Vol. 78 Monday, 

No. 184 September 23, 2013 

Part II 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 405, 491, and 493 

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; Proposed Rule 


sroberts on DSK5SPTVN1PROD with PROPOSALS
58386 Federal Register / Vol. 78, No. 184 / Monday, September 23, 2013 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 405, 491, and 493 

[CMS–1443–P] 

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: Proposed rule. 

SUMMARY: This proposed rule would 

establish 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. 

This proposed rule would also establish 

a policy which would allow rural health 

clinics (RHCs) to contract with 

nonphysician practitioners when 

statutory requirements for employment 

of nurse practitioners and physician 

assistants are met, and make other 

technical and conforming changes to the 

RHC and FQHC regulations. Finally, 

this proposed rule would make changes 

to the Clinical Laboratory Improvement 

Amendments (CLIA) regulations 

regarding enforcement actions for 

proficiency testing referral. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on November 18, 2013. 

ADDRESSES: In commenting, please refer 

to file code CMS–1443–P. 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–P, P.O. Box 8013, Baltimore, 

MD 21244–1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–1443–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments ONLY to the 

following addresses prior to the close of 

the comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–7195 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Corinne Axelrod, (410) 786–5620 for 

FQHCs and RHCs. 

Melissa Singer, (410) 786–0365 for 

CLIA Enforcement Actions for 

Proficiency Testing Referral. 

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

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

appointment to view public comments, 

phone 1–800–743–3951. 

Acronyms 

AIR All-Inclusive Rate 

APM Alternative Payment Methodology 

CCN CMS Certification Number 

CCR Cost-To-Charge Ratio 

CFR Code of Federal Regulations 

CLIA Clinical Laboratory Improvement 

Amendments of 1988 

CMP Civil Money Penalty 

CMS Centers for Medicare & Medicaid 

Services 

CNM Certified Nurse Midwife 

CP Clinical Psychologist 

CSW Clinical Social Worker 

CY Calendar Year 

DSMT Diabetes Self-Management Training 

E/M Evaluation and Management 

FQHC Federally Qualified Health Center 

FSHCAA Federally Supported Health 

Centers Assistance 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 

MUA Medically Underserved Area 

MUP Medically Underserved Population 

NP Nurse Practitioner 

OBRA Omnibus Budget Reconciliation Act 

PA Physician Assistant 

PHS Public Health Service 

PFS Physician Fee Schedule 

PPS Prospective Payment System 

PT Proficiency testing 

ResDAC Research Data Assistance Center 

RIA Regulatory Impact Analysis 

RHC Rural Health Clinic 

SNF Skilled Nursing Facility 

UDS Uniform Data System 

USPSTF U.S. Preventive Services Task 

Force 

UPL Upper Payment Limit 


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Table of Contents 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

2. Summary of Major Provisions 

a. Basis for Payment Under the FQHC PPS 

b. Addressing Payment for Multiple Visits 

on the Same Day 

c. Beneficiary Coinsurance 

d. Waiving Coinsurance for Preventive 

Services 

e. Transition Period and Annual 

Adjustment 

f. Other FQHC and RHC Provisions 

g. CLIA Enforcement Actions for 

Proficiency Testing Referral 

3. Summary of Cost and Benefits 

B. Overview and Background 

1. FQHC Description and General 

Information 

2. Medicare’s FQHC Coverage and Payment 

Benefit 

3. Legislation Pertaining to Medicare and 

Medicaid Payments for FQHC Services 

4. Medicare’s Current 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 and Technical 

Components of Other Preventive 

Services 

3. Vaccine Costs 

C. Risk Adjustments 

1. Alternative Calculations for Average 

Cost per Visit 

2. Geographic Adjustment Factor 

3. New Patient or Initial Medicare Visit 

4. Other Adjustment Factors Considered 

5. Report on PPS Design and Models 

D. Base Rate Calculation 

E. Implementation 

1. Transition Period and Annual 

Adjustment 

2. Medicare Claims Payment 

3. Beneficiary Coinsurance 

4. Waiving Coinsurance for Preventive 

Services 

5. Cost Reporting 

6. Medicare Advantage Organizations 

III. Additional Proposed Changes Regarding 

FQHCs and RHCs 

A Rural Health Clinic Contracting 

B. Technical and Conforming Changes 

IV. Clinical Laboratory Improvement 

Amendments of 1988 (CLIA)— 

Enforcement Actions for Proficiency 

Testing Referral 

A. Background 

B. Proposed Changes 

V. Other Required Information 

A. Requests for Data From the Public 

B. Collection of Information Requirements 

VI. Response to Comments 

VII. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Limitations of Our Analysis 

D. Anticipated Effects of FQHCs 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 

2. Effects of CLIA Changes for Enforcement 

Actions for Proficiency Testing Referral 

F. Alternatives Considered 

G. Accounting Table and Statement 

H. Conclusions 

Regulations Text 

ADDENDUM—Proposed FQHC PPS 

Geographic Adjustment Factors (GAFs) 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

The Affordable Care Act (Pub. L. 111– 

148) 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 rule is to propose a 

methodology and payment rates for the 

new FQHC PPS. 

This rule also proposes to allow RHCs 

to contract with non-physician 

practitioners, consistent with statutory 

requirements that require at least one 

nurse practitioner (NP) or physician 

assistant (PA) be employed by the RHC. 

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 PT 

referral. The purpose of this proposal is 

to amend the CLIA regulations to be in 

alignment with the statutory change and 

to propose the regulatory changes 

needed to fully implement the TEST 

Act. 

2. Summary of the Major Provisions 

a. Basis for Payment Under the FQHC 

PPS 

Under the PPS, we are proposing to 

establish a national, encounter-based 

rate for all FQHCs and pay FQHCs a 

single encounter-based rate for 

professional services furnished per 

beneficiary per day. The encounterbased rate would be calculated based on 

an average cost per visit (that is, total 

FQHC cost divided by total FQHC 

encounters) using Medicare cost report 

and claims data. We believe an 

encounter-based payment rate for the 

FQHC PPS will both provide 

appropriate payment while remaining 

administratively simple. An encounterbased payment rate is consistent with 

our commitment to greater bundling of 

services, and gives FQHCs the flexibility 

to implement efficiencies to reduce 

over-utilization of services. FQHCs are 

accustomed to billing for a single 

encounter and being paid through an 

all-inclusive rate (AIR). An encounterbased payment is also similar to 

Medicaid payment systems, and 

Medicaid is the predominant payer for 

FQHCs. 

We are also proposing a few simple 

adjustments to the encounter-based 

payment rate. We are proposing to 

adjust the encounter-based rate for 

geographic differences in the cost of 

inputs by applying an adaptation of the 

geographic practice cost indices (GPCI) 

used to adjust payment under the 

Physician Fee Schedule (PFS). Also, we 

are proposing to adjust the encounterbased rate when a FQHC furnishes care 

to a patient that 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)). We believe this 

adjustment would account for the 

greater intensity and resource use 

associated with these types of services. 

For additional information on the 

design of the FQHC PPS and risk 

adjustment, see section II. of this 

proposed rule. 

b. Addressing Payment for Multiple 

Visits on the Same Day 

Under the current reasonable cost 

based payment methodology, FQHCs are 

paid an AIR for all services furnished on 

the same day to the same beneficiary, 

with the following exceptions: (1) The 

FQHC can bill for an additional visit on 

the same day when an illness or injury 

occurs subsequent to the initial visit; 

and (2) the FQHC can bill for additional 

visits when mental health, diabetes selfmanagement/medical nutrition therapy 

(DSMT/MNT), or the IPPE are furnished 

on the same day as the medical visit. 

However, there are no statutory 

requirements that we pay separately for 

these services, and an analysis of FQHC 

claims data submitted in 2011 and 2012 


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indicates that less than 0.5 percent of all 

billed visits were for more than 1 visit 

per day for the same beneficiary. 

We understand that there may be 

many possible reasons why the rate of 

billing for more than one visit per day 

has been low, and that there are many 

ways that FQHCs are providing 

integrated, patient-centered health care 

services. Since the option to bill for 

more than one visit per day is rarely 

utilized by FQHCs and continuation of 

the exception to the single, all-inclusive 

payment per day requires additional 

complexity to the PPS, we are proposing 

to eliminate these exceptions for 

payment for multiple visits on the same 

day and limit FQHCs to 1 encounter 

payment per day. We believe this 

approach is consistent with an allinclusive methodology and reasonable 

cost principles, and would not 

significantly impact FQHC 

reimbursement. However, we are 

interested in comments that address 

whether there are factors that we have 

not considered, particularly in regards 

to mental health services, and we would 

reconsider this approach if information 

is presented that this may impact on 

beneficiaries’ access to services or the 

integration of services in underserved 

communities. For additional 

information on billing for multiple visits 

on the same day, see section B of this 

proposed rule. 

c. Beneficiary Coinsurance 

Under the current reasonable cost 

system, beneficiary coinsurance for 

FQHC services is assessed based on the 

FQHC’s charge, which can result in the 

coinsurance amount being higher than 

what it would be if it was based on the 

AIR, which is derived from costs. 

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 actual charge or the PPS rate, and 

we are proposing that coinsurance 

would be 20 percent of the lesser of the 

actual charge or the PPS rate. While the 

statute makes no specific provision to 

revise the methodology for determining 

coinsurance amounts under the new 

PPS, we believe that this is consistent 

with statutory language in sections 

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

Act and elsewhere that addresses 

coinsurance amounts and Medicare cost 

principles. 

d. Waiving Coinsurance for Preventive 

Services 

Effective January 1, 2011, Medicare 

waives beneficiary coinsurance for 

eligible preventive services furnished by 

a FQHC. Medicare requires detailed 

Healthcare Common Procedure Coding 

System (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 are proposing 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 we 

would continue to use providerreported charges to determine the 

amount of coinsurance that should be 

waived for payments based on the 

provider’s charge. Total payment to the 

FQHC, including both Medicare and 

beneficiary liability, would not exceed 

the provider’s charge or the PPS rate. 

e. Transition Period and Annual 

Adjustment 

The statute requires implementation 

of the FQHC PPS for FQHCs with cost 

reporting periods beginning on or after 

October 1, 2014. FQHCs would 

transition into the PPS based on their 

cost reporting periods. The claims 

processing system would maintain the 

current system and the PPS until all 

FQHCs have transitioned to the PPS. We 

are proposing to transition the PPS to a 

calendar year update for all FQHCs, 

beginning January 1, 2016, to be 

consistent with many of the PFS files 

that are updated on a calendar year 

basis. The statute also requires us to 

adjust the FQHC PPS by the MEI in the 

first year after implementation, and 

either the MEI or a FQHC market basket 

in subsequent years. 

f. Other FQHC/RHC Provisions 

In addition to proposing to codify the 

statutory requirements for the FQHC 

PPS in this proposed rule, we are 

proposing to allow RHCs to contract 

with non-physician practitioners, 

consistent with statutory requirements 

that require at least one nurse 

practitioner (NP) or physician assistant 

(PA) be employed by the RHC. The 

ability to contract with NPs, PAs, 

certified nurse midwives (CNMs), 

clinical psychologists (CPs), and clinical 

social workers (CSWs) would provide 

RHCs with additional flexibility with 

respect to recruiting and retaining nonphysician practitioners. 

We are also proposing edits to correct 

terminology, clarify policy, delete 

irrelevant code, and make other 

conforming changes for existing 

mandates and the new PPS. 

g. 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 would amend the CLIA 

regulations by adding 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 payments (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 UPL or 

productivity standards that can reduce a 

FQHC’s per visit rate. The proposed 

FQHC PPS is estimated to have an 

overall impact of increasing total 

Medicare payments to FQHCs by 

approximately 30 percent. The 

annualized cost to the federal 

government associated with the 

proposed FQHC PPS is estimated to be 

between $183 million and $186 million, 

based on 5 year discounted flows using 

3 percent and 7 percent factors. 

b. For Other FQHC and RHC Changes 

The ability to contract with NPs, PAs, 

CNMs, CP, and CSWs would provide 

RHCs with additional flexibility with 

respect to recruiting and retaining nonphysician practitioners, which may 

result in increasing access to care in 

rural areas. There is no cost to the 

Federal government and we are unable 

to estimate a cost savings for RHCs. In 

addition, we believe that there are no 

costs associated with the technical and 

conforming regulatory changes that 

would be made in conjunction with the 

establishment of the FQHC PPS. 

c. CLIA Enforcement Actions for 

Proficiency Testing Referral Changes 

Over a 4-year span, we estimate that 

an average of 6 cases per year may have 

fit the terms of described in this 

proposed rule to have alternative 

sanctions applied. We believe that 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 


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1The UDS collects and tracks data such as patient 

demographics, services provided, staffing, clinical 

indicators, utilization rates, costs, and revenues 

from section 330 health centers and health center 

look-alikes. 

