[Federal Register Volume 74, Number 167 (Monday, August 31, 2009)]
[Rules and Regulations]
[Pages 44752-44755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20682]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[DoD-2008-HA-0007; RIN 0720-AB21]


TRICARE; Reimbursement of Critical Access Hospitals (CAHs)

AGENCY: Office of the Secretary, Department of Defense.

ACTION: Final rule.

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SUMMARY: This rule implements the statutory provisions that TRICARE 
payment methods for institutional care be determined to the extent 
practicable in accordance with the same reimbursement rules as those 
that apply to payments to providers of services of the same type under 
Medicare. This final rule implements a reimbursement methodology 
similar to that furnished to Medicare beneficiaries for services 
provided by critical access hospitals (CAHs).

DATES: Effective Date: This rule is effective December 1, 2009.

FOR FURTHER INFORMATION CONTACT: Ms. Martha M. Maxey, TRICARE 
Management Activity, Medical Benefits and Reimbursement Branch, 
telephone (303) 676-3627.

SUPPLEMENTARY INFORMATION: 

I. Introduction and Background

    Hospitals are authorized TRICARE institutional providers under 10 
U.S. Code 1079(j)(2) and (4). Under 10 U.S.C. 1079(j)(2), the amount to 
be paid to hospitals, skilled nursing facilities (SNFs), and other 
institutional providers under TRICARE, ``shall be determined to the 
extent practicable in accordance with the same reimbursement rules as 
apply to payments to providers of services of the same type under 
Medicare.'' Under 32 CFR 199.14(a)(1)(ii)(D)(1) through (9) it 
specifically lists those hospitals that are exempt from the DRG-based 
payment system. CAHs are not listed as exempt, thereby making them 
subject to the DRG-based payment system. CAHs are not listed as 
excluded, because at the time this regulatory provision was written, 
CAHs were not a recognized entity.
    Legislation enacted as part of the Balanced Budget Act (BBA) of 
1997

[[Page 44753]]

authorized states to establish State Medicare Rural Hospital 
Flexibility Programs, under which certain facilities participating in 
Medicare could become CAHs. CAHs represent a separate provider type 
with their own Medicare conditions of participation as well as a 
separate payment method of 101 percent of reasonable costs. Since that 
time, a number of hospitals have taken the necessary steps to be 
designated as CAHs by the Centers for Medicare & Medicaid Services 
(CMS). The statutory authority requires TRICARE to apply the same 
reimbursement rules as apply to payments to providers of services of 
the same type under Medicare to the extent practicable. Therefore, if 
practicable, TRICARE has the requirement through the publication of a 
proposed and final rule to exempt critical access hospitals from the 
DRG-based payment system and adopt a reimbursement method similar to 
Medicare principles for these hospitals.
    Currently under TRICARE, with the exception of Alaska, CAHs are 
subject to the TRICARE DRG-based payment system for inpatient care. For 
outpatient care, CAHs are reimbursed based on billed charges for 
facility charges. In Alaska, under a demonstration project, CAHs are 
reimbursed the lesser of the billed charge or 101 percent of reasonable 
costs for inpatient and outpatient care. The 101 percent of reasonable 
costs is calculated by multiplying the billed charge of each claim by 
the hospital's cost-to-charge (CCR) ratio, and then adding 1 percent to 
that amount. Based on the above statutory mandate, TRICARE is proposing 
to adopt this same reimbursement methodology for all CAHs, with one 
substantive change. TRICARE will not apply the ``lesser of cost or 
charges'' provision. We found approximately 15 percent of CAHs have 
inpatient CCRs of 1.0 or more and 2 percent have outpatient CCRs 
greater than 1.0. In order to reimburse the vast majority of hospitals 
for all their costs in an administratively feasible manner, TRICARE 
will identify CCRs that are outliers using the method used by Medicare 
to identify outliers in its outpatient prospective payment system 
(OPPS) reimbursement methods. Specifically, Medicare classifies CCR 
outliers as values that fall outside of three standard deviations from 
the geometric mean. Applying this method to the CAH data, those limits 
will be considered the threshold limits on the CCR for reimbursement 
purposes.

