DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Parts 405, 410, 491, and 493 

[CMS-1443-FC] 

RIN 0938-AR62 

Medicare Program; Prospective Payment System for Federally Qualified Health 

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

Clinical Laboratory Improvement Amendments of 1988 Enforcement Actions for 

Proficiency Testing Referral 

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule with comment period.

SUMMARY: This final rule with comment period implements methodology and 

payment rates for a prospective payment system (PPS) for federally qualified health 

center (FQHC) services under Medicare Part B beginning on October 1, 2014, in 

compliance with the statutory requirement of the Affordable Care Act. In addition, it 

establishes a policy which allows rural health clinics (RHCs) to contract with 

nonphysician practitioners when statutory requirements for employment of nurse 

practitioners and physician assistants are met, and makes other technical and conforming 

changes to the RHC and FQHC regulations. Finally, this final rule with comment period 

implements changes to the Clinical Laboratory Improvement Amendments (CLIA) 

regulations regarding enforcement actions for proficiency testing (PT) referrals. 

DATES: Effective Dates: The provisions of this final rule with comment period are 

effective on October 1, 2014, except for amendments to § 405.2468(b)(1), § 491.8(a)(3), 
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§ 493.1, § 493.2, § 493.1800, and § 493.1840 which are effective [Insert date 60 days 

after the date of publication in the Federal Register]. 

Comment Period: We will consider comments on the subjects indicated in sections 

II.B.1., E.2. and E.4. of this final rule with comment period received at one of the 

addresses provided below, no later than 5 p.m. on [OFR--insert date 60 days after date of 

publication in the Federal Register]. 

ADDRESSES: In commenting, please refer to file code CMS-1443-FC. Because of 

staff and resource limitations, we cannot accept comments by facsimile (FAX) 

transmission. 

 You may submit comments in one of four ways (please choose only one of the 

ways listed): 

 1. Electronically. You may submit electronic comments on this regulation to 

http://www.regulations.gov. Follow the "Submit a comment" instructions. 

 2. By regular mail. You may mail written comments to the following address 

ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1443-FC, 

 P.O. Box 8013, 

 Baltimore, MD 21244-1850. 

Please allow sufficient time for mailed comments to be received before the close of the 

comment period. 
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 3. By express or overnight mail. You may send written comments to the 

following address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1443-FC, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

 4. By hand or courier. Alternatively, you may deliver (by hand or courier) your 

written comments ONLY to the following addresses prior to the close of the comment 

period: 

 a. For delivery in Washington, DC-- 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Room 445-G, Hubert H. Humphrey Building, 

 200 Independence Avenue, SW., 

 Washington, DC 20201 

(Because access to the interior of the Hubert H. Humphrey Building is not readily 

available to persons without federal government identification, commenters are 

encouraged to leave their comments in the CMS drop slots located in the main lobby of 

the building. A stamp-in clock is available for persons wishing to retain a proof of filing 

by stamping in and retaining an extra copy of the comments being filed.) 

 b. For delivery in Baltimore, MD-- 
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 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

If you intend to deliver your comments to the Baltimore address, call telephone number 

(410) 786-7195 in advance to schedule your arrival with one of our staff members. 

 Comments erroneously mailed to the addresses indicated as appropriate for hand 

or courier delivery may be delayed and received after the comment period. 

For information on viewing public comments, see the beginning of the 

"SUPPLEMENTARY INFORMATION" section. 

FOR FURTHER INFORMATION CONTACT: 

Corinne Axelrod, (410) 786-5620 for FQHCs and RHCs. 

Melissa Singer, (410) 786-0365 for CLIA Enforcement Actions for Proficiency Testing 

Referral. 

 Inspection of Public Comments: All comments received before the close of the 

comment period are available for viewing by the public, including any personally 

identifiable or confidential business information that is included in a comment. We post 

all comments received before the close of the comment period on the following Web site 

as soon as possible after they have been received: http://www.regulations.gov. Follow 

the search instructions on that Web site to view public comments. 

 Comments received timely will also be available for public inspection as they are 

received, generally beginning approximately 3 weeks after publication of a document, at 

the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security 
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Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-

3951. 

SUPPLEMENTARY INFORMATION: 

Acronyms 

ACS American Community Survey 

AI/AN American Indian/Alaskan Native 

AIR All-Inclusive Rate 

APCP Advanced Primary Care Practice 

BLS Bureau of Labor Statistics 

CCM Chronic Care Management 

CCN CMS Certification Number 

CCR Cost-To-Charge Ratio 

CFR Code of Federal Regulations 

CLIA Clinical Laboratory Improvement Amendments of 1988 

CMP Civil Monetary Penalty 

CMS Centers for Medicare & Medicaid Services 

CNM Certified Nurse Midwife 

CP Clinical Psychologist 

CR Change Request 

CSW Clinical Social Worker 

CY Calendar Year 

DSMT Diabetes Self-Management Training 
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EHR Electronic Health Record 

E/M Evaluation and Management 

FQHC Federally Qualified Health Center 

FSHCAA Federally Supported Health Centers Assistance Act 

FTCA Federal Tort Claims Act 

GAF Geographic Adjustment Factor 

GAO Government Accountability Office 

GPCI Geographic Practice Cost Index 

HCPCS Healthcare Common Procedure Coding System 

HCRIS Healthcare Cost Report Information System 

HBV Hepatitis B Vaccines 

HRSA Health Resources and Services Administration 

IDR Integrated Data Repository 

IPPE Initial Preventive Physical Exam 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MCO Managed Care Organization 

MEI Medicare Economic Index 

MIPPA Medicare Improvements for Patients and Providers Act 

MNT Medical Nutrition Therapy 

MSA Metropolitan Statistical Area 

NP Nurse Practitioner 

OBRA Omnibus Budget Reconciliation Act 
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PA Physician Assistant 

PHS Public Health Service 

PFS Physician Fee Schedule 

PPS Prospective Payment System 

PT Proficiency testing 

RIA Regulatory Impact Analysis 

RHC Rural Health Clinic 

SNF Skilled Nursing Facility 

UDS Uniform Data System 

UPL Upper Payment Limit 

Table of Contents 

I. Executive Summary and Background 

 A. Executive Summary 

 1. Purpose and Legal Authority 

 2. Summary of Major Provisions 

 a. FQHC PPS 

 b. Other FQHC and RHC Provisions 

 c. CLIA Enforcement Actions for Proficiency Testing Referral Provisions 

 3. Summary of Cost and Benefits 

 a. For the FQHC PPS 

 b. For Other FQHC and RHC Changes 

 c. For the CLIA Enforcement Actions for Proficiency Testing Referral 

 B. Overview and Background 
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 1. FQHC Description and General Information 

 2. Medicare's FQHC Coverage and Payment Benefit 

 3. Legislation Pertaining to Medicare and Medicaid Payments for FQHC Services 

 4. Medicare's Current Reasonable Cost-Based Reimbursement Methodology 

 5. Summary of Requirements under the Affordable Care Act for the FQHC PPS 

and Other Provisions Pertaining to FQHCs 

 6. Approach to the FQHC PPS 

II. Establishment of the Federally Qualified Health Center Prospective Payment System 

(FQHC PPS) 

 A. Design and Data Sources for the FQHC PPS 

 1. Overview of the PPS Design 

 2. Medicare FQHC Cost Reports 

 3. Medicare FQHC Claims 

 4. Linking Cost Reports and Claims to Compute the Average Cost per Visit 

B. Policy Considerations for Developing the FQHC PPS Rates and Adjustments 

 1. Multiple Visits on the Same Day 

 2. Preventive Laboratory Services and Technical Components of Other 

Preventive Services 

 3. Vaccine Costs 

C. Risk Adjustments 

 1. Alternative Calculations for Average Cost per Visit 

 2. FQHC Geographic Adjustment Factor 

 3. New Patient or Initial Medicare Visit 
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 4. Other Adjustment Factors Considered 

 5. Report on PPS Design and Models 

 D. Base Rate Calculation 

E. Implementation 

 1. Transition Period and Annual Adjustment 

 2. Medicare Claims Payment 

 3. Beneficiary Coinsurance 

 4. Waiving Coinsurance for Preventive Services 

 5. Cost Reporting 

6. Medicare Advantage Organizations 

III. Additional Proposed Changes Regarding FQHCs and RHCs 

 A Rural Health Clinic Contracting 

 B. Technical and Conforming Changes 

 1. Proposed Technical and Conforming Changes 

 2. Additional Technical and Conforming Changes 

 C. Comments Outside of the Scope of the Proposed Rule 

IV. Clinical Laboratory Improvement Amendments of 1988 (CLIA)--Enforcement 

Actions for Proficiency Testing Referral 

 A. Background 

 B. Proposed and Final Regulatory Changes 

V. Other Required Information 

 A. Requests for Data from the Public 

 B. Collection of Information Requirements 
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VI. Waiver of Proposed Rulemaking 

VII. Response to Comments 

VIII. Regulatory Impact Analysis 

 A. Statement of Need 

 B. Overall Impact 

 C. Limitations of Our Analysis 

 D. Anticipated Effects of the FQHC PPS 

1. Effects on FQHCs 

2. Effects on RHCs 

3. Effects on Other Providers and Suppliers 

4. Effects on Medicare and Medicaid Programs 

5. Effects on Medicare Beneficiaries 

E. Effects of Other Policy Changes 

1. Effects of Policy Changes for FQHCs and RHCs 

a. Effects of RHC Contracting Changes 

b. Effects of the FQHC and RHC Conforming Changes 

2. Effects of CLIA Changes for Enforcement Actions for Proficiency Testing 

Referral 

 F. Alternatives Considered 

 G. Accounting Statement and Table 

 H. Conclusion 

Regulations Text 

ADDENDUM--FQHC PPS Geographic Adjustment Factors (FQHC GAFs) 
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I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

 Section 10501(i)(3)(A) of the Affordable Care Act (Pub. L. 111-148 and 

Pub. L. 111-152) added section 1834(o) of the Social Security Act (the Act) to establish a 

new system of payment for the costs of federally qualified health center (FQHC) services 

under Medicare Part B (Supplemental Medical Insurance) based on prospectively set 

rates. According to section 1834(o)(2)(A) of the Act, the FQHC prospective payment 

system (PPS) is to be effective beginning on October 1, 2014. The primary purpose of 

this final rule with comment period is to implement a methodology and payment rates for 

the new FQHC PPS. 

 This rule also implements our proposal to allow RHCs to contract with nonphysician practitioners, consistent with statutory requirements in section 1861(aa) of the 

Act that require at least one nurse practitioner (NP) or physician assistant (PA) be 

employed by the RHC, and makes other technical and conforming changes to the RHC 

and FQHC regulations. 

 The "Taking Essential Steps for Testing Act of 2012" (TEST Act) 

(Pub. L. 112-202) was enacted on December 4, 2012. The TEST Act amended section 

353 of the Public Health Service Act (PHS Act) to provide the Secretary with discretion 

as to which sanctions may be applied to cases of intentional violation of the prohibition 

on proficiency testing (PT) referrals. This final rule with comment period adopts changes 

to the CLIA regulations to implement the TEST Act. 

2. Summary of the Major Provisions 
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a. FQHC PPS 

In accordance with the provisions of the Affordable Care Act, we proposed in the 

September 23, 2013 Federal Register (78 FR 58386) to establish a national, 

encounter-based prospective payment rate for all FQHCs, to be determined based on an 

average of reasonable costs of FQHCs in the aggregate, and pay FQHCs the lesser of 

their actual charges for services or a single encounter-based rate for professional services 

furnished per beneficiary per day. As required by section 1834(o)(1)(A) of the Act, we 

proposed to establish payment codes based on an appropriate description of FQHC 

services, and taking into account the type, intensity, and duration of services provided by 

FQHCs. We also proposed adjustments to the encounter-based payment rate for 

geographic differences in the cost of inputs by applying an adaptation of the geographic 

practice cost indices (GPCIs) used to adjust payments under the Physician Fee Schedule 

(PFS). These provisions are being finalized as proposed. We also proposed adjustments 

when a FQHC furnishes care to a patient who is new to the FQHC or to a beneficiary 

receiving a comprehensive initial Medicare visit (that is, an initial preventive physical 

examination (IPPE) or an initial annual wellness visit (AWV)). These provisions have 

been revised based on comments received and are being finalized to allow the proposed 

adjustments as well as an adjustment for subsequent AWVs. 

We also proposed not to include adjustments or exceptions to the single, 

encounter-based payment when an illness or injury occurs subsequent to the initial visit, 

or when mental health, diabetes self-management training/medical nutrition therapy 

(DSMT/MNT), or the IPPE are furnished on the same day as the medical visit. These 

provisions have been revised based on the comments received and are being finalized to 
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allow an exception to the single, encounter-based payment when an illness or injury 

occurs subsequent to the initial visit, or when a mental health visit is furnished on the 

same day as the medical visit. 

We also proposed that coinsurance would be 20 percent of the lesser of the actual 

charge or the PPS rate. Most preventive services are exempt from beneficiary 

coinsurance in accordance with section 4104 of the Affordable Care Act. Accordingly, 

for FQHC claims that include a mix of preventive and non-preventive services, we 

proposed to use physician office payments under the Medicare PFS to determine the 

proportional amount of coinsurance that should be waived for payments based on the PPS 

encounter rate, and to use provider-reported charges to determine the amount of 

coinsurance that should be waived for payments based on the provider's charge. This 

provision has been revised based on comments received and is being finalized to allow a 

simpler method for calculating coinsurance when there is a mix of preventive and nonpreventive services. 

The statute requires implementation of the FQHC PPS for FQHCs with cost 

reporting periods beginning on or after October 1, 2014. We proposed that FQHCs 

would transition into the PPS based on their cost reporting periods and that the claims 

processing system would maintain the current system and the PPS until all FQHCs 

transitioned to the PPS. We also proposed to transition the PPS to a calendar year update 

for all FQHCs, beginning January 1, 2016, to be consistent with many of the PFS rates 

that are updated on a calendar year basis. We are finalizing these provisions as proposed. 

b. Other FQHC and RHC Changes 

In addition to our proposals to codify the statutory requirements for the FQHC 
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PPS, we proposed to allow RHCs to contract with non-physician practitioners, consistent 

with statutory requirements that require at least one NP or PA be employed by the RHC. 

We also proposed edits to correct terminology, clarify policy, and make other conforming 

changes for existing mandates and the new PPS. 

c. CLIA Enforcement Actions for Proficiency Testing Referral 

The "Taking Essential Steps for Testing Act of 2012" (Pub. L. 112-202) amended 

section 353 of the Public Health Service Act to provide the Secretary with discretion as to 

which sanctions may be applied to cases of intentional PT referral in lieu of the automatic 

revocation of the CLIA certificate and the subsequent ban preventing the owner and 

operator from owning or operating a CLIA-certified laboratory for 2 years. Based on this 

discretion, we are amending the CLIA regulations to add three categories of sanctions for 

PT referral based on the severity and extent of the violation. 

3. Summary of Cost and Benefits 

a. For the FQHC PPS 

As required by section 1834(o)(2)(B)(i) of the Act, initial payment rates 

(Medicare and coinsurance) under the FQHC PPS must equal 100 percent of the 

estimated amount of reasonable costs, as determined without the application of the 

current system's upper payment limits (UPL) or productivity standards. In the proposed 

rule, we estimated the overall impact, based on the estimated PPS rate, would increase 

total Medicare payments to FQHCs by approximately 30 percent, with an annualized cost 

to the federal government between $183 million and $186 million, based on 5 year 

discounted flows using 3 percent and 7 percent factors. Based on current data, our final 

estimate is an overall impact of increasing total Medicare payments to FQHCs by 
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approximately 32 percent, based on payment at the FQHC PPS. (Note that this does not 

take into account the application of "lesser of" provision in section 1833(a)(1)(Z) of the 

Act. For more information, see sections II.E.2 and VII.D.1 of this final rule with 

comment period). The annualized cost to the federal government associated with the 

final FQHC PPS is estimated to be between $200 million and $204 million, based on 

5 year discounted flows using 3 percent and 7 percent factors. These estimates also 

reflect the policy modifications that are noted in section I.A.2 and discussed in more 

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

b. For Other FQHC and RHC Changes 

We estimated that there would be no costs associated with the removal of the 

contracting restrictions for RHCs or for technical and conforming regulatory changes that 

would be made in conjunction with the establishment of the FQHC PPS. 

c. For the CLIA Enforcement Actions for Proficiency Testing Referral Provisions 

We estimated that an average of 6 cases per year may have fit the terms described 

in the proposed rule to have alternative sanctions applied. Based on experience with 

laboratories that engaged in proficiency testing referral in the past, we estimated that the 

average cost experienced by laboratories for which we imposed a revocation of the CLIA 

certificate as a result of a PT referral violation was $578,000 per laboratory. We 

estimated that the average cost of alternative sanctions, based on comparable violations 

for which alternative sanctions have been imposed, would be $150,000 per 

laboratory. Therefore, we projected that the aggregate annual savings would be 

approximately $2.6 million per year ($578,000 minus $150,000 for 6 laboratories), 
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resulting in net average savings per affected certificate holder of $428,000 ($578,000 

minus $150,000). We continue to consider these to be reasonable estimates 

B. Overview and Background 

1. FQHC Description and General Information 

FQHCs are facilities that furnish services that are typically furnished in an 

outpatient clinic setting. They are currently paid an all-inclusive rate (AIR) per visit for 

qualified primary and preventive health services furnished to Medicare beneficiaries. 

The statutory requirements that FQHCs must meet to qualify for the Medicare 

benefit are in section 1861(aa)(4) of the Act. Based on these provisions, the following 

three types of organizations that are eligible to enroll in Medicare as FQHCs: 

• Health Center Program grantees: Organizations receiving grants under section 

330 of the PHS Act (42 U.S.C. 254b). 

• Health Center Program "look-alikes": Organizations that have been identified 

by the Health Resources and Services Administration (HRSA) as meeting the 

requirements to receive a grant under section 330 of the PHS Act, but which do not 

receive section 330 grant funding. 

• Outpatient health programs/facilities operated by a tribe or tribal organization 

(under the Indian Self-Determination Act) or by an urban Indian organization (under Title 

V of the Indian Health Care Improvement Act). 

FQHCs are also entities that were treated by the Secretary for purposes of 

Medicare Part B as a comprehensive federally funded health center as of January 1, 1990 

(see section 1861(aa)(4)(C) of the Act). 
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Section 330 Health Centers are the most common type of FQHC. Originally 

known as Neighborhood Health Centers, they have evolved over the last 45 years to 

become an integral component of the Nation's health care safety net system, with more 

than 1,200 health centers operating approximately 9,000 delivery sites that serve more 

than 21 million people each year from medically underserved communities. They 

include community health centers (section 330(e) of the PHS Act), migrant health centers 

(section 330(g) of the PHS Act), health care for the homeless (section 330(h) of the PHS 

Act), and public housing primary care (section 330(i) of the PHS Act). 

 FQHCs may be either not-for-profit or public organizations. The main purpose of 

the FQHC program is to enhance the provision of primary care services in underserved 

urban, rural and tribal communities. FQHCs that are not operated by a tribe or tribal 

organization are required to be located in or treat people from a federally-designated 

medically underserved area or medically underserved population and to comply with all 

the requirements of section 330 of the PHS Act. Some of these section 330 requirements 

include offering a sliding fee scale with discounts adjusted on the basis of the patient's 

ability to pay and being governed by a board of directors that represent the individuals 

being served by the FQHC and a majority of whom receive their care at the FQHC. 

According to HRSA's Uniform Data System (UDS)1

, approximately 8 percent of FQHC 

patients were Medicare beneficiaries, 41 percent were Medicaid recipients, and 

36 percent were uninsured in 2012. The remaining 15 percent were privately insured or 

 

1 The UDS collects and tracks data such as patient demographics, services provided, staffing, clinical indicators, 

utilization rates, costs, and revenues from section 330 health centers and health center look-alikes. 
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had other public insurance. Medicare and Medicaid accounted for approximately 

9 percent and 47 percent of their total billing in dollars, respectively. 

 The Congress has authorized several programs to assist FQHCs in increasing 

access to care for underserved and special populations. Many FQHCs receive section 

330 grant funds to offset the costs of uncompensated care and furnish other services. All 

FQHCs are eligible to participate in the 340B Drug Pricing Program which is a program 

that requires drug manufacturers to provide outpatient drugs to eligible health care 

organizations/covered entities at significantly reduced prices. FQHCs that receive 

section 330 grant funds also are eligible to apply for medical malpractice coverage under 

Federally Supported Health Centers Assistance Act (FSHCAA) of 1992 (Pub. L. 102-

501) and FSHCAA of 1995 (Pub. L. 104-73 amending section 224 of the PHS Act) and 

may be eligible for federal loan guarantees for capital improvements when funds for this 

purpose are appropriated. Title VIII of the American Recovery and Reinvestment Act 

(Pub. L. 111-5) appropriated $2 billion for construction, equipment, health information 

technology, and related improvements to existing section 330 grantees and for the 

establishment of new grantees sites. The Affordable Care Act appropriated an additional 

$11 billion over a 5-year period ($1.5 billion for capital improvements and $9.5 billion 

for support and expansion of the health centers receiving grant funds under section 330). 

HRSA administers the Health Center grant program and other programs that assist 

FQHCs in increasing access to primary and preventive health care in underserved 

communities. 

2. Medicare's FQHC Coverage and Payment Benefit 

The FQHC coverage and payment benefit under Medicare began on 
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October 1, 1991. It was authorized by section 1861(aa) of the Act (which amended 

section 4161 of the Omnibus Budget Reconciliation Act (OBRA) of 1990 (Pub. L. 101-

508, enacted on November 5, 1990)) and implemented in regulations via the 

June 12, 1992 final rule with comment period (57 FR 24961) and the April 3, 1996 final 

rule (61 FR 14640). Regulations pertaining to FQHCs are found primarily in Part 405 

and Part 491. 

 FQHC covered services and supplies include the following: 

• Physician, NP, PA, Certified Nurse-Midwife (CNM), Clinical Psychologist 

(CP), and Clinical Social Worker (CSW) services. 

• Services and supplies furnished incident to a physician, NP, PA, CNM, CP, or 

CSW services. 

• FQHC covered drugs that are furnished by a FQHC practitioner. 

• Outpatient DSMT and MNT for beneficiaries with diabetes or renal disease. 

• Statutorily-authorized preventive services. 

• Visiting nurse services to the homebound in an area where CMS has 

determined that there is a shortage of home health agencies. 

3. Legislation Pertaining to Medicare and Medicaid Payments for FQHC Services 

 FQHCs currently receive cost-based reimbursement, subject to the UPL and 

productivity standards that were established in 1978 and 1982 for RHCs (43 FR 8260 and 

47 FR 54165, respectively) and adopted for FQHCs in 1992 and 1996 (57 FR 24967 

through 24970 and 61 FR 14650 through 14652, respectively), for services furnished to 

Medicare beneficiaries, and PPS payment, based on their historical cost data, for services 
20 

furnished to Medicaid recipients (section 1902(bb) of the Act). The UPL for Medicare 

FQHC services is adjusted annually based on the Medicare Economic Index (MEI), as 

described in section 1842(i)(3) of the Act. Authority to apply productivity standards is 

found in section 1833(a) and 1861(v)(1)(A) of the Act. Section 151(a) of the Medicare 

Improvements for Patients and Providers Act (MIPPA) of 2008 (Pub. L. 110-275, 

enacted on July 15, 2008) increased the UPL for FQHC by $5, effective January 1, 2010. 

Section 151(b) of the MIPPA required the Government Accountability Office (GAO) to 

study and report on the effects and adequacy of the Medicare FQHC payment structure. 

 Based on a GAO analysis of 2007 Medicare cost report data, about 72 percent of 

FQHCs had average costs per visit that exceeded the UPL, and the application of 

productivity standards reduced Medicare payment for approximately 7 percent of 

FQHCs. In 2007, application of the limits and adjustments currently in place reduced 

FQHCs' submitted costs of services by approximately $73 million, about 14 percent 

(Medicare Payments to Federal Qualified Health Centers, GAO-10-576R, July 30, 2010). 

 The Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554, enacted 

December 21, 2000) created section 1902(bb) of the Act, which established a PPS for 

Medicaid reimbursement. The law also allowed state Medicaid agencies to establish their 

own reimbursement methodology for FQHCs provided that total reimbursement would 

not be less than the payment under the Medicaid PPS, and that the FQHC agreed to the 

alternative payment methodology. For beneficiaries enrolled in a managed care 

organization (MCO), the MCO pays the FQHC an agreed upon amount, and the state 

Medicaid program pays the FQHC a wrap-around payment equal to the difference, if any, 

between the PPS rate and the payment from the managed care organization. 
21 

 The Affordable Care Act established a Medicare PPS for FQHCs. Section 

10501(i)(3)(A) of the Affordable Care Act added section 1834(o) of the Act, requiring 

the Medicare FQHC PPS to be implemented for cost reporting periods beginning on or 

after October 1, 2014. The new PPS for FQHCs is required to take into account the type, 

intensity, and duration of services furnished by FQHCs and may include adjustments, 

including geographic adjustments, determined appropriate by the Secretary. A detailed 

discussion of the statutory requirements for the Medicare FQHC PPS is discussed in 

section I.B.5. of this final rule with comment period. 

4. Medicare's Current Reasonable Cost-Based Reimbursement Methodology 

 FQHCs are paid an AIR per visit for medically-necessary professional services 

that are furnished face-to-face (one practitioner and one patient) with a FQHC 

practitioner (§ 405.2463). Services and supplies furnished incident to a FQHC 

professional service are included in the AIR and are not billed as a separate visit. 

Technical components such as x-rays, laboratory tests, and durable medical equipment 

are not part of the AIR and are billed separately to Medicare Part B. 

 The AIR is calculated by dividing total allowable costs by the total number of 

visits. Allowable costs may include practitioner compensation, overhead, equipment, 

space, supplies, personnel, and other costs incident to the delivery of FQHC services. 

Cost reports are filed in order to identify all incurred costs applicable to furnishing 

covered FQHC services. Freestanding FQHCs complete Form CMS-222-92, 

"Independent Rural Health Clinic and Freestanding Federally Qualified Health Center 

Cost Report". FQHCs based in a hospital complete the Worksheet M series of Form 

CMS-2552-10, "Hospital and Hospital Care Complex Cost Report". FQHCs based in a 
22 

skilled nursing facility (SNF) complete the Worksheet I series of Form CMS-2540-10, 

"Skilled Nursing Facility and Skilled Nursing Facility Health Care Complex Cost 

Report". FQHCs based in a home health agency complete the Worksheet RF series of 

Form CMS-1728-94, "Home Health Agency Cost Report". Information on these cost 

report forms is found in Chapters 29, 40, 41 and 32, respectively, of the Provider 

Reimbursement Manual, Part 2 (Publication 15-2). Per our regulations at § 413.65(n), 

only FQHCs that were operating as provider-based clinics prior to 1995 and either 

received funds under section 330 of the PHS Act or were determined by CMS to meet the 

criteria to be a look-alike clinic continue to be eligible to be certified as provider-based 

FQHCs. Provider-based designations are not made for FQHCs that do not already have 

this status. 

 At the beginning of a FQHC's fiscal year, the Medicare Administrative Contractor 

(MAC) calculates an interim AIR based on actual costs and visits from the previous cost 

reporting period. For new FQHCs, the interim AIR is estimated based on a percentage of 

the per-visit limit. FQHCs receive payments throughout the year based on their interim 

rate. After the conclusion of the fiscal year, the cost report is reconciled and any 

necessary adjustments in payments are made. 

 Allowable costs are subject to tests of reasonableness, productivity standards, and 

an overall payment limit. The productivity standards require 4,200 visits per full-time 

equivalent physician and 2,100 visits per full-time equivalent non-physician practitioner 

(NP, PA or CNM) on an annual basis. If the FQHC has furnished fewer visits than 

required by the productivity standards, the allowable costs would be divided by the 

productivity standards numbers instead of the actual number of visits. 
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 The payment limit varies based on whether the FQHC is located in an urban or 

rural area (as defined in section 1886(d)(2)(D) of the Act). The 2014 payment limits per 

visit for urban and rural FQHCs are $129.02 and $111.67, respectively. FQHCs with 

multiple sites may elect to file a consolidated cost report (CMS Pub. 100-04, Medicare 

Claims Processing Manual, chapter 9, section 30.8), and if the FQHC has both urban and 

rural sites, the MAC applies a weighted UPL based on the percentage of urban and rural 

visits as the percentage of total site visits. The AIR is equal to the FQHC's cost per visit 

(adjusted by the productivity standard if appropriate) or the payment limit, whichever is 

less. 

 Medicare beneficiaries receiving services at a FQHC are not subject to the annual 

Medicare deductible for FQHC-covered services (section 1833(b)(4) of the Act). 

Medicare beneficiaries pay a copayment based on 20 percent of the charges (section 

1866(a)(2)(A)(ii) of the Act), except for: (1) mental health treatment services, which are 

subject to the outpatient mental health treatment limitation until January 1, 2014, when 

beneficiary coinsurance is reduced to the same level as most other Part B services; (2) 

FQHC-supplied influenza and pneumococcal and Hepatitis B vaccines (HBV); and (3) 

effective January 1, 2011, personalized prevention plan services and any Medicare 

covered preventive service that is recommended with a grade of A or B by the U.S. 

Preventive Services Task Force. 

 The administration and payment of influenza and pneumococcal vaccines is not 

included in the AIR. They are paid at 100 percent of reasonable costs through the cost 

report. The cost and administration of HBV is covered under the FQHC's AIR. 
24 

5. Summary of Requirements under the Affordable Care Act for the FQHC PPS and 

Other Provisions Pertaining to FQHCs 

Section 10501(i)(3)(A) of the Affordable Care Act amended section 1834 of the 

Act by adding a new subsection (o), "Development and Implementation of Prospective 

Payment System". Section 1834(o)(1)(A) of the Act requires that the system include a 

process for appropriately describing the services furnished by FQHCs. Also, the system 

must establish payment rates for specific payment codes based on such descriptions of 

services, taking into account the type, intensity, and duration of services furnished by 

FQHCs. The system may include adjustments (such as geographic adjustments) as 

determined appropriate by the Secretary of HHS. 

Section 1834(o)(1)(B) of the Act specifies that, by no later than January 1, 2011, 

FQHCs must begin submitting information as required by the Secretary, including the 

reporting of services using Healthcare Common Procedure Coding System (HCPCS) 

codes, in order to develop and implement the PPS. 

Section 1834(o)(2)(A) of the Act requires that the FQHC PPS must be effective 

for cost reporting periods beginning on or after October 1, 2014. For such cost reporting 

periods, reasonable costs will no longer be the basis for Medicare payment for services 

furnished to beneficiaries at FQHCs. 

Section 1834(o)(2)(B)(i) of the Act requires that the initial PPS rates must be set 

so as to equal in the aggregate 100 percent of the estimated amount of reasonable costs 

that would have occurred for the year if the PPS had not been implemented. This 

100 percent must be calculated prior to application of copayments, per visit limits, or 

productivity adjustments. 
25 

Section 1834(o)(2)(B)(ii) of the Act describes the methods for determining 

payments in subsequent years. After the first year of implementation, the PPS payment 

rates must be increased by the percentage increase in the MEI. After the second year of 

implementation, PPS rates shall be increased by the percentage increase in a market 

basket of FQHC goods and services as established through regulations, or, if not 

available, the MEI that is published in the Physician Fee Schedule (PFS) final rule. 

Section 10501(i)(3)(B) of the Affordable Care Act added section 1833(a)(1)(Z) to 

the Act to specify that Medicare payment for FQHC services under section 1834(o) of the 

Act shall be 80 percent of the lesser of the actual charge or the PPS amount determined 

under section 1834(o) of the Act. 

Section 10501(i)(3)(C) of the Affordable Care Act added section 

1833(a)(3)(B)(i)(II) of the Act to require that FQHCs that contract with Medicare 

Advantage (MA) organizations be paid at least the same amount they would have 

received for the same service under the FQHC PPS. 

Section 10501(i)(2) of the Affordable Care Act amended the definition of FQHC 

services as defined in section 1861(aa)(3)(A) of the Act by replacing the specific 

references to services furnished under section 1861(qq) and (vv) of the Act (DSMT and 

MNT services, respectively) with preventive services as defined in section 1861(ddd)(3) 

of the Act, as established by section 4014(a)(3) of the Affordable Care Act. These 

changes were effective for services furnished on or after January 1, 2011. Accordingly, 

in the CY 2011 Medicare PFS final rule (75 FR 73417 through 73419, 

November 29, 2010) we adopted conforming regulations by adding a new § 405.2449, 

which added the new preventive services definition to the definition of FQHC services 
26 

effective for services furnished on or after January 1, 2011 (see that rule for a detailed 

discussion regarding preventive services covered under the FQHC benefit and the 

requirements for waiving coinsurance for such services). 

Section 1833(b)(4) of the Act stipulates that the Medicare Part B deductible shall 

not apply to FQHC services. The Affordable Care Act made no change to this provision; 

therefore Medicare will continue to waive the Part B deductible for all FQHC services in 

the FQHC PPS, including preventive services added by the Affordable Care Act. 

6. Approach to the FQHC PPS 

 To enhance our understanding of the services furnished by FQHCs and the unique 

role of FQHCs in providing services to people from medically underserved areas and 

populations, we worked closely with HRSA and others in the development of the 

proposed rule. We are aware of the challenges facing FQHCs in increasing access to 

health care for underserved populations and the importance of Medicare payments to the 

overall financial viability of FQHCs. Our goal for the FQHC PPS is to implement a 

system in accordance with the statute whereby FQHCs are fairly paid for the services 

they furnish to Medicare patients in the least burdensome manner possible, so that they 

may continue to furnish primary and preventive health services to the communities they 

serve. 

We have evaluated our approach based on the comments we received to the 

proposed rule in the context of balancing payment requirements, regulatory burden, and 

the need for appropriate accountability and oversight. We received approximately 

100 timely comments on the proposed FQHC PPS. The following sections describe the 
27 

comments we received, our response to the comments, and the final decisions on our 

proposals. 

II. Establishment of the Federally Qualified Health Center Prospective Payment 

System (FQHC PPS) 

A. Design and Data Sources for the FQHC PPS 

1. Overview of the PPS Design 

In developing the new PPS for FQHCs, we considered the statutory requirements 

at section 1834(o)(1)(A) of the Act requiring that the new PPS take into account the type, 

intensity, and duration of services furnished by FQHCs, and allows for adjustments, 

including geographic adjustments, as determined appropriate by the Secretary. The 

statute also requires us to “establish payment rates for specific payment codes based on . . 

