Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 78901 

31 CFR Part 363 

Bonds, Electronic funds transfer, 

Federal Reserve System, Government 

securities, Securities. 

■ Accordingly, for the reasons set out in 

the preamble, 31 CFR Chapter II, 

Subchapter B, is amended as follows: 

PART 357—REGULATIONS 

GOVERNING BOOK–ENTRY 

TREASURY BONDS, NOTES AND 

BILLS HELD IN TREASURY/RESERVE 

AUTOMATED DEBT ENTRY SYSTEM 

(TRADES) AND LEGACY TREASURY 

DIRECT 

■ 1. The authority citation for part 357 

continues to read as follows: 

Authority: 31 U.S.C. chapter 31; 5 U.S.C. 

301; 12 U.S.C. 391. 

■ 2. Revise the heading for Part 357 to 

read as set forth above. 

■ 3. Amend § 357.22 by removing 

paragraph (b) and redesignating 

paragraphs (c), (d), (e), and (f) as 

paragraphs (b), (c), (d), and (e). 

PART 363—REGULATIONS 

GOVERNING SECURITIES HELD IN 

TREASURYDIRECT 

■ 4. The authority citation for part 363 

continues to read as follows: 

Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 

U.S.C. 3102, et seq.; 31 U.S.C. 3121, et seq. 

§ 363.6 [Amended] 

■ 5. Remove the definition of ‘‘Sell 

Direct’’ from § 363.6. 

■ 6. Amend § 363.10 by adding 

paragraph (c) to read as follows: 

§ 363.10 What is a TreasuryDirect 

account? 

* * * * * 

(c) Closing an account. If a 

TreasuryDirect primary account and all 

associated linked accounts have had no 

holdings and no activity for a period of 

two years, we reserve the right to close 

the account, along with all linked 

accounts. 

§ 362 [Amended] 

■ 7. Amend § 363.22 by removing the 

phrase ‘‘including a transfer for a Sell 

Direct transaction,’’ from the second 

sentence in paragraph (a)(3)(ii). 

§ 363.27 [Amended] 

■ 8. Amend § 363.27 by removing the 

phrase ‘‘, and may request a Sell Direct 

transaction’’ from the second sentence in 

paragraph (e)(4). 

§ 363.209 [Removed and reserved] 

■ 9. Remove and reserve § 363.209. 

§ 363.210 [Amended] 

■ 10. Amend § 363.210 by removing the 

phrase ‘‘initiate a SellDirect 

transaction,’’ from the second sentence 

and removing the fourth and fifth 

sentences. 

Richard L. Gregg, 

Fiscal Assistant Secretary. 

[FR Doc. 2010–31489 Filed 12–16–10; 8:45 am] 

BILLING CODE 4810–39–P 

DEPARTMENT OF VETERANS 

AFFAIRS 

38 CFR Part 17 

RIN 2900–AN37 

Payment for Inpatient and Outpatient 

Health Care Professional Services at 

Non-Departmental Facilities and Other 

Medical Charges Associated With NonVA Outpatient Care 

AGENCY: Department of Veterans Affairs. 

ACTION: Final rule. 

SUMMARY: This document affirms as 

final, with changes, a proposed rule that 

updates the Department of Veterans 

Affairs (VA) medical regulations 

concerning the payment methodology 

used to calculate VA payments for 

inpatient and outpatient health care 

professional services and other medical 

services associated with non-VA 

outpatient care. The rule has been 

designed to ensure that it will not have 

adverse effects on access to care. 

DATES: This final rule is effective 

February 15, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Holley Niethammer, Supervisory Policy 

Specialist, National Fee Program Office, 

Department of Veterans Affairs, 3773 

Cherry Creek North Dr., Suite 450, 

Denver, CO 80209, telephone (303) 370– 

5062. (This is not a toll-free number.) 

SUPPLEMENTARY INFORMATION: Under 38 

U.S.C. 1703(a), ‘‘[w]hen [VA] facilities 

are not capable of furnishing 

economical hospital care or medical 

services because of geographical 

inaccessibility or are not capable of 

furnishing the care or services required, 

the Secretary, as authorized in [38 

U.S.C. 1710], may contract with non- 

[VA] facilities in order to furnish’’ 

certain hospital care and medical 

services to veterans who qualify under 

38 U.S.C. 1703. VA implemented this 

authority in 38 CFR 17.52. Also, under 

38 U.S.C. 1728, VA may authorize 

payment for emergency care in a nonVA facility in limited situations, 

primarily where the care is needed for 

the treatment of a service-connected 

disability or related condition. Under 

that authority, as implemented in 38 

CFR 17.120, VA reimburses either the 

veteran who made payments for 

hospital care or medical services, the 

person or organization making such 

expenditure on behalf of such veteran, 

or the hospital or other health facility 

furnishing the care or services if such 

care or services were provided in a 

medical emergency and VA or other 

Federal facilities were not feasibly 

available, and an attempt to use them 

beforehand would not have been 

reasonable. 

Payment methodology for health care 

professional services associated with 

outpatient and inpatient care that are 

payable under either 38 U.S.C. 1703 or 

1728 is currently set forth in 38 CFR 

17.56. 

Current § 17.56(a) adopted the 

Medicare Participating Physician Fee 

Schedule for the payment of 

professional services. For services not 

covered by the Medicare Participating 

Physician Fee Schedule, VA pays the 

lesser of the actual amount billed or the 

amount calculated using the 75th 

percentile methodology set forth in 

current § 17.56(c) (or the usual and 

customary rate if there are fewer than 8 

treatment occurrences for a procedure 

during the previous fiscal year). We 

cannot predict whether there will be 8 

treatment occurrences during an 

upcoming fiscal year, or the precise 

charges of such treatment occurrences, 

because these depend upon the billing 

practices of the non-VA facilities 

involved. In the majority of these cases, 

the non-VA facilities’ charges are far 

greater than the allowable Medicare 

charges for the same treatment. As a 

result, VA’s expenditures can be 

unpredictable and, in some cases, can 

greatly exceed the costs VA would incur 

using the Medicare payment systems or 

fee schedules. 

In a proposed rule published on 

February 18, 2010 (75 FR 7218), we 

proposed to amend § 17.56 to apply 

Medicare payment methodologies to all 

non-VA inpatient and outpatient health 

care professional services and other 

medical charges associated with non-VA 

outpatient care. We explained that such 

charges would include ancillary and 

facility costs such as those that are 

reimbursed using the following 

Medicare payment systems or fee 

schedules: Ambulatory Surgical Center 

Payment, Clinical Laboratory Fee 

Schedule, Home Health Prospective 

Payment System (PPS), Hospice, 

Hospital Outpatient PPS, and End Stage 

Renal Disease (ESRD) composite rate 

payment method (NOTE: Beginning 

January 1, 2011, Medicare will pay for 


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78902 Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 

ESRD services based on the prospective 

bundled payment system, not the 

composite rate. We have revised this 

final rule to correctly utilize the 

prospective bundled payment system). 

We also proposed to revise the 

regulation to clarify how payments will 

be computed for inpatient and 

outpatient health care professional 

services at non-VA facilities and other 

medical charges associated with non-VA 

outpatient care. We concluded that 

using the Medicare payment systems 

and fee schedules will clearly help VA 

contain costs. 

We received 18 comments on the 

proposed rule. All of the comments 

oppose at least one portion of the 

proposed rule. The proposed regulation 

governs multiple health service areas 

including but not limited to outpatient 

hospitals, ambulatory surgery centers, 

home health, ESRD, and laboratory 

services. The majority of comments 

concerned exclusively dialysis, thus 

VA’s responses to the comments largely 

address only dialysis. The subject 

matter of most of the comments can be 

grouped into several categories, and we 

have organized our discussion of the 

comments accordingly. 

We received no comments regarding 

the correction of the typographical error 

in 38 CFR 17.52(a). Prior versions of this 

regulation (codified at 38 CFR 17.50b(a)) 

included cross-references to 38 CFR 

17.50c through f. Sections 17.50c, 

17.50d and 17.50f have subsequently 

been recodified as 38 CFR 17.53, 17.54 

and 17.55, respectively. 61 FR 21964 

(1996). Additionally, since the most 

recent revision to this regulation, 

§ 17.56 was added to the regulatory 

sequence. Therefore, we remove the 

reference in § 17.52(a) to ‘‘provisions of 

§ 17.53 through f’’ and replace it with 

‘‘provisions of §§ 17.53, 17.54, 17.55 and 

17.56.’’ 

Challenges to VA’s Legal Authority To 

Promulgate This Rule 

Several commenters argued that VA 

lacks authority to establish by regulation 

rates to serve as default payment 

amounts in the absence of a negotiated 

payment amount, or in the context of 

individual authorizations for care. We 

disagree, but make clarifying changes to 

the regulation based on the comments. 

We will discuss these changes in 

reference to the comments before 

addressing our authority, because the 

clarifications themselves answer some 

of the comments. 

Commenters expressed confusion 

between the preamble and the rule text 

regarding whether VA will enter into 

negotiated agreements if the agreedupon rates are greater than the Medicare 

rate. In addition, commenters asked 

whether VA would be obligated to pay 

the negotiated amount in all contexts. 

We have clarified the regulatory text 

based on these comments. Depending 

upon agency need or prevailing market 

conditions, VA may negotiate specific 

rates with non-VA providers. If and 

when such contracts are awarded, VA 

will pay the negotiated contract rate for 

services within the contract’s scope and 

terms. This negotiated rate could be 

greater than the Medicare rate. 

In addition, nothing in the final rule 

authorizes VA to breach any contracts, 

including contracts which contain a 

negotiated rate. Some commenters 

expressed such a concern, as well as a 

concern that the rule would negate the 

payment terms of existing multiVeterans Integrate Service Network 

(VISN) contracts or contracts negotiated 

pursuant to the Federal Acquisition 

Regulation (FAR) and the VA 

Acquisition Regulation (VAAR) for 

individual VISNs, and thus the rule 

represents a breach of contract and an 

unconstitutional taking under United 

States v. Winstar Corp., 518 U.S. 839 

(1996). Again, no such alteration to 

existing VISN or multi-VISN contracts 

would take place upon promulgation of 

this regulation. As the clarified 

hierarchy in the final rule more clearly 

establishes, contracts entered into 

pursuant to specific negotiation have 

precedence over the default rates, 

including the Medicare rate. 

Finally, commenters indicated that 

the rule was unclear when it attempted 

to distinguish between a FAR contract 

and a VAAR contract. We agree that the 

proposed regulation text was confusing 

in this respect, and that this confusion 

may also have contributed to 

commenters’ questions about the 

continuing authority to specifically 

negotiate rates with non-VA providers. 