II. Public Comments

    The TRICARE Reimbursement of CAHs proposed rule (73 FR 17271) was 
published on May 5, 2008, providing a 30-day public comment period. 
Five timely items of correspondence were received containing multiple 
comments on the proposed rule which resulted in one substantive change 
in TRICARE's reasonable cost methodology, (i.e., removal of the lesser 
of cost or charges provision).
    Following is a summary of the public comments and our responses:
    Comment: Several commenters requested DoD adopt the exact Medicare 
CAH payment methodology of 101 percent of their allowable and 
reasonable costs, not being subject to the ``lesser of cost or 
charges'' reasonable-cost principle. To comply with the statutory 
requirement regarding hospital reimbursement, these commenters urge the 
Secretary to adopt Medicare's exact methodology for determining CAH 
reimbursement for inpatient and outpatient care.
    Response: Based on the comments received, TRICARE is removing the 
``lesser of cost or charges'' provision from its final rule. We found 
that approximately 15 percent of CAHs have inpatient CCRs of 1.0 or 
more but that only 2 percent of CAHs have outpatient CCRs greater than 
1.0. In order to reimburse the vast majority of hospitals for all their 
costs in an administratively feasible manner, TRICARE will identify 
CCRs that are outliers using the method used by Medicare to identify 
outliers in its OPPS reimbursement methods. Specifically, Medicare 
classifies CCR outliers as values that fall outside of three standard 
deviations from the geometric mean. Applying this method to the CAH 
data, those limits will be considered the threshold limits on the CCR 
for reimbursement purposes. For FY09, this calculation resulted in an 
inpatient CCR cap of 2.12 and outpatient CCR cap of 1.23; these will be 
re-calculated each year with the CCR update. Thus, for FY09, TRICARE 
will pay the lesser of 2.12 x billed charges or 101 percent of costs 
(using the hospital's CCR and billed charges) for inpatient services 
and the lesser of 1.23 x billed charges or 101 percent of costs for 
outpatient services. We believe this approach captures the bulk of 
CAHs' costs.
    Comment: Several commenters state the proposed rule fails to 
address interim payments and cost settlement. Medicare may make interim 
payments to CAHs during a fiscal year based on costs generally 
estimated from a prior year's cost report. After a fiscal year ends, 
Medicare reaches a ``settlement'' with CAHs to align payment with 
actual costs, which may be higher or lower than estimated. If interim 
payments were lower than actual costs, Medicare pays the CAH the 
difference; if payments were higher, the CAH repays Medicare. 
Therefore, both interim payments and cost settlement help ensure that 
CAHs are reimbursed in a timely manner at the appropriate level. 
Without such mechanisms, hospitals could endure a significant amount of 
uncertainty about whether they will be able to cover their costs, which 
may affect their ability to provide quality patient care. These 
commenter's urge the Secretary to make interim payments to and reach 
cost settlement with CAHs and to do so in the same manner as Medicare.
    Response: Since TRICARE is a relatively small payer, and hospitals 
do not file cost reports with TRICARE, it is not administratively 
feasible for TRICARE to issue interim payments or conduct retroactive 
cost settlements. TRICARE will be using historical data to pay claims, 
i.e., we are using FY 2006 cost report data to calculate CCRs to 
process and pay claims for services provided in 2009. We acknowledge 
the data is a few years old, and some hospitals will be paid a little 
more one year and a little less another year, but over time we believe 
that the payments will be roughly equal to the hospital's costs. 
TRICARE does not need to make interim payments because hospitals will 
be paid as each claim is processed (using the CCR approach). Due to 
varying fiscal year end dates, database development by CMS, etc., it is 
not possible to use more recent data.
    We have analyzed the impact of the rule on CAHs that have a high 
percentage of their discharges for TRICARE patients. We examined all 
the CAHs that served TRICARE patients in October 2008-March 2009 period 
and found that 11 CAHs had 5 percent or more of their discharges from 
TRICARE. We then calculated the change in TRICARE payments that would 
occur due to this rule. We found that the impact was under $1,000 for 
two of these hospitals, indicating that the rule would have a 
significant impact on only 9 of the 11 hospitals. For these 9 
hospitals, we calculated the change in TRICARE payments relative to 
estimated total hospital revenues and found that 3 would have had 
slight declines in overall hospital revenues due to the rule and that 6 
would have had increases. The range of change in total hospital 
revenues was from -2.4 percent to +9.1 percent. The median change in 
total hospital revenues was estimated to be an increase of 2.9 percent 
and the average was an increase of 3.2 percent.