. appropriate description of services.” We explored several approaches to the 

methodology and modeled options for calculating payment rates and adjustments under a 

PPS based on data from Medicare FQHC cost reports and Medicare FQHC claims. Each 

option was evaluated to determine which approach would result in the most appropriate 

payment structure with the fewest reporting requirements and least administrative burden 

for the FQHCs. 

One approach we considered would align payment for FQHCs with payment for 

services typically furnished in physician offices, making separate payment for each coded 

service and adopting the relative values from the PFS. While this approach follows 

established payment policy for services furnished in an outpatient clinic setting, it 

unbundles a FQHC encounter-based payment into a fee schedule structure, which we 
28 

believe could encourage excess utilization in the long-term, and could increase coding 

and billing requirements for FQHCs. 

Another approach for the PPS would be to pay a single encounter-based rate per 

beneficiary per day. The encounter-based rate would be based on an average cost per 

visit, which would be calculated by aggregating the data for all FQHCs and dividing their 

total costs by their total visits incurred during a specified time period. An encounterbased payment rate is consistent with the agency's commitment to greater bundling of 

services, which gives FQHCs the flexibility to implement efficiencies to reduce overutilization of services. FQHCs are accustomed to billing for a single visit, as they are 

currently paid through an AIR that is based on a FQHC's own average cost per visit. An 

encounter-based payment is also similar to Medicaid payment systems, and Medicaid 

constitutes a large portion of FQHC billing (approximately 47 percent, compared to 

approximately 9 percent for Medicare). We believe an encounter-based payment rate 

(with a few adjustments as discussed in section II.C. of this final rule with comment 

period), for the FQHC PPS would provide appropriate payment while remaining 

administratively simple. 

Also, our analysis of Medicare claims data supported an encounter-based payment 

rate. As discussed in section II.A.3 of this final rule with comment period, our analysis 

determined that FQHC Medicare claims listed a single HCPCS code that defined the 

overall type of encounter (for example, a mid-level office visit (HCPCS code 99213)). 

The vast majority of FQHC encounters were defined as evaluation and management 

(E/M) office visits (HCPCS codes 99201 through 99215). Other codes were used more 

sporadically, and we believe that the administrative burden associated with developing 
29 

and maintaining a payment system composed of multiple rates (for example, a fee 

schedule) far outweighs the minor variations in reimbursement. Therefore, we developed 

an encounter-based rate, with a few adjustments, as the basis for payment under the 

FQHC PPS. We believe the description of FQHC services that we proposed in the 

proposed rule, and the development of payment codes that are based on the costs of 

groups of FQHC services (as discussed in section II.E.2. of this final rule with comment 

period), meets the requirement of the statute. 

Comment: A large number of commenters were strongly supportive of a single, 

bundled encounter-based PPS rate, and many noted that this approach encourages 

comprehensive and integrated care. Some of the commenters who supported a bundled 

encounter-based rate also recommended that CMS develop multiple rates to reflect 

additional payment adjustments. 

Response: We agree with the commenters that a bundled encounter-based rate 

would provide appropriate payment while remaining administratively simple. We will 

address the recommendations for additional payment adjustments in section II.C.4. of this 

final rule with comment period. 

After consideration of the public comments received, we are finalizing our 

proposal to pay FQHCs using an encounter-based rate. 

2. Medicare FQHC Cost Reports 

As required by section 1834(o)(2)(B)(i) of the Act, initial payment rates 

(Medicare and coinsurance) under the FQHC PPS must equal 100 percent of the 

estimated amount of reasonable costs, as determined without the application of the 

current system's UPLs or productivity standards that can reduce a FQHC's per visit rate. 
30 

In order to estimate 100 percent of reasonable costs for the proposed rule, we obtained 

Medicare cost report data for free-standing FQHCs (Form CMS 222-92) from the 

March 31, 2013, Healthcare Cost Report Information System (HCRIS) quarterly update, 

and we identified cost reports with cost reporting periods that ended between 

June 30, 2011, and June 30, 2012. We stated in the proposed rule that we would use the 

most recent available data for the final rule. Therefore, in estimating 100 percent of 

reasonable costs for this final rule with comment period, we used cost report data from 

December 31, 2013, HCRIS quarterly update, and we supplemented this with data from 

the three prior HCRIS quarterly updates (that is, September 30, 2013, June 30, 2013, and 

March 31, 2013). We also obtained HCRIS data for hospital-based FQHCs (Form 2552-

10) and HHA-based FQHCs (Form 1728-94), which added data from provider-based 

FQHCs. In the expanded sample that we used for this final rule with comment period, we 

identified cost reports with cost reporting periods ending between June 30, 2011, and 

June 30, 2013. We included in our analysis FQHC costs reports that had allowable costs 

(excluding pneumococcal and influenza vaccines) and Medicare visits, and we used one 

cost report for each FQHC cost reporting entity. (A cost reporting entity is a FQHC 

delivery site that files either an individual or a consolidated cost report.) For 63 percent of 

cost reporting entities, there were either multiple cost reports available or the cost 

reporting period was not exactly 1 year. For the remaining 37 percent of cost reporting 

entities, the only available cost report covered 1 full year. Compared to the 

characteristics of the cost report data used for the proposed rule, the significant increase 

in the percentage of FQHCs with multiple cost reports is due mostly to the expanded time 

period that we used for the final rule to identify cost reports available for analysis. For 
31 

cost reporting entities with multiple cost reports available, we selected the most recent 

cost report, unless an earlier cost report provided us with a better match to the FQHC 

claims data that was used to model potential adjustments. Because FQHCs with multiple 

sites can file consolidated cost reports, we also ensured that we selected only one cost 

report for each delivery site. 

As required by statute, we estimated 100 percent of reasonable costs that would 

have occurred for this period prior to the application of copayments, per visit limits, or 

productivity adjustments. We also note that, under section 1833(c) of the Act, effective 

January 1, 2014, outpatient mental health services are paid on the same basis as other Part 

B services. As the FQHC PPS is to be implemented for cost reporting periods beginning 

on or after October 1, 2014, we adjusted the cost report data to remove the application of 

the outpatient mental health limitations that were in effect when these reported services 

were incurred. 

For this final rule with comment period, we used the methodology described in 

the proposed rule to estimate 100 percent of reasonable costs. After eliminating the 

current payment limits, outpatient mental health limitations, and productivity and 

adjustments, we calculated the average cost per visit for each cost reporting entity by 

dividing the total estimated Medicare costs (excluding vaccines) reported by the total 

number of Medicare visits reported. 

In developing the FQHC PPS, section 1834(o)(1)(A) of the Act allows for 

adjustments determined appropriate by the Secretary. Consistent with this authority, we 

excluded statistical outliers from the sample of cost reports used for the proposed rule. 

We identified all cost reporting entities with an average cost per visit that was greater 
32 

than three standard deviations above or below the geometric mean of the overall average 

cost per visit among cost reporting entities, and we excluded their data from our sample. 

We believe that removing statistical outliers is consistent with standard practice and 

results in a more accurate estimation of costs overall. In this final rule with comment 

period, we used the same approach to exclude statistical outliers from the cost report 

sample. 

Comment: Several commenters objected to the exclusion of outlier cost reports 

and claims in calculating the base rate. Some of these commenters opined that the 

authority in section 1834(o)(1)(A) of the Act, to "include adjustments...determined 

appropriate by the Secretary" cannot override the requirement in section 1834(o)(2)(B) of 

the Act that the aggregate amount of initial PPS rates equal "100 percent of the estimated 

amount of reasonable costs (determined without the application of a per visit payment 

limit or productivity screen)." Commenters suggested that the exclusion of outliers 

results in a lower base rate and would not represent all appropriate costs, such as higher 

costs of visits furnished to complex Medicare patients, or for furnishing costly, but 

necessary items, such as expensive drugs and biologicals, whose costs may be beyond a 

FQHC's control. Some of the commenters also urged CMS to compute the base PPS rate 

without the exclusion of outliers. 

Response: We respectfully disagree with the assertion that the exclusion of 

outliers is inconsistent with statutory authority. Under section 1834(o)(2)(B) of the Act, 

we are required to set the initial payment rates to equal "100 percent of the estimated 

amount of reasonable costs." The statute does not require us to set initial payment rates 

based on the inclusion of every cost report or claim submitted. We analyzed the most 
33 

current available FQHC cost report and claims data, and consistent with standard 

practice, trimmed the data for outliers so that the estimates are not skewed by unusual 

data. Outliers were defined based on two criteria: (1) cost reports with an average cost 

per visit value more than 3 standard deviations from the geometric mean of all average 

costs per visit; and (2) encounters with an adjusted charge value more than 3 standard 

deviations from the geometric mean of all adjusted charges. This trim methodology of 

three standard deviations from the geometric mean is a relatively conservative approach, 

and the two trims together exclude less than 3 percent of the overall sample. We believe 

that removing statistical outliers results in a more accurate estimation of costs overall. 

Comment: Several commenters from tribal organizations recommended that 

CMS not exclude outliers in calculating the base rate, as they believe that they may be 

disproportionately impacted because their costs are unusually high. 

Response: Of the approximately 69 tribal FQHCs furnishing services at 

approximately 114 separate sites, there were 8 tribal FQHCs whose costs were 

considered statistical outliers. Although tribal FQHCs have a higher rate of statistical 

outliers than non-tribal FQHCs, the number of tribal FQHCs whose costs were more than 

three standard deviations from the geometric mean is still quite low. As previously 

noted, the statute does not require the rate to reflect actual costs for each individual 

FQHC. The per diem rate that is established reflects the national average cost of a FQHC 

visit. 

Comment: A commenter noted that FQHCs count multiple visits per day on their 

cost reports, and FQHCs should be given a one-time opportunity to adjust their reported 
34 

FQHC visits to a per diem to avoid an undue reduction in the estimated cost per FQHC 

visit. 

Response: As stated in the proposed rule, we used the adjusted claims data to 

calculate an average cost per diem in order to accurately capture all costs and did not rely 

solely on cost report data. We used the same approach for this final rule with comment 

period. 

Comment: Some commenters were concerned that costs related to electronic 

health record (EHR) implementation would not be adequately reflected in 2012 cost 

report data as many FQHCs adopted EHRs in 2012. 

Response: We used the most recent available data for this final rule, and we 

updated our sample to include cost reports with reporting periods ending June 30, 2013. 

We do not believe it is appropriate to adjust the calculation of reasonable cost based on 

anticipated future costs. 

3. Medicare FQHC Claims 

In developing the Medicare FQHC PPS, section 1834(o)(1)(A) of the Act requires 

us to take into account the type, intensity, and duration of FQHC services, and allows 

other adjustments, such as geographic adjustments. Section 1834(o)(1)(B) of the Act also 

granted the Secretary of HHS (the Secretary) the authority to require FQHCs to submit 

such information as may be required in order to develop and implement the Medicare 

FQHC PPS, including the reporting of services using HCPCS codes. The provision 

requires that the Secretary impose this data collection submission requirement no later 

than January 1, 2011. The requirement for FQHCs to submit HCPCS codes was 

implemented through program instructions (CMS Change Request (CR) 7038). 
35 

Beginning with dates of service on or after January 1, 2011, FQHCs are required 

to report all pertinent services furnished and list the appropriate HCPCS code for each 

line item along with revenue code(s) for each FQHC visit when billing Medicare. The 

additional line item(s) and HCPCS code reporting were for informational and data 

gathering purposes to inform development of the PPS rates and potential adjustments. 

Other than for calculating the amount of coinsurance to waive for preventive services for 

which the coinsurance is waived, these HCPCS codes are not currently used to determine 

current Medicare payment to FQHCs. We proposed to use the HCPCS codes in the 

FQHC claims data to support the development of the FQHC PPS rate and adjustments 

and for making payment under the PPS. 

In order to model potential adjustments for the proposed rule, we obtained final 

action Medicare FQHC claims (type of bill 73X and 77X) from the CMS Integrated Data 

Repository (IDR) with dates of service between January 2010 and December 2012. To 

model potential adjustments for this final rule with comment period, we obtained final 

action Medicare FQHC claims from the CMS IDR with dates of service between 

January 2011 and December 2013. Of these claims, only those with dates of service 

between January 1, 2011, and June 30 2013, were retained for analysis and linking with 

Medicare cost reports, as described further in section II.A.4. of this final rule with 

comment period. We excluded claims that did not list a revenue code or HCPCS code 

that represented a face-to-face encounter, as these services would not qualify for an AIR 

payment. We also excluded claim lines with revenue codes that did not correspond to 

FQHC services or that lacked valid HCPCS codes. 

In 2011, approximately 90 percent of FQHC Medicare claims listed a single 
36 

HCPCS code that defined the overall type of encounter (for example, a mid-level office 

visit (HCPCS code 99213)). We found similar reporting trends in 2012 FQHC Medicare 

claims. For this final rule with comment period, we updated our analysis of HCPCS 

reporting trends and found they are relatively similar in 2013 FQHC Medicare claims. 

We sought to validate the completeness of HCPCS reporting by analyzing coding on 

primary care physician claims for PFS data. When compared, the findings from the 

simulated PFS data and actual FQHC data were similar in the type and distribution of the 

reported encounter code (that is, the HCPCS code that represents the visit that qualifies 

the FQHC encounter for an AIR payment). When ancillary services (services that are not 

separately billable by a FQHC) were billed with an office visit code, both FQHC and 

analogous primary care physician office claims demonstrated a tendency to include only 

one to two ancillary services in addition to the encounter code about 35 percent of the 

time, and FQHCs billed only a single ancillary service about 10 percent of the time. 

We believe that the reporting trends in the FQHC claims are consistent with the 

coding of analogous primary care physician office claims, thereby suggesting that the 

limited number of ancillary services listed on FQHC claims appropriately describe the 

services furnished during an encounter. 

Comment: Commenters supported the use of the HCPCS codes in the FQHC 

claims data to support the development of the FQHC PPS rate and adjustments and for 

making payment under the PPS. Some commenters recommended that we incorporate 

additional payment adjustments based on the HCPCS codes in the FQHC claims data. 

Response: We agree with the commenters that it is appropriate to use the HCPCS 

codes in the FQHC claims data to support the development of the FQHC PPS rate and 
37 

adjustments and for making payment under the PFS. We will address the 

recommendations for additional payment adjustments in section II.C.4. of this final rule 

with comment period. 

Comment: Some commenters were concerned that services that were more 

recently recognized as payable to FQHCs would not be reflected in the claims sample as 

it did not include claims with dates of service beyond June 30, 2012. 

Response: We used the most recent available data for this final rule with 

comment period. We updated our sample to include claims with dates of service through 

June 30, 2013, to the extent that an associated cost report was included in our cost report 

sample (as discussed previously and in section II.A.2. of this final rule with comment 

period). 

Comment: A commenter was concerned that a FQHC market basket of goods and 

services would not reflect the variety of non-billable ancillary services furnished during a 

FQHC visit. 

Response: Market baskets developed for other Medicare payment systems 

typically utilize cost report data, and the costs of covered services provided incident to a 

billable visit may be included on the FQHC cost report. 

Comment: Some commenters opined that the implementation of HCPCS 

reporting for FQHCs was confusing, resulting in claims with significant errors in line 

item reporting, and questioned the credibility of analyses based on claims submitted in 

2011 and 2012. 

Response: Since data used for the proposed rule included final action claims with 

dates of service through June 2012 that were obtained from the IDR in 2013, we believe 
38 

that any initial errors in the coding or adjustment of claims were corrected or were not 

present in the majority of the claims used for modeling adjustments in the proposed rule. 

(see CMS CRs 7038 and 7208, which updated CMS Pub 100-04, Claims Processing 

Manual, Chapter 9). For this final rule with comment period, we updated our sample to 

include final action claims with dates of services through June 2013, which are even less 

likely to have significant coding or adjustment errors. 

After consideration of the public comments received, we are finalizing our 

proposal to use the HCPCS codes in the FQHC claims data to support the development of 

the FQHC PPS rate and adjustments and for making payment under the PFS. 

4. Linking Cost Reports and Claims to Compute the Average Cost per Visit 

In this final rule with comment period we used the same methodology described 

in the proposed rule in order to compute the adjusted charges or "estimated cost" for 

determining the average cost per visit. We linked claims to cost reports by delivery site, 

as determined by the CMS Certification Number (CCN) reported on the claim. Since the 

HCPCS code reporting requirement on claims did not go into effect until January 1, 2011, 

claims for earlier dates of service did not include the detail required to model adjustments 

based on type, intensity, or duration of services. In the sample used for the proposed rule, 

cost reports with reporting periods that began on or after January 1, 2011, accounted for 

81 percent of the sample. In the updated sample used for this final rule with comment 

period, cost reports with reporting periods that began on or after January 1, 2011, 

accounted for 98 percent of the sample. We linked these cost reports to Medicare FQHC 

claims with service dates that matched their respective cost reporting periods. For cost 

reports that were at least 1 full year in length and with a cost reporting period that began 
39 

in 2010, we linked these cost reports to 2011 Medicare FQHC claims. 

The linked cost report and claims data were then used to calculate a 

cost-to-charge ratio (CCR) for each cost-reporting entity. To approximate data not 

available on the cost report, we developed these CCRs to convert each FQHC's charge 

data, as found on its claims, to costs. We calculated an average cost per visit by dividing 

the total allowable costs (excluding pneumococcal and influenza vaccinations) by the 

total number of visits reported on the cost report. We calculated an average charge per 

visit by dividing the total charges of all visits (Medicare and non-Medicare) for all sites 

under a cost-reporting entity and dividing that sum by the total number of visits for that 

cost-reporting entity. We calculated a cost-reporting entity-specific CCR by dividing the 

average cost per visit (based on cost report data) by the average charge per visit (based on 

claims data). We multiplied the submitted charges for each claim by these cost-reporting 

entity-specific CCRs to estimate FQHC costs per visit. We note that other Medicare 

payment systems calculate CCRs based on total costs and total charges reported on 

Medicare cost reports, and that this information is not currently available on the 

free-standing FQHC cost report, Form CMS-222-92. 

In developing the FQHC PPS, section 1834(o)(1)(A) of the Act allows for 

adjustments determined appropriate by the Secretary. Consistent with this authority, we 

excluded statistical outliers from the linked claims sample used for the proposed rule. 

We identified visits with estimated costs that were greater than three standard deviations 

above or below the geometric mean of the overall average estimated cost per visit, and 

we excluded those visits from our sample. We believe that removing statistical outliers is 

consistent with standard practice and results in a more accurate estimation of costs 
40 

overall. For this final rule with comment period, we used the same approach to exclude 

statistical outliers from the linked claims sample. 

After trimming the linked claims data for outliers, the final data set used for this 

final rule with comment period included 5,468,852 visits from 5,458,632 distinct claims 

encompassing 6,533,716 claim lines. This included visits furnished to 1,297,013 

beneficiaries at 3,778 delivery sites under 1,215 cost-reporting entities. For this final rule 

with comment period, we modified the definition of a daily visit to be consistent with our 

revised policy to allow an exception to the per diem PPS payment for subsequent injury 

or illness and mental health services furnished on the same day as a medical visit. 

Separately payable encounters for the same beneficiary at the same FQHC were 

combined into a single daily visit, while allowing for a separate medical visit, mental 

health visit, and subsequent illness/injury visit, which could result in up to three 

encounters per beneficiary per day. The final data set yielded 5,462,670 daily visits. 

Comment: A commenter suggested that using CCRs to measure the cost of 

furnishing FQHC services is not appropriate for FQHCs because certain types of FQHC 

care management services are not captured in the billed charges; the CCRs would not be 

uniform among medical and mental health services; and the CCRs would be affected by 

the pricing strategies of FQHCs that keep their charges low to minimize the copayment 

impact on uninsured and indigent patients. The commenter recommended that CMS use 

PFS relative value units or other metrics to adjust FQHC average cost per visit. 

Response: We used Medicare cost report data to measure the aggregate 

reasonable cost of furnishing FQHC services. However, as discussed in the proposed 

rule, the cost report data is insufficient for modeling the types of adjustments considered 
41 

for the FQHC PPS. The CCRs for each cost-reporting entity were used to approximate 

data not available on the cost report and to convert each FQHC's charge data, as found on 

its claims, to costs. The use of the CCRs was primarily for modeling the adjustments and 

does not substantially impact our measure of the aggregate reasonable cost of furnishing 

FQHC services. Therefore, in this final rule with comment period, we plan to continue to 

use the CCR to adjust charges in order to estimate costs. 

Comment: A commenter requested that CMS clarify whether a statistically 

significant number of outlier visits were for FQHCs in a particular state or for a particular 

service. 

Response: The average range of outliers based on the adjusted charge for the 

encounter was approximately 1.3 percent of FQHC visits, with higher rates in U.S 

territories (4 percent) and the Pacific census division (3 percent). Slightly more than 1 

percent of all office visits were outliers. 

B. Policy Considerations for Developing the FQHC PPS Rates and Adjustments 

In developing the FQHC PPS rates and adjustments, we considered existing 

payment policies regarding payment for multiple visits on the same day, preventive 

laboratory services and technical components of other preventive services, and vaccine 

costs to determine potential interactions with the implementation of the FQHC PPS. 

1. Multiple Visits on the Same Day 

The current all-inclusive payment system was designed to reimburse FQHCs for 

services furnished to Medicare beneficiaries at a rate that would take into account all 

costs associated with the provision of services (for example, space, supplies, 

practitioners, etc.) and reflect the aggregate costs of providing services over a period of 
42 

time. In some cases, the per visit rate for a specific service is higher than what would be 

paid based on the PFS, and in some cases it is lower than what would be paid based on 

the PFS, but at the end of the reporting year when the cost report is settled, the Medicare 

payment is typically higher for FQHCs than if the services were billed separately on the 

PFS. 

The all-inclusive payment system was also designed to minimize reporting 

requirements, and as such, it reflects all the services that a FQHC furnishes in a single 

day to an individual beneficiary, regardless of the length or complexity of the visit or the 

number or type of practitioners seen. This includes situations where a FQHC patient has 

a medically-necessary face-to-face visit with a FQHC practitioner, and is then seen by 

another FQHC practitioner, including a specialist, for further evaluation of the same 

condition on the same day, or is then seen by another FQHC practitioner (including a 

specialist) for evaluation of a different condition on the same day. Except for certain 

preventive services that have coinsurance requirements waived, FQHCs have not been 

required to submit coding of each service in order to determine Medicare payment. 

Although the all-inclusive payment system was designed to provide enhanced 

reimbursement that reflects the costs associated with a visit in a single day by a Medicare 

beneficiary, an exception to the one encounter payment per day policy was made for 

situations when a patient comes into the FQHC for a medically-necessary visit, and after 

leaving the FQHC, has a medical issue that was not present at the visit earlier that day, 

such as an injury or unexpected onset of illness. In these situations, the FQHC has been 

permitted to be paid separately for two visits on the same day for the same beneficiary. 
43 

In the April 3, 1996 final rule (61 FR 14640), we revised the regulations to allow 

separate payment for mental health services furnished on the same day as a medical visit. 

The CY 2007 PFS final rule (71 FR 69624) subsequently revised the regulations to allow 

FQHCs to receive separate payment for DSMT/MNT. The ability to bill separately for 

Medicare's IPPE is in manuals only and not in regulation, with the manual language 

noting this is a once in a lifetime benefit. There are no statutory requirements to pay 

FQHCs separately for these services when they occur on the same day as another billable 

visit. 

To determine if these exceptions should be included, updated, or revised in the 

new PPS, in the September 23, 2013 proposed rule (78 FR 58386) we discussed that we 

examined 2011 Medicare FQHC claims data in order to determine the frequency of 

FQHCs billing for more than one visit per day for a beneficiary. We then analyzed the 

potential financial impact on FQHCs and the potential impact on access to care if billing 

for more than 1 visit per day for these specific situations was no longer permitted. We 

also considered several alternative options, such as an adjustment of the per visit rate 

when multiple visits occur in the same day, or the establishment of a separate per visit 

rate for subsequent visit due to illness or injury, mental health services, DSMT/MNT, or 

IPPE. 

In the September 23, 2013 proposed rule (78 FR 58386) proposed rule, we 

discussed that an analysis of data from Medicare FQHC claims with dates of service 

between January 1, 2011 and June 30, 2012, indicated that it is uncommon for FQHCs to 

bill more than one visit per day for the same beneficiary (less than 0.5 percent of all 

visits), even though the ability to do so has been in place since 1992 for subsequent 
44 

illness/injury, since 1996 for mental health services, and since 2007 for DSMT/MNT. 

Even allowing for any underreporting in the data, it is clear that billing multiple visits on 

the same day for an individual is a rare event, and we stated that eliminating the ability to 

do so would not significantly impact either the FQHC payment or a beneficiary's access 

to care. We also suggested this policy would also simplify billing by removing the need 

for modifier 59, which signifies that the conditions being treated are totally unrelated and 

services are furnished at separate times of the day, and the subsequent claims review that 

occurs when modifier 59 appears on a claim. 

Because the data show that multiple visits rarely occur on the same day, we 

determined that the level of effort required to develop an adjustment or a separate rate for 

each of these services when furnished on the same day as a medical visit would not be 

justified. Therefore, in the proposed rule, we proposed to revise § 405.2463(b) to remove 

the exception to the single encounter payment per day for FQHCs paid under the 

proposed PPS and we stated that this policy is consistent with an all-inclusive 

methodology and reasonable cost principles and would simplify billing and payment 

procedures. Thus, the proposed PPS encounter rate reflected a daily (per diem) rate and 

resulted in a slightly higher payment than one calculated based on multiple encounters on 

the same day. 

Based on the Medicare claims data furnished by FQHCs that indicates minimal 

incidence of multiple visits billed on the same day, we concluded in the proposed rule 

that not including these exceptions in the PPS would not significantly impact total 

payment or access to care. However, because we understand that there may be many 

possible reasons why the rate of billing for more than one visit per day has been low (for 
45 

example, difficulty in scheduling more than one type of visit on the same day) and that 

FQHCs can furnish integrated, patient-centered health care services in a variety of ways, 

we asked for comments to address whether there are factors that we have not considered, 

particularly in regards to the provision of mental health services, and whether this change 

would impact access to these services or the integration of services in underserved 

communities. 

We received many comments on our proposal not to include these exceptions in 

the new PPS for FQHCs. None of the commenters were supportive of the proposal. 

Comment: Some commenters said that we should continue to allow mental health 

or other visits to be furnished on the same day as a medical visit because their patients 

have transportation, mobility, work, or childcare issues. 

Response: We wish to clarify that we did not propose to prohibit mental health 

visits from occurring on the same day as a medical visit. We did propose not to include 

an exception to the per diem payment system to allow for multiple billing when mental 

health (or subsequent illness/injury, DSMT/MNT or IPPE) is furnished on the same as a 

medical visit, as discussed later. 

Comment: Some commenters suggested that if we do not allow separate billing 

for mental health services that are furnished on the same day as a medical service, we 

should instead develop an adjustment that would increase the PPS per diem base payment 

rate when a mental health visit occurs on the same day as another billable visit. Other 

commenters suggested an adjustment for mental health, behavioral health, DSMT, and 

MNT. 
46 

Response: As we discussed in earlier, we did not propose to include adjustments 

to the PPS per diem payment rate except for new patient and initial Medicare visits. 

While we considered an adjustment for mental health services and DSMT/MNT, our 

analysis of the claims data did not support such adjustments. Also, including additional 

adjustments would result in a lower PPS rate, which would impact FQHC payments for 

all visits. 

Comment: Some commenters acknowledged that the incidence of Medicare 

billing for more than 1 visit per beneficiary per day in FQHCs is extremely low, but 

argued that their FQHC often billed multiple visits on the same day, particularly for 

mental health visits that occur on the same day as a medical visit, and that this proposal 

would have a significant impact on their FQHC payments and their patient's access to 

care. 

Response: Based on our analysis of national Medicare claims data, we believe 

there would be a very minimal impact if the exception allowing multiple billing on the 

same day was to be eliminated, especially for mental health services. We analyzed the 

claims data of the FQHCs that provided the most detailed comments that they would be 

significantly or disproportionately impacted if they could not bill separately for mental 

health visits that occur on the same day as a medical visit. A commenter from a large 

FQHC in the southeastern part of the U.S. with more than 23,000 total visits per year 

described how they are a fully integrated primary care FQHC and every patient has a 

team of professionals that includes behavioral health. Yet a review of the Medicare 

claims data for this FQHC showed that out of a yearly total of more than 23,000 total 

visits, only 74 mental health visits, or 0.32 percent, were billed on the same day as a 
47 

medical visit. A review of Medicare claims data for a large FQHC in the western part of 

the U.S. showed that 2.0 percent had a mental health visit on the same day as another 

visit, but of those 2.0 percent, only 0.5 percent of these were billable visits. A large 

multisite FQHC in the southern part of the U.S. stated that as a result of their integrated 

model of behavioral care and same day billing, there was a reduction in visits to the 

emergency room. The claims data for this FQHC showed a rate of same day billing for 

mental health visits of 0.5 percent, and no evidence was provided to link this to a 

reduction in emergency room visits. While this is slightly higher than the average of 

0.3 percent, it is still a very low rate. 

We do not know why these and other FQHCs believe that they are billing more 

same-day mental health visits than indicated by their claims data. Perhaps the FQHC 

may be considering all their patients, not just Medicare beneficiaries who comprise an 

average of 8 percent of all FQHC patients. Another possibility is that the FQHC may be 

considering some behavioral health services that are beyond the scope of Medicarecovered services, or are including services furnished by non-FQHC practitioners. Based 

on the claims data and the information provided in the comments, we do not agree that 

removal of the exceptions to allow for multiple billing would have a significant impact on 

the financial viability of these FQHCs or reduce access to care for Medicare 

beneficiaries. 

Comment: Several commenters acknowledged that their use of the exception for 

multiple billing on the same day was low or non-existent for Medicare beneficiaries, but 

wanted us to retain this exception so that they could use this to leverage Medicaid in their 

state to pay separately for mental health. 
48 

Response: We do not believe that Medicare policy should be determined in order 

to influence state Medicaid policies. 

Comment: Some commenters disputed our data which showed that only 

0.5 percent of all claims were for multiple same day visits. The commenters suggested 

the following reasons for the low number of multiple same day visits: FQHCs did not 

code correctly; FQHCs did not know they could bill for multiple visits; FQHC billing 

systems are not set up for multiple billing because other payment systems do not 

reimburse for it; and that the MACs do not allow it. 

Response: Section 1834(o)(1)(B) of the Act, as added by the Affordable Care Act 

required FQHCs to utilize HCPCS codes on their Medicare claims in order to inform the 

development of the FQHC PPS. FQHCs have also been required to use HCPCS codes 

for payment purposes when a preventive service for which coinsurance is waived is on 

the same claim as a service that has a coinsurance requirement. Other payment systems 

may also require HCPCS coding on claims. We are aware that some FQHCs have 

limited experience with coding and that the coding submitted on Medicare claims may 

not have been accurate or complete in all cases. However, even if the rate shown in the 

claims data was doubled or tripled, the rate of billing for multiple visits on the same day 

would still be extremely low. 

As we stated in the September 23, 2013 proposed rule, the ability to bill for 

multiple visits on the same day for subsequent illness or injury has been allowed since the 

beginning of the FQHC program. We also noted that the ability to bill for multiple visits 

on the same day for mental health services has been allowed since 1996, and the ability to 

bill for multiple visits on the same day has been allowed for DSMT/MNT since 2007. 
49 

While it is possible that some FQHCs were not aware that this option existed, we know 

from the claims data that mental health, IPPE, and DSMT/MNT services constitute a 

small percentage of a FQHC's total Medicare services. 

We understand that billing systems vary among FQHCs and that some billing 

systems are more adept at managing tasks such as multiple same-day billing. However, 

we believe that if the inability to bill for multiple visits presented a significant loss of 

payment for a FQHC, the FQHC would have upgraded its system to allow for this type of 

billing. We are also not aware of any MACs that do not allow for multiple same day 

billing for the circumstances in which they are allowable. 

Medicare comprises only 8 percent of FQHC patient population, and not all 

Medicare beneficiaries require mental health or DSMT/MNT services. Particularly for 

mental health services, it is often difficult to schedule appointments on the same day as a 

medical visit, and most mental health conditions require ongoing treatment which would 

likely be at a frequency that differs from the need for primary care visits. Therefore, we 

would expect the rate of same day billing to be low, despite the availability of the 

exceptions. 

Comment: Some commenters requested that FQHCs be allowed to bill separately 

for other services such as optometry and dental care when furnished on the same day as 

another visit. 

Response: Other services, such as optometry and dental care, cannot be billed 

separately on the same day as another medical visit under the current AIR system. We 

did not propose and we are not considering expanding the type of services that can be 
50 

billed separately when furnished on the same day as another visit. The PPS rate and its 

adjustments reflect the total cost of furnishing services to Medicare beneficiaries. 

Comment: Some commenters were concerned that removing the ability to bill 

separately for mental health services that are furnished on the same day as a medical visit 

would create an incentive for FQHCs to schedule these encounters on separate days. 

Response: Under both the all-inclusive payment system and the PPS per diem 

system, there is a risk that a FQHC could deliberately schedule patient visits over a 

period of time in order to maximize payment. We expect FQHCs and other providers of 

care to Medicare beneficiaries to act in the best interests of their patients, which includes 

scheduling visits in a manner that maximizes the health and safety of their patients. 

Comment: A few commenters stated that FQHCs will not be able to continue 

working with community mental health centers if we do not allow separate billing for 

mental health services furnished on the same day as a medical visit. 

Response: Commenters did not provide enough supporting information as to why 

this proposal would negatively or adversely affect FQHC relationships with community 

mental health centers to allow us to respond meaningfully to this comment. 

Comment: Some commenters suggested that removing the ability to bill 

separately for mental health and other services is inconsistent with the Affordable Care 

Act's focus on value over volume. 

Many commenters wrote that the ability to bill separately for mental health and 

other visits on the same day as a primary care visit would help them to furnish integrated 

and coordinated care and would benefit their patients. Many of them stated that allowing 

separate payment for mental health services furnished on the same day as a medical visit 
51 

would provide incentives to furnish integrated care for Medicare patients with complex 

health conditions. Others were concerned that not allowing this exception would send a 

message that we do not value mental health care. Commenters also suggested that people 

with mental illness are less likely to return for a mental health visit if a primary care visit 

is not also scheduled, and that furnishing mental health visits on the same day as a 

medical visit helps to increase compliance with medications. 

Response: We agree with commenters about the importance of promoting and 

furnishing coordinated and integrated care, which can be especially challenging in 

underserved areas. Based on Medicare claims data and the comments we received, there 

is no evidence that access to care would be reduced if exceptions to the per diem PPS are 

not allowed. 

