proposal to limit an IPF's outlier payments to no more than 20 percent
of its total IPF PPS payments in a year. Lastly, this proposed rule
would implement a standardized IPF patient assessment instrument and
remove two quality measures.

B. Summary of the Major Provisions

1. Inpatient Psychiatric Facilities Prospective Payment System (IPF
PPS)
For the IPF PPS, we propose to:
<bullet> Establish a 20-percent cap on outlier payments under the
IPF PPS.
<bullet> Make technical rate setting updates: The IPF PPS payment
rates will be adjusted annually for input price inflation, as well as
statutory and other policy factors.
This rule proposes to update:
++ The IPF PPS Federal per diem base rate from $892.87 to $912.58.
++ The IPF PPS Federal per diem base rate for providers who failed
to report quality data to $894.74.
++ The electroconvulsive therapy (ECT) payment per treatment from
$673.85 to $688.73.
++ The ECT payment per treatment for providers who failed to report
quality data to $675.26.
++ The labor-related share from 79.0 percent to 79.1 percent.
++ The wage index budget neutrality factor to 0.9991.
++ The fixed dollar loss threshold amount from $39,360 to $37,820,
to

[[Page 17721]]

maintain estimated outlier payments at 2 percent of total estimated
aggregate IPF PPS payments.
2. Inpatient Psychiatric Facilities Quality Reporting Program
For the IPF Quality Reporting Program, we are proposing to
implement a standardized IPF patient assessment instrument (IPF-PAI),
as mandated by section 4125(b)(1) of the Consolidated Appropriations
Act of 2023 (CAA, 2023), and to remove two measures from the program:
Alcohol Use Brief Intervention Provided or Offered and Alcohol Use
Brief Intervention (SUB-2/2a) and Tobacco Use Treatment Provided or
Offered at Discharge (TOB-3/3a).

C. Summary of Impacts

------------------------------------------------------------------------
Total transfers & cost
Provision description reductions
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FY 2027 IPF PPS payment update......... The overall economic impact of
this proposed rule is an
estimated $50 million in
increased payments to IPFs
during FY 2027.
IPF Quality Reporting Program update... We estimate a net increase of
$7,223,725 in costs to
facilities for the IPF Quality
Reporting Program due to
policies proposed in this
rule.
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II. Background

A. Overview of the Legislative Requirements of the IPF PPS

Section 124 of the Medicare, Medicaid, and State Children's Health
Insurance Program Balanced Budget Refinement Act of 1999 (BBRA) (Pub.
L. 106-113) required the establishment and implementation of an IPF PPS
in a budget neutral manner. Specifically, section 124 of the BBRA
mandated that the Secretary of Health and Human Services (the
Secretary) develop a per diem prospective payment system (PPS) for
inpatient hospital services furnished in psychiatric hospitals and
excluded psychiatric units including an adequate patient classification
system that reflects the differences in patient resource use and costs
among psychiatric hospitals and excluded psychiatric units. ``Excluded
psychiatric unit'' means a psychiatric unit of an acute care hospital
or of a Critical Access Hospital (CAH), which is excluded from payment
under the Inpatient Prospective Payment System (IPPS) or CAH payment
system, respectively. These excluded psychiatric units will be paid
under the IPF PPS.
Section 405(g)(2) of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF
PPS to psychiatric distinct part units of CAHs.
Sections 3401(f) and 10322 of the Patient Protection and Affordable
Care Act (Pub. L. 111-148) as amended by section 10319(e) of that Act
and by section 1105(d) of the Health Care and Education Reconciliation
Act of 2010 (Pub. L. 111-152) (hereafter referred to jointly as ``the
Affordable Care Act'') added subsection (s) to section 1886 of the
Social Security Act (the Act).
Section 1886(s)(1) of the Act titled ``Reference to Establishment
and Implementation of System,'' refers to section 124 of the BBRA,
which relates to the establishment of the IPF PPS.
Section 1886(s)(2)(A)(i) of the Act requires the application of the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act to the IPF PPS for the rate year (RY) beginning in 2012 (that
is, a RY that coincides with a FY) and each subsequent RY.
Section 1886(s)(2)(A)(ii) of the Act required the application of an
``other adjustment'' that reduced any update to an IPF PPS base rate by
a percentage point amount specified in section 1886(s)(3) of the Act
for the RY beginning in 2010 through the RY beginning in 2019. As noted
in the FY 2020 IPF PPS final rule (84 FR 38424), for the RY beginning
in 2019, section 1886(s)(3)(E) of the Act required that the other
adjustment reduction be equal to 0.75 percentage point; that was the
final year the statute required the application of this adjustment.
Because FY 2021 was a RY beginning in 2020, FY 2021 was the first year
that section 1886(s)(2)(A)(ii) of the Act did not apply since its
enactment.
Sections 1886(s)(4)(A) through (D) of the Act require that for RY
2014 and each subsequent RY, IPFs that fail to report required quality
data with respect to such a RY will have their annual update to a
standard Federal rate for discharges reduced by 2.0 percentage points.
This may result in an annual update being less than 0.0 for a RY, and
may result in payment rates for the upcoming RY being less than such
payment rates for the preceding RY. Any reduction for failure to report
required quality data will apply only to the RY involved, and the
Secretary will not consider such reduction in computing the payment
amount for a subsequent RY. Additional information about the specifics
of the current IPF Quality Reporting Program is available in the FY
2020 IPF PPS final rule (84 FR 38459 through 38468).
Section 4125 of the Consolidated Appropriations Act, 2023 (CAA,
2023) (Pub. L. 117-328), which amended section 1886(s) of the Act,
requires CMS to revise the Medicare prospective payment system for
psychiatric hospitals and psychiatric units. Specifically, section
4125(a) of the CAA, 2023 added section 1886(s)(5)(A) of the Act to
require the Secretary to collect data and information, as the Secretary
determines appropriate, to revise payments under the IPF PPS. CMS
discussed this data collection in the FY 2024 IPF PPS final rule (88 FR
51054), as CMS was required to begin collecting this data and
information not later than October 1, 2023. As discussed in that rule,
the agency has already been collecting data and information consistent
with the types set forth in the CAA, 2023 as part of our extensive and
years-long analyses and consideration of potential payment system
refinements. We refer readers to the FY 2024 IPF PPS final rule (88 FR
51095 through 51098) where we discussed existing data collection and
requested information to inform future IPF PPS revisions.
In addition, section 1886(s)(5)(D) of the Act, as added by section
4125(a) of the CAA, 2023 required that the Secretary implement
revisions to the methodology for determining the payment rates under
the IPF PPS for psychiatric hospitals and psychiatric units, effective
for RY 2025 (FY 2025). Section 1886(s)(5)(D) of the Act provided that
these revisions may be based on a review of the data and information
collected under section 1886(s)(5)(A) of the Act. For a detailed
discussion on the revisions implemented for FY 2025, we refer readers
to the FY 2025 IPF PPS final rule (89 FR 64590 through 64636).
Section 4125(b) of the CAA, 2023 amended section 1886(s)(4) of the
Act by inserting a new subparagraph (E) and redesignating the existing
subparagraph (E) as subparagraph (F) which requires IPFs participating
in the IPF Quality Reporting Program to collect and submit to the
Secretary standardized patient assessment data, using a standardized
patient assessment instrument, for RY 2028 (FY 2028) and each
subsequent rate year. IPFs must submit such data with respect to at
least the admission and discharge of an individual, or more frequently
as the Secretary determines appropriate. For IPFs to meet this new data
collection and reporting requirement for RY 2028 and each subsequent
rate year, the Secretary must implement a standardized patient
assessment instrument that collects data with respect to the following
categories: functional status; cognitive function and mental status;
special services, treatments, and interventions; medical conditions and
comorbidities;

[[Page 17722]]

impairments; and other categories as determined appropriate by the
Secretary. This patient assessment instrument must enable comparison of
such patient assessment data that IPFs submit across all such IPFs to
which such data are applicable.
Section 4125(b) of the CAA, 2023 further amended section 1886(s) of
the Act by adding a new subparagraph (6) that requires the Secretary to
implement revisions to the methodology for determining the payment
rates for psychiatric hospitals and psychiatric units (that is, payment
rates under the IPF PPS), effective for RY 2031 (FY 2031), as the
Secretary determines to be appropriate, to take into account the
patient assessment data described in paragraph (4)(E)(ii).
To implement and periodically update the IPF PPS, we have published
various proposed and final rules and notices in the Federal Register.
For more information regarding these documents, we refer readers to the
CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html?redirect=/InpatientPsychFacilPPS/">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html?redirect=/InpatientPsychFacilPPS/</a>.

B. Overview of the IPF PPS

We issued the rate year (RY) 2005 IPF PPS final rule that appeared
in the November 15, 2004 Federal Register (69 FR 66922). The RY 2005
IPF PPS final rule established the IPF PPS, as required by section 124
of the BBRA and codified at 42 CFR part 412, subpart N. The RY 2005 IPF
PPS final rule set forth the Federal per diem base rate for the
implementation year (the 18-month period from January 1, 2005, through
June 30, 2006) and provided payment for the inpatient operating and
capital costs to IPFs for covered psychiatric services they furnish
(that is, routine, ancillary, and capital costs, but not costs of
approved educational activities, bad debts, and other services or items
that are outside the scope of the IPF PPS). Covered psychiatric
services include services for which benefits are provided under the
fee-for-service Part A (Hospital Insurance Program) of the Medicare
program.
The IPF PPS established the Federal per diem base rate for each
patient day in an IPF derived from the national average daily routine
operating, ancillary, and capital costs in IPFs in FY 2002. The average
per diem cost was updated to the midpoint of the first year under the
IPF PPS, standardized to account for the overall positive effects of
the IPF PPS payment adjustments, and adjusted for budget neutrality.
The Federal per diem payment under the IPF PPS is comprised of the
Federal per diem base rate described previously and certain patient-
and facility-level payment adjustments for characteristics that were
found in the regression analysis to be associated with statistically
significant per diem cost differences, with statistical significance
defined as p less than 0.05. A complete discussion of the regression
analysis that established the IPF PPS adjustment factors can be found
in the RY 2005 IPF PPS final rule (69 FR 66933 through 66936).
The patient-level adjustments include age, Diagnosis-Related Group
(DRG) assignment, and comorbidities, as well as adjustments to reflect
higher per diem costs at the beginning of a patient's IPF stay and
lower costs for later days of the stay. Facility-level adjustments
include adjustments for the IPF's wage index, rural location, teaching
status, a cost-of-living adjustment for IPFs located in Alaska and
Hawaii, and an adjustment for the presence of a qualifying emergency
department (ED).
The IPF PPS provides additional payment policies for outlier cases,
interrupted stays, and a per-treatment payment for patients who undergo
ECT. During the IPF PPS mandatory 3-year transition period, stop-loss
payments were also provided; however, since the transition ended as of
January 1, 2008, these payments are no longer available.

C. Annual Requirements for Updating the IPF PPS

Section 124 of the BBRA did not specify an annual rate update
strategy for the IPF PPS and was broadly written to give the Secretary
discretion in establishing an update methodology. Therefore, in the RY
2005 IPF PPS final rule, we implemented the IPF PPS using the following
update strategy:
<bullet> Calculate the final Federal per diem base rate to be
budget neutral for the 18-month period of January 1, 2005, through June
30, 2006.
<bullet> Use a July 1 through June 30 annual update cycle.
<bullet> Allow the IPF PPS first update to be effective for
discharges on or after July 1, 2006, through June 30, 2007.
The RY 2005 final rule (69 FR 66922) implemented the IPF PPS. In
developing the IPF PPS, and to ensure that the IPF PPS can account
adequately for each IPF's case-mix, we performed an extensive
regression analysis of the relationship between the per diem costs and
certain patient and facility characteristics to determine those
characteristics associated with statistically significant cost
differences on a per diem basis. That regression analysis is described
in detail in our RY 2004 IPF proposed rule (68 FR 66923; 66928 through
66933) and our RY 2005 IPF final rule (69 FR 66933 through 66960). For
characteristics with statistically significant cost differences, we
used the regression coefficients of those variables to determine the
size of the corresponding payment adjustments.
In the RY 2005 IPF final rule, we explained the reasons for
delaying an update to the adjustment factors, derived from the
regression analysis, including waiting until we have IPF PPS data that
yields as much information as possible regarding the patient-level
characteristics of the population that each IPF serves. We indicated
that we did not intend to update the regression analysis and the
patient-level and facility-level adjustments until we complete that
analysis. Until that analysis is complete, we stated our intention to
publish a notice in the Federal Register each spring to update the IPF
PPS (69 FR 66966).
We issued a final rule which appeared in the May 6, 2011 Federal
Register titled, ``Inpatient Psychiatric Facilities Prospective Payment
System--Update for Rate Year Beginning July 1, 2011 (RY 2012)'' (76 FR
26432), which changed the payment rate update period to a RY that
coincides with a FY update. Therefore, final rules are now published in
the Federal Register in the summer to be effective on October 1st of
each year. When proposing changes in IPF payment policy, a proposed
rule is issued in the spring, and the final rule in the summer to be
effective on October 1st. For a detailed list of updates to the IPF
PPS, we refer readers to our regulations at 42 CFR 412.428. Beginning
October 1, 2012, we finalized that we would refer to the 12-month
period from October 1 through September 30 as a ``fiscal year'' (FY)
rather than a RY (76 FR 26435). Therefore, in this proposed rule we
refer to rules that took effect after RY 2012 by the FY, rather than
the RY, in which they took effect.
The most recent IPF PPS annual update, the FY 2026 IPF PPS final
rule (90 FR 37628), appeared in the Federal Register on August 5, 2025.
The FY 2026 IPF PPS final rule revised the payment adjustment factors
for teaching status and for IPFs located in rural areas in accordance
with section 1886(s)(5)(D)(i) of the Act. That final rule also updated
the IPF PPS Federal per diem base rates that were published in the FY
2025 IPF PPS final rule (89 FR 64582). In revising the IPF PPS
adjustment factors, we performed an

[[Page 17723]]

extensive regression analysis of the relationship between the per diem
costs and facility characteristics to determine those characteristics
associated with statistically significant cost differences on a per
diem basis. That regression analysis is described in detail in our FY
2026 IPF PPS proposed rule (90 FR 18503 through 18507) and our FY 2026
IPF PPS final rule (90 FR 37639 through 37644).
As required by section 1886(s)(5)(D)(iii) of the Act, we finalized
a refinement standardization factor for the FY 2026 IPF PPS payment
rates to maintain budget neutrality for FY 2026. The application of the
FY 2026 standardization factor is described in detail in our FY 2026
IPF PPS proposed rule (90 FR 18513 and18514) and our FY 2026 IPF PPS
final rule (90 FR 37652 and 37653). For FY 2027, we are not proposing a
refinement standardization factor.

III. Provisions of the FY 2027 IPF PPS Proposed Rule

A. Proposed FY 2027 Market Basket Increase and Productivity Adjustment
for the IPF PPS

1. Background
Originally, the input price index used to develop the IPF PPS was
the Excluded Hospital with Capital market basket. This market basket
was based on 1997 Medicare cost reports for Medicare-participating
inpatient rehabilitation facilities (IRFs), IPFs, long-term care
hospitals (LTCHs), cancer hospitals, and children's hospitals. Although
``market basket'' technically describes the mix of goods and services
used in providing health care at a given point in time, this term is
also commonly used to denote the input price index (that is, cost
category weights and price proxies) derived from that market basket.
Accordingly, the term ``market basket,'' as used in this document,
refers to an input price index.
Since the IPF PPS inception, the market basket used to update IPF
PPS payments has been rebased and revised to reflect more recent data
on IPF cost structures. We last rebased and revised the IPF market
basket in the FY 2024 IPF PPS rule, where we adopted a 2021-based IPF
market basket, using Medicare cost report data for both Medicare-
participating freestanding psychiatric hospitals and psychiatric units.
We refer readers to the FY 2024 IPF PPS final rule for a detailed
discussion of the 2021-based IPF market basket and its development (88
FR 51057 through 51081). Prior to the 2021-based IPF market basket, we
used the 2016-based IPF market basket that was adopted in the FY 2020
IPF PPS final rule (84 FR 38426 through 38447). References to the
historical market baskets used to update IPF PPS payments prior to the
FY 2020 IPF PPS rule are listed in the FY 2016 IPF PPS final rule (80
FR 46656).
2. Proposed FY 2027 IPF Market Basket Update
For FY 2027 (beginning October 1, 2026, and ending September 30,
2027), we are proposing to update the IPF PPS payments by a market
basket increase factor, with a productivity adjustment as required by
section 1886(s)(2)(A)(i) of the Act. Consistent with historical
practice, we are proposing to estimate the market basket update for the
IPF PPS based on the most recent forecast available 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 IPF market basket increase
factor for FY 2027 is 3.1 percent. IGI is a nationally recognized
economic and financial forecasting firm with which CMS currently
contracts to forecast the components of the market baskets and
productivity adjustment.\1\
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\1\ <a href="https://www.spglobal.com/en">https://www.spglobal.com/en</a>.
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Section 1886(s)(2)(A)(i) 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 United States
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="http://www.bls.gov/productivity">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 <a href="https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information">https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information</a>.
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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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Section 1886(s)(2)(A)(i) of the Act requires the application of the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act to the IPF PPS for the RY beginning in 2012 (a RY that
coincides with a FY) and each subsequent RY. For this FY 2027 IPF PPS
proposed rule, based on IGI's fourth quarter 2025 forecast, the
proposed productivity adjustment for FY 2027 (the 10-year moving
average change of TFP for the period ending FY 2027) is projected to be
0.8 percentage point. Accordingly, we are proposing to reduce the
proposed 3.1 percent IPF market basket increase by this proposed 0.8
percentage point productivity adjustment, as mandated by the Act. This
results in a proposed FY 2027 IPF PPS payment rate update of 2.3
percent (3.1 percent-0.8 percentage point = 2.3 percent). We are also
proposing that if more recent data become available, we would use such
data, if appropriate, to determine the FY 2027 IPF market basket
increase and productivity adjustment for the final rule.
We solicit comments on the proposed IPF market basket increase and
productivity adjustment for FY 2027.
3. Proposed FY 2027 IPF Labor-Related Share
Due to variations in geographic wage levels and other labor-related
costs, we believe that payment rates under the IPF PPS should continue
to be adjusted by a geographic wage index, which would apply to the
labor-related portion of the Federal per diem base rate (hereafter
referred to as the ``labor-related share''). 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 are proposing 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 IPF market basket, we are proposing to
continue to include in the labor-related share the sum of the 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 IPF market basket.