[[Page 44754]]

    Comment: One commenter urges DoD to conduct a thorough review of 
the Alaska demonstration project--including contacting each of the 
twelve CAHs that are licensed in Alaska to discuss any difficulties 
experienced under the demonstration.
    Response: The opportunity to provide comments on the proposed 
reimbursement methodology for CAHs, currently being tested in Alaska, 
was provided through the publication of the proposed rule. We did 
receive one item of correspondence from one of the Health Systems in 
Alaska and their comments are addressed in this final rule. In 
addition, over the course of the demonstration, we have been contacted 
by some of the CAHs participating in the demonstration and have worked 
with them directly to resolve any problems.
    Comment: One commenter urged DoD to establish an election option 
regarding payment for outpatient services that is identical to 
established Medicare regulations found at 42 CFR Section 413.70(b)(3). 
The change would also align the TRICARE reimbursement methodology in 
the proposed rule with Medicare reimbursement principles as required 
under the statute.
    Response: The statutory provision in 10 United States Code 
1079(j)(2) states that TRICARE payment methods for institutional care 
shall be determined to the extent practicable in accordance with the 
same reimbursement rules as those that apply to payments to providers 
of services of the same type under Medicare. While it is practicable to 
adopt a similar payment methodology to Medicare's to pay CAHs 101 
percent of reasonable costs, it is not practicable for TRICARE to 
implement an election option identical to Medicare due to the 
complexity of identifying what each hospital has elected and keeping up 
with the changes in the elections and implementing special claims 
processing procedures to accommodate these elections. TRICARE is not 
equipped to handle these types of elections.
    Comment: One commenter states that while the policy should be 
automatically effective on a prospective basis, the Secretary should 
allow CAHs the option to request retroactive reimbursement for all 
previous years for which they were classified as CAHs.
    Response: TRICARE does not have the regulatory authority to allow 
retroactive reimbursement prior to the effective date of the new 
reimbursement methodology for CAHs.
    Comment: One commenter requests TRICARE clarify in the final rule 
how the CAH reimbursement methodology will be implemented. They state 
the proposed rule was not specific and left many questions unanswered 
such as:
    <bullet> How will facility specific cost to charge ratios be 
computed?
    <bullet> What data elements will be used from the Medicare cost 
report?
    <bullet> How often will rates be determined?
    <bullet> When will rates be updated?
    <bullet> Will there be retroactive settlements if rates are changed 
mid-year after the filing of the prior year's Medicare cost report?
    <bullet> Will there be retroactive settlements after the year's 
Medicare cost report is audited and final settled?
    <bullet> Will there be any retroactive settlements or is the entire 
payment system prospective?
    Response: There are ongoing changes to the Medicare cost report; 
therefore, we think it is more appropriate to include the method for 
calculating the CCRs and the data elements used from the Medicare cost 
report in the Critical Access Hospital policy in Chapter 15, Section 1 
of the TRICARE Reimbursement Manual (TRM). The TRM can be accessed at 
http://manuals.tricare.osd.mil/. The rates will be calculated and 
updated on a yearly basis. As stated above, TRICARE will not conduct 
any retroactive settlements.
    Comment: Several commenters state that for many CAHs, their TRICARE 
patient volume is small enough that setting rates on a prospective 
basis updated once per year will be sufficient to ensure reasonable 
reimbursement. However, for those CAHs that have a higher TRICARE 
patient volume, they suggest a process be established where CAHs on 
their own initiative, may request a retroactive settlement after the 
end of a cost reporting period, by providing TRICARE with a copy of 
their Medicare cost report. A short computation form, similar to the 
current capital reimbursement form, could be developed to compute such 
a retroactive settlement.
    Response: We agree with the commenter's first statement. In 
addition, we believe our revised approach on removing the ``lesser of 
cost or charges'' provision from the final rule will ease hospitals 
concerns about receiving reasonable reimbursement. As stated above, we 
have analyzed the impact of the rule on CAHs that have a high 
percentage of their discharges for TRICARE patients and for the period 
October 2008--March 2009 we found that 11 of approximately 1275 CAHs 
had 5 percent or more of their discharges from TRICARE. Of the 11, the 
impact was under $1,000 for two of the hospitals. For the remaining 9 
hospitals, we calculated the change in TRICARE payments relative to 
estimated total hospital revenues and found that 3 would have had 
slight declines in overall hospital revenues due to the rule and that 6 
would have had increases. The range of change in total hospital 
revenues was from -2.4 percent to +9.1 percent. The median change in 
total hospital revenues was estimated to be an increase of 2.9 percent 
and the average was an increase of 3.2 percent. As stated above, 
TRICARE will be using historical data to pay claims and over time we 
believe that the payments will reimburse the vast majority of hospitals 
for all their costs.

