[Federal Register Volume 63, Number 46 (Tuesday, March 10, 1998)]
[Proposed Rules]
[Pages 11635-11641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6076]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

[RIN 0790-AG51]


Collection From Third Party Payers of Reasonable Costs of 
Healthcare Services

AGENCY: Office of the Assistant Secretary of Defense (Health Affairs), 
DoD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule implements several recent statutory changes 
and makes other revisions to the Third Party Collection Program. The 
primary matter include implementation of new statutory authority to 
include workers' compensation programs under the Third Party Collection 
Program; the addition of special rules for collections from preferred 
provider organizations; and other program revisions.

DATES: Comments are requested by May 11, 1998.

ADDRESSES: Forward comments to: Third Party Collection Program, Office 
of the Assistant Secretary of Defense (Health Affairs), Health Services 
Operations and Readiness, 1200 Defense Pentagon, Washington, DC 20301-
1200.

FOR FURTHER INFORMATION CONTACT:
LTC Michael Montgomery, 703-681-8910.

SUPPLEMENTARY INFORMATION: This proposes rule implements several recent 
statutory changes and makes other revisions to the Third Party 
Collection Program under 10 U.S.C. 1095, as discussed below.

1. Preferred Provider Organizations

    Section 713(b)(1) of the National Defense Authorization Act for 
Fiscal Year 1994, Pub. L. 103-160, amended the Third Party Collection 
Program's definition of ``insurance, medical service, or health plan'' 
to clarify that any ``preferred provider organization'' (PPO) is 
included in the definition. This amendment codified DoD's previous 
interpretation. Experience in applying the statutory authority to the 
context of preferred provider organizations has indicated a need to 
establish some special rules for plans with PPO provisions or options 
so that all parties will have a clear understanding of their 
obligations and rights under the statute. We propose to do this by 
amending Sec. 220.12.
    It is our interpretation of 10 U.S.C. 1095 that a plan with a PPO 
provision or option generally has an obligation to pay the United 
States the reasonable costs of health care services provided through 
any facility of the Uniformed Services to a Uniformed Services 
beneficiary who is also a beneficiary under the plan. No provision of 
any PPO plan having the effect of excluding from coverage or limiting 
payment for certain care if that care is provided through a facility of 
the Uniformed Services shall operate to prevent collection under this 
part.
    10 U.S.C. 1095 strikes a careful balance. On the one hand, it 
disallows third party payer rules that would have the effect of 
excluding from coverage or limiting payment because the care was 
provided in a DoD facility. The law renders inoperative numerous 
administrative procedures and payments rules of third party payers that 
would defeat the purpose of 10 U.S.C. 1095 or result in a windfall for 
a third party payer who has collected premiums but then avoided 
payments. On the other hand, the statute does not require third party 
payers to maker

[[Page 11636]]

fundamental changes in their own rules in order to accommodate 
Government providers. This proposed rule seeks to reflect that balance 
in our special rules for PPOs.
    Consistent with the statutory mandate that the operation of the 
Third Party Collection Program is not dependent upon a participation 
agreement or similar contractual relationship between military 
treatment facilities and third party payers, this proposed rule states 
that the lack of a PPO agreement or the absence of privity of contract 
is not a permissible ground for refusing or reducing payment. Based on 
this and the careful statutory balance, we believe that under the law, 
the lack of a contractual relationship between the PPO and the facility 
of the Uniformed Services may not be a basis for the plan to treat the 
DoD facility as a non-PPO provider for purposes of the PPO's payment 
amount, if the facility of the Uniformed Services accommodates the 
PPO's fundamental price and utilization review standards.
    Under this proposed rule, a DoD facility accommodates a PPO's 
fundamental price standards by accepting, in lieu of the normal Third 
Party Collection Program rates established under Sec. 220.8, the PPO's 
prevailing rates of payment paid to preferred providers in the same 
geographic area for the same or similar aggregate groups of services, 
if such rates are, in the aggregate, less than the DoD rates. A DoD 
facility accommodates a PPO's fundamental utilization review standards 
by complying with the reasonable pretreatment, concurrent, or 
retrospective review procedures that are required of all preferred 
providers under the PPO plan and by accepting denials of requested 
payment that are consistent with prevailing standards in the geographic 
area of medical necessity and proper level of care for the services 
involved.
    By accommodating a PPO's fundamental price and utilization review 
standards, DoD does not seek to compel the third party payer to make 
fundamental changes in the PPO program in order to conform to the DoD 
facility's operations. But other rules and procedures of the PPO that 
would have the effect of denying or limiting payment are not allowed. 
This proposed rule includes several examples of such impermissible PPO 
requirements. Among these is any PPO requirement that would purport to 
require a facility of the Uniformed Services, in order to effectuate 
the legislative purpose of 10 U.S.C. 1095, to act in a manner 
inconsistent with the basic nature of facilities of the Uniformed 
Services.

