[Federal Register Volume 59, Number 81 (Thursday, April 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10126]


[Federal Register: April 28, 1994]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

[RIN 0790-AF63]


Collection From Third Party Payers of Reasonable Costs of 
Healthcare Services

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would replace the current method of per 
diem billings based on diagnostic related groups and expand the single 
outpatient billing category to as many as forty to fifty, and expand 
the billing for outpatient services to include land ambulance service, 
air ambulance service and hyperbaric services. This proposed rule 
improves billing methods for both inpatient and outpatient care. This 
creates a greater level of specificity which more accurately reflects 
the cost of the care provided. In addition, the proposed rule will 
identify additional outpatient services for which recovery of costs 
will be sought.

DATES: Comments must be received by June 27, 1994.

ADDRESSES: Comments should be sent to: Office of the Deputy Assistant 
Secretary of Defense (Health Services Operations), Attn: Operations and 
Management Support, room 3E343, The Pentagon, Washington, DC 20301-
1200.

FOR FURTHER INFORMATION CONTACT:
CMSgt Kathleen I. Reents at (703) 756-8910.

SUPPLEMENTARY INFORMATION:

I. Background

    Congress enacted 10 U.S.C. 1095 as part of the Consolidated Omnibus 
Budget Reconciliation Act of 1985, Pub. L. 99-272, Sec. 2001(a)(1), to 
permit the Department of Defense to collect from third party payers 
reasonable inpatient hospital care costs incurred on behalf of most DoD 
health care beneficiaries. To implement this statute, the Department of 
Defense issued a proposed rule October 8, 1986, and a final rule 
September 25, 1987. The final rule has been amended several times since 
1987, most recently on September 9, 1992 (57 FR 41096). That rule 
changed the unified per diem rate for inpatient care to a set of 12 
clinical group per diem rates. It also implemented authority to bill 
for outpatient services by establishing a single per visit rate for 
most outpatient services.

II. Provisions of the Proposed Rule

A. Inpatient Services

    In October 1992, the Department of Defense began a transition from 
the traditional single rate for reimbursement for various health care 
services to multiple rates reflective of the clinical care provided. 
The multiple rates result in charges that more closely approximate the 
actual costs of delivering specific categories of medical services, 
such as surgical care, obstetrical care, pediatric care, etc. The rates 
are based on the actual costs of rendering healthcare services as 
reflected in the Medical Expense and Performance Reporting System 
(MEPRS).
    We propose a change to paragraph 220.8(c) to replace the current 
twelve billing categories with a billing method based on diagnostic 
related groups (DRGs), as specifically authorized by 10 U.S.C. 
1095(f)(3). We believe the DRG-based method for determining reasonable 
costs of inpatient care will produce more accurate and equitable 
billings.
    Billings will more accurately reflect the costs associated with the 
actual services provided. Our proposal is to model our DRG-based cost 
methodology on the DRG-based payment system for hospital care under the 
Civilian Health and Medical Program of the Uniformed Services 
(CHAMPUS). However, in some respects, we propose simplification of 
CHAMPUS methods, with authority to introduce the additional refinements 
at a later date.
    For example, we propose initially to use a single national 
standardized amount, rather than the three standardized amounts (large 
urban, other urban, and rural) used by CHAMPUS. The three amounts do 
not differ significantly and are probably not as relevant in connection 
with a unified federal hospital system, such as DoD's. However, the 
proposed rule would allow us to adapt the multiple standardized amounts 
at a later date.
    The standardized amount will be the result of dividing total 
system-wide costs of inpatient care by the total number of discharges 
system-wide. With respect to DRG relative weights, we propose to use 
the same weights as are used for the CHAMPUS DRG-based payment method. 
The CHAMPUS weights were calculated from a data base of actual CHAMPUS 
claims filed by civilian hospitals. Because the patient population 
under military treatment facilities and CHAMPUS are quite similar, we 
believe it appropriate to use the same weights.
    The CHAMPUS DRG-based payment method uses a number of adjustments 
to the product of standardized amount multiplied by the relative weight 
of the DRG involved. The adjustments relate to outlier cases, area wage 
differences and indirect medical education. We propose initially not to 
use these adjustments, but to allow all related costs to be reflected 
in the standardized amount. This approach has the advantage of 
simplicity and predictability for payers. However, the proposed rule 
would allow these adjustments to be introduced at a later date.
    In accordance with current practice, the standard DRG-based rate 
shall be subdivided into three categories: Hospital charges, 
Professional charges, and Ancillary charges.
    The intended effective date for implementation of a multiple rate 
schedule shall be October 1, 1994, the effective date of this rule, 
barring unforeseen difficulties in automation support. The specific 
rates will be published in the Federal Register.

