Civilian Health and Medical Program of the Uniformed Services (CHAMPUS); TRICARE Program; Uniform HMO Benefit; Special Health Care Delivery Programs

[[Page 52078]]

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[DoD 6010.8-R]

RIN 0720-AA21

Civilian Health and Medical Program of the Uniformed Services

(CHAMPUS); TRICARE Program; Uniform HMO Benefit; Special Health Care

Delivery Programs

AGENCY: Office of the Secretary, DOD.

ACTION: Final rule.

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SUMMARY: This final rule establishes requirements and procedures for

implementation of the TRICARE Program, the purpose of which is to

implement a comprehensive managed health care delivery system composed

of military medical treatment facilities and CHAMPUS. Principal

components of the final rule include: establishment of a comprehensive

enrollment system; creation of a triple option benefit, including a

Uniform HMO Benefit required by law; a series of initiatives to

coordinate care between military and civilian delivery systems,

including Resource Sharing Agreements, Health Care Finders, PRIMUS and

NAVCARE Clinics, and new prescription pharmacy services; and a

consolidated schedule of charges, incorporating steps to reduce

differences in charges between military and civilian services. This

final rule also includes provisions establishing a special civilian

provider program authority for active duty family members overseas. The

TRICARE Program is a major reform of the MHSS that will improve

services to beneficiaries while helping to contain costs.

EFFECTIVE DATE: November 1, 1995.

ADDRESSES: Office of the Civilian Health and Medical Program of the

Uniformed Services (OCHAMPUS), Program Development Branch, Aurora, CO

80045-6900.

FOR FURTHER INFORMATION CONTACT:

Steve Lillie, Office of the Assistant Secretary of Defense (Health

Affairs), telephone (703) 695-3350.

Questions regarding payment of specific claims under the CHAMPUS

allowable charge method should be addressed to the appropriate CHAMPUS

contractor.

SUPPLEMENTARY INFORMATION:

I. Introduction and Background

A. Overview of the TRICARE Program

The medical mission of the Department of Defense is to provide and

maintain readiness to provide medical services and support to the armed

forces during military operations, and to provide medical services and

support to members of the armed forces, their family members, and

others entitled to DoD medical care.

Under the current Military Health Services System (MHSS), all care

for active duty members is provided or arranged by military medical

treatment facilities (MTFs). CHAMPUS-eligible beneficiaries may receive

care in the direct care system (that is, care provided in military

hospitals or clinics) on a space-available basis, or seek care from

civilian health care providers; the government shares in the cost of

such civilian care under the Civilian Health and Medical Program of the

Uniformed Services (CHAMPUS). Medicare eligible military beneficiaries

also are eligible for care in the direct care system on a space-

available basis, and may be reimbursed for civilian care under the

Medicare program. The majority of care for military beneficiaries is

provided within catchment areas of MTFs, a catchment area being roughly

defined as the area within a 40-mile radius around an MTF.

Recently DoD has embarked on a new program, called TRICARE, which

will improve the quality, cost, and accessibility of services for its

beneficiaries. Because of the size and complexity of the MHSS, TRICARE

implementation is being phased in over a period of several years. The

principal mechanisms for the implementation of TRICARE are the

designation of the commanders of selected MTFs as Lead Agents for 12

TRICARE regions across the country, operational enhancements to the

MHSS, and the procurement of managed care support contracts for the

provision of civilian health care services within those regions.

Sound management of the MHSS requires a great degree of

coordination between the direct care system and CHAMPUS-funded civilian

care. The TRICARE Program recognizes that ``step one'' of any process

aimed at improving management is to identify the beneficiaries for whom

the health program is responsible. Indeed, the dominant feature in some

private sector health plans, enrollment of beneficiaries in their

respective health care plans, is an essential element. This final rule

moves toward establishment of a basic structure of health care

enrollment for the MHSS. Under this structure, all health care

beneficiaries become participants in TRICARE and classified into one of

four categories:

1. Active duty members, all of whom are automatically enrolled in

TRICARE Prime, an HMO-type option;

2. TRICARE Prime enrollees, who (except for active duty members)

must be CHAMPUS eligible;

3. TRICARE Standard participants, which includes all CHAMPUS-

eligible beneficiaries who do not enroll in TRICARE Prime; or

4. Medicare-eligible beneficiaries and other non-CHAMPUS-eligible

DoD beneficiaries, who, although not eligible for TRICARE Prime, may

participate in many features of TRICARE.

Eventually, we anticipate that there will be a fifth category:

participants in other managed care programs affiliated with TRICARE.

However, no such affiliations have yet been made.

The second major feature of the TRICARE Program will be the

establishment of a triple option benefit. CHAMPUS-eligible

beneficiaries will be offered three options: They may (1) enroll to

receive health care in an HMO-type program called ``TRICARE Prime;''

(2) use the civilian preferred provider network on a case-by-case

basis, under ``TRICARE Extra;'' or (3) choose to receive care from non-

network providers and have the services reimbursed under ``TRICARE

Standard.'' (TRICARE Standard is the same as standard CHAMPUS.)

CHAMPUS-eligible enrollees in Prime will obtain most of their care

within the network, and pay substantially reduced CHAMPUS cost shares

when they receive care from civilian network providers. Enrollees in

Prime will retain freedom to utilize non-network civilian providers,

but they will have to pay cost sharing considerably higher than under

TRICARE Standard if they do so. Beneficiaries who choose not to enroll

in TRICARE Prime will preserve their freedom of choice of provider for

the most part by remaining in TRICARE Standard. These beneficiaries

will face standard CHAMPUS cost sharing requirements, except that their

coinsurance percentage will be lower when they opt to use the preferred

provider network under TRICARE Extra. All beneficiaries continue to be

eligible to receive care in MTFs, but active duty family members who

enroll in TRICARE Prime will have priority over other beneficiaries.

A third major feature of the TRICARE program is a series of

initiatives, affecting all beneficiary categories, designed to

coordinate care between military and civilian health care systems.

Among these is a program of resource sharing agreements, under which a

Managed Care Support contractor provides personnel and other

[[Page 52079]]

resources to an MTF in order to increase the availability of services.

It is our expectation that the Partnership Program, an existing

mechanism for increasing the availability of services in MTFs, will be

phased out as TRICARE managed care support contracts are implemented.

Another TRICARE initiative is establishment of Health Care Finders,

which facilitate referrals to appropriate services in the MTF or

civilian provider network. In addition, integrated quality and

utilization management services for military and civilian sector

providers will be insituted. Still another initiative is establishment

of special pharmacy programs for areas affected by base realignment and

closure actions. These pharmacy programs will include special

eligibility for some Medicare-eligible beneficiaries. TRICARE also will

feature TRICARE Outpatient Clinics, which will be direct care system

resources serving as primary care managers and providing related

services. (This final rule also provides a transitional authority for

continued operation of PRIMUS and NAVCARE Clinics, which are dedicated

contractor-owned and operated clinics, until TRICARE is implemented.)

These initiatives will have a major impact on military health care

delivery systems, improving services for all beneficiary categories.

The fourth major component of TRICARE is the implementation of a

consolidated schedule of charges, incorporating steps to reduce

differences in charges between military and civilian services. In

general, the TRICARE Program reduces beneficiaries' out-of-pocket costs

for civilian sector care. For example, the current CHAMPUS cost sharing

requirements for outpatient care for active duty family members include

a deductible of $150 per person or $300 per family ($50/$100 for family

members of active duty sponsors in pay grades E-4 and below) and a

copayment of 20 percent of the allowable cost of the services.

Under TRICARE Prime, which incorporates the ``Uniform HMO

Benefit,'' these cost sharing requirements will be replaced, for

CHAMPUS beneficiaries who enroll, by a standard charge for most

civilian provider network outpatient visits of $12.00 per visit, or

$6.00 per visit for family members of E-4 and below sponsors. For

CHAMPUS-eligible retirees, their family members and survivors, the

current deductible of $150 per person or $300 per family and 25 percent

cost sharing for outpatient services will also be replaced by a

standard charge, which is likewise $12.00 for most outpatient visits.

Retirees, their family members and survivors will also be charged a

$230/$460 annual individual/family enrollment fee. Active duty members

will face no cost sharing under TRICARE Prime.

Beneficiaries who are not enrolled in TRICARE Prime will also have

significant opportunities to reduce expected out-of-pocket costs under

CHAMPUS. These opportunities include the new special pharmacy programs,

and access to network providers and to TRICARE Outpatient Clinics, on a

space-available basis.

One design consideration for TRICARE is the mobile nature of our

beneficiary population. Some features of TRICARE, such as the

uniformity of the benefit and the consistency of program rules across

the country, are crafted with this factor in mind. In the future, we

hope to increase the ``portability'' of the TRICARE benefit, by making

TRICARE more accessible to beneficiaries who have multiple residences,

have family members in several locations, and so forth.

With respect to military hospitals, in the future consideration

will be given to establishment of nominal per-visit fees, for some or

all retirees, their family members, and survivors, and for some or all

types of services for those beneficiaries. Fees would be considered to

help control demand for MTF care, to free up capacity and reduce

waiting times, and lower the costs of health care.

A user fee can be structured in many different ways, for example,

exempting lower income segments of the covered population. Most

importantly, the motivation for a fee is to encourage the more

efficient use of health care services. When this issue is considered

for possible implementation in fiscal year 1988, if the Department

decides to establish a nominal fee for some or all outpatient services

provided to some or all retirees, their family members, and survivors,

a proposed rule will then be issued for public comment.

The TRICARE Program is a major reform of the MHSS--one that will

accomplish the transition to a comprehensive managed health care system

that will help to achieve DOD's medical mission into the next century.

B. Public Comments

The proposed rule was published in the Federal Register on February

8, 1995. We received 17 comment letters. We thank those who provided

comments; specific matters raised by commenters are summarized below in

the appropriate sections of the preamble.

II. Provisions of the Rule Regarding the Tricare Program

These regulatory changes are being published as an amendment to 32

CFR Part 199 because the operating details of CHAMPUS will be altered

significantly. Our regulatory approach is to leave the existing CHAMPUS

rules largely intact and to create new sections 199.17 and 199.18 to

describe the TRICARE Program and the uniform HMO benefit. The major

provisions of new section 199.17 regarding the TRICARE Program are

summarized below. A summary of the relevant proposed rule provision is

presented, followed by an analysis of major public comments, and by a

summary of the final rule provisions.

A. Establishment of the TRICARE Program (Section 199.17(a))

1. Provisions of Proposed Rule

This paragraph introduces the TRICARE Program, and describes its

purpose, statutory authority, and scope. It is explained that certain

usual CHAMPUS and MHSS rules do not apply under the TRICARE Program,

and that implementation of the Program occurs in a specific geographic

area, such as a local catchment area or a region. Public notice of

initiation of a Program will include a notice published in the Federal

Register.

With respect to statutory authority, major statutory provisions are

title 10, U.S.C. sections 1099 (which calls for health care enrollment

system), 1097 (which authorizes alternative contracts for health care

delivery and financing), and 1096 (which allows for resource sharing

agreements). Significantly, the National Defense Authorization Act for

Fiscal Year 1995 amended section 1097 to authorize the Secretary of

Defense to provide for the coordination of health care services

provided pursuant to any contract or agreement with a civilian managed

care contractor with those services provided in MTFs. This amendment

set the stage for many features of TRICARE, including initiatives to

improve coordination between military and civilian health care delivery

components and the consolidated schedule of beneficiary charges.

2. Analysis of Major Public Comments

Several commenters objected to the concept that all beneficiaries

were ``enrolled,'' and classified into one of five enrollment

categories; they suggest that the only true enrollment is in TRICARE

Prime.

[[Page 52080]]

One commenter questioned implementation of TRICARE in Washington

and Oregon effective March 1, 1995, in advance of publication of this

final rule.

One commenter suggested that initiation of TRICARE in an area be

widely announced, including advance publication in the Federal Register

to inform providers how to join preferred provider networks, mailed

notice to current providers, and notifications to national associations

representing providers. The commenter also suggested that it is

inappropriate for DoD to have made decisions on how and in what order

TRICARE is to be implemented nationally, in advance of final rule

promulgation.

Response. We acknowledge the confusion that arose as a result of

some of the explanation in the preamble to the proposed rule. The

commenters correctly point out that the only TRICARE option which

requires an affirmative ``enrollment'' action is TRICARE Prime. Our

intent was to emphasize the all-encompassing nature of TRICARE, and the

fact that care for all MHSS beneficiaries will be affected by the

advent of TRICARE; in a very real sense, all peacetime care provided or

paid for by DoD will become part of TRICARE.

Regarding the implementation of TRICARE in Washington and Oregon on

March 1, 1995, prior to promulgation of this final rule, we point out

that the program in Washington and Oregon is being implemented under a

special demonstration authority (10 U.S.C. 1092) in advance of the

promulgation of this rule. If features of the program in Washington and

Oregon conflict with the provisions of this final rule, they will be

revised after the rule becomes effective.

Regarding notifications to providers about the initiation of

TRICARE, we believe that the competitive procurements being conducted

for regional managed care support contracts provide ample opportunity

for providers to become aware of and involved in the program. We

publish advance notices in the Commerce Business Daily, issue formal

requests for proposals, and publicize and conduct bidders conferences,

in order to inform interested parties as fully as possible.

On the point of DoD making decisions about TRICARE implementation

strategies in advance of final rule publication, the promulgation of

this rule is entirely separate from operational decisions about the

phasing of program implementation. The basic nature of our approach to

implementing TRICARE managed care support contracts was directed by

Congress, and we reported to Congress in December 1993 on our plan for

implementing the program region by region, achieving nationwide

coverage in 1997.

3. Provisions of the Final Rule

The final rule clarifies that, while all beneficiaries participate

in TRICARE, only the HMO-like option, TRICARE Prime, requires an action

on the part of the beneficiary to enroll.

B. Triple Option (Section 199.17(b))

1. Provisions of Proposed Rule

This paragraph presents an overview of the triple option feature of

the TRICARE Program. Most beneficiaries are offered enrollment in the

TRICARE Prime Plan, or ``Prime.'' They are free to choose to enroll to

obtain the benefits of Prime, or not to enroll and remain in the

TRICARE Standard Plan, or ``Standard,'' with the option of using the

preferred provider network under the TRICARE Extra Plan, or ``Extra.''

When the TRICARE Program is implemented in an area, active duty members

will be enrolled automatically in Prime.

2. Analysis of Major Public Comments

None.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

C. Eligibility for Enrollment in Prime (Section 199.17(c))

1. Provisions of Proposed Rule

This paragraph describes who may enroll in the Program. All active

duty members are automatically enrolled in Prime; all CHAMPUS-eligible

beneficiaries who live in areas covered by TRICARE Prime are eligible

to enroll. Since it is likely that priorities for enrollment will be

necessary owing to limited availability of Prime, the order of priority

for enrollment will be as follows: first priority will be active duty

members; second priority will be active duty family members; and third

priority will be CHAMPUS-eligible retirees, family members of retirees,

and survivors. At this time, TRICARE Prime does not offer enrollment to

non-CHAMPUS-eligible beneficiaries.

2. Analysis of Major Public Comments

Several commenters objected to the exclusion of Medicare-eligible

military beneficiaries from enrollment eligibility, and questioned the

legal basis for such exclusion.

One commenter suggested that enrollment priorities be set

nationally rather than locally, with local authority to follow the

enrollment priority system only if all eligible beneficiaries cannot be

enrolled.

