[Federal Register Volume 59, Number 185 (Monday, September 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23465]


[[Page Unknown]]

[Federal Register: September 26, 1994]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

RIN 0790-AF63

 

Collection From Third Party Payers of Reasonable Costs of 
Healthcare Services

AGENCY: Office of the Secretary, DoD.

ACTION: Final rule.

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SUMMARY: This final rule replaces the current method of per diem 
billings to one based on diagnostic related groups, expands the single 
outpatient billing category to as many as sixty, and expands the 
billing for outpatient services to include land ambulance service, air 
ambulance service and hyperbaric services. This final rule improves 
billing methods for both inpatient and outpatient care. This expansion 
creates a greater level of specificity which more accurately reflects 
the cost of the care provided. In addition, this final rule identifies 
additional outpatient services for which recovery of costs will be 
sought.

EFFECTIVE DATE: This final rule is effective on October 26, 1994.

FOR FURTHER INFORMATION CONTACT:
LCDR Patrick Kelly, (703) 756-8910.

SUPPLEMENTARY INFORMATION:

I. Background

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

II. Provisions of the Final Rule

A. Inpatient Services

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

B. Outpatient Services

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

C. Miscellaneous Healthcare Services

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

D. Other Revisions

    We received one public comment on the proposed rule. It was from a 
group of organizations who objected to the provision in the proposed 
rule concerning PRIMUS and NAVCARE clinics. In the proposed rule, we 
proposed to eliminate from the Third Party Collection Program 
regulation the special rule regarding PRIMUS and NAVCARE clinics, which 
are contractor owned, contractor operated freestanding clinics under 
contract with DoD. Under special demonstration program authority, these 
clinics have functioned under rules applicable to military medical 
treatment facilities, including Third Party Collection program rules. 
With the conclusion of the demonstration project, these clinics are no 
longer authorized to bill third party payers under the authority of 10 
U.S.C. 1095 (but will continue to bill under other authority). 
Therefore, the change set forth in the proposed rule is necessary, and 
has been included in the final rule.
    The organizations who objected to this proposed change did so on 
the belief that this would terminate features of PRIMUS and NAVCARE 
clinics that they strongly support, including access to primary care 
visits without deductible or copayment requirements, and eligibility 
for military beneficiaries who are not CHAMPUS eligible (such as active 
duty members and Medicare-eligible beneficiaries). These organizations 
can be assured that the adoption of this final rule has no impact on 
those aspects of the PRIMUS/NAVCARE program.
    We have added one other revision to the regulation, a technical 
correction to section 220.8(d), which had incorrectly referred to 
paragraph (j) concerning a matter for which paragraph (k) is the 
appropriate reference.

III. Regulatory Procedures

    This final rule is not a significant regulatory action under 
Executive Order 12866. It will not have an impact of $100 million or 
other significant economic impacts. Similarly, the rule does not 
significantly affect a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act. As stated above, for the 
most part, this final rule simply incorporates into the third party 
collection program regulation more precise cost calculation methods. In 
addition, this rule does not impose new information collection 
requirements for purposes of the Paperwork Reduction Act.

List of Subjects in 32 CFR Part 220

    Claims, Health care, Health insurance.

    For the reasons stated in the preamble, 32 CFR Part 220 is amended 
as follows:

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

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

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

    2. Section 220.8 is amended by revising paragraph (a), the heading 
and first sentence of paragraph (c), and paragraphs (d), (e), (g), (h), 
(i), (k) and (l) as follows:


Sec. 220.8  Reasonable costs.

