This bill adds a new paragraph to section 1886(m) of the Social Security Act to create a “catastrophic specialty hospital” designation for certain long‑term care hospitals (LTCHs) and to exempt designated hospitals from the MS‑LTCH payment system and related limits. For cost reporting periods beginning on or after enactment, a hospital that meets the statute’s volume, service, out‑of‑state admission, and research/training criteria is paid without regard to the payment system described in paragraph (1) and the constraints in paragraph (6).
The change targets LTCHs that concentrate on spinal cord injury (SCI) and acquired brain injury (ABI) care. By carving those hospitals out of the existing MS‑LTCH prospective payment regime, the bill reshapes reimbursement incentives for high‑acuity neurorehabilitation providers and forces CMS to design operational rules around designation, review, and documentation — with likely implications for access, federal spending, and audit risk.
At a Glance
What It Does
The Secretary of Health and Human Services must designate qualifying LTCHs as catastrophic specialty hospitals and, for those hospitals, suspends application of the MS‑LTCH DRG payment system and paragraph (6) payment rules for applicable cost reporting periods. Eligibility rests on multi‑year case mix composition, minimum annual volumes for SCI and ABI, a measurable share of out‑of‑state admissions, and demonstrated research or training activities.
Who It Affects
Directly affected are LTCHs that treat large volumes of SCI and ABI patients, CMS payment operations and auditors, hospital finance and compliance teams, and Medicare beneficiaries needing long‑term neurorehabilitation. States and Medicaid programs will see indirect effects where designation changes patient flows and reimbursement patterns.
Why It Matters
The bill creates a condition‑specific carve‑out from the LTCH prospective payment system — a structural shift in Medicare reimbursement for specialized long‑term neurorehabilitation. That change could preserve financially fragile specialty capacity but also raises fiscal, oversight, and access tradeoffs that providers and payers must plan for now.
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What This Bill Actually Does
The bill amends Title XVIII by inserting a new paragraph that allows CMS to recognize certain long‑term care hospitals as “catastrophic specialty hospitals” and to pay them outside the existing MS‑LTCH payment framework. Practically, CMS will treat a designated hospital as if the statutory MS‑LTCH DRG payment system and the constraints found in paragraph (6) do not apply for the applicable cost reporting periods; the statute ties eligibility to data the hospital must submit and to objective thresholds set in law.
To qualify a hospital must show a sustained focus on SCI and ABI over a three‑year lookback. The statutory test combines a high concentration of relevant MS‑LTCH‑DRG classifications (an 80 percent composition threshold) with minimum annual case counts (separate minimums for SCI and ABI during a one‑year window within that three years).
The bill also requires that a substantial fraction of patients be admitted from outside the hospital’s State and that the hospital demonstrate meaningful engagement in neurorehabilitation research or training — for example, dedicated research staff, peer‑reviewed publications, fellowship/residency programs, or affiliation with approved residency programs.Designation is tied to cost reporting periods: it takes effect for the initial cost reporting period for which the hospital qualifies and continues for a three‑year stretch. Before a designation expires, CMS must reexamine whether the hospital still meets the statutory tests; if not, the hospital receives a 60‑day opportunity to provide supplemental documentation, and the designation lapses only if the hospital fails to cure.
The counts used to determine eligibility expressly include patients who are not entitled to Medicare Part A, and the Secretary is given authority to specify which MS‑LTCH‑DRGs count as SCI or ABI.The statute leaves important operational work for CMS: issuing definitions, collecting and validating the hospital data that underpins designation, and specifying how payment will be calculated once the MS‑LTCH system and paragraph (6) do not apply. Those implementation choices will determine whether the carve‑out leads to meaningful preservation of specialty capacity, higher Medicare outlays, or new compliance and audit burdens for hospitals and CMS alike.
The Five Things You Need to Know
The bill inserts a new paragraph (8) into section 1886(m) of the Social Security Act to authorize a catastrophic specialty hospital designation for certain LTCHs.
A hospital must show that, over a three‑year lookback, at least 80% of its discharges were classified under MS‑LTCH‑DRGs for spinal cord injury or acquired brain injury (or would have been if patients were Medicare Part A entitled).
Within that three‑year window the hospital must also demonstrate at least 175 discharges per year for each condition (SCI and ABI) in a one‑year period; counts include individuals not entitled to Part A.
At least 30% of inpatients discharged during each cost reporting period in the three‑year lookback must have been admitted from outside the hospital’s State, as determined by patient residency data the hospital submits.
A designation is effective for the initial cost reporting period and the following three‑year period; before expiration CMS reviews eligibility, allows a 60‑day cure period to submit additional information, and may redesignate if criteria remain met.