One commenter raised the issue of a CHAMPUS beneficiary with

Worker's Compensation coverage related to civilian government

employment, receiving care from military providers, asking what effect

TRICARE would have on this circumstance.

Response. Regarding the exclusion of Medicare beneficiaries, this

is not the Department's preferred position. However, we are unable to

offer enrollment to this group without reimbursement from the Medicare

trust funds, which would require a statutory revision. Were we to

include Medicare-eligible beneficiaries under TRICARE Prime, we would

be unable to comply with the cost requirement of section 731 of the

National Defense Authorization Act for Fiscal Year 1994. That section

requires that the ``Uniform HMO Benefit,'' mandated for TRICARE Prime,

must not increase DoD costs. Under law, civilian sector care provided

to almost all Medicare beneficiaries is at no expense to DoD because

they are not covered by CHAMPUS. TRICARE Prime, however, includes

comprehensive civilian sector coverage. Were this to be provided at DoD

expense, the additional costs to DoD would be considerable. There is no

feasible way to restructure TRICARE Prime to accommodate those costs

under the statutory cost neutrality requirement or under current

budgetary realities.

With respect to DoD's legal authority to exclude Medicare-eligible

beneficiaries from TRICARE Prime, the legal authority for TRICARE

Prime, 10 U.S.C. 1097, allows DoD to establish health care plans

covering selected health care services or selected beneficiaries. For

the reasons explained above, the TRICARE Prime plan adopts the same

exclusion of most Medicare beneficiaries as is required by law for

CHAMPUS (10 U.S.C. 1086(d)), on which the civilian sector component of

TRICARE Prime is based.

Regarding the primacy of national priorities for enrollment, we

agree, and reaffirm that the statutory priorities for access to space-

available care in MTFs will be used as the national priorities for

enrollment; if priorities are needed at the local level owing to

limited availability of enrollment during the phase-in of TRICARE, then

the statutory priorities will be followed. The only additional

prioritizing that is authorized is that, during a phase-in process,

priority may be given to family members of members in lower pay grades.

Eventually, however, in locations where Prime is offered, all CHAMPUS-

eligible

[[Page 52081]]

beneficiaries who wish to enroll will be accommodated.

Regarding the effect of TRICARE on beneficiaries with Worker's

Compensation coverage, the answer is that we anticipate little change:

under TRICARE, MTFs will continue to have authority to bill Worker's

Compensation programs and similar parties, and health care from

military providers will continue to be subject to availability.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

D. Health Benefits Under Prime (Section 199.17(d))

1. Provisions of Proposed Rule

This paragraph states that the benefits established for the Uniform

HMO Benefit option (see section 199.18, Uniform HMO Benefit option) are

applicable to CHAMPUS-eligible enrollees in TRICARE Prime.

Under TRICARE, all enrollees in Prime and all beneficiaries who do

not enroll remain eligible for care in MTFs. Active duty family members

who enroll in TRICARE Prime would be given priority for MTF access over

non-enrollees; priorities for other categories of beneficiary would,

under the proposed rule, be unaffected by their enrollment. Regarding

civilian sector care, active duty member care will continue to be

arranged as needed and paid for through the supplemental care program.

2. Analysis of Major Public Comments

Several commenters recommended that preference for MTF care be

given to all TRICARE Prime enrollees over all nonenrollees.

Response. We agree that granting preference to MTFs based on

enrollment in TRICARE Prime would be an incentive to enroll. In the

case of active duty family members, this preference is being granted.

However, other considerations must be taken into account when granting

such preference for retirees. In particular, because Medicare

beneficiaries are not eligible for enrollment in TRICARE Prime,

granting such preference would necessarily limit access to MTFs and

increase out-of-pocket costs for this large group of DoD beneficiaries.

Several options are under consideration to ensure fair and equitable

treatment of Medicare-eligible retirees under TRICARE Prime, and we

will revisit the issue of access priority as we have more information

about these options. In the meantime, we believe that the appropriate

course of action is not to base retiree preference for MTFs on

enrollment in TRICARE Prime.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

E. Health Benefits Under Extra (Section 199.17(e))

1. Provisions of Proposed Rule

This paragraph describes the availability of the civilian preferred

provider network under Extra. When Extra is used, CHAMPUS cost sharing

requirements will be reduced. (See Table 2 following the preamble for a

comparison of TRICARE Standard, TRICARE Extra, and TRICARE Prime cost

sharing requirements.)

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

F. Health Benefits Under Standard (Section 199.17(f))

1. Provisions of Proposed Rule

This paragraph describes health benefits for beneficiaries who opt

to remain in Standard. Broadly, participants in standard maintain their

freedom of choice of civilian provider under CHAMPUS (subject to

nonavailability statement requirements), and face standard CHAMPUS cost

sharing requirements, except when they take advantage of the preferred

provider network under Extra. The CHAMPUS benefit package applies to

Standard participants.

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

G. Coordination with Other Health Care Programs (Section 199.17(g))

1. Provisions of Proposed Rule

This paragraph of the proposed rule provided that, for

beneficiaries enrolled in managed health care programs not operated by

DoD, DoD may establish a contract or agreement with the other managed

health care programs for the purpose of coordinating beneficiary

entitlements under the other programs and the MHSS. This potentially

includes any private sector health maintenance organization (HMO) or

competitive medical plan, and any Medicare HMO. Any contract or

agreement entered into under this paragraph may integrate health care

benefits, delivery, financing, and administrative features of the other

managed care plan with some or all of the features of the TRICARE

Program. This paragraph is based on 10 U.S.C. section 1097(d), as

amended by section 714 of the National Defense Authorization Act for

Fiscal Year 1995.

2. Analysis of Major Public Comments

One commenter asked whether this section applied only to managed

care plans, or to any medical plan.

Response. To clarify, the section applies only to managed care

plans, such as health maintenance organizations. The intent of the

provision is to enable MTFs to become participating providers in the

networks established by such private plans, or to make other

coordinating arrangements, so that military beneficiaries who are

enrolled in the private plans may utilize the services of the MTF as

part of their managed care enrollment.

The Health Care Financing Administration (HCFA) expressed concerns

about the expressed DoD intent to include arrangements with Medicare

HMOs under this provision. Further discussions between DoD and the

Department of Health and Human Services will be necessary before we

complete action on this proposed regulatory provision.

3. Provisions of the Final Rule

The final rule does not include provisions relating to coordination

with other health plans. Action is reserved, pending further

development.

H. Resource Sharing Agreements (Section 199.17(h))

1. Provisions of Proposed Rule

This paragraph provides that MTFs may establish resource sharing

agreements with the applicable managed care support contractors for the

purpose of providing for the sharing of resources between the two

parties. Internal and external resource sharing agreements are

authorized. Under internal resource sharing agreements, beneficiary

cost sharing requirements are the same as in MTFs. Under internal or

external resource sharing agreements, an MTF commander may authorize

provision of services pursuant to the agreement to Medicare-eligible

beneficiaries, if this will promote the most cost-effective provision

of services under the TRICARE Program.

[[Page 52082]]

2. Analysis of Major Public Comments

One commenter suggested that the final rule specify how resource

sharing agreements will be established, how providers will be selected,

which providers would qualify for resource sharing, and how internal

disputes among practitioners would be resolved.

Response. We note that that resource sharing takes place in the

context of regional managed care support contracts, established in

support of TRICARE. These competitively procured contracts will be the

vehicle for selection of providers participating in resource sharing

programs, and disputes would be resolved through the contract

mechanisms. Any services offered in MTFs or covered by CHAMPUS could,

in concept, be subject to resource sharing; hence any CHAMPUS

authorized provider category potentially could be part of the program

if desired by the local military medical authorities.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, except for a

clarification of the circumstances under which services provided to

Medicare beneficiaries are potentially reimbursable by Medicare:

Medicare could pay civilian hospital charges in an external resource

sharing circumstance.

I. Health Care Finder (Section 199.17(i))

1. Provisions of Proposed Rule

This paragraph establishes procedures for the Health Care Finder,

an administrative office that assists beneficiaries in being referred

to appropriate health care providers, especially the MTF and civilian

network providers. Health Care Finder services are available to all

beneficiaries.

2. Analysis of Major Public Comments

One commenter suggested that the health care finder should refer

beneficiaries to both network and non-network sources of care, as

appropriate for the particular case, and that health care finder staff

be experienced, so that beneficiaries may be properly directed.

Response. We do not foresee circumstances in which health care

finders would routinely refer beneficiaries to non-network providers.

It is in the beneficiary's interest to use a network provider, because

of reduced cost sharing, guaranteed participation, and enhanced quality

assurance provisions; it is also in the Government's interest to

maximize use of network providers, whose services are provided at

preferred rates. Of course, health care finders will attempt to assist

beneficiaries in finding non-network sources if no network provider is

available; this is likely to be an unusual occurrence, because networks

typically will have the full range of CHAMPUS authorized services

available.

Health care finder staff will be qualified in their areas of

responsibility, often with Registered Nurses providing referral

services and appropriately trained clerical staff providing

administrative support and services.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

J. General Quality Assurance, Utilization Review, and Preauthorization

Requirements (Section 199.17(j))

1. Provisions of Proposed Rule

This paragraph emphasizes that all requirements of the CHAMPUS

basic program relating to quality assurance, utilization review, and

preauthorization of care apply to the CHAMPUS component of Prime, Extra

and Standard. These requirements and procedures may also be made

applicable to MTF services.

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

K. Pharmacy Services, Including Special Services in Base Realignment

and Closure Sites (Section 199.17(k))

1. Provisions of Proposed Rule

This paragraph establishes two special pharmacy programs, a retail

pharmacy network program and a mail service pharmacy program.

An important aspect of the mail service and retail pharmacy

programs is that, under the authority of section 702 of the National

Defense Authorization Act for Fiscal Year 1993, Pub. L. 102-484, there

is a special rule regarding eligibility for prescription services. The

special rule is that Medicare-eligible beneficiaries, who are normally

ineligible for CHAMPUS, are under certain special circumstances

eligible for the pharmacy programs. The special circumstances are that

they live in an area adversely affected by the closure of an MTF. A

provision of the National Defense Authorization Act for Fiscal Year

1995 additionally provides eligibility for Medicare eligible

beneficiaries who demonstrate that they had been reliant on a former

MTF for pharmacy services.

Under the rule, the area adversely affected by the closure of a

facility is established as the catchment area of the treatment facility

that closed. The catchment area is the existing statutory designation

of the geographical area primarily served by an MTF. The catchment area

is defined in law as ``the area within approximately 40 miles of a

medical facility of the uniformed services.'' Public Law 100-180, sec.

721(f)(1), 10 U.S.C.A. 1092 note. This is also the geographical basis

in the law for nonavailability statements that authorized CHAMPUS

beneficiaries who live within areas served by military hospitals to

obtain care outside the military facility. 10 U.S.C. 1079(a)(7).

Because the purpose of the special eligibility rule for Medicare-

eligible beneficiaries is to replace the pharmacy services lost as a

consequence of the base closure, and because the 40-mile catchment area

is the only geographical area designation established by law to

describe the beneficiaries primarily served by a military medical

facility, we believe it most appropriate to adopt the established 40-

mile catchment area for purposes of the applicability of the special

eligibility rule for pharmacy services. Thus, under the rule, Medicare-

eligible beneficiaries who live within the established 40-mile

catchment area of a closed medical treatment facility are eligible to

use the pharmacy programs if available in that area.

There are several noteworthy special rules regarding the area that

will be considered adversely affected by the closure of an MTF. First,

a 40-mile catchment area generally will apply in the case of the

closure of a military clinic, as it does in the case of the closure of

a hospital. Recognizing that there may be clinic closure cases

involving very small clinics that were not providing any significant

amount of pharmacy services to retirees, their family members and

survivors, these cases will not be considered to be areas adversely

affected by the closure of an MTF. The reason for this is simply that

if the facility was not providing a significant amount of services, its

closure will not have a noteworthy adverse effect in the area.

The Director, Office of CHAMPUS, may establish other procedures for

the effective operation of the pharmacy programs, dealing with issues

such as encouragement of the use of generic drugs for prescriptions and

of appropriate drug formularies, as well as establishment of

requirements for

[[Page 52083]]

demonstration of past reliance on an MTF for pharmacy services.

2. Analysis of Major Public Comments

One public comment urged prompt action to implement the program in

base closure sites; another commenter suggested establishment of a

timetable for defining eligibility and documentation requirements.

Another recommended that the definition of beneficiaries affected by

the closure of an MTF not be limited to the 40-mile catchment area.

Another recommended that eligible Medicare beneficiaries should include

all who used the closed pharmacy within the past 12 months.

Response. We agree with the comments provided, and have clarified

in the final rule the special rules for eligibility of Medicare

beneficiaries for this program.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, except that it

clarifies the procedures for establishing eligibility for Medicare

beneficiaries who live outside the former catchment area of a closed

facility. Medicare beneficiaries who obtained pharmacy services at a

facility in its last 12 months of operation (or the last twelve months

during which pharmacy services were available to non-active duty

beneficiaries) will be deemed to have been reliant on the facility;

they can establish their reliance through a written statement to that

effect.

The pharmacy provisions of the rule are part of the Department's

efforts to consolidate its pharmacy programs, and move towards a

uniform pharmacy component for TRICARE.

L. PRIMUS and NAVCARE Clinics (Section 199.17(1))

1. Provisions of Proposed Rule

The proposed rule added a new section 199.17(1). Under the

authority of 10 U.S.C. sections 1074(c) and 1097, this section would

authorize PRIMUS and NAVCARE Clinics, which have operated to date under

demonstration authority. This provision would have made permanent the

PRIMUS and NAVCARE Clinic authority.

In the proposed rule, we proposed that PRIMUS and NAVCARE Clinics

would function in a manner similar to MTF clinics that, as under the

demonstration project. As such, all beneficiaries eligible for care in

MTFs (including active duty members, Medicare-eligible beneficiaries,

and other non-CHAMPUS eligible beneficiaries) would be eligible to use

PRIMUS and NAVCARE Clincis. For PRIMUS and NAVCARE Clinics established

prior to October 1, 1994, CHAMPUS deductibles and copayments would not

apply. Rather, military hospital policy regarding beneficiary charges

would apply. For PRIMUS and NAVCARE Clinics established after September

30, 1994, the provisions of the Uniform HMO Benefit regarding

outpatient cost sharing would apply (see section 199.18(d)(3)). Other

CHAMPUS rules and procedures, such as coordination of benefits

requirements would apply. The Director, OCHAMPUS, could waive or modify

CHAMPUS regulatory requirements in connection with the operation of

PRIMUS and NAVCARE Clinics.

2. Analysis of Major Public Comments

Several commenters sought Clarification of the fees applicable to

PRIMUS and NAVCARE clinics established after September 30, 1994,

whether Medicare eligibles would be allowed to use the clinics or even

enroll in TRICARE using PRIMUS or NAVCARE clinics as primary care

managers, and whether PRIMUS and NAVCARE clinics will be limited to

space-available care for non-enrollees.

Response. The Department has determined that no new PRIMUS or

NAVCARE Clinics will be established, so the distinction made in the

proposed rule between existing and new clinics is no longer necessary.