III. Regulatory Procedures

Executive Order 12866, ``Regulatory Planning and Review''

    Section 801 of Title 5, U.S.C., and Executive Order (E.O.) 12866 
requires certain regulatory assessments and procedures for any major 
rule or significant regulatory action, defined as one that would result 
in an annual effect of $100 million or more on the national economy or 
which would have other substantial impacts. It has been certified that 
this rule is not an economically significant rule; however, it is a 
regulatory action which has been reviewed by the Office of Management 
and Budget as required under the provisions of E.O. 12866.

Sec. 202, Public Law 104-4, ``Unfunded Mandates Reform Act''

    It has been certified that this rule does not contain a Federal 
mandate that may result in the expenditure by State, local and tribal 
governments, in aggregate, or by the private sector, of $100 million or 
more in any one year.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    The Regulatory Flexibility Act (RFA) requires each Federal agency 
prepare, and make available for public comment, a regulatory 
flexibility analysis when the agency issues a regulation which would 
have a significant impact on a substantial number of small entities. 
This rule will not significantly affect a substantial number of small 
entities.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

    This rule will not impose any additional information collection 
requirements on the public under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3511). Existing information collection requirements of 
the TRICARE, cleared under OMB Control Number 0720-0013, and Medicare 
programs will be utilized.

[[Page 44755]]

Executive Order 13132, ``Federalism''

    This rule has been examined for its impact under E.O. 13132. It 
does not contain policies that have federalism implications that would 
have substantial direct effects on the States, on the relationship 
between the national Government and the States, or on the distribution 
of power and responsibilities among the various levels of government; 
therefore, consultation with State and local officials is not required.

List of Subjects in 32 CFR Part 199

    Claims, Dental health, Health care, Health insurance, Individuals 
with disabilities, Military personnel.


0
Accordingly, 32 CFR Part 199 is amended as follows:

PART 199--[AMENDED]

0
1. The authority citation for Part 199 continues to read as follows:

    Authority:  5 U.S.C. 301; 10 U.S.C. Chapter 55.

0
2. In Sec.  199.2, paragraph (b) is amended by adding a definition for 
``CAHs'' in alphabetical order to read as follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    CAHs. A small facility that provides limited inpatient and 
outpatient hospital services primarily in rural areas and meets the 
applicable requirements established by Sec.  199.6(b)(4)(xvi).
* * * * *

0
3. Section 199.6 is amended by adding new paragraph (b)(4)(xvi).


