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

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN-0720-AA37

Civilian Health and Medical Program of the Uniformed Services

(CHAMPUS); TRICARE Program; Reimbursement

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

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

SUMMARY: This rule proposes to revise certain requirements and

procedures for reimbursement under 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.

Issues addressed in this proposed rule include: implementation of

changes made to the Medicare Prospective Payment System (PPS) upon

which the CHAMPUS DRG-based payment system is modeled and required by

law to follow wherever practicable, along with changes to make our DRG-

based payment system operate better; extension of the balance billing

limitations currently in place for individual and professional

providers to non-institutional, non-professional providers; adjusting

the CHAMPUS maximum allowable charge (CMAC) rate in the small number of

cases where the CMAC rate is less than the Medicare rate; and

implementing the government-wide debarment rule where any provider

excluded or suspended form CHAMPUS shall be excluded from all other

programs and activities involving Federal financial assistance, such as

Medicare or Medicaid, and adding violations of our balance billing or

claims filing requirements to the list of provider actions considered

violations of the TRICARE/CHAMPUS program.

DATES: Comments must be received on or before January 13, 1998.

ADDRESSES: Tricare Support Office (TSO), Program Development Branch,

Aurora, CO 80045-6900.

FOR FURTHER INFORMATION CONTACT: Kathleen Larkin, 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 TRICARE/

CHAMPUS contractor.

SUPPLEMENTARY INFORMATION:

I. Proposed Changes Regarding The Champus DRG-Based Payment System

The final rule published on September 1, 1987, (52 FR 32992) set

forth the basic procedures used under the CHAMPUS DRG-based payment

system. This was subsequently amended by final rules published on

August 31, 1988 (53 FR 33461), October 21, 1988 (53 FR 41331), December

16, 1988 (53 FR 50515), May 30, 1990 (55 FR 21863), and October 22,

1990 (55 FR 42560). This rule proposes to amend 32 CFR 199 to conform

to changes made to the Medicare Prospective Payment System (PPS) upon

which the CHAMPUS DRG-based payment system is modeled and required by

law to follow whenever practicable. In addition, the rule proposes to:

eliminate the requirement for the physician attestation form and change

the requirement for physician acknowledgment statements; clarify

authorized payment reductions by managed care support contractors for

noncompliance with required utilization review procedures and; limit

the ambulatory surgery group payment rate to the amount that would be

allowed if the services were provided on an inpatient basis.

A. Heart and Liver Transplants

When we first implemented the CHAMPUS DRG-based payment system in

1987, we exempted all services related to heart and liver

transplantation. Although both of these types of transplants are

subject to the Medicare PPS, we initially exempted them because at that

time we had limited experience and claims data for them. We believed

these limitations could significantly skew the relative weights we

would calculate for such transplants.

Since 1987 we have continued to collect data on these services.

From the beginning, heart transplants were grouped to DRG 103 and

exempted. For Fiscal Year 1991 the Health Care Financing Administration

(HCFA) created DRG 480 for liver transplants, but we continued to

exempt them.

In our notice of updated rates and weights for Fiscal Year 1991,

which was published on November 5, 1990 (55 FR 46545), we noted that we

intended to consider including both heart and liver transplants in our

DRG system in the future, and we invited any comments in that regard.

We received none.

Since we have enough claims data to calculate accurate weights for

these transplants, we are proposing to end the DRG exemption for all

CHAMPUS covered solid organ transplants for which there is an assigned

DRG and enough data to calculate the DRG weight. Just as Medicare does,

we will continue to exempt acquisition costs for all CHAMPUS covered

solid organ transplants.

B. Payment Requests for Capital and Direct Medical Education Costs

Initially we required that hospitals submit their request for

payment of capital and direct medical education costs within three

months of the end of the hospital's Medicare cost-reporting period.

However, some hospitals encountered difficulties in meeting this

deadline, because HCFA implemented changes which resulted in extensions

to the filing deadline. Therefore, we often did not enforce our

deadline, and as of October 1988 we eliminated the requirement

entirely.

We eliminated the requirement because we believed hospitals would

submit their requests at the earliest possible time anyway. Also, we

believed there would be no adverse impact on TRICARE/CHAMPUS. Neither

of these has proven to be correct. We continually receive these

requests well after the end of the Medicare cost-reporting period--in

some cases several years later. As a result, it is necessary for our

contractors to retain claims data in their systems indefinitely, so

that they can verify the reported amounts when the requests are

submitted. This is proving to be a very burdensome and costly

requirement for our contractors.

On June 27, 1995, HCFA published a final rule (60 FR 33137)

extending the time frame providers have to file cost reports from no

later than 3 months after the close of the period covered by the report

to no later than 5 months after the close of that period. The rule also

[[Page 61059]]

changed the regulations for granting extensions to providers. Under the

new regulation, an extension may be granted by the intermediary only

when a provider's operations were significantly adversely affected due

to extraordinary circumstances over which the provider had no control,

such as flood or fire. We are proposing to adopt these same

requirements for submitting requests for payment of capital and direct

medical education costs with TRICARE/CHAMPUS.

Currently, TRICARE/CHAMPUS has no deadline, other than the six year

statute of limitations, for submitting payment requests for Medicare

cost-reporting periods. In order to allow up to close out our data for

these periods, we are proposing that any capital and direct medical

education payment requests that fall within the six year statute of

limitations and the effective date of this change must be submitted to

the appropriate TRICARE/CHAMPUS contractor no later than 5 months after

the effective date of this change.

