Federal Register / Vol. 65, No. 104 / Tuesday, May 30, 2000 / Proposed Rules 34423

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN 0720–AA58

TRICARE; Civilian Health and Medical

Program of the Uniformed Services

(CHAMPUS); Payments for

Professional Services in Low-Access

Locations

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

SUMMARY: This proposed rule

implements section 716 of the National

Defense Authorization Act for Fiscal

Year 2000 which allows the Secretary of

Defense to authorize higher provider

reimbursement than normally

allowable, with certain limitations,

when necessary to ensure an adequate

TRICARE Prime network of qualified

providers. This proposed rule also

describes additional actions which may

be taken under section 731 of the

National Defense Authorization Act for

Fiscal Year 1996 when TRICARE

beneficiaries face very severe limitations

on access to needed health care services.

In such instances, the Assistant

Secretary of Defense (Health Affairs)

may authorize higher TRICARE

payments than would normally be

allowable for professional services in a

designated location.

DATES: Public comments must be

received by July 31, 2000.

ADDRESSES: TRICARE Management

Activity (TMA), Program Development

Branch, Aurora, CO 80045–6900.

FOR FURTHER INFORMATION CONTACT:

Steve Lillie, Office of the Assistant

Secretary of Defense (Health Affairs)/

TRICARE Management Activity,

telephone (703) 681–3628.

SUPPLEMENTARY INFORMATION: Questions

regarding payment of specific claims

under the CHAMPUS allowable charge

method should be addressed to the

appropriate TRICARE/CHAMPUS

contractor.

1. Background on TRICARE and

CHAMPUS Payments to Providers

The relationship of DoD payment

levels to Medicare’s for institutional and

professional health care services is

central to the ongoing success of

TRICARE. Payment levels have

significant effects on our ability to

implement managed care programs, to

assure beneficiary access to the full

spectrum of health services, and to do

these things cost-effectively. This

section reviews the background of the

linkage of TRICARE and CHAMPUS

rates to Medicare.

It is appropriate that Medicare serve

as the model for establishment of

payment rates for TRICARE and

CHAMPUS. Medicare is by far the

largest payer for health services in the

country, and as such its payment

methodologies are carefully developed

by the Executive Branch and the

Congress, and subject to intense

scrutiny by the public and by providers

of health services. When payment rate

policy was established by the Congress

and the Executive Branch in the 1980s

and early 1990s, CHAMPUS, being

structurally similar to Medicare, and a

considerably smaller program, neither

attracted nor warranted the same degree

of attention in development of

reimbursement methods. Thus,

Congress followed the prudent course of

directing DoD to adopt or adopt

Medicare payment approaches when

appropriate.

Legislative initiatives to link DoD and

Medicare payment rates for health care

began in the early 1980s, with the initial

focus on institutional services. DoD was

directed to pay hospitals ‘‘* * * to the

extent practicable in accordance with

the same reimbursement rules as apply

to providers of services of the same type

under Title XVIII of the Social Security

Act’’ (Department of Defense

Authorization Act, 1984 (Pub. L. 98–94,

amending 10 U.S.C. 1079(j)(A)). In 1986,

a statutory provision was enacted

requiring hospitals participating in

Medicare to also participate in

CHAMPUS. On the basis of these

authorities, a Diagnosis Related GroupBased Payment System was

implemented for CHAMPUS in 1987,

modeled largely on the Medicare

Prospective Payment System that had

been implemented in 1983.

Similar initiatives have linked DoD’s

payment levels for professional services

to Medicare. Based on General

Accounting Office recommendations,

Congress in 1988 directed that growth in

CHAMPUS prevailing charges be

limited through application of the

Medicare Economic Index, which had

been used since 1972 as a limit on

growth in Medicare physician

payments. Beginning in 1991, Congress

directed that CHAMPUS payments be

analyzed to identify overpriced

procedures, and gradually to bring

payment levels for those procedures

into line with payments under

Medicare. TRICARE payment limits are

called CMACs (CHAMPUS Maximum

Allowable Charges).

