Medicare Program; Prospective Payment System for Federally Qualified Health Centers; Changes to Contracting Policies for Rural Health Clinics; and Changes to Clinical Laboratory Improvement Amendments of 1988 Enforcement Actions for Proficiency Testing Referral

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 491, and 493

[CMS-1443-FC]

RIN 0938-AR62

Medicare Program; Prospective Payment System for Federally Qualified Health Centers; Changes to Contracting Policies for Rural Health Clinics; and Changes to Clinical Laboratory Improvement Amendments of 1988 Enforcement Actions for Proficiency Testing Referral

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Final rule with comment period.

SUMMARY:

This final rule with comment period implements methodology and payment rates for a prospective payment system (PPS) for federally qualified health center (FQHC) services under Medicare Part B beginning on October 1, 2014, in compliance with the statutory requirement of the Affordable Care Act. In addition, it establishes a policy which allows rural health clinics (RHCs) to contract with nonphysician practitioners when statutory requirements for employment of nurse practitioners and physician assistants are met, and makes other technical and conforming changes to the RHC and FQHC regulations. Finally, this final rule with comment period implements changes to the Clinical Laboratory Improvement Amendments (CLIA) regulations regarding enforcement actions for proficiency testing (PT) referrals.

DATES:

Effective Dates:

The provisions of this final rule with comment period are effective on October 1, 2014, except for amendments to § 405.2468(b)(1), § 491.8(a)(3), § 493.1, § 493.2, § 493.1800, and § 493.1840 which are effective July 1, 2014.

Comment Period:

We will consider comments on the subjects indicated in sections II.B.1., E.2. and E.4. of this final rule with comment period received at one of the addresses provided below, no later than 5 p.m. on July 1, 2014.

ADDRESSES:

In commenting, please refer to file code CMS-1443-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1.

Electronically.

You may submit electronic comments on this regulation to

http://www.regulations.gov

. 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-1443-FC, P.O. Box 8013, Baltimore, MD 21244-1850.

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-1443-FC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.

By hand or courier.

Alternatively, you may deliver (by hand or courier) your written comments ONLY to the following addresses prior to the close of the comment period:

a. For delivery in Washington, DC—

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD—

Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. For information on viewing public comments, see the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Corinne Axelrod, (410) 786-5620 for FQHCs and RHCs.

Melissa Singer, (410) 786-0365 for CLIA Enforcement Actions for Proficiency Testing Referral.

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 Web site as soon as possible after they have been received:

http://www.regulations.gov

. Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

SUPPLEMENTARY INFORMATION:

Acronyms

ACS American Community Survey

AI/AN American Indian/Alaskan Native

AIR All-Inclusive Rate

APCP Advanced Primary Care Practice

BLS Bureau of Labor Statistics

CCM Chronic Care Management

CCN CMS Certification Number

CCR Cost-To-Charge Ratio

CFR Code of Federal Regulations

CLIA Clinical Laboratory Improvement Amendments of 1988

CMP Civil Monetary Penalty

CMS Centers for Medicare & Medicaid Services

CNM Certified Nurse Midwife

CP Clinical Psychologist

CR Change Request

CSW Clinical Social Worker

CY Calendar Year

DSMT Diabetes Self-Management Training

EHR Electronic Health Record

E/M Evaluation and Management

FQHC Federally Qualified Health Center

FSHCAA Federally Supported Health Centers Assistance Act

FTCA Federal Tort Claims Act

GAF Geographic Adjustment Factor

GAO Government Accountability Office

GPCI Geographic Practice Cost Index

HCPCS Healthcare Common Procedure Coding System

HCRIS Healthcare Cost Report Information System

HBV Hepatitis B Vaccines

HRSA Health Resources and Services Administration

IDR Integrated Data Repository

IPPE Initial Preventive Physical Exam

MA Medicare Advantage

MAC Medicare Administrative Contractor

MCO Managed Care Organization

MEI Medicare Economic Index

MIPPA Medicare Improvements for Patients and Providers Act

MNT Medical Nutrition Therapy

MSA Metropolitan Statistical Area

NP Nurse Practitioner

OBRA Omnibus Budget Reconciliation Act

PA Physician Assistant

PHS Public Health Service

PFS Physician Fee Schedule

PPS Prospective Payment System

PT Proficiency testing

RIA Regulatory Impact Analysis

RHC Rural Health Clinic

SNF Skilled Nursing Facility

UDS Uniform Data System

UPL Upper Payment Limit

Table of Contents

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

2. Summary of Major Provisions

a. FQHC PPS

b. Other FQHC and RHC Provisions

c. CLIA Enforcement Actions for Proficiency Testing Referral Provisions

3. Summary of Cost and Benefits

a. For the FQHC PPS

b. For Other FQHC and RHC Changes

c. For the CLIA Enforcement Actions for Proficiency Testing Referral

B. Overview and Background

1. FQHC Description and General Information

2. Medicare's FQHC Coverage and Payment Benefit

3. Legislation Pertaining to Medicare and Medicaid Payments for FQHC Services

4. Medicare's Current Reasonable Cost-Based Reimbursement Methodology

5. Summary of Requirements under the Affordable Care Act for the FQHC PPS and Other Provisions Pertaining to FQHCs

6. Approach to the FQHC PPS

II. Establishment of the Federally Qualified Health Center Prospective Payment System (FQHC PPS)

A. Design and Data Sources for the FQHC PPS

1. Overview of the PPS Design

2. Medicare FQHC Cost Reports

3. Medicare FQHC Claims

4. Linking Cost Reports and Claims To Compute the Average Cost per Visit

B. Policy Considerations for Developing the FQHC PPS Rates and Adjustments

1. Multiple Visits on the Same Day

2. Preventive Laboratory Services and Technical Components of Other Preventive Services

3. Vaccine Costs

C. Risk Adjustments

1. Alternative Calculations for Average Cost per Visit

2. FQHC Geographic Adjustment Factor

3. New Patient or Initial Medicare Visit

4. Other Adjustment Factors Considered

5. Report on PPS Design and Models

D. Base Rate Calculation

E. Implementation

1. Transition Period and Annual Adjustment

2. Medicare Claims Payment

3. Beneficiary Coinsurance

4. Waiving Coinsurance for Preventive Services

5. Cost Reporting

6. Medicare Advantage Organizations

III. Additional Proposed Changes Regarding FQHCs and RHCs

A Rural Health Clinic Contracting

B. Technical and Conforming Changes

1. Proposed Technical and Conforming Changes

2. Additional Technical and Conforming Changes

C. Comments Outside of the Scope of the Proposed Rule

IV. Clinical Laboratory Improvement Amendments of 1988 (CLIA)—Enforcement Actions for Proficiency Testing Referral

A. Background

B. Proposed and Final Regulatory Changes

V. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

VI. Waiver of Proposed Rulemaking

VII. Response to Comments

VIII. Regulatory Impact Analysis

A. Statement of Need

B. Overall Impact

C. Limitations of Our Analysis

D. Anticipated Effects of the FQHC PPS

1. Effects on FQHCs

2. Effects on RHCs

3. Effects on Other Providers and Suppliers

4. Effects on Medicare and Medicaid Programs

5. Effects on Medicare Beneficiaries

E. Effects of Other Policy Changes

1. Effects of Policy Changes for FQHCs and RHCs

a. Effects of RHC Contracting Changes

b. Effects of the FQHC and RHC Conforming Changes

2. Effects of CLIA Changes for Enforcement Actions for Proficiency Testing Referral

F. Alternatives Considered

G. Accounting Statement and Table

H. Conclusion

Regulations Text

ADDENDUM—FQHC PPS Geographic Adjustment Factors (FQHC GAFs)

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

Section 10501(i)(3)(A) of the Affordable Care Act (Pub. L. 111-148 and Pub. L. 111-152) added section 1834(o) of the Social Security Act (the Act) to establish a new system of payment for the costs of federally qualified health center (FQHC) services under Medicare Part B (Supplemental Medical Insurance) based on prospectively set rates. According to section 1834(o)(2)(A) of the Act, the FQHC prospective payment system (PPS) is to be effective beginning on October 1, 2014. The primary purpose of this final rule with comment period is to implement a methodology and payment rates for the new FQHC PPS.

This rule also implements our proposal to allow RHCs to contract with non-physician practitioners, consistent with statutory requirements in section 1861(aa) of the Act that require at least one nurse practitioner (NP) or physician assistant (PA) be employed by the RHC, and makes other technical and conforming changes to the RHC and FQHC regulations.

The “Taking Essential Steps for Testing Act of 2012” (TEST Act) (Pub. L. 112-202) was enacted on December 4, 2012. The TEST Act amended section 353 of the Public Health Service Act (PHS Act) to provide the Secretary with discretion as to which sanctions may be applied to cases of intentional violation of the prohibition on proficiency testing (PT) referrals. This final rule with comment period adopts changes to the CLIA regulations to implement the TEST Act.

2. Summary of the Major Provisions

a. FQHC PPS

In accordance with the provisions of the Affordable Care Act, we proposed in the September 23, 2013

Federal Register

(78 FR 58386) to establish a national, encounter-based prospective payment rate for all FQHCs, to be determined based on an average of reasonable costs of FQHCs in the aggregate, and pay FQHCs the lesser of their actual charges for services or a single encounter-based rate for professional services furnished per beneficiary per day. As required by section 1834(o)(1)(A) of the Act, we proposed to establish payment codes based on an appropriate description of FQHC services, and taking into account the type, intensity, and duration of services provided by FQHCs. We also proposed adjustments to the encounter-based payment rate for geographic differences in the cost of inputs by applying an adaptation of the geographic practice cost indices (GPCIs) used to adjust payments under the Physician Fee Schedule (PFS). These provisions are being finalized as proposed. We also proposed adjustments when a FQHC furnishes care to a patient who is new to the FQHC or to a beneficiary receiving a comprehensive initial Medicare visit (that is, an initial preventive physical examination (IPPE) or an initial annual wellness visit (AWV)). These provisions have been revised based on comments received and are being finalized to allow the proposed adjustments as well as an adjustment for subsequent AWVs.

We also proposed not to include adjustments or exceptions to the single, encounter-based payment when an illness or injury occurs subsequent to

the initial visit, or when mental health, diabetes self-management training/medical nutrition therapy (DSMT/MNT), or the IPPE are furnished on the same day as the medical visit. These provisions have been revised based on the comments received and are being finalized to allow an exception to the single, encounter-based payment when an illness or injury occurs subsequent to the initial visit, or when a mental health visit is furnished on the same day as the medical visit.

We also proposed that coinsurance would be 20 percent of the lesser of the actual charge or the PPS rate. Most preventive services are exempt from beneficiary coinsurance in accordance with section 4104 of the Affordable Care Act. Accordingly, for FQHC claims that include a mix of preventive and non-preventive services, we proposed to use physician office payments under the Medicare PFS to determine the proportional amount of coinsurance that should be waived for payments based on the PPS encounter rate, and to use provider-reported charges to determine the amount of coinsurance that should be waived for payments based on the provider's charge. This provision has been revised based on comments received and is being finalized to allow a simpler method for calculating coinsurance when there is a mix of preventive and non-preventive services.

The statute requires implementation of the FQHC PPS for FQHCs with cost reporting periods beginning on or after October 1, 2014. We proposed that FQHCs would transition into the PPS based on their cost reporting periods and that the claims processing system would maintain the current system and the PPS until all FQHCs transitioned to the PPS. We also proposed to transition the PPS to a calendar year update for all FQHCs, beginning January 1, 2016, to be consistent with many of the PFS rates that are updated on a calendar year basis. We are finalizing these provisions as proposed.

b. Other FQHC and RHC Changes

In addition to our proposals to codify the statutory requirements for the FQHC PPS, we proposed to allow RHCs to contract with non-physician practitioners, consistent with statutory requirements that require at least one NP or PA be employed by the RHC. We also proposed edits to correct terminology, clarify policy, and make other conforming changes for existing mandates and the new PPS.

c. CLIA Enforcement Actions for Proficiency Testing Referral

The “Taking Essential Steps for Testing Act of 2012” (Pub. L. 112-202) amended section 353 of the Public Health Service Act to provide the Secretary with discretion as to which sanctions may be applied to cases of intentional PT referral in lieu of the automatic revocation of the CLIA certificate and the subsequent ban preventing the owner and operator from owning or operating a CLIA-certified laboratory for 2 years. Based on this discretion, we are amending the CLIA regulations to add three categories of sanctions for PT referral based on the severity and extent of the violation.

3. Summary of Cost and Benefits

a. For the FQHC PPS

As required by section 1834(o)(2)(B)(i) of the Act, initial payment rates (Medicare and coinsurance) under the FQHC PPS must equal 100 percent of the estimated amount of reasonable costs, as determined without the application of the current system's upper payment limits (UPL) or productivity standards. In the proposed rule, we estimated the overall impact, based on the estimated PPS rate, would increase total Medicare payments to FQHCs by approximately 30 percent, with an annualized cost to the federal government between $183 million and $186 million, based on 5 year discounted flows using 3 percent and 7 percent factors. Based on current data, our final estimate is an overall impact of increasing total Medicare payments to FQHCs by approximately 32 percent, based on payment at the FQHC PPS. (Note that this does not take into account the application of “lesser of” provision in section 1833(a)(1)(Z) of the Act. For more information, see sections II.E.2 and VII.D.1 of this final rule with comment period). The annualized cost to the federal government associated with the final FQHC PPS is estimated to be between $200 million and $204 million, based on 5 year discounted flows using 3 percent and 7 percent factors. These estimates also reflect the policy modifications that are noted in section I.A.2 and discussed in more detail in sections II.B. and II.C. of this preamble.

b. For Other FQHC and RHC Changes

We estimated that there would be no costs associated with the removal of the contracting restrictions for RHCs or for technical and conforming regulatory changes that would be made in conjunction with the establishment of the FQHC PPS.

c. For the CLIA Enforcement Actions for Proficiency Testing Referral Provisions

We estimated that an average of 6 cases per year may have fit the terms described in the proposed rule to have alternative sanctions applied. Based on experience with laboratories that engaged in proficiency testing referral in the past, we estimated that the average cost experienced by laboratories for which we imposed a revocation of the CLIA certificate as a result of a PT referral violation was $578,000 per laboratory. We estimated that the average cost of alternative sanctions, based on comparable violations for which alternative sanctions have been imposed, would be $150,000 per laboratory. Therefore, we projected that the aggregate annual savings would be approximately $2.6 million per year ($578,000 minus $150,000 for 6 laboratories), resulting in net average savings per affected certificate holder of $428,000 ($578,000 minus $150,000). We continue to consider these to be reasonable estimates.

B. Overview and Background

1. FQHC Description and General Information

FQHCs are facilities that furnish services that are typically furnished in an outpatient clinic setting. They are currently paid an all-inclusive rate (AIR) per visit for qualified primary and preventive health services furnished to Medicare beneficiaries.

The statutory requirements that FQHCs must meet to qualify for the Medicare benefit are in section 1861(aa)(4) of the Act. Based on these provisions, the following three types of organizations that are eligible to enroll in Medicare as FQHCs:

• Health Center Program grantees: Organizations receiving grants under section 330 of the PHS Act (42 U.S.C. 254b).

• Health Center Program “look-alikes”: Organizations that have been identified by the Health Resources and Services Administration (HRSA) as meeting the requirements to receive a grant under section 330 of the PHS Act, but which do not receive section 330 grant funding.

• Outpatient health programs/facilities operated by a tribe or tribal organization (under the Indian Self-Determination Act) or by an urban Indian organization (under Title V of the Indian Health Care Improvement Act).