However, we agree that separate payment for mental health services furnished on 

the same day as a medical visit has the potential to increase access to mental health 

services in underserved areas and that this would help to demonstrate the value of mental 

health services, especially in areas where need is high and utilization is low. We 

acknowledge that FQHCs furnish services to underserved and vulnerable populations that 

often have had difficulty accessing mental health services, and that commenters 

overwhelmingly support separate payment for mental health services furnished on the 

same day as a medical visit. Therefore, in this final rule with comment period, we are 

modifying our original proposal to allow an exception to the per diem payment system so 

that FQHCs can bill separately for mental health services that are furnished on the same 

day as a medical visit. 
52 

We will also allow an exception to the per diem payment system to allow FQHCs 

to bill separately when an illness or injury occurs on the same day in which a FQHC visit 

has already occurred. This exception is available for situations where a Medicare 

beneficiary has a FQHC visit, leaves the FQHC, and later in the day has an illness or 

injury that was not present during the initial visit. While it does not happen often, when 

it does occur we believe the FQHC should be able to bill separately because it is a unique 

situation that could not be planned or anticipated and the FQHC would not benefit from 

the economies of scale that can occur when multiple medical issues are addressed in the 

same visit. 

We do not believe that the circumstances that justify allowing same day billing 

for a subsequent injury or illness or a mental health visit that occurs on the same day as a 

medical visit also applies to DSMT/MNT. A DSMT/MNT visit is part of the broad 

category of primary care services that are included in the services of a FQHC and are part 

of the PPS per diem payment. Visits with multiple practitioners that occur on the same 

day, including visits for different conditions or visits with a specialist physician, are not 

separately payable in a FQHC under the all-inclusive payment methodology or the PPS 

methodology. We do not see any reason why these DSMT/MNT visits should be 

considered differently. Additionally, the cost of a DSMT/MNT visit is far lower than the 

cost of a medical or mental health visit, so it would not be justified to pay separately for 

those visits at the PPS rate. We also did not include IPPE as a separately billable visit, 

because we are already allowing an adjustment to the PPS rate for a new patient or initial 

Medicare visit. 

 We are allowing the exception to the per diem PPS payment for mental health 
53 

services that occur on the same day as a medical visit to promote access to these services 

in FQHCs. While this may also contribute to the coordination of care, this alone will not 

achieve the goals of the Affordable Care Act to furnish integrated and coordinated 

services. Instead, we believe that these goals may be supported through an adaptation of 

the Chronic Care Management (CCM) services program that will be implemented for 

physicians billing under the PFS in 2015. We encourage FQHCs to review the CCM 

information in the CY 2014 PFS final rule with comment period titled, "Medicare 

Program; Revisions to Payment Policies under the Physician Fee Schedule, Clinical 

Laboratory Fee Schedule & Other Revisions to Part B for CY 2014" (December 10, 2013 

(78 FR 74230)) and submit comments to us on how the CCM services payment could be 

adapted for FQHCs in CY 2015 to promote integrated and coordinated care in FQHCs. 

We also invite RHCs to submit comments on how CCM services could be adapted for 

RHCs in CY 2015 to promote integrated and coordinated care. 

In this final rule with comment period, we are modifying our proposal not to 

allow an exception to the per diem PPS payment for subsequent injury or illness and for 

mental health services furnished on the same day as a medical visit, and we invite public 

comments on this modification. We are adopting as final our proposal not to allow an 

exception to the per diem PPS for DSMT/MNT or IPPE. 

2. Preventive Laboratory Services and Technical Components of Other Preventive 

Services 

The core services of the FQHC benefit are generally billed under the professional 

component. The benefit categories for laboratory services and diagnostic tests generally 

are not within the scope of the FQHC benefit, as defined under section 1861(aa) of the 
54 

Act. For services that can be split into professional and technical components, we have 

instructed FQHCs to bill the professional component as part of the AIR, and separately 

bill the Part B MAC under different identification for the technical portion of the service 

on a Part B practitioner claim (for example, Form CMS-1500). If the FQHC operates a 

laboratory, is enrolled under Medicare Part B as a supplier, and meets all applicable 

Medicare requirements related to billing for laboratory services, it may be able to bill as a 

supplier furnishing laboratory services under Medicare Part B. When FQHCs separately 

bill these services, they are instructed to adjust their cost reports and carve out the cost of 

associated space, equipment, supplies, facility overhead, and personnel for these services. 

As part of the implementation of the FQHC benefit, we used our regulatory 

authority to enumerate preventive primary services, as defined in § 405.2448, which may 

be paid for when furnished by FQHCs (57 FR 24980, June 12, 1992, as amended by 

61 FR 14657, April 3, 1996). These preventive primary services include a number of 

laboratory tests, such as cholesterol screening, stool testing for occult blood, dipstick 

urinalysis, tuberculosis testing for high risk patients, and thyroid function tests. The 

preventive services added to the FQHC benefit pursuant to the Affordable Care Act, as 

defined by section 1861(ddd)(3) of the Act and codified in § 405.2449, include laboratory 

tests and diagnostic services, such as screening mammography, diabetes screening tests, 

and cardiovascular screening blood tests. 

Professional services or professional components of primary preventive services 

(as defined in § 405.2448) and preventive services (as defined in § 405.2449) are billed 

as part of the AIR. The preventive laboratory tests and technical components of other 

preventive tests are not paid under the AIR and FQHCs are instructed to bill separately 
55 

for these services. We did not propose a change in billing procedures, and we did not 

propose to include payment for these services under the FQHC PPS. We noted this 

payment structure simplifies billing procedures as laboratory tests and technical 

components of diagnostic services are always billed separately to Part B and are not 

included as part of the FQHC's encounter rate. (Note that both the professional and 

technical components of FQHC primary preventive services and preventive services 

remain covered under Part B). 

An analysis of FQHC claims indicates that FQHCs are listing some preventive 

laboratory tests and diagnostic services on their all-inclusive rate claims. In 2011 through 

2012, less than 5 percent of Medicare FQHC claims listed HCPCS codes related to 

laboratory tests or diagnostic services. For purposes of modeling adjustments to the 

FQHC PPS rate, we considered excluding these line items from the encounter charge and 

proportionately reducing the cost-reporting entity's related cost report data. However, it 

was not always clear whether the line item charges for these laboratory tests or diagnostic 

services were included in the total charge for the claim or were listed for informational 

purposes only. As such, we chose not to adjust the claims or cost report data based on the 

presence of the related HCPCS codes on the claims. As part of the implementation of the 

FQHC PPS, we plan to clarify the appropriate billing procedures through program 

instruction. 

Comment: Most commenters were supportive of our intent to clarify appropriate 

billing procedures through program instruction, and some commenters suggested that we 

also use rulemaking to resolve issues concerning Medicare billing. Many of these 
56 

commenters requested greater clarity on billing for the technical components of FQHC 

services separately under Part B. 

Response: As we stated in the proposed rule, we plan to clarify the appropriate 

billing procedures for technical components of FQHC services and other billing issues 

through program instruction, and we do not believe that clarifications to billing 

procedures require rulemaking. 

Comment: A commenter disagreed with our conclusion that laboratory services 

and diagnostic tests are by definition excluded from the FQHC benefit. The commenter 

noted that preventive primary health services and preventive services, as defined in 

section 1861(aa)(3) of the Act and codified in §405.2448 and §405.2449 of the 

regulations, include a variety of screening tests, and neither the statute nor the regulations 

exclude the technical components of these tests from the FQHC benefit. 

Response: We respectfully disagree with this commenter and maintain that the 

benefit categories for laboratory services and diagnostic tests generally are not within the 

scope of the FQHC benefit, as defined under section 1861(aa)(3) of the Act. We also 

maintain that both the professional and technical components of FQHC primary 

preventive services and preventive services, as defined in section 1861(aa)(3) of the Act 

and codified in §405.2448 and §405.2449 of the regulations, are covered under the FQHC 

benefit. Laboratory tests and diagnostic services that do not meet the statutory and 

regulatory definitions of FQHC primary and preventive services, and are not otherwise 

specified in the statute or regulations as within the scope of the FQHC benefit, are not 

covered under the FQHC benefit. We agree with the commenter that neither the statute 

nor the regulations specifically exclude the technical components of these tests. We also 
57 

note that the FQHC regulations do not distinguish between the technical and professional 

components of primary or preventive services. As a matter of our payment policy, we 

believe that laboratory tests and diagnostic services that do not meet the statutory and 

regulatory definitions of FQHC primary preventive and preventive services, and are not 

otherwise specified in the statute or regulations as within the scope of the FQHC benefit, 

are not covered under the FQHC benefit. As a matter of policy, we believe the payment 

structure simplifies billing procedures as laboratory tests and technical components of 

diagnostic services are always billed separately to Part B and are never included as part 

of the FQHC's encounter rate. We note that this payment structure does not change the 

scope of the FQHC benefit. 

Comment: A commenter recommended that FQHCs be allowed to bill all 

Medicare Part B services on an institutional claim, including technical components such 

as x-rays, laboratory tests, and durable medical equipment which will not be paid as part 

of the FQHC PPS and would be billed separately to Medicare Part B. 

Response: To distinguish services that are not paid as part of the encounter rate, 

we believe that the current billing requirements for billing services separately to 

Medicare Part B on a Part B practitioner claim are more appropriate for most services. 

We note that the telehealth originating site facility fee will continue to be billed 

separately on an institutional claim. 

After consideration of the public comments received, we plan to clarify the 

appropriate billing procedures through program instruction, as proposed. 

3. Vaccine Costs 
58 

Section 1834(o)(2)(B)(i) of the Act requires that the initial PPS rates must be set 

so as to equal in the aggregate 100 percent of the estimated amount of reasonable costs 

that would have occurred for the year if the PPS had not been implemented. This 

100 percent must be calculated prior to application of copayments, per visit limits, or 

productivity adjustments. We believe that this language directed us to develop a PPS to 

pay for items currently paid under the AIR. 

The administration and payment of influenza and pneumococcal vaccines is not 

included in the AIR. They are paid at 100 percent of reasonable costs through the cost 

report. The cost and administration of HBV is covered under the FQHC's AIR when 

furnished as part of an otherwise qualifying encounter. We did not propose any changes 

to this payment structure, rather, we stated that we would continue to pay for the costs of 

the influenza and pneumococcal vaccines and their administration through the cost report, 

and other Medicare-covered vaccines as part of the encounter rate. The costs of hepatitis 

B vaccine and its administration were included in the calculation of reasonable costs used 

to develop the FQHC PPS rates, and we would continue paying for these services under 

the FQHC PPS when furnished as part of an otherwise qualifying encounter. 

Comment: A few commenters requested clarification regarding coverage and 

payment for vaccines recommended by the Advisory Committee on Immunization 

Practices (ACIP) of the Centers for Disease Control and Prevention (CDC) that are 

typically covered and paid under Medicare Part D. They believe that these vaccines, 

when furnished by FQHCs, should be covered and paid separately by Part D plans and 

should not be covered and paid for as part of a FQHC encounter. 

Response: Under section 1862(a)(7) of the Act, as codified at 42 CFR 411.15(e) 
59 

of our regulations, immunizations other than pneumococcal, influenza, and HBV are 

generally excluded from Medicare Part B coverage. Section 4161(a)(3)(C) of OBRA '90 

(Pub. L. 101-508) amended section 1862(a) of the Act to specify that the FQHC benefit 

can include preventive primary health services, as described in section 1861(aa)(3)(B) of 

the Act, that would otherwise be excluded from Part B under section 1862(a)(7) of the 

Act. Preventive primary services, as defined in § 405.2448, describes which services 

may be paid for when furnished by FQHCs. (See the June 12, 1992 (57 FR 4980) and 

April 3, 1996 (61 FR 4657) final rules). These preventive primary services include 

immunizations (see § 405.2448(b)(8)). This means that when FQHCs furnish ACIPrecommended vaccines, they are covered and paid for under Part B as part of the FQHC 

benefit, and are excluded from Part D. 

Except for pneumococcal and influenza vaccines and their administration, which 

are paid at 100 percent of reasonable cost, payments to FQHCs for covered FQHC 

services furnished to Medicare beneficiaries are made on the basis of an AIR per covered 

visit. The charges for other Medicare-covered vaccines and their administration when 

furnished by a FQHC can be included as line items for an otherwise qualifying encounter, 

and payment for these other Medicare-covered vaccines would be included in the AIR. 

However, an encounter cannot be billed if vaccine administration is the only service the 

FQHC provides. For more information on how to bill under the AIR for services 

furnished incident to a FQHC encounter, see CMS Pub. 100-04, Medicare Claims 

Processing Manual, chapter 9. 

Section 10501(i)(3)(A) of the Affordable Care Act did not amend the coverage 

requirements applicable to the FQHC benefit. We did not propose to remove 
60 

immunizations from the preventive primary services set out at § 405.2448, and 

immunizations furnished by FQHCs after implementation of the PPS will continue to be 

covered under Part B as part of the FQHC benefit. We proposed to continue to pay for 

the costs of the influenza and pneumococcal vaccines and their administration through 

the cost report, and other Medicare-covered vaccines as part of the encounter rate. As 

part of the implementation of the FQHC PPS, we plan to update the appropriate billing 

procedures through program instruction. 

We note that under 1860D-2(e)(2)(B) of the Act, a drug prescribed to a Part D 

eligible individual that would otherwise be a covered Part D drug is excluded from Part D 

coverage if payment for such drug, as so prescribed and dispensed or administered, is 

available under Part A or B for that individual. Consequently, vaccines furnished by 

FQHCs and covered under Part B as part of the FQHC benefit in accordance with 

§ 405.2448(b)(8) are not covered or payable under Part D. For more information on the 

exclusion from Part D of drugs covered under Part B, see CMS Pub. 100-18, Medicare 

Prescription Drug Benefit Manual, Chapter 6. Section 20.2. 

Comment: A few commenters recommended that CMS apply a consistent 

approach to payment for vaccines covered under Part B, which commenters asserted 

would ensure broad access for Medicare beneficiaries. These commenters recommended 

that CMS pay for the cost and administration of the HBV at 100 percent of reasonable 

cost through the cost report. A commenter recommended that influenza and 

pneumococcal vaccines should be billed at time of service, either with or without an 

encounter, and be paid using the national MAC fees, with an annual reconciliation on the 

cost report between the payments and the reasonable costs of these vaccines. This 
61 

commenter wished to reduce the time between vaccine administration and payment and 

to document on individual patient claims that these vaccines were furnished. However, 

most commenters supported our proposal to continue to reimburse influenza and 

pneumococcal vaccines through the cost report. 

Response: As discussed in the preamble to the April 3, 1996 FQHC final rule 

(61 FR 14651), section 1833(a)(3) of the Act specifies that services described in section 

1861(s)(10)(A) of the Act are exempt from payment at 80 percent of reasonable costs and 

payment to RHCs and FQHCs for influenza and pneumococcal vaccines and their 

administration is at 100 percent of reasonable cost. Consistent with section 1833(a)(3) of 

the Act, we used our regulatory authority to codify at § 405.2466(b)(1)(iv) that for RHCs 

and FQHCs, payment for pneumococcal and influenza vaccine and their administration is 

100 percent of Medicare reasonable cost paid as part of the annual reconciliation through 

the cost report (61 FR 14657, April 3, 1996). Payment for all other Medicare-covered 

vaccines is included in the AIR, and we proposed to continue to pay for all other 

Medicare-covered vaccines as part of the encounter rate under the FQHC PPS. We note 

that HBV is described in section 1861(s)(10)(B) of the Act, and we do not believe that 

the statute directs us to change the payment structure to pay for HBV at 100 percent of 

reasonable cost through the cost report. 

We considered the commenter's request to pay for influenza and pneumococcal 

vaccines billed at time of service with an annual reconciliation between these payments 

and reasonable costs and we do not believe this would be necessary. FQHCs are 

accustomed to reporting and receiving payment for the reasonable costs for these 

vaccines and their administration through the annual cost report, and we believe that an 
62 

annual reconciliation between vaccine fee amounts and reasonable costs would create an 

additional administrative burden for FQHCs and MACs. We also note that as of 

January 1, 2011, FQHCs have been required to report pneumococcal and influenza 

vaccines and their administration on a patient claim with the appropriate HCPCS and 

revenue codes when furnished during a billable visit. 

After consideration of the public comments received, we are finalizing these 

provisions as proposed. We will continue to pay for the administration and payment of 

influenza and pneumococcal vaccines at 100 percent of reasonable costs through the cost 

report, and we will continue to pay for other Medicare-covered vaccines under the FQHC 

PPS as part of the encounter rate when furnished as part of an otherwise qualifying 

encounter. 

C. Risk Adjustments 

Section 1834(o)(1)(A) of the Act provides that the FQHC PPS may include 

adjustments, including geographic adjustments, that are determined appropriate by the 

Secretary. We proposed the following adjustments. 

1. Alternative Calculations for Average Cost per Visit 

For the proposed rule, we used the claims data to calculate an average cost per 

visit by dividing the total estimated costs ($788,547,531) by the total number of daily 

visits (5,223,512). 

Proposed average cost per daily visit = $788,547,531/5,223,512 = $150.96 

For this final rule with comment period, we modified the definition of a daily 

visit, as discussed in section II.A.4. of this final rule with comment period and consistent 

with the policy discussed in section II.B.1. of this final rule with comment period, which 
63 

allows an exception to the per diem PPS payment for subsequent injury or illness and 

mental health services furnished on the same day as a medical visit. Separately payable 

encounters for the same beneficiary at the same FQHC were combined into a single daily 

visit, while allowing for a separate medical visit, mental health visit, and subsequent 

illness/injury visit, which allows for up to three encounters for beneficiary per day. 

For this final rule with comment period, we used the updated claims data to 

calculate an average cost per visit by dividing the total estimated costs ($846,058,100) by 

the total number of daily visits (5,462,670). 

Final average cost per daily visit = $846,058,100/5,462,670 = $154.88 

In the proposed rule, we also examined how the average cost per visit would 

differ under current policy, which allows separate payment for subsequent illness or 

injury, mental health services, DSMT/MNT or IPPE when they occur on the same day as 

an otherwise billable visit. While the total estimated cost was the same ($788,547,531), 

the total number of visits in the denominator (5,245,961) did not combine multiple visits 

on the same day of service into 1 daily visit. 

Proposed average cost per visit = $788,547,531/5,245,961 = $150.32 

For this final rule with comment period, we used the updated final data set to 

examine how the average cost per visit would differ under current policy. While the total 

estimated cost was the same ($846,058,100), the total number of visits in the denominator 

(5,468,852) did not combine multiple visits on the same day of service. 

Final average cost per visit = $846,058,100/5,468,852 = $154.70 

In the proposed rule, we also derived an average cost per visit from the cost 

reports by dividing the total estimated Medicare costs (excluding vaccines) reported 
64 

($832,387,663) by the total number of Medicare visits reported (5,374,217). Unlike the 

previous calculations based on claims data, the variables derived from the cost reports 

summarize total costs and visits by cost reporting entity and could not be trimmed of 

individual visits with outlier values. Also, we noted that the total number of Medicare 

visits reported on the cost reports reflects current policy which allows for multiple visits 

on the same day of service, and we could not calculate an average cost per daily visit 

using only cost report data. 

Proposed average cost per visit from cost report data = $832,387,663/5,374,217 = 

$154.89 

For this final rule with comment period, we used the current data set to update the 

average cost per visit derived from the cost reports by dividing the total estimated 

Medicare costs (excluding vaccines) reported ($897,330,363) by the total number of 

Medicare visits reported (5,634,602). 

Final average cost per visit from cost report data = $897,330,363/5,634,602 = 

$159.25 

Consistent with our proposal to remove the exception to the single encounter 

payment per day, we proposed to use the average cost per daily visit of $150.96, as 

calculated based on adjusted claims data, as the PPS rate prior to any risk adjustment. 

We noted that the alternative calculations yield an average cost per visit that differs from 

$150.96 by less than 3 percent. We also noted that these calculations were derived based 

on the cost report and claims data available during our development of the proposed rule 

and were subject to change in the final rule based on more current data. 
65 

For this final rule with comment period, consistent with our policy to allow an 

exception to the per diem PPS payment for subsequent injury and mental health services 

furnished on the same day as a medical visit, we will use the average cost per daily visit 

of $154.88, as calculated above based on adjusted claims data, as the final PPS rate prior 

to any risk adjustment. We note that the alternative calculations yield an average cost per 

visit that differs from $154.88 by less than 3 percent. 

2. FQHC Geographic Adjustment Factor 

We proposed to adjust the FQHC PPS rate for geographic differences and to make 

this adjustment to the cost of inputs by applying an adaptation of the GPCIs used to 

adjust payment under the PFS. Established in section 1848(e) of the Act, GPCIs adjust 

payments for geographic variation in the costs of furnishing services and consist of three 

component GPCIs: the physician work GPCI, the practice expense GPCI, and the 

malpractice insurance GPCI. 

Since FQHCs furnish services that are analogous to those furnished by physicians 

in outpatient clinic settings, we believe it would be consistent to apply geographic 

adjustments similar to those applied to services furnished under the PFS. We calculated a 

FQHC geographic adjustment factor (FQHC GAF) for each encounter based on the 

delivery site's locality using the proposed CY 2014 work and practice expense GPCIs and 

the proposed cost share weights for the CY 2014 GPCI update, as published in the 

CY 2014 PFS proposed rule on July 19, 2013 (78 FR 43282). 

For modeling geographic adjustments for the FQHC PPS proposed rule, we did 

not use the proposed CY 2015 work and practice expense GPCIs that also were published 

in the CY 2014 PFS proposed rule. We noted that the FQHC GAFs are subject to change 
66 

in the final FQHC PPS rule based on more current data, including the finalized PFS GPCI 

and cost share weight values. 

We excluded the PFS malpractice GPCI from the calculation of the FQHC GAF, 

as FQHCs that receive section 330 grant funds are eligible to apply for medical 

malpractice coverage under FSHCAA of 1992 and FSHCAA of 1995. Without the cost 

share weight for the malpractice GPCI, the sum of the proposed PFS work and PE cost 

share weights (0.50866 and 0.44839, respectively) is less than one. In calculating the 

FQHC GAFs, prior to applying the proposed work and PE cost share weights to the 

GPCIs, we scaled these proposed cost share weights so they would total 100 percent 

while still retaining weights relative to each other (0.53149 and 0.46851, respectively). 

We calculated each locality's FQHC GAF as follows: 

Geographic adjustment factor = (0.53149 × Work GPCI) + (0.46851 × PE GPCI) 

We included the FQHC GAF adjustment when modeling all other potential 

adjustments. We proposed to apply the FQHC GAF based on where the services are 

furnished, and we noted the FQHC GAF may vary among FQHCs that are part of the 

same organization. The list of proposed FQHC GAFs by locality was included in the 

Addendum of the proposed rule and as a downloadable file at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/FQHCPPS/index.html. 

Comment: Commenters were supportive of a FQHC GAF adjustment, but some 

suggested changes to the proposed FQHC GAFs. Some commenters suggested that the 

rural FQHC GAFs may not reflect the actual cost of furnishing FQHC services in rural 

areas, and they requested that we increase the rural FQHC GAFs. Some of these 
67 

commenters believe that the factors influencing costs for urban versus rural providers are 

not identical for FQHCs and physician practices. Among the concerns raised by these 

commenters are that a rural FQHC's operating costs (such as utilities and transportation 

costs) may be higher than similar costs of FQHCs in urban areas; predominantly rural 

FQHCs often have fewer sites than urban FQHCs and benefit less from economies of 

scale; and FQHCs located in rural areas may incur additional costs if they offer payment 

incentives in order to recruit and retain qualified physicians and non-physician 

practitioners. 

Response: Since FQHCs furnish services that are analogous to those furnished by 

physicians in outpatient clinic settings, we proposed to adapt the PFS GPCIs to calculate 

the FQHC GAFs, as we believe it would be consistent to apply geographic adjustments 

similar to those applied to services furnished under the PFS. As discussed in the 

CY 2014 PFS final rule with comment period, we used updated Bureau of Labor 

Statistics (BLS) Occupational Employment Statistics data to calculate the work GPCI and 

purchased services index of the PE GPCI and updated U.S. Census Bureau American 

Community Survey (ACS) data to calculate the rent component (which includes utilities) 

of the PE GPCI. Given their reliability, public availability, level of detail and national 

scope with sufficient data coverage in both urban and rural areas, we believe that the 

ACS and BLS data are the most appropriate sources for measuring geographic cost 

differences in operating a medical practice. (See our discussion in the CY 2014 PFS final 

rule with comment period (78 FR 74380 through 74381)). We believe that the data used 

to develop the PFS GPCIs are reflective of the costs of furnishing FQHC services, 

including the geographic variation in the costs of furnishing FQHC services in rural 
68 

areas. Moreover, we do not have a comprehensive national source that would provide us 

with a basis for adjusting the FQHC GAFs for rural areas independently of the PFS 

GPCIs while meeting data selection criteria similar to the criteria used for selecting the 

PFS GPCI sources. We also note that as discussed later in this section, many rural areas 

would see a substantial decrease in payment amounts if they were no longer grouped with 

urban areas. 

Comment: A commenter was concerned that FQHCs with multiple delivery sites 

with different costs may be penalized if accommodation for these different sites is not 

taken into account. 

Response: We proposed to apply the FQHC GAF based on where the services are 

furnished. Therefore, for FQHCs with multiple delivery sites in different areas, the 

FQHC GAF may vary depending on the delivery site. 

Comment: A commenter was concerned that application of the FQHC GAF 

reduces its PPS rate below the proposed base rate, which is below its cost of furnishing 

FQHC services. 

Response: Under the FQHC PPS, Medicare payment for FQHC services is based 

on 100 percent of aggregate reasonable costs, not on an individual FQHC's costs. While 

the FQHC GAF will vary by locality, we note that the fully implemented, geographically 

adjusted PPS rate for all FQHCs will be approximately 32 percent higher, based on 

payment at the FQHC PPS rate, when compared to current payments to FQHCs. 

Comment: A commenter noted that FQHC lookalikes do not have access to 

malpractice coverage under the Federal Tort Claims Act (FTCA) and therefore incur 

malpractice expense. The commenter requested that CMS incorporate a malpractice 
69 

adjustment in the FQHC GAFs for FQHC lookalikes, or otherwise recognize malpractice 

expense under the FQHC PPS. 

Response: FQHCs that receive section 330 grant funds are the predominant type 

of FQHC, with more than 1,100 centers operating approximately 8,900 delivery sites. 

These FQHCs are eligible to apply for medical malpractice coverage under the FTCA. In 

comparison, there were 93 look-alikes in 2012, according to HRSA's UDS. The PPS rate 

is based on aggregate costs, and assumes that not all FQHCs have the same costs. It 

would not be feasible to develop separate PPS rates for FQHCs based on differences in 

malpractice or any other costs. We excluded the PFS malpractice GPCI from the 

calculation of the FQHC GAF as the geographic variation in malpractice costs is not 

relevant for the majority of FQHCs that are eligible to apply for medical malpractice 

coverage under the FTCA. We note that FQHCs are required to report professional 

liability insurance on Worksheet A of the FQHC cost report (Form CMS-222), and 

malpractice expense was recognized as a component of the reasonable costs used to 

calculate the FQHC PPS rates. 

Comment: A commenter disagreed with our adaptation of the PFS GPCIs and 

recommended that we adjust the FQHC PPS rate for geographic differences based on 

Metropolitan Statistical Areas (MSAs). The commenter believes that use of the current 

PFS locality structure would result in underpayment for FQHC services furnished in 

several California counties. 

Response: As previously noted, because FQHCs furnish services that are 

analogous to those furnished by physicians in outpatient clinic settings, we believe it 

would be consistent to apply geographic adjustments similar to those applied to services 
70 

furnished under the PFS. Moreover, by adapting the PFS GPCIs for the FQHC PPS, the 

accuracy of FQHC payments also benefits from the ongoing assessment, evaluation, and 

updates to the PFS GPCIs, including the periodic review and adjustment of GPCIs as 

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

We note that adjusting the FQHC PPS rate for geographic differences based on 

MSAs could result in significant reductions in payment for rural FQHCs when compared 

to geographically adjusted payments using the current PFS locality configuration. As 

discussed in the CY 2014 PFS final rule with comment period, published in the Federal 

Register on December 10, 2013 (78 FR 74230), a MSA-based locality structure would 

expand the number of PFS payment localities, and many rural areas would see substantial 

decreases in their GPCI values given that they would no longer be grouped together with 

higher cost counties (78 FR 74380 through 74391). If the PFS locality structure or GPCI 

values changed, we would make corresponding changes to the FQHC localities and 

FQHC GAFs. As other methodologies emerge for geographic payment adjustment under 

the PFS, they may also eventually apply to the new FQHC PPS. 

Comment: A commenter recommended that after the first year of 

implementation, we use a market basket approach to adjust payments based on 

geographic locations. The commenter suggested that we revise the FQHC cost report to 

capture additional wage data that, in conjunction with HRSA's UDS data, could be used 

to develop a wage index to adjust the PPS rate based on reported salary differentials. 

Response: We appreciate the commenter's interest in developing a wage index 

for the FQHC PPS. We believe that a FQHC GAF based on the PFS GPCIs is 

appropriate for FQHC services, as an FQHC's employment mix and scope and delivery of 
71 

services are generally similar to a physician's practice. We note that a FQHC GAF based 

solely on a wage index, which is a relative measure of geographic differences in wage 

levels, would not reflect the relative cost difference in the full mix of goods and services 

comprising the PFS practice expense GPCIs (for example, purchased services, office rent, 

equipment, supplies, and other miscellaneous expenses). We do not believe that the 

additional reporting burden suggested by the commenter, or the additional administrative 

burden of collecting and validating the type of data needed for a reliable FQHC wage 

index, would justify the potential incremental benefit of using a FQHC-specific wage 

index in calculating the FQHC GAFs. 

Comment: A commenter asked why we did not use the CY 2015 GPCI values to 

calculate the FQHC GAFs. 

Response: For modeling geographic adjustments for the FQHC PPS proposed 

rule, we used the CY 2014 work and practice expense GPCIs published in the CY 2014 

PFS proposed rule. We noted that the FQHC GAFs could be subject to change in the 

final FQHC PPS rule based on more current data, including the finalized PFS GPCI and 

cost share weight values. 

As discussed in the CY 2014 PFS final rule with comment period (78 FR 74380 

through 74391), the CY 2015 PFS GPCI values reflect our most current updates of the 

underlying data sources and represent our best estimates of the geographic variation in 

the costs of furnishing physician services. In contrast, the CY 2014 GPCI values partially 

reflect the updates to the underlying data and MEI cost weights. Therefore, we will use 

the CY 2015 GPCI values, as published in the CY 2014 final rule with comment period, 

to model the geographic adjustments for the FQHC PPS rates as they represent the most 
72 

current data. We note that the PFS cost share weights were finalized as proposed, and we 

will use the relative weights of the PFS work and PE GPCIs, as proposed and finalized, to 

calculate each locality's FQHC GAF. 

For payments under the FQHC PPS, we believe it most appropriate to apply 

geographic adjustments consistent with those applied to services furnished under the PFS 

during the same period. Therefore, the FQHC GAFs and cost share weights will be 

updated in conjunction with updates to the PFS GPCIs, which would maintain 

consistency between the geographic adjustments applied to the PFS and the FQHC PPS 

in the same period. We note that the FQHC GAFs for October 1 through 

December 31, 2014, will be adapted from the CY 2014 PFS GPCIs applicable during that 

same period. Subsequent updates to the FQHC GAFs will be made in conjunction with 

updates to the PFS GPCIs for the same period. 

We have considered the public comments we received, and are finalizing the 

FQHC GAF provisions as proposed, with some modifications. As proposed, we are 

revising § 405.2462 to require that payments under the FQHC PPS will be adjusted for 

geographic differences by applying an adaptation of the work and practice expense 

GPCIs used to adjust payment under the PFS. We are modifying § 405.2462 to specify 

that the FQHC GAFs used for payment will be adapted from the GPCIs used to adjust 

payment under the PFS for that same period. 

For modeling geographic adjustments for the FQHC PPS proposed rule, we did 

not use the proposed CY 2014 work and practice expense GPCIs that were published in 

the CY 2014 PFS proposed rule. Instead, for modeling the geographic adjustments for 

this FQHC PPS final rule, we used the final CY 2015 work and practice expense GPCIs 
73 

and cost shares that were published in the CY 2014 PFS final rule with comment period 

as the CY 2015 GPCI values represent the most recent fully implemented GPCI update 

and therefore more current data. More information on how we modeled the FQHC PPS 

geographic adjustment is discussed in section II.D. of this final rule with comment 

period. 

3. New Patient or Initial Medicare Visit 

Based on an analysis of claims data, we found that the estimated cost per 

encounter was approximately 33 percent higher when a FQHC furnished care to a patient 

that was new to the FQHC or to a beneficiary receiving a comprehensive initial Medicare 

visit (that is, an IPPE or an initial AWV). We proposed to adjust the encounter rate to 

reflect the 33 percent increase in costs when FQHCs furnish care to new patients or when 

they furnish a comprehensive initial Medicare visit, which could account for the greater 

intensity and resource use associated with these types of services. Our proposed risk 

adjustment factor was 1.3333. 

Comment: Commenters supported the proposed adjustments, but some 

recommended that we also apply the adjustment factor to subsequent AWVs. 

Commenters recommended that we allow an adjustment for subsequent AWVs in 

addition to initial AWVs in order to support the goal of improving health outcomes and 

increasing access to subsequent AWVs. Commenters also believe that the subsequent 

AWV is similar to the increased intensity of the IPPE and initial AWV, in terms of both 

the duration of the visits and the number of ancillary services furnished. 

Response: Subsequent AWV is a very small percent of total FQHC visits 

(approximately 0.25 percent), but the claims data suggest that subsequent AWV is 
74 

significantly more costly than most other FQHC visits. The claims data also suggest that 

subsequent AWV is somewhat less costly than an IPPE or initial AWV, which is 

consistent with the comparatively reduced level of required physician work associated 

with the subsequent AWV. As previously noted, our goal for the FQHC PPS is to 

implement a system in accordance with the statute whereby FQHCs are fairly paid for the 

services they furnish to Medicare patients in the least burdensome manner possible. 

Rather than establish a separate adjustment for subsequent AWV, we will add the 

subsequent AWV to the proposed adjustment for new patient or initial Medicare visit. 

Based on current FQHC data, the composite group of new patient visits, IPPEs, initial 

AWVs, and subsequent AWVs is associated with 34.16 percent higher estimated costs 

than other visits. 

