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: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule replaces the current method of per diem

billings to one based on diagnostic related groups, expands the single

outpatient billing category to as many as sixty, and expands the

billing for outpatient services to include land ambulance service, air

ambulance service and hyperbaric services. This final rule improves

billing methods for both inpatient and outpatient care. This expansion

creates a greater level of specificity which more accurately reflects

the cost of the care provided. In addition, this final rule identifies

additional outpatient services for which recovery of costs will be

sought.

EFFECTIVE DATE: This final rule is effective on October 26, 1994.

FOR FURTHER INFORMATION CONTACT:

LCDR Patrick Kelly, (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 CFR 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 Final Rule

A. Inpatient Services

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

the traditional single rate for reimbursement for various healthcare

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).

This rule changes paragraph 220.8(c) by replacing 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). 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. This rule models the DRG-based cost

methodology, the basis for the DRG-based payment system for hospital

care under the Civilian Health and Medical Program of the Uniformed

Services (CHAMPUS). However, in some respects, this rule simplifies

CHAMPUS methods, with authority to introduce the additional refinements

at a later date.

For example, initially this rule uses 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

rule allows us to adopt the multiple standardized amounts at a later

date.

The standardized amount is 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, this rule uses 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 is

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 appropriate DRG. The adjustments relate to outlier cases, area

wage differences and indirect medical education. Initially, this rule

does not use these adjustments, but allows all related costs to be

reflected in the standardized amount. This approach has the advantage

of simplicity and predictability for payers. However, the final rule

allows these adjustments to be introduced at a later date.

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

divided into two categories: Hospital charges, which includes ancillary

charges, and Professional charges.

The effective date for implementation of a multiple rate schedule

will be 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 are 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 are

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 are 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, Proctology, 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. This rule does not necessarily establish a

separate rate for each of these clinical reimbursement categories.

Similar categories may be combined for purposes of billing.

Another 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 adopts 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 result in only

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 same day/ambulatory surgery will be published

annually.

The effective date of the 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. This final rule expands 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 intend to

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

applicable coverage provisions of a third party payer.

We intend 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 to specialized

clinics for diagnostic or therapeutic services which is frequently

necessary. We intend 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. The 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 intend 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, i.e., 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.

The Department also provides 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. The reimbursement rate

shall be based on the average fully burdened cost of an immunization

and a separate charge shall be applied for each immunization which is

administered.

D. Other Revisions

We received one public comment on the proposed rule. It was from a

group of organizations who objected to the provision in the proposed

rule concerning PRIMUS and NAVCARE clinics. In the proposed rule, we

proposed to eliminate from the Third Party Collection Program

regulation the special rule regarding PRIMUS and NAVCARE clinics, which

are contractor owned, contractor operated freestanding clinics under

contract with DoD. Under special demonstration program authority, these

clinics have functioned under rules applicable to military medical

treatment facilities, including Third Party Collection program rules.

With the conclusion of the demonstration project, these clinics are no

longer authorized to bill third party payers under the authority of 10

U.S.C. 1095 (but will continue to bill under other authority).

Therefore, the change set forth in the proposed rule is necessary, and

has been included in the final rule.

The organizations who objected to this proposed change did so on

the belief that this would terminate features of PRIMUS and NAVCARE

clinics that they strongly support, including access to primary care

visits without deductible or copayment requirements, and eligibility

for military beneficiaries who are not CHAMPUS eligible (such as active

duty members and Medicare-eligible beneficiaries). These organizations

can be assured that the adoption of this final rule has no impact on

those aspects of the PRIMUS/NAVCARE program.

We have added one other revision to the regulation, a technical

correction to section 220.8(d), which had incorrectly referred to

paragraph (j) concerning a matter for which paragraph (k) is the

appropriate reference.

III. Regulatory Procedures

This final rule is not a significant regulatory action under

Executive Order 12866. It will 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 final rule simply incorporates 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.

List of Subjects in 32 CFR Part 220

Claims, Health care, Health insurance.

For the reasons stated in the preamble, 32 CFR Part 220 is 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 amended by revising paragraph (a), the heading

and first sentence of paragraph (c), and paragraphs (d), (e), (g), (h),

(i), (k) and (l) 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 Medicare 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 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 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 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 that automobile liability and no-

fault insurance carriers, inpatient billings will be subdivided into

two categories:

(1) Hospital charges (which refers to routine service charges

associated with the hospital stay and ancillary charges).

(ii) Professional charges (which refers to professional services

provided by physicians and certain other providers).

(6) Outpatient billings will continue to be subdivided into three

categories:

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

associated with the outpatient visit).

(ii) Professional charges (which refers to professional services

provided by physicians and certain other providers).

(iii) Ancillary charges (which refers to diagnostic and treatment

services, other than professional services, provided by components of

the hospital in connection with the outpatient visit).

* * * * *

(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) Medical services and subsistence charges included. Medical

services charges pursuant to 10 U.S.C. 1078 or subsistence charges

pursuant to 10 U.S.C. 1075 are included in the claim filed with the

third party payer pursuant to 10 U.S.C. 1095. For any patient of a

facility of the Uniformed Services who indicates that he or she is a

beneficiary of a third party payer plan, the usual medical services or

subsistence charge will not be collected from the patient to the extent

that payment received from the payer exceeds the medical services or

subsistence charge. Thus, except in cases covered by section 220.8(k),

payment of the claim made pursuant to 10 U.S.C. 1095 which exceeds the

medical services or subsistence charge, will satisfy all of the third

party payer's obligation arising from the inpatient hospital care

provided by the facility of the Uniformed Services on that occasion.

(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, Proctology, 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 immunizations.

(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 immunizations, 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.

* * * * *

(k) 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 for 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 the

professional services provided on an outpatient basis under the

Partnership Program.

(l) 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 amended by revising paragraph (c)(1)(ii), as

follows:

Sec. 220.10 Special rules for Medicare supplement plans.

* * * * *

(c) * * *

(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.

* * * * *

[FR Doc. 94-23465 Filed 9-23-94; 8:45 am]

BILLING CODE 5000-04-M