Vol. 79 Friday, 

No. 85 May 2, 2014 

Part V 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 405, 410, et al. 

Medicare Program; Prospective Payment System for Federally Qualified 

Health Centers; Changes to Contracting Policies for Rural Health Clinics; 

and Changes to Clinical Laboratory Improvement Amendments of 1988 

Enforcement Actions for Proficiency Testing Referral; Final Rule 

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25436 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 405, 410, 491, and 493 

[CMS–1443–FC] 

RIN 0938–AR62 

Medicare Program; Prospective 

Payment System for Federally 

Qualified Health Centers; Changes to 

Contracting Policies for Rural Health 

Clinics; and Changes to Clinical 

Laboratory Improvement Amendments 

of 1988 Enforcement Actions for 

Proficiency Testing Referral 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This final rule with comment 

period implements methodology and 

payment rates for a prospective payment 

system (PPS) for federally qualified 

health center (FQHC) services under 

Medicare Part B beginning on October 1, 

2014, in compliance with the statutory 

requirement of the Affordable Care Act. 

In addition, it establishes a policy 

which allows rural health clinics (RHCs) 

to contract with nonphysician 

practitioners when statutory 

requirements for employment of nurse 

practitioners and physician assistants 

are met, and makes other technical and 

conforming changes to the RHC and 

FQHC regulations. Finally, this final 

rule with comment period implements 

changes to the Clinical Laboratory 

Improvement Amendments (CLIA) 

regulations regarding enforcement 

actions for proficiency testing (PT) 

referrals. 

DATES: Effective Dates: The provisions 

of this final rule with comment period 

are effective on October 1, 2014, except 

for amendments to § 405.2468(b)(1), 

§ 491.8(a)(3), § 493.1, § 493.2, 

§ 493.1800, and § 493.1840 which are 

effective July 1, 2014. 

Comment Period: We will consider 

comments on the subjects indicated in 

sections II.B.1., E.2. and E.4. of this final 

rule with comment period received at 

one of the addresses provided below, no 

later than 5 p.m. on July 1, 2014. 

ADDRESSES: In commenting, please refer 

to file code CMS–1443–FC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1443–FC, P.O. Box 8013, 

Baltimore, MD 21244–1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–1443–FC, 

Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments ONLY to the 

following addresses prior to the close of 

the comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244– 

1850. 

If you intend to deliver your comments 

to the Baltimore address, call telephone 

number (410) 786–7195 in advance to 

schedule your arrival with one of our 

staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Corinne Axelrod, (410) 786–5620 for 

FQHCs and RHCs. 

Melissa Singer, (410) 786–0365 for CLIA 

Enforcement Actions for Proficiency 

Testing Referral. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

SUPPLEMENTARY INFORMATION: 

Acronyms 

ACS American Community Survey 

AI/AN American Indian/Alaskan Native 

AIR All-Inclusive Rate 

APCP Advanced Primary Care Practice 

BLS Bureau of Labor Statistics 

CCM Chronic Care Management 

CCN CMS Certification Number 

CCR Cost-To-Charge Ratio 

CFR Code of Federal Regulations 

CLIA Clinical Laboratory Improvement 

Amendments of 1988 

CMP Civil Monetary Penalty 

CMS Centers for Medicare & Medicaid 

Services 

CNM Certified Nurse Midwife 

CP Clinical Psychologist 

CR Change Request 

CSW Clinical Social Worker 

CY Calendar Year 

DSMT Diabetes Self-Management Training 

EHR Electronic Health Record 

E/M Evaluation and Management 

FQHC Federally Qualified Health Center 

FSHCAA Federally Supported Health 

Centers Assistance Act 

FTCA Federal Tort Claims Act 

GAF Geographic Adjustment Factor 

GAO Government Accountability Office 

GPCI Geographic Practice Cost Index 

HCPCS Healthcare Common Procedure 

Coding System 

HCRIS Healthcare Cost Report Information 

System 

HBV Hepatitis B Vaccines 

HRSA Health Resources and Services 

Administration 

IDR Integrated Data Repository 

IPPE Initial Preventive Physical Exam 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

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Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 25437 

MCO Managed Care Organization 

MEI Medicare Economic Index 

MIPPA Medicare Improvements for Patients 

and Providers Act 

MNT Medical Nutrition Therapy 

MSA Metropolitan Statistical Area 

NP Nurse Practitioner 

OBRA Omnibus Budget Reconciliation Act 

PA Physician Assistant 

PHS Public Health Service 

PFS Physician Fee Schedule 

PPS Prospective Payment System 

PT Proficiency testing 

RIA Regulatory Impact Analysis 

RHC Rural Health Clinic 

SNF Skilled Nursing Facility 

UDS Uniform Data System 

UPL Upper Payment Limit 

Table of Contents 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

2. Summary of Major Provisions 

a. FQHC PPS 

b. Other FQHC and RHC Provisions 

c. CLIA Enforcement Actions for 

Proficiency Testing Referral Provisions 

3. Summary of Cost and Benefits 

a. For the FQHC PPS 

b. For Other FQHC and RHC Changes 

c. For the CLIA Enforcement Actions for 

Proficiency Testing Referral 

B. Overview and Background 

1. FQHC Description and General 

Information 

2. Medicare’s FQHC Coverage and Payment 

Benefit 

3. Legislation Pertaining to Medicare and 

Medicaid Payments for FQHC Services 

4. Medicare’s Current Reasonable CostBased Reimbursement Methodology 

5. Summary of Requirements under the 

Affordable Care Act for the FQHC PPS 

and Other Provisions Pertaining to 

FQHCs 

6. Approach to the FQHC PPS 

II. Establishment of the Federally Qualified 

Health Center Prospective Payment 

System (FQHC PPS) 

A. Design and Data Sources for the FQHC 

PPS 

1. Overview of the PPS Design 

2. Medicare FQHC Cost Reports 

3. Medicare FQHC Claims 

4. Linking Cost Reports and Claims To 

Compute the Average Cost per Visit 

B. Policy Considerations for Developing 

the FQHC PPS Rates and Adjustments 

1. Multiple Visits on the Same Day 

2. Preventive Laboratory Services and 

Technical Components of Other 

Preventive Services 

3. Vaccine Costs 

C. Risk Adjustments 

1. Alternative Calculations for Average 

Cost per Visit 

2. FQHC Geographic Adjustment Factor 

3. New Patient or Initial Medicare Visit 

4. Other Adjustment Factors Considered 

5. Report on PPS Design and Models 

D. Base Rate Calculation 

E. Implementation 

1. Transition Period and Annual 

Adjustment 

2. Medicare Claims Payment 

3. Beneficiary Coinsurance 

4. Waiving Coinsurance for Preventive 

Services 

5. Cost Reporting 

6. Medicare Advantage Organizations 

III. Additional Proposed Changes Regarding 

FQHCs and RHCs 

A Rural Health Clinic Contracting 

B. Technical and Conforming Changes 

1. Proposed Technical and Conforming 

Changes 

2. Additional Technical and Conforming 

Changes 

C. Comments Outside of the Scope of the 

Proposed Rule 

IV. Clinical Laboratory Improvement 

Amendments of 1988 (CLIA)— 

Enforcement Actions for Proficiency 

Testing Referral 

A. Background 

B. Proposed and Final Regulatory Changes 

V. Other Required Information 

A. Requests for Data from the Public 

B. Collection of Information Requirements 

VI. Waiver of Proposed Rulemaking 

VII. Response to Comments 

VIII. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Limitations of Our Analysis 

D. Anticipated Effects of the FQHC PPS 

1. Effects on FQHCs 

2. Effects on RHCs 

3. Effects on Other Providers and Suppliers 

4. Effects on Medicare and Medicaid 

Programs 

5. Effects on Medicare Beneficiaries 

E. Effects of Other Policy Changes 

1. Effects of Policy Changes for FQHCs and 

RHCs 

a. Effects of RHC Contracting Changes 

b. Effects of the FQHC and RHC 

Conforming Changes 

2. Effects of CLIA Changes for Enforcement 

Actions for Proficiency Testing Referral 

F. Alternatives Considered 

G. Accounting Statement and Table 

H. Conclusion 

Regulations Text 

ADDENDUM—FQHC PPS Geographic 

Adjustment Factors (FQHC GAFs) 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

Section 10501(i)(3)(A) of the 

Affordable Care Act (Pub. L. 111–148 

and Pub. L. 111–152) added section 

1834(o) of the Social Security Act (the 

Act) to establish a new system of 

payment for the costs of federally 

qualified health center (FQHC) services 

under Medicare Part B (Supplemental 

Medical Insurance) based on 

prospectively set rates. According to 

section 1834(o)(2)(A) of the Act, the 

FQHC prospective payment system 

(PPS) is to be effective beginning on 

October 1, 2014. The primary purpose of 

this final rule with comment period is 

to implement a methodology and 

payment rates for the new FQHC PPS. 

This rule also implements our 

proposal to allow RHCs to contract with 

non-physician practitioners, consistent 

with statutory requirements in section 

1861(aa) of the Act that require at least 

one nurse practitioner (NP) or physician 

assistant (PA) be employed by the RHC, 

and makes other technical and 

conforming changes to the RHC and 

FQHC regulations. 

The ‘‘Taking Essential Steps for 

Testing Act of 2012’’ (TEST Act) (Pub. 

L. 112–202) was enacted on December 4, 

2012. The TEST Act amended section 

353 of the Public Health Service Act 

(PHS Act) to provide the Secretary with 

discretion as to which sanctions may be 

applied to cases of intentional violation 

of the prohibition on proficiency testing 

(PT) referrals. This final rule with 

comment period adopts changes to the 

CLIA regulations to implement the 

TEST Act. 

2. Summary of the Major Provisions 

a. FQHC PPS 

In accordance with the provisions of 

the Affordable Care Act, we proposed in 

the September 23, 2013 Federal Register 

(78 FR 58386) to establish a national, 

encounter-based prospective payment 

rate for all FQHCs, to be determined 

based on an average of reasonable costs 

of FQHCs in the aggregate, and pay 

FQHCs the lesser of their actual charges 

for services or a single encounter-based 

rate for professional services furnished 

per beneficiary per day. As required by 

section 1834(o)(1)(A) of the Act, we 

proposed to establish payment codes 

based on an appropriate description of 

FQHC services, and taking into account 

the type, intensity, and duration of 

services provided by FQHCs. We also 

proposed adjustments to the encounterbased payment rate for geographic 

differences in the cost of inputs by 

applying an adaptation of the 

geographic practice cost indices (GPCIs) 

used to adjust payments under the 

Physician Fee Schedule (PFS). These 

provisions are being finalized as 

proposed. We also proposed 

adjustments when a FQHC furnishes 

care to a patient who is new to the 

FQHC or to a beneficiary receiving a 

comprehensive initial Medicare visit 

(that is, an initial preventive physical 

examination (IPPE) or an initial annual 

wellness visit (AWV)). These provisions 

have been revised based on comments 

received and are being finalized to allow 

the proposed adjustments as well as an 

adjustment for subsequent AWVs. 

We also proposed not to include 

adjustments or exceptions to the single, 

encounter-based payment when an 

illness or injury occurs subsequent to 

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25438 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

the initial visit, or when mental health, 

diabetes self-management training/

medical nutrition therapy (DSMT/

MNT), or the IPPE are furnished on the 

same day as the medical visit. These 

provisions have been revised based on 

the comments received and are being 

finalized to allow an exception to the 

single, encounter-based payment when 

an illness or injury occurs subsequent to 

the initial visit, or when a mental health 

visit is furnished on the same day as the 

medical visit. 

We also proposed that coinsurance 

would be 20 percent of the lesser of the 

actual charge or the PPS rate. Most 

preventive services are exempt from 

beneficiary coinsurance in accordance 

with section 4104 of the Affordable Care 

Act. Accordingly, for FQHC claims that 

include a mix of preventive and nonpreventive services, we proposed to use 

physician office payments under the 

Medicare PFS to determine the 

proportional amount of coinsurance that 

should be waived for payments based 

on the PPS encounter rate, and to use 

provider-reported charges to determine 

the amount of coinsurance that should 

be waived for payments based on the 

provider’s charge. This provision has 

been revised based on comments 

received and is being finalized to allow 

a simpler method for calculating 

coinsurance when there is a mix of 

preventive and non-preventive services. 

The statute requires implementation 

of the FQHC PPS for FQHCs with cost 

reporting periods beginning on or after 

October 1, 2014. We proposed that 

FQHCs would transition into the PPS 

based on their cost reporting periods 

and that the claims processing system 

would maintain the current system and 

the PPS until all FQHCs transitioned to 

the PPS. We also proposed to transition 

the PPS to a calendar year update for all 

FQHCs, beginning January 1, 2016, to be 

consistent with many of the PFS rates 

that are updated on a calendar year 

basis. We are finalizing these provisions 

as proposed. 

b. Other FQHC and RHC Changes 

In addition to our proposals to codify 

the statutory requirements for the FQHC 

PPS, we proposed to allow RHCs to 

contract with non-physician 

practitioners, consistent with statutory 

requirements that require at least one 

NP or PA be employed by the RHC. We 

also proposed edits to correct 

terminology, clarify policy, and make 

other conforming changes for existing 

mandates and the new PPS. 

c. CLIA Enforcement Actions for 

Proficiency Testing Referral 

The ‘‘Taking Essential Steps for 

Testing Act of 2012’’ (Pub. L. 112–202) 

amended section 353 of the Public 

Health Service Act to provide the 

Secretary with discretion as to which 

sanctions may be applied to cases of 

intentional PT referral in lieu of the 

automatic revocation of the CLIA 

certificate and the subsequent ban 

preventing the owner and operator from 

owning or operating a CLIA-certified 

laboratory for 2 years. Based on this 

discretion, we are amending the CLIA 

regulations to add three categories of 

sanctions for PT referral based on the 

severity and extent of the violation. 

3. Summary of Cost and Benefits 

a. For the FQHC PPS 

As required by section 1834(o)(2)(B)(i) 

of the Act, initial payment rates 

(Medicare and coinsurance) under the 

FQHC PPS must equal 100 percent of 

the estimated amount of reasonable 

costs, as determined without the 

application of the current system’s 

upper payment limits (UPL) or 

productivity standards. In the proposed 

rule, we estimated the overall impact, 

based on the estimated PPS rate, would 

increase total Medicare payments to 

FQHCs by approximately 30 percent, 

with an annualized cost to the federal 

government between $183 million and 

$186 million, based on 5 year 

discounted flows using 3 percent and 7 

percent factors. Based on current data, 

our final estimate is an overall impact 

of increasing total Medicare payments to 

FQHCs by approximately 32 percent, 

based on payment at the FQHC PPS. 

(Note that this does not take into 

account the application of ‘‘lesser of’’ 

provision in section 1833(a)(1)(Z) of the 

Act. For more information, see sections 

II.E.2 and VII.D.1 of this final rule with 

comment period). The annualized cost 

to the federal government associated 

with the final FQHC PPS is estimated to 

be between $200 million and $204 

million, based on 5 year discounted 

flows using 3 percent and 7 percent 

factors. These estimates also reflect the 

policy modifications that are noted in 

section I.A.2 and discussed in more 

detail in sections II.B. and II.C. of this 

preamble. 

b. For Other FQHC and RHC Changes 

We estimated that there would be no 

costs associated with the removal of the 

contracting restrictions for RHCs or for 

technical and conforming regulatory 

changes that would be made in 

conjunction with the establishment of 

the FQHC PPS. 

c. For the CLIA Enforcement Actions for 

Proficiency Testing Referral Provisions 

We estimated that an average of 6 

cases per year may have fit the terms 

described in the proposed rule to have 

alternative sanctions applied. Based on 

experience with laboratories that 

engaged in proficiency testing referral in 

the past, we estimated that the average 

cost experienced by laboratories for 

which we imposed a revocation of the 

CLIA certificate as a result of a PT 

referral violation was $578,000 per 

laboratory. We estimated that the 

average cost of alternative sanctions, 

based on comparable violations for 

which alternative sanctions have been 

imposed, would be $150,000 per 

laboratory. Therefore, we projected that 

the aggregate annual savings would be 

approximately $2.6 million per year 

($578,000 minus $150,000 for 6 

laboratories), resulting in net average 

savings per affected certificate holder of 

$428,000 ($578,000 minus $150,000). 

We continue to consider these to be 

reasonable estimates. 

B. Overview and Background 

1. FQHC Description and General 

Information 

FQHCs are facilities that furnish 

services that are typically furnished in 

an outpatient clinic setting. They are 

currently paid an all-inclusive rate (AIR) 

per visit for qualified primary and 

preventive health services furnished to 

Medicare beneficiaries. 

The statutory requirements that 

FQHCs must meet to qualify for the 

Medicare benefit are in section 

1861(aa)(4) of the Act. Based on these 

provisions, the following three types of 

organizations that are eligible to enroll 

in Medicare as FQHCs: 

• Health Center Program grantees: 

Organizations receiving grants under 

section 330 of the PHS Act (42 U.S.C. 

254b). 

• Health Center Program ‘‘lookalikes’’: Organizations that have been 

identified by the Health Resources and 

Services Administration (HRSA) as 

meeting the requirements to receive a 

grant under section 330 of the PHS Act, 

but which do not receive section 330 

grant funding. 

• Outpatient health programs/

facilities operated by a tribe or tribal 

organization (under the Indian SelfDetermination Act) or by an urban 

Indian organization (under Title V of the 

Indian Health Care Improvement Act). 

FQHCs are also entities that were 

treated by the Secretary for purposes of 

Medicare Part B as a comprehensive 

federally funded health center as of 

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Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 25439 

1The UDS collects and tracks data such as patient 

demographics, services provided, staffing, clinical 

indicators, utilization rates, costs, and revenues 

from section 330 health centers and health center 

look-alikes. 

January 1, 1990 (see section 

1861(aa)(4)(C) of the Act). 

Section 330 Health Centers are the 

most common type of FQHC. Originally 

known as Neighborhood Health Centers, 

they have evolved over the last 45 years 

to become an integral component of the 

Nation’s health care safety net system, 

with more than 1,200 health centers 

operating approximately 9,000 delivery 

sites that serve more than 21 million 

people each year from medically 

underserved communities. They include 

community health centers (section 

330(e) of the PHS Act), migrant health 

centers (section 330(g) of the PHS Act), 

health care for the homeless (section 

330(h) of the PHS Act), and public 

housing primary care (section 330(i) of 

the PHS Act). 

FQHCs may be either not-for-profit or 

public organizations. The main purpose 

of the FQHC program is to enhance the 

provision of primary care services in 

underserved urban, rural and tribal 

communities. FQHCs that are not 

operated by a tribe or tribal organization 

are required to be located in or treat 

people from a federally-designated 

medically underserved area or 

medically underserved population and 

to comply with all the requirements of 

section 330 of the PHS Act. Some of 

these section 330 requirements include 

offering a sliding fee scale with 

discounts adjusted on the basis of the 

patient’s ability to pay and being 

governed by a board of directors that 

represent the individuals being served 

by the FQHC and a majority of whom 

receive their care at the FQHC. 

According to HRSA’s Uniform Data 

System (UDS),1 approximately 8 percent 

of FQHC patients were Medicare 

beneficiaries, 41 percent were Medicaid 

recipients, and 36 percent were 

uninsured in 2012. The remaining 15 

percent were privately insured or had 

other public insurance. Medicare and 

Medicaid accounted for approximately 9 

percent and 47 percent of their total 

billing in dollars, respectively. 

The Congress has authorized several 

programs to assist FQHCs in increasing 

access to care for underserved and 

special populations. Many FQHCs 

receive section 330 grant funds to offset 

the costs of uncompensated care and 

furnish other services. All FQHCs are 

eligible to participate in the 340B Drug 

Pricing Program which is a program that 

requires drug manufacturers to provide 

outpatient drugs to eligible health care 

organizations/covered entities at 

significantly reduced prices. FQHCs that 

receive section 330 grant funds also are 

eligible to apply for medical malpractice 

coverage under Federally Supported 

Health Centers Assistance Act 

(FSHCAA) of 1992 (Pub. L. 102–501) 

and FSHCAA of 1995 (Pub. L. 104–73 

amending section 224 of the PHS Act) 

and may be eligible for federal loan 

guarantees for capital improvements 

when funds for this purpose are 

appropriated. Title VIII of the American 

Recovery and Reinvestment Act (Pub. L. 

111–5) appropriated $2 billion for 

construction, equipment, health 

information technology, and related 

improvements to existing section 330 

grantees and for the establishment of 

new grantees sites. The Affordable Care 

Act appropriated an additional $11 

billion over a 5-year period ($1.5 billion 

for capital improvements and $9.5 

billion for support and expansion of the 

health centers receiving grant funds 

under section 330). HRSA administers 

the Health Center grant program and 

other programs that assist FQHCs in 

increasing access to primary and 

preventive health care in underserved 

communities. 

2. Medicare’s FQHC Coverage and 

Payment Benefit 

The FQHC coverage and payment 

benefit under Medicare began on 

October 1, 1991. It was authorized by 

section 1861(aa) of the Act (which 

amended section 4161 of the Omnibus 

Budget Reconciliation Act (OBRA) of 

1990 (Pub. L. 101–508, enacted on 

November 5, 1990)) and implemented in 

regulations via the June 12, 1992 final 

rule with comment period (57 FR 

24961) and the April 3, 1996 final rule 

(61 FR 14640). Regulations pertaining to 

FQHCs are found primarily in Part 405 

and Part 491. 

FQHC covered services and supplies 

include the following: 

• Physician, NP, PA, Certified NurseMidwife (CNM), Clinical Psychologist 

(CP), and Clinical Social Worker (CSW) 

services. 

• Services and supplies furnished 

incident to a physician, NP, PA, CNM, 

CP, or CSW services. 

• FQHC covered drugs that are 

furnished by a FQHC practitioner. 

• Outpatient DSMT and MNT for 

beneficiaries with diabetes or renal 

disease. 

• Statutorily-authorized preventive 

services. 

• Visiting nurse services to the 

homebound in an area where CMS has 

determined that there is a shortage of 

home health agencies. 

3. Legislation Pertaining to Medicare 

and Medicaid Payments for FQHC 

Services 

FQHCs currently receive cost-based 

reimbursement, subject to the UPL and 

productivity standards that were 

established in 1978 and 1982 for RHCs 

(43 FR 8260 and 47 FR 54165, 

respectively) and adopted for FQHCs in 

1992 and 1996 (57 FR 24967 through 

24970 and 61 FR 14650 through 14652, 

respectively), for services furnished to 

Medicare beneficiaries, and PPS 

payment, based on their historical cost 

data, for services furnished to Medicaid 

recipients (section 1902(bb) of the Act). 

The UPL for Medicare FQHC services is 

adjusted annually based on the 

Medicare Economic Index (MEI), as 

described in section 1842(i)(3) of the 

Act. Authority to apply productivity 

standards is found in section 1833(a) 

and 1861(v)(1)(A) of the Act. Section 

151(a) of the Medicare Improvements 

for Patients and Providers Act (MIPPA) 

of 2008 (Pub. L. 110–275, enacted on 

July 15, 2008) increased the UPL for 

FQHC by $5, effective January 1, 2010. 

Section 151(b) of the MIPPA required 

the Government Accountability Office 

(GAO) to study and report on the effects 

and adequacy of the Medicare FQHC 

payment structure. 

Based on a GAO analysis of 2007 

Medicare cost report data, about 72 

percent of FQHCs had average costs per 

visit that exceeded the UPL, and the 

application of productivity standards 

reduced Medicare payment for 

approximately 7 percent of FQHCs. In 

2007, application of the limits and 

adjustments currently in place reduced 

FQHCs’ submitted costs of services by 

approximately $73 million, about 14 

percent (Medicare Payments to Federal 

Qualified Health Centers, GAO–10– 

576R, July 30, 2010). 

The Benefits Improvement and 

Protection Act of 2000 (Pub. L. 106–554, 

enacted December 21, 2000) created 

section 1902(bb) of the Act, which 

established a PPS for Medicaid 

reimbursement. The law also allowed 

state Medicaid agencies to establish 

their own reimbursement methodology 

for FQHCs provided that total 

reimbursement would not be less than 

the payment under the Medicaid PPS, 

and that the FQHC agreed to the 

alternative payment methodology. For 

beneficiaries enrolled in a managed care 

organization (MCO), the MCO pays the 

FQHC an agreed upon amount, and the 

state Medicaid program pays the FQHC 

a wrap-around payment equal to the 

difference, if any, between the PPS rate 

and the payment from the managed care 

organization. 

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25440 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

The Affordable Care Act established a 

Medicare PPS for FQHCs. Section 

10501(i)(3)(A) of the Affordable Care 

Act added section 1834(o) of the Act, 

requiring the Medicare FQHC PPS to be 

implemented for cost reporting periods 

beginning on or after October 1, 2014. 

The new PPS for FQHCs is required to 

take into account the type, intensity, 

and duration of services furnished by 

FQHCs and may include adjustments, 

including geographic adjustments, 

determined appropriate by the 

Secretary. A detailed discussion of the 

statutory requirements for the Medicare 

FQHC PPS is discussed in section I.B.5. 

of this final rule with comment period. 

4. Medicare’s Current Reasonable CostBased Reimbursement Methodology 

FQHCs are paid an AIR per visit for 

medically-necessary professional 

services that are furnished face-to-face 

(one practitioner and one patient) with 

a FQHC practitioner (§ 405.2463). 

Services and supplies furnished 

incident to a FQHC professional service 

are included in the AIR and are not 

billed as a separate visit. Technical 

components such as x-rays, laboratory 

tests, and durable medical equipment 

are not part of the AIR and are billed 

separately to Medicare Part B. 

The AIR is calculated by dividing 

total allowable costs by the total number 

of visits. Allowable costs may include 

practitioner compensation, overhead, 

equipment, space, supplies, personnel, 

and other costs incident to the delivery 

of FQHC services. Cost reports are filed 

in order to identify all incurred costs 

applicable to furnishing covered FQHC 

services. Freestanding FQHCs complete 

Form CMS–222–92, ‘‘Independent Rural 

Health Clinic and Freestanding 

Federally Qualified Health Center Cost 

Report’’. FQHCs based in a hospital 

complete the Worksheet M series of 

Form CMS–2552–10, ‘‘Hospital and 

Hospital Care Complex Cost Report’’. 

FQHCs based in a skilled nursing 

facility (SNF) complete the Worksheet I 

series of Form CMS–2540–10, ‘‘Skilled 

Nursing Facility and Skilled Nursing 

Facility Health Care Complex Cost 

Report’’. FQHCs based in a home health 

agency complete the Worksheet RF 

series of Form CMS–1728–94, ‘‘Home 

Health Agency Cost Report’’. 

Information on these cost report forms 

is found in Chapters 29, 40, 41 and 32, 

respectively, of the Provider 

Reimbursement Manual, Part 2 

(Publication 15–2). Per our regulations 

at § 413.65(n), only FQHCs that were 

operating as provider-based clinics prior 

to 1995 and either received funds under 

section 330 of the PHS Act or were 

determined by CMS to meet the criteria 

to be a look-alike clinic continue to be 

eligible to be certified as provider-based 

FQHCs. Provider-based designations are 

not made for FQHCs that do not already 

have this status. 

At the beginning of a FQHC’s fiscal 

year, the Medicare Administrative 

Contractor (MAC) calculates an interim 

AIR based on actual costs and visits 

from the previous cost reporting period. 

For new FQHCs, the interim AIR is 

estimated based on a percentage of the 

per-visit limit. FQHCs receive payments 

throughout the year based on their 

interim rate. After the conclusion of the 

fiscal year, the cost report is reconciled 

and any necessary adjustments in 

payments are made. 

Allowable costs are subject to tests of 

reasonableness, productivity standards, 

and an overall payment limit. The 

productivity standards require 4,200 

visits per full-time equivalent physician 

and 2,100 visits per full-time equivalent 

non-physician practitioner (NP, PA or 

CNM) on an annual basis. If the FQHC 

has furnished fewer visits than required 

by the productivity standards, the 

allowable costs would be divided by the 

productivity standards numbers instead 

of the actual number of visits. 

The payment limit varies based on 

whether the FQHC is located in an 

urban or rural area (as defined in section 

1886(d)(2)(D) of the Act). The 2014 

payment limits per visit for urban and 

rural FQHCs are $129.02 and $111.67, 

respectively. FQHCs with multiple sites 

may elect to file a consolidated cost 

report (CMS Pub. 100–04, Medicare 

Claims Processing Manual, chapter 9, 

section 30.8), and if the FQHC has both 

urban and rural sites, the MAC applies 

a weighted UPL based on the percentage 

of urban and rural visits as the 

percentage of total site visits. The AIR 

is equal to the FQHC’s cost per visit 

(adjusted by the productivity standard if 

appropriate) or the payment limit, 

whichever is less. 

Medicare beneficiaries receiving 

services at a FQHC are not subject to the 

annual Medicare deductible for FQHCcovered services (section 1833(b)(4) of 

the Act). Medicare beneficiaries pay a 

copayment based on 20 percent of the 

charges (section 1866(a)(2)(A)(ii) of the 

Act), except for: (1) Mental health 

treatment services, which are subject to 

the outpatient mental health treatment 

limitation until January 1, 2014, when 

beneficiary coinsurance is reduced to 

the same level as most other Part B 

services; (2) FQHC-supplied influenza 

and pneumococcal and Hepatitis B 

vaccines (HBV); and (3) effective 

January 1, 2011, personalized 

prevention plan services and any 

Medicare covered preventive service 

that is recommended with a grade of A 

or B by the U.S. Preventive Services 

Task Force. 

The administration and payment of 

influenza and pneumococcal vaccines is 

not included in the AIR. They are paid 

at 100 percent of reasonable costs 

through the cost report. The cost and 

administration of HBV is covered under 

the FQHC’s AIR. 

5. Summary of Requirements Under the 

Affordable Care Act for the FQHC PPS 

and Other Provisions Pertaining to 

FQHCs 

Section 10501(i)(3)(A) of the 

Affordable Care Act amended section 

1834 of the Act by adding a new 

subsection (o), ‘‘Development and 

Implementation of Prospective Payment 

System’’. Section 1834(o)(1)(A) of the 

Act requires that the system include a 

process for appropriately describing the 

services furnished by FQHCs. Also, the 

system must establish payment rates for 

specific payment codes based on such 

descriptions of services, taking into 

account the type, intensity, and 

duration of services furnished by 

FQHCs. The system may include 

adjustments (such as geographic 

adjustments) as determined appropriate 

by the Secretary of HHS. 

Section 1834(o)(1)(B) of the Act 

specifies that, by no later than January 

1, 2011, FQHCs must begin submitting 

information as required by the 

Secretary, including the reporting of 

services using Healthcare Common 

Procedure Coding System (HCPCS) 

codes, in order to develop and 

implement the PPS. 

Section 1834(o)(2)(A) of the Act 

requires that the FQHC PPS must be 

effective for cost reporting periods 

beginning on or after October 1, 2014. 

For such cost reporting periods, 

reasonable costs will no longer be the 

basis for Medicare payment for services 

furnished to beneficiaries at FQHCs. 

Section 1834(o)(2)(B)(i) of the Act 

requires that the initial PPS rates must 

be set so as to equal in the aggregate 100 

percent of the estimated amount of 

reasonable costs that would have 

occurred for the year if the PPS had not 

been implemented. This 100 percent 

must be calculated prior to application 

of copayments, per visit limits, or 

productivity adjustments. 

Section 1834(o)(2)(B)(ii) of the Act 

describes the methods for determining 

payments in subsequent years. After the 

first year of implementation, the PPS 

payment rates must be increased by the 

percentage increase in the MEI. After 

the second year of implementation, PPS 

rates shall be increased by the 

percentage increase in a market basket 

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of FQHC goods and services as 

established through regulations, or, if 

not available, the MEI that is published 

in the Physician Fee Schedule (PFS) 

final rule. 

Section 10501(i)(3)(B) of the 

Affordable Care Act added section 

1833(a)(1)(Z) to the Act to specify that 

Medicare payment for FQHC services 

under section 1834(o) of the Act shall be 

80 percent of the lesser of the actual 

charge or the PPS amount determined 

under section 1834(o) of the Act. 

Section 10501(i)(3)(C) of the 

Affordable Care Act added section 

1833(a)(3)(B)(i)(II) of the Act to require 

that FQHCs that contract with Medicare 

Advantage (MA) organizations be paid 

at least the same amount they would 

have received for the same service 

under the FQHC PPS. 

Section 10501(i)(2) of the Affordable 

Care Act amended the definition of 

FQHC services as defined in section 

1861(aa)(3)(A) of the Act by replacing 

the specific references to services 

furnished under section 1861(qq) and 

(vv) of the Act (DSMT and MNT 

services, respectively) with preventive 

services as defined in section 

1861(ddd)(3) of the Act, as established 

by section 4014(a)(3) of the Affordable 

Care Act. These changes were effective 

for services furnished on or after 

January 1, 2011. Accordingly, in the CY 

2011 Medicare PFS final rule (75 FR 

73417 through 73419, November 29, 

2010) we adopted conforming 

regulations by adding a new § 405.2449, 

which added the new preventive 

services definition to the definition of 

FQHC services effective for services 

furnished on or after January 1, 2011 

(see that rule for a detailed discussion 

regarding preventive services covered 

under the FQHC benefit and the 

requirements for waiving coinsurance 

for such services). 

Section 1833(b)(4) of the Act 

stipulates that the Medicare Part B 

deductible shall not apply to FQHC 

services. The Affordable Care Act made 

no change to this provision; therefore 

Medicare will continue to waive the 

Part B deductible for all FQHC services 

in the FQHC PPS, including preventive 

services added by the Affordable Care 

Act. 

6. Approach to the FQHC PPS 

To enhance our understanding of the 

services furnished by FQHCs and the 

unique role of FQHCs in providing 

services to people from medically 

underserved areas and populations, we 

worked closely with HRSA and others 

in the development of the proposed 

rule. We are aware of the challenges 

facing FQHCs in increasing access to 

health care for underserved populations 

and the importance of Medicare 

payments to the overall financial 

viability of FQHCs. Our goal for the 

FQHC PPS is to implement a system in 

accordance with the statute whereby 

FQHCs are fairly paid for the services 

they furnish to Medicare patients in the 

least burdensome manner possible, so 

that they may continue to furnish 

primary and preventive health services 

to the communities they serve. 

We have evaluated our approach 

based on the comments we received to 

the proposed rule in the context of 

balancing payment requirements, 

regulatory burden, and the need for 

appropriate accountability and 

oversight. We received approximately 

100 timely comments on the proposed 

FQHC PPS. The following sections 

describe the comments we received, our 

response to the comments, and the final 

decisions on our proposals. 

II. Establishment of the Federally 

Qualified Health Center Prospective 

Payment System (FQHC PPS) 

A. Design and Data Sources for the 

FQHC PPS 

1. Overview of the PPS Design 

In developing the new PPS for 

FQHCs, we considered the statutory 

requirements at section 1834(o)(1)(A) of 

the Act requiring that the new PPS take 

into account the type, intensity, and 

duration of services furnished by 

FQHCs, and allows for adjustments, 

including geographic adjustments, as 

determined appropriate by the 

Secretary. The statute also requires us to 

‘‘establish payment rates for specific 

payment codes based on . . . 

appropriate description of services.’’ We 

explored several approaches to the 

methodology and modeled options for 

calculating payment rates and 

adjustments under a PPS based on data 

from Medicare FQHC cost reports and 

Medicare FQHC claims. Each option 

was evaluated to determine which 

approach would result in the most 

appropriate payment structure with the 

fewest reporting requirements and least 

administrative burden for the FQHCs. 

One approach we considered would 

align payment for FQHCs with payment 

for services typically furnished in 

physician offices, making separate 

payment for each coded service and 

adopting the relative values from the 

PFS. While this approach follows 

established payment policy for services 

furnished in an outpatient clinic setting, 

it unbundles a FQHC encounter-based 

payment into a fee schedule structure, 

which we believe could encourage 

excess utilization in the long-term, and 

could increase coding and billing 

requirements for FQHCs. 

Another approach for the PPS would 

be to pay a single encounter-based rate 

per beneficiary per day. The encounterbased rate would be based on an average 

cost per visit, which would be 

calculated by aggregating the data for all 

FQHCs and dividing their total costs by 

their total visits incurred during a 

specified time period. An encounterbased payment rate is consistent with 

the agency’s commitment to greater 

bundling of services, which gives 

FQHCs the flexibility to implement 

efficiencies to reduce over-utilization of 

services. FQHCs are accustomed to 

billing for a single visit, as they are 

currently paid through an AIR that is 

based on a FQHC’s own average cost per 

visit. An encounter-based payment is 

also similar to Medicaid payment 

systems, and Medicaid constitutes a 

large portion of FQHC billing 

(approximately 47 percent, compared to 

approximately 9 percent for Medicare). 

We believe an encounter-based payment 

rate (with a few adjustments as 

discussed in section II.C. of this final 

rule with comment period), for the 

FQHC PPS would provide appropriate 

payment while remaining 

administratively simple. 

Also, our analysis of Medicare claims 

data supported an encounter-based 

payment rate. As discussed in section 

II.A.3 of this final rule with comment 

period, our analysis determined that 

FQHC Medicare claims listed a single 

HCPCS code that defined the overall 

type of encounter (for example, a midlevel office visit (HCPCS code 99213)). 

