Medical Care Collection or Recovery

SUMMARY: This document proposes to amend VA's medical regulations

concerning collection or recovery by VA for medical care or services

provided or furnished to a veteran:

For a non-service connected disability for which the veteran is

entitled to care (or the payment of expenses of care) under a health-

plan contract;

For a non-service connected disability incurred incident to the

veteran's employment and covered under a worker's compensation law or

plan that provides reimbursement or indemnification for such care and

services; or

For a non-service connected disability incurred as a result of a

motor vehicle accident in a State that requires automobile accident

reparations insurance.

Previously, by statute VA was authorized to charge ``reasonable

costs'' for such care or services. However, amended statutory

provisions now authorize VA to charge ``reasonable charges.''

Accordingly, this document proposes to establish methodology for

charging ``reasonable charges'' consistent with the statutory

amendment. Under the proposal, the charges billed using this

methodology, as appropriate, would consist of inpatient facility

charges, skilled nursing facility/sub-acute inpatient facility charges,

outpatient facility charges, physician charges, and non-physician

provider charges. Reasonable charges for outpatient dental care and

prescription drugs not administered during treatment would continue to

be billed using the existing cost-based methodology.

Pursuant to statutory authority, VA has the right to recover or

collect the charges from a third party to the extent that a provider of

the care or services would be eligible to receive payment therefor from

that third party if the care or services had not been furnished by a

department or agency of the United States. With respect to a third-

party payer liable under a health plan contract, consistent with the

statutory authority, the third-party payer would have the option of

paying to the extent of its coverage, either the billed charges or the

amount the third-party payer demonstrates it would pay for care or

services furnished by providers other than entities of the United

States for the same care or services in the same geographic area.

Using the methodology in this proposed rule, the data for

calculating actual amounts for the various inpatient facility charges,

skilled nursing facility/sub-acute inpatient facility charges,

outpatient facility charges, and physician charges at individual VA

facilities for the period August 1998 through September 1999 are set

forth in a companion document published in the ``Notices'' section of

this issue of the Federal Register.

Also, under the proposal, the regulations would be clarified to

state specifically that billing methodology based on costs will

continue to be applied to establish charges for medical care furnished

in error or on tentative eligibility, furnished in a medical emergency,

furnished to certain beneficiaries of the Department of Defense or

other Federal agencies, furnished to pensioners of allied nations, and

furnished to military retirees with chronic disability.

DATES: Comments must be received on or before December 14, 1998.

ADDRESSES: Mail or hand-deliver written comments to: Director, Office

of Regulations Management (02D), Department of Veterans Affairs, 810

Vermont Ave., NW, Room 1154, Washington, DC 20420. Comments should

indicate that they are submitted in response to ``RIN: 2900-AJ30.'' All

written comments received will be available for public inspection at

the above address in the Office of Regulations Management, Room 1158,

between the hours of 8:00 a.m. and 4:30 p.m., Monday through Friday

(except holidays).

FOR FURTHER INFORMATION CONTACT: David Cleaver, VHA Office of Finance

(174), Veterans Health Administration, Department of Veterans Affairs,

810 Vermont Avenue, NW, Washington, DC 20420, (202) 273-8210. (This is

not a toll free number.)

SUPPLEMENTARY INFORMATION:

Background

This document proposes to amend VA's medical regulations which are

set forth at 38 CFR part 17. More specifically, it is proposed to amend

the regulations concerning collection or recovery by VA for medical

care or services provided or furnished to a veteran:

(i) For a non-service connected disability for which the veteran is

entitled to care (or the payment of expenses of care) under a health-

plan contract;

(ii) For a non-service connected disability incurred incident to

the veteran's employment and covered under a worker's compensation law

or plan that provides reimbursement or indemnification for such care

and services; or

(iii) For a non-service connected disability incurred as a result

of a motor vehicle accident in a State that requires automobile

accident reparations insurance.

Pub. L. 105-33 amended the statutory provisions (38 U.S.C. 1729) to

authorize VA to bill ``reasonable charges'' instead of ``reasonable

cost.'' In this regard, the legislative history for these amendments

includes the following statement from the House Conference Report (H.

Rep. No. 105-217, July 30, 1997, at pp. 974-975):

These amendments would allow VA to move away from a cost-based

medical care recovery system to one that more appropriately

resembles market pricing for health care services; the Committee

envisions VA would establish health care charges that would allow it

to recover amounts needed to help preserve the viability of the

health care system for all veterans and that also reflect the

substantial advantages to VA patients both in having the quality

services provided by that system available and in using them. The

amendments reflect the expectation that VA would establish

reasonable charges that are responsive to market prices--charges

that are not constrained to recovery of costs, but which may yield

net revenues. (The concept of ``market price'' here refers to the

price for a service that is based on competition in open markets.

When a substantial competitive demand exists for a service, its

market price normally is determined using commercial practices, such

as by reference to prevailing prices and payments in competitive

markets for services the same or similar to those provided by the

Government.)

Accordingly, this document proposes to establish methodology for

charging ``reasonable charges'' consistent with the statutory

amendment. Under the proposal, as appropriate, the amount billed using

this methodology would consist of inpatient facility charges, skilled

nursing facility/sub-acute inpatient facility charges, outpatient

facility charges, physician charges, and non-physician provider

charges.

Amount of Recovery or Collection--Third Party Liability

Under the provisions of 38 U.S.C. 1729, VA has the right to recover

or collect its reasonable charges from a third party to the extent that

the veteran or a provider of the care or services would be eligible to

receive payment therefor from that third party if the care

[[Page 54757]]

or services had not been furnished by a department or agency of the

United States. With respect to a third-party payer liable under a

health plan contract, consistent with the statutory authority, the

third-party payer would have the option of paying, to the extent of its

coverage, either the billed charges or the amount the third-party payer

demonstrates it would pay for care or services furnished by providers

other than entities of the United States for the same care or services

in the same geographic area.

General

One way to establish ``reasonable'' inpatient facility charges,

skilled nursing facility/sub-acute inpatient facility charges,

outpatient facility charges, physician charges, and non-physician

provider charges would be to use available data to determine prevailing

charges for services in the locality of each VA facility, and bill

those prevailing charges. However, this is impractical because there is

insufficient data for some services at a number of localities.

Therefore, we are proposing formulas designed to establish baseline

reasonable charges for each provided service, commensurate with charges

in each local market, and to enable VA to project from the baseline the

charges applicable to medical care and services provided during

subsequent relevant periods.

We are proposing separate formulas for inpatient facility charges,

skilled nursing facility/sub-acute inpatient facility charges,

outpatient facility charges, physician charges, and non-physician

provider charges. These formulas, developed for VA by Milliman &

Robertson, Inc., Actuaries and Consultants, reflect inherent

differences in the structure and available information for each of

these categories of charges.

Inpatient Facility Charges

The proposed inpatient facility charges consist of per diem charges

for room and board and for ancillary services that vary by VA facility

and by diagnosis related group (DRG). These charges are calculated

based on the following formula.

