Collection From Third Party Payers of Reasonable Costs of Healthcare Services

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

[RIN 0790-AF63]

Collection From Third Party Payers of Reasonable Costs of

Healthcare Services

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would replace the current method of per

diem billings based on diagnostic related groups and expand the single

outpatient billing category to as many as forty to fifty, and expand

the billing for outpatient services to include land ambulance service,

air ambulance service and hyperbaric services. This proposed rule

improves billing methods for both inpatient and outpatient care. This

creates a greater level of specificity which more accurately reflects

the cost of the care provided. In addition, the proposed rule will

identify additional outpatient services for which recovery of costs

will be sought.

DATES: Comments must be received by June 27, 1994.

ADDRESSES: Comments should be sent to: Office of the Deputy Assistant

Secretary of Defense (Health Services Operations), Attn: Operations and

Management Support, room 3E343, The Pentagon, Washington, DC 20301-

1200.

FOR FURTHER INFORMATION CONTACT:

CMSgt Kathleen I. Reents at (703) 756-8910.

SUPPLEMENTARY INFORMATION:

I. Background

Congress enacted 10 U.S.C. 1095 as part of the Consolidated Omnibus

Budget Reconciliation Act of 1985, Pub. L. 99-272, Sec. 2001(a)(1), to

permit the Department of Defense to collect from third party payers

reasonable inpatient hospital care costs incurred on behalf of most DoD

health care beneficiaries. To implement this statute, the Department of

Defense issued a proposed rule October 8, 1986, and a final rule

September 25, 1987. The final rule has been amended several times since

1987, most recently on September 9, 1992 (57 FR 41096). That rule

changed the unified per diem rate for inpatient care to a set of 12

clinical group per diem rates. It also implemented authority to bill

for outpatient services by establishing a single per visit rate for

most outpatient services.

II. Provisions of the Proposed Rule

A. Inpatient Services

In October 1992, the Department of Defense began a transition from

the traditional single rate for reimbursement for various health care

services to multiple rates reflective of the clinical care provided.

The multiple rates result in charges that more closely approximate the

actual costs of delivering specific categories of medical services,

such as surgical care, obstetrical care, pediatric care, etc. The rates

are based on the actual costs of rendering healthcare services as

reflected in the Medical Expense and Performance Reporting System

(MEPRS).

We propose a change to paragraph 220.8(c) to replace the current

twelve billing categories with a billing method based on diagnostic

related groups (DRGs), as specifically authorized by 10 U.S.C.

1095(f)(3). We believe the DRG-based method for determining reasonable

costs of inpatient care will produce more accurate and equitable

billings.

Billings will more accurately reflect the costs associated with the

actual services provided. Our proposal is to model our DRG-based cost

methodology on the DRG-based payment system for hospital care under the

Civilian Health and Medical Program of the Uniformed Services

(CHAMPUS). However, in some respects, we propose simplification of

CHAMPUS methods, with authority to introduce the additional refinements

at a later date.

For example, we propose initially to use a single national

standardized amount, rather than the three standardized amounts (large

urban, other urban, and rural) used by CHAMPUS. The three amounts do

not differ significantly and are probably not as relevant in connection

with a unified federal hospital system, such as DoD's. However, the

proposed rule would allow us to adapt the multiple standardized amounts

at a later date.

The standardized amount will be the result of dividing total

system-wide costs of inpatient care by the total number of discharges

system-wide. With respect to DRG relative weights, we propose to use

the same weights as are used for the CHAMPUS DRG-based payment method.

The CHAMPUS weights were calculated from a data base of actual CHAMPUS

claims filed by civilian hospitals. Because the patient population

under military treatment facilities and CHAMPUS are quite similar, we

believe it appropriate to use the same weights.

The CHAMPUS DRG-based payment method uses a number of adjustments

to the product of standardized amount multiplied by the relative weight

of the DRG involved. The adjustments relate to outlier cases, area wage

differences and indirect medical education. We propose initially not to

use these adjustments, but to allow all related costs to be reflected

in the standardized amount. This approach has the advantage of

simplicity and predictability for payers. However, the proposed rule

would allow these adjustments to be introduced at a later date.