The vast majority of FQHC encounters 

were defined as evaluation and 

management (E/M) office visits (HCPCS 

codes 99201 through 99215). Other 

codes were used more sporadically, and 

we believe that the administrative 

burden associated with developing and 

maintaining a payment system 

composed of multiple rates (for 

example, a fee schedule) far outweighs 

the minor variations in reimbursement. 

Therefore, we developed an encounterbased rate, with a few adjustments, as 

the basis for payment under the FQHC 

PPS. We believe the description of 

FQHC services that we proposed in the 

proposed rule, and the development of 

payment codes that are based on the 

costs of groups of FQHC services (as 

discussed in section II.E.2. of this final 

rule with comment period), meets the 

requirement of the statute. 

Comment: A large number of 

commenters were strongly supportive of 

a single, bundled encounter-based PPS 

rate, and many noted that this approach 

encourages comprehensive and 

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integrated care. Some of the commenters 

who supported a bundled encounterbased rate also recommended that CMS 

develop multiple rates to reflect 

additional payment adjustments. 

Response: We agree with the 

commenters that a bundled encounterbased rate would provide appropriate 

payment while remaining 

administratively simple. We will 

address the recommendations for 

additional payment adjustments in 

section II.C.4. of this final rule with 

comment period. 

After consideration of the public 

comments received, we are finalizing 

our proposal to pay FQHCs using an 

encounter-based rate. 

2. Medicare FQHC Cost Reports 

As required by section 1834(o)(2)(B)(i) 

of the Act, initial payment rates 

(Medicare and coinsurance) under the 

FQHC PPS must equal 100 percent of 

the estimated amount of reasonable 

costs, as determined without the 

application of the current system’s UPLs 

or productivity standards that can 

reduce a FQHC’s per visit rate. In order 

to estimate 100 percent of reasonable 

costs for the proposed rule, we obtained 

Medicare cost report data for freestanding FQHCs (Form CMS 222–92) 

from the March 31, 2013, Healthcare 

Cost Report Information System (HCRIS) 

quarterly update, and we identified cost 

reports with cost reporting periods that 

ended between June 30, 2011, and June 

30, 2012. We stated in the proposed rule 

that we would use the most recent 

available data for the final rule. 

Therefore, in estimating 100 percent of 

reasonable costs for this final rule with 

comment period, we used cost report 

data from December 31, 2013, HCRIS 

quarterly update, and we supplemented 

this with data from the three prior 

HCRIS quarterly updates (that is, 

September 30, 2013, June 30, 2013, and 

March 31, 2013). We also obtained 

HCRIS data for hospital-based FQHCs 

(Form 2552–10) and HHA-based FQHCs 

(Form 1728–94), which added data from 

provider-based FQHCs. In the expanded 

sample that we used for this final rule 

with comment period, we identified 

cost reports with cost reporting periods 

ending between June 30, 2011, and June 

30, 2013. We included in our analysis 

FQHC costs reports that had allowable 

costs (excluding pneumococcal and 

influenza vaccines) and Medicare visits, 

and we used one cost report for each 

FQHC cost reporting entity. (A cost 

reporting entity is a FQHC delivery site 

that files either an individual or a 

consolidated cost report.) For 63 percent 

of cost reporting entities, there were 

either multiple cost reports available or 

the cost reporting period was not 

exactly 1 year. For the remaining 37 

percent of cost reporting entities, the 

only available cost report covered 1 full 

year. Compared to the characteristics of 

the cost report data used for the 

proposed rule, the significant increase 

in the percentage of FQHCs with 

multiple cost reports is due mostly to 

the expanded time period that we used 

for the final rule to identify cost reports 

available for analysis. For cost reporting 

entities with multiple cost reports 

available, we selected the most recent 

cost report, unless an earlier cost report 

provided us with a better match to the 

FQHC claims data that was used to 

model potential adjustments. Because 

FQHCs with multiple sites can file 

consolidated cost reports, we also 

ensured that we selected only one cost 

report for each delivery site. 

As required by statute, we estimated 

100 percent of reasonable costs that 

would have occurred for this period 

prior to the application of copayments, 

per visit limits, or productivity 

adjustments. We also note that, under 

section 1833(c) of the Act, effective 

January 1, 2014, outpatient mental 

health services are paid on the same 

basis as other Part B services. As the 

FQHC PPS is to be implemented for cost 

reporting periods beginning on or after 

October 1, 2014, we adjusted the cost 

report data to remove the application of 

the outpatient mental health limitations 

that were in effect when these reported 

services were incurred. 

For this final rule with comment 

period, we used the methodology 

described in the proposed rule to 

estimate 100 percent of reasonable costs. 

After eliminating the current payment 

limits, outpatient mental health 

limitations, and productivity and 

adjustments, we calculated the average 

cost per visit for each cost reporting 

entity by dividing the total estimated 

Medicare costs (excluding vaccines) 

reported by the total number of 

Medicare visits reported. 

In developing the FQHC PPS, section 

1834(o)(1)(A) of the Act allows for 

adjustments determined appropriate by 

the Secretary. Consistent with this 

authority, we excluded statistical 

outliers from the sample of cost reports 

used for the proposed rule. We 

identified all cost reporting entities with 

an average cost per visit that was greater 

than three standard deviations above or 

below the geometric mean of the overall 

average cost per visit among cost 

reporting entities, and we excluded 

their data from our sample. We believe 

that removing statistical outliers is 

consistent with standard practice and 

results in a more accurate estimation of 

costs overall. In this final rule with 

comment period, we used the same 

approach to exclude statistical outliers 

from the cost report sample. 

Comment: Several commenters 

objected to the exclusion of outlier cost 

reports and claims in calculating the 

base rate. Some of these commenters 

opined that the authority in section 

1834(o)(1)(A) of the Act, to ‘‘include 

adjustments . . . determined 

appropriate by the Secretary’’ cannot 

override the requirement in section 

1834(o)(2)(B) of the Act that the 

aggregate amount of initial PPS rates 

equal ‘‘100 percent of the estimated 

amount of reasonable costs (determined 

without the application of a per visit 

payment limit or productivity screen).’’ 

Commenters suggested that the 

exclusion of outliers results in a lower 

base rate and would not represent all 

appropriate costs, such as higher costs 

of visits furnished to complex Medicare 

patients, or for furnishing costly, but 

necessary items, such as expensive 

drugs and biologicals, whose costs may 

be beyond a FQHC’s control. Some of 

the commenters also urged CMS to 

compute the base PPS rate without the 

exclusion of outliers. 

Response: We respectfully disagree 

with the assertion that the exclusion of 

outliers is inconsistent with statutory 

authority. Under section 1834(o)(2)(B) of 

the Act, we are required to set the initial 

payment rates to equal ‘‘100 percent of 

the estimated amount of reasonable 

costs.’’ The statute does not require us 

to set initial payment rates based on the 

inclusion of every cost report or claim 

submitted. We analyzed the most 

current available FQHC cost report and 

claims data, and consistent with 

standard practice, trimmed the data for 

outliers so that the estimates are not 

skewed by unusual data. Outliers were 

defined based on two criteria: (1) Cost 

reports with an average cost per visit 

value more than 3 standard deviations 

from the geometric mean of all average 

costs per visit; and (2) encounters with 

an adjusted charge value more than 3 

standard deviations from the geometric 

mean of all adjusted charges. This trim 

methodology of three standard 

deviations from the geometric mean is a 

relatively conservative approach, and 

the two trims together exclude less than 

3 percent of the overall sample. We 

believe that removing statistical outliers 

results in a more accurate estimation of 

costs overall. 

Comment: Several commenters from 

tribal organizations recommended that 

CMS not exclude outliers in calculating 

the base rate, as they believe that they 

may be disproportionately impacted 

because their costs are unusually high. 

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Response: Of the approximately 69 

tribal FQHCs furnishing services at 

approximately 114 separate sites, there 

were 8 tribal FQHCs whose costs were 

considered statistical outliers. Although 

tribal FQHCs have a higher rate of 

statistical outliers than non-tribal 

FQHCs, the number of tribal FQHCs 

whose costs were more than three 

standard deviations from the geometric 

mean is still quite low. As previously 

noted, the statute does not require the 

rate to reflect actual costs for each 

individual FQHC. The per diem rate 

that is established reflects the national 

average cost of a FQHC visit. 

Comment: A commenter noted that 

FQHCs count multiple visits per day on 

their cost reports, and FQHCs should be 

given a one-time opportunity to adjust 

their reported FQHC visits to a per diem 

to avoid an undue reduction in the 

estimated cost per FQHC visit. 

Response: As stated in the proposed 

rule, we used the adjusted claims data 

to calculate an average cost per diem in 

order to accurately capture all costs and 

did not rely solely on cost report data. 

We used the same approach for this 

final rule with comment period. 

Comment: Some commenters were 

concerned that costs related to 

electronic health record (EHR) 

implementation would not be 

adequately reflected in 2012 cost report 

data as many FQHCs adopted EHRs in 

2012. 

Response: We used the most recent 

available data for this final rule, and we 

updated our sample to include cost 

reports with reporting periods ending 

June 30, 2013. We do not believe it is 

appropriate to adjust the calculation of 

reasonable cost based on anticipated 

future costs. 

3. Medicare FQHC Claims 

In developing the Medicare FQHC 

PPS, section 1834(o)(1)(A) of the Act 

requires us to take into account the type, 

intensity, and duration of FQHC 

services, and allows other adjustments, 

such as geographic adjustments. Section 

1834(o)(1)(B) of the Act also granted the 

Secretary of HHS (the Secretary) the 

authority to require FQHCs to submit 

such information as may be required in 

order to develop and implement the 

Medicare FQHC PPS, including the 

reporting of services using HCPCS 

codes. The provision requires that the 

Secretary impose this data collection 

submission requirement no later than 

January 1, 2011. The requirement for 

FQHCs to submit HCPCS codes was 

implemented through program 

instructions (CMS Change Request (CR) 

7038). 

Beginning with dates of service on or 

after January 1, 2011, FQHCs are 

required to report all pertinent services 

furnished and list the appropriate 

HCPCS code for each line item along 

with revenue code(s) for each FQHC 

visit when billing Medicare. The 

additional line item(s) and HCPCS code 

reporting were for informational and 

data gathering purposes to inform 

development of the PPS rates and 

potential adjustments. Other than for 

calculating the amount of coinsurance 

to waive for preventive services for 

which the coinsurance is waived, these 

HCPCS codes are not currently used to 

determine current Medicare payment to 

FQHCs. We proposed to use the HCPCS 

codes in the FQHC claims data to 

support the development of the FQHC 

PPS rate and adjustments and for 

making payment under the PPS. 

In order to model potential 

adjustments for the proposed rule, we 

obtained final action Medicare FQHC 

claims (type of bill 73X and 77X) from 

the CMS Integrated Data Repository 

(IDR) with dates of service between 

January 2010 and December 2012. To 

model potential adjustments for this 

final rule with comment period, we 

obtained final action Medicare FQHC 

claims from the CMS IDR with dates of 

service between January 2011 and 

December 2013. Of these claims, only 

those with dates of service between 

January 1, 2011, and June 30 2013, were 

retained for analysis and linking with 

Medicare cost reports, as described 

further in section II.A.4. of this final 

rule with comment period. We excluded 

claims that did not list a revenue code 

or HCPCS code that represented a faceto-face encounter, as these services 

would not qualify for an AIR payment. 

We also excluded claim lines with 

revenue codes that did not correspond 

to FQHC services or that lacked valid 

HCPCS codes. 

In 2011, approximately 90 percent of 

FQHC Medicare claims listed a single 

HCPCS code that defined the overall 

type of encounter (for example, a midlevel office visit (HCPCS code 99213)). 

We found similar reporting trends in 

2012 FQHC Medicare claims. For this 

final rule with comment period, we 

updated our analysis of HCPCS 

reporting trends and found they are 

relatively similar in 2013 FQHC 

Medicare claims. We sought to validate 

the completeness of HCPCS reporting by 

analyzing coding on primary care 

physician claims for PFS data. When 

compared, the findings from the 

simulated PFS data and actual FQHC 

data were similar in the type and 

distribution of the reported encounter 

code (that is, the HCPCS code that 

represents the visit that qualifies the 

FQHC encounter for an AIR payment). 

When ancillary services (services that 

are not separately billable by a FQHC) 

were billed with an office visit code, 

both FQHC and analogous primary care 

physician office claims demonstrated a 

tendency to include only one to two 

ancillary services in addition to the 

encounter code about 35 percent of the 

time, and FQHCs billed only a single 

ancillary service about 10 percent of the 

time. 

We believe that the reporting trends 

in the FQHC claims are consistent with 

the coding of analogous primary care 

physician office claims, thereby 

suggesting that the limited number of 

ancillary services listed on FQHC claims 

appropriately describe the services 

furnished during an encounter. 

Comment: Commenters supported the 

use of the HCPCS codes in the FQHC 

claims data to support the development 

of the FQHC PPS rate and adjustments 

and for making payment under the PPS. 

Some commenters recommended that 

we incorporate additional payment 

adjustments based on the HCPCS codes 

in the FQHC claims data. 

Response: We agree with the 

commenters that it is appropriate to use 

the HCPCS codes in the FQHC claims 

data to support the development of the 

FQHC PPS rate and adjustments and for 

making payment under the PFS. We will 

address the recommendations for 

additional payment adjustments in 

section II.C.4. of this final rule with 

comment period. 

Comment: Some commenters were 

concerned that services that were more 

recently recognized as payable to 

FQHCs would not be reflected in the 

claims sample as it did not include 

claims with dates of service beyond 

June 30, 2012. 

Response: We used the most recent 

available data for this final rule with 

comment period. We updated our 

sample to include claims with dates of 

service through June 30, 2013, to the 

extent that an associated cost report was 

included in our cost report sample (as 

discussed previously and in section 

II.A.2. of this final rule with comment 

period). 

Comment: A commenter was 

concerned that a FQHC market basket of 

goods and services would not reflect the 

variety of non-billable ancillary services 

furnished during a FQHC visit. 

Response: Market baskets developed 

for other Medicare payment systems 

typically utilize cost report data, and the 

costs of covered services provided 

incident to a billable visit may be 

included on the FQHC cost report. 

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Comment: Some commenters opined 

that the implementation of HCPCS 

reporting for FQHCs was confusing, 

resulting in claims with significant 

errors in line item reporting, and 

questioned the credibility of analyses 

based on claims submitted in 2011 and 

2012. 

Response: Since data used for the 

proposed rule included final action 

claims with dates of service through 

June 2012 that were obtained from the 

IDR in 2013, we believe that any initial 

errors in the coding or adjustment of 

claims were corrected or were not 

present in the majority of the claims 

used for modeling adjustments in the 

proposed rule. (see CMS CRs 7038 and 

7208, which updated CMS Pub 100–04, 

Claims Processing Manual, Chapter 9). 

For this final rule with comment period, 

we updated our sample to include final 

action claims with dates of services 

through June 2013, which are even less 

likely to have significant coding or 

adjustment errors. 

After consideration of the public 

comments received, we are finalizing 

our proposal to use the HCPCS codes in 

the FQHC claims data to support the 

development of the FQHC PPS rate and 

adjustments and for making payment 

under the PFS. 

4. Linking Cost Reports and Claims To 

Compute the Average Cost per Visit 

In this final rule with comment period 

we used the same methodology 

described in the proposed rule in order 

to compute the adjusted charges or 

‘‘estimated cost’’ for determining the 

average cost per visit. We linked claims 

to cost reports by delivery site, as 

determined by the CMS Certification 

Number (CCN) reported on the claim. 

Since the HCPCS code reporting 

requirement on claims did not go into 

effect until January 1, 2011, claims for 

earlier dates of service did not include 

the detail required to model adjustments 

based on type, intensity, or duration of 

services. In the sample used for the 

proposed rule, cost reports with 

reporting periods that began on or after 

January 1, 2011, accounted for 81 

percent of the sample. In the updated 

sample used for this final rule with 

comment period, cost reports with 

reporting periods that began on or after 

January 1, 2011, accounted for 98 

percent of the sample. We linked these 

cost reports to Medicare FQHC claims 

with service dates that matched their 

respective cost reporting periods. For 

cost reports that were at least 1 full year 

in length and with a cost reporting 

period that began in 2010, we linked 

these cost reports to 2011 Medicare 

FQHC claims. 

The linked cost report and claims data 

were then used to calculate a cost-tocharge ratio (CCR) for each costreporting entity. To approximate data 

not available on the cost report, we 

developed these CCRs to convert each 

FQHC’s charge data, as found on its 

claims, to costs. We calculated an 

average cost per visit by dividing the 

total allowable costs (excluding 

pneumococcal and influenza 

vaccinations) by the total number of 

visits reported on the cost report. We 

calculated an average charge per visit by 

dividing the total charges of all visits 

(Medicare and non-Medicare) for all 

sites under a cost-reporting entity and 

dividing that sum by the total number 

of visits for that cost-reporting entity. 

We calculated a cost-reporting entityspecific CCR by dividing the average 

cost per visit (based on cost report data) 

by the average charge per visit (based on 

claims data). We multiplied the 

submitted charges for each claim by 

these cost-reporting entity-specific CCRs 

to estimate FQHC costs per visit. We 

note that other Medicare payment 

systems calculate CCRs based on total 

costs and total charges reported on 

Medicare cost reports, and that this 

information is not currently available on 

the free-standing FQHC cost report, 

Form CMS–222–92. 

In developing the FQHC PPS, section 

1834(o)(1)(A) of the Act allows for 

adjustments determined appropriate by 

the Secretary. Consistent with this 

authority, we excluded statistical 

outliers from the linked claims sample 

used for the proposed rule. We 

identified visits with estimated costs 

that were greater than three standard 

deviations above or below the geometric 

mean of the overall average estimated 

cost per visit, and we excluded those 

visits from our sample. We believe that 

removing statistical outliers is 

consistent with standard practice and 

results in a more accurate estimation of 

costs overall. For this final rule with 

comment period, we used the same 

approach to exclude statistical outliers 

from the linked claims sample. 

After trimming the linked claims data 

for outliers, the final data set used for 

this final rule with comment period 

included 5,468,852 visits from 

5,458,632 distinct claims encompassing 

6,533,716 claim lines. This included 

visits furnished to 1,297,013 

beneficiaries at 3,778 delivery sites 

under 1,215 cost-reporting entities. For 

this final rule with comment period, we 

modified the definition of a daily visit 

to be consistent with our revised policy 

to allow an exception to the per diem 

PPS payment for subsequent injury or 

illness and mental health services 

furnished on the same day as a medical 

visit. Separately payable encounters for 

the same beneficiary at the same FQHC 

were combined into a single daily visit, 

while allowing for a separate medical 

visit, mental health visit, and 

subsequent illness/injury visit, which 

could result in up to three encounters 

per beneficiary per day. The final data 

set yielded 5,462,670 daily visits. 

Comment: A commenter suggested 

that using CCRs to measure the cost of 

furnishing FQHC services is not 

appropriate for FQHCs because certain 

types of FQHC care management 

services are not captured in the billed 

charges; the CCRs would not be uniform 

among medical and mental health 

services; and the CCRs would be 

affected by the pricing strategies of 

FQHCs that keep their charges low to 

minimize the copayment impact on 

uninsured and indigent patients. The 

commenter recommended that CMS use 

PFS relative value units or other metrics 

to adjust FQHC average cost per visit. 

Response: We used Medicare cost 

report data to measure the aggregate 

reasonable cost of furnishing FQHC 

services. However, as discussed in the 

proposed rule, the cost report data is 

insufficient for modeling the types of 

adjustments considered for the FQHC 

PPS. The CCRs for each cost-reporting 

entity were used to approximate data 

not available on the cost report and to 

convert each FQHC’s charge data, as 

found on its claims, to costs. The use of 

the CCRs was primarily for modeling 

the adjustments and does not 

substantially impact our measure of the 

aggregate reasonable cost of furnishing 

FQHC services. Therefore, in this final 

rule with comment period, we plan to 

continue to use the CCR to adjust 

charges in order to estimate costs. 

Comment: A commenter requested 

that CMS clarify whether a statistically 

significant number of outlier visits were 

for FQHCs in a particular state or for a 

particular service. 

Response: The average range of 

outliers based on the adjusted charge for 

the encounter was approximately 1.3 

percent of FQHC visits, with higher 

rates in U.S. territories (4 percent) and 

the Pacific census division (3 percent). 

Slightly more than 1 percent of all office 

visits were outliers. 

B. Policy Considerations for Developing 

the FQHC PPS Rates and Adjustments 

In developing the FQHC PPS rates 

and adjustments, we considered existing 

payment policies regarding payment for 

multiple visits on the same day, 

preventive laboratory services and 

technical components of other 

preventive services, and vaccine costs to 

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determine potential interactions with 

the implementation of the FQHC PPS. 

1. Multiple Visits on the Same Day 

The current all-inclusive payment 

system was designed to reimburse 

FQHCs for services furnished to 

Medicare beneficiaries at a rate that 

would take into account all costs 

associated with the provision of services 

(for example, space, supplies, 

practitioners, etc.) and reflect the 

aggregate costs of providing services 

over a period of time. In some cases, the 

per visit rate for a specific service is 

higher than what would be paid based 

on the PFS, and in some cases it is lower 

than what would be paid based on the 

PFS, but at the end of the reporting year 

when the cost report is settled, the 

Medicare payment is typically higher 

for FQHCs than if the services were 

billed separately on the PFS. 

The all-inclusive payment system was 

also designed to minimize reporting 

requirements, and as such, it reflects all 

the services that a FQHC furnishes in a 

single day to an individual beneficiary, 

regardless of the length or complexity of 

the visit or the number or type of 

practitioners seen. This includes 

situations where a FQHC patient has a 

medically-necessary face-to-face visit 

with a FQHC practitioner, and is then 

seen by another FQHC practitioner, 

including a specialist, for further 

evaluation of the same condition on the 

same day, or is then seen by another 

FQHC practitioner (including a 

specialist) for evaluation of a different 

condition on the same day. Except for 

certain preventive services that have 

coinsurance requirements waived, 

FQHCs have not been required to 

submit coding of each service in order 

to determine Medicare payment. 

Although the all-inclusive payment 

system was designed to provide 

enhanced reimbursement that reflects 

the costs associated with a visit in a 

single day by a Medicare beneficiary, an 

exception to the one encounter payment 

per day policy was made for situations 

when a patient comes into the FQHC for 

a medically-necessary visit, and after 

leaving the FQHC, has a medical issue 

that was not present at the visit earlier 

that day, such as an injury or 

unexpected onset of illness. In these 

situations, the FQHC has been permitted 

to be paid separately for two visits on 

the same day for the same beneficiary. 

In the April 3, 1996 final rule (61 FR 

14640), we revised the regulations to 

allow separate payment for mental 

health services furnished on the same 

day as a medical visit. The CY 2007 PFS 

final rule (71 FR 69624) subsequently 

revised the regulations to allow FQHCs 

to receive separate payment for DSMT/ 

MNT. The ability to bill separately for 

Medicare’s IPPE is in manuals only and 

not in regulation, with the manual 

language noting this is a once in a 

lifetime benefit. There are no statutory 

requirements to pay FQHCs separately 

for these services when they occur on 

the same day as another billable visit. 

To determine if these exceptions 

should be included, updated, or revised 

in the new PPS, in the September 23, 

2013 proposed rule (78 FR 58386) we 

discussed that we examined 2011 

Medicare FQHC claims data in order to 

determine the frequency of FQHCs 

billing for more than one visit per day 

for a beneficiary. We then analyzed the 

potential financial impact on FQHCs 

and the potential impact on access to 

care if billing for more than 1 visit per 

day for these specific situations was no 

longer permitted. We also considered 

several alternative options, such as an 

adjustment of the per visit rate when 

multiple visits occur in the same day, or 

the establishment of a separate per visit 

rate for subsequent visit due to illness 

or injury, mental health services, 

DSMT/MNT, or IPPE. 

In the September 23, 2013 proposed 

rule (78 FR 58386) proposed rule, we 

discussed that an analysis of data from 

Medicare FQHC claims with dates of 

service between January 1, 2011 and 

June 30, 2012, indicated that it is 

uncommon for FQHCs to bill more than 

one visit per day for the same 

beneficiary (less than 0.5 percent of all 

visits), even though the ability to do so 

has been in place since 1992 for 

subsequent illness/injury, since 1996 for 

mental health services, and since 2007 

for DSMT/MNT. Even allowing for any 

underreporting in the data, it is clear 

that billing multiple visits on the same 

day for an individual is a rare event, and 

we stated that eliminating the ability to 

do so would not significantly impact 

either the FQHC payment or a 

beneficiary’s access to care. We also 

suggested this policy would also 

simplify billing by removing the need 

for modifier 59, which signifies that the 

conditions being treated are totally 

unrelated and services are furnished at 

separate times of the day, and the 

subsequent claims review that occurs 

when modifier 59 appears on a claim. 

Because the data show that multiple 

visits rarely occur on the same day, we 

determined that the level of effort 

required to develop an adjustment or a 

separate rate for each of these services 

when furnished on the same day as a 

medical visit would not be justified. 

Therefore, in the proposed rule, we 

proposed to revise § 405.2463(b) to 

remove the exception to the single 

encounter payment per day for FQHCs 

paid under the proposed PPS and we 

stated that this policy is consistent with 

an all-inclusive methodology and 

reasonable cost principles and would 

simplify billing and payment 

procedures. Thus, the proposed PPS 

encounter rate reflected a daily (per 

diem) rate and resulted in a slightly 

higher payment than one calculated 

based on multiple encounters on the 

same day. 

Based on the Medicare claims data 

furnished by FQHCs that indicates 

minimal incidence of multiple visits 

billed on the same day, we concluded 

in the proposed rule that not including 

these exceptions in the PPS would not 

significantly impact total payment or 

access to care. However, because we 

understand that there may be many 

possible reasons why the rate of billing 

for more than one visit per day has been 

low (for example, difficulty in 

scheduling more than one type of visit 

on the same day) and that FQHCs can 

furnish integrated, patient-centered 

health care services in a variety of ways, 

we asked for comments to address 

whether there are factors that we have 

not considered, particularly in regards 

to the provision of mental health 

services, and whether this change 

would impact access to these services or 

the integration of services in 

underserved communities. 

We received many comments on our 

proposal not to include these exceptions 

in the new PPS for FQHCs. None of the 

commenters were supportive of the 

proposal. 

Comment: Some commenters said that 

we should continue to allow mental 

health or other visits to be furnished on 

the same day as a medical visit because 

their patients have transportation, 

mobility, work, or childcare issues. 

Response: We wish to clarify that we 

did not propose to prohibit mental 

health visits from occurring on the same 

day as a medical visit. We did propose 

not to include an exception to the per 

diem payment system to allow for 

multiple billing when mental health (or 

subsequent illness/injury, DSMT/MNT 

or IPPE) is furnished on the same as a 

medical visit, as discussed later. 

Comment: Some commenters 

suggested that if we do not allow 

separate billing for mental health 

services that are furnished on the same 

day as a medical service, we should 

instead develop an adjustment that 

would increase the PPS per diem base 

payment rate when a mental health visit 

occurs on the same day as another 

billable visit. Other commenters 

suggested an adjustment for mental 

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health, behavioral health, DSMT, and 

MNT. 

Response: As we discussed in earlier, 

we did not propose to include 

adjustments to the PPS per diem 

payment rate except for new patient and 

initial Medicare visits. While we 

considered an adjustment for mental 

health services and DSMT/MNT, our 

analysis of the claims data did not 

support such adjustments. Also, 

including additional adjustments would 

result in a lower PPS rate, which would 

impact FQHC payments for all visits. 

Comment: Some commenters 

acknowledged that the incidence of 

Medicare billing for more than 1 visit 

per beneficiary per day in FQHCs is 

extremely low, but argued that their 

FQHC often billed multiple visits on the 

same day, particularly for mental health 

visits that occur on the same day as a 

medical visit, and that this proposal 

would have a significant impact on their 

FQHC payments and their patient’s 

access to care. 

Response: Based on our analysis of 

national Medicare claims data, we 

believe there would be a very minimal 

impact if the exception allowing 

multiple billing on the same day was to 

be eliminated, especially for mental 

health services. We analyzed the claims 

data of the FQHCs that provided the 

most detailed comments that they 

would be significantly or 

disproportionately impacted if they 

could not bill separately for mental 

health visits that occur on the same day 

as a medical visit. A commenter from a 

large FQHC in the southeastern part of 

the U.S. with more than 23,000 total 

visits per year described how they are 

a fully integrated primary care FQHC 

and every patient has a team of 

professionals that includes behavioral 

health. Yet a review of the Medicare 

claims data for this FQHC showed that 

out of a yearly total of more than 23,000 

total visits, only 74 mental health visits, 

or 0.32 percent, were billed on the same 

day as a medical visit. A review of 

Medicare claims data for a large FQHC 

in the western part of the U.S. showed 

that 2.0 percent had a mental health 

visit on the same day as another visit, 

but of those 2.0 percent, only 0.5 

percent of these were billable visits. A 

large multisite FQHC in the southern 

part of the U.S. stated that as a result of 

their integrated model of behavioral care 

and same day billing, there was a 

reduction in visits to the emergency 

room. The claims data for this FQHC 

showed a rate of same day billing for 

mental health visits of 0.5 percent, and 

no evidence was provided to link this to 

a reduction in emergency room visits. 

While this is slightly higher than the 

average of 0.3 percent, it is still a very 

low rate. 

We do not know why these and other 

FQHCs believe that they are billing 

more same-day mental health visits than 

indicated by their claims data. Perhaps 

the FQHC may be considering all their 

patients, not just Medicare beneficiaries 

who comprise an average of 8 percent of 

all FQHC patients. Another possibility 

is that the FQHC may be considering 

some behavioral health services that are 

beyond the scope of Medicare-covered 

services, or are including services 

furnished by non-FQHC practitioners. 

Based on the claims data and the 

information provided in the comments, 

we do not agree that removal of the 

exceptions to allow for multiple billing 

would have a significant impact on the 

financial viability of these FQHCs or 

reduce access to care for Medicare 

beneficiaries. 

Comment: Several commenters 

acknowledged that their use of the 

exception for multiple billing on the 

same day was low or non-existent for 

Medicare beneficiaries, but wanted us to 

retain this exception so that they could 

use this to leverage Medicaid in their 

state to pay separately for mental health. 

Response: We do not believe that 

Medicare policy should be determined 

in order to influence state Medicaid 

policies. 

Comment: Some commenters 

disputed our data which showed that 

only 0.5 percent of all claims were for 

multiple same day visits. The 

commenters suggested the following 

reasons for the low number of multiple 

same day visits: FQHCs did not code 

correctly; FQHCs did not know they 

could bill for multiple visits; FQHC 

billing systems are not set up for 

multiple billing because other payment 

systems do not reimburse for it; and that 

the MACs do not allow it. 

Response: Section 1834(o)(1)(B) of the 

Act, as added by the Affordable Care 

Act required FQHCs to utilize HCPCS 

codes on their Medicare claims in order 

to inform the development of the FQHC 

PPS. FQHCs have also been required to 

use HCPCS codes for payment purposes 

when a preventive service for which 

coinsurance is waived is on the same 

claim as a service that has a coinsurance 

requirement. Other payment systems 

may also require HCPCS coding on 

claims. We are aware that some FQHCs 

have limited experience with coding 

and that the coding submitted on 

Medicare claims may not have been 

accurate or complete in all cases. 

However, even if the rate shown in the 

claims data was doubled or tripled, the 

rate of billing for multiple visits on the 

same day would still be extremely low. 

As we stated in the September 23, 

2013 proposed rule, the ability to bill for 

multiple visits on the same day for 

subsequent illness or injury has been 

allowed since the beginning of the 

FQHC program. We also noted that the 

ability to bill for multiple visits on the 

same day for mental health services has 

been allowed since 1996, and the ability 

to bill for multiple visits on the same 

day has been allowed for DSMT/MNT 

since 2007. While it is possible that 

some FQHCs were not aware that this 

option existed, we know from the 

claims data that mental health, IPPE, 

and DSMT/MNT services constitute a 

small percentage of a FQHC’s total 

Medicare services. 

We understand that billing systems 

vary among FQHCs and that some 

billing systems are more adept at 

managing tasks such as multiple sameday billing. However, we believe that if 

the inability to bill for multiple visits 

presented a significant loss of payment 

for a FQHC, the FQHC would have 

upgraded its system to allow for this 

type of billing. We are also not aware of 

any MACs that do not allow for multiple 

same day billing for the circumstances 

in which they are allowable. 

Medicare comprises only 8 percent of 

FQHC patient population, and not all 

Medicare beneficiaries require mental 

health or DSMT/MNT services. 

Particularly for mental health services, 

it is often difficult to schedule 

appointments on the same day as a 

medical visit, and most mental health 

conditions require ongoing treatment 

which would likely be at a frequency 

that differs from the need for primary 

care visits. Therefore, we would expect 

the rate of same day billing to be low, 

despite the availability of the 

exceptions. 

Comment: Some commenters 

requested that FQHCs be allowed to bill 

separately for other services such as 

optometry and dental care when 

furnished on the same day as another 

visit. 

Response: Other services, such as 

optometry and dental care, cannot be 

billed separately on the same day as 

another medical visit under the current 

AIR system. We did not propose and we 

are not considering expanding the type 

of services that can be billed separately 

when furnished on the same day as 

another visit. The PPS rate and its 

adjustments reflect the total cost of 

furnishing services to Medicare 

beneficiaries. 

Comment: Some commenters were 

concerned that removing the ability to 

bill separately for mental health services 

that are furnished on the same day as a 

medical visit would create an incentive 

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for FQHCs to schedule these encounters 

on separate days. 

Response: Under both the allinclusive payment system and the PPS 

per diem system, there is a risk that a 

FQHC could deliberately schedule 

patient visits over a period of time in 

order to maximize payment. We expect 

FQHCs and other providers of care to 

Medicare beneficiaries to act in the best 

interests of their patients, which 

includes scheduling visits in a manner 

that maximizes the health and safety of 

their patients. 

Comment: A few commenters stated 

that FQHCs will not be able to continue 

working with community mental health 

centers if we do not allow separate 

billing for mental health services 

furnished on the same day as a medical 

visit. 

Response: Commenters did not 

provide enough supporting information 

as to why this proposal would 

negatively or adversely affect FQHC 

relationships with community mental 

health centers to allow us to respond 

meaningfully to this comment. 

Comment: Some commenters 

suggested that removing the ability to 

bill separately for mental health and 

other services is inconsistent with the 

Affordable Care Act’s focus on value 

over volume. 

Many commenters wrote that the 

ability to bill separately for mental 

health and other visits on the same day 

as a primary care visit would help them 

to furnish integrated and coordinated 

care and would benefit their patients. 

Many of them stated that allowing 

separate payment for mental health 

services furnished on the same day as a 

medical visit would provide incentives 

to furnish integrated care for Medicare 

patients with complex health 

conditions. Others were concerned that 

not allowing this exception would send 

a message that we do not value mental 

health care. Commenters also suggested 

that people with mental illness are less 

likely to return for a mental health visit 

if a primary care visit is not also 

scheduled, and that furnishing mental 

health visits on the same day as a 

medical visit helps to increase 

compliance with medications. 

Response: We agree with commenters 

about the importance of promoting and 

furnishing coordinated and integrated 

care, which can be especially 

challenging in underserved areas. Based 

on Medicare claims data and the 

comments we received, there is no 

evidence that access to care would be 

reduced if exceptions to the per diem 

PPS are not allowed. 

However, we agree that separate 

payment for mental health services 

furnished on the same day as a medical 

visit has the potential to increase access 

to mental health services in underserved 

areas and that this would help to 

demonstrate the value of mental health 

services, especially in areas where need 

is high and utilization is low. We 

acknowledge that FQHCs furnish 

services to underserved and vulnerable 

populations that often have had 

difficulty accessing mental health 

services, and that commenters 

overwhelmingly support separate 

payment for mental health services 

furnished on the same day as a medical 

visit. Therefore, in this final rule with 

comment period, we are modifying our 

original proposal to allow an exception 

to the per diem payment system so that 

FQHCs can bill separately for mental 

health services that are furnished on the 

same day as a medical visit. 

We will also allow an exception to the 

per diem payment system to allow 

FQHCs to bill separately when an 

illness or injury occurs on the same day 

in which a FQHC visit has already 

occurred. This exception is available for 

situations where a Medicare beneficiary 

has a FQHC visit, leaves the FQHC, and 

later in the day has an illness or injury 

that was not present during the initial 

visit. While it does not happen often, 

when it does occur we believe the 

FQHC should be able to bill separately 

because it is a unique situation that 

could not be planned or anticipated and 

the FQHC would not benefit from the 

economies of scale that can occur when 

multiple medical issues are addressed 

in the same visit. 

We do not believe that the 

circumstances that justify allowing same 

day billing for a subsequent injury or 

illness or a mental health visit that 

occurs on the same day as a medical 

visit also applies to DSMT/MNT. A 

DSMT/MNT visit is part of the broad 

category of primary care services that 

are included in the services of a FQHC 

and are part of the PPS per diem 

payment. Visits with multiple 

practitioners that occur on the same 

day, including visits for different 

conditions or visits with a specialist 

physician, are not separately payable in 

a FQHC under the all-inclusive payment 

methodology or the PPS methodology. 

We do not see any reason why these 

DSMT/MNT visits should be considered 

differently. Additionally, the cost of a 

DSMT/MNT visit is far lower than the 

cost of a medical or mental health visit, 

so it would not be justified to pay 

separately for those visits at the PPS 

rate. We also did not include IPPE as a 

separately billable visit, because we are 

already allowing an adjustment to the 

PPS rate for a new patient or initial 

Medicare visit. 