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. Estimating the expense of 

alternative sanctions at $150,000 per 

laboratory, the annual fiscal savings of 

the proposed changes for affected 

laboratories would be approximately 

$2.6 million ($578,400—$150,000 for 6 

laboratories). We note that there are a 

number of factors (known and 

unknown) that could impact this 

estimate. We also note that the total 

savings may not be large, but the savings 

to the individual laboratory or hospital 

that would be affected may be 

significant. However, we note that the 

$2.6 million estimated savings to 

laboratories may overstate or understate 

the provision’s net benefits. While we 

recognize that there are several potential 

inaccuracies in our estimates, we lack 

data to account for these considerations. 

B. Overview and Background 

1. FQHC Description and General 

Information 

FQHCs are facilities that provide 

services that are typically furnished in 

an outpatient clinic setting. They are 

currently paid an AIR per visit for 

qualified primary and preventive health 

services furnished to Medicare 

beneficiaries. 

The statutory requirements that 

FQHCs must meet to qualify for the 

Medicare benefit are in section 

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

provisions, the following three types of 

organizations that are eligible to enroll 

in Medicare as FQHCs: 

• Health Center Program grantees: 

Organizations receiving grants under 

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

254b). 

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

identified by the Health Resources and 

Services Administration (HRSA) as 

meeting the requirements to receive a 

grant under section 330 of the PHS Act, 

but which do not receive section 330 

grant funding. 

• Outpatient health programs/

facilities operated by a tribe or tribal 

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

Indian organization (under Title V of the 

Indian Health Care Improvement Act). 

Section 330 Health Centers are the 

predominant 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 1,100 centers operating 

approximately 8,900 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 (MUA) or 

medically underserved population 

(MUP) 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 to persons with incomes below 

200 percent of the federal poverty level, 

and being governed by a board of 

directors of whom a majority of the 

members 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 remainder was 

privately insured or had other public 

insurance. Medicare and Medicaid 

accounted for approximately 9 percent 

and 47 percent of their total billing, 

respectively. 

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 

provide other services. All FQHCs are 

eligible to participate in the 340B Drug 

Pricing Program for pharmaceutical 

products. 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 330 health 

centers). HRSA administers the 330 

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 was added 

effective October 1, 1991, when section 

1861(aa) of the Act was amended by 

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 42 CFR Part 405, and 

42 CFR Part 491. 

FQHC covered services and supplies 

include the following: 

• Physician, NP, PA, CNM, CP, and 

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 diabetes selfmanagement training (DSMT) and 

medical nutrition therapy (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 an upper 

payment limit (UPL) and productivity 

standards, for services furnished to 

Medicare beneficiaries, and PPS 

payment, based on their historical cost 

data, for services furnished to Medicaid 

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

The UPL for Medicare FQHC services is 

adjusted annually based on the 

Medicare Economic Index (MEI), as 

described in 1842(i)(3) of the Act. 

Authority to apply productivity 

standards is found in 1833(a) and 

1861(v)(1)(A) of the Act. Section 151(a) 


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58390 Federal Register / Vol. 78, No. 184 / Monday, September 23, 2013 / Proposed Rules 

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 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 

(APM). 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 wraparound payment 

equal to the difference, if any, between 

the PPS rate and the payment from the 

managed care organization. 

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 starting 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. 

of this proposed rule. 

4. Medicare’s Current Reasonable CostBased Reimbursement Methodology 

FQHCs are paid an AIR per visit for 

medically-necessary professional 

services that are furnished face-to-face 

(one practitioner and one patient) with 

a FQHC practitioner (42 CFR 405.2463). 

Services and supplies furnished 

incident to a FQHC professional service 

are included in the AIR and are not 

billed as a separate visit. Technical 

components such as x-rays, laboratory 

tests, and durable medical equipment 

are not part of the AIR and are billed 

separately to Medicare Part B. 

The AIR is calculated by dividing 

total allowable costs by the total number 

of visits. Allowable costs may include 

practitioner compensation, overhead, 

equipment, space, supplies, personnel, 

and other costs incident to the delivery 

of FQHC services. Cost reports are filed 

in order to identify all incurred costs 

applicable to furnishing covered FQHC 

services. Freestanding FQHCs complete 

Form CMS–222–92, ‘‘Independent Rural 

Health Clinic and Freestanding 

Federally Qualified Health Center Cost 

Report’’. FQHCs based in a hospital 

complete the Worksheet M series of 

Form CMS–2552–10, ‘‘Hospital and 

Hospital Care Complex Cost Report’’. 

FQHCs based in a skilled nursing 

facility (SNF) complete the Worksheet I 

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

Nursing Facility and Skilled Nursing 

Facility Health Care Complex Cost 

Report’’. FQHCs based in a home health 

agency complete the Worksheet RF 

series of Form CMS–1728–94, ‘‘Home 

Health Agency Cost Report’’. 

Information on these cost report forms 

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

respectively, of the ‘‘Provider 

Reimbursement Manual—Part 2’’ 

(Publication 15–2). Per 42 CFR 

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 are eligible to 

be certified as provider-based FQHCs. 

FQHCs that do not already have 

provider-based status are no longer 

permitted to receive the designation. 

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 (42 CFR 

405.2464, 405.2466, and 405.2468). The 

productivity standards require 4,200 

visits per full-time equivalent physician 

and 2,100 visits per full-time equivalent 

non-physician practitioner (NP, PA or 

CNM) on an annual basis. If the FQHC 

has furnished fewer visits than required 

by the productivity standards, the 

allowable costs would be divided by the 

productivity standards numbers instead 

of the actual number of visits. 

The payment limit varies based on 

whether the FQHC is located in an 

urban or rural area (as defined in section 

1886(d)(2)(D) of the Act). The 2013 

payment limits per visit for urban and 

rural FQHCs are $128.00 and $110.78, 

respectively. FQHCs with multiple sites 

may elect to file a consolidated cost 

report (CMS Pub. 100–04, Medicare 

Claims Processing Manual, chapter 9, 

§ 30.8), and if the FQHC has both urban 

and rural sites, the MAC applies a 

weighted UPL based on the percentage 

of urban and rural visits as the 

percentage of total site visits. The AIR 

is equal to the FQHC’s cost per visit 

(adjusted by the productivity standard if 

appropriate) or the payment limit, 

whichever is less. 

Medicare beneficiaries receiving 

services at a FQHC are not subject to the 

annual Medicare deductible for FQHCcovered services (section 1833(b) 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 (USPSTF). 

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 Hepatitis B vaccine 

(HBV) is covered under the FQHC’s AIR. 

5. Summary of Requirements Under the 

Affordable Care Act for the FQHC PPS 

and Other Provisions Pertaining to 

FQHCs 

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

Affordable Care Act amended section 

1834 of the Act by adding a new 

subsection (o), ‘‘Development and 

Implementation of Prospective Payment 

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

Act requires that the system include a 

process for appropriately describing the 

services furnished by FQHCs. Also, the 


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system must establish payment rates 

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 HCPCS codes, in order to 

develop and implement the PPS. 

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

requires that the FQHC PPS must be 

effective for cost reporting periods 

beginning on or after October 1, 2014. 

For such cost reporting periods, 

reasonable costs will no longer be the 

basis for Medicare payment for services 

furnished to beneficiaries at FQHCs. 

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

requires that the initial PPS rates must 

be set so as to equal in the aggregate 100 

percent of the estimated amount of 

reasonable costs that would have 

occurred for the year if the PPS had not 

been implemented. This 100 percent 

must be calculated prior to application 

of copayments, per visit limits, or 

productivity adjustments. 

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

describes the methods for determining 

payments in subsequent years. After the 

first year of implementation, the PPS 

payment rates must be increased by the 

percentage increase in the MEI. After 

the second year of implementation, PPS 

rates shall be increased by the 

percentage increase in a market basket 

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). 

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 

provided 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 provided on or after January 

1, 2011. Accordingly, in the CY 2011 

Medicare PFS final rule (75 FR 73417 

through 73419, November 29, 2010) we 

adopted conforming regulations by 

adding a new § 405.2449, which added 

the new preventive services definition 

to the definition of FQHC services 

effective for services provided 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 in the 

development of this proposed rule. 

They provided valuable expertise on the 

challenges facing FQHCs in increasing 

access to health care for underserved 

populations and the importance of 

Medicare reimbursement to the overall 

financial viability of the health centers. 

In addition to providing patient 

population and services data from their 

UDS, HRSA also enabled us to gain 

additional data on insurance coverage 

among a subset of FQHC patients from 

the Community Health Applied 

Research Network. We believe that the 

proposals in this proposed rule 

benefited greatly from their assistance. 

Our goal for the FQHC PPS is to create 

a system in accordance with the statute 

whereby FQHCs are fairly reimbursed 

for the services they provide to 

Medicare patients in the least 

burdensome manner possible, so that 

they may continue to provide primary 

and preventive health services to the 

communities they serve. We will 

continue to evaluate our approach based 

on the comments we receive to this 

proposed rule in the context of 

balancing payment requirements, 

regulatory burden, and the need for 

appropriate accountability and 

oversight. 

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 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. 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 least amount of reporting 

requirements and 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 could encourage excess 

utilization in the long-term, and would 

increase coding and billing 

requirements for FQHCs. 

Another approach for the PPS would 

be to pay a single encounter-based rate 

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

cost per visit, which would be 

calculated by aggregating the data for all 

FQHCs and dividing their total costs by 

their total visits incurred during a 

specified time period. An encounterbased payment rate is consistent with 

the agency’s commitment to greater 

bundling of services, which gives 

FQHCs the flexibility to implement 

efficiencies to reduce over-utilization of 

services. FQHCs are accustomed to 

billing for a single visit, as they are 

currently paid through an AIR that is 

based on a FQHC’s own average cost per 

visit. An encounter-based payment is 

also similar to Medicaid payment 

systems, and Medicaid constitutes a 

large portion of FQHC billing 

(approximately 47 percent, compared to 


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approximately 9 percent for Medicare). 

We believe an encounter-based payment 

rate for the FQHC PPS would provide 

appropriate payment while remaining 

administratively simple. Therefore, we 

propose an encounter-based rate per 

beneficiary per day as the basis for 

payment under the proposed FQHC 

PPS. Additional details regarding the 

encounter-based rate setting 

methodology, including adjustments to 

the encounter-based rate, are discussed 

in section II. C. of this proposed rule. 

2. Medicare FQHC Cost Reports 

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

of the Act, initial payments (Medicare 

and coinsurance) under the FQHC PPS 

must equal 100 percent of the estimated 

amount of reasonable costs, as 

determined without the application of 

the current system’s UPLs or 

productivity standards that can reduce a 

FQHC’s per visit rate. In order to 

estimate 100 percent of reasonable costs, 

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. 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. For 69 percent of cost 

reporting entities, the only available 

cost report covered 1 full year (with cost 

reporting periods ending between June 

30, 2011 and June 30, 2012). For the 

remaining 31 percent of cost reporting 

entities, there were multiple cost reports 

available or the cost reporting period 

was not exactly 1 year. For cost 

reporting entities with multiple cost 

reports available, we selected the most 

recent cost report, unless an earlier cost 

report provided us with a better match 

to the FQHC claims data that was used 

to model potential adjustments. Because 

FQHCs with multiple sites can file 

consolidated cost reports, we also 

ensured that we selected only one cost 

report for each delivery site. 

As required by statute, we estimated 

100 percent of reasonable costs that 

would have occurred for this period 

prior to the application of copayments, 

per visit limits, or productivity 

adjustments (see discussion of the 

baseline for the PPS in section II. D. of 

this proposed rule). We also note that, 

under section 1833(c) of the Act, 

outpatient mental health services will 

be paid on the same basis as other Part 

B services as of January 1, 2014. 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. 