As TRICARE is implemented over the next few years, existing PRIMUS and

NAVCARE Clinics will be phased out; PRIMUS and NAVCARE Clinics may be

converted into TRICARE Outpatient Clinics, as described below, or

similar clinics may emerge as components of the managed care support

contractor's network. TRICARE Outpatient Clinics will be Army, Navy or

Air Force military medical treatment facilities (MTFs): the Government

will operate the facilities, credential providers, and be liable for

care provided therein; the clinic will be staffed with military

personnel, civilian Federal employees, or contractors, or a combination

of these; the clinic providers will be direct care primary care

managers for TRICARE enrollees (see section 199.17(n)(1)); access

priority for care in TRICARE Outpatient Clinics will be the same as for

MTFs (see section 199.17(d)(1)); cost sharing for services in TRICARE

Outpatient Clinics will be the same as in MTFs (see section

199.17(m)(6)); and collections from third-party insurance will be under

the provisions of 32 CFR Part 220, which establishes rules for

collections by facilities of the Uniformed Services. Incidentally, the

Department is developing a financing approach for TRICARE in which MTF

funding will be based on a capitated payment per person enrolled with

an MTF primary care manager, and TRICARE managed care support

contractors will receive a capitated payment per enrollee with a

civilian primary care manager. Under this approach, it is our intention

to include funding of TRICARE Outpatient Clinics within the MTF

capitation, so that their operation will be a part of the direct care

system rather than part of the managed care support contract. Any

outpatient clinics or similar facilities established or operated by

TRICARE managed care support contractors will be components of the

civilian provider network, and will utilize the cost sharing

requirements specified in section 199.18(d)(3), which establishes

outpatient cost sharing requirements for the Uniform HMO Benefit. These

include specific dollar copayments for physician office visits and

other routine care, mental health visits, ambulatory surgery services,

and prescription drugs, as well as cost sharing percentages for durable

medical equipment.

Medicare-eligible military beneficiaries will be eligible for care

in TRICARE Outpatient Clinics on a space-available basis, but they will

not be allowed to enroll in TRICARE Prime (see section

199.17(a)(6)(i)(D)), unless they have dual CHAMPUS-Medicare

eligibility.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, except that it

is clarified that operation of a PRIMUS and NAVCARE Clinic will cease

upon initiation of a TRICARE program in the location of the PRIMUS or

NAVCARE Clinic.

M. Consolidated Schedule of Beneficiary Charges (Section 199.17(m))

1. Provisions of Proposed Rule

This paragraph establishes a consolidated schedule of beneficiary

charges applicable to health care services under TRICARE for Prime

enrollees (other than active duty members), Standard participants; and

Medicare-eligible beneficiaries. The schedule of charges is summarized

at Table 1, following the preamble. As demonstrated by the table,

TRICARE provides for reduced beneficiary out-of-pocket costs.

Included in the consolidated schedule of beneficiary charges is the

``Uniform HMO Benefit'' design required by law. This is further

discussed in the next section of the preamble.

[[Page 52084]]

2. Analysis of Major Public Comments

One commenter noted the perception of many military beneficiaries

that they were promised perpetual free care for their families when

they joined the military service. Several commenters representing

beneficiaries raised objections to the preamble section describing

DoD's plans to consider user fees in MTFs, for some categories of

beneficiaries and for some types of care. One commenter pointed out

that mental health cost sharing was not addressed in the schedule, and

that cost sharing for Medicare-eligible beneficiaries is unclear.

Another commenter questioned whether retirees with service-connected

disabilities, who in some cases receive treatment for their condition

in MTFs, are in effect being charged for this care via the enrollment

fee for TRICARE Prime.

Response. Regarding promises of perpetual free care and the

preamble material regarding potential future imposition of fees for

certain services in MTFs, we would point out that some elements of the

MHSS, notably CHAMPUS, have always had beneficiary charges associated

with them, and there has never been a system of unlimited free health

care for family members and other beneficiaries. In considering options

for the Uniform HMO Benefit, we considered imposition of fees in MTF's;

because of the high volume of services provided there, a very small fee

could have a dramatic impact on other cost sharing requirements

necessary to meet the statutory requirements for budget neutrality. It

was decided that we would not propose MTF fees in this rulemaking

proceeding, but describe some of the considerations regarding such fees

in the preamble to set the stage for a possible future rulemaking

action.

Regarding mental health cost sharing, we would point out that the

Consolidated Schedule of Beneficiary Charges includes several

references to the TRICARE Triple Option cost sharing schedule, and the

Uniform HMO Benefit Schedule, where mental health cost sharing

requirements are described in detail.

Regarding cost sharing for Medicare beneficiaries, the rules of the

Medicare program will generally apply for civilian care (with

exceptions under PRIMUS and NAVCARE clinics, the special pharmacy

program, and certain resource sharing agreements). The details of cost

sharing for private sector services, prescribed under the Medicare

program, are not presented here, but are available from any Social

Security Administration Office.

Regarding beneficiaries with service-connected disabilities, they

may elect to enroll in TRICARE Prime, or continue to exercise their

entitlements to CHAMPUS, and to space-available care in MTF's or to

receive priority care from Department of Veterans Affairs Medical

Centers.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

N. Additional Health Care Management Requirements Under Prime (Section

199.17(n)

1. Provisions of Proposed Rule

This paragraph describes additional health care management

requirements within Prime, and establishes the point-of-service option,

under which CHAMPUS beneficiaries retain the right to obtain services

without a referral, albeit with higher cost sharing. Each CHAMPUS-

eligible enrollee will select or be assigned a Primary Care Manager who

typically will be the enrollee's health care provider for most

services, and will serve as a referral agent to authorize more

specialized treatment, if needed. Health Care Finder offices will also

assist enrollees in obtaining referrals to appropriate providers.

Referrals for care will give first priority to the local MTF; other

referral priorities and practices will be specified during the

enrollment process.

2. Analysis of Major Public Comments

One commenter noted that enrollees would access MTF care only

through their primary care manager, while non-enrollees could seek MTF

care unfettered. This would limit access for enrollees to routine care

at MTFs and to the additional services sometimes available in MTFs.

Additionally, the commenter suggested that variations in MTF primary

care capacity in different locations would create disparities in

benefits and in access to MTF services.

Another commenter recommended that patient access to his/her

medical specialist of choice be guaranteed, and that beneficiaries not

be forced to be evaluated and treated for mental illness by non-

physicians.

A commenter representing beneficiaries asked how far enrollees

could be required to travel outside the area if needed care was

unavailable locally.

One commenter questioned how referrals outside the network or area

would be carried out, and how beneficiaries would obtain approval for

such care.

Response. It is true that the capacity and capabilities of the

direct care system of MTFs vary across the country, and that this

creates some disparities in access to free health care services. The

basic entitlement to CHAMPUS (or to Medicare) fills in many of the

``gaps'' arising from this circumstance; the Government shares in the

costs of civilian health care obtained by beneficiaries. TRICARE

attempts to further ameliorate disparities in access and cost through

creation of an integrated military-civilian health care program. Under

TRICARE Prime, outpatient care continues to be free in MTFs, and the

Government assumes a greater share of the cost of civilian health care

services. It is our firm belief that under a managed health care

approach, beneficiaries will receive much better access to needed

health care services than they do under the existing approach, in which

MTF care and civilian care are largely uncoordinated.

Regarding the comments about access to specialist of choice,

requirements to travel to receive care, and referrals for out-of-

network care, we emphasize that one of the key features of TRICARE

Prime is the assignment of a primary care manager for each enrollee.

The primary care manager, supported by the Health Care Finder, will be

responsible for providing or arranging all nonemergency care for the

enrollee. As specified in section 199.17(n)(2)(iii)(C), when needed

referral care is unavailable in MTF, the enrollee will have the freedom

to choose a provider from among those in the civilian network, subject

to availability. Beneficiaries will be authorized to receive care from

providers not affiliated with the network in cases where neither

military facilities nor the civilian network can provide the care,

pursuant to section 199.17(n)(2)(iii)(E). Mandatory referrals

necessitating travel are also addressed in section 199.17(n)(2): they

can be required only if the enrollee was informed of the policy at or

prior to enrollment. Travel will not be reimbursed, except in the

context of the Specialized Treatment Services program. See 32 CFR

199.4(a)(10) and 58 FR 58955 for further information about that

program.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

[[Page 52085]]

O. Enrollment Procedures (Section 199.17(o))

1. Provisions of Proposed Rule

This paragraph describes procedures for enrollment of beneficiaries

other than active duty members, who must enroll. The Prime plan

features open season periods during which enrollment is permitted.

Prime enrollees will maintain participation in the plan for a 12 month

period, with disenrollment only under special circumstances, such as

when a beneficiary moves from the area. A complete explanation of the

features, rules and procedures of the Program in the particular

locality involved will be available at the time enrollment is offered.

These features, rules and procedures may be revised over time,

coincident with reenrollment opportunities.

2. Analysis of Major Public Comments

One commenter asked us to define the ``significant effect on

participant's costs or access to care'' which would trigger an

opportunity to change enrollment status under 199.17(0)(3).

One commenter asked if the installment method would be available

for payment of the enrollment fee, and urged that no maintenance fee

apply if so.

Response. Regarding definition of ``significant effect'' on costs

or access, which would trigger an opportunity to change enrollment

status, we define a significant effect as follows: a change in cost

sharing or access policy expected to result in an increase in average

annual beneficiary out-of pocket costs of $100 or more.

Regarding installment payment of enrollment fees, a provision has

been added to authorize installment payments; we hope to offer

allotment payments in the future. While the rule provides only a

general provision in this regard, we would point out that current

practice in TRICARE is to offer a quarterly payment option, with the

option to pay the full amount remaining at any time; an additional

charge of $5.00 is added to each periodic payment to cover the

additional administrative costs associated with the installment method.

Some beneficiaries have expressed concern about the inclusion of such a

``maintenance fee.'' Our position is that, given that the enrollment

fee has been set at the minimum amount needed to comply with statutory

requirements of budget neutrality, we cannot ignore the additional

costs associated with installment payment methods. We believe it is

appropriate, and consistent with private sector practice, to add a

small amount to each payment, rather than to spread this cost across

all beneficiaries who enroll in TRICARE Prime.

The rule also includes exclusion from TRICARE Prime for one year

for failure to make an installment payment on a timely basis, including

a grace period. Eligibility for TRICARE Standard and Extra would be

unaffected by the exclusion penalty.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, with several

exceptions. Provisions regarding open season enrollment have been

broadened to include continuous open enrollment, wherein beneficiaries

may enroll at any time, and each enrollee has an individualized,

specific anniversary date. In addition, provisions have been added

regarding the installment payment option.

P. Civilian Preferred Provider Networks (Section 199.17(p))

1. Provisions of Proposed Rule

This paragraph sets forth the rules governing civilian preferred

provider networks in the TRICARE Program. It includes conformity with

utilization management and quality assurance program procedures,

provider qualifications, and standards of access for provider networks.

In addition, the methods which may be used to establish networks are

identified.

DoD beneficiaries who are not CHAMPUS-eligible, such as Medicare

beneficiaries, may seek civilian care under the rules and procedures of

their existing health insurance program. Providers in the civilian

preferred provider network generally will be required to participate in

Medicare, so that when Medicare beneficiaries use a network provider

they will be assured of a participating provider.

2. Analysis of Major Public Comments

Two public comments indicated that the requirement for providers to

accept Medicare assignment would adversely affect network development,

one suggesting that the requirement was unlawful and repugnant. One

commenter indicated that reductions in CHAMPUS payment amounts in

recent years will make it increasingly difficult to establish and

maintain an adequate network of providers, leading to lower quality

providers and dissatisfaction on the part of beneficiaries.

One commenter pointed out that some categories of providers, while

not ineligible for Medicare participation, have not participated in

Medicare because it is irrelevant to their lines of business. The

commenter suggested that, in such cases, the requirement to participate

in Medicare should not apply.

One commenter objected to the requirement that preferred providers

must meet all other qualifications and requirements, and agree to

comply with all other rules and procedures established for the network,

suggesting that any such additional requirements must be subjected to

the rulemaking process.

One commenter questioned the lack of specificity in 199.17(p)(6)

regarding special reimbursement methods for network providers, and

recommended additional specificity in the final rule. Another commenter

recommended that the rule specify if rate setting methods for network

providers will be the same as in standard CHAMPUS, and that any

differences in rate setting for the ``any qualified provider method''

be made subject to the rulemaking process.

One commenter recommended that network requirements specify the

inclusion of psychiatrists, allowed to provide a full range of

diagnostic and treatment services.

One commenter urged that we require that the network contain a

sufficient number and mix of all provider types, not just physicians,

and explicitly prohibit discrimination against a health care provider

solely on the basis of the professional's licensure or certification,

to prohibit exclusion of an entire class of health care professional.

One commenter asked who would pay for travel or overnight

accommodations if a beneficiary must travel more than 30 minutes from

home to a primary care delivery site.

One commenter asked why 199.17(p)(5)(ii) allows a four-week wait

for a well-patient visit, and a two-week wait for a routine well-

patient visit.

One commenter suggested that the wide latitude in network

development methods provided by 199.17(p)(7) would create undesirable

inconsistencies across the nation.

One commenter suggested that any qualified provider be allowed into

the preferred provider network, regardless of the method used to

develop the network.

One commenter recommended that the rule specify if rate setting

methods for network providers will be the same as in standard CHAMPUS,

and that any differences in rate setting for the any qualified provider

method be made subject to the rulemaking process.

Response. Regarding the requirement that providers accept Medicare

assignment as a condition of

[[Page 52086]]

participation in the TRICARE network, we believe that this requirement

is reasonable. Payment amounts under the CHAMPUS and Medicare programs

are very similar, so there would not seem to be an economic issue

involved. The vast majority of physicians nationally (83 percent in

1993) already participate in Medicare, so there should be a large pool

of providers available. For hospitals, CHAMPUS and Medicare

participation is linked by statute. Physician participation is not

linked for the standard CHAMPUS program, but in the context of

establishing a managed care network is entirely appropriate and

consistent with statutory authority to establish reasonable

requirements for network providers, including acceptance of Medicare

assignment.

Regarding the suggestions that some providers may not be Medicare

participating providers because it is irrelevant to their line of

business, and thus should be exempted from the requirement, we agree

that there may be some classes of providers which, while providing

services of importance to CHAMPUS beneficiaries, provide no services

covered by Medicare. Such a case may be covered by the waiver for

``extraordinary circumstances'' which is included in this provision.

Regarding the comment that any additional requirements established

for network providers should be subject to the rule making process, we

point out that this provision refers to additional, local requirements

established for network providers, consistent with the program-wide

rules established in this regulation and other program documents.

Further rulemaking activity in this regard is neither necessary nor

appropriate.

Regarding the suggestion that we provide additional specificity

concerning the special reimbursement methods for network providers, we

do not agree that additional specifics should be provided. The rule

provides added flexibility to vary payment provisions from those

established by regulation, to accommodate local market conditions. To

attempt to specify in advance the possible reimbursement approaches

would defeat our purpose of providing a flexible mechanism. We also

disagree that network rate setting should be the same as under standard

CHAMPUS rules; a key aim of managed care programs is to negotiate lower

rates of reimbursement with networks of preferred providers.

Regarding the comments which recommended specification of provider

types to be included in the network, or suggested anti-discrimination

provisions, we point out that section 199.17(p)(5) requires that the

network have an adequate number and mix of providers such that, coupled

with MTF capabilities, it can meet the reasonably expected health care

needs of enrollees. Beneficiaries will have available the full range of

needed health care services, and network managers will be responsible

for arranging to meet any unanticipated health care needs which cannot

be accommodated in the network. We do not think it is appropriate to

specify which provider types and how many will be included in the

network, because this will vary by location, depending on beneficiary

demographics and local health care marketplace conditions.