We are allowing the exception to the 

per diem PPS payment for mental health 

services that occur on the same day as 

a medical visit to promote access to 

these services in FQHCs. While this may 

also contribute to the coordination of 

care, this alone will not achieve the 

goals of the Affordable Care Act to 

furnish integrated and coordinated 

services. Instead, we believe that these 

goals may be supported through an 

adaptation of the Chronic Care 

Management (CCM) services program 

that will be implemented for physicians 

billing under the PFS in 2015. We 

encourage FQHCs to review the CCM 

information in the CY 2014 PFS final 

rule with comment period titled, 

‘‘Medicare Program; Revisions to 

Payment Policies under the Physician 

Fee Schedule, Clinical Laboratory Fee 

Schedule & Other Revisions to Part B for 

CY 2014’’ (December 10, 2013 (78 FR 

74230)) and submit comments to us on 

how the CCM services payment could 

be adapted for FQHCs in CY 2015 to 

promote integrated and coordinated care 

in FQHCs. We also invite RHCs to 

submit comments on how CCM services 

could be adapted for RHCs in CY 2015 

to promote integrated and coordinated 

care. 

In this final rule with comment 

period, we are modifying our proposal 

not to allow an exception to the per 

diem PPS payment for subsequent 

injury or illness and for mental health 

services furnished on the same day as a 

medical visit, and we invite public 

comments on this modification. We are 

adopting as final our proposal not to 

allow an exception to the per diem PPS 

for DSMT/MNT or IPPE. 

2. Preventive Laboratory Services and 

Technical Components of Other 

Preventive Services 

The core services of the FQHC benefit 

are generally billed under the 

professional component. The benefit 

categories for laboratory services and 

diagnostic tests generally are not within 

the scope of the FQHC benefit, as 

defined under section 1861(aa) of the 

Act. For services that can be split into 

professional and technical components, 

we have instructed FQHCs to bill the 

professional component as part of the 

AIR, and separately bill the Part B MAC 

under different identification for the 

technical portion of the service on a Part 

B practitioner claim (for example, Form 

CMS–1500). If the FQHC operates a 

laboratory, is enrolled under Medicare 

Part B as a supplier, and meets all 

applicable Medicare requirements 

related to billing for laboratory services, 

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it may be able to bill as a supplier 

furnishing laboratory services under 

Medicare Part B. When FQHCs 

separately bill these services, they are 

instructed to adjust their cost reports 

and carve out the cost of associated 

space, equipment, supplies, facility 

overhead, and personnel for these 

services. 

As part of the implementation of the 

FQHC benefit, we used our regulatory 

authority to enumerate preventive 

primary services, as defined in 

§ 405.2448, which may be paid for when 

furnished by FQHCs (57 FR 24980, June 

12, 1992, as amended by 61 FR 14657, 

April 3, 1996). These preventive 

primary services include a number of 

laboratory tests, such as cholesterol 

screening, stool testing for occult blood, 

dipstick urinalysis, tuberculosis testing 

for high risk patients, and thyroid 

function tests. The preventive services 

added to the FQHC benefit pursuant to 

the Affordable Care Act, as defined by 

section 1861(ddd)(3) of the Act and 

codified in § 405.2449, include 

laboratory tests and diagnostic services, 

such as screening mammography, 

diabetes screening tests, and 

cardiovascular screening blood tests. 

Professional services or professional 

components of primary preventive 

services (as defined in § 405.2448) and 

preventive services (as defined in 

§ 405.2449) are billed as part of the AIR. 

The preventive laboratory tests and 

technical components of other 

preventive tests are not paid under the 

AIR and FQHCs are instructed to bill 

separately for these services. We did not 

propose a change in billing procedures, 

and we did not propose to include 

payment for these services under the 

FQHC PPS. We noted this payment 

structure simplifies billing procedures 

as laboratory tests and technical 

components of diagnostic services are 

always billed separately to Part B and 

are not included as part of the FQHC’s 

encounter rate. (Note that both the 

professional and technical components 

of FQHC primary preventive services 

and preventive services remain covered 

under Part B). 

An analysis of FQHC claims indicates 

that FQHCs are listing some preventive 

laboratory tests and diagnostic services 

on their all-inclusive rate claims. In 

2011 through 2012, less than 5 percent 

of Medicare FQHC claims listed HCPCS 

codes related to laboratory tests or 

diagnostic services. For purposes of 

modeling adjustments to the FQHC PPS 

rate, we considered excluding these line 

items from the encounter charge and 

proportionately reducing the costreporting entity’s related cost report 

data. However, it was not always clear 

whether the line item charges for these 

laboratory tests or diagnostic services 

were included in the total charge for the 

claim or were listed for informational 

purposes only. As such, we chose not to 

adjust the claims or cost report data 

based on the presence of the related 

HCPCS codes on the claims. As part of 

the implementation of the FQHC PPS, 

we plan to clarify the appropriate billing 

procedures through program 

instruction. 

Comment: Most commenters were 

supportive of our intent to clarify 

appropriate billing procedures through 

program instruction, and some 

commenters suggested that we also use 

rulemaking to resolve issues concerning 

Medicare billing. Many of these 

commenters requested greater clarity on 

billing for the technical components of 

FQHC services separately under Part B. 

Response: As we stated in the 

proposed rule, we plan to clarify the 

appropriate billing procedures for 

technical components of FQHC services 

and other billing issues through 

program instruction, and we do not 

believe that clarifications to billing 

procedures require rulemaking. 

Comment: A commenter disagreed 

with our conclusion that laboratory 

services and diagnostic tests are by 

definition excluded from the FQHC 

benefit. The commenter noted that 

preventive primary health services and 

preventive services, as defined in 

section 1861(aa)(3) of the Act and 

codified in § 405.2448 and § 405.2449 of 

the regulations, include a variety of 

screening tests, and neither the statute 

nor the regulations exclude the 

technical components of these tests 

from the FQHC benefit. 

Response: We respectfully disagree 

with this commenter and maintain that 

the benefit categories for laboratory 

services and diagnostic tests generally 

are not within the scope of the FQHC 

benefit, as defined under section 

1861(aa)(3) of the Act. We also maintain 

that both the professional and technical 

components of FQHC primary 

preventive services and preventive 

services, as defined in section 

1861(aa)(3) of the Act and codified in 

§ 405.2448 and § 405.2449 of the 

regulations, are covered under the 

FQHC benefit. Laboratory tests and 

diagnostic services that do not meet the 

statutory and regulatory definitions of 

FQHC primary and preventive services, 

and are not otherwise specified in the 

statute or regulations as within the 

scope of the FQHC benefit, are not 

covered under the FQHC benefit. We 

agree with the commenter that neither 

the statute nor the regulations 

specifically exclude the technical 

components of these tests. We also note 

that the FQHC regulations do not 

distinguish between the technical and 

professional components of primary or 

preventive services. As a matter of our 

payment policy, we believe that 

laboratory tests and diagnostic services 

that do not meet the statutory and 

regulatory definitions of FQHC primary 

preventive and preventive services, and 

are not otherwise specified in the statute 

or regulations as within the scope of the 

FQHC benefit, are not covered under the 

FQHC benefit. As a matter of policy, we 

believe the payment structure simplifies 

billing procedures as laboratory tests 

and technical components of diagnostic 

services are always billed separately to 

Part B and are never included as part of 

the FQHC’s encounter rate. We note that 

this payment structure does not change 

the scope of the FQHC benefit. 

Comment: A commenter 

recommended that FQHCs be allowed to 

bill all Medicare Part B services on an 

institutional claim, including technical 

components such as x-rays, laboratory 

tests, and durable medical equipment 

which will not be paid as part of the 

FQHC PPS and would be billed 

separately to Medicare Part B. 

Response: To distinguish services that 

are not paid as part of the encounter 

rate, we believe that the current billing 

requirements for billing services 

separately to Medicare Part B on a Part 

B practitioner claim are more 

appropriate for most services. We note 

that the telehealth originating site 

facility fee will continue to be billed 

separately on an institutional claim. 

After consideration of the public 

comments received, we plan to clarify 

the appropriate billing procedures 

through program instruction, as 

proposed. 

3. Vaccine Costs 

Section 1834(o)(2)(B)(i) of the Act 

requires that the initial PPS rates must 

be set so as to equal in the aggregate 100 

percent of the estimated amount of 

reasonable costs that would have 

occurred for the year if the PPS had not 

been implemented. This 100 percent 

must be calculated prior to application 

of copayments, per visit limits, or 

productivity adjustments. We believe 

that this language directed us to develop 

a PPS to pay for items currently paid 

under the AIR. 

The administration and payment of 

influenza and pneumococcal vaccines is 

not included in the AIR. They are paid 

at 100 percent of reasonable costs 

through the cost report. The cost and 

administration of HBV is covered under 

the FQHC’s AIR when furnished as part 

of an otherwise qualifying encounter. 

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We did not propose any changes to this 

payment structure, rather, we stated that 

we would continue to pay for the costs 

of the influenza and pneumococcal 

vaccines and their administration 

through the cost report, and other 

Medicare-covered vaccines as part of the 

encounter rate. The costs of hepatitis B 

vaccine and its administration were 

included in the calculation of 

reasonable costs used to develop the 

FQHC PPS rates, and we would 

continue paying for these services under 

the FQHC PPS when furnished as part 

of an otherwise qualifying encounter. 

Comment: A few commenters 

requested clarification regarding 

coverage and payment for vaccines 

recommended by the Advisory 

Committee on Immunization Practices 

(ACIP) of the Centers for Disease Control 

and Prevention (CDC) that are typically 

covered and paid under Medicare Part 

D. They believe that these vaccines, 

when furnished by FQHCs, should be 

covered and paid separately by Part D 

plans and should not be covered and 

paid for as part of a FQHC encounter. 

Response: Under section 1862(a)(7) of 

the Act, as codified at 42 CFR 411.15(e) 

of our regulations, immunizations other 

than pneumococcal, influenza, and HBV 

are generally excluded from Medicare 

Part B coverage. Section 4161(a)(3)(C) of 

OBRA ’90 (Pub. L. 101–508) amended 

section 1862(a) of the Act to specify that 

the FQHC benefit can include 

preventive primary health services, as 

described in section 1861(aa)(3)(B) of 

the Act, that would otherwise be 

excluded from Part B under section 

1862(a)(7) of the Act. Preventive 

primary services, as defined in 

§ 405.2448, describes which services 

may be paid for when furnished by 

FQHCs. (See the June 12, 1992 (57 FR 

4980) and April 3, 1996 (61 FR 4657) 

final rules). These preventive primary 

services include immunizations (see 

§ 405.2448(b)(8)). This means that when 

FQHCs furnish ACIP-recommended 

vaccines, they are covered and paid for 

under Part B as part of the FQHC 

benefit, and are excluded from Part D. 

Except for pneumococcal and 

influenza vaccines and their 

administration, which are paid at 100 

percent of reasonable cost, payments to 

FQHCs for covered FQHC services 

furnished to Medicare beneficiaries are 

made on the basis of an AIR per covered 

visit. The charges for other Medicarecovered vaccines and their 

administration when furnished by a 

FQHC can be included as line items for 

an otherwise qualifying encounter, and 

payment for these other Medicarecovered vaccines would be included in 

the AIR. However, an encounter cannot 

be billed if vaccine administration is the 

only service the FQHC provides. For 

more information on how to bill under 

the AIR for services furnished incident 

to a FQHC encounter, see CMS Pub. 

100–04, Medicare Claims Processing 

Manual, chapter 9. 

Section 10501(i)(3)(A) of the 

Affordable Care Act did not amend the 

coverage requirements applicable to the 

FQHC benefit. We did not propose to 

remove immunizations from the 

preventive primary services set out at 

§ 405.2448, and immunizations 

furnished by FQHCs after 

implementation of the PPS will 

continue to be covered under Part B as 

part of the FQHC benefit. We proposed 

to continue to pay for the costs of the 

influenza and pneumococcal vaccines 

and their administration through the 

cost report, and other Medicare-covered 

vaccines as part of the encounter rate. 

As part of the implementation of the 

FQHC PPS, we plan to update the 

appropriate billing procedures through 

program instruction. 

We note that under 1860D–2(e)(2)(B) 

of the Act, a drug prescribed to a Part 

D eligible individual that would 

otherwise be a covered Part D drug is 

excluded from Part D coverage if 

payment for such drug, as so prescribed 

and dispensed or administered, is 

available under Part A or B for that 

individual. Consequently, vaccines 

furnished by FQHCs and covered under 

Part B as part of the FQHC benefit in 

accordance with § 405.2448(b)(8) are not 

covered or payable under Part D. For 

more information on the exclusion from 

Part D of drugs covered under Part B, 

see CMS Pub. 100–18, Medicare 

Prescription Drug Benefit Manual, 

Chapter 6. Section 20.2. 

Comment: A few commenters 

recommended that CMS apply a 

consistent approach to payment for 

vaccines covered under Part B, which 

commenters asserted would ensure 

broad access for Medicare beneficiaries. 

These commenters recommended that 

CMS pay for the cost and administration 

of the HBV at 100 percent of reasonable 

cost through the cost report. A 

commenter recommended that influenza 

and pneumococcal vaccines should be 

billed at time of service, either with or 

without an encounter, and be paid using 

the national MAC fees, with an annual 

reconciliation on the cost report 

between the payments and the 

reasonable costs of these vaccines. This 

commenter wished to reduce the time 

between vaccine administration and 

payment and to document on individual 

patient claims that these vaccines were 

furnished. However, most commenters 

supported our proposal to continue to 

reimburse influenza and pneumococcal 

vaccines through the cost report. 

Response: As discussed in the 

preamble to the April 3, 1996 FQHC 

final rule (61 FR 14651), section 

1833(a)(3) of the Act specifies that 

services described in section 

1861(s)(10)(A) of the Act are exempt 

from payment at 80 percent of 

reasonable costs and payment to RHCs 

and FQHCs for influenza and 

pneumococcal vaccines and their 

administration is at 100 percent of 

reasonable cost. Consistent with section 

1833(a)(3) of the Act, we used our 

regulatory authority to codify at 

§ 405.2466(b)(1)(iv) that for RHCs and 

FQHCs, payment for pneumococcal and 

influenza vaccine and their 

administration is 100 percent of 

Medicare reasonable cost paid as part of 

the annual reconciliation through the 

cost report (61 FR 14657, April 3, 1996). 

Payment for all other Medicare-covered 

vaccines is included in the AIR, and we 

proposed to continue to pay for all other 

Medicare-covered vaccines as part of the 

encounter rate under the FQHC PPS. We 

note that HBV is described in section 

1861(s)(10)(B) of the Act, and we do not 

believe that the statute directs us to 

change the payment structure to pay for 

HBV at 100 percent of reasonable cost 

through the cost report. 

We considered the commenter’s 

request to pay for influenza and 

pneumococcal vaccines billed at time of 

service with an annual reconciliation 

between these payments and reasonable 

costs and we do not believe this would 

be necessary. FQHCs are accustomed to 

reporting and receiving payment for the 

reasonable costs for these vaccines and 

their administration through the annual 

cost report, and we believe that an 

annual reconciliation between vaccine 

fee amounts and reasonable costs would 

create an additional administrative 

burden for FQHCs and MACs. We also 

note that as of January 1, 2011, FQHCs 

have been required to report 

pneumococcal and influenza vaccines 

and their administration on a patient 

claim with the appropriate HCPCS and 

revenue codes when furnished during a 

billable visit. 

After consideration of the public 

comments received, we are finalizing 

these provisions as proposed. We will 

continue to pay for the administration 

and payment of influenza and 

pneumococcal vaccines at 100 percent 

of reasonable costs through the cost 

report, and we will continue to pay for 

other Medicare-covered vaccines under 

the FQHC PPS as part of the encounter 

rate when furnished as part of an 

otherwise qualifying encounter. 

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C. Risk Adjustments 

Section 1834(o)(1)(A) of the Act 

provides that the FQHC PPS may 

include adjustments, including 

geographic adjustments, that are 

determined appropriate by the 

Secretary. We proposed the following 

adjustments. 

1. Alternative Calculations for Average 

Cost per Visit 

For the proposed rule, we used the 

claims data to calculate an average cost 

per visit by dividing the total estimated 

costs ($788,547,531) by the total number 

of daily visits (5,223,512). 

Proposed average cost per daily visit = 

$788,547,531/5,223,512 = $150.96 

For this final rule with comment 

period, we modified the definition of a 

daily visit, as discussed in section 

II.A.4. of this final rule with comment 

period and consistent with the policy 

discussed in section II.B.1. of this final 

rule with comment period, which 

allows an exception to the per diem PPS 

payment for subsequent injury or illness 

and mental health services furnished on 

the same day as a medical visit. 

Separately payable encounters for the 

same beneficiary at the same FQHC 

were combined into a single daily visit, 

while allowing for a separate medical 

visit, mental health visit, and 

subsequent illness/injury visit, which 

allows for up to three encounters for 

beneficiary per day. 

For this final rule with comment 

period, we used the updated claims data 

to calculate an average cost per visit by 

dividing the total estimated costs 

($846,058,100) by the total number of 

daily visits (5,462,670). 

Final average cost per daily visit = 

$846,058,100/5,462,670 = $154.88 

In the proposed rule, we also 

examined how the average cost per visit 

would differ under current policy, 

which allows separate payment for 

subsequent illness or injury, mental 

health services, DSMT/MNT or IPPE 

when they occur on the same day as an 

otherwise billable visit. While the total 

estimated cost was the same 

($788,547,531), the total number of 

visits in the denominator (5,245,961) 

did not combine multiple visits on the 

same day of service into 1 daily visit. 

Proposed average cost per visit = 

$788,547,531/5,245,961 = $150.32 

For this final rule with comment 

period, we used the updated final data 

set to examine how the average cost per 

visit would differ under current policy. 

While the total estimated cost was the 

same ($846,058,100), the total number 

of visits in the denominator (5,468,852) 

did not combine multiple visits on the 

same day of service. 

Final average cost per visit = 

$846,058,100/5,468,852 = $154.70 

In the proposed rule, we also derived 

an average cost per visit from the cost 

reports by dividing the total estimated 

Medicare costs (excluding vaccines) 

reported ($832,387,663) by the total 

number of Medicare visits reported 

(5,374,217). Unlike the previous 

calculations based on claims data, the 

variables derived from the cost reports 

summarize total costs and visits by cost 

reporting entity and could not be 

trimmed of individual visits with outlier 

values. Also, we noted that the total 

number of Medicare visits reported on 

the cost reports reflects current policy 

which allows for multiple visits on the 

same day of service, and we could not 

calculate an average cost per daily visit 

using only cost report data. 

Proposed average cost per visit from 

cost report data = $832,387,663/

5,374,217 = $154.89 

For this final rule with comment 

period, we used the current data set to 

update the average cost per visit derived 

from the cost reports by dividing the 

total estimated Medicare costs 

(excluding vaccines) reported 

($897,330,363) by the total number of 

Medicare visits reported (5,634,602). 

Final average cost per visit from cost 

report data = $897,330,363/

5,634,602 = $159.25 

Consistent with our proposal to 

remove the exception to the single 

encounter payment per day, we 

proposed to use the average cost per 

daily visit of $150.96, as calculated 

based on adjusted claims data, as the 

PPS rate prior to any risk adjustment. 

We noted that the alternative 

calculations yield an average cost per 

visit that differs from $150.96 by less 

than 3 percent. We also noted that these 

calculations were derived based on the 

cost report and claims data available 

during our development of the proposed 

rule and were subject to change in the 

final rule based on more current data. 

For this final rule with comment 

period, consistent with our policy to 

allow an exception to the per diem PPS 

payment for subsequent injury and 

mental health services furnished on the 

same day as a medical visit, we will use 

the average cost per daily visit of 

$154.88, as calculated above based on 

adjusted claims data, as the final PPS 

rate prior to any risk adjustment. We 

note that the alternative calculations 

yield an average cost per visit that 

differs from $154.88 by less than 3 

percent. 

2. FQHC Geographic Adjustment Factor 

We proposed to adjust the FQHC PPS 

rate for geographic differences and to 

make this adjustment to the cost of 

inputs by applying an adaptation of the 

GPCIs used to adjust payment under the 

PFS. Established in section 1848(e) of 

the Act, GPCIs adjust payments for 

geographic variation in the costs of 

furnishing services and consist of three 

component GPCIs: The physician work 

GPCI, the practice expense GPCI, and 

the malpractice insurance GPCI. 

Since FQHCs furnish services that are 

analogous to those furnished by 

physicians in outpatient clinic settings, 

we believe it would be consistent to 

apply geographic adjustments similar to 

those applied to services furnished 

under the PFS. We calculated a FQHC 

geographic adjustment factor (FQHC 

GAF) for each encounter based on the 

delivery site’s locality using the 

proposed CY 2014 work and practice 

expense GPCIs and the proposed cost 

share weights for the CY 2014 GPCI 

update, as published in the CY 2014 

PFS proposed rule on July 19, 2013 (78 

FR 43282). 

For modeling geographic adjustments 

for the FQHC PPS proposed rule, we did 

not use the proposed CY 2015 work and 

practice expense GPCIs that also were 

published in the CY 2014 PFS proposed 

rule. We noted that the FQHC GAFs are 

subject to change in the final FQHC PPS 

rule based on more current data, 

including the finalized PFS GPCI and 

cost share weight values. 

We excluded the PFS malpractice 

GPCI from the calculation of the FQHC 

GAF, as FQHCs that receive section 330 

grant funds are eligible to apply for 

medical malpractice coverage under 

FSHCAA of 1992 and FSHCAA of 1995. 

Without the cost share weight for the 

malpractice GPCI, the sum of the 

proposed PFS work and PE cost share 

weights (0.50866 and 0.44839, 

respectively) is less than one. In 

calculating the FQHC GAFs, prior to 

applying the proposed work and PE cost 

share weights to the GPCIs, we scaled 

these proposed cost share weights so 

they would total 100 percent while still 

retaining weights relative to each other 

(0.53149 and 0.46851, respectively). 

We calculated each locality’s FQHC 

GAF as follows: 

Geographic adjustment factor = 

(0.53149 × Work GPCI) + (0.46851 × 

PE GPCI) 

We included the FQHC GAF 

adjustment when modeling all other 

potential adjustments. We proposed to 

apply the FQHC GAF based on where 

the services are furnished, and we noted 

the FQHC GAF may vary among FQHCs 

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that are part of the same organization. 

The list of proposed FQHC GAFs by 

locality was included in the Addendum 

of the proposed rule and as a 

downloadable file at http://

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/FQHCPPS/

index.html. 

Comment: Commenters were 

supportive of a FQHC GAF adjustment, 

but some suggested changes to the 

proposed FQHC GAFs. Some 

commenters suggested that the rural 

FQHC GAFs may not reflect the actual 

cost of furnishing FQHC services in 

rural areas, and they requested that we 

increase the rural FQHC GAFs. Some of 

these commenters believe that the 

factors influencing costs for urban 

versus rural providers are not identical 

for FQHCs and physician practices. 

Among the concerns raised by these 

commenters are that a rural FQHC’s 

operating costs (such as utilities and 

transportation costs) may be higher than 

similar costs of FQHCs in urban areas; 

predominantly rural FQHCs often have 

fewer sites than urban FQHCs and 

benefit less from economies of scale; 

and FQHCs located in rural areas may 

incur additional costs if they offer 

payment incentives in order to recruit 

and retain qualified physicians and nonphysician practitioners. 

Response: Since FQHCs furnish 

services that are analogous to those 

furnished by physicians in outpatient 

clinic settings, we proposed to adapt the 

PFS GPCIs to calculate the FQHC GAFs, 

as we believe it would be consistent to 

apply geographic adjustments similar to 

those applied to services furnished 

under the PFS. As discussed in the CY 

2014 PFS final rule with comment 

period, we used updated Bureau of 

Labor Statistics (BLS) Occupational 

Employment Statistics data to calculate 

the work GPCI and purchased services 

index of the PE GPCI and updated U.S. 

Census Bureau American Community 

Survey (ACS) data to calculate the rent 

component (which includes utilities) of 

the PE GPCI. Given their reliability, 

public availability, level of detail and 

national scope with sufficient data 

coverage in both urban and rural areas, 

we believe that the ACS and BLS data 

are the most appropriate sources for 

measuring geographic cost differences 

in operating a medical practice. (See our 

discussion in the CY 2014 PFS final rule 

with comment period (78 FR 74380 

through 74381)). We believe that the 

data used to develop the PFS GPCIs are 

reflective of the costs of furnishing 

FQHC services, including the 

geographic variation in the costs of 

furnishing FQHC services in rural areas. 

Moreover, we do not have a 

comprehensive national source that 

would provide us with a basis for 

adjusting the FQHC GAFs for rural areas 

independently of the PFS GPCIs while 

meeting data selection criteria similar to 

the criteria used for selecting the PFS 

GPCI sources. We also note that as 

discussed later in this section, many 

rural areas would see a substantial 

decrease in payment amounts if they 

were no longer grouped with urban 

areas. 

Comment: A commenter was 

concerned that FQHCs with multiple 

delivery sites with different costs may 

be penalized if accommodation for these 

different sites is not taken into account. 

Response: We proposed to apply the 

FQHC GAF based on where the services 

are furnished. Therefore, for FQHCs 

with multiple delivery sites in different 

areas, the FQHC GAF may vary 

depending on the delivery site. 

Comment: A commenter was 

concerned that application of the FQHC 

GAF reduces its PPS rate below the 

proposed base rate, which is below its 

cost of furnishing FQHC services. 

Response: Under the FQHC PPS, 

Medicare payment for FQHC services is 

based on 100 percent of aggregate 

reasonable costs, not on an individual 

FQHC’s costs. While the FQHC GAF 

will vary by locality, we note that the 

fully implemented, geographically 

adjusted PPS rate for all FQHCs will be 

approximately 32 percent higher, based 

on payment at the FQHC PPS rate, when 

compared to current payments to 

FQHCs. 

Comment: A commenter noted that 

FQHC lookalikes do not have access to 

malpractice coverage under the Federal 

Tort Claims Act (FTCA) and therefore 

incur malpractice expense. The 

commenter requested that CMS 

incorporate a malpractice adjustment in 

the FQHC GAFs for FQHC lookalikes, or 

otherwise recognize malpractice 

expense under the FQHC PPS. 

Response: FQHCs that receive section 

330 grant funds are the predominant 

type of FQHC, with more than 1,100 

centers operating approximately 8,900 

delivery sites. These FQHCs are eligible 

to apply for medical malpractice 

coverage under the FTCA. In 

comparison, there were 93 look-alikes in 

2012, according to HRSA’s UDS. The 

PPS rate is based on aggregate costs, and 

assumes that not all FQHCs have the 

same costs. It would not be feasible to 

develop separate PPS rates for FQHCs 

based on differences in malpractice or 

any other costs. We excluded the PFS 

malpractice GPCI from the calculation 

of the FQHC GAF as the geographic 

variation in malpractice costs is not 

relevant for the majority of FQHCs that 

are eligible to apply for medical 

malpractice coverage under the FTCA. 

We note that FQHCs are required to 

report professional liability insurance 

on Worksheet A of the FQHC cost report 

(Form CMS–222), and malpractice 

expense was recognized as a component 

of the reasonable costs used to calculate 

the FQHC PPS rates. 

Comment: A commenter disagreed 

with our adaptation of the PFS GPCIs 

and recommended that we adjust the 

FQHC PPS rate for geographic 

differences based on Metropolitan 

Statistical Areas (MSAs). The 

commenter believes that use of the 

current PFS locality structure would 

result in underpayment for FQHC 

services furnished in several California 

counties. 

Response: As previously noted, 

because FQHCs furnish services that are 

analogous to those furnished by 

physicians in outpatient clinic settings, 

we believe it would be consistent to 

apply geographic adjustments similar to 

those applied to services furnished 

under the PFS. Moreover, by adapting 

the PFS GPCIs for the FQHC PPS, the 

accuracy of FQHC payments also 

benefits from the ongoing assessment, 

evaluation, and updates to the PFS 

GPCIs, including the periodic review 

and adjustment of GPCIs as mandated 

by section 1848(e)(1)(C) of the Act. 

We note that adjusting the FQHC PPS 

rate for geographic differences based on 

MSAs could result in significant 

reductions in payment for rural FQHCs 

when compared to geographically 

adjusted payments using the current 

PFS locality configuration. As discussed 

in the CY 2014 PFS final rule with 

comment period, published in the 

Federal Register on December 10, 2013 

(78 FR 74230), a MSA-based locality 

structure would expand the number of 

PFS payment localities, and many rural 

areas would see substantial decreases in 

their GPCI values given that they would 

no longer be grouped together with 

higher cost counties (78 FR 74380 

through 74391). If the PFS locality 

structure or GPCI values changed, we 

would make corresponding changes to 

the FQHC localities and FQHC GAFs. 

As other methodologies emerge for 

geographic payment adjustment under 

the PFS, they may also eventually apply 

to the new FQHC PPS. 

Comment: A commenter 

recommended that after the first year of 

implementation, we use a market basket 

approach to adjust payments based on 

geographic locations. The commenter 

suggested that we revise the FQHC cost 

report to capture additional wage data 

that, in conjunction with HRSA’s UDS 

data, could be used to develop a wage 

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index to adjust the PPS rate based on 

reported salary differentials. 

Response: We appreciate the 

commenter’s interest in developing a 

wage index for the FQHC PPS. We 

believe that a FQHC GAF based on the 

PFS GPCIs is appropriate for FQHC 

services, as an FQHC’s employment mix 

and scope and delivery of services are 

generally similar to a physician’s 

practice. We note that a FQHC GAF 

based solely on a wage index, which is 

a relative measure of geographic 

differences in wage levels, would not 

reflect the relative cost difference in the 

full mix of goods and services 

comprising the PFS practice expense 

GPCIs (for example, purchased services, 

office rent, equipment, supplies, and 

other miscellaneous expenses). We do 

not believe that the additional reporting 

burden suggested by the commenter, or 

the additional administrative burden of 

collecting and validating the type of 

data needed for a reliable FQHC wage 

index, would justify the potential 

incremental benefit of using a FQHCspecific wage index in calculating the 

FQHC GAFs. 

Comment: A commenter asked why 

we did not use the CY 2015 GPCI values 

to calculate the FQHC GAFs. 

Response: For modeling geographic 

adjustments for the FQHC PPS proposed 

rule, we used the CY 2014 work and 

practice expense GPCIs published in the 

CY 2014 PFS proposed rule. We noted 

that the FQHC GAFs could be subject to 

change in the final FQHC PPS rule 

based on more current data, including 

the finalized PFS GPCI and cost share 

weight values. 

As discussed in the CY 2014 PFS final 

rule with comment period (78 FR 74380 

through 74391), the CY 2015 PFS GPCI 

values reflect our most current updates 

of the underlying data sources and 

represent our best estimates of the 

geographic variation in the costs of 

furnishing physician services. In 

contrast, the CY 2014 GPCI values 

partially reflect the updates to the 

underlying data and MEI cost weights. 

Therefore, we will use the CY 2015 

GPCI values, as published in the CY 

2014 final rule with comment period, to 

model the geographic adjustments for 

the FQHC PPS rates as they represent 

the most current data. We note that the 

PFS cost share weights were finalized as 

proposed, and we will use the relative 

weights of the PFS work and PE GPCIs, 

as proposed and finalized, to calculate 

each locality’s FQHC GAF. 

For payments under the FQHC PPS, 

we believe it most appropriate to apply 

geographic adjustments consistent with 

those applied to services furnished 

under the PFS during the same period. 

Therefore, the FQHC GAFs and cost 

share weights will be updated in 

conjunction with updates to the PFS 

GPCIs, which would maintain 

consistency between the geographic 

adjustments applied to the PFS and the 

FQHC PPS in the same period. We note 

that the FQHC GAFs for October 1 

through December 31, 2014, will be 

adapted from the CY 2014 PFS GPCIs 

applicable during that same period. 

Subsequent updates to the FQHC GAFs 

will be made in conjunction with 

updates to the PFS GPCIs for the same 

period. 

We have considered the public 

comments we received, and are 

finalizing the FQHC GAF provisions as 

proposed, with some modifications. As 

proposed, we are revising § 405.2462 to 

require that payments under the FQHC 

PPS will be adjusted for geographic 

differences by applying an adaptation of 

the work and practice expense GPCIs 

used to adjust payment under the PFS. 

We are modifying § 405.2462 to specify 

that the FQHC GAFs used for payment 

will be adapted from the GPCIs used to 

adjust payment under the PFS for that 

same period. 

For modeling geographic adjustments 

for the FQHC PPS proposed rule, we did 

not use the proposed CY 2014 work and 

practice expense GPCIs that were 

published in the CY 2014 PFS proposed 

rule. Instead, for modeling the 

geographic adjustments for this FQHC 

PPS final rule, we used the final CY 

2015 work and practice expense GPCIs 

and cost shares that were published in 

the CY 2014 PFS final rule with 

comment period as the CY 2015 GPCI 

values represent the most recent fully 

implemented GPCI update and therefore 

more current data. More information on 

how we modeled the FQHC PPS 

geographic adjustment is discussed in 

section II.D. of this final rule with 

comment period. 

3. New Patient or Initial Medicare Visit 

Based on an analysis of claims data, 

we found that the estimated cost per 

encounter was approximately 33 

percent higher when a FQHC furnished 

care to a patient that was new to the 

FQHC or to a beneficiary receiving a 

comprehensive initial Medicare visit 

(that is, an IPPE or an initial AWV). We 

proposed to adjust the encounter rate to 

reflect the 33 percent increase in costs 

when FQHCs furnish care to new 

patients or when they furnish a 

comprehensive initial Medicare visit, 

which could account for the greater 

intensity and resource use associated 

with these types of services. Our 

proposed risk adjustment factor was 

1.3333. 

Comment: Commenters supported the 

proposed adjustments, but some 

recommended that we also apply the 

adjustment factor to subsequent AWVs. 

Commenters recommended that we 

allow an adjustment for subsequent 

AWVs in addition to initial AWVs in 

order to support the goal of improving 

health outcomes and increasing access 

to subsequent AWVs. Commenters also 

believe that the subsequent AWV is 

similar to the increased intensity of the 

IPPE and initial AWV, in terms of both 

the duration of the visits and the 

number of ancillary services furnished. 

Response: Subsequent AWV is a very 

small percent of total FQHC visits 

(approximately 0.25 percent), but the 

claims data suggest that subsequent 

AWV is significantly more costly than 

most other FQHC visits. The claims data 

also suggest that subsequent AWV is 

somewhat less costly than an IPPE or 

initial AWV, which is consistent with 

the comparatively reduced level of 

required physician work associated with 

the subsequent AWV. As previously 

noted, our goal for the FQHC PPS is to 

implement a system in accordance with 

the statute whereby FQHCs are fairly 

paid for the services they furnish to 

Medicare patients in the least 

burdensome manner possible. Rather 

than establish a separate adjustment for 

subsequent AWV, we will add the 

subsequent AWV to the proposed 

adjustment for new patient or initial 

Medicare visit. Based on current FQHC 

data, the composite group of new 

patient visits, IPPEs, initial AWVs, and 

subsequent AWVs is associated with 

34.16 percent higher estimated costs 

than other visits. 

In this final rule with comment 

period, we are modifying our proposal, 

and we will adjust the encounter rate to 

reflect the 34.16 increase in costs when 

FQHCs furnish care to new patients or 

when they furnish an IPPE, initial AWV, 

or subsequent AWV, which could 

account for the greater intensity and 

resource use associated with these types 

of services. Our composite risk 

adjustment factor for these types of 

visits is 1.3416. 

4. Other Adjustment Factors Considered 

We considered multiple other 

adjustments such as demographics (age 

and sex), clinical conditions, duration of 

the encounter, etc. However, we found 

many of these other adjustments to have 

limited impact on costs or to be too 

complex and largely unnecessary for the 

FQHC PPS. 

We calculated whether there were 

differences in resource use for mental 

health visits and preventive care visits 

when compared to medical care visits 

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using mathematical modeling 

techniques. We found that mental 

health encounters had approximately 1 

percent lower estimated costs per visit 

relative to medical care visits, and we 

did not consider this a sufficient basis 

for proposing a payment adjustment. We 

found that preventive care encounters 

had approximately 18 percent higher 

estimated costs per visit. This difference 

in resource use declined to an 8 percent 

higher estimated cost per visit after 

adjusting for the FQHC GAF and the 

proposed 1.3333 risk adjustment factor 

for a patient that is new to the FQHC or 

for a beneficiary receiving a 

comprehensive initial Medicare visit 

(that is, an IPPE or an initial AWV), 

indicating that a significant amount of 

preventive care visits were IPPEs or 

initial AWVs. We did not propose a 

payment reduction for preventive care 

encounters and we noted that a 

significant amount of the more costly 

preventive care encounters would 

otherwise be recognized and paid for 

with the proposed 1.3333 risk 

adjustment factor for a beneficiary 

receiving a comprehensive initial 

Medicare visit. 

We considered patient age and sex as 

potential adjustment factors as these 

demographic characteristics have the 

advantage of being objectively defined. 

However, both of these characteristics 

had a limited association with estimated 

costs, which did not support the use of 

these demographic characteristics as 

potential adjustment factors. 