To establish a baseline, two nationwide average per diem charges

for each DRG were calculated for Calendar Year 1995 (the latest

available data), one from the Medicare Standard Analytical File 5%

Sample and one from the MedStat claim database, a claim database of

nationwide commercial insurance (two widely used data bases that, among

other things, are used for analyzing industry charges). Results

obtained from these two databases were then combined into a single

weighted average per diem charge for each DRG. Using both databases in

this way strengthens the statistical basis for the resulting nationwide

average per diem charges by providing additional data for all DRGs,

especially those that occur infrequently in one or the other database.

The resulting weighted average per diem charge for each DRG was

then separated into its two components, a room and board component and

an ancillary component. This was done to make subsequent calculations

more accurate and to conform with standard industry billing practices.

Consistent with billing practices of many providers, the resulting

amounts for room and board and ancillary services for each DRG were

then adjusted to reflect 80th percentile charges. Since the resulting

nationwide 80th percentile charges represent amounts applicable for

calendar year 1995, the formula includes trending provisions to update

the charges to reflect appropriate economic changes for future periods.

Finally, to account for locality variations, the formula provides for

the trended nationwide 80th percentile charges for room and board and

ancillary services to be multiplied by geographic area adjustment

factors to set charges commensurate with the local market for each VA

facility.

Skilled Nursing Facility/Sub-Acute Inpatient Facility Charges

Under the proposal, skilled nursing facility/sub-acute inpatient

facility charges would be per diem charges that vary by VA facility.

The proposed charges would cover care, including skilled rehabilitation

services (e.g., physical therapy, occupational therapy, and speech

therapy), that is provided in a nursing home or hospital inpatient

setting, is provided under a physician's orders, and is performed by or

under the general supervision of professional personnel such as

registered nurses, licensed practical nurses, physical therapists,

occupational therapists, speech therapists, and audiologists. The

skilled nursing facility/sub-acute inpatient facility charges would

incorporate charges for ancillary services associated with care

provided in these settings. The proposed charges would be calculated

based on the following formula.

To establish a baseline, a nationwide average per diem billed

charge for skilled nursing facility care for July 1, 1998, was obtained

from the 1998 Milliman & Robertson, Inc. Health Cost Guidelines, a

publication that includes nationwide skilled nursing facility charges

(skilled nursing facility charges are also representative of sub-acute

inpatient facility charges). Consistent with billing practices of many

providers, the nationwide average per diem billed charge then was

adjusted to reflect the nationwide 80th percentile charge level. The

resulting nationwide 80th percentile charges represent amounts

applicable for calendar year 1998. Accordingly, the formula includes

trending provisions to update the charges to reflect appropriate

economic changes for future periods. The formula provides for the

trended nationwide charges to be multiplied by geographic area

adjustment factors to set charges commensurate with the local market

for each VA facility.

Outpatient Facility Charges

Under the proposal, outpatient facility charges, as appropriate,

will include separate charges for prosthetic devices and durable

medical equipment that reflect actual costs to VA. It is industry

practice to purchase the devices and provide them at actual cost.

Accordingly, ``actual costs'' and ``reasonable charges'' are the same

for prosthetic devices and durable medical equipment. Otherwise, the

proposed outpatient facility charges consist of charges for outpatient

facility services that vary by VA facility and by CPT procedure code.

These charges are calculated based on the following formula.

Using the 1995 MedStat claims database of nationwide commercial

insurance, the median billed facility charge was calculated for each

CPT procedure code for which outpatient facility charges apply. All

outpatient facility CPT procedure codes were then separated into

outpatient facility CPT procedure code groups that were both subject-

matter-related and statistically-related, resulting in 37 such groups.

This step was designed to ensure that there were sufficient relevant

data for each CPT procedure code, using the smallest number of groups

necessary to obtain this information. Then, for each CPT procedure code

in each of the 37 groups, consistent with billing practices of many

providers, the median charge was adjusted to the 80th percentile. The

formula includes trending provisions to update the 80th percentile

charges to reflect appropriate economic changes for future periods.

Using the resulting charges and 1998 practice expense relative value

units (RVUs), the mathematical approximation methodology of least

squares then was applied to the data for each outpatient facility CPT

procedure code group to

[[Page 54758]]

derive two charge factors. The first factor represents the charge for

each incremental RVU in the CPT procedure code group and the second

factor represents a fixed amount adjustment for the CPT procedure code

group. Then for each CPT procedure code, the outpatient facility RVU

was multiplied by the incremental charge factor and the resulting

charge was adjusted by the fixed amount.

The results constitute nationwide trended 80th percentile

outpatient facility charges. The resulting charges then were multiplied

by geographic area adjustment factors to set charges commensurate with

the local market for each VA facility.

Also, the proposed rule contains special provisions for multiple

surgical procedures performed during the same outpatient encounter by a

provider or provider team. Charges for the second and subsequent

surgical procedures during the same outpatient encounter are reduced

consistent with industry practice.

Further, the proposed rule clarifies that outpatient facility

charges would not be made for services customarily performed in an

independent clinician's office since such services would not usually

create significant outpatient facility expenses.

Physician Charges

The proposed physician charges consist of charges for the services

of physicians which vary by VA facility and by CPT procedure code.

These charges are calculated based on the following formula.

For each CPT procedure code except those for anesthesia and

pathology, the total facility-adjusted RVU (sum of RVU components, with

each component adjusted by the facility's geographic area adjustment

factors) was multiplied by the facility-adjusted conversion factor

(nationwide conversion factor multiplied by the facility's geographic

area adjustment factor). This provides a charge for each CPT procedure

code that reflects the local market for each VA facility. For CPT

procedure codes other than those specifically addressed below in this

paragraph, the calculations by which the total facility-adjusted RVUs

were derived consist of separate calculations for physician work

expense and physician practice expense to obtain more accurate charge

components. The RVU calculations for radiology, pathology, and

anesthesia differ from other physician charges to reflect industry

practice. For radiology CPT procedure codes, the calculation of

physician charges does not include separately identified technical

component RVUs. For each anesthesia and pathology CPT procedure code,

RVUs were multiplied by a nationwide conversion factor to obtain the

nationwide charge. The nationwide charge was multiplied by a geographic

area adjustment factor to obtain the physician charge for each

anesthesia and pathology CPT procedure code at a particular VA

facility. Separate calculations of RVUs also were required for CPT

procedure codes which had only total RVUs (these CPT procedure codes do

not have separate information for physician work expense and physician

practice expense).

To obtain the conversion factors referred to in the preceding

paragraph, CPT procedure codes were separated into physician CPT

procedure code groups that were both subject-matter-related and

statistically-related, resulting in 24 such groups. This step was

designed to ensure that there were sufficient relevant data for each

CPT procedure code, using the smallest number of groups necessary to

obtain this information. Separate conversion factors were calculated

for each of the 24 different physician CPT procedure code groups.

Consistent with billing practices of many providers, the conversion

factors, reflecting nationwide median physician charges, were then

adjusted to reflect nationwide 80th percentile charges. The formula

then provides for multiplying the resulting conversion factors by the

appropriate geographic area adjustment factors to establish conversion

factors commensurate with the local market for each VA facility.

The charges resulting from these calculations represent amounts

applicable for 1996-1997, the latest available data (see paragraph

(e)(3) of proposed Sec. 17.101). Accordingly, the formula includes

trending provisions to update the charges to reflect appropriate

economic changes for future periods.