Regarding payment for travel or overnight accommodations if a

beneficiary must travel more than 30 minutes from home to a primary

care delivery site, we will not make such payments. Payment for travel

is authorized only in association with the specialized treatment

services program, under section 199.4(a)(10).

Regarding why 199.17(p)(5)(ii) allows a four-week wait for a well-

patient visit, and a two-week wait for a routine well-patient visit,

this was a typographical error in the proposed rule. The provision

should be, a four-week wait for a well-patient visit, and a one-week

wait for a routine visit.

Regarding the comment that the wide latitude in network development

methods provided by 199.17(p)(7) would create undesirable

inconsistencies across the nation, we point out that a single method is

being implemented nationally: competitive solicitation of regional

TRICARE support contractors. We expect that alternative methods will be

used only to address special circumstances.

Regarding the suggestion that any qualified provider be allowed

into the preferred provider network, regardless of the method used to

develop the network, we disagree. The rule contains provisions (section

199.17(q)) for using such a method, but our preferred method, which we

are implementing, is to establish regional TRICARE support contracts on

a competitive basis, with offerors proposing a selective provider

network.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, except for

correction of a typographical error; the rule now specifies maximum

wait time for a routine visit of one week.

Q. Preferred Provider Network Establishment Under Any Qualified

Provider Method (Section 199.17(q))

1. Provisions of Proposed Rule

This paragraph describes one process that may be used to establish

a preferred provider network (the ``any qualified provider method'')

and establishes the qualifications which providers must demonstrate in

order to join the network.

2. Analysis of Major Public Comments

Several commenters urged that the ``any qualified provider'' method

not be used in the development of managed care network for DoD.

One commenter recommended that the requirement that providers

follow all quality assurance and utilization management procedures

established by OCHAMPUS be linked to the requirement that providers

must meet all other rules and procedures that are established, publicly

announced, and uniformly applied.

Response. As provided in section 199.17(p)(7), there are several

possible methods for establishing a civilian preferred provider

network, including competitive acquisitions, modification of and

existing contract, or use of the ``any qualified provider'' approach

described in section 199.17(q). The current method of choice in

implementing TRICARE is the first approach: DoD plans to award several

regional managed care support contracts in the next few years. The

managed care support contractors will establish the civilian provider

networks according to the requirements specified in the government's

request for proposals (RFP) for each procurement; these RFP

requirements will be consistent with the provisions of section

199.17(p). At this point, we do not anticipate any broad use of the

``any qualified provider'' approach; it could be used under special

circumstances, however.

A commenter suggested that we link two of the ``any qualified

provider'' requirements--section 199.17(q)(2), which specifies that

providers must meet all quality assurance and utilization management

requirements established pursuant to section 199.17, and section

199.17(q)(4), which requires that providers follow all rules and

procedures established, publicly announced and uniformly applied by the

commander or other authorized official. A linkage is not appropriate.

The former requirement specifically emphasizes some of nationally

established regulatory requirements will apply to providers under the

``any qualified provider'' approach. The latter

[[Page 52087]]

requirement enables establishment of additional, uniform, local

requirements for the ``any qualified provider'' approach. These could

include, for example, a requirement for a five percent discount off

prevailing CHAMPUS payment amounts, applicable to all providers in the

network. The amount of discount feasible would depend on local market

conditions and the degree of military presence in the community, hence

it would be more appropriate as a local requirement than a nationally

established standard.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

R. General Fraud, Abuse, and Conflict of Interest Requirements Under

TRICARE Program (Section 199.17(r))

1. Provisions of Proposed Rule

This paragraph establishes that all fraud, abuse, and conflict of

interest requirements for the basic CHAMPUS program are applicable to

the TRICARE Program.

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

S. Partial Implementation of TRICARE (Section 199.17(s))

1. Provisions of Proposed Rule

This paragraph explains that some portions of TRICARE may be

implemented separately: a program without the HMO option, or a program

covering a subset of health care services, such as mental health

services.

2. Analysis of Major Public Comments

One commenter suggested that partial implementation of TRICARE

would be inconsistent with the Congressional mandate for a uniform

benefit across the country, and urged commitment to full implementation

of all TRICARE options in all regions.

Response. We are indeed intent upon implementing TRICARE

nationally. It would not be inconsistent with Congressional direction

to implement TRICARE partially in a location, given that the

Congressional mandate for establishment of the Uniform HMO Benefit is

to make it applicable throughout the country, to the maximum extent

practicable. If local circumstances were to make full implementation

impracticable, it might be preferable to implement at least some

features of TRICARE.

One potential circumstance for partial implementation of TRICARE is

the offering of TRICARE Prime to selected beneficiary groups in remote

sites. This would be consistent with the Congressional direction to

implement the Uniform HMO Benefit nationally, to the extent

practicable. For example, military recruiters are often assigned to

duty in locations without MTFs, and thus their families may be at a

disadvantage in terms of health care cost or access, compared to most

families of active duty members.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, except that we

have clarified that partial implementation of TRICARE may include

offering TRICARE Prime to limited groups of beneficiaries in remote

sites, and that some of the normal requirements of TRICARE Prime may be

waived in this regard.

T. Inclusion of Veterans Hospitals in TRICARE Networks (Section

199.17(t))

This paragraph would provide the basis for participation by

Department of Veterans Affairs facilities in TRICARE networks, based on

agreements between the VA and DoD.

2. Analysis of Major Public Comments

One public comment was received relating to this section of the

rule, applauding the inclusion of VA facilities in TRICARE and urging

prompt action to implement the provision.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

U. Cost Sharing of Care for Family Members of Active Duty Members in

Overseas Locations (Section 199.17(u))

1. Provisions of Proposed Rule

This paragraph would permit establishment of special CHAMPUS cost

sharing rules for family members of active duty members when they

accompany the member on a tour of duty outside the United States. A

recently initiated demonstration program, described in the Federal

Register of September 2, 1994 (59 FR 45668), tests such a program for

active duty family members in countries served by OCHAMPUS, Europe.

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The Final Rule is consistent with the proposed rule, except that it

provides further details of the circumstances under which alternatives

to CHAMPUS cost sharing rules may be approved, in the context of

management care programs in overseas locations. Programs will include

networks of providers who have agreed to accept CHAMPUS assignment for

all care. Beneficiary cost sharing for care obtained from network

providers will be zero.

V. Administrative Procedures (Section 199.17(v))

1. Provisions of Proposed Rule

This paragraph authorizes establishment of administrative

procedures for the TRICARE Program.

2. Analysis of Major Public Comments

One commenter asked whether MTF billing of other primary health

insurance would continue under TRICARE.

Response. MTF billing of third party insurance, governed by

provisions of 32 CFR Part 220, will continue under TRICARE.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

III. Provisions of the Rule Concerning the Uniform HMO Benefit Option

A. In General (Section 199.18(a))

1. Provisions of Proposed Rule

This paragraph introduces the Uniform HMO Benefit option. The

statutory provision that establishes the parameters for determination

of the Uniform HMO Benefit option is section 731 of the National

Defense Authorization Act for Fiscal Year 1994. It requires the

establishment of a Uniform HMO Benefit option, which shall ``to the

maximum extent practicable'' be included ``in all future managed health

care initiatives undertaken by'' DoD. This option is to provide

``reduced out-of-pocket costs and a benefit structure that is as

uniform as possible throughout the United States.'' The statute further

requires a determination that, in the managed care initiative that

includes the Uniform HMO Benefit, DoD costs ``are no greater than the

costs that would otherwise be incurred to provide health care to the

covered beneficiaries who enroll in the option.''

In addition to this provision of the National Defense Authorization

Act for Fiscal Year 1994, a similar requirement

[[Page 52088]]

is established by section 8025 of the DoD Appropriations Act, 1994. As

part of an initiative ``to implement a nationwide managed health care

program for the MHSS,'' DoD shall establish ``a uniform, stabilized

benefit structure characterized by a triple option health benefit

feature.'' Our Uniform HMO Benefit also implements this requirement of

law.

In fiscal year 1993, DoD implemented the expansion of the CHAMPUS

Reform Initiative to the areas of Carswell and Bergstrom Air Force

Bases in Texas and England Air Force Base, Louisiana. (These sites were

singled out because they were military bases identified for closure in

the Base Realignment and Closure, or ``BRAC'' process; thus the benefit

developed for them is called the ``BRAC Benefit.'') This expansion of

the CHAMPUS Reform Initiative offers positive incentives for enrollment

and preserves the basic design of the original CHAMPUS Reform

Initiative program, although it is not identical to that program. The

original CHAMPUS Reform Initiative design featured a $5 per visit fee

for most office visits, a very much reduced schedule of other

copayments, and no deductible or enrollment fee. Although its

generosity made it very popular with beneficiaries, it also caused

substantial concerns regarding government budget impact. This benefit

fails to meet the statutory requirement for cost neutrality to DoD.

The Carswell/Bergstrom/England HMO benefit (BRAC Benefit) model

attempts partially to address these concerns, while providing enhanced

benefits. It features enrollment fees for some categories of

beneficiaries, $5, $10, or $15 per visit fees, depending on beneficiary

category, and inpatient per diems of $125 for retirees, their family

members and survivors. This benefit also fails to meet the statutory

requirement for cost neutrality to DoD.

A new HMO benefit is being presented in this rule as the Uniform

HMO Benefit. The principal features of the benefit are displayed in

Table 3 following the preamble. Its most significant change from the

BRAC Benefit is that inpatient cost sharing for retirees, their family

members and survivors is reduced to the levels faced by active duty

family members, with concomitant increases in enrollment fees for these

beneficiaries. A second important change is that there would be no

enrollment fee for family members of active duty members. Finally, fees

are set so that if the predicted costs remain valid, they may be held

constant for a five-year period, rather than escalating each year with

price inflation.

The development of this Uniform HMO Benefit included painstaking

analysis of utilization, cost, and administrative effect of potential

cost sharing schedules. This analysis included a series of assumptions

regarding most likely ramifications of various components of the

benefit and the operation of the TRICARE Program. Based on this

exhaustive analysis, the formulation of the Uniform HMO Benefit in the

rule is the most generous benefit DoD can offer consistent with the

statutory cost-neutrality mandate.

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

B. Benefits Covered Under the Uniform HMO Benefit Option (Section

199.18(b))

1. Provisions of Proposed Rule

For CHAMPUS-eligible beneficiaries, the HMO Benefit option

incorporates the existing CHAMPUS benefit package, with potential

additions of preventive services and a case management program to

approve coverage of usually noncovered health care services (such as

home health services) in special situations.

2. Analysis of Major Public Comments

One commenter suggested that the extent of case management benefits

and the circumstances under which they would be provided should be

clarified.

Response. Case management of services for CHAMPUS beneficiaries

will be addressed in a separate, forthcoming rule making action. We

anticipate publication of a proposed rule on this subject later in

1995.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

C. Deductibles, Fees, and Cost Sharing Under the Uniform HMO Benefit

Option (Sections 199.18 (c) through (f))

1. Provisions of Proposed Rule

Instead of usual CHAMPUS cost sharing requirements, Uniform HMO

Benefit option participants will pay special per-service, specific

dollar amounts or special reduced cost sharing percentages, which would

vary by category or beneficiary.

The Uniform HMO Benefit also would include an annual enrollment

fee, which would be in lieu of the CHAMPUS deductible. The current

CHAMPUS deductible is $50 per person or $100 per family for family

members of active duty members in pay grades E-1 through E-4; and $150

per person or $300 per family for all other beneficiaries. The

enrollment fee under the Uniform HMO Benefit option would vary by

beneficiary category: $0 for active duty family members, and $230

individual or $460 family for retirees, their family members, and

survivors.

The amount of enrollment fees, outpatient charges and inpatient

copayment under the Uniform HMO benefit are presented in detail in

sections 199.18 (c) through (f).

2. Analysis of Major Public Comments

Two commenters suggested that high enrollment fees might deter

CHAMPUS-eligible retirees, survivors, and their family members from

enrolling. One demanded that separate and higher copayments for mental

health services be eliminated.

Another commenter indicated that the cost share proposed for

durable medical equipment and prostheses, coupled with the catastrophic

cap of $7,500 for retirees, survivors and their family members,

presented a risk of costs too high, and suggested lowering the

catastrophic cap to $2,500.

Another commenter objected to the provision allowing for annual

updates in enrollment fees and copayments, since the Uniform HMO

Benefit cost sharing was calculated to be constant over a five year

period.

One commenter objected to application of enrollment fees to

retirees, their survivors, and family members, and not to active duty

families and suggested that this represents an inappropriate subsidy.

One commenter noted the requirement that the Uniform HMO Benefit be

modeled on private sector HMO plans, and pointed out that the average

office visit copayment was $6.23 for in civilian HMOs in 1993, compared

to $12 for most beneficiaries under the Uniform HMO Benefit. It was

suggested that DoD thus ignored a basic requirement of the statute.

Response. Regarding the suggestion that high enrollment fees might

deter CHAMPUS-eligible retirees, survivors, and their family members

from enrolling, we recognize that each family has different health care

needs and circumstances, and all will not find enrollment in TRICARE

Prime as the right choice. However, it does offer a cost-effective

alternative to TRICARE Standard, and will be the best option for many

people.

Regarding the demand that separate and higher copayment for mental

health services be eliminated, we cannot

[[Page 52089]]

comply. Cost sharing, utilization management, and other requirements

are different for mental health services in standard CHAMPUS, just as

they are in many civilian sector health plans. Given the need to craft

a benefit design which is cost-effective for beneficiaries and the

Government, we found no alternative but to preserve the distinct

treatment of mental health services.

Regarding comments about potentially high costs for durable medical

equipment and prostheses, we agree, and have lowered the catastrophic

cap to $3,000 for retirees, their family members and survivors enrolled

in TRICARE Prime.

Regarding objections to the provision allowing for annual updates

in enrollment fees and copayments, since the uniform HMO Benefit cost

sharing was calculated to be constant over a five-year period, we

acknowledge this concern, and are committed to maintaining a stable

benefit. We have retained the provision allowing updates, however,

because of the statutory direction to administer the Uniform HMO

Benefit so the DoD costs are no higher than they would be without the

program. If the program is not budget neutral, enrollment fees or other

cost sharing will need to be increased, or other actions taken, to

assure budget neutrality. We recognize that this is a sensitive issue,

and we strongly believe that no increases in enrollment fees will be

necessary during the first five years of the program, because we

performed exhaustive analysis in arriving at the cost sharing

structure, and critically reviewed all the assumptions we made about

program performance. Considerations leading to retention of the

provision permitting updates to fees include, first, that the

enrollment fees in the Uniform HMO Benefit are set at the absolute

minimum necessary to comply with the budget neutrality dictates; there

is no ``cushion'' built in. Second, the Congressional Budget Office, in

reviewing the Uniform HMO Benefit, determined that there is so much

uncertainty about the performance of managed care systems that precise

predictions are impossible. CBO has formally estimated that the Uniform

HMO Benefit will increase DoD's costs of health care delivery, despite

the statutory requirement that it be budget neutral, and that total

cost will probably increase by about 3 percent. Finally, the

implementation of TRICARE over the next several years provides an

opportunity to confirm the assumptions we made in establishing the

Uniform HMO Benefit.