In this final rule with comment period, we are modifying our proposal, and we 

will adjust the encounter rate to reflect the 34.16 increase in costs when FQHCs furnish 

care to new patients or when they furnish an IPPE, initial AWV, or subsequent AWV, 

which could account for the greater intensity and resource use associated with these types 

of services. Our composite risk adjustment factor for these types of visits is 1.3416. 

4. Other Adjustment Factors Considered 

We considered multiple other adjustments such as demographics (age and sex), 

clinical conditions, duration of the encounter, etc. However, we found many of these 

other adjustments to have limited impact on costs or to be too complex and largely 

unnecessary for the FQHC PPS. 

We calculated whether there were differences in resource use for mental health 

visits and preventive care visits when compared to medical care visits using mathematical 
75 

modeling techniques. We found that mental health encounters had approximately 

1 percent lower estimated costs per visit relative to medical care visits, and we did not 

consider this a sufficient basis for proposing a payment adjustment. We found that 

preventive care encounters had approximately 18 percent higher estimated costs per visit. 

This difference in resource use declined to an 8 percent higher estimated cost per visit 

after adjusting for the FQHC GAF and the proposed 1.3333 risk adjustment factor for a 

patient that is new to the FQHC or for a beneficiary receiving a comprehensive initial 

Medicare visit (that is, an IPPE or an initial AWV), indicating that a significant amount 

of preventive care visits were IPPEs or initial AWVs. We did not propose a payment 

reduction for preventive care encounters and we noted that a significant amount of the 

more costly preventive care encounters would otherwise be recognized and paid for with 

the proposed 1.3333 risk adjustment factor for a beneficiary receiving a comprehensive 

initial Medicare visit. 

We considered patient age and sex as potential adjustment factors as these 

demographic characteristics have the advantage of being objectively defined. However, 

both of these characteristics had a limited association with estimated costs, which did not 

support the use of these demographic characteristics as potential adjustment factors. 

We tested for an association between commonly reported clinical conditions and 

the estimated cost per visit. A number of clinical conditions were found to be associated 

with approximately 5 to 10 percent higher costs per visit, but we are concerned that 

claims might not include all potentially relevant secondary diagnoses, and that we would 

need to consider how to minimize the complexity of such an adjustment with a limited 

number of clinically meaningful groupings. 
76 

We considered the duration of encounters (in minutes) as a potential adjustment 

factor. Many of the E/M codes commonly seen on FQHC claims are associated with 

average or typical times, and there was a strong association between these associated 

times and the estimated cost per encounter. However, these minutes are guidelines that 

reflect the face-to-face time between the FQHC practitioner and the beneficiary for that 

E/M service, and they would not indicate the total duration of the FQHC encounter. 

Moreover, many of the codes used to describe the face-to-face visit that qualifies an 

encounter, such as a subsequent AWV, are not associated with average or typical times. 

We considered adjusting payment based on the types of services furnished during 

a FQHC encounter. Our analysis of FQHC claims data indicates that information 

regarding ancillary services provided by FQHCs appears to be limited. As a result, there 

is a risk that adjustments for the types of services being provided would be based on 

incomplete information and result in payments under the PPS that do not accurately 

reflect the cost of providing those services. 

Comment: Several commenters recommended that CMS address the special 

circumstances facing Indian health providers by considering the inclusion of a lowvolume upward adjustment, a population-density adjustment, and a service-mix 

adjustment to the PPS rate. These commenters stated that a volume adjustment is 

necessary because low-volume tribal FQHCs find it more difficult to spread their costs 

across their patient base, and are less likely to obtain volume discounts and benefit from 

economies of scale. They also stated that many tribal FQHCs in rural areas furnish less 

complex or lower intensity services than urban providers, resulting in different paymentto-cost ratios that result in reimbursement inequities. 
77 

Response: We appreciate the challenges that tribal FQHCs face in furnishing 

services, especially in rural and isolated areas, and the significant health disparities that 

remain for AI/AN populations. We also understand that providers in isolated and rural 

areas, including tribal FQHCs, may have fewer patients than providers in more densely 

populated areas, and may not be able to offer as full of a range or level of complexity in 

their services as other providers, or benefit from the economies of scale that providers 

with higher volume or in more densely populated areas may have. In developing the PPS 

rate, we considered various possible adjustments, including a low-volume adjustment. 

When analyzing Medicare claims data, lower overall FQHC volume was found to be 

associated with higher estimated costs (see "Results of Research on the Design of a 

Medicare Prospective Payment System for Federally Qualified Health Centers" by Arbor 

Research Collaborative for Health). However, we did not propose to include a 

low-volume adjustment, because we believe that the PPS rate, along with adjustments for 

new and initial visits and AWV, will provide appropriate reimbursement for the costs of 

services provided.Comment: Commenters were generally supportive of a single base rate 

with a geographic adjustment and an adjustment for new patients and initial Medicare 

visits. Some commenters recommended additional adjustments, such as: high acuity of 

patients; visit characteristics; multiple chronic conditions; encounters with more than two 

HCPCS codes on the claim; unique geographical differences among FQHCs; and dual 

eligible beneficiaries. 

Response: As discussed in the proposed rule, FQHC claims data regarding 

secondary diagnoses and ancillary services appears to be limited. As a result, there is a 

risk that the recommended adjustments, such as increased payments for high acuity, 
78 

multiple chronic conditions, or encounters with multiple HCPCS, could be based on 

incomplete information. Our analyses of clinical conditions, encounter duration, and 

types of service, which considered the same or similar types of adjustments, found that 

these adjustments had limited impact on costs or were too complex for the FQHC PPS. 

Our analysis of more current data continues to support these conclusions. As discussed 

in section II.C.2. of this final rule with comment period, we believe it is appropriate to 

adjust for geographic differences among FQHCs using the GAF. 

We tested for an association between dual eligibility and the estimated cost per 

visit. On average, the estimated cost of a FQHC visit was 4 percent higher among dual 

eligible beneficiaries. After applying the GAF and the new patient/initial visit adjustment 

to the model, the estimated cost of a FQHC visit was, on average, 0.4 percent higher 

among dual eligible beneficiaries. We do not believe that this slight variation in 

estimated cost justifies the added complexity of an additional payment adjustment for 

dual eligible beneficiaries. 

Comment: A commenter recommended that CMS include an upward adjustment 

for FQHCs that provide significant "enabling services." The commenter believes that 

non-clinical services provided to patients to support care delivery, enhance health 

literacy, or facilitate access to care can reduce health disparities and improve outcomes 

for FQHC patients. 

Response: While FQHCs, including look-alikes, are required by section 330 of 

the PHS Act to provide services that enable individuals to use the required primary health 

services that they provide, these services are not part of the Medicare FQHC benefit. 
79 

Comment: Some commenters believe that the PPS payment methodology 

removes incentives to provide fewer, more intensive visits and recommended that CMS 

increase payments to high-performing FQHCs that furnish efficient, integrated care. 

Some commenters recommended that CMS encourage expanded access to care, the 

development of medical homes, and horizontal networks of care by applying upward 

adjustments to FQHCs that offer value-added services, such as a broader scope of 

services, expanded hours, or teaching health centers. 

Response: While we appreciate the suggestions, neither the cost report nor the 

claims data contains sufficient information to assess the validity of commenters’ claims 

with respect to these types of adjustments. Moreover, the types of adjustments suggested 

by these commenters are beyond the scope of the FQHC PPS methodology. However, 

we are taking steps to foster innovation in how FQHCs deliver services to Medicare 

beneficiaries. For example, the FQHC Advanced Primary Care Practice (APCP) 

Demonstration, operated by CMS in partnership with HRSA, is designed to evaluate the 

effect of the advanced primary care practice model in improving care, promoting health, 

and reducing the cost of care provided to Medicare beneficiaries served by FQHCs. This 

demonstration is being conducted in accordance with the Secretary's demonstration 

authority under section 1115A, which facilitates the development and expansion of 

successful payment models. For more information on the FQHC APCP, see 

http://www.fqhcmedicalhome.com/ 

Comment: A commenter noted that CMS did not include data from providerbased FQHCs in its costs calculations, asserted that provider-based FQHCs experience 
80 

higher costs than freestanding FQHCs, and urged CMS to add an adjustment to ensure 

payments to provider-based FQHCs recognize their differential costs. 

Response: As discussed in section II.A.2. of this final rule with comment period, 

in developing the rates for this final rule with comment period, we included data from 

provider-based FQHCs in calculating the PPS rate. Under the FQHC PPS, Medicare 

payment for FQHC services is not based on an individual FQHC's costs. The cost report 

and claims data do not support an adjustment for provider-based FQHCs. While the 

average cost per visit is somewhat higher for provider-based FQHCs than for 

freestanding FQHCs, none of the provider-based FQHCs were identified as outliers based 

on the average cost per visit from the cost reports, and only 0.4 percent of the encounters 

in the claims were identified as outliers based on estimated costs.

5. Report on PPS Design and Models 

We contracted with Arbor Research for Collaborative Health to assist us in 

designing a PPS for FQHCs. Arbor Research modeled options for calculating payment 

rates and adjustments under a PPS based on data from Medicare FQHC cost reports and 

Medicare FQHC claims. A report detailing the options modeled in the development of 

the PPS was made available at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/FQHCPPS/index.html. 

D. Base Rate Calculation 

We calculated a proposed base rate for the FQHC PPS by adjusting the average 

cost per visit to account for the proposed adjustment factors. We calculated a proposed 

average payment multiplier using the average FQHC GAF (0.9944) multiplied by the 

average risk adjustment for non-new patient/initial visits (1.0), as weighted by the percent 
81 

of encounters that represented non new patient/initial visits (0.9722), and we added this 

to the average FQHC GAF (0.9944) multiplied by the average risk adjustment for new 

patient/initial visits (1.3333), as weighted by the percent of encounters that represented 

new patient/initial visits (0.0278): 

Proposed average payment multiplier = 0.9721(1.00)(0.9944) + 0.0279(1.3333)(0.9944) 

= 1.0036 

We calculated a proposed base rate amount by multiplying the reciprocal of the 

average payment multiplier by the average cost per visit. Using the average cost per 

daily visit: 

Proposed base rate per daily visit = $150.96 x (1/1.0036) = $150.42 

The proposed base rate per daily visit of $150.42 reflected costs through 

June 30, 2012, and did not include an adjustment for price inflation. As the FQHC PPS is 

to be implemented beginning October 1, 2014, we proposed to update the base rate to 

account for the price inflation through September 30, 2014, as measured by the MEI as 

finalized in the CY 2011 PFS final rule (75 FR 73262 through 73270). The MEI is an 

index reflecting the weighted-average annual price change for various inputs involved in 

furnishing physicians' services. The MEI is a fixed-weight input price index, with an 

adjustment for the change in economy-wide, private nonfarm business multifactor 

productivity. 

We proposed to inflate the base rate by approximately 1.8 percent, reflecting the 

growth in the MEI from July 1, 2012 through September 30, 2014. We also proposed to 

use a forecasted MEI update of 1.7 percent for the 15-month period of October 1, 2014, 

through December 31, 2015, to calculate the first year's base payment amount under the 
82 

PPS. We also proposed if more recent data became available (for example, a more recent 

estimate of the FY 2006-based MEI), we would use such data, if appropriate, to 

determine the 15-month FQHC PPS update factor for the final rule. 

TABLE 1: PROPOSED BASE RATE PER DAILY VISIT 

Total Estimated 

Costs 

Daily 

Encounters 

Average 

Payment 

Multiplier 

Average Cost 

Per Daily Visit

Estimated 

Base Rate 

Without 

Adjustment 

For Price 

Inflation 

MEI Update 

Factor 

MEIAdjusted 

Base 

Payment 

Rate 

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

Proposed MEI-adjusted base payment rate = $150.96 x (1/1.0036) x 1.0364 = $155.90 

Thus, we proposed a base payment rate of $155.90 per beneficiary per visit for the 

proposed FQHC PPS. We noted that this base rate is subject to change in the final rule 

based on more current data. 

Proposed payments to FQHCs were calculated as follows: 

Proposed base payment rate x FQHC GAF = Proposed PPS payment 

In calculating the proposed payment, the proposed base payment rate was 

$155.90, and the FQHC GAF was based on the locality of the delivery site. 

If the patient is new to the FQHC, or the FQHC is furnishing an initial 

comprehensive Medicare visit, we proposed that the payment would be calculated as 

follows: 

Proposed base payment rate x FQHC GAF x 1.3333 = Proposed PPS payment 
83 

In calculating the proposed payment, 1.3333 represented the risk adjustment factor 

applied to the PPS payment when FQHCs furnish care to new patients or when they 

furnish a comprehensive initial Medicare visit. 

 To calculate the FQHC base rate for this final rule with comment period, we used 

updated data, the finalized adjustment factors, the finalized definition of a daily visit (as 

discussed in sections II.A.4. and II.B.1. of this final rule with comment period), and the 

finalized adjustment for a new patient, IPPE, initial AWV, and subsequent AWV (as 

discussed in section II.C.3. of this final rule with comment period). We calculated a final 

base rate for the FQHC PPS by adjusting the average cost per visit to account for the 

finalized adjustment factors. We calculated a final average payment multiplier using the 

average final FQHC GAF (0.9961) multiplied by the average risk adjustment for 

non-new patient/IPPE/AWV (1.0), as weighted by the percent of encounters that 

represented non-new patient/IPPE/AWV (0.9683), and we added this to the average final 

FQHC GAF (0.9961) multiplied by the average risk adjustment for new 

patient/IPPE/AWV (1.3416), as weighted by the percent of encounters that represented 

new patient/IPPE/AWV (0.0317): 

Final average payment multiplier = 0.9683(1.00)(0.9961) + 

0.0317(1.3416)(0.9961) = 1.0069 

We calculated a final base rate amount by multiplying the reciprocal of the final 

average payment multiplier by the final average cost per visit. Using the average cost per 

daily visit: 

Final base rate per daily visit = $154.88 x (1/1.0069) = $153.82 

We did not receive any comments on our use of the MEI to update the FQHC 
84 

base rate. Our final data set reflects cost reporting periods ending between June 30, 2011, 

and June 30, 2013. Given that the updated cost data typically has a midpoint that is close 

to the middle of 2012, we are continuing to use June 30, 2012, as the starting point for 

inflating prices forward. We are finalizing our proposal to update the FQHC base rate 

per daily visit for inflation using the growth as measured by the MEI from July 2012 

through December 2015. The estimated base rate of $153.82 per diem is inflated through 

FY 2014 using the historical MEI market basket increase of 1.8 percent. For the 

15-month period October 1, 2014 through December 31, 2015, we apply an update of 

1.3 percent as measured by the 4th quarter 2013 forecast of the MEI, the most recent 

forecast available at the time. The adjusted base payment that reflects the MEI historical 

updates and forecasted updates to the MEI is $158.85. This payment rate incorporates a 

combined MEI update factor of 1.0327 that trends dollars forward from July 1, 2012 

through December 31, 2015. 

TABLE 2: FINAL BASE RATE PER DAILY VISIT

Total Estimated 

Costs 

Daily 

Encounters 

Average 

Payment 

Multiplier 

Average Cost 

Per Daily Visit

Estimated 

Base Rate 

Without 

Adjustment 

For Price 

Inflation 

MEI Update 

Factor 

MEIAdjusted 

Base 

Payment 

Rate 

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

Final MEI-adjusted base payment rate = $154.88 x (1/1.0069) x 1.0327 = $158.85 

Thus, we are finalizing a base payment rate of $158.85 per beneficiary per day for 

the FQHC PPS, based on current data and the finalized policies. 

Payments to FQHCs were calculated as follows: 
85 

Base payment rate x FQHC GAF = PPS payment 

In calculating the payment, the base payment rate was $158.85, and the FQHC 

GAF was based on the locality of the delivery site. 

If the patient is new to the FQHC, or the FQHC is furnishing an IPPE, initial 

AWV, or subsequent AWV, payment would be calculated as follows: 

Base payment rate x FQHC GAF x 1.3416 = PPS payment 

In calculating the payment, 1.3416 represents the risk adjustment factor applied to 

the PPS payment when FQHCs furnish care to new patients or when they furnish an 

IPPE, initial AWV, or subsequent AWV (see discussion in section II.C.3. of this final 

rule with comment period).

E. Implementation 

1. Transition Period and Annual Adjustment 

Section 1834(o)(2) of the Act requires implementation of the FQHC PPS for 

FQHCs with cost reporting periods beginning on or after October 1, 2014. Cost reporting 

periods are typically 12 months, and usually do not exceed 13 months. Therefore, we 

expect that all FQHCs would be transitioned to the PPS by the end of 2015, or 15 months 

after the October 1, 2014 implementation date. 

FQHCs would transition into the PPS based on their cost reporting periods. We 

noted that a change in cost reporting periods that is made primarily to maximize payment 

would not be acceptable under established cost reporting policy (see § 413.24(f)(3) of the 

regulations and the Provider Reimbursement Manual Part I, section 2414, and Part II, 

section 102.3). The claims processing system will maintain the current system and the 

PPS until all FQHCs have transitioned to the PPS. 
86 

We proposed to transition the PPS to a calendar year update for all FQHCs, 

beginning January 1, 2016, because many of the PFS files we proposed to use are 

updated on a calendar year basis. Section 1834(o)(2)(B)(ii)(I) of the Act requires us to 

adjust the FQHC PPS rate by the percentage increase in the MEI for the first year after 

implementation. However, while transitioning the PPS to a calendar year, we proposed 

to defer the first MEI statutory adjustment to the PPS rate from October 1, 2015 to 

December 31, 2016, because the proposed base payment rate incorporates a forecasted 

percentage increase in the MEI through December 31, 2015. 

Comment: Many commenters requested that FQHCs be permitted to transition 

into the FQHC PPS beginning on October 1, 2014, even if that is not the beginning of 

their cost reporting period. 

Response: As we stated in the proposed rule, a change in cost reporting periods 

that is made primarily to maximize payment would not be acceptable under established 

cost reporting policy. This principle has been applied uniformly to the implementation of 

all new prospective payment systems in Medicare. The MACs do not have the discretion 

to transition a FQHC at a time other than their cost reporting period except when a FQHC 

has a change of ownership resulting in a different cost reporting period, or otherwise has 

good cause. Good cause is not met if it is determined that the reason is to maximize 

reimbursement. 

Comment: Many commenters requested that we create a FQHC-specific market 

basket beginning in 2016 for the annual update to the PPS rate. These commenters 

opined that a FQHC-specific market basket would more accurately reflect the actual costs 
87 

of FQHC services than using the MEI. A commenter requested that the FQHC market 

basket take into account changes in the scope of services that FQHC furnish. 

Response: We will continue to assess the feasibility of developing a FQHCspecific market basket and will provide notification of our intentions in subsequent 

rulemaking. 

We did not receive any comments on our proposal to transition the PPS to a 

calendar year update for all FQHCs, beginning January 1, 2016. Therefore, we are 

finalizing this provision as proposed. 

2. Medicare Claims Payment 

We noted that claims processing systems would need to be revised through 

program instruction to accommodate the new rate and associated adjustments. Medicare 

currently pays 80 percent of the AIR for all FQHC claims, except for mental health 

services that are subject to the mental health payment limit. Section 1833(a)(1)(Z) of the 

Act requires that Medicare payment under the FQHC PPS shall be 80 percent of the 

lesser of the provider's actual charge or the PPS rate. In the proposed rule, we stated that 

we were considering several revisions to the claims processing system. These include 

revisions to reject claims in which the qualifying visit described a service that is outside 

of the FQHC benefit, such as inpatient hospital E/M services or group sessions of 

DSMT/MNT; revisions to reject line items for technical components such as x-rays, 

laboratory tests, and durable medical equipment which will not be paid as part of the 

FQHC PPS and would be billed separately to Medicare Part B; and revisions to allow for 

the informational reporting of influenza and pneumococcal vaccines and their 

administration, while excluding the line item charges, as these items would continue to be 
88 

paid through the cost report. 

Comment: Commenters identified the "lesser of" provision in section 

1833(a)(1)(Z) of the Act as their most significant concern with the proposed rule. This 

provision requires that Medicare payment for FQHC services furnished under the PPS to 

equal "80 percent of the lesser of the actual charge or the amount determined under" 

section 1834(o) of the Act. Many commenters were concerned that paying FQHCs the 

lesser of the actual charge or the PPS rate will routinely underpay FQHCs and undermine 

the purpose of the PPS. These commenters believe the PPS would be inappropriately 

comparing a per diem rate for a typical bundle of services with a charge or sum of 

charges for individual services. Some FQHCs also claim that they keep their charges low 

across all payers because they serve an underserved population, which will cap their 

Medicare FQHC payments at these low charge rates. Commenters recommended that if 

the "lesser of" provision must be implemented, it would be more appropriate for 

Medicare to compare the PPS rate to the FQHC's average charge per visit from the prior 

year, trended forward by the MEI or a FQHC-specific inflationary factor. 

Response: We appreciate the information and perspectives provided by the 

commenters and will address each of these points individually. 

Comment: Commenters opined that CMS lack the statutory authority to 

implement the "lesser of" provision because section 1833(a)(1) of the Act generally 

excludes FQHC services, and that even if we determine that CMS has the authority to 

apply the "lesser of" provision, the statutory deficiencies would allow CMS to be flexible 

in implementing this provision. 

Response: We respectfully disagree with commenters that the statutory basis of 
89 

the "lesser of" provision is not clear. We find the language in section 1833(a)(1)(Z) of 

the Act, which states "with respect to Federally qualified health center services for which 

payment is made under section 1834(o) of the Act, the amounts paid shall be 80 percent 

of the lesser of the actual charge or the amount determined under such section" to be 

clear, and we believe that placement of this provision in section 1833(a)(1) of the Act 

does not undermine its authority. 

Comment: Commenters noted that due to the "lesser of" provision, initial 

payments under the PPS would be less than 100 percent of the estimated amount of 

reasonable costs, and this does not meet the budget neutrality requirement in the 

Affordable Care Act. 

Response: We respectfully disagree with commenters that we should have 

factored the "lesser of" provision into our budget neutrality calculations. Section 

1834(o)(2)(B)(i) of the Act requires us to calculate a PPS rate that, when multiplied by 

our estimates of services, will yield 100 percent of estimated reasonable costs. Although 

we must apply the "lesser of" provision in section 1833(a)(1)(Z) of the Act when paying 

FQHCs under the PPS, section 1834(o)(2)(B)(i) of the Act specifies that the estimated 

aggregate amount of prospective payment rates is to be determined prior to the 

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

Comment: Commenters asserted that CMS did not provide sufficient information 

about the "lesser of" provision in the proposed rule, such as defining the term "charge" or 

providing an analysis of the effect of the "lesser of" provision on FQHC payments under 

the PPS. Commenters urged CMS to clarify implementation details in the final rule and 

to give the public another opportunity to comment after publishing this information. 
90 

Commenters requested that CMS grant a 2- to 3-year moratorium on the "lesser of" 

provision, while beginning to pay the PPS rates as of October 1, 2014. 

Response: We believe the statutory language in section 1833(a)(1)(Z) of the Act 

requiring a comparison with the provider's "actual charge" is straightforward. Moreover, 

the regulatory principles of reasonable cost reimbursement in § 413.53(b) already defines 

"charges" as "the regular rates for various services that are charged to both beneficiaries 

and other paying patients who receive the services." We did not include all the 

implementation details in the proposed rule because claims processing instructions are 

not typically subject to regulatory notice and comment. 

The proposed rule modeled the impact of the PPS using the estimated PPS rate, 

and did not model the overall impact of the "lesser of" provision because FQHCs control 

their own pricing structures, and we have limited information to accurately project actual 

FQHC charges. Therefore, we believe it would have been inappropriate to publish an 

analysis demonstrating the impact of the "lesser of" provision. 

Comment: Some commenters claimed that FQHCs keep their charges low across 

all payers because they serve an underserved population. A few commenters asserted 

that the costs of integrated care furnished to beneficiaries are not adequately reflected in 

the HCPCS codes and charges billed to Medicare. Commenters were concerned that, in 

order to receive the higher payments under the PPS, FQHCs would be forced to raise 

their charges, which would increase the coinsurance liability for patients who do not 

qualify for a sliding fee schedule discount. 

Response: Most FQHCs are subject to the requirements in the 

section 330(k)(3)(G) of the PHS Act, which states that FQHCs prepare "a schedule of 
91 

fees or payments for the provision of its services consistent with locally prevailing rates 

or charges and designed to cover its reasonable costs of operation and has prepared a 

corresponding schedule of discounts to be applied to the payment of such fees or 

payments, which discounts are adjusted on the basis of the patient's ability to pay." 

FQHCs can adjust their charges within the broad parameters established by the 

PHS Act and HRSA guidance, and the application of a sliding fee scale can subsidize an 

eligible patient's out-of-pocket liability. The commenter is correct that coinsurance 

liability generally increases when charges increase, and that this is a consideration for 

FQHCs when setting charges. We also note that, under certain circumstances, FQHCs 

may waive coinsurance amounts for Medicare and Medicaid beneficiaries (see for 

example, section 1128B(b)(3)(D) of the Act and § 1001.952(k)(2) of the regulations). 

Also, most FQHCs are subject to the statutory and regulatory requirements of the Health 

Center Program (section 330 of the PHS Act; 42 CFR Part 51c; and 42 CFR 56.201 

through 56.604), which, among other requirements, mandates that they may collect no 

more than a “nominal fee" from individuals whose annual income is at or below 

100 percent of the Federal Poverty Level. 

Comment: A few commenters recommended that we apply the "lesser of" 

provision at the aggregate level through an annual reconciliation on the Medicare cost 

report of aggregate payments with aggregate charges. These commenters noted that this 

aggregate approach averages out lower charges for low intensity services with higher 

charges for high intensity services. Some commenters suggested that we conduct an 

annual reconciliation on the Medicare cost report to determine whether aggregate PPS 

payments exceeded or fell short of aggregate allowable costs, using costs as a proxy for 
92 

actual charges. 

Response: We believe that the statutory language in section 1833(a)(1)(Z) of the 

Act requiring a comparison with the provider's "actual charge" is straightforward, and a 

comparison of aggregate payments with aggregate charges would be inconsistent with the 

plain reading of the statutory language that implies a claims level comparison. We also 

were not persuaded that costs are a reasonable proxy for charges. We note that in 

general, a Medicare PPS is a method of paying providers based on a predetermined, fixed 

amount that is not subject to annual reconciliation. Payments under a Medicare PPS for 

other provider types are not subject to annual reconciliation with a provider's charge, and 

an annual reconciliation of costs for providers paid under a Medicare PPS is generally 

limited to amounts paid outside the applicable PPS. 

Comment: Many commenters believe that the proposed PPS would 

inappropriately compare a per diem rate for a typical bundle of services with a charge or 

sum of charges for individual services furnished on the same day, which commenters 

described as an "apples to oranges" comparison. Commenters asserted that comparing 

the bundled rate to the sum of individual charges would routinely yield underpayment 

and make it difficult for FQHCs to meet their obligation under section 330 of the PHS 

Act that requires health centers to collect adequate payment from government programs, 

including Medicare. Commenters recommended that if the "lesser of" provision must be 

implemented, it would be more appropriate for CMS to implement the "lesser of" 

provision in a way that ensures parity between the rate(s) and charges to which they are 

compared. Commenters suggested that CMS compare the PPS rate to the FQHC's 

average charge per visit, as determined on an annual basis and trended forward by an 
93 

applicable inflation factor (for example, the MEI or a FQHC-specific inflationary index). 

A commenter suggested that FQHCs should be allowed to bill all-inclusive rate 

charges under the FQHC PPS. This commenter noted that the proposed PPS rate is based 

on cost report data that are not adequately reflected in the HCPCS codes and charges 

billed to Medicare, and the commenter believes it would be appropriate for FQHCs to bill 

an all-inclusive rate. The commenter suggested that it would be appropriate for FQHCs 

to set the charge for a Medicare visit at the higher of its Medicare or Medicaid PPS rate to 

avoid a reimbursement loss from application of the "lesser of" provision. This 

commenter also suggested that ancillary services should be billed and paid by Medicare 

over and above the all-inclusive PPS rates. 

Response: Most Medicare payment systems that have a "lesser of" provision in 

section 1833(a)(1) of the Act are paid on a fee basis for each item or service. While 

unbundling the PPS rate to pay separately for individual services would address the 

"apples-to-oranges" concern, we note that most of the commenters recommending that 

we compare the PPS rate with the FQHC's average charge also supported our proposal to 

offer a single, bundled, encounter-based rate for payment with some adjustments, as 

discussed earlier. We believe that the proposed FQHC PPS encounter-based rate, which 

would be similar across all encounters, is a significantly different payment structure than 

other payment systems subject to a "lesser of" comparison with actual charges. We 

acknowledge that a comparison of a service-specific charge to an encounter-based 

payment does not apply the "apples-to-apples" comparisons of similar "lesser of" 

provisions included in section 1833(a)(1) of the Act. 

We considered modifying our proposal and adopting the recommendation of 
94 

many commenters to pay FQHCs based on the lesser of the FQHC's average Medicare 

charge per diem or the PPS rate. We agree that such an approach would be responsive to 

commenters seeking parity in the comparison between the bundled PPS rate and the 

charges. However, we believe that the statutory language in section 1833(a)(1)(Z) of the 

Act requiring a comparison with the provider's "actual charge" is straightforward, and a 

comparison with the FQHC's average charge from a prior period would be inconsistent 

with the plain reading of the statutory language. 

We believe we can be responsive to commenters seeking parity in the comparison 

between the bundled PPS rate and the charges, while allowing direct interpretation of the 

statutory requirements of section 1833(a)(1)(Z) of the Act, by establishing a new set of 

HCPCS G-codes for FQHCs to report an established Medicare patient visit, a new or 

initial patient visit and an IPPE or AWV. As authorized by section 1834(o)(2)(C) of the 

Act, we shall establish and implement by program instruction the payment codes to be 

used under the FQHC PPS. We would define these G-codes in program instruction to 

describe a FQHC visit in accordance with the regulatory definitions of a Medicare FQHC 

visit. Each FQHC would establish a charge to the beneficiary with which to bill 

Medicare for the encounters. Consistent with longstanding policy, the use of these 

payment codes does not dictate to providers how to set their charges. A FQHC would set 

the charge for a specific payment code pursuant to its own determination of what would 

be appropriate for the services normally provided and the population served at that 

FQHC, based on the description of services associated with the G-code. The charge for a 

specific payment code would reflect the sum of regular rates charged to both 

beneficiaries and other paying patients for a typical bundle of services that would be 
95 

furnished per diem to a Medicare beneficiary. We would continue to require detailed 

HCPCS coding with the associated line item charges for data gathering (for example, 

providing information about the ancillary services furnished), to support the application 

of adjustments for new patients, IPPE, and AWV, and to facilitate the waiving of 

coinsurance for preventive services. 

FQHCs will be required to use these payment codes when billing Medicare under 

the PPS. Medicare would pay FQHCs based on 80 percent of the lesser of the actual 

charge reported for the specific payment code or the PPS rate on each claim (and 

beneficiary coinsurance would be 20 percent of the lesser of the actual charge for the 

G-code or the PPS rate), which allows for direct interpretation of the statute by 

comparing the PPS rate to the FQHC's actual charge for a Medicare visit. In order to 

ease administrative burden and in compliance with § 413.53, the FQHC may choose to 

use these specific payment codes for its entire patient base. We acknowledge that other 

payors may have requirements that would preclude FQHCs from using these payment 

codes, and we suggest that FQHCs be mindful of the differences in required billing 

methodologies and coding conventions when submitting claims to other payors. 

Although we did not propose to establish HCPCS G-codes for FQHCs to report 

and bill for Medicare visits, we believe that comparing the PPS per diem rate to a 

FQHC's charge for a per diem visit (as defined by the specific payment codes) would be 

responsive to commenters seeking parity in the comparison between the bundled rate and 

the charges, and would also be responsive to commenters concerns regarding meeting the 

requirements of section 330(k)(3)(F) of the PHS Act, which requires section 330 grantees 

to make every reasonable effort to collect appropriate reimbursement for its costs in 
96 

providing health services from government programs, including Medicare. 

Establishment of these G-codes would also be responsive to the commenter that 

suggested that FQHCs should be allowed to bill all-inclusive rate charges under the 

FQHC PPS. Since the G-codes would describe FQHC visits as a per diem, encounterbased visit in accordance with Medicare regulations, we also note that the charges 

established for these Medicare visits might not directly affect the charges for nonMedicare patients. 

In setting its charges for these Medicare FQHC visits, a FQHC would have to 

comply with established cost reporting rules in § 413.53 which specify that charges must 

reflect the regular rates for various services that are charged to both beneficiaries and 

other paying patients who receive the services. We anticipate that each FQHC would 

establish charges for the Medicare FQHC visits that would reflect the sum of regular rates 

charged to both beneficiaries and other paying patients for a typical bundle of services 

that the FQHC would furnish per diem to a Medicare beneficiary. We note that 

establishing Medicare per diem rates that are substantially in excess of the usual rates 

charged to other paying patients for a similar bundle of services could be subject to 

section 1128(b)(6) of the Act, as codified in § 1001.701. 

We disagree with the commenter's suggestion that ancillary services should be 

billed and paid by Medicare over and above the all-inclusive PPS rate because the costs 

of these ancillary services were included in the reasonable costs used to calculate the PPS 

rates. 

After consideration of the public comments received, we are finalizing our 

proposal and the revised regulations at § 405.2462 to pay FQHCs based on the lesser of 
97 

the PPS rate or the actual charge. In response to the public comments, we will also 

establish HCPCS G-codes for FQHCs to report and bill FQHC visits to Medicare under 

the FQHC PPS. Appropriate billing procedures for the G codes will be made through 

program instruction. As we did not propose the establishment of G-codes in the proposed 

rule, nor did we receive public comments specifically requesting such codes, we invite 

comments on the establishment of G-codes for FQHCs to report and bill FQHC visits to 

Medicare under the FQHC PPS. 

3. Beneficiary Coinsurance 

Section 1833(a)(1)(Z) of the Act requires that FQHCs be paid "80 percent of the 

lesser of the actual charge or the amount determined under such section". Under the 

current reasonable cost payment system, beneficiary coinsurance for FQHC services is 

assessed based on the FQHC's charge, which can be more than coinsurance based on the 

AIR, which is based on costs. An analysis of a sample of FQHC Medicare claims data 

for dates of service between January 1, 2011 through June 30, 2013 indicated that 

beneficiary coinsurance based on 20 percent of the FQHCs' charges was approximately 

$29 million higher, or 20 percent more, than if coinsurance had been assessed based on 

20 percent of the lesser of the FQHC's charge or the applicable all-inclusive rate. 