Certain Non-Physician Provider Charges

The proposal at Sec. 17.101(f) includes non-physician provider

charges for certain non-physician services covered by CPT procedure

codes. The charges consist of percentages of physician charges. The

percentages for a nurse practitioner, clinical nurse specialist,

physician assistant, certified registered nurse anesthetist, clinical

psychologist, and clinical social worker are based on Medicare

percentages. The percentages for a podiatrist, chiropractor, dietitian,

clinical pharmacist, and optometrist are based on the MedStat

nationwide insurance database. We used the Medicare percentages when

available because of their extensive use for billing and payment of

claims. However, all of the percentages are consistent with industry

practice.

Publication of Data for Calculating Actual Amounts for Inpatient

Facility Charges, Skilled Nursing Facility/Sub-Acute Inpatient

Facility Charges, Outpatient Facility Charges, and Physician

Charges

We have set forth in a companion document published in the

``Notices'' section of this issue of the Federal Register, data

(derived from the methodology explained above) for calculating

inpatient facility charges, skilled nursing facility/sub-acute

inpatient facility charges, outpatient facility charges, and physician

charges at individual VA facilities. Should the methodology set forth

in this proposal be adopted, the data in the companion document would

be used for inpatient facility charges, skilled nursing facility/sub-

acute inpatient facility charges, outpatient facility charges, and

physician charges from the effective date of the final rule through

September 1999. Accordingly, interested parties may wish to retain the

``Notices'' document for future reference. Under the proposal, VA would

update annually in the ``Notices'' section of the Federal Register the

data for calculating the charges at individual VA facilities.

Billing Reasonable Costs for Various Hospital Care or Medical

Services not Covered Under Proposed Sec. 17.101

The regulations at current Sec. 17.101 (proposed Sec. 17.102)

contain provisions for billing reasonable costs for hospital care or

medical services. Paragraph (h) includes the following methodology for

billing for hospital care or medical services furnished veterans for

non-service connected disabilities:

The method for computing the charges for medical care and

services is based on the Cost Distribution Report, which sets forth

the actual basic costs and per diem rates by type of inpatient care

and outpatient visit. Factors for depreciation of buildings and

equipment and Central Office overhead are added, based on accounting

manual instructions. Additional factors are added for interest on

capital investment and for standard fringe benefit costs covering

government employee retirement and disability costs. The current

year billing rates are projected on prior year actual rates by

applying the budgeted percentage increase. In addition, based on the

detail available in the Cost Distribution Report, VA intends to, on

each bill break down the all-inclusive rate into its three principal

components; namely, physician cost, ancillary services cost, and

nursing, room and board cost. The rates generated by the foregoing

methodology are the same rates prescribed by the Office of

Management and

[[Page 54759]]

Budget and published in the Federal Register for use under the

Federal Medical Care Recovery Act, 42 U.S.C. 2651-2653.

The adoption of this proposed rule would supersede these quoted

provisions insofar as they relate to charges to third parties liable

under health plan contracts, liable under worker's compensation laws or

plans, or liable as a result of a motor vehicle accident when VA

provides or furnishes hospital care or medical services to veterans for

non-service connected disabilities. However, the proposal would amend

the regulations to provide specifically that this billing methodology

based on costs would continue to apply to charging for medical care

furnished in error or on tentative eligibility, furnished in a medical

emergency, furnished to beneficiaries of the Department of Defense or

other Federal agencies, furnished to pensioners of allied nations, and

furnished to military retirees with chronic disability.

Outpatient Dental Charges and Prescription Drugs not Administered

During Treatment

The proposal at Sec. 17.101(g) includes charges for outpatient

dental care and prescription drugs not administered during treatment.

Under the proposal, these charges would continue to be billed based on

VA costs as set forth in proposed Sec. 17.102. However, in the future,

we intend to consider whether, based on information to be acquired, we

should amend the regulations to reflect a different ``reasonable

charge'' methodology for these charges.

Technical Changes

The proposed rule also proposes to make a number of technical

amendments to the medical regulations for purposes of consistency.

Paperwork Reduction Act of 1995

Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), a

collection of information is set forth in proposed 38 CFR 17.101(a)(2).

Accordingly, under section 3507(d) of the Act, VA has submitted a copy

of this rulemaking action to the Office of Management and Budget (OMB)

for its review of the proposed collection of information.

OMB assigns a control number for each collection of information it

approves. VA may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless it displays a

currently valid OMB control number.

Comments on the proposed collection of information should be

submitted to the Office of Management and Budget, Attention: Desk

Officer for the Department of Veterans Affairs, Office of Information

and Regulatory Affairs, Washington, DC 20503, with copies mailed or

hand-delivered to: Director, Office of Regulations Management (02D),

Department of Veterans Affairs, 810 Vermont Ave., NW, Room 1154,

Washington, DC 20420. Comments should indicate that they are submitted

in response to ``RIN 2900-AJ30.''

Title: Submission of Evidence.

Summary of collection of information: Under the provisions of

proposed Sec. 17.101(a)(2), a third-party payer that is liable for

reimbursing VA for health care VA provided to veterans with non-

service-connected conditions continues to have the option of paying

either the billed charges as described in proposed Sec. 17.101 or the

amount the health plan demonstrates it would pay to providers other

than entities of the United States for the same care or services in the

same geographic area. If the amount submitted for payment is less than

the amount billed, VA will accept the submission as payment, subject to

verification at VA's discretion. A VA employee having responsibility

for collection of such charges may request that the third party payer

submit evidence or information to substantiate the appropriateness of

the payment amount (e.g., health plan policies, provider agreements,

medical evidence, proof of payment to other providers demonstrating the

amount paid for the same care and services VA provided).

Description of need for information and proposed use of

information: This information would be needed to determine whether the

third-party payer has met the test of properly demonstrating its

equivalent private sector provider payment amount for the same care or

services and within the same geographic area as provided by VA.

Description of likely respondents: Third-party payers who are

liable under health plan contracts for reimbursing VA for healthcare it

provides to veterans with non-service-connected conditions.

Estimated number of respondents: 400 per year.

Estimated frequency of responses: Once per year.

Estimated average burden per collection: 2 hours.

Estimated total annual reporting and recordkeeping burden: 800

hours.

The Department considers comments by the public on proposed

collections of information in--

Evaluating whether the proposed collections of information

are necessary for the proper performance of the functions of the

Department, including whether the information will have practical

utility;

Evaluating the accuracy of the Department's estimate of

the burden of the proposed collections of information, including the

validity of the methodology and assumptions used;

Enhancing the quality, usefulness, and clarity of the

information to be collected; and

Minimizing the burden of the collections of information on

those who are to respond, including through the use of appropriate

automated, electronic, mechanical, or other technological collection

techniques or other forms of information technology, e.g., permitting

electronic submission of responses.

OMB is required to make a decision concerning the collection of

information contained in this proposed rule between 30 and 60 days

after publication of this document in the Federal Register. Therefore,

a comment to OMB is best assured of having its full effect if OMB

receives it within 30 days of publication. This does not affect the

deadline for the public to comment on the proposed regulations.