2. Workers' Compensation Programs

    Section 735(b)(1) of the National Defense Authorization Act for 
Fiscal Year 1997, Pub. L.104-201, expanded the definition of ``third 
party payer'' to include any ``workers' compensation program or plan.'' 
The proposed rule adds Sec. 220.13 and a definition of the statutory 
term to implement this amendment.
    While specific statutory schemes vary from State to State, workers' 
compensation plans generally provide compensation to employees or their 
dependents for loss resulting from the injury, disablement, or death of 
a worker due to an employment related accident, casualty, or disease. 
The common characteristic of workers' compensation programs is the 
provision of compensation based upon a fixed statutory scheme without 
regard to fault. Payment for the costs and provision of medical care 
are also common elements of workers' compensation programs, whether the 
program operates on the basis of insurance, a State fund, or other 
mechanism.
    Proposed Sec. 220.13 states that a workers' compensation program 
generally has an obligation to pay the United States the reasonable 
costs of health care services provided in or through any facility of 
the Uniformed Services to a Uniformed Services beneficiary who is also 
a beneficiary of the workers' compensation program and whose condition 
is due to an employment related accident, casualty, or disease, We have 
added several special rules concerning lump-sum payments and compromise 
settlements. These special rules are modeled after Medicare Secondary 
Payer rules applicable to workers' compensation programs, which appear 
at 42 CFR 411.46-47. We have not determined whether additional special 
rules for applying 10 U.S.C. 1095 in the context of workers' 
compensation programs are necessary. Therefore, we solicit public 
comments from all interested parties on whether we need to clarify 
further the applicability of 10 U.S.C. 1095 to workers' compensation 
plan and, if so, specific suggestions as to such special rules.

3. Other Program Revisions and Clarifications

    This proposed rule makes several other program revisions and 
clarifications, including:
     Proposed amendment to Sec. 220.2(a) to conform with 
statutory language making 10 U.S.C. 1095 applicable to services 
provided in or ``through'' a facility of the Uniformed Services.
     Proposed amendment to Sec. 220.2(d) to clarify the 
obligation of the third party payer to pay under the Third Party 
Collection Program is not only not dependent upon an assignment of 
benefits, it is also not dependent upon any other submission by the 
beneficiary to the third party payer, including any claim or appeal.
     Proposed addition of Sec. 220.2(e) to codify in the 
regulation our interpretation of the preemptive effect of 10 U.S.C. 
1095 in relation to any conflicting State laws or regulations.
     Proposed addition of Sec. 220.3(c)(5) to record our 
interpretation of the applicability of 10 U.S.C. 1095 in connection 
with Medicare carve-out and Medicare secondary payer provisions of 
third party payer plans (other than Medicare supplemental plans). This 
is another application of the general rule that third party payers may 
not treat claims from facilities of the Uniformed Services less 
favorably than they lawfully treat claims from other provider (in this 
context, other providers to whom primary payment would not be made by 
Medicare or a Medicare HMO).
     Proposed amendment to Sec. 220.4 to clarify the 
permissibility of certain third party payer rules, including 
utilization review practices, and HMO plan restrictions.
     Proposed addition of Sec. 220.4(d) to record our 
requirement for payers to provide us plan information necessary to 
establish the permissibility of terms and conditions of third party 
payers' plans.
     Proposed amendment to Sec. 220.7 to clarify the United 
States' remedies concerning collections from third party payers.
     Proposed amendment to Sec. 220.8 to change and clarify 
DoD's actions in categorizing standardized amounts for the DRG-based 
payment method for inpatient care, in subdividing outpatient billings, 
and in replacing the ``same day surgery'' category of care with an 
expanded ``ambulatory procedure visit'' category.
     Proposed amendment to Sec. 220.8(h), a special rule for 
certain ancillary services ordered by outside providers and provided by 
a facility of the Uniformed Services, to lower the high cost ancillary 
threshold value from $25 to $0. For this reason, effective March 1, 
1998, ``high cost ancillary services'' will be referred to as 
``ancillary services ordered by an outside provider and provided by a 
facility of the Uniformed Services.''
     Proposed amendment to Sec. 220.8(j), concerning the former 
Public Health Service hospitals, to conform to the

[[Page 11637]]

changes to that program directed by Congress in sections 721 to 727 of 
the National Defense Authorization Act for Fiscal Year 1997.
     Proposed amendment to Sec. 220.9(c) which elaborates on 
the obligations of beneficiaries to cooperate with facilities of the 
Uniformed Services in implementing these regulations.
     Proposed additions and amendments to Sec. 220.14 to add 
and change, as necessary, the definitions of terms used in this part.