Section 1833(a)(1)(Z) of the Act requires that Medicare payment under the FQHC 

PPS should be 80 percent of the lesser of the actual charge or the PPS rate. Accordingly, 

we proposed that coinsurance would be 20 percent of the lesser of the FQHC's charge or 

the PPS rate. We believe that the proposal to change the method to determine 

coinsurance is consistent with the statutory change to the FQHC Medicare payment and 

is consistent with statutory language in sections 1866(a)(2)(A) and 1833(a)(3)(A) of the 
98 

Act and elsewhere that addresses coinsurance amounts and Medicare cost principles. If 

finalized as proposed, total payment to the FQHC, including both Medicare and 

beneficiary liability, would not exceed the FQHC's charge or the PPS rate (whichever 

was less). 

Comment: Several commenters recommended that if CMS makes changes to the 

coinsurance provisions in the payment regulation at § 405.2462(d) in response to 

comments on the "lesser of" provision, CMS should make corresponding revisions to the 

coinsurance regulation at § 405.2410. 

Response: The coinsurance provisions in § 405.2462(d) and § 405.2410 have 

been updated in this final rule with comment period. 

Comment: Commenters noted that calculating the amount of coinsurance to be 

charged a patient is a significant administrative responsibility for FQHCs. Commenters 

were concerned that a comparison of the PPS rate with charges at the point of service 

would be administratively complex and unnecessarily burdensome for FQHCs, and 

FQHCs would have difficulty calculating the beneficiary's coinsurance liability at point 

of service. 

Response: We respectfully disagree that FQHCs would have difficulty 

calculating a beneficiary's coinsurance liability at point of service. A FQHC will set its 

own charge, and we believe the charge amount is likely to be available at point of service. 

We also believe that FQHCs will be able to estimate the PPS rate at time of service. We 

proposed to apply a FQHC GAF based on where the services are furnished, and we 

proposed to adjust the encounter rate when FQHCs furnish care to new patients or when 

they furnish a comprehensive initial Medicare visit. We are finalizing our proposal to 
99 

apply a FQHC GAF, and we are modifying our proposal and will adjust the encounter 

rate when FQHCs furnish new patient visits, IPPEs, or AWVs. Therefore, each delivery 

site would have two geographically adjusted PPS rates for each period: one rate for a visit 

furnished to a patient who is not new to the FQHC and is not receiving an IPPE or AWV, 

and one rate for a new patient visit, IPPE or AWV that is eligible for an adjustment. At 

the point of service, a FQHC could determine whether its own charge or its estimate of 

the applicable PPS rate (which would be one of two discrete values) is lower, and the 

FQHC could estimate beneficiary coinsurance at point of service based on 20 percent of 

the lesser amount. We note that the remittance advice issued by the MAC will continue 

to include the coinsurance amount and will reflect the amount of coinsurance recognized 

by Medicare. 

Comment: A few commenters wanted coinsurance to be based on charges, even 

when the charges are higher than the PPS rate. Some also questioned our legal authority 

to assess coinsurance at 20 percent of the lesser of the charge or the PPS rate. 

Response: Under the current reasonable cost payment system, beneficiary 

coinsurance for FQHC services is assessed based on the FQHC's charge, and we 

acknowledge that the statute makes no specific provision to revise the coinsurance to be 

20 percent of the lesser of the FQHC's charge or the PPS rate, although it does state 

clearly that CMS is limited to paying 80 percent of the FQHC’s charge or the PPS rate, 

whichever is less. We continue to believe that the proposal to change the method to 

determine coinsurance is consistent with the statutory change to the FQHC Medicare 

payment and is consistent with statutory language in sections 1866(a)(2)(A) and 

1833(a)(3)(A) of the Act and elsewhere that addresses coinsurance amounts and 
100 

Medicare cost principles. These sections were not repealed by the Affordable Care Act 

and continue to provide legal authority for FQHCs to seek coinsurance payments from 

Medicare beneficiaries. 

After consideration of the public comments received, we are finalizing these 

provisions as proposed and revising the regulations at § 405.2462(d) and 

§ 405.2410(b)(2) that beneficiary coinsurance for payments under the FQHC PPS would 

generally be 20 percent of the lesser of the FQHC's charge or the PPS rate. We note that 

the proposed revision to § 405.2410(b)(1)(ii)(A) regarding the deductible and 

coinsurance amount for RHCs is not being finalized as proposed as it inadvertently 

changed the intent of the regulation and will therefore remain as stated in the current 

regulation. 

4. Waiving Coinsurance for Preventive Services 

As provided by section 4104 of the Affordable Care Act, effective 

January 1, 2011, Medicare waives beneficiary coinsurance for eligible preventive 

services furnished by a FQHC. Medicare requires detailed HCPCS coding on FQHC 

claims to ensure that coinsurance is not applied to the line item charges for these 

preventive services. 

For FQHC claims that include a mix of preventive and non-preventive services, 

we proposed that Medicare contractors compare payment based on the FQHC's charge to 

payments based on the PPS encounter rate and pay the lesser amount. However, the 

current approach to waiving coinsurance for preventive services, which relies solely on 

FQHC reported charges, would be insufficient under the FQHC PPS. As Medicare 

payment under the FQHC PPS is required to be 80 percent of the lesser of the FQHCs 
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charge or the PPS rate, we also need to determine the coinsurance waiver for payments 

based on the PPS rate. 

We considered using the proportion of the FQHC's line item charges for 

preventive services to total claim charges to determine, as a proxy, the proportion of the 

FQHC PPS rate that would not be subject to coinsurance. This approach would preserve 

the encounter-based rate while basing the coinsurance reduction on each FQHC's relative 

assessment of resources for preventive services. However, the charge structure among 

FQHCs varies, and beneficiary liability for the same mix of FQHC services could differ 

significantly based on the differences in charge structures. 

Where preventive services are coded on a claim, we proposed to use payments 

under the PFS to determine the proportional amount of coinsurance that should be waived 

for payments based on the PPS encounter rate. While Part B drugs that are 

physician-administered and routine venipuncture will be paid under the FQHC PPS rate, 

we noted that the Medicare Part B rates for these items are not included in the PFS 

payment files. Therefore, when determining this proportionality of payments, we 

proposed that we would also consider PFS payment limits for Part B drugs, as listed in 

the Medicare Part B Drug Pricing File, and the national payment amount for routine 

venipuncture (HCPCS 36415). Although FQHCs might list HCPCS for which we do not 

publish a payment rate in these files, a review of 2011 claims data indicated that the vast 

majority of line items with HCPCS representing services that will be paid under the 

FQHC PPS were priced in these sources. As such, we believe that referencing only the 

payment rates listed in these sources would be both sufficient and appropriate for 

determining the amount of coinsurance to waive for preventive services furnished in 
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FQHCs, without changing the total payment (Medicare and coinsurance). Since 

Medicare payment under the FQHC PPS is required to be 80 percent of the lesser of the 

FQHC's charges or the PPS rate, we proposed that we would continue to use FQHCreported charges to determine the amount of coinsurance that should be waived for 

payments based on the FQHC's charge, and that total payment to the FQHC, including 

both Medicare and beneficiary liability, would not exceed the lesser of the FQHC's 

charge or the PPS rate. 

Our proposed approach for waiving coinsurance for preventive services preserves 

an encounter-based rate, and the calculation is similar to the current coinsurance 

calculation based on charges. We acknowledged that this calculation is fairly complex 

for the claims processing systems and may also be difficult for providers to replicate, and 

that FQHCs might not know how much coinsurance would be assessed before the MAC 

issues the remittance advice. 

As an alternative approach, we considered unbundling all services when a FQHC 

claim includes a mix of preventive and non-preventive services, excluding these types of 

claims from calculation of the FQHC base encounter rate, and use payments under the 

Medicare PFS to pay separately for every service listed on the claim. While this 

approach is inconsistent with an all-inclusive payment, it would simplify waiving 

coinsurance for preventive services and pay preventive services comparably to PFS 

settings. However, the vast majority of FQHC claims list only one HCPCS, and 

unbundling all services introduces coding complexity that might underpay FQHCs for an 

encounter if they do not code all furnished ancillary services. In addition, because the 
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cost of these services is generally lower that other services, payment for preventive 

services under the PFS will be less, in many cases, than the FQHC PPS encounter rate. 

Instead of unbundling all services when a FQHC claim includes a mix of 

preventive and nonpreventive services, we considered the use of PFS payment rates to 

pay separately for preventive services billed on the FQHC claim, while paying for the 

non-preventive services under the FQHC PPS rate. However, this would be problematic 

when the preventive services represent the service that would qualify the claim as a 

FQHC encounter (for example, IPPE, AWV, MNT). Under current payment policy, the 

remaining ancillary services would not be eligible for an encounter payment without an 

additional, qualifying visit on the same date of service. 

We also considered using the dollar value of the coinsurance that would be 

waived under the PFS to reduce the FQHC encounter-based coinsurance amount when 

preventive services appear on the claim. However, this could lead to anomalous results, 

such as negative coinsurance if the preventive service(s) would have been paid more 

under the PFS than the FQHC PPS rate, and the amount of coinsurance waived under the 

PFS would exceed 20 percent of the FQHC PPS rate. We also were concerned that the 

reduction in coinsurance would seem insufficient if the payment rate for the preventive 

service(s) was very low under the PFS. 

We discussed whether using the proportionality of PFS payments to determine the 

coinsurance waiver would facilitate the waiving of coinsurance for preventive services 

while preserving the all-inclusive nature of the encounter-based rate with the least billing 

complexity. Therefore, we proposed that where preventive services are coded on a claim, 

we would use payments under the PFS to determine the proportional amount of 
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coinsurance that should be waived for payments based on the PPS encounter rate, and we 

invited public comment on how this proposal would impact a FQHC's' administrative 

procedures and billing practices. 

Comment: Commenters noted that we did not specify that Medicare will pay for 

the coinsurance waiver, and some were concerned that our proposals to waive 

coinsurance for preventive services would require FQHCs to forego 20 percent of the 

total payment amount. Commenters requested that we clarify that Medicare will pay 

100 percent for preventive services, with payment for a visit with a preventive and nonpreventive component equal to the total payment less the coinsurance assessed. 

Commenters also urged us to specify the rules for waiving coinsurance in the regulations 

text. 

Response: Under § 410.152, Medicare Part B pays 100 percent of the Medicare 

payment amount established under the applicable payment methodology for the service 

setting. In the CY 2011 Medicare PFS final rule (75 FR 73417 through 73419, 

November 29, 2010) we included a detailed discussion regarding preventive services 

covered under the FQHC benefit, and we clarified that we would apply the coinsurance 

waiver in the FQHC setting. We implemented the billing requirements for waiving 

coinsurance in the FQHC setting through program instruction (CMS Pub. 100-04, 

Medicare Claims Processing Manual, Chapter 9, Section 120). 

Our discussion and proposals in the FQHC PPS proposed rule were not intended 

to change the general requirements with respect to waiving coinsurance for preventive 

services in the FQHC setting. Medicare will continue to pay 100 percent for preventive 

services furnished in the FQHC setting as part of a FQHC visit. Rather, we proposed 
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revisions to the methodology used to waive coinsurance for preventive services to ensure 

that our operational approach would be compatible with payments under an all-inclusive 

FQHC PPS encounter- based system. 

We agree that it would be appropriate to codify the general rules for waiving 

coinsurance in the regulations text, and we will modify the proposed regulatory text at 

§ 405.2410 and § 405.2462 to reflect existing requirements that apply the coinsurance 

waiver in the FQHC setting, subject to the billing requirements of the applicable payment 

methodology. However, we believe that the details of implementation would be more 

appropriate to include in program instruction, and we plan to implement the procedures 

for waiving coinsurance for preventive services furnished by FQHCs as an update to the 

billing requirements for preventive services. 

Comment: Commenters requested that we add information to the Medicare 

Claims Processing Manual clarifying the list of services to which the coinsurance waiver 

requirement applies. 

Response: A table of services subject to the coinsurance waiver is available in 

CMS Pub. 100-04, Medicare Claims Processing Manual, Chapter 18, Section 1.2. 

Comment: Commenters were concerned that it would be too complex and 

burdensome for FQHCs to calculate the coinsurance at point of service using the 

proposed methodology for claims with a mix of preventive and non-preventive services 

that would be paid using the PPS rate. Most commenters requested that CMS rethink this 

calculation to simplify how coinsurance would be assessed for these types of claims. 

Commenters recommended that CMS completely waive coinsurance and pay 100 percent 

of the PPS rate for any FQHC encounter that includes a preventive service, whether the 
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preventive service represented the face-to-face portion of the visit or an ancillary service. 

Commenters asserted that this would be easier to administer and more consistent with the 

Congress's intent to eliminate barriers to the provision of preventive services. 

Response: While a complete coinsurance waiver for these types of claims would 

be a simple approach, we do not believe that we have the authority to waive coinsurance 

completely whenever a preventive service is furnished during a FQHC encounter without 

regard to the value of the preventive service relative to all other services furnished during 

the same encounter. 

We agree that the proposed approach is complex and might be difficult for 

providers to replicate. Our own analysis subsequent to publication of the proposed rule 

led us to conclude that the benefits of the proposed methodology would be outweighed by 

the complexity of the systems changes and ongoing systems interactions that would be 

needed to implement the methodology as proposed. 

We reconsidered the other methodologies for waiving coinsurance presented in 

the proposed rule. However, we believe that these options would also be difficult for 

providers to replicate at point of service. 

We proposed that we would continue to use FQHC-reported charges to determine 

the amount of coinsurance that should be waived for payments based on the FQHC's 

charge. We believed that the current approach to waiving coinsurance for preventive 

services, which relies solely on FQHC reported charges, would be insufficient under the 

FQHC PPS for payments based on the FQHC PPS rate. 

In response to commenters that requested that CMS rethink this calculation to 

simplify how coinsurance would be assessed for these types of claims, we reconsidered 
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whether the current approach to waiving coinsurance for preventive services when 

payments are based on the FQHC's charge could be adapted to payments based on the 

FQHC PPS rate. After reconsideration of how coinsurance could be assessed, we now 

believe that the current approach is feasible and relatively simple to apply to payments 

based on the FQHC PPS rate, with certain modifications. 

If we were to apply the current approach of waiving coinsurance for preventive 

services under the new FQHC PPS, we would subtract the dollar value of the FQHC's 

reported line-item charge for the preventive service from the full payment amount, 

whether payment is based on the FQHC's charge or the PPS rate. Medicare would pay 

the FQHC 100 percent of the dollar value of the FQHC's reported line-item charge for the 

preventive service, up to the total payment amount. Medicare also would pay a FQHC 

80 percent of the remainder of the full payment amount, and we would assess beneficiary 

coinsurance at 20 percent of the remainder of the full payment amount. If the reported 

line-item charge for the preventive service equals or exceeds the full payment amount, we 

would pay 100 percent of the full payment amount and the beneficiary would not be 

responsible for any coinsurance. 

We believe that the relative simplicity of this revised methodology is responsive 

to commenters that requested a simpler calculation that would be easier to replicate at 

point of service, and a coinsurance waiver based on the reported line item charges will be 

more transparent to beneficiaries. We also believe that the similarity to the current 

approach for waiving coinsurance for preventive services will be simpler for Medicare 

claims processing systems to implement. 
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After consideration of the public comments received, we will not finalize the 

process for calculating the coinsurance as proposed, and instead will modify the proposed 

regulatory text at § 405.2410 and § 405.2462 based on the comments received. 

Specifically, we will use the current approach to waiving coinsurance for preventive 

services, whether total payment is based on the FQHC's charge or the PPS rate, by 

subtracting the dollar value of the FQHC's reported line-item charge for the preventive 

services from the full payment amount. We will issue further guidance on the billing 

procedures through program instruction. We invite comments on this approach to 

waiving coinsurance for preventive services based on the dollar value of the FQHC's 

reported line-item charge for preventive services. 

5. Cost Reporting 

Under section 1815(a) of the Act, providers participating in the Medicare program 

are required to submit financial and statistical information to achieve settlement of costs 

relating to health care services rendered to Medicare beneficiaries. This information is 

required for determining Medicare payment for FQHC services under Part 405, 

Subpart X. 

Currently, the Medicare cost reporting forms show the costs incurred and the total 

number of visits for FQHC services during the cost reporting period. Using this 

information, the MAC determines the total payment amount due for covered services 

furnished to Medicare beneficiaries. The MAC compares the total payment due with the 

total payments made for services furnished during the reporting period. If the total 

payment due exceeds the total payments made, the difference is made up by a lump sum 
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payment. If the total payment due is less than the total payments made, the overpayment 

is collected. 

Under the FQHC PPS, Medicare payment for FQHC services will be made based 

on the lesser of a predetermined national rate or the FQHC charge. For services included 

in the FQHC per diem payment, Medicare cost reports would not be used to reconcile 

Medicare payments with FQHC costs. However, the statute does not exempt FQHCs 

from submitting cost reports. In addition, Medicare payments for the reasonable costs of 

the influenza and pneumococcal vaccines and their administration, allowable graduate 

medical education costs, and bad debts would continue to be determined and paid through 

the cost report. We noted that we are considering revisions to the cost reporting forms 

and instructions that would provide us with information that would improve the quality of 

our cost estimates, such as the reporting of a FQHC's overall and Medicare specific CCR, 

and the types of cost data that would facilitate the potential development of a FQHC 

market basket that could be used in base payment updates after the second year of the 

PPS. We noted that we are also exploring whether we have audit resources to include 

FQHCs in the pool of institutional providers that are subject to periodic cost report audits. 

Comment: A commenter requested that CMS consider suspending the required 

submission of annual cost reports once all FQHCs have transitioned to the FQHC PPS. 

Response: The statute does not exempt FQHCs from submitting cost reports. In 

addition, we continue to need cost reports for payments to FQHCs that are outside of the 

PPS, to update our cost estimates, and to facilitate the potential development of a FQHC 

market basket. 

6. Medicare Advantage Organizations 
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Section 10501(i)(3)(C) of the Affordable Care Act added section 

1833(a)(3)(B)(i)(II) to the Act to require that FQHCs that contract with MA organizations 

be paid at least the same amount they would have received for the same service under the 

FQHC PPS. This provision ensures FQHCs are paid at least the Medicare amount for 

FQHC services, whether such amount is set by section 1833(a)(3) of the Act or 

section 1834(o) of the Act. Consistent with current policy, if the MA organization 

contract rate is lower than the amount Medicare would otherwise pay for FQHC services, 

FQHCs that contract with MA organizations would receive a wrap-around payment from 

Medicare to cover the difference (see § 422.316). If the MA organization contract rate is 

higher than the amount Medicare would otherwise pay for FQHC services, there is no 

additional payment from Medicare. We proposed to revise § 405.2469 to reflect this 

provision. 

Comment: A few commenters requested clarification that wrap-around payments 

will be established based on the PPS rate, as modified by any applicable adjusters, and 

not based on the FQHC's charge, if such charge is less than the PPS rate. 

Response: FQHCs that have a written contract with a MA organization are paid 

by the MA organization at the rate that is specified in their contract, and the rate must 

reflect rates for similar services furnished outside of a FQHC setting. If the contracted 

rate is less than the Medicare PPS rate, Medicare will pay the FQHC the difference, 

referred to as a wrap-around payment, less any cost sharing amounts owed by the 

beneficiary. The PPS rate is subject to the FQHC GAF, and may also be adjusted for a 

new patient visit or if a IPPE or AWV is furnished. The supplemental payment is only 

paid if the contracted rate is less than the adjusted PPS rate. 
111 

Comment: Commenters requested that CMS issue guidance discouraging MA 

plans from applying any deductible under the MA plan to FQHC services. 

Response: MA plans are not subject to section 1833(b)(4) of the Act and 

therefore are not required to waive application of the Medicare deductible to beneficiaries 

in FQHCs. Guidance on this topic is beyond the scope of this final rule with comment 

period. 

After consideration of the public comments received, we are finalizing this 

provision as proposed. 

III. Additional Proposed Changes Regarding FQHCs and RHCs 

A. Rural Health Clinic Contracting 

Due to the difficulty in recruiting and retaining physicians in rural areas, RHCs 

have had the option of using physicians who are either RHC employees or contractors. 

However, in order to promote stability and continuity of care, the Rural Health Clinic 

Services Act of 1977 required RHCs to employ a nurse practitioner (NP) or physician 

assistant (PA) (section 1861(aa)(2)(iii) of the Act). We have interpreted the term 

"employ" to mean that the employer issues a W-2 form to the employee. 

Section 405.2468(b)(1) currently states that RHCs are not paid for services furnished by 

contracted individuals other than physicians, and § 491.8(a)(3) does not authorize RHCs 

to contract with RHC practitioners other than physicians. 

In the more than 30 years since this legislation was enacted, the health care 

environment has changed dramatically, and RHCs have requested that they be allowed to 

enter into contractual agreements with non-physician RHC practitioners as well as 

physicians. To provide RHCs with greater flexibility in meeting their staffing 
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requirements, we proposed to revise § 405.2468(b)(1) by removing the parenthetical 

"RHCs are not paid for services furnished by contracted individuals other than 

physicians, " and revising § 491.8(a)(3) to allow non-physician practitioners to furnish 

services under contract in RHCs, when at least one NP or PA is employed. 

The ability to contract with NPs, PAs, CNMs, CP, and CSWs would provide 

RHCs with additional flexibility with respect to recruiting and retaining non-physician 

practitioners. Practitioners should be employed or contracted to the RHC in a manner 

that enhances continuity and quality of care. 

RHCs would still be required, under section 1861(aa)(2)(iii) of the Act, to employ 

a PA or NP. However, as long as there is at least one NP or PA employed at all times 

(subject to the waiver provision for existing RHCs set forth at section 1861(aa)(7) of the 

Act), a RHC would be free to enter into contracts with other NPs, PAs, CNM, CPs or 

CSWs. 

We received approximately 14 comments from individuals, hospitals, rural health 

clinics, national associations, and tribal organizations on this proposal. Commenters 

agreed that this would provide RHCs with additional flexibility and improve access to 

care. Some commenters also noted that this would reduce certain costs. 

Comment: A commenter requested that CMS allow all PAs and NPs who work at 

a RHC to do so as contractors to allow maximum flexibility in the clinic's staffing 

operations. 

 Response: As previously noted, section 1861(aa)(2)(iii) of the Act requires RHCs 

to employ at least one NP or PA. We do not have the authority to remove this 
113 

requirement. However, we note that as long as the statutory requirement that at least one 

NP or PA is employed is met, the RHC can contract with other NPs or PAs. 

Comment: A commenter recommended that we interpret the word "employ" to 

mean "utilize, use, or engage the services of" so that independent contractors could meet 

the statutory requirement that at least one NP or PA be employed. 

Response: We appreciate the suggestion but since we did not propose to change 

our interpretation of the word "employ", this comment is beyond the scope of this rule. 

We note however, that as of the effective date of this provision of this final rule with 

comment period, only one PA or NP will be required to be in a W-2 relationship with the 

RHC, and that all other RHC practitioners can be either employees or contractors. 

After consideration of the public comments received, we are finalizing this 

provision as proposed. 

B. Technical and Conforming Changes 

1. Proposed Technical and Conforming Changes 

In addition to proposing to codify the statutory requirements for the FQHC PPS 

and to allow RHCs to contract with non-physician practitioners, we proposed edits to 

correct terminology, clarify policy, and make conforming changes for existing mandates 

and the new PPS. Some of the proposed changes include the following: 

• Removing the terms "fiscal intermediary and carriers" and replacing them with 

"Medicare Administrative Contractor" or "MAC". Section 911 of the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 established the MACs 

to administer the work that was done by fiscal intermediaries and carriers in 
114 

administering Medicare programs. 

• Removing the payment limitations for treatment of mental psychoneurotic or 

personality disorders. This payment limitation is being phased out and will no longer be 

in effect beginning January 1, 2014. 

• Updating the regulations to reflect section 410 of the Medicare Modernization 

Act of 2003 to exclude RHC and FQHC services furnished by physicians and certain 

other specified types of nonphysician practitioners from consolidated billing under 

section 1888(e)(2)(A)(ii) of the Act and allows such services to be separately billable 

under Part B when furnished to a resident of a SNF during a covered Part A stay (see the 

July 30, 2004 final rule (69 FR 45818 through 45819). This statutory provision was 

effective with services furnished on or after January 1, 2005 and was previously 

implemented through program instruction (CMS Pub 100-04, Medicare Claims 

Processing Manual, Chapter 6, Section 20.1.1). 

We did not receive any comments on these technical proposals and we are 

finalizing these provisions as proposed. 

2. Additional Technical and Conforming Changes 

We did not propose the following changes, but based on our review of the rule, 

we make the following clarifying and editorial changes: 

• Updating § 405.501 and § 410.152 to clarify that this provision on the 

determination of reasonable charges continues to apply to FQHCs that are authorized to 

bill under the reasonable cost payment system, and does not apply to FQHCs that are 

authorized to bill under the PPS. 
115 

• Updating § 410.152 to clarify that this provision continues to apply to FQHCs 

that are authorized to bill under the reasonable cost payment system, and does not apply 

to FQHCs that are authorized to bill under the PPS. 

• Updating § 405.2468 (f)(4) to reflect the change in name from "Medicare + 

Choice" organization to "Medicare Advantage" organization. 

• Updated § 405.2415(a)(2) and (b) to clarify that these provisions apply to 

FQHCs. 

• Updated § 405.2404(b) to make the references to the Secretary gender neutral. 

C. Comments Outside of the Scope of the Proposed Rule 

 Comment: Many commenters requested that all FQHCs be assigned to one MAC 

instead of each FQHC being assigned to a MAC based on their geographic location. 

Commenters believe that assigning FQHCs to multiple MACS results in confusion and 

inconsistency as each MAC can issue different instructions concerning the FQHC benefit 

and associated billing requirements. 

Response: Section 421.404 describes how FQHCs as well as other providers and 

suppliers are assigned to a MAC; changes to the MAC assignments are beyond the scope 

of this rule. 

Comment: A few commenters requested that CMS revise the definition of 

telehealth so that FQHCs could be distant site providers of telehealth services. 

Response: Distant site providers of telehealth services are defined in section 

1834(m) of the Act. We made no provision relating to telehealth and this topic is beyond 

the scope of this rule. 
116 

Comment: A commenter requested that PAs be allowed to individually enroll as 

Medicare and Medicaid providers and bill for their services. 

Response: Section 1842(b) of the Act prohibits PAs from directly billing 

Medicare. This topic is beyond the scope of this rule. 

Comment: A commenter requested that CMS mandate that states pay FQHCs 

their full Medicaid encounter rate for any Medicare-Medicaid enrollees. 

Response: This is currently a state option and this topic is beyond the scope of 

this rule. 

IV. Clinical Laboratory Improvement Amendments of 1988 (CLIA)—Enforcement 

Actions for Proficiency Testing Referral 

A. Background 

On October 31, 1988, the Congress enacted the Clinical Laboratory Improvement 

Amendments of 1988 (CLIA), Pub. L. 100-578. The purpose of CLIA is to ensure the 

accuracy and reliability of laboratory testing for all Americans. Under this authority, 

which was codified at 42 U.S.C. 263a, the Secretary issued regulations implementing 

CLIA (see 42 CFR part 493) on February 28, 1992 (57 FR 7002). The regulations 

specify the standards and specific conditions that must be met to achieve and maintain 

CLIA certification. CLIA certification is required for all laboratories, including but not 

limited to those that participate in Medicare and Medicaid, which test human specimens 

for the purpose of providing information for the diagnosis, prevention, or treatment of 

any disease or impairment, or the assessment of health, of human beings. 

The regulations require laboratories conducting moderate or high-complexity 

testing to enroll in an HHS-approved PT program that covers all of the specialties and 
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subspecialties for which the laboratory is certified and all analyses listed in part 493 

Subpart I. As of June 2013, there were 239,922 CLIA-certified laboratories. Of these 

laboratories, 35,035 are required to enroll in an HHS-approved PT program and are 

subject to all PT regulations. 

Congress emphasized the importance of PT when it drafted the CLIA legislation. 

For example, in discussing their motivation in enacting CLIA, the Committee on Energy 

and Commerce noted that it "focused particularly on proficiency testing because it is 

considered one of the best measures of laboratory performance" and that proficiency 

testing "is arguably the most important measure, since it reviews actual test results rather 

than merely gauging the potential for good results." (See H.R. Rept. 100-899, at 15 

(1988).) The Committee surmised that, left to their own devices, some laboratories 

would be inclined to treat PT samples differently than their patient specimens, as they 

would know that the laboratory would be judged based on its performance in analyzing 

those samples. For example, such laboratories might be expected to perform repeated 

tests on the PT sample, use more highly qualified personnel than are routinely used for 

such testing, or send the samples out to another laboratory for analysis. As such practices 

would undermine the purpose of PT, the Committee noted that the CLIA statute was 

drafted to bar laboratories from such practices, and to impose significant penalties on 

those who elect to violate those bars (H.R. Rept. 100-899, at 16 and 24 (1988)). 

PT is a valuable tool the laboratory can use to verify the accuracy and reliability 

of its testing. During PT, an HHS-approved PT program sends samples to be tested by a 

laboratory on a scheduled basis. After testing the PT samples, the laboratory reports its 

results back to the PT program for scoring. Review and analyses of PT reports by the 
118 

laboratory director will alert the director to areas of testing that are not performing as 

expected and may also indicate subtle shifts or trends that, over time, could affect patient 

results. As there is no on-site, external proctor for PT testing in a laboratory, the testing 

relies in large part on an honor system. The PT program places heavy reliance on each 

laboratory and laboratory director to self-police their analyses of PT samples to ensure 

that the testing is performed in accordance with the CLIA requirements. For each PT 

event, laboratories are required to attest that PT samples are tested in the same manner as 

patient specimens are tested. PT samples are to be assessed by integrating them into the 

laboratory's routine patient workload, and the testing itself is to be conducted by the 

personnel who routinely perform such testing, using the laboratory's routine methods. 

The laboratory is barred from engaging in inter-laboratory communication pertaining to 

results prior to the PT program's event cut-off date and must not send the PT samples or 

any portion of the PT samples to another laboratory for testing, even if it would normally 

send a patient specimen to another laboratory for testing. 

Any laboratory that intentionally refers its PT samples to another laboratory for 

analysis risks having its certification revoked for at least 1 year, in which case, any owner 

or operator of the laboratory risks being prohibited from owning or operating another 

laboratory for 2 years (§ 493.1840(a)(8) and (b)). The phrase "intentionally referred" has 

not been defined by the statute or regulations, but we have consistently interpreted this 

phrase from the onset of the program to mean general intent, as in intention to act. 

Whether or not acts are authorized or even known by the laboratory's management, a 

laboratory is responsible for the acts of its employees. Among other things, laboratories 

need to have procedures in place and train employees on those procedures to prevent staff 
119 

from forwarding PT samples to other laboratories even in instances in which they would 

normally forward a patient specimen for testing. 

In the February 7, 2013 Federal Register (78 FR 9216), we published a proposed 

rule titled Part II – Regulatory Provisions to Promote Program Efficiency, Transparency, 

and Burden Reduction (hereafter referred to as the "Burden Reduction proposed rule") to 

propose reforms to the Medicare and CLIA regulations that we had identified as 

unnecessary, obsolete or excessively burdensome. In that rule, we proposed changes to 

the CLIA PT regulations to establish policies under which certain PT referrals by 

laboratories would generally not be subject to revocation of their CLIA certificate or a 

2-year prohibition on laboratory ownership or operation. To do this, we proposed a 

narrow exception in our longstanding interpretation of what constitutes an "intentional" 

PT referral. 

While that proposed rule was under development but before its publication, the 

Congress enacted the Taking Essential Steps for Testing Act of 2012 (Pub. L. 112-202, 

(TEST Act) on December 4, 2012. The TEST Act amended section 353 of the PHS Act 

to provide the Secretary with discretion as to which sanctions she would apply to cases of 

intentional PT referral. 

In the February 7, 2013 Burden Reduction proposed rule (78 FR 9216), we stated 

that we would address the TEST Act in future rulemaking, except that to comply with the 

TEST Act and begin to align the CLIA regulations with the amended CLIA statute, we 

proposed to revise the second sentence of § 493.801(b)(4) to state that a laboratory may 

(as opposed to "must") have its CLIA certification revoked when we determine PT 

samples were intentionally referred to another laboratory. 
120 

 Subsequently, in the September 23, 2013 (78 FR 58386) proposed rule addressing 

the FQHC PPS and other topics, we proposed additional changes to the CLIA regulations 

to implement the TEST Act. 

The regulatory changes in this final rule with comment period will add the 

remaining policies and regulatory changes needed to fully implement the TEST Act. 

B. Proposed and Final Regulatory Changes 

As noted earlier, the TEST Act provided the Secretary with the discretion to 

substitute intermediate sanctions in lieu of the 2-year prohibition on the owner and 

operator when a CLIA certificate is revoked due to intentional PT referral, and to 

consider imposing alternative sanctions in lieu of revocation in such cases as well. The 

TEST Act provides the Secretary with the opportunity to frame policies that will achieve 

a better correlation between the nature and extent of intentional PT referrals at a given 

laboratory, and the scope and type of sanctions or corrective actions that are imposed on 

that laboratory and its owners and operators, as well as any consequences to other 

laboratories owned or operated by those owners and operators. 

As discussed later in this section, we are finalizing the regulatory changes 

proposed in the September 23, 2013 proposed rule, which will divide the sanctions for PT 

referral into three categories based on severity and extent of the referrals. The first 

category is for the most egregious violations, encompassing cases of repeat PT referral or 

cases where a laboratory reports another laboratory's test results as its own. In such 

cases, we do not believe that alternative sanctions alone would be appropriate. Therefore, 

we proposed to revoke the CLIA certificate for at least 1 year, ban the owner and 
121 

operator from owning or operating a CLIA-certified laboratory for at least 1 year, and 

possibly impose a civil monetary penalty (CMP). 

In keeping with the February 7, 2013 proposed rule (78 FR 9216), we proposed to 

define, at § 493.2, a "repeat proficiency testing referral" as "a second instance in which a 

proficiency testing sample, or a portion of a sample, is referred, for any reason, to another 

laboratory for analysis prior to the laboratory's proficiency testing program event cut-off 

date within the period of time encompassing the two prior survey cycles (including initial 

certification, recertification, or the equivalent for laboratories surveyed by an approved 

accreditation organization)." 