[[Page 17724]]

For more details regarding the methodology for determining specific
cost categories for inclusion in the labor-related share based on the
2021-based IPF market basket, we refer readers to the FY 2024 IPF PPS
final rule (88 FR 51078 through 51081).
The relative importance reflects the different rates of price
change for these cost categories between the base year (FY 2021) and FY
2027. Based on IGI's fourth quarter 2025 forecast of the 2021-based IPF
market basket, the sum of the FY 2027 relative importance moving
average 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 is 76.0 percent. We are proposing, consistent with
prior rulemaking, 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 6.7 percent of the 2021-based
IPF market basket for FY 2027, we proposed to take 46 percent of 6.7
percent to determine a labor-related share of Capital-Related costs for
FY 2027 of 3.1 percent. Therefore, we are proposing a total labor-
related share for FY 2027 of 79.1 percent (the sum of 76.0 percent for
the labor-related share of operating costs and 3.1 percent for the
labor-related share of Capital-Related costs). We are also proposing
that if more recent data become available, we would use such data, if
appropriate, to determine the FY 2027 labor-related share for the final
rule. For more information on the labor-related share and its
calculation, we refer readers to the FY 2024 IPF PPS final rule (88 FR
51078 through 51081).
Table 1 shows the proposed FY 2027 labor-related share and the
final FY 2026 labor-related share using the 2021-based IPF market
basket relative importance.

Table 1--FY 2027 Proposed IPF Labor-Related Share and FY 2026 IPF Labor-Related Share
----------------------------------------------------------------------------------------------------------------
Proposed relative
Relative importance, importance, labor-
labor-related share related share FY 2027
FY 2026 \1\ \2\
----------------------------------------------------------------------------------------------------------------
Wages and Salaries................................................ 53.7 53.8
Employee Benefits................................................. 14.2 14.2
Professional Fees: Labor-Related.................................. 4.7 4.7
Administrative and Facilities Support Services.................... 0.6 0.6
Installation, Maintenance and Repair Services..................... 1.2 1.2
All Other Labor-Related Services.................................. 1.5 1.5
---------------------------------------------
Subtotal...................................................... 75.9 76.0
Labor-related portion of Capital-Related (.46).................... 3.1 3.1
---------------------------------------------
Total Labor-Related Share................................. 79.0 79.1
----------------------------------------------------------------------------------------------------------------
\1\ Based on the 2nd quarter 2025 IGI forecast of the 2021-based IPF market basket.
\2\ Based on the 4th quarter 2025 IGI forecast of the 2021-based IPF market basket.

We solicit comment on the proposed labor-related share for FY 2027.

B. Proposed Updates to the IPF PPS Rates for FY Beginning October 1,
2026

The IPF PPS is based on a standardized Federal per diem base rate
calculated from the IPF average per diem costs and adjusted for budget
neutrality in the implementation year. The Federal per diem base rate
is used as the standard payment per day under the IPF PPS and is
adjusted by the patient-level and facility-level adjustments that are
applicable to the IPF stay. A detailed explanation of how we calculated
the average per diem cost appears in the RY 2005 IPF PPS final rule (69
FR 66926).
1. Determining the Standardized Budget Neutral Federal Per Diem Base
Rate
Section 124(a)(1) and (c) of the BBRA requires that we implement
the IPF PPS in a budget neutral manner. In other words, the amount of
total payments under the IPF PPS, including any payment adjustments,
must be projected to be equal to the amount of total payments that
would have been made if the IPF PPS were not implemented. Therefore, we
calculated the budget neutrality factor by setting the total estimated
IPF PPS payments to be equal to the total estimated payments that would
have been made under the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA) (Pub. L. 97-248) methodology had the IPF PPS not been
implemented. A step-by-step description of the methodology used to
estimate payments under the TEFRA payment system appears in the RY 2005
IPF PPS final rule (69 FR 66926).
Under the IPF PPS methodology, we calculated the final Federal per
diem base rate to be budget neutral during the IPF PPS implementation
period (that is, the 18-month period from January 1, 2005, through June
30, 2006) using a July 1 update cycle. We updated the average cost per
day to the midpoint of the IPF PPS implementation period (October 1,
2005), and this amount was used in the payment model to establish the
budget neutrality adjustment.
Next, we standardized the IPF PPS Federal per diem base rate to
account for the overall positive effects of the IPF PPS payment
adjustment factors by dividing total estimated payments under the TEFRA
payment system by estimated payments under the IPF PPS. The information
concerning this standardization can be found in the RY 2005 IPF PPS
final rule (69 FR 66932) and the RY 2006 IPF PPS final rule (71 FR
27045). We then reduced the standardized Federal per diem base rate to
account for the outlier policy, the stop loss provision, and
anticipated behavioral changes. A complete discussion of how we
calculated each component of the budget neutrality adjustment appears
in the RY 2005 IPF PPS final rule (69 FR 66932 and 66933) and in the RY
2007 IPF PPS final rule (71 FR 27044 through 27046). The final
standardized budget neutral Federal per diem base rate established for
cost reporting periods beginning on or after January 1, 2005 was
calculated to be $575.95.
The Federal per diem base rate has been updated in accordance with
applicable statutory requirements and 42 CFR 412.428 through
publication of annual notices or proposed and final rules. A detailed
discussion on the standardized budget neutral Federal per diem base
rate and the ECT payment per

[[Page 17725]]

treatment appears in the FY 2014 IPF PPS update notice (78 FR 46738
through 46740). These documents are available on the CMS website at
<a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>.
2. Determining the Electroconvulsive Therapy (ECT) Payment per
Treatment
In the RY 2005 IPF PPS final rule (69 FR 66951), we analyzed the
costs of IPF stays that included ECT treatment using the FY 2002
Medicare Provider and Analysis Review (MedPAR) data based on comments
we received on the RY 2005 IPF PPS proposed rule. Consistent with the
comments we received about ECT, our analysis and review indicated that
cases with ECT treatment are substantially more costly than cases
without ECT treatment. Based on this analysis, in that final rule we
finalized an additional payment for each ECT treatment furnished during
the IPF stay. This ECT payment per treatment is made in addition to the
per diem and outlier payments under the IPF PPS. To receive the payment
per ECT treatment, IPFs must indicate on their claims the revenue code
and procedure code for ECT (Rev Code 901; procedure code 90870) and the
number of units of ECT, that is, the number of ECT treatments the
patient received during the IPF stay.
To establish the ECT per treatment payment, we used the pre-scaled
and pre-adjusted median cost for procedure code 90870 developed for the
Hospital Outpatient Prospective Payment System (OPPS), based on
hospital claims data. We explained in the RY 2005 IPF PPS final rule
that we used OPPS data because after careful review and analysis of IPF
claims, we were unable to separate out the cost of a single ECT
treatment (69 FR 66922). We used the unadjusted hospital claims data
under the OPPS because we did not want the ECT payment under the IPF
PPS to be affected by factors that are relevant to OPPS, but not
specifically applicable to IPFs. The median cost was then standardized
and adjusted for budget neutrality. We also adjusted the ECT rate for
wage differences in the same manner that we adjust the per diem rate.
Most recently, as we explained in the FY 2025 IPF PPS proposed rule
(89 FR 23146), we analyzed recent data from both the IPF PPS and the
OPPS. Findings revealed that costs for IPF stays involving ECT were
significantly more costly than stays without ECT, with cost driven
primarily by longer stays and higher ancillary expenses. To address
this, we finalized a new ECT payment calculation based on the pre-
scaled and pre-adjusted CY 2024 OPPS geometric mean cost, adjusted by
the market basket update and wage index budget neutrality factor. A
complete discussion of the final FY 2025 ECT payment per treatment can
be found in the FY 2025 IPF PPS final rule (89 FR 64591 through 64593).
Since the ECT payment rate was established in the RY 2005 IPF PPS
rule, it has been updated annually by application of each year's market
basket, productivity adjustment, and wage index budget neutrality
factor to the previous year's ECT payment rate (referred to as our
``standard methodology'' in this section).
3. Proposed Update of the Federal per Diem Base Rate and
Electroconvulsive Therapy Payment per Treatment
The current (FY 2026) Federal per diem base rate is $892.87 and the
ECT payment per treatment is $673.85. For the proposed FY 2027 Federal
per diem base rate, we are proposing to apply the proposed IPF market
basket update of 2.3 percent (that is, the proposed 2021-based IPF
market basket percentage increase for FY 2027 of 3.1 percent reduced by
the proposed productivity adjustment of 0.8 percentage point), and the
proposed wage index budget neutrality factor of 0.9991 (as discussed in
section III.D.1.c. of this proposed rule) to the final FY 2026 Federal
per diem base rate of $892.87, yielding a proposed Federal per diem
base rate of $912.58 for FY 2027. We are proposing to apply the
proposed IPF market basket update of 2.3 percent and the proposed wage
index budget neutrality factor of 0.9991 to the final FY 2026 ECT
payment per treatment of $673.85, yielding a proposed ECT payment per
treatment of $688.73 for FY 2027.
Section 1886(s)(4)(A)(i) of the Act requires that for RY 2014 and
each subsequent RY, in the case of an IPF that fails to report required
quality data with respect to such RY, the Secretary will reduce any
annual update to a standard Federal rate for discharges during the RY
by 2.0 percentage points. Therefore, we applied a 2.0 percentage point
reduction to the proposed annual update to the Federal per diem base
rate and the proposed ECT payment per treatment as follows:
<bullet> For IPFs that fail to report required data under the IPF
Quality Reporting Program, we would apply a proposed 0.3 percent
payment rate update--that is, the proposed IPF market basket increase
for FY 2027 of 3.1 percent reduced by the proposed productivity
adjustment of 0.8 percentage point for a proposed update of 2.3
percent, and further reduced by 2.0 percentage points in accordance
with section 1886(s)(4)(A)(i) of the Act. We also propose to apply the
wage index budget neutrality factor of 0.9991 to the FY 2026 Federal
per diem base rate of $892.87, yielding a proposed Federal per diem
base rate of $894.74 for FY 2027.
<bullet> For IPFs that fail to report required data under the IPF
Quality Reporting Program, we would apply the proposed 0.3 percent
payment rate update and the 0.9991 wage index budget neutrality factor
to the FY 2026 ECT payment per treatment of $673.85, yielding a
proposed ECT payment per treatment of $675.26 for FY 2027.

C. Proposed Updates to the IPF PPS Patient-Level Adjustment Factors

1. Overview of the IPF PPS Adjustment Factors
The IPF PPS payment adjustment factors were originally derived from
a regression analysis of 100 percent of the FY 2002 MedPAR data file,
which contained 483,038 cases. For a more detailed description of the
data file used for this regression analysis, we refer readers to the RY
2005 IPF PPS final rule (69 FR 66935 and 66936).
In FY 2025, we implemented revisions to the methodology for
determining payment rates under the IPF PPS, as required by section
1886(s)(5)(D) of the Act. We developed the FY 2025 adjustment factors
based on a regression analysis of IPF cost and claims data. The primary
sources of this analysis were CY 2019 through 2021 MedPAR files and
Medicare cost report data (CMS Form 2552-10, OMB No. 0938-0050) from
the FY 2019 through 2021 Hospital Cost Report Information System
(HCRIS). For a more detailed description of the data files used for
this regression analysis, we refer readers to the FY 2025 IPF PPS final
rule (89 FR 64593 through 64601).
For FY 2027, we propose to use the existing regression-derived
patient-level adjustment factors established for FY 2025. We are not
proposing any changes to the patient-level adjustment factors for FY
2027; however, we used more recent claims data to simulate payments, to
finalize the outlier fixed dollar loss threshold amount, and to assess
the impact of the IPF PPS updates.
2. Proposed IPF PPS Patient-Level Adjustments
The IPF PPS includes payment adjustments for the following patient-
level characteristics: Medicare Severity Diagnosis Related Groups (MS-
DRGs) assignment of the patient's principal diagnosis, selected
comorbidities,

[[Page 17726]]

patient age, and the variable per diem adjustments.
a. Proposed Update to MS-DRG Assignment
We believe it is important to maintain for IPFs the same diagnostic
coding and DRG classification used under the IPPS for providing
psychiatric care. For this reason, when the IPF PPS was implemented for
cost reporting periods beginning on or after January 1, 2005, we
adopted the same diagnostic code set (ICD-9 Clinical Modification (CM))
and DRG patient classification system (MS-DRGs) that were utilized at
the time under the IPPS. In the RY 2009 IPF PPS notice (73 FR 25709),
we discussed CMS's effort to better recognize resource use and the
severity of illness among patients. CMS adopted the new MS-DRGs for the
IPPS in the FY 2008 IPPS final rule with comment period (72 FR 47130).
In the RY 2009 IPF PPS notice (73 FR 25716), we provided a crosswalk to
reflect changes that were made under the IPF PPS to adopt the new MS-
DRGs. For a detailed description of the mapping changes from the
original DRG adjustment categories to the current MS-DRG adjustment
categories, we refer readers to the RY 2009 IPF PPS notice (73 FR
25714).
The IPF PPS includes payment adjustments for designated psychiatric
DRGs assigned to the claim based on the patient's principal diagnosis.
The DRG adjustment factors were expressed relative to the most
frequently reported psychiatric DRG in FY 2002, that is, DRG 430
(psychoses). The coefficient values and adjustment factors were derived
from the regression analysis discussed in detail in the RY 2004 IPF
proposed rule (68 FR 66923; 66928 through 66933) and the RY 2005 IPF
final rule (69 FR 66933 through 66960). Mapping the DRGs to the MS-DRGs
resulted in 17 IPF MS-DRGs, instead of the original 15 DRGs, for which
the IPF PPS provides an adjustment.
In the FY 2015 IPF PPS final rule (79 FR 45945 through 45947), we
finalized conversions of the ICD-9-CM-based MS-DRGs to ICD-10-CM/
Procedure Coding System (PCS)-based MS-DRGs, which were implemented on
October 1, 2015. Further information on the ICD-10-CM/PCS MS-DRG
conversion project can be found on the CMS ICD-10-CM website at <a href="https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-ms-drg-conversion-project">https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-ms-drg-conversion-project</a>.
In the FY 2025 IPF PPS final rule (89 FR 64602 through 64606), we
revised the payment adjustments for designated psychiatric DRGs
assigned to the claim based on the patient's principal diagnosis,
following our longstanding policy of using the ICD-10-CM/PCS-based MS-
DRG system. In that final rule, we identified 19 DRGs for which the IPF
PPS adjusts payment. In addition, we implemented a sub-regulatory
process to adopt routine coding updates that incorporate new or revised
codes with an April 1 effective date (89 FR 64602 and 64603).
For FY 2027, we propose to continue making the existing payment
adjustments for psychiatric diagnoses that group to one of the existing
19 IPF MS-DRGs listed in Addendum A to this proposed rule. Addendum A
to this proposed rule is available on our website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-and-worksheets. Psychiatric principal
diagnoses that do not group to one of the 19 designated MS-DRGs would
still receive the Federal per diem base rate and all other applicable
adjustments, but the payment would not include an MS-DRG adjustment.
The diagnoses for each IPF MS-DRG will be updated as of October 1,
2026, using the final IPPS FY 2027 ICD-10-CM/PCS code sets. The FY 2027
IPPS/LTCH PPS final rule will include tables of the changes to the ICD-
10-CM/PCS code sets that underlie the proposed FY 2027 IPF MS-DRGs.
Both the FY 2027 IPPS/LTCH PPS final rule and the tables of final
changes to the ICD-10-CM/PCS code sets, which underlie the FY 2027 MS-
DRGs, will be available on the CMS IPPS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps">https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps</a>.
Additionally, as discussed in the ICD-10-CM Official Guidelines for
Coding and Reporting, certain conditions have both an underlying
etiology and multiple body system manifestations due to the underlying
etiology. For such conditions, the ICD-10-CM has a coding convention
that requires the underlying condition be sequenced first, followed by
the manifestation. Wherever such a combination exists, there is a ``use
additional code'' note at the etiology code, and a ``code first'' note
at the manifestation code. These instructional notes indicate the
proper sequencing order of the codes (etiology followed by
manifestation). In accordance with the ICD-10-CM Official Guidelines
for Coding and Reporting, when a primary (psychiatric) diagnosis code
has a code first note, the provider will follow the instructions in the
ICD-10-CM Tabular List. The submitted claim goes through the CMS
processing system, which will identify the principal diagnosis code as
non-psychiatric and search the secondary codes for a psychiatric code
to assign a DRG code for adjustment. The system will continue to search
the secondary codes for those that are appropriate for comorbidity
adjustment. For more information on the code first policy, we refer
readers to the RY 2005 IPF PPS final rule (69 FR 66945). We also refer
readers to sections I.A.13 and I.B.7 of the FY 2020 ICD-10-CM Coding
Guidelines, which is available at <a href="https://www.cdc.gov/nchs/data/icd/10cmguidelinesFY2020_final.pdf">https://www.cdc.gov/nchs/data/icd/10cmguidelinesFY2020_final.pdf</a>. In the FY 2015 IPF PPS final rule, we
provided a code first table for reference that highlights the same or
similar manifestation codes where the code first instructions apply in
ICD-10-CM that were present in ICD-10-CM (79 FR 46009).
As discussed in the FY 2025 IPF PPS final rule (89 FR 64602 and
64603), we adopted a sub-regulatory approach to handle the coding
updates, rather than discussing coding updates in the Federal Register
during regulatory updates prior to implementation. This approach
mirrors the approach taken by the IPPS, allows for flexibility in the
ICD-10 code update process for the IPF PPS, and reduces the lead time
for making routine coding updates to the IPF PPS code first list,
comorbidities, and ECT coding categories. The proposed FY 2027 Code
First table is shown in Addendum B on the CMS website at<a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-and-worksheets.
b. Proposed Payment for Comorbid Conditions
The intent of the comorbidity adjustments is to recognize the
increased costs associated with active comorbid conditions by providing
additional payments for certain existing medical or psychiatric
conditions that are expensive to treat.
Comorbidities are specific patient conditions that are secondary to
the patient's principal diagnosis and that require active treatment
during the stay. Diagnoses that relate to an earlier episode of care
and have no bearing on the current hospital stay are excluded and must
not be reported on IPF claims. Comorbid conditions must exist at the
time of admission or develop subsequently, and affect the treatment
received, length of stay (LOS), or both treatment and LOS.
For each claim, an IPF may receive only one comorbidity adjustment
within a comorbidity category, but it may receive an adjustment for
more than one comorbidity category. Current billing instructions for
discharge claims, on or

