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[Federal Register Volume 62, Number 220 (Friday, November 14, 1997)]
[Proposed Rules]
[Pages 61058-61065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29975]

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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN-0720-AA37

Civilian Health and Medical Program of the Uniformed Services 
(CHAMPUS); TRICARE Program; Reimbursement

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to revise certain requirements and 
procedures for reimbursement under the TRICARE program, the purpose of 
which is to implement a comprehensive managed health care delivery 
system composed of military medical treatment facilities and CHAMPUS. 
Issues addressed in this proposed rule include: implementation of 
changes made to the Medicare Prospective Payment System (PPS) upon 
which the CHAMPUS DRG-based payment system is modeled and required by 
law to follow wherever practicable, along with changes to make our DRG-
based payment system operate better; extension of the balance billing 
limitations currently in place for individual and professional 
providers to non-institutional, non-professional providers; adjusting 
the CHAMPUS maximum allowable charge (CMAC) rate in the small number of 
cases where the CMAC rate is less than the Medicare rate; and 
implementing the government-wide debarment rule where any provider 
excluded or suspended form CHAMPUS shall be excluded from all other 
programs and activities involving Federal financial assistance, such as 
Medicare or Medicaid, and adding violations of our balance billing or 
claims filing requirements to the list of provider actions considered 
violations of the TRICARE/CHAMPUS program.

DATES: Comments must be received on or before January 13, 1998.

ADDRESSES: Tricare Support Office (TSO), Program Development Branch, 
Aurora, CO 80045-6900.

FOR FURTHER INFORMATION CONTACT: Kathleen Larkin, Office of the 
Assistant Secretary of Defense (Health Affairs), telephone (703) 695-
3350.
    Questions regarding payment of specific claims under the CHAMPUS 
allowable charge method should be addressed to the appropriate TRICARE/
CHAMPUS contractor.

SUPPLEMENTARY INFORMATION: 

I. Proposed Changes Regarding The Champus DRG-Based Payment System

    The final rule published on September 1, 1987, (52 FR 32992) set 
forth the basic procedures used under the CHAMPUS DRG-based payment 
system. This was subsequently amended by final rules published on 
August 31, 1988 (53 FR 33461), October 21, 1988 (53 FR 41331), December 
16, 1988 (53 FR 50515), May 30, 1990 (55 FR 21863), and October 22, 
1990 (55 FR 42560). This rule proposes to amend 32 CFR 199 to conform 
to changes made to the Medicare Prospective Payment System (PPS) upon 
which the CHAMPUS DRG-based payment system is modeled and required by 
law to follow whenever practicable. In addition, the rule proposes to: 
eliminate the requirement for the physician attestation form and change 
the requirement for physician acknowledgment statements; clarify 
authorized payment reductions by managed care support contractors for 
noncompliance with required utilization review procedures and; limit 
the ambulatory surgery group payment rate to the amount that would be 
allowed if the services were provided on an inpatient basis.

A. Heart and Liver Transplants

    When we first implemented the CHAMPUS DRG-based payment system in 
1987, we exempted all services related to heart and liver 
transplantation. Although both of these types of transplants are 
subject to the Medicare PPS, we initially exempted them because at that 
time we had limited experience and claims data for them. We believed 
these limitations could significantly skew the relative weights we 
would calculate for such transplants.
    Since 1987 we have continued to collect data on these services. 
From the beginning, heart transplants were grouped to DRG 103 and 
exempted. For Fiscal Year 1991 the Health Care Financing Administration 
(HCFA) created DRG 480 for liver transplants, but we continued to 
exempt them.
    In our notice of updated rates and weights for Fiscal Year 1991, 
which was published on November 5, 1990 (55 FR 46545), we noted that we 
intended to consider including both heart and liver transplants in our 
DRG system in the future, and we invited any comments in that regard. 
We received none.
    Since we have enough claims data to calculate accurate weights for 
these transplants, we are proposing to end the DRG exemption for all 
CHAMPUS covered solid organ transplants for which there is an assigned 
DRG and enough data to calculate the DRG weight. Just as Medicare does, 
we will continue to exempt acquisition costs for all CHAMPUS covered 
solid organ transplants.

B. Payment Requests for Capital and Direct Medical Education Costs

    Initially we required that hospitals submit their request for 
payment of capital and direct medical education costs within three 
months of the end of the hospital's Medicare cost-reporting period. 
However, some hospitals encountered difficulties in meeting this 
deadline, because HCFA implemented changes which resulted in extensions 
to the filing deadline. Therefore, we often did not enforce our 
deadline, and as of October 1988 we eliminated the requirement 
entirely.
    We eliminated the requirement because we believed hospitals would 
submit their requests at the earliest possible time anyway. Also, we 
believed there would be no adverse impact on TRICARE/CHAMPUS. Neither 
of these has proven to be correct. We continually receive these 
requests well after the end of the Medicare cost-reporting period--in 
some cases several years later. As a result, it is necessary for our 
contractors to retain claims data in their systems indefinitely, so 
that they can verify the reported amounts when the requests are 
submitted. This is proving to be a very burdensome and costly 
requirement for our contractors.
    On June 27, 1995, HCFA published a final rule (60 FR 33137) 
extending the time frame providers have to file cost reports from no 
later than 3 months after the close of the period covered by the report 
to no later than 5 months after the close of that period. The rule also

[[Page 61059]]

changed the regulations for granting extensions to providers. Under the 
new regulation, an extension may be granted by the intermediary only 
when a provider's operations were significantly adversely affected due 
to extraordinary circumstances over which the provider had no control, 
such as flood or fire. We are proposing to adopt these same 
requirements for submitting requests for payment of capital and direct 
medical education costs with TRICARE/CHAMPUS.
    Currently, TRICARE/CHAMPUS has no deadline, other than the six year 
statute of limitations, for submitting payment requests for Medicare 
cost-reporting periods. In order to allow up to close out our data for 
these periods, we are proposing that any capital and direct medical 
education payment requests that fall within the six year statute of 
limitations and the effective date of this change must be submitted to 
the appropriate TRICARE/CHAMPUS contractor no later than 5 months after 
the effective date of this change.
    In addition, since capital and direct medical education costs are 
included in the national children's hospital differential, we are 
proposing to eliminate the clause allowing children's hospitals to 
request reimbursement of capital and direct medical education costs as 
an alternative to being paid the national differential.