We believe that a repeat PT referral warrants revocation of a laboratory's CLIA 

certificate for at least 1 year because such laboratories have already been given 

opportunity to review their policies, correct their deficiencies, adhere to regulation and to 

the laboratory's established policy, and ensure effective training of their personnel. As 

there is no on-site, external proctor for PT testing in a laboratory, the testing relies in 

large part on an honor system. Therefore, when a PT referral has previously occurred 

prior to the event cut-off date within the two prior survey cycles, we do not believe that 

laboratories should be given additional opportunities to ensure that they are meeting the 

CLIA PT requirements and believe that revocation of the CLIA certificate should 

consequently occur. We also proposed, in the first category, that the CLIA certificate be 

revoked, and the owner and operator banned from owning or operating a CLIA-certified 

laboratory for at least 1 year, in cases where the PT sample was referred to another 

laboratory, the referring laboratory received the results from the other laboratory, and the 

referring laboratory reported to the PT program the other laboratory's results on or before 
122 

the event cut-off date. We noted that PT programs place heavy reliance on each 

laboratory and laboratory director's ability to self-police the laboratory's analysis of PT 

samples to ensure that the testing is performed in accordance with the CLIA 

requirements. PT scores must reflect an individual laboratory's performance- reporting 

results from another laboratory is deceptive to the public. These are the most egregious 

forms of PT referral and merit the most severe sanctions. 

For example, a laboratory may have two distinct sites, Laboratory A and 

Laboratory B, that operate under different CLIA numbers, where Laboratory A has 

received PT samples to be tested as part of its enrollment in PT as required by the CLIA 

regulations. If Laboratory A were to refer PT samples to Laboratory B, receive test 

results back at Laboratory A from Laboratory B prior to the event cutoff date, and report 

to the PT program those results obtained from Laboratory B, the scores for the PT event 

would not reflect the performance of Laboratory A, but rather the performance of 

Laboratory B. Since the PT scores would actually be reflective of the accuracy and 

reliability at Laboratory B rather than A, the purpose of the PT would be undermined. 

Further, as stated in the CLIA regulations at § 493.801(a)(4)(ii), the laboratory must 

make PT results available to the public. In this scenario, any member of the public who 

sought to use the reported PT scores to select a high-quality laboratory would be deceived 

by the scores for the results submitted to the PT program, as they would expect that they 

were provided information about the performance of Laboratory A when that would not 

be the case. 

In cases of PT referral where the CLIA certificate is revoked, the TEST Act 

provides the Secretary with discretion to ban the owner and operator from owning or 
123 

operating a CLIA-certified laboratory for up to 2 years. Prior to the TEST Act, 

revocation of a CLIA certificate for a PT violation always triggered a 2-year ban on the 

owner and operator. Given the severity of violations involving repeat PT referrals or the 

reporting of another laboratory's results, we proposed that the laboratory owner and 

operator would be banned from owning or operating a CLIA-certified laboratory for at 

least 1 year for any violation within this first category of sanctions. 

We also proposed a second category of sanctions under which the CLIA 

certificate would be suspended or limited (rather than revoked), in combination with the 

imposition of alternative sanctions. We proposed to use this approach in those instances 

in which a laboratory refers PT samples to a laboratory that operates under a different 

CLIA number before the PT event close date and, while the laboratory reports its own 

results to the PT program, it receives results from the second laboratory prior to the event 

close date. Such a referral situation would allow the referring laboratory an opportunity 

to confirm, check, or change its results prior to reporting its results to the PT program. If, 

upon investigation, surveyors determine that the referral does not constitute a repeat PT 

referral, we proposed to suspend or limit the CLIA certificate for less than 1 year rather 

than revoke the CLIA certificate, and proposed that we also impose alternative sanctions 

(as an alternative to revocation of the CLIA certificate). Further, an alternative sanction 

would always include required training of staff. 

A suspension of the CLIA certificate means that no testing of human specimens 

for health care purposes may be performed by that laboratory during the period of 

suspension. In such cases, the owner or operator typically contracts out for laboratory 

services, or contracts with another operator to operate the laboratory under the contracted 
124 

laboratory's CLIA certificate. In contrast to revocation of the CLIA certificate and its 

accompanying ban on the owner and operator, suspension usually applies only to the 

individual laboratory in question rather than all laboratories that are under the control of 

the owner or operator. 

A limitation of the CLIA certificate means that the laboratory is not permitted to 

perform testing or to bill Medicare or Medicaid for laboratory work in the specialty or 

subspecialty that has been limited, but may continue to conduct all other testing under its 

own CLIA certificate. 

In determining whether to suspend or limit the CLIA certificate, we proposed to 

apply the criteria of § 493.1804(d). For example, we would examine the extent of the PT 

referral practice as well as its duration. If surveyors determine that, in the previous two 

survey cycles, there were prior PT referrals that occurred but were not cited by CMS, 

then the CLIA certificate would always be suspended rather than just limited. The 

duration of the suspension would reflect the number of samples referred, the period of 

time the referrals had been occurring, the extent of the practice, and other criteria 

specified at § 493.1804(d). 

Further, for cases in the second category, we proposed that when the certificate is 

suspended or limited, alternative sanctions would be applied in addition to the principal 

sanctions of suspension or limitation. We proposed that, at a minimum, the alternative 

sanctions would include a CMP to be determined using the criteria set forth in 

§ 493.1834, as well as a directed plan of correction. Additionally, if the CLIA certificate 

is suspended, we proposed to also impose state on-site monitoring of the laboratory. 
125 

A third category of sanctions was proposed for those PT referral scenarios in 

which the referring laboratory does not receive test results prior to the event cut-off date 

from another laboratory as a result of the PT referral. We proposed that in such 

scenarios, at a minimum, the laboratory would always be required to pay a CMP as 

calculated using the criteria set forth in § 493.1834, as well as comply with a directed 

plan of correction. A directed plan of correction would always include training of staff. 

For example, a laboratory may place PT samples in an area where other patient 

specimens are picked up by courier to take to a reference laboratory. The reference 

laboratory courier may take the PT samples along with the patients' specimens. The 

laboratory personnel notice that the PT samples are missing and contact the reference 

laboratory to inquire if they have received the PT samples along with the patients' 

specimens. The reference laboratory is instructed to discard the PT samples and not test 

them since they were picked up in error. In this case, the "referring" laboratory realized 

the error, contacted the receiving laboratory, and did not receive results back for any of 

the PT samples. In this scenario, we proposed to impose only alternative sanctions. In 

determining whether to impose particular alternative sanctions, we proposed to rely on 

the existing considerations at § 493.1804(c) and (d), § 493.1806(c), § 493.1807(b), 

§ 493.1809 and, in the case of civil money penalties, § 493.1834(d). These current 

regulations have proven effective as enforcement measures over time for CLIA 

noncompliance for all circumstances other than PT referral. Therefore, we expressed our 

belief that these same criteria will be effective in the imposition of alternative sanctions 

for PT referral cases. 

In summary, we proposed to amend § 493.1840 by revising paragraph (b) to 
126 

specify three categories for the imposition of sanctions for PT referrals. We believed that 

these provisions, as amended, would provide the necessary detail to fairly and uniformly 

apply the discretion granted to the Secretary under the TEST Act, without being so 

specific as to defeat the intent to provide appropriate flexibility when taking punitive or 

remedial action in the context of a PT referral finding. 

We also proposed to make three conforming changes to the CLIA regulations at 

the authority citation for § 493 and at § 493.1 and § 493.1800(a)(2) to include references 

to the PHS Act as amended by the TEST Act. 

We received 14 timely public comments on the proposed changes to the CLIA 

regulations to implement the enforcement discretion for PT referral cases as provided by 

the TEST Act. The comments came from a variety of sources, including laboratory 

accreditation organizations, laboratory professional organizations, medical societies, 

health care systems, and a professional corporation. In general, commenters supported 

and favored the changes to the regulations governing enforcement actions for PT referral. 

The majority of commenters agreed that the three categories were reasonable and would 

allow CMS to respond to PT referrals in a measured approach. However, a few 

commenters expressed concern that our proposed approach to enforcement was too 

prescriptive and would not allow for full use of the discretion afforded by the TEST Act. 

Because of the nature and consequences of the enforcement actions for PT referral, the 

seriousness of a PT referral violation, and the heavy reliance on each laboratory and 

laboratory director to self-police their analysis of PT samples to ensure that the testing is 

performed in accordance with the CLIA requirements, we developed a prescriptive 
127 

framework for enforcement actions in order to apply sanctions in a comprehensive, 

reasonable, and consistent approach. We respond to specific comments as follows: 

Comment: A few commenters stated that waived laboratories should be exempt 

from penalties associated with PT referral since they are not required by law to 

participate in PT. 

Response: While this comment is outside the scope of this rule, we would like to 

clarify that the CLIA statute (42 U.S.C. 263a) states that laboratories holding a certificate 

of waiver are only exempt from subsections (f) and (g) of the statute. All other 

subsections apply, including the prohibition against PT referral and the statutory 

consequences established in subsection (i), which refers to "any laboratory" that the 

Secretary determines has intentionally referred its PT samples. Therefore, the statutory 

requirements under subsection (i) do apply to waived laboratories that participate in PT 

and waived laboratories are not exempt from the ban against the referral of PT samples 

and the penalties required when PT referral has been substantiated. 

Comment: A commenter questioned how CMS will ensure regional offices and 

state surveyors are consistent in the application of these changes and the associated 

enforcement. 

Response: We will continue using the current process that requires all suspected 

PT referral cases to be reviewed by the CMS Regional Office and also forwarded to CMS 

Central Office for additional review by a team of experts. The team will continue to 

thoroughly review every case to determine whether the facts support a determination of 

PT referral and, if so, which category of sanctions will be applied. Written survey and 
128 

enforcement guidance and training will be provided to the regional offices and state 

agencies and will be made publicly available. 

Comment: Several commenters stated that CMS should develop and adopt a 

definition for "intentional" as it applies to PT referral and add the definition to § 493.2 in 

the CLIA regulations. 

Response: While this comment is outside the scope of this rule, we point the 

commenter to the Burden Reduction proposed rule (78 FR 9216). From the onset of the 

CLIA program, we have consistently interpreted the phrase "intentionally refers" to mean 

general intent, as in intention to act. We proposed the first exception to our longstanding 

interpretation of "intentionally refers" in the Burden Reduction proposed rule. Under that 

proposal, a referral would not be considered "intentional" if our investigation reveals PT 

samples were sent to another laboratory for reflex or confirmatory testing, the referral is 

not a repeat PT referral, and the referral occurred while acting in full conformance with 

the laboratory's written, legally accurate, and adequate standard operating procedure. 

Comment: Several commenters questioned if a repeat PT referral included 

multiple analyses on a referred PT sample or multiple PT samples in the same PT event. 

Response: As stated in the definition of "repeat proficiency testing referral," to be 

considered a repeat PT referral, the referral must be a second instance in which a PT 

sample, or a portion of a sample, is referred, for any reason, to another laboratory for 

analysis prior to the laboratory's PT program event cut-off date within the period of time 

encompassing the two prior survey cycles (including initial certification, recertification, 

or the equivalent for laboratories surveyed by an approved accreditation organization). A 

single instance of referral for multiple analyses on a single PT sample set, or referral for 
129 

analyses of multiple samples from the same PT event, would not be considered a "second 

instance." A second instance of referral would arise when referral is made from an 

entirely different set of PT samples from an entirely different PT event sent on a date that 

is different from the date of the earlier PT event. 

Comment: A commenter recommended that CMS not revoke a certificate for a 

repeat PT referral unless CMS could determine that the repeat referral occurred in similar 

or the same circumstances to the initial referral. 

Response: As stated previously, except in the most egregious instances of PT 

referral where the PT sample was referred to another laboratory, the referring laboratory 

received the results from the other laboratory, and the referring laboratory reported to the 

PT program the other laboratory's results on or before the event cut-off date, the 

laboratory's CLIA certificate will not be revoked for a single instance of PT referral. 

Such an instance of PT referral will result in alternative sanctions. This provides the 

laboratory an opportunity to review all policies and procedures and an opportunity to 

thoroughly train all staff to mitigate all chances of a second instance of PT referral. The 

timeframe included in the definition of a repeat referral has been defined as the two 

survey cycles prior to the time of the PT referral in question. Two survey cycles 

generally equates to a 4-year period on average. This is not a precise calendar time 

period but, with respect to a given laboratory, is carefully recorded as a matter of actual 

and documented survey event dates. We believe that it is reasonable to expect 

laboratories to maintain a heightened vigilance for this timeframe to ensure that they do 

not have any repeated referrals of PT samples. The narrow exception to the 

determination of an intentional referral described in the Burden Reduction proposed rule 
130 

will, once finalized, be considered a single instance and will be incorporated in the 

determination of whether a repeat PT referral has taken place. 

Comment: Several commenters questioned whether CMS will finalize the Burden 

Reduction proposed rule which proposed reforms to the Medicare and CLIA regulations 

that we identified as unnecessary, obsolete or excessively burdensome and questioned 

how the September 23, 2013 proposed rule relates to the Burden Reduction proposed 

rule. 

Response: In the Burden Reduction proposed rule, we proposed a narrow 

exception to our longstanding interpretation of what constitutes an "intentional" PT 

referral. The proposed narrow exception in the Burden Reduction rule would work in 

concert with the framework described in this final rule for enforcement for PT referral to 

ensure the severity of the sanctions fits the nature and extent of the PT referral violation. 

Comment: Several commenters expressed concern with the first category of 

sanctions against the laboratory and the owner and operator for the most egregious forms 

of PT referral. While the commenters agreed that the most egregious forms of PT referral 

warrant the most serious sanctions and that the laboratory director should also be 

sanctioned, there was concern about the automatic prohibition against the laboratory 

owner. Each commenter who raised this issue expressed concern that a mandatory 1 year 

prohibition for owners, that applies to all laboratories of that owner, is not reasonable for 

large health systems that often own a large number of laboratories in many locations. 

The commenters expressed concern that patient care may be impacted if such an owner is 

prohibited from obtaining or maintaining a CLIA certificate for any laboratory that tests 

human specimens for health care purposes. The commenters suggested that the one year 
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ban for the owner should be limited to the single laboratory where the PT referral 

occurred. 

Response: It is incumbent upon laboratories to organize in a manner that allows 

them to mitigate circumstances so that when one or more laboratories are sanctioned, the 

rest of the laboratory network is not unduly impacted. However, we also recognize that 

there are benefits to large health systems organizing in ways to promote efficiency of care 

with the least cost to their patients. We agree that there should be some discretion in the 

regulation to allow for flexibility in the mandatory 1-year ban against owners of 

laboratories that, if barred from ownership, would create access issues in the communities 

in which they serve. However, when the CLIA certificate is revoked for the most 

egregious violations, encompassing cases of repeat PT referral or cases where a 

laboratory reports another laboratory's test results as its own, we believe that the owner 

and operator should be banned from owning or operating a laboratory for at least 1 year, 

so we will retain that sanction. However, in response to comments, we are adding a 

provision to limit the reach of the owner ban for certain laboratories under the same 

ownership as the revoked laboratory if we find, after review of relevant facts and 

circumstances, that patients would not be at risk if the laboratory were exempted from the 

ban, and that there is no evidence that a laboratory to be exempted from the ban 

participated or was complicit in the PT referral, except that any laboratory of the owner 

that received a PT sample from another laboratory, and failed to timely report such 

receipt to CMS or to a CMS-approved accrediting organization, may not be exempted 

from the owner ban. In assessing whether patients would be potentially at risk if the 

laboratory were exempted from the ban, we will consider factors including, but not 
132 

limited to, the following: the extent to which staff of the laboratory or laboratories that 

may be exempted from the owner ban have been adequately trained, and will promptly 

have such training reinforced, regarding PT; the history of compliance with the CLIA 

regulations; evidence of any systemic quality issues for the laboratory or laboratories that 

seek to be exempted from the owner ban; and the potential for access to care problems for 

patients if the laboratory or laboratories are not granted an exemption from the owner 

ban. We are revising our regulations at § 493.1840(b)(1) to incorporate this exception. 

Comment: Several commenters requested further clarification of when CMS will 

limit the suspension or limitation to the individual laboratory where the PT referral 

occurred rather than suspending or limiting the CLIA certificate of all of the laboratories 

under the control of the owner or operator. The commenters recommended that we use a 

centralized process to determine whether suspension or limitation is appropriate in each 

case rather than leaving the decision up to an individual surveyor. 

Response: As stated in the September 23 2013 proposed rule, the CLIA 

certificate will be suspended or limited (rather than revoked), in combination with 

alternative sanctions, in those instances in which a laboratory refers PT samples to a 

laboratory that operates under a different CLIA number before the PT event close date 

and, while the laboratory reports its own results to the PT program, it receives results 

from the second laboratory prior to the event close date. In contrast to revocation of the 

CLIA certificate and its accompanying ban on the owner and operator, suspension 

usually applies only to the individual laboratory in question rather than all laboratories 

that are under the control of the owner or operator. Suspension or limitation will always 

apply to the laboratory that sent the PT sample to another laboratory (that operates under 
133 

a different CLIA number) before the PT event close date and, while the laboratory reports 

its own results to the PT program, it receives results from the second laboratory prior to 

the event close date. We may also suspend or limit the CLIA certificate of other 

laboratories operating under the same owner depending upon the facts and circumstances 

of the individual case. For example, if such a laboratory received PT samples from 

another laboratory and did not report the receipt of those PT samples to us, suspension or 

limitation will also be considered for that laboratory. As stated previously, it is 

incumbent upon laboratories to organize in a manner to mitigate circumstances so that 

enforcement against a CLIA certificate does not unduly impact other laboratories 

operating under the same CLIA number. An exhaustive list of scenarios cannot be 

provided since each case of PT referral is unique and there is no way to predict every 

possible scenario. In determining whether to suspend or limit the CLIA certificate, we 

will examine the extent of the PT referral practice as well as its duration and apply the 

criteria of § 493.1804(d). We will develop further written surveyor guidance for the 

imposition of the suspension and limitation in PT referral cases. This guidance will be 

publicly available. 

Comment: Several commenters expressed concern that a CMP will always be 

applied to laboratories in PT referral scenarios in which the referring laboratory does not 

receive test results prior to the event cut-off date from another laboratory as a result of the 

PT referral. Some stated that no sanctions should be applied in these cases because they 

are minor infractions and this category has no flexibility where it is most needed. 

Response: While PT referrals may differ in severity and scope, we consider a PT 

referral infraction one of the most serious violations of the CLIA statute and regulations. 
134 

PT is a major component of the CLIA regulations and plays an integral role in the overall 

quality assurance of a laboratory. We emphasize that there is no on-site, external proctor 

for PT in laboratories, and the testing relies in large part on an honor system. The PT 

program places heavy reliance on each laboratory and laboratory director to self-police 

their analysis of PT samples to ensure that the testing is performed in accordance with the 

CLIA requirements. Because of these factors, we have determined that a CMP is always 

appropriate in those cases where PT referral has been substantiated. However, there is no 

"one size fits all" CMP for these cases and there is flexibility in the determination of the 

amount of the CMP. The severity and scope of each case will be evaluated closely to 

determine appropriate CMP amounts in accordance with the regulation at§ 493.1834, 

which specifies the procedures that CMS follows to impose a CMP and the range of the 

penalty amount. 

We also note that we received other comments that were outside the scope of the 

September 23, 2013 proposed rule; and therefore, are not addressed in this final rule with 

comment period. 

After consideration of the comments received, we are finalizing the proposed definitions 

for "repeat proficiency testing referral" at §493.2 and the changes to § 493.1840, and the 

three proposed conforming changes at the authority citation for Part 493 and at § 493.1 

and § 493.1800(a)(2) to include references to the TEST Act. In response to comments, 

we are also finalizing the addition of a new provision at § 493.1840(b)(1)(ii) to allow us 

to except certain laboratories from the owner ban, on a laboratory by laboratory basis, if 

certain circumstances are met. 
135 

V. Other Required Information 

A. Requests for Data from the Public 

 Commenters can gain access to summarized FQHC data on an expedited basis by 

downloading the files listed in this section, which are available on the Internet without 

charge. For detailed claims data, requestors would follow the current research request 

process which can be found on the Research Data Assistance Center website at 

http://www.resdac.org/. 

 1. FQHC Summary Data. This file contains data summarized by CCN, which 

can be used to model the proposed methodology and calculate projected payments and 

impacts under the proposed PPS. The data file is available at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/FQHCPPS/index.html. 

 2. FQHC Proposed GAFs. This file contains the listed of proposed GAFs by 

locality, as published in the Addendum of this final rule with comment period. The data 

file is available at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/FQHCPPS/index.html. 

 3. HCRIS Cost Report Data. The data included in this file was reported on Form 

CMS-222-92. The dataset includes only the most current version of each cost report filed 

with us and includes cost reports with fiscal year ending dates on or after 

September 30, 2009. HCRIS updates this file on a quarterly basis. The data file is 

available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-forOrder/CostReports/HealthClinic.html. 
136 

B. Collection of Information Requirements 

 Under the Paperwork Reduction Act of 1995, we are required to provide 30-day 

notice in the Federal Register and solicit public comment before a collection of 

information requirement is submitted to the Office of Management and Budget (OMB) 

for review and approval. In order to fairly evaluate whether an information collection 

should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 

1995 requires that we solicit comment on the following issues: 

● The need for the information collection and its usefulness in carrying out the 

proper functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the 

affected public, including automated collection techniques. 

We solicited public comment on the information collection requirements (ICRs) 

regarding the proposed FQHC rates and adjustments in § 405.2470. 

The data that are used in computing the FQHS PPS rates and adjustments are 

derived from the RHC/FQHC cost report form CMS-222-92, and claims form UB-04 

CMS 1450 (per CMS Pub. 100-04, Medicare Claims Processing Manual, Chapter 1). 

The reporting requirements for FQHCs are in § 405.2470 of the Medicare regulations. 

We noted that while we were not proposing any new ICRs, there is currently an OMB 

approved information collection request associated with the RHC/FQHC cost report 

which has an OMB control number of 0938-0107 and an expiration date of 

August 31, 2014. 
137 

VI. Waiver of Proposed Rulemaking 

 We ordinarily publish a notice of proposed rulemaking in the Federal Register

and invite public comment on the proposed rule. The notice of proposed rulemaking 

includes a reference to the legal authority under which the rule is proposed, and the terms 

and substances of the proposed rule or a description of the subjects and issues involved. 

This procedure can be waived, however, if an agency finds good cause that a notice-andcomment procedure is impracticable, unnecessary, or contrary to the public interest and 

incorporates a statement of the finding and its reasons in the rule issued. 

 In section III.B.2. of this final rule with comment period, we present additional 

technical and conforming changes. These changes include specifying that the 

determination of reasonable charges continues to apply to FQHCs under the reasonable 

cost payment system and changing the term "Medicare +Choice" to "Medicare 

Advantage." We believe that these regulatory changes are technical and conforming in 

nature, do not change our payment policies, and provide clarifications all of which are in 

the public's interest. We note that these changes do not change our policy and are 

technical in nature. As such, we believe it unnecessary to provide an opportunity for 

public comment on these non-controversial ministerial changes. 

 In section II.E.2. of this final rule with comment period, we are establishing a new 

set of HCPCS G-codes by which FQHCs are to report their actual charges to 

beneficiaries. Consistent with longstanding policy, the use of these payment codes does 

not dictate to FQHCs how to set their charges. We are permitting FQHCs to utilize a 

G-code that would reflect the sum of regular rates charged to both beneficiaries and other 

paying patients for a typical bundle of services that would be furnished per diem to a 
138 

Medicare beneficiary. Because section 1834(o)(2)(A) of the Act requires implementation 

of the FQHC PPS beginning on October 1, 2014, it is both impracticable and contrary to 

the public interest to provide an additional period for public comment before this 

methodology is implemented. Nonetheless, we are soliciting an additional round of 

comments with respect to the G-codes, and will consider further action if comments 

received from the public indicate a need to amend or revise this component of 

implementation. 

 Therefore, for the reasons stated previously, we find good cause to waive the 

notice of proposed rulemaking for these technical and conforming changes to our 

regulations at §§405.501, 405.2468(f)(4), and 410.152, and for our implantation structure 

for reporting charges to Medicare as described in section II.E.2. of the preamble to this 

final rule with comment period.. 

VII. Response to Comments 

 Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. 

We will consider all comments we receive by the date and time specified in the "DATES" 

section of this preamble, and, when we proceed with a subsequent document, we will 

respond to the comments in the preamble to that document.

VIII. Regulatory Impact Analysis 

A. Statement of Need 

 This final rule with comment period is necessary to establish a methodology and 

payment rates for a PPS for FQHC services under Medicare Part B beginning on 

October 1, 2014, in compliance with the statutory requirements of section 10501(i)(3)(A) 
139 

of the Affordable Care Act. This final rule with comment period is also necessary to 

make-- (1) contracting changes for RHCs; (2) conforming changes to other policies 

related to FQHCs and RHCs; (3) changes to enforcement actions for improper 

proficiency testing referrals. 

B. Overall Impact 

 We have examined the impacts of this rule as required by Executive Order 12866 

on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the 

Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999) 

and the Congressional Review Act (5 U.S.C. 804(2). 

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 

public health and safety effects, distributive impacts, and equity). Section 3(f) of 

Executive Order 12866 defines a "significant regulatory action" as an action that is likely 

to result in a rule: (1) having an annual effect on the economy of $100 million or more in 

any 1 year, or adversely and materially affecting a sector of the economy, productivity, 

competition, jobs, the environment, public health or safety, or state, local or tribal 

governments or communities (also referred to as "economically significant"); (2) creating 

a serious inconsistency or otherwise interfering with an action taken or planned by 

another agency; (3) materially altering the budgetary impacts of entitlement grants, user 
140 

fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising 

novel legal or policy issues arising out of legal mandates, the President's priorities, or the 

principles set forth in the Executive Order. 

 A regulatory impact analysis (RIA) must be prepared for major rules with 

economically significant effects ($100 million or more in any 1 year). This final rule 

with comment period is an economically significant rule because we estimate that the 

FQHC PPS will increase payments to FQHCs by more than $100 million in 1 year. We 

believe that this regulation would not have a significant financial impact on RHCs. We 

estimate that this rulemaking is "economically significant" as measured by the 

$100 million threshold, and hence also a major rule under the Congressional Review Act. 

Accordingly, we have prepared a RIA that, to the best of our ability, presents the costs 

and benefits of the rulemaking. 

 The RFA requires agencies to analyze options for regulatory relief of small 

businesses. For purposes of the RFA, small entities include small businesses, nonprofit 

organizations, and government jurisdictions. All RHCs and FQHCs are considered to be 

small entities. The great majority of hospitals and most other health care providers and 

suppliers are small entities, either by being nonprofit organizations or by meeting the 

SBA definition of a small business (having revenues of less than $7.0 million to 

$35.5 million in any 1 year). The provisions in this final rule result in an increase of 

approximately 32 percent in the Medicare payment to FQHCs, without taking into 

account the application of the “lesser of” provision discussed earlier, and no financial 

impact on RHCs. Individuals and states are not included in the definition of a small 

entity. 
141 

 In addition, section 1102(b) of the Act requires us to prepare a regulatory impact 

analysis if a rule may have a significant impact on the operations of a substantial number 

of small rural hospitals. This analysis must conform to the provisions of section 604 of 

the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as 

a hospital that is located outside of a metropolitan statistical area and has fewer than 

100 beds. As its measure of significant economic impact on a substantial number of 

small entities, HHS uses a change in revenue of more than 3 to 5 percent. We have not 

prepared an analysis for section 1102(b) of the Act because we have determined that this 

final rule with comment period would not have a significant impact on the operations of a 

substantial number of small rural hospitals. 

 Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 

requires that agencies assess anticipated costs and benefits before issuing any rule whose 

mandates require spending in any 1 year of $100 million in 1995 dollars, updated 

annually for inflation. In 2014, that is approximately $141 million. This rule does not 

include any mandates that would impose spending costs on state, local, or tribal 

governments in the aggregate, or by the private sector, that would exceed the threshold of 

$141 million. 

 Executive Order 13132 establishes certain requirements that an agency must meet 

when it promulgates a proposed rule (and subsequent final rule) that imposes substantial 

direct compliance costs on state and local governments, preempts state law, or otherwise 

has Federalism implications. This final rule with comment period would not have a 

substantial effect on state and local governments, preempt state law, or otherwise have 

Federalism implications. 
142 

 This final rule with comment period is subject to the Congressional Review Act 

provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 

801 et seq.) and has been transmitted to the Congress and the Comptroller General for 

review. 

C. Limitations of Our Analysis 

 Our quantitative analysis presents the projected effects of our policy changes, as 

well as statutory changes effective on FQHCs for cost reporting periods beginning on or 

after October 1, 2014. We estimated the effects of individual policy changes by 

estimating payments per visit while holding all other payment policies constant. We use 

the best data available, but, generally, we do not attempt to make adjustments for future 

changes in such variables as the number of visits or the prevalence of new patients or 

IPPE and AWVs furnished to Medicare beneficiaries. To the extent that there are 

changes in the volume and mix of services furnished by FQHCs, the actual impact on 

total Medicare revenues will be different from those shown in Table 3 (Impact of the PPS 

on Payments to FQHCs). In addition, because we have limited information to accurately 

project actual FQHC charges, Table 3 does not take into account the application of 

"lesser of" provision in section 1833(a)(1)(Z) of the Act. (For more information, see 

sections II.E.2 and VII.D.1 of this final rule with comment period). 

D. Anticipated Effects of the FQHC PPS 

1. Effects on FQHCs 

 As required by section 1834(o)(2)(B)(i) of the Act, initial payment rates 

(Medicare and coinsurance) under the FQHC PPS must equal 100 percent of the 

estimated amount of reasonable costs, as determined without the application of the 
143 

current system's UPLs or productivity standards that can reduce a FQHC's per visit rate. 

We will pay FQHCs a single encounter-based rate per beneficiary per day, while 

allowing for an exception to the per diem PPS payment for subsequent injury or illness 

and mental health services furnished on the same day as a medical visit, adjusting for 

geographic differences in the cost of inputs by applying an adaptation of the GPCI used 

to adjust payment under the PFS, and further adjusting the encounter-based rate when a 

FQHC furnishes care to a patient that is new to the FQHC or to a beneficiary receiving a 

IPPE or AWV. 

 Based on comparisons of the final PPS rate to the AIRs (as listed on the FQHC 

cost reports), the FQHC PPS is estimated to have an overall impact of increasing total 

Medicare payments to FQHCs by approximately 32 percent. As discussed in 

section II.E.2. of this final rule with comment period, while Medicare payments under the 

FQHC PPS shall be 80 percent of the lesser of the actual charge or the PPS rate, this 

impact analysis is based on payment at the PPS rate does not take into account the 

application of "lesser of" provision in 1833(a)(1)(Z) of the Act. The FQHC PPS is 

effective for cost reports beginning on or after October 1, 2014. This impact is fully 

implemented when all FQHCs are paid under the FQHC PPS and reflects the additional 

payment rate update based on the MEI for all of 2015 (fiscal year through the end of the 

calendar year). (See section II.D. of this final rule with comment period for a discussion 

of the use of the MEI update to calculate the first year's base payment amount under the 

FQHC PPS.) 

 If we apply the "lesser of" provision in section 1833(a)(1)(Z) of the Act and 

assume that FQHCs' charge structures would remain the same, approximately 65 percent 
144 

of FQHCs would be paid less under the FQHC PPS rate than they are currently paid. 

However, FQHCs are responsible for their own pricing structures, and we have limited 

information to accurately project actual FQHC charges under the new PPS. Moreover, 

our analysis of the potential impact of the application of the "lesser of" provision in 

section 1833(a)(1)(Z) of the Act compares the applicable per diem PPS rate with the 

charge or sum of charges for the individual HCPCS codes listed on the claims in our 

sample. As discussed in section II.E.2. of this final rule with comment period, we are 

establishing HCPCS G-codes for FQHCs to report their Medicare FQHC visits. We will 

pay FQHCs based on the lesser of the actual charge reported for the G-code or the PPS 

rate on each claim. FQHCs will need to establish charges for these G-codes, and we 

cannot accurately project the charges that FQHCs will establish for these G-codes. 

Because we have no means to predict behavioral response on charging by the FQHC 

community, in the impact table (Table 3), we continue to compare current payments to 

the PPS rates when discussing the impact of the FQHC PPS, which would be the 

maximum impact that would be expected after application of the "lesser of" provision in 

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

 Table 3 shows the impact on cost reporting entities and their associated delivery 

sites of the fully implemented FQHC PPS payment rates compared to current payments 

to FQHCs. The analysis is based on cost reports from freestanding and provider-based 

FQHCs with cost reporting periods ending between June 30, 2011, and June 30, 2013. 

We note that the impact analysis includes cost reporting entities and claims encounters 

that were excluded from the modeling as statistical outliers based on estimated costs. A 

FQHC with multiple sites has the option of filing a consolidated cost report, and the 
145 

sample used to calculate the impacts reflects 1,240 cost reporting entities that represent 

3,830 delivery sites. 

The following is an explanation of the information represented in Table 3: 

• Column A (Number of cost-reporting entities): This column shows the number 

of cost-reporting entities for each impact category. Urban/rural status and census 

division were determined based on the geographic location of the cost reporting entity. 

Categories for Medicare volume were defined from cost report data, based on tertiles for 

the percent of total visits that were identified as Medicare visits. Categories for total 

volume were defined from cost report data, based on tertiles for the total number of visits 

for each cost reporting entity. 

• Column B (Number of delivery sites): This column shows the number of 

delivery sites associated with the cost reporting entities in each impact category. (Note 

that delivery sites that are part of a consolidated cost reporting entity might not fall into 

the same impact category if considered individually. For example, a cost reporting entity 

could include delivery sites in multiple census division, and delivery sites were 

categorized based on the geographic location of the cost reporting entity). 

• Column C (Number of Medicare daily visits): This column shows the number 

of Medicare daily visits in the final data set that were used to model payments under the 

FQHC PPS. As discussed in section II.A.4. of this final rule with comment period and 

consistent with the policy discussed in section II.B.1. of this final rule with comment 

period, separately payable encounters for the same beneficiary at the same FQHC were 
146 

combined into a single daily visit, while allowing for a separate medical visit, mental 

health visit, and subsequent illness/injury visit. 

• Column D (Effect of statutorily required changes): This column shows the 

estimated fully implemented combined impact on payments to FQHCs of changes to the 

payment structure that are required by statute. Removing both the UPL and the 

productivity screen is estimated to increase total Medicare payments to FQHCs by about 

30 percent. The combined impact in column D also reflects the FQHC PPS requirement 

to calculate payment based on the costs of all FQHCs, rather than on an individual 

FQHC's costs. We note that the impacts for column D through H reflect the growth in 

the MEI from July 1, 2012 through September 30, 2014, prior to the application of the 

forecasted MEI update for the 15-month period of October 1, 2014 through 

December 31, 2015. 

