[Federal Register Volume 80, Number 16 (Monday, January 26, 2015)]
[Proposed Rules]
[Pages 3926-3933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01242]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[DOD-2012-HA-0146]
RIN 0720-AB47


TRICARE; Reimbursement of Long Term Care Hospitals

AGENCY: Office of the Secretary, Department of Defense (DoD).

ACTION: Proposed rule.

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SUMMARY: This proposed rule requests public comment on proposed 
implementation for Long Term Care Hospitals (LTCHs) the statutory 
provision at title 10, United States Code (U.S.C.), section 1079(j)(2) 
that TRICARE payment methods for institutional care be determined, to 
the extent practicable, in accordance with the same reimbursement rules 
as those that apply to payments to providers of services of the same 
type under Medicare. This proposed rule sets forth the proposed 
regulation modifications necessary to implement a TRICARE reimbursement 
methodology similar to that applicable to Medicare beneficiaries for 
inpatient services provided by LTCHs.

DATES: Written comments received at the address indicated below by 
March 27, 2015 will be accepted.

ADDRESSES: You may submit comments, identified by docket number or 
Regulatory Information Number (RIN) and title, by either of the 
following methods:
    The Web site: http://www.regulations.gov. Follow the instructions 
for submitting comments.
    Mail: Federal Docket Management System Office, Room 3C843, 1160 
Defense Pentagon, Washington, DC 20301-1160.
    Instructions: All submissions received must include the agency name 
and docket number or RIN for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet at http://

[[Page 3927]]

www.regulations.gov as they are received without change, including any 
personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Ann Fazzini, TRICARE Management 
Activity (TMA), Medical Benefits and Reimbursement Branch, telephone 
(303) 676-3803.

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

A. Purpose of the Proposed Rule

    The purpose of this proposed rule is to publish proposed TRICARE 
regulation modifications necessary to implement for LTCHs the statutory 
requirement that for TRICARE institutional services ``payments shall be 
determined to the extent practicable in accordance with the same 
reimbursement rules as apply to payments to providers of services of 
the same type under [Medicare].'' Medicare pays LTCHs using a LTCH 
Prospective Payment System (PPS) which classifies Long Term Care (LTC) 
patients into distinct Diagnosis-Related Groups (DRG). The patient 
classification system groupings are called Medicare Severity Long Term 
Care Diagnosis Related Groups (MS-LTC-DRGs), which are the same DRGs 
used under the hospital inpatient PPS, but that have been weighted to 
reflect the resources required to treat the medically complex patients 
treated at LTCHs.
    TRICARE pays for most hospital care under the CHAMPUS DRG-based 
payment system, which is similar to Medicare's, but some hospitals are 
exempt from the CHAMPUS DRG-based payment system. LTCHs are currently 
exempt from the CHAMPUS DRG-based payment system; they are paid their 
billed charges or a discount from their billed charges. Paying billed 
charges is fiscally imprudent and inconsistent with TRICARE's governing 
statute. Paying LTCHs under a method similar to Medicare's is prudent, 
practicable, and harmonious with the statute. Our legal authority for 
this proposed rule is 10 U.S.C. 1079(j)(2).