C. Indirect Medical Education Adjustment Factor

    An indirect medical education (IDME) adjustment factor is 
calculated for all hospitals which have teaching programs approved 
under the Medicare regulation. This factor is calculated using a 
formula developed by HCFA (see our previous final rules for a 
discussion of the application of this formula to CHAMPUS), and is based 
on the number of interns and residents and the number of beds in the 
hospital. Each DRG-based payment is increased by this factor for that 
hopsital.
    Initially, the number of residents and interns for each hospital 
was derived from the most recently available audited HCFA cost report, 
and the number of beds was derived from the American Hospital 
Association Annual Survey of Hospitals. The factors have been updated 
annually based on data submitted by hospitals on the annual request for 
payment of capital and direct medical education costs.
    While this updating procedure ensures that hospitals' factors are 
as current as possible, it is dependent upon the hospitals' submission 
of requests for payment of capital and direct medical education costs. 
Since the crucial components (number of interns, residents and beds) 
can change from year to year, and since many hospitals do not submit 
requests for payment of capital and direct medical education costs, we 
believe it is necessary to establish an alternative updating method.
    We are proposing to use the Medicare adjustment factor for any 
hospital for which a CHAMPUS-specific factor has not been calculated 
based on the hospital's request for payment of capital and direct 
education costs. We will update the factors using the Medicare amounts 
as of October 1 of each year when we routinely update the DRG rates and 
weights. Any hospital which has not submitted a capital and direct 
medical education payment request to CHAMPUS since the previous October 
1, will be assigned the most recent Medicare adjustment factor.
    HCFA uses a slightly different formula than that used by CHAMPUS, 
and we are aware that this will result in a different adjustment factor 
than would otherwise be used. Nevertheless, we believe this is 
justified. When the Medicare factor is used, the difference is likely 
to be small. In addition, CHAMPUS accounts for a very small portion of 
most hospital's claims, and those hospitals which do not request 
payment of capital and direct medical education costs probably have 
few, if any, CHAMPUS admissions. Therefore, the financial impact of 
using the Medicare factor will be negligible. Yet it will ensure that 
the factors are kept current, so that factors which are no longer 
representative of a hospital's teaching program are not used 
indefinitely. And, of course, hospitals can ensure that a CHAMPUS-
specific factor is used simply by submitting a request for payment of 
capital and direct medical education costs.
    For hospitals which have indirect medical education factors for 
CHAMPUS but are not subject to the Medicare PPS, we will eliminate the 
factor if a CHAMPUS-specific factor cannot be calculated based on a 
current request from the hospital for payment of capital and direct 
medical education costs. The factor will be eliminated as of October 1 
if no capital and direct medical education payment request has been 
received since the previous October 1.
    In any case where a hospital submits a capital and direct medical 
education payment request after the Medicare factor has been 
implemented (or the factor has been eliminated for hospitals not 
subject to the Medicare PPS, including children's hospitals), the 
CHAMPUS-specific factor will become effective in accordance with 
existing requirements. In no case will the CHAMPUS-specific factor be 
effective retroactively.
    For children's hospitals which have indirect medical education 
factors for CHAMPUS, the factor will be eliminated as of October 1 of 
each year if during the past year, the hospital did not provide the 
contractor with updated information on the number of its interns, 
residents and beds. Since amounts for capital and direct medical 
education are included in the national children's hospital 
differential, children's hospitals are not required to submit capital 
and direct medical education payment requests. Because of this, the 
contractor is not able to update the CHAMPUS-specific factor unless 
requested by the children's hospital.
    For Fiscal Year 1998, HCFA revised its indirect medical education 
adjustment formula to gradually reduce the current level of IDME 
adjustment over the next several years. Since the IDME formula used by 
CHAMPUS does not include disproportionate share hospitals (DSHs), the 
variables in the formula are different from Medicare's however, the 
percentage reductions that will be applied to Medicare's formula are 
being adopted by CHAMPUS.

D. Long Stay Outliers

    For Fiscal Year 1998, HCFA eliminated payment for day outliers, 
referred to as long stay outliers under CHAMPUS. CHAMPUS also 
eliminated long stay outliers for all cases except children's hospitals 
and neonates for Fiscal Year 1998. We are proposing to eliminate the 
long stay outliers for children's hospitals and neonates for Fiscal 
Year 1999.
    For Fiscal Year 1993, HCFA changed the payment procedures for day 
outlier per diems under the PPS. Prior to this change, the day outlier 
per diem was calculated using the DRGs geometric mean length of stay 
and a marginal payment factor of 60 percent. For discharges occurring 
on or after October 1, 1992, HCFA revised the day outlier payment 
policy to reflect that the per diem payment would be calculated using 
the arithmetic mean and a marginal payment factor of 55 percent. This 
meant that the per diem day outlier payment under the PPS for operating 
costs would be determined by dividing the standard DRG payment by the 
arithmetic mean length of stay for that DRG, and multiplying the result 
by 55 percent. The change in the payment policy for day outliers 
provided better protection against costly cases for hospitals, while 
maintaining a more appropriate level of payment for cases