We have removed the references to the 

FAR and VAAR because of this 

confusion. Nevertheless, as discussed 

below, the FAR and VAAR continue to 

be relevant to our authority to negotiate 

specific rates with specific providers, 

which we will pay under § 17.56(a)(1). 

We reassure the commenters that this 

regulation would not override or cancel 

out any contracts in existence upon 

promulgation of this final rule. 

Therefore, no breach of contract or 

constitutional/unconstitutional taking 

would occur. The modified regulatory 

language addresses the comments that 

expressed confusion about what 

payment mechanism VA will apply 

under a given circumstance. 

We now address the specific 

challenges to VA’s authority. Several 

commenters stated that VA does not 

have specific authority from Congress 

under 38 U.S.C. 1703 to promulgate this 

regulation, and therefore VA cannot set 

reimbursement rates or price controls. 

We disagree, and do not make any 

changes to the regulation based on this 

comment. Section 1703 gives VA the 

authority to contract with non-VA 

facilities to provide hospital care and 

medical services. This contracting 

authority is not limited to contracts 

which contain negotiated prices. For 

example, 38 CFR 17.52, which 

implements the authority granted by 

section 1703, allows for individual 

authorizations when demand is only for 

infrequent use. As discussed in more 

detail below, individual authorizations 

are essentially a price offer to the nonVA provider, who then accepts that 

offer by performing services for the VA 

patient. Thus, VA has always 

interpreted the contracting authority 

granted in section 1703 to include forms 

of contracts other than contracts 

containing negotiated prices. The 

commenters incorrectly assume that VA 

must have specific authority in 38 

U.S.C. 1703 to include reimbursement 

rates in a regulation. However, VA has 

broad authority to issue regulations that 

are ‘‘necessary or appropriate to carry 

out the laws administered by the 

Department and are consistent with 

those laws.’’ 38 U.S.C. 501(a). 

Other commenters added that the 

FAR, VAAR, Competition in Contracting 

Act, Public Law 98–369, section 2701, 

and other Federal procurement laws and 

policies apply to all VA acquisitions 

made with appropriated funds unless 

explicitly exempted under 38 U.S.C. 

8153, and stated that none of these 

provisions allow VA to set limitations 

on cost and require that VA negotiate 

contract prices. We disagree—none of 

these general contracting laws prohibits 

the contracting or payment provisions 

in the final rule. VA is authorized by the 

FAR, VAAR, and other Federal 

procurement laws and policies to enter 

into contracts to provide care to 

veterans through private providers. As 

noted above, our authority to enter 

contracts for this purpose is in fact 

specifically stated in 38 U.S.C. 1703 and 

1728. These authorities—FAR, VAAR, 

and 38 U.S.C. 1703 and 1728—have 

long been the source of our authority to 

provide individual authorizations for 

care under 38 CFR 17.52. Moreover, 

these authorities do not prohibit VA’s 

implementation of the specific 

contracting authority authorized in 

section 1703. Indeed, if these broader 

contracting laws prohibited the 

contracting arrangements described in 

the proposed rule, our arrangements 


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Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 78903 

prior to the proposed revisions to 

§ 17.56 would have been void; yet, the 

comments made no such assertion. 

Thus, we have long-standing 

authority to engage in contracts and 

individual authorizations with non-VA 

providers. Inherent in VA’s authority to 

enter into these contracts is our 

authority to set rate terms and 

conditions for those contracts. Some of 

these are specifically negotiated. Others, 

however, are governed by the specific 

amount-calculation mechanisms 

established in current § 17.56. Our 

proposed rule merely revised those 

calculation mechanisms, and made 

them applicable to a broader group of 

non-VA providers. 

When VA offers to send a patient to 

a non-VA provider under the authority 

of § 17.56, and the non-VA provider 

accepts the patient and provides the 

service, a contract has been formed. In 

practice, these contract actions are 

ordered utilizing (1) VA Form 10–7078, 

Authorization and Invoice for Medical 

and Hospital Services, (2) VA Form 10– 

7079, Request for Outpatient Medical 

Services, or (3) VA Form 10–2570d, 

Dental Record Authorization and 

Invoice for Outpatient Service. The final 

rule merely indicates that the rate of 

payment for these contracts must 

conform to the regulation. 

Under its acquisition protest 

authority, the Government 

Accountability Office (GAO) has found 

that similar pricing and contract 

arrangements were not unduly 

restrictive of competition. In a request 

for proposal (RFP), VA stated that the 

Medicare Fee Schedule rate in effect at 

the time and location of service would 

apply to prosthetics orders under the 

contract. As in the case of the proposed 

rule and this final rule, use of the 

Medicare pricing in the RFP was in 

response to a VA Office of Inspector 

General (OIG) report that found that past 

acquisitions resulted in inflated and 

noncompetitive pricing. An orthopedic 

services provider challenged the use of 

the Medicare pricing structure in the 

RFP because those rates allegedly did 

not provide adequate compensation for 

the services. The GAO found that VA 

properly exercised its discretion under 

the relevant statutory authority, 38 

U.S.C. 8123. Section 8123 is very broad 

and gives VA the authority to ‘‘procure’’ 

prosthetic appliances and necessary 

services in whatever manner the 

Secretary deems proper, without regard 

to other provisions of law. Although 38 

U.S.C. 8123 provides broad 

procurement authority without regard to 

other provisions of law, the GAO’s 

holding did not rest solely on this basis. 

Rather, the GAO explained that the 

circumstances, particularly VA’s broad 

grant of procurement authority, 

provided no basis for questioning the 

RFP’s provisions. In particular, the GAO 

stated that ‘‘it is not unduly restrictive 

of competition for the agency to 

predesignate pricing in order to protect 

legitimate government interests.’’ See 

Orthopedic Servs., Inc., B–247695, June 

30, 1992, 92–1 CPD ¶ 547. 

As mentioned above, a 2006 VA OIG 

report, No. 05–03037–107, described in 

the proposed rule, found that 

establishing payment rates is necessary 

to ensure consistent, predictable 

medical costs and control expenditures. 

In addition, unlike the RFP examined by 

the GAO, the Medicare prices 

prescribed by § 17.56(a)(2) are not 

ceilings per se, but rather the default 

price that must apply when no other 

rate has been negotiated. Thus, existing 

authority actually encourages the 

development of rates through regulation 

as a matter of consistent government 

practice and protection of the public 

fisc. 

Notwithstanding our disagreement 

with the commenters that we lack 

authority to set rates via regulation, 

including for the individual 

authorizations that we have been 

providing before we proposed to revise 

§ 17.56, the comments generally reflect 

that the proposed rule language was 

confusing. It did not sufficiently 

distinguish negotiated rates from the 

default rates that generally apply to 

individual authorizations. It also 

seemed to state that our authority for 

individual authorizations was 

something other than FAR/VAAR. As 

noted above, we have revised the final 

rule to eliminate references to the FAR 

and VAAR and to otherwise clarify the 

hierarchical payment structure that we 

stated in the proposed rule. These 

changes are not departures from our 

intent in the proposed rule text and we 

believe that they will eliminate the 

confusion and clarify the meaning and 

effect of the final rule. 

Some commenters argued that 

Congress could not have intended to 

grant VA the authority to use Medicare 

rates under 38 U.S.C. 1703 because 

Congress explicitly authorized VA to set 

maximum payable rates in emergency 

situations under section 1725, but did 

not provide the same authorization in 

section 1703. In other words, the 

commenters state that the specific 

authority in section 1725 eliminates the 

possibility of implicit authority in 

section 1703. 

There are two problems with this 

logic. First, as explained above, there is 

no need for a specific grant of authority 

in section 1703 because VA’s 

contractual authority extends to VA’s 

authority to pre-establish prices through 

regulation as a contractual ‘‘term’’ where 

specific rates are not otherwise 

negotiated. Second, the final rule does 

not set a maximum rate. The explicit 

authority in section 1725 to set 

maximum rates for emergency care 

episodes does not speak to whether VA 

may include in a regulation a default 

contractual rate for different, nonemergent services. Further, section 1725 

applies only to emergent care rendered 

in non-VA facilities, a context in which 

pre-negotiated contracts are not 

practical. Thus, the explicit authority to 

set a maximum rate makes sense in this 

narrow context and should not be 

compared with the broader contracting 

authority in section 1703. 

Related to challenges to VA’s 

statutory authority, one commenter 

opined that § 17.56 is inconsistent with 

38 CFR 17.52 and VA Directive 2007– 

025 because § 17.52 authorizes 

individual authorizations for medical 

services in non-VA facilities only when 

demand is for infrequent use and VA 

Directive 2007–025 states that dialysis 

should generally be authorized under a 

contract rather than fee for service. The 

rule is not inconsistent with 38 CFR 

17.52 or VA Directive 2007–025. First, 

§ 17.52 implements section 1703, which 

establishes that VA may contract with 

non-VA providers. Section 17.56 

describes what payment methodology 

VA will apply in a given circumstance. 

As previously discussed, the inclusion 

of individual authorizations in § 17.52 

demonstrates VA’s broad interpretation 

of the word ‘‘contract’’ in section 1703. 

The fact that § 17.52 mentions 

individual authorizations does not make 

§ 17.56 inconsistent for describing the 

payment rate that will apply in the 

absence of a negotiated contract. 

Second, in the context of dialysis 

services, VA’s individual authorization 

authority applies because it is in fact 

infrequent that non-VA dialysis 

providers provide services to veterans 

under § 17.56. The veteran population 

that is served by these non-VA facilities 

is quite small when compared to the 

general population. In fact, some 

commenters indicated that they only 

had four total veteran dialysis patients 

annually. VA does not consider such 

usage to be ‘‘frequent.’’ To the extent that 

these individual patients generally 

require repeated treatments, this is not 

the sort of ‘‘frequency’’ that we intended 

to govern through the § 17.52 reference 

to infrequent use—that regulation is 

clearly discussing the frequency of 

facility-wide use of non-VA providers 


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78904 Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 

and not the use of non-VA providers to 

provide care to a particular individual. 

Further, 38 CFR 17.56 is not 

inconsistent with the exhortation in VA 

Directive 2007–025 that dialysis care 

‘‘should generally be authorized under a 

contract rather than on a fee for service 

basis.’’ This language does not bar VA 

from using a means other than a longterm contract for the provision of 

dialysis care; it merely expresses nonbinding agency guidance regarding the 

policies existing prior to this final rule. 

Moreover, the Directive is somewhat 

misleading, in that it suggests that 

individual authorizations under § 17.56 

are not contracts. As previously 

explained, individual authorizations 

involve VA’s offer via the appropriate 

referral form, and the provider’s 

acceptance via delivery of services. 

Finally, if the VA Directive is at all 

inconsistent with our regulation, the 

regulation, which has been properly 

promulgated under the Administrative 

Procedure Act, and is therefore binding 

on VA and the public, clearly takes 

precedence. Hence, we do not make any 

changes based on these comments. 