B. Summary of the Major Provisions of the Proposed Rule

    1. Implementation of a Prospective Payment System Methodology for 
LTCHs. TRICARE proposes to reimburse LTCHs for inpatient care using a 
method similar to Medicare's LTCH PPS using MS-LTC-DRGs. Under the 
proposed TRICARE LTCH reimbursement method, payment for a TRICARE 
patient will be made at a predetermined, per-discharge amount for each 
MS-LTC-DRG. The TRICARE LTCH reimbursement method would include payment 
for all inpatient operating and capital costs of furnishing covered 
services (including routine and ancillary services), but not certain 
pass-through costs (e.g.--bad debts, direct medical education, and 
blood clotting factors).
    2. Transition period. In the past when implementing new 
reimbursement systems, TRICARE has offered a transition or phase-in 
period to buffer revenue reductions experienced by hospitals. For 
additional information, we refer the reader to the final rule on Sole 
Community Hospital (SCH) reimbursement (78 FR 48303). The phase-in 
period for SCHs was provided, in part, to allow hospitals sufficient 
time to adjust and budget for these reductions. It also provided an 
incentive for hospitals to remain in the network by allowing a 5 
percent difference in payment reductions per year. More importantly, 
the transition was allowed by TRICARE because, by their nature, SCHs 
were the only hospitals in specific vicinities, so TRICARE patients 
were dependent on them. In addition, some SCHs rely heavily on TRICARE 
patients. Neither of these situations is true for LTCHs.
    In analyzing TRICARE data for LTCH admissions, we found reasons to 
forego a transition or phase-in period. First, LTCHs are not 
financially dependent on TRICARE beneficiaries. Our data show the 
average LTCH serving TRICARE beneficiaries had less than four 
admissions in Fiscal Year (FY) 12. Seventeen LTCHs scattered across 
eight states had 10 or more TRICARE admissions in FY12 and the vast 
majority of LTCHs had zero or one TRICARE admission in that same fiscal 
year. Second, out of the 227 LTCHs that had TRICARE admissions in FY12, 
about 75 percent of these hospitals admitted four or fewer TRICARE 
beneficiaries. In reviewing the allowed amount paid by TRICARE to 
LTCHs, allowed charges for non-TRICARE For Life (TFL) beneficiaries 
were approximately $71 million in FY12. These allowed amounts were 
equal to 73 percent of billed charges, indicating that there are 
significant discounts off of the billed charge that are currently being 
accepted by LTCHs. Considering the low utilization of LTCHs by TRICARE 
beneficiaries and the discounts LTCHs are offering, we have concluded 
that implementation of TRICARE LTCH reimbursement methods similar to 
Medicare will have little financial impact on LTCHs. As a result, we 
are foregoing a transition period, but invite comments on this 
approach.

C. Costs and Benefits

    The economic impact of the proposed rule is anticipated to reduce 
DoD payments to LTCHs, for all TRICARE beneficiaries by approximately 
$57 million during the first year of implementation.

II. Introduction and Background

A. TRICARE LTCH Reimbursement

    Per 32 Code of Federal Regulations (CFR) 199.14(a)(1)(ii)(D)(4), 
LTCHs are currently exempt from the TRICARE DRG-based payment system, 
just as they were exempt from Medicare's Inpatient Prospective Payment 
System (IPPS) when the Centers for Medicare and Medicaid Services (CMS) 
initially implemented its DRG-based payment system. Because LTCHs are 
exempt from the TRICARE DRG-based payment system, and because there is 
no alternate TRICARE reimbursement mechanism in 32 CFR Part 199 at this 
time, LTCH inpatient care provided to TRICARE beneficiaries is 
currently paid on the lower of a negotiated rate (if a network 
hospital) or billed charges (if a non-network hospital).
    Medicare also created a PPS for LTCHs effective with the cost 
reporting period beginning on or after October 1, 2002. TRICARE often 
adopts Medicare's reimbursement methods but delays implementation 
generally until any transition phase is complete for the Medicare 
program. CMS included a 5-year transition period when it adopted LTCH 
PPS for Medicare, under which LTCHs could elect to be paid a blended 
rate for a set period of time. This transition period ended in 2006. 
Following the transition phase, Medicare adopted an LTCH-specific DRG 
system, the MS-LTC-DRG, in 2008. The MS-LTC-DRG is still used as the 
patient classification system for LTCHs. Given TRICARE's statutory 
requirement to adopt Medicare's reimbursement methods when practicable, 
TRICARE is proposing to adopt a reimbursement method similar to 
Medicare's LTCH PPS for our beneficiaries.
    Under 10 U.S.C. 1079(j)(2), the amount to be paid to hospitals, 
skilled nursing facilities, and other institutional providers under 
TRICARE, ``shall be determined to the extent practicable in accordance 
with the same reimbursement rules as apply to payments to providers of 
services of the same type under Medicare.''
    Patients with clinically complex problems, such as multiple acute 
or chronic conditions, may need hospital care for an extended period of 
time. LTCHs represent a relatively small

