Payment Adjustments Under the IPPS and OPPS for Domestic NIOSH- Approved Surgical N95 Respirators

In the FY 2023 IPPS/LTCH PPS proposed rule, we requested public comments on potential IPPS and OPPS payment adjustments for wholly domestically made National Institute for Occupational Safety & Health (NIOSH)- approved surgical N95 respirators (87 FR 28622 through 28625). Given the importance of NIOSH-approved surgical N95 respirators in protecting hospital personnel and beneficiaries from the SARS-CoV-2 virus and future respiratory pandemic illnesses, we indicated we were considering whether it might be appropriate to provide payment adjustments to hospitals to recognize the additional resource costs they incur to acquire NIOSH-approved surgical N95 respirators that are wholly domestically made. We stated that NIOSH-approved surgical N95 respirators, which faced severe shortage at the onset of the COVID-19 pandemic, are essential for the protection of patients and hospital personnel that interface with patients. We indicated that procurement of NIOSH-approved surgical N95 respirators that are wholly domestically made, while critical to pandemic preparedness and protecting health care workers and patients, can result in additional resource costs for hospitals.

We said we were interested in feedback and comments on the appropriateness of payment adjustments that would account for these additional resource costs. We stated that we believe such payment adjustments could help achieve a strategic policy goal, namely, sustaining a level of supply resilience for NIOSH-approved surgical N95 respirators that is critical to protect the health and safety of personnel and patients in a public health emergency. We stated we were considering such payment adjustments for 2023 and potentially subsequent years.

As described in more detail in the sections that follow, and for the reasons discussed there, in the CY 2023 OPPS/ ASC proposed rule (87 FR 44689 through 44696), we proposed to make a payment adjustment under the OPPS and IPPS for the additional resource costs of domestic NIOSH-approved surgical N95 Respirators for cost reporting beginning on or after January 1, 2023.

Biden issued Executive Order (E.O.) 13987, titled ‘‘Organizing and Mobilizing the United States Government To Provide a Unified and Effective Response To Combat COVID-19 and To Provide United States Leadership on Global Health and Security,’’ on January 20, 2021 (86 FR 7019). This order launched a whole-of- government approach to combat the coronavirus disease 2019 (COVID-19) and prepare for future biological and pandemic threats. This response has continued over the past year. In March 2022, President Biden released the National COVID-19 Preparedness Plan that builds on the progress of the prior 13 months and lays out a roadmap to fight COVID-19 in the future. Both the ongoing threat of COVID-19 and the potential for future pandemics necessitate significant investments in pandemic preparedness.

Availability of personal protective equipment (PPE) in the health care sector is a critical component of this preparedness, and one that displayed significant weakness in the beginning of the COVID-19 pandemic. In spring of 2020, supply chains for PPE faced severe disruption due to lockdowns that limited production, and unprecedented demand spikes across multiple industries. Supply of surgical N95 respirators-a specific type of filtering facepiece respirator used in clinical settings-was one type of PPE that was strained in hospitals. So-called ‘‘just-in- time’’ supply chains that minimize stockpiling, in addition to reliance on overseas production, left U.S. hospitals unable to obtain enough surgical N95 respirators to protect health care workers. Prices for surgical N95s soared, from an estimated $0.25-$0.40 range to $5.75 or even $12.00 in some cases. Unable to obtain surgical N95s regulated by NIOSH, hospitals had to turn to KN95s-a Chinese standard of respirator-and other non-NIOSH- approved disposable respirators that were authorized under Emergency Use Authorization (EUA). Concerns were raised during the COVID19 pandemic regarding counterfeit respirators. NIOSH evaluates and approves surgical N95s to meet efficacy standards for air filtration and protection from fluid hazards present during medical procedures.

KN95 respirators, on the other hand, are not regulated by NIOSH. KN95s have faced particular counterfeit and quality risks with NIOSH finding that about 60 percent of KN95 respirators that it evaluated during the COVID-19 pandemic in 2020 and 2021 did not meet the particulate filter efficiency requirements that they intended to meet. Failure to meet these requirements compromises safety of health care personnel and patients.

Over the course of the pandemic, U.S. industry responded to the shortages and dramatically increased production of N95s. Today, the majority of surgical N95s purchased by hospitals are assembled in the U.S., and prices have returned to rates closer to $0.70 per respirator. However, risks remain to maintain preparedness for COVID-19 and future pandemics. It is important to maintain this level of domestic production for surgical N95s, which provide the highest level of protection from particles when worn consistently and properly, protecting both health care personnel and patients from the transfer of microorganisms, body fluids, and particulate material-including the virus that causes COVID-19.

Additionally, it is important as a long- term goal to ensure that a sufficient share of those surgical N95s are wholly made in the U.S.-that is, including raw materials and components. The COVID-19 pandemic has illustrated how overseas production shutdowns, foreign export restrictions, or ocean shipping delays can jeopardize availability of raw materials and components needed to make critical public health supplies. In a future pandemic or COVID-19-driven surge, hospitals need to be able to count on PPE manufacturers to deliver the equipment they need on a timely basis in order to protect health care workers and their patients. Sustaining a level of wholly domestic production of surgical N95 respirators is integral to maintaining that assurance. This policy is goal-ensuring that quality PPE is available to healthcare.

2. General Background and Overview of Proposal

As discussed in the FY 2023 IPPS/ LTCH PPS proposed rule, President personnel when needed by maintaining production levels of wholly domestically made PPE-is emphasized in the National Strategy for a Resilient Public Health Supply Chain, published in July 2021 as a deliverable of President Biden’s Executive Order 14001 on ‘‘A Sustainable Public Health Supply Chain.’’ To help achieve this goal, the U.S. Government is committing to purchase wholly domestically made PPE in line with new requirements in section 70953 of the Infrastructure Investment and Jobs Act (Pub. L. 117 58). These new contract requirements stipulate that PPE purchased by covered departments must be wholly domestically made that is, the products as well as their materials and components must be grown, reprocessed, reused, or produced in the U.S. - The Federal Government’s procurement of wholly domestically made PPE will help achieve the stated policy goal.