[[Page 61060]]

with extraordinarily long lengths of stay that were not also 
extraordinarily costly.
    CHAMPUS did not adopt the PPS per diem day outlier changes at that 
time because it required a regulatory change and there was a moratorium 
on publication of rules. Over the years, HCFA has reduced the marginal 
payment factor for day outliers from 55 percent to 47 percent to 44 
percent, to 33 percent, to the point of eliminating payment of day 
outliers, effective with discharges occurring after September 30, 1997. 
CHAMPUS adopted the day outlier marginal payment factor of 47 percent 
for Fiscal Year 1995, 44 percent for Fiscal Year 1996, and 33 percent 
for Fiscal Year 1997, but has not adopted the arithmetic mean to 
calculate the per diem payment. As a result, CHAMPUS has been paying 
more than Medicare on claims qualifying for long-stay day outliers. 
Although we eliminated the long stay outliers for all cases except 
children's hospitals and neonates for Fiscal Year 1998, and are 
proposing to eliminate the long stay outliers for them in Fiscal Year 
1999, we are still proposing to adopt the arithmetic mean to calculate 
the per diem, in order to be consistent with the Medicare PPS in 
calculating payments for transfer cases.

E. Cost Outliers

    Beginning in Fiscal Year 1998, HCFA adopted a requirement that in 
determining the additional payment for IME (referred to as IDME under 
CHAMPUS), the IME adjustment factor will only be applied to the base 
DRG payment. In addition, the fixed loss cost outlier threshold is 
based on the sum of the DRG payment plus IME plus a fixed dollar 
amount. CHAMPUS adopted this requirement in Fiscal Year 1998 for all 
cases except children's hospitals and neonates. We are proposing to 
adopt this same requirement for children's hospitals and neonates 
Fiscal Year in 1999.

F. Payment for Transfer Cases

    Beginning in Fiscal Year 1996, HCFA adopted a graduated per diem 
payment methodology for transfer cases. As of October 1, 1996, CHAMPUS 
adopted this payment methodology; however, we elected not to offset 
these additional payments with reductions in outlier payments. Using 
this payment methodology, CHAMPUS will pay transferring hospitals twice 
the per diem amount for the first day of any transfer stay plus the per 
diem amount for each of the remaining days before transfer, up to the 
full DRG amount. For neonatal cases, other than normal newborns, the 
transferring hospital will be paid twice the per diem amount for the 
first day of any transfer stay plus 125 percent of the per diem rate 
for all remaining days before transfer, up to the full DRG amount. This 
proposed change will allow hospitals to be compensated more 
appropriately for the treatment they furnish to patients before 
transfer. Transferring hospitals will continue to be paid in full for 
discharges classified into DRG 456 (burns, transferred to another acute 
care facility or DRG 601 (neonate, transferred less or equal to 4 days 
old).

G. Elimination of Separate Adjusted Standardized Amounts for Rural 
Areas

    Beginning in Fiscal Year 1995, HCFA's average standardized amounts 
for hospitals located in ``rural'' areas were required to be equal to 
the average standardized amount for hospitals located in ``other 
urban'' areas. Based on this, separate national average standardized 
amounts for ``other urban'' and ``rural'' areas no longer existed. As 
of Fiscal Year 1995, CHAMPUS no longer differentiated between ``other 
urban'' and ``rural'' areas. The adjusted standardized amounts for 
``other urban'' and ``rural'' areas are now listed as ``other'' areas.

H. Payment for Blood Clotting Factor

    For Fiscal Year 1994, HCFA reinstated payments for the cost of 
administering blood clotting factor to beneficiaries who have 
hemophilia through discharges occurring before October 1, 1994. CHAMPUS 
also reinstated payments for the cost of administering blood clotting 
factor through discharges occurring before October 1, 1994. For Fiscal 
Year 1998, HCFA again reinstated payments for the cost of administering 
blood clotting factor. CHAMPUS also reinstated payments for discharges 
occurring on or after October 1, 1997.

I. Effect of Change of Ownership on Exclusion of Long-Term Care 
Hospitals

    Beginning in Fiscal Year 1996, HCFA adopted new requirements for 
certain long-term care hospitals excluded from the PPS. The 
requirements specify that if a hospital undergoes a change of ownership 
at the start of a cost reporting period or at any time within the 
preceding 6 months, the hospital may be excluded from the prospective 
payment system as a long-term care hospital for a cost reporting period 
if, for the 6 months immediately preceding the start of the period 
(including time before the change of ownership), the hospital has the 
required average length of stay, continuously operated as a hospital, 
and continuously participated as a hospital in Medicare. CHAMPUS also 
adopted these new requirements beginning in Fiscal Year 1996.

J. Empty and Low-Volume DRGs

    Currently, 32 CFR 199.14 (a)(1)(iii)(B) specifies that the Medicare 
weight shall be used for any DRG with less than 10 occurrences in the 
CHAMPUS database. Since the CHAMPUS weights are used by military 
treatment facilities and by an increasingly large number of state 
Medicaid programs, the direct substitution of the Medicare weight for 
the CHAMPUS weight, causes inconsistencies. These inconsistencies may 
pose more of a problem for other payors than it does for CHAMPUS, 
particularly if they have more cases in the DRG categories where the 
substitutions have occurred. Because of these inconsistencies, we are 
proposing that the Director, TSO, or designee, has the authority to 
consider alternative methods for estimating CHAMPUS weights in these 
low-volume DGR categories.