FQHCs are also entities that were treated by the Secretary for purposes of Medicare Part B as a comprehensive federally funded health center as of

January 1, 1990 (see section 1861(aa)(4)(C) of the Act).

Section 330 Health Centers are the most common type of FQHC. Originally known as Neighborhood Health Centers, they have evolved over the last 45 years to become an integral component of the Nation's health care safety net system, with more than 1,200 health centers operating approximately 9,000 delivery sites that serve more than 21 million people each year from medically underserved communities. They include community health centers (section 330(e) of the PHS Act), migrant health centers (section 330(g) of the PHS Act), health care for the homeless (section 330(h) of the PHS Act), and public housing primary care (section 330(i) of the PHS Act).

FQHCs may be either not-for-profit or public organizations. The main purpose of the FQHC program is to enhance the provision of primary care services in underserved urban, rural and tribal communities. FQHCs that are not operated by a tribe or tribal organization are required to be located in or treat people from a federally-designated medically underserved area or medically underserved population and to comply with all the requirements of section 330 of the PHS Act. Some of these section 330 requirements include offering a sliding fee scale with discounts adjusted on the basis of the patient's ability to pay and being governed by a board of directors that represent the individuals being served by the FQHC and a majority of whom receive their care at the FQHC. According to HRSA's Uniform Data System (UDS),

1

approximately 8 percent of FQHC patients were Medicare beneficiaries, 41 percent were Medicaid recipients, and 36 percent were uninsured in 2012. The remaining 15 percent were privately insured or had other public insurance. Medicare and Medicaid accounted for approximately 9 percent and 47 percent of their total billing in dollars, respectively.

1

The UDS collects and tracks data such as patient demographics, services provided, staffing, clinical indicators, utilization rates, costs, and revenues from section 330 health centers and health center look-alikes.

The Congress has authorized several programs to assist FQHCs in increasing access to care for underserved and special populations. Many FQHCs receive section 330 grant funds to offset the costs of uncompensated care and furnish other services. All FQHCs are eligible to participate in the 340B Drug Pricing Program which is a program that requires drug manufacturers to provide outpatient drugs to eligible health care organizations/covered entities at significantly reduced prices. FQHCs that receive section 330 grant funds also are eligible to apply for medical malpractice coverage under Federally Supported Health Centers Assistance Act (FSHCAA) of 1992 (Pub. L. 102-501) and FSHCAA of 1995 (Pub. L. 104-73 amending section 224 of the PHS Act) and may be eligible for federal loan guarantees for capital improvements when funds for this purpose are appropriated. Title VIII of the American Recovery and Reinvestment Act (Pub. L. 111-5) appropriated $2 billion for construction, equipment, health information technology, and related improvements to existing section 330 grantees and for the establishment of new grantees sites. The Affordable Care Act appropriated an additional $11 billion over a 5-year period ($1.5 billion for capital improvements and $9.5 billion for support and expansion of the health centers receiving grant funds under section 330). HRSA administers the Health Center grant program and other programs that assist FQHCs in increasing access to primary and preventive health care in underserved communities.

2. Medicare's FQHC Coverage and Payment Benefit

The FQHC coverage and payment benefit under Medicare began on October 1, 1991. It was authorized by section 1861(aa) of the Act (which amended section 4161 of the Omnibus Budget Reconciliation Act (OBRA) of 1990 (Pub. L. 101-508, enacted on November 5, 1990)) and implemented in regulations via the June 12, 1992 final rule with comment period (57 FR 24961) and the April 3, 1996 final rule (61 FR 14640). Regulations pertaining to FQHCs are found primarily in Part 405 and Part 491.

FQHC covered services and supplies include the following:

• Physician, NP, PA, Certified Nurse-Midwife (CNM), Clinical Psychologist (CP), and Clinical Social Worker (CSW) services.

• Services and supplies furnished incident to a physician, NP, PA, CNM, CP, or CSW services.

• FQHC covered drugs that are furnished by a FQHC practitioner.

• Outpatient DSMT and MNT for beneficiaries with diabetes or renal disease.

• Statutorily-authorized preventive services.

• Visiting nurse services to the homebound in an area where CMS has determined that there is a shortage of home health agencies.

3. Legislation Pertaining to Medicare and Medicaid Payments for FQHC Services

FQHCs currently receive cost-based reimbursement, subject to the UPL and productivity standards that were established in 1978 and 1982 for RHCs (43 FR 8260 and 47 FR 54165, respectively) and adopted for FQHCs in 1992 and 1996 (57 FR 24967 through 24970 and 61 FR 14650 through 14652, respectively), for services furnished to Medicare beneficiaries, and PPS payment, based on their historical cost data, for services furnished to Medicaid recipients (section 1902(bb) of the Act). The UPL for Medicare FQHC services is adjusted annually based on the Medicare Economic Index (MEI), as described in section 1842(i)(3) of the Act. Authority to apply productivity standards is found in section 1833(a) and 1861(v)(1)(A) of the Act. Section 151(a) of the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008 (Pub. L. 110-275, enacted on July 15, 2008) increased the UPL for FQHC by $5, effective January 1, 2010. Section 151(b) of the MIPPA required the Government Accountability Office (GAO) to study and report on the effects and adequacy of the Medicare FQHC payment structure.

Based on a GAO analysis of 2007 Medicare cost report data, about 72 percent of FQHCs had average costs per visit that exceeded the UPL, and the application of productivity standards reduced Medicare payment for approximately 7 percent of FQHCs. In 2007, application of the limits and adjustments currently in place reduced FQHCs' submitted costs of services by approximately $73 million, about 14 percent (Medicare Payments to Federal Qualified Health Centers, GAO-10-576R, July 30, 2010).

The Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554, enacted December 21, 2000) created section 1902(bb) of the Act, which established a PPS for Medicaid reimbursement. The law also allowed state Medicaid agencies to establish their own reimbursement methodology for FQHCs provided that total reimbursement would not be less than the payment under the Medicaid PPS, and that the FQHC agreed to the alternative payment methodology. For beneficiaries enrolled in a managed care organization (MCO), the MCO pays the FQHC an agreed upon amount, and the state Medicaid program pays the FQHC a wrap-around payment equal to the difference, if any, between the PPS rate and the payment from the managed care organization.

The Affordable Care Act established a Medicare PPS for FQHCs. Section 10501(i)(3)(A) of the Affordable Care Act added section 1834(o) of the Act, requiring the Medicare FQHC PPS to be implemented for cost reporting periods beginning on or after October 1, 2014. The new PPS for FQHCs is required to take into account the type, intensity, and duration of services furnished by FQHCs and may include adjustments, including geographic adjustments, determined appropriate by the Secretary. A detailed discussion of the statutory requirements for the Medicare FQHC PPS is discussed in section I.B.5. of this final rule with comment period.

4. Medicare's Current Reasonable Cost-Based Reimbursement Methodology

FQHCs are paid an AIR per visit for medically-necessary professional services that are furnished face-to-face (one practitioner and one patient) with a FQHC practitioner (§ 405.2463). Services and supplies furnished incident to a FQHC professional service are included in the AIR and are not billed as a separate visit. Technical components such as x-rays, laboratory tests, and durable medical equipment are not part of the AIR and are billed separately to Medicare Part B.

The AIR is calculated by dividing total allowable costs by the total number of visits. Allowable costs may include practitioner compensation, overhead, equipment, space, supplies, personnel, and other costs incident to the delivery of FQHC services. Cost reports are filed in order to identify all incurred costs applicable to furnishing covered FQHC services. Freestanding FQHCs complete Form CMS-222-92, “Independent Rural Health Clinic and Freestanding Federally Qualified Health Center Cost Report”. FQHCs based in a hospital complete the Worksheet M series of Form CMS-2552-10, “Hospital and Hospital Care Complex Cost Report”. FQHCs based in a skilled nursing facility (SNF) complete the Worksheet I series of Form CMS-2540-10, “Skilled Nursing Facility and Skilled Nursing Facility Health Care Complex Cost Report”. FQHCs based in a home health agency complete the Worksheet RF series of Form CMS-1728-94, “Home Health Agency Cost Report”. Information on these cost report forms is found in Chapters 29, 40, 41 and 32, respectively, of the Provider Reimbursement Manual, Part 2 (Publication 15-2). Per our regulations at § 413.65(n), only FQHCs that were operating as provider-based clinics prior to 1995 and either received funds under section 330 of the PHS Act or were determined by CMS to meet the criteria to be a look-alike clinic continue to be eligible to be certified as provider-based FQHCs. Provider-based designations are not made for FQHCs that do not already have this status.

At the beginning of a FQHC's fiscal year, the Medicare Administrative Contractor (MAC) calculates an interim AIR based on actual costs and visits from the previous cost reporting period. For new FQHCs, the interim AIR is estimated based on a percentage of the per-visit limit. FQHCs receive payments throughout the year based on their interim rate. After the conclusion of the fiscal year, the cost report is reconciled and any necessary adjustments in payments are made.

Allowable costs are subject to tests of reasonableness, productivity standards, and an overall payment limit. The productivity standards require 4,200 visits per full-time equivalent physician and 2,100 visits per full-time equivalent non-physician practitioner (NP, PA or CNM) on an annual basis. If the FQHC has furnished fewer visits than required by the productivity standards, the allowable costs would be divided by the productivity standards numbers instead of the actual number of visits.

The payment limit varies based on whether the FQHC is located in an urban or rural area (as defined in section 1886(d)(2)(D) of the Act). The 2014 payment limits per visit for urban and rural FQHCs are $129.02 and $111.67, respectively. FQHCs with multiple sites may elect to file a consolidated cost report (CMS Pub. 100-04, Medicare Claims Processing Manual, chapter 9, section 30.8), and if the FQHC has both urban and rural sites, the MAC applies a weighted UPL based on the percentage of urban and rural visits as the percentage of total site visits. The AIR is equal to the FQHC's cost per visit (adjusted by the productivity standard if appropriate) or the payment limit, whichever is less.

Medicare beneficiaries receiving services at a FQHC are not subject to the annual Medicare deductible for FQHC-covered services (section 1833(b)(4) of the Act). Medicare beneficiaries pay a copayment based on 20 percent of the charges (section 1866(a)(2)(A)(ii) of the Act), except for: (1) Mental health treatment services, which are subject to the outpatient mental health treatment limitation until January 1, 2014, when beneficiary coinsurance is reduced to the same level as most other Part B services; (2) FQHC-supplied influenza and pneumococcal and Hepatitis B vaccines (HBV); and (3) effective January 1, 2011, personalized prevention plan services and any Medicare covered preventive service that is recommended with a grade of A or B by the U.S. Preventive Services Task Force.

The administration and payment of influenza and pneumococcal vaccines is not included in the AIR. They are paid at 100 percent of reasonable costs through the cost report. The cost and administration of HBV is covered under the FQHC's AIR.

5. Summary of Requirements Under the Affordable Care Act for the FQHC PPS and Other Provisions Pertaining to FQHCs

Section 10501(i)(3)(A) of the Affordable Care Act amended section 1834 of the Act by adding a new subsection (o), “Development and Implementation of Prospective Payment System”. Section 1834(o)(1)(A) of the Act requires that the system include a process for appropriately describing the services furnished by FQHCs. Also, the system must establish payment rates for specific payment codes based on such descriptions of services, taking into account the type, intensity, and duration of services furnished by FQHCs. The system may include adjustments (such as geographic adjustments) as determined appropriate by the Secretary of HHS.

Section 1834(o)(1)(B) of the Act specifies that, by no later than January 1, 2011, FQHCs must begin submitting information as required by the Secretary, including the reporting of services using Healthcare Common Procedure Coding System (HCPCS) codes, in order to develop and implement the PPS.

Section 1834(o)(2)(A) of the Act requires that the FQHC PPS must be effective for cost reporting periods beginning on or after October 1, 2014. For such cost reporting periods, reasonable costs will no longer be the basis for Medicare payment for services furnished to beneficiaries at FQHCs.

Section 1834(o)(2)(B)(i) of the Act requires that the initial PPS rates must be set so as to equal in the aggregate 100 percent of the estimated amount of reasonable costs that would have occurred for the year if the PPS had not been implemented. This 100 percent must be calculated prior to application of copayments, per visit limits, or productivity adjustments.

Section 1834(o)(2)(B)(ii) of the Act describes the methods for determining payments in subsequent years. After the first year of implementation, the PPS payment rates must be increased by the percentage increase in the MEI. After the second year of implementation, PPS rates shall be increased by the percentage increase in a market basket

of FQHC goods and services as established through regulations, or, if not available, the MEI that is published in the Physician Fee Schedule (PFS) final rule.

Section 10501(i)(3)(B) of the Affordable Care Act added section 1833(a)(1)(Z) to the Act to specify that Medicare payment for FQHC services under section 1834(o) of the Act shall be 80 percent of the lesser of the actual charge or the PPS amount determined under section 1834(o) of the Act.

Section 10501(i)(3)(C) of the Affordable Care Act added section 1833(a)(3)(B)(i)(II) of the Act to require that FQHCs that contract with Medicare Advantage (MA) organizations be paid at least the same amount they would have received for the same service under the FQHC PPS.

Section 10501(i)(2) of the Affordable Care Act amended the definition of FQHC services as defined in section 1861(aa)(3)(A) of the Act by replacing the specific references to services furnished under section 1861(qq) and (vv) of the Act (DSMT and MNT services, respectively) with preventive services as defined in section 1861(ddd)(3) of the Act, as established by section 4014(a)(3) of the Affordable Care Act. These changes were effective for services furnished on or after January 1, 2011. Accordingly, in the CY 2011 Medicare PFS final rule (75 FR 73417 through 73419, November 29, 2010) we adopted conforming regulations by adding a new § 405.2449, which added the new preventive services definition to the definition of FQHC services effective for services furnished on or after January 1, 2011 (see that rule for a detailed discussion regarding preventive services covered under the FQHC benefit and the requirements for waiving coinsurance for such services).

Section 1833(b)(4) of the Act stipulates that the Medicare Part B deductible shall not apply to FQHC services. The Affordable Care Act made no change to this provision; therefore Medicare will continue to waive the Part B deductible for all FQHC services in the FQHC PPS, including preventive services added by the Affordable Care Act.

6. Approach to the FQHC PPS

To enhance our understanding of the services furnished by FQHCs and the unique role of FQHCs in providing services to people from medically underserved areas and populations, we worked closely with HRSA and others in the development of the proposed rule. We are aware of the challenges facing FQHCs in increasing access to health care for underserved populations and the importance of Medicare payments to the overall financial viability of FQHCs. Our goal for the FQHC PPS is to implement a system in accordance with the statute whereby FQHCs are fairly paid for the services they furnish to Medicare patients in the least burdensome manner possible, so that they may continue to furnish primary and preventive health services to the communities they serve.

We have evaluated our approach based on the comments we received to the proposed rule in the context of balancing payment requirements, regulatory burden, and the need for appropriate accountability and oversight. We received approximately 100 timely comments on the proposed FQHC PPS. The following sections describe the comments we received, our response to the comments, and the final decisions on our proposals.

II. Establishment of the Federally Qualified Health Center Prospective Payment System (FQHC PPS)

A. Design and Data Sources for the FQHC PPS

1. Overview of the PPS Design

In developing the new PPS for FQHCs, we considered the statutory requirements at section 1834(o)(1)(A) of the Act requiring that the new PPS take into account the type, intensity, and duration of services furnished by FQHCs, and allows for adjustments, including geographic adjustments, as determined appropriate by the Secretary. The statute also requires us to “establish payment rates for specific payment codes based on . . . appropriate description of services.” We explored several approaches to the methodology and modeled options for calculating payment rates and adjustments under a PPS based on data from Medicare FQHC cost reports and Medicare FQHC claims. Each option was evaluated to determine which approach would result in the most appropriate payment structure with the fewest reporting requirements and least administrative burden for the FQHCs.