In 1992, Medicare implemented the

Medicare Fee Schedule, and began

basing payment limits on the relative

resource requirements of procedures,

rather than on historical charges

submitted by providers. In keeping with

statutory direction, Medicare Fee

Schedule amounts have become the

target payment amounts for TRICARE.

The National Defense Authorization Act

for Fiscal Year 1996 codified the linkage

to Medicare payment amounts.

Regulatory provisions governing this

and other TRICARE payments are at 32

CFR 199.14.

In adapting Medicare’s payment

approaches to TRICARE, it has been

vital to recognize the differences in the

programs and the populations they

serve, and to accommodate those

differences in the technical details of

the payment methodologies. To

illustrate, the services of children’s

hospitals as well as care for neonates

were excluded from the initial

implementation of the CHAMPUS DRGBased Payment System. This was done

out of concern that the DRG

classification system and payment

levels did not adequately distinguish

the more complex and resourceintensive children’s conditions. In

consultation with children’s hospital

representatives, DoD developed a

special additional factor (the ‘‘children’s

hospital differential’’) to uses in the

payment methodology so that children’s

hospital services were appropriately

reimbursed. For neonatal services, DoD

adopted an industry-developed

approach to classify neonates by

birthweight to more accurately

reimburse their care. Thus, our

approach was modeled on Medicare’s

but modified to reflect the special

characteristics of the TRICARE

population. Maintaining the special

treatment of children’s hospitals has

required occasional policy changes. For

example, recent changes to Medicare’s

payment of outlier cases have been

adopted by TRICARE for most hospitals,

but these changes have had an adverse

impact on payments to children’s

hospitals for outlier cases. DoD is

working with children’s hospital

representatives to fix the problem.

For some providers, such as

residential treatment centers for

children and adolescents, there is no

Medicare coverage, and in these cases

DoD has developed its own

reimbursement approaches, working

through the legislative and regulatory

processes to find reasonable, costeffective approaches to payment.

A key principle of DoD’s activity in

reimbursement design has been the

protection of access to services. The

statutory linkage of hospital

participation in CHAMPUS to Medicare

participation provided ample protection

34424 Federal Register / Vol. 65, No. 104 / Tuesday, May 30, 2000 / Proposed Rules

for our beneficiaries, and enabled

aggressive implementation of the

CHAMPUS DRG-Based Payment

System, which saved taxpayers (and

beneficiaries) hundreds of millions of

dollars per year. Lacking similar

protections for physician services, DoD

had to proceed more cautiously:

Payment levels have been gradually

brought into harmony with Medicare’s

rates over several years, and special

provisions are built into the process to

stop reducing payments if access was

threatened. In a 1996 Report to

Congress, we reviewed acceptance of

our payment rates, and found that 86

percent of the time, doctors accepted the

CMAC as payment in full; 14 percent of

services were subject to balance billing.

More recently, this has increased to over

94 percent acceptance, with less than 6

percent of services subject to balance

billing. For the small proportion of

claims that are subject to balance

billing, providers are prohibited from

collecting more than 115 percent of the

CMAC rate, just as in Medicare.

As of February 1999, over 90 percent

of CMAC rates are at the same level as

Medicare, and fewer than 10 percent are

higher than Medicare, because their

gradual transition to the Medicare level

is not yet complete. Historically, owing

to the strict wording of the

Appropriations Act provision on

physician payment reform, DoD did not

have broad discretion to raise payments

for services reimbursed at rates below

the Medicare level. Although these

services (about 60 out of the 7,000

service types reimbursed) represent less

than 0.2 percent of DoD spending for

health services (roughly $14 million out

of $10 billion), it was important that the

issue be addressed. The Department

issued a final regulation in September

1998 to provide that in these few cases

in which the CMAC rate was less than

the Medicare rate, the CMAC rate would

be increased to the Medicare level.

Implementation was in the February 1,

1999 update of payment rates.