However, the U.S. Government alone cannot sustain the necessary level of production. As outlined in the previously mentioned National Strategy for a Resilient Public Health Supply Chain, the U.S. Government is only one small part of the market for PPE. Hospitals are the primary purchasers and users of medical PPE including surgical N95 respirators. Sustaining a strong domestic industrial base for PPE-in order to be prepared for future pandemics or COVID-19-driven surges and protect Americans’ health during such times- therefore, requires hospitals’ support.

Surgical N95 respirators are a particularly critical type of PPE needed to protect personnel and beneficiaries from the SARS-CoV-2 virus and future respiratory pandemic illnesses.

However, wholly domestically made NIOSH-approved surgical N95 respirators are generally more expensive than foreign-made ones. Therefore, we stated in the FY 2023 IPPS/LTCH PPS proposed rule that we believe a payment adjustment that reflects, and offsets, the additional marginal costs that hospitals face in procuring wholly domestically made NIOSH-approved surgical N95 respirators might be appropriate. These marginal costs are due to higher prices for wholly domestically made NIOSH- approved surgical N95s, which, in turn, primarily stem from higher costs of manufacturing labor in the U.S. compared to costs in countries such as China, where many N95 and other respirators are made. We stated that such a payment adjustment might provide sustained support over the long term to hospitals that purchase wholly domestically made NIOSH-approved surgical N95 respirators, and could help safeguard personnel and beneficiary safety over the long term by sustaining production and availability of these respirators.

As summarized in the CY 2023 OPPS/ ASC proposed rule (87 FR 44690), we received many helpful comments in response to our comment solicitation in the FY 2023 IPPS/LTCH PPS proposed rule. After considering the comments received, we proposed in the CY 2023 OPPS/ASC proposed rule (87 FR 44689 through 44696) to make a payment adjustment under the OPPS and IPPS for the additional resource costs that hospitals face in procuring domestic NIOSH-approved surgical N95 respirators, as defined in section X.H.3 of the CY 2023 OPPS/ASC proposed rule (87 FR 44690 through 44691), for cost reporting periods beginning on or after January 1, 2023.

For the IPPS, we proposed to make this payment adjustment under section 1886(d)(5)(I) of the Act, which authorizes the Secretary to provide by regulation for such other exceptions and adjustments to the payment amounts under section 1886(d) of the Act as the Secretary deems appropriate. For the OPPS, we proposed to make this payment adjustment under section 1833(t)(2)(E) of the Act, which authorizes the Secretary to establish, in a budget neutral manner, other adjustments as determined to be necessary to ensure equitable payments.

Comment: We received many comments supporting the proposed payment adjustments. Several of these commenters acknowledged the challenges hospitals faced in acquiring surgical N95 respirators during the COVID-19 pandemic and the importance of investing in domestic supply chains for future emergency preparedness. We also received several comments that were not supportive of the proposed payment adjustments, including from MedPAC, which stated that this proposal would undermine the prospective, bundled nature of Medicare’s hospital payments by paying hospitals more as their costs increase. A few commenters expressed doubt on whether the proposed payment adjustments would be effective in achieving the stated policy goal. Some commenters stated that the payment adjustment amounts were not large enough to shift hospital purchasing decisions and that much more would need to be done beyond the Medicare program to achieve the stated policy goal.

A few commenters raised concerns that the proposed payment adjustments could be susceptible to unintended consequences. One commenter stated that if manufacturers or vendors are aware that purchasers of their domestically produced surgical N95 respirators will be reimbursed, they may artificially inflate the price of their products. This commenter and others stressed that CMS should monitor utilization and cost data for any unintended consequences.

One commenter stated that a more appropriate policy would be one in which CMS provides a payment adjustment to providers who attest to purchasing surgical N95s through contracts that include terms related to on-hand inventory. This commenter stated that a significant problem during the pandemic was the inability of domestic manufacturers to ramp up production quickly enough to meet spikes in demand. The commenter believes this alternative payment adjustment would incentivize domestic manufacturers to hold more inventory on-hand in the event of another spike in demand in the future.

Response: We thank the commenters for their feedback on our proposals. While we agree with MedPAC and other commenters that payment for hospital services under the prospective payment systems should generally be made as part of the prospective, bundled payment, we believe that a payment adjustment that offsets hospitals’ additional marginal costs in procuring wholly domestically made NIOSH approved surgical N95 respirators is appropriate in order to ensure that quality PPE is available to health care personnel when needed by maintaining production levels of wholly domestically made PPE. As discussed in the proposed rule and later in this final rule, as we gain more experience with this policy and the data collected, we may also consider modifications to the reasonable cost-based payment approach we are finalizing. With respect to those comments expressing doubt as to whether the proposed payment adjustments would be large enough to shift hospital purchasing decisions, we believe that by significantly lessening the cost disincentive that hospitals currently face when deciding whether to purchase domestic surgical N95 respirators over non-domestic surgical N95 respirators, the proposed payment adjustments would encourage the purchase of larger quantities of domestic surgical N95 respirators and thereby help to provide sustained support for the production and availability of these respirators over the long term. With respect to those comments expressing doubt as to whether the proposed payment adjustments would be effective in achieving this policy goal, and that more would need to be done outside of the Medicare program, we note that this policy would not be adopted in isolation. For complementary efforts related to strengthening the U.S. public health and medical supply chain and industrial base, we refer the public to the ‘‘Public Health Supply Chain and Industrial Base One-Year Report’’ available on the HHS website at https:// aspr.hhs.gov/MCM/IBx/2022Report/ Pages/default.aspx.-

We appreciate the comments regarding potential unintended consequences. We also thank the commenter for the suggested alternative payment adjustment approach. We will consider alternative approaches and/or modifications to address any unintended consequences for future rulemaking as we gain experience under the policy we are adopting in this final rule, as discussed further in this section.