One approach we considered would align payment for FQHCs with payment for services typically furnished in physician offices, making separate payment for each coded service and adopting the relative values from the PFS. While this approach follows established payment policy for services furnished in an outpatient clinic setting, it unbundles a FQHC encounter-based payment into a fee schedule structure, which we believe could encourage excess utilization in the long-term, and could increase coding and billing requirements for FQHCs.

Another approach for the PPS would be to pay a single encounter-based rate per beneficiary per day. The encounter-based rate would be based on an average cost per visit, which would be calculated by aggregating the data for all FQHCs and dividing their total costs by their total visits incurred during a specified time period. An encounter-based payment rate is consistent with the agency's commitment to greater bundling of services, which gives FQHCs the flexibility to implement efficiencies to reduce over-utilization of services. FQHCs are accustomed to billing for a single visit, as they are currently paid through an AIR that is based on a FQHC's own average cost per visit. An encounter-based payment is also similar to Medicaid payment systems, and Medicaid constitutes a large portion of FQHC billing (approximately 47 percent, compared to approximately 9 percent for Medicare). We believe an encounter-based payment rate (with a few adjustments as discussed in section II.C. of this final rule with comment period), for the FQHC PPS would provide appropriate payment while remaining administratively simple.

Also, our analysis of Medicare claims data supported an encounter-based payment rate. As discussed in section II.A.3 of this final rule with comment period, our analysis determined that FQHC Medicare claims listed a single HCPCS code that defined the overall type of encounter (for example, a mid-level office visit (HCPCS code 99213)). The vast majority of FQHC encounters were defined as evaluation and management (E/M) office visits (HCPCS codes 99201 through 99215). Other codes were used more sporadically, and we believe that the administrative burden associated with developing and maintaining a payment system composed of multiple rates (for example, a fee schedule) far outweighs the minor variations in reimbursement. Therefore, we developed an encounter-based rate, with a few adjustments, as the basis for payment under the FQHC PPS. We believe the description of FQHC services that we proposed in the proposed rule, and the development of payment codes that are based on the costs of groups of FQHC services (as discussed in section II.E.2. of this final rule with comment period), meets the requirement of the statute.

Comment:

A large number of commenters were strongly supportive of a single, bundled encounter-based PPS rate, and many noted that this approach encourages comprehensive and

integrated care. Some of the commenters who supported a bundled encounter-based rate also recommended that CMS develop multiple rates to reflect additional payment adjustments.

Response:

We agree with the commenters that a bundled encounter-based rate would provide appropriate payment while remaining administratively simple. We will address the recommendations for additional payment adjustments in section II.C.4. of this final rule with comment period.

After consideration of the public comments received, we are finalizing our proposal to pay FQHCs using an encounter-based rate.

2. Medicare FQHC Cost Reports

As required by section 1834(o)(2)(B)(i) of the Act, initial payment rates (Medicare and coinsurance) under the FQHC PPS must equal 100 percent of the estimated amount of reasonable costs, as determined without the application of the current system's UPLs or productivity standards that can reduce a FQHC's per visit rate. In order to estimate 100 percent of reasonable costs for the proposed rule, we obtained Medicare cost report data for free-standing FQHCs (Form CMS 222-92) from the March 31, 2013, Healthcare Cost Report Information System (HCRIS) quarterly update, and we identified cost reports with cost reporting periods that ended between June 30, 2011, and June 30, 2012. We stated in the proposed rule that we would use the most recent available data for the final rule. Therefore, in estimating 100 percent of reasonable costs for this final rule with comment period, we used cost report data from December 31, 2013, HCRIS quarterly update, and we supplemented this with data from the three prior HCRIS quarterly updates (that is, September 30, 2013, June 30, 2013, and March 31, 2013). We also obtained HCRIS data for hospital-based FQHCs (Form 2552-10) and HHA-based FQHCs (Form 1728-94), which added data from provider-based FQHCs. In the expanded sample that we used for this final rule with comment period, we identified cost reports with cost reporting periods ending between June 30, 2011, and June 30, 2013. We included in our analysis FQHC costs reports that had allowable costs (excluding pneumococcal and influenza vaccines) and Medicare visits, and we used one cost report for each FQHC cost reporting entity. (A cost reporting entity is a FQHC delivery site that files either an individual or a consolidated cost report.) For 63 percent of cost reporting entities, there were either multiple cost reports available or the cost reporting period was not exactly 1 year. For the remaining 37 percent of cost reporting entities, the only available cost report covered 1 full year. Compared to the characteristics of the cost report data used for the proposed rule, the significant increase in the percentage of FQHCs with multiple cost reports is due mostly to the expanded time period that we used for the final rule to identify cost reports available for analysis. For cost reporting entities with multiple cost reports available, we selected the most recent cost report, unless an earlier cost report provided us with a better match to the FQHC claims data that was used to model potential adjustments. Because FQHCs with multiple sites can file consolidated cost reports, we also ensured that we selected only one cost report for each delivery site.

As required by statute, we estimated 100 percent of reasonable costs that would have occurred for this period prior to the application of copayments, per visit limits, or productivity adjustments. We also note that, under section 1833(c) of the Act, effective January 1, 2014, outpatient mental health services are paid on the same basis as other Part B services. As the FQHC PPS is to be implemented for cost reporting periods beginning on or after October 1, 2014, we adjusted the cost report data to remove the application of the outpatient mental health limitations that were in effect when these reported services were incurred.

For this final rule with comment period, we used the methodology described in the proposed rule to estimate 100 percent of reasonable costs. After eliminating the current payment limits, outpatient mental health limitations, and productivity and adjustments, we calculated the average cost per visit for each cost reporting entity by dividing the total estimated Medicare costs (excluding vaccines) reported by the total number of Medicare visits reported.

In developing the FQHC PPS, section 1834(o)(1)(A) of the Act allows for adjustments determined appropriate by the Secretary. Consistent with this authority, we excluded statistical outliers from the sample of cost reports used for the proposed rule. We identified all cost reporting entities with an average cost per visit that was greater than three standard deviations above or below the geometric mean of the overall average cost per visit among cost reporting entities, and we excluded their data from our sample. We believe that removing statistical outliers is consistent with standard practice and results in a more accurate estimation of costs overall. In this final rule with comment period, we used the same approach to exclude statistical outliers from the cost report sample.

Comment:

Several commenters objected to the exclusion of outlier cost reports and claims in calculating the base rate. Some of these commenters opined that the authority in section 1834(o)(1)(A) of the Act, to “include adjustments . . . determined appropriate by the Secretary” cannot override the requirement in section 1834(o)(2)(B) of the Act that the aggregate amount of initial PPS rates equal “100 percent of the estimated amount of reasonable costs (determined without the application of a per visit payment limit or productivity screen).” Commenters suggested that the exclusion of outliers results in a lower base rate and would not represent all appropriate costs, such as higher costs of visits furnished to complex Medicare patients, or for furnishing costly, but necessary items, such as expensive drugs and biologicals, whose costs may be beyond a FQHC's control. Some of the commenters also urged CMS to compute the base PPS rate without the exclusion of outliers.

Response:

We respectfully disagree with the assertion that the exclusion of outliers is inconsistent with statutory authority. Under section 1834(o)(2)(B) of the Act, we are required to set the initial payment rates to equal “100 percent of the estimated amount of reasonable costs.” The statute does not require us to set initial payment rates based on the inclusion of every cost report or claim submitted. We analyzed the most current available FQHC cost report and claims data, and consistent with standard practice, trimmed the data for outliers so that the estimates are not skewed by unusual data. Outliers were defined based on two criteria: (1) Cost reports with an average cost per visit value more than 3 standard deviations from the geometric mean of all average costs per visit; and (2) encounters with an adjusted charge value more than 3 standard deviations from the geometric mean of all adjusted charges. This trim methodology of three standard deviations from the geometric mean is a relatively conservative approach, and the two trims together exclude less than 3 percent of the overall sample. We believe that removing statistical outliers results in a more accurate estimation of costs overall.

Comment:

Several commenters from tribal organizations recommended that CMS not exclude outliers in calculating the base rate, as they believe that they may be disproportionately impacted because their costs are unusually high.

Response:

Of the approximately 69 tribal FQHCs furnishing services at approximately 114 separate sites, there were 8 tribal FQHCs whose costs were considered statistical outliers. Although tribal FQHCs have a higher rate of statistical outliers than non-tribal FQHCs, the number of tribal FQHCs whose costs were more than three standard deviations from the geometric mean is still quite low. As previously noted, the statute does not require the rate to reflect actual costs for each individual FQHC. The per diem rate that is established reflects the national average cost of a FQHC visit.

Comment:

A commenter noted that FQHCs count multiple visits per day on their cost reports, and FQHCs should be given a one-time opportunity to adjust their reported FQHC visits to a per diem to avoid an undue reduction in the estimated cost per FQHC visit.

Response:

As stated in the proposed rule, we used the adjusted claims data to calculate an average cost per diem in order to accurately capture all costs and did not rely solely on cost report data. We used the same approach for this final rule with comment period.

Comment:

Some commenters were concerned that costs related to electronic health record (EHR) implementation would not be adequately reflected in 2012 cost report data as many FQHCs adopted EHRs in 2012.

Response:

We used the most recent available data for this final rule, and we updated our sample to include cost reports with reporting periods ending June 30, 2013. We do not believe it is appropriate to adjust the calculation of reasonable cost based on anticipated future costs.

3. Medicare FQHC Claims

In developing the Medicare FQHC PPS, section 1834(o)(1)(A) of the Act requires us to take into account the type, intensity, and duration of FQHC services, and allows other adjustments, such as geographic adjustments. Section 1834(o)(1)(B) of the Act also granted the Secretary of HHS (the Secretary) the authority to require FQHCs to submit such information as may be required in order to develop and implement the Medicare FQHC PPS, including the reporting of services using HCPCS codes. The provision requires that the Secretary impose this data collection submission requirement no later than January 1, 2011. The requirement for FQHCs to submit HCPCS codes was implemented through program instructions (CMS Change Request (CR) 7038).

Beginning with dates of service on or after January 1, 2011, FQHCs are required to report all pertinent services furnished and list the appropriate HCPCS code for each line item along with revenue code(s) for each FQHC visit when billing Medicare. The additional line item(s) and HCPCS code reporting were for informational and data gathering purposes to inform development of the PPS rates and potential adjustments. Other than for calculating the amount of coinsurance to waive for preventive services for which the coinsurance is waived, these HCPCS codes are not currently used to determine current Medicare payment to FQHCs. We proposed to use the HCPCS codes in the FQHC claims data to support the development of the FQHC PPS rate and adjustments and for making payment under the PPS.

In order to model potential adjustments for the proposed rule, we obtained final action Medicare FQHC claims (type of bill 73X and 77X) from the CMS Integrated Data Repository (IDR) with dates of service between January 2010 and December 2012. To model potential adjustments for this final rule with comment period, we obtained final action Medicare FQHC claims from the CMS IDR with dates of service between January 2011 and December 2013. Of these claims, only those with dates of service between January 1, 2011, and June 30 2013, were retained for analysis and linking with Medicare cost reports, as described further in section II.A.4. of this final rule with comment period. We excluded claims that did not list a revenue code or HCPCS code that represented a face-to-face encounter, as these services would not qualify for an AIR payment. We also excluded claim lines with revenue codes that did not correspond to FQHC services or that lacked valid HCPCS codes.

In 2011, approximately 90 percent of FQHC Medicare claims listed a single HCPCS code that defined the overall type of encounter (for example, a mid-level office visit (HCPCS code 99213)). We found similar reporting trends in 2012 FQHC Medicare claims. For this final rule with comment period, we updated our analysis of HCPCS reporting trends and found they are relatively similar in 2013 FQHC Medicare claims. We sought to validate the completeness of HCPCS reporting by analyzing coding on primary care physician claims for PFS data. When compared, the findings from the simulated PFS data and actual FQHC data were similar in the type and distribution of the reported encounter code (that is, the HCPCS code that represents the visit that qualifies the FQHC encounter for an AIR payment). When ancillary services (services that are not separately billable by a FQHC) were billed with an office visit code, both FQHC and analogous primary care physician office claims demonstrated a tendency to include only one to two ancillary services in addition to the encounter code about 35 percent of the time, and FQHCs billed only a single ancillary service about 10 percent of the time.

We believe that the reporting trends in the FQHC claims are consistent with the coding of analogous primary care physician office claims, thereby suggesting that the limited number of ancillary services listed on FQHC claims appropriately describe the services furnished during an encounter.

Comment:

Commenters supported the use of the HCPCS codes in the FQHC claims data to support the development of the FQHC PPS rate and adjustments and for making payment under the PPS. Some commenters recommended that we incorporate additional payment adjustments based on the HCPCS codes in the FQHC claims data.

Response:

We agree with the commenters that it is appropriate to use the HCPCS codes in the FQHC claims data to support the development of the FQHC PPS rate and adjustments and for making payment under the PFS. We will address the recommendations for additional payment adjustments in section II.C.4. of this final rule with comment period.

Comment:

Some commenters were concerned that services that were more recently recognized as payable to FQHCs would not be reflected in the claims sample as it did not include claims with dates of service beyond June 30, 2012.

Response:

We used the most recent available data for this final rule with comment period. We updated our sample to include claims with dates of service through June 30, 2013, to the extent that an associated cost report was included in our cost report sample (as discussed previously and in section II.A.2. of this final rule with comment period).

Comment:

A commenter was concerned that a FQHC market basket of goods and services would not reflect the variety of non-billable ancillary services furnished during a FQHC visit.

Response:

Market baskets developed for other Medicare payment systems typically utilize cost report data, and the costs of covered services provided incident to a billable visit may be included on the FQHC cost report.

Comment:

Some commenters opined that the implementation of HCPCS reporting for FQHCs was confusing, resulting in claims with significant errors in line item reporting, and questioned the credibility of analyses based on claims submitted in 2011 and 2012.

Response:

Since data used for the proposed rule included final action claims with dates of service through June 2012 that were obtained from the IDR in 2013, we believe that any initial errors in the coding or adjustment of claims were corrected or were not present in the majority of the claims used for modeling adjustments in the proposed rule. (see CMS CRs 7038 and 7208, which updated CMS Pub 100-04, Claims Processing Manual, Chapter 9). For this final rule with comment period, we updated our sample to include final action claims with dates of services through June 2013, which are even less likely to have significant coding or adjustment errors.

After consideration of the public comments received, we are finalizing our proposal to use the HCPCS codes in the FQHC claims data to support the development of the FQHC PPS rate and adjustments and for making payment under the PFS.

4. Linking Cost Reports and Claims To Compute the Average Cost per Visit

In this final rule with comment period we used the same methodology described in the proposed rule in order to compute the adjusted charges or “estimated cost” for determining the average cost per visit. We linked claims to cost reports by delivery site, as determined by the CMS Certification Number (CCN) reported on the claim. Since the HCPCS code reporting requirement on claims did not go into effect until January 1, 2011, claims for earlier dates of service did not include the detail required to model adjustments based on type, intensity, or duration of services. In the sample used for the proposed rule, cost reports with reporting periods that began on or after January 1, 2011, accounted for 81 percent of the sample. In the updated sample used for this final rule with comment period, cost reports with reporting periods that began on or after January 1, 2011, accounted for 98 percent of the sample. We linked these cost reports to Medicare FQHC claims with service dates that matched their respective cost reporting periods. For cost reports that were at least 1 full year in length and with a cost reporting period that began in 2010, we linked these cost reports to 2011 Medicare FQHC claims.