In addition, since capital and direct medical education costs are

included in the national children's hospital differential, we are

proposing to eliminate the clause allowing children's hospitals to

request reimbursement of capital and direct medical education costs as

an alternative to being paid the national differential.

C. Indirect Medical Education Adjustment Factor

An indirect medical education (IDME) adjustment factor is

calculated for all hospitals which have teaching programs approved

under the Medicare regulation. This factor is calculated using a

formula developed by HCFA (see our previous final rules for a

discussion of the application of this formula to CHAMPUS), and is based

on the number of interns and residents and the number of beds in the

hospital. Each DRG-based payment is increased by this factor for that

hopsital.

Initially, the number of residents and interns for each hospital

was derived from the most recently available audited HCFA cost report,

and the number of beds was derived from the American Hospital

Association Annual Survey of Hospitals. The factors have been updated

annually based on data submitted by hospitals on the annual request for

payment of capital and direct medical education costs.

While this updating procedure ensures that hospitals' factors are

as current as possible, it is dependent upon the hospitals' submission

of requests for payment of capital and direct medical education costs.

Since the crucial components (number of interns, residents and beds)

can change from year to year, and since many hospitals do not submit

requests for payment of capital and direct medical education costs, we

believe it is necessary to establish an alternative updating method.

We are proposing to use the Medicare adjustment factor for any

hospital for which a CHAMPUS-specific factor has not been calculated

based on the hospital's request for payment of capital and direct

education costs. We will update the factors using the Medicare amounts

as of October 1 of each year when we routinely update the DRG rates and

weights. Any hospital which has not submitted a capital and direct

medical education payment request to CHAMPUS since the previous October

1, will be assigned the most recent Medicare adjustment factor.

HCFA uses a slightly different formula than that used by CHAMPUS,

and we are aware that this will result in a different adjustment factor

than would otherwise be used. Nevertheless, we believe this is

justified. When the Medicare factor is used, the difference is likely

to be small. In addition, CHAMPUS accounts for a very small portion of

most hospital's claims, and those hospitals which do not request

payment of capital and direct medical education costs probably have

few, if any, CHAMPUS admissions. Therefore, the financial impact of

using the Medicare factor will be negligible. Yet it will ensure that

the factors are kept current, so that factors which are no longer

representative of a hospital's teaching program are not used

indefinitely. And, of course, hospitals can ensure that a CHAMPUS-

specific factor is used simply by submitting a request for payment of

capital and direct medical education costs.

For hospitals which have indirect medical education factors for

CHAMPUS but are not subject to the Medicare PPS, we will eliminate the

factor if a CHAMPUS-specific factor cannot be calculated based on a

current request from the hospital for payment of capital and direct

medical education costs. The factor will be eliminated as of October 1

if no capital and direct medical education payment request has been

received since the previous October 1.

In any case where a hospital submits a capital and direct medical

education payment request after the Medicare factor has been

implemented (or the factor has been eliminated for hospitals not

subject to the Medicare PPS, including children's hospitals), the

CHAMPUS-specific factor will become effective in accordance with

existing requirements. In no case will the CHAMPUS-specific factor be

effective retroactively.

For children's hospitals which have indirect medical education

factors for CHAMPUS, the factor will be eliminated as of October 1 of

each year if during the past year, the hospital did not provide the

contractor with updated information on the number of its interns,

residents and beds. Since amounts for capital and direct medical

education are included in the national children's hospital

differential, children's hospitals are not required to submit capital

and direct medical education payment requests. Because of this, the

contractor is not able to update the CHAMPUS-specific factor unless

requested by the children's hospital.

For Fiscal Year 1998, HCFA revised its indirect medical education

adjustment formula to gradually reduce the current level of IDME

adjustment over the next several years. Since the IDME formula used by

CHAMPUS does not include disproportionate share hospitals (DSHs), the

variables in the formula are different from Medicare's however, the

percentage reductions that will be applied to Medicare's formula are

being adopted by CHAMPUS.

D. Long Stay Outliers

For Fiscal Year 1998, HCFA eliminated payment for day outliers,

referred to as long stay outliers under CHAMPUS. CHAMPUS also

eliminated long stay outliers for all cases except children's hospitals

and neonates for Fiscal Year 1998. We are proposing to eliminate the

long stay outliers for children's hospitals and neonates for Fiscal

Year 1999.

For Fiscal Year 1993, HCFA changed the payment procedures for day

outlier per diems under the PPS. Prior to this change, the day outlier

per diem was calculated using the DRGs geometric mean length of stay

and a marginal payment factor of 60 percent. For discharges occurring

on or after October 1, 1992, HCFA revised the day outlier payment

policy to reflect that the per diem payment would be calculated using

the arithmetic mean and a marginal payment factor of 55 percent. This

meant that the per diem day outlier payment under the PPS for operating

costs would be determined by dividing the standard DRG payment by the

arithmetic mean length of stay for that DRG, and multiplying the result

by 55 percent. The change in the payment policy for day outliers

provided better protection against costly cases for hospitals, while

maintaining a more appropriate level of payment for cases

[[Page 61060]]

with extraordinarily long lengths of stay that were not also

extraordinarily costly.

