[Federal Register Volume 63, Number 175 (Thursday, September 10, 1998)]
[Rules and Regulations]
[Pages 48439-48448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23842]



[[Page 48439]]

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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN 0720-AA37


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

AGENCY: Office of the Secretary, DoD.

ACTION: Final rule.

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SUMMARY: This final rule revises certain requirements and procedures 
for reimbursement under the CHAMPUS program, the purpose of which is to 
implement a comprehensive managed health care delivery system composed 
of military medical treatment facilities and CHAMPUS. Issues addressed 
in this rule include: implementation of changes made to the Medicare 
Prospective Payment System (PPS) upon which the CHAMPUS DRG-based 
payment system is modeled and required by law to follow wherever 
practicable, along with changes to make our DRG-based payment system 
operate better; clarification of payment reduction for noncompliance 
with required utilization review procedures; clarification of 
publication of list of ambulatory surgery procedures; limitation on 
ambulatory surgery group payment rates; extension of the balance 
billing limitations currently in place for individual and professional 
providers to non-institutional, non-professional providers; adjustment 
of the CHAMPUS maximum allowable charge (CMAC) rate in the small number 
of cases where the CMAC rate is less than the Medicare rate; 
implementation of the government-wide debarment rule where any provider 
excluded or suspended from CHAMPUS shall be excluded from all other 
programs and activities involving Federal financial assistance, such as 
Medicare or Medicaid; elimination of the requirement for non-
participating providers to file claims; and revision of the ambulatory 
surgery cost-share information to enable the cost-share to be assessed 
against the facility claim instead of the primary surgeon's claim.

DATES: This rule is effective October 13, 1998, except amendments to:
    1. Sec. 199.6, is effective October 1, 1997;
    2. Sec. 199.14(h) introductory text, effective January 1, 1999;
    3. Sec. 199.15, Paragraph (c)(2), effective July 11, 1995;
    4. Sec. 199.15, Paragraph (b)(4)(iii)(B), effective October 1, 
1996.

ADDRESSES: Tricare Management Activity, (TMA), Program Development 
Branch, Aurora, CO 80045-6900.

FOR FURTHER INFORMATION CONTACT:
Kathleen Larkin, Office of the Assistant Secretary of Defense (Health 
Affairs)/TRICARE Management Activity, telephone (703) 681-1745.
    Questions regarding payment of specific claims under the CHAMPUS 
allowable charge method should be addressed to the appropriate TRICARE/
CHAMPUS contractor.

SUPPLEMENTARY INFORMATION: 

I. Introduction and Background

A. Congressional Action

    The National Defense Authorization Act for 1984 provided CHAMPUS 
with a statutory linkage to the Medicare Prospective Payment System, 
upon which the CHAMPUS diagnosis-related group (DRG) based payment 
system is modeled and required by law to follow whenever practicable.
    In response to the rapid escalation of CHAMPUS costs in the 1980s, 
the Congress urged DoD, beginning with the Appropriations Act for 
Fiscal Year 1991 that physician payments under CHAMPUS be brought in 
line with payments under Medicare.
    The National Defense Authorization Act for 1996, section 731, 
extended the balance billing limit authority to non-institutional, non-
professional providers.
    Section 2455 of the Federal Acquisition Streamlining Act of 1994, 
and Executive Order 12549, ``Debarment and Suspension from Federal 
Financial and Nonfinancial Assistance Programs,'' February 18, 1986, 
require that any entity debarred, suspended or otherwise excluded under 
any program or activity involving Federal financial assistance shall 
also be debarred, suspended or otherwise excluded from all other 
programs and activities involving Federal financial assistance.

B. Public Comments

    The proposed rule was published in the Federal Register on November 
14, 1997. We received three comment letters. We thank those who 
provided comments; specific matters raised by commenters are summarized 
below in the appropriate sections of the preamble.

II. Provisions of the Rule

A. Proposed Changes to the CHAMPUS DRG-Based Payment System

1. Heart and Liver Transplants (revisions to 
Sec. 199.14(a)(1)(ii)(C)(2),(3) and (4))
    Provisions of the Proposed Rule. This paragraph explains that when 
we first implemented the CHAMPUS DRG-based payment system in 1987, we 
exempted all services related to heart and liver transplantation. 
Although both of these types of transplants are subject to the Medicare 
PPS, we initially exempted them because at that time we had limited 
experience and claims data for them. We believed these limitations 
could significantly skew the relative weights we would calculate for 
such transplants.
    Since 1987 we have continued to collect data on these services. 
From the beginning, heart transplants were grouped to DRG 103 and 
exempted. For Fiscal Year 1991 the Health Care Financing Administration 
(HCFA) created DRG 480 for liver transplants, but we continued to 
exempt them.
    In our notice of updated rates and weights for Fiscal Year 1991, 
which was published on November 5, 1990 (55 FR 46545), we noted that we 
intended to consider including both heart and liver transplants in our 
DRG system in the future, and we invited any comments in that regard. 
We received none.
    Since we have enough claims data to calculate accurate weights for 
these transplants, we proposed to end the DRG exemption for all CHAMPUS 
covered solid organ transplants for which there is an assigned DRG and 
enough data to calculate the DRG weight. Just as Medicare does, we will 
continue to exempt acquisition costs for all CHAMPUS covered solid 
organ transplants.
    Analysis of Major Public Comments. One commenter objected to the 
provisions of the proposed rule in the belief that DRG weights for the 
CHAMPUS program would be inappropriate for pediatric transplant 
services.
    Response. Our analysis of recent data indicates that both the 
average lengths of stay and average billed charges are higher for 
pediatric liver transplants, but both measures are lower for pediatric 
heart transplants. Thus, given that the number of cases is sufficiently 
large and that differences between pediatric and non-pediatric cases 
are not significant, it seems reasonable to calculate combined 
pediatric and non-pediatric DRG weights for heart and liver 
transplants.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.
2. Payment Requests for Capital and Direct Medical Education Costs 
(Revisions to Sec. 199.14(a)(1)(iii)(G)(3))
    Provisions of the Proposed Rule. Initially we required that 
hospitals submit their request for payment of capital and direct 
medical education