After eliminating the current payment 

limits 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. We found 

that the mean cost per visit for all cost 

reporting entities was about 11 percent 

higher than the median cost per visit. 

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. We identified 

all cost reporting entities with an 

average cost per visit that was greater 

than three standard deviations above or 

below the geometric mean of the overall 

average cost per visit among cost 

reporting entities, and we excluded 

their data from our sample. In the 

aggregate, after trimming the data for 

outliers and before adjustments for price 

inflation, we estimate that eliminating 

current payment limits and adjustments 

would increase payments to FQHCs by 

about 28 percent. For additional 

information on the impact of the FQHC 

PPS, see section VII. of this proposed 

rule. 

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. 

Beginning with dates of service on or 

after January 1, 2011, when billing 

Medicare, FQHCs are required to report 

all pertinent services provided and list 

the appropriate HCPCS code for each 

line item along with revenue code(s) for 

each FQHC visit. 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 

utilized to determine current Medicare 

payment to FQHCs. We propose 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, 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. 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 claims listed a single 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 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 in 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. 

4. Linking Cost Reports and Claims To 

Compute the Average Cost per Visit 

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, 


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claims for earlier dates of service did 

not include the detail required to model 

adjustments based on type, intensity, or 

duration of services. Cost reports with 

reporting periods that began on or after 

January 1, 2011, accounted for 81 

percent of the sample, and we linked 

these cost reports to Medicare FQHC 

claims with service dates that matched 

their respective cost reporting periods. 

For cost reports that were at least 1 full 

year in length and with a cost reporting 

period that began in 2010, we linked 

these cost reports to 2011 Medicare 

FQHC claims. 

The linked cost report and claims data 

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

not available on the cost report, we 

developed these CCRs to convert each 

FQHC’s charge data, as found on its 

claims, to costs. We calculated an 

average cost per visit by dividing the 

total allowable costs (excluding 

pneumococcal and influenza 

vaccinations) by the total number of 

visits reported on the cost report. We 

calculated an average charge per visit by 

dividing the total charges of all visits 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. However, this information is 

not currently available on the freestanding FQHC cost report, Form CMS– 

222–92. 

We found that the mean estimated 

cost per visit in the linked claims data 

was about 9 percent higher than the 

median estimated cost per visit. 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. 

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. 

After trimming the linked claims data 

for outliers, the final data set included 

5,245,961 visits from 5,236,607 distinct 

claims encompassing 6,135,830 claim 

lines. This included 5,223,512 daily 

visits furnished to 1,244,873 

beneficiaries that visited 3,509 delivery 

sites under 1,141 cost-reporting entities. 

B. Policy Considerations for Developing 

the FQHC PPS Rates and Adjustments 

In developing the FQHC PPS rates 

and adjustments, we considered existing 

payment policies to determine potential 

interactions with the implementation of 

the FQHC PPS. We discuss these 

policies and our proposed changes 

below. 

1. Multiple Visits on the Same Day 

The current all-inclusive payment 

system was designed to reimburse 

FQHCs for services furnished to 

Medicare beneficiaries at a rate that 

would take into account all costs 

associated with the provision of services 

(for example, space, supplies, 

practitioners, etc.) and reflect the 

aggregate costs of providing services 

over a period of time. In some cases, the 

per visit rate for a specific service is 

higher than what would be paid based 

on the PFS, and in some cases it is lower 

than what would be paid based on the 

PFS, but at the end of the reporting year 

when the cost report is settled, the 

Medicare payment is typically higher 

for FQHCs than if the services were 

billed separately on the PFS. 

The current payment system was also 

designed to minimize reporting 

requirements, and as such, the allinclusive payment reflects all the 

services that a FQHC provides 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 would include 

situations where a FQHC patient has a 

medically-necessary face-to-face visit 

with a FQHC practitioner, and is then 

seen by another FQHC practitioner, 

including a specialist, for further 

evaluation of the same condition on the 

same day, or is then seen by another 

FQHC practitioner (including a 

specialist) for evaluation of a different 

condition on the same day. Except for 

certain preventive services that have 

coinsurance requirements waived, 

FQHCs have not been required to 

submit coding of each service in order 

to determine Medicare payment. 

Although the all-inclusive payment 

system was designed to provide 

enhanced reimbursement that reflects 

the costs associated with a visit in a 

single day by a Medicare beneficiary, an 

exception to the one encounter payment 

per day policy was made for situations 

when a patient comes into the FQHC for 

a medically-necessary visit, and after 

leaving the FQHC, has a medical issue 

that was not present at the visit earlier 

that day, such as an injury or 

unexpected onset of illness. In these 

situations, the FQHC has been permitted 

to be paid separately for two visits on 

the same day for the same beneficiary. 

In response to a comment to the June 

12, 1992 final rule with comment period 

(57 FR 24961), 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 69665) 

subsequently revised the regulations to 

allow FQHCs to receive separate 

payment for DSMT and 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. 

In developing the new PPS for 

FQHCs, we reviewed all existing 

policies for FQHC payments to 

determine if the policies should remain 

the same as under the current system, or 

if the policies should be updated or in 

some cases revised. As part of this 

process, we reviewed the existing 

regulations and policies that allow 

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. To do this, 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. 

An analysis of data from Medicare 

FQHC claims with dates of service 

between January 1, 2011 and June 30, 

2012, indicate that it is uncommon for 

FQHCs to bill more than one visit per 

day for the same beneficiary (less than 

0.5 percent of all visits), even though 

the ability to do so has been in place 

since 1992 for subsequent illness/injury, 

since 1996 for mental health services, 

and since 2007 for DSMT/MNT. Even 

allowing for any underreporting in the 

data, it is clear that billing multiple 

visits on the same day for an individual 


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is a rare event, and eliminating the 

ability to do so would not significantly 

impact either the FQHC payment or a 

beneficiary’s access to care. Eliminating 

this ability to bill for multiple visits on 

the same day would also simplify 

billing by removing the need for 

modifier 59, which signifies that the 

conditions being treated are totally 

unrelated and services are provided 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 are infrequently occurring 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, we are proposing 

to revise § 405.2463(b) to remove the 

exception to the single encounter 

payment per day for FQHCs paid under 

the proposed PPS. 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 will also 

reflect a daily (per diem) rate and result 

in a slightly higher payment than one 

calculated based on multiple encounters 

on the same day. 

Based on the Medicare claims data 

provided by FQHCs that indicates a very 

low occurrence of multiple visits billed 

on the same day, we believe this 

proposal would not significantly impact 

total payment or access to care. 

However, we understand that there may 

be many possible reasons why the rate 

of billing for more than one visit per day 

has been low (for example. difficulty in 

scheduling more than one type of visit 

on the same day) and that FQHCs can 

provide integrated, patient-centered 

health care services in a variety of ways. 

Therefore, we are interested in 

comments that address whether there 

are factors that we have not considered, 

particularly in regards to the provision 

of mental health services. We invite 

public comment on whether this change 

would impact access to these services or 

the integration of services in 

underserved communities. The benefits 

of retaining the ability to bill for more 

than one visit on the same day should 

be considered along with the proposed 

increased per diem payment rate under 

the PPS and the complexity of 

developing a claims processing system 

to allow for this exception in the new 

PPS. 

2. Preventive Laboratory Services and 

Technical Components of Other 

Preventive Services 

The core services of the FQHC benefit 

are generally billed under the 

professional component. The benefit 

categories for laboratory services and 

diagnostic tests generally are not within 

the scope of the FQHC benefit, as 

defined under section 1861(aa) of the 

Act. For services that can be split into 

professional and technical components, 

we have instructed FQHCs to bill the 

professional component as part of the 

AIR, and separately bill the Part B MAC 

under different identification for the 

technical portion of the service on a Part 

B practitioner claim (for example, Form 

CMS–1500). If the FQHC operates a 

laboratory, is enrolled under Medicare 

Part B as a supplier, and meets all 

applicable Medicare requirements 

related to billing for laboratory services, 

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 42 CFR 

405.2448, which may be paid for when 

provided 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 42 CFR 405.2449, include 

laboratory test and diagnostic services, 

such as screening mammography, 

diabetes screening tests, and 

cardiovascular screening blood tests. 

Professional services or professional 

components of primary preventive 

services (as defined in § 405.2448) and 

preventive services (as defined in 

§ 405.2449) are billed as part of the AIR. 

The preventive laboratory tests and 

technical components of other 

preventive tests are not paid under the 

AIR and FQHCs are instructed to bill 

separately for these services. We are not 

proposing a change in billing 

procedures, and we do not intend to 

include payment for these services 

under the FQHC PPS. We note this 

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. (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 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. 

3. Vaccine Costs 

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

requires that the initial PPS rates must 

be set so as to equal in the aggregate 100 

percent of the estimated amount of 

reasonable costs that would have 

occurred for the year if the PPS had not 

been implemented. This 100 percent 

must be calculated prior to application 

of copayments, per visit limits, or 

productivity adjustments. We believe 

that this language directed us to develop 

a PPS to pay for items currently affected 

by the UPL and the productivity screen, 

which would pay for items currently 

included in the calculation of 

reasonable costs and 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 are not proposing any changes to 

this payment structure. 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 


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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 pay for these services under the 

FQHC PPS 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 discuss our proposed 

adjustments below. 

1. Alternative Calculations for Average 

Cost per Visit 

As discussed in section II. of this 

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). 

Average cost per daily visit = 

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

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. 

Average cost per visit = $788,547,531/

5,245,961 = $150.32 

We also derived an average cost per 

visit from the cost reports by dividing 

the total estimated Medicare costs 

(excluding vaccines) reported 

($832,387,663) by the total number of 

Medicare visits reported (5,374,217). 

Unlike the previous calculations based 

on claims data, the variables derived 

from the cost reports summarize total 

costs and visits by cost reporting entity 

and could not be trimmed of individual 

visits with outlier values. Also, we note 

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. 

Average cost per visit from cost report 

data = $832,387,663/5,374,217 = 

$154.89 

Consistent with our proposal to 

remove the exception to the single 

encounter payment per day, we propose 

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 note that the 

alternative calculations yield an average 

cost per visit that differs from $150.96 

by less than 3 percent. We also note that 

these calculations were derived based 

on the cost report and claims data 

available during our development of 

this proposed rule and are subject to 

change in the final rule based on more 

current data. 

2. Geographic Adjustment Factor 

We propose to adjust the FQHC PPS 

rate for geographic differences. This 

adjustment will be made to the cost of 

inputs by applying an adaptation of the 

GPCIs used to adjust payment under the 

PFS. Established in 1848(e) of the Act, 

GPCIs adjust payments for geographic 

variation in the costs of providing 

services and consist of three component 

GPCIs: the physician work GPCI, the 

practice expense GPCI, and the 

malpractice insurance GPCI. 

Because FQHCs furnish services that 

are analogous to those furnished by 

physicians in outpatient clinic settings, 

we believe it would be consistent to 

apply geographic adjustments similar to 

those applied to services furnished 

under the PFS. We calculated a 

geographic adjustment factor (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 (July 

19, 2013 (78 FR 43282)). 

For modeling geographic adjustments 

for this 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 note that the FQHC 

PPS GAFs are subject to change in the 

final FQHC PPS rule based on more 

current data, including the finalized 

PFS GPCI and cost share weight values. 

We excluded the PFS malpractice 

GPCI from the calculation of the 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 GAF as 

follows: 

Geographic adjustment factor = 

(0.53149 × Work GPCI) + (0.46851 × 

PE GPCI) 

We included the GAF adjustment 

when modeling all other potential 

adjustments. The GAF will be applied 

based on where the services are 

furnished and may vary among FQHCs 

that are part of the same organization. 

The list of proposed GAFs by locality is 

in Addendum A of this proposed rule 

and is also available as a downloadable 

file at http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

FQHCPPS/index.html. 

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 

propose 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 is 

1.3333 (as discussed further in section 

V. of this proposed rule). 

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 modeled whether there were 

differences in resource use for mental 

health visits and preventive care visits 

when compared to medical care visits. 

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 declines to an 8 percent 

higher estimated cost per visit after 

adjusting for the GAF and the proposed 

1.3333 risk adjustment factor for a 

patient that is new to the FQHC or for 


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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 

are not proposing a payment reduction 

for preventive care encounters and we 

note 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 note that an 8 

percent adjustment would increase 

payment for preventive visits, and we 

welcome comments on whether an 

adjustment for preventive care 

encounters would be appropriate, 

noting that there would be redistributive 

effect which would result in a decrease 

in the payment rate for other visits. 