Regarding objections to application of enrollment fees to retirees,

their survivors, and family members, and not to active duty families,

and suggestions that this represents an inapporpriate subsidy, we would

point out that our analysis considered the costs of retirees, their

family members and survivors separately from the costs of active duty

family members. There is no subsidy of active duty family members by

other beneficiaries inherent in the benefit design; instead the

differences in cost sharing reflect the differences established

statutorily when CHAMPUS was created in 1966, and revised numerous

times since then.

Regarding the comment that we ignored the statutory requirement

that the Uniform HMO Benefit be modeled on private sector HMO plans,

because its cost sharing requirements were higher in some, we disagree.

The Uniform HMO Benefit does include somewhat higher copayment than are

used in most private sector HMO plans, owing to the other statutory

requirements we must address; however, we feel that the Uniform HMO

Benefit is ``modeled'' on HMO plans, because it employs the same

approach they do, replacing percentage-based cost sharing with fixed

dollar copayment to limit beneficiary out-of-pocket expenses and reduce

incentives for over-provision of care. The statute imposes several

conflicting requirements for the Uniform HMO Benefit, and our design

attempts to ``harmonize'' these requirements to the maximum extent

feasible. These include the requirement to model the benefit on private

sector plans, the requirement that beneficiary out-of-pocket costs be

reduced, and that government costs be no greater than would otherwise

be incurred for enrollees. Replicating a typical HMO plan offered in

the Federal Employee Health Benefits Program, for example, would

violate the out-of-pocket cost provisions, because (although per-visit

copayments are very low) annual out-of-pocket costs are much higher

than in CHAMPUS owing to much higher premiums. Using the very

attractive (low) copayments from one of these plans along with low

enrollment fees would violate the requirement for budget neutrality. In

a nutshell, the Uniform HMO Benefit design reflects a careful balancing

of several statutory requirements; considering any one of them in

isolation is inappropriate.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule, except for one

important change. We have revised the benefit in response to concerns

about the vulnerability of a small number of retirees to high out-of-

pocket costs, owing to the percentage cost share for durable medical

equipment, coupled with a catastrophic cap of $7,500 per family.

Instead of incorporating the standard CHAMPUS catastrophic cap of

$7,500, the Uniform HMO Benefit will include a catastrophic cap of

$3,000 for retirees, survivors, and their family members. Thus

retirees, survivors, and their family members who enroll in TRICARE

Prime will have a considerably lower limit on their annual out-of-

pocket expenses, in addition to the dramatically lower per-service

charges features in the Uniform HMO Benefit.

D. Applicability of the Uniform HMO Benefit to the Uniformed Service

Treatment Facilities Managed Care Program (Section 199.18(q))

1. Provisions of Proposed Rule

The section would apply the Uniform HMO Benefit provisions to the

Uniformed Services Treatment Facility Managed Care Program, beginning

in fiscal year 1996. This program includes civilian contractors

providing health care services under rules quite different from

CHAMPUS, the CHAMPUS Reform Initiative, or other CHAMPUS-related

programs.

The National Defense Authorization Act for Fiscal Year 1991,

section 718(c), required implementation of a ``managed-care delivery

and reimbursement model that will continue to utilize the Uniformed

Services Treatment Facilities'' in the MHSS. This provision has been

amended and supplemented several times since that Act. Most recently,

section 718 of the National Defense Authorization Act for Fiscal Year

1994 authorized the establishment of ``reasonable charges for inpatient

and outpatient care provided to all categories of beneficiaries

enrolled in the managed care program.'' This is a deviation from

previous practice, which had tied Uniformed Services Treatment

Facilities (USTF) rules to those of MTFs. This new statutory provision

also states that the schedule and application of the reasonable charges

shall be in accordance with terms and conditions specified in the USTF

Managed Care Plan. The USTF Managed Care Plan agreements call for

implementation in the USTF Managed Care Program of cost sharing

requirements based on the level and range of cost sharing required in

DoD managed care initiatives.

The Conference Report accompanying National Defense Authorization

Act for Fiscal Year 1994 calls on DoD ``to develop and implement a plan

to introduce competitive managed care

[[Page 52090]]

into the areas served by the USTFs to stimulate competition'' among

health care provider organizations ``for the cost-effective provision

of quality health care services.'' We have determined that it is most

appropriate to use the Uniform HMO Benefit for the USTF Managed -Care

Program. This action will stimulate competition between the USTFs and

firms operating the other DoD managed care program to which the Uniform

HMO Benefit applies. Based on these considerations, we proposed to

include the USTF Managed Care Program under the Uniform HMO Benefits,

effective October 1, 1995.

2. Analysis of Major Public Comments

One commenter asked if Medicare-eligible beneficiaries currently

enrolled in the USTF managed care program will continue to be enrolled

after October 1, 1995.

One commenter suggested that tying the USTF program to TRICARE was

inappropriate, arbitrary, and should be done only after direct notice

to those beneficiaries who would be affected. Another commenter

indicated that it was inappropriate to increase cost sharing for USTFs

while exempting PRIMUS and NAVCARE clinics.

One commenter suggested that the use of the rulemaking process for

establishing cost sharing in Uniformed Services Treatment Facilities

(USTFs) commits DoD to using the rulemaking process for addressing USTF

cost sharing in the future.

One commenter took issue with the applicability of Section 731 of

the National Defense Authorization Act for Fiscal Year 1994 to USTFs,

since it applies to ``health care initiatives undertaken * * * after

the date of enactment of the act,'' and services were initiated under

the USTF managed care program prior to that time. Also, the commenter

questioned whether Congressional Conference report language

recommending the introduction of competitive managed care into areas

now served by USTFs justifies imposing the TRICARE costs shares (i.e.,

the Uniform HMO Benefits) on USTFs.

One commenter suggested that the statute directing the Uniform HMO

Benefit provides latitude for differences in cost sharing requirements,

because it specifies only reduced out of pocket costs for enrollees,

and mandates uniformity in the range of health care services to be

available to enrollee. Focusing on the requirement for reduced out-of-

pocket costs, the commenter notes that out-of-pocket costs for USTF

enrollees would be increased substantially under the Uniform HMO

Benefit. Because applying the Uniform HMO Benefit cost sharing to USTFs

would be inappropriate and unnecessary, and because the range of health

care services in CHAMPUS and the USTF program are similar, the

commenter suggests that proposed Sec. 199.18(g) not be included in the

final rule.

One commenter suggested that the separate, capitated arrangements

between the Government and USTFs meet the requirement that the costs

incurred by the Secretary under each managed care initiative be no

greater than would otherwise be incurred. It is argued that, because

USTFs are fully at risk for excess health care costs, the Uniform HMO

Benefit cost sharing is unnecessary for the USTF program.

3. Provisions of the Final Rule

We have deleted as unnecessary this provision of the final rule.

The USTF managed care plan agreements provide for adoption of the DoD

policy for cost sharing under managed care programs. Thus,

incorporation of the Uniform HMO Benefit, which now has been

promulgated as DoD policy for managed care programs, into the USTF

managed care plan has already been provided for through contractual

agreement and need not be repeated in this regulation.

DoD's policy is to phase the uniform HMO benefit into the USTF

program, coincident with implementation of the TRICARE regional managed

care contract in the respective area. This will assure equitable

treatment for beneficiaries within a region and nationality.

Eventually, USTFs would be fully integrated into the TRICARE system, on

an equal footing with other contract providers of health care. The

intention is to provide a level playing field for the operation of

managed care programs, and to assure equity among beneficiaries.

IV. Provisions of the Rule Concerning Other Regulatory Changes

The rule makes a number of additional changes to support

implementation of TRICARE.

A. Nonavailability Statements (Revisions to Sections 199.4(a)(9) and

199.15)

1. Provisions of Proposed Rule

Proposed revisions to section 199.4 relate to the issuance of NASs

by designated military clinics. Beneficiaries residing near such

designated clinics would have to obtain a nonavailability statement for

the selected outpatient services subject to NAS requirements under

section 199.4(a)(9)(i)(C).

In a notice of proposed rule making published on May 11, 1993, we

proposed a new provision to allow consideration of availability of care

in civilian preferred provider networks in connection with issuance of

non-availiability statements; in conjunction with this, a considerable

expansion of the list of outpatient services for which an NAS is

required was proposed. That proposal was not finalized. In the proposed

rule, we outlined a more limited program, covering only inpatient care.

Recently, a demonstration program was established in California and

Hawaii, allowing consideration of availability of care in civilian

preferred provider networks in connection with issuance of non-

availability statements for inpatient services only. The results of the

demonstration will be incorporated into a Report to Congress on the

expanded use of NASs, as required by section 735 of the National

Defense Authorization Act for FY 1995.

Finally, proposed revisions to section 199.4(a)(9) would apply NAS

requirements in cases where military providers serving at designated

military outpatient clinics also provide inpatient care to

beneficiaries at civilian hospitals, under External Partnership or

Resource Sharing Agreements.

2. Analysis of Major Public Comments

Several commenters objected to the notion of employing non-

availability statements under TRICARE, since beneficiaries are being

given the choice of enrolling the TRICARE Prime or exercising their

benefit under TRICARE Standard with higher cost shares accompanied by

freedom of choice.

One commenter recommended that NAS requirements be uniform

throughout the nation, to avoid confusing the highly mobile beneficiary

population.

Several commenters suggested that requiring non-enrolled

beneficiaries to use network providers or civilian facilities with an

external partnership or resource sharing agreement, through issuance of

a ``restricted'' NAS, was unfair to those unable to enroll in TRICARE

Prime, and to those with chronic conditions who might have long-

standing provider relationships.

One commenter sought clarification of the applicability of the

restricted NAS provisions to beneficiaries under TRICARE Prime, Extra,

and Standard and suggested that restricting use of non-network care by

TRICARE Standard beneficiaries is an unreasonable curb on their freedom

of choice, as well arbitrarily preventing an authorized CHAMPUS

provider from furnishing

[[Page 52091]]

care to qualifying CHAMPUS beneficiaries. One commenter suggested that

limiting freedom of choice of civilian provider for TRICARE Standard

beneficiaries through the ``restricted NAS'' provisions of 199.4(a)(9)

would be unlawful.

One commenter objected to the use of the provisions for external

partnership or resource sharing for mental health care, suggesting that

it would be inappropriate mental health services because military

mental health providers would provide limited interventions, disrupting

care for mental health patients, particularly children and adolescents.

Also, the commenter suggested that use of this provision would deny

beneficiaries their right to seek care from any qualified CHAMPUS-

authorized providers in the catchment area.

One commenter suggested that we define the terms for exceptions to

the restricted NAS provision related to ``exceptional hardship'' or

``other special reason,'' recommending that special reason include that

more effective or appropriate care is available, and that hardships

include financial and geographic hardships.

Response. We acknowledge that there is a legitimate point of view

that TRICARE Standard, as the fee-for-service type option, should

provide total freedom of choice of provider. However, the requirement

that beneficiaries determine whether nearby MTFs can provide a needed

service, before obtaining it from a civilian source, is important to

the vitality of military medicine and the maintenance of medical

readiness training for wartime.

Regarding the recommendation that NAS requirements be uniform

throughout the nation, to avoid confusing the highly mobile beneficiary

population, we agree, in the main. The only exceptions to nationally

standard NAS requirements are those imposed in the context of the

specialized treatment services program, wherein catchment areas of up

to 200 miles surrounding a service site may be established for highly

specialized, high cost services.

Regarding the comments that requiring non-enrolled beneficiaries to

use network providers or civilian facilities with an external

partnership or resource sharing agreement, through issuance of a

``restricted'' NAS, would be unfair to some beneficiaries, we point out

that these NAS requirements in the proposed rule related to inpatient

care and a limited, specific list of outpatient procedures. The

requirements would not limit beneficiary freedom to choose a provider

for most care, particularly care for chronic conditions.

Regarding the request for clarification of the applicability of the

restricted NAS provisions, the proposed rule would have applied these

to all CHAMPUS-eligible beneficiaries. Regarding the comment that

restricting use of non-network care by TRICARE Standard beneficiaries

would represent an unreasonable curb on their freedom of choice, we

point out, as above, that these provisions apply to a very limited

subset of care, and would not impede choice of provider in most cases.

Regarding the comment that the restricted NAS would arbitrarily prevent

an authorized CHAMPUS provider from furnishing care to qualifying

CHAMPUS beneficiaries, this is true in a sense, for the very limited

array of services covered. However, many rules and requirements are

applicable to the provision and reimbursement of health care services

under CHAMPUS, and we believe this limited extension of NAS

requirements, specifically authorized by law, would not be arbitrary.

Regarding the suggestion that limiting freedom of choice of civilian

provider for TRICARE Standard beneficiaries (199.17(a)(6)(ii)(C))

through the ``restricted NAS'' provisions of 199.4(a)(9) would be

unlawful, we would point out that the application of NAS requirements

to services available in civilian provider networks is authorized under

10 U.S.C. section 1080(b).

Regarding objections to the use of provisions for external

partnership or resource sharing for mental health care, again, we point

out that the only services to which these proposed requirements would

have applied are those subject to normal NAS requirements: inpatient

admissions and a limited set of outpatient technical procedures. They

would not disrupt ongoing relationships with civilian providers.

Regarding the suggestion that we define the terms for exceptions to

the restricted NAS provision related to ``exceptional hardship'' or

``other special reason,'' we agree with the commenters that the

availability of more effective or appropriate care would constitute a

valid reason for a determination that denying the NAS would be

medically inappropriate. Also, we agree that the concept of hardship

should include financial and geographic hardships.

3. Provisions of the Final Rule

Provisions regarding the ``restricted NAS'' have been deleted from

the final rule. Our current plan is to evaluate the results of the

California/Hawaii demonstration project, consider the desirability of

expanding the activity more broadly, and report to Congress on our

conclusions. Should we decide to go forward with some use of the

restricted NAS authority, we would initiate a new rulemakng proceeding.

The expanded authority pertaining to outpatient NASs for a limited

set of procedures at a limited number of highly capable outpatient

clinics is included in the final rule, consistent with the proposed

rule.

B. Participating Provider Program (Revisions to 199.14)

1. Provisions of Proposed Rule

Revisions to section 199.14 change the Participating Provider

Program from a mandatory, nationwide program to a localized, optional

program. The initial intent of the program was to increase the

availability of participating providers by providing a mechanism for

providers to sign up as Participating Providers; a payment differential

for Participating Providers was to be added as an inducement. With the

advent of the TRICARE Program and its extensive network of providers,

the nationwide implementation of the Participating Provider Program

would be redundant. Accordingly, this rule would eliminate the

nationwide program. Where the need arises, CHAMPUS contractors will act

to foster participation, including establishment of a local

Participating Provider Program when needed, but not including the

payment differential feature.

2. Analysis of Major Public Comments

No public comments were received relating to this section of the

rule.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

C. Administrative Linkages of Medical Necessity Determinations and

Nonavailability Statement Issuance (Revisions to 199.4(a)(9)(vii) and

199.15)

1. Provisions of Proposed Rule

Revisions to section 199.4(a)(9) would provide the basis for

administrative linkages between a determination of medical necessity

and the decision to issue or deny an Nonavailability Statement (NAS).

NAS's are issued when an MTF lacks the capacity or capability to

provide a service, but carry no imprimatur of medical necessity.

Proposed revisions to section 199.15 establish ground rules for CHAMPUS

PRO review of care in MTFs, and would allow for consolidated

determinations of medical necessity applicable to both the

[[Page 52092]]

MTF and civilian contexts when the CHAMPUS PRO performs the review.