Comment: We received many comments urging CMS to expand this policy to cover other forms of PPE and critical medical supplies beyond surgical N95 respirators. A few commenters stated that other forms of PPE suffered shortages during the pandemic similar to surgical N95 respirators and therefore investing in domestic production for these products was also important for future emergency preparedness.

Response: We thank these commenters for their broader interest in ensuring domestic production of PPE. We will consider these comments for future rulemaking if appropriate as we gain more experience with our policy.

After consideration of these comments, as well as the other comments received on our proposal that we summarize and respond to in the sections that follow, we are finalizing the proposed payment adjustments under the OPPS and IPPS for the additional resource costs that hospitals face in procuring domestic NIOSH- approved surgical N95 respirators.

3. Proposed Definition of Domestic NIOSH-Approved Surgical N95 Respirators

In the CY 2023 OPPS/ASC proposed rule (87 FR 44690 through 44691), for purposes of this policy, we proposed to categorize all NIOSH-approved surgical N95 respirators purchased by hospitals into two categories: (1) Domestic NIOSH-approved surgical N95 respirators; and (2) Non-domestic NIOSH-approved surgical N95 respirators.

As discussed, it is critically important to ensure that a sufficient share of surgical N95s are wholly made in the U.S.-that is, including raw materials and components. In the proposed rule, we stated our belief that the most appropriate framework for determining if a NIOSH-approved surgical N95 respirator is wholly made in the U.S. and therefore, considered domestic for purposes of the proposed adjustments, is the Berry Amendment. The Berry Amendment is a statutory requirement familiar to manufacturers that restricts the Department of Defense (DoD) from using funds appropriated or otherwise available to DoD for procurement of food, clothing, fabrics, fibers, yarns, other made-up textiles, and hand or measuring tools that are not grown, reprocessed, reused, or produced in the United States. Berry Amendment restrictions are implemented by the DoD Federal Acquisition Regulation Supplement (DFARS) 252.225-7002, and state DoD cannot acquire specified ‘‘items, either as end products or components, unless the items have been grown, reprocessed, reused, or produced in the United States.’’ Unless DoD grants a waiver because domestic firms do not make the product or because other exceptions in the law are met, the entire production process of an affected product, from the production of raw materials to the manufacture of all components to final assembly, must be performed in the United States.

The Berry Amendment has been critical to the viability of the textile and clothing production base in the United States and has been critical to maintaining the safety and security of our armed forces, by requiring covered items to be produced in the United States. In the CY 2023 OPPS/ASC proposed rule, we stated our belief that using the Berry Amendment as the basis for defining domestic NIOSH-approved surgical N95 respirators will provide similar support to U.S. surgical N95 respirator manufacturers and help ensure that quality surgical N95 respirators are available to health care personnel when needed.

Therefore, based on the Berry Amendment, we proposed to define a NIOSH-approved surgical N95 respirator as domestic if the respirator and all of its components are grown, reprocessed, reused, or produced in the United States. We proposed that for purposes of this policy all other NIOSH- approved surgical N95 respirators would be non-domestic.

We recognize that a hospital cannot fully independently determine if a NIOSH-approved surgical N95 respirator it purchases is domestic under our proposed definition. Therefore, we proposed that a hospital may rely on a written statement from the manufacturer stating that the NIOSH-approved surgical N95 respirator the hospital purchased is domestic under our proposed definition. The written statement must have been certified by one of the following: (i) the manufacturer’s Chief Executive Officer (CEO); (ii) the manufacturer’s Chief Operating Officer (COO); or (iii) an individual who has delegated authority to sign for, and who reports directly to, the manufacturer’s CEO or COO. The written statement, or a copy of such statement, could be obtained by the hospital directly from the manufacturer, obtained through the supplier or Group Purchasing Organization (GPO) for the hospital who obtained it from the manufacturer, or obtained by the hospital because it was included with or printed on the packaging by the manufacturer. This written statement may be required to substantiate the data included on the supplemental cost reporting form as discussed in section X.H.5 of this final rule. The recordkeeping requirements at current § 413.20 require providers of services to maintain sufficient financial records and statistical data for proper determination of costs payable under Medicare.

Comment: One commenter supported CMS using the Berry Amendment as a basis for our proposed definition of domestic NIOSH-approved surgical N95 respirators because the Berry Amendment is a familiar standard for the manufacturing industry. The commenter believes the definition is appropriate for incentivizing the domestic manufacturing of raw materials and other componentry for N95 masks. The commenter also stated that based on their own analysis, they believe there is a sufficient number of domestic manufacturers producing surgical N95 respirators that meet the proposed definition and therefore the policy could be sustained. We received a few comments expressing concern with our proposed definition of domestic NIOSH-approved surgical N95 respirators. One commenter was concerned that the hospital community was not familiar with the Berry Amendment. The commenter believes that hospitals are more familiar with the Federal Trade Commission (FTC) ‘‘Made in USA’’ designation and that CMS should consider surgical N95 respirators compliant with the FTC’s Made in USA labeling rule as domestic for purposes of the proposed payment adjustment. The commenter stated that utilizing the Made in USA framework would drive greater efficiency, especially since exceptions under the Berry Amendment may evolve, making it more challenging for providers to receive written statements from manufacturers with each order. One commenter supported the requirement that the respirators be fully assembled in the U.S. but was concerned that the proposed definition would require U.S. raw materials and components used in assembling the respirators to also be domestic. This commenter suggested that CMS instead adopt the content threshold requirements outlined in the Federal Acquisition Regulations that implement the Buy American Act, which require 60 percent of the value of a product’s components to be manufactured in the U.S. The commenter stated that adopting the 60 percent threshold in the first year of the policy would allow the domestic raw materials supply base time to ramp up the production capacity required to support greater volume of domestically produced surgical N95 respirators.