[[Page 17727]]

after October 1, 2015, require IPFs to enter the complete ICD-10-CM
codes for up to 24 additional diagnoses if they co-exist at the time of
admission, or develop subsequently and impact the treatment provided.
The IPF PPS comorbidity adjustments were originally determined
based on the regression analysis using the diagnoses reported by IPFs
in FY 2002. The principal diagnoses were used to establish the DRG
adjustments and were not accounted for in establishing the comorbidity
category adjustments, except where ICD-9-CM code first instructions
applied. In a code first situation, the submitted claim goes through
the CMS processing system, which identifies the principal diagnosis
code as non-psychiatric and searches the secondary codes for a
psychiatric code to assign an MS-DRG code for adjustment. The system
continues to search the secondary codes for those that are appropriate
for a comorbidity adjustment.
In FY 2025, we revised the comorbidity adjustment factors based on
the results of the 2019 through 2021 regression analysis described in
the FY 2025 IPF PPS final rule (89 FR 64606 through 64612). In
addition, we made additions and changes to the comorbidity categories
for which we adjust payment based on our analysis of ICD-10-CM codes
currently included in each category as well as public comments received
in response to the FY 2022 and FY 2023 IPF PPS proposed rules. A
detailed discussion of the revised comorbidity adjustment factors is
described in the FY 2025 IPF PPS final rule (89 FR 64606 through
64612).
For FY 2027, we propose to use the same comorbidity adjustment
factors in effect in FY 2025. The proposed FY 2027 comorbidity
adjustment factors are found in Addendum A to this proposed rule,
available on the CMS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-
and-worksheets.
As noted previously, it is our policy to maintain the same
diagnostic coding set for IPFs that is used under the IPPS for
providing the same psychiatric care. In the FY 2015 IPF PPS final rule
(79 FR 45947 through 45955), the comorbidity categories formerly
defined using ICD-9-CM codes were converted to ICD-10-CM/PCS. The goal
for converting the comorbidity categories is referred to as
replication, meaning that the payment adjustment for a given patient
encounter is the same after ICD-10-CM implementation as it would be if
the same record had been coded in ICD-9-CM and submitted prior to ICD-
10-CM/PCS implementation on October 1, 2015. All conversion efforts
were made with the intent of achieving this goal.
As discussed in section III.C.2.a. of this proposed rule, in the FY
2025 IPF PPS final rule (89 FR 64602 and 64603) we adopted an April 1
implementation date for ICD-10-CM diagnosis and ICD-10-PCS procedure
code updates, in addition to the annual October 1 update, beginning
with April 1, 2025 for the IPF PPS. Coding updates related to the IPF
PPS comorbidity categories are adopted following a sub-regulatory
process as finalized in the FY 2025 IPF PPS final rule (89 FR 64602 and
64603). For April 1, 2026, we added three ICD-10-PCS procedure codes to
the Oncology Treatment Procedures list and two ICD-10-PCS procedure
codes to the Chronic Obstructive Pulmonary Disease & Sleep Apnea
Procedures list.
The proposed FY 2027 comorbidity codes are shown in Addenda B,
available on the CMS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-
and-worksheets.
c. Proposed Patient Age Adjustments
As explained in the RY 2005 IPF PPS final rule (69 FR 66922), we
analyzed the impact of age on per diem cost by examining the age
variable (range of ages) for payment adjustments. In general, we found
that the cost per day increases with age. The older age groups are
costlier than the under 45 age group, the differences in per diem cost
increase for each successive age group, and the differences are
statistically significant. In FY 2025, we adopted revised patient age
adjustments derived from the regression model using a blended set of
2019 through 2021 data (89 FR 64612 and 64613). For FY 2027, we propose
to retain the existing patient age adjustment factors implemented for
FY 2025, as shown in Addendum A of this proposed rule (see <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-and-worksheets).
d. Proposed Variable Per Diem Adjustments
We explained in the RY 2005 IPF PPS final rule (69 FR 66946) that
the regression analysis indicated that per diem cost declines as the
LOS increases. The variable per diem adjustments to the Federal per
diem base rate account for ancillary and administrative costs that
occur disproportionately in the first days after admission to an IPF.
As discussed in the RY 2005 IPF PPS final rule, where a complete
discussion of the variable per diem adjustments can be found, we used a
regression analysis to estimate the average differences in per diem
cost among stays of different lengths (69 FR 66947 through 66950). As a
result of this analysis, we established variable per diem adjustments
that begin on day 1 and decline gradually over the course of the
patient's stay. In addition, the adjustment applied to day 1 depends
upon whether the IPF has a qualifying ED. If an IPF has a qualifying
ED, it receives a higher adjustment factor for day 1 of each stay than
it would receive if it did not have a qualifying ED. The ED adjustment
is explained in more detail in section III.D.5. of this proposed rule.
In FY 2025, we revised the variable per diem adjustment factors
based on the 2019 through 2021 regression analysis (89 FR 64613 and
64614). For FY 2027, we propose to retain the existing variable per
diem adjustment factors implemented for FY 2025 as shown in Addendum A
to this proposed rule (available at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/
tools-and-worksheets).

D. Proposed Updates to the IPF PPS Facility-Level Adjustments

The IPF PPS includes facility-level adjustments for the wage index,
IPFs located in rural areas, teaching IPFs, cost of living adjustments
for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.
The IPF PPS facility-level adjustment factors for rural location and
teaching status were originally derived from regression analysis of 100
percent of the FY 2002 MedPAR data file. For a more detailed
description of the data file used for this regression analysis, we
refer readers to the RY 2005 IPF PPS final rule (69 FR 66935 and
66936).
In FY 2026, in a continuation of the FY 2025 implementation of
revisions to the methodology for determining payment rates under the
IPF PPS as required by section 1886(s)(5)(D) of the Act, we revised the
facility-level adjustment factors for rural location and teaching
status based on a regression analysis of cost and claims data for IPF
stays from FY 2020 to FY 2022 (90 FR 37639 through 37649). As discussed
in the following sections, we are proposing annual updates to the FY
2027 IPF PPS wage index and to the cost of living adjustments for IPFs
located in Alaska and Hawaii. For FY 2027, we propose to use the
facility-level adjustment factors for rural location, teaching status,
and IPFs with a qualifying ED currently in

[[Page 17728]]

effect for FY 2026, as shown in Addendum A to this proposed rule.
1. Wage Index Adjustment
a. Background
As discussed in the RY 2007 IPF PPS final rule (71 FR 27061), and
the RY 2009 IPF PPS (73 FR 25719) and RY 2010 IPF PPS notices (74 FR
20373), to provide an adjustment for geographic wage levels, the labor-
related portion of an IPF's payment is adjusted using an appropriate
wage index. Currently, an IPF's geographic wage index value is
determined based on the actual location of the IPF in an urban or rural
area, as defined in Sec. 412.64(b)(1)(ii)(A) and (C).
Due to the variation in costs and because of the differences in
geographic wage levels, in the RY 2005 IPF PPS final rule, we required
that payment rates under the IPF PPS be adjusted by a geographic wage
index. We proposed and finalized a policy to use the unadjusted, pre-
floor, pre-reclassified IPPS hospital wage index to account for
geographic differences in IPF labor costs. We implemented use of the
pre-floor, pre-reclassified IPPS hospital wage data to compute the IPF
wage index since there was not an IPF-specific wage index available. We
believe that IPFs generally compete in the same labor market as IPPS
hospitals, and therefore, the pre-floor, pre-reclassified IPPS hospital
wage data should be reflective of labor costs of IPFs. We believe this
pre-floor, pre-reclassified IPPS hospital wage index to be the best
available data to use as proxy for an IPF-specific wage index. As
discussed in the RY 2007 IPF PPS final rule (71 FR 27061 through
27067), under the IPF PPS, the wage index is calculated using the IPPS
wage index for the labor market area in which the IPF is located,
without considering geographic reclassifications, floors, and other
adjustments made to the wage index under the IPPS. For a complete
description of these IPPS wage index adjustments, we refer readers to
the FY 2019 IPPS/LTCH PPS final rule (83 FR 41362 through 41390). Our
wage index policy at Sec. 412.424(a)(2) provides that we use the best
Medicare data available to estimate costs per day, including an
appropriate wage index to adjust for wage differences.
When the IPF PPS was implemented in the RY 2005 IPF PPS final rule,
with an effective date of January 1, 2005, the pre-floor, pre-
reclassified IPPS hospital wage index that was available at the time
was the FY 2005 pre-floor, pre-reclassified IPPS hospital wage index.
Historically, the IPF wage index for a given RY has used the pre-floor,
pre-reclassified IPPS hospital wage index from the prior FY as its
basis. This has been due in part to the pre-floor, pre-reclassified
IPPS hospital wage index data that were available during the IPF
rulemaking cycle, where an annual IPF notice or IPF final rule was
usually published in early May. This publication timeframe was
relatively early compared to other Medicare payment rules because the
IPF PPS follows a RY, which was defined in the implementation of the
IPF PPS as the 12-month period from July 1 to June 30 (69 FR 66927).
Therefore, the best available data at the time the IPF PPS was
implemented was the pre-floor, pre-reclassified IPPS hospital wage
index from the prior FY (for example, the RY 2006 IPF wage index was
based on the FY 2005 pre-floor, pre-reclassified IPPS hospital wage
index).
In the RY 2012 IPF PPS final rule, we changed the reporting year
timeframe for IPFs from a RY to FY, which begins October 1 and ends
September 30 (76 FR 26434 and 26435). In that FY 2012 IPF PPS final
rule, we continued our established policy of using the pre-floor, pre-
reclassified IPPS hospital wage index from the prior year (that is,
from FY 2011) as the basis for the FY 2012 IPF wage index. This policy
of basing a wage index on the prior year's pre-floor, pre-reclassified
IPPS hospital wage index has been followed by other Medicare payment
systems, such as hospice and inpatient rehabilitation facilities. By
continuing with our established policy, we remained consistent with
other Medicare payment systems.
In FY 2020, we finalized the IPF wage index methodology to align
the IPF PPS wage index with the same wage data timeframe used by the
IPPS for FY 2020 and subsequent years. Specifically, we finalized the
use of the pre-floor, pre-reclassified IPPS hospital wage index from
the FY concurrent with the IPF FY as the basis for the IPF wage index.
For example, the FY 2020 IPF wage index was based on the FY 2020 pre-
floor, pre-reclassified IPPS hospital wage index rather than on the FY
2019 pre-floor, pre-reclassified IPPS hospital wage index.
We explained in the FY 2020 proposed rule (84 FR 16973), that using
the concurrent pre-floor, pre-reclassified IPPS hospital wage index
will result in the most up-to-date wage data being the basis for the
IPF wage index. We noted that it would also result in more consistency
and parity in the wage index methodology used by other Medicare payment
systems. We indicated that the Medicare skilled nursing facility (SNF)
PPS already used the concurrent IPPS hospital wage index data as the
basis for the SNF PPS wage index. We proposed and finalized similar
policies to use the concurrent pre-floor, pre-reclassified IPPS
hospital wage index data in other Medicare payment systems, such as
hospice and inpatient rehabilitation facilities. Thus, the wage
adjusted Medicare payments of various provider types are based upon
wage index data from the same timeframe.
In the FY 2023 IPF PPS final rule (87 FR 46856 through 46859), we
finalized a permanent 5-percent cap on any decrease to a provider's
wage index from its wage index in the prior year, and we stated that we
will apply this cap in a budget neutral manner. In addition, we
finalized a policy that a new IPF will 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 IPF will not have a wage
index in the prior FY. We amended the IPF PPS regulations at Sec.
412.424(d)(1)(i) to reflect this permanent cap on wage index decreases.
We refer readers to the FY 2023 IPF PPS final rule for a more detailed
discussion about this policy.
For FY 2027, we are proposing to apply the IPF wage index
adjustment to the labor-related share of the national IPF PPS base rate
and ECT payment per treatment. As discussed in section III.A.3. of this
proposed rule, the proposed labor-related share of the IPF PPS national
base rate and ECT payment per treatment is 79.1 percent in FY 2027.
This percentage reflects the labor-related share relative importance of
the 2021-based IPF market basket for FY 2027 and is 0.1 percentage
point higher than the FY 2026 labor-related share.
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 IPF wage index. We continue to consider this an appropriate source
of wage index data to estimate costs per day, in accordance with our
longstanding wage index policy at Sec. 412.424(a)(2)(ii). 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 ESRD PPS wage index using Bureau of Labor Statistics
(BLS) occupation-level wage data in the CY 2025 ESRD PPS final rule (89
FR 89116). While this approach was developed under the specific

[[Page 17729]]

programmatic and statutory circumstances of the ESRD PPS and may not be
directly transferable to the IPF PPS, CMS is interested in exploring
whether similar methodologies using publicly available wage data could
be adapted to better reflect the geographic variation in labor costs
for inpatient psychiatric facilities.
In its 2023 Report to Congress,\3\ 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 wage data
to establish different weights for setting-specific occupational labor
mixes as one approach to geographic adjustments.
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\3\ <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 IPF-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 IPF cost reports, as well as other methodologies
that interested parties believe could appropriately reflect the
geographic variation in labor costs for psychiatric facilities. 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 Rehabilitation
Facilities PPS, Skilled Nursing Facilities PPS, and Hospice payment
system. We seek feedback on the unique considerations applicable to
IPFs that should inform how CMS could consider the potential use of
alternative data sources.
b. Office of Management and Budget (OMB) Bulletins
The wage index used for the IPF PPS is calculated using the
unadjusted, pre-reclassified and pre-floor IPPS wage index data and is
assigned to the IPF based on the labor market area in which the IPF is
geographically located. IPF labor market areas are delineated based on
the Core-Based Statistical Area (CBSAs) established by the OMB.
Generally, OMB issues major revisions to statistical areas every 10
years, based on the results of the decennial census. However, OMB
occasionally issues minor updates and revisions to statistical areas in
the years between the decennial censuses through OMB Bulletins. These
bulletins contain information regarding CBSA changes, including changes
to CBSA numbers and titles. In accordance with our established
methodology, the IPF PPS has historically adopted any CBSA changes that
are published in the OMB bulletin that corresponds with the IPPS
hospital wage index used to determine the IPF wage index and, when
necessary and appropriate, has proposed and finalized transition
policies for these changes.
In the RY 2007 IPF PPS final rule (71 FR 27061 through 27067), we
adopted the changes discussed in OMB Bulletin No. 03-04 (June 6, 2003),
which announced revised definitions for Metropolitan Statistical Areas
(MSAs), and the creation of Micropolitan Statistical Areas and Combined
Statistical Areas. We refer readers to the FY 2007 IPF PPS final rule
(71 FR 27064 and 27065) for a complete discussion regarding treating
Micropolitan Areas as rural. In adopting the OMB CBSA geographic
designations in RY 2007, we did not provide a separate transition for
the CBSA-based wage index since the IPF PPS was already in a transition
period from TEFRA payments to PPS payments.
In the RY 2009 IPF PPS notice, we incorporated the CBSA
nomenclature changes published in the most recent OMB bulletin that
applied to the IPPS hospital wage index used to determine the current
IPF wage index and stated that we expected to continue to do the same
for all the OMB CBSA nomenclature changes in future IPF PPS rules and
notices, as necessary (73 FR 25721).
Subsequently, CMS adopted the changes that were published in past
OMB bulletins in the FY 2016 IPF PPS final rule (80 FR 46682 through
46689), the FY 2018 IPF PPS rate update (82 FR 36778 and 36779), the FY
2020 IPF PPS final rule (84 FR 38453 and 38454), and the FY 2021 IPF
PPS final rule (85 FR 47051 through 47059). We direct readers to each
of these rules for more information about the changes that were adopted
and any associated transition policies.
As discussed in the FY 2023 IPF PPS final rule, we did not adopt
OMB Bulletin 20-01, which was issued March 6, 2020, because we
determined this bulletin had no material impact on the IPF PPS wage
index. This bulletin creates only one Micropolitan statistical area,
and Micropolitan areas are considered rural for the IPF PPS wage index.
That is, the constituent county of the new Micropolitan area was
considered rural effective as of FY 2021 and would continue to be
considered rural if we adopted OMB Bulletin 20-01.
In the FY 2025 IPF PPS final rule (89 FR 64614 through 64633), we
adopted the updates set forth in OMB Bulletin No. 23-01 effective July
21, 2023, beginning with the FY 2025 IPF PPS wage index. These updates
included material changes to the OMB statistical area delineations,
which included 53 urban counties that became rural, 54 rural counties
that became urban, and 88 counties that moved to a new or modified
CBSA. These updates also included replacing the 8 counties in
Connecticut with 9 new ``Planning Regions.'' Planning regions now serve
as county-equivalents within the CBSA system. OMB Bulletin No. 23 may
be accessed online 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>.
Given the scope of changes involved in adopting the CBSA
delineations for FY 2025, we finalized a budget neutral 3-year phase
out policy for IPFs transitioning from rural to urban based on CBSA
revisions, as discussed further in section III.D.2.b. of this proposed
rule. We also applied the permanent 5-percent cap on wage index
decreases described at Sec. 412.424(d)(1)(i).
c. Proposed Wage Index Budget Neutrality Adjustment
In accordance with Sec. 412.424(c)(5), changes to the wage index
are made in a budget neutral manner so that updates do not increase
expenditures. Therefore, for FY 2027, we are proposing to continue to
apply a budget neutrality adjustment in accordance with our existing
budget neutrality policy. This policy requires us to update the wage
index in such a way that total estimated payments to IPFs 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 IPF PPS rates. We
are proposing to use the following steps to ensure that the rates
reflect the FY 2027 update to the wage indexes (based on FY 2023
hospital cost report data) and the labor-related share in a budget-
neutral manner:
Step 1: Simulate estimated IPF PPS payments, using the FY 2026 IPF
wage index values (available on the CMS website) and labor-related
share (as published in the FY 2026 IPF PPS final rule (90 FR 37635)).
Step 2: Simulate estimated IPF PPS payments using the FY 2027 IPF
wage index values (available on the CMS website), and the FY 2027
labor-related share (based on the latest available data as discussed
previously).

