[Federal Register Volume 60, Number 44 (Tuesday, March 7, 1995)]
[Rules and Regulations]
[Pages 12419-12438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5375]



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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: Final rule.

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summary: This final rule is to reform CHAMPUS quality of care standards 
and reimbursement methods for inpatient mental health services. The 
rule updates existing standards for residential treatment centers 
(RTCs) and establishes new standards for approval as CHAMPUS-authorized 
providers for substance use disorder rehabilitation facilities (SUDRFs) 
and partial hospitalization programs (PHPs); implements recommendations 
of the Comptroller General of the United States that DoD establish 
cost-based reimbursement methods for psychiatric hospitals and 
residential treatment facilities; adopts another Comptroller General 
recommendation that DoD remove the current incentive for the use of 
inpatient mental health care; and eliminates payments to residential 
treatment centers for days in which the patient is on a leave of 
absence.

dates: This rule is effective April 6, 1995, except amendments to 
Sec. 199.4 which are effective October 1, 1995.

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: CAPT 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: Provisions of this rule apply to the CHAMPVA 
(Civilian Health and Medical Program of the Department of Veterans 
Affairs) in the same manner as they apply to CHAMPUS.

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 have 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.

    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 [[Page 12420]] 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 use disorder rehabilitation facilities, and 
partial hospitalization programs. These standards will help bring those 
facilities, a minority in the industry, that have been 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.
    This final rule puts into 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 also modifies current payment 
methodologies, which will result in rates approximating the costs of 
providing services in psychiatric hospitals and moving toward cost 
levels for residential treatment facilities. In addition, the rule 
addresses several other issues, addressed below.

II. Provisions of 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. Texas, 
which is one of four states which account for more than half of CHAMPUS 
mental health hospital costs, 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.
    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 HMS, 
and other efforts, CHAMPUS has paid much more attention to care in 
RTCs. In [insert 30 days after date of publication] of 1992, Health 
Management Strategies International (HMS) 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:

--Staff qualifications were deficient. In some cases, 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. In some RTCs, group therapy was 
being conducted by child care workers with high school diplomas.
--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 including placing children 
as young as three or four in restraint and seclusion. 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.
--Certain RTCs employed unnecessary strip searches and other intrusive 
acts. Searches involve adult authority figures for 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 HMS 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 by the Joint 
Commission on Accreditation of Hospital Organizations (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 [[Page 12421]] intended to stand alone--do not address the 
full spectrum of requirements and expectations for mental health 
facilities and providers.
    Originally drafted in the late 1970s, CHAMPUS standards for RTCs 
have undergone multiple revisions to ensure they reflect currently 
accepted clinical practice. This rule incorporates 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 updates 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 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 clinical director. Standards 
require the clinical director of any RTC to have completed appropriate 
training 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 
clinical director participation in program development, peer review, 
quality monitoring and improvement and coordination with the governing 
body.
    Adequate staffing with qualified professionals. 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 management of the medical aspects 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 retraint--are also provided.
    Implementation of individualized treatment plans addressing each 
patient's needs. Responsibility of development, supervision, 
implementation and assessment of written, individualized and 
interdisciplinary treatment plans is assigned to a qualified mental 
health professional. 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. 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 
activities. Responsibility for development and implementation of 
quality assurance and quality improvement programs rests with the 
clinical director and must support overall facility and philosophical 
assumptions and values.
    The standards are designed to foster interdisciplinary 
communication and patient protection through involvement and oversight 
of the Governing Body, Chief Executive Officer, Clinical Director, and 
Professional Staff with respect to administrative, utilization review, 
and clinical activities. DoD has also strengthened standards for 
substance abuse treatment programs in a manner similar to residential 
treatment centers. For partial hospitalization, these standards occur 
as part of implementation of this new benefit, which became effective 
September 29, 1993.
    This 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 basic standards have been issued under the authority of this 
regulation. It should be noted that only the requirements included in 
this final regulation have, by themselves, the force and effect of law. 
Additional detail in the more lengthy standards are extensions of the 
regulation. They establish the agency's interpretations of the 
regulation and will serve as guidelines for compliance with the 
regulatory requirements. The complete standards are available to the 
public from the Office of CHAMPUS. These more lengthy standards are 
finalized coincident with issuance of this final regulation.

III. Provisions of Rule to Reform Payment Methods for Mental Health 
Care Facilities

    This rule implements payment reforms in keeping with 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 [[Page 12422]] 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.
    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 substance use 
disorder 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 the 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.

    Under the proposed rule, CHAMPUS payments to specialty psychiatric 
hospitals and units and residential treatment facilities would have 
gradually transitioned from the present system of per diem rates based 
on historical billed charges to a new system of per diem rates based on 
detailed facility cost reports. Comments from providers and the 
professional community pointed out the significant administrative 
complexity and costs associated with payments based on cost reporting. 
They proposed alternatives premised on adjustments to the current 
system. We have been persuaded by these comments and have made 
adjustments to current payment structures which, although not based on 
detailed facility cost reports, move CHAMPUS reimbursement rates 
significantly closer to the costs of delivering care in mental health 
facilities. This rule is based on the legal authority of 10 USC 
1079(j)(2) which authorizes CHAMPUS to adopt payment methods for 
institutional providers similar to those applicable to Medicare. Under 
the final rule, CHAMPUS payments to specialty psychiatric hospitals and 
units will remain at FY95 rates for a two-year period beginning in 
FY96. Additionally, effective [insert 30 days after date of 
publication], the cap on per diem rates for these hospitals and units 
will be reduced from the current 80th percentile to the 70th percentile 
of all CHAMPUS base year charges in high volume hospitals. In FY98, 
payments will again be updated using the Medicare update factor for 
hospitals and units exempt from the Medicare Prospective Payment 
System.
    With respect to RTCs, the rule makes similar adjustments to current 
payment methodologies. Per diem rates will remain at FY95 rates during 
fiscal years 1996 and 1997 and will be subject to a cap set at the 70th 
percentile of all CHAMPUS RTC per diem rates. RTCs with FY95 payment 
rates below the 30th percentile of all RTC CHAMPUS per diem rates will 
be exempt from the two year freeze in rates, instead continuing the 
current methodology for annual updates, up to the 30th percentile rate. 
Beginning in FY 1998, payment updates for all RTCs will be based on the 
Medicare update factor used for hospitals and units exempt from 
Medicare's Prospective Payment System.
    We estimate that payment methodologies under this rule will lead to 
aggregate expenditures which approximate average costs in psychiatric 
hospitals and units. While cost data are not generally available for 
RTCs, we estimate that under this rule, aggregate expenditures for RTC 
care will move closer to the level of average facility costs. We expect 
that over the next two years, we will obtain more data on actual RTC 
costs that will facilitate an assessment of whether additional 
regulatory changes should be considered.
    With respect to substance use disorder rehabilitation facilities, 
this rule includes 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 and the rates will be frozen at the 
FY95 level for fiscal years 1996 and 1997.
    The payment system changes appear at the proposed revisions to 
section 199.14.