B. Outpatient Services

    As with the inpatient rates, the outpatient rates will be based on 
the actual costs of rendering healthcare services as reflected in the 
Medical Expense and Performance Reporting System (MEPRS). MEPRS is the 
standard expense reporting system for all fixed medical treatment 
facilities (MTFs) within the Department of Defense (DoD) and is the 
accepted source of healthcare information for Congress and offices and 
agencies of the Executive Branch. The reimbursement categories will be 
selected based on board certified specialties/subspecialties widely 
accepted by graduate medical accrediting organizations such as the 
Accreditation Council for Graduate Medical Education (ACGME) or the 
American Board of Medical Specialties (ABMS).
    Rates may be established but need not be limited to each of the 
following clinical reimbursement categories: Internal Medicine, 
Allergy, Cardiology, Diabetic, Endocrinology, Gastroenterology, 
Hematology, Hypertension, Nephrology, Neurology, Nutrition, Oncology, 
Pulmonary Disease, Rheumatology, Dermatology, Infectious Disease, 
Physical Medicine, General Surgery, Cardiovascular and Thoracic 
Surgery, Neurosurgery, Ophthalmology, Organ Transplant, Otolaryngology, 
Plastic Surgery, Procotology, Urology, Pediatric Surgery, Family 
Planning, Obstetrics, Gynecology, Pediatrics, Adolocent Pediatrics, 
Well Baby, Orthopaedics, Cast, Orthotic Laboratory, Hand Surgery, 
Podiatry, Psychiatry, Psychology, Child Guidance, Mental Health, Social 
Work, Substance Abuse Rehabilitation, Family Practice, and Occupational 
and Physical Therapy. We will not necessarily establish a separate rate 
for each of these clinical reimbursement categories. Similar categories 
may be combined for purposes of billing.
    Another proposed revision to section 220.8 involves the expansion 
of a single outpatient rate to multiple reimbursement category rates 
similar to that for inpatient care. The Department of Defense proposes 
to adopt a methodology for computing rates for outpatient care similar 
to that used for computing multiple rates for inpatient care. Thus, 
collections for most outpatient services will be based on a standard 
per visit fee to a specialty/subspecialty which is representative of 
the average cost in facilities of the Uniformed Services of an 
outpatient visit to that specialty clinic. Multiple outpatient visits 
on the same day to different clinics will result in one charge for each 
clinic visit. Multiple visits on the same day to the same clinic will 
only have one charge. As a general rule, each standard per visit amount 
to the specialty/subspecialty clinic will be all-inclusive. No 
additional charge will be made for routine laboratory, radiology, 
pharmacy or other ancillary or overhead services provided in 
conjunction with an outpatient visit.
    Although most outpatient services will be billed based on the 
standard per visit fee for a specialty/subspecialty, there are several 
special rules for particular types of care. One special rule is that a 
separate charge for the same day/ambulatory surgery will be published 
annually.
    The proposed effective date of the proposed expanded number of 
billing categories is targeted for October 1, 1994. The specific rates 
will be published in the Federal Register.