We tested for an association between 

commonly reported clinical conditions 

and the estimated cost per visit. A 

number of clinical conditions were 

found to be associated with 

approximately 5 to 10 percent higher 

costs per visit, but we are concerned 

that claims might not include all 

potentially relevant secondary 

diagnoses, and that we would need to 

consider how to minimize the 

complexity of such an adjustment with 

a limited number of clinically 

meaningful groupings. 

We considered the duration of 

encounters (in minutes) as a potential 

adjustment factor. Many of the E/M 

codes commonly seen on FQHC claims 

are associated with average or typical 

times, and there was a strong 

association between these associated 

times and the estimated cost per 

encounter. However, these minutes are 

guidelines that reflect the face-to-face 

time between the FQHC practitioner and 

the beneficiary for that E/M service, and 

they would not indicate the total 

duration of the FQHC encounter. 

Moreover, many of the codes used to 

describe the face-to-face visit that 

qualifies an encounter, such as a 

subsequent AWV, are not associated 

with average or typical times. 

We considered adjusting payment 

based on the types of services furnished 

during a FQHC encounter. Our analysis 

of FQHC claims data indicates that 

information regarding ancillary services 

provided by FQHCs appears to be 

limited. As a result, there is a risk that 

adjustments for the types of services 

being provided would be based on 

incomplete information and result in 

payments under the PPS that do not 

accurately reflect the cost of providing 

those services. 

Comment: Several commenters 

recommended that CMS address the 

special circumstances facing Indian 

health providers by considering the 

inclusion of a low-volume upward 

adjustment, a population-density 

adjustment, and a service-mix 

adjustment to the PPS rate. These 

commenters stated that a volume 

adjustment is necessary because lowvolume tribal FQHCs find it more 

difficult to spread their costs across 

their patient base, and are less likely to 

obtain volume discounts and benefit 

from economies of scale. They also 

stated that many tribal FQHCs in rural 

areas furnish less complex or lower 

intensity services than urban providers, 

resulting in different payment-to-cost 

ratios that result in reimbursement 

inequities. 

Response: We appreciate the 

challenges that tribal FQHCs face in 

furnishing services, especially in rural 

and isolated areas, and the significant 

health disparities that remain for AI/AN 

populations. We also understand that 

providers in isolated and rural areas, 

including tribal FQHCs, may have fewer 

patients than providers in more densely 

populated areas, and may not be able to 

offer as full of a range or level of 

complexity in their services as other 

providers, or benefit from the economies 

of scale that providers with higher 

volume or in more densely populated 

areas may have. In developing the PPS 

rate, we considered various possible 

adjustments, including a low-volume 

adjustment. When analyzing Medicare 

claims data, lower overall FQHC volume 

was found to be associated with higher 

estimated costs (see ‘‘Results of 

Research on the Design of a Medicare 

Prospective Payment System for 

Federally Qualified Health Centers’’ by 

Arbor Research Collaborative for 

Health). However, we did not propose to 

include a low-volume adjustment, 

because we believe that the PPS rate, 

along with adjustments for new and 

initial visits and AWV, will provide 

appropriate reimbursement for the costs 

of services provided. 

Comment: Commenters were 

generally supportive of a single base rate 

with a geographic adjustment and an 

adjustment for new patients and initial 

Medicare visits. Some commenters 

recommended additional adjustments, 

such as: high acuity of patients; visit 

characteristics; multiple chronic 

conditions; encounters with more than 

two HCPCS codes on the claim; unique 

geographical differences among FQHCs; 

and dual eligible beneficiaries. 

Response: As discussed in the 

proposed rule, FQHC claims data 

regarding secondary diagnoses and 

ancillary services appears to be limited. 

As a result, there is a risk that the 

recommended adjustments, such as 

increased payments for high acuity, 

multiple chronic conditions, or 

encounters with multiple HCPCS, could 

be based on incomplete information. 

Our analyses of clinical conditions, 

encounter duration, and types of 

service, which considered the same or 

similar types of adjustments, found that 

these adjustments had limited impact 

on costs or were too complex for the 

FQHC PPS. Our analysis of more current 

data continues to support these 

conclusions. As discussed in section 

II.C.2. of this final rule with comment 

period, we believe it is appropriate to 

adjust for geographic differences among 

FQHCs using the GAF. 

We tested for an association between 

dual eligibility and the estimated cost 

per visit. On average, the estimated cost 

of a FQHC visit was 4 percent higher 

among dual eligible beneficiaries. After 

applying the GAF and the new patient/ 

initial visit adjustment to the model, the 

estimated cost of a FQHC visit was, on 

average, 0.4 percent higher among dual 

eligible beneficiaries. We do not believe 

that this slight variation in estimated 

cost justifies the added complexity of an 

additional payment adjustment for dual 

eligible beneficiaries. 

Comment: A commenter 

recommended that CMS include an 

upward adjustment for FQHCs that 

provide significant ‘‘enabling services.’’ 

The commenter believes that nonclinical services provided to patients to 

support care delivery, enhance health 

literacy, or facilitate access to care can 

reduce health disparities and improve 

outcomes for FQHC patients. 

Response: While FQHCs, including 

look-alikes, are required by section 330 

of the PHS Act to provide services that 

enable individuals to use the required 

primary health services that they 

provide, these services are not part of 

the Medicare FQHC benefit. 

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Comment: Some commenters believe 

that the PPS payment methodology 

removes incentives to provide fewer, 

more intensive visits and recommended 

that CMS increase payments to highperforming FQHCs that furnish efficient, 

integrated care. Some commenters 

recommended that CMS encourage 

expanded access to care, the 

development of medical homes, and 

horizontal networks of care by applying 

upward adjustments to FQHCs that offer 

value-added services, such as a broader 

scope of services, expanded hours, or 

teaching health centers. 

Response: While we appreciate the 

suggestions, neither the cost report nor 

the claims data contains sufficient 

information to assess the validity of 

commenters’ claims with respect to 

these types of adjustments. Moreover, 

the types of adjustments suggested by 

these commenters are beyond the scope 

of the FQHC PPS methodology. 

However, we are taking steps to foster 

innovation in how FQHCs deliver 

services to Medicare beneficiaries. For 

example, the FQHC Advanced Primary 

Care Practice (APCP) Demonstration, 

operated by CMS in partnership with 

HRSA, is designed to evaluate the effect 

of the advanced primary care practice 

model in improving care, promoting 

health, and reducing the cost of care 

provided to Medicare beneficiaries 

served by FQHCs. This demonstration is 

being conducted in accordance with the 

Secretary’s demonstration authority 

under section 1115A, which facilitates 

the development and expansion of 

successful payment models. For more 

information on the FQHC APCP, see 

http://www.fqhcmedicalhome.com/. 

Comment: A commenter noted that 

CMS did not include data from 

provider-based FQHCs in its costs 

calculations, asserted that providerbased FQHCs experience higher costs 

than freestanding FQHCs, and urged 

CMS to add an adjustment to ensure 

payments to provider-based FQHCs 

recognize their differential costs. 

Response: As discussed in section 

II.A.2. of this final rule with comment 

period, in developing the rates for this 

final rule with comment period, we 

included data from provider-based 

FQHCs in calculating the PPS rate. 

Under the FQHC PPS, Medicare 

payment for FQHC services is not based 

on an individual FQHC’s costs. The cost 

report and claims data do not support 

an adjustment for provider-based 

FQHCs. While the average cost per visit 

is somewhat higher for provider-based 

FQHCs than for freestanding FQHCs, 

none of the provider-based FQHCs were 

identified as outliers based on the 

average cost per visit from the cost 

reports, and only 0.4 percent of the 

encounters in the claims were identified 

as outliers based on estimated costs. 

5. Report on PPS Design and Models 

We contracted with Arbor Research 

for Collaborative Health to assist us in 

designing a PPS for FQHCs. Arbor 

Research modeled options for 

calculating payment rates and 

adjustments under a PPS based on data 

from Medicare FQHC cost reports and 

Medicare FQHC claims. A report 

detailing the options modeled in the 

development of the PPS was made 

available at http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/FQHCPPS/index.html. 

D. Base Rate Calculation 

We calculated a proposed base rate for 

the FQHC PPS by adjusting the average 

cost per visit to account for the 

proposed adjustment factors. We 

calculated a proposed average payment 

multiplier using the average FQHC GAF 

(0.9944) multiplied by the average risk 

adjustment for non-new patient/initial 

visits (1.0), as weighted by the percent 

of encounters that represented non new 

patient/initial visits (0.9722), and we 

added this to the average FQHC GAF 

(0.9944) multiplied by the average risk 

adjustment for new patient/initial visits 

(1.3333), as weighted by the percent of 

encounters that represented new 

patient/initial visits (0.0278): 

Proposed average payment multiplier = 

0.9721(1.00)(0.9944) + 

0.0279(1.3333)(0.9944) = 1.0036 

We calculated a proposed base rate 

amount by multiplying the reciprocal of 

the average payment multiplier by the 

average cost per visit. Using the average 

cost per daily visit: 

Proposed base rate per daily visit = 

$150.96 × (1/1.0036) = $150.42 

The proposed base rate per daily visit 

of $150.42 reflected costs through June 

30, 2012, and did not include an 

adjustment for price inflation. As the 

FQHC PPS is to be implemented 

beginning October 1, 2014, we proposed 

to update the base rate to account for the 

price inflation through September 30, 

2014, as measured by the MEI as 

finalized in the CY 2011 PFS final rule 

(75 FR 73262 through 73270). The MEI 

is an index reflecting the weightedaverage annual price change for various 

inputs involved in furnishing 

physicians’ services. The MEI is a fixedweight input price index, with an 

adjustment for the change in economywide, private nonfarm business 

multifactor productivity. 

We proposed to inflate the base rate 

by approximately 1.8 percent, reflecting 

the growth in the MEI from July 1, 2012 

through September 30, 2014. We also 

proposed to use a forecasted MEI update 

of 1.7 percent for the 15-month period 

of October 1, 2014, through December 

31, 2015, to calculate the first year’s 

base payment amount under the PPS. 

We also proposed if more recent data 

became available (for example, a more 

recent estimate of the FY 2006-based 

MEI), we would use such data, if 

appropriate, to determine the 15-month 

FQHC PPS update factor for the final 

rule. 

TABLE 1—PROPOSED BASE RATE PER DAILY VISIT

Total estimated costs Daily 

encounters 

Average 

payment 

multiplier 

Average cost 

per daily visit 

Estimated 

base rate without adjustment 

for price 

inflation 

MEI Update 

factor 

MEI-Adjusted 

base payment 

rate 

$788,547,531 ........................................... 5,223,512 1.0036 $150.96 $150.42 1.0364 $155.90 

Proposed MEI-adjusted base payment 

rate = $150.96 × (1/1.0036) × 1.0364 

= $155.90 

Thus, we proposed a base payment 

rate of $155.90 per beneficiary per visit 

for the proposed FQHC PPS. We noted 

that this base rate is subject to change 

in the final rule based on more current 

data. 

Proposed payments to FQHCs were 

calculated as follows: 

Proposed base payment rate × FQHC 

GAF = Proposed PPS payment 

In calculating the proposed payment, 

the proposed base payment rate was 

$155.90, and the FQHC GAF was based 

on the locality of the delivery site. 

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If the patient is new to the FQHC, or 

the FQHC is furnishing an initial 

comprehensive Medicare visit, we 

proposed that the payment would be 

calculated as follows: 

Proposed base payment rate × FQHC 

GAF × 1.3333 = Proposed PPS 

payment 

In calculating the proposed payment, 

1.3333 represented the risk adjustment 

factor applied to the PPS payment when 

FQHCs furnish care to new patients or 

when they furnish a comprehensive 

initial Medicare visit. 

To calculate the FQHC base rate for 

this final rule with comment period, we 

used updated data, the finalized 

adjustment factors, the finalized 

definition of a daily visit (as discussed 

in sections II.A.4. and II.B.1. of this final 

rule with comment period), and the 

finalized adjustment for a new patient, 

IPPE, initial AWV, and subsequent 

AWV (as discussed in section II.C.3. of 

this final rule with comment period). 

We calculated a final base rate for the 

FQHC PPS by adjusting the average cost 

per visit to account for the finalized 

adjustment factors. We calculated a final 

average payment multiplier using the 

average final FQHC GAF (0.9961) 

multiplied by the average risk 

adjustment for non-new patient/IPPE/

AWV (1.0), as weighted by the percent 

of encounters that represented non-new 

patient/IPPE/AWV (0.9683), and we 

added this to the average final FQHC 

GAF (0.9961) multiplied by the average 

risk adjustment for new patient/IPPE/

AWV (1.3416), as weighted by the 

percent of encounters that represented 

new patient/IPPE/AWV (0.0317): 

Final average payment multiplier = 

0.9683(1.00)(0.9961) + 

0.0317(1.3416)(0.9961) = 1.0069 

We calculated a final base rate 

amount by multiplying the reciprocal of 

the final average payment multiplier by 

the final average cost per visit. Using the 

average cost per daily visit: 

Final base rate per daily visit = $154.88 

× (1/1.0069) = $153.82 

We did not receive any comments on 

our use of the MEI to update the FQHC 

base rate. Our final data set reflects cost 

reporting periods ending between June 

30, 2011, and June 30, 2013. Given that 

the updated cost data typically has a 

midpoint that is close to the middle of 

2012, we are continuing to use June 30, 

2012, as the starting point for inflating 

prices forward. We are finalizing our 

proposal to update the FQHC base rate 

per daily visit for inflation using the 

growth as measured by the MEI from 

July 2012 through December 2015. The 

estimated base rate of $153.82 per diem 

is inflated through FY 2014 using the 

historical MEI market basket increase of 

1.8 percent. For the 15-month period 

October 1, 2014 through December 31, 

2015, we apply an update of 1.3 percent 

as measured by the 4th quarter 2013 

forecast of the MEI, the most recent 

forecast available at the time. The 

adjusted base payment that reflects the 

MEI historical updates and forecasted 

updates to the MEI is $158.85. This 

payment rate incorporates a combined 

MEI update factor of 1.0327 that trends 

dollars forward from July 1, 2012 

through December 31, 2015. 

TABLE 2—FINAL BASE RATE PER DAILY VISIT

Total estimated costs Daily 

encounters 

Average 

payment 

multiplier 

Average cost 

per daily visit 

Estimated 

base rate without adjustment 

for price 

inflation 

MEI Update 

factor 

MEI-Adjusted 

base payment 

rate 

$846,058,100 ........................................... 5,462,670 1.0069 $154.88 $153.82 1.0327 $158.85 

Final MEI-adjusted base payment rate = 

$154.88 × (1/1.0069) × 1.0327 = 

$158.85 

Thus, we are finalizing a base 

payment rate of $158.85 per beneficiary 

per day for the FQHC PPS, based on 

current data and the finalized policies. 

Payments to FQHCs were calculated 

as follows: 

Base payment rate × FQHC GAF = 

PPS payment 

In calculating the payment, the base 

payment rate was $158.85, and the 

FQHC GAF was based on the locality of 

the delivery site. 

If the patient is new to the FQHC, or 

the FQHC is furnishing an IPPE, initial 

AWV, or subsequent AWV, payment 

would be calculated as follows: 

Base payment rate × FQHC GAF × 

1.3416 = PPS payment 

In calculating the payment, 1.3416 

represents the risk adjustment factor 

applied to the PPS payment when 

FQHCs furnish care to new patients or 

when they furnish an IPPE, initial AWV, 

or subsequent AWV (see discussion in 

section II.C.3. of this final rule with 

comment period). 

E. Implementation 

1. Transition Period and Annual 

Adjustment 

Section 1834(o)(2) of the Act requires 

implementation of the FQHC PPS for 

FQHCs with cost reporting periods 

beginning on or after October 1, 2014. 

Cost reporting periods are typically 12 

months, and usually do not exceed 13 

months. Therefore, we expect that all 

FQHCs would be transitioned to the PPS 

by the end of 2015, or 15 months after 

the October 1, 2014 implementation 

date. 

FQHCs would transition into the PPS 

based on their cost reporting periods. 

We noted that a change in cost reporting 

periods that is made primarily to 

maximize payment would not be 

acceptable under established cost 

reporting policy (see § 413.24(f)(3) of the 

regulations and the Provider 

Reimbursement Manual Part I, section 

2414, and Part II, section 102.3). The 

claims processing system will maintain 

the current system and the PPS until all 

FQHCs have transitioned to the PPS. 

We proposed to transition the PPS to 

a calendar year update for all FQHCs, 

beginning January 1, 2016, because 

many of the PFS files we proposed to 

use are updated on a calendar year 

basis. Section 1834(o)(2)(B)(ii)(I) of the 

Act requires us to adjust the FQHC PPS 

rate by the percentage increase in the 

MEI for the first year after 

implementation. However, while 

transitioning the PPS to a calendar year, 

we proposed to defer the first MEI 

statutory adjustment to the PPS rate 

from October 1, 2015 to December 31, 

2016, because the proposed base 

payment rate incorporates a forecasted 

percentage increase in the MEI through 

December 31, 2015. 

Comment: Many commenters 

requested that FQHCs be permitted to 

transition into the FQHC PPS beginning 

on October 1, 2014, even if that is not 

the beginning of their cost reporting 

period. 

Response: As we stated in the 

proposed rule, a change in cost 

reporting periods that is made primarily 

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to maximize payment would not be 

acceptable under established cost 

reporting policy. This principle has 

been applied uniformly to the 

implementation of all new prospective 

payment systems in Medicare. The 

MACs do not have the discretion to 

transition a FQHC at a time other than 

their cost reporting period except when 

a FQHC has a change of ownership 

resulting in a different cost reporting 

period, or otherwise has good cause. 

Good cause is not met if it is determined 

that the reason is to maximize 

reimbursement. 

Comment: Many commenters 

requested that we create a FQHCspecific market basket beginning in 

2016 for the annual update to the PPS 

rate. These commenters opined that a 

FQHC-specific market basket would 

more accurately reflect the actual costs 

of FQHC services than using the MEI. A 

commenter requested that the FQHC 

market basket take into account changes 

in the scope of services that FQHC 

furnish. 

Response: We will continue to assess 

the feasibility of developing a FQHCspecific market basket and will provide 

notification of our intentions in 

subsequent rulemaking. 

We did not receive any comments on 

our proposal to transition the PPS to a 

calendar year update for all FQHCs, 

beginning January 1, 2016. Therefore, 

we are finalizing this provision as 

proposed. 

2. Medicare Claims Payment 

We noted that claims processing 

systems would need to be revised 

through program instruction to 

accommodate the new rate and 

associated adjustments. Medicare 

currently pays 80 percent of the AIR for 

all FQHC claims, except for mental 

health services that are subject to the 

mental health payment limit. Section 

1833(a)(1)(Z) of the Act requires that 

Medicare payment under the FQHC PPS 

shall be 80 percent of the lesser of the 

provider’s actual charge or the PPS rate. 

In the proposed rule, we stated that we 

were considering several revisions to 

the claims processing system. These 

include revisions to reject claims in 

which the qualifying visit described a 

service that is outside of the FQHC 

benefit, such as inpatient hospital E/M 

services or group sessions of DSMT/

MNT; revisions to reject line items for 

technical components such as x-rays, 

laboratory tests, and durable medical 

equipment which will not be paid as 

part of the FQHC PPS and would be 

billed separately to Medicare Part B; and 

revisions to allow for the informational 

reporting of influenza and 

pneumococcal vaccines and their 

administration, while excluding the line 

item charges, as these items would 

continue to be paid through the cost 

report. 

Comment: Commenters identified the 

‘‘lesser of’’ provision in section 

1833(a)(1)(Z) of the Act as their most 

significant concern with the proposed 

rule. This provision requires that 

Medicare payment for FQHC services 

furnished under the PPS to equal ‘‘80 

percent of the lesser of the actual charge 

or the amount determined under’’ 

section 1834(o) of the Act. Many 

commenters were concerned that paying 

FQHCs the lesser of the actual charge or 

the PPS rate will routinely underpay 

FQHCs and undermine the purpose of 

the PPS. These commenters believe the 

PPS would be inappropriately 

comparing a per diem rate for a typical 

bundle of services with a charge or sum 

of charges for individual services. Some 

FQHCs also claim that they keep their 

charges low across all payers because 

they serve an underserved population, 

which will cap their Medicare FQHC 

payments at these low charge rates. 

Commenters recommended that if the 

‘‘lesser of’’ provision must be 

implemented, it would be more 

appropriate for Medicare to compare the 

PPS rate to the FQHC’s average charge 

per visit from the prior year, trended 

forward by the MEI or a FQHC-specific 

inflationary factor. 

Response: We appreciate the 

information and perspectives provided 

by the commenters and will address 

each of these points individually. 

Comment: Commenters opined that 

CMS lack the statutory authority to 

implement the ‘‘lesser of’’ provision 

because section 1833(a)(1) of the Act 

generally excludes FQHC services, and 

that even if we determine that CMS has 

the authority to apply the ‘‘lesser of’’ 

provision, the statutory deficiencies 

would allow CMS to be flexible in 

implementing this provision. 

Response: We respectfully disagree 

with commenters that the statutory basis 

of the ‘‘lesser of’’ provision is not clear. 

We find the language in section 

1833(a)(1)(Z) of the Act, which states 

‘‘with respect to Federally qualified 

health center services for which 

payment is made under section 1834(o) 

of the Act, the amounts paid shall be 80 

percent of the lesser of the actual charge 

or the amount determined under such 

section’’ to be clear, and we believe that 

placement of this provision in section 

1833(a)(1) of the Act does not 

undermine its authority. 

Comment: Commenters noted that 

due to the ‘‘lesser of’’ provision, initial 

payments under the PPS would be less 

than 100 percent of the estimated 

amount of reasonable costs, and this 

does not meet the budget neutrality 

requirement in the Affordable Care Act. 

Response: We respectfully disagree 

with commenters that we should have 

factored the ‘‘lesser of’’ provision into 

our budget neutrality calculations. 

Section 1834(o)(2)(B)(i) of the Act 

requires us to calculate a PPS rate that, 

when multiplied by our estimates of 

services, will yield 100 percent of 

estimated reasonable costs. Although we 

must apply the ‘‘lesser of’’ provision in 

section 1833(a)(1)(Z) of the Act when 

paying FQHCs under the PPS, section 

1834(o)(2)(B)(i) of the Act specifies that 

the estimated aggregate amount of 

prospective payment rates is to be 

determined prior to the application of 

section 1833(a)(1)(Z) of the Act. 

Comment: Commenters asserted that 

CMS did not provide sufficient 

information about the ‘‘lesser of’’ 

provision in the proposed rule, such as 

defining the term ‘‘charge’’ or providing 

an analysis of the effect of the ‘‘lesser 

of’’ provision on FQHC payments under 

the PPS. Commenters urged CMS to 

clarify implementation details in the 

final rule and to give the public another 

opportunity to comment after 

publishing this information. 

Commenters requested that CMS grant a 

2- to 3-year moratorium on the ‘‘lesser 

of’’ provision, while beginning to pay 

the PPS rates as of October 1, 2014. 

Response: We believe the statutory 

language in section 1833(a)(1)(Z) of the 

Act requiring a comparison with the 

provider’s ‘‘actual charge’’ is 

straightforward. Moreover, the 

regulatory principles of reasonable cost 

reimbursement in § 413.53(b) already 

defines ‘‘charges’’ as ‘‘the regular rates 

for various services that are charged to 

both beneficiaries and other paying 

patients who receive the services.’’ We 

did not include all the implementation 

details in the proposed rule because 

claims processing instructions are not 

typically subject to regulatory notice 

and comment. 

The proposed rule modeled the 

impact of the PPS using the estimated 

PPS rate, and did not model the overall 

impact of the ‘‘lesser of’’ provision 

because FQHCs control their own 

pricing structures, and we have limited 

information to accurately project actual 

FQHC charges. Therefore, we believe it 

would have been inappropriate to 

publish an analysis demonstrating the 

impact of the ‘‘lesser of’’ provision. 

Comment: Some commenters claimed 

that FQHCs keep their charges low 

across all payers because they serve an 

underserved population. A few 

commenters asserted that the costs of 

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integrated care furnished to 

beneficiaries are not adequately 

reflected in the HCPCS codes and 

charges billed to Medicare. Commenters 

were concerned that, in order to receive 

the higher payments under the PPS, 

FQHCs would be forced to raise their 

charges, which would increase the 

coinsurance liability for patients who do 

not qualify for a sliding fee schedule 

discount. 

Response: Most FQHCs are subject to 

the requirements in the section 

330(k)(3)(G) of the PHS Act, which 

states that FQHCs prepare ‘‘a schedule 

of fees or payments for the provision of 

its services consistent with locally 

prevailing rates or charges and designed 

to cover its reasonable costs of operation 

and has prepared a corresponding 

schedule of discounts to be applied to 

the payment of such fees or payments, 

which discounts are adjusted on the 

basis of the patient’s ability to pay.’’ 

FQHCs can adjust their charges 

within the broad parameters established 

by the PHS Act and HRSA guidance, 

and the application of a sliding fee scale 

can subsidize an eligible patient’s outof-pocket liability. The commenter is 

correct that coinsurance liability 

generally increases when charges 

increase, and that this is a consideration 

for FQHCs when setting charges. We 

also note that, under certain 

circumstances, FQHCs may waive 

coinsurance amounts for Medicare and 

Medicaid beneficiaries (see for example, 

section 1128B(b)(3)(D) of the Act and 

§ 1001.952(k)(2) of the regulations). 

Also, most FQHCs are subject to the 

statutory and regulatory requirements of 

the Health Center Program (section 330 

of the PHS Act; 42 CFR Part 51c; and 42 

CFR 56.201 through 56.604), which, 

among other requirements, mandates 

that they may collect no more than a 

‘‘nominal fee’’ from individuals whose 

annual income is at or below 100 

percent of the Federal Poverty Level. 

Comment: A few commenters 

recommended that we apply the ‘‘lesser 

of’’ provision at the aggregate level 

through an annual reconciliation on the 

Medicare cost report of aggregate 

payments with aggregate charges. These 

commenters noted that this aggregate 

approach averages out lower charges for 

low intensity services with higher 

charges for high intensity services. 

Some commenters suggested that we 

conduct an annual reconciliation on the 

Medicare cost report to determine 

whether aggregate PPS payments 

exceeded or fell short of aggregate 

allowable costs, using costs as a proxy 

for actual charges. 

Response: We believe that the 

statutory language in section 

1833(a)(1)(Z) of the Act requiring a 

comparison with the provider’s ‘‘actual 

charge’’ is straightforward, and a 

comparison of aggregate payments with 

aggregate charges would be inconsistent 

with the plain reading of the statutory 

language that implies a claims level 

comparison. We also were not 

persuaded that costs are a reasonable 

proxy for charges. We note that in 

general, a Medicare PPS is a method of 

paying providers based on a 

predetermined, fixed amount that is not 

subject to annual reconciliation. 

Payments under a Medicare PPS for 

other provider types are not subject to 

annual reconciliation with a provider’s 

charge, and an annual reconciliation of 

costs for providers paid under a 

Medicare PPS is generally limited to 

amounts paid outside the applicable 

PPS. 

Comment: Many commenters believe 

that the proposed PPS would 

inappropriately compare a per diem rate 

for a typical bundle of services with a 

charge or sum of charges for individual 

services furnished on the same day, 

which commenters described as an 

‘‘apples to oranges’’ comparison. 

Commenters asserted that comparing 

the bundled rate to the sum of 

individual charges would routinely 

yield underpayment and make it 

difficult for FQHCs to meet their 

obligation under section 330 of the PHS 

Act that requires health centers to 

collect adequate payment from 

government programs, including 

Medicare. Commenters recommended 

that if the ‘‘lesser of’’ provision must be 

implemented, it would be more 

appropriate for CMS to implement the 

‘‘lesser of’’ provision in a way that 

ensures parity between the rate(s) and 

charges to which they are compared. 

Commenters suggested that CMS 

compare the PPS rate to the FQHC’s 

average charge per visit, as determined 

on an annual basis and trended forward 

by an applicable inflation factor (for 

example, the MEI or a FQHC-specific 

inflationary index). 

A commenter suggested that FQHCs 

should be allowed to bill all-inclusive 

rate charges under the FQHC PPS. This 

commenter noted that the proposed PPS 

rate is based on cost report data that are 

not adequately reflected in the HCPCS 

codes and charges billed to Medicare, 

and the commenter believes it would be 

appropriate for FQHCs to bill an allinclusive rate. The commenter 

suggested that it would be appropriate 

for FQHCs to set the charge for a 

Medicare visit at the higher of its 

Medicare or Medicaid PPS rate to avoid 

a reimbursement loss from application 

of the ‘‘lesser of’’ provision. This 

commenter also suggested that ancillary 

services should be billed and paid by 

Medicare over and above the allinclusive PPS rates. 

Response: Most Medicare payment 

systems that have a ‘‘lesser of’’ 

provision in section 1833(a)(1) of the 

Act are paid on a fee basis for each item 

or service. While unbundling the PPS 

rate to pay separately for individual 

services would address the ‘‘apples-tooranges’’ concern, we note that most of 

the commenters recommending that we 

compare the PPS rate with the FQHC’s 

average charge also supported our 

proposal to offer a single, bundled, 

encounter-based rate for payment with 

some adjustments, as discussed earlier. 

We believe that the proposed FQHC PPS 

encounter-based rate, which would be 

similar across all encounters, is a 

significantly different payment structure 

than other payment systems subject to a 

‘‘lesser of’’ comparison with actual 

charges. We acknowledge that a 

comparison of a service-specific charge 

to an encounter-based payment does not 

apply the ‘‘apples-to-apples’’ 

comparisons of similar ‘‘lesser of’’ 

provisions included in section 

1833(a)(1) of the Act. 

We considered modifying our 

proposal and adopting the 

recommendation of many commenters 

to pay FQHCs based on the lesser of the 

FQHC’s average Medicare charge per 

diem or the PPS rate. We agree that such 

an approach would be responsive to 

commenters seeking parity in the 

comparison between the bundled PPS 

rate and the charges. However, we 

believe that the statutory language in 

section 1833(a)(1)(Z) of the Act 

requiring a comparison with the 

provider’s ‘‘actual charge’’ is 

straightforward, and a comparison with 

the FQHC’s average charge from a prior 

period would be inconsistent with the 

plain reading of the statutory language. 

We believe we can be responsive to 

commenters seeking parity in the 

comparison between the bundled PPS 

rate and the charges, while allowing 

direct interpretation of the statutory 

requirements of section 1833(a)(1)(Z) of 

the Act, by establishing a new set of 

HCPCS G-codes for FQHCs to report an 

established Medicare patient visit, a 

new or initial patient visit and an IPPE 

or AWV. As authorized by section 

1834(o)(2)(C) of the Act, we shall 

establish and implement by program 

instruction the payment codes to be 

used under the FQHC PPS. We would 

define these G-codes in program 

instruction to describe a FQHC visit in 

accordance with the regulatory 

definitions of a Medicare FQHC visit. 

Each FQHC would establish a charge to 

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the beneficiary with which to bill 

Medicare for the encounters. Consistent 

with longstanding policy, the use of 

these payment codes does not dictate to 

providers how to set their charges. A 

FQHC would set the charge for a 

specific payment code pursuant to its 

own determination of what would be 

appropriate for the services normally 

provided and the population served at 

that FQHC, based on the description of 

services associated with the G-code. The 

charge for a specific payment code 

would reflect the sum of regular rates 

charged to both beneficiaries and other 

paying patients for a typical bundle of 

services that would be furnished per 

diem to a Medicare beneficiary. We 

would continue to require detailed 

HCPCS coding with the associated line 

item charges for data gathering (for 

example, providing information about 

the ancillary services furnished), to 

support the application of adjustments 

for new patients, IPPE, and AWV, and 

to facilitate the waiving of coinsurance 

for preventive services. 

FQHCs will be required to use these 

payment codes when billing Medicare 

under the PPS. Medicare would pay 

FQHCs based on 80 percent of the lesser 

of the actual charge reported for the 

specific payment code or the PPS rate 

on each claim (and beneficiary 

coinsurance would be 20 percent of the 

lesser of the actual charge for the G-code 

or the PPS rate), which allows for direct 

interpretation of the statute by 

comparing the PPS rate to the FQHC’s 

actual charge for a Medicare visit. In 

order to ease administrative burden and 

in compliance with § 413.53, the FQHC 

may choose to use these specific 

payment codes for its entire patient 

base. We acknowledge that other payors 

may have requirements that would 

preclude FQHCs from using these 

payment codes, and we suggest that 

FQHCs be mindful of the differences in 

required billing methodologies and 

coding conventions when submitting 

claims to other payors. 

Although we did not propose to 

establish HCPCS G-codes for FQHCs to 

report and bill for Medicare visits, we 

believe that comparing the PPS per 

diem rate to a FQHC’s charge for a per 

diem visit (as defined by the specific 

payment codes) would be responsive to 

commenters seeking parity in the 

comparison between the bundled rate 

and the charges, and would also be 

responsive to commenters concerns 

regarding meeting the requirements of 

section 330(k)(3)(F) of the PHS Act, 

which requires section 330 grantees to 

make every reasonable effort to collect 

appropriate reimbursement for its costs 

in providing health services from 

government programs, including 

Medicare. Establishment of these Gcodes would also be responsive to the 

commenter that suggested that FQHCs 

should be allowed to bill all-inclusive 

rate charges under the FQHC PPS. Since 

the G-codes would describe FQHC visits 

as a per diem, encounter-based visit in 

accordance with Medicare regulations, 

we also note that the charges established 

for these Medicare visits might not 

directly affect the charges for nonMedicare patients. 

In setting its charges for these 

Medicare FQHC visits, a FQHC would 

have to comply with established cost 

reporting rules in § 413.53 which 

specify that charges must reflect the 

regular rates for various services that are 

charged to both beneficiaries and other 

paying patients who receive the 

services. We anticipate that each FQHC 

would establish charges for the 

Medicare FQHC visits that would reflect 

the sum of regular rates charged to both 

beneficiaries and other paying patients 

for a typical bundle of services that the 

FQHC would furnish per diem to a 

Medicare beneficiary. We note that 

establishing Medicare per diem rates 

that are substantially in excess of the 

usual rates charged to other paying 

patients for a similar bundle of services 

could be subject to section 1128(b)(6) of 

the Act, as codified in § 1001.701. 

We disagree with the commenter’s 

suggestion that ancillary services should 

be billed and paid by Medicare over and 

above the all-inclusive PPS rate because 

the costs of these ancillary services were 

included in the reasonable costs used to 

calculate the PPS rates. 

After consideration of the public 

comments received, we are finalizing 

our proposal and the revised regulations 

at § 405.2462 to pay FQHCs based on 

the lesser of the PPS rate or the actual 

charge. In response to the public 

comments, we will also establish 

HCPCS G-codes for FQHCs to report and 

bill FQHC visits to Medicare under the 

FQHC PPS. Appropriate billing 

procedures for the G codes will be made 

through program instruction. As we did 

not propose the establishment of Gcodes in the proposed rule, nor did we 

receive public comments specifically 

requesting such codes, we invite 

comments on the establishment of Gcodes for FQHCs to report and bill 

FQHC visits to Medicare under the 

FQHC PPS. 

3. Beneficiary Coinsurance 

Section 1833(a)(1)(Z) of the Act 

requires that FQHCs be paid ‘‘80 percent 

of the lesser of the actual charge or the 

amount determined under such 

section’’. Under the current reasonable 

cost payment system, beneficiary 

coinsurance for FQHC services is 

assessed based on the FQHC’s charge, 

which can be more than coinsurance 

based on the AIR, which is based on 

costs. An analysis of a sample of FQHC 

Medicare claims data for dates of service 

between January 1, 2011 through June 

30, 2013 indicated that beneficiary 

coinsurance based on 20 percent of the 

FQHCs’ charges was approximately $29 

million higher, or 20 percent more, than 

if coinsurance had been assessed based 

on 20 percent of the lesser of the 

FQHC’s charge or the applicable allinclusive rate. 

Section 1833(a)(1)(Z) of the Act 

requires that Medicare payment under 

the FQHC PPS should be 80 percent of 

the lesser of the actual charge or the PPS 

rate. Accordingly, we proposed that 

coinsurance would be 20 percent of the 

lesser of the FQHC’s charge or the PPS 

rate. We believe that the proposal to 

change the method to determine 

coinsurance is consistent with the 

statutory change to the FQHC Medicare 

payment and is consistent with 

statutory language in sections 

1866(a)(2)(A) and 1833(a)(3)(A) of the 

Act and elsewhere that addresses 

coinsurance amounts and Medicare cost 

principles. If finalized as proposed, total 

payment to the FQHC, including both 

Medicare and beneficiary liability, 

would not exceed the FQHC’s charge or 

the PPS rate (whichever was less). 

Comment: Several commenters 

recommended that if CMS makes 

changes to the coinsurance provisions 

in the payment regulation at 

§ 405.2462(d) in response to comments 

on the ‘‘lesser of’’ provision, CMS 

should make corresponding revisions to 

the coinsurance regulation at 

§ 405.2410. 

Response: The coinsurance provisions 

in § 405.2462(d) and § 405.2410 have 

been updated in this final rule with 

comment period. 

Comment: Commenters noted that 

calculating the amount of coinsurance 

to be charged a patient is a significant 

administrative responsibility for FQHCs. 

Commenters were concerned that a 

comparison of the PPS rate with charges 

at the point of service would be 

administratively complex and 

unnecessarily burdensome for FQHCs, 

and FQHCs would have difficulty 

calculating the beneficiary’s 

coinsurance liability at point of service. 

