(a) Preliminary target price application. CMS establishes preliminary target prices for CJR-X participants for each performance year of the model as follows:

(1) MS-DRG/HCPCS episode type. CMS uses the MS-DRGs and, as applicable, HCPCS codes specified in § 512.625(d) when calculating the preliminary target prices for each MS-DRG/HCPCS episode type.

(i) CMS determines a separate preliminary target price for each of the MS-DRGs specified in § 512.625(a)(1).

(ii) Preliminary target prices for MS-DRG 470 include HCPCS 27130 and 27447.

(2) Applicable time period for preliminary target prices. CMS calculates preliminary target prices for each MS-DRG/HCPCS episode type and region for each performance year and applies the preliminary target price to each episode based on the episode's date of discharge from the anchor hospitalization or the episode's date of the anchor procedure, as applicable.

(3) Episodes that begin in one performance year and end in the subsequent performance year. CMS applies the preliminary target price to the episode based on the date of discharge from the anchor hospitalization or the date of the anchor procedure, as applicable, and reconciles the episode based on the date of discharge from the anchor hospitalization or the date of the anchor procedure.

(4) Exception for low-volume hospitals. CJR-X participants with fewer than 31 episodes in the applicable baseline period do not receive preliminary target prices for the upcoming performance year and are not eligible for reconciliation for that performance year.

(b) Preliminary target price calculation.

(1) CMS calculates preliminary target prices based on average baseline episode spending for the region where the CJR-X participant is located. The region CMS uses for calculating the preliminary target price corresponds to the U.S. Census Division associated with the primary address of the CCN of the CJR-X participant, and CMS bases the regional episode spending amount on all hospitals within the region, except for those excluded from CJR-X as specified in § 512.610(b).

(2) CMS uses the following baseline periods to determine baseline episode spending:

(i) Performance Year 1: Episodes with anchor hospitalization start dates or anchor procedure dates beginning on or after January 1, 2024 and anchor hospitalization discharge dates or anchor procedure dates between January 1, 2024 and December 31, 2026.

(ii) Performance Year 2 and future performance years: CMS uses the same cadence described in paragraph (i) of this section to roll the baseline period forward a year to construct the baseline period.

(3) CMS calculates the benchmark price as the weighted average of baseline episode spending, applying the following weights:

(i) Baseline episode spending from baseline year 1 is weighted at 17 percent.

(ii) Baseline episode spending from baseline year 2 is weighted at 33 percent.

(iii) Baseline episode spending from baseline year 3 is weighted at 50 percent.

(4) Exception for high episode spending. CMS applies a high-cost outlier cap to baseline episode spending at the 99th percentile of regional spending for each of the MS-DRG/HCPCS episode types specified in § 512.640(a)(1) for each baseline year individually.

(5) Exclusion of incentive programs and add-on payments under existing Medicare payment systems. CMS excludes certain Medicare incentive programs and add-on payments from baseline episode spending by using, with certain modifications, the CMS Price (Payment) Standardization Detailed Methodology.

(6) Prospective normalization factor. Based on the episodes in the baseline period, CMS calculates a prospective normalization factor, at the MS-DRG/HCPCS region level, so that the average of the total risk-adjusted benchmark price does not exceed the average of the total non-risk adjusted benchmark price, by—

(i) Applying risk adjustment multipliers, as specified in § 512.645(a)(1) through (3), to baseline period episodes to calculate the estimated risk-adjusted target price for all performance year episodes; and

(ii) Dividing the mean of the benchmark price for each episode across all hospitals and regions by the mean of the estimated risk-adjusted benchmark price calculated in § 512.640(b)(6)(i) for the same episode types across all hospitals and regions.

(7) Prospective trend factor. CMS determines the prospective trend factor for each MS-DRG/HCPCS episode type and region as the average (arithmetic mean) of the multiplier, as calculated in paragraph (7)(i) of this section, for that MS-DRG/HCPCS episode type and region and the national average for that MS-DRG/HCPCS episode type.

(i) CMS calculates a multiplier for each MS-DRG/HCPCS episode type and region and applies that multiplier to the most recent calendar year of the applicable baseline period. CMS calculates the multiplier using linear regression on the logarithmically transformed average regional spending for each MS-DRG/HCPCS episode type in the baseline years at both the regional and national level.

(ii) CMS exponentiates the coefficient from the linear regression (as described in paragraph (7)(i) of this section) to calculate the estimated annual change (where an exponentiated coefficient of 1 signifies no change) in average regional spending for each MS-DRG/HCPCS episode type from year to year.

(8) Discount factor. CMS applies a discount factor of 2 percent to the CJR-X participant's preliminary target price.

(9) Notification of preliminary target prices. CMS provides written notice, in a form and manner specified by CMS, to the CJR-X participant of its preliminary target prices for each MS-DRG/HCPCS episode type for each region prior to the start of the performance year in which the preliminary target prices apply.