K. Hospitals Within Hospitals

    For Fiscal Year 1998, HCFA established additional criteria for 
excluding from the PPS, long-term care hospitals that occupy space in 
the same building or on the same campus as another hospital, sometimes 
called ``hospitals within hospitals.'' The additional criteria extends 
the hospital within hospital criteria to excluded hospitals other than 
long-term care hospitals. CHAMPUS also adopted these requirements 
beginning in Fiscal Year 1998.

II. Proposed Changes Regarding Elimination of Physician Attestation 
Requirement

    On September 1, 1995, Medicare eliminated the requirement for the 
physician attestation form that requires doctors to certify the 
accuracy of all diagnoses and procedures before submitting claims for 
payment. In addition, instead of requiring a physician to sign an 
acknowledgment statement every year, Medicare changed its regulations 
to require a physician need only sign the acknowledgment statement upon 
receiving admitting privileges at a hospital. CHAMPUS adopted these 
requirements effective the same date.

III. Proposed Changes Regarding Clarification of Payment Reduction for 
Noncompliance with Required Utilization Review Procedures

    To cover those situations where network providers have agreements 
with the managed care contractors for denial of payments for the 
provider's

[[Page 61061]]

failure to obtain the required preauthorization, we are proposing to 
add the words ``at least'' before the words ``ten percent''. By adding 
the words ``at least'', the managed care support contractor is 
authorized to apply reductions in payments in accordance with the 
network provider's contract.

IV. Clarification Regarding List of Ambulatory Surgery Procedures

    On October 1, 1993, we published a final rule (58 FR 51227) which 
included prospective payment procedures for ambulatory surgery. These 
procedures were modeled on the Medicare methodology. In that rule, we 
stated that ``A list of ambulatory surgery procedures will appear as 
Attachment 2 (to be published later) to this preamble.'' We 
subsequently published the list of procedures on October 15, 1993, (58 
FR 53411).
    The list of procedures published on October 15, 1993, was not made 
part of the Code of Federal Regulations (CFR) at that time, and it was 
not, and continues not to be, our intention that it be part of the CFR. 
However, the final rule did not make this clear. The list of procedures 
to be ``published periodically by the Director, OCHAMPUS,'' as cited in 
section 199.14 paragraph (d)(1), is contained in the TRICARE/CHAMPUS 
Policy Manual.

V. Proposed Changes Regarding Limits On Ambulatory Surgery Group 
Payment Rates

    Effective November 1, 1994, CHAMPUS identified a number of 
procedures which can be performed safely and effectively as ambulatory 
surgery and established prospective payment procedures for reimbursing 
these services. Ambulatory surgery often is less disruptive to the 
patient's life than an inpatient stay. It also provides a less 
expensive alternative to an inpatient stay, since the patient does not 
require a hospital room and all the costs associated with it. As a 
result, TSO wants to encourage the use of ambulatory surgery whenever 
it is reasonable, but we do not believe it ever should be more 
expensive than an inpatient stay. Therefore, we are adding a provision 
that gives discretion to the Director, TSO, to limit the ambulatory 
surgery group payment rate to the amount that would be allowed if the 
services were provided on an inpatient basis. To calculate the 
allowable inpatient amount we will multiply the applicable DRG relative 
weight times the national large urban adjusted standardized amount 
(ASA). We will use the large urban ASA rather than the ``other area'' 
ASA because it is higher and will not economically disadvantage any 
provider, and we expect that most ambulatory surgery centers are 
located in large urban areas.

VI. Proposed Changes Regarding Balance Billing

    Section 731 of the National Defense Authorization Act for Fiscal 
Year 1996, revised 10 U.S.C. 1079(h) which provides the statutory basis 
for limits on balance billing of CHAMPUS beneficiaries established in 
section 199.14(h)(1)(i)(D). Section 731 extends the balance billing 
limit authority to non-institutional, non-professional providers, such 
as clinical laboratories and ambulance companies.
    This paragraph explains that non-institutional, non-professional 
providers will be limited in the amount they may bill a TRICARE/
CHAMPUS-eligible beneficiary an actual charge in excess of the 
allowable amount. This provides financial protection for our 
beneficiaries by preventing excessively high billing by providers by 
establishing the balance billing limit to these new categories of 
providers as the same percentage as that used for TRICARE/CHAMPUS 
professional providers: 115 percent of the allowable charge. In order 
to provide flexibility to continue CHAMPUS benefits in special 
circumstances in which a beneficiary may feel strongly about using a 
particular provider, notwithstanding high fees, the proposed rule 
states that the limitation may be waived on a case-by-case basis.

VII. Proposed Changes Regarding CMAC Rates

    CHAMPUS policy, based on Congressional enactment, is to set CHAMPUS 
Maximum Allowable Charge (CMAC) rates comparable to Medicare rates. For 
almost all procedure codes, the CMAC rate has been reduced to equal the 
Medicare rate or is in the process of being phased down to that level. 
For a very small number of procedures, for unusual reasons or 
idiosyncrasies of the data used for calculations, however, the CMAC 
rate is less than the Medicare rate. We propose to establish a special 
rule for these cases to permit an increase in the CMAC up to the 
Medicare rate. This is based on the authority of 10 U.S.C. 1079(h)(4), 
which allows for exceptions to the normal statutory payment limitation 
if DoD determines it necessary to assure that beneficiaries have 
adequate access to health care services. Because the Medicare rates are 
products of a system that reflects careful governmental judgments of 
factors suggesting fair payment rates, we propose to adopt these rates 
as indicators of payment levels associated with adequate access. In 
addition, under the applicable Appropriations Act general provision, 
DoD may increase CMAC rates that are lower than Medicare rates by 
reference to appropriate economic index data similar to that used by 
Medicare. We have heretofore utilized only the Medicare Economic Index 
in this connection, but we propose to adopt an additional Medicare 
indicator of economic factors, namely the data used for the Medicare 
fees determination, to adjust the rates in these special cases. This is 
set forth in the proposed new section 199.14(h)(1)(iii)(D).

