This bill adds a new amendment to Medicare’s long‑term care hospital payment rules that lets the Secretary designate certain LTCHs as "catastrophic specialty hospitals" and pay them outside the standard LTCH prospective payment system. The designation targets hospitals that concentrate on spinal cord injury and acquired brain injury care and that sustain programmatic commitments to research, training, and a continuum of care.
The change matters because it creates a statutory carve‑out for a narrow set of high‑volume specialty centers. That carve‑out shifts evaluation and enforcement responsibility to CMS (for designation, data collection, and redesignation) and could alter incentives for regionalized neurorehabilitation care, Medicare spending patterns, and how LTCHs document patient mix and programmatic activity.
At a Glance
What It Does
The bill adds paragraph (8) to section 1886(m) of the Social Security Act, authorizing the Secretary to designate qualifying LTCHs as catastrophic specialty hospitals and to pay them without applying the LTCH prospective payment system. The designation is based on hospital case mix, programmatic features, and research/training commitments determined over multi‑year lookback periods.
Who It Affects
Long‑term care hospitals that specialize in spinal cord injury or acquired brain injury care, CMS (Centers for Medicare & Medicaid Services) for purposes of designation and oversight, and Medicare beneficiaries who require prolonged neurorehabilitation services. Hospitals drawing a significant share of patients from outside their state will be specifically implicated.
Why It Matters
The bill creates a statutory pathway to recognize and financially treat specialty LTCHs differently from the broader LTCH population, potentially concentrating resources in regional centers of excellence. For compliance officers and hospital finance leaders, the bill changes what data CMS will need, what documentation hospitals must keep, and how eligibility for a specialty payment path will be evaluated.
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What This Bill Actually Does
The bill amends the LTCH payment provisions in section 1886(m) by adding a new paragraph that creates a categorical exception to the LTCH prospective payment system for ‘‘catastrophic specialty hospitals.’' The exception takes effect for cost reporting periods beginning on or after the law’s enactment and removes those designated hospitals from the payment methodology governed by paragraph (1) and the adjustments in paragraph (6) of that section. The statute does not specify a detailed replacement payment formula; it only states that payment shall be made without regard to the LTCH‑PPS and paragraph (6), leaving the Secretary to implement payment mechanics administratively.
Designation hinges on a lookback test and programmatic criteria assessed over a three‑year window. To qualify, a hospital must show that, across each cost reporting period within that three‑year period, at least 80 percent of discharges were classified under the MS‑LTCH‑DRGs identified by the Secretary as relating to spinal cord injury or acquired brain injury (the bill expressly allows counting discharges of patients who were not Medicare Part A beneficiaries).
The hospital must also demonstrate sustained annual volume within the three‑year period: in each 1‑year slice the hospital must have at least 175 discharges of spinal cord injury patients and at least 175 discharges of acquired brain injury patients (again, including non‑Medicare patients).Two further operational gates are: geographic reach and programmatic commitments. At least 30 percent of inpatients discharged in each cost reporting period during the three‑year lookback must have been admitted from outside the State where the hospital is located, with residency determined by state of residence data the hospital must submit.
The hospital must also evidence a commitment to neurorehabilitation research and training; the bill lists several illustrative items the Secretary may accept (dedicated research staff, peer‑reviewed publications, fellowship/residency or MPH programs, or a residency affiliation in neurology or physical medicine and rehabilitation), but leaves the Secretary discretion to determine what satisfies the requirement.Designation lasts for the initial cost reporting period and the following three years (i.e., it is effective for the initial period and each succeeding cost reporting period occurring during a three‑year span). When a designation approaches expiration, the Secretary must determine whether the hospital still meets the statutory criteria; if CMS finds noncompliance, the hospital gets a 60‑day opportunity to submit additional information before the designation is allowed to lapse.
Throughout, CMS must rely on hospital‑submitted data and its own determinations about MS‑LTCH‑DRG classifications and acceptable evidence of research or training activity.
The Five Things You Need to Know
The statute adds a discrete new paragraph (8) to section 1886(m), creating the catastrophic specialty hospital category and an explicit exception to the LTCH‑PPS.
Hospitals may count discharges of patients who are not Medicare Part A beneficiaries when demonstrating eligibility for designation.
The Secretary retains discretion to specify which MS‑LTCH‑DRGs qualify as relating to spinal cord injury or acquired brain injury and to define acceptable evidence of research/training activity.
Designation applies starting with the hospital’s initial qualifying cost reporting period and extends through a three‑year span, with a formal CMS redesignation review at expiry.
If CMS determines a hospital no longer meets the criteria, the hospital receives a 60‑day period to provide additional information before the designation is terminated.
Section-by-Section Breakdown
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Short title
States that the Act may be cited as the "Catastrophic Specialty Hospital Act of 2025." This is a formal header but signals the bill’s focus on narrowly defined specialty LTCHs and frames later provisions as targeted rather than system‑wide changes.