Comments That the Proposed Rule Did 

Not Comply With Executive Order 

12866 

Several comments raised economic 

concerns about the regulation. In 

particular, several commenters opined 

that the proposed rulemaking did not 

comply with Executive Order 12866. To 

the extent that the commenters 

challenge this rulemaking on Executive 

Order 12866 compliance grounds, we 

note that section 10 of the order 

explains that it ‘‘is intended only to 

improve the internal management of the 

Federal Government and does not create 

any right or benefit, substantive or 

procedural, enforceable at law or equity 

by a party against the United States.’’ 

The Office of Management and Budget 

(OMB) is solely responsible for 

enforcing the order, and OMB approved 

the proposed rule as being in 

compliance with the order. Therefore, 

we make no changes based on these 

comments. However, to the extent that 

the comments citing Executive Order 

12866 address economic or other 

substantive concerns about the 

rulemaking, we address them elsewhere 

in this document. 

Economic Concerns Raised by 

Commenters 

The majority of the 18 comments 

received in connection with this 

rulemaking concerned the payment rate 

for dialysis treatment, the impact of the 

rule on small dialysis providers, 

whether VA would adopt various 

adjustments made to the Medicare 

schedule for dialysis care, and whether 

VA should phase-in the proposed 

payment rate for dialysis treatment. 

As discussed in the proposed rule, VA 

intends to reimburse providers using the 

applicable Medicare fee schedule or 

prospective payment system as a 

standalone reimbursement method. VA 

considers Medicare’s fee schedules and 

prospective payment systems as 

independent ‘‘fair market value’’ 

reimbursement without any 

consideration to cost reporting. 

Included in these fee schedules and 

payment systems are several items 

described in some comments as 

‘‘adjustments.’’ Again, if the 

‘‘adjustment’’ is part of the Medicare 

schedule or payment system, then VA 

will apply it. Additionally, if a Medicare 

schedule is implemented by the Centers 

for Medicare & Medicaid Services (CMS) 

gradually, such as through a ‘‘phase in’’ 

approach, then our rule would apply the 

payment amount due according to the 

phased-in schedule for the period in 

which the medical service was 

provided. The rule is clear in this 

respect. For example, under 42 CFR 

413.239, which will be effective on 

January 1, 2011, Medicare has instituted 

a transition period during which 

treatment for ESRD provided from 

January 1, 2011, through December 31, 

2013, will be either phased in at a 

‘‘blended rate’’ that adjusts each 

calendar year or, at the provider’s 

option, at a rate of 100 percent of the 

payment amount determined under the 

rate established under 42 CFR 413.215. 

See Medicare Program; End-Stage Renal 

Disease Prospective Payment System, 75 

FR 49,030, 49,198 (Aug. 12, 2010). Thus, 

if a provider has opted with Medicare to 

be paid at the § 413.215 rate, that is the 

rate applicable to that provider and VA 

will pay for ESRD services using that 

rate. Providers who have not exercised 

that option will be paid at the phasedin ‘‘blended’’ rate. We are already 

developing appropriate procedures to 

adjust payment rates for ESRD service 

providers who exercise this option, and 

we will not have any difficulty 

identifying these providers and paying 

them at the appropriate rate. Indeed, 

this is exactly what is contemplated by 

the reference in § 17.56(a)(2)(i) to ‘‘[t]he 

applicable Medicare fee schedule or 

prospective payment system amount 

* * * for the period in which the 

service was provided’’. 

Notwithstanding the transition period 

for ESRD implemented by CMS in its 

regulations, several commenters urged 

VA to separately phase-in its adoption 

of the Medicare fee schedule. The 

commenters suggested that a phase-in 

by VA would lessen the disruption 

caused by the transition contained in 

the Medicare ESRD rates. For the 

reasons discussed in the following 

sections, we do not believe that any 

phase-in beyond that contemplated by 

the Medicare rates themselves is 

appropriate or necessary. 

Moreover, as explained in the 

proposed rule, VA will not include any 

post-schedule adjustments made by 

CMS, such as end-of-year adjustments. 

As we explained in the proposed rule, 

due to the relatively small numbers of 

veterans impacted compared with the 

size of the Medicare program, we 

believe these end-of-year cost 

adjustments have minimal impact and 

will be cost-prohibitive for VA to 

execute. 

One commenter discussed the effect 

of this rule on medical schools, noting 

that VA often contracts with teaching 

hospitals and medical schools at rates 

exceeding Medicare or VA fee schedules 

due to considerations such as impact on 

training programs. A few commenters 

also asked how this rule would affect 

sharing agreements with non-VA 

facilities made pursuant to 38 U.S.C. 

8153, which provides VA with 

enhanced sharing authority to contract 

for health care resources. One 

commenter also asked whether VA will 

continue to follow VA Directive 1663, 

which provides special rules and 

policies for implementing and managing 

sharing agreements under section 8153. 

In response to the above comments, 

we note that VA will continue to follow 

Directive 1663. This final rule applies 

only to payments for non-VA health 

care services purchased under 38 U.S.C. 

1703. As such, health care resources 

contracted for under 38 U.S.C. 8153 are 

not affected by this rule. We will 

continue to follow VA Directive 1663 

for negotiating contracts with medical 

schools. 

Several commenters stated that 

§ 17.56 will have a significant impact on 

small dialysis providers. We are 

sympathetic to the needs of small health 

care providers and the potential effect of 

decreased VA payments on these 

providers. However, we also dispute at 

least some of the basis for the comment. 

In the proposed rule, we recognized that 

adopting the Medicare payment system 

for dialysis could lead to a 39 percent 

decrease in VA’s overall outpatient 

dialysis facility expenditures. We 

recognize that this effect will be greater 

on smaller providers who receive VA 

funds. However, we also explained that 

the benefits of this savings to our 

nation’s veterans and to the American 

people, as well as our adoption of the 

national ‘‘standard’’ rate (i.e., the 


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Medicare rate) for governmentreimbursed private health care, 

outweighed the potential impact on 

some small dialysis providers. So long 

as veterans continue to have access to 

care (see below), we believe that it 

would not be a responsible use of VA 

funds to continue to pay a rate higher 

than that paid by other Federal agencies 

simply to subsidize these providers or to 

address perceived financial performance 

issues in other lines of business. 

Concerns and comments about whether 

the rates adopted by CMS are adequate 

or appropriate as a general matter have 

been addressed by CMS in their final 

rulemaking. See 75 FR 49030 (Aug. 12, 

2010). In addition, we have addressed 

throughout this final rule the adequacy 

and propriety of adopting those rates 

specifically for care provided to 

veterans. 

Again, we are adopting Medicare rates 

as the uniform standard for Federal 

government payment for care purchased 

from private sector providers. Congress 

has established a number of processes 

for monitoring the adequacy of payment 

rates in Medicare and for providing 

input on potential updates and changes 

in Medicare, and providers with 

underlying concerns about Medicare’s 

payment rates should address those 

concerns to CMS and other entities such 

as the Medicare Payment Advisory 

Commission (MedPAC). Further, 

Medicare’s new prospective payment 

system for dialysis services, starting in 

2011, is expected to recognize the 

unique needs of low-volume providers 

by including adjustments to the CMS 

schedule for low-volume providers. VA 

would implement this higher payment 

for low-volume providers as it is 

implemented by the Medicare payment 

system, including, as noted above, any 

phase-in of that payment system. Again, 

the final rule clearly states that VA will 

apply the rate required by that payment 

system. 

In addition, our analysis in the 

proposed rule shows that VA is not a 

significant source of revenue for any 

providers. In fact, a majority of dialysis 

providers do not treat VA-referred 

patients. A 2008 CMS report to Congress 

on ESRD payments documents some 

315,000 patients receiving chronic 

dialysis services paid for by CMS (A 

Design for a Bundled End Stage Renal 

Disease Prospective Payment System, 

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

ESRDGeneralInformation/Downloads/ 

ESRDReportToCongress.pdf). In 

contrast, VA typically purchases these 

services for approximately 9,000 

patients. This reinforces the conclusion 

that the number of VA-funded patients 

in the community represents only a 

small portion of the total number 

treated. In addition, it is unreasonable to 

expect VA to pay at a significantly 

higher rate than the rate at which CMS 

reimburses. 

Commenters also stated that the 

current state of the economy, 

specifically unemployment, has led to a 

decrease in the number of privately 

insured dialysis patients, further 

magnifying the impact of additional 

change to the current VA payment 

structure (because private insurers pay 

more than the Medicare rate). Again, we 

recognize that this is a valid concern, 

but the solution is not higher rates of 

payment solely for treating our nation’s 

veterans (so long as they continue to 

have access to care). VA’s responsibility 

to our nation’s veterans does not 

include a duty to address changes in the 

national economic climate. We also note 

that due to national health reform 

efforts, such as The Affordable Care Act, 

Public Law 111–148, the number of 

privately insured patients should, in 

fact, increase. 

One comment stated that making 

contract negotiations contingent upon 

the contracted rates being lower than 

Medicare would render many providers 

economically unable to bid. Nothing in 

the final rule restricts negotiations of 

possible payment amounts. Moreover, 

we note that virtually every non-VA 

provider in the United States does 

accept Medicare patients and therefore 

does accept payment at the Medicare 

rate. One comment recommended 

changing the language in proposed 

§ 17.56(a)(2)(iii)(A) to expressly state 

that the applicable ‘‘geographically 

adjusted’’ Medicare rate will apply. 

Because Medicare rates take into 

account the geographic location of the 

provided service, we decline to make 

this change. 

Concerns Raised by Commenters 

Regarding Access to Care, Particularly 

to Dialysis Treatment 

Several commenters asserted that the 

effect of this rule on low-volume 

dialysis providers will force them to 

refuse to accept VA patients, or will 

lead to the closure of entire low-volume 

dialysis facilities. Similarly, 

commenters stated that because the rule 

will cause non-VA dialysis providers to 

close and/or refuse VA patients, 

veterans will have fewer scheduling 

options. Comments were that fewer 

scheduling options will require veterans 

to schedule their care for different times 

and potentially require veterans to 

travel greater distances to receive care, 

which could be detrimental to their 

health. The commenters opined that 

their concerns will be magnified for 

rural veterans. 