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. In addition, we would need 

to consider how to minimize the 

complexity of such an adjustment with 

a limited number of clinically 

meaningful groupings. 

We considered the duration of 

encounters (in minutes) as a potential 

adjustment factor. Many of the 

evaluation and management (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 annual wellness visit, 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. 

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 will be 

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

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

D. Base Rate Calculation 

We calculated a base rate for the 

FQHC PPS by adjusting the average cost 

per visit to account for the proposed 

adjustment factors. We calculated an 

average payment multiplier using the 

average GAF (0.9944) multiplied by the 

average risk adjustment for non-new 

patient/initial visits (1.0), as weighted 

by the percent of encounters that 

represented non new patient/initial 

visits (0.9722), and we added this to the 

average 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): 

Average payment multiplier = 

0.9721(1.00)(0.9944) + 

0.0279(1.3333)(0.9944) = 1.0036 

We calculated a 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: 

Base rate per daily visit = $150.96 × 

(1/1.0036) = $150.42 

The base rate per daily visit of 

$150.42 reflects costs through June 30, 

2012, and does not include an 

adjustment for price inflation. As the 

FQHC PPS is to be implemented 

beginning October 1, 2014, we propose 

to update the base rate to account for the 

price inflation through September 30, 

2014. We propose to use the MEI as 

finalized in the CY 2011 PFS final rule 

(75 FR 73262 through 73270). The MEI 

is an index reflecting the weightedaverage annual price change for various 

inputs involved in furnishing 

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

adjustment for the change in economywide, private nonfarm business 

multifactor productivity. 

We propose 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 

propose to use a forecasted MEI update 

of 1.7 percent for the 15-month period 

of October 1, 2014, through December 

31, 2015, to calculate the first year’s 

base payment amount under the PPS. 

The 15-month update factor is based on 

the 2013Q2 forecast of the 2006-based 

MEI, the most recent forecast available 

at the time of this proposed rule. The 

adjusted base payment that reflects the 

MEI historical updates and forecasted 

updates to the MEI is $155.90. This 

payment rate incorporates a combined 

MEI update factor of 1.0364 that trends 

dollars forward from July 1, 2012 

through December 31, 2015. We also 

propose 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—BASE RATE PER DAILY VISIT

Total estimated 

costs Daily encounters Average payment multiplier 

Average cost per 

daily visit 

Estimated base 

rate without 

adjustment for 

price inflation 

MEI update factor MEI-adjusted base 

payment rate 

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


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MEI-adjusted base payment rate = 

$150.96 × (1/1.0036) × 1.0364 = 

$155.90 

Thus, we propose a base payment rate 

of $155.90 per beneficiary per day for 

the proposed FQHC PPS. We note that 

this base rate is subject to change in the 

final rule based on more current data. 

(See the Impact Analysis in section VII 

of this proposed rule for comparisons of 

the PPS rates to payments under the 

AIR.) 

Payments to FQHCs would be 

calculated as follows: 

Base payment rate × GAF = PPS 

payment 

In calculating the payment, the 

proposed base payment rate is $155.90, 

and the GAF would be based on the 

locality of the delivery site. (See section 

II.C. of this proposed rule for a 

discussion of the GAF and the 

Addendum to this proposed rule for the 

list of proposed GAFs.) 

If the patient is new to the FQHC, or 

the FQHC is furnishing an initial 

comprehensive Medicare visit, the 

payment would be calculated as 

follows: 

Base payment rate × GAF × 1.3333 = 

PPS payment 

In calculating the payment, 1.3333 

represents 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. (See section II.C. 

of this proposed rule for a discussion of 

the risk adjustment for new patients or 

initial comprehensive Medicare visits.) 

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 do not usually 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 note that a change in cost reporting 

periods that is made primarily to 

maximize reimbursement would not be 

acceptable under established cost 

reporting policy (see 42 CFR 413.24(f)(3) 

and the Provider Reimbursement 

Manual Part I, section 2414, and Part II, 

section 102.3). The claims processing 

system will maintain the current system 

and the PPS until all FQHCs have 

transitioned to the PPS. 

We propose to transition the PPS to a 

calendar year update for all FQHCs, 

beginning January 1, 2016, because 

many of the PFS files we are proposing 

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 propose to defer the first MEI 

statutory adjustment to the PPS rate 

from October 1, 2015, to December 31, 

2015 (we note that our proposed base 

payment rate incorporates a forecasted 

percentage increase in the MEI through 

December 31, 2015). 

2. Medicare Claims Payment 

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 should be 80 percent of the lesser 

of the provider’s charge or the PPS rate. 

We are considering revisions to the 

claims processing system that would 

reject claims in which the qualifying 

visit describes a service that is outside 

of the FQHC benefit, such as inpatient 

hospital E/M services or group sessions 

of DSMT and MNT. We are considering 

revisions that would 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. We 

also are considering revisions that 

would allow for the informational 

reporting of influenza and 

pneumococcal vaccines and their 

administration, while excluding the line 

item charges, as these items would 

continue to be paid through the cost 

report. 

3. Beneficiary Coinsurance 

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

requires that FQHCs be paid up to 80 

percent of their reasonable costs by 

Medicare after subtracting beneficiary 

coinsurance. 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 claims data for dates of service 

between January 1, 2011 through June 

30, 2012 indicated that beneficiary 

coinsurance based on 20 percent of the 

FQHCs’ charges was approximately $23 

million higher, or 18 percent more, than 

if coinsurance had been assessed based 

on 20 percent of the lesser of the 

FQHC’s charge or the applicable allinclusive rate. 

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

requires that Medicare payment under 

the FQHC PPS should be 80 percent of 

the lesser of the actual charge or the PPS 

rate. The statute makes no specific 

provision to revise the coinsurance. We 

propose 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 section 

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

Act and elsewhere that addresses 

coinsurance amounts and Medicare cost 

principles. If finalized, total payment to 

the FQHC, including both Medicare and 

beneficiary liability, would not exceed 

the FQHC’s charge or the PPS rate. 

4. Waiving Coinsurance for Preventive 

Services 

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 propose that Medicare 

contractors compare payment based on 

the FQHC’s charge to payments based 

on the PPS encounter rate and pay the 

lesser amount. However, the current 

approach to waiving coinsurance for 

preventive services, which relies solely 

on FQHC reported charges, would be 

insufficient under the FQHC PPS. As 

Medicare payment under the FQHC PPS 

is required to be 80 percent of the lesser 

of the FQHCs charge or the PPS rate, we 

also need to determine the coinsurance 

waiver for payments based on the PPS 

rate. 

We considered using the proportion 

of the FQHC’s line item charges for 

preventive services to total claim 

charges to determine 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 


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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 propose 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 

physician-administered Part B drugs 

and routine venipuncture will be paid 

under the FQHC PPS rate, we note 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 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 provided in FQHCs, without 

changing the total payment (Medicare 

and coinsurance). Since Medicare 

payment under the FQHC PPS is 

required to be 80 percent of the lesser 

of the FQHC’s charges or the PPS rate, 

we would continue to use FQHCreported charges to determine the 

amount of coinsurance that should be 

waived for payments based on the 

FQHC’s charge. Total payment to the 

FQHC, including both Medicare and 

beneficiary liability, would not exceed 

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. However, this calculation is 

fairly complex for the claims processing 

systems. It may also be difficult for 

providers to replicate, and 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, 

and we would exclude these types of 

claims from calculation of the FQHC 

base encounter rate. We would 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, payment for preventive 

services under the PFS will be less, in 

many cases, than the 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 

claim. 

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 believe that using the 

proportionality of PFS payments to 

determine the coinsurance waiver 

would facilitate the waiving of 

coinsurance while preserving the allinclusive nature of the encounter-based 

rate with the least billing complexity. 

Therefore, we propose that where 

preventive services are coded on a 

claim, we would use payments under 

the PFS to determine the proportional 

amount of coinsurance that should be 

waived for payments based on the PPS 

encounter rate. We invite public 

comment on how this proposal would 

impact FQHCs’ administrative 

procedures and billing practices. 

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 42 

CFR 405, Subpart X. 

The Medicare cost reporting forms 

show the costs incurred and the total 

number of visits for FQHC services 

during the cost reporting period. Using 

this information, the MAC determines 

the total payment amount due for 

covered services furnished to Medicare 

beneficiaries. The MAC compares the 

total payment due with the total 

payments made for services furnished 

during the reporting period. If the total 

payment due exceeds the total payments 

made, the difference is made up by a 

lump sum payment. If the total payment 

due is less than the total payments 

made, the overpayment is collected. 

Under the FQHC PPS, Medicare 

payment for FQHC services will be 

made based on a predetermined 

national rate. For services included in 

the FQHC PPS rate, 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 are also 

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. We are also considering 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 also are exploring 

whether we have audit resources to 

include FQHCs in the pool of 

institutional providers that are subject 

to periodic cost report audits. 

6. Medicare Advantage Organizations 

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

Affordable Care Act added section 

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

that FQHCs that contract with MA 

organizations be paid at least the same 

amount they would have received for 

the same service under the FQHC PPS. 


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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. 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 

propose to revise § 405.2469 to reflect 

this provision. 

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 hiring 

physicians either as RHC employees or 

as contractors. However, in order to 

promote stability and continuity of care, 

the Rural Health Clinic Services Act of 

1977 required RHCs to employ a 

physician assistant or nurse practitioner 

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

have interpreted the term ‘‘employ’’ to 

mean that the employer issues a W–2 

form to the employee. Section 

405.2468(b)(1) currently states that 

RHCs are not paid for services furnished 

by contracted individuals other than 

physicians, and § 491.8(a)(3) does not 

authorize RHCs to contract with RHC 

practitioners other than physicians. 

In the more than 30 years since this 

legislation was enacted, the health care 

environment has changed dramatically, 

and RHCs have requested that they be 

allowed to enter into contractual 

agreements with non-physician RHC 

practitioners as well as physicians. To 

provide RHCs with greater flexibility in 

meeting their staffing requirements, we 

propose 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-physicians to furnish 

services under contract in RHCs, when 

at least one NP or PA is employed. 

The ability to contract with NPs, PAs, 

CNMs, CP, and CSWs would provide 

RHCs with additional flexibility with 

respect to recruiting and retaining nonphysician practitioners. Practitioners 

should be employed or contracted to the 

RHC in a manner that enhances 

continuity and quality of care. 

RHCs would still be required, under 

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

employ a PA or NP. However, as long 

as there is at least one PA or NP 

employed at all times (subject to the 

waiver provision for existing RHCs set 

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

an RHC would be free to enter into 

contracts with other PAs, NPs, CNM, 

CPs or CSWs. 

B. Technical and Conforming Changes 

In addition to proposing to codify the 

statutory requirements for the FQHC 

PPS in this proposed rule and proposing 

to allow RHCs to contract with nonphysician practitioners, we are 

proposing edits to correct terminology, 

clarify policy, delete irrelevant code, 

and make conforming changes for 

existing mandates and the new PPS. 

Some of these changes include the 

following: 

• Removing the terms ‘‘fiscal 

intermediary and carriers’’ and 

replacing them with ‘‘Medicare 

Administrative Contractor’’ or ‘‘MAC’’. 

Section 911 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 established 

the MACs to administer the work that 

was done by fiscal intermediaries and 

carriers in administering Medicare 

programs. 

• Removing the payment limitations 

for treatment of mental psychoneurotic 

or personality disorders. This payment 

limitation is being phased out and will 

no longer be in effect beginning January 

1, 2014. 

• Updating the regulations to reflect 

section 410 of the Medicare 

Modernization Act of 2003 to exclude 

RHC and FQHC services furnished by 

physicians and certain other specified 

types of nonphysician practitioners 

from consolidated billing under section 

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

such services to be separately billable 

under Part B when furnished to a SNF 

resident of a skilled nursing facility 

(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, § 20.1.1). 

IV. Clinical Laboratory Improvement 

Amendments of 1988 (CLIA)— 

Enforcement Actions for Proficiency 

Testing Referral 

A. Background 

On October 31, 1988, 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 on February 28, 

1992 at 42 CFR part 493 (57 FR 7002). 

