[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15700]


[[Page Unknown]]

[Federal Register: June 29, 1994]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN-0720-AA23

 

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

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed Rule.

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SUMMARY: This proposed rule is to reform CHAMPUS quality of care 
standards and reimbursement methods for inpatient mental health 
services. The rule would update existing standards for residential 
treatment centers (RTCs) and establish new standards for approval as 
CHAMPUS-authorized providers for substance abuse rehabilitation 
facilities and partial hospitalization programs; implement 
recommendations of the Comptroller General of the United States that 
DoD establish cost-based reimbursement methods for psychiatric 
hospitals and, residential treatment facilities; adopt another 
Comptroller General recommendation that DoD reverse the current 
incentive for the use of inpatient mental health care; and eliminate 
payments to residential treatment centers for days in which the patient 
is on a leave of absence.

DATES: Written comments must be received on or before August 29, 1994.

ADDRESSES: Office of the Civilian Health and Medical Program of the 
Uniformed Services (OCHAMPUS), Office of Program Development; Aurora, 
Colorado 80045-6900.

FOR FURTHER INFORMATION CONTACT:
CFR Deborah Kamin, NC, USN, Office of the Assistant Secretary of 
Defense (Health Affairs), (703) 697-8975.
    Questions regarding payment of specific claims should be addressed 
to the appropriate CHAMPUS contractor.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Quality assurance and cost effectiveness of mental health care 
services under CHAMPUS continue to be major reform issues for the 
Defense Department and Congress. In recent years, a series of DoD 
initiatives, legislative and regulatory actions, and Congressional 
hearings has spotlighted both progress made and the need for more 
improvement.
    Two recent Comptroller General Reports are indicative of the 
importance of these issues and the need for reform. The first of these, 
``Defense Health Care: Additional Improvements Needed in CHAMPUS's 
Mental Health Program,'' GAO/HRD-93-34, May 1993, stated that, although 
DoD has taken actions to improve the program, ``several problems 
persist.'' The Report (hereafter referred to as ``GAO Report #1'') 
elaborated:

    For example, reviews of medical records have identified numerous 
instances of poor medical record documentation, potentially 
inappropriate admissions, excessive hospital stays, and poor-quality 
care. Also, inspections of RTCs [Residential Treatment Centers] 
continue to reveal significant health and safety problems, and 
corrective actions often take many months.
    Moreover, DoD * * * pays considerably higher rates for 
comparable services than do other public programs.

GAO Report #1, p. 2. The Report referenced the General Accounting 
Office's 1991 Congressional testimony regarding CHAMPUS mental health 
care and inspections of residential treatment facilities conducted for 
DoD since then:

    Inspections conducted since our 1991 testimony have identified 
some of the same problems we described then: unlicensed and 
unqualified staff, inappropriate use of seclusion and medication, 
inadequate staff-to-patient ratios, and inadequate documentation of 
treatment.

GAO Report #1, p. 5.
    The principal conclusions of this Report were: (1) ``standards, 
which include termination for noncompliance, should be specified and 
termination proceedings, time frames, and reinspection provisions * * * 
should be adopted;'' and (2) because ``DoD reimburses psychiatric 
hospitals and RTCs at higher rates than do other government payers, it 
should modify its payment system to more closely resemble other 
programs such as Medicare.'' GAO Report #1, p. 9.
    A second recent Comptroller General Report, ``Psychiatric Fraud and 
Abuse: Increased Scrutiny of Hospital Stays is Needed to Lessen Federal 
Health Program Vulnerability,'' GAO/HRD-93-92, September 1993, also 
called for improvements in the CHAMPUS mental health program. The 
Report (hereafter referred to as GAO Report #2) said:

    Investigations to date have revealed that federal health 
programs have been subject to fraudulent and abusive psychiatric 
hospital practices, but apparently to a lesser extent than private 
insurers. * * *
    Some federal control weaknesses do exist which have resulted in 
unnecessary hospital admissions, excessive stays, and sometimes 
inadequate quality of care. * * *
    DoD has also identified numerous instances of quality problems 
and unnecessary hospital admissions.

GAO Report #2, pp. 9-10.
    These two recent Comptroller General Reports, as well as a 
substantial body of other documentation, highlight the need for a very 
active quality assurance program. As discussed further below, two 
primary issues are presented. First, there is a need for clear, 
specific standards for psychiatric facilities on staff qualifications, 
clinical practices, and all other aspects directly impacting the 
quality of care. These standards are needed for residential treatment 
facilities, substance abuse rehabilitation facilities, and partial 
hospitalization programs. These standards will help bring those 
facilities, a minority in the industry, that are unwilling or unable to 
comply with necessary requirements, up to an appropriate standard of 
care.
    The second key issue is reimbursement rates. As documented by the 
Comptroller General, CHAMPUS needs to discontinue payment rates based 
on historical billed charges and establish payment rates based on the 
actual costs of providing the services. Payment methodologies used by 
Medicare provide the appropriate model, with provisions to assure that 
rates are based on costs for a broad range of patients, not just the 
elderly.
    This proposed rule seeks public comment on our plan to adopt 
reforms on these two primary issues. The rule would put in place as 
part of the CHAMPUS regulation comprehensive quality of care 
certification standards for residential treatment facilities, substance 
abuse rehabilitation facilities, and partial hospitalization programs. 
It would also phase in gradually a cost-based reimbursement system for 
psychiatric hospitals and residential treatment facilities. In 
addition, the rule includes proposals on several other issues, 
addressed below.

II. Provisions of Proposed Rule To Reform Certification Standards For 
Mental Health Care Facilities

    The Comptroller General's call for stronger management by CHAMPUS 
to assure quality of care in the mental health programs was based 
partially on a review of serious abuses on the part of some providers. 
The GAO presented audit findings identifying program weaknesses. As one 
of four states which account for more than half of CHAMPUS mental 
health hospital costs, Texas surfaced in recent audits as number one in 
CHAMPUS mental health expenditures. Of particular concern are practices 
described during 1991 hearings conducted before the Texas state senate 
and summarized in GAO report #2. In over 80 hours of testimony, 175 
witnesses--some beneficiaries of federal programs--brought forth 
allegations which included exorbitant charges for care never rendered; 
Kickbacks for patient referrals; restraint of voluntary patients 
against their will; discharge of patients upon exhaustion of benefits, 
regardless of their condition; and isolation of family from patients 
including withholding of visitation and mail/telephone privileges. 
While privately insured patients are the most common target of 
unethical practices, increasing benefit limits and payment controls by 
private third party payers may place federal programs at increased risk 
for fraudulent practices. GAO auditors point out that, because CHAMPUS 
reimburses mental health at rates higher than other federal programs, 
it may be particularly vulnerable to the minority of unethical 
providers seeking additional revenue sources.
    Other abuses among some mental health providers were also 
documented in recent Congressional hearings. The House Select Committee 
on Children, Youth and Families, chaired by Representative Patricia 
Schroeder, conducted hearings on the U.S. mental health system in April 
1992. The hearing was entitled, ``The Profits of Misery: How Inpatient 
Psychiatric Treatment Bilks the System and Betrays Our Trust.'' 
Witnesses testifying before the committee cited numerous abuses in the 
mental health industry which included treatment up to the point of 
benefit exhaustion regardless of health status, manipulative 
advertising campaigns, placement of ``volunteers'' in school counseling 
offices for the purpose of recruiting patients, and billing for 
physician services actually provided by other health workers.
    The GAO, represented by David Baine, Director of Federal Health 
Care Delivery issues, testified to disturbing results obtained by a 
CHAMPUS contractor, Health Management Strategies International (HMSI), 
during focused and quarterly reviews of mental health facilities. In a 
substantial number of cases reviewed, medical records failed to 
document medical necessity for an admission and two-thirds of cases 
reviewed did not meet critical quality-of-care criteria or lacked 
evidence to make such a determination. In focused reviews, unnecessary 
admissions ranged from 26 to 91 percent of cases sampled.
    In his testimony before the committee, Dr. Melvin Sabshin, Medical 
Director of the American Psychiatric Association, expressed concern 
over inappropriate and abusive psychiatric practices and committed the 
APA to ``strengthening laws to protect psychiatric hospital patients.'' 
Additionally, Dr. Sabshin cited recent adoption of APA guidelines 
governing the hospitalization of minors. These guidelines will serve to 
``protect children against needless hospitalization and deprivation of 
liberty, and to enable medical decisions to be made in response to 
clinical needs and in accordance with sound psychiatric judgment.''
    Echoing concern over breaches in professional ethics, Dr. Richard 
Cohen, President of the American Academy of Child and Adolescent 
Psychiatry, provided a policy statement for the record which identified 
as unethical any mental health program offering financial reward in 
exchange for admissions, programs allowing admission decisions by other 
than qualified psychiatrists, and ``misleading, guilt-provoking, or 
unduly alarming advertising to promote self-referrals and admissions.'' 
Individual providers, professional associations, other members of the 
mental health community and beneficiaries testified to an array of 
problems in quality of care and utilization management. Numerous calls 
were made to strengthen existing legislation, improve professional 
standards and provide closer monitoring to ensure appropriate and cost 
effective treatment.
    Based on information provided to the Committee, Chairwoman 
Schroeder stated:

    Clearly this business of treating minds--particularly this big 
business of treating young minds has not policed itself, and has no 
incentive to put a stop to the kinds of fraudulent and unethical 
practices that are going on. This leads me to conclude that Federal 
and State oversight must be increased.

Hearing, p. 2.
    In recent years, the Department has worked to strengthen oversight 
and monitoring of mental health programs, particularly with respect to 
treatment of children and adolescents. Through the contract with HMSI, 
and other efforts, CHAMPUS has paid much more attention to care in 
RTCs. In April of 1992, Health Management Strategies International 
(HMSI) expressed specific concerns about several of the CHAMPUS-
authorized residential treatment centers. Numerous quality of care 
issues surfaced during on-site facility visits to residential treatment 
centers where CHAMPUS beneficiaries were receiving care. Here are 
several examples:

--Unqualified staff were providing individual, group and family 
therapy. For example, group therapy was being conducted by child 
care workers with high school diplomas.
--Patient treatment was not being directed by qualified 
psychiatrists. At one facility, psychiatry residents were acting as 
facility medical directors. In some facilities, one psychiatrist may 
be responsible for as many as 90 children and their families, 
seriously limiting professional time available for individual 
attention.
--Several facilities failed to individualize treatment plans. At one 
facility all treatment plans were the same, regardless of history, 
needs or problems. Similarly, some facilities were discovered to 
focus on one type of treatment to the exclusion of all other 
approaches. This was true regardless of whether or not patients 
responded to this type of treatment.
--In several facilities, registered nurses were not available on a 
full-time basis. For example, at one facility children were ordering 
their own medications ``as needed'' and medications were dispensed--
without further evaluation--by untrained child care workers. In one 
instance a child who developed tardive dyskinesia (a motion disorder 
resulting from medication) was described by a child care worker as 
having a ``nervous tic.''
--There was evidence of excessive use of restraints and seclusion as 
methods of behavioral management. Examples include placing children 
as young as three or four in restraint and seclusion; secluding 
neurologically impaired children because of screaming or inability 
to follow directions; and locking children who cannot write in 
seclusion because they failed to write essays about their behavior. 
In one facility, seclusion was used 146 times in one month. The 
practice of zipping children into so-called ``body bags'' was 
employed by several facilities. Use of a body bag, which leaves an 
opening only for the head, carries risk of overheating to the point 
of lethal hyperthermia. One facility policy governing this practice 
did not require physician evaluation of the patient for 72 to 96 
hours after the event.
--Many facilities did not offer the required range of services. For 
example, since unskilled child care workers were supervising play, 
activity therapy was not being used as treatment. Also, a number of 
facilities failed to incorporate basic life skills with other 
treatment. Many children facing independent living after discharge 
were not able to negotiate activities such as making telephone 
calls, making change, planning meals, and riding a bus.
--Certain RTCs employed unnecessary strip searches and other 
intrusive acts. Searches involve adult authority figures forcing 
children between the ages of four and 18 to remove all clothing and 
submit to cavity searches. Cavity searches involve finger probes to 
the mouth, vagina, and rectum. Some facilities were requiring such 
searches whenever the patient returned from a pass or having a 
visitor. In many cases, children subjected to such searches were 
victims of abuse and, for some, these methods of search re-enact the 
original trauma.