CHAMPUS did not adopt the PPS per diem day outlier changes at that

time because it required a regulatory change and there was a moratorium

on publication of rules. Over the years, HCFA has reduced the marginal

payment factor for day outliers from 55 percent to 47 percent to 44

percent, to 33 percent, to the point of eliminating payment of day

outliers, effective with discharges occurring after September 30, 1997.

CHAMPUS adopted the day outlier marginal payment factor of 47 percent

for Fiscal Year 1995, 44 percent for Fiscal Year 1996, and 33 percent

for Fiscal Year 1997, but has not adopted the arithmetic mean to

calculate the per diem payment. As a result, CHAMPUS has been paying

more than Medicare on claims qualifying for long-stay day outliers.

Although we eliminated the long stay outliers for all cases except

children's hospitals and neonates for Fiscal Year 1998, and are

proposing to eliminate the long stay outliers for them in Fiscal Year

1999, we are still proposing to adopt the arithmetic mean to calculate

the per diem, in order to be consistent with the Medicare PPS in

calculating payments for transfer cases.

E. Cost Outliers

Beginning in Fiscal Year 1998, HCFA adopted a requirement that in

determining the additional payment for IME (referred to as IDME under

CHAMPUS), the IME adjustment factor will only be applied to the base

DRG payment. In addition, the fixed loss cost outlier threshold is

based on the sum of the DRG payment plus IME plus a fixed dollar

amount. CHAMPUS adopted this requirement in Fiscal Year 1998 for all

cases except children's hospitals and neonates. We are proposing to

adopt this same requirement for children's hospitals and neonates

Fiscal Year in 1999.

F. Payment for Transfer Cases

Beginning in Fiscal Year 1996, HCFA adopted a graduated per diem

payment methodology for transfer cases. As of October 1, 1996, CHAMPUS

adopted this payment methodology; however, we elected not to offset

these additional payments with reductions in outlier payments. Using

this payment methodology, CHAMPUS will pay transferring hospitals twice

the per diem amount for the first day of any transfer stay plus the per

diem amount for each of the remaining days before transfer, up to the

full DRG amount. For neonatal cases, other than normal newborns, the

transferring hospital will be paid twice the per diem amount for the

first day of any transfer stay plus 125 percent of the per diem rate

for all remaining days before transfer, up to the full DRG amount. This

proposed change will allow hospitals to be compensated more

appropriately for the treatment they furnish to patients before

transfer. Transferring hospitals will continue to be paid in full for

discharges classified into DRG 456 (burns, transferred to another acute

care facility or DRG 601 (neonate, transferred less or equal to 4 days

old).

G. Elimination of Separate Adjusted Standardized Amounts for Rural

Areas

Beginning in Fiscal Year 1995, HCFA's average standardized amounts

for hospitals located in ``rural'' areas were required to be equal to

the average standardized amount for hospitals located in ``other

urban'' areas. Based on this, separate national average standardized

amounts for ``other urban'' and ``rural'' areas no longer existed. As

of Fiscal Year 1995, CHAMPUS no longer differentiated between ``other

urban'' and ``rural'' areas. The adjusted standardized amounts for

``other urban'' and ``rural'' areas are now listed as ``other'' areas.

H. Payment for Blood Clotting Factor

For Fiscal Year 1994, HCFA reinstated payments for the cost of

administering blood clotting factor to beneficiaries who have

hemophilia through discharges occurring before October 1, 1994. CHAMPUS

also reinstated payments for the cost of administering blood clotting

factor through discharges occurring before October 1, 1994. For Fiscal

Year 1998, HCFA again reinstated payments for the cost of administering

blood clotting factor. CHAMPUS also reinstated payments for discharges

occurring on or after October 1, 1997.

I. Effect of Change of Ownership on Exclusion of Long-Term Care

Hospitals

Beginning in Fiscal Year 1996, HCFA adopted new requirements for

certain long-term care hospitals excluded from the PPS. The

requirements specify that if a hospital undergoes a change of ownership

at the start of a cost reporting period or at any time within the

preceding 6 months, the hospital may be excluded from the prospective

payment system as a long-term care hospital for a cost reporting period

if, for the 6 months immediately preceding the start of the period

(including time before the change of ownership), the hospital has the

required average length of stay, continuously operated as a hospital,

and continuously participated as a hospital in Medicare. CHAMPUS also

adopted these new requirements beginning in Fiscal Year 1996.

J. Empty and Low-Volume DRGs

Currently, 32 CFR 199.14 (a)(1)(iii)(B) specifies that the Medicare

weight shall be used for any DRG with less than 10 occurrences in the

CHAMPUS database. Since the CHAMPUS weights are used by military

treatment facilities and by an increasingly large number of state

Medicaid programs, the direct substitution of the Medicare weight for

the CHAMPUS weight, causes inconsistencies. These inconsistencies may

pose more of a problem for other payors than it does for CHAMPUS,

particularly if they have more cases in the DRG categories where the

substitutions have occurred. Because of these inconsistencies, we are

proposing that the Director, TSO, or designee, has the authority to

consider alternative methods for estimating CHAMPUS weights in these

low-volume DGR categories.