IV. Other Provisions of 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, for care 
provided on or after July 1, 1995, this rule eliminates payment for 
days in which patients are on leave from the residential treatment 
center. We received a number of comments objecting to this on the 
grounds that therapeutic leave of absence are an important part of 
therapy, and should be recognized in reimbursement for services. We 
agree that therapeutic leaves are an important component in the 
patient's overall treatment plan. However, because payment rates to 
RTCs under this rule will probably remain above average costs, we 
believe they will be sufficient to cover facility 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 
[[Page 12423]] 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 
approximately $10.00 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.
    This rule establishes 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). One commenter objected to this proposal. Based on DoD 
experience in delivery of mental health services, information collected 
during utilization management reviews, and reports from the GAO, our 
observation is that inpatient mental health services remain vulnerable 
to over utilization. We believe this modest increase in inpatient cost 
share 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.) To ensure 
adequate notice of providers and beneficiaries we have established an 
effective date of October 1, 1995 for the copayment requirements as 
stated above.

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. Effective for 
admissions on or after October 1, 1995, this rule includes treatment 
for both alcohol and drug dependency/abuse under a broad benefit 
package designed to include treatment of all substance use disorders.

IV. Additional Discussion of Public Comments

    The proposed rule was published in the Federal Register June 29, 
1994 (59 FR Page 33465). We received 23 comment letters, all of which 
were from providers and provider associations. Many of the comments 
were quite similar in wording and content. Some were very detailed and 
provided helpful insight and analysis. We thank those who provided 
input on this important issue. Significant items raised by commenters 
and our analysis of the comments are summarized below.
    1. GAO Recommendations are Based Upon Outdated Information. We 
received a significant number of comments regarding our reliance on GAO 
reports for developing components of the proposed rule. Findings and 
recommendations provided in GAO reports relied to some extent on 
information gathered prior to realization of impact from several DoD 
quality, cost and utilization management initiatives.
    Response. Although substantial progress has been made as a result 
of earlier DoD efforts, ongoing utilization reviews and facility 
inspections continue to reveal departures from minimum CHAMPUS health 
and safety standards. Additionally, in many areas CHAMPUS continues to 
reimburse mental health services at significantly higher rates than 
many other third party payers. While the GAO analysis does not reflect 
the specific impact of recent initiatives, we believe the themes which 
emerged from their two reports remain current.
    2. Specificity of Standards. Several commenters asserted that 
standards in the proposed rule were stated too broadly, leaving 
excessive room for interpretation and significant doubt as to the exact 
CHAMPUS requirements. Examples included the absence of stated 
requirements for specific staff-to-patient ratios and specific numbers 
for professional staffing. A similar comment was that terms like 
``essentially stabilized'' and ``reasonable and observable'' treatment 
goals should be better defined. Commenters pointed out that specific 
standards which provide explicit requirements for all aspects of 
facility certification should be published for public review and 
comment prior to their application in the certification process.
    Response. A more detailed set of standards which provide the 
agency's interpretation of standards contained in the rule are 
available from OCHAMPUS. These were made available for public review 
concurrent with publication of the proposed rule. The more detailed set 
of standards does not include specific requirements with respect to 
professional staff mix and staff-to-patient ratios because these will 
vary depending upon the characteristics of each facility. Consistent 
with regulatory standards in the rule and further described in the 
supplemental set available from OCHAMPUS, facilities should develop 
staffing patterns which reflect the characteristics and special needs 
of the population served, the patient census, and acuity/intensity of 
services required. With respect to specific definitions of terms, the 
unique requirements brought by each patient to the treatment setting 
necessarily require individual assessments, and professional judgment 
as to required level of care for the presenting symptoms or dysfunction 
and progress being made in addressing the patient's specific needs. As 
such, we do not think it appropriate to establish a fixed list of 
criteria which must be applied to all patients.
    3. Requirement for Physician Medical Directors. Physician 
professional associations agreed with a requirement for physician 
medical directors, but associations representing non-physician mental 
health professionals objected to this. Several commenters recommended 
that current non-physician medical directors who are serving 
successfully should be exempt from this requirement.
    Response. We have reconsidered the provisions in the proposed rule 
regarding physician oversight of all clinical services and agree that 
some of the language may have had the effect of unduly restricting the 
scope of practice for some providers, particularly doctoral level 
psychologists. We are also aware that widely recognized accrediting 
bodies, as well as several states, permit independent practice and 
hospital admitting privileges for certain non-physician providers. We 
have made revisions to language contained in the proposed rule to 
assure our standards are consistent with those of the Joint Commission 
on Accreditation of Hospital Organizations (JCAHO) and in keeping with 
changing practice patterns in the mental health community. Because 
treatment of mental health patients often includes pharmacologic 
intervention and evaluation and treatment for related or co-existing 
medical problems, physician management for these components of therapy 
is still required. We require medical management of patients to be 
under the supervision of a physician medical director. However, we also 
agree that oversight of the spectrum of clinical services provided in a 
program [[Page 12424]] may be accomplished by doctoral level 
psychologists. We have added language which allows clinical directors 
to be physicians or, where permitted by law and by the facility, 
doctoral level psychologists who meet CHAMPUS requirements for 
individual professional providers.
    4. Admitting Privileges for Non-physician Providers. A number of 