Payment exception for designated catastrophic specialty hospitals
Creates an express exception to the payment system described in paragraph (1) of section 1886(m) and to paragraph (6)’s adjustments: once designated, an LTCH is paid "without regard to such system." Practically, that removes the designated hospitals from the prospective payment rules that govern most LTCHs. The statute does not prescribe the substitute payment method or rates, so CMS rulemaking or administrative guidance will be required to implement the actual reimbursement mechanics and any cost‑reporting or settlement rules that follow.
Designation criteria: case mix, continuum of care, and programmatic commitments
Sets multi‑component eligibility tests: a three‑year lookback on discharge mix (Secretary‑specified MS‑LTCH‑DRGs for spinal cord injury or acquired brain injury), an operational requirement that the hospital provide inpatient and outpatient care with a focus on long‑term health/wellness, and concrete volume minimums measured in annual slices over the three‑year period. The provision expressly allows counting non‑Medicare patients and requires hospitals to submit residency data to determine the share of out‑of‑state admissions. It also lists illustrative research and training activities (dedicated research personnel, peer‑review publications, fellowship/residency or MPH programs, or an affiliated residency in relevant specialties) that the Secretary may use to judge neurorehabilitation commitment.
Duration, redesignation, and cure process
Makes designations effective for the initial cost reporting period and each succeeding reporting period during a three‑year span, and requires CMS to reassess hospitals when the three‑year window nears expiration. If CMS finds a hospital out of compliance, it must give the hospital 60 days to submit additional evidence before the designation expires. This creates a periodic administrative review cycle and an opportunity to cure documentation or data deficiencies prior to losing the specialty status.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- High‑volume LTCHs specializing in spinal cord injury or acquired brain injury — They can obtain a statutory pathway to be paid outside the LTCH‑PPS, potentially aligning reimbursement with the higher resource needs of catastrophic neurorehabilitation and reducing prospective payment constraints.
- Patients requiring long‑term neurorehabilitation who travel regionally — The law encourages regional centers that attract out‑of‑state patients, which may concentrate expertise and services for complex cases.
- Academic and research programs in neurorehabilitation — Hospitals that invest in dedicated research staff, publications, and training programs gain a statutory lever to translate that investment into a specialized designation that recognizes their role.
- Hospital compliance and finance teams at qualifying centers — They receive a clearer statutory framework to justify specialized operations, patient mix documentation, and investments in research and training.
Who Bears the Cost
- Medicare trust funds/CMS — Removing a subset of LTCHs from the standard PPS may increase administrative and actuarial complexity and could raise program costs, depending on how replacement payments are set and adjusted.
- Other LTCHs not meeting the thresholds — Competitive and financial pressure could intensify as patients and referrals concentrate at designated specialty centers, and non‑designated LTCHs may shoulder uncompensated changes in case mix.
- CMS operational units — CMS must develop the designation process, specify qualifying MS‑LTCH‑DRGs, set documentation standards, verify non‑Medicare discharge data, and manage periodic redesignation reviews, all of which require staff time and systems work.
- State agencies and payers coordinating transfers — Increased interstate patient flows to designated centers could shift costs and referral patterns, requiring payers and states to renegotiate transfer and post‑acute care arrangements.
Key Issues
The Core Tension
The central tension is between concentrating specialized, high‑cost neurorehabilitation services in centers that can sustain expertise and research versus preserving Medicare’s uniform payment architecture and fiscal discipline: the bill supports regional centers of excellence by carving them out of the LTCH‑PPS, but that carve‑out shifts spending and oversight burdens to CMS and risks creating payment disparities and administrative complexity with no statutory replacement payment formula.
The bill creates clear thresholds and programmatic tests but leaves several critical implementation choices to the Secretary. Most notably, it removes a subset of LTCHs from the LTCH‑PPS without specifying the replacement payment mechanism or whether payment will revert to cost‑based settlement, an ad hoc hospital‑specific arrangement, or a new prospective methodology.
That omission transfers significant fiscal authority to CMS rulemaking and increases near‑term uncertainty about Medicare payment levels for designated hospitals.
Another implementation challenge concerns verification and data quality. The statute permits counting discharges of non‑Medicare patients and relies on hospitals’ submitted residency data to determine out‑of‑state admissions.
CMS will therefore need protocols to audit hospitals’ historical patient mix, residency designations, and publications or training programs used to demonstrate research commitment. The open‑ended list of acceptable research/training evidence gives CMS discretion but increases the risk of inconsistent determinations and potentially protracted appeals or cures.
Finally, the volume and geographic thresholds (annual discharge minima and a 30 percent out‑of‑state floor) favor regional referral centers but may unintentionally exclude smaller, newer programs that serve local populations but still provide high‑quality specialty care.
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