VA takes this concern seriously, and 

we are strongly committed to ensuring 

that this final rule does not diminish 

access to care for the nation’s veterans, 

including those who suffer from kidney 

disease. For three reasons, we do not 

believe that the concern about 

diminished access is justified. First, our 

analysis of the effect of this rule on the 

national non-VA dialysis provider 

community does not support that 

concern. ESRD services are currently 

provided to Medicare patients by 

private providers at the Medicare rate, 

and there is no evidence that these 

providers will refuse to continue to 

provide ESRD services to veterans 

simply because the payment rate will 

now be the same as the rate for 

Medicare patients. On the contrary, the 

historical record suggests that payment 

of the Medicare rate has not led 

providers to deny care to Medicare 

patients. In its March 2010 report, 

Report to the Congress: Medicare 

Payment Policy, MedPAC found that 

most payment adequacy indicators for 

dialysis services are positive and that 

Medicare beneficiaries continue to have 

good access to care for dialysis services. 

(available at http://www.medpac.gov/ 

documents/Mar10_EntireReport.pdf) In 

adopting Medicare’s payment rates for 

dialysis, we expect that VA beneficiaries 

should similarly have good access to 

care. This conclusion is fortified by the 

fact that, under the Medicare program, 

CMS has instituted a transitional period 

for ESRD payments. 

Second, we note that CMS has 

finalized a new bundled prospective 

payment system, which will be effective 

in 2011, and which will explicitly 

include adjustments based on different 

geographic regions and for low-volume 

providers. 75 FR 49030, 49198 (Aug. 12, 

2010). When Medicare implements 

these adjustments, they will be applied 

under § 17.56 because they will be part 

of the Medicare fee schedule that will be 

adopted by this rule. Such adjustments 

should help to ensure that this final rule 

does not have adverse effects on access 

to care, including in the rural areas that 

have been mentioned by some 

commenters. 

Third, and finally, all existing 

contracts will continue to be honored, 

and we retain the right to contract with 

specific providers at specialized rates. 

We will exercise our right to enter into 

contracts with providers, including at 

rates higher than the Medicare rates, if 

and when necessary to ensure that 

veterans, including veterans who live in 

rural areas, have access to quality care. 


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We reiterate that ESRD services are 

currently provided to Medicare patients 

by private providers at the Medicare 

rate, and there is no reason to believe 

these providers will refuse to continue 

to provide ESRD services to veterans 

simply because the payment rate will 

now be the same as the rate for 

Medicare patients. For all of the reasons 

discussed above, we do not believe that 

adopting the Medicare rates will 

jeopardize the ability of our nation’s 

veterans to obtain necessary health care 

in general, or specifically for ESRD. We 

are prepared to take appropriate steps to 

address that concern if and when it 

arises. 

Similarly, some commenters believe 

that the rule will cause a decline in the 

quality of care administered by private 

dialysis providers. Medicare patients 

represent the bulk of the country’s 

dialysis patients, and we are simply 

adopting the same rates that will be paid 

by Medicare. Medicare’s January 1, 2011 

implementation of the prospective 

bundled payment system, which VA 

adopts in this final rule, includes a 

significant expansion in case-mix 

adjustments. 75 FR 49030 (Aug. 12, 

2010). Because these case-mix 

adjustments are part of the Medicare 

payment system, VA will be including 

them in its use of the Medicare payment 

rates. There is no evidence to suggest 

that the majority of patients who receive 

services under the Medicare umbrella 

are expected to see a decline in quality 

of care. VA adopting this same payment 

rate should not decrease quality of care. 

One commenter also indicated 

concern that the proposed rule will lead 

to an increase in the illegal practice of 

‘‘split invoicing’’ or ‘‘balance billing,’’ 

whereby private providers bill patients 

separately and on top of Medicare or VA 

payment schedules. By law, VA’s 

payment represents payment in full; it 

is illegal for providers to ‘‘balance bill’’ 

or ‘‘split invoice’’ VA beneficiaries for an 

amount above VA’s allowed charge. 

Anticipated violations of this law are 

not a valid basis for a policy 

determination; however, they may affect 

implementation or lead to greater 

oversight through procedural methods. 

VA will not allow the potential for 

illegal activity to prevent us from 

promulgating a valid rule that conforms 

to national health care policy. We make 

no changes based on this comment. 

Comments That the Quality of VA 

Services Will Decline 

Commenters indicated that because 

some dialysis providers may refuse VA 

patients, VA will be forced to take on 

more dialysis patients at its own 

Medical Centers. Commenters opined 

that this will overwhelm VA’s facilities, 

resulting in a lower quality of care than 

what would be provided by non-VA 

providers. We make no changes based 

on these comments. For the reasons 

explained previously, we do not think 

that the payment changes will 

negatively impact access to care or that 

VA will be forced to take on more 

dialysis patients. Further, we do not 

expect this to impair veterans’ access to 

non-VA dialysis services. We also 

disagree with the commenter’s assertion 

that VA facilities would provide a lower 

quality of care relative to non-VA 

providers under the final rule. 

Comments About VA’s Billing Practices 

Several commenters believe that VA 

is not prepared to adopt the Medicare 

reimbursement scheme set to take effect 

in 2011. They cite to a 2009 internal 

audit conducted by VA OIG that shows 

that VA has improperly reimbursed 

dialysis providers under its current Fee 

Based program, which according to the 

commenters is easier to administer than 

the proposed changes. 

VA has taken action to improve our 

payment practices based in part on the 

results of the OIG audit. To assure we 

implement timely and accurate payment 

processing under this final rule, VA will 

follow its predecessors at CMS and the 

Department of Defense (DoD) (in the 

context of the TRICARE program), by 

hiring a third party with expertise to 

accurately price claims (VA will 

continue to pay after the third party 

pricing) under the Medicare payment 

system. This contractor will be 

responsible for determining the 

appropriate Medicare rate, including the 

contemplated changes to the dialysis 

rate that we expect to take effect in 

2011. This should ensure that 

reimbursement is properly calculated, 

as both CMS and TRICARE have had 

success with this approach. 

The use of contractors also should 

serve as a response to comments that we 

should document how we will ensure 

compliance with the final rule, 

including that providers receive 

accurate and timely payment under the 

final rule because CMS and TRICARE 

have successfully addressed such 

potential problems in this same manner. 

In addition, because CMS had not yet 

published its final rule during the 

public comment period for VA’s 

proposed rule, the commenters believed 

that VA could not adopt the new 

payment system with respect to the 

2011 schedule changes. Since the 

submission of the comment, CMS 

published a final rule titled ‘‘Medicare 

Program; End-Stage Renal Disease 

Prospective Payment System,’’ which 

amended 42 CFR parts 410, 413, and 

414. 75 FR 49030 (Aug. 12, 2010). The 

rule adopts the Medicare fee schedule in 

effect on January 1, 2011, and thereafter; 

VA will be required under this rule to 

immediately adjust its fees to adopt the 

CMS prospective bundled payment 

system on the effective date of the rule. 

We make no changes to the rule based 

on this comment because the 

publication of the CMS final rule 

addresses the concerns presented by the 

commenter. 

One commenter asserted that VA’s 

claims process is more expensive and 

administratively burdensome than that 

of Medicare, and that the historical VA 

rates better cover these additional costs. 

Specifically, the commenter asserted 

that VA’s preauthorization requirement, 

inconsistency in accepting electronic 

billing, payment processing delays, and 

inconsistency in making electronic 

payments all contribute to higher costs 

for providers. The commenter suggested 

that the proposed rule ‘‘would result in 

a reduction in provider reimbursement 

far in excess of the mere rate change 

from VA to Medicare’’ and requested 

that VA exclude laboratory services 

from the rule. We will not make any 

changes based upon these comments. 

The purpose of this rulemaking is in 

part to facilitate standardization in 

Federal government payment for 

medical services. We disagree with the 

allegation that VA’s requirement of 

treatment authorization for a non-VA 

provider to receive payment is 

burdensome to obtain, because VA’s 

practice is to pre-authorize veterans, 

effectively removing any potential 

burden on providers. Regarding 

processing delays and the need for more 

consistency in electronic billing and 

payments, it is our view that the first 

step toward the efficiency the 

commenter seeks is to standardize as 

much as possible the amount being 

billed and paid by VA. We have 

carefully considered and rejected the 

commenter’s suggestion that we 

continue the inefficiencies associated 

with current methodology while we 

nonetheless strive to become more 

efficient. Moreover, we note that VA is 

actively improving its billing and 

payment practices. VA is currently 

transitioning to an improved claims 

processing system, which should hasten 

payment of claims and enhance VA’s 

electronic payment remittance and EFT 

capabilities. With this final rule, VA 

will actually have an even greater 

opportunity to reduce administrative 

costs by adopting a standardized 

payment methodology. This will allow 

VA to better identify and implement 

best practices developed by CMS and 


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other third-party payers. Accordingly, 

we intend that any additional cost 

currently associated with billing VA for 

providing care to veterans will be 

removed upon implementation of the 

final rule. 

VA Should Exempt Certain Services or 

Otherwise Modify Its Adoption of the 

Medicare Rate 

Some commenters stated that VA 

should exempt dialysis treatments and/ 

or laboratory services from the adoption 

of the Medicare payment system. We 

make no changes based on these 

comments. Excluding any services from 

the rule is inconsistent with one of the 

goals of this rule, which is to align VA 

reimbursement with the government 

standard. Moreover, there is no 

evidence to support the comment that 

the proposed rule would create an 

administrative burden on laboratory 

service providers. Virtually all of these 

providers currently use the Medicare 

payment system to bill Medicare 

patients, and will be required to use the 

CMS prospective bundled payment 

system beginning on January 1, 2011. 

Because these providers must 

implement the new Medicare schedule, 

applying it to VA-referred veterans 

should not present an undue 

administrative burden. 

Commenters also stated that VA 

should consider establishing a rate not 

tied to Medicare. Commenters suggested 

alternatives to the Medicare rate, such 

as allowing the negotiation of nonstandard contracts in the event of 

special circumstances like transfers 

from VA facilities to non-VA facilities of 

medically complex patients; 

implementation of a coordinated-care 

plan like the Contract Care Coordination 

Recommendations of VA’s Independent 

Budget, FY 2011; and a payment regime 

that would incentivize more 

participation by non-VA health care 

providers. We do not make any changes 

based on these comments. Again, one of 

the goals of this rule is to align our 

payment structure with the government 

standard. Adopting a different rate 

would defeat this purpose. 

As to incentivizing participation by 

non-VA providers, VA retains its ability 

to negotiate contracts under this rule 

and may consider special circumstances 

like those that the comments raised, to 

the extent allowable under the FAR and 

VAAR contracting authorities. 

Similarly, VA has included care 

coordination requirements in some of its 

recent contracts with community health 

care providers, and continues to seek 

opportunities for improved coordination 

of care. These efforts are not precluded 

by this rule. We make no changes based 

on these comments. 

Another comment was that VA should 

evaluate the cost of treating patients in 

its own centers and compare it to the 

Medicare rate. One commenter 

suggested that VA would incur greater 

costs if it were forced to accept more 

dialysis patients in house. As previously 

discussed, we reject the premise that the 

rule will cause decreased access to care. 