In February 1998 the General

Accounting Office issued a report,

‘‘Defense Health Care: Reimbursement

Rates Appropriately Set; Other Problems

Concern Physicians’’ (GAO/HEHS–98–

80). In conducting the study from March

1997 to January 1998, GAO:

• Reviewed the establishment of

CMACs and contracted with actuaries to

evaluate the methodology’s compliance

with statutory requirements;

• Compared Medicare and CMAC

rates, and interviewed physicians and

beneficiary advocacy groups in four

locations; and

• Interviewed TRICARE

administrators and staff from TRICARE

contractors.

GAO found that the CMAC

methodology was sound, and that DoD

saves about $770 million annually as a

result of CMACs. Rates were found to be

generally consistent with Medicare’s

rates. Physician concerns focused on

network discounts off to CMACs, rather

than on the acceptability of CMACs

themselves. Local market factors were

found to be the principal determinants

of whether physicians would accept

discounts off CMACs. Physicians also

expressed concerns about

administrative hassles and slow claims

payments. GAO suggested that DoD do

a better job of informing physicians

about payment rates, and informing

beneficiaries about balance billing

limitations. (Payment rates are now

available on the Internet, and the

Explanation of Benefits for each claim

describes the applicable balance billing

limit. Revisions to claims payment

timeliness requirements have addressed

many concerns about slow payments.)

The amounts paid for health care

services in TRICARE are governed by

either the payment rules described

above or on the basis of discounts from

those rates. each regional at-risk

TRICARE contractor is required to

establish a network of providers where

the TRICARE Prime (HMO-type) option

is offered, and the contractor attempts to

negotiate reduced payment amounts

with providers who join the network.

Beneficiaries who enroll in TRICARE

Prime use the network for most civilian

health care services; beneficiaries who

do not enroll retain their freedom to use

any civilian provider under TRICARE

Standard, but can take advantage of the

discounted network under TRICARE

Extra. DoD thus achieves efficiencies for

itself and its beneficiaries while

preserving freedom of choice of

provider for those who do not wish to

use the managed care options of

TRICARE.

The evolution of DoD reimbursement

reforms over the past 15 years has

complemented DoD’s managed care

initiatives; one could not have

proceeded without the other. Continued

attention to beneficiary access and

satisfaction issues will enable us to

continue to assure high quality services

for our military families and retirees.

II. Statutory Direction and Regulations

Title 10 U.S.C. section 1079(h)

provides statutory authority for

TRICARE payments to professional

providers. Section 1079(h)(1) mandates

that payments shall, to the extent

practicable, equal Medicare payment

amounts. Section 1079(h)(2) permits

exceptions, as determined to be

necessary to assure that covered

beneficiaries retain adequate access to

health care services. Title 10 U.S.C.

section 1097b(a) provides statutory

authority for higher reimbursement for

professional providers than normally

allowable when determined necessary

to ensure an adequate TRICARE Prime

network of qualified providers.

Regulations providing for exceptions to

normally allowed payment amounts are

promulgated by the Secretary if Defense

in consultation with the other

administering Secretaries.

Regulations governing TRICARE

payments to providers are in 32 CFR

199.14, with 32 CFR 199.14(h)

addressing individual health care

professional and other non-institutional

health care providers.

III. Access to Care Issues.

As measured by acceptability of

payment rates, access to professional

services in TRICARE is at its highest

level in history. Over 94 percent of the

time, providers accept the TRICARE

payment amount as full payment, and

do not balance bill the beneficiary. This

high rate of acceptance has been

achieved despite ongoing reductions in

payment amounts over the past several

years.

We are concerned that the very high

acceptance rate for TRICARE payments

to professional providers may mask

local access problems. When the CMAC

payment approach was implemented in

1992, national payment levels were

adjusted to reflect local economic

conditions in over two hundred

‘‘localities’’ following the Medicare

program’s technique for recognizing

local variations. (This replaced the

historical approach taken for

CHAMPUS, which based payments on

statewide patterns.) Since that time, the

number of localities has been reduced to

fewer than one hundred, with the

introduction of more and more

statewide payment localities for

Medicare, and hence for TRICARE.