[[Page 3928]]

number of hospitals (approximately 425 under Medicare), which treat a 
critically ill population with complex needs.
    The MS-LTC-DRG system under Medicare's LTCH PPS classifies patients 
into distinct diagnostic groups based on clinical characteristics and 
expected resource needs. The patient classification groupings, which 
are the same groupings used under the inpatient acute care hospital 
groupings (i.e., MS-DRGs) are weighted to reflect the resources 
required to treat the medically complex patients who are treated in 
LTCHs. By their nature, LTCHs treat patients with comorbidities 
requiring long-stay, hospital-level care.
    For TRICARE, there were approximately 700 non-TFL and 100 TFL LTCH 
admissions in FY 12 for which TRICARE was the primary payer. The 
average LTCH serving non-TFL TRICARE beneficiaries had less than four 
admissions in FY 12. TRICARE non-TFL LTCH-allowed charges were 
approximately $71 million in FY 12. These allowed amounts are equal to 
73 percent of billed charges, indicating that there are significant 
discounts at LTCHs. We found that the average allowed amount for non-
TFL beneficiaries was almost $101,000 during FY 12, which is 
significantly more than the estimated amount that Medicare would have 
paid for these discharges (the average Medicare LTCH PPS payment would 
have been less than $50,000). Thus, using the Medicare LTCH-PPS system 
would reduce TRICARE-allowed amounts significantly, reducing TRICARE 
payments by $40 million per year for non-TFL beneficiaries.
    For TFL beneficiaries for whom TRICARE was the primary payer, 
TRICARE paid approximately $23 million in FY 12. In cases where TRICARE 
is the primary payer, such as when a Medicare beneficiary exhausts his/
her day limits, TRICARE is paying billed charges. Reimbursing using 
methods similar to Medicare LTCH reimbursement would reduce TRICARE 
payments for TFL beneficiaries by approximately $17 million per year.
    Shifting to methods similar to Medicare LTCH reimbursement would 
reduce TRICARE payments to LTCHs for non-TFL and TFL beneficiaries by 
$57 million during the first year of implementation.
    TRICARE currently pays LTCHs for inpatient care in one of two ways:
    (1) Network hospitals: Payment is an amount equal to billed charges 
less a negotiated discount. The discounted reimbursement is usually 
substantially greater than what would be paid using the TRICARE DRG 
method, which TRICARE generally uses to reimburse hospitals for 
inpatient care; or
    (2) Non-network hospitals: Payment is equal to billed charges.
    As discussed above TRICARE's current payment method results in 
TRICARE reimbursing LTCHs substantially more than Medicare does for 
equivalent inpatient care. A change is needed to conform to the 
statute.
    Under 32 CFR 199.14(a)(l)(ii)(D)(4), LTCHs are currently exempt 
from the TRICARE DRG-based payment system. Based on 10 U.S.C. 
1079(j)(2), TRICARE is proposing to adopt a reimbursement method 
similar to Medicare's LTCH PPS as the methodology to reimburse TRICARE 
LTCHs.
    Establishing a TRICARE LTCH inpatient reimbursement method similar 
to Medicare is practicable. Even though the beneficiary populations 
differ between Medicare and TRICARE, we have found that the 
distribution of LTCH cases by diagnosis groups is similar between 
TRICARE and Medicare. Additionally, TRICARE has a low volume of 
admissions to LTCHs, so calculating weights and rates for TRICARE 
admissions to LTCHs is impracticable. We are able to calculate our own 
weights for admissions to general hospitals on an annual basis because 
of the volume of TRICARE admissions to general hospitals, however, it 
would be difficult to determine a new set of weights based on a small 
admission population. For example, only five MS-LTC-DRGs had 25 or more 
TRICARE admissions in FY 12 and only 17 had ten or more TRICARE 
admissions in that year. Consequently, we are proposing to adopt the 
methods used currently in Medicare's MS-LTC-DRG reimbursement system 
except for slight differences in calculating short stay outlier 
payments; and not adopting the 25 percent threshold payment adjustment 
policy. TRICARE's proposed adoption of Medicare's MS-LTC-DRG 
reimbursement system includes adoption of Medicare's interrupted stay 
policy and high-cost outlier payments.
    Short Stay Outlier (SSO). For cases with a very short length of 
stay, Medicare uses an alternate method of payment. For an SSO 
discharge, the Medicare payment is based on the least of the following:
    <bullet> 100 percent of the estimated cost of the case.
    <bullet> 120 percent of the MS-LTC-DRG specific per diem amount 
multiplied by the covered length of stay of the particular case.
    <bullet> The full MS-LTC-DRG amount.
    <bullet> A blend of the IPPS amount for the same type of case and 
120 percent of the MS-LTC-DRG per diem amount (for certain cases with 
relatively short lengths of stay, the blend percentage for the MS-LTC-
DRG per diem portion is zero percent and as such the blended payment 
under this option is 100 percent of the IPPS amount).
    To simplify, and because it is not practicable for TRICARE to adopt 
Medicare's complex four step process considering our low volume of LTCH 
claims, we are proposing to adopt the methodology of paying short stay 
outliers at the lesser of: 1) Their cost (i.e., 100 percent of the 
estimated cost of the case) or 2) the full MS-LTC-DRG amount. This 
approach is fair and ensures that LTCH costs will be covered for short 
stay outlier cases.
    25 Percent Threshold Payment Adjustment. In the FY 2005 Inpatient 
Prospective Payment System (IPPS) Final Rule, the Centers for Medicare 
& Medicaid Services (CMS) established a special payment adjustment 
policy for LTCHs as defined by section 1886(d)(1)(B)(iv)(I) of the 
Social Security Act. This includes LTCHs that are Hospitals-within-
Hospitals (HwHs) or satellites of an LTCH that is co-located with a 
host hospital or on the campus (any facility within 250 yards of the 
hospital).
    This payment adjustment policy is commonly called the ``25 percent 
rule.'' The 25 percent transfer rule provides a financial penalty to 
LTCHs that receive more than 25 percent of their patients from any one 
acute care hospital. Given the low number of TRICARE admissions, this 
provision is not practicable, and is unnecessary under TRICARE.
    We are also aware the Department of Health and Human Services 
intends to address implementation of Section 1206(a) of the Pathway for 
SGR Reform Act of 2013 (Public Law 113-67) in the FY 2016 rulemaking 
process. Section 1206(a) provides for the establishment of patient 
criteria for ``site neutral'' payment rates under the LTCH PPS. The 
Department of Defense proposes to defer action on this issue pending 
review of the final Medicare policy.