Response: We respectfully disagree 

that FQHCs would have difficulty 

calculating a beneficiary’s coinsurance 

liability at point of service. A FQHC will 

set its own charge, and we believe the 

charge amount is likely to be available 

at point of service. We also believe that 

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FQHCs will be able to estimate the PPS 

rate at time of service. We proposed to 

apply a FQHC GAF based on where the 

services are furnished, and we proposed 

to adjust the encounter rate when 

FQHCs furnish care to new patients or 

when they furnish a comprehensive 

initial Medicare visit. We are finalizing 

our proposal to apply a FQHC GAF, and 

we are modifying our proposal and will 

adjust the encounter rate when FQHCs 

furnish new patient visits, IPPEs, or 

AWVs. Therefore, each delivery site 

would have two geographically adjusted 

PPS rates for each period: One rate for 

a visit furnished to a patient who is not 

new to the FQHC and is not receiving 

an IPPE or AWV, and one rate for a new 

patient visit, IPPE or AWV that is 

eligible for an adjustment. At the point 

of service, a FQHC could determine 

whether its own charge or its estimate 

of the applicable PPS rate (which would 

be one of two discrete values) is lower, 

and the FQHC could estimate 

beneficiary coinsurance at point of 

service based on 20 percent of the lesser 

amount. We note that the remittance 

advice issued by the MAC will continue 

to include the coinsurance amount and 

will reflect the amount of coinsurance 

recognized by Medicare. 

Comment: A few commenters wanted 

coinsurance to be based on charges, 

even when the charges are higher than 

the PPS rate. Some also questioned our 

legal authority to assess coinsurance at 

20 percent of the lesser of the charge or 

the PPS rate. 

Response: Under the current 

reasonable cost payment system, 

beneficiary coinsurance for FQHC 

services is assessed based on the 

FQHC’s charge, and we acknowledge 

that the statute makes no specific 

provision to revise the coinsurance to be 

20 percent of the lesser of the FQHC’s 

charge or the PPS rate, although it does 

state clearly that CMS is limited to 

paying 80 percent of the FQHC’s charge 

or the PPS rate, whichever is less. We 

continue to believe that the proposal to 

change the method to determine 

coinsurance is consistent with the 

statutory change to the FQHC Medicare 

payment and is consistent with 

statutory language in sections 

1866(a)(2)(A) and 1833(a)(3)(A) of the 

Act and elsewhere that addresses 

coinsurance amounts and Medicare cost 

principles. These sections were not 

repealed by the Affordable Care Act and 

continue to provide legal authority for 

FQHCs to seek coinsurance payments 

from Medicare beneficiaries. 

After consideration of the public 

comments received, we are finalizing 

these provisions as proposed and 

revising the regulations at § 405.2462(d) 

and § 405.2410(b)(2) that beneficiary 

coinsurance for payments under the 

FQHC PPS would generally be 20 

percent of the lesser of the FQHC’s 

charge or the PPS rate. We note that the 

proposed revision to 

§ 405.2410(b)(1)(ii)(A) regarding the 

deductible and coinsurance amount for 

RHCs is not being finalized as proposed 

as it inadvertently changed the intent of 

the regulation and will therefore remain 

as stated in the current regulation. 

4. Waiving Coinsurance for Preventive 

Services 

As provided by section 4104 of the 

Affordable Care Act, effective January 1, 

2011, Medicare waives beneficiary 

coinsurance for eligible preventive 

services furnished by a FQHC. Medicare 

requires detailed HCPCS coding on 

FQHC claims to ensure that coinsurance 

is not applied to the line item charges 

for these preventive services. 

For FQHC claims that include a mix 

of preventive and non-preventive 

services, we proposed that Medicare 

contractors compare payment based on 

the FQHC’s charge to payments based 

on the PPS encounter rate and pay the 

lesser amount. However, the current 

approach to waiving coinsurance for 

preventive services, which relies solely 

on FQHC reported charges, would be 

insufficient under the FQHC PPS. As 

Medicare payment under the FQHC PPS 

is required to be 80 percent of the lesser 

of the FQHCs charge or the PPS rate, we 

also need to determine the coinsurance 

waiver for payments based on the PPS 

rate. 

We considered using the proportion 

of the FQHC’s line item charges for 

preventive services to total claim 

charges to determine, as a proxy, the 

proportion of the FQHC PPS rate that 

would not be subject to coinsurance. 

This approach would preserve the 

encounter-based rate while basing the 

coinsurance reduction on each FQHC’s 

relative assessment of resources for 

preventive services. However, the 

charge structure among FQHCs varies, 

and beneficiary liability for the same 

mix of FQHC services could differ 

significantly based on the differences in 

charge structures. 

Where preventive services are coded 

on a claim, we proposed to use 

payments under the PFS to determine 

the proportional amount of coinsurance 

that should be waived for payments 

based on the PPS encounter rate. While 

Part B drugs that are physicianadministered and routine venipuncture 

will be paid under the FQHC PPS rate, 

we noted that the Medicare Part B rates 

for these items are not included in the 

PFS payment files. Therefore, when 

determining this proportionality of 

payments, we proposed that we would 

also consider PFS payment limits for 

Part B drugs, as listed in the Medicare 

Part B Drug Pricing File, and the 

national payment amount for routine 

venipuncture (HCPCS 36415). Although 

FQHCs might list HCPCS for which we 

do not publish a payment rate in these 

files, a review of 2011 claims data 

indicated that the vast majority of line 

items with HCPCS representing services 

that will be paid under the FQHC PPS 

were priced in these sources. As such, 

we believe that referencing only the 

payment rates listed in these sources 

would be both sufficient and 

appropriate for determining the amount 

of coinsurance to waive for preventive 

services furnished in FQHCs, without 

changing the total payment (Medicare 

and coinsurance). Since Medicare 

payment under the FQHC PPS is 

required to be 80 percent of the lesser 

of the FQHC’s charges or the PPS rate, 

we proposed that we would continue to 

use FQHC-reported charges to 

determine the amount of coinsurance 

that should be waived for payments 

based on the FQHC’s charge, and that 

total payment to the FQHC, including 

both Medicare and beneficiary liability, 

would not exceed the lesser of the 

FQHC’s charge or the PPS rate. 

Our proposed approach for waiving 

coinsurance for preventive services 

preserves an encounter-based rate, and 

the calculation is similar to the current 

coinsurance calculation based on 

charges. We acknowledged that this 

calculation is fairly complex for the 

claims processing systems and may also 

be difficult for providers to replicate, 

and that FQHCs might not know how 

much coinsurance would be assessed 

before the MAC issues the remittance 

advice. 

As an alternative approach, we 

considered unbundling all services 

when a FQHC claim includes a mix of 

preventive and non-preventive services, 

excluding these types of claims from 

calculation of the FQHC base encounter 

rate, and use payments under the 

Medicare PFS to pay separately for 

every service listed on the claim. While 

this approach is inconsistent with an 

all-inclusive payment, it would simplify 

waiving coinsurance for preventive 

services and pay preventive services 

comparably to PFS settings. However, 

the vast majority of FQHC claims list 

only one HCPCS, and unbundling all 

services introduces coding complexity 

that might underpay FQHCs for an 

encounter if they do not code all 

furnished ancillary services. In addition, 

because the cost of these services is 

generally lower that other services, 

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payment for preventive services under 

the PFS will be less, in many cases, than 

the FQHC PPS encounter rate. 

Instead of unbundling all services 

when a FQHC claim includes a mix of 

preventive and nonpreventive services, 

we considered the use of PFS payment 

rates to pay separately for preventive 

services billed on the FQHC claim, 

while paying for the non-preventive 

services under the FQHC PPS rate. 

However, this would be problematic 

when the preventive services represent 

the service that would qualify the claim 

as a FQHC encounter (for example, 

IPPE, AWV, MNT). Under current 

payment policy, the remaining ancillary 

services would not be eligible for an 

encounter payment without an 

additional, qualifying visit on the same 

date of service. 

We also considered using the dollar 

value of the coinsurance that would be 

waived under the PFS to reduce the 

FQHC encounter-based coinsurance 

amount when preventive services 

appear on the claim. However, this 

could lead to anomalous results, such as 

negative coinsurance if the preventive 

service(s) would have been paid more 

under the PFS than the FQHC PPS rate, 

and the amount of coinsurance waived 

under the PFS would exceed 20 percent 

of the FQHC PPS rate. We also were 

concerned that the reduction in 

coinsurance would seem insufficient if 

the payment rate for the preventive 

service(s) was very low under the PFS. 

We discussed whether using the 

proportionality of PFS payments to 

determine the coinsurance waiver 

would facilitate the waiving of 

coinsurance for preventive services 

while preserving the all-inclusive nature 

of the encounter-based rate with the 

least billing complexity. Therefore, we 

proposed that where preventive services 

are coded on a claim, we would use 

payments under the PFS to determine 

the proportional amount of coinsurance 

that should be waived for payments 

based on the PPS encounter rate, and we 

invited public comment on how this 

proposal would impact a FQHC’s’ 

administrative procedures and billing 

practices. 

Comment: Commenters noted that we 

did not specify that Medicare will pay 

for the coinsurance waiver, and some 

were concerned that our proposals to 

waive coinsurance for preventive 

services would require FQHCs to forego 

20 percent of the total payment amount. 

Commenters requested that we clarify 

that Medicare will pay 100 percent for 

preventive services, with payment for a 

visit with a preventive and nonpreventive component equal to the total 

payment less the coinsurance assessed. 

Commenters also urged us to specify the 

rules for waiving coinsurance in the 

regulations text. 

Response: Under § 410.152, Medicare 

Part B pays 100 percent of the Medicare 

payment amount established under the 

applicable payment methodology for the 

service setting. In the CY 2011 Medicare 

PFS final rule (75 FR 73417 through 

73419, November 29, 2010) we included 

a detailed discussion regarding 

preventive services covered under the 

FQHC benefit, and we clarified that we 

would apply the coinsurance waiver in 

the FQHC setting. We implemented the 

billing requirements for waiving 

coinsurance in the FQHC setting 

through program instruction (CMS Pub. 

100–04, Medicare Claims Processing 

Manual, Chapter 9, Section 120). 

Our discussion and proposals in the 

FQHC PPS proposed rule were not 

intended to change the general 

requirements with respect to waiving 

coinsurance for preventive services in 

the FQHC setting. Medicare will 

continue to pay 100 percent for 

preventive services furnished in the 

FQHC setting as part of a FQHC visit. 

Rather, we proposed revisions to the 

methodology used to waive coinsurance 

for preventive services to ensure that 

our operational approach would be 

compatible with payments under an allinclusive FQHC PPS encounter-based 

system. 

We agree that it would be appropriate 

to codify the general rules for waiving 

coinsurance in the regulations text, and 

we will modify the proposed regulatory 

text at § 405.2410 and § 405.2462 to 

reflect existing requirements that apply 

the coinsurance waiver in the FQHC 

setting, subject to the billing 

requirements of the applicable payment 

methodology. However, we believe that 

the details of implementation would be 

more appropriate to include in program 

instruction, and we plan to implement 

the procedures for waiving coinsurance 

for preventive services furnished by 

FQHCs as an update to the billing 

requirements for preventive services. 

Comment: Commenters requested that 

we add information to the Medicare 

Claims Processing Manual clarifying the 

list of services to which the coinsurance 

waiver requirement applies. 

Response: A table of services subject 

to the coinsurance waiver is available in 

CMS Pub. 100–04, Medicare Claims 

Processing Manual, Chapter 18, Section 

1.2. 

Comment: Commenters were 

concerned that it would be too complex 

and burdensome for FQHCs to calculate 

the coinsurance at point of service using 

the proposed methodology for claims 

with a mix of preventive and nonpreventive services that would be paid 

using the PPS rate. Most commenters 

requested that CMS rethink this 

calculation to simplify how coinsurance 

would be assessed for these types of 

claims. Commenters recommended that 

CMS completely waive coinsurance and 

pay 100 percent of the PPS rate for any 

FQHC encounter that includes a 

preventive service, whether the 

preventive service represented the faceto-face portion of the visit or an 

ancillary service. Commenters asserted 

that this would be easier to administer 

and more consistent with the Congress’s 

intent to eliminate barriers to the 

provision of preventive services. 

Response: While a complete 

coinsurance waiver for these types of 

claims would be a simple approach, we 

do not believe that we have the 

authority to waive coinsurance 

completely whenever a preventive 

service is furnished during a FQHC 

encounter without regard to the value of 

the preventive service relative to all 

other services furnished during the 

same encounter. 

We agree that the proposed approach 

is complex and might be difficult for 

providers to replicate. Our own analysis 

subsequent to publication of the 

proposed rule led us to conclude that 

the benefits of the proposed 

methodology would be outweighed by 

the complexity of the systems changes 

and ongoing systems interactions that 

would be needed to implement the 

methodology as proposed. 

We reconsidered the other 

methodologies for waiving coinsurance 

presented in the proposed rule. 

However, we believe that these options 

would also be difficult for providers to 

replicate at point of service. 

We proposed that we would continue 

to use FQHC-reported charges to 

determine the amount of coinsurance 

that should be waived for payments 

based on the FQHC’s charge. We 

believed that the current approach to 

waiving coinsurance for preventive 

services, which relies solely on FQHC 

reported charges, would be insufficient 

under the FQHC PPS for payments 

based on the FQHC PPS rate. 

In response to commenters that 

requested that CMS rethink this 

calculation to simplify how coinsurance 

would be assessed for these types of 

claims, we reconsidered whether the 

current approach to waiving 

coinsurance for preventive services 

when payments are based on the 

FQHC’s charge could be adapted to 

payments based on the FQHC PPS rate. 

After reconsideration of how 

coinsurance could be assessed, we now 

believe that the current approach is 

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feasible and relatively simple to apply 

to payments based on the FQHC PPS 

rate, with certain modifications. 

If we were to apply the current 

approach of waiving coinsurance for 

preventive services under the new 

FQHC PPS, we would subtract the 

dollar value of the FQHC’s reported 

line-item charge for the preventive 

service from the full payment amount, 

whether payment is based on the 

FQHC’s charge or the PPS rate. 

Medicare would pay the FQHC 100 

percent of the dollar value of the 

FQHC’s reported line-item charge for 

the preventive service, up to the total 

payment amount. Medicare also would 

pay a FQHC 80 percent of the remainder 

of the full payment amount, and we 

would assess beneficiary coinsurance at 

20 percent of the remainder of the full 

payment amount. If the reported lineitem charge for the preventive service 

equals or exceeds the full payment 

amount, we would pay 100 percent of 

the full payment amount and the 

beneficiary would not be responsible for 

any coinsurance. 

We believe that the relative simplicity 

of this revised methodology is 

responsive to commenters that 

requested a simpler calculation that 

would be easier to replicate at point of 

service, and a coinsurance waiver based 

on the reported line item charges will be 

more transparent to beneficiaries. We 

also believe that the similarity to the 

current approach for waiving 

coinsurance for preventive services will 

be simpler for Medicare claims 

processing systems to implement. 

After consideration of the public 

comments received, we will not finalize 

the process for calculating the 

coinsurance as proposed, and instead 

will modify the proposed regulatory text 

at § 405.2410 and § 405.2462 based on 

the comments received. Specifically, we 

will use the current approach to waiving 

coinsurance for preventive services, 

whether total payment is based on the 

FQHC’s charge or the PPS rate, by 

subtracting the dollar value of the 

FQHC’s reported line-item charge for 

the preventive services from the full 

payment amount. We will issue further 

guidance on the billing procedures 

through program instruction. We invite 

comments on this approach to waiving 

coinsurance for preventive services 

based on the dollar value of the FQHC’s 

reported line-item charge for preventive 

services. 

5. Cost Reporting 

Under section 1815(a) of the Act, 

providers participating in the Medicare 

program are required to submit financial 

and statistical information to achieve 

settlement of costs relating to health 

care services rendered to Medicare 

beneficiaries. This information is 

required for determining Medicare 

payment for FQHC services under Part 

405, Subpart X. 

Currently, the Medicare cost reporting 

forms show the costs incurred and the 

total number of visits for FQHC services 

during the cost reporting period. Using 

this information, the MAC determines 

the total payment amount due for 

covered services furnished to Medicare 

beneficiaries. The MAC compares the 

total payment due with the total 

payments made for services furnished 

during the reporting period. If the total 

payment due exceeds the total payments 

made, the difference is made up by a 

lump sum payment. If the total payment 

due is less than the total payments 

made, the overpayment is collected. 

Under the FQHC PPS, Medicare 

payment for FQHC services will be 

made based on the lesser of a 

predetermined national rate or the 

FQHC charge. For services included in 

the FQHC per diem payment, Medicare 

cost reports would not be used to 

reconcile Medicare payments with 

FQHC costs. However, the statute does 

not exempt FQHCs from submitting cost 

reports. In addition, Medicare payments 

for the reasonable costs of the influenza 

and pneumococcal vaccines and their 

administration, allowable graduate 

medical education costs, and bad debts 

would continue to be determined and 

paid through the cost report. We noted 

that we are considering revisions to the 

cost reporting forms and instructions 

that would provide us with information 

that would improve the quality of our 

cost estimates, such as the reporting of 

a FQHC’s overall and Medicare specific 

CCR, and the types of cost data that 

would facilitate the potential 

development of a FQHC market basket 

that could be used in base payment 

updates after the second year of the PPS. 

We noted that we are also exploring 

whether we have audit resources to 

include FQHCs in the pool of 

institutional providers that are subject 

to periodic cost report audits. 

Comment: A commenter requested 

that CMS consider suspending the 

required submission of annual cost 

reports once all FQHCs have 

transitioned to the FQHC PPS. 

Response: The statute does not 

exempt FQHCs from submitting cost 

reports. In addition, we continue to 

need cost reports for payments to 

FQHCs that are outside of the PPS, to 

update our cost estimates, and to 

facilitate the potential development of a 

FQHC market basket. 

6. Medicare Advantage Organizations 

Section 10501(i)(3)(C) of the 

Affordable Care Act added section 

1833(a)(3)(B)(i)(II) to the Act to require 

that FQHCs that contract with MA 

organizations be paid at least the same 

amount they would have received for 

the same service under the FQHC PPS. 

This provision ensures FQHCs are paid 

at least the Medicare amount for FQHC 

services, whether such amount is set by 

section 1833(a)(3) of the Act or section 

1834(o) of the Act. Consistent with 

current policy, if the MA organization 

contract rate is lower than the amount 

Medicare would otherwise pay for 

FQHC services, FQHCs that contract 

with MA organizations would receive a 

wrap-around payment from Medicare to 

cover the difference (see § 422.316). If 

the MA organization contract rate is 

higher than the amount Medicare would 

otherwise pay for FQHC services, there 

is no additional payment from 

Medicare. We proposed to revise 

§ 405.2469 to reflect this provision. 

Comment: A few commenters 

requested clarification that wrap-around 

payments will be established based on 

the PPS rate, as modified by any 

applicable adjusters, and not based on 

the FQHC’s charge, if such charge is less 

than the PPS rate. 

Response: FQHCs that have a written 

contract with a MA organization are 

paid by the MA organization at the rate 

that is specified in their contract, and 

the rate must reflect rates for similar 

services furnished outside of a FQHC 

setting. If the contracted rate is less than 

the Medicare PPS rate, Medicare will 

pay the FQHC the difference, referred to 

as a wrap-around payment, less any cost 

sharing amounts owed by the 

beneficiary. The PPS rate is subject to 

the FQHC GAF, and may also be 

adjusted for a new patient visit or if a 

IPPE or AWV is furnished. The 

supplemental payment is only paid if 

the contracted rate is less than the 

adjusted PPS rate. 

Comment: Commenters requested that 

CMS issue guidance discouraging MA 

plans from applying any deductible 

under the MA plan to FQHC services. 

Response: MA plans are not subject to 

section 1833(b)(4) of the Act and 

therefore are not required to waive 

application of the Medicare deductible 

to beneficiaries in FQHCs. Guidance on 

this topic is beyond the scope of this 

final rule with comment period. 

After consideration of the public 

comments received, we are finalizing 

this provision as proposed. 

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III. Additional Proposed Changes 

Regarding FQHCs and RHCs 

A. Rural Health Clinic Contracting 

Due to the difficulty in recruiting and 

retaining physicians in rural areas, 

RHCs have had the option of using 

physicians who are either RHC 

employees or contractors. However, in 

order to promote stability and 

continuity of care, the Rural Health 

Clinic Services Act of 1977 required 

RHCs to employ a nurse practitioner 

(NP) or physician assistant (PA) (section 

1861(aa)(2)(iii) of the Act). We have 

interpreted the term ‘‘employ’’ to mean 

that the employer issues a W–2 form to 

the employee. Section 405.2468(b)(1) 

currently states that RHCs are not paid 

for services furnished by contracted 

individuals other than physicians, and 

§ 491.8(a)(3) does not authorize RHCs to 

contract with RHC practitioners other 

than physicians. 

In the more than 30 years since this 

legislation was enacted, the health care 

environment has changed dramatically, 

and RHCs have requested that they be 

allowed to enter into contractual 

agreements with non-physician RHC 

practitioners as well as physicians. To 

provide RHCs with greater flexibility in 

meeting their staffing requirements, we 

proposed to revise § 405.2468(b)(1) by 

removing the parenthetical ‘‘RHCs are 

not paid for services furnished by 

contracted individuals other than 

physicians, ’’ and revising § 491.8(a)(3) 

to allow non-physician practitioners to 

furnish services under contract in RHCs, 

when at least one NP or PA is 

employed. 

The ability to contract with NPs, PAs, 

CNMs, CP, and CSWs would provide 

RHCs with additional flexibility with 

respect to recruiting and retaining nonphysician practitioners. Practitioners 

should be employed or contracted to the 

RHC in a manner that enhances 

continuity and quality of care. 

RHCs would still be required, under 

section 1861(aa)(2)(iii) of the Act, to 

employ a PA or NP. However, as long 

as there is at least one NP or PA 

employed at all times (subject to the 

waiver provision for existing RHCs set 

forth at section 1861(aa)(7) of the Act), 

a RHC would be free to enter into 

contracts with other NPs, PAs, CNM, 

CPs or CSWs. 

We received approximately 14 

comments from individuals, hospitals, 

rural health clinics, national 

associations, and tribal organizations on 

this proposal. Commenters agreed that 

this would provide RHCs with 

additional flexibility and improve 

access to care. Some commenters also 

noted that this would reduce certain 

costs. 

Comment: A commenter requested 

that CMS allow all PAs and NPs who 

work at a RHC to do so as contractors 

to allow maximum flexibility in the 

clinic’s staffing operations. 

Response: As previously noted, 

section 1861(aa)(2)(iii) of the Act 

requires RHCs to employ at least one NP 

or PA. We do not have the authority to 

remove this requirement. However, we 

note that as long as the statutory 

requirement that at least one NP or PA 

is employed is met, the RHC can 

contract with other NPs or PAs. 

Comment: A commenter 

recommended that we interpret the 

word ‘‘employ’’ to mean ‘‘utilize, use, or 

engage the services of’’ so that 

independent contractors could meet the 

statutory requirement that at least one 

NP or PA be employed. 

Response: We appreciate the 

suggestion but since we did not propose 

to change our interpretation of the word 

‘‘employ’’, this comment is beyond the 

scope of this rule. We note however, 

that as of the effective date of this 

provision of this final rule with 

comment period, only one PA or NP 

will be required to be in a W–2 

relationship with the RHC, and that all 

other RHC practitioners can be either 

employees or contractors. 

After consideration of the public 

comments received, we are finalizing 

this provision as proposed. 

B. Technical and Conforming Changes 

1. Proposed Technical and Conforming 

Changes 

In addition to proposing to codify the 

statutory requirements for the FQHC 

PPS and to allow RHCs to contract with 

non-physician practitioners, we 

proposed edits to correct terminology, 

clarify policy, and make conforming 

changes for existing mandates and the 

new PPS. Some of the proposed changes 

include the following: 

• Removing the terms ‘‘fiscal 

intermediary and carriers’’ and 

replacing them with ‘‘Medicare 

Administrative Contractor’’ or ‘‘MAC’’. 

Section 911 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 established 

the MACs to administer the work that 

was done by fiscal intermediaries and 

carriers in administering Medicare 

programs. 

• Removing the payment limitations 

for treatment of mental psychoneurotic 

or personality disorders. This payment 

limitation is being phased out and will 

no longer be in effect beginning January 

1, 2014. 

• Updating the regulations to reflect 

section 410 of the Medicare 

Modernization Act of 2003 to exclude 

RHC and FQHC services furnished by 

physicians and certain other specified 

types of nonphysician practitioners 

from consolidated billing under section 

1888(e)(2)(A)(ii) of the Act and allows 

such services to be separately billable 

under Part B when furnished to a 

resident of a SNF during a covered Part 

A stay (see the July 30, 2004 final rule 

(69 FR 45818 through 45819). This 

statutory provision was effective with 

services furnished on or after January 1, 

2005 and was previously implemented 

through program instruction (CMS Pub 

100–04, Medicare Claims Processing 

Manual, Chapter 6, Section 20.1.1). 

We did not receive any comments on 

these technical proposals and we are 

finalizing these provisions as proposed. 

2. Additional Technical and Conforming 

Changes 

We did not propose the following 

changes, but based on our review of the 

rule, we make the following clarifying 

and editorial changes: 

• Updating § 405.501 and § 410.152 

to clarify that this provision on the 

determination of reasonable charges 

continues to apply to FQHCs that are 

authorized to bill under the reasonable 

cost payment system, and does not 

apply to FQHCs that are authorized to 

bill under the PPS. 

• Updating § 410.152 to clarify that 

this provision continues to apply to 

FQHCs that are authorized to bill under 

the reasonable cost payment system, 

and does not apply to FQHCs that are 

authorized to bill under the PPS. 

• Updating § 405.2468 (f)(4) to reflect 

the change in name from ‘‘Medicare + 

Choice’’ organization to ‘‘Medicare 

Advantage’’ organization. 

• Updated § 405.2415(a)(2) and (b) to 

clarify that these provisions apply to 

FQHCs. 

• Updated § 405.2404(b) to make the 

references to the Secretary gender 

neutral. 

C. Comments Outside of the Scope of 

the Proposed Rule 

Comment: Many commenters 

requested that all FQHCs be assigned to 

one MAC instead of each FQHC being 

assigned to a MAC based on their 

geographic location. Commenters 

believe that assigning FQHCs to 

multiple MACS results in confusion and 

inconsistency as each MAC can issue 

different instructions concerning the 

FQHC benefit and associated billing 

requirements. 

Response: Section 421.404 describes 

how FQHCs as well as other providers 

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and suppliers are assigned to a MAC; 

changes to the MAC assignments are 

beyond the scope of this rule. 

Comment: A few commenters 

requested that CMS revise the definition 

of telehealth so that FQHCs could be 

distant site providers of telehealth 

services. 

Response: Distant site providers of 

telehealth services are defined in 

section 1834(m) of the Act. We made no 

provision relating to telehealth and this 

topic is beyond the scope of this rule. 

Comment: A commenter requested 

that PAs be allowed to individually 

enroll as Medicare and Medicaid 

providers and bill for their services. 

Response: Section 1842(b) of the Act 

prohibits PAs from directly billing 

Medicare. This topic is beyond the 

scope of this rule. 

Comment: A commenter requested 

that CMS mandate that states pay 

FQHCs their full Medicaid encounter 

rate for any Medicare-Medicaid 

enrollees. 

Response: This is currently a state 

option and this topic is beyond the 

scope of this rule. 

IV. Clinical Laboratory Improvement 

Amendments of 1988 (CLIA)— 

Enforcement Actions for Proficiency 

Testing Referral 

A. Background 

On October 31, 1988, the Congress 

enacted the Clinical Laboratory 

Improvement Amendments of 1988 

(CLIA), Public Law 100–578. The 

purpose of CLIA is to ensure the 

accuracy and reliability of laboratory 

testing for all Americans. Under this 

authority, which was codified at 42 

U.S.C. 263a, the Secretary issued 

regulations implementing CLIA (see 42 

CFR part 493) on February 28, 1992 (57 

FR 7002). The regulations specify the 

standards and specific conditions that 

must be met to achieve and maintain 

CLIA certification. CLIA certification is 

required for all laboratories, including 

but not limited to those that participate 

in Medicare and Medicaid, which test 

human specimens for the purpose of 

providing information for the diagnosis, 

prevention, or treatment of any disease 

or impairment, or the assessment of 

health, of human beings. 

The regulations require laboratories 

conducting moderate or highcomplexity testing to enroll in an HHSapproved PT program that covers all of 

the specialties and subspecialties for 

which the laboratory is certified and all 

analyses listed in part 493 Subpart I. As 

of June 2013, there were 239,922 CLIAcertified laboratories. Of these 

laboratories, 35,035 are required to 

enroll in an HHS-approved PT program 

and are subject to all PT regulations. 

Congress emphasized the importance 

of PT when it drafted the CLIA 

legislation. For example, in discussing 

their motivation in enacting CLIA, the 

Committee on Energy and Commerce 

noted that it ‘‘focused particularly on 

proficiency testing because it is 

considered one of the best measures of 

laboratory performance’’ and that 

proficiency testing ‘‘is arguably the most 

important measure, since it reviews 

actual test results rather than merely 

gauging the potential for good results.’’ 

(See H.R. Rept. 100–899, at 15 (1988).) 

The Committee surmised that, left to 

their own devices, some laboratories 

would be inclined to treat PT samples 

differently than their patient specimens, 

as they would know that the laboratory 

would be judged based on its 

performance in analyzing those 

samples. For example, such laboratories 

might be expected to perform repeated 

tests on the PT sample, use more highly 

qualified personnel than are routinely 

used for such testing, or send the 

samples out to another laboratory for 

analysis. As such practices would 

undermine the purpose of PT, the 

Committee noted that the CLIA statute 

was drafted to bar laboratories from 

such practices, and to impose 

significant penalties on those who elect 

to violate those bars (H.R. Rept. 100– 

899, at 16 and 24 (1988)). 

PT is a valuable tool the laboratory 

can use to verify the accuracy and 

reliability of its testing. During PT, an 

HHS-approved PT program sends 

samples to be tested by a laboratory on 

a scheduled basis. After testing the PT 

samples, the laboratory reports its 

results back to the PT program for 

scoring. Review and analyses of PT 

reports by the laboratory director will 

alert the director to areas of testing that 

are not performing as expected and may 

also indicate subtle shifts or trends that, 

over time, could affect patient results. 

As there is no on-site, external proctor 

for PT testing in a laboratory, the testing 

relies in large part on an honor system. 

The PT program places heavy reliance 

on each laboratory and laboratory 

director to self-police their analyses of 

PT samples to ensure that the testing is 

performed in accordance with the CLIA 

requirements. For each PT event, 

laboratories are required to attest that 

PT samples are tested in the same 

manner as patient specimens are tested. 

PT samples are to be assessed by 

integrating them into the laboratory’s 

routine patient workload, and the 

testing itself is to be conducted by the 

personnel who routinely perform such 

testing, using the laboratory’s routine 

methods. The laboratory is barred from 

engaging in inter-laboratory 

communication pertaining to results 

prior to the PT program’s event cut-off 

date and must not send the PT samples 

or any portion of the PT samples to 

another laboratory for testing, even if it 

would normally send a patient 

specimen to another laboratory for 

testing. 

Any laboratory that intentionally 

refers its PT samples to another 

laboratory for analysis risks having its 

certification revoked for at least 1 year, 

in which case, any owner or operator of 

the laboratory risks being prohibited 

from owning or operating another 

laboratory for 2 years (§ 493.1840(a)(8) 

and (b)). The phrase ‘‘intentionally 

referred’’ has not been defined by the 

statute or regulations, but we have 

consistently interpreted this phrase 

from the onset of the program to mean 

general intent, as in intention to act. 

Whether or not acts are authorized or 

even known by the laboratory’s 

management, a laboratory is responsible 

for the acts of its employees. Among 

other things, laboratories need to have 

procedures in place and train employees 

on those procedures to prevent staff 

from forwarding PT samples to other 

laboratories even in instances in which 

they would normally forward a patient 

specimen for testing. 

In the February 7, 2013 Federal 

Register (78 FR 9216), we published a 

proposed rule titled Part II—Regulatory 

Provisions to Promote Program 

Efficiency, Transparency, and Burden 

Reduction (hereafter referred to as the 

‘‘Burden Reduction proposed rule’’) to 

propose reforms to the Medicare and 

CLIA regulations that we had identified 

as unnecessary, obsolete or excessively 

burdensome. In that rule, we proposed 

changes to the CLIA PT regulations to 

establish policies under which certain 

PT referrals by laboratories would 

generally not be subject to revocation of 

their CLIA certificate or a 2-year 

prohibition on laboratory ownership or 

operation. To do this, we proposed a 

narrow exception in our longstanding 

interpretation of what constitutes an 

‘‘intentional’’ PT referral. 

While that proposed rule was under 

development but before its publication, 

the Congress enacted the Taking 

Essential Steps for Testing Act of 2012 

(Pub. L. 112–202, (TEST Act) on 

December 4, 2012. The TEST Act 

amended section 353 of the PHS Act to 

provide the Secretary with discretion as 

to which sanctions she would apply to 

cases of intentional PT referral. 

In the February 7, 2013 Burden 

Reduction proposed rule (78 FR 9216), 

we stated that we would address the 

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TEST Act in future rulemaking, except 

that to comply with the TEST Act and 

begin to align the CLIA regulations with 

the amended CLIA statute, we proposed 

to revise the second sentence of 

§ 493.801(b)(4) to state that a laboratory 

may (as opposed to ‘‘must’’) have its 

CLIA certification revoked when we 

determine PT samples were 

intentionally referred to another 

laboratory. 

Subsequently, in the September 23, 

2013 (78 FR 58386) proposed rule 

addressing the FQHC PPS and other 

topics, we proposed additional changes 

to the CLIA regulations to implement 

the TEST Act. 

The regulatory changes in this final 

rule with comment period will add the 

remaining policies and regulatory 

changes needed to fully implement the 

TEST Act. 

B. Proposed and Final Regulatory 

Changes 

As noted earlier, the TEST Act 

provided the Secretary with the 

discretion to substitute intermediate 

sanctions in lieu of the 2-year 

prohibition on the owner and operator 

when a CLIA certificate is revoked due 

to intentional PT referral, and to 

consider imposing alternative sanctions 

in lieu of revocation in such cases as 

well. The TEST Act provides the 

Secretary with the opportunity to frame 

policies that will achieve a better 

correlation between the nature and 

extent of intentional PT referrals at a 

given laboratory, and the scope and type 

of sanctions or corrective actions that 

are imposed on that laboratory and its 

owners and operators, as well as any 

consequences to other laboratories 

owned or operated by those owners and 

operators. 

As discussed later in this section, we 

are finalizing the regulatory changes 

proposed in the September 23, 2013 

proposed rule, which will divide the 

sanctions for PT referral into three 

categories based on severity and extent 

of the referrals. The first category is for 

the most egregious violations, 

encompassing cases of repeat PT referral 

or cases where a laboratory reports 

another laboratory’s test results as its 

own. In such cases, we do not believe 

that alternative sanctions alone would 

be appropriate. Therefore, we proposed 

to revoke the CLIA certificate for at least 

1 year, ban the owner and operator from 

owning or operating a CLIA-certified 

laboratory for at least 1 year, and 

possibly impose a civil monetary 

penalty (CMP). 

In keeping with the February 7, 2013 

proposed rule (78 FR 9216), we 

proposed to define, at § 493.2, a ‘‘repeat 

proficiency testing referral’’ as ‘‘a 

second instance in which a proficiency 

testing sample, or a portion of a sample, 

is referred, for any reason, to another 

laboratory for analysis prior to the 

laboratory’s proficiency testing program 

event cut-off date within the period of 

time encompassing the two prior survey 

cycles (including initial certification, 

recertification, or the equivalent for 

laboratories surveyed by an approved 

accreditation organization).’’ 

We believe that a repeat PT referral 

warrants revocation of a laboratory’s 

CLIA certificate for at least 1 year 

because such laboratories have already 

been given opportunity to review their 

policies, correct their deficiencies, 

adhere to regulation and to the 

laboratory’s established policy, and 

ensure effective training of their 

personnel. As there is no on-site, 

external proctor for PT testing in a 

laboratory, the testing relies in large part 

on an honor system. Therefore, when a 

PT referral has previously occurred 

prior to the event cut-off date within the 

two prior survey cycles, we do not 

believe that laboratories should be given 

additional opportunities to ensure that 

they are meeting the CLIA PT 

requirements and believe that 

revocation of the CLIA certificate should 

consequently occur. We also proposed, 

in the first category, that the CLIA 

certificate be revoked, and the owner 

and operator banned from owning or 

operating a CLIA-certified laboratory for 

at least 1 year, in cases where the PT 

sample was referred to another 

laboratory, the referring laboratory 

received the results from the other 

laboratory, and the referring laboratory 

reported to the PT program the other 

laboratory’s results on or before the 

event cut-off date. We noted that PT 

programs place heavy reliance on each 

laboratory and laboratory director’s 

ability to self-police the laboratory’s 

analysis of PT samples to ensure that 

the testing is performed in accordance 

with the CLIA requirements. PT scores 

must reflect an individual laboratory’s 

performance-reporting results from 

another laboratory is deceptive to the 

public. These are the most egregious 

forms of PT referral and merit the most 

severe sanctions. 

For example, a laboratory may have 

two distinct sites, Laboratory A and 

Laboratory B, that operate under 

different CLIA numbers, where 

Laboratory A has received PT samples 

to be tested as part of its enrollment in 

PT as required by the CLIA regulations. 