4. Other Issues

    Under Sec. 220.10(c), we provide preliminary notice of our 
intention to begin, effective January 1, 1998, to collect from Medicare 
supplemental plans reasonable costs for inpatient and outpatient 
copayments, other than the inpatient hospital deductible amount, and 
other services covered by Medicare supplemental plans. Although this 
authority is currently established in Sec. 220.10(c), we had previously 
decided to defer implementation.

Executive Order 12866, ``Regulatory Planning and Review''

    It has been determined that this rule is not a significant rule as 
defined under section 3(f)(1) through 3(f)(4) of Executive Order 12866.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    It has been determined that this rule will not have a significant 
economic impact on a substantial number of small entities because it 
affects only DoD employees and certain former DoD employees.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Charter 
35)

    It has been certified that this rule does not impose any reporting 
or recordkeeping requirements under the Paperwork Reduction Act of 
1995.
    Public comments are invited on all provisions. All comments will be 
considered. Significant comments will be addressed in the final rule.

List of Subjects in 32 CFR Part 220

    Claims, Health care, Health insurance.

    For the reasons stated in the preamble, 32 CFR part 220 is proposed 
to be amended as follows:

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

    1. The authority citation for 32 CFR part 220 continues to read as 
follows:

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

    2. Section 220.2 is proposed to be amended by revising paragraphs 
(a) and (d) and by adding a new paragraph (e) to read as follows:


Sec. 220.2  Statutory obligation of third party payer to pay.

    (a) Basic rule. Pursuant to 10 U.S.C. 1095(a)(1), a third party 
payer has an obligation to pay the United States the reasonable costs 
of health care services provided in or through any facility of the 
Uniformed Services to a Uniformed Services beneficiary who is also a 
beneficiary under the third party payer's plan. The obligation to pay 
is to the extent that the beneficiary would be eligible to receive 
reimbursement of indemnification from the third party payer if the 
beneficiary were to incur the costs on the beneficiary's own behalf.
* * * * *
    (d) Assignment of benefits or other submission by beneficiary not 
necessary. The obligation of the third party payer to pay is not 
dependent upon the beneficiary executing an assignment of benefits to 
the United States. Nor is the obligation to pay dependent upon any 
other submission by the beneficiary to the third party payer, including 
any claim or appeal. In any case in which a facility of the Uniformed 
Services makes a claim, appeal, representation, or other filing under 
the authority of this part, any procedural requirement in any third 
party payer plan for the beneficiary of such plan to make the claim, 
appeal, representation, or other filing must be deemed to be satisfied. 
A copy of the completed and signed DoD insurance declaration form will 
be provided to payers upon request, in lieu of a claimant's statement 
or coordination of benefits form.
    (e) Preemption of conflicting State laws. Any provision of a law or 
regulation of a State or political subdivision thereof that purports to 
establish any requirement on a third party payer that would have the 
effect of excluding from coverage or limiting payment, for any health 
care services for which payment by the third party payer under 10 
U.S.C. 1095 or this part is required, is preempted by 10 U.S.C. 1095 
and shall have no force or effect in connection with the third party 
payer's obligations under 10 U.S.C. 1095 or this part.
    3. Section 220.3 is proposed to be amended by adding a new 
paragraph (c)(5) to read as follows:


Sec. 220.3  Exclusions impermissible.

* * * * *
    (c) * * *
    (5) Medicare carve-out and Medicare secondary payer provisions. A 
provision in a third party payer plan, other than a Medicare 
supplemental plan under Sec. 220.10, that seeks to make Medicare the 
primary payer and the plan the secondary payer or that would operate to 
carve out of the plan's coverage an amount equivalent to the Medicare 
payment the would be made if the services were provided by a provider 
to whom payment would be made under Part A or Part B of Medicare is not 
a permissible ground for refusing or reducing payment as the primary 
payer to the facility of the Uniformed Services by the third party 
payer unless the provision:
    (i) Expressly disallows payment as the primary payer to all 
providers to whom payment would not be made under Medicare (including 
payment under Part A, Part B, or a Medicare HMO); and
    (ii) Is otherwise in accordance with applicable law.
    4. Section 220.4 is proposed to be amended by revising paragraphs 
(b)(2), (c)(2), and (c)(3) and by adding a new paragraph (d) to read as 
follows:


Sec. 220.4  Reasonable terms and conditions of health plan permissible.