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costs within three months of the end of the hospital's Medicare cost-
reporting period. However, some hospitals encountered difficulties in 
meeting this deadline, because HCFA implemented changes which resulted 
in extensions to the filing deadline. Therefore, we often did not 
enforce our deadline, and as of October 1988 we eliminated the 
requirement entirely.
    We eliminated the requirement because we believed hospitals would 
submit their requests at the earliest possible time anyway. Also, we 
believed there would be no adverse impact on CHAMPUS. Neither of these 
has proven to be correct. We continually receive these requests well 
after the end of the Medicare cost-reporting period--in some cases 
several years later. As a result, it is necessary for our contractors 
to retain claims data in their systems indefinitely, so that they can 
verify the reported amounts when the requests are submitted. This is 
proving to be a very burdensome and costly requirement for our 
contractors.
    On June 27, 1995, HCFA published a final rule (60 FR 33137) 
extending the time frame providers have to file cost reports from no 
later than 3 months after the close of the period covered by the report 
to no later than 5 months after the close of that period. The rule also 
changed the regulations for granting extensions to providers. Under the 
new regulation, an extension may be granted by the intermediary only 
when a provider's operations were significantly adversely affected due 
to extraordinary circumstances over which the provider had no control, 
such as flood or fire. We proposed to adopt these same requirements for 
submitting requests for payment of capital and direct medical education 
costs with CHAMPUS.
    Currently, CHAMPUS has no deadline, other than the six year statute 
of limitations, for submitting payment requests for Medicare cost-
reporting periods. In order to allow us to close out our data for these 
periods, we proposed that any capital and direct medical education 
payment requests that fall within the six year statute of limitations 
and October 1, 1998, must be submitted to the appropriate CHAMPUS 
contractor no later than 5 months after October 1, 1998.
    In addition, since capital and direct medical education costs are 
included in the national children's hospital differential, we proposed 
to eliminate the clause allowing children's hospitals to request 
reimbursement of capital and direct medical education costs as an 
alternative to being paid the national differential.
    Analysis of Major Public Comments. We received two comments with 
respect to the time frame prescribed for requesting payment of capital 
and direct medical education. One commenter suggested we adopt a one 
year deadline from the end of the cost reporting period to file 
information necessary to the initial payment of capital and direct 
medical education costs. Another commenter suggested we allow a six 
month period after the close of the fiscal year to submit cost reports, 
and, since capital and direct medical education costs are included in 
the national children's hospital differential, requested the 
differential factor be updated annually with cost report information. 
The commenter also suggested that the payments come directly to 
hospitals and not be passed through the TRICARE Managed Care Support 
contractors.
    Response. With respect to the timeframe to submit capital and 
direct medical education costs, we agree that a one year deadline is 
appropriate. We disagree with an annual update to the national 
children's hospital differential since it is designed to reflect the 
historical relationship of children's hospitals to DRG reimbursed 
institutional facilities. We also disagree with the suggestion that 
payments not be passed through our TRICARE managed care support 
contractors. It is in the Government's interest to continue to use our 
regional managed care support contractors to process these payments 
because they provide economies of scale for claims processing and are 
acting as the government's fiscal agents in these cases.
    Provisions of the Final Rule. The final rule includes a one year 
timeframe to submit capital and direct medical education costs.
3. Indirect Medical Education Adjustment Factor (Revisions to 
Sec. 199.14(a)(1)(iii)(A)(3), (a)(1)(iii)(D)(2), and 
(a)(1)(iii)(E)(3)(i), (ii), (iii), (iv), and (v))
    Provisions of the Proposed Rule. An indirect medical education 
(IDME) adjustment factor is calculated for all hospitals which have 
teaching programs approved under the Medicare regulation. This factor 
is calculated using a formula developed by HCFA (see our previous final 
rules for a discussion of the application of this formula to CHAMPUS), 
and is based on the number of interns and residents and the number of 
beds in the hospital. Each DRG-based payment is increased by this 
factor for that hospital.
    Initially, the number of residents and interns for each hospital 
was derived from the most recently available audited HCFA cost report, 
and the number of beds was derived from the American Hospital 
Association Annual Survey of Hospitals. The factors have been updated 
annually based on data submitted by hospitals on the annual request for 
payment of capital and direct medical education costs.
    While this updating procedure ensures that hospitals' factors are 
as current as possible, it is dependent upon the hospitals' submission 
of requests for payment of capital and direct medical education costs. 
Since the crucial components (number of interns, residents and beds) 
can change from year to year, and since many hospitals do not submit 
requests for payment of capital and direct medical education costs, we 
believe it is necessary to establish an alternative updating method.
    We proposed to use the Medicare adjustment factor for any hospital 
for which a CHAMPUS-specific factor has not been calculated based on 
the hospital's request for payment of capital and direct medical 
education costs. We will update the factors using the Medicare amounts 
as of October 1 of each year when we routinely update the DRG rates and 
weights. Any hospital which has not submitted a capital and direct 
medical education payment request to CHAMPUS since the previous October 
1, will be assigned the most recent Medicare adjustment factor.
    HCFA uses a slightly different formula than that used by CHAMPUS, 
and we are aware that this will result in a different adjustment factor 
than would otherwise be used. Nevertheless, we believe this is 
justified. When the Medicare factor is used, the difference is likely 
to be small. In addition, CHAMPUS accounts for a very small portion of 
most hospitals' claims, and those hospitals which do not request 
payment of capital and direct medical education costs probably have 
few, if any, CHAMPUS admissions. Therefore, the financial impact of 
using the Medicare factor will be negligible. Yet it will ensure that 
the factors are kept current, so that factors which are no longer 
representative of a hospital's teaching program are not used 
indefinitely. And, of course, hospitals can ensure that a CHAMPUS-
specific factor is used simply by submitting a request for payment of 
capital and direct medical education costs.
    For hospitals which have indirect medical education factors for 
CHAMPUS but are not subject to the Medicare PPS, we will eliminate the 
factor if a CHAMPUS-specific factor cannot be calculated based on a 
current