Regulatory Flexibility Act

The Secretary hereby certifies that this proposed rule would not

have a significant economic impact on a substantial number of small

entities as they are defined in the Regulatory Flexibility Act, 5

U.S.C. 601-612. This rulemaking proceeding mostly would affect large

insurance companies. Further, the provisions of the proposed rule would

not impose a significant economic impact on any entities since VA

billing would not constitute a significant portion of an insurance

company's business. Accordingly, pursuant to 5 U.S.C. 605(b), this

proposed rule is exempt from the initial and final regulatory

flexibility analyses requirements of sections 603 and 604.

OMB Review

This document has been reviewed by OMB pursuant to Executive Order

12866.

The Catalog of Federal Domestic Assistance numbers for the programs

affected by this document are 64.005, 64.007, 64.008, 64,009, 64.010,

64.011, 64.012, 64.013, 64.014, 64.015, 64.016, 64.018, 64.019, 64.022,

and 64.025.

List of Subjects in 38 CFR Part 17

Administrative practice and procedure, Alcohol abuse, Alcoholism,

Claims, Day care, Dental health, Drug abuse, Foreign relations,

Government contracts, Grant programs health, Grant

[[Page 54760]]

programs--veterans, Health care, Health facilities, Health professions,

Health records, Homeless, Medical and dental schools, Medical devices,

Medical research, Mental health programs, Nursing homes, Philippines,

Reporting and recordkeeping requirements, Scholarships and fellowships,

Travel and transportation expenses, Veterans.

Approved: September 21, 1998.

Togo D. West, Jr.,

Secretary of Veterans Affairs.

For the reasons set out in the preamble, 38 CFR part 17 is proposed

to be amended as set forth below:

PART 17--MEDICAL

1. The authority citation for part 17 continues to read as follows:

Authority: 38 U.S.C. 501, 1721 unless otherwise noted.

Secs. 17.101 and 17.102 [Redesignated as Secs. 17.102 and 17.101,

respectively]

2. Sections 17.101 and 17.102 are redesignated as Secs. 17.102 and

17.101, respectively.

3. Newly redesignated Sec. 17.101 is revised to read as follows:

Sec. 17.101 Collection or recovery by VA for medical care or services

provided or furnished to a veteran for a non-service connected

disability.

(a)(1) General. This section covers collection or recovery by VA,

under 38 U.S.C. 1729, for medical care or services provided or

furnished to a veteran:

(i) For a non-service connected disability for which the veteran is

entitled to care (or the payment of expenses of care) under a health-

plan contract;

(ii) For a non-service connected disability incurred incident to

the veteran's employment and covered under a worker's compensation law

or plan that provides reimbursement or indemnification for such care

and services; or

(iii) For a non-service connected disability incurred as a result

of a motor vehicle accident in a State that requires automobile

accident reparations insurance.

(2) Amount of recovery or collection--third party liability. A

third-party payer liable under a health-plan contract has the option of

paying either the billed charges described in this section or the

amount the health-plan demonstrates is the amount it would pay for care

or services furnished by providers other than entities of the United

States for the same care or services in the same geographic area. If

the amount submitted by the health plan for payment is less than the

amount billed, VA will accept the submission as payment, subject to

verification at VA's discretion in accordance with this section. A VA

employee having responsibility for collection of such charges may

request that the third party health plan submit evidence or information

to substantiate the appropriateness of the payment amount (e.g., health

plan or insurance policies, provider agreements, medical evidence,

proof of payment to other providers in the same geographic area for the

same care and services VA provided).

(3) Methodology. Based on the methodology set forth in this

section, the charges billed will include, as appropriate, inpatient

facility charges, skilled nursing facility/sub-acute inpatient facility

charges, outpatient facility charges, physician charges, and non-

physician provider charges. In addition, the charges billed for

prosthetic devices and durable medical equipment provided on an

outpatient basis will be VA's actual cost and the charges billed for

prescription drugs not administered during treatment will bill a single

nationwide average. Data for calculating actual amounts for inpatient

facility charges, skilled nursing facility/sub-acute inpatient facility

charges, outpatient facility charges, and physician charges will be

published annually in the ``Notices'' section of the Federal Register.

(4) Definitions. For purposes of this section:

Consolidated MSA means a consolidated Metropolitan Statistical

Area.

CPI means Consumer Price Index.

CPI-U means Consumer Price Index--All Urban Consumers.

CPI-W means Consumer Price Index--Urban Wage Earners and Clerical

Workers.

CPT procedure code means a 5 digit-identifier for a specified

physician service or procedure.

DRG means diagnosis related group.

Geographic area means Metropolitan Statistical Area (MSA) or the

local market, if the VA facility is not located in an MSA.

RVU means relative value unit.

(b) Inpatient facility charges. When VA provides or furnishes

inpatient services within the scope of care referred to in paragraph

(a)(1) of this section, inpatient facility charges billed for such

services will be determined in accordance with the provisions of this

paragraph. Inpatient facility charges consist of per diem charges for

room and board and for ancillary services that vary by VA facility and

by DRG. These charges are calculated as follows:

(1) Formula. For each inpatient stay or portion thereof for which a

particular DRG assignment applies, multiply the nationwide room and

board per diem charge as set forth in paragraph (b)(2) of this section

by the appropriate geographic area adjustment factor as set forth in

paragraph (b)(3) of this section. The result constitutes the facility-

specific room and board per diem charge. Also, for each inpatient stay,

multiply the nationwide ancillary per diem charge as set forth in

paragraph (b)(2) of this section by the appropriate geographic area

adjustment factor as set forth in paragraph (b)(3) of this section. The

result constitutes the facility-specific ancillary per diem charge.

Then add the facility-specific room and board per diem charge to the

facility-specific ancillary per diem charge. This constitutes the

facility-specific combined per diem facility charge. Finally, multiply

the facility-specific combined per diem facility charge by the number

of days of inpatient care to obtain the total inpatient facility

charge.

Note to paragraph (b)(1): If there is a change in a patient's

condition and/or treatment during a single inpatient stay such that

the DRG assignment changes (for example, a psychiatric patient who

develops a medical or surgical problem), then the calculations will

be made separately for each DRG, according to the number of days of

care applicable for each DRG, and the total inpatient facility

charge will be the sum of the total inpatient facility charges for

the different DRGs.

(2) Per diem charges. To establish a baseline, two nationwide

average per diem charges for each DRG are calculated for Calendar Year

1995, one from the Medicare Standard Analytical File 5% Sample and one

from the MedStat claim database, a claim database of nationwide

commercial insurance. Results obtained from these two databases are

then combined into a single weighted average per diem charge for each

DRG. The resulting weighted average per diem charge for each DRG is

then separated into its two components, a room and board component and

an ancillary component, with the amount for each component calculated

to reflect the corresponding percentage set forth in paragraph

(b)(2)(i) of this section. The resulting amounts for room and board and

ancillary services for each DRG are then each multiplied by the final

ratio set forth in paragraph (b)(2)(ii) of this section to reflect the

80th percentile charges. Finally, the resulting charges are each

trended forward from their 1995 base to the effective time period for

the charges, as set forth in paragraph (b)(2)(iii) of this section. The

results

[[Page 54761]]

constitute the room and board per diem charge and the ancillary per

diem charge.

(i) Charge component percentages. Using only those cases from the

Medicare Standard Analytical File 5% Sample for which a distinction

between room and board charges and ancillary charges can be determined,

the percentage of the total charges for room and board compared to the

combined total charges for room and board and ancillary services, and

the percentage of the total charges for ancillary services compared to

the combined total charges for room and board and ancillary services,

are calculated by DRG.