* * * * *
    (b) * * *
* * * * *
    (2) Except as provided by 10 U.S.C. 1095, this part, or other 
applicable law, third party payers are not required to treat claims 
arising from services provided in or through facilities of the 
Uniformed Services more favorably than they treat claims arising from 
services provided in other facilities or by other health care 
providers.
    (c) * * *
    (2) Generally applicable utilization review provisions. (1) 
Reasonable and generally applicable provisions of a third party payer's 
plan requiring pre-admission screening, second surgical opinions, 
retrospective review or other similar utilization review activities may 
be permissible grounds to refuse or reduce third party payment if such 
refusal or reduction is required by the third party payer's plan.
    (ii) Such provisions are not permissible if they are applied in a 
manner that would result in claims arising from services provided by or 
through facilities of the Uniformed Services being treated less 
favorably than claims arising from services provided by other hospitals 
or providers.
    (iii) Such provisions are not permissible if they would not affect 
a third party payer's obligation under this part. For example, 
concurrent review of an inpatient hospitalization would

[[Page 11638]]

generally not affect the third party payer's obligation because of the 
DRG-based, per-admission basis for calculating reasonable costs under 
Sec. 220.8(a) (except in long stay outlier cases, noted in 
Sec. 220.8(a)(4)).
    (3) Restrictions in HMO plans. Generally applicable exclusions in 
Health Maintenance Organization (HMO) plans of non-emergency or non-
urgent services provided outside the HMO (or similar exclusions) are 
permissible. However, HMOs may not exclude claims or refuse to certify 
emergent and urgent services provided within the HMO's service area or 
otherwise covered non-emergency services provided out of the HMO's 
service area. In addition, opt-out or point-of-service options 
available under an HMO plan may not exclude services otherwise payable 
under 10 U.S.C. 1095 or this part.
    (d) Procedures for establishing reasonable terms and conditions. In 
order to establish that a term or condition of a third party payer's 
plan is permissible, the third party payer must provide appropriate 
documentation to the facility of the Uniformed Services. This includes, 
when applicable, copies of explanation of benefits (EOBs), remittance 
advice, or payment to provider forms. It also includes copies of 
policies, employee certificates, booklets, or handbooks, or other 
documentation detailing the plan's health care benefits, exclusions, 
limitations, deductibles, co-insurance, and other pertinent policy or 
plan coverage and benefit information.
    5. Section 220.7 is proposed to be amended by revising the section 
heading and paragraph (c) and by adding a new paragraph (d) to read as 
follows:


Sec. 220.7  Remedies and procedures.

* * * * *
    (c) The authorities provided by 31 U.S.C. 3701, et seq., 28 CFR 
part 11, and 4 CFR parts 101-104 regarding collection of indebtedness 
due the United States shall be available to effect collections pursuant 
to 10 U.S.C. 1095 and this part.
    (d) A third party payer may not, without the consent of a U.S. 
Government official authorized to take action under 10 U.S.C. 1095 and 
this part, offset or reduce any payment due under 10 U.S.C. 1095 or 
this part on the grounds that the payer considers itself due a refund 
from a facility of the Uniformed Services. A request for refund must be 
submitted and adjudicated separately from any other claims submitted to 
the third party payer under 10 U.S.C. 1095 or this part.
    6. Section 220.8 is proposed to be amended by revising paragraphs 
(a)(2), (a)(6), (e)(1), (f), and (h); by redesignating paragraph (j) as 
paragraph (j)(1); and by adding a new paragraph (j)(2), to read as 
follows:


Sec. 220.8  Reasonable costs.