Section-by-Section Breakdown
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Names the Act
Provides the short title, “Catastrophic Specialty Hospital Act of 2025.” This is a technical header but signals the bill’s focus on specialty care for catastrophic neurologic conditions.
Pauses MS‑LTCH payment rules for designated hospitals
The bill directs that for cost reporting periods on or after enactment, a designated LTCH is paid without regard to the prospective MS‑LTCH DRG system described in paragraph (1) and without regard to paragraph (6). That language overrides prior statutory constraints (including provisions added by the Balanced Budget Refinement Act of 1999 and BIPA 2000) for designated hospitals. The provision does not itself spell out an alternate payment formula, which leaves the method of calculating payments for designated hospitals to CMS implementation.
Objective multi‑year thresholds and evidence requirements
CMS must make designations based on a set of quantitative and qualitative tests: (1) an 80% composition requirement for SCI/ABI MS‑LTCH‑DRGs over a three‑year period; (2) minimum annual volumes of 175 discharges for SCI and 175 for ABI in a one‑year period occurring within that three‑year window; (3) at least 30% of inpatients admitted from out‑of‑state in each cost reporting period during the three‑year period; and (4) demonstrated commitment to neurorehabilitation research or training via enumerated examples such as full‑time research staff, peer‑reviewed publications, fellowships, or residency affiliations. The statute explicitly counts discharges of individuals not entitled to Part A in the thresholds and permits the Secretary to specify which MS‑LTCH‑DRGs qualify as SCI or ABI.
Three‑year designation with redesignation and cure process
A successful designation applies to the initial cost reporting period and the subsequent three years. When a designation is due to expire, CMS must evaluate continued compliance; if CMS finds noncompliance, the hospital gets 60 days to supply additional information. If the hospital cannot demonstrate it meets the statutory tests, CMS lets the designation expire as of the first day of the cost reporting period.
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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 focused on SCI/ABI — These hospitals gain exclusion from the MS‑LTCH payment system, potentially improving revenue predictability for resource‑intensive care and preserving highly specialized capacity.
- Patients with severe spinal cord or acquired brain injuries — Concentrating payment and recognition on specialty centers could sustain programs that provide long‑term neurorehabilitation, training, and research services not widely available elsewhere.
- Academic and research units tied to LTCHs — The statute rewards hospitals with documented research and training activity, increasing incentives for fellowship programs, residency affiliations, and clinical research infrastructure.
- Referral networks and specialized clinicians — Designation could stabilize referral streams and support recruitment/retention of clinicians focusing on catastrophic neurologic rehabilitation.
Who Bears the Cost
- Medicare trust funds and CMS budgets — Exempting designated hospitals from the LTCH prospective payment system risks higher Medicare spending per case or at least shifts in payment flow that increase federal outlays without an explicit offset.
- Non‑designated LTCHs — Hospitals that narrowly miss thresholds could see competitive disadvantages if designated centers capture regional referrals and favorable payment treatment.
- CMS administrative units — CMS must define qualifying MS‑LTCH‑DRGs, collect and validate multi‑year data, create a designation process, and manage redesignation reviews and appeals, all of which add operational cost and complexity.
- State Medicaid programs and local payers — Changes in patient flows (including a statutory requirement that counts include non‑Medicare patients and out‑of‑state admissions) may shift uncompensated care burdens and affect state payment arrangements.
Key Issues
The Core Tension
The bill pits two legitimate goals against each other: ensuring the survival and proper funding of rare, resource‑intensive specialty centers that treat catastrophic neurologic conditions, versus the need to maintain Medicare’s fiscal discipline and guard against gaming or unintended access concentration. Creating a generous carve‑out can preserve specialized capacity but risks higher federal spending, administrative complexity, and perverse incentives that may shift care and coding to meet statutory thresholds rather than patient need.
The statute creates a high‑bar designation but leaves critical implementation details unspecified. Most notably, it removes designated hospitals from the MS‑LTCH DRG regime without prescribing an alternative payment method.
That gap gives CMS wide discretion — CMS could adopt cost‑based payments, a modified prospective model, or negotiated rates — but the choice will determine budgetary impact and provider incentives. The absence of an explicit payment formula also complicates actuarial and budget planning for Medicare and for hospitals considering pursuit of designation.
Operationalizing the criteria will create practical and integrity challenges. CMS must define which MS‑LTCH‑DRGs count as SCI or ABI, validate hospital submissions that include non‑Medicare patients, and develop standards for what constitutes adequate research or training activity.
The 30% out‑of‑state admissions test depends on reliable residency data and raises questions about cross‑state referral patterns, licensure, and emergency/transfer pathways. Finally, the multi‑year lookback and minimum discharge counts could incentivize coding practices, aggressive transfers, or marketing to out‑of‑state patients to meet thresholds rather than reflecting organic case mix evolution.
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