2. Public Comments

One commenter suggested that the provisions for integration of

CHAMPUS Peer Review Organization and military utilization review

activities are unclear. Also, the commenter indicated that the

provisions allowing separate determinations of medical necessity by the

MTF and CHAMPUS, with the military decision not binding on CHAMPUS

would place the provider and beneficiary at risk.

Response. We disagree that separate decisions of medical necessity

place beneficiaries and providers at risk in this context. We believe

just the opposite is true. The rule simply provides that if an MTF

reserves authority to make its own determinations on medical necessity,

which it might do for reasons relating to management and operation of

that particular facility, those determinations are not binding on

CHAMPUS. The CHAMPUS system has a well-established decision-making

structure, complete with numerous procedural requirements and appeal

mechanisms. The preservation of the functioning of this structure

protects the interests of beneficiaries and providers.

3. Provisions of the Final Rule

The final rule is consistent with the proposed rule.

V. Regulatory Procedures

Executive Order 12866 requires certain regulatory assessments for

any ``economically significant regulatory action,'' defined as one

which would result in an annual effect on the economy of $100 million

or more, or have other substantial impacts.

This is not an economically significant regulatory action under the

provisions of Executive Order 12866; however, OMB has reviewed this

rule as significant under other provisions of the Executive Order. One

commenter on the proposed rule questioned this assessment, since the

imposition of enrollment fees on many retirees would have an

economically significant impact. We point out that, while the cost

sharing structure of TRICARE Prime is changed significantly from

standard CHAMPUS cost sharing, the overall effects on beneficiary out-

of-pocket costs are relatively minor. For retirees, their family

members and survivors, TRICARE Prime enrollment fees in essence replace

the deductibles and high inpatient care cost sharing under standard

CHAMPUS. The mix of cost sharing requirements in TRICARE Prime is

expected to produce aggregate annual out-of-pocket cost reductions for

these beneficiaries of about $100 per person, compared to what would be

expected absent the program.

The Regulatory Flexibility Act (RFA) requires that each Federal

agency prepare, and make available for public comment, a regulatory

flexibility analysis when the agency issues a regulation which would

have a significant impact on a substantial number of small entities.

The Department of Defense has certified that this regulatory action

would not have a significant impact on a substantial number of small

entities.

This rule will impose additional information collection

requirements on the public, associated with beneficiary enrollment,

under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3511).

Information collection requirements have been forwarded to OMB for

review. The collection instrument serves as an application form for

enrollment in TRICARE Prime. The information is needed to indicate

beneficiary agreement to abide by the rules of the program and to

obtain necessary information to process the beneficiary's request to

enroll in TRICARE Prime. The third party administrator chosen to manage

the enrollment program, which will be the managed care support

contractor in each region, will make enrollment applications available

to those who wish to enroll in Prime. The following information is

included in the information requirements that have been forwarded to

OMB for review:

Number of Respondents: 300,000.

Responses Per Respondent: 1.

Annual Responses: 300,000.

Average Burden Per Response: 15 Minutes.

Annual Burden Hours: 75,000.

Other information collected includes necessary data to determine

beneficiary eligibility, other health insurance liability, premium

payment, and to identify selection of health care provider.

Table 1.--Consolidated Schedule of Beneficiary Charges

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

Medicare

TRICARE prime TRICARE standard eligible

beneficiaries

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

Services from Uniform HMO TRICARE Extra Cost sharing for

TRICARE Network Benefit cost cost sharing Medicare

Providers. sharing applies applies (see participating

(see Table 3), Table 2). providers

except applies.

unauthorized

care covered by

point-of-service

rules.

Services from non- TRICARE Prime Standard CHAMPUS Standard

network point-of-service cost sharing Medicare cost

providers. rules apply: applies. sharing

deductible of applies.

$300 per person

or $600 per

family; cost

share of 50

percent.

Internal resource Same as military Same as military Where

sharing facility cost facility cost applicable,

agreements. sharing. sharing. same as

military

facility cost

sharing.

External resource For professional For professional Where

sharing charges, same as charges, same applicable, for

agreements. military as military professional

facility cost facility cost charges, same

sharing; for sharing; for as military

facility facility facility cost

charges, same as charges, same sharing; for

Uniform HMO as TRICARE facility

Benefit cost Extra cost charges, same

sharing. sharing. as standard

Medicare cost

sharing.

PRIMUS and Same as military Same as military Same as military

NAVCARE Clinics. facilities. facilities. facilities.

[[Page 52093]]

Prescription As specified in For retail In facility

drugs from Uniform HMO pharmacy closure cases:

civilian Benefit (see network, from retail

pharmacies. Table 3); for TRICARE Extra pharmacy

mail service Cost sharing network, 20

pharmacy, $4 per applies; for percent cost

prescription for mail service share; from

active duty pharmacy, $4 mail service

dependents; $8 per pharmacy, $8

per prescription prescription per

for retirees, for active duty prescription;

their dependents dependents; $8 no deductible.

and survivors. per

prescription

for retirees,

their

dependents and

survivors; for

other civilian

pharmacies,

standard

CHAMPUS cost

sharing applies.

Outpatient No charge........ Same as TRICARE Same as TRICARE

services in Prime. Prime.

military

facilities.

Inpatient Applicable daily Same as TRICARE Same as TRICARE

services in subsistence Prime. Prime.

military charges.

facilities.

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

Table 2.--Tricare Triple Option Program

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

TRICARE standard TRICARE extra TRICARE prime

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

Enrollment fee... None............. None............ ACT DUTY DEPS--

None others--

$230;

individual,

$460 family.

Outpatient $300 Family ($100 Same as standard None.

deductible. E4 & below). CHAMPUS.

Outpatient ACT DUTY DEPS-- ACT DUTY DEPS-- See Table 3--

services cost 20% copay after 15% copay after Schedule of

shares, deductible; deductible; Uniform HMO

including mental others--25% others--20% Benefit

health, copay after copay after Copayments.

emergency deductible. deductible.

services, etc.

Inpatient cost ACT DUTY DEPS-- ACT DUTY DEPS-- See Table 3--

shares, $25 Per Same as Schedule of

including admission or Standard Uniform HMO

maternity and current per CHAMPUS; Benefit

skilled nursing diem, whichever others--lesser Copayments.

facilities, not is greater; of $250 per day

including mental others--Lesser or 25% of

health. of applicable institutional

per diem ($323 billed charges,

in FY 1995) or plus 20% of

25% of professional

institutional charges.

billed charges,

plus 25% of

professional

charges.

Ambulatory ACT DUTY DEPS-- ACT DUTY DEPS-- See Table 3--

Surgery. $25 per episode; $25 copay; Schedule of

others--25% of others--20% Uniform HMO

allowable copay after Benefit

charges. deductible. Copayments.

Prescription drug ACT DUTY DEPS-- ACT DUTY DEPS-- ACT DUTY DEPS--

benefits. 20% cost share 15% cost share; $5 per

after deductible no deductible; prescription;

others--25% cost others--20% others--$9 per

share after cost share; no prescription.

deductible. For deductible. For For mail

mail service mail service service

pharmacy, $4 per pharmacy, $4 pharmacy, $4

prescription for per per

active duty prescription prescription

dependents; $8 for active duty for active duty

per prescription dependents; $8 dependents; $8

for retirees, per per

their dependents prescription prescription

and survivors. for retirees, for retirees,

their their

dependents and dependents and

survivors. survivors.

Hospitalization ACT DUTY DEPS-- ACT DUTY DEPS-- ACT DUTY DEPS--

for mental $25 per Same as TRICARE Same as TRICARE

illness and admission or $20 Standard; Standard;

substance use. per diem others--20% of others--$40 per

whichever is institutional diem.

greater; others-- and

lesser of professional

applicable per charges.

diem ($132 in FY

1995) or 25% of

institutional

charges, plus

25% of

professional

charges.

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

Note: This chart is for illustrative purposes only. It does not include

all details of benefits and copayments.

Table 3.--Uniform HMO Benefit Fee and Copayment Schedule

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

ADDs E4 and ADDs E5 and Retirees, deps,

below above and survivors

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

Annual Enrollment Fee $0/$0.......... $0/$0.......... $230/$460.

Outpatient Visits, $6............. $12............ $12.

Including Separate

Radiology or Lab

Services, Family

Health, and Home

Health Visits.

Emergency Room Visits $10............ $30............ $30.

Mental Health Visits, $10............ $20............ $25.

Individual.

Mental Health Visits, $6............. $12............ $17.

Group.

Ambulatory Surgery... $25............ $25............ $25.

Prescriptions........ $5............. $5............. $9.

Ambulance Services... $10............ $15............ $20.

DME, Prostheses, 10 percent..... 15 percent..... 20 percent.

Supplies.

Inpatient Per Diem, $11, minimum $11, minimum $11, minimum

General. $25 per $25 per $25 per

admission. admission. admission.

[[Page 52094]]

Inpatient Per Diem, $20, minimum $20, minimum $40.

MH/Substance Use. $25 per $25 per

admission. admission.

Catastrophic Cap on $1,000......... $1,000......... $3,000.

Out-of-Pocket Costs

related to Allowable

Charges.

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

List of Subjects in 32 CFR Part 199

Claims, handicapped, health insurance, and military personnel.

Accordingly, 32 CFR part 199 is amended as follows:

PART 199--[AMENDED]

1. The authority citation for part 199 continues to read as

follows:

Authority: 5 U.S.C. 301; 10 U.S.C. chapter 55.

2. Section 199.1 is amended by adding a new paragraph (r) to read

as follows:

Sec. 199.1 General provisions.

* * * * *

(r) TRICARE program. Many rules and procedures established in

sections of this part are subject to revision in areas where the

TRICARE program is implemented. The TRICARE program is the means by

which managed care activities designed to improve the delivery and

financing of health care services in the Military Health Services

System(MHSS) are carried out. Rules and procedures for the TRICARE

program are set forth in Sec. 199.17.

3. Section 199.2(b) is amended by adding the following definitions

and placing them in alphabetical order to read as follows:

Sec. 199.2 Definitions.

* * * * *

(b) * * *

External resource sharing agreement. A type External Partnership

Agreement, established in the context of the TRICARE program by

agreement of a military medical treatment facility commander and an

authorized TRICARE contractor. External Resource Sharing Agreements may

incorporate TRICARE features in lieu of standard CHAMPUS features that

would apply to standard External Partnership Agreements.

* * * * *

Internal resource sharing agreement. A type of Internal Partnership

Agreement, established in the context of the TRICARE program by

agreement of a military medical treatment facility commander and

authorized TRICARE contractor. Internal Resource Sharing Agreements may

incorporate TRICARE features in lieu of standard CHAMPUS features that

would apply to standard Internal Partnership Agreements.

* * * * *

NAVCARE clinics. Contractor owned, staffed, and operated primary

clinics exclusively serving uniformed services beneficiaries pursuant

to contracts awarded by a Military Department.

* * * * *

PRIMUS clinics. Contractor owned, staffed, and operated primary

care clinics exclusively serving uniformed services beneficiaries

pursuant to contracts awarded by a Military Department.

* * * * *

TRICARE extra plan. The health care option, provided as part of the

TRICARE program under Sec. 199.17, under which beneficiaries may choose

to receive care in facilities of the uniformed services, or from

special civilian network providers (with reduced cost sharing), or from

any other CHAMPUS-authorized provider (with standard cost sharing).

TRICARE prime plan. The health care option, provided as part of the

TRICARE program under Sec. 199.17, under which beneficiaries enroll to

receive all health care from facilities of the uniformed services and

civilian network providers (with civilian care subject to substantially

reduced cost sharing.

TRICARE program. The program establish under Sec. 199.17.

TRICARE standard plan. The health care option, provided as part of

the TRICARE program under Sec. 199.17, under which beneficiaries are

eligible for care in facilities of the uniformed services and CHAMPUS

under standard rules and procedures.

Uniform HMO benefit. The health care benefit established by

Sec. 199.18.

* * * * *

4. Section 199.4 is amended by redesignating paragraph (a)(1) as

paragraph (a)(1)(i), by revising paragraph (a)(9)(i)(C), by adding new

paragraph (a)(1)(ii), and by adding new paragraph (a)(9)(vi) before the

note to read as follows:

Sec. 199.4 Basic program benefits.

(a) * * *

(1) * * *

(ii) Impact of TRICARE program. The basic program benefits set

forth in this section are applicable to the basic CHAMPUS program. In

areas in which the TRICARE program is implemented, certain provisions

of Sec. 199.17 will apply instead of the provisions of this section. In

those areas, the provisions of Sec. 199.17 will take precedence over

any provisions of this section with which they conflict.

* * * * *

(9) * * *

(i) * * *

(C) An NAS is also required for selected outpatient procedures if

such services are not available at a Uniformed Service facility

(including selected facilities which are exclusively outpatient

clinics) located within a 40-mile radius (catchment area) of the

residence of the beneficiary. This does not apply to emergency services

or for services for which another insurance plan or program provides

the beneficiary primary coverage. Any changes to the selected

outpatient procedures will be published by the Assistance Secretary of

Defense (Health Affairs) in the Federal Register at least 30 days

before the effective date of the change and will be limited to the

following categories: Outpatient surgery and other selected outpatient

procedures which have high unit costs and for which care may be

available in military facilities generally. The selected outpatient

procedures will be uniform for all CHAMPUS beneficiaries. A list of the

selected outpatient clinics to which this NAS requirement applies will

be published periodically in the Federal Register.

* * * * *

(vi) In the case of any service subject to an NAS requirement under

paragraph (a)(9) of this section and also subject to a preadmission (or

other pre-service) authorization requirement under Sec. 199.4 or

Sec. 199.15, the administrative processes for the NAS and pre-service

authorization may be combined.

* * * * *

Sec. 199.14 [Amended]

5. Section 199.14 is amended by removing paragraph (h)(1)(i)(C) and

by

[[Page 52095]]

redesignating paragraph (h)(1)(i)(D) as paragraph (h)(1)(i)(C).

6. Section 199.15 is amended by adding a new paragraph (n) to read

as follows:

Sec. 199.15 Quality and utilization review peer review organization

program.

* * * * *

(n) Authority to integrate CHAMPUS PRO and military medical

treatment facility utilization review activities.

(1) In the case of a military medical treatment facility (MTF) that

has established utilization review requirements similar to those under

the CHAMPUS PRO program, the contractor carrying out this function may,

at the request of the MTF, utilize procedures comparable to the CHAMPUS

PRO program procedures to render determinations or recommendations with

respect to utilization review requirements.

(2) In any case in which such a contractor has comparable

responsibility and authority regarding utilization review in both an

MTF (or MTFs) and CHAMPUS, determinations as to medical necessity in

connection with services from an MTF or CHAMPUS-authorized provider may

be consolidated.

(3) In any case in which an MTF reserves authority to separate an

MTF determination on medical necessity from a CHAMPUS PRO program

determination on medical necessity, the MTF determination is not

binding on CHAMPUS.

7. Section 199.17 amd 199.18 are added to read as follows:

Sec. 199.17 TRICARE program.

(a) Establishment. The TRICARE program is established for the

purpose of implementing a comprehensive managed health care program for

the delivery and financing of health care services in the MHSS.

(1) Purpose. The TRICARE program implements management improvements

primarily through managed care support contracts that include special

arrangements with civilian sector health care providers and better

coordination between military medical treatment facilities (MTFs) and

these civilian providers. Implementation of these management

improvements includes adoption of special rules and procedures not

ordinarily followed under CHAMPUS or MTF requirements. This section

establishes those special rules and procedures.

