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May 28, 2008

**VIA ELECTRONIC SUBMISSION AND**

**CERTIFIED MAIL RETURN**

**[RECEIPT REQUESTED]{.underline}**

Federal Docket Management System Office

1160 Defense Pentagon

Washington, DC 20301-1160

**Re: Agency: Office of the Secretary, Department of Defense ([RIN \#
0720-AB19);]{.underline}**

> **[TRICARE; Outpatient Hospital Prospective Payment System
> ("OPPS")]{.underline}.**

To Whom It May Concern:

The Florida Hospital Association (the "Association") welcomes the
opportunity to comment on the Department of Defense's (the "DOD")
proposed rule entitled "*TRICARE; Outpatient Hospital Prospective
Payment System (OPPS)*", 63 Fed. Reg. 17271 (April 1, 2008) ("the
"Proposed Rule"). The Association represents 170 hospitals and health
systems in Florida, as well as nearly 1,900 professional members.

In the Proposed Rule, the DOD implements a prospective payment system
for certain hospital outpatient services ("TRICARE OPPS"). The DOD
states that it will adopt the prospective payment system for hospital
outpatient services previously adopted by Medicare ("Medicare OPPS"),
with minor changes to accommodate differences between TRICARE benefits
and population and Medicare benefits and population, such as the
inclusion of maternity benefits and preventive care coverage in TRICARE
OPPS.[^1]

Chapter 13 of the TRICARE Reimbursement Manual (under "Current TRICARE
Program Manuals" on the [http://manuals.tricare.osd.mil]{.underline}
website) provides that: "TRICARE will adopt Medicare's prospective
payment system for reimbursement of hospital outpatient services
currently in effect for the Medicare program as required under the
Balanced Budget Act of 1997 (BBA 1997), (Public Law (PL) 105-33) which
provided comprehensive provisions for establishment of a hospital
Outpatient Prospective Payment System (OPPS). The Act required
development of a classification system for covered outpatient services
that consisted of groups arranged so that the services within each group
were comparable clinically and with respect to the use of resources."
*See also* 63 Fed. Reg. page 17271.

The Association has concerns about the financial impact TRICARE OPPS
will have on hospitals. It is expected that, upon implementation of
TRICARE OPPS, overall reimbursement rates for hospital outpatient
services may fall by as much as forty percent (40%). In order to ease
the impact of the potential financial losses hospitals will face as a
result of the implementation of TRICARE OPPS, the Association advocates
that the DOD gradually phase in any reductions in payments resulting
from the implementation of TRICARE OPPS by: (1) limiting the reduction
in reimbursement rates by a certain amount each year; and/or (2)
implementing a transition period during which hospitals receiving lower
reimbursement rates under TRICARE OPPS will be entitled to additional
payments.

Both TRICARE and Medicare have historically aided providers by
incorporating a "phase-in period" during the transition from one
reimbursement methodology to another by, for example, limiting payment
reductions and/or providing for additional payments during a period of
time following the change in reimbursement methodology.

**[Background of TRICARE Reimbursement for Hospital Outpatient
Services]{.underline}**

The current regulations pertaining to reimbursement of hospital
outpatient services provided to TRICARE beneficiaries, which are set
forth in 32 CFR § 199.14(a)(5), provide that certain outpatient services
are to be reimbursed based on the allowable charge method, defined in 32
CFR § 199.14(j)(1)(i)(A) as the lower of the billed charge or the local
CHAMPUS Maximum Allowable Charge ("CMAC"). TRICARE generally reimburses
the following services provided by a hospital on an outpatient basis
using CMAC rates: (a) laboratory services; (b) rehabilitation therapy
services; (c) venipuncture services; (d) radiology services; (e)
diagnostic services; (f) ambulance services; (g) durable medical
equipment and supplies; (h) oxygen and related supplies; (i) drugs
administered other than oral method; and (j) professional provider
services rendered in an emergency room, clinic, or hospital outpatient
department, etc. 32 CFR § 199.14(a)(5)(i)-(x). Generally, other hospital
outpatient services that are not reimbursed by TRICARE on a CMAC rate
basis, except for ambulatory surgery services which are reimbursed in
accordance with 32 CFR § 199.14(d), are reimbursed based on the
hospital's actual billed charges. 32 CFR § 199.14(a)(5)(xi).