    These HMSI case findings pointed out shortcomings in practices in 
some RTCs that can be addressed through improved standards. Although 
standards for residential treatment centers exist, they have evolved 
over time from attempts to address individual issues with incremental 
change. Further, existing CHAMPUS standards for residential treatment 
centers were written as supplements to standards employed to the Joint 
Commission on Accreditation of Hospital Organization (JCAHO). In recent 
years, the JCAHO has moved toward a more general set of facility 
standards, with less specific reference to unique requirements of 
medical specialties. The result has been that CHAMPUS standards--which 
were not intended to stand alone--do not address the full spectrum of 
requirements and expectations for mental health facilities and 
providers.
    Orginally drafted in the late 1970s, CHAMPUS standards for RTCs 
have undergone multiple revisions to ensure they reflect currently 
accepted clinical practice. This rule will incorporate revisions 
necessary to update existing standards. With shorter lengths of stay in 
acute care facilities, mental health patients are reaching residential 
treatment centers at earlier--and less stable--stages of treatment. 
Similar to trends in other medical specialties, the growing intensity 
of illness among inpatients has dictated a need for higher standards of 
care and increasing levels of professional supervision and treatment. 
Current CHAMPUS standards for RTCs must be updated to reflect more 
clearly professional skill levels and intervention strategies employed 
in today's mental health environment. Based on a clear record of 
problems among some institutional mental health providers and the 
shortcomings of current standards, DoD has developed a comprehensive, 
unified set of standards for residential treatment centers, partial 
hospitalization programs and substance use disorder rehabilitation 
facilities. This rule would update existing standards to reflect 
current mental health practices, account for policy shifts in the 
JCAHO, and communicate clearly CHAMPUS policy with regard to quality 
and scope of care provided to its beneficiaries.
    The proposed standards will work to prevent recurrence of abuses 
such as those discussed by defining more completely and specifically 
quality indicators which will be used to judge care rendered in these 
facilities. Among areas addressed by the standards are:

--Qualifications and authority of medical director. Proposed 
standards require the medical director of any RTC have completed an 
approved residency in psychiatry and have at least five years 
experience in treating children and adolescents. In addition to 
oversight of all clinical care provided, standards for RTCs, 
substance abuse rehabilitation facilities and partial 
hospitalization programs outline specific requirements for medical 
director participation in program development, peer review, medical 
staff supervision, quality monitoring and improvement and 
coordination with the governing body.
--Adequate staffing with qualified professionals. Proposed standards 
require written staffing plans. Specific information is provided 
concerning requirements for staffing levels and professional 
qualifications 24 hours per day, seven days per week (or, in the 
case of partial hospitalization programs, during all hours of 
operation). Standards require that all clinical care provided under 
clinical supervision is the responsibility of a licensed or 
certified mental health professional. Additionally, there must be 
evidence to show that ultimate authority for medical management of 
care is vested in a physician.
--Patient rights and limitations on use of seclusion and restraint. 
Standards require provisions for protection of all individual 
patient rights, including civil rights, provided for under federal 
law and the laws of the state where the residential treatment center 
is located. Specific requirements address privacy, personal 
freedoms, contact with families and environmental safety. Detailed 
guidelines for use, supervision and medical monitoring of behavior 
management--including use of seclusion and restraint--are also 
provided.
--Implementation of individualized treatment plans addressing each 
patient's needs. Responsibility for development, supervision, 
implementation and assessment of written, individualized and 
interdisciplinary treatment plans is assigned to a psychiatrist or 
doctoral level clinical psychologist. Treatment goals must be 
communicated to the family, must undergo regular review and must 
include specific, measurable and observable criteria for discharge.
--Comprehensive evaluation system to guide an ongoing quality 
improvement program. Proposed standards provide detailed 
expectations with respect to evaluation systems by which quality, 
efficiency, appropriateness and effectiveness of care, treatments, 
and services are provided. The evaluation system must involve all 
disciplines, services, and programs of the facility, including 
administrative and support staff activities. Responsibility for 
development and implementation of quality assurance and quality 
improvement programs rests with the medical director and must 
support overall facility philosophical assumptions and values.

    Proposed standards are designed to foster interdisciplinary 
communication and patient protection through involvement and oversight 
of the Governing Body, Chief Executive Officer, Medical Director, and 
Professional Staff with respect to administrative, utilization review, 
and clinical activities. Based on DoD experience, on-site review of 
residential treatment centers, and testimony obtained during 
Congressional hearings, DoD has strengthened standards for substance 
abuse treatment programs in a manner similar to residential treatment 
centers. For partial hospitalization, proposed standards occur as part 
of implementation of this new benefit, which became effective September 
29, 1993.
    This proposed rule incorporates basic requirements governing 
CHAMPUS approval of facilities providing mental health services as 
residential treatment centers, as partial hospitalization providers, 
and substance use disorder rehabilitation facilities. More detailed 
definition of these basis standards will be issued under the authority 
of this regulation. It should be noted that only the requirements 
included in the final regulation will, by themselves, have the force 
and effect of law. Additional detail in the more lengthy standards are 
extensions of the regulation. They do not independently have the force 
and effect of law. Rather, they establish the agency's interpretations 
of regulation and will serve as guidelines for compliance with the 
regulatory requirements. The complete proposed standards are available 
to the public from the office of CHAMPUS. These more lengthy standards 
will be finalized coincident with the issuance of the final regulation.
    CHAMPUS must have some means of differentiating among RTCs, 
Substance Use Disorder Rehabilitation Facilities, and Partial 
Hospitalization Programs in order to select and certify only those 
facilities capable of fully meeting the needs of its beneficiaries.

III. Provisions of Proposed Rule To Reform Payment Methods For Mental 
Health Care Facilities

    The proposed rule closely follows the Comptroller General's 
recommendations regarding payment reform for mental health care 
facilities. The Comptroller General's findings regarding current 
CHAMPUS payment rates are especially noteworthy. According to the 
Report: ``Our work indicates that DoD pays psychiatric facilities 
considerably more than other government programs do for comparable 
services.'' GAO Report #1, p. 6. The Comptroller General very 
accurately summarized the background of the current CHAMPUS payment 
methods for psychiatric hospitals and RTCs:

    Although the current CHAMPUS system of per diem reimbursements 
has helped limit program cost increases for inpatient mental health, 
the per diem rates were based on providers' billed charges, not 
their costs. The rates were based on billing data from a period when 
providers' charges were not subject to controls and had just 
increased significantly. Before 1989 when no upper limit on rates 
existed, hospitals and RTCs essentially set their own CHAMPUS 
payment rates. Before the per diem calculations, hospitals and RTC 
rates increased significantly. For example, average daily charges 
per CHAMPUS inpatient day rose by 17 percent from fiscal years 1987 
to 1988. One RTC boosted its daily charges from an average of $331 
in fiscal year 1987 to $531 in June 1988--a 60% increase.

GAO Report #1, pp 6-7.
    Because CHAMPUS payments are based on historical billed charges, 
they substantially exceed the facilities' actual costs and Medicare 
reimbursement rates. Based on an analysis of payments to a number of 
high CHAMPUS volume psychiatric hospitals, the Comptroller General 
concluded: ``The hospitals made large profits, on average, on CHAMPUS 
patients.'' GAO Report #1, p. 7. More specifically, based on fiscal 
year 1990 payments.:

    Subtracting their average daily costs from the CHAMPUS per diem 
rates revealed an average daily profit on CHAMPUS patients of about 
$99, or about 22% above the average cost per inpatient day. In 
contrast, the average profit margin per day for other patients and 
payers was about $66 or 14% above the average daily costs.

Id. The degree to which CHAMPUS currently overpays facilities is even 
more dramatically shown in comparison with Medicare rates. According to 
the Comptroller General: On average, the hospitals were paid 39 percent 
more per day for CHAMPUS patients than for Medicare patients.'' Id. In 
the aggregate CHAMPUS paid an average of $170 per day more than the 
Medicare-allowed daily costs, ``and this was more than 15 times larger 
than the average Medicare-allowed profit.'' Id.
    A similar pattern emerges on payment rates for RTCs. Using fiscal 
year 1991 data, the Comptroller General compared CHAMPUS payments to 
state-authorized daily rates for a number of RTCs in Florida and 
Virginia, and found that the average daily CHAMPUS rate was 36 percent 
more than the average state rate. RTC cost data were available for 
three RTCs in Texas, the state with the highest total CHAMPUS RTC 
costs. These data showed ``an average profit margin of 27 percent.'' 
Id., p. 8. The Comptroller General also stated that the index factor 
used to annually update CHAMPUS RTC per diems, the consumer price index 
for urban medical services (CPI-U), results in excessive increases. The 
GAO Report says the hospital market basket index factor that CHAMPUS 
and Medicare use for hospital payments ``would be more appropriate than 
the CPI-U because it reflects increases in the amounts hospitals pay 
for goods and services'' rather than ``increases in charges by health 
practitioners and facilities.'' Id.
    The problem of excessive payments also involves drug and alcohol 
abuse rehabilitation facilities, which continue to be paid by CHAMPUS 
billed charges. According to the Comptroller General:

    These facilities set their own fees and can increase them 
freely--without controls over their charges. Some of these 
facilities are paid more on a daily basis than are psychiatric 
hospitals. Id.

    Based on these findings, the Comptroller General recommended that 
the Secretary of Defense:

    Establish a system of reimbursing psychiatric facilities, RTCs, 
and specialized treatment facilities based on a cost-based system 
similar to Medicare, adjusted appropriately for differences in 
beneficiary demographics, rather than the present per diem or billed 
charges system.

Id., p. 10.
    This proposed rule would do that. It is based on the legal 
authority of 10 U.S.C. section 1079(j)(2), which calls on CHAMPUS 
generally to adopt reimbursement rules similar to Medicare's for health 
care facilities. For facilities except from the Medicare Prospective 
Payment System Medicare pays on the basis of the facility's allowable 
costs, as reflected on a Medicare cost report.
    Under the proposed rule, CHAMPUS payments to specialty psychiatric 
hospitals and units and residential treatment facilities would 
gradually transition from the present system of per diem rates based on 
historical billed charges to a new system of per diem rates based on 
facility costs. Where possible, Medicare cost reports for the most 
current period will be used to calculate base year costs.
    For inpatient mental health hospital care in specialty psychiatric 
hospitals and units, two sets of per diem rates will be established. 
One set of per diems applies to hospitals and units that have a 
relatively higher number of CHAMPUS discharges (at least 50). For these 
hospitals and units, the system uses hospital-specific per diem rates 
based on the hospital's average Medicare inpatient operating cost, 
including pass through cost, per day. Hospital-specific per diem rates 
would be subject to a cap, set at two standard deviations above the 
mean per diem for all higher volume hospitals.
    The other set of per diems applies to hospitals and units with a 
relatively lower number of CHAMPUS discharges. For these hospitals and 
units, the system uses a national per diem, based on the average 
Medicare inpatient operating cost per day, including pass through 
costs, for all patients in all CHAMPUS lower volume hospitals and units 
which file Medicare cost reports, adjusted for local area wage 
differences and facility/type teaching status. Costs will be determined 
from the Medicare cost reports filed by those hospitals for a recent 
base year, updated to the year for which the payment rate will be used.
    With respect to RTC's, the proposed rule would establish a similar 
payment structure. For RTCs that have a relatively higher number of 
CHAMPUS discharges (again, 50 or more per year), RTC-specific per diem 
rates would be established based on the RTC's average allowable cost 
per day, subject to a cap comparable to that set for psychiatric 
hospitals. For RTCs with a relatively lower number of CHAMPUS 
discharges, the system uses a national per diem adjusted for area 
wages. Costs will be based on the cost per day for all patients in all 
CHAMPUS lower volume RTCs in the nation which file cost reports (or an 
appropriate sample of such facilities). If data from cost reports are 
insufficient to establish a national rate, an alternative method will 
be available, based on RTC charges, adjusted by the cost-to-charge 
applicable to free-standing, non-teaching psychiatric hospitals.
    Beginning in fiscal year 1995, per diem rates for both psychiatric 
hospitals and RTCs would undergo transition from charge-based to cost-
based rates. For psychiatric hospitals, the transition will occur over 
three years. For RTCs, to provide time for collection of cost reports, 
the transition will occur over four years. For psychiatric hospitals, 
during the transition years, in the cost-based per diem is less than 
the fiscal year 1994 per diem, OCHAMPUS will pay a blended rate 
calculated to phase in the cost-based rate by fiscal year 1997. For 
fiscal year 1995, the blended rate will be two-thirds of the 1994 per 
diem plus one-third of the cost-based rate. For fiscal year 1996, the 
blended rate will be one-third of the 1994 per diem plus two-thirds of 
the cost-based rate. Beginning in fiscal year 1995, if the cost-based 
per diem exceeds the 1994 per diem rate, the cost based per diem will 
be used.
    We are aware that most RTCs do not currently file Medicare cost 
reports. For this reason, the Director, OCHAMPUS will establish an 
alternative method for obtaining the facility cost information 
necessary to calculate the per diem payment rates. State Medicaid cost 
reports are a probable source of the information, as may be other 
independently audited cost data. As a fall back, RTCs that have no 
administratively easy way to provide cost information may be excused 
from any such requirement and receive the national per diem rate. To 
allow time for the collection of cost data, cost-based rates will not 
be fully implemented until fiscal year 1998. Blended rates will be used 
in fiscal years 1996 and 1997. Fiscal year 1994 rates will be continued 
in fiscal year 1995.
    For both hospitals and RTCs, per day costs for individual 
facilities and regions will be calculated every three years. In the 
interim years, the per diem rates will be updated by the Medicare 
update factor for hospitals exempt from the Medicare Prospective 
Payment System.
    Importantly, the mechanism for calculation of actual costs for the 
facility will assure each hospital and RTC with substantial CHAMPUS 
business that all allowable costs will be recognized. This includes all 
increased costs the facility might incur in order to comply with the 
revised quality of care certification standards. If the facility must 
invest more resources in its clinical program in order to assure that 
it has qualified personnel, adequate staffing, an intensive therapeutic 
program, appropriate clinical interventions, and consistently good 
quality of care, those costs will be acknowledged in the CHAMPUS 
payment rate. Thus, although our proposed reforms may both push up 
facility costs and bring down reimbursement rates, our effort to tie 
payments to actual facility costs assures that we keep faith with the 
justifications for both actions.
    With respect to substance use disorder rehabilitation facilities, 
the proposed rule would include services provided by these facilities 
under the CHAMPUS DRG-based payment system. Currently, most substance 
use disorder rehabilitation services reimbursed by CHAMPUS are provided 
by facilities covered by the CHAMPUS DRG system or mental health per 
diem system. Only a small portion are provided by facilities that 
continue to be paid on the basis of billed charges. Under Medicare, 
these facilities are covered by the Medicare Prospective Payment 
System. Based on these factors, we believe inclusion of services 
provided by substance use disorder rehabilitation facilities should be 
included with the similar services already covered by the CHAMPUS DRG-
based payment system. Partial hospitalization for substance use 
disorder rehabilitation will be reimbursed in the same manner as 
psychiatric partial hospitalization programs.
    The proposed payment system changes appear at the proposed 
revisions to section 1994.14.