The regulations specify the standards 

and specific conditions that must be met 

to achieve and maintain CLIA 

certification. CLIA certification is 

required for all laboratories, including 

but not limited to those that participate 

in Medicare and Medicaid, which test 

human specimens for the purpose of 

providing information for the diagnosis, 

prevention, or treatment of any disease 

or impairment, or the assessment of 

health, of human beings. 

The regulations require laboratories 

conducting moderate or highcomplexity testing to enroll in an HHSapproved proficiency testing (PT) 

program that covers all of the specialties 

and subspecialties for which the 

laboratory is certified and all analyses 

listed in Subpart I of the CLIA 

regulations. 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. Rep. No. 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. Rep. No. 100– 

899, at 16 and 24 (1988)). 

PT is a valuable tool the laboratory 

can use to verify the accuracy and 


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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 analysis of PT 

reports by the laboratory director will 

alert the director to areas of testing that 

are not performing as expected and may 

also indicate subtle shifts or trends that, 

over time, could affect patient results. 

As there is no on-site, external proctor 

for PT testing in a laboratory, the testing 

relies in large part on an honor system. 

The PT program places heavy reliance 

on each laboratory and laboratory 

director to self-police their analysis 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 interlaboratory 

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 (42 CFR 

493.1840(a)(8), (b)). The phrase 

‘‘intentionally referred’’ has not been 

defined by the statute or regulations, but 

we have consistently interpreted this 

phrase from the onset of the program to 

mean general intent, as in intention to 

act. Whether or not acts are authorized 

or even known by the laboratory’s 

management, a laboratory is responsible 

for the acts of its employees. Among 

other things, laboratories need to have 

procedures in place and train employees 

on those procedures to prevent staff 

from forwarding PT samples to other 

laboratories even in instances in which 

they would normally forward a patient 

specimen for testing. 

In the February 7, 2013 Federal 

Register (78 FR 9216), we published a 

proposed rule titled Part II—Regulatory 

Provisions to Promote Program 

Efficiency, Transparency and Burden 

Reduction (hereafter referred to as the 

Burden Reduction proposed rule) to 

propose reforms to the Medicare and 

CLIA regulations that we had identified 

as unnecessary, obsolete, or excessively 

burdensome. In that rule, we proposed 

changes to the CLIA PT regulations to 

establish policies under which certain 

PT referrals by laboratories would 

generally not be subject to revocation of 

their CLIA certificate or a 2 year 

prohibition on laboratory ownership or 

operation. To do this, we proposed a 

narrow exception in our longstanding 

interpretation of what constitutes an 

‘‘intentional’’ PT referral. 

While that proposed rule was under 

development but before its publication, 

Congress enacted the ‘‘Taking Essential 

Steps for Testing Act of 2012’’ (Pub. L. 

112–202, the ‘‘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 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 CMS determines PT 

samples were intentionally referred to 

another laboratory. 

The regulatory changes that we are 

now proposing would add the 

remaining policies and regulatory 

changes needed to fully implement the 

TEST Act. 

B. Proposed 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. 

We are proposing to divide the 

sanctions for PT referral into three 

categories based on severity and extent 

of the referrals. The first category is for 

the most serious, 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 would be 

appropriate. Therefore, we are 

proposing to revoke the CLIA certificate 

for at least 1 year in instances in which 

a laboratory has a repeat proficiency 

testing referral, ban the owner and 

operator from owning or operating a 

CLIA-certified laboratory for at least 1 

year, and may also impose a civil 

monetary penalty (CMP). In keeping 

with the February 7, 2013 proposed rule 

(78 FR 9216), we propose 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 cutoff date within the period of time 

encompassing the two prior survey 

cycles (including initial certification, 

recertification, or the equivalent for 

laboratories surveyed by an approved 

accreditation organization).’’ 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 and 

adhere to regulations, and adherence 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 propose, in 

the first category, that the CLIA 

certificate be revoked, and the owner 

and operator banned from owning or 

operating a CLIA-certified laboratory for 

at least 1 year, in cases where the PT 

sample was referred to another 

laboratory, the referring laboratory 

received the results from the other 

laboratory, and the referring laboratory 

reported to the PT program the other 

laboratory’s results on or before the 

event cut-off date. We note that PT 


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programs place 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. PT performance and 

scores must reflect an individual 

laboratory’s performance, and as such, 

reporting results from another 

laboratory is deceptive to the public. We 

believe these two scenarios 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 their 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 proficiency testing would 

be undermined. Further, as stated in the 

CLIA regulations at § 493.801(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 B when that would not be 

the case. 

In cases of PT referral where the CLIA 

certificate is revoked, the TEST Act 

provides the Secretary with discretion 

to ban the owner and operator from 

owning or operating a CLIA-certified 

laboratory for less than 2 years. Prior to 

the TEST Act, revocation of a CLIA 

certificate for PT violation always 

triggered a 2-year ban on the owner and 

operator. We are also proposing 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 the first 

category involving the revocation of a 

CLIA certificate. 

We believe that a second category of 

sanctions should be applied to certain 

PT referral situations in which the CLIA 

certificate would be suspended or 

limited (rather than revoked), in 

combination with alternative sanctions. 

We propose 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 

propose to suspend or limit the CLIA 

certificate for less than 1 year rather 

than revoke the CLIA certificate, and 

propose 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 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 propose 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. We propose that if surveyors 

determine that in the prior 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 propose that when the 

certificate is suspended or limited, 

alternative sanctions would be applied 

in addition to the principal sanctions of 

suspension or limitation. We propose 

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 propose to 

also impose state on-site monitoring of 

the laboratory. 

We believe that a third category of 

sanctions should be applied to 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 propose that in such 

scenarios, at a minimum, the laboratory 

will always be required to pay a CMP 

as calculated according to § 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 

propose to impose only alternative 

sanctions. We welcome comments about 

other scenarios in which you believe 

lesser sanctions may also be 

appropriate. 

In determining whether to impose 

alternative sanctions, we propose 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. We therefore 

believe these same criteria will be 

effective in the imposition of alternative 

sanctions for PT referral cases. 

In summary, we propose to amend 

§ 493.1840 by revising paragraph (b) to 

specify three categories for the 

imposition of sanctions for PT referrals. 

We believe 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 


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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 propose to make three 

conforming changes to the CLIA 

regulations at the authority citation for 

Part 493 and at § 493.1 and 

§ 493.1800(a)(2) to include references to 

the Public Health Service Act as 

amended by the TEST Act. 

We invite the public to comment on 

our proposed categorization of potential 

PT referral situations, the criteria we 

propose for assessing the scope and 

severity of any violation, and the types 

of sanctions that correspond to each 

category. 

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 (ResDAC) Web site at 

http://www.resdac.org/. 

1. FQHC Summary Data. This file 

contains data summarized by CCN, 

which can be used to model the 

proposed methodology and calculate 

projected payments and impacts under 

the proposed PPS. The data file is 

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

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

2. FQHC Proposed GAFs. This file 

contains the listed of proposed GAFs by 

locality, as published in Addendum A 

of this proposed rule. 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 CMS and 

includes cost reports with fiscal year 

ending dates on or after September 30, 

2009. HCRIS updates this file on a 

quarterly basis. The data file is available 

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

B. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

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 are soliciting public comment on 

the information collection requirements 

(ICRs) regarding the proposed FQHC 

rates and adjustments in § 405.2470. 

Section II. of this proposed rule 

discusses the data that are used in 

computing the FQHS PPS rates and 

adjustments. As discussed, the data 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 note that, 

while the preamble does not contain 

any new ICRs, there is currently an 

OMB approved information collection 

request associated with the RHC/FQHC 

cost report. The OMB control number is 

0938–0107, with an expiration date of 

August 31, 2014. 

If you comment on this information 

collection and recordkeeping 

requirement, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Attention: CMS Desk Officer, 

[CMS–1443–P] Fax: (202) 395–6974; or 

Email: OIRA_submission@omb.eop.gov. 

VI. 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. 

VII. Regulatory Impact Analysis 

A. Statement of Need 

This proposed rule is necessary to 

establish a methodology and payment 

rates for a PPS for FQHC services under 

Medicare Part B beginning on October 1, 

2014, in compliance with the statutory 

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

the Affordable Care Act. This proposed 

rule also is 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: (having an annual effect 

on the economy of $100 million or more 

in any 1 year, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local or tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 


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million or more in any 1 year). This 

proposed rule 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 proposed 

rule have an average of 30 percent 

increase in Medicare PPS payment to 

FQHCs and no financial impact on 

RHCs. Individuals and states are not 

included in the definition of a small 

entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 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 are not 

preparing an analysis for section 1102(b) 

of the Act, because we have determined 

that this proposed rule 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 2013, that is 

approximately $141 million. This 

proposed 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 proposed rule would not have a 

substantial effect on state and local 

governments, preempt state law, or 

otherwise have Federalism implications. 

This proposed regulation 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 proposed 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 proposed 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 

comprehensive initial Medicare visits 

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 2 (Impact of 

the PPS on Payments to FQHCs). 

D. Anticipated Effects of the FQHC PPS 

1. Effects on FQHCs 

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

of the Act, initial payments (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. As discussed in 

sections I and II. of this proposed rule, 

we propose to pay FQHCs a single 

encounter-based rate per beneficiary per 

day, 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 comprehensive initial 

Medicare visit (that is, an IPPE an initial 

AWV). 

Based on comparisons of the 

proposed PPS rate to the AIRs (as listed 

on the FQHC cost reports), the proposed 

FQHC PPS is estimated to have an 

overall impact of increasing total 

Medicare payments to FQHCs by 

approximately 30 percent. 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.E. of this 

proposed rule for a discussion of the use 

of the MEI update to calculate the first 

year’s base payment amount under the 

FQHC PPS.) 

Table 2 shows the impact on cost 

reporting entities and their associated 

delivery sites of the fully implemented 

proposed FQHC PPS payments 

compared to current payments to 

FQHCs. The analysis is based on cost 

reports from freestanding FQHCs with 

cost reporting periods ending between 

June 30, 2011, and June 30, 2012. A 

FQHC with multiple sites has the option 

of filing a consolidated cost report, and 

this sample reflects 1,141 cost reporting 

entities that represent 3,509 delivery 

sites. The following is an explanation of 

the information represented in Table 2: 

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

the number of cost-reporting entities for 

each impact category. Urban/rural status 

and census division were determined 

based on the geographic location of the 

cost reporting entity. Categories for 

Medicare volume were defined from 

cost report data, based on tertiles for the 

percent of total visits that were 

identified as Medicare visits. Categories 

for total volume were defined from cost 

report data, based on tertiles for the total 

number of visits for each cost reporting 

entity. 

• Column B (Number of delivery 

sites): This column shows the number of 

delivery sites associated with the cost 

reporting entities in each impact 

category. (Note that delivery sites that 

are part of a consolidated cost reporting 

entity might not fall into the same 

impact category if considered 

individually. For example, a cost 

reporting entity could include delivery 

sites in multiple census division, and 

delivery sites were categorized based on 

the geographic location of the cost 

reporting entity). 


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• Column C (Number of Medicare 

visits): This column shows the number 

of Medicare visits in the final data set 

that were used to model payments 

under the FQHC PPS. 

• 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 28 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 

Proposed Adjustments to the Average 

Cost per Visit): These columns show the 

estimated fully implemented impacts on 

Medicare payments to FQHCs due to the 

proposed policy changes. In developing 

the Medicare FQHC PPS, section 

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

Act requires CMS to take into account 

the type, intensity, and duration of 

FQHC services, and allows other 

adjustments, such as geographic 

adjustments. As discussed in section 

II.C of this proposed rule, the cost report 

data are insufficient for modeling these 

types of adjustments, and we propose 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. 

As demonstrated in columns E–H, the 

overall effect of these various 

adjustments is budget neutral. 

• 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, which eliminates 

the current exceptions that pay for more 

than one visit per beneficiary per day. 

As it is uncommon for FQHCs to bill 

more than one visit per day for the same 

beneficiary (less than 0.5 percent of 

visits), this adjustment would have 

minimal effect on most FQHCs. 

• Column F (Effect of new patient/

initial visit adjustment): This column 

shows the estimated fully implemented 

impact on payments to FQHCs of the 

proposal to adjust the encounter-based 

rate by 1.3333 when a FQHC furnished 

care to a patient that was new to the 

FQHC or to a beneficiary receiving a 

comprehensive initial Medicare visit. As 

new patients and initial Medicare visits 

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 GAF): This 

column shows the estimated fully 

implemented impact on payments to 

FQHCs of the proposal to adjust 

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 proposed 

adjustments in columns E through G. 

