Regulatory Impact Analysis

Sole Community Hospital Final Rule

A. Overall Impact

The Department of Defense has examined the impacts of this final rule as required by 

Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 1980, Pub. L. 96- 354), the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104-4), and the Congressional Review Act (5 U.S.C. 804(2)).

1. Executive Order 12866

Executive Order 12866 (as amended by Executive Order 13258) directs 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). A regulatory 

impact analysis (RIA) must be prepared for major rules with economically significant effects 

($100 million or more in any 1 year).

We estimate that the effects of the SCH provisions that would be implemented by this 

rule would result in SCH revenue reductions exceeding $100 million in at least one year. We 

estimate the reduction in hospital revenues under the SCH reform for its first full year of 

implementation compared to expenditures in that same period without the proposed SCH 

changes, to be well below the $100 million level because of the transition features of the Final 

Rule. However, after several years in the transition period, the amount of revenue reductions 

will reach the $100 million per year threshold.

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 Regulatory Impact Analysis that, to the best of our ability, 

presents the costs and benefits of the rulemaking.

2. Regulatory Flexibility Act (RFA)

The RFA requires agencies to analyze options for regulatory relief of small businesses if 

a rule has a significant impact on a substantial number of small entities. For purposes of the 

RFA, small entities include small businesses, nonprofit organizations, and small governmental 

jurisdictions. Most hospitals are considered to be small entities, either by being nonprofit 

organizations or by meeting the Small Business Administration (SBA) definition of a small 

business (having revenues of $34.5 million or less in any one year). For purposes of the RFA, 

we have determined that all SCHs would be considered small entities according to the SBA size 

standards. Individuals and States are not included in the definition of a small entity. Therefore, 

this Final Rule would have a significant impact on a substantial number of small entities. The 

Regulatory Impact Analysis, as well as the contents contained in the preamble, also serves as the 

Final Regulatory Flexibility Analysis.

We examined the impact of an immediate implementation of the cost-base 

reimbursement system on SCHs. To reduce the impact on hospitals, a multi-year 

implementation was adopted, which was based on a maximum reduction each year for network 

and non-network SCHs. This ensures that there will be a manageable reduction in payments

each year for each hospital.

3. Unfunded Mandates

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies 

assess anticipated costs and benefits before issuing any rule whose mandates require spending in 

any one year of $100 million in 1995 dollars, updated annually for inflation. That threshold level 
is currently approximately $140 million. This Final Rule will not mandate any requirements for 

State, local, or tribal governments or the private sector 

4. Congressional Review Act. 5 U.S.C. 801.

Under the Congressional Review Act, a major rule may not take effect until at least 60 

days after submission to Congress of a report regarding the rule. A major rule is one that would 

have an annual effect on the economy of $100 million or more or have certain other impacts. 

This Final Rule is a major rule under the Congressional Review Act. 

B. Analysis of the Impact of SCH Reform

 1. The SCH reform encompasses all SCHs as defined by Medicare that have inpatient stays 

for TRICARE patients. It also includes hospitals classified by CMS as Essential Access 

Community Hospitals (EACH) because for payment purposes, CMS treats as an SCH any 

hospital that CMS designates as an EACH. In other words, EACHs are subject to the SCH 

reform in this final rule. There are two EACHs in existence: Via Christi Hospital in Pittsburg, 

Kansas; and Avera Queen of Peace Hospital in Mitchell SD. Both have submitted claims to 

TRICARE. Over a six month period, Via Christi hospital submitted about $309,000 in 

TRICARE inpatient claims and Avera Queen of Peach submitted about $270,000 in TRICARE 

inpatient claims 

 2. Hospitals that are paid by Medicare and TRICARE under a cost containment waiver are not 

included in the SCH Reform.

 3. Effects on SCHs.

 Table 1 shows the impact of revised SCH inpatient reimbursement during FY 2013. Table 2 

shows projected TRICARE reduction in reimbursement for the top 20 SCHs. Table 3 shows the 

full amount of the reduction without phase-in and transitional payments.
TABLE 1

Estimated Impact of SCH Reforms on TRICARE-allowed Amounts at Sole Community 

Hospitals During the FY 2013 First Year of Phase-In (with Transition Payments)

—excludes any General Temporary Military Contingency Payment Adjustments

Estimated Allowed 

Under Current Policy 

($M)

Allowed Amounts 

Under SCH Reform 

($M)

Reduction in Allowed 

Amounts ($M)

SCH Reform Allowed 

as Percent of Current 

Policy Allowed

$365 $328 $37 90%

TABLE 2

Impact of First Year for Top 20 Sole Community Hospitals

—excludes any General Temporary Military Contingency Payment Adjustments

HOSPITAL CITY STATE

Reduction in 

FY 2013 ($M)

Onslow Memorial Hospital Jacksonville FL 2.0

Rapid City Regional Hospital Rapid City SD 1.6

Cheyenne Regional Medical Center Cheyenne WY 1.6

Sierra Vista Regional Health Center Sierra Vista AZ 1.5

Beaufort County Memorial Hospital Beaufort SC 1.8

Carolina East Health System New Bern NC 1.6

Benefis Health System Great Falls MT 1.4

Yuma Regional Medical Center Yuma AZ 1.6

Trinity Medical Center Minot ND 1.1

Gerald Champion Hospital Alamogordo NM 0.7

Phelps County Regional Medical Center Rolla MO 0.7

Altru Hospital Grand Forks ND 0.7

Wayne Memorial Hospital Goldsboro NC 0.7

Samaritan Medical Center Watertown NY 1.5

Western Missouri Medical Center Warrensburg MO 0.6

Fairbanks Memorial Hospital Fairbanks AK 0.6

Lower Keys Medical Center Key West FL 0.6

Matsu Regional Hospital Palmer AK 0.5

Camden Medical Center St. Marys GA 0.5

Flagstaff Medical Center Flagstaff AZ 0.7
TABLE 3

Estimated Hypothetical FY 2013 Impact of Cost-Based Reimbursement on TRICARE-allowed 

Amounts at Sole Community Hospitals WITHOUT Transition Payments

—excludes any General Temporary Military Contingency Payment Adjustments

Current Policy 

($M)

Cost-based 

Reimbursement 

($M)

Reduction in TRICAREallowed Amounts 

($M)

Allowed Amount Under Costbased Reimbursement as Percent 

of Current Policy Allowed

$365 $157 $208 43%