K. Hospitals Within Hospitals

For Fiscal Year 1998, HCFA established additional criteria for

excluding from the PPS, long-term care hospitals that occupy space in

the same building or on the same campus as another hospital, sometimes

called ``hospitals within hospitals.'' The additional criteria extends

the hospital within hospital criteria to excluded hospitals other than

long-term care hospitals. CHAMPUS also adopted these requirements

beginning in Fiscal Year 1998.

II. Proposed Changes Regarding Elimination of Physician Attestation

Requirement

On September 1, 1995, Medicare eliminated the requirement for the

physician attestation form that requires doctors to certify the

accuracy of all diagnoses and procedures before submitting claims for

payment. In addition, instead of requiring a physician to sign an

acknowledgment statement every year, Medicare changed its regulations

to require a physician need only sign the acknowledgment statement upon

receiving admitting privileges at a hospital. CHAMPUS adopted these

requirements effective the same date.

III. Proposed Changes Regarding Clarification of Payment Reduction for

Noncompliance with Required Utilization Review Procedures

To cover those situations where network providers have agreements

with the managed care contractors for denial of payments for the

provider's

[[Page 61061]]

failure to obtain the required preauthorization, we are proposing to

add the words ``at least'' before the words ``ten percent''. By adding

the words ``at least'', the managed care support contractor is

authorized to apply reductions in payments in accordance with the

network provider's contract.

IV. Clarification Regarding List of Ambulatory Surgery Procedures

On October 1, 1993, we published a final rule (58 FR 51227) which

included prospective payment procedures for ambulatory surgery. These

procedures were modeled on the Medicare methodology. In that rule, we

stated that ``A list of ambulatory surgery procedures will appear as

Attachment 2 (to be published later) to this preamble.'' We

subsequently published the list of procedures on October 15, 1993, (58

FR 53411).

The list of procedures published on October 15, 1993, was not made

part of the Code of Federal Regulations (CFR) at that time, and it was

not, and continues not to be, our intention that it be part of the CFR.

However, the final rule did not make this clear. The list of procedures

to be ``published periodically by the Director, OCHAMPUS,'' as cited in

section 199.14 paragraph (d)(1), is contained in the TRICARE/CHAMPUS

Policy Manual.

V. Proposed Changes Regarding Limits On Ambulatory Surgery Group

Payment Rates

Effective November 1, 1994, CHAMPUS identified a number of

procedures which can be performed safely and effectively as ambulatory

surgery and established prospective payment procedures for reimbursing

these services. Ambulatory surgery often is less disruptive to the

patient's life than an inpatient stay. It also provides a less

expensive alternative to an inpatient stay, since the patient does not

require a hospital room and all the costs associated with it. As a

result, TSO wants to encourage the use of ambulatory surgery whenever

it is reasonable, but we do not believe it ever should be more

expensive than an inpatient stay. Therefore, we are adding a provision

that gives discretion to the Director, TSO, to limit the ambulatory

surgery group payment rate to the amount that would be allowed if the

services were provided on an inpatient basis. To calculate the

allowable inpatient amount we will multiply the applicable DRG relative

weight times the national large urban adjusted standardized amount

(ASA). We will use the large urban ASA rather than the ``other area''

ASA because it is higher and will not economically disadvantage any

provider, and we expect that most ambulatory surgery centers are

located in large urban areas.

VI. Proposed Changes Regarding Balance Billing

Section 731 of the National Defense Authorization Act for Fiscal

Year 1996, revised 10 U.S.C. 1079(h) which provides the statutory basis

for limits on balance billing of CHAMPUS beneficiaries established in

section 199.14(h)(1)(i)(D). Section 731 extends the balance billing

limit authority to non-institutional, non-professional providers, such

as clinical laboratories and ambulance companies.

This paragraph explains that non-institutional, non-professional

providers will be limited in the amount they may bill a TRICARE/

CHAMPUS-eligible beneficiary an actual charge in excess of the

allowable amount. This provides financial protection for our

beneficiaries by preventing excessively high billing by providers by

establishing the balance billing limit to these new categories of

providers as the same percentage as that used for TRICARE/CHAMPUS

professional providers: 115 percent of the allowable charge. In order

to provide flexibility to continue CHAMPUS benefits in special

circumstances in which a beneficiary may feel strongly about using a

particular provider, notwithstanding high fees, the proposed rule

states that the limitation may be waived on a case-by-case basis.

VII. Proposed Changes Regarding CMAC Rates

CHAMPUS policy, based on Congressional enactment, is to set CHAMPUS

Maximum Allowable Charge (CMAC) rates comparable to Medicare rates. For

almost all procedure codes, the CMAC rate has been reduced to equal the

Medicare rate or is in the process of being phased down to that level.

For a very small number of procedures, for unusual reasons or

idiosyncrasies of the data used for calculations, however, the CMAC

rate is less than the Medicare rate. We propose to establish a special

rule for these cases to permit an increase in the CMAC up to the

Medicare rate. This is based on the authority of 10 U.S.C. 1079(h)(4),

which allows for exceptions to the normal statutory payment limitation

if DoD determines it necessary to assure that beneficiaries have

adequate access to health care services. Because the Medicare rates are

products of a system that reflects careful governmental judgments of

factors suggesting fair payment rates, we propose to adopt these rates

as indicators of payment levels associated with adequate access. In

addition, under the applicable Appropriations Act general provision,

DoD may increase CMAC rates that are lower than Medicare rates by

reference to appropriate economic index data similar to that used by

Medicare. We have heretofore utilized only the Medicare Economic Index

in this connection, but we propose to adopt an additional Medicare

indicator of economic factors, namely the data used for the Medicare

fees determination, to adjust the rates in these special cases. This is

set forth in the proposed new section 199.14(h)(1)(iii)(D).