In late 1999, DoD undertook a

redemption of one statewide locality—

for Alaska—in recognition of significant

differences in acceptability of TRICARE

payment rates in Anchorage compared

to the rest of the state. Overall, CMACs

are accepted as full payment over 90

percent of the time in Alaska, but the

vast majority of services are provided in

Anchorage, so that severe access

problems elsewhere are hidden. In an

effort to increase acceptability of

payment rates outside of Anchorage,

DoD created a new locality, including

all of Alaska except Anchorage, and, for

Federal Register / Vol. 65, No. 104 / Tuesday, May 30, 2000 / Proposed Rules 34425

the new locality, waived reductions in

payment amounts taken since inception

of the CMAC payment approach in

1992. This was carried out under

authority of 32 CFR 199.14(h)(1)(iv),

which describes procedures for

calculating CMAC levels for localities,

including waiving reductions where

access is threatened. The resulting

payment levels are about 28 percent

higher than they would be otherwise.

There is concern that even these

dramatic steps, which use the full extent

of DoD’s current regulatory authority,

may be insufficient in some locations.

Accordingly, we are publishing this

notice of proposed rulemaking, seeking

public comment on possible additional

actions to increase access to health care

providers in locations where evidence

shows that TRICARE beneficiaries lack

access to needed health services.

IV. TRICARE Prime Preferred Provider

Network Adequacy Issues

TRICARE Managed Care Support

(MCS) contractors are responsible for

providing an adequate network of

qualified providers in all areas of

TRICARE regions as designed under the

terms of their contracts with the

government. The network shall include

a complement of civilian professional

providers adequate to ensure access to

care for TRICARE Prime and Extra

beneficiaries. In determining if a

network is adequate, it is necessary for

the network to include an appropriate

mix of primary care and specialists to

satisfy demand and to meet the

standards established for appointment/

waiting time and travel distance for

patient access to primary, specialty or

emergency care.

Today, the number of providers in the

TRICARE network varies across the

country—for example, the number of

specialists per 1,000 enrollees ranges

from as low as 16 to as high as 84. This

variation may arise from the availability

of military providers, which reduces the

need for an extensive civilian network.

It may also reflect real problems in

network sufficiency, and regional

averages may mask further problems at

local levels.

While TRICARE Prime Preferred

Provider networks are generally

considered adequate, there are isolated

geographical areas outside major

metropolitan areas and within states

with limited population bases in which

network development is hindered due

to allowable TRICARE payments being

lower than rates used by competitive

commercial health care insurance or

other governmental programs. Because

CMACs are based on Medicareprescribed payment localities, and

generally are consistent with Medicare

reimbursement rates, Congress has

authorized the Secretary of Defense to

allow higher payments, with certain

limitations, when determined necessary

to ensure adequacy of TRICARE

networks.

V. Overview of the Rule

The proposed rule would add a new

§ 199.14(h)(1)(iv)(D), authorizing the

establishing of higher payment rates for

services than would otherwise be

allowable, if it is determined that access

to health care services is severely

impaired. Payment rates could be

established through addition of a

percentage factor to an otherwise

applicable payment amount, or by

calculating a prevailing charge, or by

using another governmental payment

rate. Higher payment rates could be

applied to all similar services performed

in a locality, or a new locality could be

defined for application of the higher

payment rates.

The proposed rule would also add a

new § 199.14(h)(1)(iv)(E), allowing the

reimbursement of higher payment rates

for services than would otherwise be

allowable, if it is determined necessary

to ensure adequate Preferred Provider

networks. The amount of

reimbursement for a health care service

would be limited to the lesser of: (1) An

amount equal to the local fee for service

charge in the area where the service is

provided; or (2) 115 per cent of the

otherwise allowable TRICARE rate for

the service. The higher rate will be

authorized only if all reasonable efforts

have been exhausted in attempting to

create an adequate network and that it

is cost-effective and appropriate to pay

the higher rate to ensure an appropriate

mix of primary care and specialists in

the network.