    (a) Diagnosis related group (DRG)-based method for calculating 
reasonable costs for inpatient services.
    (1) In general. As authorized by 10 U.S.C. 1095(f)(3), the 
calculation of reasonable costs for purposes of collections for 
inpatient hospital care under 10 U.S.C. 1095 and this part shall be 
based on diagnosis related groups (DRGs). Costs shall be based on the 
inpatient full reimbursement rate per hospital discharge, weighted to 
reflect the intensity of the principal diagnosis involved. The average 
cost per case shall be published annually as an inpatient standardized 
amount. A relative weight for each DRG shall be the same as the DRG 
weights published annually for hospital reimbursement rates under the 
Civilian Health and Medicare Program of the Uniformed Services 
(CHAMPUS) pursuant to 32 CFR 199.14(a)(1).
    (2) Standardized amount. The standardized amount shall be 
determined by dividing the total costs of all inpatient care in all 
military medical treatment facilities by the total number of 
discharges. This will produce a single national standardized amount. 
The Department of Defense is authorized, but not required by this part 
to calculate three standardized amounts, one each for large urban 
areas, other urban areas, and rural areas, utilizing the same 
distinctions in identifying those areas as is used for CHAMPUS under 32 
CFR 199.14(a)(1).
    (3) DRG relative weights. Costs for each DRG will be determined by 
multiplying the standardized amount per discharge by the DRG relative 
weight. For this purpose, the DRG relative weights used for CHAMPUS 
pursuant to 32 CFR 199.14(a)(1) shall be used.
    (4) Adjustments for outliers, area wages, and indirect medical 
education. The Department of Defense may, but is not required by this 
part, to adjust cost determinations in particular cases for length-of-
stay outliers (long stay and short stay), cost outliers, area wage 
rates, and indirect medical education. If any such adjustments are 
used, the method shall be comparable to that used for CHAMPUS hospital 
reimbursements pursuant to 32 CFR 199.14(a)(1)(iii)(E), and the 
calculation of the standardized amount under paragraph (a)(2) of this 
section will reflect that such adjustments will be used.
    (5) Identification of professional and hospital costs. For purposes 
of billing third party payers other that automobile liability and no-
fault insurance carriers, inpatient billings will be subdivided into 
two categories:
    (1) Hospital charges (which refers to routine service charges 
associated with the hospital stay and ancillary charges).
    (ii) Professional charges (which refers to professional services 
provided by physicians and certain other providers).
    (6) Outpatient billings will continue to be subdivided into three 
categories:
    (i) Hospital charges (which refers to routine service charges 
associated with the outpatient visit).
    (ii) Professional charges (which refers to professional services 
provided by physicians and certain other providers).
    (iii) Ancillary charges (which refers to diagnostic and treatment 
services, other than professional services, provided by components of 
the hospital in connection with the outpatient visit).
* * * * *
    (c) Clinical groups per diem rates for care provided on or after 
October 1, 1992, and prior to October 1, 1994. For inpatient hospital 
care provided on or after October 1, 1992, and prior to October 1, 
1994, the computation of reasonable costs shall be based on the per 
diem full reimbursement rate applicable to the clinical category of 
services involved. * * *
* * * * *
    (d) Medical services and subsistence charges included. Medical 
services charges pursuant to 10 U.S.C. 1078 or subsistence charges 
pursuant to 10 U.S.C. 1075 are included in the claim filed with the 
third party payer pursuant to 10 U.S.C. 1095. For any patient of a 
facility of the Uniformed Services who indicates that he or she is a 
beneficiary of a third party payer plan, the usual medical services or 
subsistence charge will not be collected from the patient to the extent 
that payment received from the payer exceeds the medical services or 
subsistence charge. Thus, except in cases covered by section 220.8(k), 
payment of the claim made pursuant to 10 U.S.C. 1095 which exceeds the 
medical services or subsistence charge, will satisfy all of the third 
party payer's obligation arising from the inpatient hospital care 
provided by the facility of the Uniformed Services on that occasion.
    (e) Per visit rates.
    (1) As authorized by 10 U.S.C. 1095(f)(2), the computation of 
reasonable costs for purposes of collections for most outpatient 
services shall be based on a per visit rate for a clinical specialty or 
subspecialty. The per visit charge shall be equal to the outpatient 
full reimbursement rate for that clinical specialty or subspecialty and 
includes all routine ancillary services. A separate charge will be 
calculated for cases that are considered same day/ambulatory surgeries. 
These rates shall be updated and published annually. As with inpatient 
billing categories, clinical groups representing selected board 
certified specialties/subspecialties widely accepted by graduate 
medical accrediting organizations such as the Accreditation Council for 
Graduate Medical Education (ACGME) or the American Board of Medical 
Specialties will be used for ambulatory billing categories. Related 
clinical groups may be combined for purposes of billing categories.
    (2) The following clinical reimbursement categories are 
representative, but not all-inclusive of the billing category clinical 
groups referred to in paragraph (e)(1) of this section: Internal 
Medicine, Allergy, Cardiology, Diabetic, Endocrinology, 
Gastroenterology, Hematology, Hypertension, Nephrology, Neurology, 