(ii) 80th percentile. Using the medical and surgical admissions in

the Medicare Standard Analytical File 5% Sample, obtain for each

consolidated MSA the ratio of the day-weighted 80th percentile semi-

private room and board per diem charge to the average semi-private room

and board per diem charge. The consolidated MSA ratios are averaged to

obtain a final 80th percentile ratio.

(iii) Trending forward. For each DRG, the 80th percentile charges,

representing calculations for calendar year 1995, are trended forward

for the period August 1998 through September 1999, and for each 12-

month period thereafter, beginning October 1, 1999, based on changes to

the CPI. The projected total CPI trend from 1995 to the midpoint of the

effective charge period is calculated as the composite of three

components. The first component trends from 1995 to January 1997, using

the Hospital Room component of the CPI-W for room and board charges and

using the Other Hospital component of the CPI-W for ancillary charges.

The second component trends from January 1997 to the latest available

month, based on the Inpatient Hospital component of the CPI-U for room

and board and ancillary charges. The third component trends from the

latest available month to the midpoint of the effective charge period,

based on the latest three-month average annual trend rate from the

Inpatient Hospital component of the CPI-U. The projected total CPI

trends are then applied to the 1995-base 80th percentile charges.

(3) Geographic area adjustment factors. For each VA facility

location, the average per diem room and board charges and ancillary

charges from the 1995 Medicare Standard Analytical File 5% Sample are

calculated for each DRG. The DRGs are separated into two groups,

surgical and non-surgical. For each of these groups of DRGs, for each

geographic area, average room and board per diem charges and ancillary

per diem charges are calculated for 1995, weighted by FY 1997

nationwide VA discharges and by average lengths of stay from the

combined Medicare Standard Analytical File 5% Sample and the MedStat

claim data base. This results in four average per diem charges for each

geographic area: room and board for surgical DRGs, ancillary for

surgical DRGs, room and board for non-surgical DRGs, and ancillary for

non-surgical DRGs. Four corresponding national average per diem charges

are obtained from the 1995 Medicare Standard Analytical File 5% Sample,

weighted by FY 1997 nationwide VA discharges and by average lengths of

stay from the combined Medicare Standard Analytical File 5% Sample and

the MedStat claim data base. Four geographic area adjustment factors

are then calculated for each geographic area by dividing each

geographic area average per diem charge by the corresponding national

average per diem charge.

(c) Skilled nursing facility/sub-acute inpatient facility charges.

When VA provides or furnishes skilled nursing/sub-acute inpatient

services within the scope of care referred to in paragraph (a)(1) of

this section, skilled nursing facility/sub-acute inpatient facility

charges billed for such services will be determined in accordance with

the provisions of this paragraph. The skilled nursing facility/sub-

acute inpatient facility charges are per diem charges that vary by VA

facility. The facility charges cover care, including skilled

rehabilitation services (e.g., physical therapy, occupational therapy,

and speech therapy), that is provided in a nursing home or hospital

inpatient setting, is provided under a physician's orders, and is

performed by or under the general supervision of professional personnel

such as registered nurses, licensed practical nurses, physical

therapists, occupational therapists, speech therapists, and

audiologists. The skilled nursing facility/sub-acute inpatient facility

charges also incorporate charges for ancillary services associated with

care provided in these settings. The charges are calculated as follows:

(1) Formula. For each stay, multiply the nationwide per diem charge

as set forth in paragraph (c)(2) of this section by the appropriate

geographic area adjustment factor as set forth in paragraph (c)(3) of

this section. The result constitutes the facility-specific per diem

charge. Finally, multiply the facility-specific per diem charge by the

number of days of care to obtain the total skilled nursing facility/

sub-acute inpatient facility charge.

(2) Per diem charge. To establish a baseline, a nationwide average

per diem billed charge for July 1, 1998, was obtained from the 1998

Milliman & Robertson, Inc. Health Cost Guidelines, a publication that

includes nationwide skilled nursing facility charges (Milliman &

Robertson, Inc, 1305 5th Ave., Suite 3800, Seattle, WA 98101-2605).

That average per diem billed charge is then multiplied by the 80th

percentile adjustment factor set forth in paragraph (c)(2)(i) of this

section to obtain a nationwide 80th percentile charge level. Finally,

the resulting charge is trended forward to the effective time period

for the charges, as set forth in paragraph (c)(2)(ii) of this section.

(i) 80th percentile. Using the 1995 Medicare Standard Analytical

File 5% Sample, the median per diem accommodation charge is calculated

for each provider. For each State, the ratio of the 80th percentile of

provider median charges to the average statewide charges for

accommodations is calculated. The State ratios are averaged to produce

a nationwide 80th percentile adjustment factor.

(ii) Trending forward. The 80th percentile charge, representing

charge levels for July 1, 1998, is trended forward to the midpoint of

the period August 1998 through September 1999, and to the midpoint of

each 12-month period thereafter, beginning October 1, 1999, based on

the projected change in Medicare reimbursement from the Annual Report

of the Board of Trustees of the Federal Hospital Insurance Trust Fund

(this report can be found on the Health Care Financing Administration

Internet site at http://www.hcfa.gov under the headings ``Publications

and Forms'' and ``Professional/ Technical Publications'').

(3) Geographic area adjustment factors. A ratio of the average per

diem charge for each State to the nationwide average per diem charge is

obtained (these ratios are set forth in the 1998 Milliman & Robertson,

Inc. Health Cost Guidelines, a data base of nationwide commercial

insurance charges and relative costs) (Milliman & Robertson, Inc., 1301

5th Ave., Suite 3800, Seattle, WA 98101-2605). The geographic area

adjustment factor for charges for each VA facility is the ratio for the

State in which the facility is located.

(d) Outpatient facility charges. When VA provides or furnishes

outpatient services that are within the scope of care referred to in

paragraph (a)(1) of this section and are not customarily performed in

an independent clinician's office, the outpatient facility charges

billed for such services will be

[[Page 54762]]

determined in accordance with the provisions of this paragraph. Except

for prosthetic devices and durable medical equipment, whose charges

will be made separately at actual cost to VA, charges for outpatient

facility services will vary by VA facility and by CPT procedure code.

These charges will be calculated as follows:

(1) Formula. For each outpatient facility charge CPT procedure

code, multiply the nationwide charge as set forth in paragraph (d)(2)

of this section by the appropriate geographic area adjustment factor as

set forth in paragraph (d)(4) of this section. The result constitutes

the facility-specific outpatient facility charge. When multiple

surgical procedures are performed during the same outpatient encounter

by a provider or provider team, the outpatient facility charges for

such procedures will be reduced as set forth in paragraph (d)(5) of

this section.

(2) Nationwide 80th percentile charges by CPT procedure code. For

each CPT procedure code for which outpatient facility charges apply,

the 1998 practice expense RVUs (these RVUs can be found in the 1998 St.

Anthony's Complete RBRVS, Relative Value Studies, Inc., St. Anthony

Publishing, 11410 Isaac Newton Square, Reston, VA 20190) are used as

the outpatient facility RVUs. For each CPT procedure code, the

outpatient facility RVU is multiplied by the charge amount for each

incremental RVU as set forth in paragraph (d)(3) of this section. The

resulting charge is adjusted by a fixed charge amount as also set forth

in paragraph (d)(3) of this section to obtain the nationwide 80th

percentile charge.