If Laboratory A were to refer PT samples 

to Laboratory B, receive test results back 

at Laboratory A from Laboratory B prior 

to the event cutoff date, and report to 

the PT program those results obtained 

from Laboratory B, the scores for the PT 

event would not reflect the performance 

of Laboratory A, but rather the 

performance of Laboratory B. Since the 

PT scores would actually be reflective of 

the accuracy and reliability at 

Laboratory B rather than A, the purpose 

of the PT would be undermined. 

Further, as stated in the CLIA 

regulations at § 493.801(a)(4)(ii), the 

laboratory must make PT results 

available to the public. In this scenario, 

any member of the public who sought 

to use the reported PT scores to select 

a high-quality laboratory would be 

deceived by the scores for the results 

submitted to the PT program, as they 

would expect that they were provided 

information about the performance of 

Laboratory A when that would not be 

the case. 

In cases of PT referral where the CLIA 

certificate is revoked, the TEST Act 

provides the Secretary with discretion 

to ban the owner and operator from 

owning or operating a CLIA-certified 

laboratory for up to 2 years. Prior to the 

TEST Act, revocation of a CLIA 

certificate for a PT violation always 

triggered a 2-year ban on the owner and 

operator. Given the severity of 

violations involving repeat PT referrals 

or the reporting of another laboratory’s 

results, we proposed that the laboratory 

owner and operator would be banned 

from owning or operating a CLIAcertified laboratory for at least 1 year for 

any violation within this first category 

of sanctions. 

We also proposed a second category 

of sanctions under which the CLIA 

certificate would be suspended or 

limited (rather than revoked), in 

combination with the imposition of 

alternative sanctions. We proposed to 

use this approach in those instances in 

which a laboratory refers PT samples to 

a laboratory that operates under a 

different CLIA number before the PT 

event close date and, while the 

laboratory reports its own results to the 

PT program, it receives results from the 

second laboratory prior to the event 

close date. Such a referral situation 

would allow the referring laboratory an 

opportunity to confirm, check, or 

change its results prior to reporting its 

results to the PT program. If, upon 

investigation, surveyors determine that 

the referral does not constitute a repeat 

PT referral, we proposed to suspend or 

limit the CLIA certificate for less than 1 

year rather than revoke the CLIA 

certificate, and proposed that we also 

impose alternative sanctions (as an 

alternative to revocation of the CLIA 

certificate). Further, an alternative 

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sanction would always include required 

training of staff. 

A suspension of the CLIA certificate 

means that no testing of human 

specimens for health care purposes may 

be performed by that laboratory during 

the period of suspension. In such cases, 

the owner or operator typically 

contracts out for laboratory services, or 

contracts with another operator to 

operate the laboratory under the 

contracted laboratory’s CLIA certificate. 

In contrast to revocation of the CLIA 

certificate and its accompanying ban on 

the owner and operator, suspension 

usually applies only to the individual 

laboratory in question rather than all 

laboratories that are under the control of 

the owner or operator. 

A limitation of the CLIA certificate 

means that the laboratory is not 

permitted to perform testing or to bill 

Medicare or Medicaid for laboratory 

work in the specialty or subspecialty 

that has been limited, but may continue 

to conduct all other testing under its 

own CLIA certificate. 

In determining whether to suspend or 

limit the CLIA certificate, we proposed 

to apply the criteria of § 493.1804(d). 

For example, we would examine the 

extent of the PT referral practice as well 

as its duration. If surveyors determine 

that, in the previous two survey cycles, 

there were prior PT referrals that 

occurred but were not cited by CMS, 

then the CLIA certificate would always 

be suspended rather than just limited. 

The duration of the suspension would 

reflect the number of samples referred, 

the period of time the referrals had been 

occurring, the extent of the practice, and 

other criteria specified at § 493.1804(d). 

Further, for cases in the second 

category, we proposed that when the 

certificate is suspended or limited, 

alternative sanctions would be applied 

in addition to the principal sanctions of 

suspension or limitation. We proposed 

that, at a minimum, the alternative 

sanctions would include a CMP to be 

determined using the criteria set forth in 

§ 493.1834, as well as a directed plan of 

correction. Additionally, if the CLIA 

certificate is suspended, we proposed to 

also impose state on-site monitoring of 

the laboratory. 

A third category of sanctions was 

proposed for those PT referral scenarios 

in which the referring laboratory does 

not receive test results prior to the event 

cut-off date from another laboratory as 

a result of the PT referral. We proposed 

that in such scenarios, at a minimum, 

the laboratory would always be required 

to pay a CMP as calculated using the 

criteria set forth in § 493.1834, as well 

as comply with a directed plan of 

correction. A directed plan of correction 

would always include training of staff. 

For example, a laboratory may place 

PT samples in an area where other 

patient specimens are picked up by 

courier to take to a reference laboratory. 

The reference laboratory courier may 

take the PT samples along with the 

patients’ specimens. The laboratory 

personnel notice that the PT samples are 

missing and contact the reference 

laboratory to inquire if they have 

received the PT samples along with the 

patients’ specimens. The reference 

laboratory is instructed to discard the 

PT samples and not test them since they 

were picked up in error. In this case, the 

‘‘referring’’ laboratory realized the error, 

contacted the receiving laboratory, and 

did not receive results back for any of 

the PT samples. In this scenario, we 

proposed to impose only alternative 

sanctions. In determining whether to 

impose particular alternative sanctions, 

we proposed to rely on the existing 

considerations at § 493.1804(c) and (d), 

§ 493.1806(c), § 493.1807(b), § 493.1809 

and, in the case of civil money 

penalties, § 493.1834(d). These current 

regulations have proven effective as 

enforcement measures over time for 

CLIA noncompliance for all 

circumstances other than PT referral. 

Therefore, we expressed our belief that 

these same criteria will be effective in 

the imposition of alternative sanctions 

for PT referral cases. 

In summary, we proposed to amend 

§ 493.1840 by revising paragraph (b) to 

specify three categories for the 

imposition of sanctions for PT referrals. 

We believed that these provisions, as 

amended, would provide the necessary 

detail to fairly and uniformly apply the 

discretion granted to the Secretary 

under the TEST Act, without being so 

specific as to defeat the intent to 

provide appropriate flexibility when 

taking punitive or remedial action in the 

context of a PT referral finding. 

We also proposed to make three 

conforming changes to the CLIA 

regulations at the authority citation for 

§ 493 and at § 493.1 and § 493.1800(a)(2) 

to include references to the PHS Act as 

amended by the TEST Act. 

We received 14 timely public 

comments on the proposed changes to 

the CLIA regulations to implement the 

enforcement discretion for PT referral 

cases as provided by the TEST Act. The 

comments came from a variety of 

sources, including laboratory 

accreditation organizations, laboratory 

professional organizations, medical 

societies, health care systems, and a 

professional corporation. In general, 

commenters supported and favored the 

changes to the regulations governing 

enforcement actions for PT referral. The 

majority of commenters agreed that the 

three categories were reasonable and 

would allow CMS to respond to PT 

referrals in a measured approach. 

However, a few commenters expressed 

concern that our proposed approach to 

enforcement was too prescriptive and 

would not allow for full use of the 

discretion afforded by the TEST Act. 

Because of the nature and consequences 

of the enforcement actions for PT 

referral, the seriousness of a PT referral 

violation, and the heavy reliance on 

each laboratory and laboratory director 

to self-police their analysis of PT 

samples to ensure that the testing is 

performed in accordance with the CLIA 

requirements, we developed a 

prescriptive framework for enforcement 

actions in order to apply sanctions in a 

comprehensive, reasonable, and 

consistent approach. We respond to 

specific comments as follows: 

Comment: A few commenters stated 

that waived laboratories should be 

exempt from penalties associated with 

PT referral since they are not required 

by law to participate in PT. 

Response: While this comment is 

outside the scope of this rule, we would 

like to clarify that the CLIA statute (42 

U.S.C. 263a) states that laboratories 

holding a certificate of waiver are only 

exempt from subsections (f) and (g) of 

the statute. All other subsections apply, 

including the prohibition against PT 

referral and the statutory consequences 

established in subsection (i), which 

refers to ‘‘any laboratory’’ that the 

Secretary determines has intentionally 

referred its PT samples. Therefore, the 

statutory requirements under subsection 

(i) do apply to waived laboratories that 

participate in PT and waived 

laboratories are not exempt from the ban 

against the referral of PT samples and 

the penalties required when PT referral 

has been substantiated. 

Comment: A commenter questioned 

how CMS will ensure regional offices 

and state surveyors are consistent in the 

application of these changes and the 

associated enforcement. 

Response: We will continue using the 

current process that requires all 

suspected PT referral cases to be 

reviewed by the CMS Regional Office 

and also forwarded to CMS Central 

Office for additional review by a team 

of experts. The team will continue to 

thoroughly review every case to 

determine whether the facts support a 

determination of PT referral and, if so, 

which category of sanctions will be 

applied. Written survey and 

enforcement guidance and training will 

be provided to the regional offices and 

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state agencies and will be made publicly 

available. 

Comment: Several commenters stated 

that CMS should develop and adopt a 

definition for ‘‘intentional’’ as it applies 

to PT referral and add the definition to 

§ 493.2 in the CLIA regulations. 

Response: While this comment is 

outside the scope of this rule, we point 

the commenter to the Burden Reduction 

proposed rule (78 FR 9216). From the 

onset of the CLIA program, we have 

consistently interpreted the phrase 

‘‘intentionally refers’’ to mean general 

intent, as in intention to act. We 

proposed the first exception to our 

longstanding interpretation of 

‘‘intentionally refers’’ in the Burden 

Reduction proposed rule. Under that 

proposal, a referral would not be 

considered ‘‘intentional’’ if our 

investigation reveals PT samples were 

sent to another laboratory for reflex or 

confirmatory testing, the referral is not 

a repeat PT referral, and the referral 

occurred while acting in full 

conformance with the laboratory’s 

written, legally accurate, and adequate 

standard operating procedure. 

Comment: Several commenters 

questioned if a repeat PT referral 

included multiple analyses on a referred 

PT sample or multiple PT samples in 

the same PT event. 

Response: As stated in the definition 

of ‘‘repeat proficiency testing referral,’’ 

to be considered a repeat PT referral, the 

referral must be a second instance in 

which a PT sample, or a portion of a 

sample, is referred, for any reason, to 

another laboratory for analysis prior to 

the laboratory’s PT program event cutoff date within the period of time 

encompassing the two prior survey 

cycles (including initial certification, 

recertification, or the equivalent for 

laboratories surveyed by an approved 

accreditation organization). A single 

instance of referral for multiple analyses 

on a single PT sample set, or referral for 

analyses of multiple samples from the 

same PT event, would not be considered 

a ‘‘second instance.’’ A second instance 

of referral would arise when referral is 

made from an entirely different set of PT 

samples from an entirely different PT 

event sent on a date that is different 

from the date of the earlier PT event. 

Comment: A commenter 

recommended that CMS not revoke a 

certificate for a repeat PT referral unless 

CMS could determine that the repeat 

referral occurred in similar or the same 

circumstances to the initial referral. 

Response: As stated previously, 

except in the most egregious instances 

of PT referral where the PT sample was 

referred to another laboratory, the 

referring laboratory received the results 

from the other laboratory, and the 

referring laboratory reported to the PT 

program the other laboratory’s results on 

or before the event cut-off date, the 

laboratory’s CLIA certificate will not be 

revoked for a single instance of PT 

referral. Such an instance of PT referral 

will result in alternative sanctions. This 

provides the laboratory an opportunity 

to review all policies and procedures 

and an opportunity to thoroughly train 

all staff to mitigate all chances of a 

second instance of PT referral. The 

timeframe included in the definition of 

a repeat referral has been defined as the 

two survey cycles prior to the time of 

the PT referral in question. Two survey 

cycles generally equates to a 4-year 

period on average. This is not a precise 

calendar time period but, with respect 

to a given laboratory, is carefully 

recorded as a matter of actual and 

documented survey event dates. We 

believe that it is reasonable to expect 

laboratories to maintain a heightened 

vigilance for this timeframe to ensure 

that they do not have any repeated 

referrals of PT samples. The narrow 

exception to the determination of an 

intentional referral described in the 

Burden Reduction proposed rule will, 

once finalized, be considered a single 

instance and will be incorporated in the 

determination of whether a repeat PT 

referral has taken place. 

Comment: Several commenters 

questioned whether CMS will finalize 

the Burden Reduction proposed rule 

which proposed reforms to the Medicare 

and CLIA regulations that we identified 

as unnecessary, obsolete or excessively 

burdensome and questioned how the 

September 23, 2013 proposed rule 

relates to the Burden Reduction 

proposed rule. 

Response: In the Burden Reduction 

proposed rule, we proposed a narrow 

exception to our longstanding 

interpretation of what constitutes an 

‘‘intentional’’ PT referral. The proposed 

narrow exception in the Burden 

Reduction rule would work in concert 

with the framework described in this 

final rule for enforcement for PT referral 

to ensure the severity of the sanctions 

fits the nature and extent of the PT 

referral violation. 

Comment: Several commenters 

expressed concern with the first 

category of sanctions against the 

laboratory and the owner and operator 

for the most egregious forms of PT 

referral. While the commenters agreed 

that the most egregious forms of PT 

referral warrant the most serious 

sanctions and that the laboratory 

director should also be sanctioned, there 

was concern about the automatic 

prohibition against the laboratory 

owner. Each commenter who raised this 

issue expressed concern that a 

mandatory 1 year prohibition for 

owners, that applies to all laboratories 

of that owner, is not reasonable for large 

health systems that often own a large 

number of laboratories in many 

locations. The commenters expressed 

concern that patient care may be 

impacted if such an owner is prohibited 

from obtaining or maintaining a CLIA 

certificate for any laboratory that tests 

human specimens for health care 

purposes. The commenters suggested 

that the one year ban for the owner 

should be limited to the single 

laboratory where the PT referral 

occurred. 

Response: It is incumbent upon 

laboratories to organize in a manner that 

allows them to mitigate circumstances 

so that when one or more laboratories 

are sanctioned, the rest of the laboratory 

network is not unduly impacted. 

However, we also recognize that there 

are benefits to large health systems 

organizing in ways to promote 

efficiency of care with the least cost to 

their patients. We agree that there 

should be some discretion in the 

regulation to allow for flexibility in the 

mandatory 1-year ban against owners of 

laboratories that, if barred from 

ownership, would create access issues 

in the communities in which they serve. 

However, when the CLIA certificate is 

revoked for the most egregious 

violations, encompassing cases of repeat 

PT referral or cases where a laboratory 

reports another laboratory’s test results 

as its own, we believe that the owner 

and operator should be banned from 

owning or operating a laboratory for at 

least 1 year, so we will retain that 

sanction. However, in response to 

comments, we are adding a provision to 

limit the reach of the owner ban for 

certain laboratories under the same 

ownership as the revoked laboratory if 

we find, after review of relevant facts 

and circumstances, that patients would 

not be at risk if the laboratory were 

exempted from the ban, and that there 

is no evidence that a laboratory to be 

exempted from the ban participated or 

was complicit in the PT referral, except 

that any laboratory of the owner that 

received a PT sample from another 

laboratory, and failed to timely report 

such receipt to CMS or to a CMSapproved accrediting organization, may 

not be exempted from the owner ban. In 

assessing whether patients would be 

potentially at risk if the laboratory were 

exempted from the ban, we will 

consider factors including, but not 

limited to, the following: The extent to 

which staff of the laboratory or 

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laboratories that may be exempted from 

the owner ban have been adequately 

trained, and will promptly have such 

training reinforced, regarding PT; the 

history of compliance with the CLIA 

regulations; evidence of any systemic 

quality issues for the laboratory or 

laboratories that seek to be exempted 

from the owner ban; and the potential 

for access to care problems for patients 

if the laboratory or laboratories are not 

granted an exemption from the owner 

ban. We are revising our regulations at 

§ 493.1840(b)(1) to incorporate this 

exception. 

Comment: Several commenters 

requested further clarification of when 

CMS will limit the suspension or 

limitation to the individual laboratory 

where the PT referral occurred rather 

than suspending or limiting the CLIA 

certificate of all of the laboratories 

under the control of the owner or 

operator. The commenters 

recommended that we use a centralized 

process to determine whether 

suspension or limitation is appropriate 

in each case rather than leaving the 

decision up to an individual surveyor. 

Response: As stated in the September 

23, 2013 proposed rule, the CLIA 

certificate will be suspended or limited 

(rather than revoked), in combination 

with alternative sanctions, in those 

instances in which a laboratory refers 

PT samples to a laboratory that operates 

under a different CLIA number before 

the PT event close date and, while the 

laboratory reports its own results to the 

PT program, it receives results from the 

second laboratory prior to the event 

close date. In contrast to revocation of 

the CLIA certificate and its 

accompanying ban on the owner and 

operator, suspension usually applies 

only to the individual laboratory in 

question rather than all laboratories that 

are under the control of the owner or 

operator. Suspension or limitation will 

always apply to the laboratory that sent 

the PT sample to another laboratory 

(that operates under a different CLIA 

number) before the PT event close date 

and, while the laboratory reports its 

own results to the PT program, it 

receives results from the second 

laboratory prior to the event close date. 

We may also suspend or limit the CLIA 

certificate of other laboratories operating 

under the same owner depending upon 

the facts and circumstances of the 

individual case. For example, if such a 

laboratory received PT samples from 

another laboratory and did not report 

the receipt of those PT samples to us, 

suspension or limitation will also be 

considered for that laboratory. As stated 

previously, it is incumbent upon 

laboratories to organize in a manner to 

mitigate circumstances so that 

enforcement against a CLIA certificate 

does not unduly impact other 

laboratories operating under the same 

CLIA number. An exhaustive list of 

scenarios cannot be provided since each 

case of PT referral is unique and there 

is no way to predict every possible 

scenario. In determining whether to 

suspend or limit the CLIA certificate, we 

will examine the extent of the PT 

referral practice as well as its duration 

and apply the criteria of § 493.1804(d). 

We will develop further written 

surveyor guidance for the imposition of 

the suspension and limitation in PT 

referral cases. This guidance will be 

publicly available. 

Comment: Several commenters 

expressed concern that a CMP will 

always be applied to laboratories in PT 

referral scenarios in which the referring 

laboratory does not receive test results 

prior to the event cut-off date from 

another laboratory as a result of the PT 

referral. Some stated that no sanctions 

should be applied in these cases 

because they are minor infractions and 

this category has no flexibility where it 

is most needed. 

Response: While PT referrals may 

differ in severity and scope, we consider 

a PT referral infraction one of the most 

serious violations of the CLIA statute 

and regulations. PT is a major 

component of the CLIA regulations and 

plays an integral role in the overall 

quality assurance of a laboratory. We 

emphasize that there is no on-site, 

external proctor for PT in laboratories, 

and the testing relies in large part on an 

honor system. The PT program places 

heavy reliance on each laboratory and 

laboratory director to self-police their 

analysis of PT samples to ensure that 

the testing is performed in accordance 

with the CLIA requirements. Because of 

these factors, we have determined that 

a CMP is always appropriate in those 

cases where PT referral has been 

substantiated. However, there is no ‘‘one 

size fits all’’ CMP for these cases and 

there is flexibility in the determination 

of the amount of the CMP. The severity 

and scope of each case will be evaluated 

closely to determine appropriate CMP 

amounts in accordance with the 

regulation at§ 493.1834, which specifies 

the procedures that CMS follows to 

impose a CMP and the range of the 

penalty amount. 

We also note that we received other 

comments that were outside the scope 

of the September 23, 2013 proposed 

rule; and therefore, are not addressed in 

this final rule with comment period. 

After consideration of the comments 

received, we are finalizing the proposed 

definitions for ‘‘repeat proficiency 

testing referral’’ at § 493.2 and the 

changes to § 493.1840, and the three 

proposed conforming changes at the 

authority citation for Part 493 and at 

§ 493.1 and § 493.1800(a)(2) to include 

references to the TEST Act. In response 

to comments, we are also finalizing the 

addition of a new provision at 

§ 493.1840(b)(1)(ii) to allow us to except 

certain laboratories from the owner ban, 

on a laboratory by laboratory basis, if 

certain circumstances are met. 

V. Other Required Information 

A. Requests for Data From the Public 

Commenters can gain access to 

summarized FQHC data on an expedited 

basis by downloading the files listed in 

this section, which are available on the 

Internet without charge. For detailed 

claims data, requestors would follow the 

current research request process which 

can be found on the Research Data 

Assistance Center Web site at http://

www.resdac.org/. 

1. FQHC Summary Data. This file 

contains data summarized by CCN, 

which can be used to model the 

proposed methodology and calculate 

projected payments and impacts under 

the proposed PPS. The data file is 

available at http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/FQHCPPS/index.html. 

2. FQHC Proposed GAFs. This file 

contains the listed of proposed GAFs by 

locality, as published in the Addendum 

of this final rule with comment period. 

The data file is available at http://

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/FQHCPPS/

index.html. 

3. HCRIS Cost Report Data. The data 

included in this file was reported on 

Form CMS–222–92. The dataset 

includes only the most current version 

of each cost report filed with us and 

includes cost reports with fiscal year 

ending dates on or after September 30, 

2009. HCRIS updates this file on a 

quarterly basis. The data file is available 

at http://www.cms.gov/ResearchStatistics-Data-and-Systems/Files-forOrder/CostReports/HealthClinic.html. 

B. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

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25468 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We solicited public comment on the 

information collection requirements 

(ICRs) regarding the proposed FQHC 

rates and adjustments in § 405.2470. 

The data that are used in computing 

the FQHS PPS rates and adjustments are 

derived from the RHC/FQHC cost report 

form CMS–222–92, and claims form 

UB–04 CMS 1450 (per CMS Pub. 100– 

04, Medicare Claims Processing Manual, 

Chapter 1). The reporting requirements 

for FQHCs are in § 405.2470 of the 

Medicare regulations. We noted that 

while we were not proposing any new 

ICRs, there is currently an OMB 

approved information collection request 

associated with the RHC/FQHC cost 

report which has an OMB control 

number of 0938–0107 and an expiration 

date of August 31, 2014. 

VI. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment on 

the proposed rule. The notice of 

proposed rulemaking includes a 

reference to the legal authority under 

which the rule is proposed, and the 

terms and substances of the proposed 

rule or a description of the subjects and 

issues involved. This procedure can be 

waived, however, if an agency finds 

good cause that a notice-and-comment 

procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporates a statement of 

the finding and its reasons in the rule 

issued. 

In section III.B.2. of this final rule 

with comment period, we present 

additional technical and conforming 

changes. These changes include 

specifying that the determination of 

reasonable charges continues to apply to 

FQHCs under the reasonable cost 

payment system and changing the term 

‘‘Medicare +Choice’’ to ‘‘Medicare 

Advantage.’’ We believe that these 

regulatory changes are technical and 

conforming in nature, do not change our 

payment policies, and provide 

clarifications all of which are in the 

public’s interest. We note that these 

changes do not change our policy and 

are technical in nature. As such, we 

believe it unnecessary to provide an 

opportunity for public comment on 

these non-controversial ministerial 

changes. 

In section II.E.2. of this final rule with 

comment period, we are establishing a 

new set of HCPCS G-codes by which 

FQHCs are to report their actual charges 

to beneficiaries. Consistent with 

longstanding policy, the use of these 

payment codes does not dictate to 

FQHCs how to set their charges. We are 

permitting FQHCs to utilize a G-code 

that would reflect the sum of regular 

rates charged to both beneficiaries and 

other paying patients for a typical 

bundle of services that would be 

furnished per diem to a Medicare 

beneficiary. Because section 

1834(o)(2)(A) of the Act requires 

implementation of the FQHC PPS 

beginning on October 1, 2014, it is both 

impracticable and contrary to the public 

interest to provide an additional period 

for public comment before this 

methodology is implemented. 

Nonetheless, we are soliciting an 

additional round of comments with 

respect to the G-codes, and will 

consider further action if comments 

received from the public indicate a need 

to amend or revise this component of 

implementation. 

Therefore, for the reasons stated 

previously, we find good cause to waive 

the notice of proposed rulemaking for 

these technical and conforming changes 

to our regulations at §§ 405.501, 

405.2468(f)(4), and 410.152, and for our 

implantation structure for reporting 

charges to Medicare as described in 

section II.E.2. of the preamble to this 

final rule with comment period. 

VII. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

VIII. Regulatory Impact Analysis 

A. Statement of Need 

This final rule with comment period 

is necessary to establish a methodology 

and payment rates for a PPS for FQHC 

services under Medicare Part B 

beginning on October 1, 2014, in 

compliance with the statutory 

requirements of section 10501(i)(3)(A) of 

the Affordable Care Act. This final rule 

with comment period is also necessary 

to make—(1) contracting changes for 

RHCs; (2) conforming changes to other 

policies related to FQHCs and RHCs; (3) 

changes to enforcement actions for 

improper proficiency testing referrals. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999) and the Congressional 

Review Act (5 U.S.C. 804(2). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Section 3(f) of Executive Order 

12866 defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule: (1) Having an annual 

effect on the economy of $100 million 

or more in any 1 year, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local or tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). This 

final rule with comment period is an 

economically significant rule because 

we estimate that the FQHC PPS will 

increase payments to FQHCs by more 

than $100 million in 1 year. We believe 

that this regulation would not have a 

significant financial impact on RHCs. 

We estimate that this rulemaking is 

‘‘economically significant’’ as measured 

by the $100 million threshold, and 

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Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 25469 

hence also a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a RIA that, to the best 

of our ability, presents the costs and 

benefits of the rulemaking. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and 

government jurisdictions. All RHCs and 

FQHCs are considered to be small 

entities. The great majority of hospitals 

and most other health care providers 

and suppliers are small entities, either 

by being nonprofit organizations or by 

meeting the SBA definition of a small 

business (having revenues of less than 

$7.0 million to $35.5 million in any 1 

year). The provisions in this final rule 

result in an increase of approximately 

32 percent in the Medicare payment to 

FQHCs, without taking into account the 

application of the ‘‘lesser of’’ provision 

discussed earlier, and no financial 

impact on RHCs. Individuals and states 

are not included in the definition of a 

small entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a metropolitan statistical area and has 

fewer than 100 beds. As its measure of 

significant economic impact on a 

substantial number of small entities, 

HHS uses a change in revenue of more 

than 3 to 5 percent. We have not 

prepared an analysis for section 1102(b) 

of the Act because we have determined 

that this final rule with comment period 

would not have a significant impact on 

the operations of a substantial number 

of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2014, that is 

approximately $141 million. This rule 

does not include any mandates that 

would impose spending costs on state, 

local, or tribal governments in the 

aggregate, or by the private sector, that 

would exceed the threshold of $141 

million. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

compliance costs on state and local 

governments, preempts state law, or 

otherwise has Federalism implications. 

This final rule with comment period 

would not have a substantial effect on 

state and local governments, preempt 

state law, or otherwise have Federalism 

implications. 

This final rule with comment period 

is subject to the Congressional Review 

Act provisions of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (5 U.S.C. 801 et seq.) and has been 

transmitted to the Congress and the 

Comptroller General for review. 

C. Limitations of Our Analysis 

Our quantitative analysis presents the 

projected effects of our policy changes, 

as well as statutory changes effective on 

FQHCs for cost reporting periods 

beginning on or after October 1, 2014. 

We estimated the effects of individual 

policy changes by estimating payments 

per visit while holding all other 

payment policies constant. We use the 

best data available, but, generally, we do 

not attempt to make adjustments for 

future changes in such variables as the 

number of visits or the prevalence of 

new patients or IPPE and AWVs 

furnished to Medicare beneficiaries. To 

the extent that there are changes in the 

volume and mix of services furnished 

by FQHCs, the actual impact on total 

Medicare revenues will be different 

from those shown in Table 3 (Impact of 

the PPS on Payments to FQHCs). In 

addition, because we have limited 

information to accurately project actual 

FQHC charges, Table 3 does not take 

into account the application of ‘‘lesser 

of’’ provision in section 1833(a)(1)(Z) of 

the Act. (For more information, see 

sections II.E.2 and VII.D.1 of this final 

rule with comment period). 

D. Anticipated Effects of the FQHC PPS 

1. Effects on FQHCs 

As required by section 1834(o)(2)(B)(i) 

of the Act, initial payment rates 

(Medicare and coinsurance) under the 

FQHC PPS must equal 100 percent of 

the estimated amount of reasonable 

costs, as determined without the 

application of the current system’s UPLs 

or productivity standards that can 

reduce a FQHC’s per visit rate. We will 

pay FQHCs a single encounter-based 

rate per beneficiary per day, while 

allowing for an exception to the per 

diem PPS payment for subsequent 

injury or illness and mental health 

services furnished on the same day as a 

medical visit, adjusting for geographic 

differences in the cost of inputs by 

applying an adaptation of the GPCI used 

to adjust payment under the PFS, and 

further adjusting the encounter-based 

rate when a FQHC furnishes care to a 

patient that is new to the FQHC or to a 

beneficiary receiving a IPPE or AWV. 

Based on comparisons of the final PPS 

rate to the AIRs (as listed on the FQHC 

cost reports), the FQHC PPS is estimated 

to have an overall impact of increasing 

total Medicare payments to FQHCs by 

approximately 32 percent. As discussed 

in section II.E.2. of this final rule with 

comment period, while Medicare 

payments under the FQHC PPS shall be 

80 percent of the lesser of the actual 

charge or the PPS rate, this impact 

analysis is based on payment at the PPS 

rate does not take into account the 

application of ‘‘lesser of’’ provision in 

1833(a)(1)(Z) of the Act. The FQHC PPS 

is effective for cost reports beginning on 

or after October 1, 2014. This impact is 

fully implemented when all FQHCs are 

paid under the FQHC PPS and reflects 

the additional payment rate update 

based on the MEI for all of 2015 (fiscal 

year through the end of the calendar 

year). (See section II.D. of this final rule 

with comment period for a discussion of 

the use of the MEI update to calculate 

the first year’s base payment amount 

under the FQHC PPS.) 

If we apply the ‘‘lesser of’’ provision 

in section 1833(a)(1)(Z) of the Act and 

assume that FQHCs’ charge structures 

would remain the same, approximately 

65 percent of FQHCs would be paid less 

under the FQHC PPS rate than they are 

currently paid. However, FQHCs are 

responsible for their own pricing 

structures, and we have limited 

information to accurately project actual 

FQHC charges under the new PPS. 

Moreover, our analysis of the potential 

impact of the application of the ‘‘lesser 

of’’ provision in section 1833(a)(1)(Z) of 

the Act compares the applicable per 

diem PPS rate with the charge or sum 

of charges for the individual HCPCS 

codes listed on the claims in our 

sample. As discussed in section II.E.2. 

of this final rule with comment period, 

we are establishing HCPCS G-codes for 

FQHCs to report their Medicare FQHC 

visits. We will pay FQHCs based on the 

lesser of the actual charge reported for 

the G-code or the PPS rate on each 

claim. FQHCs will need to establish 

charges for these G-codes, and we 

cannot accurately project the charges 

that FQHCs will establish for these Gcodes. Because we have no means to 

predict behavioral response on charging 

by the FQHC community, in the impact 

table (Table 3), we continue to compare 

current payments to the PPS rates when 

discussing the impact of the FQHC PPS, 

which would be the maximum impact 

that would be expected after application 

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25470 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

of the ‘‘lesser of’’ provision in section 

1833(a)(1)(Z) of the Act. 

Table 3 shows the impact on cost 

reporting entities and their associated 

delivery sites of the fully implemented 

FQHC PPS payment rates compared to 

current payments to FQHCs. The 

analysis is based on cost reports from 

freestanding and provider-based FQHCs 

with cost reporting periods ending 

between June 30, 2011, and June 30, 

2013. We note that the impact analysis 

includes cost reporting entities and 

claims encounters that were excluded 

from the modeling as statistical outliers 

based on estimated costs. A FQHC with 

multiple sites has the option of filing a 

consolidated cost report, and the sample 

used to calculate the impacts reflects 

1,240 cost reporting entities that 

represent 3,830 delivery sites. 

The following is an explanation of the 

information represented in Table 3: 

• Column A (Number of costreporting entities): This column shows 

the number of cost-reporting entities for 

each impact category. Urban/rural status 

and census division were determined 

based on the geographic location of the 

cost reporting entity. Categories for 

Medicare volume were defined from 

cost report data, based on tertiles for the 

percent of total visits that were 

identified as Medicare visits. Categories 

for total volume were defined from cost 

report data, based on tertiles for the total 

number of visits for each cost reporting 

entity. 

• Column B (Number of delivery 

sites): This column shows the number of 

delivery sites associated with the cost 

reporting entities in each impact 

category. (Note that delivery sites that 

are part of a consolidated cost reporting 

entity might not fall into the same 

impact category if considered 

individually. For example, a cost 

reporting entity could include delivery 

sites in multiple census division, and 

delivery sites were categorized based on 

the geographic location of the cost 

reporting entity). 

• Column C (Number of Medicare 

daily visits): This column shows the 

number of Medicare daily visits in the 

final data set that were used to model 

payments under the FQHC PPS. As 

discussed in section II.A.4. of this final 

rule with comment period and 

consistent with the policy discussed in 

section II.B.1. of this final rule with 

comment period, separately payable 

encounters for the same beneficiary at 

the same FQHC were combined into a 

single daily visit, while allowing for a 

separate medical visit, mental health 

visit, and subsequent illness/injury 

visit. 

• Column D (Effect of statutorily 

required changes): This column shows 

the estimated fully implemented 

combined impact on payments to 

FQHCs of changes to the payment 

structure that are required by statute. 

Removing both the UPL and the 

productivity screen is estimated to 

increase total Medicare payments to 

FQHCs by about 30 percent. The 

combined impact in column D also 

reflects the FQHC PPS requirement to 

calculate payment based on the costs of 

all FQHCs, rather than on an individual 

FQHC’s costs. We note that the impacts 

for column D through H reflect the 

growth in the MEI from July 1, 2012 

through September 30, 2014, prior to the 

application of the forecasted MEI update 

for the 15-month period of October 1, 

2014 through December 31, 2015. 

• Columns E through H (Effects of the 

Adjustments to the Average Cost per 

Visit): These columns show the 

estimated fully implemented impacts on 

Medicare payments to FQHCs due to the 

policy changes. In developing the 

Medicare FQHC PPS, section 

10501(i)(3)(A) of the Affordable Care 

Act requires us to take into account the 

type, intensity, and duration of FQHC 

services, and allows other adjustments, 

such as geographic adjustments. As we 

discussed in section II.A.4. of this final 

rule with comment period, the cost 

report data are insufficient for modeling 

these types of adjustments, so we used 

the HCPCS codes in the FQHC claims 

data to support the development of the 

FQHC PPS rate and adjustments. 

• Column E (Effect of daily visit (per 

diem) rate): This column shows the 

estimated fully implemented impact on 

payments to FQHCs of the proposal to 

pay a single encounter-based rate per 

beneficiary per day, while allowing an 

exception to the per diem PPS payment 

for subsequent injury or illness and 

mental health services furnished on the 

same day as a medical visit. As it is 

uncommon for FQHCs to bill more than 

one visit per day for the same 

beneficiary, this adjustment would have 

minimal effect on most FQHCs. 

• Column F (Effect of new patient/

IPPE/AWV adjustment): This column 

shows the estimated fully implemented 

impact on payments to FQHCs of the 

proposal to adjust the encounter-based 

rate by 1.3416 when a FQHC furnished 

care to a patient that was new to the 

FQHC or to a beneficiary receiving an 

IPPE or AWV. As new patient visits, 

IPPEs, and AWVs accounted for 

approximately 3 percent of all FQHC 

visits, this adjustment would have 

limited reduction on the base encounter 

rate, after application of budget 

neutrality, and a limited redistribution 

effect among FQHCs. 

• Column G (Effect of the FQHC 

GAF): This column shows the estimated 

fully implemented impact on payments 

to FQHCs of adjusting payments for 

geographic differences in costs by 

applying an adaptation of the GPCIs 

used to adjust payment for physician 

work and practice expense under the 

PFS. 

• Column H (Combined effect of all 

PPS adjustments): This column shows 

the estimated fully implemented impact 

on payments to FQHCs of the 

adjustments in columns E through G. 

The combined effects of these 

adjustments on overall Medicare 

payment to FQHCs would be 0.1 percent 

as the effects of these adjustments 

would be primarily redistributive and 

would have minimal impact on 

Medicare payments in the aggregate. 

While the effect of these various 

adjustments was budget neutral within 

the model, the impact analysis includes 

cost reporting entities and claims 

encounters that were excluded from the 

modeling as statistical outliers based on 

estimated costs. 

• Column I (Combined effect of all 

policy changes and MEI adjustment): 

This column shows the estimated fully 

implemented impact on payments to 

FQHCs of removing the UPL and 

productivity screen in Column D, the 

adjustments to the PPS rates in the 

preceding columns, and the application 

of the forecasted MEI update for the 15- 

month period of October 1, 2014 

through December 31, 2015. 

Table 3 reflects the impacts on cost 

reporting entities and their associated 

delivery sites. This table shows both the 

impact on payments to FQHCs of the 

statutorily required changes to the 

payment structure (Column D) and the 

redistributive effects of the adjustments 

to the average cost per visit (Columns E 

through H). Column I reflects the 

combined impact on cost reporting 

entities of the overall PPS rates and 

adjustments and MEI update. This table 

does not model application of the 

provision that Medicare pay FQHCs the 

lesser of the actual charge or the PPS 

payment rate; instead, is assumes 

payment at the full PPS rate. Actual 

payments to FQHCs will depend on the 

actual charges they establish under the 

PPS. 