[[Page 17730]]

Step 3: Divide the amount calculated in step 1 by the amount
calculated in step 2. The resulting quotient is the FY 2027 budget
neutral wage adjustment factor of 0.9991.
Step 4: Apply the FY 2027 budget neutral wage adjustment factor
from step 3 to the FY 2026 IPF PPS Federal per diem base rate after the
application of the proposed IPF market basket increase reduced by the
proposed productivity adjustment described in section III.A.2. of this
proposed rule to determine the proposed FY 2027 IPF PPS Federal per
diem base rate.
2. Proposed Adjustment for Rural Location
a. Proposed Payment for Rural Location
In the RY 2005 IPF PPS final rule (69 FR 66954), we provided a 17-
percent payment adjustment for IPFs located in a rural area. This
adjustment was based on the regression analysis, which indicated that
the per diem cost of rural facilities was 17 percent higher than that
of urban facilities after accounting for the influence of the other
variables included in the regression. This 17-percent adjustment has
been part of the IPF PPS each year since the inception of the IPF PPS.
In the FY 2025 IPF PPS final rule, we revised the patient-level
adjustment factors and changed the CBSA delineations. To minimize the
scope of changes that would impact providers in any single year, we
maintained the existing regression-derived adjustment factor, which was
established in RY 2005, for IPFs located in a rural area for FY 2025.
Our analysis of more cost and claims data from FY 2020 through 2022 for
the FY 2026 final rule indicated that an increase in the payment
adjustment for IPFs in rural areas would be appropriate. Based on this
analysis, we revised the adjustment for rural location to 18 percent
for FY 2026 to more accurately represent the difference in costs
between urban and rural IPFs (90 FR 37647). See the FY 2026 IPF PPS
final rule for the full explanation of the regression analysis that
yielded the revised 18 percent adjustment for rural location (90 FR
37639 through 37644) and the RY 2005 IPF PPS final rule (69 FR 66954)
for a complete discussion of the adjustment for rural locations.
For 2027, we are proposing to continue to apply an 18 percent
payment adjustment for IPFs located in a rural area as defined at Sec.
412.64(b)(1)(ii)(C).
b. End of Rural Transition
The adoption of OMB Bulletin No. 23-01 in the FY 2025 IPF PPS final
rule (89 FR 64632) in accordance with our established methodology
determines whether a facility is classified as urban or rural for
purposes of the rural payment adjustment in the IPF PPS. Implementation
of the updated OMB delineations results in the rural payment adjustment
being applied where it is appropriate to adjust for higher costs
incurred by IPFs in rural locations; however, these changes have
distributional effects among IPF providers. Some providers lost
eligibility for the rural payment adjustment in FY 2025 as a result of
these changes. Therefore, we provided a transition period to implement
the updated OMB delineations (89 FR 64633).
In the FY 2025 IPF PPS final rule, we phased out the rural
adjustment for facilities located in a county that transitioned from
rural to urban due to the changes outlined in OMB Bulletin 23-01. We
implemented a 3-year budget neutral phase-out of the rural adjustment
for IPFs located in the 54 rural counties that would become urban under
the new OMB delineations, given the potentially significant payment
impacts for these IPFs (89 FR 64632 and 64633), consistent with the
transition policy we adopted for IPFs in FY 2016 (80 FR 46682 through
46689). Under this 3-year phase-out, for FY 2026, IPFs that became
urban due to these OMB delineation changes received one-third of the
rural adjustment that was applicable in FY 2024. For FY 2027, these
IPFs will not receive a rural adjustment.
3. Proposed Teaching Adjustment
In the RY 2005 IPF PPS final rule, we implemented regulations at
Sec. 412.424(d)(1)(iii) to establish a facility-level adjustment for
IPFs that are, or are part of, teaching hospitals (69 FR 66954 through
66957). The teaching adjustment accounts for the higher indirect
operating costs experienced by hospitals that participate in graduate
medical education (GME) programs. As detailed further in the following
paragraphs, the payment adjustments are made based on the ratio of the
number of fulltime equivalent (FTE) interns and residents training in
the IPF to the IPF's average daily census.
Medicare makes direct GME payments (for direct costs such as
resident and teaching physician salaries, and other direct teaching
costs) to all teaching hospitals, including those paid under a PPS and
those paid under the TEFRA rate-of-increase limits. These direct GME
payments are made separately from payments for hospital operating costs
and are not part of the IPF PPS. The direct GME payments do not address
the estimated higher indirect operating costs teaching hospitals may
face.
The results of the regression analysis of FY 2002 IPF data
established the basis for the payment adjustments included in the RY
2005 IPF PPS final rule. The results showed that the indirect teaching
cost variable is significant in explaining the higher costs of IPFs
that have teaching programs. We calculated the teaching adjustment
based on the IPF's ``teaching variable,'' which is (1 + [the number of
FTE residents training in the IPFs divided by the IPF's average daily
census]). The teaching variable was then raised to the 0.5150 power,
resulting in the IPF PPS teaching adjustment. This formula is subject
to limitations on the number of FTE residents, which are discussed in
greater detail in the following paragraph.
We established the teaching adjustment in a manner that limited the
incentives for IPFs to add FTE residents for the purpose of increasing
their teaching adjustment. We imposed a cap on the number of FTE
residents that may be counted for purposes of calculating the teaching
adjustment. The cap limits the number of FTE residents that teaching
IPFs may count for the purpose of calculating the IPF PPS teaching
adjustment, not the number of residents teaching institutions can hire
or train. We calculated the number of FTE residents that trained in the
IPF during a ``base year'' and used that FTE resident number as the
cap. An IPF's FTE resident cap is ultimately determined based on the
final settlement of the IPF's most recent cost report filed before
November 15, 2004 (69 FR 66955). A complete discussion of the temporary
adjustment to the FTE cap to reflect residents due to hospital closure
or residency program closure appears in the RY 2012 IPF PPS proposed
rule (76 FR 5018 through 5020) and the RY 2012 IPF PPS final rule (76
FR 26453 through 26456). As discussed in section III.D.6.c. of the FY
2026 IPF PPS final rule (90 FR 37649 through 37651), we made conforming
changes to the IPF resident cap policy beginning in FY 2026 to
recognize permanent cap increases awarded under section 4122 of the
CAA, 2023.
In the regression analysis that informed the RY 2004 IPF PPS final
rule, the logarithm of the teaching variable had a coefficient value of
0.5150. We converted this cost effect into a teaching payment
adjustment by treating the regression coefficient as an exponent and
raising the teaching variable to a power equal to the

[[Page 17731]]

coefficient value. We note that the coefficient value of 0.5150 was
based on the regression analysis holding all other components of the
payment system constant. A complete discussion of how the teaching
adjustment was calculated appears in the RY 2005 IPF PPS final rule (69
FR 66954 through 66957) and the RY 2009 IPF PPS notice (73 FR 25721).
In the FY 2025 IPF PPS proposed rule, we included an RFI regarding
a potential revision to the payment adjustment for teaching status (89
FR 23194 and 23195); we refer readers to section IV.A. of the FY 2025
IPF PPS final rule (89 FR 64641) for summaries of the comments we
received and our responses. We took the comments received into
consideration when we developed our proposal for the FY 2026 revision
of the payment adjustment for teaching status.
In the FY 2026 IPF PPS final rule, we increased the teaching
adjustment to 0.7957 based on the results of our latest regression
model (90 FR 37648 and 37649). This cost effect is converted to a
teaching payment adjustment by treating the regression coefficient as
an exponent and raising the teaching variable to a power equal to the
coefficient value. We implemented this revision to the teaching
adjustment budget-neutrally. For FY 2027, we propose to retain the
coefficient value of 0.7957 for the teaching adjustment to the Federal
per diem base rate.
4. Proposed Cost of Living Adjustment for IPFs Located in Alaska and
Hawaii
The IPF PPS includes a payment adjustment for IPFs located in
Alaska and Hawaii based upon the area in which the IPF is located. As
we explained in the RY 2005 IPF PPS final rule, the FY 2002 data
demonstrated that IPFs in Alaska and Hawaii had per diem costs that
were disproportionately higher than other IPFs. As a result of this
analysis, we provided a COLA in the RY 2005 IPF PPS final rule. We
refer readers to the FY 2024 IPF PPS final rule for a complete
discussion of the currently applicable COLA factors (88 FR 51088 and
51089).
In the FY 2013 IPPS/LTCH final rule (77 FR 53700 and 53701), we
established a new methodology to update the COLA factors for Alaska and
Hawaii and adopted this methodology for the IPF PPS in the FY 2015 IPF
PPS final rule (79 FR 45958 through 45960). We also specified that the
COLA updates will be determined every 4 years, in alignment with the
IPPS market basket labor-related share update (79 FR 45958 through
45960). Because the labor-related share of the IPPS market basket was
updated for FY 2022, the COLA factors were updated in FY 2022 IPPS/LTCH
rulemaking (86 FR 45547) reflecting CPI data through 2020. As such, we
also finalized an update to the IPF PPS COLA factors in the FY 2022 IPF
PPS final rule to reflect the updated COLA factors finalized in the FY
2022 IPPS/LTCH rulemaking effective for FY 2022 through FY 2025 (86 FR
42621 and 42622).
In the FY 2026 IPF PPS final rule, we stated that we believe it is
appropriate to have a consistent policy approach with that of other
hospitals in Alaska and Hawaii (90 FR 37651 and 37652). We used the FY
2025 COLA factors to adjust the non-labor-related portion of the
standardized amount for IPFs located in Alaska and Hawaii for FY 2026.
For a complete discussion of the FY 2026 COLA factors, we refer readers
to the FY 2026 IPPS/LTCH final rule (90 FR 37229 and 37230).
Effective for FY 2027, to continue our consistent policy approach
with that of other hospitals in Alaska and Hawaii, we are proposing to
adjust non-labor related costs for IPFs located in Alaska and Hawaii
using the Overseas Cost-of-Living Allowance (OCOLA) data \4\ published
by the Department of Defense (DOD). We believe the DOD OCOLAs are an
appropriate data source to capture the cost differences of hospital
non-labor-related inputs purchased in the areas in Hawaii and Alaska
compared to the continental U.S. Additionally, we are proposing to no
longer cap the COLA factors for Alaska and Hawaii at 25 percent. We are
soliciting any additional information with regard to these results and
may consider finalizing an alternative methodology. For a complete
discussion of the proposed FY 2027 COLA factors, we refer readers to
the FY 2027 IPPS/LTCH proposed rule, published elsewhere in the Federal
Register.
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\4\ <a href="https://www.travel.dod.mil/Allowances/Overseas-Cost-of-Living-Allowance/">https://www.travel.dod.mil/Allowances/Overseas-Cost-of-Living-Allowance/</a>.
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The proposed FY 2027 IPF PPS COLA factors for Alaska and Hawaii are
shown in Table 2.

Table 2--Cost of Living Adjustment (COLA) Factors: IPFs Located in
Alaska and Hawaii
------------------------------------------------------------------------
FY 2022 to FY Proposed FY
Area 2026 2027
------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer 1.22 1.28
(50-mile) radius by road...........
City of Fairbanks and 80-kilometer 1.22 1.32
(50-mile) radius by road...........
City of Juneau and 80-kilometer (50- 1.22 1.36
mile) radius by road...............
Rest of Alaska...................... 1.24 1.44
Hawaii:
City and County of Honolulu......... 1.25 1.20
County of Hawaii.................... 1.22 1.32
County of Kauai..................... 1.25 1.26
County of Maui and County of Kalawao 1.25 1.24
------------------------------------------------------------------------

The proposed IPF PPS COLA factors for Alaska and Hawaii for FY 2027
are also shown in Addendum A to this proposed rule, which is available
on the CMS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility</a>-pps/tools-and-
worksheets.
5. Proposed Adjustment for IPFs With a Qualifying ED
The IPF PPS includes a facility-level adjustment for IPFs with
qualifying EDs. As defined in Sec. 412.402, qualifying emergency
department means an emergency department that is staffed and equipped
to furnish a comprehensive array of emergency services and meets the
requirements of Sec. 489.24(b) and Sec. 413.65.

[[Page 17732]]

We provide an adjustment to the Federal per diem base rate to
account for the costs associated with maintaining a full-service ED.
The adjustment is intended to account for ED costs incurred by a
psychiatric hospital with a qualifying ED, or an excluded psychiatric
unit of an IPPS hospital or a critical access hospital (CAH), and the
overhead cost of maintaining the ED. This payment applies to all IPF
admissions (with one exception which we describe in this section),
regardless of whether the patient was admitted through the ED. The ED
adjustment is made on every qualifying claim except as described in
this section. As specified at Sec. 412.424(d)(1)(v)(B), the ED
adjustment is not made when a patient is discharged from an IPPS
hospital or CAH and admitted to the same IPPS hospital's or CAH's
excluded psychiatric unit. We clarified in the RY 2005 IPF PPS final
rule (69 FR 66960) that an ED adjustment is not made in this case
because the costs associated with ED services are reflected in the DRG
payment to the IPPS hospital or through the reasonable cost payment
made to the CAH.
In the FY 2025 IPF PPS final rule, we updated the adjustment factor
from 1.31 to 1.54 for IPFs with qualifying EDs using the same
methodology used to determine ED adjustments in prior years (89 FR
64636). Beginning in FY 2025, IPFs with a qualifying ED receive an
adjustment factor of 1.54 as the variable per diem adjustment for day 1
of each patient stay. If an IPF does not have a qualifying ED, it
receives an adjustment factor of 1.27 as the variable per diem
adjustment for day 1 of each patient stay. For FY 2027, we propose to
maintain the 1.54 adjustment factor for IPFs with qualifying EDs. A
complete discussion of the steps involved in the most recent
calculation of the ED adjustment factor can be found in the FY 2025 IPF
PPS final rule (89 FR 64636).

E. Other Payment Adjustments and Policies

1. Outlier Payment Overview
a. Background on the Current IPF PPS Outlier Payment Policy
The IPF PPS includes an outlier adjustment to promote access to IPF
care for those patients who require expensive care and to limit the
financial risk of IPFs treating unusually costly patients. In the RY
2005 IPF PPS final rule, we implemented regulations at Sec.
412.424(d)(3)(i) to provide a per case payment for IPF stays that are
extraordinarily costly. Providing an outlier adjustment to IPFs for
extremely costly cases strongly improves the accuracy of the IPF PPS in
determining resource costs at the patient- and facility-level. These
upward payment adjustments reduce the financial losses that would
otherwise be incurred in treating patients who require costlier care,
and therefore reduce the incentives for IPFs to under-serve these
patients. We make payments under the outlier adjustment for discharges
where an IPF's estimated total cost for a case exceeds a fixed dollar
loss threshold amount (multiplied by the IPF's facility-level
adjustments) plus the Federal per diem payment amount for the case.
In instances when the case qualifies for an outlier payment
adjustment, we pay 80 percent of the difference between the estimated
cost for the case and the adjusted threshold amount for days 1 through
9 of the stay (consistent with the median LOS for IPFs in FY 2002), and
60 percent of the difference for day 10 and thereafter. The adjusted
threshold amount is equal to the outlier threshold amount adjusted for
wage area, teaching status, rural area, and the COLA factor (if
applicable), plus the amount of the Medicare IPF payment for the case.
We established the 80 percent and 60 percent loss sharing ratios
because we were concerned that a single ratio established at 80 percent
(like other Medicare PPSs) might provide an incentive under the IPF per
diem payment system to increase LOS to receive additional payments.
After establishing the loss sharing ratios, we determined the
current fixed dollar loss threshold amount through payment simulations
designed to compute a dollar loss beyond which payments are estimated
to meet the 2 percent outlier spending target. Each year when we update
the IPF PPS, we simulate payments using the latest available data to
compute the fixed dollar loss threshold so that outlier payments
represent 2 percent of total estimated IPF PPS payments.
b. Analysis of Recent Outlier Payments Under the Current Methodology
For this FY 2027 IPF PPS rulemaking, we conducted an analysis of
the latest available data (the December 2025 update of FY 2025 IPF
claims) and rate increases, following our longstanding methodology.
Based on an analysis of these updated data, we believe it is necessary
to update the fixed dollar loss threshold amount to maintain an outlier
percentage that equals 2 percent of total estimated IPF PPS payments.
We estimate that IPF outlier payments as a percentage of total
estimated payments would be 2.2 percent in FY 2026. Therefore, under
our current policy the outlier threshold amount would need to be
updated to $42,720 to maintain estimated outlier payments at 2 percent
of total estimated aggregate IPF payments for FY 2027. This update
would be an increase from the FY 2026 threshold of $39,360.
We also conducted analysis about the distribution of IPF PPS
outlier payments. We note that when we first established the IPF PPS
outlier policy, we estimated that approximately 5 percent of IPF stays
in RY 2005 would meet the fixed dollar loss threshold amount and
qualify for an average outlier payment of $3,248 (69 FR 66962). By
contrast, our latest analysis of FY 2025 claims data shows that under
our current outlier methodology, only around 1.5 percent of IPF stays
in FY 2027 would qualify for an outlier payment, which would be on
average approximately $20,526. This comparison between outlier payments
in RY 2005 and FY 2027 demonstrates that IPF outlier payments are
concentrated among a smaller number of stays with significantly higher
average costs. Moreover, our analysis shows that over time, the share
of IPF PPS stays qualifying for outlier payment declined from above 4
percent during FY 2014 through FY 2022 to 3.2 percent in FY 2023, 2.3
percent in FY 2024, and 2.1 percent in FY 2025. Furthermore, we
observed concentrations of IPF PPS outlier payments among a smaller
number of IPFs. In FY 2025, the 20 IPFs that had the highest amounts of
total outlier payments accounted for more than 50 percent of total
outlier payments. We also analyzed clinical characteristics from IPF
PPS claims to determine the extent to which such differences could be
driving outlier payments. Outlier stays tend to be significantly longer
than non-outlier stays (approximately 46 days versus 12 days). However,
since the IPF PPS is a per diem payment system in which a longer length
of stay results in higher payment, this difference only drives outlier
payments when daily costs are also high. Outlier stays, as well as
providers with a large share of outlier payments, tend to have higher
daily routine charges, which drive higher costs. Overall, these
providers charge nearly twice as much per day as compared to the
average ($6,000 vs. $2,600). We note that in its April 2020 report, the
Office of the Inspector General studied a sample of IPF claims from FYs
2014 and 2015 and noted similar trends.\5\ While CMS did not