Response: We thank the commenters for their feedback on our proposed definition of domestic NIOSH-approved surgical N95 respirator for purposes of this policy. We agree with the commenter that the Berry Amendment is a familiar standard for the manufacturing industry, as also discussed in the CY 2023 OPPS/ASC proposed rule. We believe this is important since we proposed that a hospital may rely on a written statement from the manufacturer stating that the NIOSH-approved surgical N95 respirator the hospital purchased is domestic under our proposed definition which is based on the Berry Amendment. Moreover, using a definition of ‘‘domestic’’ that is based on the Berry Amendment, a contracting standard, provides a robust standard that will help ensure that a sufficient share of surgical N95 respirators are wholly made in the U.S.-that is, including raw materials and components. Therefore, we disagree that the FTC ‘‘Made in USA’’ designation, which is not a contracting standard, would be a more appropriate option for classifying domestic surgical N95 respirators for purposes of this policy. In response to the commenter’s concern that exceptions under the Berry Amendment may evolve, we note that our proposed definition of a domestic NIOSH-approved surgical N95 respirator did not include any of the exceptions allowed under the Berry Amendment. We utilized language from the Berry Amendment, which is familiar to manufacturers, to develop a proposed definition of a domestic NIOSH- approved surgical N95 respirator that is specifically applicable to this policy. We also note, as discussed in more detail below, we are not requiring the written manufacturer statements to cover a specific order or lot of domestic respirators purchased by a hospital as long as all of the domestic respirators purchased by the hospital are covered by associated written manufacturer statements. With respect to the comment suggesting CMS modify the proposed definition of a domestic surgical N95 respirator to include respirators in which at least 60 percent of the value of a product’s components were manufactured in the U.S., we continue to believe manufacturers already have significant capacity to produce surgical N95 respirators that meet our proposed definition, as discussed in the proposed rule (87 FR 44695). Moreover, as discussed previously, we believe it is important to ensure that a sufficient share of surgical N95 respirators are wholly made in the U.S. that is, including raw materials and components because in a future pandemic or COVID-19-driven surge, hospitals need to be able to count on domestic manufacturers to deliver the equipment they need on a timely basis in order to protect health care workers and their patients. Therefore, we do not believe adopting this modified definition would be either necessary or maximally effective in achieving our stated policy goal of maintaining sufficient production levels of wholly domestically made surgical N95 respirators.

Comment: We received several comments expressing concern that these proposed payment adjustments would significantly increase hospitals’ reporting burden. Many of these commenters urged CMS to determine a less burdensome method of attestation and reporting for these payment adjustments. Some commenters not supportive of the proposed payment adjustments stated that the proposal would increase providers’ costs and administrative burden beyond any additional payment. One of these commenters suggested that CMS not finalize this policy and instead raise payment rates across the board as means to compensate hospitals for increased costs without adding administrative burden. Commenters cited the proposed requirement that hospitals differentiate on their cost report domestic respirators purchased from non-domestic respirators purchased as an example of an increase in reporting burden. Commenters also cited the need for hospitals to obtain a written statement from the manufacturer stating that the surgical N95 respirators the hospital purchased are domestic as an example of an increase in reporting burden. These commenters questioned how hospitals would be able to obtain such a written statement from the manufacturer. Some commenters expressed concern that the proposed policy would not require manufacturers to provide such statements and therefore hospitals could potentially miss payment adjustments even if they purchased domestic surgical N95 respirators. Some commenters suggested that CMS should require manufacturers to meet new labeling and reporting requirements to reduce burden. Another commenter suggested CMS maintain a list of manufacturers whose products meet the proposed domestic definition and make this information available.

Response: As discussed in the proposed rule (87 FR 44815), we believe the burden associated with this proposal would be the time and effort necessary for the provider to locate and obtain the relevant supporting documentation to report the quantity and aggregate costs of domestic NIOSH-approved surgical N95 respirators and non-domestic NIOSH-approved surgical N95 respirators purchased by the hospital for the period. As discussed later in the Collection of Information (COI) section of this document, we estimates that the total burden associated with this policy for each hospital would be 0.50 hours per year at a cost of $25.43. We note that we will be soliciting additional comment on the information collection requirements discussed in this section. The notice will be announced in the Federal Register and advise the public on how to obtain copies of the information collection request and on how to submit public comments. As described in the section X.H.5 of this final rule, the collection of this information is required in order to calculate each hospital’s payment adjustment. In response to the suggestion that CMS instead raise payment rates across the board as means to compensate hospitals for increased costs, we do not think such an alternative policy would be effective in helping to sustain production and availability of wholly domestically made NIOSH-approved surgical N95 respirators because the additional payments would not be directly and measurably associated with the purchase of domestic NIOSH- approved surgical N95 respirators by hospitals. As reflected in the burden estimate previously discussed, we do not agree with commenters that obtaining written statements from the manufacturer would significantly increase hospitals’ reporting burden. In the proposed rule (87 FR 44691), we listed multiple ways in which a hospital could acquire written statements from the manufacturer. We also do not currently share commenters’ concerns that manufacturers may not be willing to provide these written statements or that CMS should maintain a list of such manufacturers. We believe that providing these written statements would be in the manufacturers’ best interest, given hospitals comprise a significant portion of their customer base. While some commenters suggested that CMS should require manufacturers to meet new labeling and reporting requirements to reduce burden, they did not suggest a mechanism for doing so. As stated previously, once we gain experience under the policy we are adopting in this final rule, we may consider modifications in future rulemaking.

Comment: One commenter found certain aspects of the proposed attestation process unclear. This commenter questioned whether a hospital would need to obtain a separate statement for every order and connect each statement to specific lots purchased. This commenter questioned whether manufacturers would be required to use a specific form and whether a hospital would need to verify the written statement provided is appropriately certified. The commenter also questioned whether suppliers or GPOs would be required to make this information available or verify manufacturers’ statements or adherence to the proposed rule’s requirement.