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request from the hospital for payment of capital and direct medical 
education costs. The factor will be eliminated as of October 1 if no 
capital and direct medical education payment request has been received 
since the previous October 1.
    In any case where a hospital submits a capital and direct medical 
education payment request after the Medicare factor has been 
implemented (or the factor has been eliminated for hospitals not 
subject to the Medicare PPS, including children's hospitals), the 
CHAMPUS-specific factor will become effective in accordance with 
existing requirements. In no case will the CHAMPUS-specific factor be 
effective retroactively.
    For children's hospitals which have indirect medical education 
factors for CHAMPUS, the factor will be eliminated as of October 1 of 
each year if during the past year, the hospital did not provide the 
contractor with updated information on the number of its interns, 
residents and beds. Since amounts for capital and direct medical 
education are included in the national children's hospital 
differential, children's hospitals are not required to submit capital 
and direct medical education payment requests. Because of this, the 
contractor is not able to update the CHAMPUS-specific factor unless 
requested by the children's hospital.
    For Fiscal Year 1998, HCFA revised its indirect medical education 
adjustment formula to gradually reduce the current level of IDME 
adjustment over the next several years. Since the IDME formula used by 
CHAMPUS does not include disproportionate share hospitals (DSHs), the 
variables in the formula are different from Medicare's, however, the 
percentage reductions that will be applied to Medicare's formula are 
being adopted by CHAMPUS.
    Analysis of Major Public Comments. One commenter suggested that 
supplemental payments for indirect medical education be continued under 
CHAMPUS since current Medicare proposed reductions are appropriate for 
adult populations but children's hospitals would be harmed, therefore 
they suggested that the percentage reductions implied by the Medicare 
formula be removed in application to children's hospitals.
    Response. We disagree. We believe the incentives associated with 
the existing IME adjustments are contrary to the Administration's 
policy of decreasing the number of residents trained in the United 
States, increasing the relative number of residents trained in primary 
care, and encouraging more training in nonhospital-based sites thus it 
is appropriate for CHAMPUS to adopt the Medicare formula.
    Provisions of the Final Rule. In our November 14, 1997, proposed 
rule, we proposed an alternative updating method for the indirect 
medical education (IDME) adjustment factor. For those hospitals for 
which a CHAMPUS-specific factor has not been calculated based on the 
hospital's request for payment of capital and direct medical education 
costs, we proposed to use the Medicare adjustment factor, if said 
hospital was subject to the Medicare Prospective Payment System (PPS). 
We stated HCFA uses a slightly different formula than that used by 
CHAMPUS, and we were aware this would result in a different adjustment 
factor than would otherwise be used, however, we believed the 
difference was likely to be small.
    In reassessing the proposed alternative method, we felt it would be 
more equitable to use the ratio of interns and residents to beds, which 
is a component of the IDME formula, from HCFA's Provider Specific File 
(PSF), rather than use Medicare's IDME adjustment factor. The ratio of 
interns and residents to beds will be provided to the contractors to 
update each hospital's IDME adjustment factor at the same time we 
routinely update the DRG rates and weights. The Provider Specific File 
is sent to us by HCFA each year for use in calculating the updated DRG 
rates and weights.
    This method will be used beginning with the Fiscal Year 1999 DRG 
update. If after October 1, 1998, the contractor receives a request for 
payment of capital and direct medical education costs, they shall only 
change the ratio of interns and residents to beds if the request for 
payment is for a hospital's cost reporting period ending prior to 
October 1, 1998. The only other time a hospital's IDME adjustment 
factor should be changed is if the ratio of interns and residents to 
beds changes as a result of a Medicare audit. This alternative method 
shall only apply to those hospitals subject to the Medicare PPS.
    For hospitals which have indirect medical education factors for 
CHAMPUS but are not subject to the Medicare PPS, including children's 
hospitals, the contractor shall send a notice each August to those 
hospitals who have not provided the contractor with updated information 
on the number of its interns, residents and beds, since the previous 
October 1, and advise them the IDME factor will be eliminated if they 
fail to provide the contractor with updated information by October 1 of 
that same year. We anticipate the first notices to be sent in August of 
1998.
    Based on the above, we are removing the information contained in 
the proposed rule regarding the alternative updating method for the 
IDME adjustment factor. Since 32 CFR 199.14 already specifies the DRG 
payment is to be adjusted for IDME costs, any additional information 
regarding updating the IDME factor can be obtained from the contractor. 
This change does not affect the adoption of the percentage reductions 
being applied to the CHAMPUS IDME formula to gradually reduce the 
current level of IDME adjustment over the next several years.
4. Length of Stay Outliers (Revisions to 32 CFR 
199.14((a)(1)(iii)(E)(1)(i)(A) and (B))
    Provisions of the Proposed Rule. For Fiscal Year 1998, HCFA 
eliminated payment for day outliers, referred to as long stay outliers 
under CHAMPUS. CHAMPUS also eliminated long stay outliers for all cases 
except children's hospitals and neonates for Fiscal Year 1998. We 
proposed to eliminate the long stay outliers for children's hospitals 
and neonates for Fiscal Year 1999. For Fiscal Year 1993, HCFA changed 
the payment procedures for day outlier per diems under the PPS. Prior 
to this change, the day outlier per diem was calculated using the DRGs 
geometric mean length of stay and a marginal payment factor of 60 
percent. For discharge occurring on or after October 1, 1992, HCFA 
revised the day outlier payment policy to reflect that the per diem 
payment would be calculated using the arithmetic mean and a marginal 
payment factor of 55 percent. This meant that the per diem day outlier 
payment under the PPS for operating costs would be determined by 
dividing the standard DRG payment by the arithmetic mean length of stay 
for that DRG, and multiplying the result by 55 percent. The change in 
the payment policy for day outliers provided better protection against 
costly cases for hospitals, while maintaining a more appropriate level 
of payment for cases with extraordinary long lengths of stay that were 
not also extraordinarily costly.
    CHAMPUS did not adopt the PPS per diem day outlier changes at that 
time because it required a regulatory change and there was a moratorium 
on publication of rules. Over the years, HCFA has reduced the marginal 
payment factor for day outliers from 55 percent to 47 percent to 44 
percent, to 33 percent, to the point of eliminating payment of day 
outliers, effective with discharges occurring after September 30, 1997. 
CHAMPUS adopted the day