[[Page 17733]]

concur with some of the recommendations that report made, we did concur
with its recommendation to study the stays qualifying for outlier
payments. Our analysis of outlier claims in FYs 2023 through 2024
demonstrate higher cost than the typical IPF stay, and for this FY 2027
IPF PPS proposed rule we conducted further analysis to better
understand the drivers of these costs.
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\5\ <a href="https://www.oversight.gov/sites/default/files/documents/reports/2020-04/11600508.pdf">https://www.oversight.gov/sites/default/files/documents/reports/2020-04/11600508.pdf</a>.
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Although we note certain case-mix differences between providers
with a high share of outliers and those with a lower share or with no
outliers, our analysis suggests that these differences alone do not
appear to fully explain the substantial difference in per diem routine
charges. For example, providers with a high share of outliers tend to
have patients who are more often disabled (66.3 percent vs. 57.1
percent) or dual-eligible (68.1 percent vs. 60.8 percent), and they
treat a smaller share of aged beneficiaries (33.3 percent vs. 42.7
percent). These facilities also have fewer stays with higher-cost DRGs
(12.9 percent vs. 17.4 percent). They treat more patients with DRG 885
(Psychoses) than average (84.0 percent vs. 76.7 percent). Within DRG
885 cases, these facilities treat a slightly larger share of patients
with schizophrenia (15.8 percent vs. 13.2 percent) and schizoaffective
disorder (30.7 percent vs. 21.0 percent) and a slightly lower share of
patients with major depressive disorder (16.2 percent vs. 19.7
percent). We note that the majority of IPF PPS stays (76.7 percent)
fall within DRG 885, and our analysis has shown no statistically
significant difference in cost between subcategories of conditions
within this DRG (89 FR 64604). We also observe that approximately 67
percent of IPF stays that qualify for outlier payment have no reported
IPF PPS comorbid conditions.
Our analyses of these clinical characteristics suggest that a
substantial share of outlier payments may be driven by higher facility-
level costs rather than by patient complexity. As we discuss in the
following section, we are soliciting comments about the drivers of high
costs in facilities with a large share of outlier payments.
In summary, we are concerned that the current methodology would
limit outlier payment to too small a number of IPF PPS stays and
providers. Therefore, as discussed in the following sections, we are
proposing changes to our outlier policy and the methodology for
determining the outlier fixed dollar loss threshold amount for FY 2027.
c. Proposed Changes to the Outlier Payment Policy and Update to the
Outlier Fixed Dollar Loss Threshold Amount
In accordance with the update methodology described in Sec.
412.428(d)(3)(i)(D), we are proposing to update the fixed dollar loss
threshold amount used under the IPF PPS outlier policy. Based on the
regression analysis and payment simulations used to develop the IPF
PPS, we established a 2 percent outlier policy, which strikes an
appropriate balance between protecting IPFs from extraordinarily costly
cases while ensuring the adequacy of the Federal per diem base rate for
all other cases that are not outlier cases. We are proposing to
maintain the established 2 percent outlier policy for FY 2027.
Our longstanding methodology for updating the outlier fixed dollar
loss threshold involves using the best available data, which is
typically the most recent available data. We note that for FY 2022 and
FY 2023 only, we made certain methodological changes to our modeling of
outlier payments, and we discussed the specific circumstances that led
to those changes for those years (86 FR 42623 and 42624; 87 FR 46862
through 46864). We direct readers to the FY 2022 and FY 2023 IPF PPS
proposed and final rules for a more complete discussion.
We are proposing to update the IPF outlier threshold amount for FY
2027 using FY 2025 claims data in accordance with the methodology that
we have used to set the initial outlier threshold amount each year
beginning with the RY 2007 IPF PPS final rule (71 FR 27072 and 27073).
That is, we are proposing to determine the FY 2027 fixed dollar loss
threshold amount through payment simulations designed to compute a
dollar loss beyond which payments are estimated to meet the 2 percent
outlier spending target. However, we are proposing to change the
outlier policy for FY 2027 to minimize the impact of a small number of
high-cost IPFs on the outlier fixed dollar loss threshold amount.
Accordingly, we are proposing to modify our methodology for simulating
payments to determine the outlier fixed dollar loss threshold amount
for FY 2027. As we discuss in the following paragraphs, we estimate
that this proposed change to the outlier policy would have a meaningful
impact on the outlier fixed dollar loss threshold amount in FY 2027.
In summary, beginning in FY 2027 we are proposing to modify the IPF
PPS outlier payment policy to better align outlier payments with their
intended purpose of promoting access to care for patients requiring
unusually costly treatment while ensuring an appropriate distribution
of outlier payments across all IPFs. We note that the authorizing
language for the IPF PPS, Section 124 of the BBRA, requires that the
IPF PPS include an adequate patient classification system that reflects
the differences in patient resource use and costs among IPFs. The IPF
PPS has a longstanding policy of making appropriate adjustments for
other factors that drive resource use and costs among IPFs, and of
doing so in a way that limits incentives for inappropriate utilization.
The IPF PPS facility-level adjustments strengthen the accuracy of the
IPF PPS in adjusting payment to align with resource costs that are
associated with rural status, geographical location, the presence of a
full-service ED, and the higher indirect operating costs experienced by
hospitals that participate in GME programs. As discussed in section
III.D.3. of this proposed rule, we established the teaching adjustment
in a manner that limited the incentives for IPFs to add FTE residents
for the purpose of increasing their teaching adjustment by imposing a
cap on the number of FTE residents that may be counted for purposes of
calculating the teaching adjustment.
In addition, section 1886(s)(5)(D) authorizes the Secretary to
implement revisions to the methodology for determining the payment
rates under the IPF PPS, for FY 2025 and subsequent years. Given the
emphasis on patient- and facility-level cost differences in Section 124
of the BBRA, and under the authority of section 1886(s)(5)(D) to
consider and implement revisions to our payment methodology, we believe
it is appropriate to ensure that IPF outlier payments recognize
patient-level cost differences across a broad range of services and
facilities. We considered the precedent of the IPF PPS teaching cap
policy as a potential tool to strengthen the accuracy of the IPF PPS by
limiting potential incentives for IPFs to inappropriately increase
their costs and charges for IPF services. Our analysis of recent claims
data has revealed that outlier payments have become increasingly
concentrated among a small subset of facilities with exceptionally high
reported costs. Specifically, our data indicates that approximately 37
high-cost IPFs would receive approximately 47.8 percent of all outlier
payments in FY 2027 under the current policy. In contrast, these
providers represent 2.7 percent of the

[[Page 17734]]

total population (approximately 1,400) of IPF PPS providers. According
to our simulations, each of these providers' outlier payments would
account for more than 20 percent of its total IPF PPS payments. For
additional information about the characteristics of providers included
in our payment simulations for this FY 2027 IPF PPS proposed rule, see
the FY 2027 IPF PPS Proposed Rate Setting Impact File, available on the
CMS web page for the FY 2027 IPF PPS proposed rule at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility/ipf-pps-regulations-and-notices">https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility/ipf-pps-regulations-and-notices</a>.
We have observed that these facilities' high overall costs are
primarily driven by elevated routine costs, which can include costs
such as labor, real estate, or overhead expenses. We note that routine
costs are fixed at the provider level and do not vary based on
individual patient characteristics or treatment intensity. As we
discussed in the prior section of this proposed rule, outlier stays
tend to be significantly longer than non-outlier stays; however, since
the IPF PPS is a per diem payment system in which a longer length of
stay results in higher payment, this difference only drives outlier
payments when daily costs are also high. Outlier stays, as well as
providers with a large share of outlier payments, tend to have higher
daily routine charges, which drive higher costs. As we discussed in the
previous section, we do not observe case-mix differences that would
explain the significantly higher routine costs for facilities with a
high share of outlier payments.
Under the current outlier methodology, these high-cost facilities
have necessitated substantial increases to the outlier threshold to
maintain outlier payments at the 2 percent target. As we noted earlier,
the significant increase to the outlier fixed dollar loss threshold
under our current policy would make it more difficult for the majority
of IPFs to receive outlier payments for treating Medicare beneficiaries
whose care is exceptionally costly. We believe that establishing a
policy to limit the impact to the outlier fixed dollar loss threshold
amount from the small number of high-cost IPFs that we have identified
in our analysis would better align with the outlier policy's core
objective of protecting facilities from the financial risk of treating
unusually expensive patients. We believe that the current concentration
of outlier payments does not best serve the intended purpose of this
policy and may inadvertently limit access to care for high-cost
patients at facilities that cannot reach the higher threshold.
To address these concerns, we considered changes to limit the
impact to the outlier fixed dollar loss threshold amount from high-cost
IPFs for which outlier payments comprise an unusually large share of
their total IPF PPS payments. As we noted earlier, our analysis found
that 47.8 percent of all simulated outlier payments were attributable
to approximately 37 IPFs with more than 20 percent outlier payments to
total IPF PPS payments. We estimate that if we applied a 20-percent
facility-level cap (that is, outlier payments for an IPF are less than
or equal to 20 percent of the IPF's total IPF PPS payments, including
outliers), the FY 2027 outlier fixed dollar loss threshold amount would
be approximately $37,820, lower than what it would be under our current
outlier policy and much closer to the FY 2026 outlier fixed dollar loss
threshold amount of $39,360. Under this proposal, we estimate that 40
more providers would receive payments under the outlier adjustment than
under our current policy (increasing from 379 providers to 419
providers), due to the lower outlier fixed dollar loss threshold that
we are proposing. Additionally, we estimate that approximately 1.9
percent of IPF stays would qualify for outlier payments, with an
average outlier payment amount of approximately $1,012. In comparison
to the current outlier policy, applying a 20-percent facility-level cap
on outlier payments would reduce the outlier fixed dollar loss
threshold, resulting in outlier payments that would be expanded to a
larger number of stays and providers.
At the same time, we considered the potential impact of a facility-
level cap on total outlier payments. We believe it would be appropriate
to set a facility-level outlier cap at a percentage that protects the
outlier fixed dollar loss threshold amount while limiting the number of
IPFs that would be subject to the cap. As shown in Table 3, looking
retrospectively at FY 2025 billing patterns, if we implement a
facility-level outlier cap at 20 percent, we estimate that around 3.6
percent of providers would be affected. If we implement a facility-
level outlier cap at a lower percentage, such as 10 or 15 percent, we
estimate that a larger share of between 5 and 10 percent of IPFs would
be impacted in a typical year; however, a lower cap would also result
in a lower outlier fixed dollar loss threshold. Conversely, if we were
to implement a facility-level outlier cap at a higher percentage, such
as 25 or 30 percent, we estimate that a smaller share of IPFs would be
affected in a given year (between 1 and 3 percent), but this policy
would require a higher outlier fixed dollar threshold amount.

Table 3--Summary of Potential Outlier Cap Levels and Share of Providers
Impacted
------------------------------------------------------------------------
Cap level Share of providers impacted
------------------------------------------------------------------------
10 percent................................ 8.8 percent.
15 percent................................ 5.7 percent.
20 percent................................ 3.6 percent.
25 percent................................ 1.9 percent.
30 percent................................ 1.2 percent.
------------------------------------------------------------------------

We believe that a 20-percent facility-level outlier cap would
strike an appropriate balance between protecting the outlier fixed
dollar loss threshold amount and limiting the impact of the cap to only
those IPFs with an unusually high share of outlier payments. Therefore,
we are proposing to establish a facility-level cap on outlier payments
beginning in FY 2027. Specifically, we propose to limit total outlier
payments to no more than 20 percent of a facility's total IPF PPS
payments. Under this proposal, if an IPF exceeds the 20 percent
facility-level cap, it would no longer receive an outlier payment for
high-outlier cases but would receive the IPF PPS per diem payment. We
solicit comments on this proposed cap policy as well as comments about
setting the cap at 20 percent versus an alternative percentage.
We are proposing to codify this policy for the IPF PPS at Sec.
412.424(d) for discharges occurring in cost reporting periods beginning
on or after October 1, 2026. This cap would be calculated and applied
on an interim basis on IPF PPS claims beginning in FY 2027. Because
outlier payments are finalized at cost report settlement, we propose to
apply this cap on an annual basis using the following methodology:
Step 1: Calculate each facility's total non-outlier payments (that
is, IPF PPS payments excluding outlier payments) for all discharges
occurring during the cost reporting year.
Step 2: Divide the facility's total non-outlier payments by 80
percent (0.8) to determine the maximum allowable total IPF PPS payment
amount (including outlier payments and non-outlier payments).
Step 3: Subtract the provider's maximum allowable total IPF PPS
payment from its actual total IPF PPS payment amount. If the result of
this calculation is greater than 0, then the facility's total outlier
payments exceed 20 percent of its total IPF PPS payments.

[[Page 17735]]

Step 4: If the facility's total outlier payments exceed the 20
percent cap, reduce the outlier payment by the result of the
calculation in Step 3.
For example, if a facility has $10 million in total IPF PPS
payments (excluding outliers) and would otherwise receive $3 million in
outlier payments, the facility would have an actual total IPF PPS
payment amount of $13 million. Following the formula in Step 2, the
provider's maximum allowable total IPF PPS payment amount would be $10
million/0.8 = $12.5 million. The facility's outlier payments would
therefore be capped at $2.5 million (20 percent of $12.5 million).
We seek comment on the proposed implementation approach for interim
payments as well as at cost report settlement.
We are also considering whether to exempt IPFs from this cap policy
if they do not exceed a minimum threshold of annual stays. For example,
our simulations indicate that if we limited the proposed 20 percent
facility-level outlier cap policy to providers with more than 25 stays
per year, it would exempt very small IPFs from the cap. We believe this
could be appropriate, since small facilities may have limited patient
volume, and a small number of high-cost cases could more easily result
in outlier payments exceeding 20 percent of their total payments.
Our analysis indicates that applying the cap only to facilities
with more than 25 stays per year would result in a slightly higher
outlier threshold of $37,880 (compared to $37,820 if the cap applies to
all facilities) but would reduce the number of facilities subject to
the cap (from approximately 2.7 percent of all IPFs to approximately
1.8 percent) and potential payment adjustments. We seek comment on
whether such a minimum stay threshold would be appropriate and, if so,
what the appropriate threshold should be.
Under our proposed policy, we estimate that the outlier threshold
for FY 2027 would be $37,820, which we previously noted would be lower
than what it would be under our current outlier policy and much closer
to the FY 2026 outlier fixed dollar loss threshold amount of $39,360.
By moderating the threshold increase, we believe this proposal would
make outlier payments accessible to a broader range of facilities
treating high-cost patients, which we believe better aligns with the
purpose of the IPF PPS outlier policy.
In conjunction with this proposed policy change, we are soliciting
comments on the factors that contribute to higher costs at facilities
that routinely receive an unusually high share of outlier payments. We
are interested in understanding whether there are other factors for
which the IPF PPS does not already adjust payment that could explain
differences in patient resource use and costs among these IPFs, in
accordance with Section 124 of the BBRA. We are particularly interested
in understanding the following:
<bullet> What specific patient characteristics, clinical
complexities, or treatment modalities drive higher costs at these
facilities?
<bullet> To what extent do geographic factors, local labor market
conditions, or real estate costs contribute to elevated routine costs?
<bullet> Do these facilities provide specialized services or treat
patient populations that are not adequately reflected in the current
IPF PPS payment adjustments?
<bullet> Are there structural changes to the IPF PPS facility
adjustments or case-mix system that would more appropriately account
for the notable cost differences across facilities?
<bullet> Are facilities incentivized to provide longer lengths of
stay to receive to receive outlier payments, particularly if there is
bed capacity? If so, what is the impact for beneficiaries who are
subject to a 190-day lifetime limit on IPF services? Could the proposed
changes to the outlier policy, or potential further changes, reduce
incentives for unnecessarily long lengths of stay?
<bullet> Do beneficiaries perceive differences in quality,
outcomes, or value between higher-cost and lower-cost facilities?
The information gathered through this RFI will help inform our
final outlier policy for FY 2027 and may guide other potential future
refinements to the IPF PPS payment methodology, including the outlier
policy, facility-level adjustments, and case-mix classification system.
2. Proposed Update to IPF Cost-to-Charge Ratio Ceilings
Under the IPF PPS, an outlier payment is made if an IPF's cost for
a stay exceeds a fixed dollar loss threshold amount plus the IPF PPS
amount. To establish an IPF's cost for a particular case, we multiply
the IPF's reported charges on the discharge bill by its overall cost-
to-charge ratio (CCR). This approach to determining an IPF's cost is
consistent with the approach used under the IPPS and other PPSs. In the
RY 2004 IPPS final rule (68 FR 34494), we implemented changes to the
IPPS policy used to determine CCRs for IPPS hospitals, because we
became aware that payment vulnerabilities resulted in inappropriate
outlier payments. Under the IPPS, we established a statistical measure
of accuracy for CCRs to ensure that aberrant CCR data did not result in
inappropriate outlier payments.
As indicated in the RY 2005 IPF PPS final rule (69 FR 66961), we
believe that the IPF outlier policy is susceptible to the same payment
vulnerabilities as the IPPS; therefore, we adopted a method to ensure
the statistical accuracy of CCRs under the IPF PPS. Specifically, we
adopted the following procedure in the RY 2005 IPF PPS final rule:
<bullet> Calculated two national ceilings, one for IPFs located in
rural areas and one for IPFs located in urban areas.
<bullet> Computed the ceilings by first calculating the national
average and the standard deviation of the CCR for both urban and rural
IPFs using the most recent CCRs entered in the most recent Provider
Specific File (PSF) available.
For FY 2027, we are proposing to continue following this
methodology. To determine the final rural and urban ceilings, we
multiplied each of the standard deviations by 3 and added the result to
the appropriate national CCR average (either rural or urban). The final
upper threshold CCR for IPFs in FY 2027 is 2.4181 for rural IPFs and
1.8850 for urban IPFs, based on current CBSA-based geographic
designations. If an IPF's CCR is above the applicable ceiling, the
ratio is considered statistically inaccurate, and we assign the
appropriate national (either rural or urban) median CCR to the IPF.
We apply the national median CCRs to the following situations:
<bullet> New IPFs that have not yet submitted their first Medicare
cost report. We continue to use these national median CCRs until the
facility's actual CCR can be computed using the first tentatively or
final settled cost report.
<bullet> IPFs whose overall CCR is in excess of three standard
deviations above the corresponding national geometric mean (that is,
above the ceiling).
<bullet> Other IPFs for which the Medicare Administrative
Contractor (MAC) obtains inaccurate or incomplete data with which to
calculate a CCR.
We are proposing to update the FY 2027 national median and ceiling
CCRs for urban and rural IPFs based on the CCRs entered in the latest
available IPF PPS PSF.
Specifically, for FY 2027, to be used in each of the three
situations listed previously, using the most recent CCRs entered in the
CY 2025 PSF, we provide an estimated national median CCR of 0.5720 for
rural IPFs and a national median CCR of 0.4200 for urban IPFs.

[[Page 17736]]

These calculations are based on the IPF's location (either urban or
rural) using the current CBSA-based geographic designations. A complete
discussion regarding the national median CCRs appears in the RY 2005
IPF PPS final rule (69 FR 66961 through 66964).
Lastly, we are proposing that if more recent data become available,
we would consider using such data to calculate the rural and urban
national median and ceiling CCRs for FY 2027.