In accordance with current practice, the standard DRG-based rate

shall be subdivided into three categories: Hospital charges,

Professional charges, and Ancillary charges.

The intended effective date for implementation of a multiple rate

schedule shall be October 1, 1994, the effective date of this rule,

barring unforeseen difficulties in automation support. The specific

rates will be published in the Federal Register.

B. Outpatient Services

As with the inpatient rates, the outpatient rates will be based on

the actual costs of rendering healthcare services as reflected in the

Medical Expense and Performance Reporting System (MEPRS). MEPRS is the

standard expense reporting system for all fixed medical treatment

facilities (MTFs) within the Department of Defense (DoD) and is the

accepted source of healthcare information for Congress and offices and

agencies of the Executive Branch. The reimbursement categories will be

selected based on board certified specialties/subspecialties widely

accepted by graduate medical accrediting organizations such as the

Accreditation Council for Graduate Medical Education (ACGME) or the

American Board of Medical Specialties (ABMS).

Rates may be established but need not be limited to each of the

following clinical reimbursement categories: Internal Medicine,

Allergy, Cardiology, Diabetic, Endocrinology, Gastroenterology,

Hematology, Hypertension, Nephrology, Neurology, Nutrition, Oncology,

Pulmonary Disease, Rheumatology, Dermatology, Infectious Disease,

Physical Medicine, General Surgery, Cardiovascular and Thoracic

Surgery, Neurosurgery, Ophthalmology, Organ Transplant, Otolaryngology,

Plastic Surgery, Procotology, Urology, Pediatric Surgery, Family

Planning, Obstetrics, Gynecology, Pediatrics, Adolocent Pediatrics,

Well Baby, Orthopaedics, Cast, Orthotic Laboratory, Hand Surgery,

Podiatry, Psychiatry, Psychology, Child Guidance, Mental Health, Social

Work, Substance Abuse Rehabilitation, Family Practice, and Occupational

and Physical Therapy. We will not necessarily establish a separate rate

for each of these clinical reimbursement categories. Similar categories

may be combined for purposes of billing.

Another proposed revision to section 220.8 involves the expansion

of a single outpatient rate to multiple reimbursement category rates

similar to that for inpatient care. The Department of Defense proposes

to adopt a methodology for computing rates for outpatient care similar

to that used for computing multiple rates for inpatient care. Thus,

collections for most outpatient services will be based on a standard

per visit fee to a specialty/subspecialty which is representative of

the average cost in facilities of the Uniformed Services of an

outpatient visit to that specialty clinic. Multiple outpatient visits

on the same day to different clinics will result in one charge for each

clinic visit. Multiple visits on the same day to the same clinic will

only have one charge. As a general rule, each standard per visit amount

to the specialty/subspecialty clinic will be all-inclusive. No

additional charge will be made for routine laboratory, radiology,

pharmacy or other ancillary or overhead services provided in

conjunction with an outpatient visit.

Although most outpatient services will be billed based on the

standard per visit fee for a specialty/subspecialty, there are several

special rules for particular types of care. One special rule is that a

separate charge for the same day/ambulatory surgery will be published

annually.

The proposed effective date of the proposed expanded number of

billing categories is targeted for October 1, 1994. The specific rates

will be published in the Federal Register.

C. Miscellaneous Healthcare Services

Initial implementation of the Third Party Collection Program was

somewhat limited in scope and concentrated on inpatient and ambulatory

care areas. We propose to expand the program to include outpatient

services which may not traditionally be provided in hospitals or which

are not traditional clinical specialties or subspecialties. This

includes, but is not limited to, ambulance service, hyperbaric

treatments, dental care services and immunizations. We propose to

recover the cost of these services to the extent they are generally

applicable coverage provisions of a third party payer.

We propose to recover the cost of ambulance service which includes

the cost of providing emergency aid and then transportation of

beneficiaries to a medical treatment facility. It would also include

the transport of patients to other medical facilities or the

specialized clinics for diagnostic or therapeutic services which also

is frequently necessary. We propose to recover costs on the basis of

the length of time the ambulance is in service with one hour to be the

minimum amount billed. Our reimbursement rates for ambulance care will

only cover the costs of operating the vehicle, including labor costs

(driver and attendant), supplies, fuel, and overhead.