• Columns E through H (Effects of the Adjustments to the Average Cost per 

Visit): These columns show the estimated fully implemented impacts on Medicare 

payments to FQHCs due to the policy changes. In developing the Medicare FQHC PPS, 

section 10501(i)(3)(A) of the Affordable Care Act requires us to take into account the 

type, intensity, and duration of FQHC services, and allows other adjustments, such as 

geographic adjustments. As we discussed in section II.A.4. of this final rule with 

comment period, the cost report data are insufficient for modeling these types of 

adjustments, so we used the HCPCS codes in the FQHC claims data to support the 

development of the FQHC PPS rate and adjustments. 
147 

• Column E (Effect of daily visit (per diem) rate): This column shows the 

estimated fully implemented impact on payments to FQHCs of the proposal to pay a 

single encounter-based rate per beneficiary per day, while allowing an exception to the 

per diem PPS payment for subsequent injury or illness and mental health services 

furnished on the same day as a medical visit. As it is uncommon for FQHCs to bill more 

than one visit per day for the same beneficiary, this adjustment would have minimal 

effect on most FQHCs. 

• Column F (Effect of new patient/IPPE/AWV adjustment): This column shows 

the estimated fully implemented impact on payments to FQHCs of the proposal to adjust 

the encounter-based rate by 1.3416 when a FQHC furnished care to a patient that was 

new to the FQHC or to a beneficiary receiving an IPPE or AWV. As new patient visits, 

IPPEs, and AWVs accounted for approximately 3 percent of all FQHC visits, this 

adjustment would have limited reduction on the base encounter rate, after application of 

budget neutrality, and a limited redistribution effect among FQHCs. 

• Column G (Effect of the FQHC GAF): This column shows the estimated fully 

implemented impact on payments to FQHCs of adjusting payments for geographic 

differences in costs by applying an adaptation of the GPCIs used to adjust payment for 

physician work and practice expense under the PFS. 

• Column H (Combined effect of all PPS adjustments): This column shows the 

estimated fully implemented impact on payments to FQHCs of the adjustments in 

columns E through G. The combined effects of these adjustments on overall Medicare 

payment to FQHCs would be 0.1 percent as the effects of these adjustments would be 
148 

primarily redistributive and would have minimal impact on Medicare payments in the 

aggregate. While the effect of these various adjustments was budget neutral within the 

model, the impact analysis includes cost reporting entities and claims encounters that 

were excluded from the modeling as statistical outliers based on estimated costs. 

• Column I (Combined effect of all policy changes and MEI adjustment): This 

column shows the estimated fully implemented impact on payments to FQHCs of 

removing the UPL and productivity screen in Column D, the adjustments to the PPS rates 

in the preceding columns, and the application of the forecasted MEI update for the 

15-month period of October 1, 2014 through December 31, 2015. 
TABLE 3: IMPACT OF THE PPS ON PAYMENTS TO FQHCs 

Table 3 reflects the impacts on cost reporting entities and their associated delivery sites. This table shows both th

payments to FQHCs of the statutorily required changes to the payment structure (Column D) and the redistributiv

adjustments to the average cost per visit (Columns E through H). Column I reflects the combined impact on cost the overall PPS rates and adjustments and MEI update. This table does not model application of the provision th

FQHCs the lesser of the actual charge or the PPS payment rate; instead, is assumes payment at the full PPS rate. FQHCs will depend on the actual charges they establish under the PPS. 

(A) 

Number 

of CostReporting 

Entities 

(B) 

Number 

of 

Delivery 

Sites 

(C) 

Number 

of 

Medicare 

Daily 

Visits 

(D) 

Effect of 

Statutorily 

Required 

Changes 

(E) 

Effect of 

Daily Visit 

(Per Diem) 

Rate 

(F) 

Effect of 

New 

Patient/ 

IPPE/AWV 

Adjustment 

(G) 

Effect of 

FQHC 

GAF 

Co

Effe

Adju

All FQHCs 1,240 3,830 5,585,393 29.9% 0.0% 0.1% 0.1% Urban/rural Status:  Urban 712 1,945 2,738,585 24.3% 0.0% 0.1% 3.2%  Rural 373 900 1,447,261 41.9% 0.1% 0.0% -3.1%  Mixed rural-urban 155 985 1,399,547 30.1% 0.0% 0.0% -2.7% Medicare Volume:  Low (< 6.9% of total visits) 413 1,102 897,136 24.8% 0.0% 0.4% 3.5%  Medium (6.9%-13.2% of total visits) 414 1,403 1,857,689 27.4% 0.0% 0.1% 0.6%  High (> 13.2% of total visits) 413 1,325 2,830,568 33.4% 0.0% -0.1% -1.3% Total Volume:  Low (< 17,340 total visits) 413 555 450,262 33.6% 0.0% 0.2% -0.1%  Medium (17,340-42,711 total visits) 414 983 1,387,779 31.8% 0.0% 0.2% -1.4%  High (> 42,711 total visits) 413 2,292 3,747,352 28.8% 0.0% 0.0% 0.6% Census Division:  New England 99 255 709,020 27.4% -0.1% -0.1% 2.2%  Middle Atlantic 111 334 452,168 25.9% -0.1% 0.2% 3.6%  East North Central 158 497 651,546 31.3% 0.0% 0.1% -3.2% 
(A) 

Number 

of CostReporting 

Entities 

(B) 

Number 

of 

Delivery 

Sites 

(C) 

Number 

of 

Medicare 

Daily 

Visits 

(D) 

Effect of 

Statutorily 

Required 

Changes 

(E) 

Effect of 

Daily Visit 

(Per Diem) 

Rate 

(F) 

Effect of 

New 

Patient/ 

IPPE/AWV 

Adjustment 

(G) 

Effect of 

FQHC 

GAF 

Co

Effe

Adju

 West North Central 81 214 266,360 31.6% -0.1% 0.1% -5.3%  South Atlantic 200 753 1,100,268 32.1% 0.1% -0.1% -3.0%  East South Central 87 340 379,357 37.3% 0.0% 0.0% -6.9%  West South Central 120 332 388,565 30.5% 0.0% 0.2% -5.0%  Mountain 107 341 392,506 31.3% 0.0% 0.4% -2.1%  Pacific 272 758 1,243,251 27.2% 0.1% 0.0% 7.5%  US Territories 5 6 2,352 43.9% 0.1% 1.5% -1.1% 
151 

2. Effects on RHCs 

 While we expect that removing the restriction on contracting will result in cost 

savings for RHCs that employ an NP or PA and will no longer need to conduct 

employment searches to meet their additional staffing needs, the financial impact on 

RHCs is expected be small and cannot be quantified. 

 There is no Medicare impact on RHCs as a result of the implementation of the 

FQHC PPS. 

3. Effects on Other Providers and Suppliers 

 There would be no financial impact on other providers or suppliers as a result of 

the implementation of the FQHC PPS. 

4. Effects on the Medicare and Medicaid Programs 

 We estimate that annual Medicare spending for FQHCs during the first 5 years of 

implementation would increase as follows: 

TABLE 4 – ESTIMATED INCREASE IN 

ANNUAL MEDICARE PAYMENTS TO FQHCs* 

Fiscal Year Estimated Increase in Payments 

 ($ in millions) 

2015 170 

2016 250 

2017 260 

2018 280 

2019 300 

 *These impacts do not take into account the application of "lesser of" provision in section 

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

with comment period). 

 As discussed in section II.E.2. of this final rule comment period, while Medicare 

payments under the FQHC PPS shall be 80 percent of the lesser of the actual charge or 
152 

the PPS rate, this table is based on payment at the PPS rate does not take into account the 

application of "lesser of" provision in 1833(a)(1)(Z) of the Act because we have limited 

information to accurately project actual FQHC charges. We intend for the estimated 

aggregate payment rates under the FQHC PPS to equal 100 percent of the estimated 

amount of reasonable costs, as determined without the application of the current system's 

UPLs or productivity standards. We note that the estimated increase in payments for 

FY 2015 is smaller than for subsequent years because FQHCs will be transitioning into 

the PPS throughout FY 2015 based on their own cost reporting periods. 

 After the first year of implementation, the PPS payment rates must be increased 

by the percentage increase in the MEI. After the second year of implementation, PPS 

rates will be increased by the percentage increase in a market basket of FQHC goods and 

services as established through regulations, or, if not available, the MEI. While we will 

consider the merits of estimating a FQHC market basket for use in base payment updates 

after the second year of the PPS, payment estimates were updated annually by the MEI 

for purposes of this analysis. 

 There is no financial impact on the Medicaid program as a result of the 

implementation of the Medicare FQHC PPS. 

5. Effects on Medicare Beneficiaries 

 Coinsurance under the FQHC PPS would be 20 percent of the lesser of the 

FQHC's charge or the PPS rate. Under the current reasonable cost payment system, 

beneficiary coinsurance for FQHC services is assessed based on the FQHC's charge, 

which can be more than coinsurance based on the AIR. An analysis of a sample of 

FQHC claims data for dates of service between January 1, 2011 through June 30, 2013 
153 

indicated that beneficiary coinsurance based on 20 percent of the FQHC's charges was 

approximately $29 million higher, or 20 percent more, than if coinsurance had been 

assessed based on 20 percent of the lesser of the FQHC's charge or the applicable 

all-inclusive rate. 

 Based on comparisons of the final PPS rate to the AIRs, the FQHC PPS is 

estimated to have an overall impact of increasing total Medicare payments to FQHCs by 

approximately 32 percent, prior to taking into account the impact of the “lesser of” 

provision. This overall 32 percent increase translates to a 32 percent increase to 

beneficiary coinsurance if it were currently assessed based on the FQHC's AIR and if, 

under the PPS, it would always be assessed based on the PPS rate. Because the charge 

structure among FQHCs varies, and beneficiary liability for the same mix of FQHC 

services could differ significantly based on the differences in charge structures, we have 

insufficient data to estimate the change to beneficiary coinsurance due to the FQHC PPS. 

E. Effects of Other Policy Changes 

1. Effects of Policy Changes for FQHC's and RHC's 

a. Effects of RHC Contracting Changes 

 Removal of the restrictions on RHCs contracting with nonphysician practitioners 

when the statutory requirement to employ an NP or a PA is met will provide RHCs with 

greater flexibility in meeting their staffing requirements. The ability to contract with 

NPs, PAs, CNMs, CP, and CSWs will provide RHCs with additional flexibility with 

respect to recruiting and retaining non-physician practitioners, which may result in 

increasing access to care in rural areas. There is no cost to the federal government and 

we cannot estimate a cost savings for RHCs. 
154 

b. Effects of the FQHC and RHC Conforming Changes 

 There are no costs associated with the clarifying, technical, and conforming 

changes to the FQHC and RHC regulations. 

2. Effects of CLIA Changes for Enforcement Actions for Proficiency Testing Referral 

 As discussed in section IV. of this final rule with comment period, we have made 

a number of clarifications and changes pertaining to the regulations governing adverse 

actions for PT referral under CLIA, which, in combination with other actions implement 

the TEST Act and will ensure conformance between the TEST Act and our regulations. 

The TEST Act provides the Secretary with the discretion to apply alternative sanctions in 

lieu of potential principal sanctions in cases of intentional PT referral. Alternative 

sanctions may include any combination of civil money penalties, directed plan of 

correction (such as required remedial training of staff), temporary suspension of 

Medicare or Medicaid payments, or state onsite monitoring. 

 From 2007 through 2011 there were 41 cases of cited, intentional PT referral. Of 

these 41 cases (averaging approximately 8 per year), we estimate that 28 (or 

approximately 6 per year on average) may have fit the terms of this rule to have 

alternative sanctions applied. Based on discussions with the most recently affected 

laboratories that were cited for PT violations, we estimate that the average cost of the 

sanctions applicable under current regulations is approximately $578,400 per laboratory. 

The largest single type of cost is the expense to the laboratory or hospital to contract out 

for management of the laboratory, and to pay laboratory director fees, due to the 2-year 

ban that prohibits the owner and operator from owning or operating a CLIA-certified 

laboratory in accordance with revocation of the CLIA certificate. We have not included 
155 

legal expenses in this cost estimate, as it is not possible to estimate the extent to which 

laboratories may still appeal the imposition of the alternative sanctions in this proposed 

rule. If the expense of alternative sanctions averaged $150,000 per laboratory, we 

estimate the annual fiscal savings of the changes to average approximately $2.6 million 

($578,400 minus $150,000 for 6 laboratories). While the total savings may not be large, 

the savings to the individual laboratory or hospital that is affected can be significant. 

However, we note that the $2.6 million estimate may overstate or understate the 

provision's savings to laboratories. For example, if under current regulations the prior 

management is fired instead of being reassigned to other duties for the 2-year period, 

some of the costs of paying for the new management's salaries, benefits and training may 

be able to be drawn from funding that had previously been earmarked to pay those 

expenses for their predecessors. That is, the costs associated with the new employee 

could be offset by the savings gained when the former employee is terminated. Any such 

offset will result in lower savings than was estimated earlier. However, there are also 

unknowns that may result in larger savings than estimated earlier. For example, we have 

no data on whether terminated management historically received severance packages. If 

they did, those savings would have to be added to the savings we noted earlier. Such 

changes in severance payments would represent transfer effects of the proposed rule, 

rather than net social costs or benefits. In general, it is only to the extent that new 

laboratory directors put forth more effort than temporarily-banned laboratory directors 

(due, for example, to the need to familiarize themselves with laboratories they have not 

previously operated) or that support staff put forth more effort to make the new 

management arrangements than they would addressing alternative sanctions that society's 
156 

resources would be freed for other uses by the new provision; thus, a comprehensive 

estimate of laboratory savings would represent some combination of transfers and net 

social benefits. While we recognize these potential inaccuracies in our estimates, we lack 

data to account for these considerations. 

F. Alternatives Considered 

 This final rule with comment period contains a range of policies, including some 

provisions related to specific statutory provisions. The preceding sections of this rule 

provide descriptions of the statutory provisions that are addressed, identifies those 

policies when discretion has been exercised, presents rationale for our final policies and, 

where relevant, alternatives that were considered. 

G. Accounting Statement and Table 

 As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars_a004_a-4/), we have prepared an accounting 

statement table showing the classification of the impacts associated with implementation 

of this final rule with comment period. 
157 

TABLE 5– ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED 

EXPENDITURES UNDER THE FQHC PPS 

Category Estimates 

Units 

Year Dollar Discount Rate Period Covered 

Transfers 

Federal Annualized Monetized 

Transfers (in millions) 

200 2014 7% 2014 - 2018 

204 2014 3% 2014 - 2018 

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

H. Conclusion 

 The previous analysis, together with the remainder of this preamble, provides our 

Regulatory Flexibility Analysis and a Regulatory Impact Analysis. 

 In accordance with the provisions of Executive Order 12866, this regulation was 

reviewed by the Office of Management and Budget. 
158 

List of Subjects 

42 CFR Part 405 

Administrative practice and procedure, Health facilities, Health professions, 

Kidney diseases, Medical devices, Medicare, Reporting and recordkeeping requirements, 

Rural areas, and X-rays. 

42 CFR Part 410 

 Health facilities, Health professions, Kidney diseases, Laboratories, Medicare, 

Reporting and recordkeeping requirements, Rural areas, X-rays. 

42 CFR Part 491 

Grant programs-health, Health facilities, Medicaid, Medicare, Reporting and 

recordkeeping requirements, Rural areas. 

42 CFR Part 493 

Administrative practice and procedure, Grant programs-health, Health facilities, 

Laboratories, Medicaid, Medicare, Penalties, Reporting and recordkeeping requirements. 

 For the reasons set forth in the preamble, the Centers for Medicare & Medicaid 

Services amends 42 CFR Chapter IV as set forth below: 

PART 405—FEDERAL HEALTH INSURANCE FOR THE AGED AND 

DISABLED 

1. The authority citation for part 405 continues to read as follows: 

Authority: Secs. 205(a), 1102, 1861, 1862(a), 1869, 1871, 1874, 1881, and 1886(k) of 

the Social Security Act (42 U.S.C. 405(a), 1302, 1395x, 1395y(a), 1395ff, 1395hh, 

1395kk, 1395rr and 1395ww(k)), and sec. 353 of the Public Health Service Act (42 

U.S.C. 263a). 
159 

§ 405.501 [Amended] 

 2. Section 405.501(b) is amended by removing the phrase "Federally qualified 

health centers and" and adding in its place the phrase "FQHCs that are authorized to bill 

under a reasonable cost system, and". 

 3. Section 405.2400 is revised as follows: 

§ 405.2400 Basis. 

Subpart X is based on the provisions of the following sections of the Act: 

(a) Section 1833--Amounts of payment for supplementary medical insurance 

services. 

(b) Section 1861(aa)--Rural health clinic services and Federally qualified health 

center services covered by the Medicare program. 

(c) Section 1834(o)--Federally qualified health center prospective payment system 

beginning October 1, 2014. 

4. In § 405.2401, paragraph (b) is amended as follows: 

A. Removing the definition of "Act". 

B. Revising the definition of "Allowable costs". 

C. Removing the definition of "Carrier". 

D. Adding the definitions of "Certified nurse midwife (CNM)," "Clinical 

psychologist (CP)", and "Clinical social worker (CSW)" in alphabetical order. 

E. Revising the definitions of "Coinsurance" and "Deductible". 

F. Adding the definitions of "Employee" and "HRSA” in alphabetical order. 

G. Revising paragraphs (1) through (3) of the definition of "Federally qualified 

health center (FQHC)". 
160 

H. Removing the definition of "Intermittent nursing care". 

I. Adding the definition of "Medicare Administrative Contractor (MAC)" in 

alphabetical order. 

J. Removing the definitions of "Nurse-midwife", "Nurse practitioner and 

physician assistant", and Part-time nursing care". 

K. Adding the definitions of “Nurse practitioner (NP)”, "Physician assistant 

(PA)" and "Prospective payment system (PPS)" in alphabetical order. 

L. Revising the definitions of "Reporting period" and "Rural health clinic". 

M. In the definition of "Visiting nurse services," removing the phrase "registered 

nurse" and adding in its place the phrase "registered professional nurse". 

The revisions and additions read as follows: 

§ 405.2401 Scope and definitions. 

* * * * * 

(b) * * *

Allowable costs means costs that are incurred by a RHC or FQHC that is 

authorized to bill based on reasonable costs and are reasonable in amount and proper and 

necessary for the efficient delivery of RHC and FQHC services. 

* * * * * 

Certified nurse midwife (CNM) means an individual who meets the applicable 

education, training, and other requirements of § 410.77(a) of this chapter. 

Clinical psychologist (CP) means an individual who meets the applicable 

education, training, and other requirements of § 410.71(d) of this chapter. 
161 

Clinical social worker (CSW) means an individual who meets the applicable 

education, training, and other requirements of § 410.73(a) of this chapter. 

Coinsurance means that portion of the RHC's charge for covered services or that 

portion of the FQHC's charge or PPS rate for covered services for which the beneficiary 

is liable (in addition to the deductible, where applicable). 

* * * * * 

Deductible means the amount incurred by the beneficiary during a calendar year 

as specified in § 410.160 and § 410.161 of this chapter. 

Employee means any individual who, under the common law rules that apply in 

determining the employer-employee relationship (as applied for purposes of 

section 3121(d)(2) of the Internal Revenue Code of 1986), is considered to be employed 

by, or an employee of, an entity. (Application of these common law rules is discussed in 

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

Federally qualified health center (FQHC) * * * 

(1) Is receiving a grant under section 330 of the Public Health Service (PHS) Act, 

or is receiving funding from such a grant under a contract with the recipient of such a 

grant and meets the requirements to receive a grant under section 330 of the PHS Act; 

(2) Is determined by the HRSA to meet the requirements for receiving such a 

grant; 

(3) Was treated by CMS, for purposes of Medicare Part B, as a comprehensive 

federally funded health center as of January 1, 1990; or 

* * * * * 

HRSA means the Health Resources and Services Administration. 
162 

* * * * * 

Medicare Administrative Contractor (MAC) means an organization that has a 

contract with the Secretary to administer the benefits covered by this subpart as described 

in§ 421.404 of this chapter. 

Nurse practitioner (NP) means individuals who meet the applicable education, 

training, and other requirements of § 410.75(b) of this chapter. 

* * * * * 

Physician assistant (PA) means an individual who meet the applicable education, 

training, and other requirements of §410.74(c) of this chapter. 

Prospective payment system (PPS) means a method of payment in which 

Medicare payment is made based on a predetermined, fixed amount. 

Reporting period generally means a period of 12 consecutive months specified by 

the MAC as the period for which a RHC or FQHC must report required costs and 

utilization information. The first and last reporting periods may be less than 12 months. 

Rural health clinic (RHC) means a facility that has-- 

(1) Been determined by the Secretary to meet the requirements of section 

1861(aa)(2) of the Act and part 491 of this chapter concerning RHC services and 

conditions for approval; and 

(2) Filed an agreement with CMS that meets the requirements in § 405.2402 to 

provide RHC services under Medicare. 

 * * * * * 

5. Section 405.2402 is amended as follows: 

 A. Revising the section heading. 
163 

B. Revising paragraphs (b) introductory text and (c) introductory text. 

 C. Revising paragraph (d). 

D. Removing paragraph (e). 

E. Redesignating paragraph (f) as paragraph (e). 

F. Revising newly redesignated paragraph (e). 

 The revisions read as follows: 

§ 405.2402 Rural health clinic basic requirements. 

* * * * * 

(b) Acceptance of the clinic as qualified to furnish RHC services. If the 

Secretary, after reviewing the survey agency or accrediting organization 

recommendation, as applicable, and other evidence relating to the qualifications of the 

clinic, determines that the clinic meets the requirements of this subpart and of part 491 of 

this chapter, the clinic is provided with-- 

 * * * * * 

(c) Filing of agreement by the clinic. If the clinic wishes to participate in the 

program, it must— 

* * * * * 

(d) Acceptance by the Secretary. If the Secretary accepts the agreement filed by 

the clinic, the Secretary returns to the clinic one copy of the agreement with a notice of 

acceptance specifying the effective date. 

(e) Appeal rights. If CMS declines to enter into an agreement or if CMS 

terminates an agreement, the clinic is entitled to a hearing in accordance with 

§ 498.3(b)(5) and (6) of this chapter. 
164 

 6. Section 405.2403 is amended as follows: 

A. Revising the section heading. 

B. Amending paragraphs (a) introductory text and (a)(2) by removing the term 

"rural health clinic" and by adding in its place the term "RHC". 

 C. Amending paragraph (a)(3)(ii)(B) by removing the term "rural health clinic's" 

and adding in its place the term "RHC's". 

 D. Amending paragraphs (a)(1), (a)(2), (a)(3)(i), (a)(4)(i), and (a)(4)(ii) by 

removing the term "clinic" and adding in its place the term "RHC". 

 The revision reads as follow: 

§ 405.2403 Rural health clinic content and terms of the agreement with the 

Secretary. 

 * * * * * 

7. Section 405.2404 is amended as follows: 

A. Revising the section heading. 

B. Amending the heading of paragraph (a), and paragraphs (b)(1) introductory 

text, (b)(2), (b)(3), (c), and (e) introductory text, by removing the term "rural health 

clinic" each time it appears and by adding in its place the term "RHC". 

C. Amending paragraphs (a)(1), (a)(2)(i), (a)(2)(ii)(A), and (a)(3) by removing 

the term "clinic" each time it appears and adding in its place the term "RHC". 

D. Amending paragraph (a)(2)(i) by removing the term "clinic's" and adding in 

its place the term "RHC's". 

E. Amending (a)(2)(ii) introductory text by removing the phrase "if he 

determines" and adding in its place "if the Secretary determines". 
165 

F. Amending paragraph (a)(3) by removing the phrase "that shall be deemed" and 

adding in its place the phrase "the Secretary deems it". 

G. Amending paragraph (b)(1) introductory text by removing the term "he" and 

adding in its place the phrase "he or she". 

H. Amending paragraph (b)(1)(i) by removing "; or" and adding in its place ";". 

I. Amending paragraph (b)(2) by removing the phrase "The Secretary will give" 

and adding in its place the phrase "The Secretary gives". 

J. Revising paragraph (d). 

The revisions read as follows: 

§ 405.2404 Termination of rural health clinic agreements. 

* * * * * 

(d) Notice to the public. Prompt notice of the date and effect of termination must 

be given to the public, through publication in local newspapers by either of the following: 

(1) The RHC, after the Secretary has approved or set a termination date. 

(2) The Secretary, when he or she has terminated the agreement. 

* * * * * 

8. Section 405.2410 is amended as follows: 

A. In paragraph (a)(1), removing the term "rural health clinic" and adding in its 

place the term "RHC". 

B. In paragraph (a)(2), removing the term "Federally qualified health center" and 

adding in its place the term "FQHC". 

C. Revising paragraph (b). 

The revision reads as follows: 
166 

§ 405.2410 Application of Part B deductible and coinsurance. 

* * * * * 

(b) Application of coinsurance. Except for preventive services for which 

Medicare pays 100 percent under § 410.152(l) of this chapter, a beneficiary's 

responsibility is either of the following: 

(1) For RHCs and FQHCs that are authorized to bill on the basis of the 

reasonable cost system -- 

(i) A coinsurance amount that does not exceed 20 percent of the RHC's or 

FQHC's reasonable customary charge for the covered service; and 

(ii)(A) The beneficiary's deductible and coinsurance amount for any one item or 

service furnished by the RHC may not exceed a reasonable amount customarily charged 

by the RHC for that particular item or service; or 

(B) For any one item or service furnished by a FQHC, a coinsurance amount that 

does not exceed 20 percent of a reasonable customary charge by the FQHC for that 

particular item or service. 

(2) For FQHCs authorized to bill under the PPS, a coinsurance amount which is 

20 percent of the lesser of -- 

(i) The FQHC's actual charge; or 

(ii) The FQHC PPS rate for the covered service. 

9. Section 405.2411 is amended as follows: 

 A. Revising paragraph (a) introductory text. 

 B. In paragraphs (a)(1) through (a)(3), removing ";" and adding in its place ".". 

 C. Revising paragraphs (a)(4) and (5). 
167 

 D. Adding a new paragraph (a)(6). 

 E. Revising paragraph (b). 

The revisions and addition read as follows: 

§ 405.2411 Scope of benefits. 

(a) The following RHC and FQHC services are reimbursable under this subpart: 

* * * * * 

(4) Services and supplies furnished as incident to a nurse practitioner, physician 

assistant, certified nurse midwife, clinical psychologist, or clinical social worker service. 

(5) Visiting nurse services when provided in accordance with 1861(aa)(1) of the 

Act and § 405.2416. 

(6) Clinical psychologist and clinical social worker services as specified in 

§ 405.2450. 

(b) RHC and FQHC services are-- 

(1) Covered when furnished in a RHC, FQHC, or other outpatient setting, 

including a patient's place of residence; 

(2) Covered when furnished during a Part A stay in a skilled nursing facility only 

when provided by a physician, nurse practitioner, physician assistant, certified nurse 

midwife or clinical psychologist employed or under contract with the RHC or FQHC at 

the time the services are furnished; and 

(3) Not covered in a -- 

(i) Hospital as defined in section 1861(e) of the Act; or 

(ii) Critical access hospital as defined in section 1861(mm)(1) of the Act. 
168 

10. Section 405.2412 is revised to read as follows: 

§ 405.2412 Physicians' services. 

Physicians' services are professional services that are furnished by either of the 

following: 

(a) By a physician at the RHC or FQHC. 

(b) Outside of the RHC or FQHC by a physician whose agreement with the RHC 

or FQHC provides that he or she will be paid by the RHC or FQHC for such services and 

certification and cost reporting requirements are met. 

§ 405.2413 [Amended] 

11. Section 405.2413 is amended as follows: 

A. Amending paragraph (a)(2) by removing the term "rural health clinic's" and by 

adding in its place the term "RHC's or FQHC's". 

B. Amending paragraph (a)(6) by removing the term "clinic's" and by adding in 

its place the term "RHC's or "FQHC's" and by removing the term "clinic" and by adding 

in its place the term "RHC". 

12. Section 405.2414 is amended as follows: 

A. Revising the section heading and paragraphs (a) introductory text and (a)(1). 

B. In paragraphs (a)(2) and (3), removing ";" and adding in its place ".". 

C. Revising paragraph (a)(4). 

D. In paragraph (a)(5), removing the phrase "They would" and adding in its place 

the phrase "The services would". 
169 

E. In paragraph (c), removing the phrase "physician assistants, nurse midwives or 

specialized nurse practitioners" and adding in its place the phrase "physician assistants or 

certified nurse midwives". 

The revisions read as follows: 

§ 405.2414 Nurse practitioner, physician assistant, and certified nurse midwife 

services. 

(a) Professional services are payable under this subpart if the services meet all of 

the following: 

(1) Furnished by a nurse practitioner, physician assistant, or certified nurse 

midwife who is employed by, or receives compensation from, the RHC or FQHC. 

* * * * * 

(4) Are of a type which the nurse practitioner, physician assistant or certified 

nurse midwife who furnished the service is legally permitted to perform by the State in 

which the service is rendered. 

* * * * * 

13. Section 405.2415 is revised to read as follows: 

§ 405.2415 Services and supplies incident to nurse practitioner, physician assistant, 

certified nurse midwife, clinical psychologist, or clinical social worker services. 

(a) Services and supplies incident to a nurse practitioner, physician assistant, 

certified nurse midwife, clinical psychologist, or clinical social worker service are 

payable under this subpart if the service or supply is all of the following: 

(1) Of a type commonly furnished in physicians' offices. 
170 

(2) Of a type commonly rendered either without charge or included in the RHC's 

or FQHC's bill. 

(3) Furnished as an incidental, although integral part of professional services 

furnished by a nurse practitioner, physician assistant, certified nurse midwife, clinical 

psychologist, or clinical social worker. 

(4) Furnished in accordance with applicable State law. 

(5) Furnished under the direct supervision of a physician, nurse practitioner, 

physician assistant, certified nurse midwife, clinical psychologist or clinical social 

worker. 

(6) In the case of a service, furnished by a member of the RHC's health care staff 

who is an employee of the RHC. 

(b) The direct supervision requirement is met in the case of any of the following 

persons only if the person is permitted to supervise these services under the written 

policies governing the RHC or FQHC: 

(1) Nurse practitioner. 

(2) Physician assistant. 

(3) Certified nurse midwife. 

(4) Clinical psychologist. 

(5) Clinical social worker. 

(c) Only drugs and biologicals which cannot be self-administered are included 

within the scope of this benefit. 

14. Section 405.2416 is amended as follows: 

 A. Revising paragraphs (a) introductory text and (a)(1). 
171 

 B. In paragraph (a)(2), removing ";" and adding in its place ".". 

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

 D. Revising paragraphs (b) introductory text and (b)(1). 

The revisions read as follows: 

§ 405.2416 Visiting nurse services. 

(a) Visiting nurse services are covered if the services meet all of the following: 

(1) The RHC or FQHC is located in an area in which the Secretary has 

determined that there is a shortage of home health agencies. 

* * * * * 

(3) The services are furnished by a registered professional nurse or licensed 

practical nurse that is employed by, or receives compensation for the services from the 

RHC or FQHC. 

(4) The services are furnished under a written plan of treatment that is both of the 

following: 

(i)(A) Established and reviewed at least every 60 days by a supervising physician 

of the RHC or FQHC; or 

(B)(1) Established by a nurse practitioner, physician assistant or certified nurse 

midwife; and 

(2) Reviewed at least every 60 days by a supervising physician. 

(ii) Signed by the supervising physician, nurse practitioner, physician assistant or 

certified nurse midwife of the RHC or FQHC. 

(b) The nursing care covered by this section includes the following: 
172 

(1) Services that must be performed by a registered professional nurse or licensed 

practical nurse if the safety of the patient is to be assured and the medically desired 

results achieved. 

* * * * * 

§ 405.2417 [Amended] 

15. Section 405.2417 is amended as follows: 

A. In the introductory text, removing the phrase "rural health clinic" and adding 

in its place "RHC or FQHC" 

B. In paragraph (a), removing the phrase "rural health clinic" and adding in its 

place "RHC or FQHC", and removing ";" and adding in its place ".". 

C. In paragraph (b), removing "; or" and adding in its place ".". 

16. Section 405.2430 is amended as follows: 

A. Revising paragraphs (a)(1) introductory text, (a)(1)(i), and (a)(1)(ii). 

B. In paragraph (a)(4), removing the phrase "Federally qualified health center" 

and adding in its place the term "FQHC". 

C. Revising paragraph (b). 

D. Removing paragraph (c). 

E. Redesignating paragraph (d) as paragraph (c). 

The revisions read as follows: 

§ 405.2430 Basic requirements. 

(a)* * * 
173 

(1) In response to a request from an entity that wishes to participate in the 

Medicare program, CMS enters into an agreement with an entity when all of the 

following occur: 

(i) HRSA approves the entity as meeting the requirements of section 330 of the 

PHS Act. 

(ii) The entity assures CMS that it meets the requirements specified in this 

subpart and part 491 of this chapter, as described in § 405.2434(a). 

* * * * * 

(b) Prior HRSA FQHC determination. An entity applying to become a FQHC 

must do the following: 

(1) Be determined by HRSA as meeting the applicable requirements of the PHS 

Act, as specified in § 405.2401(b). 

(2) Receive approval by HRSA as a FQHC under section 330 of the PHS Act (42 

U.S.C. 254b). 

* * * * * 

17. Section 405.2434 is amended as follows: 

A. In the introductory text, removing the phrase "Federally qualified health 

center" and adding in its place the term "FQHC". 

B. In paragraph (a)(1) by removing the phrase "Federally qualified health center" 

and adding in its place the term "FQHC" each time it appears. 

C. In paragraph (a)(2) by removing the term "Centers" and adding in its place the 

term "FQHCs". 

D. Revising paragraphs (b), (c)(1), and (c)(4). 
174 

E. In paragraph (c)(3) by removing the phrase "Federally qualified health center" 

and adding in its place the term "FQHC" each time it appears. 

F. In paragraphs (d)(1), (d)(3) introductory text, (e)(1), (e)(2), and (e)(3) by 

removing the phrase "Federally qualified health center" each time it appears and adding 

in its place the term "FQHC". 

G. In paragraphs (d)(3)(ii) and (e)(2) by removing the phrase "Federally qualified 

health center's" and adding in its place the term "FQHC's" . 

The revisions read as follows: 

§ 405.2434 Content and terms of the agreement. 

* * * * * 

(b) Effective date of agreement. The effective date of the agreement is 

determined in accordance with the provisions of § 489.13 of this chapter. 