C. Miscellaneous Healthcare Services

    Initial implementation of the Third Party Collection Program was 
somewhat limited in scope and concentrated on inpatient and ambulatory 
care areas. We propose to expand the program to include outpatient 
services which may not traditionally be provided in hospitals or which 
are not traditional clinical specialties or subspecialties. This 
includes, but is not limited to, ambulance service, hyperbaric 
treatments, dental care services and immunizations. We propose to 
recover the cost of these services to the extent they are generally 
applicable coverage provisions of a third party payer.
    We propose to recover the cost of ambulance service which includes 
the cost of providing emergency aid and then transportation of 
beneficiaries to a medical treatment facility. It would also include 
the transport of patients to other medical facilities or the 
specialized clinics for diagnostic or therapeutic services which also 
is frequently necessary. We propose to recover costs on the basis of 
the length of time the ambulance is in service with one hour to be the 
minimum amount billed. Our reimbursement rates for ambulance care will 
only cover the costs of operating the vehicle, including labor costs 
(driver and attendant), supplies, fuel, and overhead.
    We also propose to recover the cost of hyperbaric treatments 
provided to beneficiaries as part of a course of treatment. For 
example, high pressure oxygenation treatments, burn treatments and 
decompression treatments in response to diving incidents are frequently 
provided. We only intend to recover the cost of providing these 
treatments which includes the operating cost of the chamber, e.g., 
labor costs, (operators and attending medical personnel), supplies, and 
overhead. We do not intend to include amortization of either the actual 
or replacement cost of the hyperbaric chamber or the building.
    Dental services are provided to beneficiaries on a space available 
basis and in remote locations. Dental services may include oral 
diagnosis and prevention, periodontics, prosthodontics (fixed and 
removable), implantology, oral surgery, orthodontics, pediatric 
dentistry and endodontics.
    We also provide a wide range of immunizations to Military Health 
Service beneficiaries, including immunizations against common childhood 
diseases such as measles, smallpox and diphtheria and regional endemic 
diseases such as yellow fever, plague and cholera. We also administer a 
variety of medications and test beneficiaries for allergic conditions. 
Immunizations costs are not included as part of the reimbursement rates 
for either inpatient or ambulatory care. We intend to seek 
reimbursement for immunizations against childhood diseases and diseases 
characteristic of the United States and its Territories. We will also 
seek reimbursement for the administration of all medications or allergy 
extracts, when the medication or extract is purchased by the medical 
treatment facility, and for the testing for allergic conditions. We do 
not intend to seek recovery for immunizations administered incident to 
overseas travel or transfer or for those medications purchased by the 
beneficiary and simply administered at the medical treatment facility. 
Our reimbursement rate shall be based on the average fully burdened 
cost of an immunization and we shall apply a separate charge for each 
immunization which is administered.

D. Other Revisions

    Finally, the proposed rule would eliminate the special provision 
regarding PRIMUS and NAVCARE clincis, which are DOD's contractor owned 
and operated freestanding clinics. Under special demonstration program 
authority, these clinics have functioned under rules applicable to 
military medical treatment facilities. The proposed change would 
conform with other proposed regulatory action of DOD, which would make 
the PRIMUS/NAVCARE clinic program permanent under the auspices of the 
CHAMPUS program. With this action, CHAMPUS coordination of benefits 
procedures, rather than Third Party Collection Program procedures, will 
become applicable.

III. Regulatory Procedures

    This proposed rule is not a significant regulatory action under 
Executive Order 12866. It would not have an impact of $100 million or 
other significant economic impacts. Similarly, the rule does not 
significantly affect a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act. As stated above, for the 
most part, this proposed rule would simply incorporate into the third 
party collection program regulation more precise cost calculation 
methods. In addition, this rule does not impose new information 
collection requirements for purposes of the Paperwork Reduction Act.
    This is a proposed rule. We invite public comments on all matters 
covered by this proposal.
    For the reasons stated in the preamble, 32 CFR Part 220 is proposed 
to be amended as follows:

PART 220--COLLECTION FROM THIRD PARTY PAYERS OF REASONABLE COSTS OF 
HEALTHCARE SERVICES

    1. The authority citation for part 220 continues to read as 
follows:

    Authority: 5 U.S.C. 301: 10 U.S.C. 1095.

    2. Section 220.8 is proposed to be amended by revising paragraph 
(a), the heading and first sentence of paragraph (c), introductory 
text, and by paragraphs (e), (g), (h), (i), and (1) to read as follows:


Sec. 220.8  Reasonable costs.