VI. Issues of particular Interest

Regarding the Special Locality-Based

Exception to Applicable CMACs To

Assure Adequate Beneficiary Access to

Care

In addition to seeking public

comments on the proposed approach,

we particularly invite comment on the

following issues:

1. Nature of the relief from current

payment levels.—The proposed rule

would authorize three approaches to

increasing payment rates: (1) Addition

of a percentage factor to the CMAC

amount where access problems are so

severe that other measures are

insufficient; (2) reverting to the

historical method of calculating the

prevailing charge for a procedure, but

using current billed charges to drive the

calculation; or (3) using another

government payment rate (such as a

state Medicaid program rate). Other

approaches are possible, including

simply paying of billed charges in a

location, as is done currently in many

overseas locations. Declaration of a

location as ‘‘overseas’’ for purpose of an

exemption from payment rules would

require a statutory change, but we invite

comment on the issue.

2. Extent of availability of relief from

payment levels.—The proposed rule

would make payment relief available for

specific CPT codes in a location

generally described by zip code(s). We

invite comment on whether there are

locations where access concerns are so

pervasive that an authority to increase

payment amounts for all services would

be appropriate.

3. Evidence needed to qualify a

location for relief.—The proposed rule

would base determinations of severe

access problems on the number of

providers in the locality who provide

the affected services, the number of

such providers who are CHAMPUS

Participating Providers, the number of

CHAMPUS beneficiaries in the locality,

availability (including reassignment) of

military providers in the location or

nearby, and other relevant factors. We

invite comment on what factors should

be considered to constitute reasonable

evidence of severe access problems.

VII. Regulatory Procedures

Executive Order (EO) 12866 requires

that a comprehensive regulatory impact

analysis be performed on any

economically significant regulatory

action, defined as one which would

result in an annual effect of $100

million or more on the national

economy or which would have other

substantial impact.

The Regulatory Flexibility Act (RFA)

requires that each Federal agency

prepare, and make available for public

comment, a regulatory flexibility

analysis when the agency issues a

regulation which would have a

significant impact on a substantial

number of small entities.

This is not a significant regulatory

action under the provisions of Executive

Order 12866, and it would not have a

significant impact on a substantial

number of small entities.

The proposed rule will not impose

additional information collection

requirements on the public under the

Paperwork Reduction Act of 1995 (44

U.S.C. Chapter 55).

A discussion of the major issues

received by public comments will be

included with the issuance of the final

rule, anticipated approximately 60 days

after the end of the comment period.

34426 Federal Register / Vol. 65, No. 104 / Tuesday, May 30, 2000 / Proposed Rules

List of Subjects in 32 CFR Part 199

Claims, Fraud, Healthcare, Health

insurance, Individuals with disabilities,

Military personnel.

Accordingly, 32 CFR Part 199 is

proposed to be amended as follows:

PART 199—[AMENDED]

1. The authority citation for part 199

continues to read as follows:

Authority: 5 U.S.C. 301, 10 U.S.C. chapter

55.

2. Section 199.14 is proposed to be

amended by adding new paragraphs

(h)(1)(iv)(D) and (E) to read as follows:

§ 199.14 Provider reimbursement

methods.

* * * * *

(h) * * *

(1) * * *

(iv) * * *

(D) Special locality-based exception to

applicable CMACs to assure adequate

beneficiary access to care. The Director,

OCHAMPUS, or designee, may

authorize establishment of higher

payment rates for services than would

otherwise be allowable under paragraph

(h)(1) of this section, if the Director, or

designee, determines that available

evidence shows that access to health

care services is severely impaired. For

this purpose, such evidence may

include consideration of the number of

providers in the locality who provide

the affected services, the number of

such providers who are CHAMPUS

Participating Providers, the number of

CHAMPUS beneficiaries in the locality,

availability (including reassignment) of

military providers in the location or

nearby, and other relevant factors.

Providers or beneficiaries in a locality

may submit to the Director,

OCHAMPUS, or designee, a petition,

together with appropriate

documentation regarding relevant

factors, for a determination that

adequate access to health care services

is severely impaired. The Director,

OCHAMPUS, or designee, will consider

and respond to all petitions. A decision

to authorize a higher payment amount is

subject to review and termination or

modification by the Director at any time

if circumstances change so that

adequate access to health care services

would no longer be severely impaired.