IV. Other Provisions of Proposed Rule

    A. Therapeutic leave of absence days.
    Currently, DoD pays RTCs for days a patient is away from the 
facility on an approved therapeutic leave of absence. The payment 
amount is 100% of the normal per diem for the first three days and 75% 
for additional days. It is our view that current rates are not 
justified by any costs to the facility. In addition, we are aware of no 
other public payer that pays for leave days. Therefore, the proposed 
rule would eliminate payment for days in which patients are on leave 
from the residential treatment center. Because the proposed rates are 
cost-based, facility costs associated with therapeutic leave should be 
captured in cost reports and reflected in the CHAMPUS reimbursement 
rates. We believe the proposed rates are adequate to cover the 
facility's overhead costs associated with reserving space for the 
patient's return. This change applies only to RTCs; in psychiatric 
hospitals, substance use disorder rehabilitation facilities and partial 
hospitalization programs, leave days are not reimbursed by CHAMPUS.
    B. Reversing incentive for inpatient care.
    Another of the recommendations of the Comptroller General was to 
``reverse the financial incentives to use inpatient care by introducing 
larger copayments for CHAMPUS inpatient care.'' GAO Report #1, p. 10. 
This recommendation was based on the Comptroller General's conclusion 
that there is a ``bias toward patients receiving inpatient rather than 
outpatient care'' because inpatient care is less expensive for 
dependents of active duty members than outpatient care. Id., p. 8-9. 
These beneficiaries currently pay $9.30 per day or $25 per admission, 
whichever is greater, for inpatient care. For outpatient care, 
dependents of active duty members pay a $150 deductible (subject to a 
$300 family limit) and 20 percent of the allowable payment for 
individual professional services. Consequently, as a general matter, 
there is a financial incentive for beneficiaries to seek services on an 
inpatient, rather than an outpatient, basis. Under 10 U.S.C. section 
1079(i)(2), DoD has authority to establish mental health copayment 
requirements different from those for other CHAMPUS services.
    The proposed rule would establish a per day copayment of $20 for 
dependents of active duty beneficiaries. This is based on the fact that 
an outpatient mental health visit is generally approximately $100, 
meaning that the copayment would be $20. Thus, an inpatient day would 
have a roughly equal beneficiary copayment as an outpatient visit 
(excluding the deductible). We believe this proposal addresses the 
Comptroller General's recommendation, without impairing access to care 
or imposing hardship on beneficiaries. (With respect to avoidance of 
hardship, we note that the catastrophic cap for active duty dependents 
is $1000 per family per year.)
    C. Equalization of alcoholism and drug abuse benefit provisions.
    The frequent coexistence of alcohol and other chemical dependency 
or abuse suggests existing differences in benefit structures for 
treatment of alcohol and drug abuse should be eliminated. This rule 
proposes to include treatment for both alcohol and drug dependency/
abuse under a broad benefit package designed to include treatment of 
all substance use disorders.

V. Rulemaking Procedures

    We are soliciting public comments on this proposed rule. We will 
address these comments in connection with the final rule, which will be 
issued in fiscal year 1994.
    Regarding other 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 
nation's economy of $100 million or more or have other substantial 
impacts. Section 605(b) of the Regulatory Flexibility Act 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 proposed rule is a significant regulatory action as determined 
by the Office of Management and Budget. Also, we certify that this 
proposed rule will not significantly affect a large number of small 
entities within the meaning of the Regulatory Flexibility Act. For the 
most part, this proposed rule would implement revised quality assurance 
standards and cost based reimbursement methods for mental health care 
facilities.
    This proposed rule does not impose new information collection 
requirements. The authority to require facility cost information 
currently exists in CFR 199.6(b)(4)(x)(B)(3)(v)(bb).

List of Subjects in 32 CFR Part 199

    Claims, Handicapped, Health insurance, and 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. 1079, 1086.

    2. Section 199.4 is proposed to be amended by revising the heading 
of paragraph (e)(4), paragraph (e)(4) introductory text, (e)(4)(i), 
(e)(4)(ii), and the introductory text of paragraph (f)(2)(ii), by 
adding new paragraphs (e)(4) (v) and (vi), and (f)(2)(ii)(D), as 
follows:


Sec. 199.4  Basic program benefits.

 * * * * *
    (e) * * *
    (4) Treatment of substance use disorders. Emergency and inpatient 
hospital care for complications of alcohol and drug abuse or dependency 
and detoxification are covered as for any other medical condition. 
Specific coverage for the treatment of substance use disorders includes 
detoxification, rehabilitation, and outpatient care provided in 
authorized substance use disorder rehabilitation facilities.
    (i) Emergency and inpatient hospital services. Emergency and 
inpatient hospital services are covered when medically necessary for 
the active medical treatment of the acute phases of substance abuse 
withdrawal (detoxification), for stabilization, and for treatment of 
medical complications of substance use disorders. Emergency and 
inpatient hospital services are considered medically necessary only 
when the patient's condition is such that the personnel and facilities 
of a hospital are required. Stays provided for substance use disorder 
rehabilitation in a hospital-based rehabilitation facility are covered, 
subject to the provisions of paragraph (e)(4)(ii) of this section. 
Inpatient hospital services also are subject to the provisions 
regarding the limit on inpatient mental health services.
    (ii) Authorized substance use disorder treatment. Only those 
services provided by CHAMPUS-authorized institutional providers are 
covered. Such a provider must be either an authorized hospital, or an 
organized substance use disorder treatment program in an authorized 
free-standing or hospital-based substance use disorder rehabilitation 
facility. Covered services consist of any or all of the services listed 
below. A qualified mental health provider (physicians, clinical 
psychologists, clinical social workers, psychiatric nurse specialists) 
(see paragraph (c)(3)(ix) of this section) shall prescribe the 
particular level of treatment. Each CHAMPUS beneficiary is entitled to 
three substance use disorder treatment benefit periods in his or her 
lifetime, unless this limit is waived pursuant to paragraph (e)(4)(v) 
of this section. (A benefit period begins with the first date of 
covered treatment and ends 365 days later, regardless of the total 
services actually used within the benefit period. Unused benefits 
cannot be carried over to subsequent benefit periods. Emergency and 
inpatient hospital services (as described in paragraph (e)(4)(i) of 
this section) do not constitute substance abuse treatment for purposes 
of establishing the beginning of a benefit period.)
    (A) Rehabilitative care. Rehabilitative care in an authorized 
hospital or substance use disorder rehabilitative facility, whether 
free-standing or hospital-based, is covered on either a residential or 
partial care (day or night program) basis. Coverage during a single 
benefit period is limited to no more than one inpatient stay (exclusive 
of stays classified in DRG 433) in hospitals subject to CHAMPUS DRG-
based payment system or 21 days in a DRG-exempt facility for 
rehabilitation care, unless the limit is waived pursuant to paragraph 
(e)(4)(v) of this section. If the patient is medically in need of 
chemical detoxification, but does not require the personnel or 
facilities of a general hospital setting, detoxification services are 
covered in addition to the rehabilitative care, but in a DRG-exempt 
facility detoxification services are limited to 7 days, unless the 
limit is waived pursuant to paragraph (e)(4)(v) of this section. The 
medical necessity for the detoxification must be documented. Any 
detoxification services provided by the substance use disorder 
rehabilitation facility must be under general medical supervision.
    (B) Outpatient care. Outpatient treatment provided by an approved 
substance use disorder rehabilitation facility, whether free-standing 
or hospital-based, is covered for up to 60 visits in a benefit period, 
unless the limit is waived pursuant to paragraph (e)(4)(v) of this 
section.
    (C) Family therapy. Family therapy provided by an approved 
substance use disorder rehabilitation facility, whether free-standing 
or hospital-based, is covered for up to 15 visits in a benefit period, 
unless the limit is waived pursuant to paragraph (e)(4)(v) of this 
section.
 * * * * *
    (v) Confidentiality. Release of any patient identifying 
information, including that required to adjudicate a claim, must comply 
with the provisions of section 544 of the Public Health Service Act, as 
amended, (42 U.S.C. 290dd-3), which governs the release of medical and 
other information from the records of patients undergoing treatment of 
substance abuse. If the patient refuses to authorize the release of 
medical records which are, in the opinion of the Director, OCHAMPUS, or 
a designee, necessary to determine benefits on a claim for treatment of 
substance abuse the claim will be denied.
    (vi) Waiver of benefit limits. The specific benefit limits set 
forth in paragraph (e)(4)(ii) of this section may be waived by the 
Director, OCHAMPUS in special cases based on a determination that all 
of the following criteria are met:
    (A) Active treatment has taken place during the period of the 
benefit limit and substantial progress has been made according to the 
plan of treatment.
    (B) Further progress has been delayed due to the complexity of the 
illness.
    (C) Specific evidence has been presented to explain the factors 
that interfered with further treatment progress during the period of 
the benefit limit.
    (D) The waiver request includes specific time frames and a specific 
plan of treatment which will complete the course of treatment.
* * * * *
    (f) * * *
    (2) * * *
    (ii) Inpatient cost-sharing. Except in the case of mental health 
services (see paragraph (f)(2)(ii)(D) of this section), dependents of 
active duty members of the Uniformed Services or their sponsors are 
responsible for the payment of the first $25 of the allowable 
institutional costs incurred with each covered inpatient admission to a 
hospital or other authorized institutional provider (refer to section 
199.6), or the amount the beneficiary or sponsor would have been 
charged had the inpatient care been provided in a Uniformed Service 
hospital, whichever is greater.
* * * * *
    (D) Inpatient cost-sharing for mental health services. The 
inpatient cost-sharing for mental health services is $20 per day for 
each day of the inpatient admission. This $20 per day cost sharing 
amount applies to admissions to any hospital for mental health 
services, any residential treatment facility, any substance abuse 
rehabilitation facility, and any partial hospitalization program 
providing mental health services.
    3. Section 199.6 is proposed to be amended by revising paragraphs 
(b)(4)(vii) and (b)(4)(xii), by removing paragraph (b)(4)(x)(B)(3), and 
by adding a new paragraph (b)(4)(xiii) to read as follows:


Sec. 199.6  Authorized providers.