(3) Charge factor. Using the 1995 MedStat claims database of

nationwide commercial insurance, the median billed facility charge is

calculated for each applicable CPT procedure code. All outpatient

facility CPT procedure codes are then separated into one of the 37

outpatient facility CPT procedure code groups as set forth in paragraph

(d)(3)(i) of this section. Then, for each CPT procedure code in each

such group, the median charge is adjusted to the 80th percentile as set

forth in paragraph (d)(3)(ii) of this section. The resulting 80th

percentile charge for each CPT procedure code is trended forward to the

effective time period for the charges as set forth in paragraph

(d)(3)(iii) of this section. Using the resulting charges and the RVUs,

the mathematical approximation methodology of least squares is applied

to the data for each CPT procedure code group to derive two charge

factors. The first factor represents the charge amount for each

incremental RVU in the CPT procedure code group and the second factor

represents a fixed charge amount adjustment for the CPT procedure code

group.

(i) Outpatient facility CPT procedure code groups.

(A) Surgery--Integumentery System--Skin, Subcutaneous & Accessory

Structures/Nails;

(B) Surgery--Integumentery System--Repair--Simple, Intermediate,

Complex, Adjacent Tissue Transfer or Rearrangement;

(C) Surgery--Integumentery System--Not Otherwise Classified;

(D) Surgery--Musculoskeletal System--Not Otherwise Classified;

(E) Surgery--Musculoskeletal System--Limbs--Incisions/Excisions/

Insertion/Removal;

(F) Surgery--Musculoskeletal System--Limbs--Shoulders/Humerus &

Elbow/Pelvis & Hip Joint/Femur & Knee Joint--Other than Incisions/

Excisions/ Insertion/Removal;

(G) Surgery--Musculoskeletal System--Limbs--Forearm & Wrist--Other

than Incisions/Excisions/Insertion/Removal;

(H) Surgery--Musculoskeletal System--Limbs--Tibia/Fibula & Ankle

Joint'' Other than Incisions/Excisions/Insertion/Removal;

(I) Surgery--Musculoskeletal System--Limbs--Hand & Fingers/Foot &

Toes--Other than Incisions/Excisions/Insertion/Removal;

(J) Surgery--Musculoskeletal System--Arthroscopy;

(K) Surgery--Respiratory System;

(L) Surgery--Cardiovascular System;

(M) Surgery--Hemic & Lymphatic Systems;

(N) Surgery--Digestive System--Not Otherwise Classified;

(O) Surgery--Digestive System--Endoscopy;

(P) Surgery--Urinary System;

(Q) Surgery--Male Genital System;

(R) Surgery--Laparoscopy/Hysteroscopy;

(S) Surgery--Maternity Care & Delivery;

(T) Surgery--Endocrine System;

(U) Surgery--Eye/Ocular Adnexa;

(V) Surgery--Auditory System;

(W) Radiology--Diagnostic--Head & Neck/Chest/Spine & Pelvis;

(X) Radiology--Diagnostic--Extremities/Abdomen/Gastrointestinal

Tract/Urinary Tract/Gynecological & Obstetrical/Heart;

(Y) Radiology--Diagnostic--Aorta & Arteries/Veins & Lymphatics;

(Z) Radiology--Diagnostic Ultrasound;

(AA) Radiology--Radiation Oncology/Nuclear Medicine/Therapeutic;

(BB) Radiology--Diagnostic--CAT Scans;

(CC) Radiology--Diagnostic--Magnetic Resonance Imaging (MRI);

(DD) Medicine--Global--Not Otherwise Classified;

(EE) Medicine--Global--Dialysis;

(FF) Medicine--Technical Component--Gastroenterology;

(GG) Medicine--Technical Component--Cardiovascular;

(HH) Medicine--Technical Component--Pulmonary;

(II) Medicine--Technical Component--Neurology & Neuromuscular

Procedures;

(JJ) Medicine--Observation Care; and

(KK) Medicine--Emergency.

(ii) 80th percentile. For each of the 37 outpatient facility CPT

procedure code groups set forth in paragraph (d)(3)(i) of this section,

the median charge is increased by the ratio of the 80th percentile

charge to median charge (the data for CPT procedure code groups listed

at paragraphs (d)(3)(i)(DD), (EE), (JJ), and (KK) of this section are

obtained from the MedStat database of nationwide charges; the data for

the other groups are obtained from the Outpatient Facility UCR module

of the Comprehensive Healthcare Payment System from MediCode, Inc., a

1997 release from a nationwide database of outpatient facility charges)

(MediCode, Inc., 5225 Wiley Post Way, Suite 500, Salt Lake, UT 84116).

To mitigate the impact of the variation in the intensity of services by

CPT procedure code, the percent increase from the median to the 80th

percentile in outpatient charges is compared to the percent increase

from the median to the 80th percentile in inpatient semi-private room

and board charges. Any percent increase in outpatient charges in excess

of the inpatient semi-private room and board percent increase is

multiplied by a factor of 0.50. The 80th percentile outpatient facility

charge is reduced accordingly.

(iii) Trending forward. The charges for each CPT procedure code,

representing calculations for calendar year 1995, are trended forward

for the period August 1998 through September 1999, and for each 12-

month period thereafter, beginning October 1, 1999, based on changes to

the Outpatient Hospital component of the CPI-U. Actual CPI-U changes

are used through the latest available month. The three-month average

annual trend rate as of the latest available month is held constant to

the midpoint of the effective charge period. The projected total CPI-U

change from 1995 to this midpoint of the effective charge period is

then applied to the 1995 80th percentile charges.

(4) Geographic area adjustment factors. For each VA outpatient

facility

[[Page 54763]]

location, a single geographic area adjustment factor is calculated as

the arithmetic average of the outpatient geographic area adjustment

factor (this factor constitutes the ratio of the level of charges for

each geographic area to the nationwide level of charges) published in

the Milliman & Robertson, Inc. Health Cost Guidelines (Milliman &

Robertson, Inc., 1301 5th Ave., Suite 3800, Seattle, WA 98101-2605),

and a geographic area adjustment factor developed from the MediCode

data. The MediCode-based geographic area adjustment factors are

calculated as the ratio of the CPT-weighted average charge level for

each VA outpatient facility location to the nationwide CPT-weighted

average charge level.

(5) Multiple surgical procedures. When multiple surgical procedures

are performed during the same outpatient encounter by a provider or

provider team as indicated by multiple surgical CPT procedure codes,

then the highest charge will be billed at 100% of the charges

established under this section; the second highest charge will be

billed at 25% of the charges established under this section; the third

highest charge will be billed at 15% of the charges established under

this section; and no outpatient facility charges will be billed for any

additional surgical procedures.

(e) Physician charges. When VA provides or furnishes physician

services within the scope of care referred to in paragraph (a)(1) of

this section, physician charges billed for such services will be

determined in accordance with the provisions of this paragraph.