IV. Inpatient Psychiatric Facility Quality Reporting Program

A. Background and Statutory Authority

The IPF Quality Reporting Program is authorized by section
1886(s)(4) of the Act, and it applies to psychiatric hospitals and
psychiatric units paid by Medicare under the IPF PPS (see section II.A.
of this proposed rule for a detailed discussion of entities covered
under the IPF PPS).\6\ We refer readers to the FY 2019 IPF PPS final
rule (83 FR 38589) for a discussion of the background and statutory
authority of the IPF Quality Reporting Program. We have codified
procedural requirements and reconsideration and appeals procedures for
IPF Quality Reporting Program decisions in our regulations at 42 CFR
412.433 and 412.434. Consistent with previous IPF Quality Reporting
Program regulations, we refer to both inpatient psychiatric hospitals
and psychiatric units as ``inpatient psychiatric facilities'' (at
times, simply ``facilities'' where the context is clear) or ``IPFs.''
This usage follows the terminology in our IPF PPS regulations at Sec.
412.402.
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\6\ We note that the statute uses the term ``rate year'' (RY).
However, beginning with the annual update of the inpatient
psychiatric facility prospective payment system (IPF PPS) that took
effect on July 1, 2011 (RY 2012), we aligned the IPF PPS update with
the annual update of the ICD codes, effective on October 1 of each
year. This change allowed for annual payment updates and the ICD
coding update to occur on the same schedule and appear in the same
Federal Register document, promoting administrative efficiency. To
reflect the change to the annual payment rate update cycle, we
revised the regulations at 42 CFR 412.402 to specify that, beginning
October 1, 2012, the IPF PPS RY means the 12-month period from
October 1 through September 30, which we refer to as a ``fiscal
year'' (FY) (76 FR 26435). Therefore, with respect to the IPF
Quality Reporting Program, the terms ``rate year,'' as used in the
statute, and ``fiscal year'' as used in the regulation, both refer
to the period from October 1 through September 30. For more
information regarding this terminology change, we refer readers to
section III of the RY 2012 IPF PPS final rule (76 FR 26434 through
26435).
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Section 4125(b)(1) of the Consolidated Appropriations Act of 2023
(CAA, 2023) amended section 1886(s)(4)(E) of the Act, which requires
IPFs participating in the IPF Quality Reporting Program to collect and
submit to the Secretary certain standardized patient assessment data,
using a standardized patient assessment instrument (PAI) developed by
the Secretary, for RY 2028 (FY 2028) and each subsequent rate year. We
discuss proposals related to the implementation of the IPF-PAI in
section IV.C. of this proposed rule.

B. Quality Measures in the IPF Quality Reporting Program

1. Proposed Removal of the Alcohol Use Brief Intervention Provided or
Offered and Alcohol Use Brief Intervention (SUB-2/2a) Measure
We are proposing to remove the Alcohol Use Brief Intervention
Provided or Offered (SUB-2) and subset Alcohol Use Brief Intervention
(SUB-2a) measure from the IPF Quality Reporting Program beginning with
the Calendar Year (CY) 2026 reporting period/FY 2028 payment
determination and subsequent years under measure removal factor 8--that
is, that the costs associated with a measure outweigh the benefit of
its continued use in the program--and measure removal factor 3 --that
is, that the measure can be replaced by a more broadly applicable
measure.\7\ The IPF Quality Reporting Program measure set currently
includes two measures that address alcohol use disorders: SUB-2/2a,
described above, and Alcohol and Other Drug Use Disorder Treatment
Provided or Offered at Discharge (SUB-3) and the subset Alcohol and
Other Drug Use Disorder Treatment at Discharge (SUB-3a). SUB-2/2a
assesses whether patients who screened positive for unhealthy alcohol
use received or refused a brief alcohol use intervention during their
IPF stay (80 FR 46699 through 46701). SUB-3/3a assesses whether
patients who are identified as having an alcohol or drug use disorder
are offered a referral or prescription for treatment at discharge. SUB-
2/2a was adopted into the IPF Quality Reporting Program beginning with
the CY 2016 reporting period (80 FR 46699 through 46701), and SUB-3/3a
was adopted in the program beginning with the CY 2017 reporting period
(81 FR 57239 through 57241). Both measures require facilities to submit
chart-abstracted measure data for a sample of IPF patient records, in
accordance with established sampling policies (80 FR 46717 through
46719).
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\7\ The IPF Quality Reporting Program uses measure removal
factors as criteria to decide when an existing quality measure
should be retired from the program. Removal factors 3 and 8 are
codified at 42 CFR 412.433(e)(3)(i)(C), (H).
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The IPF Quality Reporting Program strives to maintain a balanced
set of meaningful quality measures with minimal burden. To meet that
goal, we evaluated both SUB-2/2a and SUB-3/3a to ensure that the IPF
Quality Reporting Program measure set is responsive to our objectives
for improving quality of care and minimizing burden for facilities. We
conducted an internal analysis of performance data for SUB-2 and SUB-3
to determine performance gaps and greater potential for improvement.
Mean and median scores for the most recent three years of performance
for both measures show room for improvement--median scores on SUB-2 and
SUB-3 ranged from 0.73 to 0.79 between 2023 and 2025 \8\--but we
observed no substantial difference in performance between the two
measures.
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\8\ CMS internal analysis.
---------------------------------------------------------------------------

While SUB-2 and SUB-3 are similar measures, with similar
performance rates, SUB-3/3a captures a broader patient population than
SUB-2/2a--specifically, it includes patients who have screened positive
for either alcohol use disorder or substance use disorder while SUB-2/
2a only includes patients who have screened positive for alcohol use
disorder. Therefore, we are proposing to remove the SUB-2/2a measure to
reduce reporting burden associated with the IPF Quality Reporting
Program. This would reduce the collection of information burden for
IPFs by $13,110,832 \9\ per year and eliminate CMS program costs for
oversight of the measure. At this time, we believe the costs of keeping
the SUB-2/2a measure in the IPF Quality Reporting Program exceed the
benefits of retaining the measure. The SUB-2/2a measure was also
recently retired from The Joint Commission's ORYX[supreg] requirements
effective CY 2026.10 11
---------------------------------------------------------------------------

\9\ For further discussion of the collection of information
costs of this measure, see section V.C. of this proposed rule.
\10\ The Joint Commission. (Oct. 2025). 2026 ORYX Performance
Measurement Reporting Requirements. Available at <a href="https://jointcommission-ddsp.atlassian.net/wiki/spaces/DCS/pages/1030619137/2026+ORYX+Performance+Measurement+Reporting+Requirements">https://jointcommission-ddsp.atlassian.net/wiki/spaces/DCS/pages/1030619137/2026+ORYX+Performance+Measurement+Reporting+Requirements</a>. Accessed
on: December 17, 2025.
\11\ The ORYX initiative integrates performance measurement data
into The Joint Commission's standards-based survey and accreditation
process to support hospitals in their quality improvement efforts
through the continuous monitoring and evaluation. For more details
on The Joint Commission's accreditation, we refer readers to:
<a href="https://www.jointcommission.org/en-us/accreditation/performance-measurement">https://www.jointcommission.org/en-us/accreditation/performance-measurement</a>. Accessed on: December 17, 2025.
---------------------------------------------------------------------------

We are proposing to remove the SUB-2/2 measure from the IPF Quality
Reporting measure to reduce burden on facilities for collecting and
reporting these data and because the measure can be replaced by SUB-3/
3a, a more

[[Page 17737]]

broadly applicable measure. However, we continue to believe that brief
alcohol use interventions are valuable and encourage IPFs to continue
to offer this intervention to patients for whom it is appropriate
should we finalize removal of the SUB-2/2a measure from the program. We
also recognize that the goals and priorities of an IPF stay vary among
patients based on their clinical needs as well as personal preferences.
By proposing to remove this measure we intend for IPF clinicians to
collaborate with patients to prioritize the types of activities and
areas of focus that best support individual patient treatment goals
while reducing the burden associated with the current collection of
measures related to substance use treatment. While both SUB-2/2a and
SUB-3/3a address alcohol use and show similar performance trends, the
retention of SUB-3/3a in the program addresses both alcohol and
substance use disorder treatment in the IPF setting while reducing the
burden of having two measures addressing the same condition.
We solicit public comment on this proposal.
2. Proposed Removal of the Tobacco Use Treatment Provided or Offered at
Discharge (TOB-3/3a) Measure
We are proposing to remove the Tobacco Use Treatment Provided or
Offered at Discharge (TOB-3) and subset Tobacco Use Treatment at
Discharge (TOB-3a) measure from the IPF Quality Reporting Program
beginning with the CY 2026 reporting period/FY 2028 payment
determination and subsequent years under measure removal factor 8, the
costs associated with a measure outweigh the benefit of its continued
use in the program.\12\ TOB-3 assesses whether patients were offered
evidence-based outpatient counseling and offered a prescription for
FDA-approved cessation medication upon discharge. TOB-3a identifies the
subset of those IPF patients who received a referral and received a
prescription for FDA-approved cessation medication upon discharge. This
measure began to be used in the IPF Quality Reporting Program with the
CY 2016 reporting period (80 FR 46696 through 46699), and requires
facilities to submit chart-abstracted measure data on a sample of IPF
patient records, in accordance with established sampling policies (80
FR 46717 through 46719). Our internal analysis of performance data for
TOB-3 found median scores on TOB-3 from 0.58 to 0.63 between 2023 and
2025, remaining stable over time, with no indication of
improvement.\13\ This suggests that this measure is no longer driving
facilities to increase their offerings of these interventions.
---------------------------------------------------------------------------

\12\ 42 CFR 412.433(e)(3)(i)(H).
\13\ CMS internal analysis.
---------------------------------------------------------------------------

The IPF Quality Reporting Program strives to maintain a balanced
set of meaningful quality measures with minimal burden. Removal of this
measure would reduce collection of information burden for IPFs by
$13,110,832 \14\ per year and eliminate CMS program costs for oversight
of the measure. We recognize that smoking and other forms of tobacco
use are common among IPF patients 15 16 and it remains
appropriate for IPFs to offer evidence-based tobacco cessation
counseling and FDA-approved cessation medication to patients for whom
it is clinically indicated even if we finalize the proposal to remove
the TOB-3/3a measure from the program. We note the TOB-3/3a measure was
also recently retired from The Joint Commission's ORYX[supreg]
requirements effective CY 2026.\17\ Given the burden, we believe the
costs of keeping the measure in the IPF Quality Reporting Program now
exceed the benefits of retaining the measure.
---------------------------------------------------------------------------

\14\ For further discussion of the collection of information
costs of this measure, see section V.C. of this proposed rule.
\15\ Kagabo, R., Gordon, A.J., & Okuyemi, K. (2020). Smoking
cessation in inpatient psychiatry treatment facilities: A review.
Addictive Behaviors Reports, 11, 100255. <a href="https://doi.org/10.1016/j.abrep.2020.100255">https://doi.org/10.1016/j.abrep.2020.100255</a>.
\16\ Fornaro, M., Carvalho, A.F., De Prisco, M., Mondin, A.M.,
Billeci, M., Selby, P., Iasevoli, F., Berk, M., Castle, D.J., & De
Bartolomeis, A. (2021). The prevalence, odds, predictors, and
management of tobacco use disorder or nicotine dependence among
people with severe mental illness: Systematic review and meta-
analysis. Neuroscience & Biobehavioral Reviews, 132, 289-303.
<a href="https://doi.org/10.1016/j.neubiorev.2021.11.039">https://doi.org/10.1016/j.neubiorev.2021.11.039</a>.
\17\ The Joint Commission. (Oct. 2025). 2026 ORYX Performance
Measurement Reporting Requirements. Available at <a href="https://jointcommission-ddsp.atlassian.net/wiki/spaces/DCS/pages/1030619137/2026+ORYX+Performance+Measurement+Reporting+Requirements">https://jointcommission-ddsp.atlassian.net/wiki/spaces/DCS/pages/1030619137/2026+ORYX+Performance+Measurement+Reporting+Requirements</a>. Access on:
December 17, 2025.
---------------------------------------------------------------------------

We solicit public comments on this proposal.
In addition, as discussed above, we recognize the prevalence of
nicotine use in patients treated in IPFs, and the importance of
interventions and treatment. Therefore, we are also soliciting comment
on alternative ways to address this topic, potentially through the
proposed standardized patient assessment, the IPF Patient Assessment
Instrument (IPF-PAI), described in Section IV.C. of this proposed rule.
We welcome comments on how to assess nicotine use (for example, mode of
delivery, frequency of use, level of dependence) as well as treatments
and interventions for nicotine use (for example, type of treatment or
intervention, timing of delivery).
3. Summary of IPF Quality Reporting Program Measures for Future Years
We are not proposing any new measures for the IPF Quality Reporting
Program in this proposed rule. Table 4 sets forth the measures in the
FY 2028 IPF Quality Reporting Program.

Table 4--IPF Quality Reporting Program Measure Set for the FY 2028 IPF Quality Reporting Program
----------------------------------------------------------------------------------------------------------------
Consensus- Based Entity (CBE) # Measure ID Measure
----------------------------------------------------------------------------------------------------------------
0640.................................... HBIPS-2.................... Hours of Physical Restraint Use.
0641.................................... HBIPS-3.................... Hours of Seclusion Use.
N/A..................................... FAPH....................... Follow-Up After Psychiatric
Hospitalization.
N/A * [dagger].......................... SUB-2 and SUB-2a........... Alcohol Use Brief Intervention Provided
or Offered and SUB-2a Alcohol Use Brief
Intervention.
N/A *................................... SUB-3 and SUB-3a........... Alcohol and Other Drug Use Disorder
Treatment Provided or Offered at
Discharge and SUB-3a Alcohol and Other
Drug Use Disorder Treatment at
Discharge.
N/A * [dagger].......................... TOB-3 and TOB-3a........... Tobacco Use Treatment Provided or Offered
at Discharge and TOB-3a Tobacco Use
Treatment at Discharge.
1659.................................... IMM-2...................... Influenza Immunization.

[[Page 17738]]

N/A *................................... TR-1....................... Transition Record with Specified Elements
Received by Discharged Patients
(Discharges from an Inpatient Facility
to Home/Self Care or Any Other Site of
Care).
N/A..................................... SMD........................ Screening for Metabolic Disorders.
N/A..................................... PIX........................ Psychiatric Inpatient Experience Survey.
2860.................................... IPF Readmission............ Thirty-Day All-Cause Unplanned
Readmission Following Psychiatric
Hospitalization in an Inpatient
Psychiatric Facility.
N/A *................................... Med Cont................... Medication Continuation Following
Inpatient Psychiatric Discharge.
----------------------------------------------------------------------------------------------------------------
* Measure is no longer endorsed by the CBE but was endorsed at the time of adoption. We note that although
section 1886(s)(4)(D)(i) of the Act generally requires measures specified by the Secretary be endorsed by the
entity with a contract under section 1890(a) of the Act, section 1886(s)(4)(D)(ii) states that in the case of
a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical
measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary
may specify a measure that is not so endorsed as long as due consideration is given to measures that have been
endorsed or adopted by a consensus organization identified by the Secretary. We attempted to find available
measures for each of these clinical topics that have been endorsed or adopted by a consensus organization and
found no other feasible and practical measures on the topics for the IPF setting.
[dagger] We note that we are proposing to remove these measures in section IV.B. of this proposed rule for the
FY 2028 payment determination. If finalized, this measure would not be included in FY 2028 IPF Quality
Reporting Program measure set.

Table 5 sets forth the measures in the FY 2029 IPF Quality
Reporting Program.

Table 5--IPF Quality Reporting Program Measure Set for the FY 2029 IPF
Quality Reporting Program
------------------------------------------------------------------------
CBE # Measure ID Measure
------------------------------------------------------------------------
0640.......................... HBIPS-2.......... Hours of Physical
Restraint Use.
0641.......................... HBIPS-3.......... Hours of Seclusion
Use.
N/A........................... FAPH............. Follow-Up After
Psychiatric
Hospitalization.
N/A * [dagger]................ SUB-2 and SUB-2a. Alcohol Use Brief
Intervention
Provided or Offered
and SUB-2a Alcohol
Use Brief
Intervention.
N/A *......................... SUB-3 and SUB-3a. Alcohol and Other
Drug Use Disorder
Treatment Provided
or Offered at
Discharge and SUB-3a
Alcohol and Other
Drug Use Disorder
Treatment at
Discharge.
N/A * [dagger]................ TOB-3 and TOB-3a. Tobacco Use Treatment
Provided or Offered
at Discharge and TOB-
3a Tobacco Use
Treatment at
Discharge.
1659.......................... IMM-2............ Influenza
Immunization.
N/A *......................... TR-1............. Transition Record
with Specified
Elements Received by
Discharged Patients
(Discharges from an
Inpatient Facility
to Home/Self Care or
Any Other Site of
Care).
N/A........................... SMD.............. Screening for
Metabolic Disorders.
N/A........................... PIX.............. Psychiatric Inpatient
Experience Survey.
2860.......................... IPF Readmission.. Thirty-Day All-Cause
Unplanned
Readmission
Following
Psychiatric
Hospitalization in
an Inpatient
Psychiatric
Facility.
N/A........................... IPF ED Visit..... 30-Day Risk-
Standardized All-
Cause Emergency
Department Visit
Following an
Inpatient
Psychiatric Facility
Discharge.
N/A *......................... Med Cont......... Medication
Continuation
Following Inpatient
Psychiatric
Discharge.
------------------------------------------------------------------------
* Measure is no longer endorsed by the CBE but was endorsed at the time
of adoption. We note that although section 1886(s)(4)(D)(i) of the Act
generally requires measures specified by the Secretary be endorsed by
the entity with a contract under section 1890(a) of the Act, section
1886(s)(4)(D)(ii) of the Act states that in the case of a specified
area or medical topic determined appropriate by the Secretary for
which a feasible and practical measure has not been endorsed by the
entity with a contract under section 1890(a) of the Act, the Secretary
may specify a measure that is not so endorsed as long as due
consideration is given to measures that have been endorsed or adopted
by a consensus organization identified by the Secretary. We attempted
to find available measures for each of these clinical topics that have
been endorsed or adopted by a consensus organization and found no
other feasible and practical measures on the topics for the IPF
setting.
[dagger] We note that we are proposing to remove these measures in
section IV.B. of this proposed rule for the FY 2028 payment
determination. If finalized, this measure would not be included in FY
2029 IPF Quality Reporting Program measure set.