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outlier marginal payment factor of 47 percent for Fiscal Year 1995, 44 
percent for Fiscal Year 1996, and 33 percent for Fiscal Year 1997, but 
has not adopted the arithmetic mean to calculate the per diem payment. 
As a result, CHAMPUS has been paying more than Medicare on claims 
qualifying for long-stay day outliers. Although we eliminate the long 
stay outliers for all cases except children's hospitals and neonates 
for Fiscal Year 1998, and proposed to eliminate the long stay outliers 
for them in Fiscal Year 1999, we still proposed to adopt the arithmetic 
mean to calculate the per diem, in order to be consistent with the 
Medicare PPS in calculating payments of outlier cases.
    Analysis of Major Public Comments. One commenter recommended that 
children's hospitals' outlier cases be exempt from the 100-day Medicare 
cap because children, unlike elderly adults in long stay cases are 
almost never discharged to nursing home care from the hospital.
    Response. CHAMPUS does not apply the 100 day Medicare cap to any 
cases, therefore the comment is not applicable.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.
5. Cost Outliers (Revisions to 32 CFR 199.14(a)(1)(iii)(E)(1)(ii) (A) 
and (B))
    Provisions of the Proposed Rule. Beginning in Fiscal Year 1998, 
HCFA adopted a requirement that in determining the additional payment 
for IME (referred to as IDME under CHAMPUS), the IME adjustment factor 
will only be applied to the base DRG payment. In addition, the fixed 
loss cost outlier threshold is based on the sum of the DRG payment plus 
IME plus a fixed dollar amount. CHAMPUS adopted this requirement in 
Fiscal Year 1998 for all cases except children's hospitals and 
neonates. We proposed to adopt this same requirement for children's 
hospitals and neonates in Fiscal Year 1999.
    Analysis of Major Public Comments. One commenter was concerned that 
this policy is not budget neutral, there is no special per diem for 
neonates, and that Children's hospitals are not exempt from the 100-day 
Medicare cap. The commenter suggested that the 1998 HCFA-adopted 
requirement be implemented in a budget neutral fashion. We agree and we 
plan to establish an outlier ratio designed to be budget neutral.
    Provisions of the Final Rule. Effective October 1, 1998, Children's 
hospitals will have their cost outlier payments adjusted so that these 
payments are budget neutral with the FY94 outlier policies for 
children's hospitals. The Department will calculate an adjustment 
factor which will be applied to all cost outlier payments in FY99 and 
thereafter. This adjustment factor will be applied equally to the cost 
outlier payments for all Children's hospitals. The adjustment factor 
will be equal to the ratio of CHAMPUS outlier payments using the FY94 
CHAMPUS long stay and cost outlier payment methods to the CHAMPUS 
outlier payment methods using the FY99 cost outlier payment methods. We 
will calculate this ratio in late FY98 once the CHAMPUS FY99 cost 
outlier payment policy has been determined. The ratio will be 
calculated using CHAMPUS claims data from the Children's hospitals in 
FY95 and FY96. In order to ensure that budget neutrality is achieved 
with this ratio, the Department will monitor outlier payments and 
recalculate the ratio of payments under the FY94 outlier policies to 
actual outlier payments in FY99 using actual cost outlier cases at 
Children's hospitals in FY99. This calculation will be done in FY 2000. 
If the ratio has changed significantly, a new ratio will be used to pay 
Children's hospital outlier cases in FY 2001 and thereafter. The final 
rule has been modified to reflect these adjustment procedures.
6. Payment for Transfer Cases (Revisions to 32 CFR 
199.14(a)(1)(i)(C)(6)(iv))
    Provisions of the Proposed Rule. Beginning in Fiscal Year 1996, 
HCFA adopted a graduated per diem payment methodology for transfer 
cases. As of October 1, 1996, CHAMPUS adopted this payment methodology; 
however, we elected not to offset these additional payments with 
reductions in outlier payments. Using this payment methodology, CHAMPUS 
proposed to pay transferring hospitals twice the per diem amount for 
the first day of any transfer stay plus the per diem amount for each of 
the remaining days before transfer, up to the full DRG amount. For 
neonatal cases, other than normal newborns, we proposed paying the 
transferring hospital twice the per diem amount for the first day of 
any transfer stay plus 125 percent of the per diem rate for all 
remaining days before transfer, up to the full DRG amount. This change 
allows hospitals to be compensated more appropriately for the treatment 
they furnish to patients before transfer. We proposed continuing to pay 
transferring hospitals in full for discharges classified into DRG 456 
(burns, transferred to another acute care facility or DRG 601 (neonate, 
transferred less or equal to 4 days old).
    Analysis of Major Public Comments. One commenter suggested a higher 
reimbursement rate of 150 percent for days after the first day for 
Children's hospitals suggesting that their costs were higher.
    Response. We were unable to determine any differences between 
Children's hospitals and other hospitals in this regard. Thus we have 
not changed the reimbursement rate.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.
7. Elimination of Separate Adjusted Standardized Amounts for Rural 
Areas (Revision to 32 CFR 199.14(a)(1)(iii)(D) (1) and (5))
    Provisions of the Proposed Rule. Beginning in Fiscal Year 1995, 
HCFA's average standardized amounts for hospitals located in ``rural'' 
areas were required to be equal to the average standardized amount for 
hospitals located in ``other urban'' areas. Based on this, separate 
national average standardized amounts for ``other urban'' and ``rural'' 
areas no longer existed. As of Fiscal Year 1995, CHAMPUS no longer 
differentiated between ``other urban'' and ``rural'' areas. We proposed 
that the adjusted standardized amounts for ``other urban'' and 
``rural'' areas be listed as ``other'' areas.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.
8. Payment for Blood Clotting Factor (Revisions to 32 CFR Section 
199.14(a)(1)(ii)(C)(10))
    Provisions of the Proposed Rule. For Fiscal Year 1994, HCFA 
reinstated payments for the cost of administering blood clotting factor 
to beneficiaries who have hemophilia through discharges occurring 
before October 1, 1994. CHAMPUS also reinstated payments for the cost 
of administering blood clotting factor through discharges occurring 
before October 1, 1994. For Fiscal Year 1998, HCFA again reinstated 
payments for the cost of administering blood clotting factor. CHAMPUS 
also proposed to reinstate payments for discharges occurring on or 
after October 1, 1997.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

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9. Effect of Change of Ownership on Exclusion of Long-Term Care 
Hospitals (Revisions to 32 CFR 199.14(a)(1)(ii)(D)(4))
    Provisions of the Proposed Rule. Beginning in Fiscal Year 1996, 
HCFA adopted new requirements for certain long-term care hospitals 
excluded from the PPS. The requirements specify that if a hospital 
undergoes a change of ownership at the start of a cost reporting period 
or at any time within the preceding 6 months, the hospital may be 
excluded from the prospective payment system as a long-term care 
hospital for a cost reporting period if, for the 6 months immediately 
preceding the start of the period (including time before the change of 
ownership), the hospital has the required average length of stay, 
continuously operated as a hospital, and continuously participated as a 
hospital in Medicare. CHAMPUS proposed to adopt these new requirements 
beginning in Fiscal Year 1996.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.
10. Empty and Low-Volume DRGs (Revision to 32 CFR 199.14(a)(1)(iii)(B))
    Provisions of the Proposed Rule. Currently, 32 CFR 
199.14(a)(1)(iii)(B) specifies that the Medicare weight shall be used 
for any DRG with less then 10 occurrences in the CHAMPUS database. 
Since the CHAMPUS weights are used by military treatment facilities and 
by an increasingly large number of state Medicaid programs, the direct 
substitution of the Medicare weight for the CHAMPUS weight, causes 
inconsistencies. These inconsistencies may pose more of a problem for 
other payors than it does for CHAMPUS, particularly if they have more 
cases in the DRG categories where the substitutions have occurred. 
Because of these inconsistencies, we proposed that the Director, 
TRICARE Management Activity, or designee, has the authority to consider 
alternative methods for estimating CHAMPUS weights in these low-volume 
DRG categories.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.
11. Hospitals Within Hospitals (Revisions to 32 CFR 199.14(a)(1)(ii)(D) 
(5))
    Provisions of the Proposed Rule. For Fiscal Year 1998, HCFA 
established additional criteria for excluding from the PPS, long-term 
care hospitals that occupy space in the same building or on the same 
campus as another hospital, sometimes called ``hospitals within 
hospitals''. The additional criteria extends the hospital within 
hospital criteria to excluded hospitals other than long-term care 
hospitals. CHAMPUS proposed to adopt these requirements beginning in 
Fiscal Year 1998.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