commenters objected to proposed language which limited admitting 
privileges to physicians. They argued that such limitations on certain 
non-physician mental health professionals, for example, master's level 
clinical social workers, were unnecessarily restrictive and counter to 
legislative and industry trends toward an expanded scope of practice 
for these providers.
    Response. We are aware of these changes and agree that, where 
permitted by law and by the facility, individuals who meet the CHAMPUS 
definition of individual professional mental health provider should be 
allowed to refer patients for admission. We have included language in 
the final rule which reflects this position.
    5. Qualifications for CEOs. We received a number of comments 
suggesting that upgraded CEO requirements should not apply to 
individuals who, although they do not meet these standards, are 
currently serving in that capacity successfully.
    Response. We believe the proposed standards for CEOs are 
appropriate, given the level and scope of responsibility attached to 
this position. However, we have included language which makes CEO 
qualification standards effective October 1, 1997. This should provide 
sufficient time for CEOs currently serving to undertake appropriate 
education and/or training to meet increased requirements.
    5. Upgraded Standards are Costly and May Limit Treatment Options 
for CHAMPUS Beneficiaries. A number of commenters suggested that 
standards in the proposed rule were costly to implement. They argued 
that the increased cost of doing business, in addition to potential 
reductions in reimbursement caused by the rule's payment reforms, may 
cause some providers to drop participation in CHAMPUS programs. 
Commenters viewed this as a particular problem for providers with 
limited CHAMPUS volume and those in rural areas. Some commenters argued 
that treatment methods not relying upon a medical model should be 
expanded, rather than changed to conform.
    Response. Standards in this final rule are based upon accepted 
standards of practice, requirements of the Joint Commission on 
Accreditation of Healthcare Organizations, and input from Department 
consultants and the provider community. Although we have made 
significant progress in addressing quality issues raised by GAO's study 
and highlighted in various forms, rapidly evolving practice patterns 
and treatment settings require CHAMPUS standards which reflect the 
character and pace of these changes. We believe these updated standards 
are necessary minimums which ensure CHAMPUS beneficiaries receive high 
quality care by appropriately trained professionals and staff. We 
believe the cost of upgraded standards will be accommodated within 
projected reimbursement rates. Facilities unable or unwilling to comply 
with these standards are not in a position to provide a proper standard 
of care.
    6. Implementation of Seclusion and Restraint. We received a large 
number of comments objecting to standards which restricted 
implementation of seclusion and restraint to qualified mental health 
professionals. Additionally, the proposed rule excluded seclusion and 
restraint as behavior management devices in substance use disorder 
rehabilitation facilities. Commenters argued that these restrictions 
were unworkable, that they may pose safety issues when professional 
staff are not immediately available, and that facility staff are 
trained to use these techniques for behavior management.
    Response. Seclusion and restraint imply a severity of dysfunction 
and need for treatment beyond the scope of care settings addressed in 
this rule. If seclusion and/or restraint is frequently required for 
behavior management in RTCs, PHPs, or SUDRFs, this suggests patients 
who require a more intense level of care. Facilities should evaluate 
policies and practices to determine their effectiveness in identifying 
patients who have not been assigned to the appropriate level of care. 
All facility staff should be trained in temporary holds which provide 
immediate intervention for safety of the patient and others. Also, 
facilities should have clear emergency response procedures which define 
appropriate intervention in crisis situations.
    With the exception of brief physical holds and time outs, use of 
seclusion and restraint is excluded in SUDRFs, as patients who require 
this level of intervention are not appropriate to this treatment 
setting. The use of time out or physical holds should be infrequent, 
since behavior routinely requiring this type of intervention suggests a 
need for care at a higher level of intensity. We do agree that proposed 
rule language may have restricted appropriate response to emergency 
situations. We have added clarifying language which requires a 
qualified mental health professional to be responsible for 
implementation of seclusion and restraint, but allows actual 
implementation by facility staff under supervision of the responsible 
provider.
    7. Inclusion of Spiritual and Skills Assessments. A number of 
commenters questioned inclusion of new requirements for spiritual and 
skills assessments in the proposed standards and requested more 
detailed description of this requirement.
    Response. Spiritual assessments are part of a comprehensive, 
multidisciplinary assessment which should address the full range of a 
patient's clinical needs, including the impact of religious, ethnic and 
cultural influences upon the patient or family. Spiritual assessments, 
which occur in the context of obtaining a social history, are not new 
to the CHAMPUS standards and are included specifically in standards of 
other widely recognized accrediting bodies. A skills assessment is an 
important component of patient evaluation and includes activities of 
daily living, perceptual-motor skills, sensory integration factors, 
cognitive skills, communication skills, social interaction skills, 
creative abilities, vocational skills, and the impact of physical 
limitations. Activity services related to this assessment should be 
part of the therapeutic plan and should be supervised by a qualified 
mental health professional.
    8. Requirement for Clinical Formulation. Several commenters 
questioned the need for clinical formulation in addition to development 
of a treatment plan. Additionally, several comments pointed out the 
standards allowed less time for completion of a treatment plan (10 
days) than for development of the clinical formulation (14 days) which 
forms the basis of the treatment plan.
    Response. The clinical formulation summarizes significant clinical 
interpretations from each of the multidisciplinary assessments, forming 
the basis for development of a master treatment plan. Interrelating 
findings from all assessments, the clinical formulation should clearly 
describe problems to be addressed in the treatment plan and indicate 
appropriate focus for the treatment strategies. We view this as a 
necessary, and not redundant, part of the process for developing a plan 
of care responsive to the unique requirements of each patient. We agree 
the proposed time requirements were not consistent with 