Response: We thank the commenter for these questions. In recognition of the different purchasing practices of hospitals with respect to NIOSH- approved surgical N95 respirators, we are not requiring the written manufacturer statements to cover a specific order or lot of domestic respirators purchased by a hospital as long as all of the domestic respirators purchased by the hospital are covered by associated written manufacturer statements. As one of the simplest examples, if a hospital were to exclusively purchase respirators made by one manufacturer and all the respirators purchased from that manufacturer were domestic, a single written statement from that manufacturer covering all of the respirators purchased by that hospital for the hospital’s cost reporting period might be sufficient documentation. As one alternative to that approach, a hospital could choose to obtain a written statement for each purchase throughout the year. Again, different approaches are acceptable as long as all of the domestic NIOSH-approved surgical N95 respirators purchased by the hospital and reported on its cost report as such are covered by associated written manufacturer statements. We are not requiring a specific format for the written statements from the manufacturers. As discussed in the proposed rule, hospitals should ensure that the written statements they receive directly or indirectly from the manufacturer for domestic NIOSH- approved surgical N95 respirators have been certified by one of the following: (i) the manufacturer’s Chief Executive Officer (CEO); (ii) the manufacturer’s Chief Operating Officer (COO); or (iii) an individual who has delegated authority to sign for, and who reports directly to, the manufacturer’s CEO or COO. If the written statement from the manufacturer indicates that it has been certified by one of these individuals, a hospital is not required to perform additional independent verification. We did not propose that suppliers or GPOs be required to obtain, provide to hospitals, or verify written statements from the manufacturers. However, we believe it is in the suppliers’ and GPOs’ best interest to obtain and provide such written manufacturer statements to hospitals given hospitals comprise a significant portion of their customer base.

4. Payment Adjustment Amount Under the IPPS and OPPS for Domestic NIOSH-Approved Surgical N95 Respirators

In the CY 2023 OPPS/ASC proposed rule (87 FR 44691), we discussed our expectation that domestic NIOSH- approved surgical N95 respirators will continue to be generally more costly than non-domestic respirators. However, we stated that it is challenging to precisely predict and quantify the future cost differences given the dynamic nature of the current marketplace and data limitations. Therefore, we proposed to initially base the payment adjustments on the IPPS and OPPS shares of the estimated difference in the reasonable costs of a hospital to purchase domestic NIOSH- approved surgical N95 respirators compared to non-domestic respirators. We proposed that these payments would be provided biweekly as interim lump-sum payments to the hospital and would be reconciled at cost report settlement. Under this proposal the biweekly interim lump-sum payments would be available for cost reporting periods beginning on or after January 1, 2023. Any provider could make a request for these biweekly interim lump sum payments for an applicable cost reporting period, as provided under 42 CFR 413.64 (Payments to providers: Specific rules) and 412.116(c) (Special interim payments for certain costs).

These payment amounts would be determined by the MAC, consistent with existing policies and procedures. In general, interim payments are determined by estimating the reimbursable amount for the year using Medicare principles of cost reimbursement and dividing it into twenty-six equal biweekly payments.

The estimated amount is based on the most current cost data available, which will be reviewed and, if necessary, adjusted at least twice during the reporting period. (See CMS Pub 15-1 2405.2 for additional information.) The MACs would determine the interim lump-sum payments based on the data the hospital may provide that reflects the information that will be included on the N95 supplemental cost reporting form as discussed in section X.H.5 of the CY 2023 OPPS/ASC proposed rule (87 FR 44692 through 44694). We stated that in future years, the MACs would determine the interim biweekly lump- sum payments utilizing information from the prior year’s surgical N95 supplemental cost reporting form, which may be adjusted based on the most current data available. This would be consistent with the current policies for medical education costs, and bad debts for uncollectible deductibles and coinsurance paid on interim biweekly basis as noted in CMS Pub 15-1 2405.2. As described in more detail in section

X.H.5 of the CY 2023 OPPS/ASC proposed rule (87 FR 44692 through 44694), a hospital would separately report on its cost report the aggregate cost and total quantity of domestic NIOSH-approved surgical N95 respirators and non-domestic respirators for cost reporting periods beginning on or after January 1, 2023. This information, along with existing information already collected on the cost report as shown in section X.H.5 of the CY 2023 OPPS/ASC proposed rule (87 FR 44692 through 44694), would be used to calculate a Medicare payment for the estimated cost differential, specific to each hospital, incurred due to the purchase of domestic NIOSH- approved surgical N95 respirators compared to non-domestic respirators.

As previously discussed, for the IPPS, we proposed to make this payment adjustment for the additional resource costs of domestic NIOSH-approved surgical N95 respirators under section 1886(d)(5)(I) of the Act. To further support the strategic policy goal of sustaining a level of supply resilience for NIOSH-approved surgical N95 respirators that is critical to protect the health and safety of personnel and patients in a public health emergency, we did not propose to make the IPPS payment adjustment budget neutral under the IPPS.

As also previously discussed, for the OPPS, we proposed to make the payment adjustment for these additional resource costs under section 1833(t)(2)(E) of the Act. Section 1833(t)(2)(E) of the Act provides that the Secretary shall establish, in a budget neutral manner, other adjustments (in addition to outlier and transitional pass- through payments) necessary to ensure equitable payments, such as adjustments for certain classes of hospitals. Consistent with this authority, we proposed the OPPS payment adjustment would be budget neutral.

Comment: Several commenters expressed concern with the proposed OPPS payment adjustment being budget neutral and urged CMS to provide the OPPS payment in a non-budget neutral manner. A few commenters stated that they are opposed to the proposed OPPS payment adjustment if the adjustment is budget neutral. Several commenters stated that redistributing payments from an already underfunded system will not benefit providers or patients. A few commenters believe that implementing the OPPS payment adjustment in a budget neutral manner would not incentivize hospitals to purchase domestic N95 respirators and therefore may prevent CMS from achieving the stated policy goal. One commenter believes that applying a budget neutral adjustment could have a detrimental effect on safety net or smaller hospitals, which may be less able to absorb the higher costs of acquiring domestically produced medical supplies. Similarly, another commenter stated that there are differences in the degree that hospitals have access to domestic surgical N95 respirators due to their size and geography and therefore, the commenter is concerned that a budget neutral approach would penalize more vulnerable hospitals that are not able to procure domestic respirators at the same rate as other hospitals. Several commenters urged CMS to work with Congress to pass a law that would allow CMS to implement the OPPS payment adjustment in a non-budget neutral manner.