* * * * *
    (a) Diagnosis related group (DRG)-based method for calculating 
reasonable costs for inpatient services.
    (1) In general. As authorized by 10 U.S.C. 1095(f)(3), the 
calculation of reasonable costs for purposes of collections for 
inpatient hospital care under 10 U.S.C. 1095 and this part shall be 
based on diagnosis related groups (DRGs). Costs shall be based on the 
inpatient full reimbursement rate per hospital discharge, weighted to 
reflect the intensity of the principal diagnosis involved. The average 
cost per case shall be published annually as an inpatient standardized 
amount. A relative weight for each DRG shall be the same as the DRG 
weights published annually for hospital reimbursement rates under the 
Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) 
pursuant to 32 CFR 199.14(a)(1).
    (2) Standardized amount. The Standardized amount shall be 
determined by dividing the total costs of all inpatient care in all 
military medical treatment facilities by the total number of 
discharges. This will produce a single national standardized amount. 
The Department of Defense is authorized, but not required by this part 
to calculate three standardized amounts, one each for large urban 
areas, other urban areas, and rural areas, utilizing the same 
distinctions in identifying those areas as is used for CHAMPUS under 32 
CFR part 199, paragraph 199.14(a)(1).
    (3) DRG relative weights. Costs for each DRG will be determined by 
multiplying the standardized amount per discharge by the DRG relative 
weight. For this purpose, the DRG relative weights used for CHAMPUS 
pursuant to 32 CFR part 199, paragraph 199.14(a)(1) shall be used.
    (4) Adjustments for outliers, area wages, and indirect medical 
education. The Department of Defense may, but is not required by this 
part, to adjust cost determinations in particular cases for length-of-
stay outliers (long stay and short stay), cost outliers, area wage 
rates, and indirect medical education. If any such adjustments are 
used, the method shall be comparable to that used for CHAMPUS hospital 
reimbursements pursuant to 32 CFR part 199, paragraph 
199.14(a)(1)(iii)(E), and the calculation of the standardized amount 
under paragraph (a)(2) of this section will reflect that such 
adjustments will be used.
    (5) Identification of professional and hospital costs. For purposes 
of billing third party payers other than automobile liability and no-
fault insurance carriers, billings will be subdivided into three 
categories:
    (i) Hospital charges (which refers to routine services charges 
associated with the hospital stay).
    (ii) Professional charges (which refers to professional services 
provided by physicians and certain other providers).
    (c) Clinical groups per diem rates for care provided on or after 
October 1, 1992, and prior to October 1, 1994. For inpatient hospital 
care provided on or after October 1, 1992, and prior to October 1, 
1994, the computation of reasonable costs shall be based on the per 
diem full reimbursement rate applicable to the clinical category of 
services involved.* * *
    (d) Special rule for partnership program providers. In cases in 
which the professional provider services are provided under the 
Partnership Program (or similar program operated under the authority of 
10 U.S.C. 1096), the professional charges component of the total 
standard rate will be deleted, as applicable, from the claim from the 
facility of the Uniformed Services. The third party payer will receive 
a claim for professional services directly from the individual 
healthcare provider, who is not an employee or agent of the Department 
of Defense. Such claims are not covered by 10 U.S.C. 1095 or this part, 
but are governed by statutory and regulatory requirements of the 
CHAMPUS program (see 32 CFR part 199). The same is true for 
professional services provided on an outpatient basis under the 
Partnership Program.
    (e) Per visit rates.
    (1) As authorized by 10 U.S.C. 1095(f)(2), the computation of 
reasonable costs for purposes of collections for most outpatient 
services shall be based on a per visit rate for a clinical specialty or 
subspecialty. The per visit charge shall be equal to the outpatient 
full reimbursement rate for that clinical specialty or subspecialty and 
includes all routine ancillary services. A separate charge will be 
calculated for cases that are considered same day/ambulatory surgeries. 
These rates shall be updated and published annually. As with inpatient 
billing categories, clinical groups representing selected board 
certified specialties/subspecialties widely accepted by graduate 
medical accrediting organizations such as the Accreditation Council for 
Graduate Medical Education (ACGME) or the American Board of Medical 
Specialties will be used for ambulatory billing categories. Related 
clinical groups may be combined for purposes of billing categories.
    (2) The following clinical reimbursement categories are 
representative, but not all-inclusive of the billing category clinical 
groups referred to in paragraph (E)(1) of this section: Internal 
Medicine, Allergy, Cardiology, Diabetic, Endocrinology, 