B. Pediatric Cases

    Our analysis found that the TRICARE and Medicare populations have 
similar diagnoses and that the estimated TRICARE costs in each MS-LTC-
DRG group are similar to those in Medicare. There are very few TRICARE 
LTCH cases for patients under age 17; however, these pediatric cases 
have similar diagnoses as other TRICARE LTCH admissions. Therefore, we 
propose to adopt the same MS-LTC-DRG reimbursement for pediatric

[[Page 3929]]

patients as we are for all other TRICARE beneficiaries.
    We are inviting comments on this proposal and welcome feedback on 
whether the MS-LTC-DRG weights are appropriate for pediatric cases. We 
also welcome options and alternative approaches for LTCH reimbursement 
for pediatric beneficiaries.

III. Regulatory Impact Analysis

A. Overall Impact

    DoD has examined the impacts of this proposed rule as required by 
Executive Orders (E.O.s) 12866 (September 1993, Regulatory Planning and 
Review) and 13563 (January 18, 2011, Improving Regulation and 
Regulatory 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 and Executive Order 13563
    E.O.s 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). E.O. 13563 emphasizes the 
importance of quantifying both costs and benefits, of reducing costs, 
of harmonizing rules, and of promoting flexibility. A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any one year).
    We estimate that the effects of the LTCH provisions that would be 
implemented by this rule would not result in LTCH revenue reductions 
exceeding $100 million in any one year. We estimate that this 
rulemaking is not ``economically significant'' as measured by the $100 
million threshold. However, we have prepared a Regulatory Impact 
Analysis that, to the best of our ability, presents the costs and 
benefits of the rulemaking.
2. 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 Notice of Proposed Rule Making (NPRM) is not a major rule 
under the Congressional Review Act.
3. 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) identification 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 LTCHs 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 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 
Regulatory Flexibility Analysis.
4. 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 Proposed 
Rule will not mandate any requirements for State, local, or tribal 
governments or the private sector.
5. Paperwork Reduction Act
    This rule will not impose significant additional information 
collection requirements on the public under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3502-3511). Existing information collection 
requirements of the TRICARE and Medicare programs will be utilized. We 
do not anticipate any increased costs to hospitals because of 
paperwork, billing, or software requirements since we are keeping 
TRICARE's billing/coding requirements (i.e., hospitals will be coding 
and filing claims in the same manner as they currently are with 
TRICARE).
6. Executive Order 13132, ``Federalism''
    This rule has been examined for its impact under E.O. 13132, and it 
does not contain policies that have federalism implications that would 
have substantial direct effects on the States, on the relationship 
between the national Government and the States, or on the distribution 
of power and responsibilities among the various levels of Government. 
Therefore, consultation with State and local officials is not required.