[[Page 12425]] this logic and have modified language accordingly.
    Treatment plans must be completed within 10 days; clinical 
formulations no longer have a specific deadline, but must be completed 
prior to development of the interdisciplinary treatment plan.
    9. Family Therapy. A large number of commenters raised the issue of 
logistical problems which present difficulty in accomplishing family 
therapy for CHAMPUS beneficiaries. An example frequently used was the 
deployment of military members which caused geographic separations. The 
argument was made that CHAMPUS should be more flexible regarding this 
requirement.
    Response. Family therapy is not a new requirement for CHAMPUS 
beneficiaries. Geographical distance is not considered a reason to 
exclude the family from a treatment plan. For patients separated from 
their families by deployment or for other reasons, CHAMPUS allows 
geographically distant family therapy. If one or both parents reside a 
minimum of 250 miles from the RTC, the RTC has the flexibility to 
arrange for therapy with parents at the distant locality. If family 
therapy is clinically contraindicated, rationale for this conclusion 
must be documented in the patient's record.
    10. Annual Facility Evaluation. We received several comments 
arguing that a service specific annual evaluation was overly burdensome 
to facilities and ``unheard of'' outside academic settings.
    Response. The proposed rule identified this requirement in the 
context of facility development of a strategic plan which contains 
specific goals and objectives for each program component or service and 
patient population served. Sound business practices would suggest 
regular organizational assessments to identify progress toward 
established performance and fiscal goals and objectives. The 
Department, as well as other accrediting agencies, expect governing 
bodies, through their CEOs, to provide sufficient resources to achieve 
the organization's missions, goals, philosophy and objectives. Without 
a clear idea of resource allocation and performance across the range of 
services provided, it is unclear how facilities would evaluate 
outcomes, or the need for change. We do not agree that this is overly 
burdensome and find it surprising that such reviews would be limited 
only to academic settings.
    11. Education Hours in Partial Hospitalization Programs. The 
proposed rule does not count educational hours towards total hours for 
``full day'' partial hospitalization programs. Several commenters 
argued that, by not including time spent in school, those hours, 
combined with the required six hours for a full day partial program, 
result in an excessively long day for patients.
    Response. Patients who meet the criteria for admission to partial 
hospitalization programs do not require a professionally managed milieu 
twenty-four hours a day, as do individuals in residential treatment 
programs. Therefore, we find it reasonable to expect that school hours 
may be accommodated separately from the hours spent in therapy and 
other treatment activities. Determinations as to school hours vs. time 
spent in treatment or other activities should be considered as part of 
an overall assessment of the patient's needs and addressed in an 
individualized treatment plan.
    12. Benefit Limitations. One provider association objected to 
CHAMPUS limits on treatment of substance use disorders, stating that 
these limits do not consider the chronic nature of this problem.
    Response. Compared to many third party payers, CHAMPUS provides one 
of the more generous benefits for treatment of substance use disorders. 
We do recognize the chronic as well as individual nature of these 
problems and, consistent with that, provide an allowance for waivers of 
benefit limits when continued treatment is justified.
    13. Burden and Expense Associated With Cost Based Reimbursement. 
The overwhelming majority of comments on the proposed cost based 
reimbursement system argued that the cost and administrative burden 
associated with these changes, for both the Department and providers, 
far exceeded any benefit to the government. A number of commenters 
pointed out that the GAO reports which provided impetus for payment 
reform were based on outdated information which did not reflect the 
results of earlier initiatives. Commenters suggested that, if DoD is 
required to implement additional cost containment measures, these could 
be accomplished more efficiently through adjustments to existing 
payment mechanisms.
    Response. After full consideration of comments from the provider 
community, as well as our continuing analysis of costs associated with 
implementation of a cost based system for mental health, we agree that 
implementation of the proposed system is not appropriate at this time. 
Although cost containment and utilization management programs have 
achieved program savings, we agree with GAO conclusion that additional 
improvements are needed. While the GAO report may not reflect the full 
measure of cost and quality improvements achieved by earlier efforts, 
continuing program reviews and findings gathered through utilization 
management programs suggest CHAMPUS mental health programs require 
additional controls.
    In keeping with comments from the industry and our own analysis, 
additional cost containment in CHAMPUS mental health programs will be 
accomplished through adjustments to current reimbursement mechanisms. 
For specialty psychiatric hospitals and units, payment will be held at 
FY95 rates for two years, beginning in FY96 and extending through FY97. 
Additionally, April 6, 1995, payment will be capped at a rate not to 
exceed the 70th percentile of payment rates in all high volume CHAMPUS 
psychiatric hospitals. We estimate that these adjustments will result 
in CHAMPUS payments at the level of average aggregate costs for 
psychiatric hospitals and units, thereby addressing concerns expressed 
by the GAO.
    The general lack of availability with respect to RTC cost 
information presented some difficulties in our attempt to analyze 
impact of payment reforms for this community. In measures similar to 
those for psychiatric hospitals, RTC payment rates for facilities at or 
above the 30th percentile of all CHAMPUS RTC payment rates in FY95 will 
be held constant, with no additional update through fiscal years FY96 
and FY97. Additionally, effective April 6, 1995, payments will be 
capped at level not to exceed the 70th percentile of all RTC rates 
nationally. For those RTCs paid at levels below the 30th percentile of 
national CHAMPUS RTC rates, payments will be updated by the lesser of 
the CPI-U for medical care or the amount that brings the rate up to the 
30th percentile level. The update factor for payments beginning in FY98 
will be the Medicare update factor for hospitals and units exempt from 
the Medicare prospective payment system. In order to determine the 
effectiveness of RTC cost containment measures established in this 
final rule, the Department will continue to explore avenues for 
obtaining accurate cost data for RTC services.