The linked cost report and claims data were then used to calculate a cost-to-charge ratio (CCR) for each cost-reporting entity. To approximate data not available on the cost report, we developed these CCRs to convert each FQHC's charge data, as found on its claims, to costs. We calculated an average cost per visit by dividing the total allowable costs (excluding pneumococcal and influenza vaccinations) by the total number of visits reported on the cost report. We calculated an average charge per visit by dividing the total charges of all visits (Medicare and non-Medicare) for all sites under a cost-reporting entity and dividing that sum by the total number of visits for that cost-reporting entity. We calculated a cost-reporting entity-specific CCR by dividing the average cost per visit (based on cost report data) by the average charge per visit (based on claims data). We multiplied the submitted charges for each claim by these cost-reporting entity-specific CCRs to estimate FQHC costs per visit. We note that other Medicare payment systems calculate CCRs based on total costs and total charges reported on Medicare cost reports, and that this information is not currently available on the free-standing FQHC cost report, Form CMS-222-92.

In developing the FQHC PPS, section 1834(o)(1)(A) of the Act allows for adjustments determined appropriate by the Secretary. Consistent with this authority, we excluded statistical outliers from the linked claims sample used for the proposed rule. We identified visits with estimated costs that were greater than three standard deviations above or below the geometric mean of the overall average estimated cost per visit, and we excluded those visits from our sample. We believe that removing statistical outliers is consistent with standard practice and results in a more accurate estimation of costs overall. For this final rule with comment period, we used the same approach to exclude statistical outliers from the linked claims sample.

After trimming the linked claims data for outliers, the final data set used for this final rule with comment period included 5,468,852 visits from 5,458,632 distinct claims encompassing 6,533,716 claim lines. This included visits furnished to 1,297,013 beneficiaries at 3,778 delivery sites under 1,215 cost-reporting entities. For this final rule with comment period, we modified the definition of a daily visit to be consistent with our revised policy to allow an exception to the per diem PPS payment for subsequent injury or illness and mental health services furnished on the same day as a medical visit. Separately payable encounters for the same beneficiary at the same FQHC were combined into a single daily visit, while allowing for a separate medical visit, mental health visit, and subsequent illness/injury visit, which could result in up to three encounters per beneficiary per day. The final data set yielded 5,462,670 daily visits.

Comment:

A commenter suggested that using CCRs to measure the cost of furnishing FQHC services is not appropriate for FQHCs because certain types of FQHC care management services are not captured in the billed charges; the CCRs would not be uniform among medical and mental health services; and the CCRs would be affected by the pricing strategies of FQHCs that keep their charges low to minimize the copayment impact on uninsured and indigent patients. The commenter recommended that CMS use PFS relative value units or other metrics to adjust FQHC average cost per visit.

Response:

We used Medicare cost report data to measure the aggregate reasonable cost of furnishing FQHC services. However, as discussed in the proposed rule, the cost report data is insufficient for modeling the types of adjustments considered for the FQHC PPS. The CCRs for each cost-reporting entity were used to approximate data not available on the cost report and to convert each FQHC's charge data, as found on its claims, to costs. The use of the CCRs was primarily for modeling the adjustments and does not substantially impact our measure of the aggregate reasonable cost of furnishing FQHC services. Therefore, in this final rule with comment period, we plan to continue to use the CCR to adjust charges in order to estimate costs.

Comment:

A commenter requested that CMS clarify whether a statistically significant number of outlier visits were for FQHCs in a particular state or for a particular service.

Response:

The average range of outliers based on the adjusted charge for the encounter was approximately 1.3 percent of FQHC visits, with higher rates in U.S. territories (4 percent) and the Pacific census division (3 percent). Slightly more than 1 percent of all office visits were outliers.

B. Policy Considerations for Developing the FQHC PPS Rates and Adjustments

In developing the FQHC PPS rates and adjustments, we considered existing payment policies regarding payment for multiple visits on the same day, preventive laboratory services and technical components of other preventive services, and vaccine costs to

determine potential interactions with the implementation of the FQHC PPS.

1. Multiple Visits on the Same Day

The current all-inclusive payment system was designed to reimburse FQHCs for services furnished to Medicare beneficiaries at a rate that would take into account all costs associated with the provision of services (for example, space, supplies, practitioners, etc.) and reflect the aggregate costs of providing services over a period of time. In some cases, the per visit rate for a specific service is higher than what would be paid based on the PFS, and in some cases it is lower than what would be paid based on the PFS, but at the end of the reporting year when the cost report is settled, the Medicare payment is typically higher for FQHCs than if the services were billed separately on the PFS.

The all-inclusive payment system was also designed to minimize reporting requirements, and as such, it reflects all the services that a FQHC furnishes in a single day to an individual beneficiary, regardless of the length or complexity of the visit or the number or type of practitioners seen. This includes situations where a FQHC patient has a medically-necessary face-to-face visit with a FQHC practitioner, and is then seen by another FQHC practitioner, including a specialist, for further evaluation of the same condition on the same day, or is then seen by another FQHC practitioner (including a specialist) for evaluation of a different condition on the same day. Except for certain preventive services that have coinsurance requirements waived, FQHCs have not been required to submit coding of each service in order to determine Medicare payment.

Although the all-inclusive payment system was designed to provide enhanced reimbursement that reflects the costs associated with a visit in a single day by a Medicare beneficiary, an exception to the one encounter payment per day policy was made for situations when a patient comes into the FQHC for a medically-necessary visit, and after leaving the FQHC, has a medical issue that was not present at the visit earlier that day, such as an injury or unexpected onset of illness. In these situations, the FQHC has been permitted to be paid separately for two visits on the same day for the same beneficiary.

In the April 3, 1996 final rule (61 FR 14640), we revised the regulations to allow separate payment for mental health services furnished on the same day as a medical visit. The CY 2007 PFS final rule (71 FR 69624) subsequently revised the regulations to allow FQHCs to receive separate payment for DSMT/MNT. The ability to bill separately for Medicare's IPPE is in manuals only and not in regulation, with the manual language noting this is a once in a lifetime benefit. There are no statutory requirements to pay FQHCs separately for these services when they occur on the same day as another billable visit.

To determine if these exceptions should be included, updated, or revised in the new PPS, in the September 23, 2013 proposed rule (78 FR 58386) we discussed that we examined 2011 Medicare FQHC claims data in order to determine the frequency of FQHCs billing for more than one visit per day for a beneficiary. We then analyzed the potential financial impact on FQHCs and the potential impact on access to care if billing for more than 1 visit per day for these specific situations was no longer permitted. We also considered several alternative options, such as an adjustment of the per visit rate when multiple visits occur in the same day, or the establishment of a separate per visit rate for subsequent visit due to illness or injury, mental health services, DSMT/MNT, or IPPE.

In the September 23, 2013 proposed rule (78 FR 58386) proposed rule, we discussed that an analysis of data from Medicare FQHC claims with dates of service between January 1, 2011 and June 30, 2012, indicated that it is uncommon for FQHCs to bill more than one visit per day for the same beneficiary (less than 0.5 percent of all visits), even though the ability to do so has been in place since 1992 for subsequent illness/injury, since 1996 for mental health services, and since 2007 for DSMT/MNT. Even allowing for any underreporting in the data, it is clear that billing multiple visits on the same day for an individual is a rare event, and we stated that eliminating the ability to do so would not significantly impact either the FQHC payment or a beneficiary's access to care. We also suggested this policy would also simplify billing by removing the need for modifier 59, which signifies that the conditions being treated are totally unrelated and services are furnished at separate times of the day, and the subsequent claims review that occurs when modifier 59 appears on a claim.

Because the data show that multiple visits rarely occur on the same day, we determined that the level of effort required to develop an adjustment or a separate rate for each of these services when furnished on the same day as a medical visit would not be justified. Therefore, in the proposed rule, we proposed to revise § 405.2463(b) to remove the exception to the single encounter payment per day for FQHCs paid under the proposed PPS and we stated that this policy is consistent with an all-inclusive methodology and reasonable cost principles and would simplify billing and payment procedures. Thus, the proposed PPS encounter rate reflected a daily (per diem) rate and resulted in a slightly higher payment than one calculated based on multiple encounters on the same day.

Based on the Medicare claims data furnished by FQHCs that indicates minimal incidence of multiple visits billed on the same day, we concluded in the proposed rule that not including these exceptions in the PPS would not significantly impact total payment or access to care. However, because we understand that there may be many possible reasons why the rate of billing for more than one visit per day has been low (for example, difficulty in scheduling more than one type of visit on the same day) and that FQHCs can furnish integrated, patient-centered health care services in a variety of ways, we asked for comments to address whether there are factors that we have not considered, particularly in regards to the provision of mental health services, and whether this change would impact access to these services or the integration of services in underserved communities.

We received many comments on our proposal not to include these exceptions in the new PPS for FQHCs. None of the commenters were supportive of the proposal.

Comment:

Some commenters said that we should continue to allow mental health or other visits to be furnished on the same day as a medical visit because their patients have transportation, mobility, work, or childcare issues.

Response:

We wish to clarify that we did not propose to prohibit mental health visits from occurring on the same day as a medical visit. We did propose not to include an exception to the per diem payment system to allow for multiple billing when mental health (or subsequent illness/injury, DSMT/MNT or IPPE) is furnished on the same as a medical visit, as discussed later.

Comment:

Some commenters suggested that if we do not allow separate billing for mental health services that are furnished on the same day as a medical service, we should instead develop an adjustment that would increase the PPS per diem base payment rate when a mental health visit occurs on the same day as another billable visit. Other commenters suggested an adjustment for mental

health, behavioral health, DSMT, and MNT.

Response:

As we discussed in earlier, we did not propose to include adjustments to the PPS per diem payment rate except for new patient and initial Medicare visits. While we considered an adjustment for mental health services and DSMT/MNT, our analysis of the claims data did not support such adjustments. Also, including additional adjustments would result in a lower PPS rate, which would impact FQHC payments for all visits.

Comment:

Some commenters acknowledged that the incidence of Medicare billing for more than 1 visit per beneficiary per day in FQHCs is extremely low, but argued that their FQHC often billed multiple visits on the same day, particularly for mental health visits that occur on the same day as a medical visit, and that this proposal would have a significant impact on their FQHC payments and their patient's access to care.

Response:

Based on our analysis of national Medicare claims data, we believe there would be a very minimal impact if the exception allowing multiple billing on the same day was to be eliminated, especially for mental health services. We analyzed the claims data of the FQHCs that provided the most detailed comments that they would be significantly or disproportionately impacted if they could not bill separately for mental health visits that occur on the same day as a medical visit. A commenter from a large FQHC in the southeastern part of the U.S. with more than 23,000 total visits per year described how they are a fully integrated primary care FQHC and every patient has a team of professionals that includes behavioral health. Yet a review of the Medicare claims data for this FQHC showed that out of a yearly total of more than 23,000 total visits, only 74 mental health visits, or 0.32 percent, were billed on the same day as a medical visit. A review of Medicare claims data for a large FQHC in the western part of the U.S. showed that 2.0 percent had a mental health visit on the same day as another visit, but of those 2.0 percent, only 0.5 percent of these were billable visits. A large multisite FQHC in the southern part of the U.S. stated that as a result of their integrated model of behavioral care and same day billing, there was a reduction in visits to the emergency room. The claims data for this FQHC showed a rate of same day billing for mental health visits of 0.5 percent, and no evidence was provided to link this to a reduction in emergency room visits. While this is slightly higher than the average of 0.3 percent, it is still a very low rate.

We do not know why these and other FQHCs believe that they are billing more same-day mental health visits than indicated by their claims data. Perhaps the FQHC may be considering all their patients, not just Medicare beneficiaries who comprise an average of 8 percent of all FQHC patients. Another possibility is that the FQHC may be considering some behavioral health services that are beyond the scope of Medicare-covered services, or are including services furnished by non-FQHC practitioners. Based on the claims data and the information provided in the comments, we do not agree that removal of the exceptions to allow for multiple billing would have a significant impact on the financial viability of these FQHCs or reduce access to care for Medicare beneficiaries.

Comment:

Several commenters acknowledged that their use of the exception for multiple billing on the same day was low or non-existent for Medicare beneficiaries, but wanted us to retain this exception so that they could use this to leverage Medicaid in their state to pay separately for mental health.

Response:

We do not believe that Medicare policy should be determined in order to influence state Medicaid policies.

Comment:

Some commenters disputed our data which showed that only 0.5 percent of all claims were for multiple same day visits. The commenters suggested the following reasons for the low number of multiple same day visits: FQHCs did not code correctly; FQHCs did not know they could bill for multiple visits; FQHC billing systems are not set up for multiple billing because other payment systems do not reimburse for it; and that the MACs do not allow it.

Response:

Section 1834(o)(1)(B) of the Act, as added by the Affordable Care Act required FQHCs to utilize HCPCS codes on their Medicare claims in order to inform the development of the FQHC PPS. FQHCs have also been required to use HCPCS codes for payment purposes when a preventive service for which coinsurance is waived is on the same claim as a service that has a coinsurance requirement. Other payment systems may also require HCPCS coding on claims. We are aware that some FQHCs have limited experience with coding and that the coding submitted on Medicare claims may not have been accurate or complete in all cases. However, even if the rate shown in the claims data was doubled or tripled, the rate of billing for multiple visits on the same day would still be extremely low.

As we stated in the September 23, 2013 proposed rule, the ability to bill for multiple visits on the same day for subsequent illness or injury has been allowed since the beginning of the FQHC program. We also noted that the ability to bill for multiple visits on the same day for mental health services has been allowed since 1996, and the ability to bill for multiple visits on the same day has been allowed for DSMT/MNT since 2007. While it is possible that some FQHCs were not aware that this option existed, we know from the claims data that mental health, IPPE, and DSMT/MNT services constitute a small percentage of a FQHC's total Medicare services.

We understand that billing systems vary among FQHCs and that some billing systems are more adept at managing tasks such as multiple same-day billing. However, we believe that if the inability to bill for multiple visits presented a significant loss of payment for a FQHC, the FQHC would have upgraded its system to allow for this type of billing. We are also not aware of any MACs that do not allow for multiple same day billing for the circumstances in which they are allowable.

Medicare comprises only 8 percent of FQHC patient population, and not all Medicare beneficiaries require mental health or DSMT/MNT services. Particularly for mental health services, it is often difficult to schedule appointments on the same day as a medical visit, and most mental health conditions require ongoing treatment which would likely be at a frequency that differs from the need for primary care visits. Therefore, we would expect the rate of same day billing to be low, despite the availability of the exceptions.

Comment:

Some commenters requested that FQHCs be allowed to bill separately for other services such as optometry and dental care when furnished on the same day as another visit.

Response:

Other services, such as optometry and dental care, cannot be billed separately on the same day as another medical visit under the current AIR system. We did not propose and we are not considering expanding the type of services that can be billed separately when furnished on the same day as another visit. The PPS rate and its adjustments reflect the total cost of furnishing services to Medicare beneficiaries.

Comment:

Some commenters were concerned that removing the ability to bill separately for mental health services that are furnished on the same day as a medical visit would create an incentive

for FQHCs to schedule these encounters on separate days.

Response:

Under both the all-inclusive payment system and the PPS per diem system, there is a risk that a FQHC could deliberately schedule patient visits over a period of time in order to maximize payment. We expect FQHCs and other providers of care to Medicare beneficiaries to act in the best interests of their patients, which includes scheduling visits in a manner that maximizes the health and safety of their patients.

Comment:

A few commenters stated that FQHCs will not be able to continue working with community mental health centers if we do not allow separate billing for mental health services furnished on the same day as a medical visit.