B. Hospitals Included In and Excluded From the Proposed TRICARE LTCH 
Reimbursement Methodology

    The TRICARE LTCH reimbursement system encompasses all TRICARE 
authorized LTCHs that have inpatient stays for TRICARE beneficiaries 
except for hospitals in States that are paid by Medicare and TRICARE 
under a waiver that exempts them from Medicare's inpatient prospective 
payment system or the CHAMPUS DRG-based payment system, respectively. 
Currently, only Maryland hospitals operate under such a waiver.

C. Analysis of the Impact of TRICARE LTCH Payment Reform on LTCHs

1. Methodology
    We analyzed the impact of TRICARE implementing a new method of 
payment for LTCHs. The proposed method is very similar to Medicare's 
LTCH payment method, which uses the Medicare MS-LTC-DRG system. Our 
analysis compares the payment impact of the new methodology compared to 
current TRICARE methodology (where TRICARE pays billed charges or 
discounts off of these billed charges for all LTCH claims).
    The data used in developing the quantitative analyses presented 
below are taken from TRICARE charge and payment data from October 2011-
September 2012. Our analysis has several qualifications. First, we drew 
upon various sources for the data used to categorize hospitals in Table 
1, below. We attempted to construct these variables using information 
from Medicare's FY12 Impact file to verify that each provider was in 
fact a Medicare LTCH. For individual hospitals, however, some 
miscategorizations are possible. We were unable to match 18 hospital 
claims from 7 LTCHs to the FY12 Impact file, and therefore excluded 
them from the analysis. After we removed the excluded claims which we 
could not assign payment and hospital classification variables for, we 
used the remaining hospitals and claims as the basis for our analysis. 
All Maryland LTCHs were also excluded from the analysis.
    Using charge data from 2012, the FY12 Medicare MS-LTC-DRG weights, 
the FY12 Medicare national base payment rate, the FY12 Medicare high 
cost outlier fixed threshold, and the FY12 wage index adjustment 
factors, we

[[Page 3930]]

simulated TRICARE payments using the proposed LTCH payment method. We 
focused the analysis on TRICARE claims where TRICARE was the primary 
payer because only these TRICARE payments will be affected by the 
proposed reforms.
2. Effect on Hospitals
    Table 1, First Year Impact of TRICARE LTCH proposed rule, below, 
demonstrates the results of our analysis. This table categorizes LTCHs 
which had TRICARE inpatient stays in FY12 by various geographic and 
special payment consideration groups to illustrate the varying impacts 
on different types of LTCHs. The first column represents the number of 
LTCHs in FY12 in each category which had inpatient stays in which 
TRICARE was the primary payer. The second column shows the number of 
TRICARE discharges in each category. The third and fourth columns show 
the average allowed amount per discharge paid by TRICARE in FY12, and 
under the proposed LTCH payment method. The fifth column shows the 
percentage impact of the policy change by showing the percentage 
reduction in the proposed allowed amounts relative to the current 
allowed amounts.
    The first row in Table 1 shows the overall impact of the 227 LTCHs 
included in the analysis. The next three rows of the table contain 
hospitals categorized according to their geographic location (large 
urban, other urban, and rural). The second major grouping is by bed-
size category, followed by a grouping for TRICARE network status. The 
fourth grouping shows the LTCHs by regional Census divisions while the 
final grouping is by LTCH ownership status.
    We estimate that in the first year of implementation, TRICARE 
payments to LTCHs will decrease by 61 percent under the proposed LTCH 
payment methodology in comparison to the current TRICARE payment 
methodology for LTCH claims. For all groups of hospitals, payments 
under the proposed payment methodology would be reduced.
    The following discussion highlights some of the changes in payments 
among LTCH classifications.
    Ninety-eight percent of all TRICARE LTCH admissions were to urban 
LTCHs. Payments would decrease by 61 percent for large urban, 63 
percent for other urban, and 58 percent for rural LTCHs.
    Very small LTCHs (1-24 beds) would have the least impact; payments 
would be reduced by 49 percent. The change in payment methodology would 
have a slightly greater impact on medium-sized LTCHs (50-124 beds), 
where payments would be reduced by about 64 percent.
    The change in LTCH payment methodology would have a larger impact 
on TRICARE non-network LTCHs than network LTCHs. Payments to non-
network LTCHs would decline by 71 percent, in comparison to 56 percent 
for in-network hospitals. There is a smaller decline in TRICARE 
payments for network hospitals because these LTCHs provide discounts to 
TRICARE, which means that their allowed amounts are already lower. We 
found that network hospitals on average provide a 29 percent discount 
off billed charges and that almost 77 percent of all TRICARE LTCH 
discharges are in-network.
    LTCHs in various geographic areas will be affected differently due 
to this change in payment methodology. The two regions with the largest 
number of TRICARE claims, the South Atlantic and West South Central 
region, would have an average decrease of 62 and 61 percent 
respectively, which are very similar to the overall average of 61 
percent. LTCHs in the East North Central and New England regions would 
have the lowest reductions: 52 and 50 percent. Seventy-eight percent of 
all TRICARE LTCH discharges in FY12 were in proprietary (for-profit) 
LTCHs, and these facilities would have their allowed amounts reduced by 
approximately 63 percent. The decline in allowed amounts for voluntary 
(not-for-profit) LTCHs would be less than for-profit hospitals (57 
percent).