VIII. Proposed Changes Regarding Government-Wide Effect Of Exclusion Or 
Suspension From Champus

    Section 2455 of the Federal Acquisition Streamlining Act of 1994, 
Pub. L. 103-355, October 13, 1994, and Executive Order 12549, 
``Debarment and Suspension from Federal Financial and Nonfinancial 
Assistance Programs,'' February 18, 1986, require that any entity 
debarred, suspended, or otherwise excluded under any program or 
activity involving Federal financial assistance shall also be debarred, 
suspended, or otherwise excluded from all other programs and activities 
involving Federal financial assistance. We are restating this 
requirement in the context specific to CHAMPUS through a proposed 
addition to section 199.9. The proposed addition provides that any 
health care provider excluded or suspended from CHAMPUS shall, as a 
general rule, also be debarred, suspended, or otherwise excluded from 
all other programs and activities involving the Federal financial 
assistance. Among these other such programs are Medicare and Medicaid. 
Other regulations related to this authority are 32 CFR Part 25 (DoD 
rules) and 45 CFR Part 76 (HHS rules).
    In conjunction with implementation of this government-wide 
debarment rule, we are strengthening the linkage between CHAMPUS and 
these other programs on the important issues of submittal of claims and 
balance billing by providers. Current regulations generally require 
providers to file claims on behalf of beneficiaries and to limit 
balance billing to 15% greater than the CHAMPUS Maximum Allowable 
Charge (CMAC). These regulations also provide that violations are 
grounds for exclusion or suspension from CHAMPUS. We are proposing to 
reinforce these compliance provisions by adding violations of these 
requirements to the list of provider actions that are considered abuse 
of the program for purposes of termination,

[[Page 61062]]

suspension and other administrative remedies.
    A principal effect of these proposed revisions is that any provider 
who fails to file CHAMPUS claims or exceeds the balance billing limits 
risks not only exclusion or suspension from CHAMPUS, but also exclusion 
or suspension from Medicare, Medicaid, and other Federal programs.

IX. Regulatory Procedures

    Executive Order 12866 requires certain regulatory assessments for 
any ``significant regulatory action,'' defined as one which would 
result in an annual effect on the economy of $100 million or more, or 
have other substantial impacts.
    The Regulatory Flexibility Act (RFA) requires that each Federal 
agency prepare, and make available for public comment, a regulatory 
flexibility analysis when the agency issues a regulation which would 
have a significant impact on a substantial number of small entities.
    This is not a significant regulatory action under the provisions of 
Executive Order 12866, and it would not have a significant impact on a 
substantial number of small entities.
    Pursuant to the Paperwork Reduction Act of 1995, the reporting 
provisions of this proposed rule have been submitted to OMB for review 
under 3507(d) of the Act.
    In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction 
Act of 1995, the Office of the Assistant Secretary of Defense (Health 
Affairs) announces the proposed public information collection and seeks 
public comment on the provisions thereof. Comments are invited on: (1) 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information shall have any practical utility; (2) the accuracy of 
the agency's estimated burden of the proposed information collection; 
(3) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (4) ways to minimize the burden of the 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology.
    The collection of information allows TRICARE to collect the 
information necessary to properly reimburse institutional providers 
based on diagnosis-related groups (DRGs) for their share of these 
costs. The collection of this information is authorized by 32 CFR 
199.14(a)(1)(G)(1) and (2). The CHAMPUS DRG-based payment system is 
modeled on the Medicare Prospective Payment System (PPS) and was 
implemented on October 1, 1987.
    Affected Public: Individuals; Business or Other For Profit.
    Annual Burden Hours: 5,532.
    Number of Respondents: 5,400.
    Responses Per Respondent: 1.
    Average Burden Per Response: 5 minutes for physicians, 1 hour for 
institutions.
    Frequency: On occasion.
    Respondents are institutional providers and admitting physicians. 
Institutional providers are requesting reimbursement for allowed 
capital and direct medical education costs from the TRICARE/CHAMPUS 
contractor. The information can be submitted in any form, most likely 
in the form of a letter. The contractor will calculate the TRICARE/
CHAMPUS share of capital and direct medical education costs and make a 
lump-sum payment to the hospital.
    Physicians sign a physician acknowledgement, maintained by the 
institution, at the time the physician is granted admitting privileges. 
This acknowledgement indicates the physician understands the importance 
of a correct medical record, and misrepresentation may be subject to 
penalties.
    Comments on these requirements should be submitted to the Office of 
Information and Regulatory Affairs, OMB, 725 17th Street, N.W., 
Washington, DC 20503, marked ``Attention Desk Officer for Department of 
Defense, Health Affairs.'' Copies should be sent to the Office of the 
Assistant Secretary of Defense (Health Affairs), 1200 Pentagon, 
Washington, DC 20301-1200, Attention: Kathleen Larkin. When the 
Department of Defense promulgates the Final Rule, the Department will 
respond to comments by OMB or the public regarding the information 
collection provisions of the rule.
    The is a proposed rule. Public comments are invited. All comments 
will be considered. A discussion of the major issues raised by public 
comments will be included with issuance of the final rule, anticipated 
approximately 60 days after the end of the comment period.