Response:

Commenters did not provide enough supporting information as to why this proposal would negatively or adversely affect FQHC relationships with community mental health centers to allow us to respond meaningfully to this comment.

Comment:

Some commenters suggested that removing the ability to bill separately for mental health and other services is inconsistent with the Affordable Care Act's focus on value over volume.

Many commenters wrote that the ability to bill separately for mental health and other visits on the same day as a primary care visit would help them to furnish integrated and coordinated care and would benefit their patients. Many of them stated that allowing separate payment for mental health services furnished on the same day as a medical visit would provide incentives to furnish integrated care for Medicare patients with complex health conditions. Others were concerned that not allowing this exception would send a message that we do not value mental health care. Commenters also suggested that people with mental illness are less likely to return for a mental health visit if a primary care visit is not also scheduled, and that furnishing mental health visits on the same day as a medical visit helps to increase compliance with medications.

Response:

We agree with commenters about the importance of promoting and furnishing coordinated and integrated care, which can be especially challenging in underserved areas. Based on Medicare claims data and the comments we received, there is no evidence that access to care would be reduced if exceptions to the per diem PPS are not allowed.

However, we agree that separate payment for mental health services furnished on the same day as a medical visit has the potential to increase access to mental health services in underserved areas and that this would help to demonstrate the value of mental health services, especially in areas where need is high and utilization is low. We acknowledge that FQHCs furnish services to underserved and vulnerable populations that often have had difficulty accessing mental health services, and that commenters overwhelmingly support separate payment for mental health services furnished on the same day as a medical visit. Therefore, in this final rule with comment period, we are modifying our original proposal to allow an exception to the per diem payment system so that FQHCs can bill separately for mental health services that are furnished on the same day as a medical visit.

We will also allow an exception to the per diem payment system to allow FQHCs to bill separately when an illness or injury occurs on the same day in which a FQHC visit has already occurred. This exception is available for situations where a Medicare beneficiary has a FQHC visit, leaves the FQHC, and later in the day has an illness or injury that was not present during the initial visit. While it does not happen often, when it does occur we believe the FQHC should be able to bill separately because it is a unique situation that could not be planned or anticipated and the FQHC would not benefit from the economies of scale that can occur when multiple medical issues are addressed in the same visit.

We do not believe that the circumstances that justify allowing same day billing for a subsequent injury or illness or a mental health visit that occurs on the same day as a medical visit also applies to DSMT/MNT. A DSMT/MNT visit is part of the broad category of primary care services that are included in the services of a FQHC and are part of the PPS per diem payment. Visits with multiple practitioners that occur on the same day, including visits for different conditions or visits with a specialist physician, are not separately payable in a FQHC under the all-inclusive payment methodology or the PPS methodology. We do not see any reason why these DSMT/MNT visits should be considered differently. Additionally, the cost of a DSMT/MNT visit is far lower than the cost of a medical or mental health visit, so it would not be justified to pay separately for those visits at the PPS rate. We also did not include IPPE as a separately billable visit, because we are already allowing an adjustment to the PPS rate for a new patient or initial Medicare visit.

We are allowing the exception to the per diem PPS payment for mental health services that occur on the same day as a medical visit to promote access to these services in FQHCs. While this may also contribute to the coordination of care, this alone will not achieve the goals of the Affordable Care Act to furnish integrated and coordinated services. Instead, we believe that these goals may be supported through an adaptation of the Chronic Care Management (CCM) services program that will be implemented for physicians billing under the PFS in 2015. We encourage FQHCs to review the CCM information in the CY 2014 PFS final rule with comment period titled, “Medicare Program; Revisions to Payment Policies under the Physician Fee Schedule, Clinical Laboratory Fee Schedule & Other Revisions to Part B for CY 2014” (December 10, 2013 (78 FR 74230)) and submit comments to us on how the CCM services payment could be adapted for FQHCs in CY 2015 to promote integrated and coordinated care in FQHCs. We also invite RHCs to submit comments on how CCM services could be adapted for RHCs in CY 2015 to promote integrated and coordinated care.

In this final rule with comment period, we are modifying our proposal not to allow an exception to the per diem PPS payment for subsequent injury or illness and for mental health services furnished on the same day as a medical visit, and we invite public comments on this modification. We are adopting as final our proposal not to allow an exception to the per diem PPS for DSMT/MNT or IPPE.

2. Preventive Laboratory Services and Technical Components of Other Preventive Services

The core services of the FQHC benefit are generally billed under the professional component. The benefit categories for laboratory services and diagnostic tests generally are not within the scope of the FQHC benefit, as defined under section 1861(aa) of the Act. For services that can be split into professional and technical components, we have instructed FQHCs to bill the professional component as part of the AIR, and separately bill the Part B MAC under different identification for the technical portion of the service on a Part B practitioner claim (for example, Form CMS-1500). If the FQHC operates a laboratory, is enrolled under Medicare Part B as a supplier, and meets all applicable Medicare requirements related to billing for laboratory services,

it may be able to bill as a supplier furnishing laboratory services under Medicare Part B. When FQHCs separately bill these services, they are instructed to adjust their cost reports and carve out the cost of associated space, equipment, supplies, facility overhead, and personnel for these services.

As part of the implementation of the FQHC benefit, we used our regulatory authority to enumerate preventive primary services, as defined in § 405.2448, which may be paid for when furnished by FQHCs (57 FR 24980, June 12, 1992, as amended by 61 FR 14657, April 3, 1996). These preventive primary services include a number of laboratory tests, such as cholesterol screening, stool testing for occult blood, dipstick urinalysis, tuberculosis testing for high risk patients, and thyroid function tests. The preventive services added to the FQHC benefit pursuant to the Affordable Care Act, as defined by section 1861(ddd)(3) of the Act and codified in § 405.2449, include laboratory tests and diagnostic services, such as screening mammography, diabetes screening tests, and cardiovascular screening blood tests.

Professional services or professional components of primary preventive services (as defined in § 405.2448) and preventive services (as defined in § 405.2449) are billed as part of the AIR. The preventive laboratory tests and technical components of other preventive tests are not paid under the AIR and FQHCs are instructed to bill separately for these services. We did not propose a change in billing procedures, and we did not propose to include payment for these services under the FQHC PPS. We noted this payment structure simplifies billing procedures as laboratory tests and technical components of diagnostic services are always billed separately to Part B and are not included as part of the FQHC's encounter rate. (Note that both the professional and technical components of FQHC primary preventive services and preventive services remain covered under Part B).

An analysis of FQHC claims indicates that FQHCs are listing some preventive laboratory tests and diagnostic services on their all-inclusive rate claims. In 2011 through 2012, less than 5 percent of Medicare FQHC claims listed HCPCS codes related to laboratory tests or diagnostic services. For purposes of modeling adjustments to the FQHC PPS rate, we considered excluding these line items from the encounter charge and proportionately reducing the cost-reporting entity's related cost report data. However, it was not always clear whether the line item charges for these laboratory tests or diagnostic services were included in the total charge for the claim or were listed for informational purposes only. As such, we chose not to adjust the claims or cost report data based on the presence of the related HCPCS codes on the claims. As part of the implementation of the FQHC PPS, we plan to clarify the appropriate billing procedures through program instruction.

Comment:

Most commenters were supportive of our intent to clarify appropriate billing procedures through program instruction, and some commenters suggested that we also use rulemaking to resolve issues concerning Medicare billing. Many of these commenters requested greater clarity on billing for the technical components of FQHC services separately under Part B.

Response:

As we stated in the proposed rule, we plan to clarify the appropriate billing procedures for technical components of FQHC services and other billing issues through program instruction, and we do not believe that clarifications to billing procedures require rulemaking.

Comment:

A commenter disagreed with our conclusion that laboratory services and diagnostic tests are by definition excluded from the FQHC benefit. The commenter noted that preventive primary health services and preventive services, as defined in section 1861(aa)(3) of the Act and codified in § 405.2448 and § 405.2449 of the regulations, include a variety of screening tests, and neither the statute nor the regulations exclude the technical components of these tests from the FQHC benefit.

Response:

We respectfully disagree with this commenter and maintain that the benefit categories for laboratory services and diagnostic tests generally are not within the scope of the FQHC benefit, as defined under section 1861(aa)(3) of the Act. We also maintain that both the professional and technical components of FQHC primary preventive services and preventive services, as defined in section 1861(aa)(3) of the Act and codified in § 405.2448 and § 405.2449 of the regulations, are covered under the FQHC benefit. Laboratory tests and diagnostic services that do not meet the statutory and regulatory definitions of FQHC primary and preventive services, and are not otherwise specified in the statute or regulations as within the scope of the FQHC benefit, are not covered under the FQHC benefit. We agree with the commenter that neither the statute nor the regulations specifically exclude the technical components of these tests. We also note that the FQHC regulations do not distinguish between the technical and professional components of primary or preventive services. As a matter of our payment policy, we believe that laboratory tests and diagnostic services that do not meet the statutory and regulatory definitions of FQHC primary preventive and preventive services, and are not otherwise specified in the statute or regulations as within the scope of the FQHC benefit, are not covered under the FQHC benefit. As a matter of policy, we believe the payment structure simplifies billing procedures as laboratory tests and technical components of diagnostic services are always billed separately to Part B and are never included as part of the FQHC's encounter rate. We note that this payment structure does not change the scope of the FQHC benefit.

Comment:

A commenter recommended that FQHCs be allowed to bill all Medicare Part B services on an institutional claim, including technical components such as x-rays, laboratory tests, and durable medical equipment which will not be paid as part of the FQHC PPS and would be billed separately to Medicare Part B.

Response:

To distinguish services that are not paid as part of the encounter rate, we believe that the current billing requirements for billing services separately to Medicare Part B on a Part B practitioner claim are more appropriate for most services. We note that the telehealth originating site facility fee will continue to be billed separately on an institutional claim.

After consideration of the public comments received, we plan to clarify the appropriate billing procedures through program instruction, as proposed.

3. Vaccine Costs

Section 1834(o)(2)(B)(i) of the Act requires that the initial PPS rates must be set so as to equal in the aggregate 100 percent of the estimated amount of reasonable costs that would have occurred for the year if the PPS had not been implemented. This 100 percent must be calculated prior to application of copayments, per visit limits, or productivity adjustments. We believe that this language directed us to develop a PPS to pay for items currently paid under the AIR.

The administration and payment of influenza and pneumococcal vaccines is not included in the AIR. They are paid at 100 percent of reasonable costs through the cost report. The cost and administration of HBV is covered under the FQHC's AIR when furnished as part of an otherwise qualifying encounter.

We did not propose any changes to this payment structure, rather, we stated that we would continue to pay for the costs of the influenza and pneumococcal vaccines and their administration through the cost report, and other Medicare-covered vaccines as part of the encounter rate. The costs of hepatitis B vaccine and its administration were included in the calculation of reasonable costs used to develop the FQHC PPS rates, and we would continue paying for these services under the FQHC PPS when furnished as part of an otherwise qualifying encounter.

Comment:

A few commenters requested clarification regarding coverage and payment for vaccines recommended by the Advisory Committee on Immunization Practices (ACIP) of the Centers for Disease Control and Prevention (CDC) that are typically covered and paid under Medicare Part D. They believe that these vaccines, when furnished by FQHCs, should be covered and paid separately by Part D plans and should not be covered and paid for as part of a FQHC encounter.

Response:

Under section 1862(a)(7) of the Act, as codified at 42 CFR 411.15(e) of our regulations, immunizations other than pneumococcal, influenza, and HBV are generally excluded from Medicare Part B coverage. Section 4161(a)(3)(C) of OBRA '90 (Pub. L. 101-508) amended section 1862(a) of the Act to specify that the FQHC benefit can include preventive primary health services, as described in section 1861(aa)(3)(B) of the Act, that would otherwise be excluded from Part B under section 1862(a)(7) of the Act. Preventive primary services, as defined in § 405.2448, describes which services may be paid for when furnished by FQHCs. (See the June 12, 1992 (57 FR 4980) and April 3, 1996 (61 FR 4657) final rules). These preventive primary services include immunizations (see § 405.2448(b)(8)). This means that when FQHCs furnish ACIP-recommended vaccines, they are covered and paid for under Part B as part of the FQHC benefit, and are excluded from Part D.

Except for pneumococcal and influenza vaccines and their administration, which are paid at 100 percent of reasonable cost, payments to FQHCs for covered FQHC services furnished to Medicare beneficiaries are made on the basis of an AIR per covered visit. The charges for other Medicare-covered vaccines and their administration when furnished by a FQHC can be included as line items for an otherwise qualifying encounter, and payment for these other Medicare-covered vaccines would be included in the AIR. However, an encounter cannot be billed if vaccine administration is the only service the FQHC provides. For more information on how to bill under the AIR for services furnished incident to a FQHC encounter, see CMS Pub. 100-04, Medicare Claims Processing Manual, chapter 9.

Section 10501(i)(3)(A) of the Affordable Care Act did not amend the coverage requirements applicable to the FQHC benefit. We did not propose to remove immunizations from the preventive primary services set out at § 405.2448, and immunizations furnished by FQHCs after implementation of the PPS will continue to be covered under Part B as part of the FQHC benefit. We proposed to continue to pay for the costs of the influenza and pneumococcal vaccines and their administration through the cost report, and other Medicare-covered vaccines as part of the encounter rate. As part of the implementation of the FQHC PPS, we plan to update the appropriate billing procedures through program instruction.

We note that under 1860D-2(e)(2)(B) of the Act, a drug prescribed to a Part D eligible individual that would otherwise be a covered Part D drug is excluded from Part D coverage if payment for such drug, as so prescribed and dispensed or administered, is available under Part A or B for that individual. Consequently, vaccines furnished by FQHCs and covered under Part B as part of the FQHC benefit in accordance with § 405.2448(b)(8) are not covered or payable under Part D. For more information on the exclusion from Part D of drugs covered under Part B, see CMS Pub. 100-18, Medicare Prescription Drug Benefit Manual, Chapter 6. Section 20.2.

Comment:

A few commenters recommended that CMS apply a consistent approach to payment for vaccines covered under Part B, which commenters asserted would ensure broad access for Medicare beneficiaries. These commenters recommended that CMS pay for the cost and administration of the HBV at 100 percent of reasonable cost through the cost report. A commenter recommended that influenza and pneumococcal vaccines should be billed at time of service, either with or without an encounter, and be paid using the national MAC fees, with an annual reconciliation on the cost report between the payments and the reasonable costs of these vaccines. This commenter wished to reduce the time between vaccine administration and payment and to document on individual patient claims that these vaccines were furnished. However, most commenters supported our proposal to continue to reimburse influenza and pneumococcal vaccines through the cost report.

Response:

As discussed in the preamble to the April 3, 1996 FQHC final rule (61 FR 14651), section 1833(a)(3) of the Act specifies that services described in section 1861(s)(10)(A) of the Act are exempt from payment at 80 percent of reasonable costs and payment to RHCs and FQHCs for influenza and pneumococcal vaccines and their administration is at 100 percent of reasonable cost. Consistent with section 1833(a)(3) of the Act, we used our regulatory authority to codify at § 405.2466(b)(1)(iv) that for RHCs and FQHCs, payment for pneumococcal and influenza vaccine and their administration is 100 percent of Medicare reasonable cost paid as part of the annual reconciliation through the cost report (61 FR 14657, April 3, 1996). Payment for all other Medicare-covered vaccines is included in the AIR, and we proposed to continue to pay for all other Medicare-covered vaccines as part of the encounter rate under the FQHC PPS. We note that HBV is described in section 1861(s)(10)(B) of the Act, and we do not believe that the statute directs us to change the payment structure to pay for HBV at 100 percent of reasonable cost through the cost report.