[[Page 3931]]

[GRAPHIC] [TIFF OMITTED] TP26JA15.000

3. Review for a Transition Period
    We considered whether a transition would be necessary to implement 
the change in LTCH payment methodology for TRICARE claims. For the 
following reasons, we have determined, that a transition period is 
unnecessary.
    First, the TRICARE payments to LTCHs will be equal to or, for short 
stay outlier cases, TRICARE payments may be greater than Medicare's 
LTCH

[[Page 3932]]

payments. TRICARE's short-stay outlier payments will be based on costs, 
which is at least as generous as Medicare's short-stay outlier 
payments. The Medicare Payment Advisory Committee (MedPAC) is an 
independent congressional agency to advise the U.S. Congress on issues 
affecting the Medicare program. MedPAC's most recent research indicates 
that Medicare LTCHs have a positive margin. Thus, we believe that 
paying LTCHs amounts that are at least as generous as Medicare do not 
require a transition.
    Second, the number of TRICARE discharges from LTCHs is very small 
in comparison to the number of Medicare discharges in LTCHs each year. 
In FY12, there were 799 discharges to LTCHs in which TRICARE was the 
primary payer. Medicare, in comparison, had approximately 134,700 
discharges to LTCHs in 2010. Thus, in aggregate, the TRICARE LTCH 
claims are a very small percentage of the industry's claims (about one-
half of a percent).
    Third, we also found that in FY12 there were only 17 LTCHs with 10 
or more TRICARE admissions. For these 17 LTCHs, we found that TRICARE 
admissions accounted for less than 4 percent of the Medicare discharges 
at those LTCHs. More importantly, at none of the 17 LTCHs did the 
TRICARE LTCH discharges (where TRICARE was the primary payer) exceed 5 
percent of the LTCH's discharges. Because the number of TRICARE 
discharges at any one LTCH is so small and such a small portion of 
their LTCH business, a transition period is not required.
    Fourth, for the reasons cited above, we do not think that there 
will be access problems for TRICARE beneficiaries. In addition, we note 
that MedPAC has concluded that Medicare beneficiaries have continued 
access to LTCHs as evidenced by an increasing supply of providers and 
an increasing number of LTCH stays. Given that the TRICARE LTCH rates 
will equal or exceed Medicare LTCH rates, we do not anticipate access 
problems for TRICARE beneficiaries. Further, by statute, hospitals that 
participate under Medicare are required to agree to accept TRICARE 
reimbursement.

List of Subjects in 32 CFR Part 199

    Claims, Dental health, Health care, Health insurance, Individuals 
with disabilities, Military personnel.

