[Federal Register Volume 69, Number 191 (Monday, October 4, 2004)]
[Notices]
[Pages 59212-59214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22169]


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

DEPARTMENT OF DEFENSE

Office of the Secretary


TRICARE; Civilian Health and Medical Program of the Uniformed 
Services (CHAMPUS); Fiscal Year 2005 Diagnosis Related Group (DRG) 
Updates

AGENCY: Office of the Secretary, DoD.

ACTION: Notice of DRG revised rates.

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

SUMMARY: This notice describes the changes made to the TRICARE DRG-
based payment system in order to conform to changes made to the 
Medicare Prospective Payment System (PPS).
    It also provides the updated fixed loss cost outlier threshold, 
cost-to-charge ratios and the Internet address for accessing the 
updated adjusted standardized amount and DRG relative weights to be 
used for FY 2005 under the TRICARE DRG-based payment system.

EFFECTIVE DATES: The rates, weights and Medicare PPS changes which 
affect the TRICARE DRG-based payment system contained in this notice 
are effective for admissions occurring on or after October 1, 2004.

ADDRESSES: TRICARE Management Activity (TMA), Medical Benefits and 
Reimbursement Systems, 16401 East Centretech Parkway, Aurora, CA 80011-
9066.

FOR FURTHER INFORMATION CONTACT: Marty Maxey, Medical Benefits and 
Reimbursement Systems, TMA, telephone (303) 676-3627. Questions 
regarding payment of specific claims under the TRICARE DRG-based 
payment system should be addressed to the appropriate contractor.

SUPPLEMENTARY INFORMATION: The final rule published on September 1, 
1987 (52 FR 32992) set forth in basic procedures used under the CHAMPUS 
DRG-based payment system. This was subsequently amended by final rules 
published August 31, 1988 (53 FR 33461), October 21, 1988 (53 FR 
41331), December 16, 1988 (53 FR 50515), May 30, 1990 (55 FR 21863), 
October 22, 1990 (55 FR 42560), and September 10, 1998 (63 FR 48439). 
An explicit tenet of these final rules, and one based on the statute 
authorizing the use of DRGs by TRICARE, is that the TRICARE DRG-

[[Page 59213]]

based payment system is modeled on the Medicare PPS, and that, whenever 
practicable, the TRICARE system will follow the same rules that apply 
to the Medicare PPS. The Centers for Medicare and Medicaid Services 
(CMS) publishes these changes annually in the Federal Register and 
discusses in detail the impact of the changes.
    In addition, this notice updates the rates and weights in 
accordance with our previous final rules. The actual changes we are 
making, along with a description of their relationship to the Medicare 
PPS, are detailed below.

I. Medicare PPS Changes Which Affect the TRICARE DRG-Based Payment 
System

    Following is a discussion of the changes CMS has made to the 
Medicare PPS that affect the TRICARE DRG-based payment system.

A. DRG Classifications

    Under both the Medicare PPS and the TRICARE DRG-based payment 
system, cases are classified into the appropriate DRG by a Grouper 
program. The Grouper classifies each case into a DRG on the basis of 
the diagnosis and procedure codes and demographic information (that is, 
sex, age, and discharge status). The Grouper used for the TRICARE DRG-
based payment system is the same as the current Medicare Grouper with 
two modifications. The TRICARE system has replaced Medicare DRG 435 
with two age-based DRGs (900 and 901), and has implemented thirty-four 
(34) neonatal DRGs in place of Medicare DRGS 385 through 390. For 
admission occurring on or after October 1, 2001, DRG 435 has been 
replaced by DRG 523. The TRICARE system has replaced DRG 523 with the 
two age-based DRGs (900 and 901). For admissions occurring on or after 
October 1, 1995, the CHAMPUS grouper hierarchy logic was changed so the 
age split (age <29 days) and assignments to MDC 15 occur before 
assignment of the PreMDC DRGs. This resulted in all neonate 
tracheostomies and organ transplants to be grouped to MDC 15 and not to 
DRGs 480-483 or 495. For admissions occurring on or after October 1, 
1998, the CHAMPUS grouper hierarchy logic was changed to move DRG 103 
to the PreMDC DRGs and to assign patients to PREMDC DRGs 480, 103 and 
495 before assignment to MDC 15 DRGs and the neonatal DRGs. For 
admissions occurring on or after October 1, 2001, DRGs 512 and 513 were 
added to the PREMDC DRGs, between DRGs 480 and 103 in the TRICARE 
grouper hierarchy logic. For admissions occurring on or after October 
1, 2004, DRG 483 was deleted and replaced with DRGs 541 and 542, 
splitting the assignment of cases on the basis of the performance of a 
major operating room procedure. The description for DRG480 was changed 
to ``Liver Transplant and/or Intestinal Transplant'', and the 
description for DRG 103 was changed to ``Heart/Heart Lung Transplant or 
Implant of Heart Assist System''.
    For FY 2005, CMS will implement classification changes, including 
surgical hierarchy changes. The TRICARE Grouper will incorporate all 
changes made to the Medicare Grouper, with the exception of the changes 
made to MDC 11, DRG 315 to accommodate the congressional mandate to 
cover the pancreatic inlet cell transplantation clinical trial for 
Medicare patients.