(c) * * * 

(1) For non-FQHC services that are billed to Part B, the beneficiary is 

responsible for payment of a coinsurance amount which is 20 percent of the amount of 

Part B payment made to the FQHC for the covered services. 

* * * * * 

(4) The FQHC may charge the beneficiary for items and services that are not 

FQHC services. If the item or service is covered under Medicare Part B, the FQHC may 

not charge the beneficiary more than 20 percent of the Part B payment amount. 

* * * * * 

§ 405.2436 [Amended] 

18. Section 405.2436 is amended as follows: 
175 

A. In paragraphs (a) introductory text, (a)(2), (b)(1)(i), (b)(2)(i), (b)(3), (c)(1) 

introductory text, (c)(2), (c)(3), and (d) by removing the phrase "Federally qualified 

health center" each time it appears and adding in its place the term "FQHC". 

B. In paragraphs (b)(1) introductory text, (b)(1)(ii), (b)(2) introductory text, and 

(d) by removing the phrase "Federally qualified health center's" and adding in its place 

the term "FQHC's". 

19. Section 405.2440 is amended by revising the introductory text to read as 

follows.

§ 405.2440 Conditions for reinstatement after termination by CMS. 

When CMS has terminated an agreement with a FQHC, CMS does not enter into 

another agreement with the FQHC to participate in the Medicare program unless CMS— 

* * * * * 

§ 405.2442 [Amended] 

20. Section 405.2442 is amended as follows: 

A. In paragraph (a) introductory text by removing the phrase "Federally qualified 

health center" each time it appears and adding in its place the term "FQHC". 

B. In paragraph (b) by removing the phrase "Federally qualified health center's" 

and adding in its place the term "FQHC's". 

§ 405.2444 [Amended] 

21. Section 405.2444 is amended as follows: 

A. In paragraph (c) by removing the phrase "Federally qualified health center" 

and adding in its place the term "FQHC". 
176 

B. In paragraphs (a)(2), (b), and (c) by removing the term "center" each time it 

appears, and by adding in its place the term "FQHC" . 

22. Section 405.2446 is amended as follows: 

 A. Revising paragraphs (a), (b)(2), (3), (4), and (6). 

 B. Removing paragraph (b)(8). 

 C. Redesignating paragraphs (b)(9) and (10) as (b)(8) and (9), respectively. 

D. In paragraphs (c) and (d), removing the phrase "Federally qualified health 

center" and adding in its place the term "FQHC". 

 The revisions read as follows: 

§ 405.2446 Scope of services.

(a) For purposes of this section, the terms rural health clinic and RHC when they 

appear in the cross references in paragraph (b) of this section also mean Federally 

qualified health centers and FQHCs. 

(b) * * * 

(2) Services and supplies furnished as incident to a physician's professional 

service, as specified in § 405.2413. 

(3) Nurse practitioner, physician assistant or certified nurse midwife services as 

specified in § 405.2414. 

(4) Services and supplies furnished as incident to a nurse practitioner, physician 

assistant, or certified nurse midwife service, as specified in § 405.2415. 

* * * * * 

(6) Services and supplies furnished as incident to a clinical psychologist or 

clinical social worker service, as specified in § 405.2452. 
177 

* * * * * 

23. Section 405.2448 is amended as follows: 

 A. Revising paragraphs (a) introductory text, (a)(1) and (2). 

 B. Removing paragraph (a)(3). 

C. Redesignating paragraph (a)(4) as (a)(3). 

D. In paragraph (b) introductory text by removing the phrase "Federally qualified 

health centers" and adding in its place the term "FQHCs". 

 E. In paragraph (d) by removing the phrase "a Federally qualified health center 

service, but may be provided at a Federally qualified health center if the center" and 

adding in its place the phrase "a FQHC service, but may be provided at a FQHC if the 

FQHC". 

 The revisions read as follows: 

§ 405.2448 Preventive primary services. 

(a) Preventive primary services are those health services that-- 

(1) A FQHC is required to provide as preventive primary health services under 

section 330 of the PHS Act; and 

(2) Are furnished-- 

(i) By a or under the direct supervision of a physician, nurse practitioner, 

physician assistant, certified nurse midwife, clinical psychologist or clinical social 

worker; or 

(ii) By a member of the FQHC's health care staff who is an employee of the 

FQHC or by a physician under arrangements with the FQHC. 

* * * * * 
178 

§ 405.2449 [Amended] 

24. Section 405.2449 is amended as follows: 

 A. In the introductory text by removing the phrase "Federally qualified health 

center" and adding in its place the term "FQHC". 

 B. In paragraph (b) by removing "; and" and adding in its place ".". 

§ 405.2452 [Amended] 

25. Section 405.2452 is amended as follows: 

A. In paragraph (a)(2), by removing the phrase "Federally qualified health 

center's" and adding in its place the term "FQHC's". 

B. In paragraph (a)(6), removing the term "center" and adding in its place the 

term "FQHC". 

C. In paragraph (b), by removing the phrase "federally qualified health center" 

and adding in its place the term "FQHC". 

26. Section 405.2460 is revised to read as follows: 

§ 405.2460 Applicability of general payment exclusions. 

The payment conditions, limitations, and exclusions set out in subpart C of this 

part, part 410 and part 411 of this chapter are applicable to payment for services provided 

by RHCs and FQHCs, except that preventive primary services, as defined in § 405.2448, 

are statutorily authorized for FQHCs and not excluded by the provisions of section 

1862(a) of the Act. 

27. Section 405.2462 is revised to read as follows: 

§ 405.2462 Payment for RHC and FQHC services. 
179 

(a) Payment to provider-based RHCs and FQHCs that are authorized to bill under 

the reasonable cost system. A RHC or FQHC that is authorized to bill under the 

reasonable cost system is paid in accordance with parts 405 and 413 of this subchapter, as 

applicable, if the RHC or FQHC is— 

(1) An integral and subordinate part of a hospital, skilled nursing facility or home 

health agency participating in Medicare (that is, a provider of services); and 

(2) Operated with other departments of the provider under common licensure, 

governance and professional supervision. 

(b) Payment to independent RHCs and freestanding FQHCs that are authorized to 

bill under the reasonable cost system. (1) RHCs and FQHCs that are authorized to bill 

under the reasonable cost system are paid on the basis of an all-inclusive rate for each 

beneficiary visit for covered services. This rate is determined by the MAC, in accordance 

with this subpart and general instructions issued by CMS. 

(2) The amount payable by the MAC for a visit is determined in accordance with 

paragraphs (e)(1) and (2) of this section. 

(c) Payment to FQHCs that are authorized to bill under the prospective payment 

system. A FQHC that is authorized to bill under the prospective payment system is paid 

a single, per diem rate based on the prospectively set rate for each beneficiary visit for 

covered services. This rate is adjusted for the following: 

(1) Geographic differences in cost based on the Geographic Practice Cost Indices 

(GPCIs) in accordance with section 1848(e) of the Act and 42 CFR 414.2 and 414.26 are 

used to adjust payment under the physician fee schedule during the same period, limited 

to only the work and practice expense GPCIs. 
180 

(2) Furnishing of care to a beneficiary that is a new patient with respect to the 

FQHC, including all sites that are part of the FQHC. A new patient is one that has not 

been treated by the FQHC's organization within the previous 3 years. 

(3) Furnishing of care to a beneficiary receiving a comprehensive initial 

Medicare visit (that is an initial preventive physical examination or an initial annual 

wellness visit) or a subsequent annual wellness visit. 

(d)(1) Except for preventive services for which Medicare pays 100 percent under 

§ 410.152(l) of this chapter, Medicare pays-- 

(i) 80 percent of the all-inclusive rate for FQHCs that are authorized to bill under 

the reasonable cost system; and 

(ii) 80 percent of the lesser of the FQHC's actual charge or the PPS encounter 

rate for FQHCs authorized to bill under the PPS. 

(2) No deductible is applicable to FQHC services. 

(e) For RHCs visits, payment is made in accordance with one of the following: 

(1) If the deductible has been fully met by the beneficiary prior to the RHC visit, 

Medicare pays 80 percent of the all-inclusive rate. 

(2) If the deductible has not been fully met by the beneficiary before the visit, 

and the amount of the RHC's reasonable customary charge for the services that is applied 

to the deductible is less than the all-inclusive rate, the amount applied to the deductible is 

subtracted from the all-inclusive rate and 80 percent of the remainder, if any, is paid to 

the RHC. 

(3) If the deductible has not been fully met by the beneficiary before the visit, 

and the amount of the RHC's reasonable customary charge for the services that is applied 
181 

to the deductible is equal to or exceeds the all-inclusive rate, no payment is made to the 

RHC. 

(f) To receive payment, the FQHC or RHC must do all of the following: 

(1) Furnish services in accordance with the requirements of subpart X of part 405 

of this chapter and subpart A of part 491 of this chapter. 

(2) File a request for payment on the form and manner prescribed by CMS. 

28. Section 405.2463 is revised to read as follows: 

§ 405.2463 What constitutes a visit. 

(a) Visit--General. (1) For RHCs, a visit is either of the following: 

(i) Face-to-face encounter between a RHC patient and one of the following: 

(A) Physician. 

(B) Physician assistant. 

(C) Nurse practitioner. 

(D) Certified nurse midwife. 

(E) Visiting registered professional or licensed practical nurse. 

(G) Clinical psychologist. 

(H) Clinical social worker. 

(ii) Qualified transitional care management service. 

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

(i) A visit as described in paragraph (a)(1)(i) of this section. 

(ii) A face-to-face encounter between a patient and either of the following: 

(A) A qualified provider of medical nutrition therapy services as defined in part 

410, subpart G, of this chapter. 
182 

(B) A qualified provider of outpatient diabetes self-management training services 

as defined in part 410, subpart H, of this chapter. 

(b) Visit--Medical. (1) A medical visit is a face-to-face encounter between a 

RHC or FQHC patient and one of the following: 

(i) Physician. 

(ii) Physician assistant. 

(iii) Nurse practitioner. 

(iv) Certified nurse midwife. 

(v) Visiting registered professional or licensed practical nurse. 

(2) A medical visit for a FQHC patient may be either of the following: 

(i) Medical nutrition therapy visit. 

(ii) Diabetes outpatient self-management training visit. 

(3) Visit--Mental health. A mental health visit is a face-to-face encounter 

between a RHC or FQHC patient and one of the following: 

(i) Clinical psychologist. 

(ii) Clinical social worker. 

(iii) Other RHC or FQHC practitioner, in accordance with paragraph (b)(1) of this 

section, for mental health services. 

(c) Visit--Multiple. (1) For RHCs and FQHCs that are authorized to bill under 

the reasonable cost system, encounters with more than one health professional and 

multiple encounters with the same health professional that take place on the same day and 

at a single location constitute a single visit, except when the patient— 
183 

(i) Suffers an illness or injury subsequent to the first visit that requires additional 

diagnosis or treatment on the same day; 

(ii) Has a medical visit and a mental health visit on the same day; or 

(iii) Has an initial preventive physical exam visit and a separate medical or 

mental health visit on the same day. 

(2) For RHCs and FQHCs that are authorized to bill under the reasonable cost 

system, Medicare pays RHCs and FQHCs for more than 1 visit per day when the 

conditions in paragraph (c)(1) of this section are met. 

(3) For FQHCs that are authorized to bill under the reasonable cost system, 

Medicare pays for more than 1 visit per day when a DSMT or MNT visit is furnished on 

the same day as a visit described in paragraph (c)(1) of this section are met. 

(4) For FQHCs billing under the prospective payment system, Medicare pays for 

more than 1 visit per day when the patient— 

(i) Suffers an illness or injury subsequent to the first visit that requires additional 

diagnosis or treatment on the same day; or 

(ii) Has a medical visit and a mental health visit on the same day. 

29. Section 405.2464 is revised to read as follows: 

§ 405.2464 Payment rate. 

(a) Determination of the payment rate for RHCs and FQHCs that are authorized 

to bill on the basis of reasonable cost. (1) An all-inclusive rate is determined by the 

MAC at the beginning of the cost reporting period. 

(2) The rate is determined by dividing the estimated total allowable costs by 

estimated total visits for RHC or FQHC services. 
184 

(3) The rate determination is subject to any tests of reasonableness that may be 

established in accordance with this subpart. 

(4) The MAC, during each reporting period, periodically reviews the rate to 

assure that payments approximate actual allowable costs and visits and adjusts the rate if: 

(i) There is a significant change in the utilization of services; 

(ii) Actual allowable costs vary materially from allowable costs; or 

(iii) Other circumstances arise which warrant an adjustment. 

(5) The RHC or FQHC may request the MAC to review the rate to determine 

whether adjustment is required. 

(b) Determination of the payment rate for FQHCs billing under the prospective 

payment system. (1) A per diem rate is calculated by CMS by dividing total FQHC costs 

by total FQHC daily encounters to establish an average per diem cost. 

(2) The per diem rate is adjusted as follows: 

(i) For geographic differences in the cost of inputs according to § 405.2462(c)(1). 

(ii) When the FQHC furnishes services to a new patient, as defined in 

§ 405.2462(c)(2). 

(iii) When a beneficiary receives either of the following: 

(A) A comprehensive initial Medicare visit (that is, an initial preventive physical 

examination or an initial annual wellness visit). 

(B) A subsequent annual wellness visit. 

30. Section 405.2466 is amended to read as follows: 

A. By revising paragraph (a) and paragraph (b) heading. 
185 

B. In paragraph (b)(1) introductory text by removing the term "intermediary" and 

by adding in its place the term "MAC". 

C. In paragraphs (b)(1)(i), and (b)(1)(ii) by removing the term "rural health 

clinic" each time it appears and by adding in its place the term "RHC" and by removing 

the term "Federally qualified health center" and by adding in its place the term "FQHC". 

D. Revising paragraph (b)(1)(iii). 

E. In paragraph (b)(1)(iv) by removing the term "rural health clinics" and by 

adding in its place the term "RHCs". 

F. In paragraphs (b)(1) introductory text, (b)(2), (c)(1), (c)(2), and (d)(2) by 

removing the word "clinic" each time it appears and by adding in its place the term 

"RHC". 

G. In paragraphs (b)(1) introductory text, (b)(2), (c)(1), (c)(2), and (d)(2) by 

removing the word "center" each time it appears and by adding in its place the term 

"FQHC". 

H. Revising paragraphs (c) introductory text and (d)(1). 

I. In paragraph (d)(2) by removing the term "intermediary" each time it appears 

and by adding in its place the term "MAC". 

The revisions read as follows: 

§ 405.2466 Annual reconciliation. 

(a) General. Payments made to RHCs or FQHCs that are authorized to bill under 

the reasonable cost system during a reporting period are subject to annual reconciliation 

to assure that those payments do not exceed or fall short of the allowable costs 

attributable to covered services furnished to Medicare beneficiaries during that period. 
186 

(b) Calculation of reconciliation for RHCs or FQHCs that are authorized to bill 

under the reasonable cost system. (1) * * * 

(iii) The total payment due the RHC is 80 percent of the amount calculated by 

subtracting the amount of deductible incurred by beneficiaries that is attributable to RHC 

services from the cost of these services. FQHC services are not subject to a deductible 

and the payment computation for FQHCs does not include a reduction related to the 

deductible. 

* * * * * 

(c) Notice of program reimbursement. The MAC notifies the RHC or FQHC that 

is authorized to bill under the reasonable-cost system: 

* * * * * 

(d) * * * 

(1) Underpayments. If the total reimbursement due the RHC or FQHC that is 

authorized to bill under the reasonable cost system exceeds the payments made for the 

reporting period, the MAC makes a lump-sum payment to the RHC or FQHC to bring 

total payments into agreement with total reimbursement due the RHC or FQHC. 

* * * * * 

31. Add § 405.2467 to read as follows: 

§ 405.2467 Requirements of the FQHC PPS. 

(a) Cost reporting. For cost reporting periods beginning on or after 

October 1, 2014, FQHCs are paid the lesser of their actual charges or the FQHC PPS rate 

that does all of the following: 
187 

(1) Includes a process for appropriately describing the services furnished by 

FQHCs. 

(2) Establishes payment rates for specific payment codes based on such 

appropriate descriptions of services. 

(3) Takes into account the type, intensity and duration of services furnished by 

FQHCs. 

(4) May include adjustments (such as geographic adjustments) determined by the 

Secretary. 

(b) HCPCS coding. FQHCs are required to submit HCPCS codes in reporting 

services furnished. 

(c) Initial payments. (1) Beginning October 1, 2014, for the first 15 months of 

the PPS, the estimated aggregate amount of PPS rates is equal to 100 percent of the 

estimated amount of reasonable costs that would have occurred for that period if the PPS 

had not been implemented. 

(2) Payment rate is calculated based on the reasonable cost system, prior to 

productivity adjustments and any payment limitations. 

(d) Payments in subsequent years. (1) Beginning January 1, 2016, PPS payment 

rates will be increased by the percentage increase in the Medicare economic index. 

(2) Beginning January 1, 2017, PPS rates will be increased by the percentage 

increase in a market basket of FQHC goods and services as established through 

regulations, or, if not available, the Medicare economic index. 

32. Section 405.2468 is amended by: 
188 

A. In paragraph (a) by removing the term "intermediary" and by adding in its 

place the term "MAC". 

B. In the headings of paragraphs (b) and (c), by removing the term "rural health 

clinic" and by adding in its place the term "RHC". 

C. In the heading of paragraph (b) by removing the term "Federally qualified 

health center" and by adding in its place the term "FQHC". 

D. In paragraphs (b)(4), (b)(5), (d)(2)(iv), and (d)(2)(v) by removing the word 

"clinic" each time it appears and by adding in its place the term "RHC". 

E. In paragraphs (b)(4), (b)(5), (d)(2)(iv), (d)(2)(v) by removing the word 

"center" each time it appears and by adding in its place the term "FQHC". 

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

G. In paragraph (f)(4) by removing the term "Medicare +Choice" and adding in 

its place the term "Medicare Advantage". 

The revisions read as follows: 

§ 405.2468 Allowable costs. 

* * * * * 

(b) * * * 

(1) Compensation for the services of a physician, physician assistant, nurse 

practitioner, certified nurse-midwife, visiting registered professional or licensed practical 

nurse, clinical psychologist, and clinical social worker who owns, is employed by, or 

furnishes services under contract to a FQHC or RHC. 

* * * * * 
189 

(c) Tests of reasonableness of cost and utilization. Tests of reasonableness 

authorized by sections 1833(a) and 1861(v)(1)(A) of the Act may be established by CMS 

or the MAC with respect to direct or indirect overall costs, costs of specific items and 

services, or costs of groups of items and services. For RHCs and FQHCs that are 

authorized to bill under the reasonable cost system, these tests include, but are not limited 

to, screening guidelines and payment limits. 

(d) * * * 

(1) Costs in excess of amounts established by the guidelines are not included 

unless the RHC or FQHC that is authorized to bill under the reasonable cost system 

provides reasonable justification satisfactory to the MAC. 

* * * * * 

33. Section 405.2469 is revised to read as follows: 

§ 405.2469 FQHC supplemental payments. 

(a) Eligibility for supplemental payments. FQHCs under contract (directly or 

indirectly) with MA organizations are eligible for supplemental payments for FQHC 

services furnished to enrollees in MA plans offered by the MA organization to cover the 

difference, if any, between their payments from the MA plan and what they would 

receive either: 

(1) Under the reasonable cost payment system if the FQHC is authorized to bill 

under the reasonable cost payment system, or 

(2) The PPS rate if the FQHC is authorized to bill under the PPS. 
190 

(b) Calculation of supplemental payment. The supplemental payment for FQHC 

covered services provided to Medicare patients enrolled in MA plans is based on the 

difference between-- 

(1) Payments received by the FQHC from the MA plan as determined on a per 

visit basis and the FQHCs all-inclusive cost-based per visit rate as set forth in this 

subpart, less any amount the FQHC may charge as described in section 1857(e)(3)(B) of 

the Act; or 

(2) Payments received by the FQHC from the MA plan as determined on a per 

visit basis and the FQHC PPS rate as set forth in this subpart, less any amount the FQHC 

may charge as described in section 1857(e)(3)(B) of the Act. 

(c) Financial incentives. Any financial incentives provided to FQHCs under their 

MA contracts, such as risk pool payments, bonuses, or withholds, are prohibited from 

being included in the calculation of supplemental payments due to the FQHC. 

(d) Per visit supplemental payment. A supplemental payment required under this 

section is made to the FQHC when a covered face-to-face encounter occurs between a 

MA enrollee and a practitioner as set forth in § 405.2463. 

§ 405.2470 [Amended] 

34. Section 405.2470 is amended by: 

A. In paragraphs (a)(1), (b)(1), (c)(3), (c)(4), and (c)(5) by removing the term 

"intermediary", and by adding in its place the term "MAC". 

B. In paragraph (b)(2), by removing the term "intermediary's" and by adding in 

its place the term "MAC's". 
191 

C. In paragraphs (a) introductory text, (c)(1), (c)(2)(i), and (c)(2)(ii) by removing 

the term "rural health clinic" and by adding in its place the term "RHC". 

D. In paragraphs (a) introductory text, (c)(1), (c)(2)(i), and (c)(2)(ii) by removing 

the term "Federally qualified health center" and by adding in its place the term "FQHC". 

E. In paragraphs (b)(1), (b)(2), (c)(1), (c)(2) introductory text, (c)(3), (c)(4), 

(c)(5), and (c)(6) by removing the term "clinic" each time it appears and by adding in its 

place the term "RHC". 

F. In paragraphs (b)(1), (b)(2), ( c)(1), (c)(2) introductory text, (c)(3), (c)(4), 

(c)(5) and (c)(6) by removing the term "center" each time it appears and by the term 

"FQHC". 

35. Section 405.2472 is amended by revising paragraph (a) to read as follows: 

§ 405.2472 Beneficiary appeals. 

* * * * * 

(a) The beneficiary is dissatisfied with a MAC's determination denying a request 

for payment made on his or her behalf by a RHC or FQHC; 

* * * * * 

PART 410 – SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS 

36. The authority citation for part 410 continues to read as follows: 

Authority: Sec. 1102, 1834, 1871, 1881, and 1893 of the Social Security Act (42 

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

37. Section 410.152 is amended by revising paragraph (f) to read as follows: 

§ 410.152 Amounts of payment. 

* * * * * 
192 

(f) Amount of payment: Rural health clinic (RHC) and Federally qualified health 

center (FQHC) services. Medicare Part B pays, for services by a participating RHC or 

FQHC that is authorized to bill under the reasonable cost system, 80 percent of the costs 

determined under subpart X of part 405 of this chapter, to the extent those costs are 

reasonable and related to the cost of furnishing RHC or FQHC services or reasonable on 

the basis of other tests specified by CMS. 

* * * * * 

PART 491--CERTIFICATION OF CERTAIN HEALTH FACILITIES 

38. The authority citation for part 491 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302); and sec. 353 

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

39. Section 491.8 is amended by revising paragraph (a)(3) to read as follows: 

§ 491.8 Staffing and staff responsibilities. 

(a) * * * 

(3) The physician assistant, nurse practitioner, nurse-midwife, clinical social 

worker or clinical psychologist member of the staff may be the owner or an employee of 

the clinic or center, or may furnish services under contract to the clinic or center. In the 

case of a clinic, at least one physician assistant or nurse practitioner must be an employee 

of the clinic. 

 * * * * * 

PART 493—LABORATORY REQUIREMENTS 

 40. The authority citation for part 493 is revised to read as follows: 
193 

Authority: Sec. 353 of the Public Health Service Act, secs. 1102, 1861(e), the 

sentence following sections 1861(s)(11) through 1861(s)(16) of the Social Security Act 

(42 U.S.C. 263a, 1302, 1395x(e), the sentence following 1395x(s)(11) through 

1395x(s)(16)), and the Pub. L. 112-202 amendments to 42 U.S.C 263a. 

 41. Section 493.1 is amended by revising the second sentence to read as follows: 

§ 493.1 Basis and scope.

* * * It implements sections 1861 (e) and (j), the sentence following 

section 1861(s)(13), and 1902(a)(9) of the Social Security Act, and section 353 of the 

Public Health Service Act, as amended by section 2 of the Taking Essential Steps for 

Testing Act of 2012. * * * 

 42. Section 493.2 is amended by adding the definition of "Repeat proficiency 

testing referral" in alphabetical order, to read as follows: 

§ 493.2 Definitions. 

 * * * * * 

 Repeat proficiency testing referral means a second instance in which a proficiency 

testing sample, or a portion of a sample, is referred, for any reason, to another laboratory 

for analysis prior to the laboratory's proficiency testing program event cut-off date within 

the period of time encompassing the two prior survey cycles (including initial 

certification, recertification, or the equivalent for laboratories surveyed by an approved 

accreditation organization). 

* * * * * 

 43. Section 493.1800 is amended by revising paragraph (a)(2) introductory text to 

read as follows: 
194 

§ 493.1800 Basis and scope. 

(a) * * * 

 (2) The Clinical Laboratory Improvement Act of 1967 (section 353 of the Public 

Health Service Act) as amended by CLIA 1988, as amended by section 2 of the Taking 

Essential Steps for Testing Act of 2012-- 

* * * * * 

 44. Section 493.1840 is amended by revising paragraph (b) to read as follows: 

§ 493.1840 Suspension, limitation, or revocation of any type of CLIA certificate. 

 * * * * * 

 (b) Adverse action based on improper referrals in proficiency testing. If CMS 

determines that a laboratory has intentionally referred its proficiency testing samples to 

another laboratory for analysis, CMS does one of the following: 

(1)(i) Revokes the laboratory's CLIA certificate for at least 1 year, prohibits the 

owner and operator from owning or operating a CLIA-certified laboratory for at least 

1 year, and may impose a civil money penalty in accordance with § 493.1834(d), if CMS 

determines that-- 

(A) A proficiency testing referral is a repeat proficiency testing referral as 

defined at § 493.2; or 

(B) On or before the proficiency testing event close date, a laboratory reported 

proficiency testing results obtained from another laboratory to the proficiency testing 

program. 

(ii) Following the revocation of a CLIA certificate in accordance with paragraph 

(b)(1)(i) of this section, CMS may exempt a laboratory owner from the generally 
195 

applicable prohibition on owning or operating a CLIA-certified laboratory under 

paragraph (a)(8) of this section on a laboratory-by-laboratory basis if CMS finds, after 

review of the relevant facts and circumstances, that there is no evidence that -- 

 (A) Patients would be put at risk as a result of the owner being exempted from 

the ban on a laboratory-by-laboratory basis; 

 (B) The laboratory for which the owner is to be exempted from the general 

ownership ban participated in or was otherwise complicit in the PT referral of the 

laboratory that resulted in the revocation; and 

 (C) The laboratory for which the owner is to be exempted from the general 

ownership ban received a PT sample from another laboratory in the prior two survey 

cycles, and failed to immediately report such receipt to CMS or to the appropriate 

CMS-approved accrediting organization. 

(2) Suspends or limits the CLIA certificate for less than 1 year based on the 

criteria in § 493.1804(d) and imposes alternative sanctions as appropriate, in accordance 

with § 493.1804(c) and (d), § 493.1806(c), § 493.1807(b), § 493.1809 and, in the case of 

civil money penalties, § 493.1834(d), when CMS determines that paragraph (b)(1)(i)(A) 

or (B) of this section does not apply but that the laboratory obtained test results for the 

proficiency testing samples from another laboratory on or before the proficiency testing 

event close date. Among other possibilities, alternative sanctions will always include a 

civil money penalty and a directed plan of correction that includes required training of 

staff. 

(3) Imposes alternative sanctions in accordance with § 493.1804(c) and (d), 

§ 493.1806(c), § 493.1807(b), § 493.1809 and, in the case of civil money penalties, 
196 

§ 493.1834(d), when CMS determines that paragraph (b)(1)(i) or (2) of this section do not 

apply, and a PT referral has occurred, but no test results are received prior to the event 

close date by the referring laboratory from the laboratory that received the referral. 

Among other possibilities, alternative sanctions will always include a civil money penalty 

and a directed plan of correction that includes required training of staff. 

* * * * * 
CMS-1443-FC 

Dated: April 3, 2014. 

 _______________________________ 

 Marilyn Tavenner, 

 Administrator, 

 Centers for Medicare & Medicaid Services. 

Approved: April 9, 2014. 

 __________________________________ 

 Kathleen Sebelius, 

 Secretary, 

 Department of Health and Human Services. 

BILLING CODE 4120-01-P
 198

Note: The following Addendum will not appear in the Code of Federal Regulations. 

ADDENDUM: FQHC GEOGRAPHIC ADJUSTMENT FACTORS (FQHC GAFs) 

 As described in section II.C.2. of this final rule with comment period, we used the 

CY 2015 GPCI values and cost share weights, as published in the CY 2014 PFS final rule with 

comment period, to model the geographic adjustments for the FQHC PPS rates. The FQHC 

GAFs that will be used for payment under the FQHC PPS will be adapted from the GPCIs used 

to adjust payment under the PFS for that same period. 

The 2014 FQHC GAFs in the following table are adapted from the CY 2014 PFS GPCIs, 

as finalized in the CY 2014 PFS final rule with comment period. The 2014 FQHC GAFs are the 

values that will be used to adjust payment under the FQHC PPS for the period of October 1 

through December 31, 2014. The 2014 FQHC GAFs in the following table do not reflect the 1.0 

floor on the PFS work GPCI that is effective from January 1, 2014, through March 31, 2014, 

which was authorized by the Pathway for SGR Reform Act of 2013. 

The 2015 FQHC GAFs in the following table are adapted from the CY 2015 PFS GPCIs, 

as finalized in the CY 2014 PFS final rule with comment period. The 2015 FQHC GAFs listed 

were used to model the geographic adjustments for the FQHC PPS rates. Under current law and 

regulation, these same values would be used to adjust payments under the FQHC PPS during 

CY 2015. 

We note that updates to the PFS GPCIs due to changes in law or implemented through 

regulation would also apply to the FQHC GAFs, such as changes to the CY 2015 PFS GPCIs 

that may be included in the final CY 2015 PFS rule. The FQHC GAFs would be re-calculated 

and updated through program instruction so that they remain consistent with the PFS GPCIs. 
 199

Locality Name 2014 FQHC GAF 2015 FQHC GAF

1 Alabama 0.933 0.936 

2 Alaska 1.307 1.316 

3 Arizona 0.985 0.993 

4 Arkansas 0.920 0.920 

5 Anaheim/Santa Ana, CA 1.123 1.120 

6 Los Angeles, CA 1.096 1.100 

7 Marin/Napa/Solano, CA 1.154 1.165 

8 Oakland/Berkeley, CA 1.152 1.154 

9 San Francisco, CA 1.216 1.224 

10 San Mateo, CA 1.210 1.216 

11 Santa Clara, CA 1.204 1.209 

12 Ventura, CA 1.105 1.100 

13 Rest of California 1.053 1.053 

14 Colorado 1.003 1.005 

15 Connecticut 1.067 1.069 

16 DC + MD/VA Suburbs 1.121 1.123 

17 Delaware 1.024 1.021 

18 Fort Lauderdale, FL 1.014 1.006 

19 Miami, FL 1.017 1.011 

20 Rest of Florida 0.973 0.971 

21 Atlanta, GA 1.005 1.002 

22 Rest of Georgia 0.940 0.940 

23 Hawaii/Guam 1.075 1.077 

24 Idaho 0.935 0.930 

25 Chicago, IL 1.033 1.026 

26 East St. Louis, IL 0.962 0.961 

27 Suburban Chicago, IL 1.041 1.033 

28 Rest of Illinois 0.944 0.944 

29 Indiana 0.948 0.948 

30 Iowa 0.929 0.933 

31 Kansas 0.933 0.935 

32 Kentucky 0.925 0.926 

33 New Orleans, LA 0.983 0.986 

34 Rest of Louisiana 0.930 0.935 

35 Southern Maine 0.998 0.994 

36 Rest of Maine 0.940 0.944 

37 Baltimore/Surr. Cntys, MD 1.059 1.058 

38 Rest of Maryland 1.024 1.025 

39 Metropolitan Boston 1.082 1.085 

40 Rest of Massachusetts 1.038 1.040 

41 Detroit, MI 1.010 0.996 

42 Rest of Michigan 0.957 0.954 

43 Minnesota 1.005 1.006 

44 Mississippi 0.916 0.914 
 200

Locality Name 2014 FQHC GAF 2015 FQHC GAF

45 Metropolitan Kansas City, MO 0.968 0.968 

46 Metropolitan St Louis, MO 0.975 0.972 

47 Rest of Missouri 0.905 0.903 

48 Montana 0.974 0.977 

49 Nebraska 0.938 0.939 

50 Nevada 1.026 1.027 

51 New Hampshire 1.021 1.027 

52 Northern NJ 1.109 1.107 

53 Rest of New Jersey 1.071 1.072 

54 New Mexico 0.955 0.954 

55 Manhattan, NY 1.108 1.106 

56 NYC Suburbs/Long I., NY 1.124 1.122 

57 Poughkpsie/N NYC Suburbs, NY 1.039 1.040 

58 Queens, NY 1.123 1.121 

59 Rest of New York 0.966 0.967 

60 North Carolina 0.953 0.956 

61 North Dakota 0.982 0.981 

62 Ohio 0.959 0.953 

63 Oklahoma 0.913 0.919 

64 Portland, OR 1.025 1.026 

65 Rest of Oregon 0.975 0.978 

66 Metropolitan Philadelphia, PA 1.044 1.052 

67 Rest of Pennsylvania 0.957 0.962 

68 Puerto Rico 0.808 0.816 

69 Rhode Island 1.035 1.037 

70 South Carolina 0.946 0.946 

71 South Dakota 0.974 0.976 

72 Tennessee 0.937 0.936 

73 Austin, TX 1.002 1.008 

74 Beaumont, TX 0.942 0.947 

75 Brazoria, TX 1.002 1.005 

76 Dallas, TX 1.014 1.014 

77 Fort Worth, TX 0.995 1.000 

78 Galveston, TX 1.010 1.016 

79 Houston, TX 1.009 1.013 

80 Rest of Texas 0.953 0.957 

81 Utah 0.946 0.946 

82 Vermont 0.992 0.992 

83 Virginia 0.986 0.987 

84 Virgin Islands 1.001 1.001 

85 Seattle (King Cnty), WA 1.084 1.086 

86 Rest of Washington 1.004 1.005 

87 West Virginia 0.901 0.902 

88 Wisconsin 0.973 0.970 
 201

Locality Name 2014 FQHC GAF 2015 FQHC GAF

89 Wyoming 0.989 0.992 

[FR Doc. 2014-09908 Filed 04/29/2014 at 4:15 pm; Publication Date: 05/02/2014]