We also propose to recover the cost of hyperbaric treatments

provided to beneficiaries as part of a course of treatment. For

example, high pressure oxygenation treatments, burn treatments and

decompression treatments in response to diving incidents are frequently

provided. We only intend to recover the cost of providing these

treatments which includes the operating cost of the chamber, e.g.,

labor costs, (operators and attending medical personnel), supplies, and

overhead. We do not intend to include amortization of either the actual

or replacement cost of the hyperbaric chamber or the building.

Dental services are provided to beneficiaries on a space available

basis and in remote locations. Dental services may include oral

diagnosis and prevention, periodontics, prosthodontics (fixed and

removable), implantology, oral surgery, orthodontics, pediatric

dentistry and endodontics.

We also provide a wide range of immunizations to Military Health

Service beneficiaries, including immunizations against common childhood

diseases such as measles, smallpox and diphtheria and regional endemic

diseases such as yellow fever, plague and cholera. We also administer a

variety of medications and test beneficiaries for allergic conditions.

Immunizations costs are not included as part of the reimbursement rates

for either inpatient or ambulatory care. We intend to seek

reimbursement for immunizations against childhood diseases and diseases

characteristic of the United States and its Territories. We will also

seek reimbursement for the administration of all medications or allergy

extracts, when the medication or extract is purchased by the medical

treatment facility, and for the testing for allergic conditions. We do

not intend to seek recovery for immunizations administered incident to

overseas travel or transfer or for those medications purchased by the

beneficiary and simply administered at the medical treatment facility.

Our reimbursement rate shall be based on the average fully burdened

cost of an immunization and we shall apply a separate charge for each

immunization which is administered.

D. Other Revisions

Finally, the proposed rule would eliminate the special provision

regarding PRIMUS and NAVCARE clincis, which are DOD's contractor owned

and operated freestanding clinics. Under special demonstration program

authority, these clinics have functioned under rules applicable to

military medical treatment facilities. The proposed change would

conform with other proposed regulatory action of DOD, which would make

the PRIMUS/NAVCARE clinic program permanent under the auspices of the

CHAMPUS program. With this action, CHAMPUS coordination of benefits

procedures, rather than Third Party Collection Program procedures, will

become applicable.

III. Regulatory Procedures

This proposed rule is not a significant regulatory action under

Executive Order 12866. It would not have an impact of $100 million or

other significant economic impacts. Similarly, the rule does not

significantly affect a substantial number of small entities within the

meaning of the Regulatory Flexibility Act. As stated above, for the

most part, this proposed rule would simply incorporate into the third

party collection program regulation more precise cost calculation

methods. In addition, this rule does not impose new information

collection requirements for purposes of the Paperwork Reduction Act.

This is a proposed rule. We invite public comments on all matters

covered by this proposal.

For the reasons stated in the preamble, 32 CFR Part 220 is proposed

to be amended as follows:

PART 220--COLLECTION FROM THIRD PARTY PAYERS OF REASONABLE COSTS OF

HEALTHCARE SERVICES

1. The authority citation for part 220 continues to read as

follows:

Authority: 5 U.S.C. 301: 10 U.S.C. 1095.

2. Section 220.8 is proposed to be amended by revising paragraph

(a), the heading and first sentence of paragraph (c), introductory

text, and by paragraphs (e), (g), (h), (i), and (1) to read as follows:

Sec. 220.8 Reasonable costs.

* * * * *

(a) Diagnosis related group (DRG)-based method for calculating

reasonable costs for inpatient services.

(1) In general. As authorized by 10 U.S.C. 1095(f)(3), the

calculation of reasonable costs for purposes of collections for

inpatient hospital care under 10 U.S.C. 1095 and this part shall be

based on diagnosis related groups (DRGs). Costs shall be based on the

inpatient full reimbursement rate per hospital discharge, weighted to

reflect the intensity of the principal diagnosis involved. The average

cost per case shall be published annually as an inpatient standardized

amount. A relative weight for each DRG shall be the same as the DRG

weights published annually for hospital reimbursement rates under the

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)

pursuant to 32 CFR 199.14(a)(1).