Response: The OPPS authority for this payment adjustment is section 1833(t)(2)(E) of the Act, which authorizes the Secretary to establish, in a budget neutral manner, other adjustments as determined to be necessary to ensure equitable payments. Implementing this policy in a non- budget neutral manner under the OPPS would not be consistent with the requirement in section 1833(t)(2)(E) of the Act that equitable adjustments be budget neutral. We acknowledge the concerns that some commenters raised regarding the impact of the budget neutrality adjustment on more vulnerable hospitals but reiterate that implementing this policy without an OPPS budget neutrality adjustment would not be consistent with section 1833(t)(2)(E) of the Act. Furthermore, we note that the proposed OPPS budget neutrality adjustment is relatively small. Therefore, we do not believe the budget neutrality adjustment will broadly disincentivize hospitals from purchasing domestic surgical N95 respirators or have a meaningful impact on hospitals that do not procure domestic surgical N95 respirators at the same rate as other hospitals.

5. Calculation of the OPPS and IPPS Payment Adjustments on the Cost Report

In order to calculate the N95 payment adjustment for each eligible cost reporting period, we proposed to create a new supplemental cost reporting form that will collect from hospitals the additional information described in this section. This information would be used along with other information already collected on the hospital cost report to calculate IPPS and OPPS payment adjustment amounts. The information collection requirements for the proposed new supplemental cost reporting worksheet are discussed in section XXII.F of the CY 2023 OPPS/ ASC proposed rule (87 FR 44815). The draft new supplemental cost reporting worksheet was assigned OMB control number 09381425.

In this section we describe the information we proposed to collect on the new supplemental cost reporting form and the proposed steps for determining the IPPS and OPPS payment adjustment amounts.

Step 1—Collect additional information on the new supplemental cost reporting form.

To determine the IPPS and OPPS payment adjustments, we proposed to collect the following information on a new supplemental cost reporting form:

(1) Total quantity of domestic NIOSH- approved surgical N95 respirators purchased by hospital.

(2) Total aggregate cost of domestic NIOSH-approved surgical N95 respirators purchased by hospital.

(3) Total quantity of non-domestic NIOSH-approved surgical N95 respirators purchased by hospital.

(4) Total aggregate cost of non- domestic NIOSH-approved surgical N95 respirators purchased by hospital.

Step 2—Calculate a hospital-specific unit cost differential between domestic and non-domestic NIOSH-approved surgical N95 respirators.

With the respirator information reported on the new supplemental cost reporting form we proposed to calculate the following statistics on the new cost report form:

(1) The average cost of domestic NIOSH-approved surgical N95 respirators purchased. This would be calculated by dividing the reported total aggregate cost of the domestic NIOSH- approved surgical N95 respirators purchased by the reported total quantity of domestic NIOSH-approved surgical N95 respirators purchased. If the hospital purchased zero NIOSH- approved surgical N95 domestic respirators, this value would be set to 0.

(2) The average cost of non-domestic NIOSH-approved surgical N95 respirators purchased. This would be calculated by dividing the reported total aggregate cost of the non-domestic NIOSH-approved surgical N95 respirators purchased by the reported total quantity of non-domestic NIOSH- approved respirators purchased. If the hospital purchased zero non-domestic NIOSH-approved surgical N95 respirators, this value would be set to 0.

(3) The hospital-specific unit cost differential between domestic and non- domestic NIOSH-approved surgical N95 respirators. This would be calculated by subtracting the average cost of non- domestic NIOSH-approved surgical N95 respirators purchased from the average cost of domestic NIOSH-approved surgical N95 respirators purchased. If the average cost of non-domestic NIOSH-approved surgical N95 respirators purchased is greater than the average cost of domestic NIOSH- approved surgical N95 respirators purchased, this value would be set to 0. We stated in the proposed rule that, as discussed in section X.H.8 of the proposed rule, we may consider in future rulemaking establishing a national minimum average cost for non- domestic NIOSH-approved surgical N95 respirators purchased that could be used in determining the hospital-specific unit cost differential for hospitals that only purchased domestic NIOSH-approved surgical N95 respirators or that have unusually low average costs for their non-domestic NIOSH-approved surgical N95 respirators.

Step 3—Calculate a total cost differential for the purchase of domestic NIOSH-approved surgical N95 respirators.

The next step in the proposed payment adjustment calculation is determining the total cost differential for the purchase of domestic NIOSH- approved surgical N95 respirators. This amount represents the total additional costs the hospital incurred by purchasing domestic NIOSH-approved surgical N95 respirators over purchasing non-domestic NIOSH-approved surgical N95 respirators. We proposed to calculate this amount by multiplying the hospital-specific unit cost differential calculated in Step 2 by the total quantity of domestic NIOSH- approved surgical N95 respirators purchased reported in Step 1.

Step 4—Determine IPPS and OPPS share of total hospital costs.

The total cost differential calculated in Step 3 is reflective of all domestic NIOSH-approved surgical N95 respirators used throughout the hospital while treating all patients. This total cost differential needs to be disaggregated to estimate the additional costs incurred by purchasing domestic NIOSH-approved surgical N95 respirators used in treating patients receiving services paid under IPPS and OPPS, specifically. To apportion the total cost differential to the IPPS and OPPS services, we proposed to use cost data already reported on the hospital cost report. We specifically proposed to use the following from the OMB No.0938-0050, Form CMS-2552-10:

(a) Total costs for all inpatient routine services, ancillary services, outpatient services, and other reimbursable services as reported in Worksheet C Part I line 202 column 5.