V. Rulemaking Procedures

    This rule is a significant regulatory action as determined by the 
Office of Management and Budget. Also, we certify that this rule will 
not significantly affect a large number of [[Page 12426]] small 
entities within the meaning of the Regulatory Flexibility Act.
    This rule does not impose new information collection requirements.

List of Subjects in 32 CFR Part 199

    Claims, handicapped, health insurance, and military personnel.

    Accordingly, 32 CFR part 199 is amended as follows:

PART 199--[AMENDED]

    1. The authority citation for part 199 is revised to read as 
follows:

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

    2. Section 199.4 is amended by revising the heading of paragraph 
(e)(4), paragraph (e)(4) introductory text, (e)(4)(i), (e)(4)(ii), 
(e)(4)(iv), and the introductory text of paragraph (f)(2)(ii), and by 
adding new paragraphs (e)(4)(v), 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 a 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 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.
* * * * *
    (iv) Confidentialty. 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.
    (v) Waiver of benefit limits. The specific benefit limits set forth 
in paragraphs (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 
Sec. 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. For care 
provided on or after October 1, 1995, the inpatient cost-sharing for 
mental health services is $20 per day for each day of the inpatient 
admission. This $20 per day cost [[Page 12427]] 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 or substance use disorder rehabilitation services.
* * * * *
    3. Section 199.6 is 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)(xiv) to read as follows:


Sec. 199.6  Authorized providers.