(2) Standardized amount. The Standardized amount shall be

determined by dividing the total costs of all inpatient care in all

military medical treatment facilities by the total number of

discharges. This will produce a single national standardized amount.

The Department of Defense is authorized, but not required by this part

to calculate three standardized amounts, one each for large urban

areas, other urban areas, and rural areas, utilizing the same

distinctions in identifying those areas as is used for CHAMPUS under 32

CFR part 199, paragraph 199.14(a)(1).

(3) DRG relative weights. Costs for each DRG will be determined by

multiplying the standardized amount per discharge by the DRG relative

weight. For this purpose, the DRG relative weights used for CHAMPUS

pursuant to 32 CFR part 199, paragraph 199.14(a)(1) shall be used.

(4) Adjustments for outliers, area wages, and indirect medical

education. The Department of Defense may, but is not required by this

part, to adjust cost determinations in particular cases for length-of-

stay outliers (long stay and short stay), cost outliers, area wage

rates, and indirect medical education. If any such adjustments are

used, the method shall be comparable to that used for CHAMPUS hospital

reimbursements pursuant to 32 CFR part 199, paragraph

199.14(a)(1)(iii)(E), and the calculation of the standardized amount

under paragraph (a)(2) of this section will reflect that such

adjustments will be used.

(5) Identification of professional and hospital costs. For purposes

of billing third party payers other than automobile liability and no-

fault insurance carriers, billings will be subdivided into three

categories:

(i) Hospital charges (which refers to routine services charges

associated with the hospital stay).

(ii) Professional charges (which refers to professional services

provided by physicians and certain other providers).

(c) Clinical groups per diem rates for care provided on or after

October 1, 1992, and prior to October 1, 1994. For inpatient hospital

care provided on or after October 1, 1992, and prior to October 1,

1994, the computation of reasonable costs shall be based on the per

diem full reimbursement rate applicable to the clinical category of

services involved.* * *

(d) Special rule for partnership program providers. In cases in

which the professional provider services are provided under the

Partnership Program (or similar program operated under the authority of

10 U.S.C. 1096), the professional charges component of the total

standard rate will be deleted, as applicable, from the claim from the

facility of the Uniformed Services. The third party payer will receive

a claim for professional services directly from the individual

healthcare provider, who is not an employee or agent of the Department

of Defense. Such claims are not covered by 10 U.S.C. 1095 or this part,

but are governed by statutory and regulatory requirements of the

CHAMPUS program (see 32 CFR part 199). The same is true for

professional services provided on an outpatient basis under the

Partnership Program.

(e) Per visit rates.

(1) As authorized by 10 U.S.C. 1095(f)(2), the computation of

reasonable costs for purposes of collections for most outpatient

services shall be based on a per visit rate for a clinical specialty or

subspecialty. The per visit charge shall be equal to the outpatient

full reimbursement rate for that clinical specialty or subspecialty and

includes all routine ancillary services. A separate charge will be

calculated for cases that are considered same day/ambulatory surgeries.

These rates shall be updated and published annually. As with inpatient

billing categories, clinical groups representing selected board

certified specialties/subspecialties widely accepted by graduate

medical accrediting organizations such as the Accreditation Council for

Graduate Medical Education (ACGME) or the American Board of Medical

Specialties will be used for ambulatory billing categories. Related

clinical groups may be combined for purposes of billing categories.

(2) The following clinical reimbursement categories are

representative, but not all-inclusive of the billing category clinical

groups referred to in paragraph (E)(1) of this section: Internal

Medicine, Allergy, Cardiology, Diabetic, Endocrinology,

Gastroenterology, Hematology, Hypertension, Nephrology, Neurology,

Nutrition, Oncology, Pulmonary Disease, Rheumatology, Dermatology,

Infectious Disease, Physical Medicine, General Surgery, Cardiovascular

and Thoracic Surgery, Neurosurgery, Ophthalmology, Organ Transplant,

Otolaryngology, Plastic Surgery, Protology, Urology, Pediatric Surgery,

Family Planning, Obstetrics, Gynecology, Pediatrics, Adolescent

Pediatrics, Well Baby, Orthopaedics, Cast, Orthotic Laboratory, Hand

Surgery, Podiatry, Psychiatry, Psychology, Child Guidance, Mental

Health, Social Work, Substance Abuse Rehabilitation, Family Practice,

and Occupational and Physical Therapy.