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Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 25471 

TABLE 3—IMPACT OF THE PPS ON PAYMENTS TO FQHCS

(A) 

Number of 

costreporting 

entities 

(B) 

Number of 

delivery 

sites 

(C) 

Number of 

medicare 

daily visits 

(D) 

Effect of 

statutorily 

required 

changes 

(%) 

(E) 

Effect of 

daily visit 

(per diem) 

rate 

(%) 

(F) 

Effect of 

new 

patient/ 

IPPE/AWV 

adjustment 

(%) 

(G) 

Effect of 

FQHC 

GAF 

(%) 

(H) 

Combined 

effect of all 

PPS 

adjustments 

(%) 

(I) 

Effect of all 

policy 

changes 

and MEI 

adjustment 

(%) 

All FQHCs ................................................. 1,240 3,830 5,585,393 29.9 0.0 0.1 0.1 0.1 31.9 

Urban/rural Status: 

Urban ................................................. 712 1,945 2,738,585 24.3 0.0 0.1 3.2 3.3 30.2 

Rural ................................................... 373 900 1,447,261 41.9 0.1 0.0 ¥3.1 ¥3.1 39.4 

Mixed rural-urban ............................... 155 985 1,399,547 30.1 0.0 0.0 ¥2.7 ¥2.7 28.3 

Medicare Volume: 

Low (<6.9% of total visits) ................. 413 1,102 897,136 24.8 0.0 0.4 3.5 3.9 31.4 

Medium (6.9%–13.2% of total visits) 414 1,403 1,857,689 27.4 0.0 0.1 0.6 0.7 30.1 

High (>13.2% of total visits) .............. 413 1,325 2,830,568 33.4 0.0 ¥0.1 ¥1.3 ¥1.4 33.3 

Total Volume: 

Low (<17,340 total visits) ................... 413 555 450,262 33.6 0.0 0.2 ¥0.1 0.1 35.6 

Medium (17,340–42,711 total visits) .. 414 983 1,387,779 31.8 0.0 0.2 ¥1.4 ¥1.1 32.1 

High (>42,711 total visits) .................. 413 2,292 3,747,352 28.8 0.0 0.0 0.6 0.6 31.4 

Census Division: 

New England ...................................... 99 255 709,020 27.4 ¥0.1 ¥0.1 2.2 2.1 32.0 

Middle Atlantic .................................... 111 334 452,168 25.9 ¥0.1 0.2 3.6 3.7 32.5 

East North Central ............................. 158 497 651,546 31.3 0.0 0.1 ¥3.2 ¥3.2 28.9 

West North Central ............................ 81 214 266,360 31.6 ¥0.1 0.1 ¥5.3 ¥5.3 26.4 

South Atlantic ..................................... 200 753 1,100,268 32.1 0.1 ¥0.1 ¥3.0 ¥3.0 29.9 

East South Central ............................. 87 340 379,357 37.3 0.0 0.0 ¥6.9 ¥6.9 29.6 

West South Central ............................ 120 332 388,565 30.5 0.0 0.2 ¥5.0 ¥4.8 26.1 

Mountain ............................................ 107 341 392,506 31.3 0.0 0.4 ¥2.1 ¥1.6 31.0 

Pacific ................................................. 272 758 1,243,251 27.2 0.1 0.0 7.5 7.6 38.7 

U.S. Territories ................................... 5 6 2,352 43.9 0.1 1.5 ¥1.1 0.5 46.5 

2. Effects on RHCs 

While we expect that removing the 

restriction on contracting will result in 

cost savings for RHCs that employ an 

NP or PA and will no longer need to 

conduct employment searches to meet 

their additional staffing needs, the 

financial impact on RHCs is expected be 

small and cannot be quantified. 

There is no Medicare impact on RHCs 

as a result of the implementation of the 

FQHC PPS. 

3. Effects on Other Providers and 

Suppliers 

There would be no financial impact 

on other providers or suppliers as a 

result of the implementation of the 

FQHC PPS. 

4. Effects on the Medicare and Medicaid 

Programs 

We estimate that annual Medicare 

spending for FQHCs during the first 5 

years of implementation would increase 

as follows: 

TABLE 4—ESTIMATED INCREASE IN ANNUAL MEDICARE PAYMENTS TO

FQHCS * 

Fiscal year 

Estimated 

increase in 

payments 

($ in millions) 

2015 ................................ 170 

2016 ................................ 250 

2017 ................................ 260 

2018 ................................ 280 

TABLE 4—ESTIMATED INCREASE IN ANNUAL MEDICARE PAYMENTS TO

FQHCS *—Continued 

Fiscal year 

Estimated 

increase in 

payments 

($ in millions) 

2019 ................................ 300 

* These impacts do not take into account the 

application of ‘‘lesser of’’ provision in section 

1833(a)(1)(Z) of the Act. (For more information, see sections II.E.2 and VII.D.1 of this 

final rule with comment period). 

As discussed in section II.E.2. of this 

final rule comment period, while 

Medicare payments under the FQHC 

PPS shall be 80 percent of the lesser of 

the actual charge or the PPS rate, this 

table is based on payment at the PPS 

rate does not take into account the 

application of ‘‘lesser of’’ provision in 

1833(a)(1)(Z) of the Act because we have 

limited information to accurately project 

actual FQHC charges. We intend for the 

estimated aggregate payment rates under 

the FQHC PPS to equal 100 percent of 

the estimated amount of reasonable 

costs, as determined without the 

application of the current system’s UPLs 

or productivity standards. We note that 

the estimated increase in payments for 

FY 2015 is smaller than for subsequent 

years because FQHCs will be 

transitioning into the PPS throughout 

FY 2015 based on their own cost 

reporting periods. 

After the first year of implementation, 

the PPS payment rates must be 

increased by the percentage increase in 

the MEI. After the second year of 

implementation, PPS rates will be 

increased by the percentage increase in 

a market basket of FQHC goods and 

services as established through 

regulations, or, if not available, the MEI. 

While we will consider the merits of 

estimating a FQHC market basket for use 

in base payment updates after the 

second year of the PPS, payment 

estimates were updated annually by the 

MEI for purposes of this analysis. 

There is no financial impact on the 

Medicaid program as a result of the 

implementation of the Medicare FQHC 

PPS. 

5. Effects on Medicare Beneficiaries 

Coinsurance under the FQHC PPS 

would be 20 percent of the lesser of the 

FQHC’s charge or the PPS rate. Under 

the current reasonable cost payment 

system, beneficiary coinsurance for 

FQHC services is assessed based on the 

FQHC’s charge, which can be more than 

coinsurance based on the AIR. An 

analysis of a sample of FQHC claims 

data for dates of service between 

January 1, 2011 through June 30, 2013 

indicated that beneficiary coinsurance 

based on 20 percent of the FQHC’s 

charges was approximately $29 million 

higher, or 20 percent more, than if 

coinsurance had been assessed based on 

20 percent of the lesser of the FQHC’s 

charge or the applicable all-inclusive 

rate. 

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Based on comparisons of the final PPS 

rate to the AIRs, the FQHC PPS is 

estimated to have an overall impact of 

increasing total Medicare payments to 

FQHCs by approximately 32 percent, 

prior to taking into account the impact 

of the ‘‘lesser of’’ provision. This overall 

32 percent increase translates to a 32 

percent increase to beneficiary 

coinsurance if it were currently assessed 

based on the FQHC’s AIR and if, under 

the PPS, it would always be assessed 

based on the PPS rate. Because the 

charge structure among FQHCs varies, 

and beneficiary liability for the same 

mix of FQHC services could differ 

significantly based on the differences in 

charge structures, we have insufficient 

data to estimate the change to 

beneficiary coinsurance due to the 

FQHC PPS. 

E. Effects of Other Policy Changes 

1. Effects of Policy Changes for FQHC’s 

and RHC’s 

a. Effects of RHC Contracting Changes 

Removal of the restrictions on RHCs 

contracting with nonphysician 

practitioners when the statutory 

requirement to employ an NP or a PA 

is met will provide RHCs with greater 

flexibility in meeting their staffing 

requirements. The ability to contract 

with NPs, PAs, CNMs, CP, and CSWs 

will provide RHCs with additional 

flexibility with respect to recruiting and 

retaining non-physician practitioners, 

which may result in increasing access to 

care in rural areas. There is no cost to 

the federal government and we cannot 

estimate a cost savings for RHCs. 

b. Effects of the FQHC and RHC 

Conforming Changes 

There are no costs associated with the 

clarifying, technical, and conforming 

changes to the FQHC and RHC 

regulations. 

2. Effects of CLIA Changes for 

Enforcement Actions for Proficiency 

Testing Referral 

As discussed in section IV. of this 

final rule with comment period, we 

have made a number of clarifications 

and changes pertaining to the 

regulations governing adverse actions 

for PT referral under CLIA, which, in 

combination with other actions 

implement the TEST Act and will 

ensure conformance between the TEST 

Act and our regulations. The TEST Act 

provides the Secretary with the 

discretion to apply alternative sanctions 

in lieu of potential principal sanctions 

in cases of intentional PT referral. 

Alternative sanctions may include any 

combination of civil money penalties, 

directed plan of correction (such as 

required remedial training of staff), 

temporary suspension of Medicare or 

Medicaid payments, or state onsite 

monitoring. 

From 2007 through 2011 there were 

41 cases of cited, intentional PT referral. 

Of these 41 cases (averaging 

approximately 8 per year), we estimate 

that 28 (or approximately 6 per year on 

average) may have fit the terms of this 

rule to have alternative sanctions 

applied. Based on discussions with the 

most recently affected laboratories that 

were cited for PT violations, we 

estimate that the average cost of the 

sanctions applicable under current 

regulations is approximately $578,400 

per laboratory. The largest single type of 

cost is the expense to the laboratory or 

hospital to contract out for management 

of the laboratory, and to pay laboratory 

director fees, due to the 2-year ban that 

prohibits the owner and operator from 

owning or operating a CLIA-certified 

laboratory in accordance with 

revocation of the CLIA certificate. We 

have not included legal expenses in this 

cost estimate, as it is not possible to 

estimate the extent to which laboratories 

may still appeal the imposition of the 

alternative sanctions in this proposed 

rule. If the expense of alternative 

sanctions averaged $150,000 per 

laboratory, we estimate the annual fiscal 

savings of the changes to average 

approximately $2.6 million ($578,400 

minus $150,000 for 6 laboratories). 

While the total savings may not be large, 

the savings to the individual laboratory 

or hospital that is affected can be 

significant. However, we note that the 

$2.6 million estimate may overstate or 

understate the provision’s savings to 

laboratories. For example, if under 

current regulations the prior 

management is fired instead of being 

reassigned to other duties for the 2-year 

period, some of the costs of paying for 

the new management’s salaries, benefits 

and training may be able to be drawn 

from funding that had previously been 

earmarked to pay those expenses for 

their predecessors. That is, the costs 

associated with the new employee could 

be offset by the savings gained when the 

former employee is terminated. Any 

such offset will result in lower savings 

than was estimated earlier. However, 

there are also unknowns that may result 

in larger savings than estimated earlier. 

For example, we have no data on 

whether terminated management 

historically received severance 

packages. If they did, those savings 

would have to be added to the savings 

we noted earlier. Such changes in 

severance payments would represent 

transfer effects of the proposed rule, 

rather than net social costs or benefits. 

In general, it is only to the extent that 

new laboratory directors put forth more 

effort than temporarily-banned 

laboratory directors (due, for example, 

to the need to familiarize themselves 

with laboratories they have not 

previously operated) or that support 

staff put forth more effort to make the 

new management arrangements than 

they would addressing alternative 

sanctions that society’s resources would 

be freed for other uses by the new 

provision; thus, a comprehensive 

estimate of laboratory savings would 

represent some combination of transfers 

and net social benefits. While we 

recognize these potential inaccuracies in 

our estimates, we lack data to account 

for these considerations. 

F. Alternatives Considered 

This final rule with comment period 

contains a range of policies, including 

some provisions related to specific 

statutory provisions. The preceding 

sections of this rule provide 

descriptions of the statutory provisions 

that are addressed, identifies those 

policies when discretion has been 

exercised, presents rationale for our 

final policies and, where relevant, 

alternatives that were considered. 

G. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at http://

www.whitehouse.gov/omb/circulars_

a004_a-4/), we have prepared an 

accounting statement table showing the 

classification of the impacts associated 

with implementation of this final rule 

with comment period. 

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TABLE 5—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE FQHC PPS 

Category Estimates 

Units 

Year dollar Discount rate 

(%) 

Period 

covered 

Transfers 

Federal Annualized Monetized Transfers (in millions) ............................. 200 2014 7 2014–2018 

204 2014 3 2014–2018 

From Whom to Whom .............................................................................. Federal Government to FQHCs that receive payments under 

Medicare. 

H. Conclusion 

The previous analysis, together with 

the remainder of this preamble, 

provides our Regulatory Flexibility 

Analysis and a Regulatory Impact 

Analysis. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 405 

Administrative practice and 

procedure, Health facilities, Health 

professions, Kidney diseases, Medical 

devices, Medicare, Reporting and 

recordkeeping requirements, Rural 

areas, and X-rays. 

42 CFR Part 410 

Health facilities, Health professions, 

Kidney diseases, Laboratories, 

Medicare, Reporting and recordkeeping 

requirements, Rural areas, X-rays. 

42 CFR Part 491 

Grant programs—health, Health 

facilities, Medicaid, Medicare, 

Reporting and recordkeeping 

requirements, Rural areas. 

42 CFR Part 493 

Administrative practice and 

procedure, Grant programs—health, 

Health facilities, Laboratories, Medicaid, 

Medicare, Penalties, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

Chapter IV as set forth below: 

PART 405—FEDERAL HEALTH 

INSURANCE FOR THE AGED AND 

DISABLED 

■ 1. The authority citation for part 405 

continues to read as follows: 

Authority: Secs. 205(a), 1102, 1861, 

1862(a), 1869, 1871, 1874, 1881, and 1886(k) 

of the Social Security Act (42 U.S.C. 405(a), 

1302, 1395x, 1395y(a), 1395ff, 1395hh, 

1395kk, 1395rr and 1395ww(k)), and sec. 353 

of the Public Health Service Act (42 U.S.C. 

263a). 

§ 405.501 [Amended] 

■ 2. Section 405.501(b) is amended by 

removing the phrase ‘‘Federally 

qualified health centers and’’ and 

adding in its place the phrase ‘‘FQHCs 

that are authorized to bill under a 

reasonable cost system, and’’. 

■ 3. Section 405.2400 is revised as 

follows: 

§ 405.2400 Basis. 

Subpart X is based on the provisions 

of the following sections of the Act: 

(a) Section 1833—Amounts of 

payment for supplementary medical 

insurance services. 

(b) Section 1861(aa)—Rural health 

clinic services and Federally qualified 

health center services covered by the 

Medicare program. 

(c) Section 1834(o)—Federally 

qualified health center prospective 

payment system beginning October 1, 

2014. 

■ 4. In § 405.2401, paragraph (b) is 

amended as follows: 

■ A. Removing the definition of ‘‘Act’’. 

■ B. Revising the definition of 

‘‘Allowable costs’’. 

■ C. Removing the definition of 

‘‘Carrier’’. 

■ D. Adding the definitions of ‘‘Certified 

nurse midwife (CNM),’’ ‘‘Clinical 

psychologist (CP)’’, and ‘‘Clinical social 

worker (CSW)’’ in alphabetical order. 

■ E. Revising the definitions of 

‘‘Coinsurance’’ and ‘‘Deductible’’. 

■ F. Adding the definitions of 

‘‘Employee’’ and ‘‘HRSA’’ in 

alphabetical order. 

■ G. Revising paragraphs (1) through (3) 

of the definition of ‘‘Federally qualified 

health center (FQHC)’’. 

■ H. Removing the definition of 

‘‘Intermittent nursing care’’. 

■ I. Adding the definition of ‘‘Medicare 

Administrative Contractor (MAC)’’ in 

alphabetical order. 

■ J. Removing the definitions of ‘‘Nursemidwife’’, ‘‘Nurse practitioner and 

physician assistant’’, and Part-time 

nursing care’’. 

■ K. Adding the definitions of ‘‘Nurse 

practitioner (NP)’’, ‘‘Physician assistant 

(PA)’’ and ‘‘Prospective payment system 

(PPS)’’ in alphabetical order. 

■ L. Revising the definitions of 

‘‘Reporting period’’ and ‘‘Rural health 

clinic’’. 

■ M. In the definition of ‘‘Visiting nurse 

services,’’ removing the phrase 

‘‘registered nurse’’ and adding in its 

place the phrase ‘‘registered 

professional nurse’’. 

The revisions and additions read as 

follows: 

§ 405.2401 Scope and definitions. 

* * * * * 

(b) * * * 

Allowable costs means costs that are 

incurred by a RHC or FQHC that is 

authorized to bill based on reasonable 

costs and are reasonable in amount and 

proper and necessary for the efficient 

delivery of RHC and FQHC services. 

* * * * * 

Certified nurse midwife (CNM) means 

an individual who meets the applicable 

education, training, and other 

requirements of § 410.77(a) of this 

chapter. 

Clinical psychologist (CP) means an 

individual who meets the applicable 

education, training, and other 

requirements of § 410.71(d) of this 

chapter. 

Clinical social worker (CSW) means 

an individual who meets the applicable 

education, training, and other 

requirements of § 410.73(a) of this 

chapter. 

Coinsurance means that portion of the 

RHC’s charge for covered services or 

that portion of the FQHC’s charge or 

PPS rate for covered services for which 

the beneficiary is liable (in addition to 

the deductible, where applicable). 

* * * * * 

Deductible means the amount 

incurred by the beneficiary during a 

calendar year as specified in § 410.160 

and § 410.161 of this chapter. 

Employee means any individual who, 

under the common law rules that apply 

in determining the employer-employee 

relationship (as applied for purposes of 

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25474 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

section 3121(d)(2) of the Internal 

Revenue Code of 1986), is considered to 

be employed by, or an employee of, an 

entity. (Application of these common 

law rules is discussed in 20 CFR 

404.1007 and 26 CFR 31.3121(d)–1(c).) 

Federally qualified health center 

(FQHC) * * * 

(1) Is receiving a grant under section 

330 of the Public Health Service (PHS) 

Act, or is receiving funding from such 

a grant under a contract with the 

recipient of such a grant and meets the 

requirements to receive a grant under 

section 330 of the PHS Act; 

(2) Is determined by the HRSA to 

meet the requirements for receiving 

such a grant; 

(3) Was treated by CMS, for purposes 

of Medicare Part B, as a comprehensive 

federally funded health center as of 

January 1, 1990; or 

* * * * * 

HRSA means the Health Resources 

and Services Administration. 

* * * * * 

Medicare Administrative Contractor 

(MAC) means an organization that has a 

contract with the Secretary to 

administer the benefits covered by this 

subpart as described in § 421.404 of this 

chapter. 

Nurse practitioner (NP) means 

individuals who meet the applicable 

education, training, and other 

requirements of § 410.75(b) of this 

chapter. 

* * * * * 

Physician assistant (PA) means an 

individual who meet the applicable 

education, training, and other 

requirements of § 410.74(c) of this 

chapter. 

Prospective payment system (PPS) 

means a method of payment in which 

Medicare payment is made based on a 

predetermined, fixed amount. 

Reporting period generally means a 

period of 12 consecutive months 

specified by the MAC as the period for 

which a RHC or FQHC must report 

required costs and utilization 

information. The first and last reporting 

periods may be less than 12 months. 

Rural health clinic (RHC) means a 

facility that has— 

(1) Been determined by the Secretary 

to meet the requirements of section 

1861(aa)(2) of the Act and part 491 of 

this chapter concerning RHC services 

and conditions for approval; and 

(2) Filed an agreement with CMS that 

meets the requirements in § 405.2402 to 

provide RHC services under Medicare. 

* * * * * 

■ 5. Section 405.2402 is amended as 

follows: 

■ A. Revising the section heading. 

■ B. Revising paragraphs (b) 

introductory text and (c) introductory 

text. 

■ C. Revising paragraph (d). 

■ D. Removing paragraph (e). 

■ E. Redesignating paragraph (f) as 

paragraph (e). 

■ F. Revising newly redesignated 

paragraph (e). 

The revisions read as follows: 

§ 405.2402 Rural health clinic basic 

requirements. 

* * * * * 

(b) Acceptance of the clinic as 

qualified to furnish RHC services. If the 

Secretary, after reviewing the survey 

agency or accrediting organization 

recommendation, as applicable, and 

other evidence relating to the 

qualifications of the clinic, determines 

that the clinic meets the requirements of 

this subpart and of part 491 of this 

chapter, the clinic is provided with— 

* * * * * 

(c) Filing of agreement by the clinic. 

If the clinic wishes to participate in the 

program, it must— 

* * * * * 

(d) Acceptance by the Secretary. If the 

Secretary accepts the agreement filed by 

the clinic, the Secretary returns to the 

clinic one copy of the agreement with a 

notice of acceptance specifying the 

effective date. 

(e) Appeal rights. If CMS declines to 

enter into an agreement or if CMS 

terminates an agreement, the clinic is 

entitled to a hearing in accordance with 

§ 498.3(b)(5) and (6) of this chapter. 

■ 6. Section 405.2403 is amended as 

follows: 

■ A. Revising the section heading. 

■ B. Amending paragraphs (a) 

introductory text and (a)(2) by removing 

the term ‘‘rural health clinic’’ and by 

adding in its place the term ‘‘RHC’’. 

■ C. Amending paragraph (a)(3)(ii)(B) by 

removing the term ‘‘rural health 

clinic’s’’ and adding in its place the 

term ‘‘RHC’s’’. 

■ D. Amending paragraphs (a)(1), (a)(2), 

(a)(3)(i), (a)(4)(i), and (a)(4)(ii) by 

removing the term ‘‘clinic’’ and adding 

in its place the term ‘‘RHC’’. 

The revision reads as follow: 

§ 405.2403 Rural health clinic content and 

terms of the agreement with the Secretary. 

* * * * * 

■ 7. Section 405.2404 is amended as 

follows: 

■ A. Revising the section heading. 

■ B. Amending the heading of 

paragraph (a), and paragraphs (b)(1) 

introductory text, (b)(2), (b)(3), (c), and 

(e) introductory text, by removing the 

term ‘‘rural health clinic’’ each time it 

appears and by adding in its place the 

term ‘‘RHC’’. 

■ C. Amending paragraphs (a)(1), 

(a)(2)(i), (a)(2)(ii)(A), and (a)(3) by 

removing the term ‘‘clinic’’ each time it 

appears and adding in its place the term 

‘‘RHC’’. 

■ D. Amending paragraph (a)(2)(i) by 

removing the term ‘‘clinic’s’’ and adding 

in its place the term ‘‘RHC’s’’. 

■ E. Amending (a)(2)(ii) introductory 

text by removing the phrase ‘‘if he 

determines’’ and adding in its place ‘‘if 

the Secretary determines’’. 

■ F. Amending paragraph (a)(3) by 

removing the phrase ‘‘that shall be 

deemed’’ and adding in its place the 

phrase ‘‘the Secretary deems it’’. 

■ G. Amending paragraph (b)(1) 

introductory text by removing the term 

‘‘he’’ and adding in its place the phrase 

‘‘he or she’’. 

■ H. Amending paragraph (b)(1)(i) by 

removing ‘‘; or’’ and adding in its place 

‘‘;’’. 

■ I. Amending paragraph (b)(2) by 

removing the phrase ‘‘The Secretary will 

give’’ and adding in its place the phrase 

‘‘The Secretary gives’’. 

■ J. Revising paragraph (d). 

The revisions read as follows: 

§ 405.2404 Termination of rural health 

clinic agreements. 

* * * * * 

(d) Notice to the public. Prompt notice 

of the date and effect of termination 

must be given to the public, through 

publication in local newspapers by 

either of the following: 

(1) The RHC, after the Secretary has 

approved or set a termination date. 

(2) The Secretary, when he or she has 

terminated the agreement. 

* * * * * 

■ 8. Section 405.2410 is amended as 

follows: 

■ A. In paragraph (a)(1), removing the 

term ‘‘rural health clinic’’ and adding in 

its place the term ‘‘RHC’’. 

■ B. In paragraph (a)(2), removing the 

term ‘‘Federally qualified health center’’ 

and adding in its place the term 

‘‘FQHC’’. 

■ C. Revising paragraph (b). 

The revision reads as follows: 

§ 405.2410 Application of Part B 

deductible and coinsurance. 

* * * * * 

(b) Application of coinsurance. Except 

for preventive services for which 

Medicare pays 100 percent under 

§ 410.152(l) of this chapter, a 

beneficiary’s responsibility is either of 

the following: 

(1) For RHCs and FQHCs that are 

authorized to bill on the basis of the 

reasonable cost system— 

(i) A coinsurance amount that does 

not exceed 20 percent of the RHC’s or 

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FQHC’s reasonable customary charge for 

the covered service; and 

(ii)(A) The beneficiary’s deductible 

and coinsurance amount for any one 

item or service furnished by the RHC 

may not exceed a reasonable amount 

customarily charged by the RHC for that 

particular item or service; or 

(B) For any one item or service 

furnished by a FQHC, a coinsurance 

amount that does not exceed 20 percent 

of a reasonable customary charge by the 

FQHC for that particular item or service. 

(2) For FQHCs authorized to bill 

under the PPS, a coinsurance amount 

which is 20 percent of the lesser of— 

(i) The FQHC’s actual charge; or 

(ii) The FQHC PPS rate for the 

covered service. 

■ 9. Section 405.2411 is amended as 

follows: 

■ A. Revising paragraph (a) introductory 

text. 

■ B. In paragraphs (a)(1) through (a)(3), 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. Revising paragraphs (a)(4) and (5). 

■ D. Adding a new paragraph (a)(6). 

■ E. Revising paragraph (b). 

The revisions and addition read as 

follows: 

§ 405.2411 Scope of benefits. 

(a) The following RHC and FQHC 

services are reimbursable under this 

subpart: 

* * * * * 

(4) Services and supplies furnished as 

incident to a nurse practitioner, 

physician assistant, certified nurse 

midwife, clinical psychologist, or 

clinical social worker service. 

(5) Visiting nurse services when 

provided in accordance with 1861(aa)(1) 

of the Act and § 405.2416. 

(6) Clinical psychologist and clinical 

social worker services as specified in 

§ 405.2450. 

(b) RHC and FQHC services are— 

(1) Covered when furnished in a RHC, 

FQHC, or other outpatient setting, 

including a patient’s place of residence; 

(2) Covered when furnished during a 

Part A stay in a skilled nursing facility 

only when provided by a physician, 

nurse practitioner, physician assistant, 

certified nurse midwife or clinical 

psychologist employed or under 

contract with the RHC or FQHC at the 

time the services are furnished; and 

(3) Not covered in a— 

(i) Hospital as defined in section 

1861(e) of the Act; or 

(ii) Critical access hospital as defined 

in section 1861(mm)(1) of the Act. 

■ 10. Section 405.2412 is revised to read 

as follows: 

§ 405.2412 Physicians’ services. 

Physicians’ services are professional 

services that are furnished by either of 

the following: 

(a) By a physician at the RHC or 

FQHC. 

(b) Outside of the RHC or FQHC by a 

physician whose agreement with the 

RHC or FQHC provides that he or she 

will be paid by the RHC or FQHC for 

such services and certification and cost 

reporting requirements are met. 

§ 405.2413 [Amended] 

■ 11. Section 405.2413 is amended as 

follows: 

■ A. Amending paragraph (a)(2) by 

removing the term ‘‘rural health 

clinic’s’’ and by adding in its place the 

term ‘‘RHC’s or FQHC’s’’. 

■ B. Amending paragraph (a)(6) by 

removing the term ‘‘clinic’s’’ and by 

adding in its place the term ‘‘RHC’s or 

‘‘FQHC’s’’ and by removing the term 

‘‘clinic’’ and by adding in its place the 

term ‘‘RHC’’. 

■ 12. Section 405.2414 is amended as 

follows: 

■ A. Revising the section heading and 

paragraphs (a) introductory text and 

(a)(1). 

■ B. In paragraphs (a)(2) and (3), 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. Revising paragraph (a)(4). 

■ D. In paragraph (a)(5), removing the 

phrase ‘‘They would’’ and adding in its 

place the phrase ‘‘The services would’’. 

■ E. In paragraph (c), removing the 

phrase ‘‘physician assistants, nurse 

midwives or specialized nurse 

practitioners’’ and adding in its place 

the phrase ‘‘physician assistants or 

certified nurse midwives’’. 

The revisions read as follows: 

§ 405.2414 Nurse practitioner, physician 

assistant, and certified nurse midwife 

services. 

(a) Professional services are payable 

under this subpart if the services meet 

all of the following: 

(1) Furnished by a nurse practitioner, 

physician assistant, or certified nurse 

midwife who is employed by, or 

receives compensation from, the RHC or 

FQHC. 

* * * * * 

(4) Are of a type which the nurse 

practitioner, physician assistant or 

certified nurse midwife who furnished 

the service is legally permitted to 

perform by the State in which the 

service is rendered. 

* * * * * 

■ 13. Section 405.2415 is revised to read 

as follows: 

§ 405.2415 Services and supplies incident 

to nurse practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist, or clinical social worker 

services. 

(a) Services and supplies incident to 

a nurse practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist, or clinical social worker 

service are payable under this subpart if 

the service or supply is all of the 

following: 

(1) Of a type commonly furnished in 

physicians’ offices. 

(2) Of a type commonly rendered 

either without charge or included in the 

RHC’s or FQHC’s bill. 

(3) Furnished as an incidental, 

although integral part of professional 

services furnished by a nurse 

practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist, or clinical social worker. 

(4) Furnished in accordance with 

applicable State law. 

(5) Furnished under the direct 

supervision of a physician, nurse 

practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist or clinical social worker. 

(6) In the case of a service, furnished 

by a member of the RHC’s health care 

staff who is an employee of the RHC. 

(b) The direct supervision 

requirement is met in the case of any of 

the following persons only if the person 

is permitted to supervise these services 

under the written policies governing the 

RHC or FQHC: 

(1) Nurse practitioner. 

(2) Physician assistant. 

(3) Certified nurse midwife. 

(4) Clinical psychologist. 

(5) Clinical social worker. 

(c) Only drugs and biologicals which 

cannot be self-administered are 

included within the scope of this 

benefit. 

■ 14. Section 405.2416 is amended as 

follows: 

■ A. Revising paragraphs (a) 

introductory text and (a)(1). 

■ B. In paragraph (a)(2), removing ‘‘;’’ 

and adding in its place ‘‘.’’. 

■ C. Revising paragraphs (a)(3) and (4). 

■ D. Revising paragraphs (b) 

introductory text and (b)(1). 

The revisions read as follows: 

§ 405.2416 Visiting nurse services. 

(a) Visiting nurse services are covered 

if the services meet all of the following: 

(1) The RHC or FQHC is located in an 

area in which the Secretary has 

determined that there is a shortage of 

home health agencies. 

* * * * * 

(3) The services are furnished by a 

registered professional nurse or licensed 

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25476 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

practical nurse that is employed by, or 

receives compensation for the services 

from the RHC or FQHC. 

(4) The services are furnished under 

a written plan of treatment that is both 

of the following: 

(i)(A) Established and reviewed at 

least every 60 days by a supervising 

physician of the RHC or FQHC; or 

(B)(1) Established by a nurse 

practitioner, physician assistant or 

certified nurse midwife; and 

(2) Reviewed at least every 60 days by 

a supervising physician. 

(ii) Signed by the supervising 

physician, nurse practitioner, physician 

assistant or certified nurse midwife of 

the RHC or FQHC. 

(b) The nursing care covered by this 

section includes the following: 

(1) Services that must be performed 

by a registered professional nurse or 

licensed practical nurse if the safety of 

the patient is to be assured and the 

medically desired results achieved. 

* * * * * 

§ 405.2417 [Amended] 

■ 15. Section 405.2417 is amended as 

follows: 

■ A. In the introductory text, removing 

the phrase ‘‘rural health clinic’’ and 

adding in its place ‘‘RHC or FQHC’’ 

■ B. In paragraph (a), removing the 

phrase ‘‘rural health clinic’’ and adding 

in its place ‘‘RHC or FQHC’’, and 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. In paragraph (b), removing ‘‘; or’’ 

and adding in its place ‘‘.’’. 

■ 16. Section 405.2430 is amended as 

follows: 

■ A. Revising paragraphs (a)(1) 

introductory text, (a)(1)(i), and (a)(1)(ii). 

■ B. In paragraph (a)(4), removing the 

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’. 

■ C. Revising paragraph (b). 

■ D. Removing paragraph (c). 

■ E. Redesignating paragraph (d) as 

paragraph (c). 

The revisions read as follows: 

§ 405.2430 Basic requirements. 

(a) * * * 

(1) In response to a request from an 

entity that wishes to participate in the 

Medicare program, CMS enters into an 

agreement with an entity when all of the 

following occur: 

(i) HRSA approves the entity as 

meeting the requirements of section 330 

of the PHS Act. 

(ii) The entity assures CMS that it 

meets the requirements specified in this 

subpart and part 491 of this chapter, as 

described in § 405.2434(a). 

* * * * * 

(b) Prior HRSA FQHC determination. 

An entity applying to become a FQHC 

must do the following: 

(1) Be determined by HRSA as 

meeting the applicable requirements of 

the PHS Act, as specified in 

§ 405.2401(b). 

(2) Receive approval by HRSA as a 

FQHC under section 330 of the PHS Act 

(42 U.S.C. 254b). 

* * * * * 

■ 17. Section 405.2434 is amended as 

follows: 

■ A. In the introductory text, removing 

the phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’. 

■ B. In paragraph (a)(1) by removing the 

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’ each time it appears. 

■ C. In paragraph (a)(2) by removing the 

term ‘‘Centers’’ and adding in its place 

the term ‘‘FQHCs’’. 

■ D. Revising paragraphs (b), (c)(1), and 

(c)(4). 

■ E. In paragraph (c)(3) by removing the 

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’ each time it appears. 

■ F. In paragraphs (d)(1), (d)(3) 

introductory text, (e)(1), (e)(2), and (e)(3) 

by removing the phrase ‘‘Federally 

qualified health center’’ each time it 

appears and adding in its place the term 

‘‘FQHC’’. 

■ G. In paragraphs (d)(3)(ii) and (e)(2) by 

removing the phrase ‘‘Federally 

qualified health center’s’’ and adding in 

its place the term ‘‘FQHC’s’’ . 

The revisions read as follows: 

§ 405.2434 Content and terms of the 

agreement. 

* * * * * 

(b) Effective date of agreement. The 

effective date of the agreement is 

determined in accordance with the 

provisions of § 489.13 of this chapter. 

(c) * * * 

(1) For non-FQHC services that are 

billed to Part B, the beneficiary is 

responsible for payment of a 

coinsurance amount which is 20 percent 

of the amount of Part B payment made 

to the FQHC for the covered services. 

* * * * * 

(4) The FQHC may charge the 

beneficiary for items and services that 

are not FQHC services. If the item or 

service is covered under Medicare Part 

B, the FQHC may not charge the 

beneficiary more than 20 percent of the 

Part B payment amount. 

* * * * * 

§ 405.2436 [Amended] 

■ 18. Section 405.2436 is amended as 

follows: 

■ A. In paragraphs (a) introductory text, 

(a)(2), (b)(1)(i), (b)(2)(i), (b)(3), (c)(1) 

introductory text, (c)(2), (c)(3), and (d) 

by removing the phrase ‘‘Federally 

qualified health center’’ each time it 

appears and adding in its place the term 

‘‘FQHC’’. 

■ B. In paragraphs (b)(1) introductory 

text, (b)(1)(ii), (b)(2) introductory text, 

and (d) by removing the phrase 

‘‘Federally qualified health center’s’’ 

and adding in its place the term 

‘‘FQHC’s’’. 

■ 19. Section 405.2440 is amended by 

revising the introductory text to read as 

follows. 

§ 405.2440 Conditions for reinstatement 

after termination by CMS. 

When CMS has terminated an 

agreement with a FQHC, CMS does not 

enter into another agreement with the 

FQHC to participate in the Medicare 

program unless CMS— 

* * * * * 

§ 405.2442 [Amended] 

■ 20. Section 405.2442 is amended as 

follows: 

■ A. In paragraph (a) introductory text 

by removing the phrase ‘‘Federally 

qualified health center’’ each time it 

appears and adding in its place the term 

‘‘FQHC’’. 

■ B. In paragraph (b) by removing the 

phrase ‘‘Federally qualified health 

center’s’’ and adding in its place the 

term ‘‘FQHC’s’’. 

§ 405.2444 [Amended] 

■ 21. Section 405.2444 is amended as 

follows: 

■ A. In paragraph (c) by removing the 

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’. 

■ B. In paragraphs (a)(2), (b), and (c) by 

removing the term ‘‘center’’ each time it 

appears, and by adding in its place the 

term ‘‘FQHC’’. 

■ 22. Section 405.2446 is amended as 

follows: 

■ A. Revising paragraphs (a), (b)(2), (3), 

(4), and (6). 

■ B. Removing paragraph (b)(8). 

■ C. Redesignating paragraphs (b)(9) and 

(10) as (b)(8) and (9), respectively. 