* * * * *
    (b) Institutional providers. * * *
* * * * *
    (4) Categories of institutional providers. * * *
* * * * *
    (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 treatment program 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 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 assume 
overall administrative responsibility for the operation of the facility 
according to governing body policies. The chief executive officer shall 
have five years' administrative experience in the field of mental 
health. On October 1, 1997, the CEO shall possess a degree in business 
administration, public health, hospital administration, nursing, social 
work, or psychology, or meeting similar educational requirements as 
prescribed by the Director, OCHAMPUS.
    (5) Clinical Director. The clinical director, appointed by the 
governing body, shall be a psychiatrist or doctoral level psychologist 
who meets applicable CHAMPUS requirements for individual professional 
providers and is licensed to practice in the state where the 
residential treatment center is located. The clinical director shall 
possess requisite education and experience, credentials applicable 
under state practice and licensing laws appropriate to the professional 
discipline, and a minimum of five years' clinical experience in the 
treatment of children and adolescents. The clinical director shall be 
responsible for planning, development, implementation, and monitoring 
of all clinical activities.
    (6) 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 activities relating to medical treatment of patients. 
If qualified, the Medical Director may also serve as Clinical Director.
    (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 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.
    (9) Staff development.  The facility shall provide appropriate 
training and development programs for administrative, professional 
support, and direct care staff. [[Page 12428]] 
    (10) Fiscal accountability. The RTC 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 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, 
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 planning, 
development, implementation, and monitoring of all clinical activities 
is vested in a psychiatrist or doctoral level psychologist. The 
management of medical care is vested in a physician.
    (ii) The RTC shall ensure adequate coverage by fully qualified 
staff during all hours of operation, including physician availability, 
other professional staff coverage, and support staff in the respective 
disciplines.
    (2) Staff qualifications. The RTC will have a sufficient number of 
qualified mental health providers, administrative, and support staff to 
address patients' clinical needs and to coordinate the services 
provided. RTCs 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 
the individual works under the clinical supervision of a fully 
qualified mental health provider employed by the RTC. All other program 
services shall be provided by trained, licensed staff.
    (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 clinical 
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, are carefully monitored, and are fully documented. Only 
trained and clinically privileged RNs or qualified mental health 
professionals may be responsible for the implementation of seclusion 
and restraint procedures in an emergency situation.
    (5) Admission process. The RTC shall maintain written policies and 
procedures to ensure that, prior to an admission, a determination is 
made, and approved pursuant to CHAMPUS preauthorization requirements, 
that the admission is medically and/or psychologically necessary and 
the program is appropriate to meet the patient's needs. Medical and/or 
psychological necessity determinations shall be rendered by qualified 
mental health professionals who meet CHAMPUS requirements for 
individual professional providers and who are permitted by law and by 
the facility to refer patients for admission.
    (6) Assessments. The professional staff of the RTC shall complete 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 
prior to development of the multidisciplinary treatment plan.
    (7) Clinical formulation. A qualified mental health professional of 
the RTC will complete a clinical formulation on all patients. The 
clinical formulation will be reviewed and approved by the responsible 
individual professional provider and will incorporate significant 
findings from each of the multidisciplinary assessments. It will 
provide the basis for development of an interdisciplinary treatment 
plan.
    (8) Treatment planning. A qualified mental health professional 
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 an 
admission note and orders written by the admitting mental health 
professional. 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. All documentation will 
adhere to applicable provisions of the JCAHO and requirements set forth 
in Sec. 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 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 of Mental 
Health, Chemical Dependency, and Mental Retardation/Development 
Disabilities Services and requirements set forth in Sec. 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 [[Page 12429]] 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 
plan for taking care of casualities 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 clinical 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 admission, 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.
    (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 agreements 
entered into prior April 6, 1995 must be renewed not later than October 
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) Render residential treatment center impatient 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 Sec. 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 represents the beneficiary's 
liability, as defined in Sec. 199.4;
    (5) Comply with the provisions of Sec. 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 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 [[Page 12430]] 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 ineligible 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 psychiatric partial hospitalization program 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 current edition 
of the Accreditation Manual for Mental Health, Chemical Dependency, and 
Mental Retardation/Developmental Disabilities Services.
    (iv) The facility has a written participation agreement with 
OCHAMPUS. On October 1, 1995, 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 assume 
overall administrative responsibility for the operation of the facility 
according to governing body policies. The chief executive officer shall 
have five years' administrative experience in the field of mental 
health. On October 1, 1997, the CEO shall possess a degree in business 
administration, public health, hospital administration, nursing, social 
work, or psychology, or meet similar educational requirements as 
prescribed by the Director, OCHAMPUS.
    (5) Clinical Director. The clinical director, appointed by the 
governing body, shall be a psychiatrist or doctoral level psychologist 
who meets applicable CHAMPUS requirements for individual professional 
providers and is licensed to practice in the state where the PHP is 
located. The clinical director shall possess requisite education and 
experience, credentials applicable under state practice and licensing 
laws appropriate to the professional discipline, and a minimum of five 
years' clinical experience in the treatment of mental disorders 
specific to the ages and [[Page 12431]] disabilities of the patients 
served. The clinical director shall be responsible for planning, 
development, implementation, and monitoring of all clinical activities.
    (6) 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 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 activities 
relating to medical treatment of patients. If qualified, the Medical 
Director may also serve as Clinical Director.
    (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 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.
    (9) Staff development. The facility shall provide appropriate 
training and development programs for administrative, professional 
support, and direct care staff.
    (10) Fiscal accountability. The PHP 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 PHP 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, educational attainment, and professional 
experience) 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. The management of medical care is 
vested in a physician.
    (ii) The PHP shall establish and follow written plans to assure 
adequate staff coverage during all hours of operation, including 
physician availability, other professional staff coverage, and support 
staff in the respective disciplines.
    (2) Staff qualifications. The PHP will have a sufficient number of 
qualified mental health providers, administrative, and support staff to 
address patients' clinical needs and to coordinate the services 
provided. 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 
the individual works 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 clinical 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, are carefully 
monitored, and are fully documented. Only trained and clinically 
privileged RNs or qualified mental health professionals may be 
responsible for implementation of 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, and approved pursuant to CHAMPUS preauthorization requirements, 
that the admission is medically and/or psychologically necessary and 
the program is appropriate to meet the patient's needs. Medical and/or 
psychological necessity determinations shall be rendered by qualified 
mental health professionals who meet CHAMPUS requirements for 
individual professional providers and who are permitted by law and by 
the facility to refer patients for admission.
    (6) Assessments. The professional staff of the PHP shall complete a 
multidisciplinary assessment which includes, but is not limited to 
physical health, psychological health, physiological, developmental, 
family, educational, spiritual, and skills assessment of each patient 
admitted. Unless otherwise specified, all required clinical assessment 
are completed prior to development of the interdisciplinary treatment 
plan.
    (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 individual 
professional provider and will incorporate significant findings from 
each of the multidisciplinary assessments. It will provide the basis 
for development of an interdisciplinary treatment plan.
    (8) Treatment planning. A qualified mental health professional 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, [[Page 12432]] 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 Sec. 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 Organization.
    (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 for 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 casualities 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 be used to evaluate all functions of the PHP and contribute to an 
ongoing process of program improvement. The clinical 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. On October 1, 1995, 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 Sec. 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 Sec. 199.4;
    (5) Comply with the provisions of Sec. 199.8, and submit claims 
first to all health insurance coverage to which the beneficiary is 
entitled that is primary to CHAMPUS; [[Page 12433]] 