* * * * *

(g) Special rule for services ordered and paid for by a facility of

the Uniformed Services but provided by another provider. In cases where

a facility of the Uniformed Services purchases ancillary services or

procedures, from a source other than a Uniformed Services facility, the

cost of the purchased services will be added to the standard rate.

Examples of ancillary services and other procedures covered by this

special rule include (but are not limited to): laboratory, radiology,

pharmacy, pulmonary function, cardiac catheterization, hemodialysis,

hyperbaric medicine, electrocardiography, electroencephalography,

electroneuromyography, pulmonary function, inhalation and respiratory

therapy and physical therapy services.

(h) Special rule for certain ancillary services ordered by outside

providers and provided by a facility of the Uniformed Services. If a

Uniformed Services facility provides certain ancillary services,

prescription drugs or other procedures based on a request from a source

other than a Uniformed Services facility and are not incident to any

outpatient visit or inpatient services, the reasonable cost will not be

based on the usual per diem or per visit rate. Rather, a separate

standard rate shall be established based on the cost of the particular

high-cost service, drug or procedure provided. This special rule

applies only to services, drugs or procedures having a cost of at least

$60. The reasonable cost for the services, drugs or procedures to which

this special rule applies shall be calculated and published annually.

(i) Miscellaneous health care services. Some outpatient services

are provided which may not traditionally be provided in hospitals or

which are not traditional clinical specialties or subspecialties. This

includes, but is not limited to, land ambulance service, air ambulance

service, hyperbaric treatments, dental care services and immunications.

(1) The charge for ambulance services shall be based on the full

costs of operating the ambulance service.

(2) For hyperbaric treatments (such as high pressure oxygenation

treatments, burn treatments and decompression treatments in response to

diving incidents), charges will be based on the full operating costs of

the hyperbaric treatment services.

(3) Charges for dental services (including oral diagnosis and

prevention, periodontics, prosthodontics (fixed and removable),

implantology, oral surgery, orthodontics, pediatric dentistry and

endodontics) will be based on a full cost of the dental services.

(4) The charge for immunications, allergin extracts, allergic

condition tests, and the administration of certain medications when

these services are provided in a separate immunizations or shot clinic,

will be based on the average full cost of these services, exclusive of

any costs considered for purposes of any outpatient visit. A separate

charge shall be made for each immunization, injection or medication

administered.

* * * * *

(1) Alternative determination of reasonable costs. Any third party

payer that can satisfactorily demonstrate a prevailing rate of payment

in the same geographic area for the same or similar aggregate groups of

services that is less than the standard rate (or other amount as

determined under paragraphs (f) through (k) of this section) of the

facility of the Uniformed Services may, with the agreement of the

facility of the Uniformed Services (or other authorized representatives

of the United States), limit payments under 10 U.S.C. 1095 to that

prevailing rate for that aggregate category of services. The

determination of the third party payer's prevailing rate shall be based

on a review of valid contractual arrangements with other facilities or

providers constituting a majority of the services for which payment is

made under the third party payer's plan. This paragraph does not apply

to cases covered by Sec. 220.11.

* * * * *

3. Section 220.10 is proposed to be amended by revising paragraph

(c)(1)(ii), as follows:

Sec. 220.10 Special rules for Medicare supplemental plans.

* * * * *

(c) Charges for health care services other than the inpatient

hospital deductible amount.

(1) * * *

(ii) Include adjustments, as appropriate, to identify major

components of the all inclusive per diem or per visit rates for which

Medicare has special rules.

* * * * *

Dated: April 22, 1994.

L. M. Bynum,

Alternate OSD Federal Register Liaison Officer, Department of Defense.

[FR Doc. 94-10126 Filed 4-26-94; 8:45 am]

BILLING CODE 5000-04-M