Gastroenterology, Hematology, Hypertension, Nephrology, Neurology, 
Nutrition, Oncology, Pulmonary Disease, Rheumatology, Dermatology, 
Infectious Disease, Physical Medicine, General Surgery, Cardiovascular 
and Thoracic Surgery, Neurosurgery, Ophthalmology, Organ Transplant, 
Otolaryngology, Plastic Surgery, Protology, Urology, Pediatric Surgery, 
Family Planning, Obstetrics, Gynecology, Pediatrics, Adolescent 
Pediatrics, Well Baby, Orthopaedics, Cast, Orthotic Laboratory, Hand 
Surgery, Podiatry, Psychiatry, Psychology, Child Guidance, Mental 
Health, Social Work, Substance Abuse Rehabilitation, Family Practice, 
and Occupational and Physical Therapy.
* * * * *
    (g) Special rule for services ordered and paid for by a facility of 
the Uniformed Services but provided by another provider. In cases where 
a facility of the Uniformed Services purchases ancillary services or 
procedures, from a source other than a Uniformed Services facility, the 
cost of the purchased services will be added to the standard rate. 
Examples of ancillary services and other procedures covered by this 
special rule include (but are not limited to): laboratory, radiology, 
pharmacy, pulmonary function, cardiac catheterization, hemodialysis, 
hyperbaric medicine, electrocardiography, electroencephalography, 
electroneuromyography, pulmonary function, inhalation and respiratory 
therapy and physical therapy services.
    (h) Special rule for certain ancillary services ordered by outside 
providers and provided by a facility of the Uniformed Services. If a 
Uniformed Services facility provides certain ancillary services, 
prescription drugs or other procedures based on a request from a source 
other than a Uniformed Services facility and are not incident to any 
outpatient visit or inpatient services, the reasonable cost will not be 
based on the usual per diem or per visit rate. Rather, a separate 
standard rate shall be established based on the cost of the particular 
high-cost service, drug or procedure provided. This special rule 
applies only to services, drugs or procedures having a cost of at least 
$60. The reasonable cost for the services, drugs or procedures to which 
this special rule applies shall be calculated and published annually.
    (i) Miscellaneous health care services. Some outpatient services 
are provided which may not traditionally be provided in hospitals or 
which are not traditional clinical specialties or subspecialties. This 
includes, but is not limited to, land ambulance service, air ambulance 
service, hyperbaric treatments, dental care services and immunications.
    (1) The charge for ambulance services shall be based on the full 
costs of operating the ambulance service.
    (2) For hyperbaric treatments (such as high pressure oxygenation 
treatments, burn treatments and decompression treatments in response to 
diving incidents), charges will be based on the full operating costs of 
the hyperbaric treatment services.
    (3) Charges for dental services (including oral diagnosis and 
prevention, periodontics, prosthodontics (fixed and removable), 
implantology, oral surgery, orthodontics, pediatric dentistry and 
endodontics) will be based on a full cost of the dental services.
    (4) The charge for immunications, allergin extracts, allergic 
condition tests, and the administration of certain medications when 
these services are provided in a separate immunizations or shot clinic, 
will be based on the average full cost of these services, exclusive of 
any costs considered for purposes of any outpatient visit. A separate 
charge shall be made for each immunization, injection or medication 
administered.
* * * * *
    (1) Alternative determination of reasonable costs. Any third party 
payer that can satisfactorily demonstrate a prevailing rate of payment 
in the same geographic area for the same or similar aggregate groups of 
services that is less than the standard rate (or other amount as 
determined under paragraphs (f) through (k) of this section) of the 
facility of the Uniformed Services may, with the agreement of the 
facility of the Uniformed Services (or other authorized representatives 
of the United States), limit payments under 10 U.S.C. 1095 to that 
prevailing rate for that aggregate category of services. The 
determination of the third party payer's prevailing rate shall be based 
on a review of valid contractual arrangements with other facilities or 
providers constituting a majority of the services for which payment is 
made under the third party payer's plan. This paragraph does not apply 
to cases covered by Sec. 220.11.
* * * * *
    3. Section 220.10 is proposed to be amended by revising paragraph 
(c)(1)(ii), as follows:


Sec. 220.10  Special rules for Medicare supplemental plans.

* * * * *
    (c) Charges for health care services other than the inpatient 
hospital deductible amount.
    (1) * * *
    (ii) Include adjustments, as appropriate, to identify major 
components of the all inclusive per diem or per visit rates for which 
Medicare has special rules.
* * * * *
    Dated: April 22, 1994.
L. M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 94-10126 Filed 4-26-94; 8:45 am]
BILLING CODE 5000-04-M