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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A95-24576

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** October 5, 1995
- **Citation:** 60 FR 52077

## Text

[[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.

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

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 c

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-24576. Public record. Not legal advice.