(2) Statutory authority. Many of the provisions of this section are

authorized by statutory authorities other than those which authorize

the usual operation of the CHAMPUS program, especially 10 U.S.C. 1079

and 1086. The TRICARE program also relies upon other available

statutory authorities, including 10 U.S.C. 1099 (health care enrollment

system), 10 U.S.C. 1097 (contracts for medical care for retirees,

dependents and survivors: alternative delivery of health care), and 10

U.S.C. 1096 (resource sharing agreements).

(3) Scope of the program. The TRICARE program is applicable to all

of the uniformed services. Its geographical applicability is all 50

states and the District of Columbia, In addition, if authorized by the

Assistant Secretary of Defense (Health Affairs), the TRICARE program

may be implemented in areas outside the 50 states and the District of

Columbia. In such cases, the Assistant Secretary of Defense (Health

Affairs) may also authorize modifications to TRICARE program rules and

procedures as may be appropriate to the area involved.

(4) MTF rules and procedures affected. Much of this section relates

to rules and procedures applicable to the delivery and financing of

health care services provided by civilian providers outside military

treatment facilities. This section provides that certain rules,

procedures, rights and obligations set forth elsewhere in this part

(and usually applicable to CHAMPUS) are different under the TRICARE

program. In addition, some rules, procedures, rights and obligations

relating to health care services in military treatment facilities are

also different under the TRICARE program. In such cases, provisions of

this section take precedence and are binding.

(5) Implementation based on local action. The TRICARE program is

not automatically implemented in all areas where it is potentially

applicable. Therefore, provisions of this section are not automatically

implemented, Rather, implementation of the TRICARE program and this

section requires an official action by an authorized individual, such

as a military medical treatment facility commander, a Surgeon General,

the Assistant Secretary of Defense (Health Affairs), or other person

authorized by the Assistant Secretary. Public notice of the initiation

of the TRICARE program will be achieved through appropriate

communication and media methods and by way of an official announcement

by the Director, OCHAMPUS, identifying the military medical treatment

facility catchment area or other geographical area covered.

(6) Major features of the TRICARE program. The major features of

the TRICARE program, described in this section, include the following:

(i) Comprehensive enrollment system. Under the TRICARE program, all

health care beneficiaries become classified into one of five enrollment

categories:

(A) Active duty members, all of whom are automatically enrolled in

TRICARE Prime;

(B) TRICARE Prime enrollees, who (except for active duty members)

must be CHAMPUS eligible;

(C) TRICARE Standard eligible beneficiaries, which covers all

CHAMPUS-eligible beneficiaries who do not enroll in TRICARE Prime or

another managed care program affiliated with TRICARE;

(D) Medicare-eligible beneficiaries, who, although not eligible for

TRICARE Prime, may participate in many features of TRICARE; and

(E) Participants in other managed care program affiliated with

TRICARE (when such affiliation arrangements are made).

(ii) Establishment of a triple option benefit. A second major

feature of TRICARE is the establishment for CHAMPUS-eligible

beneficiaries of three options for receiving health care:

(A) Beneficiaries may enroll in the ``TRICARE Prime Plan,'' which

features use of military treatment facilities and substantially reduced

out-of-pocket costs for CHAMPUS care. Beneficiaries generally agree to

use military treatment facilities and designated civilian provider

networks, in accordance with enrollment provisions.

(B) Beneficiaries may participate in the ``TRICARE Extra Plan''

under which the preferred provider network may be used on a case-by-

case basis, with somewhat reduced out-of-pocket costs. These

beneficiaries also continue to be eligible for military medical

treatment facility care on a space-available basis.

(C) Beneficiaries may remain in the ``TRICARE Standard Plan,''

which preserves broad freedom of choice of civilian providers (subject

to nonavailability statement requirements of Sec. 199.4), but does not

offer reduced out-of-pocket costs. These beneficiaries continue to be

eligible to receive care in military medical treatment facilities on a

space-available basis.

(iii) Coordination between military and civilian health care

delivery systems. A third major feature of the TRICARE program is a

series of activities affecting all beneficiary enrollment categories,

designed to coordinate care between military and civilian health care

systems. These activities include:

(A) Resource sharing agreements, under which a TRICARE contractor

provides to a military medical treatment

[[Page 52096]]

facility, personnel and other resources to increase the availability of

services in the facility. All beneficiary enrollment categories may

benefit from this increase.

(B) Health care finder, an administrative activity that facilitates

referrals to appropriate health care services in the military facility

and civilian provider network. All beneficiary enrollment categories

may use the health care finder.

(C) Integrated quality and utilization management services,

potentially standardizing reviews for military and civilian sector

providers. All beneficiary categories may benefit from these services.

(D) Special pharmacy programs for areas affected by base

realignment and closure actions. This includes special eligibility for

Medicare-eligible beneficiaries.

(iv) Consolidated schedule of charges. A fourth major feature of

TRICARE is a consolidated schedule of charges, incorporating revisions

that reduce differences in charges between military and civilian

services. In general, the TRICARE program reduces out-of-pocket costs

for civilian sector care.

(b) Triple option benefit in general. Where the TRICARE program is

implemented, CHAMPUS-eligible beneficiaries are given the options of

enrolling in the TRICARE Prime Plan (also referred to as ``Prime'');

being a participant in TRICARE Extra on a case-by-case basis (also

referred to as ``Extra''); or remaining in the TRICARE Standard Plan

(also referred to as ``Standard'').

(1) Choice voluntary. With the exception of active duty members,

the choice of whether to enroll in Prime, to participate in Extra, or

to remain in Standard is voluntary for all eligible beneficiaries. This

applies to active duty dependents and eligible retired members,

dependents of retired members, and survivors. For dependents who are

minors, the choice will be exercised by a parent or guardian.

(2) Active duty members. For active duty members located in areas

where the TRICARE program is implemented, enrollment in Prime is

mandatory.

(c) Eligibility for enrollment in Prime. Where the TRICARE program

is implemented, all CHAMPUS- eligible beneficiaries are eligible to

enroll. However, some rules and procedures are different for dependents

of active duty members than they are for retirees, their dependents and

survivors. In addition, where the TRICARE program is implemented, a

military medical treatment facility commander or other authorized

individual may establish priorities, consistent with paragraph (c) of

this section, based on availability or other operational requirements,

for when and whether to offer the enrollment opportunity.

(1) Active duty members. Active duty members are required to enroll

in Prime when it is offered. Active duty members shall have first

priority for enrollment in Prime. Because active duty members are not

CHAMPUS eligible, when active duty members obtain care from civilian

providers outside the military medical treatment facility, the

supplemental care program and its requirements (including Sec. 199.16)

will apply.

(2) Dependents of active duty members. (i) Dependents of active

duty members are eligible to enroll in Prime. After all active duty

members, dependents of active duty members will have second priority

for enrollment.

(ii) If all dependents of active duty members within the area

concerned cannot be accepted for enrollment in Prime at the same time,

the MTF Commander (or other authorized individual) may establish

priorities within this beneficiary group category. The priorities may

be based on first-come, first-served, or alternatively, be based on

rank of sponsor, beginning with the lowest pay grade.

(3) Retired member, dependents of retired members, and survivors.

(i) All CHAMPUS-eligible retired members, dependents of retired

members, and survivors are eligible to enroll in Prime. After all

active duty members are enrolled and availability of enrollment is

assured for all active duty dependents wishing to enroll, this category

of beneficiaries will have third priority for enrollment.

(ii) If all CHAMPUS-eligible retired members, dependents of retired

members, and survivors within the area concerned cannot be accepted for

enrollment in Prime at the same time, the MTF Commander (or other

authorized individual) may allow enrollment within this beneficiary

group category on a first come, first served basis.

(4) Participation in extra and standard. All CHAMPUS-eligible

beneficiaries who do not enroll in Prime may participate in Extra on a

case-by-case basis or remain in Standard.

(d) Health benefits under Prime. Health benefits under Prime, set

forth in paragraph (d) of this section, differ from those under Extra

and Standard, set forth in paragraphs (e) and (f) of this section.

(1) Military treatment facility (MTF) care. All participants in

Prime are eligible to receive care in military treatment facilities.

Active duty dependents who are participants in Prime will be given

priority for such care over active duty dependents who declined the

opportunity to enroll in Prime. The latter group, however, retains

priority over retirees, their dependents and survivors. There is no

priority for MTF care among retirees, their dependents and survivors

based on enrollment status.

(2) Non-MTF care for active duty members. Under Prime, non-MTF care

needed by active duty members continues to be arranged under the

supplemental care program and subject to the rules and procedures of

that program, including those set forth in Sec. 199.16.

(3) Benefits covered for CHAMPUS eligible beneficiaries for

civilian sector care. The provisions of Sec. 199.18 regarding the

Uniform HMO Benefit apply to TRICARE Prime enrollees.

(e) Health benefits under the TRICARE extra plan. Beneficiaries not

enrolled in Prime, although not in general required to use the Prime

civilian preferred provider network, are eligible to use the network on

a case-by-case basis under Extra. The health benefits under Extra are

identical to those under Standard, set forth in paragraph (f) of this

section, except that the CHAMPUS cost sharing percentages are lower

than usual CHAMPUS cost sharing. The lower requirements are set forth

in the consolidated schedule of charges in paragraph (m) of this

section.

(f) Health benefits under the TRICARE standard plan. Where the

TRICARE program is implemented, health benefits under Prime, set forth

under paragraph (d) of this section, and Extra, set forth under

paragraph (e) of this section, are different than health benefits under

Standard, set forth in this paragraph (f).

(1) Military treatment facility (MTF) care. All nonenrollees

(including beneficiaries not eligible to enroll) continue to be

eligible to receive care in military treatment facilities on a space

available basis.

(a) Freedom of choice of civilian provider. Except as stated in

Sec. 199.4(a) in connection with nonavailability statement

requirements, CHAMPUS-eligible participants in Standard maintain their

freedom of choice of civilian provider under CHAMPUS. All

nonavailability statement requirements of Sec. 199.4(a) apply to

Standard participants.

(3) CHAMPUS benefits apply. The benefits, rules and procedures of

the CHAMPUS basis program as set forth in this part, shall apply to

CHAMPUS-eligible participants in Standard.

[[Page 52097]]

(4) Preferred provider network option for standard participants.

Standard participants, although not generally required to use the

TRICARE program preferred provider network are eligible to use the

network on a case-by-case basis, under Extra.

(g) Coordination with other health care programs. [Reserved.]

(h) Resource sharing agreements. Under the TRICARE program, any

military medical treatment facility (MTF) commander may establish

resource sharing agreements with the applicable managed care support

contractor for the purpose of providing for the sharing of resources

between the two parties. Internal resource sharing and external

resource sharing agreements are authorized. The provisions of this

paragraph (h) shall apply to resource sharing agreements under the

TRICARE program.

(1) In connection with internal resource sharing agreements,

beneficiary cost sharing requirements shall be the same as those

applicable to health care services provided in facilities of the

uniformed services.

(2) Under internal resource sharing agreements, the double coverage

requirements of Sec. 199.8 shall be replaced by the Third Party

Collection procedures of 32 CFR part 220, to the extent permissible

under such Part. In such a case, payments made to a resource sharing

agreement provider through the TRICARE managed care support contractor

shall be deemed to be payments by the MTF concerned.

(3) Under internal or external resource sharing agreements, the

commander of the MTF concerned may authorize the provision of services,

pursuant to the agreement, to Medicare-eligible beneficiaries, if such

services are not reimbursable by Medicare, and if the commander

determines that this will promote the most cost-effective provision of

services under the TRICARE program.

(i) Health care finder. The Health Care Finder is an administrative

activity that assists beneficiaries in being referred to appropriate

health care providers, especially the MTF and preferred providers.

Health Care Finder services are available to all beneficiaries. In the

case of TRICARE Prime enrollees, the Health Care Finder will facilitate

referrals in accordance with Prime rules and procedures. For Standard

participants, the Finder will provide assistance for use of Extra. For

Medicare-eligible beneficiaries, the Finder will facilitate referrals

to TRICARE network providers, generally required to be Medicare

participating providers. For participants in other managed care

programs, the Finder will assist in referrals pursuant to the

arrangements made with the other managed care program. For all

beneficiary enrollment categories, the finder will assist in obtaining

access to available services in the medical treatment facility.

(j) General quality assurance, utilization review, and

preauthorization requirements under TRICARE program. All quality

assurance, utilization review, and preauthorization requirements for

the basic CHAMPUS program, as set forth in this part 199 (see

especially applicable provisions of Secs. 199.4 and 199.15), are

applicable to Prime, Extra and Standard under the TRICARE program.

Under all three options, some methods and procedures for implementing

and enforcing these requirements may differ from the methods and

procedures followed under the basic CHAMPUS program in areas in which

the TRICARE program has not been implemented. Pursuant to an agreement

between a military medical treatment facility and TRICARE managed care

support contractor, quality assurance, utilization review, and

preauthorization requirements and procedures applicable to health care

services outside the military medical treatment facility may be made

applicable, in whole or in part, to health care services inside the

military medical treatment facility.

(k) Pharmacy services, including special services in base

realignment and closure sites.

(1) In general. TRICARE includes two special programs under which

covered beneficiaries, including Medicare-eligible beneficiaries, who

live in areas adversely affected by base realignment and closure

actions are given a pharmacy benefit for prescription drugs provided

outside military treatment facilities. The two special programs are the

retail pharmacy network program and the mail service pharmacy program.

(2) Retail pharmacy network program. To the maximum extent

practicable, a retail pharmacy network program will be included in the

TRICARE program wherever implemented. Except for the special rules

applicable to Medicare-eligible beneficiaries in areas adversely

affected by military medical treatment facility closures, the retail

pharmacy network program will function in accordance with TRICARE rules

and procedures otherwise applicable. In addition, a retail pharmacy

network program may, on a temporary, transitional basis, be established

in a base realignment or closure site independent of other features of

the TRICARE program. Such a program may be established through

arrangements with one or more pharmacies in the area and may continue

until a managed care program is established to serve the affected

beneficiaries.

(3) Mail service pharmacy program. A mail service pharmacy program

will be established to the extent required by law as part of the

TRICARE program. The special rules applicable to Medicare-eligible

beneficiaries established in this paragraph (k) shall be applicable.

(4) Medicare-eligible beneficiaries in areas adversely affected by

military medical treatment facility closures. Under the retail pharmacy

network program and mail service pharmacy program, there is a special

eligibility rule pertaining to Medicare-eligible beneficiaries in areas

adversely affected by military medical treatment facility closures.

(i) Medicare-eligible beneficiaries. The special eligibility rule

pertains to military system beneficiaries who are not eligible for

CHAMPUS solely because of their eligibility for part A of Medicare.

(ii) Area adversely affected by closure. To be eligible for use of

the retail pharmacy network program or mail service pharmacy program

based on residency, a Medicare-eligible beneficiary must maintain a

principal place of residency in the catchment area of the MTF that

closed. In addition, there must be a retail pharmacy network or mail

service pharmacy established in that area. In identifying areas

adversely affected by a closure, the provisions of this paragraph

(k)(4)(ii) shall apply.

(A) In the case of the closure of a military hospital, the area

adversely affected is the established 40-mile catchment area of the

military hospital that closed.

(B) In the case of the closure of a military clinic (a military

medical treatment facility that provided no inpatient care services),

the area adversely affected is an area approximately 40 miles in radius

from the clinic, established in a manner comparable to the manner in

which catchment areas of military hospitals are established. However,

this area will not be considered adversely affected by the closure of

the clinic if the Director, OCHAMPUS determines that the clinic was

not, when it had been in regular operation, providing a substantial

amount of pharmacy services to retirees, their dependents, and

survivors.