**[The Reduction Limit]{.underline}**

Federal law mandates generally that TRICARE payments equal Medicare
payments.[^2] Although TRICARE and Medicare historically have generally
used similar approaches to determine provider reimbursement rates, their
respective reimbursement methodologies changed over time, which has
resulted in substantial differences in payment levels between the
programs.[^3] Based on the foregoing, the United States Congress had
previously mandated that provider reimbursement rates payable by TRICARE
were to be gradually brought into alignment with Medicare payments, but
limited the amount by which TRICARE payments could be reduced, to
fifteen percent (15%) per year.[^4] Specifically, 10 U.S.C. § 1079(h)(2)
provides in pertinent part the following:

> To provide a suitable transition from the payment methodologies in
> effect before February 10, 1996, to the methodology required by
> paragraph (1) \[that payment under TRICARE be determined, to the
> extent practicable, in accordance with Medicare reimbursement rules\],
> the amount allowable for any service may not be reduced by more than
> 15 percent below the amount allowed for the same service during the
> immediately preceding 12-month period (or other period as established
> by the Secretary of Defense).

Following congressional mandate, the DOD promulgated 32 C.F.R. §
199.14(j)(1)(iii)(B)(1), which provides generally that in instances
where the CMAC rate exceeds the Medicare reimbursement rate for the same
service or procedure, the CMAC rate is to be reduced each year by the
lesser of: (i) the amount the CMAC rate exceeds the Medicare rate; or
(ii) fifteen percent (15%). (The lesser of item (i) or item (ii) shall
be referred to herein as the "Reduction Limit").[^5] As required by law,
the originally higher CMAC rates were gradually reduced and generally
brought into harmony with Medicare rates over a period of several years.

**[Limits on Annual Reductions in Reimbursement for Hospital Outpatient
Services Currently Reimbursed Based on CMAC Rates]{.underline}**

For hospital outpatient services currently paid by TRICARE using CMAC
rates that are proposed to be reimbursed under TRICARE OPPS, the
Association respectfully submits that the DOD should ease the transition
to TRICARE OPPS by limiting the amount by which reimbursement rates may
be reduced each year. During the first year of implementation of TRICARE
OPPS, the DOD should apply a limit in the reduction of payments for
hospital outpatient services and procedures previously reimbursed on a
CMAC rate basis if the payments to be made to hospitals under TRICARE
OPPS are to be lower than the payments hospitals would have received for
the same services and procedures had such been reimbursed on a CMAC rate
basis. In other words, for the first year of TRICARE OPPS, the new
payment rate for each hospital outpatient service should equal the prior
year's CMAC rate reduced by the lesser of: (a) the amount such prior
year's CMAC rate exceeds the TRICARE OPPS rate for the same service or
procedure; or (b) fifteen percent (15%) of the prior year's CMAC rate.
Moreover, for each successive year in which hospital payments under
TRICARE OPPS are to be less than the preceding year's rate, the DOD
should continue to apply an annual fifteen percent (15%) limit on the
reduction of payments for such hospital outpatient services, until
hospital payments are brought into harmony with TRICARE OPPS.

For hospital outpatient services currently paid based on hospitals'
actual billed charges, such as emergency room services, the Association
respectfully submits that the DOD should ease the transition to TRICARE
OPPS by: (i) implementing a transition period during which hospitals
receiving lower reimbursement rates under TRICARE OPPS will be entitled
to additional payments; and/or (ii) implementing a transition period
during which TRICARE network hospitals' contracted rates would be
subject to a reduction limit as discussed below, until they are brought
into harmony with the applicable TRICARE OPPS rates. Each of these
options is discussed further below.