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

PART 199--[AMENDED]

0
1. The authority citation for Part 199 continues to read as follows:

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

0
2. In Sec.  199.2, amend paragraph (b) by adding a definition of ``Long 
Term Care Hospital'' in alphabetical order to read as follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    Long Term Care Hospital (LTCH). A hospital that is designated by 
the Centers for Medicare and Medicaid Services (CMS) as a LTCH and 
meets the applicable requirements established by Sec.  
199.6(b)(4)(xviii).
* * * * *
0
3. In Sec.  199.6, add paragraph (b)(4)(xviii) to read as follows:


Sec.  199.6  TRICARE--authorized providers.

* * * * *
    (b) * * *
    (4) * * *
    (xviii) Long Term Care Hospital (LTCH). LTCHs must meet all the 
criteria for classification as an LTCH under 42 CFR part 412, subpart 
O, as well as all of the requirements of this part in order to be 
considered an authorized LTCH under the TRICARE program.
* * * * *
0
4. Section 199.14 is amended by revising paragraph (a)(1)(ii)(D)(4) and 
adding paragraph (a)(9) to read as follows:
    The revisions and addition read as follows:


Sec.  199.14  Provider reimbursement methods.

    (a) * * *
    (1) * * *
    (ii) * * *
    (D) * * *
    (4) Long Term Care Hospitals. Prior to implementation of the 
CHAMPUS reimbursement method described in paragraph (a)(9) of this 
section, a long term care 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, 
DHA, or a designee) as required for exemption from the Medicare 
Prospective Payment System as contained in 42 CFR 412.23.
* * * * *
    (9) Reimbursement for inpatient services provided by an LTCH. (i) 
In accordance with 10 U.S.C. 1079(j)(2), TRICARE payment methods for 
institutional care shall be determined, to the extent practicable, in 
accordance with the same reimbursement rules as those that apply to 
payments to providers of services of the same type under Medicare. The 
CHAMPUS-LTC-DRG reimbursement methodology shall be in accordance with 
Medicare's Medicare Severity Long Term Care Diagnosis Related Groups 
(MS-LTC-DRGs) as found in regulation at 42 CFR part 412, subpart O. 
Inpatient services provided in hospitals subject to the Medicare LTCH 
reimbursement methodology as specified in 42 CFR parts 412 and 413 will 
be paid in accordance with the provisions outlined in sections 
1886(d)(1)(B)(IV) of the Social Security Act and its implementing 
Medicare regulation (42 CFR parts 412 and 413) to the extent 
practicable. Under the above governing provisions, CHAMPUS will 
recognize, to the extent practicable, in accordance with 10 U.S.C. 
1079(j)(2), Medicare's MS-LTC-DRG methodology to include, the relative 
weights, inpatient operating and capital costs of furnishing covered 
services (including routine and ancillary services), interrupted stay 
policy, high cost outlier payments, wage adjustments for variations in 
labor-related costs across geographical regions, cost-of-living 
adjustments, and updates to the system.
    (ii) While CHAMPUS intends to remain as true as possible to 
Medicare's MS-LTC-DRG methodology, there will be some deviations 
required to accommodate CHAMPUS' unique benefit structure and 
beneficiary population as authorized under the provisions of 10 
U.S.C.1079(j)(2).
    (A) Due to TRICARE's low claim volume admissions to LTCHs, TRICARE 
will not adopt the 25 percent threshold rule.
    (B) Rather than adopting Medicare's four-step process for short-
stay outliers, TRICARE shall pay short-stay outliers at the lesser of:
    (1) One hundred (100) percent of costs; or
    (2) The full LTCH DRG amount. The 100 percent of costs will be 
based on the LTCH's billed charge multiplied by the LTCH's most recent 
cost-to-charge ratio as determined by the Centers for Medicare and 
Medicaid Services.
    (C) The criteria for adopting, modifying, and/or extending 
deviations and/or adjustments to the MS-LTC-DRG payments shall be 
issued through CHAMPUS policies, instructions, procedures and 
guidelines as deemed appropriate by the Director, DHA, or a designee.
    (iii) Exemption. The TRICARE LTCH reimbursement methodology under 
this paragraph does not apply to hospitals

[[Page 3933]]

paid in States that are paid by Medicare and TRICARE under a waiver 
that exempts them from Medicare's inpatient prospective payment system 
or the CHAMPUS DRG-based payment system, respectively.
* * * * *

    Dated: January 20, 2015.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2015-01242 Filed 1-23-15; 8:45 am]
BILLING CODE 5001-06-P