VIII. Proposed Changes Regarding Government-Wide Effect Of Exclusion Or

Suspension From Champus

Section 2455 of the Federal Acquisition Streamlining Act of 1994,

Pub. L. 103-355, October 13, 1994, and Executive Order 12549,

``Debarment and Suspension from Federal Financial and Nonfinancial

Assistance Programs,'' February 18, 1986, require that any entity

debarred, suspended, or otherwise excluded under any program or

activity involving Federal financial assistance shall also be debarred,

suspended, or otherwise excluded from all other programs and activities

involving Federal financial assistance. We are restating this

requirement in the context specific to CHAMPUS through a proposed

addition to section 199.9. The proposed addition provides that any

health care provider excluded or suspended from CHAMPUS shall, as a

general rule, also be debarred, suspended, or otherwise excluded from

all other programs and activities involving the Federal financial

assistance. Among these other such programs are Medicare and Medicaid.

Other regulations related to this authority are 32 CFR Part 25 (DoD

rules) and 45 CFR Part 76 (HHS rules).

In conjunction with implementation of this government-wide

debarment rule, we are strengthening the linkage between CHAMPUS and

these other programs on the important issues of submittal of claims and

balance billing by providers. Current regulations generally require

providers to file claims on behalf of beneficiaries and to limit

balance billing to 15% greater than the CHAMPUS Maximum Allowable

Charge (CMAC). These regulations also provide that violations are

grounds for exclusion or suspension from CHAMPUS. We are proposing to

reinforce these compliance provisions by adding violations of these

requirements to the list of provider actions that are considered abuse

of the program for purposes of termination,

[[Page 61062]]

suspension and other administrative remedies.

A principal effect of these proposed revisions is that any provider

who fails to file CHAMPUS claims or exceeds the balance billing limits

risks not only exclusion or suspension from CHAMPUS, but also exclusion

or suspension from Medicare, Medicaid, and other Federal programs.

IX. Regulatory Procedures

Executive Order 12866 requires certain regulatory assessments for

any ``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.

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.

This is not a significant regulatory action under the provisions of

Executive Order 12866, and it would not have a significant impact on a

substantial number of small entities.

Pursuant to the Paperwork Reduction Act of 1995, the reporting

provisions of this proposed rule have been submitted to OMB for review

under 3507(d) of the Act.

In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction

Act of 1995, the Office of the Assistant Secretary of Defense (Health

Affairs) announces the proposed public information collection and seeks

public comment on the provisions thereof. Comments are invited on: (1)

whether the proposed collection of information is necessary for the

proper performance of the functions of the agency, including whether

the information shall have any practical utility; (2) the accuracy of

the agency's estimated burden of the proposed information collection;

(3) ways to enhance the quality, utility, and clarity of the

information to be collected; and (4) ways to minimize the burden of the

information collection on respondents, including through the use of

automated collection techniques or other forms of information

technology.

The collection of information allows TRICARE to collect the

information necessary to properly reimburse institutional providers

based on diagnosis-related groups (DRGs) for their share of these

costs. The collection of this information is authorized by 32 CFR

199.14(a)(1)(G)(1) and (2). The CHAMPUS DRG-based payment system is

modeled on the Medicare Prospective Payment System (PPS) and was

implemented on October 1, 1987.

Affected Public: Individuals; Business or Other For Profit.

Annual Burden Hours: 5,532.

Number of Respondents: 5,400.

Responses Per Respondent: 1.

Average Burden Per Response: 5 minutes for physicians, 1 hour for

institutions.

Frequency: On occasion.

Respondents are institutional providers and admitting physicians.

Institutional providers are requesting reimbursement for allowed

capital and direct medical education costs from the TRICARE/CHAMPUS

contractor. The information can be submitted in any form, most likely

in the form of a letter. The contractor will calculate the TRICARE/

CHAMPUS share of capital and direct medical education costs and make a

lump-sum payment to the hospital.

Physicians sign a physician acknowledgement, maintained by the

institution, at the time the physician is granted admitting privileges.

This acknowledgement indicates the physician understands the importance

of a correct medical record, and misrepresentation may be subject to

penalties.

Comments on these requirements should be submitted to the Office of

Information and Regulatory Affairs, OMB, 725 17th Street, N.W.,

Washington, DC 20503, marked ``Attention Desk Officer for Department of

Defense, Health Affairs.'' Copies should be sent to the Office of the

Assistant Secretary of Defense (Health Affairs), 1200 Pentagon,

Washington, DC 20301-1200, Attention: Kathleen Larkin. When the

Department of Defense promulgates the Final Rule, the Department will

respond to comments by OMB or the public regarding the information

collection provisions of the rule.

The is a proposed rule. Public comments are invited. All comments

will be considered. A discussion of the major issues raised by public

comments will be included with issuance of the final rule, anticipated

approximately 60 days after the end of the comment period.

List of Subjects in 32 CFR Part 199

Administrative practice and procedure, Claims, Fraud, Health care,

Health insurance, individuals with disabilities, Military personnel.