B. Proposed Changes Regarding Elimination of Physician Attestation 
Requirement (Revision to 32 CFR 199.15(c)(2))

    Provisions of the Proposed Rule. On September 1, 1995, Medicare 
eliminated the requirement for the physician attestation form that 
requires doctors to certify the accuracy of all diagnoses and 
procedures before submitting claims for payment. In addition, instead 
of requiring a physician to sign an acknowledge statement every year, 
Medicare changed its regulations to require a physician need only sign 
the acknowledgment statement upon receiving admitting privileges at a 
hospital. CHAMPUS proposed to adopt these requirements effective the 
same date.
    Analysis of Major Public Comments. One commenter appreciated DoD's 
elimination of the annual physician attestation policy.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

C. Proposed Changes Regarding Clarification of Payment Reduction for 
Noncompliance With Required Utilization Review Procedures (revision to 
32 CFR 199.15(b)(4)(iii)(B))

    Provisions of the Proposed Rule. To cover those situations where 
network providers have agreements with the managed care contractors for 
denial of payments of the provider's failure to obtain the required 
preauthorization, we are proposing to add the words ``at least'' before 
the words ``ten percent''. By adding the words ``at least'', the 
managed care support contractor is authorized to apply reductions in 
payments in accordance with the network provider's contract.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

D. Clarification Regarding List of Ambulatory Surgery Procedures

    Provisions of the Proposed Rule. On October 1, 1993, we published a 
final rule (58 FR 51227) which included prospective payment procedures 
for ambulatory surgery. These procedures were modeled on the Medicare 
methodology. In that final rule, we stated that ``A list of ambulatory 
surgery procedures will appear as Attachment 2 (to be published later) 
to this preamble.'' We subsequently published the list of procedures on 
October 15, 1993, (58 FR 53411).
    The list of procedures published on October 15, 1993, was not made 
part of the Code of Federal Regulations (CFR) at that time, and it was 
not, and continues not to be, our intention that it be part of the CFR. 
However, the final rule did not make this clear. We proposed that the 
list of procedures to be ``published periodically by the Director, 
OCHAMPUS,'' as cited in section 199.14 paragraph (d)(1), is contained 
in the TRICARE/CHAMPUS Policy Manual.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

E. Proposed Changes Regarding Limits on Ambulatory Surgery Group 
Payment Rates (Revisions to 32 CFR 199.14(d)(3)(iv))

    Provisions of the Proposed Rule. Effective November 1, 1994, 
CHAMPUS identified a number of procedures which can be performed safely 
and effectively as ambulatory surgery and established prospective 
payment procedures for reimbursing these services. Ambulatory surgery 
often is less disruptive to the patient's life than an inpatient stay. 
It also provides a less expensive alternative to an inpatient stay, 
since the patient does not require a hospital room and all the costs 
associated with it. As a result, the OCHAMPUS wants to encourage the 
use of ambulatory surgery whenever it is reasonable, but we do not 
believe it ever should be more expensive than an inpatient stay. 
Therefore, we proposed to add a provision that gives discretion to the 
Director, TMA, to limit the ambulatory surgery group payment rate to 
the amount that would be allowed if the services were provided on an 
inpatient basis. To calculate the allowable inpatient amount we 
proposed multiplying the applicable DRG relative weight times the 
national large urban adjusted standardized amount (ASA). We proposed to 
use the large urban ASA rather than the ``other

[[Page 48444]]

area'' ASA because it is higher and will not economically disadvantage 
any provider, and we expect that most ambulatory surgery centers are 
located in large urban areas.
    Analysis of Major Public Comments. No comments were received.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule. We want to clarify, however, that the CHAMPUS-determined 
inpatient allowable amount that serves as a limit on the ambulatory 
surgery group payment amounts includes adjustments for hospital wage 
indexes.

F. Proposed Changes Regarding Balance Billing (Revisions to 32 CFR 
199.14(h))

    Provisions of the Proposed Rule. Section 731 of the National 
Defense Authorization Act for Fiscal Year 1996, revised 10 U.S.C. 
1079(h) which provides the statutory basis for limits on balance 
billing of CHAMPUS beneficiaries established in section 
199.14(h)(1)(i)(D). Section 731 extends the balance billing limit 
authority to non-institutional, non-professional providers, such as 
clinical laboratories and ambulance companies.
    We proposed that non-institutional, non-professional providers will 
be limited in the amount they may bill a TRICARE/CHAMPUS-eligible 
beneficiary an actual charge in excess of the allowable amount. This 
provides financial protection for our beneficiaries by preventing 
excessively high billing by providers by establishing the balance 
billing limit to these new categories of providers as the same 
percentage as that used for TRICARE/CHAMPUS professional providers: 115 
percent of the allowable charge. In order to provide flexibility to 
continue CHAMPUS benefits in special circumstances in which a 
beneficiary may feel strongly about using a particular provider, 
notwithstanding high fees, we proposed that the limitation may be 
waived on a case-by-case basis.
    Analysis of Major Public Comments. While noting that the proposed 
rule applied to non-institutional, non-professional providers, one 
commenter was opposed to across-the-board balance billing limits for 
physicians and called on the Department to articulate and publish 
criteria for allowing a waiver of the balance billing limits on a case-
by-case basis.
    Response. As we have stated in the past, we believe it is 
appropriate to protect beneficiaries against excessive balance billing. 
We have committed ourselves to monitoring carefully balance billing 
trends with an objective of assuring that a majority of claims in all 
localities for all procedures of appreciable volume have zero balance 
billing. Where this is not maintained, we are willing to maintain 
CHAMPUS payment rates a level higher than Medicare's. Based on our 
willingness to do this, we do not believe providers need to also 
maintain balance billing levels higher than Medicare, absent some 
special circumstance. As we have noted, in a special circumstance, the 
limitation can be waived if requested by the beneficiary. We do not 
have set criteria we use when evaluating and granting a waiver to our 
balance billing protections, rather each request is evaluated by the 
Director, TMA, based on the specific facts provided by a beneficiary.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