(b) Total Medicare Part A hospital inpatient costs as reported in Worksheet D-1 Part II, line 49, column 5.

(c) Total Medicare Part B hospital outpatient costs as reported in Worksheet D Part V, line 202, column 5 + column 6 + column 7.

We proposed to calculate the IPPS percent share of the total cost differential (calculated in Step 3) as total Medicare Part A hospital inpatient costs (Step 4b) divided by total costs for all inpatient routine services, ancillary services, outpatient services, and other reimbursable services (Step 4a). We proposed to calculate the OPPS percent share of the total cost differential as total Medicare Part B hospital outpatient costs (Step 4c) divided by total costs for all inpatient routine services, ancillary services, outpatient services, and other reimbursable services (Step 4a).

Step 5—Determine IPPS and OPPS Payment Adjustment for Domestic NIOSH-Approved Surgical N95 Respirators.

To calculate the IPPS payment adjustment for domestic NIOSH- approved surgical N95 respirators, we proposed to multiply the IPPS cost share (determined in Step 4) by the total cost differential for the purchase of domestic respirators (Step 3). To calculate the OPPS payment adjustment for domestic NIOSH-approved surgical N95 respirators, we proposed to multiply the OPPS cost share (determined in Step 4) by the total cost differential for the purchase of domestic respirators (Step 3). As described previously, these calculated payment adjustments would be reconciled against interim lump-sum payments received by the hospital for this policy.

Comment: We received comments expressing concern with our proposed methodology for determining the payment adjustments. A few commenters expressed concern with CMS limiting this payment adjustment only to the estimated share of surgical N95 respirators used by the hospital when treating Medicare fee-for-service beneficiaries. One commenter was concerned that limiting this payment only to the Medicare share will not increase demand for domestically produced surgical N95 respirators enough to achieve the stated policy goal. This commenter urged CMS to expand these payment adjustments to cover the cost of domestic surgical N95 respirators used in treating all patients and if CMS does not have statutory authority to do this, that CMS work with Congress to include this flexibility in the Medicare statute. Other commenters raised equity issues and were concerned that hospitals that treat a high percentage of Medicaid patients or have low Medicare fee-for-service utilization would be disadvantaged by the use of the Medicare share.

Response: We thank the commenters for sharing these concerns regarding the use of the Medicare share in determining the amount of the payment adjustments under the proposed methodology. With respect to those comments expressing concern that limiting this payment only to the Medicare share would not increase demand for domestically produced surgical N95 respirators enough to achieve the stated policy goal, we note that this policy would not be adopted in isolation. For complementary efforts related to strengthening the U.S. public health and medical supply chain and industrial base, we refer the public to the ‘‘Public Health Supply Chain and Industrial Base One-Year Report’’ available on the HHS website at https:// aspr.hhs.gov/MCM/IBx/2022Report/ Pages/default.aspx.

Comment: MedPAC, while not supportive of the proposed payment adjustments, stated that if CMS concludes in this final rule that the proposed payment adjustments are necessary, CMS should set the unit cost differential between domestic and non- domestic NIOSH-approved surgical N95 respirators at a national level (rather than on a hospital-by-hospital basis). MedPAC believes this would reduce the administrative burden on hospitals, encourage hospitals to purchase the most economical domestically made product, and reduce the ability of hospitals to increase their payments by artificially inflating reported N95 costs. MedPAC expressed concern that under our proposal, hospitals could artificially inflate their reported surgical N95 respirator costs by getting discounts on other products in exchange for paying high prices on surgical N95 respirators.

Conversely, we also received a comment that expressed concern with moving to a national unit cost differential in the future. This commenter stated that utilization of surgical N95 respirators varies by hospital and is dependent on factors such as localized COVID-19 infection rates. This commenter was concerned using a national unit cost differential would lead to underpayments for hospitals that utilize a higher number of surgical N95 respirators.

Response: We appreciate the comments submitted on the proposed payment adjustment methodology. With respect to MedPAC’s concerns about utilizing hospital-specific unit cost differentials, as discussed in the proposed rule (87 FR 44695), as we gain more experience with the policy and the data collected, we may consider setting the unit cost differential at the national level in future rulemaking.

We believe the commenter who asserted such a change would lead to underpayments for hospitals that utilize a higher number of surgical N95 respirators may misunderstand the policy. If we were to make such a change in the future, the national unit cost differential would still be multiplied by the hospital-specific quantity of domestic surgical N95 respirators purchased. Thus, individual hospital volume of respirators would still be taken into account.

Comment: One commenter requested that CMS provide additional clarity regarding the amount of the payment adjustment per surgical N95 respirator as this information is needed to inform hospitals’ purchasing decisions.

Response: It is unclear to us what additional clarification this commenter is seeking. Using the payment methodology as described previously, in conjunction with the written manufacturer statements regarding which surgical N95 respirators are domestic under CMS’s definition, hospitals can estimate the approximate payment amounts under various purchasing scenarios.

To help demonstrate these calculations, in Table 70 we have provided an example for a mock hospital that purchased both domestic and non-domestic NIOSH-approved surgical N95 respirators during its cost reporting period beginning on or after January 1, 2023. The example shows the additional data the hospital would report on its supplemental cost reporting form, the cost data pulled from other hospital cost report worksheets, and the calculations performed to determine the hospital’s IPPS and OPPS payment adjustment for domestic NIOSH-approved surgical N95 respirators. Please note that the cost report below is a draft and is still subject to final OMB approval.

6. Establishment of the OPPS Payment Adjustment for Domestic NIOSH- Approved Surgical N95 Respirators in a Budget Neutral Manner

As noted earlier, section 1833(t)(2)(E) of the Act provides that the Secretary shall establish adjustments necessary to ensure equitable payments in a budget neutral manner. In order to maintain OPPS budget neutrality, we proposed to develop a spending estimate associated with this proposed policy. Specifically, this spending estimate would reflect the OPPS payment adjustment that would be made in CY 2023 for the additional resource costs of domestic NIOSH- approved surgical N95 respirators used in the treatment of OPPS patients. The data currently available to calculate this spending estimate is limited. However, we believe the proposed methodology described next to calculate this spending estimate for CY 2023 is reasonable based on the information available.