Accordingly, 32 CFR Part 199 is proposed to be 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 199.9 is proposed to be amended by adding new paragraph

(m) to read as follows:

Sec. 199.9 Administrative remedies for fraud, abuse, and conflict of

interest.

* * * * *

(m) Government-wide effect of exclusion or suspension from CHAMPUS.

As provided by section 2455 of the Federal Acquisition Streamlining Act

of 1994, Pub. L. 103-355, October 13, 1994, and Executive Order 12549,

``Debarment and Suspension from Federal Financial and Nonfinancial

Assistance Programs,'' February 18, 1986, any health care provider

excluded or suspended from CHAMPUS under this section shall, as a

general rule, also be debarred, suspended, or otherwise excluded from

all other programs and activities involving Federal financial

assistance. Among the other programs for which this debarment,

suspension, or exclusion shall operate are the Medicare and Medicaid

programs. This debarment, suspension, or termination requirement is

subject to limited exceptions in the regulations governing the

respective Federal programs affected.

Note: Other regulations related to this government-wide

exclusion or suspension authority are 32 CFR part 25 and 45 CFR part

76.

3. Section 199.14 is proposed to be amended by revising the first

sentence of (a)(1) introductory text, and paragraphs

(a)(1)(i)(C)(6)(iv), (a)(1)(ii)(C) (2), (3), (4) and (10) first

sentence, (a)(1)(ii)(D)(4), redesignating paragraphs (a)(1)(ii)(D)(5)

through (a)(1)(ii)(D)(8) as (a)(1)(ii)(D)(6) through (a)(1)(ii)(D)(9),

revising (a)(1)(iii)(a)(3), (a)(1)(iii)(B), (a)(1)(iii)(D) (1), (2) and

(5), (a)(1)(iii)(E)(1)(i) (A) and (B), (a)(1)(iii)(E)(1)(ii) (A) and

(B), (a)(1)(iii)(G)(3) introductory text, (d)(3)(iv), and (h)

introductory text, and by adding new paragraphs (a)(1)(ii)(D)(5),

(a)(1)(iii)(E)(3) (i), (ii), (iii), (iv), and (v), and (h)(1)(iii)(D),

to read as follows:

Sec. 199.14 Provider reimbursement methods.

* * * * *

(a) * * *

(1) CHAMPUS Diagnosis Related Group (DRG)-based payment system.

Under the CHAMPUS DRG-based payment system, payment for the

[[Page 61063]]

operating costs of inpatient hospital service furnished by hospitals

subject to the system is made on the basis of prospectively-determined

rates and applies on a per discharge basis using DRGs. * * *

(i) * * *

(C) * * *

(6) * * *

(iv) Payment to a hospital transferring an inpatient to another

hospital. If a hospital subject to the CHAMPUS DRG-based payment system

transfers an inpatient to another such hospital, the transferring

hospital shall be paid a per diem rate (except that in neonatal cases,

other than normal newborns, the hospital will be paid at 125 percent of

that per diem rate), as determined under instructions issued by TSO,

for each day of the patient's stay in that hospital, not to exceed the

DRG-based payment that would have been paid if the patient had been

discharged to another setting. For admissions occurring on or after

October 1, 1995, the transferring hospital shall be paid twice the per

diem rate for the first day of any transfer stay, and the per diem

amount for each subsequent day up to the limit described in this

paragraph.

* * * * *

(ii) * * *

(C) * * *

(2) All services related to solid organ acquisition for CHAMPUS

covered transplants by CHAMPUS-authorized transplantation centers.

(3) All services related to heart and liver transplantation for

admissions prior to October 1, 1998, which would otherwise be paid

under DRG 103 and 480, respectively.

(4) All services related to CHAMPUS covered solid organ

transplantations for which there is no DRG assignment.

* * * * *

(10) For admissions occurring on or after October 1, 1990, and

before October 1, 1994, and for discharges occurring on or after

October 1, 1997, the costs of blood clotting factor for hemophilia

patients. * * *

(D) * * *

(4) Long-term hospitals. A long-term hospital which is exempt from

the Medicare prospective payment system is also exempt from the CHAMPUS

DRG-based payment system. In order for a long-term hospital which does

not participate in Medicare to be exempt from the CHAMPUS DRG-based

payment system, it must meet the same criteria (as determined by the

Director, TSO, or a designee) as required for exemption from the

Medicare Prospective Payment System as contained in Sec. 412.23 of

title 42 CFR.

(5) Hospitals within hospitals. A hospital within a hospital which

is exempt from the Medicare prospective payment system is also exempt

from the CHAMPUS DRG-based payment system. In order for a hospital

within a hospital which does not participate in Medicare to be exempt

from the CHAMPUS DRG-based payment system, it must meet the same

criteria (as determined by the Director, TSO, or a designee) as

required for exemption from the Medicare Prospective Payment System as

contained in Sec. 412.22 and the criteria for one or more of the

excluded hospital classifications described in Sec. 412.23 of Title 42

CFR.

* * * * *

(iii) * * *

(A) * * *

(3) Indirect medical education standardization. The charges shall

be standardized for the cost effects of indirect medical educational

factors. If the Medicare adjustment factor was used in calculating a

teaching hospital's indirect medical education adjustment factor, the

Medicare factor shall be used when standardizing the charges.