**[Implementation of Transitional Payments for Hospital Outpatient
Services]{.underline}**

**[Currently Reimbursed Based on Billed Charges]{.underline}**

As evidenced by the implementation of the Reduction Limit and the
regulations corresponding thereto, TRICARE has historically provided for
a "phase-in period", or cushion, to ease the economic impact on
providers when changing to a new reimbursement methodology.[^6]
Likewise, when Medicare implemented Medicare OPPS on August 1, 2000,
Medicare implemented temporary transitional provisions to lessen the
impact of potential payment reductions experienced by hospitals under
the new Medicare OPPS. For example, hospitals were eligible to receive
additional transitional outpatient payments or "TOPs" if their Medicare
OPPS payments were less than the payments they would have received for
the same services under the prior cost-based payment system. The TOPs
were based on a percentage of the decreased payments and helped reduce
the negative financial impact of Medicare OPPS on hospitals.[^7]

We note, however, that the DOD states in 63 Fed. Reg. 17271 that
"TRICARE is adopting Medicare's prospective payment system for
reimbursement of hospital outpatient services [currently in
effect]{.underline} for the Medicare program...." Since TOPs for
hospitals (except for certain specialty hospitals) are no longer
currently in effect under the Medicare program,[^8] it appears that the
DOD may not incorporate a transition period to lessen the potential
negative financial impact hospitals will experience, despite the fact
that Medicare did incorporate transitional provisions when it changed
its reimbursement methodology. In fact, the Proposed Rule is silent as
to TRICARE's implementation of TOPs-like payments for hospitals, in
contrast to the process employed by Medicare upon its transition to a
major new reimbursement system. Given the foregoing, it is the
Association's position that the DOD should modify its Proposed Rule with
respect to services currently reimbursed on the basis of billed charges
to incorporate TOPs-like payments for all hospitals, not just rural
hospitals having 100 or fewer beds and sole community hospitals
("SCHs").[^9] It is the Association's position that failing to
incorporate TOPs-like payments under TRICARE OPPS for all hospitals
during a specified transition period is inconsistent with the spirit of
federal law which mandates that payments under TRICARE be determined to
the extent practicable in accordance with the same reimbursement rules
that apply to Medicare. (*See* 10 U.S.C. § 1079(j)).

Further, it is the Association's position that following Medicare's
reimbursement rules would include limiting payment reductions during a
specified transition period, by implementing TOPs-like payments, as
Medicare did when it transitioned to Medicare OPPS. Medicare implemented
TOPs when it transitioned from a cost-based payment system to Medicare
OPPS. Similarly, TRICARE should implement such TOPs-like payments during
the transition from a payment system based on a hospital's actual billed
charges to TRICARE OPPS. For all of the foregoing reasons, it is the
Association's view that TRICARE should also implement TOPs-like payments
for all hospitals to ease the transition from the reimbursement of
hospital outpatient services based on hospitals' actual billed charges
to reimbursement of hospital outpatient services under TRICARE OPPS.

**[Limits on Annual Reductions on Network Hospitals' Contracted Rates
for Hospital Outpatient Services Currently Reimbursed Based on Billed
Charges]{.underline}**

As an alternative to making TOPs-like payments to hospitals, the DOD
could implement a "phase-in period" for contracted network hospitals.
For hospitals which are network providers that have contracts with
TRICARE regional contractors, the payment rates for services currently
reimbursed based on actual billed charges would be based on hospitals'
TRICARE contractual rate in effect as of the implementation date for
TRICARE OPPS (the "Contract Rate"). For the first year of TRICARE OPPS,
the new payment rate for hospital outpatient services would be equal to
the Contract Rate, reduced by the lesser of: (a) the amount the Contract
Rate exceeds the TRICARE OPPS rate for the same service or procedure; or
(b) fifteen percent (15%) of the Contract Rate. For each successive year
in which the hospital payments under TRICARE OPPS are to be less than
the preceding year's rate, the DOD should continue to apply an annual
fifteen percent (15%) limit in the reduction of payments for such
hospital outpatient services until hospital payments are brought into
harmony with TRICARE OPPS.