    (a) * * *
    (2) Standardized amount. The standardized amount shall be 
determined by dividing the total costs of all inpatient care in all 
military treatment facilities by the total number of discharges. This 
will produce a single national standardized amount. The Department of 
Defense is authorized, but not required by this part, to calculate 
three standardized amounts, one for large urban, other urban/rural, and 
overseas areas, utilizing the same distinctions in identifying the 
first two areas as is used for CHAMPUS under 32 CFR 199.14(a)(1). Using 
this applicable standardized amount, the Department of Defense may make 
adjustments for area wage rates and indirect medical education costs 
(as identified in paragraph (a)(4) of this section), producing for each 
inpatient facility of the Uniformed Services a facility-specific 
``adjusted standardized amount'' (ASA).
* * * * *
    (6) Outpatient billings. Outpatient billings (including those for 
ambulatory procedure visits) may, but are not required by this part, to 
be subdivided into two categories:
    (i) Professional charges (which refers to professional services 
provided by physicians and certain other providers); and
    (ii) Outpatient services (which refers to overhead and ancillary, 
diagnostic and treatment services, other than professional services 
provided in connection with the outpatient visit).
* * * * *
    (e) Per visit rates. (1) As authorized by 10 U.S.C. 1095(f)(2), the 
computation of reasonable costs for purposes of collections for most 
outpatient services shall be based on a per visit rate for a clinical 
specialty or subspecialty. The per visit charge shall be equal to the 
outpatient full reimbursement rate for that clinical specialty or 
subspecialty and includes all routine ancillary services. A separate 
charge will be calculated for cases that are considered ambulatory 
procedure visits. These rates shall be updated and published annually. 
As with inpatient billing categories, clinical groups representing 
selected board certified specialties/subspecialties widely accepted by 
graduate medical accrediting organizations such as the Accreditation 
Council for Graduate Medical Education (ACGME) or the American Board of 
Medical Specialties will be used for ambulatory billing categories. 
Related clinical groups may be combined for purposes of billing 
categories.
* * * * *
    (f) Ambulatory procedure visit rates. A separate charge will be 
calculated for ambulatory procedure visits (APVs). APVs are same day 
surgery visits and other outpatient visits provided by designated, 
special treatment units in facilities of the Uniformed Services. APV 
rates shall be based on the total cost of immediate (day of procedure) 
pre-procedure; procedure; and immediate post-procedure care performed 
in the ambulatory procedure unit setting for care requiring less than 
24 hours in the facility. An APV is not inpatient care. Initially, a 
single rate will be established for all types of ambulatory procedure 
visits. The Department of Defense is authorized, but not required by 
this part, to establish multiple ambulatory procedure visit 
reimbursement categories based on the clinic or subspecialty performing 
the ambulatory procedure. The average cost of APVs will be published 
annually.
* * * * *
    (h) Special rule for ancillary services ordered by outside 
providers and provided by a facility of the Uniformed Services. If a 
Uniformed Services facility provides certain ancillary services, 
prescription drugs or other procedures requested by a source other than 
a Uniformed Services facility and are not incident to any outpatient 
visit or inpatient services, the reasonable cost will not be based on 
the usual Diagnostic Related Group (DRG) or per visit rate. Rather, a 
separate standard rate shall be established based on the cost of the 
particular services, drugs, or procedures provided. Effective March 1, 
1998, this special rule applies to all services, drugs or procedures 
ordered by an outside provider and provided by a facility of the 
Uniformed Services. For such ancillary services provided prior to March 
1, 1998, this special rule applies only to services, drugs or 
procedures having a cost of at least $25. The reasonable cost for the 
services, drugs or procedures to which this special rule applies shall 
be calculated and made available to the public annually.
* * * * *
    (j) * * *
    (2) The special rule set forth in paragraph (j)(1) of this section 
expires September 30, 1997. Effective October 1, 1997, collections for 
health care services

[[Page 11639]]

provided by these facilities are no longer covered by this part, but 
are covered by 32 CFR 199.8 (CHAMPUS Double Coverage).
* * * * *
    7. Section 220.9 is proposed to be amended by revising paragraph 
(c) to read as follows:


Sec. 220.9.  Rights and obligations of beneficiaries.

* * * * *
    (c) Obligation to disclose information and cooperate with 
collection efforts. (1) Uniformed Services beneficiaries are required 
to provide correct information to the facility of the Uniformed 
Services regarding whether the beneficiary is covered by a third party 
payer's plan. Such beneficiaries are also required to provide correct 
information regarding whether particular health care services might be 
covered by a third party payer's plan, including services arising from 
an accident or workplace injury or illness. In the event a third party 
payer's plan might be applicable, a beneficiary has an obligation to 
provide such information as may be necessary to carry out 10 U.S.C. 
1095 and this part, including identification of policy numbers, claim 
numbers, involved parties and their representatives, and other relevant 
information.
    (2) Uniformed Services beneficiaries are required to take other 
reasonable steps to cooperate with the efforts of the facility of the 
Uniformed Services to make collections under 10 U.S.C. 1095 and this 
part, such as submitting to the third party payer (or other entity 
involved in adjudicating a claim) any requests or documentation that 
might be required by the third party payer (or other entity), if 
consistent with this part, to facilitate payment under this part.
    (3) Intentionally providing false information or willfully failing 
to satisfy beneficiary's obligations are grounds for disqualification 
for health care services from facilities of the Uniformed Services.
    8. Part 220 is further proposed to be amended by redesignating 
Sec. 220.12 as Sec. 220.14 and by adding new Secs. 220.12 and 220.13 to 
read as follows:


Sec. 220.12  Special rules for preferred provider organizations.