List of Subjects in 32 CFR Part 199

    Administrative practice and procedure, Claims, Fraud, Health care, 
Health insurance, individuals with disabilities, Military personnel.

    Accordingly, 32 CFR Part 199 is proposed to be amended as follows:

PART 199--[AMENDED]

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

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

    2. Section 199.9 is proposed to be amended by adding new paragraph 
(m) to read as follows:

Sec. 199.9  Administrative remedies for fraud, abuse, and conflict of 
interest.

* * * * *
    (m) Government-wide effect of exclusion or suspension from CHAMPUS. 
As provided by section 2455 of the Federal Acquisition Streamlining Act 
of 1994, Pub. L. 103-355, October 13, 1994, and Executive Order 12549, 
``Debarment and Suspension from Federal Financial and Nonfinancial 
Assistance Programs,'' February 18, 1986, any health care provider 
excluded or suspended from CHAMPUS under this section shall, as a 
general rule, also be debarred, suspended, or otherwise excluded from 
all other programs and activities involving Federal financial 
assistance. Among the other programs for which this debarment, 
suspension, or exclusion shall operate are the Medicare and Medicaid 
programs. This debarment, suspension, or termination requirement is 
subject to limited exceptions in the regulations governing the 
respective Federal programs affected.

    Note: Other regulations related to this government-wide 
exclusion or suspension authority are 32 CFR part 25 and 45 CFR part 
76.

    3. Section 199.14 is proposed to be amended by revising the first 
sentence of (a)(1) introductory text, and paragraphs 
(a)(1)(i)(C)(6)(iv), (a)(1)(ii)(C) (2), (3), (4) and (10) first 
sentence, (a)(1)(ii)(D)(4), redesignating paragraphs (a)(1)(ii)(D)(5) 
through (a)(1)(ii)(D)(8) as (a)(1)(ii)(D)(6) through (a)(1)(ii)(D)(9), 
revising (a)(1)(iii)(a)(3), (a)(1)(iii)(B), (a)(1)(iii)(D) (1), (2) and 
(5), (a)(1)(iii)(E)(1)(i) (A) and (B), (a)(1)(iii)(E)(1)(ii) (A) and 
(B), (a)(1)(iii)(G)(3) introductory text, (d)(3)(iv), and (h) 
introductory text, and by adding new paragraphs (a)(1)(ii)(D)(5), 
(a)(1)(iii)(E)(3) (i), (ii), (iii), (iv), and (v), and (h)(1)(iii)(D), 
to read as follows:

Sec. 199.14  Provider reimbursement methods.

* * * * *
    (a) * * *
    (1) CHAMPUS Diagnosis Related Group (DRG)-based payment system. 
Under the CHAMPUS DRG-based payment system, payment for the

[[Page 61063]]