    (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 interreviewing employees, members of the staff, contractors, board 
members, volunteers, and patients, as required;
    (v) Audits conducted by the United States General Account 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 patient 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.
* * * * *
    (xiv) Substance use disorder rehabilitation facilities. Paragraph 
(b)(4)(xiv) of this section establishes standards and requirements for 
substance use order rehabilitation facilities (SUDRF). 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. 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 addiction-related symptoms, or concomitant physical and 
emotional/behavioral problems reflect persistent dysfunction in several 
major life areas. Inpatient rehabilitation is differentiated from:
    (i) 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 addiction-related 
biomedical or psychiatric dysfunction;
    (ii) 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;
    (iii) A group home, sober-living environment, halfway house, or 
three-quarter way house;
    (iv) Therapeutic schools, which are educational programs 
supplemented by addiction-focused services;
    (v) Facilities that treat patients with primary psychiatric 
diagnoses other than psychoactive substance use or dependence; and
    (vi) 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. [[Page 12434]] 
    (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)(xiv) (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 SUDRF is 
required to be licensed and fully operational (with a minimum patient 
census of the lesser 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 SUDRF 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 SUDRF has a written participation agreement with OCHAMPUS. 
On October 1, 1995, the SUDRF 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 SUDRF shall have a governing body which is responsible for 
the policies, bylaws, and activities of the facility. If the SUDRF 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 assume 
overall administrative responsibility for the operation of the facility 
according to governing body policies. The chief executive officer shall 
have five years' administrative experience in the field of mental 
health or addictions. On October 1, 1997 the CEO shall possess a degree 
in business administration, public health, hospital administration, 
nursing, social work, or psychology, or meet similar educational 
requirements as prescribed by the Director, OCHAMPUS.
    (6) Clinical Director. The clinical director, appointed by the 
governing body, shall be a qualified psychiatrist or doctoral level 
psychologist who meets applicable CHAMPUS requirements for individual 
professional providers and is licensed to practice in the state where 
the SUDRF is located. The clinical director shall possess requisite 
education and experience, including credentials applicable under state 
practice and licensing laws appropriate to the professional discipline. 
The clinical 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 or doctoral 
level psychologist with experience in the treatment of substance use 
disorders. The clinical director shall be responsible for planning, 
development, implementation, and monitoring of all clinical activities.
    (7) 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 activities relating to medical 
treatment of patients. If qualified, the Medical Director may also 
serve as Clinical Director.
    (8) 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.
    (9) Personnel policies and records. The SUDRF shall maintain 
written personnel policies, updated job descriptions, personnel records 
to assure the selection of qualified personnel and successful job 
performance of those personnel.
    (10) Staff development. The SUDRF shall provide appropriate 
training and development programs for administrative, support, and 
direct care staff.
    (11) Fiscal accountability. The SUDRF shall assure fiscal 
accountability to applicable government authorities and patients.
    (12) 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 or 
approved training program. The teaching program is approved by the 
Director, OCHAMPUS.
    (13) Emergency reports and records. The facility notifies OCHAMPUS 
of any serious occurrence involving CHAMPUS beneficiaries.
    (B) Treatment services.
    (1) Staff composition.
    (i) The SUDRF shall follow written plans which assure that medical 
and clinical patient needs will be appropriately addressed during all 
hours of operation by a sufficient number of fully qualified (including 
license, registration or certification requirements, 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 planning, development, 
implementation, and monitoring of all clinical activities is vested in 
a psychiatrist or doctoral level clinical psychologist. The management 
of medical care is vested in a physician.
    (ii) The SUDRF 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 hours of operation for a partial hospitalization 
center. [[Page 12435]] 
    (2) Staff qualifications. Within the scope of its programs and 
services, the SUDRF 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. SUDRFs that 
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 DRG, provided the individual works under the 
clinical supervision of a fully qualified mental health provider 
employed by the SUDRF.
    (3) Patient rights.
    (i) The SUDRF shall provide adequate protection for all patient 
rights, safety, confidentiality, informed consent, grievances, and 
personal dignity.
    (ii) The SUDRF has a written policy regarding patient abuse and 
neglect.
    (iii) SUDRF marketing and advertising meets professional standards.
    (4) Behavioral management. When a SUDRF uses a behavioral 
management program, the center shall adhere to a comprehensive, written 
plan of behavioral management, developed by the clinical director and 
the medical or professional staff and approved by the governing body. 
It shall be based on positive reinforcement methods and, except for 
infrequent use of temporary physical holds or time outs, does not 
include the use of restraint or seclusion. Only trained and clinically 
privileged RNs or qualified mental health professionals may be 
responsible for the implementation of seclusion and restraint in an 
emergency situation.
    (5) Admission process. The SUDRF shall maintain written policies 
and procedures to ensure that, prior to an admission, a determination 
is made, and approved pursuant to CHAMPUS preauthorization 
requirements, that the admission is medically and/or psychologically 
necessary and the program is appropriate to meet the patient's needs. 
Medical and/or psychological necessity determinations shall be rendered 
by qualified mental health professionals who meet CHAMPUS requirements 
for individual professional providers and who are permitted by law and 
by the facility to refer patients for admission.
    (6) Assessment. The professional staff of the SUDRF shall provide a 
complete, multidisciplinary assessment of each patient which includes, 
but is not limited to, medical history, physical health, nursing needs, 
alcohol and drug history, emotional and behavioral factors, age-
appropriate social circumstances, psychological condition, education 
status, and skills. Unless otherwise specified, all required clinical 
assessments are completed prior to development of the multidisciplinary 
treatment plan.
    (7) Clinical formulation. A qualified mental health care 
professional of the SUDRF will complete a clinical formulation on all 
patients. The clinical formulation will be reviewed and approved by the 
responsible individual professional provider and will incorporate 
significant findings from each of the multidisciplinary assessments. It 
will provide the basis for development of an interdisciplinary 
treatment plan.
    (8) Treatment planning. A qualified health care professional with 
admitting privileges shall be responsible for the development, 
supervision, implementation, and assessment of a written, 
individualized, and interdisciplinary plan of treatment, which shall be 
completed within 10 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. The treatment plan 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 SUDRF shall maintain a 
transition planning process to address adequately the anticipated needs 
of the patient prior to the time of 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 Sec. 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 provisions of the JCAHO Manual for Mental Health, 
Chemical Dependency, and Mental Retardation/Developmental Disabilities 
Services.
    (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 SUDRF 
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 SUDRF 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 SUDRF 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 SUDRF 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 clinical director is [[Page 12436]] responsible for 
developing and implementing quality assessment and improvement 
activities throughout the facility.
    (2) Utilization review. The SUDRF 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 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 entries, 
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 SUDRF 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 SUDRF shall implement a comprehensive 
system for the surveillance, prevention, control, and reporting of 
infections acquired or brought into the facility.
    (7) Safety. The SUDRF shall implement an effective program to 
assure a safe environment for patients, staff, and visitors.
    (8) Facility evaluation. The SUDRF annually evaluates 
accomplishment of the goals and objectives of each clinical program and 
service of the SUDRF and reports findings and recommendations to the 
governing body.
    (E) Participation agreement requirements. In addition to other 
requirements set forth in paragraph (b)(4)(xiv) 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. On October 1, 1995, the SUDRF shall not be considered to be 
a CHAMPUS authorized provider and CHAMPUS payments shall not be made 
for services provided by the SUDRF until the date the participation 
agreement is signed by the Director, OCHAMPUS. In addition to review of 
the SUDRFS 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 Sec. 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 Sec. 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 Sec. 199.4;
    (5) Comply with the provisions of Sec. 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)(xiv) of the section establishing standards for 
substance use disorder rehabilitation facilities;
    (ii) It has conducted a self assessment of the SUDRF'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 included, 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 SUDRF 
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 use disorder 
rehabilitation facilities.
    (1) Even though a SUDRF 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 SUDRF also meeting all conditions set forth in 
Sec. 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 [[Page 12437]] 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 amended by designating the current text of 
paragraph (a)(2)(ii)(A) as paragraph (a)(2)(ii)(A)(1), revising 
paragraphs (a)(2)(ii)(B) and (a)(2)(iv)(C), the heading of paragraph 
(a)(2)(ix), paragraphs (a)(2)(ix)(A), (a)(2)(ix)(C), (f)(3), and 
(f)(5), and by adding new paragraphs (a)(1)(ii)(F), (a)(2)(ii)(A)(2), 
and (f)(6) as follows:


Sec. 199.14   Provider reimbursement methods.

    (a) Hospitals. * * *
    (1) CHAMPUS Diagnosis Related Group (DRG)-based payment system. * * 
*
    (ii) Applicability of the DRG system. * * *
    (F) Substance Use Disorder Rehabilitation facilities.
    With admissions on or after July 1, 1995, substance use disorder 
rehabilitation facilities, authorized under Sec. 199.6(b)(4)(xiv), are 
subject to the DRG-based payment system.
* * * * *
    (2) CHAMPUS mental health per diem payment system.
* * * * *
    (ii) Hospital-specific per diems for higher volume hospitals and 
units. * * *
    (A) Per diem amount. * * *
    (2) In states that have implemented a payment system in connection 
with which hospitals in that state have been exempted from the CHAMPUS 
DRG-based payment system pursuant to paragraph (a)(1)(ii)(A) of this 
section, psychiatric hospitals and units may have per diem amounts 
established based on the payment system applicable to such hospitals 
and units in the state. The per diem amount, however, may not exceed 
the cap amount applicable to other higher volume hospitals.
    (B) Cap.
    (1) As it affects payment for care provided to patients prior to 
April 6, 1995, the base period per diem amount may not exceed the 80th 
percentile of the average daily charge weighted for all discharges 
throughout the United States from all higher volume hospitals.
    (2) Applicable to payments for care provided to patients on or 
after April 6, 1996, the base period per diem amount may not exceed the 
70th percentile of the average daily charge weighted for all discharges 
throughout the United States from all higher volume hospitals. For this 
purpose, base year charges shall be deemed to be charges during the 
period of July 1, 1991 to June 30, 1992, adjusted to correspond to base 
year (FY 1988) charges by the percentage change in average daily 
charges for all higher volume hospitals and units between the period of 
July 1, 1991 to June 30, 1992 and the base year.
* * * * *
    (iv) Base period and update factors.
* * * * *
    (C) Update factors.
    (1) The hospital-specific per diems and the regional per diems 
calculated for the base period pursuant to paragraphs (a)(2)(ii) of 
this section shall remain in effect for federal fiscal year 1989; there 
will be no additional update for fiscal year 1989.
    (2) Except as provided in paragraph (a)(2)(iv)(C)(3) of this 
section, for subsequent federal fiscal years, each per diem shall be 
updated by the Medicare update factor for hospitals and units exempt 
from the Medicare prospective payment system.
    (3) As an exception to the update required by paragraph 
(a)(2)(iv)(C)(2) of this section, all per diems in effect at the end of 
fiscal year 1995 shall remain in effect, with no additional update, 
throughout fiscal years 1996 and 1997. For fiscal year 1998 and 
thereafter, the per diems in effect at the end of fiscal year 1997 will 
be updated in accordance with paragraph (a)(2)(iv)(C)(2).
    (4) Hospitals and units with hospital-specific rates will be 
notified of their respective rates prior to the beginning of each 
Federal fiscal year. New hospitals shall be notified at such time as 
the hospital rate is determined. The actual amounts of each regional 
per diem that will apply in any Federal fiscal year shall be published 
in the Federal Register at approximately the start of that fiscal year.
* * * * *
    (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)(xiv), 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 
Sec. 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.
* * * * *
    (3) For care on or after April 6, 1995, the per diem amount may not 
exceed a cap of the 70th percentile of all established Federal fiscal 
year 1994 RTC rates nationally, weighted by total CHAMPUS days provided 
at each rate during the first half of Federal fiscal year 1994, and 
updated to FY95. For Federal fiscal years 1996 and 1997, the cap shall 
remain unchanged. For Federal fiscal years after fiscal year 1997, the 
cap shall be adjusted by the Medicare update factor for hospitals and 
units exempt from the Medicare prospective payment system.
* * * * *
    (5) Subject to the applicable RTC cap, adjustments to the RTC rates 
may be made annually.
    (i) For Federal fiscal years through 1995, the adjustment shall be 
based on the Consumer Price Index-Urban (CPI-U) for medical care as 
determined applicable by the Director, OCHAMPUS.
    (ii) For purposes of rates for Federal fiscal years 1996 and 1997:
    (A) for any RTC whose 1995 rate was at or above the thirtieth 
percentile of all established Federal fiscal year 1995 RTC rates 
normally, weighted by total CHAMPUS days provided at each rate during 
the first half of Federal fiscal [[Page 12438]] year 1994, that rate 
shall remain in effect, with no additional update, throughout fiscal 
years 1996 and 1997; and
    (B) For any RTC whose 1995 rate was below the 30th percentile level 
determined under paragraph (f)(5)(ii)(A) of this section, the rate 
shall be adjusted by the lesser of: the CPI-U for medical care, or the 
amount that brings the rate up to that 30th percentile level.
    (iii) For subsequent Federal fiscal years after fiscal year 1997, 
RTC rates shall be updated by the Medicare update factor for hospitals 
and units exempt from the Medicare prospective payment system.
    (6) For care provided on or after July 1, 1995, 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.

    Dated: March 1, 1995.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 95-5375 Filed 3-6-95; 8:45 am]
BILLING CODE 5000-04-M