    (a) Statutory requirement. (1) Pursuant to the general duty of 
third party payers to pay under 10 U.S.C. 1095(a)(1) and the 
definitions of 10 U.S.C. 1095(h), a plan with a preferred provider 
organization (PPO) provision or option generally has an obligation to 
pay the United States the reasonable costs of health care services 
provided through any facility of the Uniformed Services to a Uniformed 
Services beneficiary who is also a beneficiary under the plan.
    (2) This section provides specific rules for applying 10 U.S.C. 
1095 and this part in the context of plans with a PPO provision or 
option.
    (b) PPO plan exclusions and limitations impermissible. Under 10 
U.S.C. 1095(b), no provision of any plan with a PPO provision or option 
having the effect of excluding from coverage or limiting payment for 
certain care if that care is provided through a facility of the 
Uniformed Services shall operate to prevent collection under this part.
    (c) PPO agreement not required. The lack of a PPO agreement or the 
absence of privity of contract between a plan with a preferred provider 
organization provision or option and a facility of the Uniformed 
Services is not a permissible ground for refusing or reducing payment 
by the plan. The lack of a contractual relationship between the plan 
and the facility of the Uniformed Services may not be a basis for the 
plan to treat a facility of the Uniformed Services as a non-PPO 
provider for purposes of the plan's PPO payment amount, if the facility 
of the Uniformed Services accommodates the plan's fundamental price and 
utilization review standards for its PPO provision or option, as 
provided in this section.
    (d) Accommodation of PPO's fundamental price and utilization review 
standards. A plan's duty to pay under this section is premised on the 
accommodation by the facility of the Uniformed Services of the plan's 
fundamental price and utilization review standards for its PPO 
provision or option, as provided in this paragraph.
    (1) A facility of the Uniformed Services accommodates a plan's 
fundamental PPO price standards by accepting, in lieu of the rates 
established under Sec. 220.8, the plan's demonstrated PPO prevailing 
rates of payment paid to preferred providers in the same geographic 
area for the same or similar aggregate groups of services, if such 
rates are, in the aggregate, less than the rates established under 
Sec. 220.8. The determination of the plan's PPO prevailing rates shall 
be based on a review of all rates, including the professional and 
technical components, contained in all valid contractual arrangements 
with facilities and providers in the PPO network for the year in which 
the services were rendered. The rates for any specific ancillary 
procedure must include both professional and technical components.
    (2) A facility of the Uniformed Services accommodates a plan's 
fundamental PPO utilization review standards by complying with the 
reasonable pretreatment, concurrent, or retrospective review procedures 
that are required of all preferred providers under the plan and by 
accepting denials or reductions of requested payment that are 
consistent with prevailing standards in the geographic area for medical 
necessity and proper level of care for the services involved.
    (e) Examples of impermissible PPO requirements. PPO requirements 
unnecessary for the achievement of the PPO's fundamental price and 
utilization review standards and would have the effect of excluding or 
limiting payment to a facility of the Uniformed Services are 
impermissible. Examples of such impermissible PPO requirements follow:
    (1) A requirement that a PPO provider accept all beneficiaries of 
the PPO's plan. A facility of the Uniformed Services may provide health 
care services only to persons with eligibility established pursuant to 
10 U.S.C.
    (2) A requirement that a PPO provider meet particular 
credentialing, licensing, certification, or other provider selection 
requirements intended to promote good quality of care. Facilities of 
the Uniformed Services comply with federal quality standards and a 
comprehensive system of provider credentialing and quality assurance.
    (3) A requirement that PPO providers restrict patient referrals to 
particular providers in the PPO network or order ancillary services 
only from particular providers. Facilities of the Uniformed Services 
carry out patient referrals and the ordering of ancillary services in 
accordance with applicable Department of Defense rules and procedures.
    (4) Any other PPO requirement that would purport to require a 
facility of the Uniformed Services, in order to effectuate the 
legislative purpose of 10 U.S.C. 1095, to act in a manner inconsistent 
with the basic nature of facilities of the Uniformed Services.


Sec. 220.13  Special rules for workers' compensation programs.

