[Federal Register Volume 60, Number 82 (Friday, April 28, 1995)]
[Notices]
[Pages 20972-20973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10426]



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DEPARTMENT OF DEFENSE
Office of the Secretary


Civilian Health and Medical Program of the Uniformed Services 
(CHAMPUS); Establishment of National Differentials for Children's 
Hospitals

AGENCY: Office of the Secretary, DoD.

ACTION: Notice.

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SUMMARY: The Office of the Civilian Health and Medical Program of the 
Uniformed Services (OCHAMPUS) is announcing the national differential 
rates for children's hospitals which go into effect April 1, 1995. This 
notice is issued as required in 32 CFR 199.14 in which OCHAMPUS 
announced that a notice would be published setting forth the national 
differential and eliminating the hospital-specific differentials.

FOR FURTHER INFORMATION CONTACT:
Marty Maxey, Program Development Branch, OCHAMPUS, telephone (303) 361-
1227.

SUPPLEMENTARY INFORMATION: DoD 6010.8-R (Civilian Health and Medical 
Program of the Uniformed Services (CHAMPUS)) was published in the 
Federal Register on July 1, 1986 (51 FR 24008). On October 1, 1987, 
OCHAMPUS implemented a DRG-based payment system, modeled on the 
Medicare Prospective Payment System. Children's Hospitals were exempted 
from the initial implementation until a children's hospital 
differential rate could be developed. This would ensure that payments 
to children's hospitals remained budget neutral compared to fiscal year 
1988 charges. Since we included children's hospitals under the CHAMPUS 
diagnosis related group (DRG) payment system in 1989, we have 
implemented the special measures directed by Congress. When children's 
hospitals were included by Congress. When children's hospitals were 
included under the DRG-based payment systems, we implemented the 
pediatric-modified DRGs (PM-DRGs) for neonatal services. The PM-DRGs, 
which were developed by the National Association of Children's 
Hospitals and Related Institutions (NACHRI), replaced the six Medicare 
neonatal DRGs with thirty-four DRGs which account for birthweight, 
surgery and the presence of multiple, major and other neonatal 
problems.
    When we implemented the PM-DRGs, we promised an early review of the 
weights to ensure that they were adequate. The original weights had 
been derived from a database provided by NACHRI which was believed to 
be representative of CHAMPUS. However, the case mix and the charges 
apparently were very different and in December [[Page 20973]] 1989, we 
published revised relative weights based on CHAMPUS claims data. As a 
result, the weights, and therefore, the payments, nearly doubled on 
average. At that time OCHAMPUS retroactively adjusted all claims which 
had been processed using the previous lower weights. We have continued 
to refine the PM-DRG weights and classifications involving 
complications during subsequent annual updates.
    In addition, at the time we adopted the PM-DRGs, we examined the 
possible application of additional DRGs to children who are older than 
newborns. We contracted with the RAND Corporation to investigate the 
use of PM-DRGs for this pediatric population. RAND's results showed 
that almost no difference in payments would occur, so we elected not to 
make any changes for the pediatric age groups.
    To recognize the higher costs of pediatric patients and hospitals 
with more than their share of high-cost patients, CHAMPUS included a 
generous provision for calculating the cost outlier for 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 $13,500 qualifies as a cost outlier, resulting in 
reimbursement of the DRG-based amount plus the differential, plus a 
percentage of all costs exceeding the threshold. Since the threshold is 
so low, a considerable number of cases receive this additional payment 
consideration.
    As an added safeguard, CHAMPUS will continue for an interim period 
to exempt certain high-cost conditions from payment under the DRG-based 
payment system to protect acute care and children's hospitals from 
incurring unexpectedly high costs for care related to children under 18 
years of age who are HIV seropositive, for all services related to 
pediatric bone marrow transplants and for all services related to 
pediatric cystic fibrosis.
    In 1990, New York adopted some very minor classification changes to 
their neonatal DRGs which resulted in some reductions in payments; 
CHAMPUS reviewed the classification changes but elected not to make 
similar changes. We have continually consulted with NACHRI.
    Since we have implemented all of the special measures Congress 
identified and since the Congressional intent was that the hospital-
specific differential be used only ``for a transitional period of 3 
years,'' it is appropriate that a national differential for children's 
hospitals be implemented at this time. During the three-year 
transition, children's hospitals were held harmless via a 
reconciliation calculation that ensured payments that recognized 
hospital-specific costs for high-volume hospitals. The transition 
period for using the ``hold harmless'' hospital-specific and low-volume 
differentials ended March 31, 1992. Reconciliations after the ``hold 
harmless'' period will be calculated applying the national differential 
rate in accordance with Congressional direction. Under the national 
differential, eighteen hospitals will receive a higher differential, 
and fifteen hospitals will receive a lower differential. Although a 
small number of high-volume hospitals will experience a reduction in 
CHAMPUS payments, we remain convinced that our payments, especially in 
light of the differential and other special considerations outlined 
above, will fairly compensate children's hospitals for their services. 
Even with a national differential, our payments will be significantly 
higher for all children's hospitals than for all other hospitals 
subject to DRG-based payments. The national differential is expected to 
encourage efficiency, and comply with Congressional intent and 
direction in controlling future CHAMPUS costs.
    CHAMPUS recognizes that on average, children's hospitals have a 
more costly mix of pediatric patients than nonexempt hospitals. CHAMPUS 
is also aware that pediatric patients in general may be more expensive 
than adults because of the requirement for more nursing care and 
specialized services. Because of these higher costs, CHAMPUS has 
proceeded slowly and built in safeguards to protect children's 
hospitals against untoward financial repercussions. We believe all of 
these safeguards, as well as the numerous refinements we have outlined, 
will result in a fair and equitable payment to the children's 
hospitals. We feel confident that sufficient time has been allotted to 
identify and implement any classification changes which were found 
necessary. Of course, CHAMPUS will continue to refine PM-DRGs on an 
ongoing basis, just as we currently do for adult DRGs.
    Following are the national differentials:

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                                                                 All    
                            Area                              hospitals 
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Large Urban:                                                            
  Labor....................................................    $1,945.99
  Non-labor................................................       689.42
                                                            ------------
                                                                2,635.41
Other Urban:                                                            
  Labor....................................................     1,483.21
  Non-labor................................................       525.47
                                                            ------------
                                                                2,008.68
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    Dated: April 24, 1995.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 95-10426 Filed 4-27-95; 8:45 am]
BILLING CODE 5000-04-M