\* \* \*

**[Clarification]{.underline}**

In addition to our position set forth herein, the Association requests
clarification as to the following:

> \(1\) Other than the eighteen (18) hospital outpatient services
> designated as excluded from TRICARE OPPS in 63 Fed. Reg. pages 17276
> and 17277 (and the other types of items and services specifically
> identified in the federal register language as excluded from TRICARE
> OPPS (e.g., Birthing Centers)), are any other hospital outpatient
> services proposed to be excluded from TRICARE OPPS?
>
> \(2\) With respect to item (1) above, if yes, which other hospital
> outpatient services are to be excluded from TRICARE OPPS?

\* \* \*

**[Summary of Recommendations]{.underline}**

1.  With respect to hospital outpatient services currently paid using
    CMAC, that are proposed to be reimbursed under TRICARE OPPS, the DOD
    should ease the transition to TRICARE OPPS by limiting, as discussed
    above, reductions in the amount of reimbursement for hospital
    outpatient services.

2.  With respect to hospital outpatient services currently paid based on
    hospitals' actual billed charges, that are proposed to be reimbursed
    under TRICARE OPPS, the DOD should ease the transition to TRICARE
    OPPS by: (i) implementing TOPs-like payments for all hospitals
    during a specified transition period; and/or (ii) limiting, as
    discussed above, reductions in the amount of reimbursement payable
    to contracted TRICARE network hospitals for hospital outpatient
    services.

\* \* \*

We thank you for the opportunity to review and comment on the Proposed
Rule. We look forward to working with the DOD on the issues discussed
herein. Should you have any questions or would like to discuss these
issues further, please feel free to contact Kathy Reep, FHA Vice
President/Financial Services at 407-841-6230 or via email at
<kathyr@fha.org>.

Sincerely,

![](media/image2.png){width="1.125in" height="0.6354166666666666in"}

Kathy Reep

Vice President/Financial Services

[^1]: We surmise, based on the items and services listed in 63 Fed. Reg.
    pages 17276 and 17277, that services to be excluded from TRICARE
    OPPS include the following: (1) physician services; (2) nurse
    practitioner and clinical nurse specialist services (3) physician
    assistant services; (4) certified nurse-midwife services; (5)
    services of a qualified psychologist; (6) clinical social worker
    services, except under half- and full-day partial hospitalization
    programs in which the services are included within the per diem
    payment amount; (7) services of an anesthetist; (8) screening and
    diagnostic mammographies; (9) clinical diagnostic services; (10)
    non-implantable DME, orthotics, prosthetics, and prosthetic devices
    and supplies; (11) hospital outpatient services furnished to SNF
    inpatients as part of their comprehensive care plan; (12) physical
    therapy; (13) speech-language pathology; (14) occupational therapy;
    (15) influenza and pneumococcal pneumonia vaccines; (16) take-home
    surgical dressings; (17) services and procedures designated as
    requiring inpatient care; and (18) ambulance services.

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[^2]: 10 U.S.C. § 1079(h) & (j).

[^3]: For example, in 1972 Medicare implemented the Medicare Economic
    Index ("MEI") as a limit on increases in Medicare allowable charges.
    TRICARE, however, did not take steps towards controlling increases
    in prevailing charges until February 1989, when it implemented the
    MEI as a limit on growth. *See* 56 Fed. Reg. 44001 (final rule Sept.
    6, 1991). Also, in January 1992, Medicare implemented a new fee
    schedule for physician payments based on a resource based relative
    value scale (RBRVS) which was fully implemented in 1996, while
    TRICARE continued to reimburse based on the allowable charge method.
    *See* 58 Fed. Reg. 51227, 51229 (final rule, Oct. 1, 1993).

[^4]: *See* Section 8012 of the Department of Defense Appropriations Act
    1991 (Public Law 101-511) and Section 9011 of the Department of
    Defense Appropriations Act 1993 (Public Law 102-396); *see also* 10
    U.S.C. § 1079(h)(2).