    (a) Basic rule. Pursuant to the general duty of third party payers 
under 10 U.S.C. 1095(a)(1) and the definitions of 10 U.S.C. 1095(h), a 
workers' compensation program or plan generally has an obligation to 
pay the United States the reasonable costs of health care services 
provided in or through any facility of the Uniformed Services to a 
Uniformed Services beneficiary who is also a beneficiary under a 
workers' compensation program due to an employment related injury, 
illness, or disease. Except to the extent modified or supplemented by 
this section, all provisions of this part are applicable to

[[Page 11640]]

any workers' compensation program or plan in the same manner as they 
are applicable to any other third party payer.
    (b) Special rules for lump-sum settlements. In cases in which a 
lump-sum workers' compensation settlement is made, the special rules 
established in this paragraph (b) shall apply for purposes of 
compliance with this section.
    (1) Lump-sum commutation of future benefits. If a lump-sum worker's 
compensation award stipulates that the amount paid is intended to 
compensate the individual for all future medical expenses required 
because of the work-related injury, illness, or disease, the Uniformed 
Service health care facility is entitled to reimbursement for injury, 
illness, or disease related, future health care services or items 
rendered or provided to the individual up to the amount of the lump-sum 
payment.
    (2) Lump-sum compromise settlement. (i) A lump sum compromise 
settlement, unless otherwise stipulated by an official authorized to 
take action under 10 U.S.C. 1095 and this part, is deemed to be a 
workers' compensation payment for the purpose of reimbursement to the 
facility of the Uniformed Services for services and items provided, 
even if the settlement agreement stipulates that there is no liability 
under the workers' compensation law, program, or plan.
    (ii) If a settlement appears to represent an attempt to shift to 
the facility of the Uniformed Services the responsibility of providing 
uncompensated services or items for the treatment of the work-related 
condition, the settlement will not be recognized and reimbursement to 
the unformed health care facility will be required. For example, if the 
parties to a settlement attempt to maximize the amount of disability 
benefits paid under workers' compensation by releasing the employer or 
workers' compensation carrier from liability for medical expenses for a 
particular condition even though the facts show that the condition is 
work-related, the facility of the Uniformed Services must be 
reimbursed.
    (iii) Except as specified in paragraph (b)(2)(iv) of this section, 
if a lump-sum compromise settlement forecloses the possibility of 
future payment or workers' compensation benefits, medical expenses 
incurred by a facility of the Uniformed Services after the date of the 
settlement are not reimbursable under this section.
    (iv) As an exception to the rule of paragraph (b)(2)(iii) of this 
section, if the settlement agreement allocates certain amounts for 
specific future medical services, the facility of the Uniformed 
Services is entitled to reimbursement for those specific services and 
items provided resulting from the work-related injury, illness, or 
disease up to the amount of the lump-sum settlement allocated to future 
expenses.
    (3) Apportionment of a lump-sum compromise settlement of a workers' 
compensation claim. If a compromise settlement allocates a portion of 
the payment for medical expenses and also gives reasonable recognition 
to the income replacement element, that apportionment may be accepted 
as a basis for determining the payment obligation of a workers' 
compensation program or plan under this section to a facility of the 
Uniformed Services. If the settlement does not give reasonable 
recognition to both elements of a workers' compensation award or does 
not apportion the sum granted, the portion to be considered as payment 
for medical expenses is computed as follows: Determine the ratio of the 
amount awarded (less the reasonable and necessary costs incurred in 
procuring the settlement) to the total amount that would have been 
payable under workers' compensation if the claim had not been 
compromised; multiply that ratio by the total medical expenses incurred 
as a result of the injury or disease up to the date of settlement. The 
product is the amount of workers' compensation settlement to be 
considered as payment or reimbursement for medical expenses.
    (c) Other special rules. [Reserved]
    8. Newly designated Sec. 220.14 is amended by removing paragraph 
designations (a) through (l), by revising the definitions of 
``insurance, medical service or health plan,'' ``Medicare supplemental 
insurance plan,'' ``third party payer,'' and ``third party payer 
plan,'' and by adding and placing in alphabetical order new definitions 
of ``ambulatory procedure visit,'' ``Assistant Secretary of Defense 
(Health Affairs),'' ``covered beneficiaries,'' ``preferred provider 
organization,'' and ``workers' compensation program or plan,'' to read 
as follows:


Sec. 220.14  Definitions.