* * * * *
    (b) * * *
    (4) * * *
    (vii) Residential treatment centers. This paragraph (b)(4)(vii) 
establishes standards and requirements for residential treatment 
centers (RTCs).
    (A) Organization and administration.
    (1) Definition. A Residential Treatment Center (RTC) is a facility 
or a distinct part of a facility that provides to beneficiaries under 
21 years of age a medically supervised, interdisciplinary program of 
mental health treatment. An RTC is appropriate for patients whose 
predominant symptom presentation is essentially stabilized, although 
not resolved, and who have persistent dysfunction in major life areas. 
The extent and pervasiveness of the patient's problems require a 
protected and highly structured therapeutic environment. Residential 
treatment is differentiated from:
    (i) Acute psychiatric care, which requires medical treatment and 
24-hour availability of a full range of diagnostic and therapeutic 
services to establish and implement an effective plan of care which 
will reverse life-threatening and/or severely incapacitating symptoms;
    (ii) Partial hospitalization, which provides a less than 24-hour-
per-day, seven-day-per-week for patients who continue to exhibit 
psychiatric problems but can function with support in some of the major 
life areas;
    (iii) A group home, which is a professionally directed living 
arrangement with the availability of psychiatric consultation and 
treatment for patients with significant family dysfunction and/or 
chronic but stable psychiatric disturbances;
    (iv) Therapeutic school, which is an educational program 
supplemented by psychological and psychiatric services;
    (v) Facilities that treat patients with a primary diagnosis of 
chemical abuse or dependence; and
    (vi) Facilities providing care for patients with a primary 
diagnosis of mental retardation or developmental disability.
    (2) Eligibility.
    (i) Every RTC must be certified pursuant to CHAMPUS certification 
standards. Such standards shall incorporate the basic standards set 
forth in paragraphs (b)(4)(vii) (A) through (D) of this section, and 
shall include such additional elaborative criteria and standards as the 
Director, OCHAMPUS determines are necessary to implement the basic 
standards.
    (ii) To be eligible for CHAMPUS certification, the facility is 
required to be licensed and fully operational for six months (with a 
minimum average daily census of 30 percent of total bed capacity) and 
operate in substantial compliance with state and federal regulations.
    (iii) The facility is currently accredited by the Joint Commission 
on Accreditation of Healthcare Organizations (JCAHO) under the current 
edition of the Manual for Mental Health, Chemical Dependency, and 
Mental Retardation/Developmental Disabilities Services which is 
available from JCAHO, P.O. Box 75751, Chicago, IL 60675.
    (iv) The facility has a written participation agreement with 
OCHAMPUS. The RTC is not a CHAMPUS-authorized provider and CHAMPUS 
benefits are not paid for services provided until the date upon which a 
participation agreement is signed by the Director, OCHAMPUS.
    (3) Governing body.
    (i) The RTC shall have a governing body which is responsible for 
the policies, bylaws, and activities of the facility. If the RTC is 
owned by a partnership or single owner, the partners or single owner 
are regarded as the governing body. The facility will provide an up-to-
date list of names, addresses, telephone numbers and titles of the 
members of the governing body.
    (ii) The governing body ensures appropriate and adequate services 
for all patients and overseas continuing development and improvement of 
care. Where business relationships exist between the governing body and 
facility, appropriate conflict-of-interest policies are in place.
    (iii) Board members are fully informed about facility services and 
the governing body conducts annual review of its performance in meeting 
purposes, responsibilities, goals and objectives.
    (4) Chief executive officer. The chief executive officer, appointed 
by and subject to the direction of the governing body, shall possess a 
master's degree in business administration, public health, hospital 
administration, nursing, social work, or psychology, or meet similar 
educational requirements as prescribed by the Director, OCHAMPUS or a 
designee. The CEO shall have five years' administrative experience in 
the field of mental health and shall assume overall administrative 
responsibility for the operation of the facility according to governing 
body policies.
    (5) Medical director. The medical director, appointed by the 
governing body, shall be licensed to practice medicine in the state 
where the residential treatment center is located and shall possess 
requisite education and experience, including graduation from an 
accredited school of medicine or osteopathy, an approved residency in 
psychiatry and a minimum of five years clinical experience in the 
treatment of children and adolescents. The Medical Director shall be 
responsible for the planning, development, implementation, and 
monitoring of all clinical activities.
    (6) Medical or professional staff organization. The governing body 
shall establish a medical or professional staff organization to assure 
effective implementation of clinical privileging, professional conduct 
rules, and other activities directly affecting patient care.
    (7) Personnel policies and records. The RTC shall maintain written 
personnel policies, updated job descriptions and personnel records to 
assure the selection of qualified personnel and successful job 
performance of those personnel.
    (8) Staff development. The facility shall provide appropriate 
training and development programs for administrative, professional 
support, and direct care staff.
    (9) Fiscal accountability. The RTC shall assure fiscal 
accountability to applicable government authorities and patients.
    (10) Designated teaching facilities. Students, residents, interns 
or fellows providing direct clinical care are under the supervision of 
a qualified staff member approved by an accredited university. The 
teaching program is approved by the Director, OCHAMPUS.
    (11) Emergency reports and records. The facility notifies OCHAMPUS 
of any serious occurrence involving CHAMPUS beneficiaries.
    (B) Treatment services.
    (1) Staff composition.
    (i) The RTC shall follow written plans which assure that medical 
and clinical patient needs will be appropriately addressed 24 hours a 
day, seven days a week by a sufficient number of fully qualified 
(including license, registration or certification requirements for 
independent practice, educational attainment, and professional 
experience) health care professionals and support staff in the 
respective disciplines. Clinicians providing individual, group, and 
family therapy meet CHAMPUS requirements as qualified mental health 
providers and operate within the scope of their licenses. The ultimate 
authority for medical management of care is vested in a physician.
    (ii) The center shall ensure that patient care needs will be 
appropriately addressed during all hours of operation by a sufficient 
number of fully qualified (including license, registration or 
certification requirements for independent practice, educational 
attainment, and professional experience) health care professionals and 
support staff in the respective disciplines. The ultimate authority for 
medical management of care is vested in a physician.
    (2) Staff qualifications. Within the scope of its programs and 
services, the facility has a sufficient number of professional, 
administrative and support staff to address the medical and clinical 
needs of patients and to coordinate services provided. RTCs that employ 
master's or doctoral level staff who are not qualified mental health 
providers have a supervision program to oversee and monitor their 
activities related to the provision of clinical care.
    (3) Patient rights.
    (i) The RTC shall provide adequate protection for all patient 
rights, including rights provided by law, privacy, personnel rights, 
safety, confidentiality, informed consent, grievances, and personal 
dignity.
    (ii) The facility has a written policy regarding patient abuse and 
neglect.
    (iii) Facility marketing and advertising meets professional 
standards.
    (4) Behavioral management. The RTC shall adhere to a comprehensive, 
written plan of behavioral management, developed by the medical 
director and the medical or professional staff and approved by the 
governing body, including strictly limited procedures to assure that 
the restraint or seclusion are used only in extraordinary 
circumstances, as determined by a psychiatrist, are carefully 
monitored, and are fully documented. Only trained and clinically 
privileged RNs or qualified mental health professionals may implement 
seclusion and restraint procedures in an emergency situation.
    (5) Admission process. The RTC shall maintain written policies and 
procedures to assure that prior to an admission, a determination is 
made by a psychiatrist or doctoral level clinical psychologist, and 
approved pursuant to CHAMPUS pre-authorization requirements, that the 
admission is medically and/or psychologically necessary and the program 
is appropriate to meet the patient's needs.
    (6) Assessment. The professional staff of the RTC shall provide a 
current multidisciplinary assessment which includes, but is not limited 
to physical, psychological, developmental, family, educational, social, 
spiritual and skills assessment of each patient admitted. Unless 
otherwise specified, all required clinical assessments are completed 
within 14 days of admission.
    (7) Clinical formulation. The psychiatrist or doctoral level 
psychologist shall be responsible for the clinical formulation which 
incorporates significant findings from each of the multidisciplinary 
assessments and provides the basis for development of an 
interdisciplinary treatment planning.
    (8) Treatment planning. The psychiatrist or doctoral level clinical 
psychologist with admitting privileges shall be responsible for the 
development, supervision, implementation, and assessment of a written, 
individualized, interdisciplinary plan of treatment, which shall be 
completed within 10 days of admission and shall include individual, 
measurable, and observable goals for incremental progress and 
discharge. A preliminary treatment plan is completed within 24 hours of 
admission and includes at least a physician's admission note and 
orders. The master treatment plan is reviewed and revised at least 
every 30 days, or when major changes occur in treatment.
    (9) Discharge and transition planning. The RTC shall maintain a 
transition planning process to address adequately the anticipated needs 
of the patient prior to the time of discharge. The planning involves 
determining necessary modifications in the treatment plan, facilitating 
the termination of treatment, and identifying resources to maintain 
therapeutic stability following discharge.
    (10) Clinical documentation. Clinical records shall be maintained 
on each patient to plan care and treatment and provide ongoing 
evaluation of the patient's progress. All care is documented and each 
clinical record contains at least the following: demographic data, 
consent forms, pertinent legal documents, all treatment plans and 
patient assessments, consultation and laboratory reports, physician 
orders, progress notes, and a discharge summary. Clinical records are 
maintained and controlled by an appropriately qualified records 
administrator. These requirements are in addition to other records 
requirements of this Part, and documentation requirements of the Joint 
Commission on Accreditation of Healthcare Organizations.
    (11) Progress notes. RTC's shall document the course of treatment 
for patients and families using progress notes which provide 
information to review, analyze, and modify the treatment plans. 
Progress notes are legible contemporaneous, sequential, signed and 
dated and adhere to applicable provisions of the Manual for Mental 
Health, Chemical Dependency, and Mental Retardation/Developmental 
Disabilities Services and requirements set forth in section 
199.7(b)(3).
    (12) Therapeutic services.
    (i) Individual, group, and family psychotherapy are provided to all 
patients, consistent with each patient's treatment plan, by qualified 
mental health providers.
    (ii) A range of therapeutic activities, directed and staffed by 
qualified personnel, are offered to help patients meet the goals of the 
treatment plan.
    (iii) Therapeutic educational services are provided or arranged 
that are appropriate to the patients educational and therapeutic needs.
    (13) Ancillary services. A full range of ancillary services is 
provided. Emergency services include policies and procedures for 
handling emergencies with qualified personnel and written agreements 
with each facility providing the service. Other ancillary services 
include physical health, pharmacy and dietary services.
    (C) Standards for physical plant and environment.
    (1) Physical environment. The buildings and grounds of the RTC 
shall be maintained so as to avoid health and safety hazards, be 
supportive of the services provided to patients, and promote patient 
comfort, dignity, privacy, personal hygiene, and personal safety.
    (2) Physical plant safety. The RTC shall be of permanent 
construction and maintained in a manner that protects the lives and 
ensures the physical safety of patients, staff, and visitors, including 
conformity with all applicable building, fire, health, and safety 
codes.
    (3) Disaster planning. The RTC shall maintain and rehearse written 
plans for taking care of casualties and handling other consequences 
arising from internal and external disasters.
    (D) Standards for evaluation system.
    (1) Quality assessment and improvement. The RTC shall develop and 
implement a comprehensive quality assurance and quality improvement 
program that monitors the quality, efficiency, appropriateness, and 
effectiveness of the care, treatments, and services it provides for 
patients and their families, primarily utilizing explicit clinical 
indicators to evaluate all functions of the RTC and contribute to an 
ongoing process of program improvement. The medical director is 
responsible for developing and implementing quality assessment and 
improvement activities throughout the facility.
    (2) Utilization review. The RTC shall implement a utilization 
review process, pursuant to a written plan approved by the professional 
staff, the administration, and the governing body, that assesses the 
appropriateness of admissions, continued stay, and timeliness of 
discharge as part of an effort to provide quality patient care in a 
cost-effective manner. Findings of the utilization review process are 
used as a basis for revising the plan of operation, including a review 
of staff qualifications and staff composition.
    (3) Patient records review. The RTC shall implement a process, 
including monthly reviews of a representative sample of patient 
records, to determine the completeness and accuracy of the patient 
records and the timeliness and pertinence of record entries, 
particularly with regard to regular recording of progress/non-progress 
in treatment plan.
    (4) Drug utilization review. The RTC shall implement a 
comprehensive process for the monitoring and evaluating of the 
prophylactic, therapeutic, and empiric use of drugs to assure that 
medications are provided appropriately, safely, and effectively.
    (5) Risk management. The RTC shall implement a comprehensive risk 
management program, fully coordinated with other aspects of the quality 
assurance and quality improvement program, to prevent and control risks 
to patients and staff and costs associated with clinical aspects of 
patient care and safety.
    (6) Infection control. The RTC shall implement a comprehensive 
system for the surveillance, prevention, control, and reporting of 
infections acquired or brought into the facility.
    (7) Safety. The RTC shall implement an effective program to assure 
a safe environment for patients, staff, and visitors, including an 
incident report system, a continuous safety surveillance system, and an 
active multidisciplinary safety committee.
    (8) Facility evaluation. The RTC annually evaluates accomplishment 
of the goals and objectives of each clinical program and service of the 
RTC and reports findings and recommendations to the governing body.
    (E) Participation agreement requirements. In addition to other 
requirements set forth in paragraph (b)(4)(vii), of this section in 
order for the services of an RTC to be authorized, the RTC shall have 
entered into a Participation Agreement with OCHAMPUS. The period of a 
participation agreement shall be specified in the agreement, and will 
generally be for not more than five years. Participation agreement 
entered into prior to October 1, 1994, must be renewed not later than 