Physician charges consist of charges for professional services that

vary by VA facility and by CPT procedure code. These charges are

calculated as follows:

(1) Formula. For each CPT procedure code except those for

anesthesia and pathology, multiply the total facility-adjusted RVU as

set forth in paragraph (e)(2) of this section by the applicable

facility-adjusted conversion factor (facility-adjusted conversion

factors are expressed in monetary amounts) set forth in paragraph

(e)(3) of this section to obtain the physician charge for each CPT

procedure code at a particular VA facility. For each anesthesia and

pathology CPT procedure code, multiply the nationwide physician charge

as set forth in paragraph (e)(4) of this section by the geographic area

adjustment factor as set forth in paragraph (e)(3)(iii) of this section

to obtain the physician charge for each anesthesia and pathology CPT

procedure code at a particular VA facility.

(2)(i) Total facility-adjusted RVUs for physician services other

than anesthesia, pathology, and specified CPT procedure codes. The work

expense and practice expense components of the RVUs for CPT procedure

codes (other than anesthesia, pathology, and those CPT procedure codes

set forth at paragraphs (e)(2)(ii) and (e)(2)(iii) of this section) are

compiled (information concerning the RVUs and their components can be

obtained from Veterans Health Administration, Office of Finance,

Department of Veterans Affairs, 810 Vermont Ave., NW, Washington, DC

20420). For radiology CPT procedure codes, these compilations do not

include separately identified technical component RVUs. For CPT

procedure codes that generate an outpatient facility charge, the

facility practice expense RVU is substitute for the non-facility

practice expense RVU (information concerning facility practice expense

RVUs can be obtained from Veterans Health Administration, Office of

Finance, Department of Veterans Affairs, 810 Vermont Ave., NW,

Washington, DC 20420). For Medicine and Surgery CPT procedure codes

with separate professional and technical components that also generate

an outpatient facility charge, only the professional component is

compiled. The sum of the facility-adjusted work expense RVU as set

forth in paragraph (e)(2)(i)(A) of this section and the facility-

adjusted practice expense RVU as set forth in paragraph (e)(2)(i)(B) of

this section equals the total facility-adjusted RVUs.

(A) Facility-adjusted work expense RVUs. For each CPT procedure

code for each geographic area, the 1998 work expense RVU is multiplied

by the 1998 Medicare work adjuster (0.917) and the results are further

multiplied by the work expense 1998 Medicare Geographic Practice Cost

Index. The result constitutes the facility-adjusted work expense RVU.

(B) Facility-adjusted practice expense RVUs. For each CPT procedure

code for each geographic area, the 1998 practice expense RVU is

multiplied by the practice expense 1998 Medicare Geographic Practice

Cost Index. The result constitutes the facility-adjusted practice

expense RVU.

(ii) RVUs for specified CPT procedure codes. For the following CPT

procedure codes, obtain the nationwide 80th percentile billed charges

from the nationwide commercial insurance data base compiled by the

Health Insurance Association of America (Health Insurance Association

of America, 555 13th Street, NW, Suite 600E, Washington, DC 20004):

20930, 20936, 22841, 48160, 48550, 54440, 79900, 80050, 80055, 80103,

80500, 80502, 85060, 85095, 85097, 85102, 86077, 86078, 86079, 86485,

86490, 86510, 86580, 86585, 86586, 86850, 86860, 86870, 86890, 86891,

86901, 86910, 86911, 86915, 86920, 86921, 86922, 86927, 86930, 86931,

86932, 86945, 86950, 86965, 86970, 86971, 86972, 86975, 86977, 86978,

86985, 88000, 88005, 88012, 88014, 88016, 88036, 88037, 88104, 88106,

88107, 88108, 88125, 88160, 88161, 88162, 88170, 88171, 88172, 88173,

88180, 88182, 88300, 88302, 88304, 88305, 88307, 88309, 88311, 88312,

88313, 88314, 88318, 88319, 88321, 88323, 88325, 88329, 88331, 88332,

88342, 88346, 88347, 88348, 88349, 88355, 88356, 88358, 88362, 88365,

89100, 89105, 89130, 89132, 89135, 89140, 89141, 89250, 89350, 89360,

92390, 92391, 94642, 94772, 99024, 99071, 99078, 99080, 99082, 99100,

99116, 99135, 99140, 99420, 99450, 99455, 99456. For the following CPT

procedure codes, obtain the nationwide 80th percentile billed charges

from the Medicare Standard Analytical File 5% Sample: 99070, M0076,

M0300. Then divide the nationwide 80th percentile billed charges by the

untrended nationwide conversion factor for the corresponding physician

CPT procedure code group as set forth in paragraphs (e)(3) and

(e)(3)(i). The resulting nationwide total RVUs are multiplied by the

geographic adjustment factors as set forth in paragraph (e)(2)(iv) of

this section to obtain the facility-specific total RVUs.

(iii) RVUs for specified CPT procedure codes. For the following

list of CPT procedure codes, the nationwide total RVU is calculated by

multiplying the 1998 Medicare work adjuster (0.917) by the work expense

RVU and adding the practice expense RVU (the work expense RVU and the

practice expense RVU for these CPT procedure codes can be found in the

1998 St. Anthony's Complete RBRVS, Relative Value Studies, Inc., St.

Anthony Publishing, 11410 Isaac Newton Square, Reston, VA 20190):

15824, 15825, 15826, 15828, 15829, 15876, 15877, 15878, 15879, 17380,

21088, 24940, 26587, 32850, 33930, 33940, 36415, 36468, 36469, 41820,

41821, 41850, 41870, 47133, 48554, 50300, 58974, 65760, 65765, 65767,

65771, 69090, 69710, 75556, 76092, 76140, 76350, 78608, 78609, 90700,

90701, 90702, 90703, 90704, 90705, 90706, 90707, 90708, 90709, 90710,

90711, 90712, 90713, 90714, 90716, 90717, 90718, 90179, 90720, 90721,

90724, 90725, 90726, 90727, 90728, 90730, 90732, 90733, 90735,

[[Page 54764]]

90737, 90741, 90742, 90744, 90745, 90746, 90747, 90882, 90889, 90989,

90993, 92531, 92532, 92533, 92534, 92551, 92559, 92560, 92590, 92591,

92592, 92593, 92594, 92595, 92992, 92993, 93760, 93762, 93784, 93786,

93788, 93790, 95120, 95125, 95130, 95131, 95132, 95133, 95134, 96110,

96545, 97545, 97546, 99000, 99001, 99002, 99025, 99050, 99052, 99054,

99056, 99058, 99075, 99090, 99190, 99191, 99192, 99288, 99358, 99359,

99360, 99361, 99362, 99371, 99372, 99373. The resulting nationwide

total RVUs are multiplied by the geographic adjustment factors as set

forth in paragraph (e)(2)(iv) of this section to obtain the facility-

specific total RVUs.

(iv) RVU geographic area adjustment factors for specified CPT

procedure codes. The geographic area adjustment factor for each

facility location consists of the weighted average of the 1998 work

expense and practice expense Medicare Geographic Practice Cost Indices

for each facility location using charge data for representative CPT

procedure codes statistically selected and weighted for work expense

and practice expense.