C. Proposal To Implement the Inpatient Psychiatric Facility-Patient
Assessment Instrument (IPF-PAI)

1. Background
Section 4125(b)(1) of the Consolidated Appropriations Act of 2023
(CAA, 2023) amended section 1886(s)(4) of the Act, by inserting a new
paragraph (E), to require IPFs participating in the IPF Quality
Reporting Program to collect and submit to the Secretary certain
standardized patient assessment data, using a standardized patient
assessment instrument (PAI) for RY 2028 (FY 2028) and each subsequent
rate year. IPFs must submit such data with respect to admissions to and
discharges of an individual from the IPF, and more frequently as the
Secretary determines appropriate. For IPFs to meet this new data
collection and reporting requirement for FY 2028 and each subsequent
year, the Secretary must implement a standardized PAI that collects
data with respect to the following categories: functional status;
cognitive function and mental status; special services, treatments, and
interventions for psychiatric conditions; medical conditions and
comorbidities; impairments; and other categories as determined
appropriate by the

[[Page 17739]]

Secretary.\18\ To enable meaningful comparison of the patient
assessment data across all IPFs submitting data, the IPF-PAI must be
standardized. Each IPF must administer the same assessment instrument
with identical questions, response options, standards and
definitions.\19\
---------------------------------------------------------------------------

\18\ Sections 1886(s)(4)(E)(ii)(I) through 1886(s)(4)(E)(ii)(VI)
of the Act.
\19\ We note that while the proposed data elements of the
proposed IPF-PAI would be standardized--that is, identical question
and identical sets of response options--standardization does not
extend to the order of the data elements within the instrument.
---------------------------------------------------------------------------

In the FY 2025 IPF PPS proposed rule, we solicited comments for
consideration in the development of a standardized assessment
instrument (89 FR 23200 through 23204). Specifically, we solicited
comment on the following considerations: a set of principles for
selecting standardized patient assessment data elements \20\ (to
include overall clinical relevance; interoperable exchange to
facilitate care coordination during transitions in care; ability to
capture medical complexity and risk factors that can inform both
payment and quality; and scientific reliability and validity, including
general consensus agreement for its usability); any patient assessments
recommended for use in the IPF-PAI on clinical topics related to the
data categories required by statute; implementation considerations; and
the relationship between the IPF-PAI and the IPF Quality Reporting
Program, such as use of IPF-PAI data in program measures. In the FY
2026 IPF PPS proposed rule, we further solicited comments for
consideration with respect to potential interoperable exchange of IPF-
PAI data using the Fast Healthcare Interoperability Resources[supreg]
(FHIR[supreg]) \21\ standards (90 FR 18520 through 18523).
---------------------------------------------------------------------------

\20\ While this RFI discussed ``data elements,'' we note that we
have transitioned to using the term ``assessment items'' to refer to
the components of the standardized patient assessment.
\21\ FHIR[supreg] is the registered trademark of Health Level
Seven International (HL7) and the use does not constitute
endorsement by HL7.
---------------------------------------------------------------------------

2. Considerations in Selecting Assessment Items and Related Data
Elements for the Proposed IPF-PAI
Between 2023 and 2025, CMS and its contractors engaged in a multi-
stage process to conceptualize and scope a new, statutorily mandated
PAI for the IPF setting that included: identifying key clinical topic
areas within the broad CAA, 2023 data categories, identifying and
evaluating candidate assessment items within those topic areas, and
conducting formative (alpha) and field (beta) testing on those
candidate assessment items. This process also included engagement with
subject matter experts, clinicians and administrators at IPFs, and
individuals who have experience as patients in an IPF setting, as well
as guidance from interoperability experts on how to structure
assessment items and their related data elements so that the patient-
level data that are collected by the IPF-PAI would be interoperable and
aligned with current health IT standards.
We first identified key topics and candidate assessment items that
aligned with the data categories identified in section
1886(s)(4)(E)(ii) of the Act by reviewing clinical practice guidelines;
papers and reports from academic journals, government agencies, and
other organizations; clinical assessments related to inpatient
psychiatric care; and existing standardized patient assessment data
elements used in other provider settings. We reviewed the United States
Core Data for Interoperability (USCDI) \22\ and USCDI+ Behavioral
Health \23\ data elements to understand the interoperable data
landscape for inpatient acute care as well as outpatient and ambulatory
behavioral health care. We also considered comments submitted in
response to the requests for information in the FY 2025 IPF PPS final
rule (89 FR 64645 through 89 FR 64650) described above. Candidate
assessment items were reviewed for relevance and feasibility for the
IPF setting, as well as the potential to capture resource use or
quality of care. An initial list of candidate assessment items selected
from our review was advanced to subsequent phases of testing and expert
input. Formative (alpha) testing was conducted to evaluate the
feasibility and face validity of candidate assessment items in the IPF
setting. Field (beta) testing was conducted to assess inter-rater
reliability (IRR),\24\ estimate burden, and to confirm content validity
and feasibility in the IPF setting. More information about the design
and results of the testing is available in the IPF-PAI Testing Report,
available under IPF-PAI Development and Testing resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. In addition, a technical expert panel (TEP)
was convened by the IPF-PAI development contractor to give input on the
extent to which topics of assessment items were clinically relevant to
patient care in IPFs, likely to inform CMS' understanding of resource
use or costs of care, and considered feasible and relatively low burden
to collect. The TEP included clinicians and administrators at IPFs,
behavioral health clinicians, academic researchers, health information
technology specialists, and individuals who have experience as patients
in an IPF setting. More information on the two meetings of the TEP held
during IPF-PAI development is available under IPF-PAI Development and
Testing resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>.
---------------------------------------------------------------------------

\22\ <a href="https://www.healthit.gov/isp/united-states-core-data-interoperability-uscdi">https://www.healthit.gov/isp/united-states-core-data-interoperability-uscdi</a>. Accessed February 4, 2026.
\23\ <a href="https://www.healthit.gov/topic/interoperability/uscdi-plus">https://www.healthit.gov/topic/interoperability/uscdi-plus</a>.
Accessed February 4, 2026.
\24\ Interrater reliability is the extent of agreement among
data collectors. See: McHugh, M.L., 2012. Interrater reliability:
the kappa statistic. Biochemia medica, 22(3), pp.276-282.
---------------------------------------------------------------------------

3. Proposal To Implement the Inpatient Psychiatric Facility Patient
Assessment Instrument (IPF-PAI) in the IPF Quality Reporting Program
a. Proposed IPF-PAI
We propose to implement the IPF-PAI as the assessment instrument
for the submission of standardized patient assessment data as required
by section 1886(s)(4)(E)(ii) of the Act for all patients aged 18 and
older. This initial version of the IPF-PAI is intended to meet our
statutory obligation to collect standardized patient assessment data on
each of the statutorily-delineated data categories \25\ while being
mindful of reporting burden on IPFs; we purposefully selected a minimal
set of assessment items to propose at this time. We reiterate that the
IPF Quality Reporting Program strives to maintain a minimal set of
requirements while meeting statutory requirements and encouraging
quality through transparency and public reporting. To that end, the
proposed IPF-PAI is also intended to establish a structure and
processes for data collection and submission that we can modify or
expand through future rulemaking, to stay responsive to priorities of
IPF quality and payment. Future enhancements may include the addition,
removal, or changes of assessment items, but we also anticipate using
results and feedback from the proposed IPF-PAI to propose revisions or
improvements to policies that will increase utility or reduce burden of
the IPF-PAI for patients and IPFs.
---------------------------------------------------------------------------

\25\ Sections 1886(s)(4)(E)(ii)(I) through 1886(s)(4)(E)(ii)(VI)
of the Act.
---------------------------------------------------------------------------

We propose that IPFs paid under the IPF PPS be required to complete
the IPF-PAI for all patients aged 18 and older. Assessment items should
be administered at admission and discharge, except where specified in
the proposals below. Later in this section, we discuss the standardized
patient assessment items and related data

[[Page 17740]]

elements for the initial version of the IPF-PAI. We refer readers to
section IV.C.4. of this proposed rule for more information on the
proposed method and schedule for data submission, as well as compliance
thresholds for annual payment determination under the IPF Quality
Reporting Program.
We acknowledge that this new requirement of the IPF Quality
Reporting Program may impact workflow and increase administrative
burden, especially in the first year of implementation as IPFs become
familiar with the assessment and work to integrate it into their
workflows. The assessment items discussed in section IV.3.b that will
comprise the IPF-PAI are proposed to be collected at admission and
discharge. We estimate that completing both assessments for a patient
would take 14.7 minutes, and that the majority of administrative and
clinical data on the IPF-PAI would be available in the patient's
medical record as part of routine medical record keeping practices. We
refer readers to section V.C.3. of this proposed rule for further
discussion of the estimated costs associated with the collection of the
IPF-PAI.
We propose to codify the IPF-PAI as part of the IPF Quality
Reporting Program at Sec. 412.433(a) and (d) by adding ``standardized
patient assessment data'' in the description of the statutory authority
and as a type of data that IPFs that participate in the IPF Quality
Reporting Program must submit to CMS.
We solicit comment on these proposals.
Additionally, we solicit comment on the proposed age requirement
for the IPF-PAI of 18 years and older, specifically the potential
inclusion of adolescents in the population for the IPF-PAI. Are there
any specific guardrails or sensitivities CMS should consider with the
potential inclusion of adolescents, or specific assessment items that
would not be appropriate for this population?
b. Proposed Assessment Items for the IPF-PAI
The proposed IPF-PAI would collect data related to the five
statutory data categories specified in section 1886(s)(4)(E)(ii) of the
Act and fulfill the requirements of section 4125(b) of the CAA, 2023
for a standardized assessment instrument. In the FY 2025 IPF PPS
proposed rule (89 FR 23200 through 23204) we issued a Request for
Information (RFI) to solicit public input to inform the development of
the IPF-PAI. In this RFI, we noted that goals for the IPF-PAI include
improving the quality of care in IPFs and improving the accuracy of the
IPF PPS. As provided by section 1886(s)(6) of the Act, added by section
4125(b) of the CAA, 2023, data collected through the IPF-PAI may be
considered in future revisions to the methodology for determining the
IPF PPS payment.
Standardized assessment items generally take the form of a question
or instructional text that is followed by a set of response options.
For example, the assessment item Speech Clarity would contain
instructional text ``Select best description of speech pattern,'' and
three response options: 0. Clear speech--distinct intelligible words;
1. Unclear speech--slurred or mumbled words; 2. No speech--absence of
spoken words. Responses to assessment items can also take the form of
structured numeric or text input, such as the responses given to
Admission Date or Patient Last Name. These assessment items are
standardized in the sense that all IPFs will be assessing patients
using the same assessment items--that is, the same question or
instructions and response options. In this proposal of assessment items
to include in the IPF-PAI, we refer to the name of the assessment item.
The complete assessment items, including instructional text and
response options, are shown together on the IPF-PAI Item Set, available
under IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. The IPF-
PAI Item Set is a PDF document that shows the proposed assessment items
displayed like a questionnaire. In order to support consistency in the
administration of the IPF-PAI, as we have done for assessment
instruments used in post-acute care settings, we will provide IPFs with
a detailed reference manual that would provide additional guidance. A
draft of the IPF-PAI Guidance Manual is available under IPF-PAI
Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>.
We propose to include in the IPF-PAI assessment items for each of
the five data categories required by statute, and data elements in a
category of administrative items as an additional category determined
appropriate by the Secretary that are necessary for record matching and
database management. Table 6 lists the proposed IPF-PAI assessment
items by category. The Admission and Discharge forms that contain the
proposed assessment items of the IPF-PAI are available under IPF-PAI
Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. For additional
information on the testing process and the testing results in further
details, we refer readers to the IPF-PAI Testing Report, available
under IPF-PAI Development and Testing resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>.

Table 6--Proposed Assessment Items To Be Included in the IPF-PAI
------------------------------------------------------------------------
CAA, 2023 category Proposed assessment item
------------------------------------------------------------------------
Functional status...................... Mobility: Chair/Bed-to-Chair
Transfer.
Cognitive function and mental status... Suicide Screening.
Special services, treatments, and Special Services, Treatments,
interventions. and Interventions in the
Inpatient Psychiatric Setting
(Psychiatric Treatments,
Restrictive Interventions).
Medical conditions and comorbidities... Primary Medical Condition
Category.
Impairments............................ Hearing; Speech Clarity;
Vision.
Administrative: Assessment items Legal Name of Patient, Birth
required for record matching and Date, Sex, Social Security and
database management. Medicare Numbers, Facility
Provider Numbers (National
Provider Identifier, CMS
Certification Number),
Admission/Discharge Date,
Payer Information--Primary
Payer, Type of Record,
Assessment Reference Date,
Reason for Assessment, Type of
Admission/Type of Discharge,
IPF-PAI Completion Date.
------------------------------------------------------------------------

Evidence from field (beta) testing and engagement with experts and
interested parties support these proposed assessment items as meeting
our goals for the IPF-PAI, as stated in prior rulemaking (89 FR 23200
through 23204): clinically relevant to patients in IPFs; standardized
and interoperable; capturing medical complexity and risk factors that
can inform payment and quality; and reliable and valid, with consensus
agreement for usability (89

[[Page 17741]]

FR 23200 through 23204). To determine the clinical relevance to
patients in IPFs and the ability of assessment items to capture medical
complexity and risk factors that would inform payment and quality, we
sought and summarized input through the RFI in the FY 2025 IPF PPS
proposed and final rules (89 FR 64642 through 64649). Building on that
feedback we reviewed potential assessment items with CMS Medical
Officers and engaged with clinicians through a TEP. To ensure that the
assessment items allowed data to be captured in a standardized format
we evaluated the Inter-rater Reliability (IRR) of each of the items as
part of our field (beta) testing. High IRR scores show that the data
are likely to be standardized across different raters at different
IPFs. We also evaluated each assessment item in the field (beta) test
for feasibility. Information about the TEP's input on each assessment
item is included in the following subsections. Information about field
(beta) test results for IRR and feasibility is included in Table 7.
We note that the IPF-PAI was developed and would be implemented in
a way to support interoperable exchange of data. The standardized
assessment items and response options are intended to yield comparable
data across IPFs. The assessment items would be managed centrally in
CMS' Data Element Library (DEL),\26\ enabling consistency in usage
across versions or updates. Each assessment item is represented as a
machine-readable data element with a stable identifier and metadata,
such as definition, datatype, and permissible values. The DEL would
assign LOINC \27\ and SNOMED \28\ codes to questions and response
options, where possible; LOINC and SNOMED are widely-used terminology
standards for clinical data that support consistent meaning across
systems.
---------------------------------------------------------------------------

\26\ <a href="https://del.cms.gov/DELWeb/pubHome">https://del.cms.gov/DELWeb/pubHome</a>. Accessed March 19,
2026.
\27\ <a href="https://loinc.org/">https://loinc.org/</a>. Accessed March 19, 2026.
\28\ <a href="https://www.snomed.org/">https://www.snomed.org/</a>. Accessed March 19, 2026.
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i. IPF-PAI Functional Status Category
Section 1886(s)(4)(E)(i)(I) of the Act requires the inclusion of
patient assessment data with respect to functional status, such as
mobility and self-care at admission to an IPF and before discharge from
an IPF. We propose the assessment item Mobility: Chair/Bed-to-Chair
Transfer for the Functional Status category of the IPF-PAI. This
assessment item evaluates the patient's physical ability to move
around, one of the basic activities of daily living. Specifically, the
proposed assessment item captures the patient's ability to transfer to
and from a bed to a chair (or wheelchair). For patients who do not
complete this activity independently, the level of assistance required
would need to be recorded. This information would be recorded by
selecting the patient's functional status from the options provided.
The instructional text and response options are included in the IPF-PAI
Item Set, available under IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. Additionally, detailed instructions for
administration would be provided through training and the IPF-PAI
Guidance Manual, the draft of which is available under IPF-PAI
Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. For results of inter-
rater reliability (IRR) and feasibility from field (beta) testing, see
Table 7. Most TEP members (78 percent) responded Strongly Agree or
Agree to including the Mobility assessment item on the IPF-PAI.
ii. IPF-PAI Cognitive Function and Mental Status Category
Section 1886(s)(4)(E)(i)(II) of the Act requires the inclusion of
patient assessment data with respect to cognitive function, such as the
ability to express ideas and to understand, and mental status, such as
depression and dementia. We propose the assessment item Suicide
Screening for the Cognitive Function and Mental Status category of the
IPF-PAI. We note that we do not consider suicide-related thoughts and
behaviors to be related to cognitive impairment. Rather, we understand
mental status to encompass a wide range of cognition, orientation,
mood, and decision-making capacities, including thought content. In our
review of IPFs' core clinical assessment practice, the mental status
exam,\29\ we identified screening for suicidal thoughts and behaviors
to be an important clinical topic with relevance to quality of care and
resource use.
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\29\ Voss RM, Das JM. Mental Status Examination. [Updated 2024
Apr 30]. In: StatPearls [internet]. Treasure Island (FL): StatPearls
Publishing; 2025 Jan-. Available at <a href="https://www.ncbi.nlm.nih.gov/books/NBK546682/">https://www.ncbi.nlm.nih.gov/books/NBK546682/</a>.
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The assessment item evaluates whether and with what method a
patient was screened for suicide risk. This information would be
recorded by indicating that a patient was screened with a standardized
tool, screened through clinical assessment, or not screened, in the
case that the patient declined or was unable to respond. This
assessment item, including instructional text and response options, is
shown on the IPF-PAI Item Set, available under IPF-PAI Resources at
<a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. Additionally, detailed instructions
for administration would be provided through training and the IPF-PAI
Guidance Manual, the draft of which is available under IPF-PAI
Development and Testing resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. For results of IRR and feasibility from field (beta) testing, see
Table 7. All TEP members (100 percent) responded Strongly Agree or
Agree to including a Suicide Screening assessment item on the proposed
IPF-PAI. After the field (beta) test and receiving TEP input, we
revised this assessment item based on further input from individuals
who have experience as patients in an IPF, clinical subject matter
experts, and assessment item developers to reduce complexity. We
believe the proposed assessment item included in the IPF-PAI is less
complex and easier for IPFs to implement than the version used in
testing.
iii. IPF-PAI Special Services, Treatments, and Interventions for
Psychiatric Conditions Category
Section 1886(s)(4)(E)(i)(III) of the Act requires the inclusion of
patient assessment data with respect to special services, treatments,
and interventions for psychiatric conditions. We propose the assessment
item Special Services, Treatments, and Interventions in the Inpatient
Psychiatric Setting for the Special Services, Treatments, and
Interventions category of the IPF-PAI. This assessment item requires
the assessor to indicate which psychiatric treatments, or restrictive
interventions may have been used during the IPF stay.
Psychiatric Treatments and Restrictive Interventions allow the
assessor to check off all that apply from the list. Psychiatric
Treatments include medications, brain stimulation, and non-
pharmacological treatments other than brain stimulation. Restrictive
Interventions, which we focused on because of their particular use in
the IPF setting, include the use of seclusion, restraints, or other
restrictive interventions. This assessment item, including
instructional text and response options, is shown on the IPF-PAI Item
Set, available under IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. Additionally, detailed instructions for administration would
be provided through training and the IPF-PAI Guidance Manual, the draft
of which is available under IPF-PAI Development and Testing resources
at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. For results of IRR and
feasibility from field (beta) testing, see Table 7. When asked