Both the individual and combined 

effects of these adjustments on overall 

Medicare payment to FQHCs would be 

zero percent as the effects of these 

adjustments would be redistributive and 

would not change Medicare payments 

in the aggregate. 

• 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 2—IMPACT OF THE PPS ON PAYMENTS TO FQHCS

Number of 

cost-reporting 

entities 

Number of 

delivery 

sites 

Number of 

Medicare 

visits 

Effect of 

statutorily 

required 

changes 

(percent) 

Effect of 

daily visit 

(per diem) 

rate 

(percent) 

Effect of 

new patient/

initial visit 

adjustment 

(percent) 

Effect of 

geographic 

adjustment 

factor 

(GAF) 

(percent) 

Combined 

effect of all 

PPS 

adjustments 

(percent) 

Combined 

effect of all 

policy 

changes 

and MEI 

adjustment 

(percent) 

(A) (B) (C) (D) (E) (F) (G) (H) (I) 

All FQHCs ............................... 1,141 3,509 5,245,961 28.0 0.0 0.0 0.0 0.0 30.2 

Urban/rural Status: 

Urban ............................... 647 1,756 2,518,395 21.8 ¥0.2 0.0 3.1 3.0 27.6 

Rural ................................. 348 820 1,385,116 39.3 0.2 ¥0.9 ¥3.1 ¥3.0 37.4 

Mixed rural-urban ............. 146 933 1,342,450 29.6 0.2 0.0 ¥2.7 ¥2.5 28.5 

Medicare Volume: 

Low (<6.9% of total visits) 380 1,039 851,771 22.6 ¥0.1 0.2 3.3 3.4 28.9 

Medium (6.9%–13.2% of 

total visits) .................... 381 1,235 1,751,498 25.5 ¥0.1 0.1 0.0 0.5 28.2 

High (>13.2% of total visits) ................................. 380 1,237 2,642,692 31.7 0.1 ¥0.2 ¥1.3 ¥1.4 32.0 

Total Volume: 

Low (<17,340 total visits) 380 502 426,346 31.8 0.0 0.1 ¥0.1 0.0 34.1 

Medium (17,340–42,711 

total visits) .................... 381 903 1,253,817 29.6 0.0 0.1 ¥1.6 ¥1.5 29.8 

High (>42,711 total visits) 380 2,123 3,565,798 27.1 0.0 ¥0.1 0.6 0.5 29.9 

Census Division: 

New England .................... 92 236 657,794 25.7 ¥0.4 ¥0.2 1.8 1.2 29.3 

Middle Atlantic .................. 108 314 457,798 23.1 0.1 0.0 3.1 3.2 29.1 

East North Central ........... 143 460 603,034 29.2 ¥0.2 0.1 ¥2.7 ¥2.7 27.7 

West North Central .......... 78 201 248,891 29.2 0.0 0.1 ¥5.1 ¥5.1 24.6 

South Atlantic ................... 187 688 1,049,755 31.0 0.2 0.0 ¥3.0 ¥2.9 29.3 

East South Central ........... 83 317 374,386 36.1 0.1 0.0 ¥6.8 ¥6.7 29.2 

West South Central .......... 107 287 337,375 29.4 0.1 0.2 ¥5.3 ¥5.0 25.0 

Mountain .......................... 87 311 368,666 29.2 ¥0.1 0.3 ¥2.1 ¥1.9 28.9 

Pacific ............................... 252 690 1,145,897 24.8 0.1 ¥0.1 7.5 7.5 36.4 

US Territories ................... 4 5 2,365 36.7 0.4 1.1 ¥0.5 1.0 41.2 


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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 3—ESTIMATED INCREASE IN ANNUAL MEDICARE PAYMENTS TO

FQHCS

Calendar year 

Estimated increase in 

payments 

($ in millions) 

2014 .......................... 33 

2015 .......................... 204 

2016 .......................... 226 

2017 .......................... 236 

2018 .......................... 248 

We intend for estimated aggregate 

payments under the proposed 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 CY 

2014 is significantly smaller than for 

subsequent years, primarily due to the 

implementation date of October 1, 2014, 

which will affect payments for only 3 

months of CY 2014. In addition, an 

analysis of 2010 cost reporting data 

indicates that approximately 6 percent 

of FQHC cost reporting entities had cost 

reporting periods that began between 

October 1 and December 31, which 

indicates that we would expect a small 

percentage of cost reporting entities to 

be paid under the FQHC PPS between 

October 1, 2014 and December 31, 2014. 

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. 

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 

FQHC PPS: As discussed in section 

II.E. of this proposed rule, we propose 

that 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, 2012 

indicated that beneficiary coinsurance 

based on 20 percent of the FQHC’s 

charges was approximately $23 million 

higher, or 18 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 

proposed PPS rate to the AIRs, the 

proposed FQHC PPS is estimated to 

have an overall impact of increasing 

total Medicare payments to FQHCs by 

approximately 30 percent. This overall 

30 percent increase translates to a 30 

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 

In section III.A. of this proposed rule 

we discuss our proposal to remove the 

restrictions on RHCs contracting with 

nonphysician practitioners when the 

statutory requirement to employ an NP 

or a PA is met would provide RHCs 

with greater flexibility in meeting their 

staffing requirements. 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, which may result in 

increasing access to care in rural areas. 

There is no cost to the Federal 

government and we cannot estimate a 

cost savings for RHCs. 

b. Effects of the FQHC and RHC 

Conforming Changes 

In section III.B. of this proposed rule, 

we present our proposals regarding 

clarifying, technical, conforming 

changes to the FQHC and RHC 

regulations that are necessary for 

implementation of the FQHC PPS. We 

believe that are no costs associated with 

these changes. 

2. Effects of CLIA Changes for 

Enforcement Actions for Proficiency 

Testing Referral 

As discussed in section IV. of this 

proposed rule, we would make a 

number of clarifications and changes 

pertaining to the regulations governing 

adverse actions for PT referral under 

CLIA to 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 8 per year), we 

estimate that 28 (or 6 per year on 

average) may have fit the terms of this 

rule to have alternative sanctions 

applied. Based on discussions with the 

most recently affected laboratories that 

were cited for PT violations, we 

estimate that the average cost of the 

sanctions applicable under current 

regulations is approximately $578,400 

per laboratory. The largest single type of 

cost is the expense to the laboratory or 

hospital to contract out for management 

of the laboratory, and to pay laboratory 

director fees, due to the 2-year ban that 

prohibits the owner and operator from 

owning or operating a CLIA-certified 

laboratory in accordance with 

revocation of the CLIA certificate. We 

have not included legal expenses in this 

cost estimate, as it is not possible to 

estimate the extent to which laboratories 

may still appeal the imposition of the 

alternative sanctions in this proposed 


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rule. If the expense of alternative 

sanctions averaged $150,000 per 

laboratory, we estimate the annual fiscal 

savings of the changes to average $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 is 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 temporarilybanned laboratory directors (due, for 

example, to the need to familiarize 

themselves with laboratories they have 

not previously operated) or that support 

staff put forth more effort to make the 

new management arrangements than 

they would addressing alternative 

sanctions that society’s resources would 

be freed for other uses by the proposed 

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 proposed rule contains a range of 

policies, including some provisions 

related to specific statutory provisions. 

The preceding sections of this proposed 

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 proposed 

rule. 

TABLE 4—ACCOUNTING STATEMENT—CLASSIFICATION OF PROPOSED ESTIMATED EXPENDITURES UNDER THE FQHC PPS 

Category Estimates 

Units 

Year 

dollar 

Discount rate 

(percent) 

Period 

covered 

Transfers: 

Federal Annualized Monetized Transfers (in millions) ............................. 183 

187 

2014 

2014 

7 

3 

2014–2018 

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 an initial Regulatory 

Flexibility Analysis. The previous 

analysis, together with the remainder of 

this preamble, provides a Regulatory 

Impact Analysis. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 405 

Administrative practice and 

procedure, Health facilities, Health 

professions, Kidney diseases, Medical 

devices, Medicare reporting and 

recordkeeping requirements, Rural areas 

and X-rays. 

42 CFR Part 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 proposes to amend 

42 CFR parts 405, 491, and 493 as set 

forth below: 

PART 405—FEDERAL HEALTH 

INSURANCE FOR THE AGED AND 

DISABLED 

■ 1. The authority for citation for part 

405 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

■ 2. Section 405.2400 is revised to read 

as follows: 

§ 405.2400 Basis. 

Subpart X is based on the provisions 

of the following sections of the Act: 

Section 1833—Amounts of payment for 

supplementary medical insurance 

services. Section 1861(aa)—Rural health 

clinic services and Federally qualified 

health center services covered by the 

Medicare program. Section1834(o)— 

Federally qualified health center 

prospective payment system beginning 

October 1, 2014. 

■ 3. 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)’’. 

■ E. Revising the definitions of 

‘‘Coinsurance’’ and ‘‘Deductible’’. 

■ F. Adding the definition of 

‘‘Employee’’ and ‘‘HRSA. 

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

of the definition of ‘‘Federally qualified 

health center’’. 

■ H. Removing the definition of 

‘‘Intermittent nursing care’’. 


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■ I. Adding the definition of ‘‘Medicare 

Administrative Contractor (MAC)’’. 

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

physician assistant’’, and Part-time 

nursing care’’. 

■ K. Adding the definitions of 

‘‘Physician assistant (PA)’’ and 

‘‘Prospective payment system (PPS)’’. 

■ 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 experience and other 

requirements of § 410.77(a) of this 

chapter. 

Clinical psychologist (CP) means an 

individual who meet the applicable 

education, training experience and other 

requirements of § 410.71(d) of this 

chapter. 

Clinical social worker (CSW) means 

an individual who meet the applicable 

education, training experience 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 a 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 part B, as a comprehensive federally 

funded health center as of January 1, 

1990; or 

* * * * * 

HRSA means the Health Resources 

and Services Administration. 

* * * * * 

Medicare Administrative Contractor 

(MAC) means an organization that has a 

contract with the Secretary to 

administer the benefits covered by this 

subpart. 

Nurse practitioner (NP) means 

individuals who meet the applicable 

education, training experience and other 

requirements of § 410.75(b) of this 

chapter. 

* * * * * 

Physician assistant (PA) means an 

individual who meet the applicable 

education, training experience 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 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. 

* * * * * 

■ 4. Section 405.2402 is amended as 

follows: 

■ A. Revising the section heading. 

■ B. Revising paragraphs (b) 

introductory text and (c) introductory 

text. 

■ C. Revising paragraph (d). 

■ D. Removing paragraph (e). 

■ E. Redesignating paragraph (f) as 

paragraph (e). 

■ F. Revising newly redesignated 

paragraph (e). 

The revisions read as follows: 

§ 405.2402 Rural health clinic basic 

requirements. 

* * * * * 

(b) Acceptance of the clinic as 

qualified to furnish RHC services. If the 

Secretary, after reviewing the survey 

agency or accrediting organization 

recommendation, as applicable, and 

other evidence relating to the 

qualifications of the clinic, determines 

that the clinic meets the requirements of 

this subpart and of part 491 of this 

chapter, the clinic is provided with— 

* * * * * 

(c) Filing of agreement by the clinic. 

If the clinic wishes to participate in the 

program, it must— 

* * * * * 

(d) Acceptance by the Secretary. If the 

Secretary accepts the agreement filed by 

the clinic, the Secretary returns to the 

clinic one copy of the agreement with a 

notice of acceptance specifying the 

effective date. 

(e) Appeal rights. If CMS declines to 

enter into an agreement or if CMS 

terminates an agreement, the clinic is 

entitled to a hearing in accordance with 

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

■ 5. 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) 

introductory text, (a)(3)(i), and (a)(4)(i) 

and (ii) by removing the term ‘‘clinic’’ 

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

The revision reads as follows: 

§ 405.2403 Rural health clinic content and 

terms of the agreement with the Secretary. 

* * * * * 

■ 6. Section 405.2404 is amended as 

follows: 

■ A. Revising the section heading. 