Another commenter asserted that the 

Medicare rate for dialysis is less than 

the amount that VA calculates as the 

cost of care at VA facilities. Any number 

of variables may affect the cost of 

providing care; therefore, it is not clear 

that costs of providing dialysis at VA 

facilities can be properly compared to 

costs of providing dialysis at non-VA 

facilities. In any event, this comparison 

is not relevant to our policy decision to 

pay non-VA providers at the national 

standard, Medicare rate. Moreover, as 

noted repeatedly in this notice, 

Medicare may adjust the rate payable for 

dialysis to address pricing accuracy. 

Another comment was that VA should 

not implement the contemplated 

revisions to the rule until CMS has 

finished phasing in the new Medicare 

payment system for dialysis, which 

CMS has proposed to do over a 4-year 

period. We do not intend to wait until 

after Medicare’s 4-year phase-in period 

to adopt the current CMS rates for 

purposes of establishing a national 

standard rate. If necessary, we will 

address any problems or issues 

uncovered by CMS during the 4-year 

period, particularly if these problems 

are unique to our veteran population or 

are not addressed by CMS. There is no 

need to wait until their phase-in is 

complete. 

Comments That VA Relies Upon 

Erroneous and Inaccurate Facts 

A commenter stated that VA has 

significantly misinterpreted the data 

that it relied upon in the proposed rule. 

As a result, the commenter believes that 

VA incorrectly determined that the 

impact on dialysis providers would be 

minimal, and VA has not adequately 

considered reasonable alternatives. 

Specifically, the commenter stated that 

VA erroneously proposed to pay for 

dialysis services using 2008 Medicare 

claims data that reflect the soon-to-beoutdated composite rate and payment 

rates for separately billable items. 

We make no changes based on these 

comments. VA has correctly relied upon 

the data presented in the proposed rule 

to determine the number of veterans 

who receive dialysis treatment at nonVA facilities relative to the total 

population of dialysis patients receiving 

such care from private providers. We 

have addressed each alternative 

proposed in the comments, and have 

demonstrated VA’s strategy to 

incorporate Medicare’s 2011 pricing 

change for dialysis. In addition, VA 

cannot simulate the specific cost impact 

of Medicare’s 2011 revision to the 

dialysis rate because Medicare has not 

yet implemented the prospective 

bundled payment system. Therefore, use 

of the 2008 Medicare claims data was 

proper as this was the most recent 

available data. 

Another commenter stated that the 

smallest dialysis provider in New 

Hampshire received more than $200,000 

in payments, so the claim in the 

proposed rule that 95 percent of vendors 

received less than $150,000 and 82 

percent received less than $50,000 is 

incorrect. The data relied upon by VA 

for our statement in the proposed 

rule—which considered this specific 

facility—were for fiscal year 2008. We 

believe that the discrepancy between 

the commenter’s calculation and VA’s 

calculation is explained by the fact that 

(1) VA’s calculation did not include 

costs for lab services and services 

purchased under competitive contracts, 

and (2) VA calculated by calendar year 

whereas the commenter calculated by 

fiscal year. Inclusion of these costs and 

calculation of total payments by 

calendar year (rather than fiscal year) 

account for the discrepancy between the 

commenter’s records and VA’s 

calculation that 95 percent of providers 

received less than $150,000 and 82 

percent received less than $50,000. 

In fact, using the commenter’s own 

calculations actually supports our 

overall rationale in adopting this final 

rule. The commenter stated that in 2008 

they provided a total of 6,501 dialysis 

treatments at an average cost of $264.85 

per treatment. 5,417 treatments were for 

Medicare patients, 349 treatments were 

for Medicaid patients, 160 treatments 

were for veterans, and payment for the 

remaining 575 treatments were from 

unlisted sources. Based on the 

comment, the provider received 

payment from VA of over $200,000 for 

providing dialysis care costing 

approximately $42,376. This data 

supports the cost-saving rationale for 

use of the Medicare rate, and 

demonstrates that the Medicare rate will 

be sufficient to support the community 

of private dialysis providers. VA 

predicted a 39 percent decrease in the 

rate at which it reimburses providers for 

dialysis care, which would still 

reimburse this specific provider far 

more than the estimated $264.85 cost of 

care per patient. Thus, the commenter’s 

own data shows that the proposed CMS 


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rates would be adequate, and that the 

commenter will continue to receive 

significant profits from treating VA 

patients. 

A Commenter Requested That VA 

Define ‘‘Repricing Agent’’ To Clarify 

Which Payors Are Encompassed in the 

Term 

We agree with the comment and have 

changed § 17.56(a)(2)(ii) to define a 

‘‘repricing agent’’ as follows: ‘‘For the 

purposes of this section, repricing agent 

means a contractor that seeks to connect 

VA with discounted rates from non-VA 

providers as a result of existing 

contracts that the non-VA provider may 

have within the commercial health care 

industry.’’ 

Repricing is a program that allows VA 

to share in savings available in managed 

care networks by utilizing contracted 

rates currently available in the 

commercial industry and paying a 

contracted repricing agent a portion of 

the savings. The use of the repricing 

agent provides VA with access to 

economical community-based vendor 

contracts that provide cost avoidance for 

VA. Non-VA care claims submitted to 

VA for payment are sent to the repricing 

agent to determine if a lower rate can be 

utilized. 

Comment That VA’s Fee Schedules 

Should Be Readily Available to the 

Public 

The final rule continues to provide, as 

one basis for calculating the payment 

amount, the ‘‘75th percentile’’ schedule 

used under § 17.56 prior to its revision 

by this rulemaking. A commenter 

requested that this fee schedule be made 

available to the general public. 

Currently, VA field offices each 

maintain a separate fee schedule and 

individual fee schedules are currently 

available to the public upon request. 

The Medicare fee schedules and 

prospective payment system rates are 

already available to the general public. 

However, the rates calculated using the 

75th percentile method are calculated 

and applied at the local level, and can 

be obtained from local offices. 

Additionally, after the effective date of 

this final rule, VA will add complete 

and accurate information to the public 

on VHA’s Web site. This should further 

address the commenter’s concern. 

Comment That VA Has Not Made 

Payments Consistent With the Maryland 

Waiver, and Should Reconcile 

Discrepancies 

The proposed and final rule text 

clearly states that VA will comply with 

the terms of any Medicare waiver. To 

the extent that the commenter is 

concerned about VA’s past performance, 

this is beyond the scope of this 

rulemaking. 

Comments That VA Should Integrate 

Care With Non-VA Dialysis Providers, in 

Which Health Information From NonVA Providers is Easily Exchanged With 

VA 

We agree with the comment, but make 

no changes to the final rule. VA takes 

every opportunity to provide quality 

care to veterans and strives to assure 

those same veterans receive quality care 

from non-VA providers. VA is currently 

planning pilots for increased clinical 

information sharing with community 

providers, and this rule does not 

preclude VA from implementing 

electronic health information sharing 

policies. 

Home Health Care and Hospice Care 

As noted above, in the proposed rule, 

we indicated that the pricing 

methodology adopted by this rule 

would be used in establishing payment 

rates for all non-VA inpatient and 

outpatient health care professional 

services and other outpatient services, 

including hospice care and home health 

services. However, in reviewing 

implementation strategies and internal 

procedural practices related to the 

payment of hospice care and home 

health services through means other 

than a contract, we have encountered 

significant practical problems that 

prevent immediate implementation of 

this new methodology. These problems 

relate to separate administration of 

hospice care and home health services 

by the Veterans Health Administration’s 

Office of Geriatrics and Extended Care, 

which uses separate methods for 

forming agreements for these services, 

and challenges regarding information 

technology systems necessary to move 

to the new Medicare rate, but do not 

relate to the actual payment amounts for 

these services. Such amounts would 

generally be unchanged by this 

rulemaking because the vast majority of 

these services are paid through a 

contractual mechanism (and are 

therefore exempted under § 17.56(a)(1)). 

However, we estimate that there may be 

about 100 providers who are not paid 

through a contractual mechanism and 

therefore who would have been affected 

by this rulemaking. 

Given separate administration of 

hospice and home health services under 

separate VA guidance, we have 

determined that these providers did not 

receive adequate notice regarding the 

intended effect of the proposed rule or 

of the need for some delay in 

implementation of the rule so that VA 

may modify its systems. We will 

promulgate, as soon as possible, a 

proposed rule to make § 17.56, as 

revised by this notice, applicable to 

these providers. Therefore, we have 

added to paragraph (a) of the final rule 

an exception for these two services. 

Unfunded Mandates 

The Unfunded Mandates Reform Act 

of 1995 requires, at 2 U.S.C. 1532, that 

agencies prepare an assessment of 

anticipated costs and benefits before 

issuing any rule that may result in an 

expenditure by State, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

(adjusted annually for inflation) in any 

given year. This rule would have no 

such effect on State, local, and tribal 

governments, or on the private sector. 

Paperwork Reduction Act 

This document contains no provisions 

constituting a new collection of 

information under the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501– 

3521). Non-VA health care providers 

currently bill VA using uniform billing 

forms CMS–1450, OMB Control No. 

0938–0997, and CMS–1500, OMB 

Control No. 0938–0999. This practice 

will not be altered or amended. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires agencies to analyze options for 

regulatory relief of small businesses if a 

rule has a significant impact on a 

substantial number of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions. Most hospitals, 

Ambulatory Surgery Centers, and other 

providers subject to this rule are 

considered to be small entities, either by 

being nonprofit organizations or by 

meeting the Small Business 

Administration (SBA) definition of a 

small business, as codified in 13 CFR 

121.201. Therefore, the Secretary has 

determined that this final rule would 

have a significant impact on a 

substantial number of small entities and 

therefore completed a final regulatory 

flexibility analysis, which is discussed 

in ‘‘Executive Order 12866 and 

Regulatory Flexibility Act.’’ 

Executive Order 12866 and Regulatory 

Flexibility Act 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

when regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 


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and safety, and other advantages; 

distributive impacts; and equity). The 

Executive Order classifies a regulatory 

action as a ‘‘significant regulatory 

action,’’ requiring review by the Office 

of Management and Budget (OMB) 

unless OMB waives such review, if it is 

a regulatory action that is likely to result 

in a rule that may: (1) Have an annual 

effect on the economy of $100 million 

or more or adversely affect in a material 

way the economy, a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local, or tribal 

governments or communities; (2) create 

a serious inconsistency or otherwise 

interfere with an action taken or 

planned by another agency; (3) 

materially alter the budgetary impact of 

entitlements, grants, user fees, or loan 

programs or the rights and obligations of 

recipients thereof; or (4) raise novel 

legal or policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. 