A decision by the Director, or designee,

to authorize, not authorize or terminate/

modify authorization of higher payment

amounts is not subject to the appeal

anbd hearing procedures of § 199.10.

(1) Establishing the higher payment

rate(s). When the Director, OCHAMPUS,

or designee, determines that beneficiary

access to health care services in a

locality is severely impaired, the

Director or designee may establish the

higher payment rate(s) as he or she

deems appropriate and cost-effective

through one of the following

methodologies to assure adequate

access:

(i) A percentage factor may be added

to the otherwise applicable payment

amount allowable under paragraph

(h)(1) of this section;

(ii) A prevailing charge may be

calculated, by applying the prevailing

charge methodology of paragraph

(h)(1)(ii) of this section to a specific

locality; or

(iii) Another governmental payment

rate may be adopted, for example, an

applicable state Medicaid rate.

(2) Application of higher payment

rates. Higher payment rates defined

under paragraph (h)(1)(iv)(D) of this

section may be applied to all similar

services performed in a locality, or, if

circumstances warrant, a new locality

may be defined for application of the

higher payment rates. Establishment of

a new locality may be undertaken where

access impairment is localized and not

pervasive across the existing locality.

Generally, establishment of a new

locality will occur when the area is

remote so that geographical

characteristics and other factors (such as

frequent and predominant climatic

conditions, etc.) significantly impair

egress/ingress, through normal means of

civilian transportation, to health care

services routinely available within the

existing locality.

(E) Special Locality-Based Exception

to Applicable CMACs to Ensure an

Adequate TRICARE Prime Preferred

Provider Network of Qualified

Professional Providers. The Director,

OCHAMPUS, or designee, may

authorize any TRICARE managed care

support contractor to reimburse health

care providers participating in TRICARE

Prime Preferred Provider Network a rate

or rate(s) higher than would otherwise

be allowable under paragraph (h)(1) of

this section, if the Director, or designee,

determines that available evidence

shows that application of the higher

rate(s) is necessary to ensure the

availability of an adequate number and

mix of qualified health care providers in

a network in a specific locality. This

authority may only be used to ensure

adequate networks in those localities

designated by the Director, or designee,

as requiring TRICARE Preferred

Provider networks not in localities in

which the managed care support

contractor has voluntarily proposed to

create TRICARE Preferred Provider

networks. Appropriate evidence for this

purpose, may include consideration of

the number of available primary care

and specialist providers in the network

locality, availability (including

reassignment) of military providers in

the location or nearby, the appropriate

mix of primary care and specialists

needed to satisfy demand and meet

appropriate patient access standards

(appointment/waiting time, travel

distance, etc.), what reasonable efforts

have been made to create an adequate

network, other cost-effective

alternatives, and other relevant factors.

The Director, OCHAMPUS, or designee,

may establish procedures by which

exceptions to applicable CMACs are

requested and approved or denied

under paragraph (h)(1)(iv)(E) of this

section. A decision by the Director, or

designee, to authorize or deny an

exception is not subject to the appeal

and hearing procedures of § 199.10.

When the Director, OCHAMPUS, or

designee, determines that it is necessary

and cost-effective to approve a higher

rate or rates in order to ensure the

availability of an adequate number of

qualified health care providers in a

network in a specific locality, the higher

rate may not exceed the lesser of the

following:

(1) The amount equal to the local fee

for service charge for the service in the

service area in which the service is

provided as determined by the Director,

OCHAMPUS, or designee, based on one

or more of the following payment rates:

(i) Usual, customary, and reasonable;

(ii) The Health Care finance

administration’s Resource Based

Relative Value Scale;

(iii) Negotiated fee schedules;

(iv) Global fees; or

(v) Sliding scale individual fee

allowances.

(2) The amount equal to 115 percent

of the otherwise allowable charge under

paragraph (h)(1) of the section for the

service.

* * * * *

Dated: May 23, 2000.

L.M. Bynum,

Alternate Federal Register Notice Liaison

Officer, Department of Defense.

[FR Doc. 00–13406 Filed 5–26–00; 8:45 am]

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