■ D. In paragraphs (c) and (d), removing 

the phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’. 

The revisions read as follows: 

§ 405.2446 Scope of services. 

(a) For purposes of this section, the 

terms rural health clinic and RHC when 

they appear in the cross references in 

paragraph (b) of this section also mean 

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Federally qualified health centers and 

FQHCs. 

(b) * * * 

(2) Services and supplies furnished as 

incident to a physician’s professional 

service, as specified in § 405.2413. 

(3) Nurse practitioner, physician 

assistant or certified nurse midwife 

services as specified in § 405.2414. 

(4) Services and supplies furnished as 

incident to a nurse practitioner, 

physician assistant, or certified nurse 

midwife service, as specified in 

§ 405.2415. 

* * * * * 

(6) Services and supplies furnished as 

incident to a clinical psychologist or 

clinical social worker service, as 

specified in § 405.2452. 

* * * * * 

■ 23. Section 405.2448 is amended as 

follows: 

■ A. Revising paragraphs (a) 

introductory text, (a)(1) and (2). 

■ B. Removing paragraph (a)(3). 

■ C. Redesignating paragraph (a)(4) as 

(a)(3). 

■ D. In paragraph (b) introductory text 

by removing the phrase ‘‘Federally 

qualified health centers’’ and adding in 

its place the term ‘‘FQHCs’’. 

■ E. In paragraph (d) by removing the 

phrase ‘‘a Federally qualified health 

center service, but may be provided at 

a Federally qualified health center if the 

center’’ and adding in its place the 

phrase ‘‘a FQHC service, but may be 

provided at a FQHC if the FQHC’’. 

The revisions read as follows: 

§ 405.2448 Preventive primary services. 

(a) Preventive primary services are 

those health services that— 

(1) A FQHC is required to provide as 

preventive primary health services 

under section 330 of the PHS Act; and 

(2) Are furnished— 

(i) By a or under the direct 

supervision of a physician, nurse 

practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist or clinical social worker; or 

(ii) By a member of the FQHC’s health 

care staff who is an employee of the 

FQHC or by a physician under 

arrangements with the FQHC. 

* * * * * 

§ 405.2449 [Amended] 

■ 24. Section 405.2449 is amended as 

follows: 

■ A. In the introductory text by 

removing the phrase ‘‘Federally 

qualified health center’’ and adding in 

its place the term ‘‘FQHC’’. 

■ B. In paragraph (b) by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

§ 405.2452 [Amended] 

■ 25. Section 405.2452 is amended as 

follows: 

■ A. In paragraph (a)(2), by removing 

the phrase ‘‘Federally qualified health 

center’s’’ and adding in its place the 

term ‘‘FQHC’s’’. 

■ B. In paragraph (a)(6), removing the 

term ‘‘center’’ and adding in its place 

the term ‘‘FQHC’’. 

■ C. In paragraph (b), by removing the 

phrase ‘‘federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’. 

■ 26. Section 405.2460 is revised to read 

as follows: 

§ 405.2460 Applicability of general 

payment exclusions. 

The payment conditions, limitations, 

and exclusions set out in subpart C of 

this part, part 410 and part 411 of this 

chapter are applicable to payment for 

services provided by RHCs and FQHCs, 

except that preventive primary services, 

as defined in § 405.2448, are statutorily 

authorized for FQHCs and not excluded 

by the provisions of section 1862(a) of 

the Act. 

■ 27. Section 405.2462 is revised to read 

as follows: 

§ 405.2462 Payment for RHC and FQHC 

services. 

(a) Payment to provider-based RHCs 

and FQHCs that are authorized to bill 

under the reasonable cost system. A 

RHC or FQHC that is authorized to bill 

under the reasonable cost system is paid 

in accordance with parts 405 and 413 of 

this subchapter, as applicable, if the 

RHC or FQHC is— 

(1) An integral and subordinate part of 

a hospital, skilled nursing facility or 

home health agency participating in 

Medicare (that is, a provider of 

services); and 

(2) Operated with other departments 

of the provider under common 

licensure, governance and professional 

supervision. 

(b) Payment to independent RHCs and 

freestanding FQHCs that are authorized 

to bill under the reasonable cost system. 

(1) RHCs and FQHCs that are authorized 

to bill under the reasonable cost system 

are paid on the basis of an all-inclusive 

rate for each beneficiary visit for 

covered services. This rate is 

determined by the MAC, in accordance 

with this subpart and general 

instructions issued by CMS. 

(2) The amount payable by the MAC 

for a visit is determined in accordance 

with paragraphs (e)(1) and (2) of this 

section. 

(c) Payment to FQHCs that are 

authorized to bill under the prospective 

payment system. A FQHC that is 

authorized to bill under the prospective 

payment system is paid a single, per 

diem rate based on the prospectively set 

rate for each beneficiary visit for 

covered services. This rate is adjusted 

for the following: 

(1) Geographic differences in cost 

based on the Geographic Practice Cost 

Indices (GPCIs) in accordance with 

section 1848(e) of the Act and 42 CFR 

414.2 and 414.26 are used to adjust 

payment under the physician fee 

schedule during the same period, 

limited to only the work and practice 

expense GPCIs. 

(2) Furnishing of care to a beneficiary 

that is a new patient with respect to the 

FQHC, including all sites that are part 

of the FQHC. A new patient is one that 

has not been treated by the FQHC’s 

organization within the previous 3 

years. 

(3) Furnishing of care to a beneficiary 

receiving a comprehensive initial 

Medicare visit (that is an initial 

preventive physical examination or an 

initial annual wellness visit) or a 

subsequent annual wellness visit. 

(d)(1) Except for preventive services 

for which Medicare pays 100 percent 

under § 410.152(l) of this chapter, 

Medicare pays— 

(i) 80 percent of the all-inclusive rate 

for FQHCs that are authorized to bill 

under the reasonable cost system; and 

(ii) 80 percent of the lesser of the 

FQHC’s actual charge or the PPS 

encounter rate for FQHCs authorized to 

bill under the PPS. 

(2) No deductible is applicable to 

FQHC services. 

(e) For RHCs visits, payment is made 

in accordance with one of the following: 

(1) If the deductible has been fully 

met by the beneficiary prior to the RHC 

visit, Medicare pays 80 percent of the 

all-inclusive rate. 

(2) If the deductible has not been fully 

met by the beneficiary before the visit, 

and the amount of the RHC’s reasonable 

customary charge for the services that is 

applied to the deductible is less than the 

all-inclusive rate, the amount applied to 

the deductible is subtracted from the allinclusive rate and 80 percent of the 

remainder, if any, is paid to the RHC. 

(3) If the deductible has not been fully 

met by the beneficiary before the visit, 

and the amount of the RHC’s reasonable 

customary charge for the services that is 

applied to the deductible is equal to or 

exceeds the all-inclusive rate, no 

payment is made to the RHC. 

(f) To receive payment, the FQHC or 

RHC must do all of the following: 

(1) Furnish services in accordance 

with the requirements of subpart X of 

part 405 of this chapter and subpart A 

of part 491 of this chapter. 

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(2) File a request for payment on the 

form and manner prescribed by CMS. 

■ 28. Section 405.2463 is revised to read 

as follows: 

§ 405.2463 What constitutes a visit. 

(a) Visit—General. (1) For RHCs, a 

visit is either of the following: 

(i) Face-to-face encounter between a 

RHC patient and one of the following: 

(A) Physician. 

(B) Physician assistant. 

(C) Nurse practitioner. 

(D) Certified nurse midwife. 

(E) Visiting registered professional or 

licensed practical nurse. 

(G) Clinical psychologist. 

(H) Clinical social worker. 

(ii) Qualified transitional care 

management service. 

(2) For FQHCs, a visit is either of the 

following: 

(i) A visit as described in paragraph 

(a)(1)(i) of this section. 

(ii) A face-to-face encounter between 

a patient and either of the following: 

(A) A qualified provider of medical 

nutrition therapy services as defined in 

part 410, subpart G, of this chapter. 

(B) A qualified provider of outpatient 

diabetes self-management training 

services as defined in part 410, subpart 

H, of this chapter. 

(b) Visit—Medical. (1) A medical visit 

is a face-to-face encounter between a 

RHC or FQHC patient and one of the 

following: 

(i) Physician. 

(ii) Physician assistant. 

(iii) Nurse practitioner. 

(iv) Certified nurse midwife. 

(v) Visiting registered professional or 

licensed practical nurse. 

(2) A medical visit for a FQHC patient 

may be either of the following: 

(i) Medical nutrition therapy visit. 

(ii) Diabetes outpatient selfmanagement training visit. 

(3) Visit—Mental health. A mental 

health visit is a face-to-face encounter 

between a RHC or FQHC patient and 

one of the following: 

(i) Clinical psychologist. 

(ii) Clinical social worker. 

(iii) Other RHC or FQHC practitioner, 

in accordance with paragraph (b)(1) of 

this section, for mental health services. 

(c) Visit—Multiple. (1) For RHCs and 

FQHCs that are authorized to bill under 

the reasonable cost system, encounters 

with more than one health professional 

and multiple encounters with the same 

health professional that take place on 

the same day and at a single location 

constitute a single visit, except when 

the patient— 

(i) Suffers an illness or injury 

subsequent to the first visit that requires 

additional diagnosis or treatment on the 

same day; 

(ii) Has a medical visit and a mental 

health visit on the same day; or 

(iii) Has an initial preventive physical 

exam visit and a separate medical or 

mental health visit on the same day. 

(2) For RHCs and FQHCs that are 

authorized to bill under the reasonable 

cost system, Medicare pays RHCs and 

FQHCs for more than 1 visit per day 

when the conditions in paragraph (c)(1) 

of this section are met. 

(3) For FQHCs that are authorized to 

bill under the reasonable cost system, 

Medicare pays for more than 1 visit per 

day when a DSMT or MNT visit is 

furnished on the same day as a visit 

described in paragraph (c)(1) of this 

section are met. 

(4) For FQHCs billing under the 

prospective payment system, Medicare 

pays for more than 1 visit per day when 

the patient— 

(i) Suffers an illness or injury 

subsequent to the first visit that requires 

additional diagnosis or treatment on the 

same day; or 

(ii) Has a medical visit and a mental 

health visit on the same day. 

■ 29. Section 405.2464 is revised to read 

as follows: 

§ 405.2464 Payment rate. 

(a) Determination of the payment rate 

for RHCs and FQHCs that are 

authorized to bill on the basis of 

reasonable cost. (1) An all-inclusive rate 

is determined by the MAC at the 

beginning of the cost reporting period. 

(2) The rate is determined by dividing 

the estimated total allowable costs by 

estimated total visits for RHC or FQHC 

services. 

(3) The rate determination is subject 

to any tests of reasonableness that may 

be established in accordance with this 

subpart. 

(4) The MAC, during each reporting 

period, periodically reviews the rate to 

assure that payments approximate 

actual allowable costs and visits and 

adjusts the rate if: 

(i) There is a significant change in the 

utilization of services; 

(ii) Actual allowable costs vary 

materially from allowable costs; or 

(iii) Other circumstances arise which 

warrant an adjustment. 

(5) The RHC or FQHC may request the 

MAC to review the rate to determine 

whether adjustment is required. 

(b) Determination of the payment rate 

for FQHCs billing under the prospective 

payment system. (1) A per diem rate is 

calculated by CMS by dividing total 

FQHC costs by total FQHC daily 

encounters to establish an average per 

diem cost. 

(2) The per diem rate is adjusted as 

follows: 

(i) For geographic differences in the 

cost of inputs according to 

§ 405.2462(c)(1). 

(ii) When the FQHC furnishes services 

to a new patient, as defined in 

§ 405.2462(c)(2). 

(iii) When a beneficiary receives 

either of the following: 

(A) A comprehensive initial Medicare 

visit (that is, an initial preventive 

physical examination or an initial 

annual wellness visit). 

(B) A subsequent annual wellness 

visit. 

■ 30. Section 405.2466 is amended to 

read as follows: 

■ A. By revising paragraph (a) and 

paragraph (b) heading. 

■ B. In paragraph (b)(1) introductory 

text by removing the term 

‘‘intermediary’’ and by adding in its 

place the term ‘‘MAC’’. 

■ C. In paragraphs (b)(1)(i), and (b)(1)(ii) 

by removing the term ‘‘rural health 

clinic’’ each time it appears and by 

adding in its place the term ‘‘RHC’’ and 

by removing the term ‘‘Federally 

qualified health center’’ and by adding 

in its place the term ‘‘FQHC’’. 

■ D. Revising paragraph (b)(1)(iii). 

■ E. In paragraph (b)(1)(iv) by removing 

the term ‘‘rural health clinics’’ and by 

adding in its place the term ‘‘RHCs’’. 

■ F. In paragraphs (b)(1) introductory 

text, (b)(2), (c)(1), (c)(2), and (d)(2) by 

removing the word ‘‘clinic’’ each time it 

appears and by adding in its place the 

term ‘‘RHC’’. 

■ G. In paragraphs (b)(1) introductory 

text, (b)(2), (c)(1), (c)(2), and (d)(2) by 

removing the word ‘‘center’’ each time 

it appears and by adding in its place the 

term ‘‘FQHC’’. 

■ H. Revising paragraphs (c) 

introductory text and (d)(1). 

■ I. In paragraph (d)(2) by removing the 

term ‘‘intermediary’’ each time it 

appears and by adding in its place the 

term ‘‘MAC’’. 

The revisions read as follows: 

§ 405.2466 Annual reconciliation. 

(a) General. Payments made to RHCs 

or FQHCs that are authorized to bill 

under the reasonable cost system during 

a reporting period are subject to annual 

reconciliation to assure that those 

payments do not exceed or fall short of 

the allowable costs attributable to 

covered services furnished to Medicare 

beneficiaries during that period. 

(b) Calculation of reconciliation for 

RHCs or FQHCs that are authorized to 

bill under the reasonable cost system. 

(1) * * * 

(iii) The total payment due the RHC 

is 80 percent of the amount calculated 

by subtracting the amount of deductible 

incurred by beneficiaries that is 

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attributable to RHC services from the 

cost of these services. FQHC services are 

not subject to a deductible and the 

payment computation for FQHCs does 

not include a reduction related to the 

deductible. 

* * * * * 

(c) Notice of program reimbursement. 

The MAC notifies the RHC or FQHC that 

is authorized to bill under the 

reasonable-cost system: 

* * * * * 

(d) * * * 

(1) Underpayments. If the total 

reimbursement due the RHC or FQHC 

that is authorized to bill under the 

reasonable cost system exceeds the 

payments made for the reporting period, 

the MAC makes a lump-sum payment to 

the RHC or FQHC to bring total 

payments into agreement with total 

reimbursement due the RHC or FQHC. 

* * * * * 

■ 31. Add § 405.2467 to read as follows: 

§ 405.2467 Requirements of the FQHC 

PPS. 

(a) Cost reporting. For cost reporting 

periods beginning on or after October 1, 

2014, FQHCs are paid the lesser of their 

actual charges or the FQHC PPS rate 

that does all of the following: 

(1) Includes a process for 

appropriately describing the services 

furnished by FQHCs. 

(2) Establishes payment rates for 

specific payment codes based on such 

appropriate descriptions of services. 

(3) Takes into account the type, 

intensity and duration of services 

furnished by FQHCs. 

(4) May include adjustments (such as 

geographic adjustments) determined by 

the Secretary. 

(b) HCPCS coding. FQHCs are 

required to submit HCPCS codes in 

reporting services furnished. 

(c) Initial payments. (1) Beginning 

October 1, 2014, for the first 15 months 

of the PPS, the estimated aggregate 

amount of PPS rates is equal to 100 

percent of the estimated amount of 

reasonable costs that would have 

occurred for that period if the PPS had 

not been implemented. 

(2) Payment rate is calculated based 

on the reasonable cost system, prior to 

productivity adjustments and any 

payment limitations. 

(d) Payments in subsequent years. (1) 

Beginning January 1, 2016, PPS 

payment rates will be increased by the 

percentage increase in the Medicare 

economic index. 

(2) Beginning January 1, 2017, PPS 

rates will be increased by the percentage 

increase in a market basket of FQHC 

goods and services as established 

through regulations, or, if not available, 

the Medicare economic index. 

■ 32. Section 405.2468 is amended by: 

■ A. In paragraph (a) by removing the 

term ‘‘intermediary’’ and by adding in 

its place the term ‘‘MAC’’. 

■ B. In the headings of paragraphs (b) 

and (c), by removing the term ‘‘rural 

health clinic’’ and by adding in its place 

the term ‘‘RHC’’. 

■ C. In the heading of paragraph (b) by 

removing the term ‘‘Federally qualified 

health center’’ and by adding in its 

place the term ‘‘FQHC’’. 

■ D. In paragraphs (b)(4), (b)(5), 

(d)(2)(iv), and (d)(2)(v) by removing the 

word ‘‘clinic’’ each time it appears and 

by adding in its place the term ‘‘RHC’’. 

■ E. In paragraphs (b)(4), (b)(5), 

(d)(2)(iv), (d)(2)(v) by removing the 

word ‘‘center’’ each time it appears and 

by adding in its place the term ‘‘FQHC’’. 

■ F. Revising paragraphs (b)(1), (c) and 

(d)(1). 

■ G. In paragraph (f)(4) by removing the 

term ‘‘Medicare +Choice’’ and adding in 

its place the term ‘‘Medicare 

Advantage’’. 

The revisions read as follows: 

§ 405.2468 Allowable costs. 

* * * * * 

(b) * * * 

(1) Compensation for the services of a 

physician, physician assistant, nurse 

practitioner, certified nurse-midwife, 

visiting registered professional or 

licensed practical nurse, clinical 

psychologist, and clinical social worker 

who owns, is employed by, or furnishes 

services under contract to a FQHC or 

RHC. 

* * * * * 

(c) Tests of reasonableness of cost and 

utilization. Tests of reasonableness 

authorized by sections 1833(a) and 

1861(v)(1)(A) of the Act may be 

established by CMS or the MAC with 

respect to direct or indirect overall 

costs, costs of specific items and 

services, or costs of groups of items and 

services. For RHCs and FQHCs that are 

authorized to bill under the reasonable 

cost system, these tests include, but are 

not limited to, screening guidelines and 

payment limits. 

(d) * * * 

(1) Costs in excess of amounts 

established by the guidelines are not 

included unless the RHC or FQHC that 

is authorized to bill under the 

reasonable cost system provides 

reasonable justification satisfactory to 

the MAC. 

* * * * * 

■ 33. Section 405.2469 is revised to read 

as follows: 

§ 405.2469 FQHC supplemental payments. 

(a) Eligibility for supplemental 

payments. FQHCs under contract 

(directly or indirectly) with MA 

organizations are eligible for 

supplemental payments for FQHC 

services furnished to enrollees in MA 

plans offered by the MA organization to 

cover the difference, if any, between 

their payments from the MA plan and 

what they would receive either: 

(1) Under the reasonable cost payment 

system if the FQHC is authorized to bill 

under the reasonable cost payment 

system, or 

(2) The PPS rate if the FQHC is 

authorized to bill under the PPS. 

(b) Calculation of supplemental 

payment. The supplemental payment 

for FQHC covered services provided to 

Medicare patients enrolled in MA plans 

is based on the difference between— 

(1) Payments received by the FQHC 

from the MA plan as determined on a 

per visit basis and the FQHCs allinclusive cost-based per visit rate as set 

forth in this subpart, less any amount 

the FQHC may charge as described in 

section 1857(e)(3)(B) of the Act; or 

(2) Payments received by the FQHC 

from the MA plan as determined on a 

per visit basis and the FQHC PPS rate 

as set forth in this subpart, less any 

amount the FQHC may charge as 

described in section 1857(e)(3)(B) of the 

Act. 

(c) Financial incentives. Any financial 

incentives provided to FQHCs under 

their MA contracts, such as risk pool 

payments, bonuses, or withholds, are 

prohibited from being included in the 

calculation of supplemental payments 

due to the FQHC. 

(d) Per visit supplemental payment. A 

supplemental payment required under 

this section is made to the FQHC when 

a covered face-to-face encounter occurs 

between a MA enrollee and a 

practitioner as set forth in § 405.2463. 

§ 405.2470 [Amended] 

■ 34. Section 405.2470 is amended by: 

■ A. In paragraphs (a)(1), (b)(1), (c)(3), 

(c)(4), and (c)(5) by removing the term 

‘‘intermediary’’, and by adding in its 

place the term ‘‘MAC’’. 

■ B. In paragraph (b)(2), by removing the 

term ‘‘intermediary’s’’ and by adding in 

its place the term ‘‘MAC’s’’. 

■ C. In paragraphs (a) introductory text, 

(c)(1), (c)(2)(i), and (c)(2)(ii) by removing 

the term ‘‘rural health clinic’’ and by 

adding in its place the term ‘‘RHC’’. 

■ D. In paragraphs (a) introductory text, 

(c)(1), (c)(2)(i), and (c)(2)(ii) by removing 

the term ‘‘Federally qualified health 

center’’ and by adding in its place the 

term ‘‘FQHC’’. 

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■ E. In paragraphs (b)(1), (b)(2), (c)(1), 

(c)(2) introductory text, (c)(3), (c)(4), 

(c)(5), and (c)(6) by removing the term 

‘‘clinic’’ each time it appears and by 

adding in its place the term ‘‘RHC’’. 

■ F. In paragraphs (b)(1), (b)(2), (c)(1), 

(c)(2) introductory text, (c)(3), (c)(4), 

(c)(5) and (c)(6) by removing the term 

‘‘center’’ each time it appears and by the 

term ‘‘FQHC’’. 

■ 35. Section 405.2472 is amended by 

revising paragraph (a) to read as follows: 

§ 405.2472 Beneficiary appeals. 

* * * * * 

(a) The beneficiary is dissatisfied with 

a MAC’s determination denying a 

request for payment made on his or her 

behalf by a RHC or FQHC; 

* * * * * 

PART 410—SUPPLEMENTARY 

MEDICAL INSURANCE (SMI) 

BENEFITS 

■ 36. The authority citation for part 410 

continues to read as follows: 

Authority: Sec. 1102, 1834, 1871, 1881, 

and 1893 of the Social Security Act (42 

U.S.C. 1302, 1395m, 1395hh, and 1395ddd). 

■ 37. Section 410.152 is amended by 

revising paragraph (f) to read as follows: 

§ 410.152 Amounts of payment. 

* * * * * 

(f) Amount of payment: Rural health 

clinic (RHC) and Federally qualified 

health center (FQHC) services. Medicare 

Part B pays, for services by a 

participating RHC or FQHC that is 

authorized to bill under the reasonable 

cost system, 80 percent of the costs 

determined under subpart X of part 405 

of this chapter, to the extent those costs 

are reasonable and related to the cost of 

furnishing RHC or FQHC services or 

reasonable on the basis of other tests 

specified by CMS. 

* * * * * 

PART 491—CERTIFICATION OF 

CERTAIN HEALTH FACILITIES 

■ 38. The authority citation for part 491 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302); and sec. 353 of the 

Public Health Service Act (42 U.S.C. 263a). 

■ 39. Section 491.8 is amended by 

revising paragraph (a)(3) to read as 

follows: 

§ 491.8 Staffing and staff responsibilities. 

(a) * * * 

(3) The physician assistant, nurse 

practitioner, nurse-midwife, clinical 

social worker or clinical psychologist 

member of the staff may be the owner 

or an employee of the clinic or center, 

or may furnish services under contract 

to the clinic or center. In the case of a 

clinic, at least one physician assistant or 

nurse practitioner must be an employee 

of the clinic. 

* * * * * 

PART 493—LABORATORY 

REQUIREMENTS 

■ 40. The authority citation for part 493 

is revised to read as follows: 

Authority: Sec. 353 of the Public Health 

Service Act, secs. 1102, 1861(e), the sentence 

following sections 1861(s)(11) through 

1861(s)(16) of the Social Security Act (42 

U.S.C. 263a, 1302, 1395x(e), the sentence 

following 1395x(s)(11) through 1395x(s)(16)), 

and the Pub. L. 112–202 amendments to 42 

U.S.C. 263a. 

■ 41. Section 493.1 is amended by 

revising the second sentence to read as 

follows: 

§ 493.1 Basis and scope. 

* * * It implements sections 1861(e) 

and (j), the sentence following section 

1861(s)(13), and 1902(a)(9) of the Social 

Security Act, and section 353 of the 

Public Health Service Act, as amended 

by section 2 of the Taking Essential 

Steps for Testing Act of 2012. * * * 

■ 42. Section 493.2 is amended by 

adding the definition of ‘‘Repeat 

proficiency testing referral’’ in 

alphabetical order, to read as follows: 

§ 493.2 Definitions. 

* * * * * 

Repeat proficiency testing referral 

means a second instance in which a 

proficiency testing sample, or a portion 

of a sample, is referred, for any reason, 

to another laboratory for analysis prior 

to the laboratory’s proficiency testing 

program event cut-off date within the 

period of time encompassing the two 

prior survey cycles (including initial 

certification, recertification, or the 

equivalent for laboratories surveyed by 

an approved accreditation organization). 

* * * * * 

■ 43. Section 493.1800 is amended by 

revising paragraph (a)(2) introductory 

text to read as follows: 

§ 493.1800 Basis and scope. 

(a) * * * 

(2) The Clinical Laboratory 

Improvement Act of 1967 (section 353 

of the Public Health Service Act) as 

amended by CLIA 1988, as amended by 

section 2 of the Taking Essential Steps 

for Testing Act of 2012— 

* * * * * 

■ 44. Section 493.1840 is amended by 

revising paragraph (b) to read as follows: 

§ 493.1840 Suspension, limitation, or 

revocation of any type of CLIA certificate. 

* * * * * 

(b) Adverse action based on improper 

referrals in proficiency testing. If CMS 

determines that a laboratory has 

intentionally referred its proficiency 

testing samples to another laboratory for 

analysis, CMS does one of the following: 

(1)(i) Revokes the laboratory’s CLIA 

certificate for at least 1 year, prohibits 

the owner and operator from owning or 

operating a CLIA-certified laboratory for 

at least 1 year, and may impose a civil 

money penalty in accordance with 

§ 493.1834(d), if CMS determines that— 

(A) A proficiency testing referral is a 

repeat proficiency testing referral as 

defined at § 493.2; or 

(B) On or before the proficiency 

testing event close date, a laboratory 

reported proficiency testing results 

obtained from another laboratory to the 

proficiency testing program. 

(ii) Following the revocation of a 

CLIA certificate in accordance with 

paragraph (b)(1)(i) of this section, CMS 

may exempt a laboratory owner from the 

generally applicable prohibition on 

owning or operating a CLIA-certified 

laboratory under paragraph (a)(8) of this 

section on a laboratory-by-laboratory 

basis if CMS finds, after review of the 

relevant facts and circumstances, that 

there is no evidence that— 

(A) Patients would be put at risk as a 

result of the owner being exempted from 

the ban on a laboratory-by-laboratory 

basis; 

(B) The laboratory for which the 

owner is to be exempted from the 

general ownership ban participated in 

or was otherwise complicit in the PT 

referral of the laboratory that resulted in 

the revocation; and 

(C) The laboratory for which the 

owner is to be exempted from the 

general ownership ban received a PT 

sample from another laboratory in the 

prior two survey cycles, and failed to 

immediately report such receipt to CMS 

or to the appropriate CMS-approved 

accrediting organization. 

(2) Suspends or limits the CLIA 

certificate for less than 1 year based on 

the criteria in § 493.1804(d) and 

imposes alternative sanctions as 

appropriate, in accordance with 

§ 493.1804(c) and (d), § 493.1806(c), 

§ 493.1807(b), § 493.1809 and, in the 

case of civil money penalties, 

§ 493.1834(d), when CMS determines 

that paragraph (b)(1)(i)(A) or (B) of this 

section does not apply but that the 

laboratory obtained test results for the 

proficiency testing samples from 

another laboratory on or before the 

proficiency testing event close date. 

Among other possibilities, alternative 

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Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 25481 

sanctions will always include a civil 

money penalty and a directed plan of 

correction that includes required 

training of staff. 

(3) Imposes alternative sanctions in 

accordance with § 493.1804(c) and (d), 

§ 493.1806(c), § 493.1807(b), § 493.1809 

and, in the case of civil money 

penalties, § 493.1834(d), when CMS 

determines that paragraph (b)(1)(i) or (2) 

of this section do not apply, and a PT 

referral has occurred, but no test results 

are received prior to the event close date 

by the referring laboratory from the 

laboratory that received the referral. 

Among other possibilities, alternative 

sanctions will always include a civil 

money penalty and a directed plan of 

correction that includes required 

training of staff. 

* * * * * 

Dated: April 3, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: April 9, 2014. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

Note: The following Addendum will not 

appear in the Code of Federal Regulations. 

Addendum: FQHC Geographic 

Adjustment Factors (FQHC GAFs) 

As described in section II.C.2. of this 

final rule with comment period, we 

used the CY 2015 GPCI values and cost 

share weights, as published in the CY 

2014 PFS final rule with comment 

period, to model the geographic 

adjustments for the FQHC PPS rates. 

The FQHC GAFs that will be used for 

payment under the FQHC PPS will be 

adapted from the GPCIs used to adjust 

payment under the PFS for that same 

period. 

The 2014 FQHC GAFs in the 

following table are adapted from the CY 

2014 PFS GPCIs, as finalized in the CY 

2014 PFS final rule with comment 

period. The 2014 FQHC GAFs are the 

values that will be used to adjust 

payment under the FQHC PPS for the 

period of October 1 through December 

31, 2014. The 2014 FQHC GAFs in the 

following table do not reflect the 1.0 

floor on the PFS work GPCI that is 

effective from January 1, 2014, through 

March 31, 2014, which was authorized 

by the Pathway for SGR Reform Act of 

2013. 

The 2015 FQHC GAFs in the 

following table are adapted from the CY 

2015 PFS GPCIs, as finalized in the CY 

2014 PFS final rule with comment 

period. The 2015 FQHC GAFs listed 

were used to model the geographic 

adjustments for the FQHC PPS rates. 

Under current law and regulation, these 

same values would be used to adjust 

payments under the FQHC PPS during 

CY 2015. 

We note that updates to the PFS 

GPCIs due to changes in law or 

implemented through regulation would 

also apply to the FQHC GAFs, such as 

changes to the CY 2015 PFS GPCIs that 

may be included in the final CY 2015 

PFS rule. The FQHC GAFs would be recalculated and updated through 

program instruction so that they remain 

consistent with the PFS GPCIs. 

Locality name 2014 FQHC 

GAF 

2015 FQHC 

GAF 

1 Alabama ............................................................................................................................................................. 0.933 0.936 

2 Alaska ................................................................................................................................................................. 1.307 1.316 

3 Arizona ............................................................................................................................................................... 0.985 0.993 

4 Arkansas ............................................................................................................................................................ 0.920 0.920 

5 Anaheim/Santa Ana, CA .................................................................................................................................... 1.123 1.120 

6 Los Angeles, CA ................................................................................................................................................ 1.096 1.100 

7 Marin/Napa/Solano, CA ..................................................................................................................................... 1.154 1.165 

8 Oakland/Berkeley, CA ........................................................................................................................................ 1.152 1.154 

9 San Francisco, CA ............................................................................................................................................. 1.216 1.224 

10 San Mateo, CA ................................................................................................................................................. 1.210 1.216 

11 Santa Clara, CA ............................................................................................................................................... 1.204 1.209 

12 Ventura, CA ...................................................................................................................................................... 1.105 1.100 

13 Rest of California ............................................................................................................................................. 1.053 1.053 

14 Colorado ........................................................................................................................................................... 1.003 1.005 

15 Connecticut ...................................................................................................................................................... 1.067 1.069 

16 DC + MD/VA Suburbs ...................................................................................................................................... 1.121 1.123 

17 Delaware .......................................................................................................................................................... 1.024 1.021 

18 Fort Lauderdale, FL ......................................................................................................................................... 1.014 1.006 

19 Miami, FL ......................................................................................................................................................... 1.017 1.011 

20 Rest of Florida .................................................................................................................................................. 0.973 0.971 

21 Atlanta, GA ....................................................................................................................................................... 1.005 1.002 

22 Rest of Georgia ................................................................................................................................................ 0.940 0.940 

23 Hawaii/Guam .................................................................................................................................................... 1.075 1.077 

24 Idaho ................................................................................................................................................................ 0.935 0.930 

25 Chicago, IL ....................................................................................................................................................... 1.033 1.026 

26 East St. Louis, IL .............................................................................................................................................. 0.962 0.961 

27 Suburban Chicago, IL ...................................................................................................................................... 1.041 1.033 

28 Rest of Illinois ................................................................................................................................................... 0.944 0.944 

29 Indiana .............................................................................................................................................................. 0.948 0.948 

30 Iowa .................................................................................................................................................................. 0.929 0.933 

31 Kansas ............................................................................................................................................................. 0.933 0.935 

32 Kentucky ........................................................................................................................................................... 0.925 0.926 

33 New Orleans, LA .............................................................................................................................................. 0.983 0.986 

34 Rest of Louisiana ............................................................................................................................................. 0.930 0.935 

35 Southern Maine ................................................................................................................................................ 0.998 0.994 

36 Rest of Maine ................................................................................................................................................... 0.940 0.944 

37 Baltimore/Surr. Cntys, MD ............................................................................................................................... 1.059 1.058 

38 Rest of Maryland .............................................................................................................................................. 1.024 1.025 

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25482 Federal Register / Vol. 79, No. 85 / Friday, May 2, 2014 / Rules and Regulations 

Locality name 2014 FQHC 

GAF 

2015 FQHC 

GAF 

39 Metropolitan Boston ......................................................................................................................................... 1.082 1.085 

40 Rest of Massachusetts ..................................................................................................................................... 1.038 1.040 

41 Detroit, MI ......................................................................................................................................................... 1.010 0.996 

42 Rest of Michigan .............................................................................................................................................. 0.957 0.954 

43 Minnesota ......................................................................................................................................................... 1.005 1.006 

44 Mississippi ........................................................................................................................................................ 0.916 0.914 

45 Metropolitan Kansas City, MO ......................................................................................................................... 0.968 0.968 

46 Metropolitan St Louis, MO ............................................................................................................................... 0.975 0.972 

47 Rest of Missouri ............................................................................................................................................... 0.905 0.903 

48 Montana ........................................................................................................................................................... 0.974 0.977 

49 Nebraska .......................................................................................................................................................... 0.938 0.939 

50 Nevada ............................................................................................................................................................. 1.026 1.027 

51 New Hampshire ................................................................................................................................................ 1.021 1.027 

52 Northern NJ ...................................................................................................................................................... 1.109 1.107 

53 Rest of New Jersey .......................................................................................................................................... 1.071 1.072 

54 New Mexico ...................................................................................................................................................... 0.955 0.954 

55 Manhattan, NY ................................................................................................................................................. 1.108 1.106 

56 NYC Suburbs/Long I., NY ................................................................................................................................ 1.124 1.122 

57 Poughkpsie/N NYC Suburbs, NY .................................................................................................................... 1.039 1.040 

58 Queens, NY ...................................................................................................................................................... 1.123 1.121 

59 Rest of New York ............................................................................................................................................. 0.966 0.967 

60 North Carolina .................................................................................................................................................. 0.953 0.956 

61 North Dakota .................................................................................................................................................... 0.982 0.981 

62 Ohio .................................................................................................................................................................. 0.959 0.953 

63 Oklahoma ......................................................................................................................................................... 0.913 0.919 

64 Portland, OR .................................................................................................................................................... 1.025 1.026 

65 Rest of Oregon ................................................................................................................................................. 0.975 0.978 

66 Metropolitan Philadelphia, PA .......................................................................................................................... 1.044 1.052 

67 Rest of Pennsylvania ....................................................................................................................................... 0.957 0.962 

68 Puerto Rico ...................................................................................................................................................... 0.808 0.816 

69 Rhode Island .................................................................................................................................................... 1.035 1.037 

70 South Carolina ................................................................................................................................................. 0.946 0.946 

71 South Dakota ................................................................................................................................................... 0.974 0.976 

72 Tennessee ........................................................................................................................................................ 0.937 0.936 

73 Austin, TX ......................................................................................................................................................... 1.002 1.008 

74 Beaumont, TX .................................................................................................................................................. 0.942 0.947 

75 Brazoria, TX ..................................................................................................................................................... 1.002 1.005 

76 Dallas, TX ......................................................................................................................................................... 1.014 1.014 

77 Fort Worth, TX ................................................................................................................................................. 0.995 1.000 

78 Galveston, TX .................................................................................................................................................. 1.010 1.016 

79 Houston, TX ..................................................................................................................................................... 1.009 1.013 

80 Rest of Texas ................................................................................................................................................... 0.953 0.957 

81 Utah .................................................................................................................................................................. 0.946 0.946 

82 Vermont ............................................................................................................................................................ 0.992 0.992 

83 Virginia ............................................................................................................................................................. 0.986 0.987 

84 Virgin Islands .................................................................................................................................................... 1.001 1.001 

85 Seattle (King Cnty), WA ................................................................................................................................... 1.084 1.086 

86 Rest of Washington .......................................................................................................................................... 1.004 1.005 

87 West Virginia .................................................................................................................................................... 0.901 0.902 

88 Wisconsin ......................................................................................................................................................... 0.973 0.970 

89 Wyoming .......................................................................................................................................................... 0.989 0.992 

[FR Doc. 2014–09908 Filed 4–29–14; 4:15 pm] 

BILLING CODE 4120–01–P 

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