April 1, 1995. In addition to review of a facility's application and 
supporting documentation, an on-site inspection by OCHAMPUS authorized 
personnel may be required prior to signing a Participation Agreement. 
Retroactive approval is not given. In addition, the Participation 
Agreement shall include provisions that the RTC shall, at a minimum:
    (1) Reader residential treatment center inpatient services to 
eligible CHAMPUS beneficiaries in need of such services, in accordance 
with the participation agreement and CHAMPUS regulation;
    (2) Accept payment for its services based upon the methodology 
provides in section 199.14 (f) or such other method as determined by 
the Director, OCHAMPUS;
    (3) Accept the CHAMPUS all-inclusive per diem rate as payment in 
full and collect from the CHAMPUS beneficiary or the family of the 
CHAMPUS beneficiary only those amounts that represent the beneficiary's 
liability, as defined in section 199.4, and charges for services and 
supplies that are not a benefit of CHAMPUS;
    (4) Make all reasonable efforts acceptable to the Director, 
OCHAMPUS, to collect those amounts, which represent the beneficiary's 
liability, as defined in section 199.4;
    (5) Comply with the provisions of section 199.8, and submit claims 
first to all health insurance coverage to which the beneficiary is 
entitled that is primary to CHAMPUS;
    (6) Submit claims for services provided to CHAMPUS beneficiaries at 
least every 30 days (except to the extent a delay is necessitated by 
efforts to first collect from other health insurance). If claims are 
not submitted at least every 30 days, the RTC agrees not to bill the 
beneficiary or the beneficiary's family for any amounts disallowed by 
CHAMPUS;
    (7) Certify that:
    (i) It is and will remain in compliance with the provisions of 
paragraph (b)(4)(vii) of this section establishing standards for 
Residential Treatment Centers;
    (ii) It has conducted a self assessment of the facility's 
compliance with the CHAMPUS Standards for Residential Treatment Centers 
Serving Children and Adolescents with Mental Disorders, as issued by 
the Director, OCHAMPUS and notified the Director, OCHAMPUS of any 
matter regarding which the facility is not in compliance with such 
standards; and
    (iii) It will maintain compliance with the CHAMPUS Standards for 
Residential Treatment Centers Serving Children and Adolescents with 
Mental Disorders, as issued by the Director, OCHAMPUS, except for any 
such standards regarding which the facility notifies the Director, 
OCHAMPUS that it is not in compliance.
    (8) Designate an individual who will act as liaison for CHAMPUS 
inquiries. The RTC shall inform OCHAMPUS in writing of the designated 
individual;
    (9) Furnish OCHAMPUS, as requested by OCHAMPUS, with cost data 
certified by an independent accounting firm or other agency as 
authorized by the Director, OCHAMPUS;
    (10) Comply with all requirements of this section applicable to 
institutional providers generally concerning preauthorization, 
concurrent care review, claims processing, beneficiary liability, 
double coverage, utilization and quality review and other matters;
    (11) Grant the Director, OCHAMPUS, or designee, the right to 
conduct quality assurance audits or accounting audits with full access 
to patients and records (including records relating to patients who are 
not CHAMPUS beneficiaries) to determine the quality and cost-
effectiveness of care rendered. The audits may be conducted on a 
scheduled or unscheduled (unannounced) basis. This right to audit/
review includes, but is not limited to:
    (i) Examination of fiscal and all other records of the RTC which 
would confirm compliance with the participation agreement and 
designation as an authorized CHAMPUS RTC provider;
    (ii) Conducting such audits of RTC records including clinical, 
financial, and census records, as may be necessary to determine the 
nature of the services being provided, and the basis for charges and 
claims against the United States for services provided CHAMPUS 
beneficiaries;
    (iii) Examining reports of evaluations and inspections conducted by 
federal, state and local government, and private agencies and 
organizations;
    (iv) Conducting on-site inspections of the facilities of the RTC 
and interviewing employees, members of the staff, contractors, board 
members, volunteers, and patients, as required;
    (v) Audits conducted by the United States General Accounting 
Office.
    (F) Other requirements applicable to RTCs.
    (1) Even though an RTC may qualify as a CHAMPUS-authorized provider 
and may have entered into a participation agreement with CHAMPUS, 
payment by CHAMPUS for particular services provided is contingent upon 
the RTC also meeting all conditions set forth in section 199.4 
especially all requirements of paragraph (b)(4) of that section.
    (2) The RTC shall provide inpatient services to CHAMPUS 
beneficiaries in the same manner it provides inpatient services to all 
other patients. The RTC may not discriminate against CHAMPUS 
beneficiaries in any manner, including admission practices, placement 
in special or separate wings or rooms, or provisions of special or 
limited treatment.
    (3) The RTC shall assure that all certifications and information 
provided to the Director, OCHAMPUS incident to the process of obtaining 
and retaining authorized provider status is accurate and that it has no 
material errors or omissions. In the case of any misrepresentations, 
whether by inaccurate information being provided or material facts 
withheld, authorized status will be denied or terminated, and the RTC 
will be eligible for consideration for authorized provider status for a 
two year period.
* * * * *
    (xii) Psychiatric partial hospitalization programs. Paragraph 
(b)(4)(xii) of this section establishes standards and requirements for 
psychiatric partial hospitalization programs.
    (A) Organization and administration.
    (1) Definition. Partial hospitalization is defined as a time-
limited, ambulatory, active treatment program that offers 
therapeutically intensive, coordinated, and structured clinical 
services within a stable therapeutic milieu. Partial hospitalization 
programs serve patients who exhibit psychiatric symptoms, disturbances 
of conduct, and decompensating conditions affecting mental health.
    (2) Eligibility.
    (i) Every inpatient rehabilitation center and partial 
hospitalization center for the treatment of substance use disorders 
must be certified pursuant to CHAMPUS certification standards. Such 
standards shall incorporate the basic standards set forth in paragraphs 
(b)(4) (xii) (A) through (D) of this section, and shall include such 
additional elaborative criteria and standards as the Director, OCHAMPUS 
determines are necessary to implement the basic standards. Each 
psychiatric partial hospitalization program must be either a distinct 
part of an otherwise authorized institutional provider or a 
freestanding program.
    (ii) To be eligible for CHAMPUS certification, the facility is 
required to be licensed and fully operational for a period of at least 
six months (with a minimum patient census of at least 30 percent of bed 
capacity) and operate in substantial compliance with state and federal 
regulations.
    (iii) The facility is currently accredited by the Joint Commission 
on Accreditation of Healthcare Organizations under the Accreditation 
Manual for Mental Health, Chemical Dependency, and Mental Retardation/
Developmental Disabilities Services.
    (iv) The facility has a written participations agreement with 
OCHAMPUS. The PHP is not a CHAMPUS-authorized provider and CHAMPUS 
benefits are not paid for services provided until the date upon which a 
participation agreement is signed by the Director, OCHAMPUS. Partial 
hospitalization is capable of providing an interdisciplinary program of 
medical and therapeutic services a minimum of three hours per day, five 
days per week, and may include full- or half-day, evening, and weekend 
treatment programs.
    (3) Governing body.
    (i) The PHP shall have a governing body which is responsible for 
the policies, bylaws, and activities of the facilities. If the PHP is 
owned by a partnership or single owner, the partners or single owner 
are regarded as the governing body. The facility will provide an up-to-
date list of names, addresses, telephone numbers, and titles of the 
members of the governing body.
    (ii) The governing body ensures appropriate and adequate services 
for all patients and oversees continuing development and improvement of 
care. Where business relationships exist between the governing body and 
facility, appropriate conflict-of-interest policies are in place.
    (iii) Board members are fully informed about facility services and 
the governing body conducts annual review of its performance in meeting 
purposes, responsibilities, goals and objectives.
    (4) Chief executive officer. The chief Executive officer, appointed 
by and subject to the direction of the governing body, shall possess a 
master's degree in business administration, public health, hospital 
administration, nursing, social work, or psychology, or meet similar 
educational requirements as prescribed by the Director, OCHAMPUS or a 
designee. The CEO shall have five years' administrative experience in 
the field of mental health and shall assume overall administrative 
responsiblity for the operation of the facility according to governing 
body policies.
    (5) Medical director. The Medical Director, appointed by the 
governing body, shall be licensed to practice medicine in the state 
where the PHP is located and shall possess requisite education and 
experience, including graduation from an accredited school of medicine 
or osteopathy, an approved residency in psychiatry and a minimum of 
five years clinical experience in treating mental disorders specific to 
the ages and disabilities of the patients served. The Medical Director 
shall be responsible for the planning, development, implementation, and 
monitoring of all clinical activities.
    (6) Medical or professional staff organization. The governing body 
shall establish a medical or professional staff organization to assure 
effective implementation of clinical privileging, professional conduct 
rules, and other activities directly affecting patient care.
    (7) Personnel policies and records. The PHP shall maintain written 
personnel policies, updated job descriptions, personnel records to 
assure the selection of qualified personnel and successful job 
performance of those personnel.
    (8) Staff development. The facility shall provide appropriate 
training and development programs for administrative, professional 
support, and direct care staff.
    (9) Fiscal accountability. The PHP shall assure fiscal 
accountability to applicable government authorities and patients.
    (10) Designated teaching facilities. Students, residents, interns, 
or fellows providing direct clinical care are under the supervision of 
a qualified staff member approved by an accredited university. The 
teaching program is approved by the Director, OCHAMPUS.
    (11) Emergency reports and records. The facility notifies OCHAMPUS 
of any serious occurrence involving CHAMPUS beneficiaries.
    (B) Treatment services.
    (1) Staff composition.
    (i) The PHP shall ensure that patient care needs will be 
appropriately addressed during all hours of operation by a sufficient 
number of qualified health care professionals. Clinicians providing 
individual, group, and family therapy meet CHAMPUS requirements as 
qualified mental health providers, and operate within the scope of 
their licenses. The ultimate authority for managing care is vested in a 
psychiatrist or licensed doctor level psychologist with admitting 
privileges.
    (ii) The center shall establish and follow written plans to assure 
adequate staff coverage during all hours of operation, including on-
call physician availability 24 hours per day, seven days per week to 
respond to medical and psychiatric problems, and other professional 
staff coverage during all service hours.
    (2) Staff qualifications. The PHP will have a sufficient number of 
qualified (including license, registration or certification 
requirements for independent practice, educational attainment, and 
professional experience) mental health providers, administrative, and 
support staff to address patients' clinical needs and to coordinate the 
services provided. All mental health services must be provided by a 
CHAMPUS-authorized mental health provider. [Exception: PHPs which 
employ individuals with master's or doctoral level degrees in a mental 
health discipline who do not meet the licensure, certification and 
experience requirements for a qualified mental health provider but are 
actively working toward licensure or certification, may provide 
services within the all-inclusive per diem rate, provided that the 
individual must work under the clinical supervision of a fully 
qualified mental health provider employed by the PHP.] All other 
program services shall be provided by trained, licensed staff.
    (3) Patient rights.
    (i) The PHP shall provide adequate protection for all patient 
rights, including rights provided by law, privacy, personal rights, 
safety, confidentiality, informed consent, grievances, and personal 
dignity.
    (ii) The facility has a written policy regarding patient abuse and 
neglect.
    (iii) Facility marketing and advertising meets professional 
standards.
    (4) Behavioral management. The PHP shall adhere to a comprehensive, 
written plan of behavior management, developed by the medical director 
and the medical or professional staff and approved by the governing 
body, including strictly limited procedures to assure that restraint or 
seclusion are used only in extraordinary circumstances, as determined 
by a psychiatrist, are carefully monitored, and are fully documented. 
Only trained and clinically privileged RNs or qualified mental health 
professionals may implement seclusion and restraint procedures in an 
emergency situation.
    (5) Admission process. The PHP shall maintain written policies and 
procedures to ensure that prior to an admission, a determination is 
made by a psychiatrist, and approved pursuant to CHAMPUS pre-
authorization requirements, that the admission is medically and/or 
psychologically necessary and the program is appropriate to meet the 
patient's needs.
    (6) Assessments. The professional staff of the PHP shall provide 
complete, current and timely assessments of all patients in the PHP. 
Assessments include, but are not limited to, physical health, 
psychological health, physiological, biological, and cognitive 
processes, development, family history, social history, educational or 
vocational history, environmental factors, and skills.
    (7) Clinical formulation. A qualified mental health provider of the 
PHP will complete a clinical formulation on all patients. The clinical 
formulation will be reviewed and approved by the responsible physician 
or doctoral level licensed clinical psychologist and will incorporate 
significant findings from each of the multidisciplinary assessments. It 
will provide the basis for development of a multidisciplinary treatment 
plan.
    (8) Treatment planning. A PHP psychiatrist or doctoral level 
psychologist with admitting privileges shall be responsible for the 
development, supervision, implementation, and assessment of a written, 
individualized, interdisciplinary plan of treatment, which shall be 
completed by the fifth day following admission to a full-day PHP, or by 
the seventh day following admission to a half-day PHP, and shall 
include measurable and observable goals for incremental progress and 
discharge. The treatment plan shall undergo review at least every two 
weeks, or when major changes occur in treatment.
    (9) Discharge and transition planning. The PHP shall develop an 
individualized transition plan which addresses anticipated needs of the 
patient at discharge. The transition plan involves determining 
necessary modifications in the treatment plan, facilitating the 
termination of treatment, and identifying resources for maintaining 
therapeutic stability following discharge.
    (10) Clinical documentation. Clinical records shall be maintained 
on each patient to plan care and treatment and provide ongoing 
evaluation of the patient's progress. All care is documented and each 
clinical record contains at least the following: demographic data, 
consent forms, pertinent legal documents, all treatment plans and 
patient assessments, consultation and laboratory reports, physician 
orders, progress notes, and a discharge summary. All documentation will 
adhere to applicable provisions of the JCAHO and requirements set forth 
in section 199.7(b)(3). An appropriately qualified records 
administrator or technician will supervise and maintain the quality of 
the records. These requirements are in addition to other records 
requirements of this Part, and documentation requirements of the Joint 