* * * * *

(B) Empty and low-volume DRGs. For any DRG with less than ten (10)

occurrences in the CHAMPUS database, the Director, TSO, or designee,

has the authority to consider alternative methods for estimating

CHAMPUS weights in these low-volume DRG categories.

* * * * *

(D) * * *

(1) Differentiate large urban and other area charges. All charges

in the database shall be sorted into large urban and other area groups

(using the same definitions for these categories used in the Medicare

program).

(2) Indirect medical education standardization. The charges shall

be standardized for the cost effects of indirect medical education

factors. If the Medicare adjustment factor was used in calculating a

teaching hospital's indirect medical education adjustment factor, the

Medicare factor shall be used when standardizing the charges.

* * * * *

(5) Preliminary base year standardized amount. A preliminary base

year standardized amount shall be calculated by summing all costs in

the database applicable to the large urban or other area group and

dividing by the total number of discharges in the respective group.

* * * * *

(E) * * *

(1) * * *

(i) * * *

(A) Short-stay outliers. Any discharge with a length-of-stay (LOS)

less than 1.94 standard deviations from the DRG's arithmetic LOS shall

be classified as a short-stay outlier. Short-stay outliers shall be

reimbursed at 200 percent of the per diem rate for the DRG for each

covered day of the hospital stay, not to exceed the DRG amount. The per

diem rate shall equal the DRG amount divided by the arithmetic mean

length-of stay for the DRG.

(B) Long-stay outliers. Any discharge (except for neonatal services

and services in children's hospitals) which has a length-of-stay (LOS)

exceeding a threshold established in accordance with the criteria used

for the Medicare Prospective Payment System as contained in 42 CFR

412.82 shall be classified as a long-stay outlier. Any discharge for

neonatal services or for services in a children's hospital which has a

LOS exceeding the lesser of 1.94 standard deviations or 17 days from

the DRG's arithmetic mean LOS also shall be classified as a long-stay

outlier. Long-stay outliers shall be reimbursed the DRG-based amount

plus a percentage (as established for the Medicare Prospective Payment

System) of the per diem rate for the DRG for each covered day of care

beyond the long-stay outlier threshold. The per diem rate shall equal

the DRG amount divided by the arithmetic mean LOS for the DRG. For

admissions on or after October 1, 1997, the long stay outlier has been

eliminated for all cases except children's hospitals and neonates. For

admissions on or after October 1, 1998, the long stay outlier has been

eliminated for children's hospitals and neonates.

(ii) * * *

(A) Cost outliers except those in children's hospitals or for

neonatal services. Any discharge which has standardized costs that

exceed a threshold established in accordance with the criteria used for

the Medicare Prospective Payment System as contained in 42 CFR 412.84

shall qualify as a cost outlier. The standardized costs shall be

calculated by multiplying the total charges by the factor described in

Sec. 199.14(a)(1)(iii)(D)(4) and adjusting this amount for indirect

medical education costs. Cost outliers shall be reimbursed the DRG-

based amount plus a percentage (as established for the Medicare

Prospective Payment System) of all costs exceeding the threshold.

Effective with admissions occurring on or after October 1, 1997, the

standardized costs are no longer adjusted for indirect medical

education costs.

[[Page 61064]]

(B) Cost outliers in children's hospitals and for neonatal

services. Any discharge for services in a children's hospital or for

neonatal services which has standardized costs that exceed a threshold

of the greater of two times the DRG-based amount or $13,800 shall

qualify as a cost outlier. The standardized costs shall be calculated

by multiplying the total charges by the factor described in

Sec. 199.14(a)(1)(iii)(D)(4) (adjusted to include average capital and

direct medical education costs) and adjusting this amount for indirect

medical education costs. Cost outliers for services in children's

hospitals and for neonatal services shall be reimbursed the DRG-based

amount plus a percentage (as established for the Medicare Prospective

Payment System) of all costs exceeding the threshold. Effective with

admissions occurring on or after October 1, 1998, the cost outlier

thresholds for children's hospitals and neonatal services are the same

as other hospitals and the standardized costs are no longer adjusted

for indirect medical education costs.

* * * * *

(3) * * *

(i) The indirect medical education adjustment factor is calculated

for all hospitals which have teaching programs approved under the

Medicare regulation. The factor is based on the number of interns,

residents and beds in the hospital. Each DRG-based payment is increased

by this factor for that hospital. The factors are updated yearly based

on data submitted by hospitals on the annual request for payment of

capital and direct medical education costs.

(ii) To ensure the indirect medical education factors are as

current as possible, the Medicare adjustment factor will be used for

any hospital for which a CHAMPUS-specific factor has not been

calculated based on the hospital's request for payment of capital and

direct medical education costs. The factors will be updated using the

Medicare amounts as of October 1 of each year; the same time the DRG

rates and weights are updated. Any hospital which has not submitted a

capital and direct medical education payment request to CHAMPUS since

the previous October 1, will be assigned the most recent Medicare

adjustment factor.

(iii) For hospitals which have indirect medical education factors

for CHAMPUS but are not subject to the Medicare prospective payment

system, the indirect medical education adjustment factor will be

eliminated if a CHAMPUS-specific factor cannot be calculated based on a

current request from the hospital for payment of capital and direct

medical education costs. The factor will be eliminated as of October 1

if no capital and direct medical education payment request has been

received since the previous October 1.