We considered the commenter's request to pay for influenza and pneumococcal vaccines billed at time of service with an annual reconciliation between these payments and reasonable costs and we do not believe this would be necessary. FQHCs are accustomed to reporting and receiving payment for the reasonable costs for these vaccines and their administration through the annual cost report, and we believe that an annual reconciliation between vaccine fee amounts and reasonable costs would create an additional administrative burden for FQHCs and MACs. We also note that as of January 1, 2011, FQHCs have been required to report pneumococcal and influenza vaccines and their administration on a patient claim with the appropriate HCPCS and revenue codes when furnished during a billable visit.

After consideration of the public comments received, we are finalizing these provisions as proposed. We will continue to pay for the administration and payment of influenza and pneumococcal vaccines at 100 percent of reasonable costs through the cost report, and we will continue to pay for other Medicare-covered vaccines under the FQHC PPS as part of the encounter rate when furnished as part of an otherwise qualifying encounter.

C. Risk Adjustments

Section 1834(o)(1)(A) of the Act provides that the FQHC PPS may include adjustments, including geographic adjustments, that are determined appropriate by the Secretary. We proposed the following adjustments.

1. Alternative Calculations for Average Cost per Visit

For the proposed rule, we used the claims data to calculate an average cost per visit by dividing the total estimated costs ($788,547,531) by the total number of daily visits (5,223,512).

Proposed average cost per daily visit = $788,547,531/5,223,512 = $150.96

For this final rule with comment period, we modified the definition of a daily visit, as discussed in section II.A.4. of this final rule with comment period and consistent with the policy discussed in section II.B.1. of this final rule with comment period, which allows an exception to the per diem PPS payment for subsequent injury or illness and mental health services furnished on the same day as a medical visit. Separately payable encounters for the same beneficiary at the same FQHC were combined into a single daily visit, while allowing for a separate medical visit, mental health visit, and subsequent illness/injury visit, which allows for up to three encounters for beneficiary per day.

For this final rule with comment period, we used the updated claims data to calculate an average cost per visit by dividing the total estimated costs ($846,058,100) by the total number of daily visits (5,462,670).

Final average cost per daily visit = $846,058,100/5,462,670 = $154.88

In the proposed rule, we also examined how the average cost per visit would differ under current policy, which allows separate payment for subsequent illness or injury, mental health services, DSMT/MNT or IPPE when they occur on the same day as an otherwise billable visit. While the total estimated cost was the same ($788,547,531), the total number of visits in the denominator (5,245,961) did not combine multiple visits on the same day of service into 1 daily visit.

Proposed average cost per visit = $788,547,531/5,245,961 = $150.32

For this final rule with comment period, we used the updated final data set to examine how the average cost per visit would differ under current policy. While the total estimated cost was the same ($846,058,100), the total number of visits in the denominator (5,468,852) did not combine multiple visits on the same day of service.

Final average cost per visit = $846,058,100/5,468,852 = $154.70

In the proposed rule, we also derived an average cost per visit from the cost reports by dividing the total estimated Medicare costs (excluding vaccines) reported ($832,387,663) by the total number of Medicare visits reported (5,374,217). Unlike the previous calculations based on claims data, the variables derived from the cost reports summarize total costs and visits by cost reporting entity and could not be trimmed of individual visits with outlier values. Also, we noted that the total number of Medicare visits reported on the cost reports reflects current policy which allows for multiple visits on the same day of service, and we could not calculate an average cost per daily visit using only cost report data.

Proposed average cost per visit from cost report data = $832,387,663/5,374,217 = $154.89

For this final rule with comment period, we used the current data set to update the average cost per visit derived from the cost reports by dividing the total estimated Medicare costs (excluding vaccines) reported ($897,330,363) by the total number of Medicare visits reported (5,634,602).

Final average cost per visit from cost report data = $897,330,363/5,634,602 = $159.25

Consistent with our proposal to remove the exception to the single encounter payment per day, we proposed to use the average cost per daily visit of $150.96, as calculated based on adjusted claims data, as the PPS rate prior to any risk adjustment. We noted that the alternative calculations yield an average cost per visit that differs from $150.96 by less than 3 percent. We also noted that these calculations were derived based on the cost report and claims data available during our development of the proposed rule and were subject to change in the final rule based on more current data.

For this final rule with comment period, consistent with our policy to allow an exception to the per diem PPS payment for subsequent injury and mental health services furnished on the same day as a medical visit, we will use the average cost per daily visit of $154.88, as calculated above based on adjusted claims data, as the final PPS rate prior to any risk adjustment. We note that the alternative calculations yield an average cost per visit that differs from $154.88 by less than 3 percent.

2. FQHC Geographic Adjustment Factor

We proposed to adjust the FQHC PPS rate for geographic differences and to make this adjustment to the cost of inputs by applying an adaptation of the GPCIs used to adjust payment under the PFS. Established in section 1848(e) of the Act, GPCIs adjust payments for geographic variation in the costs of furnishing services and consist of three component GPCIs: The physician work GPCI, the practice expense GPCI, and the malpractice insurance GPCI.

Since FQHCs furnish services that are analogous to those furnished by physicians in outpatient clinic settings, we believe it would be consistent to apply geographic adjustments similar to those applied to services furnished under the PFS. We calculated a FQHC geographic adjustment factor (FQHC GAF) for each encounter based on the delivery site's locality using the proposed CY 2014 work and practice expense GPCIs and the proposed cost share weights for the CY 2014 GPCI update, as published in the CY 2014 PFS proposed rule on July 19, 2013 (78 FR 43282).

For modeling geographic adjustments for the FQHC PPS proposed rule, we did not use the proposed CY 2015 work and practice expense GPCIs that also were published in the CY 2014 PFS proposed rule. We noted that the FQHC GAFs are subject to change in the final FQHC PPS rule based on more current data, including the finalized PFS GPCI and cost share weight values.

We excluded the PFS malpractice GPCI from the calculation of the FQHC GAF, as FQHCs that receive section 330 grant funds are eligible to apply for medical malpractice coverage under FSHCAA of 1992 and FSHCAA of 1995. Without the cost share weight for the malpractice GPCI, the sum of the proposed PFS work and PE cost share weights (0.50866 and 0.44839, respectively) is less than one. In calculating the FQHC GAFs, prior to applying the proposed work and PE cost share weights to the GPCIs, we scaled these proposed cost share weights so they would total 100 percent while still retaining weights relative to each other (0.53149 and 0.46851, respectively).

We calculated each locality's FQHC GAF as follows:

Geographic adjustment factor = (0.53149 × Work GPCI) + (0.46851 × PE GPCI)

We included the FQHC GAF adjustment when modeling all other potential adjustments. We proposed to apply the FQHC GAF based on where the services are furnished, and we noted the FQHC GAF may vary among FQHCs

that are part of the same organization. The list of proposed FQHC GAFs by locality was included in the Addendum of the proposed rule and as a downloadable file at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html

.

Comment:

Commenters were supportive of a FQHC GAF adjustment, but some suggested changes to the proposed FQHC GAFs. Some commenters suggested that the rural FQHC GAFs may not reflect the actual cost of furnishing FQHC services in rural areas, and they requested that we increase the rural FQHC GAFs. Some of these commenters believe that the factors influencing costs for urban versus rural providers are not identical for FQHCs and physician practices. Among the concerns raised by these commenters are that a rural FQHC's operating costs (such as utilities and transportation costs) may be higher than similar costs of FQHCs in urban areas; predominantly rural FQHCs often have fewer sites than urban FQHCs and benefit less from economies of scale; and FQHCs located in rural areas may incur additional costs if they offer payment incentives in order to recruit and retain qualified physicians and non-physician practitioners.

Response:

Since FQHCs furnish services that are analogous to those furnished by physicians in outpatient clinic settings, we proposed to adapt the PFS GPCIs to calculate the FQHC GAFs, as we believe it would be consistent to apply geographic adjustments similar to those applied to services furnished under the PFS. As discussed in the CY 2014 PFS final rule with comment period, we used updated Bureau of Labor Statistics (BLS) Occupational Employment Statistics data to calculate the work GPCI and purchased services index of the PE GPCI and updated U.S. Census Bureau American Community Survey (ACS) data to calculate the rent component (which includes utilities) of the PE GPCI. Given their reliability, public availability, level of detail and national scope with sufficient data coverage in both urban and rural areas, we believe that the ACS and BLS data are the most appropriate sources for measuring geographic cost differences in operating a medical practice. (See our discussion in the CY 2014 PFS final rule with comment period (78 FR 74380 through 74381)). We believe that the data used to develop the PFS GPCIs are reflective of the costs of furnishing FQHC services, including the geographic variation in the costs of furnishing FQHC services in rural areas. Moreover, we do not have a comprehensive national source that would provide us with a basis for adjusting the FQHC GAFs for rural areas independently of the PFS GPCIs while meeting data selection criteria similar to the criteria used for selecting the PFS GPCI sources. We also note that as discussed later in this section, many rural areas would see a substantial decrease in payment amounts if they were no longer grouped with urban areas.

Comment:

A commenter was concerned that FQHCs with multiple delivery sites with different costs may be penalized if accommodation for these different sites is not taken into account.

Response:

We proposed to apply the FQHC GAF based on where the services are furnished. Therefore, for FQHCs with multiple delivery sites in different areas, the FQHC GAF may vary depending on the delivery site.

Comment:

A commenter was concerned that application of the FQHC GAF reduces its PPS rate below the proposed base rate, which is below its cost of furnishing FQHC services.

Response:

Under the FQHC PPS, Medicare payment for FQHC services is based on 100 percent of aggregate reasonable costs, not on an individual FQHC's costs. While the FQHC GAF will vary by locality, we note that the fully implemented, geographically adjusted PPS rate for all FQHCs will be approximately 32 percent higher, based on payment at the FQHC PPS rate, when compared to current payments to FQHCs.

Comment:

A commenter noted that FQHC lookalikes do not have access to malpractice coverage under the Federal Tort Claims Act (FTCA) and therefore incur malpractice expense. The commenter requested that CMS incorporate a malpractice adjustment in the FQHC GAFs for FQHC lookalikes, or otherwise recognize malpractice expense under the FQHC PPS.

Response:

FQHCs that receive section 330 grant funds are the predominant type of FQHC, with more than 1,100 centers operating approximately 8,900 delivery sites. These FQHCs are eligible to apply for medical malpractice coverage under the FTCA. In comparison, there were 93 look-alikes in 2012, according to HRSA's UDS. The PPS rate is based on aggregate costs, and assumes that not all FQHCs have the same costs. It would not be feasible to develop separate PPS rates for FQHCs based on differences in malpractice or any other costs. We excluded the PFS malpractice GPCI from the calculation of the FQHC GAF as the geographic variation in malpractice costs is not relevant for the majority of FQHCs that are eligible to apply for medical malpractice coverage under the FTCA. We note that FQHCs are required to report professional liability insurance on Worksheet A of the FQHC cost report (Form CMS-222), and malpractice expense was recognized as a component of the reasonable costs used to calculate the FQHC PPS rates.

Comment:

A commenter disagreed with our adaptation of the PFS GPCIs and recommended that we adjust the FQHC PPS rate for geographic differences based on Metropolitan Statistical Areas (MSAs). The commenter believes that use of the current PFS locality structure would result in underpayment for FQHC services furnished in several California counties.

Response:

As previously noted, because FQHCs furnish services that are analogous to those furnished by physicians in outpatient clinic settings, we believe it would be consistent to apply geographic adjustments similar to those applied to services furnished under the PFS. Moreover, by adapting the PFS GPCIs for the FQHC PPS, the accuracy of FQHC payments also benefits from the ongoing assessment, evaluation, and updates to the PFS GPCIs, including the periodic review and adjustment of GPCIs as mandated by section 1848(e)(1)(C) of the Act.

We note that adjusting the FQHC PPS rate for geographic differences based on MSAs could result in significant reductions in payment for rural FQHCs when compared to geographically adjusted payments using the current PFS locality configuration. As discussed in the CY 2014 PFS final rule with comment period, published in the

Federal Register

on December 10, 2013 (78 FR 74230), a MSA-based locality structure would expand the number of PFS payment localities, and many rural areas would see substantial decreases in their GPCI values given that they would no longer be grouped together with higher cost counties (78 FR 74380 through 74391). If the PFS locality structure or GPCI values changed, we would make corresponding changes to the FQHC localities and FQHC GAFs. As other methodologies emerge for geographic payment adjustment under the PFS, they may also eventually apply to the new FQHC PPS.

Comment:

A commenter recommended that after the first year of implementation, we use a market basket approach to adjust payments based on geographic locations. The commenter suggested that we revise the FQHC cost report to capture additional wage data that, in conjunction with HRSA's UDS data, could be used to develop a wage

index to adjust the PPS rate based on reported salary differentials.

Response:

We appreciate the commenter's interest in developing a wage index for the FQHC PPS. We believe that a FQHC GAF based on the PFS GPCIs is appropriate for FQHC services, as an FQHC's employment mix and scope and delivery of services are generally similar to a physician's practice. We note that a FQHC GAF based solely on a wage index, which is a relative measure of geographic differences in wage levels, would not reflect the relative cost difference in the full mix of goods and services comprising the PFS practice expense GPCIs (for example, purchased services, office rent, equipment, supplies, and other miscellaneous expenses). We do not believe that the additional reporting burden suggested by the commenter, or the additional administrative burden of collecting and validating the type of data needed for a reliable FQHC wage index, would justify the potential incremental benefit of using a FQHC-specific wage index in calculating the FQHC GAFs.

Comment:

A commenter asked why we did not use the CY 2015 GPCI values to calculate the FQHC GAFs.

Response:

For modeling geographic adjustments for the FQHC PPS proposed rule, we used the CY 2014 work and practice expense GPCIs published in the CY 2014 PFS proposed rule. We noted that the FQHC GAFs could be subject to change in the final FQHC PPS rule based on more current data, including the finalized PFS GPCI and cost share weight values.

As discussed in the CY 2014 PFS final rule with comment period (78 FR 74380 through 74391), the CY 2015 PFS GPCI values reflect our most current updates of the underlying data sources and represent our best estimates of the geographic variation in the costs of furnishing physician services. In contrast, the CY 2014 GPCI values partially reflect the updates to the underlying data and MEI cost weights. Therefore, we will use the CY 2015 GPCI values, as published in the CY 2014 final rule with comment period, to model the geographic adjustments for the FQHC PPS rates as they represent the most current data. We note that the PFS cost share weights were finalized as proposed, and we will use the relative weights of the PFS work and PE GPCIs, as proposed and finalized, to calculate each locality's FQHC GAF.

For payments under the FQHC PPS, we believe it most appropriate to apply geographic adjustments consistent with those applied to services furnished under the PFS during the same period. Therefore, the FQHC GAFs and cost share weights will be updated in conjunction with updates to the PFS GPCIs, which would maintain consistency between the geographic adjustments applied to the PFS and the FQHC PPS in the same period. We note that the FQHC GAFs for October 1 through December 31, 2014, will be adapted from the CY 2014 PFS GPCIs applicable during that same period. Subsequent updates to the FQHC GAFs will be made in conjunction with updates to the PFS GPCIs for the same period.

We have considered the public comments we received, and are finalizing the FQHC GAF provisions as proposed, with some modifications. As proposed, we are revising § 405.2462 to require that payments under the FQHC PPS will be adjusted for geographic differences by applying an adaptation of the work and practice expense GPCIs used to adjust payment under the PFS. We are modifying § 405.2462 to specify that the FQHC GAFs used for payment will be adapted from the GPCIs used to adjust payment under the PFS for that same period.