    Ambulatory procedure visit. An ambulatory procedure visit is a type 
of outpatient visit in which immediate (day of procedure) pre-procedure 
and immediate post-procedure care require an unusual degree of 
intensity and are provided in an ambulatory procedure unit (APU) of the 
facility of the Uniformed Services. Care is required in the facility 
for less than 24 hours. An APU is specially designated and is accounted 
for separately from any outpatient clinic.
    Assistant Secretary of Defense (Health Affairs). This term includes 
any authorized designee of the Assistant Secretary of Defense (Health 
Affairs).
    Automobile liability insurance. * * *
    CHAMPUS supplemental plan. * * *
    Covered beneficiaries. Covered beneficiaries are all health care 
beneficiaries under chapter 55 of title 10, United States Code, except 
members of the Uniformed Services on active duty.
    Facility of the Uniformed Services. * * *
    Healthcare services. * * *
    Inpatient hospital care. * * *
    Insurance, medical service or health plan. Any plan (including any 
plan, policy program, contract, or liability arrangement) that provides 
compensation, coverage, or indemnification for expenses incurred by a 
beneficiary for health or medical services, items, products, and 
supplies. It includes but is not limited to:
    (1) Any plan offered by an insurer, reinsurer, employer, 
corporation, organization, trust, organized health care group or other 
entity.
    (2) Any plan for which the beneficiary pays a premium to an issuing 
agent as well as any plan to which the beneficiary is entitled as a 
result of employment or membership in or association with an 
organization or group.
    (3) Any Employee Retirement Income and Security Act (ERISA) plan.
    (4) Any Multiple Employer Trust (MET).
    (5) Any Multiple Employer Welfare Arrangement (MEWA).
    (6) Any Health Maintenance Organization (HMO) plan, including any 
such plan with a point-of-service provision or option.
    (7) Any individual practice association (IPA) plan.
    (8) Any exclusive provider organization (EPO) plan.
    (9) Any physician hospital organization (PHO) plan.
    (10) Any integrated delivery system (IDS) plan.
    (11) Any management service organization (MSO) plan.
    (12) Any group or individual medical services account.
    (13) Any preferred provider organization (PPO) plan or any PPO 
provision or option of any third party payer plan.
    (14) Any Medicare supplemental insurance plan.
    (15) Any automobile liability insurance plan.
    (16) Any no fault insurance plan, including any personal injury 
protection plan or medical payments benefit plan

[[Page 11641]]

for personal injuries arising from the operation of a motor vehicle.
    Medicare eligible provider. * * *
    Medicare supplemental insurance plan. A Medicare supplemental 
insurance plan is an insurance, medical service or health plan 
primarily for the purpose of supplementing an eligible person's benefit 
under Medicare. The term has the same meaning as ``Medicare 
supplemental policy'' in section 1882(g)(1) of the Social Security Act 
(42 U.S.C. 1395ss) and 42 CFR part 403, subpart B.
    No-fault insurance. * * *
    Preferred provider organization. A preferred provider organization 
(PPO) is any arrangement in a third payer plan under which coverage is 
limited to services provided by a select group of providers who are 
members of the PPO or incentives (for example, reduced copayments) are 
provided for beneficiaries under the plan to receive health care 
services from the members of the PPO rather than from other providers 
who, although authorized to be paid, are not included in the PPO. 
However, a PPO does not include any organization that is recognized as 
a health maintenance organization.
    Third party payer. A third party payer is an entity that provides 
an insurance, medical service, or health plan by contract or agreement. 
It includes but is not limited to:
    (1) State and local governments that provide such plans.
    (2) Insurance underwriters or carriers.
    (3) Private employers or employer groups offering self-insured or 
partially self-insured medical service or health plans.
    (4) Automobile liability insurance underwriter or carrier.
    (5) No fault insurance underwriter or carrier.
    (6) Workers' compensation program or plan sponsor, underwriter, 
carrier, or self-insurer.
    Third party payer plan. A third party payer plan is any plan or 
program provided by a third party payer, but not including an income or 
wage supplemental plan.
    Uniformed Services beneficiary. * * *
    Workers' compensation program or plan. A workers' compensation 
program or plan is any program or plan that provides compensation for 
loss, to employees or their dependents, resulting from the injury, 
disablement, or death of an employee due to an employment related 
accident, casualty or disease. The common characteristic of such a plan 
or program is the provision of compensation regardless of fault, in 
accordance with a delineated schedule based upon loss or impairment of 
the worker's wage earning capacity, as well as indemnification or 
compensation for medical expenses relating to the employment related 
injury or disease. A workers' compensation program or plan includes any 
such program or plan:
    (1) Operated by or under the authority of any law of any State (or 
the District of Columbia, American Samoa, Guam, Puerto Rico, and the 
Virgin Islands).
    (2) Operated through an insurance arrangement or on a self-insured 
basis by an employer.
    (3) Operated under the authority of the Federal Employees 
Compensation Act or the Longshoremen's and Harbor Workers' Compensation 
Act.

    Dated: March 4, 1998.
L.M.Bynum,
Alternate OSD Federal Register Liaison Officer Department of Defense.
[FR Doc. 98-6076 Filed 3-9-98; 8:45 am]
BILLING CODE 5000-04-M