VA has examined the economic, 

interagency, budgetary, legal, and policy 

implications of this final rule and has 

concluded that it is a significant 

regulatory action under Executive Order 

12866 because it is likely to result in a 

rule that may have an annual effect on 

the economy of $100 million or more. 

VA followed OMB circular A–4 to the 

extent feasible in this analysis. The 

circular first calls for a discussion of the 

need for the regulation. The preamble 

above discusses the need for the 

regulation in more detail. 

Need 

Under 38 U.S.C. 1703(a), ‘‘[w]hen 

[VA] facilities are not capable of 

furnishing economical hospital care or 

medical services because of 

geographical inaccessibility or are not 

capable of furnishing the care or 

services required, the Secretary, as 

authorized in [38 U.S.C. 1710], may 

contract with non-[VA] facilities in 

order to furnish’’ certain hospital care 

and medical services to veterans who 

qualify under 38 U.S.C. 1703. Medicare 

is the largest U.S. Federal health care 

payer and is recognized as the Federal 

health care industry standard for 

reimbursement rates. Providers, 

particularly the medical facilities 

affected by this rule, are familiar with 

Medicare payment methodologies. 

Indeed, VA currently uses Medicare 

methodologies in connection with inpatient treatment and physician and 

non-physician professional services. 

Moreover, two separate audits by VA’s 

Office of Inspector General concluded 

that clarification of VA’s regulations 

governing payment of outpatient facility 

charges is necessary. See VA OIG 

Reports 08–02901–185 (2009) and 05– 

03037–107 (2006). As such, we believe 

the adoption of Medicare rates will help 

ensure consistent, predictable medical 

costs and will help control costs. Thus, 

we believe that adoption of this rate is 

important to both VA and the general 

public. 

Impact 

We received a number of comments 

objecting to the proposed rule due to a 

perceived adverse impact on small 

businesses, specifically low-volume 

dialysis providers. Commenters argued 

that due to the reduction in the rates 

dialysis providers currently charge VA 

and the Medicare rate that VA proposed 

to adopt, many providers will be forced 

to refuse care to veterans while a great 

deal of providers, particularly in rural 

areas will close down altogether. These 

comments are discussed in greater detail 

in the preamble above. 

In general, the final rule will impact 

the following providers classified as 

small businesses: Freestanding 

emergency and ambulatory surgical 

centers with revenues less than $9.0 

million, independent diagnostic centers 

with revenues less than $12.5 million, 

and hospitals and kidney dialysis 

centers with revenues less than $31.5 

million. A precise estimate of the 

number of small entities that fall within 

the rule is not currently feasible. See the 

below ‘‘Benefits-Cost Analysis’’ 

discussion for additional information 

concerning the economic impact of this 

final rule. 

Benefits-Cost Analysis 

We received comments asserting that 

the benefits-cost analysis was inaccurate 

or too broad because it overlooked the 

potential adverse impact on certain lowvolume dialysis providers, and 

disregarded the overall cost of providing 

dialysis treatment. VA contracted with 

an independent consultant to conduct 

and analyze the benefits-cost analysis in 

more detail. The VA’s estimated total 

cost savings amount published in the 

proposed rule has been revised to show 

the slightly higher amount provided in 

the contractor’s analysis. The comments 

regarding the benefits-cost analysis are 

addressed fully in the preamble above 

and in the Accounting Statement below. 

Alternatives 

We received a number of comments 

suggesting that VA use alternative 

pricing mechanisms for different 

geographic regions in order to provide 

more equitable payments to dialysis 

providers in rural areas. Several 

commenters suggested alternative 

approaches including a phase-in of the 

CMS fee schedule, geographically 

adjusted rates, and different rates for 

low-volume providers. We have 

addressed these comments in detail in 

the preamble above. 

Approximately 1.6 percent of the total 

U.S. population are veterans who utilize 

the VA Health Care System. Of the total 

number of veterans who utilized the 

VHA Health Care System in fiscal year 

2008, VHA preauthorized non-VA 

outpatient hospital services for 

approximately 5.4 percent of veterans, 

2.5 percent used community hospital 

emergency rooms, 0.8 percent used 

freestanding ambulatory surgery centers, 

0.7 percent used independent 

laboratories, and 0.1 percent were 

authorized care at end stage renal 

disease treatment centers at VA 

expense. We believe that the impact of 

veterans authorized non-VA health care 

services at VA expense in the local 

health care market is minimal, as 

illustrated in Table 1. 

TABLE 1—PERCENT OF VETERANS UTILIZING VA HEALTH CARE SYSTEM

State FY 2008 total 

population 

FY 2008 total 

veteran users 

Percent of total 

veteran users/total 

U.S. population 

Alabama ......................................................................................................................... 4,692,977 94,426 2 .0 

Alaska ............................................................................................................................ 689,791 13,826 2 .0 

Arizona ........................................................................................................................... 6,630,722 114,126 1 .7 

Arkansas ........................................................................................................................ 2,910,777 80,831 2 .8 

California ........................................................................................................................ 37,873,407 369,346 1 .0 

Colorado ........................................................................................................................ 4,962,478 68,628 1 .4 

Connecticut .................................................................................................................... 3,550,231 50,373 1 .4 


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78910 Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 

TABLE 1—PERCENT OF VETERANS UTILIZING VA HEALTH CARE SYSTEM—Continued 

State FY 2008 total 

population 

FY 2008 total 

veteran users 

Percent of total 

veteran users/total 

U.S. population 

Delaware ........................................................................................................................ 885,956 13,099 1 .5 

District of Columbia ....................................................................................................... 589,366 8,894 1 .5 

Florida ............................................................................................................................ 19,119,225 420,202 2 .2 

Georgia .......................................................................................................................... 9,863,250 139,428 1 .4 

Hawaii ............................................................................................................................ 1,312,372 18,706 1 .4 

Idaho .............................................................................................................................. 1,549,062 32,886 2 .1 

Illinois ............................................................................................................................. 13,177,638 168,982 1 .3 

Indiana ........................................................................................................................... 6,468,433 111,562 1 .7 

Iowa ............................................................................................................................... 3,042,015 66,833 2 .2 

Kansas ........................................................................................................................... 2,828,255 56,131 2 .0 

Kentucky ........................................................................................................................ 4,295,044 90,718 2 .1 

Louisiana ........................................................................................................................ 4,500,627 79,472 1 .8 

Maine ............................................................................................................................. 1,349,506 37,359 2 .8 

Maryland ........................................................................................................................ 5,743,662 70,754 1 .2 

Massachusetts ............................................................................................................... 6,518,184 77,112 1 .2 

Michigan ......................................................................................................................... 10,314,853 119,290 1 .2 

Minnesota ...................................................................................................................... 5,357,700 95,409 1 .8 

Mississippi ...................................................................................................................... 2,986,953 65,369 2 .2 

Missouri .......................................................................................................................... 5,977,318 122,411 2 .0 

Montana ......................................................................................................................... 965,024 29,279 3 .0 

Nebraska ........................................................................................................................ 1,814,105 42,322 2 .3 

Nevada ........................................................................................................................... 2,730,425 53,423 2 .0 

New Hampshire ............................................................................................................. 1,343,347 25,220 1 .9 

New Jersey .................................................................................................................... 8,890,186 75,882 0 .9 

New Mexico ................................................................................................................... 2,029,633 44,824 2 .2 

New York ....................................................................................................................... 19,554,879 225,452 1 .2 

North Carolina ................................................................................................................ 9,231,191 166,138 1 .8 

North Dakota .................................................................................................................. 652,934 16,954 2 .6 

Ohio ............................................................................................................................... 11,633,295 190,646 1 .6 

Oklahoma ....................................................................................................................... 3,672,886 79,735 2 .2 

Oregon ........................................................................................................................... 3,814,725 79,168 2 .1 

Pennsylvania .................................................................................................................. 12,631,267 266,529 2 .1 

Rhode Island .................................................................................................................. 1,078,084 19,174 1 .8 

South Carolina ............................................................................................................... 4,479,461 98,624 2 .2 

South Dakota ................................................................................................................. 809,862 28,291 3 .5 

Tennessee ..................................................................................................................... 6,244,163 114,393 1 .8 

Texas ............................................................................................................................. 24,627,546 371,259 1 .5 

Utah ............................................................................................................................... 2,677,229 29,042 1 .1 

Vermont ......................................................................................................................... 636,472 14,163 2 .2 

Virginia ........................................................................................................................... 7,899,205 114,076 1 .4 

Washington .................................................................................................................... 6,628,203 91,233 1 .4 

West Virginia .................................................................................................................. 1,836,864 56,541 3 .1 

Wisconsin ....................................................................................................................... 5,701,620 104,787 1 .8 

Wyoming ........................................................................................................................ 526,857 16,884 3 .2 

Totals ...................................................................................................................... 309,299,265 4,845,786 1 .6 

Table 1 above shows the relationship 

between the gross population of each 

state compared to veterans utilizing the 

VA health care system. It is clear that 

the veteran population utilizing VA 

health care services is fairly consistent 

by state. The FY 2008 Total Population 

(Table 1) was obtained from statistics 

published by the U.S. Census Bureau. 

The total veteran users, is the number of 

unique veterans who utilized the VA 

health care system during FY 2008 for 

all or a portion of their health care 

needs. This number was obtained from 

the National Center for Veterans 

Analysis and Statistics geographic data. 

The number includes veterans treated at 

VA medical centers, clinics, CBOCs, 

mobile clinics, and care purchased from 

other Federal facilities and from the 

private sector. 

Based on the constant percentage we 

do not believe the final rule will have 

considerable impact on any one 

geographic region. As a result of this, we 

believe the reduced reimbursement rates 

for non-VA health care services will 

follow a similar pattern and not result 

in a considerable impact on any one 

geographic region. As such, we do not 

believe that there is a reasonable need 

for alternatives to adopting Medicare 

payment methodologies. 

Finally, we do not believe that there 

is a significant risk to adopting the 

Medicare fee schedules or payment 

systems. Although it is theoretically 

possible that some providers may refuse 

to treat veterans due to lower 

reimbursement rates, those same 

providers are already accepting patients 

under Medicare and we do not believe 

that they will refuse to treat veterans. 

Moreover, the first payment option set 

forth in the final rule would be ‘‘[t]he 

amount negotiated by VA and the 

provider’’ consistent with Federal 

contracting principles. Because VA and 

providers retain the ability to negotiate 

a fee that is greater (or lower) than the 

Medicare rate, VA will be able to ensure 

that veterans in remote areas continue to 

have access to care should a particular 

facility refuse to accept Medicare rates. 