(3) Facility-adjusted 80th percentile conversion factors. CPT

procedure codes are separated into the following 24 physician CPT

procedure code groups: allergy immunotherapy, allergy testing,

anesthesia, cardiovascular, chiropractor, consults, emergency room

visits and observation care, hearing/speech exams, immunizations,

inpatient visits, maternity/cesarean deliveries, maternity/non-

deliveries, maternity/normal deliveries, miscellaneous medical, office/

home urgent care visits, outpatient psychiatry/alcohol and drug abuse,

pathology, physical exams, physical medicine, radiology, surgery,

therapeutic injections, vision exams, and well baby exams. For each of

the 24 physician CPT procedure code groups, representative CPT

procedure codes were statistically selected and weighted so as to give

a weighted average RVU comparable to the weighted average RVU of the

entire physician CPT procedure code group (the selected CPT procedure

codes are set forth in the 1998 Milliman & Robertson, Inc., Health Cost

Guidelines fee survey) (Milliman &n Robertson, Inc., 1301 5th Ave.,

Suite 3800, Seattle, WA 98101-2605). The 80th percentile charge for

each selected CPT procedure code is obtained (this is contained in the

nationwide commercial insurance data base compiled by the Health

Insurance Association of America, 555 13th Street, NW, Suite 600E,

Washington, DC 20004 (medical data for 5/1/96-4/30/97, including

radiology and pathology; surgical data for 3/1/96-2/28/97; anesthesia

data for 3/1/96-2/28/97)). A nationwide conversion factor (a monetary

amount) is calculated for each physician CPT procedure code group as

set forth in paragraph (e)(3)(i) of this section. The nationwide

conversion factors for each of the 24 physician CPT procedure code

groups are trended forward as set forth in paragraph (e)(3)(ii) of this

section. The resulting amounts for each of the 24 groups are multiplied

by geographic area adjustment factors as set forth in paragraph

(3)(3)(iii) of this section, resulting in facility-adjusted 80th

percentile conversion factors for each VA facility geographic area for

the 24 physician CPT procedure code groups for the effective charge

period.

(i) Nationwide conversion factors. Using the nationwide 80th

percentile charges for the selected CPT procedure codes from paragraph

(e)(3) of this section, a nationwide conversion factor is calculated

for each of the 24 physician CPT procedure code groups by dividing the

weighted average charge by the weighted average RVU. To correspond with

the charge data, for medicine and surgery CPT procedure codes, the

total RVUs are used even when separate professional and technical

components are specified.

(ii) Trending forward. The nationwide conversion factor for each of

the 24 physician CPT procedure code groups, representing charges for

time periods detailed in paragraph (e)(3) of this section, are trended

forward for the period August 1998 through September 1999, and for each

12-month period thereafter, beginning October 1, 1999, based on changes

to the Physician component of the CPI-U. Actual CPI-U changes are used

through the latest available month. The three-month average annual

trend rate as of the latest available month is held constant to the

midpoint of the effective charge period. The projected total CPI-U

change from the midpoint of the source data collection period to the

midpoint of the effective charge period is then applied to the 24

conversion factors.

(iii) Geographic area adjustment factors. Using the 80th percentile

charges for the selected CPT procedure codes from paragraph (e)(3) of

this section for each VA facility geographic area, a geographic area-

specific conversion factor is calculated for each of the 24 physician

CPT procedure code groups by dividing the weighted average charge by

the weighted average facility-adjusted RVU. The resulting geographic

area conversion factor for each facility geographic area for each

physician CPT procedure code group is divided by the corresponding

nationwide conversion factor as set forth in paragraph (e)(3)(i). The

resulting ratios are the geographic area adjustment factors for each of

the 24 physician CPT procedure code groups for each facility geographic

area.

(4) Nationwide 80th percentile charges for anesthesia and pathology

CPT procedure codes. The nationwide charges are calculated by

multiplying the RVUs as set forth in paragraph (e)(4)(i) of this

section for anesthesia CPT procedure codes and as set forth in

paragraph (e)(4)(ii) of this section for pathology CPT procedure codes

by the appropriate nationwide trended 80th percentile conversion

factors as set forth in paragraph (e)(3) of this section.

(i) RVUs for anesthesia. The 1998 base unit value for each

anesthesia CPT procedure code is compiled (the base unit values can be

found in the 1998 St. Anthony's Complete RBRVS, Relative Value Studies,

Inc., St. Anthony Publishing, 11410 Isaac Newton Square, Reston, VA

20190). The average time unit value for each anesthesia CPT procedure

code is compiled from a Health Care Financing Administration study

concerning average time unit values for anesthesia CPT procedure codes

(these values can be obtained from Veterans Health Administration,

Office of Finance, Department of Veterans Affairs, 810 Vermont Ave.,

NW, Washington, DC 20420). For each anesthesia CPT procedure code

introduced since the HCFA study, the time unit value is calculated as

the average time unit value for all other anesthesia CPT procedure

codes with the same base unit value. The sum of the anesthesia base

unit value and the anesthesia time unit value equals the total

anesthesia RVUs.

(ii) RVUs for pathology. For each pathology CPT procedure code, the

1998 Medicare payment amount is used as the RVU for the corresponding

CPT procedure code (the payment amounts can be found on the Health Care

Financing Administration public use files Internet site at http://

www.hcfa.gov/stats/pufiles.htm under the heading ``Payment Rates/ Non-

Institutional Providers'' and the title ``Clinical Diagnostic

Laboratory Fee Schedule.''

(f) Non-physician provider charges. When the following non-

physician providers provide or furnish VA care within the scope of care

referred to in paragraph (a)(1) of this section, charges for that care

covered by a CPT procedure code will be determined based on the

following indicated percentages of the amount that would be charged if

the care had been provided by a physician:

(1) Nurse practitioner: 85%.

[[Page 54765]]

(2) Clinical nurse specialist: 85%.

(3) Physician Assistant: 65% for assistance at surgery; 75% for

other hospital care and 85% for other non-hospital care.

(4) Certified registered nurse anesthetist: 50% when physician

supervised; 100% when not physician supervised.

(5) Clinical psychologist: 80%.

(6) Clinical social worker: 75%.

(7) Podiatrist: 95%.

(8) Chiropractor: 100%.

(9) Dietitian: 75%.

(10) Clinical pharmacist: 80%.

(11) Optometrist: 90%.

(g) Outpatient dental care and prescription drugs not administered

during treatment. Notwithstanding other provisions of this section,

when VA provides or furnishes outpatient dental care or prescription

drugs not administered during treatment, within the scope of care

referred to in paragraph (a)(1) of this section, charges billed

separately for such care will be based on VA costs in accordance with

the methodology set forth in Sec. 17.102 of this part.

(Authority: 38 U.S.C. 101, 501, 1701, 1705, 1710, 1721, 1722, 1729)

Sec. 17.102 [Amended]

4. In newly redesignated Sec. 17.102, the first sentence of the

introductory text is amended by removing ``Charges'' and adding in its

place ``Except as provided in Sec. 17.101, charges'', paragraph (h) is

amended by removing the heading and adding, in its place, ``Computation

of charges.''; by removing paragraphs (h)(1), (2), and (4) through (6);

and by removing ``(3) The method of computing the charges for medical

care and services'' and by adding, in its place, ``The method for

computing the charges under paragraphs (a), (b), (d), (f), and (g), and

the last sentence of paragraph (c) of this section''.

[FR Doc. 98-26341 Filed 10-9-98; 8:45 am]

BILLING CODE 8320-01-U