We proposed to calculate the estimated total spending associated with this policy by multiplying together estimates of the following:

(1) Estimate of the total number of NIOSH-approved surgical N95 respirators used in the treatment of OPPS patients in CY 2023.

(2) Estimate of the difference in the average unit cost of domestic and non- domestic NIOSH-approved surgical N95 respirators.

(3) Estimate of the percentage of NIOSH-approved surgical N95 respirators used in the treatment of OPPS patients in CY 2023 that are domestic.

For purposes of this estimate, we believe it is reasonable to assume that one NIOSH-approved surgical N95 respirator is used per OPPS encounter. Based on the outpatient claims volume available for rate setting in the CY 2023 OPPS proposed rule, we had approximately 103.4 million OPPS claims. Therefore, in the proposed rule, for CY 2023, we estimated that the total number of NIOSH-approved surgical N95 respirators (both domestic and non- domestic) used in the treatment of OPPS patients in CY 2023 is 103.4 million.

Based on available data, our best estimate of the difference in the average unit cost of domestic and non-domestic NIOSH-approved surgical N95 respirators was $0.20.

It is particularly challenging to estimate the percentage of domestically manufactured NIOSH-approved surgical N95 respirators that will be used in the treatment of OPPS patients in CY 2023. The OMB’s Made in America Office recently conducted a data call on capacity in which several entities attested to being able to supply 3.6 billion NIOSH-approved and Berry- compliant surgical N95 respirators annually in the future if there were sufficient demand. We recognize that it may take time for this capacity to be fully reflected in hospital purchases.

Therefore, although this would be sufficient capacity to supply the entire hospital industry if it were to be available and focused on this segment of the marketplace in 2023, we believe it is reasonable to assume that it will take time for hospitals to adjust their purchasing patterns and therefore hospitals in aggregate may in fact be able to purchase less than half of their NIOSH-approved surgical N95 respirators as domestic in 2023. Therefore, for purposes of this OPPS budget neutrality estimate, we proposed to set the percentage of NIOSH- approved surgical N95 respirators used in the treatment of OPPS patients in CY 2023 that are domestic to 40 percent, or slightly less than half.

In the CY 2023 OPPS/ASC proposed rule (87 FR 44695), we estimated that total CY 2023 OPPS payments associated with this policy will be $8.3 million (or 103.4 million claims * $0.20 * 40 percent). This represents approximately 0.01 percent of the OPPS, which we proposed to budget neutralize through an adjustment to the OPPS conversion factor.

We received no comments on the proposed methodology for determining the budget neutrality factor associated with the proposed OPPS payment adjustment. We noted in the proposed rule that the volume of claims data available for rate setting typically increases between the proposed and final rules, so the proposed rule spending estimate may change in the final rule. As such, based on the outpatient claims volume available for rate setting in this CY 2023 OPPS/ASC final rule with comment period, we have approximately 109.3 million OPPS claims. Therefore, for CY 2023, we are now estimating that the total number of NIOSH-approved surgical N95 respirators (both domestic and non-domestic) used in the treatment of OPPS patients in CY 2023 is 109.3 million. Our best estimate of the difference in the average unit cost of domestic and non-domestic NIOSH- approved surgical N95 respirators remains $0.20 and our best estimate of the percentage of NIOSH-approved surgical N95 respirators used in the treatment of OPPS patients in CY 2023 that are domestic remains 40 percent. Therefore, we now estimate that total CY 2023 OPPS payments associated with this policy will be $8.7 million (or 109.3 million claims * $0.20 * 40 percent). This represents approximately 0.01 percent of the OPPS, which we are budget neutralizing through an adjustment to the OPPS conversion factor. As stated in the proposed rule, we believe this methodology is the best way to approximate CY 2023 OPPS spending associated with the proposed policy. However, we recognize that this approach to estimating budget neutrality under the OPPS is based on the limited data available. We may consider refining this approach for future years, especially once data collected on cost reports for this policy is available.

7. Regulation Amendments

For the IPPS, we proposed to codify this payment adjustment in the regulations by adding new paragraph (f) to § 412.113 to specify that, for cost reporting periods beginning on or after January 1, 2023, a payment adjustment is made to a hospital for the additional resource costs of domestic NIOSH- approved surgical N95 respirators. The payment adjustment is based on the estimated difference in the reasonable cost incurred by the hospital for domestic NIOSH-approved surgical N95 respirators purchased during the cost reporting period as compared to other NIOSH-approved surgical N95 respirators purchased during the cost reporting period. We also proposed to make conforming changes to §§ 412.1(a) and 412.2(f) to reflect the proposed payment adjustment for the additional resource costs of domestic NIOSH- approved surgical N95 respirators.

For the OPPS, we proposed to codify this payment adjustment in the regulations by adding a new paragraph (j) to § 419.43 to specify at new paragraph (j)(1) that, for cost reporting periods beginning on or after January 1, 2023, CMS makes a payment adjustment for the additional resource costs of domestic NIOSH-approved surgical N95 respirators. New paragraph (j)(2) would provide that the payment adjustment is based on the estimated difference in the reasonable cost incurred by the hospital for domestic NIOSH-approved surgical N95 respirators purchased during the cost reporting period as compared to other NIOSH-approved surgical N95 respirators purchased during the cost reporting period. Finally, new paragraph (j)(3) would state that CMS establishes the payment adjustment under paragraph (j)(2) in a budget neutral manner.

We did not receive any public comments on these proposed changes to the regulation text.

In summary, after consideration of the comments received on our proposed policy, we are finalizing as proposed without modification the payment adjustments under the OPPS and IPPS for the additional resource costs that hospitals face in procuring domestic NIOSH-approved surgical N95 respirators, including the proposed amendments to the regulation text, as previously described.