■ B. Amending paragraphs (a) 

introductory text, (b)(1) introductory 

text, (b)(2), (b)(3), (c), (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 paragraph (a)(1), 

(a)(2)(i), (a)(2)(ii)(A), (a)(3), and (d)(1) 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. In paragraph (a)(2)(ii) introductory 

text, removing the phrase ‘‘if he 


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determines’’ and adding place ‘‘if the 

Secretary determines’’. 

■ F. In paragraph (a)(3), removing the 

phrase ‘‘that shall be deemed’’ and 

adding in its place the phrase ‘‘The 

Secretary deems it’’. 

■ G. In paragraph (b)(2), removing the 

phrase ‘‘The Secretary will give’’ and 

adding in its place the phrase ‘‘The 

Secretary gives’’. 

The revisions read as follows: 

§ 405.2404 Termination of rural health 

clinic agreements. 

* * * * * 

§ 405.2410 [Amended] 

■ 7. Section 405.2410 is amended as 

follows: 

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

term ‘‘rural health clinic’’ and adding in 

its place the term ‘‘RHC’’. 

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

term ‘‘Federally qualified health center’’ 

and adding in its place the term 

‘‘FQHC’’. 

■ C. Revising paragraph (b). 

The revision reads as follows: 

§ 405.2410 Application of Part B 

deductible and coinsurance. 

* * * * * 

(b) Application of coinsurance. The 

beneficiary’s responsibility is based on 

either of the following: 

(1) For RHCs and FQHCs that are not 

being paid in accordance with section 

1834(o) of the Act — 

(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) For any one item or service 

furnished by the RHC, a deductible and 

coinsurance liability that does not 

exceed twenty percent of a reasonable 

customary charge by the RHC for that 

particular item or service; or 

(ii) For any one item or service 

furnished by a FQHC, a coinsurance 

liability 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 charge; or 

(ii) The PPS rate for the covered 

service. 

■ 8. Section 405.2411 is amended as 

follows: 

■ A. Revising paragraph (a) introductory 

text. 

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

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

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

■ D. Adding a new paragraph (a)(6). 

■ E. Revising paragraph (b). 

The revisions and addition read as 

follows: 

§ 405.2411 Scope of benefits. 

(a) The following RHC 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 psychologists and clinical 

social worker services as specified in 

§ 405.2450. 

(b) Rural health clinic services are— 

(1) Covered when furnished in a RHC 

setting 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 at the time the 

services are furnished; and 

(3) Not covered in a hospital as 

defined in section 1861(e) of the Act; or 

critical access hospital as defined in 

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

■ 9. 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) Away from 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] 

■ 10. Section 405.2413 is amended as 

follows: 

■ A. Amending paragraphs (a)(2) and 

(a)(5) by removing the term ‘‘clinic’s’’ 

and by adding in its place the term 

‘‘RHC’s’’. 

■ B. Amending paragraph (a)(5) by 

removing the term ‘‘clinic’’ and by 

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

■ 11. Section 405.2414 is amended as 

follows: 

■ A. Revising paragraphs (a) 

introductory text and (a)(1). 

■ B. In paragraphs (a)(2) and (3), 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. Revising paragraph (a)(4). 

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

phrase ‘‘They would’’ and adding in its 

place the phrase ‘‘The services would’’. 

■ E. In paragraph (c), removing the 

phrase ‘‘physician assistants, nurse 

midwives or specialized nurse 

practitioners’’ and adding in its place 

the phrase ‘‘physician assistants or 

certified nurse midwives’’. 

The revisions read as follows: 

§ 405.2414 Nurse practitioner, physician 

assistant, and certified nurse midwife 

services. 

(a) Professional services are payable 

under this subpart if the services meet 

all of the following: 

(1) Furnished by a nurse practitioner, 

physician assistant, or certified nurse 

midwife who is employed by, or 

receives compensation from, the RHC or 

FQHC. 

* * * * * 

(4) The services 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. 

■ 12. Section 405.2415 is revised to read 

as follows: 

§ 405.2415 Services and supplies incident 

to nurse practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist, or clinical social worker 

services. 

(a) Services and supplies incident to 

a nurse practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist, or clinical social worker 

service are payable under this subpart if 

the service or supply is all of the 

following: 

(1) Of a type commonly furnished in 

physicians’ offices. 

(2) Of a type commonly rendered 

either without charge or included in the 

RHC’s 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 under the direct, 

personal supervision of a physician, 

nurse practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist, or clinical social worker. 

(5) 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 personal 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: 


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(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. 

■ 13. Section 405.2416 is amended as 

follows: 

■ A. Revising paragraphs (a) 

introductory text and (a)(1). 

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

semicolon and adding a period 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) Established by a nurse 

practitioner, physician assistant, or 

certified nurse midwife and reviewed at 

least every 60 days by a supervising 

physician. 

(ii) Signed by the supervising 

physician, nurse practitioner, physician 

assistant or certified nurse midwife of 

the RHC or FQHC. 

(b) The nursing care covered by this 

section includes the following: 

(1) Services that must be performed 

by a registered professional nurse or 

licensed practical nurse if the safety of 

the patient is to be assured and the 

medically desired results achieved. 

* * * * * 

§ 405.2417 [Amended] 

■ 14. 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’’. 

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

and adding in its place ‘‘.’’. 

■ 15. Section 405.2430 is amended as 

follows: 

■ A. Revising paragraphs (a)(1) 

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

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

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’. 

■ C. Revising paragraph (b). 

■ D. Removing paragraph (c). 

■ E. Redesignating paragraph (d) as 

paragraph (c). 

The revisions read as follows: 

§ 405.2430 Basic requirements. 

(a) * * * 

(1) In response to a request from an 

entity that wishes to participate in the 

Medicare program, CMS enters into an 

agreement with an entity when all of the 

following occur: 

(i) HRSA approves the entity as 

meeting the requirements of section 330 

of the PHS Act. 

(ii) The entity assures CMS that it 

meets the requirements specified in this 

subpart and part 491, 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). 

* * * * * 

■ 16. 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), removing the 

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’ each time it appears. 

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

term ‘‘Centers’’ and adding in its place 

the term ‘‘FQHCs’’. 

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

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

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’ each time it appears. 

■ F. Revising paragraph (c)(4). 

■ G. In paragraphs (d)(1), (d)(3) 

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

by removing the phrase ‘‘Federally 

qualified health center’’ and adding in 

its place the term ‘‘FQHC’’. 

■ H. 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. 

(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 center 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] 

■ 17. Section 405.2436 is amended as 

follows: 

■ A. In paragraphs (a) introductory text, 

(a)(2), (b)(1)(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’’. 

■ 18. 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] 

■ 19. Section 405.2442 is amended as 

follows: 

■ A. In paragraph (a) introductory text 

by removing the phrase ‘‘Federally 

qualified health center’’ 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] 

■ 20. Section 405.2444 is amended as 

follows: 


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■ A. In paragraph (c), removing the 

phrase ‘‘Federally qualified health 

center’’ and adding in its place the term 

‘‘FQHC’’ each time it appears. 

■ B. In paragraphs (a)(2) and (c) by 

removing the term ‘‘center’’ each time it 

appears, and by adding in its place the 

term ‘‘FQHC’’ . 

■ 21. 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 quality 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. 

* * * * * 

■ 22. Section 405.2448 is amended as 

follows: 

■ A. Revising paragraphs (a) 

introductory text and (a)(1) through (3). 

■ B. In paragraph (b) introductory text, 

removing the phrase ‘‘Federally quality 

health centers’’ and adding in its place 

the term ‘‘FQHCs’’. 

■ C. In paragraph (d), 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 ‘‘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: 

(1) A FQHC is required to provide as 

preventive primary health services 

under section 330 of the PHS Act. 

(2) Furnished by or under the direct 

supervision of a physician, nurse 

practitioner, physician assistant, 

certified nurse midwife, clinical 

psychologist or clinical social worker. 

(3) In the case of a service, furnished 

by a member of the FQHC’s health care 

staff who is an employee of the FQHC 

or by a physician under arrangements 

with the FQHC. 

* * * * * 

§ 405.2449 [Amended] 

■ 23. Section 405.2449 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 (b), removing ‘‘; and’’ 

and adding in its place ‘‘.’’. 

§ 405.2452 [Amended] 

■ 24. Section 405.2452 is amended as 

follows: 

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

the phrase ‘‘Federally quality health 

center’s’’ and adding in its place the 

term ‘‘FQHC’s’’. 

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

phrase ‘‘Federally quality health center’’ 

and adding in its place the term 

‘‘FQHC’’. 

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

term ‘‘center’’ and adding in its place 

the term ‘‘FQHC’’. 

■ 25. 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 in FQHCs and not excluded 

by the provisions of section 1862(a) of 

the Act. 

■ 26. Section 405.2462 is revised to read 

as follows: 

§ 405.2462 Payment for RHC and FQHC 

services. 

(a) Payment to provider-based RHCs 

and FQHCs that are authorized to bill 

under the reasonable cost system. A 

RHC or FQHC that is authorized to bill 

under the reasonable cost system is paid 

in accordance with parts 405 and 413 of 

this subchapter, as applicable, if the 

RHC or FQHC is— 

(1) An integral and subordinate part of 

a hospital, skilled nursing facility or 

home health agency participating in 

Medicare (that is, a provider of 

services); and 

(2) Operated with other departments 

of the provider under common 

licensure, governance and professional 

supervision. 

(b) Payment to independent RHCs and 

freestanding FQHCs that are authorized 

to bill under the reasonable cost system. 

(1) RHCs and FQHCs that are authorized 

to bill under the reasonable cost system 

are paid on the basis of an all-inclusive 

rate for each beneficiary visit for 

covered services. This rate is 

determined by the MAC, in accordance 

with this subpart and general 

instructions issued by CMS. 

(2) The amount payable by the MAC 

for a visit is determined in accordance 

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

section. 

(c) Payment to FQHCs that are 

authorized to bill under the prospective 

payment system. A FQHC that is 

authorized to bill under the prospective 

payment system is paid a single, per 

diem rate based on the prospectively set 

rate for each beneficiary visit for 

covered services. This rate is adjusted 

for the following: 

(1) Geographic differences in cost 

based on the Geographic Practice Cost 

Indices (GPCIs) in accordance with 

1848(e) of the Act and 42 CFR 414.2 and 

414.26 and used to adjust payment 

under the physician fee schedule, 

limited to only the work and practice 

expense GPCIs. 

(2) Furnishing of care to a new patient 

with respect to the FQHC, including all 

sites that are part of the FQHC, or to a 

beneficiary receiving a comprehensive 

initial Medicare visit (that is an initial 

preventive physical examination or an 

initial annual wellness visit). A new 

patient is one that has not been seen in 

the FQHC’s organization within the 

previous 3 years. 

(d) For FQHC visits, Medicare pays 80 

percent of the all-inclusive rate for 

FQHCs that are authorized to bill under 

the reasonable cost system, and 80 

percent of the lesser of the FQHC’s 

charge or the PPS encounter rate for 

FQHCs authorized to bill under the PPS. 

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, 

Medicare pays 80 percent of the allinclusive 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 allVerDate Mar<15>2010 20:37 Sep 20, 2013 Jkt 229001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 E:\FR\FM\23SEP2.SGM 23SEP2

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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 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. 

27. Section 405.2463 is revised to read 

as follows: 

§ 405.2463 What constitutes a visit. 

(a) Visit. (1) General. (i) For RHCs, a 

visit is a 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. 

(I) Qualified transitional care 

management service. 

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

following: 

(A) A face-to-face encounter as 

described in paragraph (a)(1)(i) of this 

section. 

(B) A face-to-face encounter between 

a patient and one of the following: 

(1) A qualified provider of medical 

nutrition therapy services as defined in 

part 410 subpart G of this chapter. 

(2) A qualified provider of outpatient 

diabetes self-management training 

services as defined in part 410 subpart 

H of this chapter. 

(2) Medical visit. (i) A medical visit is 

a face-to-face encounter between a RHC 

or FQHC 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. 

(i) A medical visit for FQHCs may 

also include a— 

(A) Medical nutrition therapy visit; or 

(B) Diabetes outpatient selfmanagement training visit. 

(3) Mental health visit. 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 

for mental health services. 

(b) Encounters and Payment for RHCs 

and FQHCs that are not being paid 

under section 1834(o) of the Act. (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 one of the following 

conditions exist: 

(i) The patient, subsequent to the first 

visit, suffers an illness or injury that 

requires additional diagnosis or 

treatment on the same day. 