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about their agreement for including the six treatment or intervention
types, most TEP members replied Strongly Agree or Agree (100 percent
for Medications; 89 percent for Brain Stimulation, Non-pharmacological
Treatment, Seclusion, and Restraints; and 67 percent for Other
Restrictive Interventions).
We noted that the IRR for some assessment items in this category
were low. In our investigation of the low reliability statistics for
the treatment or intervention Non-pharmacological Treatment, which
included reviewing the testing data, comparing discrepancies in coding
responses, and reviewing the hypothetical case studies and guidance
manuals, we determined that the structure and definitions in some of
the assessment items related to this treatment/intervention type were
not well understood. We did not find this to be unexpected considering
the complexity of the assessment item (that is, a multi-part, branch
item), and that IPF staff were unfamiliar with administering this
assessment. Non-pharmacological treatments, including but not limited
to psychotherapy and psychosocial interventions, are recommended by
clinical practice guidelines,30 31 and have been shown to be
beneficial to patients.32 33 For these reasons, we consider
it important to retain an assessment item on this topic. As noted, 89
percent of TEP members responded Strongly Agree or Agree with the
inclusion of Non-pharmacological Treatment in the IPF-PAI. We believe
low reliability indicates a need for targeted support, by means of
revising the guidance manual to provide distinct definitions for each
component of this assessment item, examples of coding to emphasize the
multi-part nature of the item, provider training, and focused
Frequently Asked Questions documents to help select the appropriate
response, which we will develop and provide if this proposal is
finalized.
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\30\ Practice Guideline for the Treatment of Patients with
Schizophrenia, Third Edition (2021) <a href="https://psychiatryonline.org/doi/book/10.1176/appi.books.9780890424841">https://psychiatryonline.org/doi/book/10.1176/appi.books.9780890424841</a>.
\31\ VA/DoD Clinical Practice Guideline for the Management of
Major Depressive Disorder Version 4.0--2022. VA/DoD Clinical
Practice Guideline. (2022). The Management of Major Depressive
Disorder Work Group. Washington, DC: U.S. Government Printing
Office. <a href="https://www.healthquality.va.gov/guidelines/MH/mdd/">https://www.healthquality.va.gov/guidelines/MH/mdd/</a>.
\32\ McGuire, Alan B., et al. ``Recovery-oriented inpatient
mental health care and readmission.'' Psychiatric Rehabilitation
Journal 45.4 (2022): 331.
\33\ Kinney, Adam R., et al. ``Association of inpatient
occupational therapy utilization with reduced risk for psychiatric
readmission among Veterans.'' Psychiatric Services 75.11 (2024):
1084-1091.
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iv. IPF-PAI Medical Conditions and Comorbidities Category
Section 1886(s)(4)(E)(i)(IV) of the Act requires the inclusion of
patient assessment data with respect to medical conditions and
comorbidities, such as diabetes, congestive heart failure, and pressure
ulcers. We propose the assessment item Primary Medical Condition for
the Medical Conditions and Comorbidities category of the proposed IPF-
PAI. This assessment item captures the category of the primary
diagnosis associated with the IPF stay; assessors would select their
response from the list of common diagnostic categories (for example,
anxiety disorders, mood disorders, schizophrenia and other psychotic
disorders). This assessment item, including instructional text and
response options, is shown on the IPF-PAI Item Set, available under
IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. Additionally,
detailed instructions for administration would be provided through
training and the IPF-PAI Guidance Manual, the draft of which is
available under IPF-PAI Development and Testing resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. For results of IRR and feasibility from
field (beta) testing, see Table 7. Most TEP members (89 percent)
responded Strongly Agree or Agree to including the Primary Medical
Condition data element on the IPF-PAI. In future potential versions of
the IPF-PAI, we could consider the addition of secondary mental health
and physical conditions and comorbidities.
v. IPF-PAI Impairments Category
Section 1886(s)(4)(E)(i)(V) of the Act requires the inclusion of
patient assessment data with respect to impairments, such as
incontinence and an impaired ability to hear, see, or swallow. We
propose the Hearing, Speech Clarity, and Vision assessment item for the
Impairments category of the IPF-PAI. In these assessment items, the
assessor records a patient's ability to hear, a description of their
speech pattern, and their ability to see in adequate light by selecting
the level of impairment from a set of response options within each
assessment item. These assessment items, including instructional text
and response options, are shown on the IPF-PAI Item Set, available
under IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>.
Additionally, detailed instructions for administration would be
provided through training and the IPF-PAI Guidance Manual, the draft of
which is available under IPF-PAI Development and Testing resources at
<a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. We propose that the Hearing, Speech
Clarity, and Vision assessment item be evaluated at admission only, in
recognition that they are unlikely to change during the IPF stay, which
is typically brief (about 7 days, on average \34\). For results of IRR
and feasibility from field (beta) testing, see Table 7. When asked
about their agreement for including these assessment items in the
proposed IPF-PAI, most TEP members replied Strongly Agree or Agree (89
percent for Hearing; 78 percent for Speech Clarity; 67 percent for
Vision).
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\34\ Weighted national estimates from HCUP National (Nationwide)
Inpatient Sample (NIS), 2018 to 2022, Agency for Healthcare Research
and Quality (AHRQ), based on data collected by individual State
Partners and provided to AHRQ. Source: HCUPnet, Healthcare Cost and
Utilization Project. Agency for Healthcare Research and Quality,
Rockville, MD. <a href="https://datatools.ahrq.gov/hcupnet">https://datatools.ahrq.gov/hcupnet</a>. Accessed February
4, 2026.

Table 7--Field (Beta) Testing Results for Proposed Assessment Items for the IPF-PAI
----------------------------------------------------------------------------------------------------------------
Inter-rater reliability (IRR)
Assessment item and related data elements ------------------------------------------------ Feasibility
% Agreement Cohen's Kappa [Dagger]
----------------------------------------------------------------------------------------------------------------
Mobility: Chair/bed-to-chair transfer....... 75.18 Moderate (0.44)............... Y
Suicide Screening........................... 89.78 (*)........................... Y
Special Services, Treatments, and
Interventions: Psychiatric Interventions
Psychiatric Treatments
Medications......................... 94.89 (*)........................... Y
Brain Stimulation................... 100.00 ([dagger]).................... Y
Non-pharmacological treatment other 36.50 (*)........................... Y
than brain stimulation.
Restrictive Interventions
Seclusion........................... 77.37 Poor (0.13)................... Y

[[Page 17743]]

Restraints.......................... 94.89 Very Good (0.86).............. Y
Other restrictive interventions..... 36.50 Poor (0.08)................... Y
None of the Above................... 98.54 (*)........................... Y
Primary Medical Condition Category.......... 75.18 Good (0.64)................... Y
Hearing..................................... 85.40 Good (0.74)................... Y
Speech Clarity.............................. 93.43 Very Good (0.83).............. Y
Vision...................................... 62.77 Fair (0.23)................... Y
----------------------------------------------------------------------------------------------------------------
Note: In the field (beta) test, IRR was assessed by calculating both percent agreement (that is, the percent of
assessment items that were coded correctly by assessors, as determined by clinical subject matter experts) and
Cohen's kappa. Interpretation of Cohen's kappa used standard categories of Poor, Fair, Moderate, Good, and
Very Good as defined by Altman, D.G. (1990). Practical statistics for medical research. Chapman and Hall/CRC.
* Kappa not calculated due to low item response variability. That is, responses to the assessment item or
assessment item components across raters were too similar for Kappa to be a useful measure of inter-rater
reliability.
[dagger] Kappa not calculated due to perfect agreement.
[Dagger] We considered an assessment item to be feasible for use in the IPF setting if data were able to be
collected from over 90 percent of patients assessed (that is, <10 percent missing data) and if no feedback was
received around challenges or obstacles to assessing the assessment item from IPF staff who participated in
the field (beta) test.

vi. Proposed Administrative Data Category
Section 1886(s)(4)(E)(ii)(VI) of the Act authorizes other
categories of assessment items as determined appropriate by the
Secretary. In addition to the assessment items discussed above, we
propose including an Administrative data category to collect certain
administrative information to enable database management and record
matching. Collecting data in this category would support accurate
linkage of assessment records within CMS' internet Quality Improvement
and Evaluation System (iQIES),\35\ or a successor system, and
facilitate analyses by CMS, including linking assessment data with
other CMS data sources (for example, payment and claims data). These
data could also enable stratification of outcomes by patient and stay
characteristics, which would support accurate comparisons between
facilities and patient populations. These proposed data elements
include: Legal Name of Patient, Birth Date, Sex, Social Security and
Medicare Numbers, Facility Provider Numbers (National Provider
Identifier, CMS Certification Number (CCN)), Admission/Discharge Date,
Payer Information--Primary Payer, Type of Record, Assessment Reference
Date, Reason for Assessment, Type of Admission/Type of Discharge, and
IPF-PAI Completion Date. These assessment items, including
instructional text and response options, are shown on the IPF-PAI Item
Set, available under IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. Additionally, detailed instructions for administration would
be provided through training and the IPF-PAI Guidance Manual, the draft
of which is available under IPF-PAI Development and Testing resources
at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>. We propose that assessment items
for the Administrative category be collected at both admission and
discharge.
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\35\ <a href="https://www.cms.gov/medicare/health-safety-standards/quality-safety-oversight-general-information/internet-quality-improvement-evaluation-system-iqies">https://www.cms.gov/medicare/health-safety-standards/quality-safety-oversight-general-information/internet-quality-improvement-evaluation-system-iqies</a>. Accessed February 5, 2026.
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We invite public comment on these proposals.
4. Form, Manner, and Timing of Data Collection and Submission of the
Proposed IPF-PAI
In this section, we discuss how we propose to incorporate the IPF-
PAI into the IPF Quality Reporting Program, including the timing and
form of initial data collection.
a. Proposed Reporting Periods and Data Submission Deadlines for the
IPF-PAI Beginning With Data Collection in FY 2028 Impacting the FY 2029
Payment Determination
We propose mandatory reporting of the proposed IPF-PAI beginning
with a reporting period of October 1, 2027, through December 31, 2027,
impacting the FY 2029 payment determination. That is, IPFs would be
required to collect and submit IPF-PAI admission and discharge
assessments for all patients age 18 years and older, regardless of
payer, beginning October 1, 2027; admission and discharge assessments
conducted October 1, 2027, through December 31, 2027, would impact the
FY 2029 payment determination.
Beginning with the FY 2030 payment determination and for subsequent
years, we propose that an IPF must report data with respect to
admissions and discharges for all patients age 18 years and older that
occur during the calendar year from January 1 through December 31, that
is, the calendar year two years preceding the FY payment determination
year (for example, January 1, 2028 through December 31, 2028 for the FY
2030 payment determination, January 1, 2029 through December 31, 2029
for the FY 2031 payment determination, and so on). We propose that for
each calendar year reporting period, the IPF-PAI data must be submitted
as quarterly reporting periods by a submission deadline of the 15th day
of the second month after the end of the calendar quarter, as outlined
in Table 8. See Table 8 for submission deadlines through the FY 2031
payment determination. We would also publish upcoming submission
deadlines on the CMS QualityNet website at <a href="https://qualitynet.cms.gov/">https://qualitynet.cms.gov/</a>.
Specifically for the purposes of determining which applicable
reporting quarter the admission or discharge falls within, we propose
to use the Assessment Reference Date (ARD) associated with each
admission and discharge. The Admission ARD would be not later than 3
days after the admission and the Discharge ARD would be the day of
discharge. We propose to require that an IPF submits an admission
assessment by the 15th day of the second month after the end of the
calendar quarter in which the ARD for the admission assessment
occurred.\36\ We likewise propose that an IPF submits a discharge
assessment by the 15th day of the second month after the calendar
quarter in which the ARD for the discharge occurred. The

[[Page 17744]]

proposed submission deadlines and associated payment determination
years for the first nine quarters of IPF-PAI data collection are shown
in Table 8. We note that when the submission deadline falls on a
Friday, Saturday, Sunday, or Federal holiday, we would move the data
submission deadline to the next business day.
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\36\ For example, an admission that occurs on September 30 has
an admission reference date (Day 3) of October 2. The IPF would
submit those data with Quarter 4 data (ARD), not Quarter 3 data
(admission date).

Table 8--Proposed Data Submission Deadlines and Associated Payment
Determination Years for the IPF-PAI
------------------------------------------------------------------------
Quarter of IPF-PAI data Data submission Applicable payment
collection deadline * determination
------------------------------------------------------------------------
Q4 2027 (Oct 1-Dec 31, 2027).... February 15, 2028. FY 2029.
Q1 2028 (Jan 1-Mar 31, 2028).... May 15, 2028...... FY 2030.
Q2 2028 (Apr 1--Jun 30, 2028)... August 15, 2028...
Q3 2028 (Jul 1-Sept 30, 2028)... November 15, 2028.
Q4 2028 (Oct 1-Dec 31, 2028).... February 15, 2029.
Q1 2029 (Jan 1-Mar 31, 2029).... May 15, 2029...... FY 2031.
Q2 2029 (Apr 1-Jun 30, 2029).... August 15, 2029...
Q3 2029 (Jul 1-Sept 30, 2029)... November 15, 2029.
Q4 2029 (Oct 1-Dec 31, 2029).... February 19, 2030.
------------------------------------------------------------------------
* Submission deadlines reflect consideration of federal holidays and
weekends. When that occurs, the data submission deadline will be moved
to the next business day.

Notwithstanding the proposed quarterly submission deadlines of IPF-
PAI data described in this section, based on best practices learned
from our long-standing experience with standardized patient assessment
instruments for post-acute care providers, we recommend rolling
submissions of IPF-PAI records to CMS throughout the data collection
period as patients are admitted and discharged for more timely,
accurate, and efficiently collected assessment data. We describe the
proposed data submission methods in section IV.C.4.c. of this proposed
rule. Ongoing submission of IPF-PAI records would allow an IPF to
monitor their compliance rates through on-demand provider reports
available through iQIES. We would issue technical sub-regulatory
guidance for the IPF-PAI assessment items and data collection,
including recommended frequency of submissions via the IPF-PAI Guidance
Manual (draft available under IPF-PAI Resources at <a href="https://qualitynet.cms.gov/ipf/PAI">https://qualitynet.cms.gov/ipf/PAI</a>).
We invite public comment on these proposals.
b. Proposed Compliance Threshold for the IPF-PAI To Receive the
Applicable Annual Payment Update Beginning With the FY 2029 Payment
Determination
We propose that an IPF would need to complete 100 percent of the
IPF-PAI assessment items on 80 percent of the IPF-PAIs submitted to
satisfy the IPF Quality Reporting Program data reporting requirements
for the applicable annual payment determination. An IPF that fails to
submit 100 percent of the assessment items on at least 80 percent of
the IPF-PAIs submitted to CMS would be deemed non-compliant with the
IPF Quality Reporting Program reporting requirements and, as a result,
would be subject to a 2 percentage point reduction to its APU as
required by section 1886(s)(4)(A) of the Act.
We are proposing this 80 percent threshold as a starting point
(rather than proposing a 100 percent threshold), understanding that it
will take time for IPFs to become familiar with the data collection and
submission workflows of this new program requirement. We will monitor
data completion rates and provide training and other implementation
resources to help IPFs be successful in meeting or exceeding the 80
percent completion threshold. Over time, in future rulemaking, we plan
to incrementally increase the completion rate that an IPF would need to
achieve in order to be considered compliant with the IPF Quality
Reporting Program. We adopted a similar approach of incrementally
increasing the compliance threshold over time with the standardized
patient assessment instruments used by post-acute care providers.
For the FY 2029 payment determination, the compliance rate for each
IPF would be calculated for the Q4 2027 reporting quarter. For the FY
2030 payment determination and subsequent years, the compliance rate
for each IPF would be calculated based on the entire CY reporting
period (that is, four CY reporting quarters of IPF-PAI data).
We propose to codify the data completion threshold of 100 percent
of assessment items for at least 80 percent of submitted assessments
for the IPF-PAI at the proposed new Sec. 412.433(h).
We invite public comment on these proposals.
c. Proposed Methods of Data Submission for IPF-PAI
i. Background
In the FY 2026 IPF PPS proposed rule (90 FR 18520 through 18523),
we requested comments on the potential use of the FHIR[supreg] standard
for IPF-PAI data submission because we believe that the collection and
submission of data through health information technology (IT),
including digital capture and transfer of program data through
FHIR[supreg], could reduce administrative burden on IPFs submitting the
IPF-PAI in the long-term. In response to this request for comment,
commenters expressed support for CMS' intent to transition to the FHIR-
based standard in the IPF Quality Reporting Program, particularly for
the IPF-PAI, noting the opportunity for a FHIR-based standard to
improve care coordination, enable actionable insights, and integrate
structured data into electronic health records (EHRs) (90 FR 37665
through 37666). A few commenters highlighted the potential for
FHIR[supreg] to modernize behavioral health data reporting, enhance
discharge planning, and enable meaningful performance measurement. As
IPFs have not yet used FHIR[supreg] for program data submission, we
acknowledge that technological, monetary, and staffing barriers may
present challenges to adoption and use in some facilities. Therefore,
for the proposed mandatory submission of IPF-PAI data, we would offer
facilities two tools to integrate into their existing systems and
workflows:

<bullet> Web application (web app)
<bullet> FHIR[supreg] application programming interfaces (APIs)

We describe these submission methods in detail in the following
sections.
Both methods of data submission would require user or system
authentication using CMS' Health Care

[[Page 17745]]

Quality Information Systems (HCQIS) Access Roles and Profile (HARP), or
a successor or equivalent CMS-designated identity management system,
consistent with CMS security and access control requirements. This is
the same identity management system that IPFs and their vendors
currently use to submit other IPF Quality Reporting Program data to the
CMS Hospital Quality Reporting system. Both proposed methods of IPF-PAI
data submission would transmit IPF-PAI data securely to CMS, using data
security standards required for any CMS system, where it would be
received and reside in the iQIES environment. iQIES is CMS' long-
standing system for patient assessment data; post-acute care providers
have been reporting assessment data electronically to iQIES since 2019.
Data transfer to CMS via either method--the FHIR[supreg] API or web
app--would follow standard HIPAA-compliant encryption protocols.
If finalized, the IPF Quality Reporting Program would be the first
CMS statutory quality reporting program to use the FHIR[supreg]
standard to support patient assessment data submission, as both data
submission methods--the free web app and the FHIR[supreg] API--are
reliant on underlying FHIR[supreg] resources.\37\ Introducing the
FHIR[supreg] standard to the IPF Quality Re

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