G. Proposed Changes Regarding CMAC Rates (Revisions to 32 CFR 
199.14(h)(1)(iii)(D))

    Provisions of the Proposed Rule. CHAMPUS policy, based on 
Congressional enactment, is to set CHAMPUS Maximum Allowable Charge 
(CMAC) rates comparable to Medicare rates. For almost all procedure 
codes, the CMAC rate has been reduced to equal the Medicare rate or is 
in the process of being phased down to that level. For a very small 
number of procedures, for unusual reasons or idiosyncrasies of the data 
used for calculations, however, the CMAC rate is less than the Medicare 
rate. We proposed to establish a special rule for these cases to permit 
an increase in the CMAC up to the Medicare rate. This is based on the 
authority of 10 U.S.C. 1079(h)(4), which allows for exceptions to the 
normal statutory payment limitation if DoD determines it necessary to 
assure that beneficiaries have adequate access to health care services. 
Because the Medicare rates are products of a system that reflects 
careful governmental judgments of factors suggesting fair payment 
rates, we proposed to adopt these rates as indicators of payment levels 
associated with adequate access. In addition, under the applicable 
Appropriations Act general provision, DoD may increase CMAC rates that 
are lower than Medicare rates by reference to appropriate economic 
index data similar to that used by Medicare. We have heretofore 
utilized only the Medicare Economic Index in this connection, but we 
proposed to adopt an additional Medicare indicator of economic factors, 
namely the data used for the Medicare fee determination, to adjust the 
rates in these special cases. This is set forth in the proposed new 
section 199.14(h)(1)(iii)(D).
    Analysis of Major Public Comments. One commenter was pleased by the 
proposed change and suggested that we publish the list of procedures 
that will be increased to the Medicare rates. We agree and we have 
included the list at the end of the preamble.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

H. Proposed Changes Regarding Government-Wide Effect of Exclusion or 
Suspension From CHAMPUS (Revisions to 32 CFR 199.9(m))

    Provisions of the Proposed Rule. Section 2455 of the Federal 
Acquisition Streamlining Act of 1994, Pub. L. 103-355, October 13, 
1994, and Executive Order 12549, ``Debarment and Suspension from 
Federal Financial and Nonfinancial Assistance Programs,'' February 18, 
1986, required that any entity debarred, suspended, or otherwise 
excluded under any program or activity involving Federal financial 
assistance shall also be debarred, suspended, or otherwise excluded 
from all other programs and activities involving Federal financial 
assistance. We are restating this requirement in the context specific 
to CHAMPUS through a proposed addition to section 199.9. The proposed 
addition provides that any health care provider excluded or suspended 
from CHAMPUS shall, as a general rule, also be debarred, suspended, or 
otherwise excluded from all other programs and activities involving the 
Federal financial assistance. Among these other such programs are 
Medicare and Medicaid. Other regulations related to this authority are 
32 CFR Part 24 (DoD rules) and 45 CFR Part 76 (HHS rules).
    In conjunction with implementation of this government-wide 
debarment rule, we are strengthening the linkage between CHAMPUS and 
these other programs on the important issue of balance billing by 
providers. Current regulations generally require providers to limit 
balancing billing to 15% greater than the CHAMPUS Maximum Allowable 
Charge (CMAC). These regulations also provide that violations are 
grounds for exclusion or suspension from CHAMPUS. We are proposing to 
reinforce these compliance provisions by adding a violation of this 
requirement to the list of provider actions that are considered abuse 
of the program for purposes of termination, suspension and other 
administrative remedies.
    A principal effect of this proposed revision is that any provider 
who

[[Page 48445]]

exceeds the balance billing limits risks not only exclusion or 
suspension from CHAMPUS, but also exclusion or suspension from 
Medicare, Medicaid, and other Federal programs.
    Analysis of Major Public Comments. One commenter suggested that 
CHAMPUS should require the same level of intent as is currently 
required for exclusion or suspension in the Medicare and Medicaid 
programs. They recommended that there be evidence that the physician 
``knowingly and willfully'' failed to comply with CHAMPUS requirements.
    Response. The comment is not pertinent to the proposed rule because 
the proposed rule does not make changes to our requirements in 32 CFR 
199.6 which sets forth general policies and program requirements for 
authorized providers.
    Provisions of the Final Rule. The final rule is consistent with the 
proposed rule.

I. Elimination of Mandatory Claims Filing Requirement (Revision to 32 
CFR 199.6(a)(11))

    This final rule conforms the CHAMPUS regulation to title 10, as 
revised by a provision of the National Defense Authorization Act for 
Fiscal Year 1998 that eliminated the requirement that all providers 
file claims on behalf of CHAMPUS beneficiaries.

J. Revision of Ambulatory Surgery Cost-Share Information (Revision to 
32 CFR 199.18(d)(3)(v))

    When a dependent of an active-duty member receives approved 
ambulatory surgery services, the cost-share is $25. This single cost-
sharing amount covers the facility claim as well as any claims for 
professional (surgeon, anesthesia, etc.) services. In order to ensure 
consistency and for administrative ease, we have required that the $25 
cost-share be assessed against the facility claim. When the regulation 
for the TRICARE uniform HMO benefit was published (32 CFR 199.18), that 
part inadvertently stated that the ambulatory surgery cost-share is to 
be assessed against the claim for the primary surgeon's services. Since 
this does not conform to established practices, we are revising this 
paragraph to enable the cost-share to be assessed against the facility 
claim. This will have no effect on either the collection or the amount 
of the cost-share.

III. Regulatory Procedures

    Executive Order 12866 requires certain regulatory assessments for 
any ``significant regulatory action,'' defined as one which would 
result in an annual effect on the economy of $100 million or more, or 
have other substantial impacts.
    The Regulatory Flexibility Act (RFA) requires that each Federal 
agency prepare, and make available for public comment, a regulatory 
flexibility analysis when the agency issues a regulation which would 
have a significant impact on a substantial number of small entities.
    This is not a significant regulatory action under the provisions of 
Executive Order 12866, and it would not have a significant impact on a 
substantial number of small entities.
    Pursuant to the Paperwork Reduction Act of 1995, the reporting 
provisions of this rule have been submitted to OMB for review under 
3507(d) of the Act.
    In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction 
Act of 1995, the Office of the Assistant Secretary of Defense (Health 
Affairs) announces the collection of information to allow TRICARE to 
properly reimburse institutional providers based on diagnosis-related 
groups (DRGs) for their share of these costs. The collection of this 
information is authorized by 32 CFR 199.14(a)(1)(iii)(G)(1) and (2). 
The CHAMPUS DRG-based payment system is modeled on the Medicare 
Prospective Payment System (PPS) and was implemented on October 1, 
1987.
    Affected Public: Individuals; business or other for profit.
    Annual Burden Hours: 5,532.
    Number of Respondents: 5,400.
    Responses per Respondent: 1.
    Average Burden per Response: 5 minutes for physicians.
    Frequency: On occasion.
    Respondents are institutional providers and admitting physicians. 
Institutional providers are requesting reimbursement for allowed 
capital and direct medical education costs from the TRICARE/CHAMPUS 
contractor. The information can be submtited in any form, most likely 
in the form of a letter. The contractor will calculate the TRICARE/
CHAMPUS share of capital and direct medical education costs and make a 
lump-sum payment to the hospital.
    Physicians sign a physician acknowledgement, maintained by the 
institution, at the time the physician is granted admitting privileges. 
This acknowledgement indicates the physician understands the importance 
of a correct medical record, and misrepresentation may be subject to 
penalties.