Commission on Accreditation of Health Care Organizations.
    (11) Progress notes. PHPs shall document the course of treatment 
for patients and families using progress notes which provide 
information to review, analyze, and modify the treatment plans. 
Progress notes are legible contemporaneous, sequential, signed and 
dated and adhere to applicable provisions of the Manual for Mental 
Health, Chemical Dependency, and Mental Retardation/Developmental 
Disabilities Services and requirements set forth in section 
199.7(b)(3).
    (12) Therapeutic services.
    (i) Individual, group, and family therapy are provided to all 
patients, consistent with each patient's treatment plan by qualified 
mental health providers.
    (ii) A range of therapeutic activities, directed and staffed by 
qualified personnel, are offered to help patients meet the goals of the 
treatment plan.
    (iii) Educational services are provided or arranged that are 
appropriate to the patient's needs.
    (13) Ancillary services. A full range of ancillary services are 
provided. Emergency services include policies and procedures for 
handling emergencies with qualified personnel and written agreements 
with each facility providing these services. Other ancillary services 
include physical health, pharmacy and dietary services.
    (C) Standards and physical plant and environment.
    (1) Physical environment. The buildings and grounds of the PHP 
shall be maintained so as to avoid health and safety hazards, be 
supportive of the services provided to patients, and promote patient 
comfort, dignity, privacy, personal hygiene, and personal safety.
    (2) Physical plant safety. The PHP shall be of permanent 
construction and maintained in a manner that protects the lives and 
ensures the physical safety of patients, staff, and visitors, including 
conformity with all applicable building, fire, health, and safety 
codes.
    (3) Disaster planning. The PHP shall maintain and rehearse written 
plans for taking care of casualties and handling other consequences 
arising from internal and external disasters.
    (D) Standards for evaluation system.
    (1) Quality assessment and improvement. The PHP shall develop and 
implement a comprehensive quality assurance and quality improvement 
program that monitors the quality, efficiency, appropriateness, and 
effectiveness of care, treatments, and services the PHP provides for 
patients and their families. Explicit clinical indicators shall be used 
to evaluate all functions of the PHP and contribute to an ongoing 
process of program improvement. The medical director is responsible for 
developing and implementing quality assessment and improvement 
activities throughout the facility.
    (2) Utilization review. The PHP shall implement a utilization 
review process, pursuant to a written plan approved by the professional 
staff, the administration and the governing body, that assesses 
distribution of services, clinical necessity of treatment, 
appropriateness of admission, continued stay, and timeliness of 
discharge, as part of an overall effort to provide quality patient care 
in a cost-effective manner. Findings of the utilization review process 
are used as a basis for revising the plan of operation, including a 
review of staff qualifications and staff composition.
    (3) Patient records. The PHP shall implement a process, including 
regular monthly reviews of a representative sample of patient records, 
to determine completeness, accuracy, timeliness of entries, appropriate 
signatures, and pertinence of clinical entries. Conclusions, 
recommendations, actions taken, and the results of actions are 
monitored and reported.
    (4) Drug utilization review. The PHP shall implement a 
comprehensive process for the monitoring and evaluating of the 
prophylactic, therapeutic, and empiric use of drugs to assure that 
medications are provided appropriately, safely, and effectively.
    (5) Risk management. The PHP shall implement a comprehensive risk 
management program, fully coordinated with other aspects of the quality 
assurance and quality improvement program, to prevent and control risks 
to patients and staff, and to minimize costs associated with clinical 
aspects of patient care and safety.
    (6) Infection control. The PHP shall implement a comprehensive 
system for the surveillance, prevention, control, and reporting of 
infections acquired or brought into the facility.
    (7) Safety. The PHP shall implement an effective program to assure 
a safe environment for patients, staff, and visitors, including an 
incident reporting system, disaster training and safety education, a 
continuous safety surveillance system, and an active multidisciplinary 
safety committee.
    (8) Facility evaluation. The PHP annually evaluates accomplishment 
of the goals and objectives of each clinical program component or 
facility service of the PHP and reports findings and recommendations to 
the governing body.
    (E) Participation agreement requirements. In addition to other 
requirements set forth in paragraph (b)(4)(xii) of this section, in 
order for the services of a PHP to be authorized, the PHP shall have 
entered into a Participation Agreement with OCHAMPUS. The period of a 
Participation Agreement shall be specified in the agreement, and will 
generally be for not more than five years. The PHP shall not be 
considered to be a CHAMPUS authorized provider and CHAMPUS payments 
shall not be made for services provided by the PHP until the date the 
participation agreement is signed by the Director, OCHAMPUS. In 
addition to review of a facility's application and supporting 
documentation, an on-site inspection by OCHAMPUS authorized personnel 
may be required prior to signing a participation agreement. The 
Participation Agreement shall include at least the following 
requirements:
    (1) Render partial hospitalization program services to eligible 
CHAMPUS beneficiaries in need of such services, in accordance with the 
participation agreement and CHAMPUS regulation.
    (2) Accept payment for its services based upon the methodology 
provided in section 199.14, or such other method as determined by the 
Director, OCHAMPUS;
    (3) Accept the CHAMPUS all-inclusive per diem rate as payment in 
full and collect from the CHAMPUS beneficiary or the family of the 
CHAMPUS beneficiary only those amounts that represent the beneficiary's 
liability, as defined in section 199.4, and charges for services and 
supplies that are not a benefit of CHAMPUS;
    (4) Make all reasonable efforts acceptable to the Director, 
OCHAMPUS, to collect those amounts, which represent the beneficiary's 
liability, as defined in 199.4;
    (5) Comply with the provisions of section 199.8, and submit claims 
first to all health insurance coverage to which the beneficiary is 
entitled that is primary to CHAMPUS;
    (6) Submit claims for services provided to CHAMPUS beneficiaries at 
least every 30 days (except to the extent a delay is necessitated by 
efforts to first collect from other health insurance). If claims are 
not submitted at least every 30 days, the PHP agrees not to bill the 
beneficiary or the beneficiary's family for any amounts disallowed by 
CHAMPUS;
    (7) Certify that:
    (i) It is and will remain in compliance with the provisions of 
paragraph (b)(4)(xii) of this section establishing standards for 
psychiatric partial hospitalization programs;
    (ii) It has conducted a self assessment of the facility's 
compliance with the CHAMPUS Standards for Psychiatric Partial 
Hospitalization Programs, as issued by the Director, OCHAMPUS, and 
notified the Director, OCHAMPUS of any matter regarding which the 
facility is not in compliance with such standards; and
    (iii) It will maintain compliance with the CHAMPUS Standards for 
Psychiatric Partial Hospitalization Programs, as issued by the 
Director, OCHAMPUS, except for any such standards regarding which the 
facility notifies the Director, OCHAMPUS that it is not in compliance.
    (8) Designate an individual who will act as liaison for CHAMPUS 
inquiries. The PHP shall inform OCHAMPUS in writing of the designated 
individual;
    (9) Furnish OCHAMPUS with cost data, as requested by OCHAMPUS, 
certified by an independent accounting firm or other agency as 
authorized by the Director, OCHAMPUS;
    (10) Comply with all requirements of this section applicable to 
institutional providers generally concerning preauthorization, 
concurrent care review, claims processing, beneficiary liability, 
double coverage, utilization and quality review and other matters;
    (11) Grant the Director, OCHAMPUS, or designee, the right to 
conduct quality assurance audits or accounting audits with full access 
to patients and records (including records relating to patients who are 
not CHAMPUS beneficiaries) to determine the quality and cost-
effectiveness of care rendered. The audits may be conducted on a 
scheduled or unscheduled (unannounced) basis. This right to audit/
review includes, but is not limited to:
    (i) Examination of fiscal and all other records of the PHP which 
would confirm compliance with the participation agreement and 
designation as an authorized CHAMPUS PHP provider;
    (ii) Conducting such audits of PHP records including clinical, 
financial, and census records, as may be necessary to determine the 
nature of the services being provided, and the basis for charges and 
claims against the United States for services provided CHAMPUS 
beneficiaries;
    (iii) Examining reports of evaluations and inspections conducted by 
federal, state and local government, and private agencies and 
organizations;
    (iv) Conducting on-site inspections of the facilities of the PHP 
and interviewing employees, members of the staff, contractors, board 
members, volunteers, and patients, as required.
    (v) Audits conducted by the United States General Accounting 
Office.
    (F) Other requirements applicable to PHPs.
    (1) Even though a PHP may qualify as a CHAMPUS-authorized provider 
and may have entered into a participation agreement with CHAMPUS, 
payment by CHAMPUS for particular services provided is contingent upon 
the PHP also meeting all conditions set forth in section 199.4 of this 
part.
    (2) the PHP shall provide inpatient services to CHAMPUS 
beneficiaries in the same manner it provides inpatient services to all 
other patients. The PHP may not discriminate against CHAMPUS 
beneficiaries in any manner, including admission practices, placement 
in special or separate wings or rooms, or provisions of special or 
limited treatment.
    (3) the PHP shall assure that all certifications and information 
provided to the Director, OCHAMPUS incident to the process of obtaining 
and retaining authorized provider status is accurate and that is has no 
material errors or omissions. In the case of any misrepresentations, 
whether by inaccurate information being provided or material facts 
withheld, authorized provider status will be denied or terminated, and 
the PHP will be ineligible for consideration for authorized provider 
status for a two year period.
    (xiii) Substance are disorder rehabilitation facilities. Paragraph 
(b)(4)(xiii) of this section establishes standards and requirements for 
substance use disorder rehabilitation facilities. This includes both 
inpatient rehabilitation centers for the treatment of substance use 
disorders and partial hospitalization centers for the treatment of 
substance use disorders.
    (A) Organization and administration.
    (1) Definition of inpatient rehabilitation center.
    (i) An inpatient rehabilitation center is a facility, or distinct 
part of a facility, that provides medically monitored, 
interdisciplinary addiction-focused treatment to beneficiaries who have 
psychoactive substance use disorders. Qualified health care 
professionals provide 24-hour, seven-day-per-week, medically monitored 
assessment, treatment, and evaluation. An inpatient rehabilitation 
center is appropriate for patients whose addition-related symptoms, or 
concomitant physical and emotional/behavioral problems reflect 
persistent dysfunction in several major life areas. Inpatient 
rehabilitation is differentiated from:
    (A) Acute psychoactive substance use treatment and from treatment 
of acute biomedical/emotional/behavioral problems; which problems are 
either life-threatening and/or severely incapacitating and often occur 
within the context of a discrete episode of addition-related biomedical 
or psychiatric dysfunction;
    (B) A partial hospitalization center, which serves patients who 
exhibit emotional/behavioral dysfunction but who can function in the 
community for defined periods of time with support in one or more of 
the major life areas;
    (C) A group home, sober-living environment, halfway house, or 
three-quarter way house;
    (D) Therapeutic schools, which are educational programs 
supplemented by addiction-focused services;
    (E) Facilities that treat patients with primary psychiatric 
diagnoses other than psychoactive substance use or dependence; and
    (F) Facilities that care for patients with the primary diagnosis of 
mental retardation or developmental disability.
    (2) Definition of partial hospitalization center for the treatment 
of substance use disorders. A partial hospitalization center for the 
treatment of substance use disorders is an addiction-focused service 
that provides active treatment to adolescents between the ages of 13 
and 18 or adults aged 18 and over. Partial hospitalization is a generic 
term for day, evening, or weekend programs that treat patients with 
psychoactive substance use disorders according to a comprehensive, 
individualized, integrated schedule of care. A partial hospitalization 
center is organized, interdisciplinary, and medically monitored. 
Partial hospitalization is appropriate for those whose addiction-
related symptoms or concomitant physical and emotional/behavioral 
problems can be managed outside the hospital environment for defined 
periods of time with support in one or more of the major life areas.
    (3) Eligibility.
    (i) Every inpatient rehabilitation center and partial 
hospitalization center for the treatment of substance use disorders 
must be certified pursuant to CHAMPUS certification standards. Such 
standards shall incorporate the basic standards set forth in paragraphs 
(b)(4)(xiii)(A) through (D) of this section, and shall include such 
additional elaborative criteria and standards as the Director, OCHAMPUS 
determines are necessary to implement the basic standards.
    (ii) To be eligible for CHAMPUS certification, the facility is 
required to be licensed and fully operational (with a minimum patient 
census of the less of: six patients or 30 percent of bed capacity) for 
a period of at least six months and operate in substantial compliance 
with state and federal regulations.
    (iii) The facility is currently accredited by the Joint Commission 
on Accreditation of Healthcare Organizations under the Accreditation 
Manual for Mental Health, Chemical Dependency, and Mental Retardation/
Developmental Disabilities Services, or by the Commission on 
Accreditation of Rehabilitation Facilities as an alcoholism and other 
drug dependency rehabilitation program under the Standards Manual for 
Organizations Serving People with Disabilities, or other designated 
standards approved by the Director, OCHAMPUS.
    (iv) The facility has a written participation agreement with 
OCHAMPUS. The facility is not considered a CHAMPUS-authorized provider, 
and CHAMPUS benefits are not paid for services provided until the date 
upon which a participation agreement is signed by the Director, 
OCHAMPUS.
    (4) Governing body.
    (i) The center shall have a governing body which is responsible for 
the policies, bylaws, and activities of the facility. If the center is 
owned by a partnership or single owner, the partners or single owner 
are regarded as the governing body. The facility will provide an up-to-
date list of names, addresses, telephone numbers and titles of the 
members of the governing body.
    (ii) The governing body ensures appropriate and adequate services 
for all patients and oversees continuing development and improvement of 
care. Where business relationships exist between the governing body and 
facility, appropriate conflict-of-interest policies are in place.
    (iii) Board members are fully informed about facility services and 
the governing body conducts annual reviews of its performance in 
meeting purposes, responsibilities, goals and objectives.
    (5) Chief executive officer. The chief executive officer, appointed 
by and subject to the direction of the governing body, shall possess a 
master's degree in business administration, public health, hospital 
administration, nursing, social work, or psychology, or meet similar 
educational requirements as prescribed by the Director, OCHAMPUS or a 
designee. The CEO shall have five years administrative experience 
requisite education and experience and shall assume overall 
administrative responsibility for the operation of the facility 