Sec.  199.6  TRICARE--authorized providers.

    (b) * * *
    (4) * * *
    (xvi) CAHs. CAHs must meet all conditions of participation under 42 
CFR 485.601 through 485.645 in relation to TRICARE beneficiaries in 
order to receive payment under the TRICARE program. If a CAH provides 
inpatient psychiatric services or inpatient rehabilitation services in 
a distinct part unit, these distinct part units must meet the 
conditions of participation in 42 CFR 485.647, with the exception of 
being paid under the inpatient prospective payment system for 
psychiatric facilities as specified in 42 CFR 412.1(a)(2) or the 
inpatient prospective payment system for rehabilitation hospitals or 
rehabilitation units as specified in 42 CFR 412(a)(3).
* * * * *

0
4. Section 199.14 is amended by:
0
a. Redesignating paragraphs (a)(3) through (a)(5) as (a)(4) through 
(a)(6), respectively;
0
b. Revising newly redesignated paragraph (a)(4) introductory text and 
the first sentence of paragraph (d)(1); and
0
c. Adding new paragraphs (a)(1)(ii)(D)(10), (a)(3), and (a)(6)(iii) and 
(iv).
    The revisions and additions read as follows:


Sec.  199.14  Provider reimbursement methods.

    (a) * * *
    (1) * * *
    (ii) * * *
    (D) * * *
    (10) CAHs. Effective December 1, 2009, any facility which has been 
designated and certified as a CAH as contained in 42 CFR Part 485.606 
is exempt from the CHAMPUS DRG-based payment system.
* * * * *
    (3) Reimbursement for inpatient services provided by a CAH. For 
admissions on or after December 1, 2009, inpatient services provided by 
a CAH, other than services provided in psychiatric and rehabilitation 
distinct part units, shall be reimbursed at 101 percent of reasonable 
cost. This does not include any costs of physician services or other 
professional services provided to CAH inpatients. Inpatient services 
provided in psychiatric distinct part units would be subject to the 
CHAMPUS mental health per diem payment system. Inpatient services 
provided in rehabilitation distinct part units would be subject to 
billed charges or set rates.
    (4) Billed charges and set rates. The allowable costs for 
authorized care in all hospitals not subject to the CHAMPUS Diagnosis 
Related Group-based payment system, the CHAMPUS mental health per diem 
system, or the reasonable cost method for CAHs, shall be determined on 
the basis of billed charges or set rates. Under this procedure the 
allowable costs may not exceed the lower of:
* * * * *
    (6) * * *
    (iii) Outpatient Services Subject to CAH Reasonable Cost Method. 
For services on or after December 1, 2009, outpatient services provided 
by a CAH, shall be reimbursed at 101 percent of reasonable cost. This 
does not include any costs of physician services or other professional 
services provided to CAH outpatients.
    (iv) CAH Ambulance Services. Effective for services provided on or 
after December 1, 2009, payment for ambulance services furnished by a 
CAH or an entity that is owned and operated by a CAH is the reasonable 
costs of the CAH or the entity in furnishing those services, but only 
if the CAH or the entity is the only provider or supplier of ambulance 
services located within a 35-mile drive of the CAH or the entity as 
specified under 42 CFR part 413.70(b)(5)(ii).
* * * * *
    (d) * * *
    (1) In general. CHAMPUS pays institutional facility costs for 
ambulatory surgery on the basis of prospectively determined amounts, as 
provided in this paragraph, with the exception of ambulatory surgery 
procedures performed in hospital outpatient departments or in CAHs, 
which are to be reimbursed in accordance with the provisions of 
paragraph (a)(6)(ii) or (a)(6)(iii) respectively, of this section. * * 
*
* * * * *

    Dated: August 21, 2009.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. E9-20682 Filed 8-28-09; 8:45 am]
BILLING CODE 5001-06-P