List of Subjects in 32 CFR Part 199

    Claims, Health insurance, Individuals with disability, Military 
personnel, Reporting and recordkeeping requirements.

    Accordingly, 32 CFR Part 199 is amended as follows:

PART 199--[AMENDED]

    1. The authority citation for Part 199 continues to read as 
follows:

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


Sec. 199.6  [Amended]

    2. Section 199.6 is amended by removing paragraph (a)(11) and 
redesignating paragraph (a)(12) as (a)(11).
    3. Section 199.9 is amended by adding new paragraph (m) to read as 
follows:


Sec. 199.9  Administrative remedies for fraud, abuse, and conflict of 
interest.

* * * * *
    (m) Government-wide effect of exclusion or suspension from CHAMPUS. 
As provided by section 2455 of the Federal Acquisition Streamlining Act 
of 1994, Pub. L. 103-355, October 13 1994, and Executive Order 12549, 
``Debarment and Suspension from Federal Financial and Nonfinancial 
Assistance Programs,'' February 18, 1986, any health care provider 
excluded or suspended from CHAMPUS under this section shall, as a 
general rule, also be debarred, suspended, or otherwise excluded from 
all other programs and activities involving Federal financial 
assistance. Among the other programs for which this debarment, 
suspension, or exclusion shall operate are the Medicare and Medicaid 
programs. This debarment, suspension, or termination requirement is 
subject to limited exceptions in the regulations governing the 
respective Federal programs affected. (Note: Other regulations related 
to this government-wide exclusion or suspension authority are 32 CFR 
Part 25 and 45 CFR Part 76.)
    4. Section 199.14 is amended by revising first sentences of (a)(1) 
introductory text and (a)(1)(i)(C)(6)(iv), and by revising paragraphs 
(a)(1)(ii)(C)(2), (3), (4) and (10) first sentence, (a)(1)(ii)(D)(4), 
redesignating paragraphs (a)(1)(ii)(D)(5) through (a)(1)(ii)(D)(8) as 
(a)(1)(ii)(D)(6) through (a)(1)(ii)(D)(9), (a)(1)(iii)(B), 
(a)(1)(iii)(D)(1) first sentence and (5), (a)(1)(iii)(E)(1)(i)(A) and 
(B), (a)(1)(iii)(E)(1)(ii)(A) and (B), (a)(1)(iii)(G)(3) introductory 
text, (d)(3)(iv), and (h) introductory text, and

[[Page 48446]]

by adding a new sentence after the first sentence of paragraph 
(a)(1)(i)(C)(6)(iv), and by adding new paragraphs (a)(1)(ii)(D)(5), and 
(h)(1)(iii)(D), to read as follows:


Sec. 199.14  Provider reimbursement methods.

* * * * *
    (a) * * *
    (1) CHAMPUS Diagnosis Related Group (DRG)-based payment system. 
Under the CHAMPUS DRG-based payment system, payment for the operating 
costs of inpatient hospital services furnished by hospitals subject to 
the system is made on the basis of prospectively-determined rates and 
applied on a per discharge basis using DRGs. * * *
    (i) * * *
    (C) * * *
    (6) * * *
    (iv) Payment to a hospital transferring an inpatient to another 
hospital. If a hospital subject to the CHAMPUS DRG-based payment system 
transfers an inpatient to another such hospital, the transferring 
hospital shall be paid a per diem rate (except that in neonatal cases, 
other than normal newborns, the hospital will be paid at 125 percent of 
that per diem rate), as determined under instructions issued by TSO, 
for each day of the patient's stay in that hospital, not to exceed the 
DRG-based payment that would have been paid if the patient had been 
discharged to another setting. For admissions occurring on or after 
October 1, 1995, the transferring hospital shall be paid twice the per 
diem rate for the first day of any transfer stay, and the per diem 
amount for each subsequent day, up to the limit described in this 
paragraph.
* * * * *
    (ii) * * *
    (C) * * *
    (2) All services related to solid organ acquisition for CHAMPUS 
covered transplants by CHAMPUS-authorized transplantation centers.
    (3) All services related to heart and liver transplantation for 
admissions prior to October 1, 1998, which would otherwise be paid 
under DRG 103 and 480, respectively.
    (4) All services related to CHAMPUS covered solid organ 
transplantations for which there is no DRG assignment.
* * * * *
    (10) For admissions occurring on or after October 1, 1990, and 
before October 1, 1994, and for discharges occurring on or after 
October 1, 1997, the costs of blood clotting factor for hemophilia 
inpatients. * * *
    (D) * * *
    (4) Long-term hospitals. A long-term hospital which is exempt from 
the Medicare prospective payment system is also exempt from the CHAMPUS 
DRG-based payment system. In order for a long-term hospital which does 
not participate in Medicare to be exempt from the CHAMPUS DRG-based 
payment system, it must meet the same criteria (as determined by the 
Director, TSO, or a designee) as required for exemption from the 
Medicare Prospective Payment System as contained in Sec. 412.23 of 
Title 42 CFR.
    (5) Hospitals within hospitals. A hospital within a hospital which 
is exempt from the Medicare prospective payment system is also exempt 
from the CHAMPUS DRG-based payment system. In order for a hospital 
within a hospital which does not participate in Medicare to be exempt 
from the CHAMPUS DRG-based payment system, it must meet the same 
criteria (as determined by the Director, TSO, or a designee) as 
required for exemption from the Medicare Prospective Payment System as 
contained in 42 CFR 412.22 and the criteria for one or more of the 
excluded hospital classifications described in Sec. 412.23 of Title 42 
CFR.
* * * * *
    (iii) * * *
    (B) Empty and low-volume DRGs. For any DRG with less than ten (10) 
occurrences in the CHAMPUS database, the Director, TSO, or designee, 
has the authority to consider alternative methods for estimating 
CHAMPUS weights in these low-volume DRG categories.
* * * * *
    (D) * * *
    (1) Differentiate large urban and other area charges. All charges 
in the database shall be sorted into large urban and other area groups 
(using the same definitions for these categories used in the Medicare 
program.*  *  *
* * * * *
    (5) Preliminary base year standardized amount. A preliminary base 
year standardized amount shall be calculated by summing all costs in 
the database applicable to the large urban or other area group and 
dividing by the total number of discharges in the respective group.
* * * * *
    (E) * * *
    (1) * * *
    (i) * * *
    (A) Short-stay outliers. Any discharge with a length-of-stay (LOS) 
less than 1.94 standard deviations from the DRG's arithmetic LOS shall 
be classified as a short-stay outlier. Short-stay outliers shall be 
reimbursed at 200 percent of the per diem rate for the DRG for each 
covered day of the hospital stay, not to exceed the DRG amount. The per 
diem rate shall equal the DRG amount divided by the arithmetic mean 
length-of-stay for the DRG.
    (B) Long-stay outliers. Any discharge (except for neonatal services 
and services in children's hospitals) which has a length-of-stay (LOS) 
exceeding a threshold established in accordance with the criteria used 
for the Medicare Prospective Payment System as contained in 42 CFR 
412.82 shall be classified as a long-stay outliner. Any discharge for 
neonatal services or for services in a children's hospital which has a 
LOS exceeding the lesser of 1.94 standard deviations or 17 days from 
the DRG's arithmetic mean LOS also shall be classified as a long-stay 
outlier. Long-stay outliers shall be reimbursed the DRG-based amount 
plus a percentage (as established for the Medicare Prospective Payment 
System) of the per diem rate for the DRG for each covered day of care 
beyond the long-stay outlier threshold. The per diem rate shall equal 
the DRG amount divided by the arithmetic mean LOS for the DRG. For 
admissions on or after October 1, 1997, the long stay outlier has been 
eliminated for all cases except children's hospitals and neonates. For 
admissions on or after October 1, 1998, the long stay outlier has been 
eliminated for children's hospitals and neonates.
    (ii) * * *
    (A) Cost outliers except those in children's hospitals or for 
neonatal services. Any discharge which has standardized costs that 
exceed a threshold established in accordance with the criteria used for 
the Medicare Prospective Payment System as contained in 42 CFR 412.84 
shall qualify as a cost outlier. The standardized costs shall be 
calculated by multiplying the total charges by the factor described in 
Sec. 199.14(a)(1)(iii)(D)(4) and adjusting this amount for indirect 
medical education costs. Cost outliers shall be reimbursed the DRG-
based amount plus a percentage (as established for the Medicare 
Prospective Payment System) of all costs exceeding the threshold. 
Effective with admissions occurring on or after October 1, 1997, the 
standardized costs are no longer adjusted for indirect medical 
education costs.
    (B) Cost outliers in children's hospitals and for neonatal 
services. Any discharge for services in a children's hospital or for 
neonatal services which has standardized costs that exceed a threshold 
of the greater of two times the DRG-based amount or $13,500 shall