according to governing body policies.
    (6) Medical director. The medical director, appointed by the 
governing body, shall be licensed to practice medicine in the state 
where the center is located and shall possess requisite education 
including graduation from an accredited school of medicine or 
osteopathy. The medical director shall satisfy at least one of the 
following requirements: certification by the American Society of 
Addiction Medicine; one year or 1,000 hours of experience in the 
treatment of psychoactive substance use disorders; or is a psychiatrist 
with experience in the treatment of substance use disorders. The 
medical director shall be responsible for the planning, development, 
implementation, and monitoring of all clinical activities.
    (7) Medical or professional staff organization. The governing body 
shall establish a medical or professional staff organization to assure 
effective implementation of clinical privileging, professional conduct 
rules, and other activities directly affecting patient care.
    (8) Personnel policies and records. The center shall maintain 
written personnel policies, updated job descriptions, personnel records 
to assure the selection of qualified personnel and successful job 
performance of those personnel.
    (9) Staff development. The facility shall provide appropriate 
training and development programs for administrative, support, and 
direct care staff.
    (10) Fiscal accountability. The center shall assure fiscal 
accountability to applicable government authorities and patients.
    (11) Designated teaching facilities. Students, residents, interns, 
or fellows providing direct clinical care are under the supervision of 
a qualified staff member approved by an accredited university. The 
teaching program is approved by the Director, OCHAMPUS.
    (12) Emergency reports and records. The facility notifies OCHAMPUS 
of any serious occurrence involving CHAMPUS beneficiaries.
    (B) Treatment services.
    (1) Staff composition.
    (i) The center shall ensure that patient care needs will be 
appropriately addressed during all hours of operation by a sufficient 
number of fully qualified (including license, registration or 
certification requirements for independent practice, educational 
attainment, and professional experience) health care professionals and 
support staff in the respective disciplines. Clinicians providing 
individual, group and private therapy meet CHAMPUS requirements as 
qualified mental health providers and operate within the scope of their 
licenses. The ultimate authority for medical management of care is 
vested in a physician.
    (ii) The center shall establish and follow written plans to assure 
adequate staff coverage during all hours of operation of the center, 
including physician availability and other professional staff coverage 
24 hours per day, seven days per week for an inpatient rehabilitation 
center and during all service hours for a partial hospitalization 
center.
    (2) Staff qualification. Within the scope of its programs and 
services, the facility has a sufficient number of professional, 
administrative, and support staff to address the medical and clinical 
needs of patients and to coordinate the services provided. Facilities 
that employ master's or doctoral level staff who are not qualified 
health care providers have a supervision program to oversee and monitor 
their activities related to the provision of clinical care.
    (3) Patient rights.
    (i) The center shall provide adequate protection for all patient 
rights, safety, confidentiality, informed consent, grievances, and 
personal dignity.
    (ii) The facility has a written policy regarding patient abuse and 
neglect.
    (iii) Facility marketing and advertising meets professional 
standards.
    (4) Behavioral management. When a center uses a behavioral 
management program, the center shall adhere to a comprehensive, written 
plan of behavioral management, developed by the medical director and 
the medical or professional staff and approved by the governing body, 
which shall be based on positive reinforcement methods and may not 
permit the use of restraint or seclusion.
    (5) Admission process. The center shall maintain written policies 
and procedures to assure that each admission is approved pursuant to 
CHAMPUS pre-authorization requirements, medically necessary, and based 
on a determination that the center's program is appropriate to the 
patient's needs.
    (6) Assessment. The professional staff of the center shall provide 
a complete, multidisciplinary assessment of each patient's medical 
history, physical health, nursing needs, alcohol and drug history, 
emotional and behavioral factors, age-appropriate social circumstances, 
psychological condition, education status, and skills.
    (7) Clinical formulation. A qualified health care professional 
shall be responsible for a clinical formulation, providing the basis 
for an interdisciplinary treatment plan.
    (8) Treatment planning. The qualified health care professional 
shall be responsible for the development, supervision, implementation, 
and assessment of a written, individualized, and interdisciplinary plan 
of treatment, which shall be completed within ten days of admission to 
an inpatient rehabilitation center or by the fifth day following 
admission to full day partial hospitalization center, and by the 
seventh day of treatment for half day partial hospitalization and shall 
include individual, measurable, and observable goals for incremental 
progress towards the treatment plan objectives and goals and discharge. 
A preliminary treatment plan is completed within 24 hours of admission 
and includes at least a physician's admission note and orders. The 
master treatment plan is regularly reviewed for effectiveness and 
revised when major changes occur in treatment.
    (9) Discharge and transition planning. The center shall maintain a 
transition planning process to address adequately the anticipated needs 
of the patient prior to the time of discharge.
    (10) Clinical records. Complete individual patient clinical records 
shall be maintained, documenting all treatment plans, patient care, and 
patient assessments, and adhering to applicable provisions of the JCAHO 
Manual for Mental Health, Chemical Dependency, and Mental Retardation/
Development Disabilities Services, and the requirements set forth in 
section 199.7(b)(3). Clinical records are maintained and controlled by 
an appropriately qualified records administrator or technician.
    (11) Progress notes. Timely and complete progress notes shall be 
maintained to document the course of treatment for the patient and 
family.
    (12) Therapeutic services.
    (i) Individual, group, and family psychotherapy and addiction 
counseling services are provided to all patients, consistent with each 
patient's treatment plan by qualified mental health providers.
    (ii) A range of therapeutic activities, directed and staffed by 
qualified personnel, are offered to help patients meet the goals of the 
treatment plan.
    (iii) Therapeutic educational services are provided or arranged 
that are appropriate to the patient's educational and therapeutic 
needs.
    (13) Ancillary services. A full range of ancillary services is 
provided. Emergency services include policies and procedures for 
handling emergencies with qualified personnel and written agreements 
with each facility providing the service. Other ancillary services 
include physical health, pharmacy and dietary services.
    (C) Standards for physical plant and environment.
    (1) Physical environment. The buildings and grounds of the center 
shall be maintained so as to avoid health and safety hazards, be 
supportive of the services provided to patients, and promote patient 
comfort, dignity, privacy, personal hygiene, and personal safety.
    (2) Physical plant safety. The center shall be maintained in a 
manner that protects the lives and ensures the physical safety of 
patients, staff, and visitors, including conformity with all applicable 
building, fire, health, and safety codes.
    (3) Disaster planning. The center shall maintain and rehearse 
written plans for taking care of casualties and handling other 
consequences arising from internal or external disasters.
    (D) Standards for evaluation system.
    (1) Quality assessment and improvement. The center shall develop 
and implement a comprehensive quality assurance and quality improvement 
program that monitors the quality, efficiency, appropriateness, and 
effectiveness of the care, treatments, and services it provides for 
patients and their families, utilizing clinical indicators of 
effectiveness to contribute to an ongoing process of program 
improvement. The medical director is responsible for developing and 
implementing quality assessment and improvement activities throughout 
the facility.
    (2) Utilization review. The center shall implement a utilization 
review process, pursuant to a written plan approved by the professional 
staff, the administration, and the governing body, that assesses the 
appropriateness of admissions, continued stay, and timeliness of 
discharge as part of an effort to provide quality patient care in a 
cost-effective manner. Findings of the utilization review process are 
used as a basis for reviewing the plan of operation, including a review 
of staff qualifications and staff composition.
    (3) Patient records review. The center shall implement a process, 
including monthly reviews of a representative sample of patient 
records, to determine the completeness and accuracy of the patient 
records and the timeliness and pertinence of record entities, 
particularly with regard to regular recording of progress/non-progress 
in treatment plan.
    (4) Drug utilization review. An inpatient rehabilitation center 
and, when applicable, a partial hospitalization center, shall implement 
a comprehensive process for the monitoring and evaluating of the 
prophylactic, therapeutic, and empiric use of drugs to assure that 
medications are provided appropriately, safely, and effectively.
    (5) Risk management. The center shall implement a comprehensive 
risk management program, fully coordinated with other aspects of the 
quality assurance and quality improvement program, to prevent and 
control risks to patients and staff and costs associated with clinical 
aspects of patient care and safety.
    (6) Infection control. The center shall implement a comprehensive 
system for the surveillance, prevention, control, and reporting of 
infections acquired or brought into the facility.
    (7) Safety. The center shall implement an effective program to 
assure a safe environment for patients, staff, and visitors.
    (8) Facility evaluation. The center annually evaluates 
accomplishment of the goals and objectives of each clinical program and 
service of the RTC and reports findings and recommendations to the 
governing body.
    (E) Participation agreement requirements. In addition to other 
requirements set forth in paragraph (b)(4)(xiii) of this section, in 
order for the services of an inpatient rehabilitation center or partial 
hospitalization center for the treatment of substance abuse disorders 
to be authorized, the center shall have entered into a Participation 
Agreement with OCHAMPUS. The period of a Participation Agreement shall 
be specified in the agreement, and will generally be for not more than 
five years. The center shall not be considered to be a CHAMPUS 
authorized provider and CHAMPUS payments shall not be made for services 
provided by the center until the date the participation agreement is 
signed by the Director, OCHAMPUS. In addition to review of facility's 
application and supporting documentation, an on-site visit by OCHAMPUS 
representatives may be part of the authorization process. In addition, 
such a Participation Agreement may not be signed until an SUDRF has 
been licensed and operational for at least six months. The 
Participation Agreement shall include at least the following 
requirements:
    (1) Render applicable services to eligible CHAMPUS beneficiaries in 
need of such services, in accordance with the participation agreement 
and CHAMPUS regulation;
    (2) Accept payment for its services based upon the methodology 
provided in section 199.14, or such other method as determined by the 
Director, OCHAMPUS;
    (3) Accept the CHAMPUS-determined rate as payment in full and 
collect from the CHAMPUS beneficiary or the family of the CHAMPUS 
beneficiary only those amounts that represent the beneficiary's 
liability, as defined in section 199.4, and charges for services and 
supplies that are not a benefit of CHAMPUS;
    (4) Make all reasonable efforts acceptable to the Director, 
OCHAMPUS, to collect those amounts which represent the beneficiary's 
liability, as defined in section 199.4;
    (5) Comply with the provisions of section 199.8, and submit claims 
first to all health insurance coverage to which the beneficiary is 
entitled that is primary to CHAMPUS;
    (6) Furnish OCHAMPUS with cost data, as requested by OCHAMPUS, 
certified to by an independent accounting firm or other agency as 
authorized by the Director, OCHAMPUS;
    (7) Certify that:
    (i) It is and will remain in compliance with the provisions of 
paragraph (b)(4)(xiii) of the section establishing standards for 
substance use disorder rehabilitation facilities;
    (ii) It has conducted a self assessment of the facility's 
compliance with the CHAMPUS Standards for Substance Use Disorder 
Rehabilitation Facilities, as issued by the Director, OCHAMPUS, and 
notified the Director, OCHAMPUS of any matter regarding which the 
facility is not in compliance with such standards; and
    (iii) It will maintain compliance with the CHAMPUS Standards for 
Substance Use Disorder Rehabilitation Facilities, as issued by the 
Director, OCHAMPUS, except for any such standards regarding which the 
facility notifies the Director, OCHAMPUS that it is not in compliance.
    (8) Grant the Director, OCHAMPUS, or designee, the right to conduct 
quality assurance audits or accounting audits with full access to 
patients and records (including records relating to patients who are 
not CHAMPUS beneficiaries) to determine the quality and cost 
effectiveness of care rendered. The audits may be conducted on a 
scheduled or unscheduled (unannounced) basis. This right to audit/
review include, but is not limited to:
    (i) Examination of fiscal and all other records of the center which 
would confirm compliance with the participation agreement and 
designation as an authorized CHAMPUS provider;
    (ii) Conducting such audits of center records including clinical, 
financial, and census records, as may be necessary to determine the 
nature of the services being provided, and the basis for charges and 
claims against the United States for services provided CHAMPUS 
beneficiaries;
    (iii) Examining reports of evaluations and inspection conducted by 
federal, state and local government, and private agencies and 
organizations;
    (iv) Conducting on-site inspections of the facilities of the center 
and interviewing employees, members of the staff, contractors, board 
members, volunteers, and patients, as required.
    (v) Audits conducted by the United States General Accounting 
Office.
    (F) Other requirements applicable to substance disorders 
rehabilitation facilities.
    (1) Even though a center may qualify as a CHAMPUS-authorized 
provider and may have entered into a participation agreement with 
CHAMPUS, payment by CHAMPUS for particular services provided is 
contingent upon the center also meeting all conditions set forth in 
section 199.4.
    (2) The center shall provide inpatient services to CHAMPUS 
beneficiaries in the same manner it provides services to all other 
patients. The center may not discriminate against CHAMPUS beneficiaries 
in any manner, including admission practices, placement in special or 
separate wings or rooms, or provisions of special or limited treatment.
    (3) The substance use disorder facility shall assure that all 
certifications and information provided to the Director, OCHAMPUS 
incident to the process of obtaining and retaining authorized provider 
status is accurate and that it has no material errors or omissions. In 
the case of any misrepresentations, whether by inaccurate information 
being provided or material facts withheld, authorized provider status 
will be denied or terminated, and the facility will be ineligible for 
consideration for authorized provider status for a two year period.
* * * * *
    4. Section 199.14 is proposed to be amended by revising the 
introductory text of paragraph (a)(2), paragraphs (a)(2)(ii), 
(a)(2)(iii), (a)(2)(iv), (a)(2)(v), the heading of (a)(2)(ix), 
paragraphs (a)(2)(ix)(A), (a)(2)(ix)(C), the introductory text of 
paragraph (f), paragraphs (f)(1), (f)(2), (f)(3), and (f)(5), by 
redesignating paragraph (f)(4) as (f)(7), and by adding a heading for 
the newly designated paragraph (f)(7), and by adding new paragraphs 
(a)(1)(ii)(F), (f)(4), and (f)(6), as follows:


Sec. 199.14  Provider reimbursement methods.

* * * * *
    (a) * * *
    (1) * * *
    (ii) * * *
    (F) Substance Use Disorder Rehabilitation facilities. Substance use 
disorder rehabilitation facilities, authorized under section 
199.6(b)(4)(xiii), are subject to the DRG-based payment system.
* * * * *
    (2) CHAMPUS mental health per diem payment system. The CHAMPUS 
mental health per diem payment system shall be used to reimburse for 
inpatient mental health hospital care in specialty psychiatric 
hospitals and units. Payment is made on the basis of prospectively 
determined rates and paid on a per diem basis. The system uses two sets 
of per diems. One set of per diems applies to hospitals and units that 
have a relatively higher number of CHAMPUS discharges. For these 
hospitals and units, the system uses hospital-specific per diem rates, 
calculated pursuant to paragraph (a)(2)(ii) of this section. The other 
set of per diems applies to hospitals and units with a relatively lower 
number of CHAMPUS discharges. For these hospitals and units, the system 
uses a national per diem rate, calculated pursuant to paragraph 
(a)(2)(iii) of this section, and adjusted for area wage rates. 
Beginning in fiscal year 1995, these two sets of rates will undergo 
transitions from charge-based to cost-based. This transition process, 
which will occur over a three-year period, is set forth in paragraph 
(a)(2)(iv) of this section. Costs will be determined by reference to 
average per day Medicare inpatient operating costs, including pass 
through costs, as reported on Medicare cost reports. For high volume 
hospitals and units, a hospital-specific per day cost will be 
determined. For low volume hospitals, a national average per day cost 
will be determined based on available Medicare cost reports for four 
separate types of facilities: distinct part unit teaching facilities; 
distinct part unit non-teaching facilities; free-standing teaching 
hospitals; and free-standing non-teaching hospitals. During the 
transition years, if the cost based per diem is less than the fiscal 
year 1994 per diem, OCHAMPUS will pay a blended rate, calculated to 
phase in the cost-based rate by fiscal year 1997. Beginning in fiscal 
year 1995, if the cost based per diem exceeds the 1994 per diem rate, 
the cost based per diem will be used.
* * * * *
    (ii) Hospital-specific cost-based per diems for higher volume 
hospitals and units. The per diem amount for each higher volume 
hospital and unit will be the average Medicare inpatient operating 
cost, including pass through costs per day, in that hospital or 
specialty unit, as reported in the hospital's Medicare cost report for 
a recent base year, updated to the year for which the payment rate will 
be used. However, the per diem shall not be higher than two standard 
deviations above the mean per diem for all high volume facilities.
    (iii) National cost-based per diem for lower volume hospitals and 
units. This paragraph (a)(2)(iii) describes the per diem payment amount 
for hospitals with lower volume of CHAMPUS discharges.
    (A) Per diem amount. Hospitals and units with a lower volume of 
CHAMPUS patients are paid on the basis of a national per diem amount. 
The national per diem amount is calculated based on the average 
Medicare inpatient operating cost, including pass through costs, per 
day for all patients in all CHAMPUS lower volume hospitals and units 
which file Medicare cost reports, as determined from the Medicare cost 
reports filed by those hospitals for a recent base year, updated to the 
year for which the payment rate will be used.
    (B) Adjustments to national per diem. Two adjustments shall be made 
to the per diem rate.
    (1) Area wage index. The same area wages indexes used for the 
CHAMPUS DRG-based payment system (see paragraph (a)(1)(iii)(E)(2) of 
this section) shall be applied to the wage portion of the national per 
diem rate for each day of the admission. The wage portion shall be the 
same as that used for the CHAMPUS DRG-based payment system.
    (2) Facility type/teaching status. An adjustment to the per diem 
rate will be made to reflect the type of facility and the presence or 
absence of a teaching program. Separate per diem rates will be 
calculated for each of the following four types of facilities: distinct 
part unit teaching facilities; distinct part unite non-teaching 
facilities; free-standing teaching hospitals; and free-standing non-
teaching hospitals.
    (iv) Transition from charge-based rates to cost-based rates. 
Beginning in fiscal year 1995, there is a transition from charge-based 
per diem rates to cost-based per diem rates under the CHAMPUS mental 
health per diem payment system.
    (A) Fiscal year 1997 rate. In fiscal year 1997, each facility's per 
diem rate (whether hospital-specific or based on the national rate) 
shall be the cost-based rate calculated pursuant to paragraph (a)(2) 
(ii) or (iii) of this section, whichever is applicable.
    (B) Transition rule. For fiscal years 1995 and 1996, each 
facility's per diem rate (whether hospital-specific or based on the 
national rate) shall be the cost-based rate calculated pursuant to 
paragraphs (a)(2) (ii) or (iii) of this section, whichever is 
applicable, if it exceeds the fiscal year 1994 rate, or the blended 
rate calculated pursuant to paragraph (a)(2)(iv)(c) of this section if 
it does not.
    (C) Blended rate. For fiscal years 1995 and 1996, each facility's 
per diem rate (whether hospital-specific or based on the national rate) 
shall, if the cost-based rate calculated pursuant to paragraphs (a)(2) 
(ii) or (iii) of this section, whichever is applicable, is less than 
the facility's 1994 rate, be a blended rate calculated as follows:
    (1) For fiscal year 1995, the sum of two-thirds of the facility's 
fiscal year 1994 rate plus one third of the facility's cost-based rate; 
and
    (2) For fiscal year 1996, the sum of one third of the facility's 
1994 rate plus two-thirds of the facility's cost-based rate.
    (D) Special rule for new hospitals. For any hospital or unit that 
was not in operation as a CHAMPUS-authorized provider in fiscal year 
1994, the cost-based per diem rate shall be that calculated pursuant to 
paragraph (a)(2)(iii) of this section until rebasing.
    (v) Administration of per diem payment system. This paragraph 
contains several provisions pertinent to the administration of the 
CHAMPUS mental health per diem payment system.
    (A) Identification of higher volume hospitals. A hospital or unit 
is considered a higher volume hospital for purposes of a hospital-
specific per diem rate if it had 50 or more annual discharges of 
CHAMPUS patients during fiscal year 1994 or a subsequent period that 
serves as a base year for purposes of rebasing under paragraph 
(a)(2)(v)(D) of this section. All other hospitals and units are 
considered lower volume hospitals for purposes of establishing a per 
diem rate.
    (B) Cost reports. Information from cost reports needed for 
determinations required by paragraph (a)(2) of this section will, as a 
general rule, be obtained by the Director, OCHAMPUS from the Health 
Care Financing Administration. For hospitals that do not file a 
Medicare cost report, the Director, OCHAMPUS may provide an alternative 
method for reporting independently audited costs. In the case of any 
hospital or unit for which the Director, OCHAMPUS is unable to 
determine hospital-specific costs because the hospital has not filed a 
Medicare cost report or provided appropriate alternative cost 
information, the cost-based per diem rate for this hospital will be 
based on the national rate (as provided in paragraph (a)(2)(iii) of 
this section).
    (C) Based year and update factor. The base year used for 
calculating hospital-specific and national per day costs will be 
established by the Director, OCHAMPUS based on the most current 
available Medicare cost reports. The update factor used to calculate 
cost based payment rates from base year per day costs will be the 
applicable Medicare update factor for hospitals and units exempt from 
the Medicare prospective payment system.
    (D) Rebasing. Under the cost-based per diem system, the Director, 
OCHAMPUS will recalculate base year cost-based per diem rates every 
third year after initially calculated.
* * * * *
    (ix) Per diem payment for psychiatric and substance use disorder 
rehabilitation partial hospitalization services.
    (A) In general. Psychiatric and substance use disorder 
rehabilitation partial hospitalization services authorized by 
Sec. 199.4(b)(10) and (e)(4) and provided by institutional providers 
authorized under Sec. 199.6(b)(4)(xii) and (b)(4)(xiii), are reimbursed 
on the basis of prospectively determined, all-inclusive per diem rates. 
The per diem payment amount must be accepted as payment in full for all 
institutional services provided, including board, routine nursing 
services, ancillary services (includes art, music, dance, occupational 
and other such therapies), psychological testing and assessments, 
overhead and any other services for which the customary practice among 
similar providers is included as part of the institutional charges.
* * * * *
    (C) Per diem rate. For any full day partial hospitalization program 
(minimum of 6 hours), the maximum per diem payment amount is 40 percent 
of the average inpatient per diem amount per case established under the 
CHAMPUS mental health per diem reimbursement system for both high and 
low volume psychiatric hospitals and units (as defined in section 
199.14(a)(2)) for the fiscal year. A partial hospitalization program of 
less than 6 hours (with a minimum of three hours) will be paid a per 
diem rate of 75 percent of the rate for a full-day program.
* * * * *
    (f) Reimbursement of Residential Treatment Centers. The CHAMPUS 
rate is the per diem rate that CHAMPUS will authorize for all mental 
health services rendered to a patient and the patient's family as part 
of the total treatment plan submitted by a CHAMPUS-approved RTC, and 
approved by the Director, OCHAMPUS, or designee. The per diem rates for 
RTCs are all-inclusive rates for all institutional and professional 
services incident to the provision of inpatient services. No separate 
billings or payments for ancillary or professional services are 
allowed.
    (1) In general. Payment to RTCs is made on the basis of 
prospectively determined rates and paid on a per diem basis. The system 
uses two sets of per diems. One set of per diems applies to RTCs that 
have a relatively higher number of CHAMPUS discharges. For these RTCs, 
the system uses RTC-specific per diem rates, calculated pursuant to 
paragraph (f)(2) of this section. The other set of per diems applies to 
RTCs with a relatively lower number of CHAMPUS discharges. For these 
RTCs, the system uses a national per diem rate, calculated pursuant to 
paragraph (f)(3) of this section, adjusted for area wages. Beginning in 
fiscal year 1995, per diem rates will undergo transitions from charge-
based to cost-based. This transition process, which will occur over a 
four-year period, is set forth in paragraph (f)(4) of this section. 
Costs will be determined by reference to average allowable costs per 
day as reported on cost reports filed with OCHAMPUS. For high volume 
RTCs, an RTC-specific per day cost will be determined. For low volume 
RTCs, a national average per day cost will be determined. During the 
first year of the transition--fiscal year 1995--fiscal year 1994 
payment rates will be continued. For the subsequent three years, if the 
cost based per diem is less than the fiscal year 1995 per diem, 
OCHAMPUS will pay a blended rate, calculated to 'phase in the cost-
based rate by fiscal year 1998. Beginning in fiscal year 1996, if the 
cost-based per diem exceeds the 1995 per diem rate, the cost-based per 
diem will be used.
    (2) RTC-specific cost-based per diems for higher volume RTCs. The 
per diem amount for each higher volume RTC will be the allowable cost 
per day for all inpatients in that RTC, as reported in the RTC's cost 
report for a recent base year, updated to the year for which the 
payment rate will be used. However, the per diem shall not be higher 
than two standard deviations above the mean per diem for all high 
volume RTCs.
    (3) National cost-based per diems for lower volume RTCs. This 
paragraph describes the per diem payment amounts for RTCs with a lower 
volume of CHAMPUS discharges.
    (i) Per diem amount. RTCs with a lower volume of CHAMPUS patients 
are paid on the basis of a national per diem amount. The national per 
diem amount is calculated based on the cost per day for all patients in 
all CHAMPUS lower volume RTCs in the nation which file cost reports (or 
an appropriate sample of such facilities).
    (A) Determination of RTC costs. The national average cost per day 
for lower volume RTCs is determined from the cost reports filed by 
those RTCs for a recent base year, updated to the year for which the 
payment rates will be used.
    (B) Alternative method for determining RTC costs. In the event that 
the Director, OCHAMPUS determines that there are insufficient data from 
RTC cost reports on which to base a reliable calculation of the cost 
per day for all patients in all CHAMPUS lower volume RTCs in the nation 
(or an appropriate sample of such patients), the Director may use an 
alternative method for calculating a national per diem amount. The 
alternative method will be the average charge per day for all CHAMPUS 
patients in all RTCs, other than higher volume RTCs for which adequate 
RTC-specific cost data are available to the Director, OCHAMPUS, 
adjusted by the cost-to-charge ratio of all free-standing, non-teaching 
psychiatric hospitals covered by paragraph (a)(2) of this section, 
updated to the year for which the payment rates will be used. A 
national rate calculated based on this alternative method may not be 
the basis for the determination of a national rate for the next 
subsequent year unless the Director, OCHAMPUS determines that 
sufficient data from RTC cost reports continue to be unavailable.
    (ii) Area wage index adjustment to national per diem. The same area 
wage indexes used for the CHAMPUS DRG-based payment system (see 
paragraph (a)(1)(iii)(E)(2) of this section) shall be applied to the 
wage portion of the national per diem rate for each day of the 
admission. The wage portion shall be the same as that used for the 
CHAMPUS DRG-based payment system.
    (4) Transition from charge-based rates to cost-based rates. 
Beginning in fiscal year 1995, there is a transition from charge-based 
per diem rates to cost-based per diem rates under the RTC per diem 
payment system.
    (i) Fiscal year 1998 rate. In fiscal year 1998, each RTC's per diem 
rate (whether hospital-specific or based on the national rate) shall be 
the cost-based rate calculated pursuant to paragraph (f) (2) or (3) of 
this section, whichever is applicable.
    (ii) Transition rule for fiscal year 1995. Each RTC's per diem 
payment rate for fiscal year 1994 shall be continued for fiscal year 
1995.
    (iii) Transition rule for fiscal years 1996 and 1997. For fiscal 
years 1996 and 1997, each RTC's per diem rate (whether hospital 
specific or based on the national rate) shall be the cost-based rate 
calculated pursuant to paragraphs (f) (2) or (3) of this section, 
whichever is applicable, if it exceeds the fiscal year 1994 rate, or 
the blended rate calculated pursuant to paragraph (f)(4)(iv) of this 
section if it does not.
    (iv) Blended rate. For fiscal years 1996 and 1997, each RTC's per 
diem rate (whether hospital specific or based on the national rate) 
shall, if the cost-based rate calculated pursuant to paragraphs (f) (2) 
or (3) of this section, whichever is applicable, is less than the 
facility's 1995 rate, be a blended rate calculated as follows:
    (A) For fiscal year 1996, the sum of two-thirds of the RTC's fiscal 
year 1995 rate plus one-third of the RTC's cost-based rate; and
    (B) For fiscal year 1997, the sum of one third of the RTC's 1995 
rate plus two-thirds of the RTC's cost-based rate.
    (v) Special rule for new RTCs. For any RTC that was not in 
operation as a CHAMPUS-authorized provider in fiscal year 1994, the 
cost-based per diem rate shall be that calculated pursuant to paragraph 
(f)(3) of this section until rebasing.
    (5) Administration of RTC per diem payment system. This paragraph 
contains several provisions pertinent to the administration of the 
CHAMPUS RTC per diem payment system.
    (i) Higher volume RTCs. An RTC is considered a higher volume RTC 
for purposes of a RTC-specific per diem rate if it had 50 or more 
annual discharges of CHAMPUS patients during the base period used for 
calculation of the per diem rates. All other RTCs are considered lower 
volume RTCs for purposes of establishing a per diem rate.
    (ii) Cost reports. Cost reports needed for determinations required 
by paragraphs (f)(2) and (f)(3) of this section will be provided by 
each RTC to the Director, OCHAMPUS, who will provide a method for 
reporting costs. The method established by the Director, OCHAMPUS will 
require submission by the RTC of a copy of the RTC's state Medicaid 
cost report, if the RTC filed one, or of alternative, independently 
audited cost information. In any case in which the Director, OCHAMPUS 
is unable to determine RTC-specific costs because the RTC has not 
provided appropriate cost information, the cost-based per diem rate for 
that RTC will be based on the national rate (as provided in paragraph 
(f)(3) of this section).
    (iii) Base year and update factor. The base year used for 
calculating RTC-specific and national per day costs will be established 
by the Director, OCHAMPUS based on the most current available cost 
report data. The update factor used to calculate cost based payment 
rates from base year per day costs will be the applicable Medicare 
update factor for hospitals and units exempt from the Medicare 
prospective payment system.
    (iv) Rebasing. Under the cost-based per diem system, the Director, 
OCHAMPUS will recalculate base year cost-based per diem rates every 
third year after initially calculated.
    (6) Therapeutic absences. CHAMPUS will not pay for days in which 
the patient is absent on leave from the RTC. The RTC must identify 
these days when claiming reimbursement. CHAMPUS will not count a 
patient's leave of absence as a discharge in determining whether the 
facility is a higher volume RTC for purposes of paragraph (f)(5) of 
this section.
    (7) Education costs. * * *
 * * * * *
    June 23, 1994.
L. M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 94-15700 Filed 6-28-94; 8:45 am]
BILLING CODE 5000-04-M