However, because Medicare is the 

Federal health care industry standard 


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Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 78911 

1CMS, ‘‘Medicare Programs; End-Stage Renal 

Disease Prospective Payment System; Proposed 

Rule’’, Federal Register, Sept. 29, 2009, p. 49940. 

payer, we do not believe that this will 

be a significant issue. 

Accounting Statement 

VA contracted with an independent 

contractor to conduct a more detailed 

analysis of the expected savings under 

the Medicare outpatient payment 

methodologies described in the 

proposed rule. As previously 

mentioned, VA’s estimated dialysis 

savings have been revised from the 

proposed rule to reflect a more accurate 

analysis that was conducted by that 

independent contractor. VA has adopted 

the independent contractor’s analysis 

and the details of the study are 

discussed in greater detail below. The 

use of the first person ‘‘we’’ below refers 

to work conducted by the contractor and 

work done by VA. 

The analysis consists of the following: 

• Clinical Lab services provided 

through VA purchased care to VA 

beneficiaries; 

• Outpatient Dialysis/End Stage 

Renal Disease (ESRD) services provided 

to VA beneficiaries in non-VA facilities; 

• Ambulatory Surgery Center (ASC) 

facility charges for VA purchased care; 

and 

• Hospital Outpatient Department 

(HOPD) and emergency room (ER) 

facility charges for VA purchased care. 

Clinical Lab Services 

We identified all clinical lab services 

provided through VA purchased care to 

VA beneficiaries in the first 6 months of 

calendar year 2008. We selected this 

period because the data was sufficiently 

complete. We then edited the data by 

removing outliers (claims paid under $1 

or over $500) and eliminated a very 

small number of claims that were 

unable to map to zip codes or that had 

more than one unit of service on a line 

item. We also excluded claims that were 

paid under contracts with clinical labs 

or with certain managed care providers. 

To estimate the impact of using 

Medicare’s clinical lab fee schedule, we 

focused on the 100 clinical lab services 

(by CPT code) with the highest aggregate 

non-VA (purchased care) allowed 

amounts. These 100 codes accounted for 

about 86.5 percent of all non-VA 

clinical lab service costs. We calculated 

the impact of paying these non-VA 

clinical lab claims using Medicare’s fee 

schedule as the maximum allowable 

charge. In calculating the impact of 

Medicare pricing, we excluded a small 

number of the top 100 CPT codes that 

are not on Medicare’s lab fee schedule 

because Medicare pays these services 

using the Medicare physician fee 

schedule. We also excluded clinical labs 

at Maryland hospitals and critical access 

hospitals because they are not subject to 

the Medicare lab fee schedule. We also 

excluded physician claims marked with 

a modifier of 26. Our estimates 

accounted for Medicare’s higher 

payments for clinical lab services at sole 

community hospitals. We also used the 

unique Medicare carrier rates for lab 

services where appropriate in 

individual locations. 

We found that in 2008, VA paid an 

average of almost $49 per line item for 

clinical lab services for the top 100 VA 

purchased care clinical lab services. 

Under Medicare pricing, VA would pay 

an average of $11.47 for these claims. 

This represents a cost reduction of 

approximately 75 percent. We 

calculated a cost reduction of $53 

million when we extrapolated the 

results of our analysis of the top 100 

codes for the first 6 months of CY 2008 

to all VA clinical lab services in CY 

2008. 

We did some further analysis of the 

15 clinical lab codes with the highest 

VA purchased care volumes and found 

that these 15 clinical lab codes 

accounted for about one-half of the VA’s 

payments for clinical lab services in the 

first 6 months of CY 2008. The cost 

reductions for these 15 codes ranged 

from 63 percent to 85 percent, which 

indicates that the allowed amounts 

under Medicare’s pricing would be 

equal to 15–37 percent of the current 

VA allowed amounts. This indicates 

that the impact of using the Medicare 

clinical lab schedule will lead to a 

relatively homogeneous reduction in 

clinical lab payments. 

IMPACT OF MEDICARE PRICING ON VA CLINICAL LAB CLAIMS, 2008 

Payments under 

VA current method 

Payments under 

Medicare pricing 

Cost 

reduction 

Cost reduction as a percentage of 

VA payments 

$71.4M $18.1M $53.3M 74.6% 

Outpatient Dialysis/End Stage Renal 

Disease (ESRD) 

We identified outpatient dialysis 

services provided to VA beneficiaries in 

non-VA facilities in the first 6 months 

of calendar year 2008. We selected this 

period because the data was sufficiently 

complete. We focused on a subset of 

dialysis procedure codes and injectible 

drug codes that together accounted for 

the vast bulk of outpatient dialysis 

facility charges for care purchased by 

the VA. We edited the data to remove 

outliers (claims with very high or low 

paid amounts per unit of service). We 

eliminated the small number of dialysis 

procedure claims that had more than 

one unit of service. For dialysis drug 

claims, on the other hand, we 

eliminated claims that had only one 

unit of service because these injectible 

drugs are normally administered as 

multiple units of service. We also 

excluded claims that the VA pays 

through purchased care contracts. 

We then calculated the impact of 

paying these non-VA dialysis claims 

using Medicare’s dialysis facility pricing 

methods to set the maximum allowable 

charge (based on Medicare’s composite 

rate for dialysis procedures and 

Medicare prices for the separately 

payable injectible drugs). For dialysis 

procedure claims, the available claims 

data does not include the patient casemix data necessary to calculate the exact 

composite rate amount for each VA 

claim. However, a recent CMS analysis 

indicated that Medicare’s national 

average composite rate payment was 

approximately $156 per dialysis session 

in 2007.1 We assumed the same national 

average rate would be a reasonable 

estimate for VA except we increased the 

average rate to $157 to allow for modest 

inflation to 2008. For each specific 

claim, we then adjusted the national 

average amount using Medicare’s 

geographic wage index adjustment for 

ESRD dialysis facility charges. For the 

injectible drug claims, we used 

Medicare’s prices. For each claim, we 

then compared the original amount paid 

by VA to the price Medicare would pay, 

and from this comparison we kept the 

lesser amount as the final amount VA 

would pay for a given claim (the 

Medicare price would set the maximum 

charge for that claim, but in some cases 

the local VA facility might already have 


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78912 Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 

negotiated a lower rate than the 

Medicare rate). 

For the claims in our analysis, we 

found that with Medicare pricing the 

VA’s outpatient dialysis facility 

expenditures would decrease by 39 

percent. When extended to the universe 

of outpatient dialysis facility services 

for VA in 2008, we calculate a cost 

reduction of $68 million. The cost 

reductions for the dialysis procedures 

ranged from 21–35 percent for the three 

most common dialysis codes and the 

savings on injectible drugs ranged from 

48–69 percent for the three most 

common codes. These estimated cost 

reductions may represent an upperbound estimate because, although we do 

not anticipate any particular need to 

enter into contracts at rates higher than 

the Medicare rates to ensure access to 

services, the cost savings could be lower 

if that were required. 

IMPACT OF MEDICARE PRICING ON VA FEE BASIS OUTPATIENT DIALYSIS FACILITY CLAIMS, 2008 

Payments under VA 

current method Payments under Medicare pricing Cost reduction Cost reduction as a percentage of VA payments 

$175.9M $107.7M $68.2M 38.8% 

Ambulatory Surgery Center (ASC) 

We identified all Ambulatory Surgery 

Center (ASC) facility charges for VA 

purchased care in the first 6 months of 

calendar year 2008. We selected this 

period because the data was sufficiently 

complete. We then edited the data to 

remove claims from ASCs for clinical 

lab services and medical services (CPT 

codes with a value greater than 90000) 

because they are not paid using 

Medicare’s ASC payment system. We 

also edited the VA purchased care 

claims data to eliminate physician 

services which would be paid using 

Medicare’s physician fee schedule, 

based on CPT code modifiers and 

specialty codes. We also excluded 

claims that were paid under contracts 

with ASCs or with certain managed care 

providers. 

To estimate the impact of paying 

these ASC claims using Medicare’s ASC 

payment system we excluded ASC 

facility charges for surgeries that are not 

paid in ASCs by Medicare because they 

are considered ‘‘inpatient only’’ services. 

Under its current pricing policies, we 

found that in 2008, the VA paid an 

average of about $431 in ASC facility 

charges to non-VA facilities for each 

ASC surgery. Under Medicare pricing, 

the VA would pay an average of $383. 

This represents a cost reduction of 

approximately 11 percent. When 

extended to the universe of ASC charges 

for VA purchased care in 2008, we 

calculated an aggregate cost reduction of 

$1 million. 

IMPACT OF MEDICARE PRICING ON NON-VA ASC FACILITY CHARGES, 2008 

Payments under VA 

current method Payments under Medicare pricing Cost reduction Cost reduction as a percentage of VA payments 

$11.0M $9.7M $1.3M 11.2% 

We also focused on the facility 

charges for the 15 highest-volume 

surgeries done in purchased care for VA 

beneficiaries. We found that these 15 

surgery codes accounted for almost 60 

percent of the VA’s payments for 

purchased care ASC charges in the first 

6 months of CY 2009. The percentage 

changes under Medicare pricing for 

these 15 codes ranged from a reduction 

of 30 percent to an increase of 44 

percent. Thus, using Medicare’s pricing 

would result in some codes being paid 

more and some being paid less. 

Hospital Outpatient Department (HOPD) 

We identified all hospital outpatient 

department (HOPD) and emergency 

room (ER) facility charges for VA 

purchased care in the first 6 months of 

calendar year 2008. We then edited the 

data to remove claims from hospitals for 

clinical lab services, physical therapy 

services, and other services not paid 

using Medicare’s Hospital Outpatient 

Prospective Payment System (OPPS). 

We also edited the VA purchased care 

claims data to eliminate physician 

services which would already be paid 

using Medicare’s physician fee 

schedule, based on CPT code modifiers. 

We excluded claims with an extreme 

number of units or allowed amounts. 

We also excluded claims that were paid 

under contracts with hospitals or with 

certain managed care providers. 

Under its current pricing policies, we 

found that in 2008, the VA paid an 

average of about $76 in hospital 

outpatient department and emergency 

room facility charges to non-VA 

facilities for each HOPD/ER service. 

Under Medicare OPPS pricing, the VA 

would pay an average of $51. This 

represents a cost reduction of 

approximately 33 percent. When 

extended to the universe of HOPD/ER 

charges for VA purchased care in 2008, 

we calculated an aggregate cost 

reduction of $62 million. 

IMPACT OF MEDICARE PRICING ON NON-VA HOPD/ER FACILITY CHARGES

Payments under VA 

current method 

Payments under Medicare 

OPPS pricing Cost reduction Cost reduction as a percentage of VA payments 

$188.2M $125.7M $62.5M 33.2% 

We also focused on the facility 

charges for the 15 procedures with the 

highest aggregate level of expenditures 

done in purchased care for VA 

beneficiaries. We found that these 15 

codes accounted for almost one-third of 

the VA’s payments for purchased care 

HOPD/ER charges in the first 6 months 

of CY 2009. Under Medicare OPPS 


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pricing for these 15 codes, 4 would 

receive increases of 10 percent or more 

and 4 would have decreases of 60 

percent or more. Thus, using Medicare’s 

pricing would result in some codes 

being paid more and some being paid 

less. 