(iii) Other Medicare-eligible beneficiaries adversely affected. In

addition to beneficiaries identified in paragraph (k)(4)(ii) of this

section, eligibility for the retail pharmacy network program and mail

service

[[Page 52098]]

pharmacy program is also established for any Medicare-eligible

beneficiary who can demonstrate to the satisfaction of the Director,

OCHAMPUS, that he or she relied upon an MTF that closed for his or her

pharmaceuticals. Medicare beneficiaries who obtained pharmacy services

at the facility that closed within the 12-month period prior to its

closure will be deemed to be reliant on the facility. Validation that

any such beneficiary obtained such services may be provided through

records of the facility or by a written declaration of the beneficiary.

Beneficiaries providing such a declaration are required to provide

correct information. Intentionally providing false information or

otherwise failing to satisfy this obligation is grounds for

disqualification for health care services from facilities of the

uniformed services and mandatory reimbursement for the cost of any

pharmaceuticals provided based on the improper declaration.

(iv) Effective date of eligibility for Medicare-eligible

beneficiaries. In any case in which, prior to the complete closure of a

military medical treatment facility which is in the process of closure,

the Director, OCHAMPUS, determines that the area has been adversely

affected by severe reductions in access to services, the Director,

OCHAMPUS may establish an effective date for eligibility for the retail

pharmacy network program or mail service pharmacy program for Medicare-

eligible beneficiaries prior to the complete closure of the facility.

(5) Effect of other health insurance. The double coverage rules of

Sec. 199.8 are applicable to services provided to all beneficiaries

under the retail pharmacy network program or mail service pharmacy

program. For this purpose, to the extent they provide a prescription

drug benefit, Medicare supplemental insurance plans or Medicare HMO

plans are double coverage plans and will be the primary payor.

(6) Procedures. The Director, OCHAMPUS shall establish procedures

for the effective operation of the retail pharmacy network program and

mail service pharmacy program. Such procedures may include the use of

appropriate drug formularies, restrictions of the quantity of

pharmaceuticals to be dispensed, encouragement of the use of generic

drugs, implementation of quality assurance and utilization management

activities, and other appropriate matters.

(l) PRIMUS and NAVCARE clinics.

(1) Description and authority. PRIMUS and NAVCARE clinics are

contractor owned, staffed, and operated clinics that exclusively serve

uniformed services beneficiaries. They are authorized as transitional

entities during the phase-in of TRICARE. This authority to operate a

PRIMUS or NAVCARE clinic will cease upon implementation of TRICARE in

the clinic's location, or on October 1, 1997, whichever is later.

(2) Eligible beneficiaries. All TRICARE beneficiary categories are

eligible for care in PRIMUS and NAVCARE Clinics. This includes active

duty members, Medicare-eligible beneficiaries and other MHSS-eligible

persons not eligible for CHAMPUS.

(3) Services and charges. For care provided PRIMUS and NAVCARE

Clinics, CHAMPUS rules regarding program benefits, deductibles and cost

sharing requirements do not apply. Services offered and charges will be

based on those applicable to care provided in military medical

treatment facilities.

(4) Priority access. Access to care in PRIMUS and NAVCARE Clinics

shall be based on the same order of priority as is established for

military treatment facilities care under paragraph (d)(1) of this

section.

(m) Consolidated schedule of beneficiary charges. The following

consolidated schedule of beneficiary charges is applicable to health

care services provided under TRICARE for Prime enrollees, Standard

enrollees and Medicare-eligible beneficiaries. (There are no charges to

active duty members. Charges for participants in other managed health

care programs affiliated with TRICARE will be specified in the

applicable affiliation agreements.)

(1) Cost sharing for services from TRICARE network providers.

(i) For Prime enrollees, cost sharing is as specified in the

Uniform HMO Benefit in Sec. 199.18, except that for care not authorized

by the primary care manager or Health Care Finder, rules applicable to

the TRICARE point of service option (see paragraph (n)(3) of this

section) are applicable. For such unauthorized care, the deductible is

$300 per person and $600 per family. The beneficiary cost share is 50

percent of the allowable charges for inpatient and outpatient care,

after the deductible.

(ii) For Standard enrollees, TRICARE Extra cost sharing applies.

The deductible is the same as standard CHAMPUS. Cost shares are as

follows:

(A) For outpatient professional services, cost sharing will be

reduced from 20 percent to 15 percent for dependents of active duty

members.

(B) For most services for retired members, dependents of retired

members, and survivors, cost sharing is reduced from 25 percent to 20

percent.

(C) In fiscal year 1996, the per diem inpatient hospital copayment

for retirees, dependents of retirees, and survivors when they use a

preferred provider network hospital is $250 per day, or 25 percent of

total charges, whichever is less. There is a nominal copayment for

active duty dependents, which is the same as under the CHAMPUS program

(see Sec. 199.4). The per diem amount may be updated for subsequent

years based on changes in the standard CHAMPUS per diem.

(iii) For Medicare-eligible beneficiaries, cost sharing will

generally be as applicable to Medicare participating providers.

(2) Cost sharing for non-network providers.

(i) For TRICARE Prime enrollees, rules applicable to the TRICARE

point of service option (see paragraph (n)(3) of this section) are

applicable. The deductible is $300 per person and $600 per family. The

beneficiary cost share is 50 percent of the allowable charges, after

the deductible.

(ii) For Standard enrollees, cost sharing is as specified for the

basic CHAMPUS program.

(iii) For Medicare eligible beneficiaries, cost sharing is as

provided under the Medicare program.

(3) Cost sharing under internal resource sharing agreements.

(i) For Prime enrollees, cost sharing is as provided in military

treatment facilities.

(ii) For Standard enrollees, cost sharing is as provided in

military treatment facilities.

(iii) For Medicare eligible beneficiaries, where made applicable by

the commander of the military medical treatment facility concerned,

cost sharing will be as provided in military treatment facilities.

(4) Cost sharing under external resource sharing.

(i) For Prime enrollees, cost sharing applicable to services

provided by military facility personnel shall be as applicable to

services in military treatment facilities; that applicable to

institutional and related ancillary charges shall be as applicable to

services provided under TRICARE Prime.

(ii) For TRICARE Standard participants, cost sharing applicable to

services provided by military facility personnel shall be as applicable

to services in military treatment facilities; that applicable to non-

military providers, including institutional and related ancillary

charges, shall be as applicable to services provided under TRICARE

Extra.

(iii) For Medicare-eligible beneficiaries, where available, cost

[[Page 52099]]

sharing applicable to services provided by military facility personnel

shall be as applicable to services in military treatment facilities;

that applicable to non-military providers, including institutional and

related ancillary charges shall be as applicable to services provided

under Medicare.

(5) Prescription drugs.

(i) For Prime enrollees, cost sharing is as specified in the

Uniform HMO Benefit, except that the copayment under the mail service

pharmacy program is $4.00 for active duty dependents and $8.00 for all

other covered beneficiaries, per prescription, for up to a 90 day

supply.

(ii) For Standard participants, there is a 15 percent cost share

for active-duty dependents and a 20 percent cost share for retirees,

their dependents and survivors for prescription drugs provided by

retail pharmacy network providers; for prescription drugs obtained from

network pharmacies, the CHAMPUS deductible will not apply. The

copayment for all beneficiaries under the mail service pharmacy program

is $4.00 for active duty dependents and $8.00 for all other covered

beneficiaries, per prescription, for up to a 90 day supply. There is no

deductible for this program.

(iii) For Medicare-eligible beneficiaries affected by military

medical treatment facility closures, there is a 20 percent copayment

for prescriptions provided under the retail pharmacy network program,

and an $8.00 copayment per prescription, for up to a 90-day supply, for

prescriptions provided by the mail service pharmacy program. There is

no deductible under either program.

(6) Cost share for outpatient services in military treatment

facilities.

(i) For dependents of active duty members in all enrollment

categories, there is no charge for outpatient visits provided in

military medical treatment facilities.

(ii) For retirees, their dependents, and survivors in all

enrollment categories, there is no charge for outpatient visits

provided in military medical treatment facilities.

(n) Additional health care management requirements under TRICARE

prime. Prime has additional, special health care management

requirements not applicable under Extra, Standard or the CHAMPUS basic

program. Such requirements must be approved by the Assistant Secretary

of Defense (Health Affairs). In TRICARE, all care may be subject to

review for medical necessity and appropriateness of level of care,

regardless of whether the care is provided in a military medical

treatment facility or in a civilian setting. Adverse determinations

regarding care in military facilities will be appealable in accordance

with established military medical department procedures, and adverse

determinations regarding civilian care will be appealable in accordance

with Sec. 199.15.

(1) Primary care manager. All active duty members and Prime

enrollees will be assigned or be allowed to select a primary care

manager pursuant to a system established by the MTF Commander or other

authorized official. The primary care manager may be an individual

physician, a group practice, a clinic, a treatment site, or other

designation. The primary care manager may be part of the MTF or the

Prime civilian provider network. The enrollees will be given the

opportunity to register a preference for primary care manager from a

list of choices provided by the MTF Commander. Preference requests will

be honored, subject to availability, under the MTF beneficiary category

priority system and other operational requirements established by the

commander (or other authorized person).

(2) Restrictions on the use of providers. The requirements of this

paragraph (n)(2) shall be applicable to health care utilization under

TRICARE Prime, except in cases of emergency care and under the point-

of-service option (see paragraph (n)(3) of this section).

(i) Prime enrollees must obtain all primary health care from the

primary care manager or from another provider to which the enrollee is

referred by the primary care manager or an authorized Health Care

Finder.

(ii) For any necessary specialty care and all inpatient care, the

primary care manager or the Health Care Finder will assist in making an

appropriate referral. All such nonemergency specialty care and

inpatient care must be preauthorized by the primary care manager or the

Health Care Finder.

(iii) The following procedures will apply to health care referrals

and preauthorizations in catchment areas under TRICARE Prime:

(A) The first priority for referral for specialty care or inpatient

care will be to the local MTF (or to any other MTF in which catchment

area the enrollee resides).

(B) If the local MTF(s) are unavailable for the services needed,

but there is another MTF at which the needed services can be provided,

the enrollee may be required to obtain the services at that MTF.

However, this requirement will only apply to the extent that the

enrollee was informed at the time of (or prior to) enrollment that

mandatory referrals might be made to the MTF involved for the service

involved.

(C) If the needed services are available within civilian preferred

provider network serving the area, the enrollee may be required to

obtain the services from a provider within the network. Subject to

availability, the enrollee will have the freedom to choose a provider

from among those in the network.

(D) If the needed services are not available within the civilian

preferred provider network serving the area, the enrollee may be

required to obtain the services from a designated civilian provider

outside the area. However, this requirement will only apply to the

extent that the enrollee was informed at the time of (or prior to)

enrollment that mandatory referrals might be made to the provider

involved for the service involved (with the provider and service either

identified specifically or in connection with some appropriate

classification).

(E) In cases in which the needed health care services cannot be

provided pursuant to the procedures identified in paragraphs

(n)(2)(iii) (A) through (D) of this section, the enrollee will receive

authorization to obtain services from a CHAMPUS-authorized civilian

provider(s) of the enrollee's choice not affiliated with the civilian

preferred provider network.

(iv) When Prime is operating in noncatchment areas, the

requirements in paragraphs (n)(2)(iii) (B) through (E) of this section

shall apply.

(v) Any health care services obtained by a Prime enrollee, but not

obtained in accordance with the utilization management rules and

procedures of Prime will not be paid for under Prime rules, but may be

covered by the point-of-service option (see paragraph (n)(3) of this

section). However, Prime rules may cover such services if the enrollee

did not know and could not reasonably have been expected to know that

the services were not obtained in accordance with the utilization

management rules and procedures of Prime.

(3) Point-of-service option. TRICARE Prime enrollees retain the

freedom to obtain services from civilian providers on a point-of-

service basis. In such cases, all requirements applicable to standard

CHAMPUS shall apply, except that there shall be higher deductible and

cost sharing requirements (as set forth in paragraphs (m)(1)(i) and

(m)(2)(i) of this section).

(o) TRICARE program enrollment procedures. There are certain

requirements pertaining to procedures for enrollment in Prime. (These

procedures do not apply to active duty

[[Page 52100]]

members, whose enrollment is mandatory.)

(1) Open Enrollment. Beneficiaries will be offered the opportunity

to enroll in Prime on a continuing basis.

(2) Enrollment period. The Prime enrollment period shall be 12

months. Enrollees must remain in Prime for a 12 month period, at which

time they may disenroll. This requirement is subject to exceptions for

change of residence and other changes announced at the time the TRICARE

program is implemented in a particular area.

(3) Quarterly installment payments of enrollment fee. The

enrollment fee required by Sec. 199.18(c) may be paid in quarterly

installments, each equal to one-fourth of the total amount, plus an

additional maintenance fee of $5.00 per installment. For any

beneficiary paying his or her enrollment fee in quarterly installments,

failure to make a required installment payment on a timely basis

(including a grace period, as determined by the Director, OCHAMPUS)

will result in termination of the beneficiary's enrollment in Prime and

disqualification from future enrollment in Prime for a period of one

year.

(4) Period revision. Periodically, certain features, rules or

procedures of Prime, Extra and/or Standard may be revised. If such

revisions will have a significant effect on participants' costs or

access to care, beneficiaries will be given the opportunity to change

their enrollment status coincident with the revisions.

(5) Effects of failure to enroll. Beneficiaries offered the

opportunity to enroll in Prime, who do not enroll, will remain in

Standard and will be eligible to participate in Extra on a case-by-case

basis.

(p) Civilian preferred provider networks. A major feature of the

TRICARE program is the civilian preferred provider network.

(1) Status of network providers. Providers in the preferred

provider network are not employees or agents of the Department of

Defense or the United States Government. Rather, they are independent

contractors of the government (or other independent entities having

business arrangements with the government). Although network providers

must follow numerous rules and procedures of the TRICARE program, on

matters of professional judgment and professional practice, the network

provider is independent and not operating under the direction and

control of the Department of Defense. Each preferred provider must have

adequate professional liability insurance, as required by the Federal

Acquisition Regulation, and must agree to indemnify the United States

Government for any liability that may be assessed against the United

States Government that is attributable to any action or omission of the

provider.

(2) Utilization management policies. Preferred providers are

required to follow the utilization management policies and procedures

of the TRICARE program. These policies and procedures are part of

discretionary judgments by the Department of Defense regarding the

methods of delivering and financing health care services that will best

achieve health and economic policy objectives.

(3) Quality assurance requirements. A number of quality assurance

requirements and procedures are applicable to preferred network

providers. These are for the purpose of assuring that the health care

services paid for with government funds meet the standards called for

in the contract or provider agreement.

(4) Provider qualifications. All preferred providers must meet the

following qualifications:

(i) They must be CHAMPUS authorized providers and CHAMPUS

participating providers.

(ii) All physicians in the preferred provider network must have

staff privileges in a hospital accredited by the Joint Commission on

Accreditation of Health Care Organizations (JCAHO). This requirement

may be waived in any case in which a physician's practice does not

include the need for admitting privileges in such a hospital, or in

locations where no JCAHO accredited facility exists. However, in any

case in which the requirement is waived, the physician must comply with

alternative qualification standards as are established by the MTF

Commander (or othe

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