For modeling geographic adjustments for the FQHC PPS proposed rule, we did not use the proposed CY 2014 work and practice expense GPCIs that were published in the CY 2014 PFS proposed rule. Instead, for modeling the geographic adjustments for this FQHC PPS final rule, we used the final CY 2015 work and practice expense GPCIs and cost shares that were published in the CY 2014 PFS final rule with comment period as the CY 2015 GPCI values represent the most recent fully implemented GPCI update and therefore more current data. More information on how we modeled the FQHC PPS geographic adjustment is discussed in section II.D. of this final rule with comment period.

3. New Patient or Initial Medicare Visit

Based on an analysis of claims data, we found that the estimated cost per encounter was approximately 33 percent higher when a FQHC furnished care to a patient that was new to the FQHC or to a beneficiary receiving a comprehensive initial Medicare visit (that is, an IPPE or an initial AWV). We proposed to adjust the encounter rate to reflect the 33 percent increase in costs when FQHCs furnish care to new patients or when they furnish a comprehensive initial Medicare visit, which could account for the greater intensity and resource use associated with these types of services. Our proposed risk adjustment factor was 1.3333.

Comment:

Commenters supported the proposed adjustments, but some recommended that we also apply the adjustment factor to subsequent AWVs. Commenters recommended that we allow an adjustment for subsequent AWVs in addition to initial AWVs in order to support the goal of improving health outcomes and increasing access to subsequent AWVs. Commenters also believe that the subsequent AWV is similar to the increased intensity of the IPPE and initial AWV, in terms of both the duration of the visits and the number of ancillary services furnished.

Response:

Subsequent AWV is a very small percent of total FQHC visits (approximately 0.25 percent), but the claims data suggest that subsequent AWV is significantly more costly than most other FQHC visits. The claims data also suggest that subsequent AWV is somewhat less costly than an IPPE or initial AWV, which is consistent with the comparatively reduced level of required physician work associated with the subsequent AWV. As previously noted, our goal for the FQHC PPS is to implement a system in accordance with the statute whereby FQHCs are fairly paid for the services they furnish to Medicare patients in the least burdensome manner possible. Rather than establish a separate adjustment for subsequent AWV, we will add the subsequent AWV to the proposed adjustment for new patient or initial Medicare visit. Based on current FQHC data, the composite group of new patient visits, IPPEs, initial AWVs, and subsequent AWVs is associated with 34.16 percent higher estimated costs than other visits.

In this final rule with comment period, we are modifying our proposal, and we will adjust the encounter rate to reflect the 34.16 increase in costs when FQHCs furnish care to new patients or when they furnish an IPPE, initial AWV, or subsequent AWV, which could account for the greater intensity and resource use associated with these types of services. Our composite risk adjustment factor for these types of visits is 1.3416.

4. Other Adjustment Factors Considered

We considered multiple other adjustments such as demographics (age and sex), clinical conditions, duration of the encounter, etc. However, we found many of these other adjustments to have limited impact on costs or to be too complex and largely unnecessary for the FQHC PPS.

We calculated whether there were differences in resource use for mental health visits and preventive care visits when compared to medical care visits

using mathematical modeling techniques. We found that mental health encounters had approximately 1 percent lower estimated costs per visit relative to medical care visits, and we did not consider this a sufficient basis for proposing a payment adjustment. We found that preventive care encounters had approximately 18 percent higher estimated costs per visit. This difference in resource use declined to an 8 percent higher estimated cost per visit after adjusting for the FQHC GAF and the proposed 1.3333 risk adjustment factor for a patient that is new to the FQHC or for a beneficiary receiving a comprehensive initial Medicare visit (that is, an IPPE or an initial AWV), indicating that a significant amount of preventive care visits were IPPEs or initial AWVs. We did not propose a payment reduction for preventive care encounters and we noted that a significant amount of the more costly preventive care encounters would otherwise be recognized and paid for with the proposed 1.3333 risk adjustment factor for a beneficiary receiving a comprehensive initial Medicare visit.

We considered patient age and sex as potential adjustment factors as these demographic characteristics have the advantage of being objectively defined. However, both of these characteristics had a limited association with estimated costs, which did not support the use of these demographic characteristics as potential adjustment factors.

We tested for an association between commonly reported clinical conditions and the estimated cost per visit. A number of clinical conditions were found to be associated with approximately 5 to 10 percent higher costs per visit, but we are concerned that claims might not include all potentially relevant secondary diagnoses, and that we would need to consider how to minimize the complexity of such an adjustment with a limited number of clinically meaningful groupings.

We considered the duration of encounters (in minutes) as a potential adjustment factor. Many of the E/M codes commonly seen on FQHC claims are associated with average or typical times, and there was a strong association between these associated times and the estimated cost per encounter. However, these minutes are guidelines that reflect the face-to-face time between the FQHC practitioner and the beneficiary for that E/M service, and they would not indicate the total duration of the FQHC encounter. Moreover, many of the codes used to describe the face-to-face visit that qualifies an encounter, such as a subsequent AWV, are not associated with average or typical times.

We considered adjusting payment based on the types of services furnished during a FQHC encounter. Our analysis of FQHC claims data indicates that information regarding ancillary services provided by FQHCs appears to be limited. As a result, there is a risk that adjustments for the types of services being provided would be based on incomplete information and result in payments under the PPS that do not accurately reflect the cost of providing those services.

Comment:

Several commenters recommended that CMS address the special circumstances facing Indian health providers by considering the inclusion of a low-volume upward adjustment, a population-density adjustment, and a service-mix adjustment to the PPS rate. These commenters stated that a volume adjustment is necessary because low-volume tribal FQHCs find it more difficult to spread their costs across their patient base, and are less likely to obtain volume discounts and benefit from economies of scale. They also stated that many tribal FQHCs in rural areas furnish less complex or lower intensity services than urban providers, resulting in different payment-to-cost ratios that result in reimbursement inequities.

Response:

We appreciate the challenges that tribal FQHCs face in furnishing services, especially in rural and isolated areas, and the significant health disparities that remain for AI/AN populations. We also understand that providers in isolated and rural areas, including tribal FQHCs, may have fewer patients than providers in more densely populated areas, and may not be able to offer as full of a range or level of complexity in their services as other providers, or benefit from the economies of scale that providers with higher volume or in more densely populated areas may have. In developing the PPS rate, we considered various possible adjustments, including a low-volume adjustment. When analyzing Medicare claims data, lower overall FQHC volume was found to be associated with higher estimated costs (see “Results of Research on the Design of a Medicare Prospective Payment System for Federally Qualified Health Centers” by Arbor Research Collaborative for Health). However, we did not propose to include a low-volume adjustment, because we believe that the PPS rate, along with adjustments for new and initial visits and AWV, will provide appropriate reimbursement for the costs of services provided.

Comment:

Commenters were generally supportive of a single base rate with a geographic adjustment and an adjustment for new patients and initial Medicare visits. Some commenters recommended additional adjustments, such as: high acuity of patients; visit characteristics; multiple chronic conditions; encounters with more than two HCPCS codes on the claim; unique geographical differences among FQHCs; and dual eligible beneficiaries.

Response:

As discussed in the proposed rule, FQHC claims data regarding secondary diagnoses and ancillary services appears to be limited. As a result, there is a risk that the recommended adjustments, such as increased payments for high acuity, multiple chronic conditions, or encounters with multiple HCPCS, could be based on incomplete information. Our analyses of clinical conditions, encounter duration, and types of service, which considered the same or similar types of adjustments, found that these adjustments had limited impact on costs or were too complex for the FQHC PPS. Our analysis of more current data continues to support these conclusions. As discussed in section II.C.2. of this final rule with comment period, we believe it is appropriate to adjust for geographic differences among FQHCs using the GAF.

We tested for an association between dual eligibility and the estimated cost per visit. On average, the estimated cost of a FQHC visit was 4 percent higher among dual eligible beneficiaries. After applying the GAF and the new patient/initial visit adjustment to the model, the estimated cost of a FQHC visit was, on average, 0.4 percent higher among dual eligible beneficiaries. We do not believe that this slight variation in estimated cost justifies the added complexity of an additional payment adjustment for dual eligible beneficiaries.

Comment:

A commenter recommended that CMS include an upward adjustment for FQHCs that provide significant “enabling services.” The commenter believes that non-clinical services provided to patients to support care delivery, enhance health literacy, or facilitate access to care can reduce health disparities and improve outcomes for FQHC patients.

Response:

While FQHCs, including look-alikes, are required by section 330 of the PHS Act to provide services that enable individuals to use the required primary health services that they provide, these services are not part of the Medicare FQHC benefit.

Comment:

Some commenters believe that the PPS payment methodology removes incentives to provide fewer, more intensive visits and recommended that CMS increase payments to high-performing FQHCs that furnish efficient, integrated care. Some commenters recommended that CMS encourage expanded access to care, the development of medical homes, and horizontal networks of care by applying upward adjustments to FQHCs that offer value-added services, such as a broader scope of services, expanded hours, or teaching health centers.

Response:

While we appreciate the suggestions, neither the cost report nor the claims data contains sufficient information to assess the validity of commenters' claims with respect to these types of adjustments. Moreover, the types of adjustments suggested by these commenters are beyond the scope of the FQHC PPS methodology. However, we are taking steps to foster innovation in how FQHCs deliver services to Medicare beneficiaries. For example, the FQHC Advanced Primary Care Practice (APCP) Demonstration, operated by CMS in partnership with HRSA, is designed to evaluate the effect of the advanced primary care practice model in improving care, promoting health, and reducing the cost of care provided to Medicare beneficiaries served by FQHCs. This demonstration is being conducted in accordance with the Secretary's demonstration authority under section 1115A, which facilitates the development and expansion of successful payment models. For more information on the FQHC APCP, see

http://www.fqhcmedicalhome.com/

.

Comment:

A commenter noted that CMS did not include data from provider-based FQHCs in its costs calculations, asserted that provider-based FQHCs experience higher costs than freestanding FQHCs, and urged CMS to add an adjustment to ensure payments to provider-based FQHCs recognize their differential costs.

Response:

As discussed in section II.A.2. of this final rule with comment period, in developing the rates for this final rule with comment period, we included data from provider-based FQHCs in calculating the PPS rate. Under the FQHC PPS, Medicare payment for FQHC services is not based on an individual FQHC's costs. The cost report and claims data do not support an adjustment for provider-based FQHCs. While the average cost per visit is somewhat higher for provider-based FQHCs than for freestanding FQHCs, none of the provider-based FQHCs were identified as outliers based on the average cost per visit from the cost reports, and only 0.4 percent of the encounters in the claims were identified as outliers based on estimated costs.

5. Report on PPS Design and Models

We contracted with Arbor Research for Collaborative Health to assist us in designing a PPS for FQHCs. Arbor Research modeled options for calculating payment rates and adjustments under a PPS based on data from Medicare FQHC cost reports and Medicare FQHC claims. A report detailing the options modeled in the development of the PPS was made available at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html

.

D. Base Rate Calculation

We calculated a proposed base rate for the FQHC PPS by adjusting the average cost per visit to account for the proposed adjustment factors. We calculated a proposed average payment multiplier using the average FQHC GAF (0.9944) multiplied by the average risk adjustment for non-new patient/initial visits (1.0), as weighted by the percent of encounters that represented non new patient/initial visits (0.9722), and we added this to the average FQHC GAF (0.9944) multiplied by the average risk adjustment for new patient/initial visits (1.3333), as weighted by the percent of encounters that represented new patient/initial visits (0.0278):

Proposed average payment multiplier = 0.9721(1.00)(0.9944) + 0.0279(1.3333)(0.9944) = 1.0036

We calculated a proposed base rate amount by multiplying the reciprocal of the average payment multiplier by the average cost per visit. Using the average cost per daily visit:

Proposed base rate per daily visit = $150.96 × (1/1.0036) = $150.42

The proposed base rate per daily visit of $150.42 reflected costs through June 30, 2012, and did not include an adjustment for price inflation. As the FQHC PPS is to be implemented beginning October 1, 2014, we proposed to update the base rate to account for the price inflation through September 30, 2014, as measured by the MEI as finalized in the CY 2011 PFS final rule (75 FR 73262 through 73270). The MEI is an index reflecting the weighted-average annual price change for various inputs involved in furnishing physicians' services. The MEI is a fixed-weight input price index, with an adjustment for the change in economy-wide, private nonfarm business multifactor productivity.

We proposed to inflate the base rate by approximately 1.8 percent, reflecting the growth in the MEI from July 1, 2012 through September 30, 2014. We also proposed to use a forecasted MEI update of 1.7 percent for the 15-month period of October 1, 2014, through December 31, 2015, to calculate the first year's base payment amount under the PPS. We also proposed if more recent data became available (for example, a more recent estimate of the FY 2006-based MEI), we would use such data, if appropriate, to determine the 15-month FQHC PPS update factor for the final rule.

Table 1—Proposed Base Rate per Daily Visit

Total estimated costs

Daily

encounters

Average

payment

multiplier

Average cost per daily visit

Estimated base rate without adjustment for price

inflation

MEI Update factor

MEI-Adjusted base payment rate

$788,547,531

5,223,512

1.0036

$150.96

$150.42

1.0364

$155.90

Proposed MEI-adjusted base payment rate = $150.96 × (1/1.0036) × 1.0364 = $155.90

Thus, we proposed a base payment rate of $155.90 per beneficiary per visit for the proposed FQHC PPS. We noted that this base rate is subject to change in the final rule based on more current data.

Proposed payments to FQHCs were calculated as follows:

Proposed base payment rate × FQHC GAF = Proposed PPS payment

In calculating the proposed payment, the proposed base payment rate was $155.90, and the FQHC GAF was based on the locality of the delivery site.

If the patient is new to the FQHC, or the FQHC is furnishing an initial comprehensive Medicare visit, we proposed that the payment would be calculated as follows:

Proposed base payment rate × FQHC GAF × 1.3333 = Proposed PPS payment

In calculating the proposed payment, 1.3333 represented the risk adjustment factor applied to the PPS payment when FQHCs furnish care to new patients or when they furnish a comprehensive initial Medicare visit.

To calculate the FQHC base rate for this final rule with comment period, we used updated data, the finalized adjustment factors, the finalized definition of a daily visit (as discussed in sections II.A.4. and II.B.1. of this final rule with comment period), and the finalized adjustment for a new patient, IPPE, initial AWV, and subsequent AWV (as discussed in section II.C.3. of this final rule with comment period). We calculated a final base rate for the FQHC PPS by adjusting the average cost per visit to account for the finalized adjustment factors. We calculated a final average payment multiplier using the average final FQHC GAF (0.9961) multiplied by the average risk adjustment for non-new patient/IPPE/AWV (1.0), as weighted by the percent of encounters that represented non-new patient/IPPE/AWV (0.9683), and we added this to the average final FQHC GAF (0.9961) multiplied by the average risk adjustment for new patient/IPPE/AWV (1.3416), as weighted by the percent of encounters that represented new patient/IPPE/AWV (0.0317):

Final average payment multiplier = 0.9683(1.00)(0.9961) + 0.0317(1.3416)(0.9961) = 1.0069

We calculated a final base rate amount by multiplying the reciprocal of the final average payment multiplier by the final average cost per visit. Using the average cost per daily visit:

Final base rate per daily visit = $154.88 × (1/1.0069) = $153.82

We did not receive any comments on our use of the MEI to update the FQHC base rate. Our final data set reflects cost reporting periods ending between June 30, 2011, and June 30, 2013. Given that the updated cost data typically has a midpoint that is close to the middle of 2012, we are continuing to use June 30, 2012, as the starting point for inflating prices forward. We are finalizing our proposal to update the FQHC base rate per daily visit for inflation using the growth as measured by the MEI from July 2012 through December 2015. The estimated base rate of $153.82 per diem is inflated through FY 2014 using the historical MEI market basket increase of 1.8 percent. For the 15-month period October 1, 2014 through December 31, 2015, we apply an update of 1.3 percent as measured by the 4th quarter 2013 forecast of the MEI, the most recent forecast available at the time. The adjusted base payment that reflects the MEI historical updates and forecasted updates to the MEI is $158.85. This payment rate incorporates a combined MEI update factor of 1.0327 that trends dollars forward from July 1, 2012 through December 31, 2015.