(ii) The patient has a medical visit 

and a mental health visit on the same 

day. 

(iii) The patient 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 that are not being paid under 

section 1834(o) of the Act for more than 

1 visit per day when the conditions in 

paragraph (b) of this section are met. 

■ 28. Section 405.2464 is revised to read 

as follows: 

§ 405.2464 Payment rate. 

(a) Determination of the payment rate 

for RHCs and FQHCs that are 

authorized to bill on the basis of 

reasonable cost. (1) An all-inclusive rate 

is determined by the MAC at the 

beginning of the cost reporting period. 

(2) The rate is determined by dividing 

the estimated total allowable costs by 

estimated total visits for RHC or FQHC 

services. 

(3) The rate determination is subject 

to any tests of reasonableness that may 

be established in accordance with this 

subpart. 

(4) The MAC, during each reporting 

period, periodically reviews the rate to 

assure that payments approximate 

actual allowable costs and visits and 

adjusts the rate if: 

(i) There is a significant change in the 

utilization of services; 

(ii) Actual allowable costs vary 

materially from allowable costs; or 

(iii) Other circumstances arise which 

warrant an adjustment. 

(5) The RHC or FQHC may request the 

MAC to review the rate to determine 

whether adjustment is required. 

(b) Determination of the payment rate 

for FQHCs billing under the prospective 

payment system. (1) An encounterbased rate is calculated by CMS by 

dividing total FQHC costs by total 

FQHC encounters to establish an 

average cost per encounter. 

(2) The exceptions in § 405.2463(b) do 

not apply. 

(3) The encounter-based rate is 

adjusted— 

(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(b)(3)(ii). 

(iii) When a beneficiary receives a 

comprehensive initial Medicare visit 

(that is, an initial preventive physical 

examination or an initial annual 

wellness visit). 

■ 29. Section 405.2466 is amended as 

follows: 

■ A. By revising paragraph (a) and the 

paragraph (b) heading. 

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

text by removing the term 

‘‘intermediary’’ each time it appears 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’’. 

■ 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)(i), and (b)(1)(ii) 

by removing the term ‘‘Federally 

qualified health center’’ and by adding 

in its place the term ‘‘FQHC’’. 

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

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

the word ‘‘clinic’’ each time it appears 

and by adding in its place the term 

‘‘RHC’’. 

■ H. 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’’. 

■ I. Revising paragraphs (c) introductory 

text, and (d)(1). 

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

term ‘‘intermediary’’ each time it 

appears and by adding in its place the 

term ‘‘MAC’’. 

The revisions read as follows: 

§ 405.2466 Annual reconciliation. 

(a) General. Payments made to RHCs 

or FQHCs that are authorized to bill 

under the reasonable cost system during 

a reporting period are subject to annual 

reconciliation to assure that those 

payments do not exceed or fall short of 

the allowable costs attributable to 

covered services furnished to Medicare 

beneficiaries during that period. 

(b) Calculation of reconciliation for 

RHCs or FQHCs that are authorized to 

bill under the reasonable cost system. 

(1) * * * 


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(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 costs 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. 

* * * * * 

■ 30. 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 on a PPS basis 

that does all of the following: 

(1) Includes a process for 

appropriately describing the services 

furnished by FQHCs. 

(2) Establishes payment rates for 

specific payment codes based on such 

appropriate descriptions of services. 

(3) Takes into account the type, 

intensity and duration of services 

furnished by FQHCs. 

(4) May include adjustments (such as 

geographic adjustments) determined by 

the Secretary. 

(b) HCPCS coding. FQHCs are 

required to submit HCPCS codes in 

reporting services furnished. 

(c) Initial payments. (1) Beginning 

October 1, 2014, for the first fifteen 

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 amount is calculated 

prior to any FQHC payments based on 

the reasonable cost system. 

(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. 

■ 31. Section 405.2468 is amended: 

■ A. In paragraph (a) by removing the 

word ‘‘intermediary’’, and by adding in 

its place the word ‘‘MAC’’. 

■ B. In paragraphs (b) introductory text 

and (c) by removing the term ‘‘rural 

health clinic’’ and by adding in its place 

the term ‘‘RHC’’. 

■ C. In paragraph (b) introductory text 

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). 

The revisions read as follows: 

§ 405.2468 Allowable costs. 

* * * * * 

(b) * * * 

(1) Compensation for the services of a 

physician, physician assistant, nurse 

practitioner, certified nurse-midwife, 

visiting registered professional or 

licensed practical nurse, clinical 

psychologist, and clinical social worker 

who owns, is employed by, or furnishes 

services under contract to a FQHC or 

RHC. 

* * * * * 

(c) Tests of reasonableness of cost and 

utilization. Tests of reasonableness 

authorized by sections 1833(a) and 

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

established by CMS or the MAC with 

respect to direct or indirect overall 

costs, costs of specific items and 

services, or costs of groups of items and 

services. For RHCs and FQHCs that are 

authorized to bill under the reasonable 

cost system, these tests include, but are 

not limited to, screening guidelines and 

payment limits. 

(d) Screening guidelines. (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. 

* * * * * 

■ 32. Section 405.2469 is revised by to 

read as follows: 

§ 405.2469 Federally qualified health 

centers (FQHCs) supplemental payments. 

(a) Eligibility for supplemental 

payments. FQHCs under contract 

(directly or indirectly) with MA 

organizations are eligible for 

supplemental payments for FQHC 

services furnished to enrollees in MA 

plans offered by the MA organization to 

cover the difference, if any, between 

their payments from the MA plan and 

what they would receive either: 

(1) Under the reasonable cost payment 

system if the FQHC is authorized to bill 

under the reasonable cost payment 

system, or 

(2) The PPS rate if the FQHC is 

authorized to bill under the PPS. 

(b) Calculation of supplemental 

payment. The supplemental payment 

for FQHC covered services provided to 

Medicare patients enrolled in MA plans 

is based on the difference between— 

(1) Payments received by the FQHC 

from the MA plan as determined on a 

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

forth in this subpart, less any amount 

the FQHC may charge as described in 

section 1857(e)(3)(B) of the Act, or. 

(2) Payments received by the FQHC 

from the MA plan as determined on a 

per visit basis and the FQHC PPS rate 

as set forth in this subpart, less any 

amount the FQHC may charge as 

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

Act. 

(c) Financial incentives. Any financial 

incentives provided to FQHCs under 

their MA contracts, such as risk pool 

payments, bonuses, or withholds, are 

prohibited from being included in the 

calculation of supplemental payments 

due to the FQHC. 

(d) Per visit supplemental payment. A 

supplemental payment required under 

this section is made to the FQHC when 

a covered face-to-face encounter occurs 

between a MA enrollee and a 

practitioner as set forth in § 405.2463. 

§ 405.2470 [Amended] 

■ 33. Section 405.2470 is amended by: 

■ A. In paragraphs (a)(1), (b)(1), and 

(c)(3) through (5) by removing the word 

‘‘intermediary’’, and by adding in its 

place the word ‘‘MAC’’. 

■ B. In paragraphs (b)(2), by removing 

the word ‘‘intermediary’s’’ and adding 

in its place the word ‘‘MAC’s’’. 

■ C. In paragraphs (a) introductory text, 

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

the term ‘‘Federally qualified health 

center’’ and by adding in its place the 

term ‘‘FQHC’’. 

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

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

through (6) by removing the word 

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

term ‘‘RHC’’. 


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

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

through (6) by removing the word 

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

term ‘‘FQHC’’. 

■ 34. 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 491—CERTIFICATION OF 

CERTAIN HEALTH FACILITIES 

■ 35. 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). 

■ 36. Section 491.8 is amended by 

revising paragraph (a)(3). 

§ 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 assistants 

or nurse practitioner must be an 

employee of the clinic. 

* * * * * 

PART 493—LABORATORY 

REQUIREMENTS 

■ 37. The authority citation for Part 493 

is revised to read as follows: 

Authority: Sec. 353 of the Public Health 

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

following sections 1861(s)(11) through 

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

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

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

and the Public Law 112–202 amendments to 

42 U.S.C 263a. 

■ 38. 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. * * * 

■ 39. Section 493.2 is revised 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 

organizations). 

* * * * * 

■ 40. Section 493.1800 is amended by 

revising paragraph (a)(2) introductory 

text to read as follows: 

§ 493.1800 Basis and scope. 

(a) * * * 

(2) The Clinical Laboratories 

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. 

* * * * * 

■ 41. 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) 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 also impose a 

civil money penalty in accordance with 

§ 493.1834(d), if CMS determines that— 

(i) A proficiency testing referral is a 

repeat proficiency testing referral as 

defined at § 493.2; or 

(ii) On or before the proficiency 

testing event close date, a laboratory 

reported proficiency testing results 

obtained from another laboratory to the 

proficiency testing program. 

(2) Suspends or limits the CLIA 

certificate for less than 1 year based on 

the criteria in § 493.1804(d), and also 

impose alternate 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) or (ii) 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 alternate sanctions in 

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

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

in the case of civil money penalties, 

§ 493.1834(d), when CMS determines 

that paragraph (b)(1) 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. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, Medicare 

Supplementary Medical Insurance Program) 

Dated: September 5, 2013. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: September 10, 2013. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

Note: The following Addendum will not 

appear in the Code of Federal Regulations. 

Addendum: Proposed Geographic 

Adjustment Factors (GAFs) for the 

FQHC PPS 

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

proposed rule, the proposed GAFs for the 

FQHC PPS are based on 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. These GAFs are 

subject to change in the final FQHC PPS rule 

based on more current data, including the 

finalized PFS GPCI and cost share weight 

values. 

Locality name GAF 

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

2 Alaska ......................................... 1.306 

3 Arizona ........................................ 0.984 

4 Arkansas ..................................... 0.919 

5 Anaheim/Santa Ana, CA ............. 1.122 

6 Los Angeles, CA ......................... 1.095 

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

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

9 San Francisco, CA ...................... 1.215 

10 San Mateo, CA ......................... 1.209 

11 Santa Clara, CA ........................ 1.203 

12 Ventura, CA .............................. 1.104 

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

14 Colorado .................................... 1.002 

15 Connecticut ............................... 1.066 


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Locality name GAF 

16 DC + MD/VA Suburbs .............. 1.120 

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

18 Fort Lauderdale, FL .................. 1.013 

19 Miami, FL .................................. 1.016 

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

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

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

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

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

25 Chicago, IL ................................ 1.032 

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

27 Suburban Chicago, IL ............... 1.040 

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

29 Indiana ...................................... 0.947 

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

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

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

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

34 Rest of Louisiana ...................... 0.929 

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

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

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

38 Rest of Maryland ....................... 1.023 

39 Metropolitan Boston .................. 1.081 

40 Rest of Massachusetts ............. 1.037 

41 Detroit, MI ................................. 1.009 

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

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

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

45 Metropolitan Kansas City, MO .. 0.968 

46 Metropolitan St Louis, MO ........ 0.974 

Locality name GAF 

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

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

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

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

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

52 Northern NJ ............................... 1.108 

53 Rest of New Jersey .................. 1.070 

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

55 Manhattan, NY .......................... 1.107 

56 NYC Suburbs/Long I., NY ......... 1.123 

57 Poughkpsie/N NYC Suburbs, 

NY ................................................. 1.038 

58 Queens, NY .............................. 1.122 

59 Rest of New York ...................... 0.965 

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

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

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

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

64 Portland, OR ............................. 1.024 

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

66 Metropolitan Philadelphia, PA ... 1.043 

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

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

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

70 South Carolina .......................... 0.945 

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

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

73 Austin, TX ................................. 1.001 

74 Beaumont, TX ........................... 0.941 

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

76 Dallas, TX ................................. 1.013 

Locality name GAF 

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

78 Galveston, TX ........................... 1.009 

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

80 Rest of Texas ............................ 0.952 

81 Utah ........................................... 0.945 

82 Vermont ..................................... 0.991 

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

84 Virgin Islands ............................ 1.000 

85 Seattle (King Cnty), WA ............ 1.083 

86 Rest of Washington .................. 1.003 

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

88 Wisconsin .................................. 0.972 

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

[FR Doc. 2013–22821 Filed 9–18–13; 2:00 pm] 

BILLING CODE 4120–01–P 


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