B. Wage Index and Medicare Geographic Classification Review Board 
Guidelines

    TRICARE will continue to use the same wage index amounts used for 
the Medicare PPS. In addition, TRICARE will duplicate all changes with 
regard to the wage index for specific hospitals that are redesignated 
by the Medicare Geographic Classification Review Board.

C. Out-Commuting Wage Index Adjustment

    TRICARE is adopting the out commuting wage index adjustment used in 
the Medicare PPS due to the passage of the Medicare Modernization Act 
of 2003 (MMA) P.L. 108-173.

D. Updated Labor Market Areas

    TRICARE is adopting the new labor market areas used in the Medicare 
PPS.

E. Equalization of Large Urban and Other Area Adjusted Standardized 
Amounts (ASAs)

    TRICARE is adopting CMS' permanent equalization of the ASA rate for 
large urban and other areas due to the passage of the MMA of 2003. 
Under TRICARE, children's hospitals are reimbursed under the TRICARE 
DRG-based payment system and are entitled to receive the children's 
hospital differential. The differential amount is based on large urban 
and other areas. With the elimination of the other area ASA rate for 
hospitals subject to the TRICARE DRG-based payment, TRICARE is also 
eliminating the other area children's hospital differential rate and 
adopting the large urban differential rate for all children's 
hospitals.

F. Revision of the Labor-Related Share of the Wage Index

    TRICARE is adopting CMS' percentage of labor related share of the 
standardized amount. For wage index values greater than 1.0, the labor 
related portion of the ASA shall equal 71.1 percent. For wage index 
values less than or equal to 1.0 the labor related portion of the ASA 
shall equal 62 percent.

G. Hospital Market Basket.

    TRICARE will update the adjusted standardized amounts according to 
the final updated hospital market basket used for the Medicare PPS for 
all hospitals subject to the TRICARE DRG-based payment system according 
to CMS's August 11, 2004, final rule.

H. Outlier Payments

    Since TRICARE does not include capital payments in our DRG-based 
payments, we will use the fixed loss cost outlier threshold calculated 
by CMS for paying cost outliers in the absence of capital prospective 
payments. For FY 2005, the fixed loss cost outlier threshold is based 
on the sum of the applicable DRG-based payment rate plus any amounts 
payable for IDME plus a fixed dollar amount. Thus, for FY 2005, in 
order for a case to qualify for cost outlier payments, the costs must 
exceed the TRICARE DRG based payment rate (wage adjusted) for the DRG 
plus the IDME payment plus $23,762 (wage adjusted). The marginal cost 
factor for cost outliers continues to be 80 percent.

I. National Operating Standard Cost as a Share of Total Costs

    The FY 2005 TRICARE National Operating Standard Cost as a Share of 
Total Costs used in calculating the cost outlier threshold is 0.921.

J. Indirect Medical Education (IDME) Adjustment

    Passage of the MMA of 2003 modified the formula multipliers to be 
used in the calculation of the indirect medical education IDME 
adjustment factor. Since the IDME formula used by TRICARE does not 
include disproportionate share hospitals (DSHs), the variables in the 
formula are different than Medicare's, however; the percentage 
reduction that will be applied to Medicare's, formula will also be 
applied to the TRICARE IDME formula. The new multiplier for the IDME 
adjustment factor for TRICARE for FY 2005 is 1.07.

[[Page 59214]]

K. Expansion of the Post Acute Care Transfer Policy

    For FY 2005 TRICARE is adopting CMS' expanding post acute care 
transfer policy according to CMS' final rule published August 11, 2004.

II. Cost to Charge Ratio

    For FY 2005, the cost-to-charge ratio used for the TRICARE DRG-
based payment system will be 0.4438, which is increased to 0.4508 to 
account for bad debts. This shall be used to calculate the adjusted 
standardized amounts and to calculate cost outlier payments, except for 
children's hospitals. For children's hospital cost outliers, the cost-
to charge ratio used is 0.4887.

III. Updated Rates and Weights

    The updated rates and weights are accessible through the Internet 
at http://www.tricare.osd.mil under the sequential headings TRICARE 
Provider Information, Rates and Reimbursements, and DRB Information. 
Table 1 provides the ASA rates and Table 2 provides the DRG weights to 
be used under the TRICARE DRG-based payment system during FY 2005 and 
which is a result of the changes described above. The implementing 
regulations for the TRICARE/CHAMPUS DRG-based payment system are in 32 
CFR Part 199.

    Dated: September 28, 2004.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 04-22169 Filed 10-1-04; 8:45 am]
BILLING CODE 5001-04-M