Table 2—Final Base Rate per Daily Visit

Total estimated costs

Daily

encounters

Average

payment

multiplier

Average cost per daily visit

Estimated base rate without adjustment for price

inflation

MEI Update factor

MEI-Adjusted base payment rate

$846,058,100

5,462,670

1.0069

$154.88

$153.82

1.0327

$158.85

Final MEI-adjusted base payment rate = $154.88 × (1/1.0069) × 1.0327 = $158.85

Thus, we are finalizing a base payment rate of $158.85 per beneficiary per day for the FQHC PPS, based on current data and the finalized policies.

Payments to FQHCs were calculated as follows:

Base payment rate × FQHC GAF = PPS payment

In calculating the payment, the base payment rate was $158.85, and the FQHC GAF was based on the locality of the delivery site.

If the patient is new to the FQHC, or the FQHC is furnishing an IPPE, initial AWV, or subsequent AWV, payment would be calculated as follows:

Base payment rate × FQHC GAF × 1.3416 = PPS payment

In calculating the payment, 1.3416 represents the risk adjustment factor applied to the PPS payment when FQHCs furnish care to new patients or when they furnish an IPPE, initial AWV, or subsequent AWV (see discussion in section II.C.3. of this final rule with comment period).

E. Implementation

1. Transition Period and Annual Adjustment

Section 1834(o)(2) of the Act requires implementation of the FQHC PPS for FQHCs with cost reporting periods beginning on or after October 1, 2014. Cost reporting periods are typically 12 months, and usually do not exceed 13 months. Therefore, we expect that all FQHCs would be transitioned to the PPS by the end of 2015, or 15 months after the October 1, 2014 implementation date.

FQHCs would transition into the PPS based on their cost reporting periods. We noted that a change in cost reporting periods that is made primarily to maximize payment would not be acceptable under established cost reporting policy (see § 413.24(f)(3) of the regulations and the Provider Reimbursement Manual Part I, section 2414, and Part II, section 102.3). The claims processing system will maintain the current system and the PPS until all FQHCs have transitioned to the PPS.

We proposed to transition the PPS to a calendar year update for all FQHCs, beginning January 1, 2016, because many of the PFS files we proposed to use are updated on a calendar year basis. Section 1834(o)(2)(B)(ii)(I) of the Act requires us to adjust the FQHC PPS rate by the percentage increase in the MEI for the first year after implementation. However, while transitioning the PPS to a calendar year, we proposed to defer the first MEI statutory adjustment to the PPS rate from October 1, 2015 to December 31, 2016, because the proposed base payment rate incorporates a forecasted percentage increase in the MEI through December 31, 2015.

Comment:

Many commenters requested that FQHCs be permitted to transition into the FQHC PPS beginning on October 1, 2014, even if that is not the beginning of their cost reporting period.

Response:

As we stated in the proposed rule, a change in cost reporting periods that is made primarily

to maximize payment would not be acceptable under established cost reporting policy. This principle has been applied uniformly to the implementation of all new prospective payment systems in Medicare. The MACs do not have the discretion to transition a FQHC at a time other than their cost reporting period except when a FQHC has a change of ownership resulting in a different cost reporting period, or otherwise has good cause. Good cause is not met if it is determined that the reason is to maximize reimbursement.

Comment:

Many commenters requested that we create a FQHC-specific market basket beginning in 2016 for the annual update to the PPS rate. These commenters opined that a FQHC-specific market basket would more accurately reflect the actual costs of FQHC services than using the MEI. A commenter requested that the FQHC market basket take into account changes in the scope of services that FQHC furnish.

Response:

We will continue to assess the feasibility of developing a FQHC-specific market basket and will provide notification of our intentions in subsequent rulemaking.

We did not receive any comments on our proposal to transition the PPS to a calendar year update for all FQHCs, beginning January 1, 2016. Therefore, we are finalizing this provision as proposed.

2. Medicare Claims Payment

We noted that claims processing systems would need to be revised through program instruction to accommodate the new rate and associated adjustments. Medicare currently pays 80 percent of the AIR for all FQHC claims, except for mental health services that are subject to the mental health payment limit. Section 1833(a)(1)(Z) of the Act requires that Medicare payment under the FQHC PPS shall be 80 percent of the lesser of the provider's actual charge or the PPS rate. In the proposed rule, we stated that we were considering several revisions to the claims processing system. These include revisions to reject claims in which the qualifying visit described a service that is outside of the FQHC benefit, such as inpatient hospital E/M services or group sessions of DSMT/MNT; revisions to reject line items for technical components such as x-rays, laboratory tests, and durable medical equipment which will not be paid as part of the FQHC PPS and would be billed separately to Medicare Part B; and revisions to allow for the informational reporting of influenza and pneumococcal vaccines and their administration, while excluding the line item charges, as these items would continue to be paid through the cost report.

Comment:

Commenters identified the “lesser of” provision in section 1833(a)(1)(Z) of the Act as their most significant concern with the proposed rule. This provision requires that Medicare payment for FQHC services furnished under the PPS to equal “80 percent of the lesser of the actual charge or the amount determined under” section 1834(o) of the Act. Many commenters were concerned that paying FQHCs the lesser of the actual charge or the PPS rate will routinely underpay FQHCs and undermine the purpose of the PPS. These commenters believe the PPS would be inappropriately comparing a per diem rate for a typical bundle of services with a charge or sum of charges for individual services. Some FQHCs also claim that they keep their charges low across all payers because they serve an underserved population, which will cap their Medicare FQHC payments at these low charge rates. Commenters recommended that if the “lesser of” provision must be implemented, it would be more appropriate for Medicare to compare the PPS rate to the FQHC's average charge per visit from the prior year, trended forward by the MEI or a FQHC-specific inflationary factor.

Response:

We appreciate the information and perspectives provided by the commenters and will address each of these points individually.

Comment:

Commenters opined that CMS lack the statutory authority to implement the “lesser of” provision because section 1833(a)(1) of the Act generally excludes FQHC services, and that even if we determine that CMS has the authority to apply the “lesser of” provision, the statutory deficiencies would allow CMS to be flexible in implementing this provision.

Response:

We respectfully disagree with commenters that the statutory basis of the “lesser of” provision is not clear. We find the language in section 1833(a)(1)(Z) of the Act, which states “with respect to Federally qualified health center services for which payment is made under section 1834(o) of the Act, the amounts paid shall be 80 percent of the lesser of the actual charge or the amount determined under such section” to be clear, and we believe that placement of this provision in section 1833(a)(1) of the Act does not undermine its authority.

Comment:

Commenters noted that due to the “lesser of” provision, initial payments under the PPS would be less than 100 percent of the estimated amount of reasonable costs, and this does not meet the budget neutrality requirement in the Affordable Care Act.

Response:

We respectfully disagree with commenters that we should have factored the “lesser of” provision into our budget neutrality calculations. Section 1834(o)(2)(B)(i) of the Act requires us to calculate a PPS rate that, when multiplied by our estimates of services, will yield 100 percent of estimated reasonable costs. Although we must apply the “lesser of” provision in section 1833(a)(1)(Z) of the Act when paying FQHCs under the PPS, section 1834(o)(2)(B)(i) of the Act specifies that the estimated aggregate amount of prospective payment rates is to be determined prior to the application of section 1833(a)(1)(Z) of the Act.

Comment:

Commenters asserted that CMS did not provide sufficient information about the “lesser of” provision in the proposed rule, such as defining the term “charge” or providing an analysis of the effect of the “lesser of” provision on FQHC payments under the PPS. Commenters urged CMS to clarify implementation details in the final rule and to give the public another opportunity to comment after publishing this information. Commenters requested that CMS grant a 2- to 3-year moratorium on the “lesser of” provision, while beginning to pay the PPS rates as of October 1, 2014.

Response:

We believe the statutory language in section 1833(a)(1)(Z) of the Act requiring a comparison with the provider's “actual charge” is straightforward. Moreover, the regulatory principles of reasonable cost reimbursement in § 413.53(b) already defines “charges” as “the regular rates for various services that are charged to both beneficiaries and other paying patients who receive the services.” We did not include all the implementation details in the proposed rule because claims processing instructions are not typically subject to regulatory notice and comment.

The proposed rule modeled the impact of the PPS using the estimated PPS rate, and did not model the overall impact of the “lesser of” provision because FQHCs control their own pricing structures, and we have limited information to accurately project actual FQHC charges. Therefore, we believe it would have been inappropriate to publish an analysis demonstrating the impact of the “lesser of” provision.

Comment:

Some commenters claimed that FQHCs keep their charges low across all payers because they serve an underserved population. A few commenters asserted that the costs of

integrated care furnished to beneficiaries are not adequately reflected in the HCPCS codes and charges billed to Medicare. Commenters were concerned that, in order to receive the higher payments under the PPS, FQHCs would be forced to raise their charges, which would increase the coinsurance liability for patients who do not qualify for a sliding fee schedule discount.

Response:

Most FQHCs are subject to the requirements in the section 330(k)(3)(G) of the PHS Act, which states that FQHCs prepare “a schedule of fees or payments for the provision of its services consistent with locally prevailing rates or charges and designed to cover its reasonable costs of operation and has prepared a corresponding schedule of discounts to be applied to the payment of such fees or payments, which discounts are adjusted on the basis of the patient's ability to pay.”

FQHCs can adjust their charges within the broad parameters established by the PHS Act and HRSA guidance, and the application of a sliding fee scale can subsidize an eligible patient's out-of-pocket liability. The commenter is correct that coinsurance liability generally increases when charges increase, and that this is a consideration for FQHCs when setting charges. We also note that, under certain circumstances, FQHCs may waive coinsurance amounts for Medicare and Medicaid beneficiaries (see for example, section 1128B(b)(3)(D) of the Act and § 1001.952(k)(2) of the regulations). Also, most FQHCs are subject to the statutory and regulatory requirements of the Health Center Program (section 330 of the PHS Act; 42 CFR Part 51c; and 42 CFR 56.201 through 56.604), which, among other requirements, mandates that they may collect no more than a “nominal fee” from individuals whose annual income is at or below 100 percent of the Federal Poverty Level.

Comment:

A few commenters recommended that we apply the “lesser of” provision at the aggregate level through an annual reconciliation on the Medicare cost report of aggregate payments with aggregate charges. These commenters noted that this aggregate approach averages out lower charges for low intensity services with higher charges for high intensity services. Some commenters suggested that we conduct an annual reconciliation on the Medicare cost report to determine whether aggregate PPS payments exceeded or fell short of aggregate allowable costs, using costs as a proxy for actual charges.

Response:

We believe that the statutory language in section 1833(a)(1)(Z) of the Act requiring a comparison with the provider's “actual charge” is straightforward, and a comparison of aggregate payments with aggregate charges would be inconsistent with the plain reading of the statutory language that implies a claims level comparison. We also were not persuaded that costs are a reasonable proxy for charges. We note that in general, a Medicare PPS is a method of paying providers based on a predetermined, fixed amount that is not subject to annual reconciliation. Payments under a Medicare PPS for other provider types are not subject to annual reconciliation with a provider's charge, and an annual reconciliation of costs for providers paid under a Medicare PPS is generally limited to amounts paid outside the applicable PPS.

Comment:

Many commenters believe that the proposed PPS would inappropriately compare a per diem rate for a typical bundle of services with a charge or sum of charges for individual services furnished on the same day, which commenters described as an “apples to oranges” comparison. Commenters asserted that comparing the bundled rate to the sum of individual charges would routinely yield underpayment and make it difficult for FQHCs to meet their obligation under section 330 of the PHS Act that requires health centers to collect adequate payment from government programs, including Medicare. Commenters recommended that if the “lesser of” provision must be implemented, it would be more appropriate for CMS to implement the “lesser of” provision in a way that ensures parity between the rate(s) and charges to which they are compared. Commenters suggested that CMS compare the PPS rate to the FQHC's average charge per visit, as determined on an annual basis and trended forward by an applicable inflation factor (for example, the MEI or a FQHC-specific inflationary index).

A commenter suggested that FQHCs should be allowed to bill all-inclusive rate charges under the FQHC PPS. This commenter noted that the proposed PPS rate is based on cost report data that are not adequately reflected in the HCPCS codes and charges billed to Medicare, and the commenter believes it would be appropriate for FQHCs to bill an all-inclusive rate. The commenter suggested that it would be appropriate for FQHCs to set the charge for a Medicare visit at the higher of its Medicare or Medicaid PPS rate to avoid a reimbursement loss from application of the “lesser of” provision. This commenter also suggested that ancillary services should be billed and paid by Medicare over and above the all-inclusive PPS rates.

Response:

Most Medicare payment systems that have a “lesser of” provision in section 1833(a)(1) of the Act are paid on a fee basis for each item or service. While unbundling the PPS rate to pay separately for individual services would address the “apples-to-oranges” concern, we note that most of the commenters recommending that we compare the PPS rate with the FQHC's average charge also supported our proposal to offer a single, bundled, encounter-based rate for payment with some adjustments, as discussed earlier. We believe that the proposed FQHC PPS encounter-based rate, which would be similar across all encounters, is a significantly different payment structure than other payment systems subject to a “lesser of” comparison with actual charges. We acknowledge that a comparison of a service-specific charge to an encounter-based payment does not apply the “apples-to-apples” comparisons of similar “lesser of” provisions included in section 1833(a)(1) of the Act.

We considered modifying our proposal and adopting the recommendation of many commenters to pay FQHCs based on the lesser of the FQHC's average Medicare charge per diem or the PPS rate. We agree that such an approach would be responsive to commenters seeking parity in the comparison between the bundled PPS rate and the charges. However, we believe that the statutory language in section 1833(a)(1)(Z) of the Act requiring a comparison with the provider's “actual charge” is straightforward, and a comparison with the FQHC's average charge from a prior period would be inconsistent with the plain reading of the statutory language.

We believe we can be responsive to commenters seeking parity in the comparison between the bundled PPS rate and the charges, while allowing direct interpretation of the statutory requirements of section 1833(a)(1)(Z) of the Act, by establishing a new set of HCPCS G-codes for FQHCs to report an established Medicare patient visit, a new or initial patient visit and an IPPE or AWV. As authorized by section 1834(o)(2)(C) of the Act, we shall establish and implement by program instruction the payment codes to be used under the FQHC PPS. We would define these G-codes in program instruction to describe a FQHC visit in accordance with the regulatory definitions of a Medicare FQHC visit. Each FQHC would establish a charge to

the beneficiary with which to bill Medicare for the encounters. Consistent with longstanding policy, the use of these payment codes does not dictate to providers how to set their charges. A FQHC would set the charge for a specific payment code pursuant to its own determination of what would be appropriate for the services normally provided and the population served at that FQHC, based on the description of services associated with the G-code. The charge for a specific payment code would reflect the sum of regular rates charged to both beneficiaries and other paying patients for a typical bundle of services that would be furnished per diem to a Medicare beneficiary. We would continue to require detailed HCPCS coding with the associated line item charges for data gathering (for example, providing information about the ancillary services furnished), to support the application of adjustments for new patients, IPPE, and AWV, and to facilitate the waiving of coinsurance for pr

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