Nutrition, Oncology, Pulmonary Disease, Rheumatology, Dermatology, 
Infectious Disease, Physical Medicine, General Surgery, Cardiovascular 
and Thoracic Surgery, Neurosurgery, Ophthalmology, Organ Transplant, 
Otolaryngology, Plastic Surgery, Proctology, Urology, Pediatric 
Surgery, Family Planning, Obstetrics, Gynecology, Pediatrics, 
Adolescent Pediatrics, Well Baby, Orthopaedics, Cast, Orthotic 
Laboratory, Hand Surgery, Podiatry, Psychiatry, Psychology, Child 
Guidance, Mental Health, Social Work, Substance Abuse Rehabilitation, 
Family Practice, and Occupational and Physical Therapy.
* * * * *
    (g) Special rule for services ordered and paid for by a facility of 
the Uniformed Services but provided by another provider. In cases where 
a facility of the Uniformed Services purchases ancillary services or 
procedures, from a source other than a Uniformed Services facility, the 
cost of the purchased services will be added to the standard rate. 
Examples of ancillary services and other procedures covered by this 
special rule include (but are not limited to): laboratory, radiology, 
pharmacy, pulmonary function, cardiac catheterization, hemodialysis, 
hyperbaric medicine, electrocardiography, electroencephalography, 
electroneuromyography, pulmonary function, inhalation and respiratory 
therapy and physical therapy services.
    (h) Special rule for certain ancillary services ordered by outside 
providers and provided by a facility of the Uniformed Services. If a 
Uniformed Services facility provides certain ancillary services, 
prescription drugs or other procedures based on a request from a source 
other than a Uniformed Services facility and are not incident to any 
outpatient visit or inpatient services, the reasonable cost will not be 
based on the usual per diem or per visit rate. Rather, a separate 
standard rate shall be established based on the cost of the particular 
high-cost service, drug, or procedure provided. This special rule 
applies only to services, drugs or procedures having a cost of at least 
$60. The reasonable cost for the services, drugs or procedures to which 
this special rule applies shall be calculated and published annually.
    (i) Miscellaneous health care services. Some outpatient services 
are provided which may not traditionally be provided in hospitals or 
which are not traditional clinical specialties or subspecialties. This 
includes, but is not limited to, land ambulance service, air ambulance 
service, hyperbaric treatments, dental care services and immunizations.
    (1) The charge for ambulance services shall be based on the full 
costs of operating the ambulance service.
    (2) For hyperbaric treatments (such as high pressure oxygenation 
treatments, burn treatments and decompression treatments in response to 
diving incidents), charges will be based on the full operating costs of 
the hyperbaric treatment services.
    (3) Charges for dental services (including oral diagnosis and 
prevention, periodontics, prosthodontics (fixed and removable), 
implantology, oral surgery, orthodontics, pediatric dentistry and 
endodontics) will be based on a full cost of the dental services.
    (4) The charge for immunizations, allergin extracts, allergic 
condition tests, and the administration of certain medications when 
these services are provided in a separate immunizations or shot clinic, 
will be based on the average full cost of these services, exclusive of 
any costs considered for purposes of any outpatient visit. A separate 
charge shall be made for each immunization, injection or medication 
administered.
* * * * *
    (k) Special rule for partnership program providers. In cases in 
which the professional provider services are provided under the 
Partnership Program (or similar program operated under the authority of 
10 U.S.C. 1096), the professional charges component of the total 
standard rate will be deleted, as applicable, from the claim for the 
facility of the Uniformed Services. The third party payer will receive 
a claim for professional services directly from the individual 
healthcare provider, who is not an employee or agent of the Department 
of Defense. Such claims are not covered by 10 U.S.C. 1095 or this part, 
but are governed by statutory and regulatory requirements of the 
CHAMPUS program (see 32 CFR part 199). The same is true for the 
professional services provided on an outpatient basis under the 
Partnership Program.
    (l) Alternative determination of reasonable costs. Any third party 
payer that can satisfactorily demonstrate a prevailing rate of payment 
in the same geographic area for the same or similar aggregate groups of 
services that is less than the standard rate (or other amount as 
determined under paragraphs (f) through (k) of this section) of the 
facility of the Uniformed Services may, with the agreement of the 
facility of the Uniformed Services (or other authorized representatives 
of the United States), limit payments under 10 U.S.C. 1095 to that 
prevailing rate for that aggregate category of services. The 
determination of the third party payer's prevailing rate shall be based 
on a review of valid contractual arrangements with other facilities or 
providers constituting a majority of the services for which payment is 
made under the third party payer's plan. This paragraph does not apply 
to cases covered by Sec. 220.11.
* * * * *
    3. Section 220.10 is amended by revising paragraph (c)(1)(ii), as 
follows:


Sec. 220.10  Special rules for Medicare supplement plans.

* * * * *
    (c) * * *
    (1) * * *
    (ii) Include adjustments, as appropriate, to identify major 
components of the all inclusive per diem or per visit rates for which 
Medicare has special rules.
* * * * *
[FR Doc. 94-23465 Filed 9-23-94; 8:45 am]
BILLING CODE 5000-04-M