operating costs of inpatient hospital service furnished by hospitals 
subject to the system is made on the basis of prospectively-determined 
rates and applies on a per discharge basis using DRGs. * * *
    (i) * * *
    (C) * * *
    (6) * * *
    (iv) Payment to a hospital transferring an inpatient to another 
hospital. If a hospital subject to the CHAMPUS DRG-based payment system 
transfers an inpatient to another such hospital, the transferring 
hospital shall be paid a per diem rate (except that in neonatal cases, 
other than normal newborns, the hospital will be paid at 125 percent of 
that per diem rate), as determined under instructions issued by TSO, 
for each day of the patient's stay in that hospital, not to exceed the 
DRG-based payment that would have been paid if the patient had been 
discharged to another setting. For admissions occurring on or after 
October 1, 1995, the transferring hospital shall be paid twice the per 
diem rate for the first day of any transfer stay, and the per diem 
amount for each subsequent day up to the limit described in this 
paragraph.
* * * * *
    (ii) * * *
    (C) * * *
    (2) All services related to solid organ acquisition for CHAMPUS 
covered transplants by CHAMPUS-authorized transplantation centers.
    (3) All services related to heart and liver transplantation for 
admissions prior to October 1, 1998, which would otherwise be paid 
under DRG 103 and 480, respectively.
    (4) All services related to CHAMPUS covered solid organ 
transplantations for which there is no DRG assignment.
* * * * *
    (10) For admissions occurring on or after October 1, 1990, and 
before October 1, 1994, and for discharges occurring on or after 
October 1, 1997, the costs of blood clotting factor for hemophilia 
patients. * * *
    (D) * * *
    (4) Long-term hospitals. A long-term hospital which is exempt from 
the Medicare prospective payment system is also exempt from the CHAMPUS 
DRG-based payment system. In order for a long-term hospital which does 
not participate in Medicare to be exempt from the CHAMPUS DRG-based 
payment system, it must meet the same criteria (as determined by the 
Director, TSO, or a designee) as required for exemption from the 
Medicare Prospective Payment System as contained in Sec. 412.23 of 
title 42 CFR.
    (5) Hospitals within hospitals. A hospital within a hospital which 
is exempt from the Medicare prospective payment system is also exempt 
from the CHAMPUS DRG-based payment system. In order for a hospital 
within a hospital which does not participate in Medicare to be exempt 
from the CHAMPUS DRG-based payment system, it must meet the same 
criteria (as determined by the Director, TSO, or a designee) as 
required for exemption from the Medicare Prospective Payment System as 
contained in Sec. 412.22 and the criteria for one or more of the 
excluded hospital classifications described in Sec. 412.23 of Title 42 
CFR.
* * * * *
    (iii) * * *
    (A) * * *
    (3) Indirect medical education standardization. The charges shall 
be standardized for the cost effects of indirect medical educational 
factors. If the Medicare adjustment factor was used in calculating a 
teaching hospital's indirect medical education adjustment factor, the 
Medicare factor shall be used when standardizing the charges.
* * * * *
    (B) Empty and low-volume DRGs. For any DRG with less than ten (10) 
occurrences in the CHAMPUS database, the Director, TSO, or designee, 
has the authority to consider alternative methods for estimating 
CHAMPUS weights in these low-volume DRG categories.
* * * * *
    (D) * * *
    (1) Differentiate large urban and other area charges. All charges 
in the database shall be sorted into large urban and other area groups 
(using the same definitions for these categories used in the Medicare 
program).
    (2) Indirect medical education standardization. The charges shall 
be standardized for the cost effects of indirect medical education 
factors. If the Medicare adjustment factor was used in calculating a 
teaching hospital's indirect medical education adjustment factor, the 
Medicare factor shall be used when standardizing the charges.
* * * * *
    (5) Preliminary base year standardized amount. A preliminary base 
year standardized amount shall be calculated by summing all costs in 
the database applicable to the large urban or other area group and 
dividing by the total number of discharges in the respective group.
* * * * *
    (E) * * *
    (1) * * *
    (i) * * *
    (A) Short-stay outliers. Any discharge with a length-of-stay (LOS) 
less than 1.94 standard deviations from the DRG's arithmetic LOS shall 
be classified as a short-stay outlier. Short-stay outliers shall be 
reimbursed at 200 percent of the per diem rate for the DRG for each 
covered day of the hospital stay, not to exceed the DRG amount. The per 
diem rate shall equal the DRG amount divided by the arithmetic mean 
length-of stay for the DRG.
    (B) Long-stay outliers. Any discharge (except for neonatal services 
and services in children's hospitals) which has a length-of-stay (LOS) 
exceeding a threshold established in accordance with the criteria used 
for the Medicare Prospective Payment System as contained in 42 CFR 
412.82 shall be classified as a long-stay outlier. Any discharge for 
neonatal services or for services in a children's hospital which has a 
LOS exceeding the lesser of 1.94 standard deviations or 17 days from 
the DRG's arithmetic mean LOS also shall be classified as a long-stay 
outlier. Long-stay outliers shall be reimbursed the DRG-based amount 
plus a percentage (as established for the Medicare Prospective Payment 
System) of the per diem rate for the DRG for each covered day of care 
beyond the long-stay outlier threshold. The per diem rate shall equal 
the DRG amount divided by the arithmetic mean LOS for the DRG. For 
admissions on or after October 1, 1997, the long stay outlier has been 
eliminated for all cases except children's hospitals and neonates. For 
admissions on or after October 1, 1998, the long stay outlier has been 
eliminated for children's hospitals and neonates.
    (ii) * * *
    (A) Cost outliers except those in children's hospitals or for 
neonatal services. Any discharge which has standardized costs that 
exceed a threshold established in accordance with the criteria used for 
the Medicare Prospective Payment System as contained in 42 CFR 412.84 
shall qualify as a cost outlier. The standardized costs shall be 
calculated by multiplying the total charges by the factor described in 
Sec. 199.14(a)(1)(iii)(D)(4) and adjusting this amount for indirect 
medical education costs. Cost outliers shall be reimbursed the DRG-
based amount plus a percentage (as established for the Medicare 
Prospective Payment System) of all costs exceeding the threshold. 
Effective with admissions occurring on or after October 1, 1997, the 
standardized costs are no longer adjusted for indirect medical 
education costs.

[[Page 61064]]