In examining the impact of OPPS 

among the top 15 codes, we found that 

two types of codes would have the 

greatest percentage reduction in their 

payments: Radiology codes and supplies 

(most routine supplies are bundled into 

the OPPS payments and are not paid 

separately). We analyzed the percentage 

reduction in payments for four broad 

types of HOPD services and found that 

payments for radiology would decrease 

by 42 percent and payments for the 

‘‘other’’ category of services, which 

includes supplies, HCPCS codes, and 

drugs, would decrease by 85 percent. 

On the other hand, payments for 

medical services (including ER facility 

charges) would decrease by 5 percent 

and payment for surgeries would 

increase by almost 50 percent. 

IMPACT OF OPPS BY TYPE OF SERVICE

Type of HOPD service 

Percentage of 

current allowed 

amounts 

Percentage 

change in allowed amounts 

under OPPS 

Surgery ............................................................................................................................................................ 15 +47 

Medical (includes ER) ...................................................................................................................................... 18 ¥5 

Radiology/Pathology ........................................................................................................................................ 42 ¥42 

Other (supplies, HCPCS, drugs) ..................................................................................................................... 25 ¥85 

Total .......................................................................................................................................................... 100 ¥33 

To project this analysis through FY15 

(Table 1, below), we applied trend 

assumptions to the FY08 estimates. For 

both the Current Policy costs and the 

costs under Medicare pricing, we first 

applied assumed trends in the annual 

number of users for fee-basis care, 

which were supplied by the VA’s 

National Fee Program Office. For longrun inflation per user, we applied 

separate trend assumptions to the 

Current Policy costs and the costs under 

Medicare pricing. For the Current Policy 

costs, we assumed long-run inflation per 

user of 7 percent per year. For the costs 

under Medicare pricing, we assumed 

long-run inflation per user of 2.5 

percent per year. 

BILLING CODE 8320–01–P 


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BILLING CODE 8320–01–C 

The resulting cost savings projections 

are presented in Table 2 below. 

TABLE 2 

FY 

Estimated annual savings resulting 

from adoption of Medicare pricing 

standards for payment of outpatient services 

2011 ...... $274,600,000 

2012 ...... 314,500,000 

2013 ...... 361,700,000 

2014 ...... 405,700,000 

2015 ...... 452,700,000 

Total ...... 1,809,200,000 

Reporting, Recordkeeping, and Other 

Compliance Requirements 

This rule does not impose any 

reporting or recordkeeping requirements 

within the meaning of the Paperwork 

Reduction Act. 

Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Rules 

There are no duplicative, overlapping, 

or conflicting Federal rules identified 

with this rule. 

Congressional Review Act 

Under the Congressional Review Act, 

a major rule may not take effect until at 

least 60 days after submission to 

Congress of a report regarding the rule. 

A major rule is one that would have an 

annual effect on the economy of $100 

million or more or have certain other 

impacts. This final rule is a major rule 

under the Congressional Review Act. 

Catalog of Federal Domestic Assistance 

Numbers 

The Catalog of Federal Domestic 

Assistance numbers and titles are 

64.009, Veterans Medical Care Benefits; 

64.010, Veterans Nursing Home Care; 

and 64.011, Veterans Dental Care. 

Signing Authority 

The Secretary of Veterans Affairs, or 

designee, approved this document and 

authorized the undersigned to sign and 

submit the document to the Office of the 

Federal Register for publication 

electronically as an official document of 

the Department of Veterans Affairs. John 

R. Gingrich, Chief of Staff, Department 

of Veterans Affairs, approved this 

document on December 3, 2010, for 

publication. 


srobinson on DSKHWCL6B1PROD with RULESER17DE10.106</GPH>
Federal Register / Vol. 75, No. 242 / Friday, December 17, 2010 / Rules and Regulations 78915 

List of Subjects in 38 CFR Part 17 

Administrative practice and 

procedure, Alcohol abuse, Alcoholism, 

Claims, Day care, Dental health, Drug 

abuse, Foreign relations, Government 

contracts, Grant programs-health, 

Government programs-veterans, Health 

care, Health facilities, Health 

professions, Health records, Homeless, 

Medical and dental schools, Medical 

devices, Medical research, Mental 

health programs, Nursing homes, 

Philippines, Reporting and 

recordkeeping requirements, 

Scholarships and fellowships, Travel 

and transportation expenses, Veterans. 

Dated: December 12, 2010. 

Robert C. McFetridge, 

Director, Regulation Policy and Management, 

Office of the General Counsel, Department 

of Veterans Affairs. 

■ For the reasons set forth in the 

preamble, VA amends 38 CFR part 17 as 

follows: 

PART 17—MEDICAL 

■ 1. The authority citation for part 17 

continues to read as follows: 

Authority: 38 U.S.C. 501, 1721, and as 

noted in specific sections. 

■ 2. Revise paragraph (a) introductory 

text of § 17.52 to read as follows: 

§ 17.52 Hospital care and medical services 

in non-VA facilities. 

(a) When VA facilities or other 

government facilities are not capable of 

furnishing economical hospital care or 

medical services because of geographic 

inaccessibility or are not capable of 

furnishing care or services required, VA 

may contract with non-VA facilities for 

care in accordance with the provisions 

of this section. When demand is only for 

infrequent use, individual 

authorizations may be used. Care in 

public or private facilities, however, 

subject to the provisions of §§ 17.53, 

17.54, 17.55 and 17.56, will only be 

authorized, whether under a contract or 

an individual authorization, for— 

* * * * * 

■ 3. Revise § 17.56 to read as follows: 

§ 17.56 VA payment for inpatient and 

outpatient health care professional services 

at non-departmental facilities and other 

medical charges associated with non-VA 

outpatient care. 

(a) Except for health care professional 

services provided in the state of Alaska 

(see paragraph (b) of this section) and 

except for non-contractual payments for 

home health services and hospice care, 

VA will determine the amounts paid 

under §§ 17.52 or 17.120 for health care 

professional services, and all other 

medical services associated with nonVA outpatient care, using the applicable 

method in this section: 

(1) If a specific amount has been 

negotiated with a specific provider, VA 

will pay that amount. 

(2) If an amount has not been 

negotiated under paragraph (a)(1) of this 

section, VA will pay the lowest of the 

following amounts: 

(i) The applicable Medicare fee 

schedule or prospective payment system 

amount (‘‘Medicare rate’’) for the period 

in which the service was provided 

(without any changes based on the 

subsequent development of information 

under Medicare authorities), subject to 

the following: 

(A) In the event of a Medicare waiver, 

the payment amount will be calculated 

in accordance with such waiver. 

(B) In the absence of a Medicare rate 

or Medicare waiver, payment will be the 

VA Fee Schedule amount for the period 

in which the service was provided. The 

VA Fee Schedule amount is determined 

by the authorizing VA medical facility, 

which ranks all billings (if the facility 

has had at least eight billings) from nonVA facilities under the corresponding 

procedure code during the previous 

fiscal year, with billings ranked from the 

highest to the lowest. The VA Fee 

Schedule amount is the charge falling at 

the 75th percentile. If the authorizing 

facility has not had at least eight such 

billings, then this paragraph does not 

apply. 

(ii) The amount negotiated by a 

repricing agent if the provider is 

participating within the repricing 

agent’s network and VA has a contract 

with that repricing agent. For the 

purposes of this section, repricing agent 

means a contractor that seeks to connect 

VA with discounted rates from non-VA 

providers as a result of existing 

contracts that the non-VA provider may 

have within the commercial health care 

industry. 

(iii) The amount that the provider 

bills the general public for the same 

service. 

(b) For physician and non-physician 

professional services rendered in 

Alaska, VA will pay for services in 

accordance with a fee schedule that uses 

the Health Insurance Portability and 

Accountability Act mandated national 

standard coding sets. VA will pay a 

specific amount for each service for 

which there is a corresponding code. 

Under the VA Alaska Fee Schedule, the 

amount paid in Alaska for each code 

will be 90 percent of the average amount 

VA actually paid in Alaska for the same 

services in Fiscal Year (FY) 2003. For 

services that VA provided less than 

eight times in Alaska in FY 2003, for 

services represented by codes 

established after FY 2003, and for unitbased codes prior to FY 2004, VA will 

take the Centers for Medicare and 

Medicaid Services’ rate for each code 

and multiply it times the average 

percentage paid by VA in Alaska for 

Centers for Medicare and Medicaid 

Services-like codes. VA will increase 

the amounts on the VA Alaska Fee 

Schedule annually in accordance with 

the published national Medicare 

Economic Index (MEI). For those years 

where the annual average is a negative 

percentage, the fee schedule will remain 

the same as the previous year. Payment 

for non-VA health care professional 

services in Alaska shall be the lesser of 

the amount billed or the amount 

calculated under this subpart. 

(c) Payments made by VA to a nonVA facility or provider under this 

section shall be considered payment in 

full. Accordingly, the facility or 

provider or agent for the facility or 

provider may not impose any additional 

charge for any services for which 

payment is made by VA. 

(d) In a case where a veteran has paid 

for emergency treatment for which VA 

may reimburse the veteran under 

§ 17.120, VA will reimburse the amount 

that the veteran actually paid. Any 

amounts due to the provider but unpaid 

by the veteran will be reimbursed to the 

provider under paragraphs (a) and (b) of 

this section. 

(Authority: 38 U.S.C. 1703, 1728) 

[FR Doc. 2010–31629 Filed 12–16–10; 8:45 am] 

BILLING CODE 8320–01–P 

POSTAL SERVICE 

39 CFR Part 232 

Conduct on Postal Property 

AGENCY: Postal Service. 

ACTION: Final rule. 

SUMMARY: The U.S. Postal Service is 

updating its regulations concerning 

Conduct on Postal Property (COPP) to 

correct or eliminate outdated citations, 

obviate the need for continuous updates 

of such citations by harmonizing the 

regulations with federal law, and make 

certain other minor, editorial revisions. 

DATES: Effective date: December 17, 

2010. 

FOR FURTHER INFORMATION CONTACT: 

Christy Noel, Attorney, U.S. Postal 

Service, 202–268–3484. 

SUPPLEMENTARY INFORMATION: The 

current rules governing Conduct on 

Postal Property contain a number of 

outdated or confusing references to nonpostal statutes, and in some cases do not 


srobinson on DSKHWCL6B1PROD with RULES