(iv) For children's hospitals which have indirect medical education

factors for CHAMPUS, the factor will be eliminated as of October 1 of

each year if during the past year, the hospital did not provide the

contractor with updated information on the number of interns, residents

and beds. Since amounts for capital and direct medical education are

included in the national children's hospital differential, children's

hospitals are not required to submit capital and direct medical

education payment requests. Because of this, the contractor is not able

to update the CHAMPUS-specific factor unless requested by the

children's hospital.

(v) In any case where a hospital submits a capital and direct

medical education payment request after the Medicare factor has been

implemented (or the factor has been eliminated for hospitals not

subject to the Medicare prospective payment system, including

children's hospitals), the CHAMPUS specific factor will become

effective in accordance with existing requirements. In no case will the

CHMPUS-specific factor be effective retroactively.

* * * * *

(G) * * *

(3) Information necessary for payment of capital and direct medical

education costs. All hospitals subject to the CHAMPUS DRG-based payment

system, except for children's hospitals, may be reimbursed for allowed

capital and direct medical education costs by submitting a request to

the CHAMPUS contractor. Such request shall be filed with CHAMPUS on or

before the last day of the fifth month following the close of the

hospitals' cost reporting period, and shall cover the one-year period

corresponding to the hospital's Medicare cost-reporting period. The

first such request may cover a period of less than a full year--from

the effective date of the CHAMPUS DRG-based payment system to the end

of the hospital's Medicare cost-reporting period. All costs reported to

the CHAMPUS contractor must correspond to the costs reported on the

hospital's Medicare cost report. An extension of the due date for

filing the request may only be granted if an extension has been granted

by HCFA due to a provider's operations being significantly adversely

affected due to extraordinary circumstances over which the provider has

no control, such as flood or fire. (If these costs change as a result

of a subsequent audit by Medicare, the revised costs are to be reported

to the hospital's CHAMPUS contractor within 30 days of the date the

hospital is notified of the change.) The request must be signed by the

hospital official responsible for verifying the amounts and shall

contain the following information.

* * * * *

(d) * * *

(3) * * *

(iv) Step 4: standard payment amount per group. The standard

payment amount per group will be the volume weighted median per

procedure cost for the procedures in that group. For cases in which the

standard payment amount per group exceeds the CHAMPUS-determined

inpatient allowable amount, the Director, TSO, or his designee, may

make adjustments.

* * * * *

(h) Reimbursement of individual health care professionals and other

non-institutional, non-professional providers. The CHAMPUS-determined

reasonable charge (the amount allowed by CHAMPUS) for the service of an

individual health care professional or other non-institutional, non-

professional provider (even if employed by or under contract to an

institutional provider) shall be determined by one of the following

methodologies, that is, whichever is in effect in the specific

geographic location at the time covered services and supplies are

provided to a CHAMPUS beneficiary.

(1) * * *

(iii) * * *

(D) Special rule for cases in which the national CMAC is less than

the Medicare rate. In any case in which the national CMAC calculated in

accordance with paragraphs (h)(1) (i) through (iii) of this section is

less than the Medicare rate, the Director, TSO, may determine that the

use of the Medicare Economic Index under paragraph (h)(1)(iii)(B) of

this section will result in a CMAC rate below the level necessary to

assure that beneficiaries will retain adequate access to health care

services. Upon making such a determination, the Director, TSO, may

increase the national CMAC to a level not greater than the Medicare

rate.

* * * * *

4. Section 199.15 is proposed to be amended by revising paragraphs

(b)(4)(iii)(B), (c)(2), (d)(2)(iii) and (e)(3) (i) and (ii), to read as

follows:

Sec. 199.15 Quality and utilization review peer review organization

program.

* * * * *

[[Page 61065]]

(b) * * *

(4) * * *

(iii) * * *

(B) In a case described in paragraph (b)(4)(iii)(A) of this

section, reimbursement will be reduced, unless such reduction is waived

based on special circumstances. The amount of this reduction shall be

at least ten percent of the amount otherwise allowable for services for

which preauthorization (including preauthorization for continued stays

in connection with concurrent review requirements) approval should have

been obtained, but was not obtained.

* * * * *

(c) * * *

(2) The physician acknowledgment required for Medicare under 42 CFR

412.46 is also required for CHAMPUS as a condition for payment and may

be satisfied by the same statement as required for Medicare, with

substitution or addition of ``CHAMPUS'' when the word ``Medicare'' is

used.

* * * * *

(d) * * *

(2) * * *

(iii) Review for physician's acknowledgment of annual receipt of

the penalty statement as contained in the Medicare regulation at 42 CFR

412.46.

* * * * *

(e) * * *

(3) * * *

(i) If the diagnostic and procedural information in the patient's

medical record is found to be inconsistent with the hospital's coding

or DRG assignment, the hospital's coding on the CHAMPUS claim will be

appropriately changed and payments recalculated on the basis of the

appropriate DRG assignment.

(ii) If the information stipulated under paragraph (d)(2) of this

section is found not to be correct, the PRO will change the coding and

assign the appropriate DRG on the basis of the changed coding.

* * * * *

Dated: November 7, 1997.

L.M. Bynum,

Alternate OSD Federal Register Liaison Officer, Department of Defense.

[FR Doc. 97-29975 Filed 11-13-97; 8:45 am]

BILLING CODE 5000-04-M