[^5]: Specifically, 32 CFR § 199.14(j)(1)(iii)(B)(1) provides that:

    > \(1\) For overpriced procedures, the appropriate charge level for
    > each procedure shall be the prior year's CMAC reduced by the
    > lesser of: the percentage by which it exceeds the Medicare fee or
    > fifteen percent.

    It should be noted that the provisions of paragraph (j)(1) of 32 CFR
    § 199.14 which sets forth the allowable charge methodology for
    computing CMAC rates including the Reduction Limit provisions
    therein were specifically made applicable to certain Hospital
    outpatient services by cross-references in 32 CFR § 199.14(a)(5)
    (*Hospital outpatient services*) to such paragraph (j)(1).

[^6]: 32 CFR § 199.14(a)(5) and (j)(1). *See also* 56 Fed. Reg. 44001
    (final rule) (Sept. 6, 1991) (The DOD stated that "\[p\]ercentage
    reductions in CHAMPUS allowable payment amounts for professional
    providers are limited to avoid drastic impacts on providers" and
    "the impact is cushioned by the 15 percent limit on any reductions
    and by the fact that CHAMPUS appropriate charge levels for
    overpriced procedures will still be maintained at 1.5 times the
    Medicare relative value unit.")

[^7]: Except for certain specialty hospitals, the TOPs were terminated
    as of January 1, 2004. However, it should be noted that pursuant to
    Section 1833t(7)(D) of the Social Security Act, children's hospitals
    and designated cancer hospitals are permanently protected from
    payment reductions. With respect to children's hospitals and
    designated cancer hospitals, if the Medicare PPS rate is less than
    the payment that would have been made under the prior reimbursement
    system, then the amount of the additional payment equals the entire
    difference between the two rates. Rural hospitals having 100 or
    fewer beds and sole community hospitals ("SCHs") were similarly
    treated through December 31, 2005. As of January 1, 2006, rural
    hospitals having 100 or fewer beds, but not SCHs, are eligible to
    receive transitional corridor payments for services rendered through
    December 31, 2008, which payments are based on a percentage of the
    difference between the amount payable under Medicare OPPS and the
    payment that would have been made under the prior reimbursement
    system. *See also* 63 Fed. Reg. pages 17273 and 17274.

[^8]: *See* footnote 7, *supra*.

[^9]: In 63 Fed. Reg. 17271, the DOD states that it will adopt TOPs for
    rural hospitals having 100 or fewer beds and sole community
    hospitals (SCHs). The DOD further states that it will continue to
    reimburse cancer and children's hospitals on a fee-for-service basis
    using billed charges and CMAC rates rather than implementing TOPs as
    under Medicare. Specifically, the DOD states the following:

    > While the Agency adopted the hold-harmless TOPs for rural
    > hospitals having 100 or fewer beds and SCHs, it opted to totally
    > exempt cancer and children's hospitals from the OPPS in lieu of
    > imposing the hold-harmless provision, given the administrative
    > complexity of capturing the data required for payment of monthly
    > interim TOP amounts. TOPs would require a comparison of what would
    > have been paid \[i.e., billed charges and CHAMPUS Maximum
    > Allowable Charge ("CMAC") amounts\] prior to implementation of the
    > OPPS for hospital outpatient services to those amounts actually
    > paid under the OPPS for the same services. A TOP would be allowed
    > in addition to the OPPS amount if payment to a cancer of
    > children's hospital was lower than the amount that would have been
    > paid prior to implementation of the OPPS. Since transitional
    > corridor payments were specifically designed to supplement the
    > losses experienced under the OPPS (i.e., to pay for services at
    > the full amount that would have been allowed prior to
    > implementation of OPPS), and most, if not all, outpatient services
    > paid at a billed or CMAC would exceed the OPPS amount, the program
    > cannot justify the administrative burden/expense of maintaining
    > the hold-harmless provisions for cancer and children's hospitals.
    > As a result, TRICARE will continue to reimburse cancer and
    > children's hospitals on a fee-for-services \[sic\] basis using
    > billed charges and CMAC rates; i.e., they will be excluded
    > altogether from the OPPS. *See* p. 17274 of the Proposed Rule.