    (B) Cost outliers in children's hospitals and for neonatal 
services. Any discharge for services in a children's hospital or for 
neonatal services which has standardized costs that exceed a threshold 
of the greater of two times the DRG-based amount or $13,800 shall 
qualify as a cost outlier. The standardized costs shall be calculated 
by multiplying the total charges by the factor described in 
Sec. 199.14(a)(1)(iii)(D)(4) (adjusted to include average capital and 
direct medical education costs) and adjusting this amount for indirect 
medical education costs. Cost outliers for services in children's 
hospitals and for neonatal services shall be reimbursed the DRG-based 
amount plus a percentage (as established for the Medicare Prospective 
Payment System) of all costs exceeding the threshold. Effective with 
admissions occurring on or after October 1, 1998, the cost outlier 
thresholds for children's hospitals and neonatal services are the same 
as other hospitals and the standardized costs are no longer adjusted 
for indirect medical education costs.
* * * * *
    (3) * * *
    (i) The indirect medical education adjustment factor is calculated 
for all hospitals which have teaching programs approved under the 
Medicare regulation. The factor is based on the number of interns, 
residents and beds in the hospital. Each DRG-based payment is increased 
by this factor for that hospital. The factors are updated yearly based 
on data submitted by hospitals on the annual request for payment of 
capital and direct medical education costs.
    (ii) To ensure the indirect medical education factors are as 
current as possible, the Medicare adjustment factor will be used for 
any hospital for which a CHAMPUS-specific factor has not been 
calculated based on the hospital's request for payment of capital and 
direct medical education costs. The factors will be updated using the 
Medicare amounts as of October 1 of each year; the same time the DRG 
rates and weights are updated. Any hospital which has not submitted a 
capital and direct medical education payment request to CHAMPUS since 
the previous October 1, will be assigned the most recent Medicare 
adjustment factor.
    (iii) For hospitals which have indirect medical education factors 
for CHAMPUS but are not subject to the Medicare prospective payment 
system, the indirect medical education adjustment factor will be 
eliminated if a CHAMPUS-specific factor cannot be calculated based on a 
current request from the hospital for payment of capital and direct 
medical education costs. The factor will be eliminated as of October 1 
if no capital and direct medical education payment request has been 
received since the previous October 1.
    (iv) For children's hospitals which have indirect medical education 
factors for CHAMPUS, the factor will be eliminated as of October 1 of 
each year if during the past year, the hospital did not provide the 
contractor with updated information on the number of interns, residents 
and beds. Since amounts for capital and direct medical education are 
included in the national children's hospital differential, children's 
hospitals are not required to submit capital and direct medical 
education payment requests. Because of this, the contractor is not able 
to update the CHAMPUS-specific factor unless requested by the 
children's hospital.
    (v) In any case where a hospital submits a capital and direct 
medical education payment request after the Medicare factor has been 
implemented (or the factor has been eliminated for hospitals not 
subject to the Medicare prospective payment system, including 
children's hospitals), the CHAMPUS specific factor will become 
effective in accordance with existing requirements. In no case will the 
CHMPUS-specific factor be effective retroactively.
* * * * *
    (G) * * *
    (3) Information necessary for payment of capital and direct medical 
education costs. All hospitals subject to the CHAMPUS DRG-based payment 
system, except for children's hospitals, may be reimbursed for allowed 
capital and direct medical education costs by submitting a request to 
the CHAMPUS contractor. Such request shall be filed with CHAMPUS on or 
before the last day of the fifth month following the close of the 
hospitals' cost reporting period, and shall cover the one-year period 
corresponding to the hospital's Medicare cost-reporting period. The 
first such request may cover a period of less than a full year--from 
the effective date of the CHAMPUS DRG-based payment system to the end 
of the hospital's Medicare cost-reporting period. All costs reported to 
the CHAMPUS contractor must correspond to the costs reported on the 
hospital's Medicare cost report. An extension of the due date for 
filing the request may only be granted if an extension has been granted 
by HCFA due to a provider's operations being significantly adversely 
affected due to extraordinary circumstances over which the provider has 
no control, such as flood or fire. (If these costs change as a result 
of a subsequent audit by Medicare, the revised costs are to be reported 
to the hospital's CHAMPUS contractor within 30 days of the date the 
hospital is notified of the change.) The request must be signed by the 
hospital official responsible for verifying the amounts and shall 
contain the following information.
* * * * *
    (d) * * *
    (3) * * *
    (iv) Step 4: standard payment amount per group. The standard 
payment amount per group will be the volume weighted median per 
procedure cost for the procedures in that group. For cases in which the 
standard payment amount per group exceeds the CHAMPUS-determined 
inpatient allowable amount, the Director, TSO, or his designee, may 
make adjustments.
* * * * *
    (h) Reimbursement of individual health care professionals and other 
non-institutional, non-professional providers. The CHAMPUS-determined 
reasonable charge (the amount allowed by CHAMPUS) for the service of an 
individual health care professional or other non-institutional, non-
professional provider (even if employed by or under contract to an 
institutional provider) shall be determined by one of the following 
methodologies, that is, whichever is in effect in the specific 
geographic location at the time covered services and supplies are 
provided to a CHAMPUS beneficiary.
    (1) * * *
    (iii) * * *
    (D) Special rule for cases in which the national CMAC is less than 
the Medicare rate. In any case in which the national CMAC calculated in 
accordance with paragraphs (h)(1) (i) through (iii) of this section is 
less than the Medicare rate, the Director, TSO, may determine that the 
use of the Medicare Economic Index under paragraph (h)(1)(iii)(B) of 
this section will result in a CMAC rate below the level necessary to 
assure that beneficiaries will retain adequate access to health care 
services. Upon making such a determination, the Director, TSO, may 
increase the national CMAC to a level not greater than the Medicare 
rate.
* * * * *
    4. Section 199.15 is proposed to be amended by revising paragraphs 
(b)(4)(iii)(B), (c)(2), (d)(2)(iii) and (e)(3) (i) and (ii), to read as 
follows:

Sec. 199.15  Quality and utilization review peer review organization 
program.

* * * * *

[[Page 61065]]

    (b) * * *
    (4) * * *
    (iii) * * *
    (B) In a case described in paragraph (b)(4)(iii)(A) of this 
section, reimbursement will be reduced, unless such reduction is waived 
based on special circumstances. The amount of this reduction shall be 
at least ten percent of the amount otherwise allowable for services for 
which preauthorization (including preauthorization for continued stays 
in connection with concurrent review requirements) approval should have 
been obtained, but was not obtained.
* * * * *
    (c) * * *
    (2) The physician acknowledgment required for Medicare under 42 CFR 
412.46 is also required for CHAMPUS as a condition for payment and may 
be satisfied by the same statement as required for Medicare, with 
substitution or addition of ``CHAMPUS'' when the word ``Medicare'' is 
used.
* * * * *
    (d) * * *
    (2) * * *
    (iii) Review for physician's acknowledgment of annual receipt of 
the penalty statement as contained in the Medicare regulation at 42 CFR 
412.46.
* * * * *
    (e) * * *
    (3) * * *
    (i) If the diagnostic and procedural information in the patient's 
medical record is found to be inconsistent with the hospital's coding 
or DRG assignment, the hospital's coding on the CHAMPUS claim will be 
appropriately changed and payments recalculated on the basis of the 
appropriate DRG assignment.
    (ii) If the information stipulated under paragraph (d)(2) of this 
section is found not to be correct, the PRO will change the coding and 
assign the appropriate DRG on the basis of the changed coding.
* * * * *
    Dated: November 7, 1997.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 97-29975 Filed 11-13-97; 8:45 am]
BILLING CODE 5000-04-M
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