[[Page 48447]]

qualify as a cost outlier. The standardized costs shall be calculated 
by multiplying the total charges by the factor described in 
Sec. 199.14(a)(1)(iii)(D)(4) (adjusted to include average capital and 
direct medical education costs) and adjusting this amount for indirect 
medical education costs. Cost outliers for services in children's 
hospitals and for neonatal services shall be reimbursed the DRG-based 
amount plus a percentage (as established for the Medicare Prospective 
Payment System) of all costs exceeding the threshold. Effective with 
admissions occurring on or after October 1, 1998, standardized costs 
are no longer adjusted for indirect medical education costs. In 
addition, CHAMPUS will calculate the outlier payments that would have 
occurred at each of the 59 Children's hospitals under the FY99 outlier 
policy for all cases that would have been outliers under the FY94 
policies using the most accurate data available in September 1998. A 
ratio will be calculated which equals the level of outlier payments 
that would have been made under the FY94 outlier policies and the 
outlier payments that would be made if the FY99 outlier policies had 
applied to each of these potential outlier cases for these hospitals. 
The ratio will be calculated across all outlier claims for the 59 
hospitals and will not be hospital specific. The ratio will be used to 
increase cost outlier payments in FY 1999 and FY 2000, unless the 
hospital has a negotiated agreement with a managed care support 
contractor which would affect this payment. For hospitals with managed 
care support agreements which affect these payments, CHAMPUS will apply 
these payments if the increased payments would be consistent with the 
agreements. In FY 2000 the ratio of outlier payments (long stay and 
cost) that would have occurred under the FY 94 policy and actual cost 
outlier payments made under the FY 99 policy will be recalculated. If 
the ratio has changed significantly, the ratio will be revised for use 
in FY 2001 and thereafter. In FY 2002, the actual cost outlier cases in 
FY 2000 and 2001 will be reexamined. The ratio of outlier payments that 
would have occurred under the FY94 policy and the actual cost outlier 
payments made under the FY 2000 and FY 2001 policies. If the ratio has 
changed significantly, the ratio will be revised for use in FY 2003.
* * * * *
    (G) * * *
    (3) Information necessary for payment of capital and direct medical 
education costs. All hospitals subject to the CHAMPUS DRG-based payment 
system, except for children's hospitals, may be reimbursed for allowed 
capital and direct medical education costs by submitting a request to 
the CHAMPUS contractor. Beginning October 1, 1998, such request shall 
be filed with CHAMPUS on or before the last day of the twelfth month 
following the close of the hospitals' cost reporting period, and shall 
cover the one-year period corresponding to the hospital's Medicare 
cost-reporting period. The first such request may cover a period of 
less than a full year--from the effective date of the CHAMPUS DRG-based 
payment system to the end of the hospital's Medicare cost-reporting 
period. All costs reported to the CHAMPUS contractor must correspond to 
the costs reported on the hospital's Medicare cost report. An extension 
of the due date for filing the request may only be granted if an 
extension has been granted by HCFA due to a provider's operations being 
significantly adversely affected due to extraordinary circumstances 
over which the provider has no control, such as flood or fire. (If 
these costs change as a result of a subsequent audit by Medicare, the 
revised costs are to be reported to the hospital's CHAMPUS contractor 
within 30 days of the date the hospital is notified of the change.) The 
request must be signed by the hospital official responsible for 
verifying the amounts and shall contain the following information.
* * * * *
    (d) * * *
    (3) * * *
    (iv) Step 4: standard payment amount per group. The standard 
payment amount per group will be the volume weighted median per 
procedure cost for the procedures in that group. For cases in which the 
standard payment amount per group exceeds the CHAMPUS-determined 
inpatient allowable amount, the Director, TSO or his designee, may make 
adjustments.
* * * * *
    (h) Reimbursement of individual health care professionals and other 
non-institutional, non-professional providers. The CHAMPUS-determined 
reasonable charge (the amount allowed by CHAMPUS) for the service of an 
individual health care professional or other non-institutional, non-
professional provider (even if employed by or under contract to an 
institutional provider) shall be determined by one of the following 
methodologies, that is, whichever is in effect in the specific 
geographic location at the time covered services and supplies are 
provided to a CHAMPUS beneficiary.
    (1) * * *
    (iii) * * *
    (D) Special rule for cases in which the national CMAC is less than 
the Medicare rate.

    Note: This paragraph will be implemented when CMAC rates are 
published.

    In any case in which the national CMAC calculated in accordance 
with paragraphs (h)(1)(i) through (iii) of this section is less than 
the Medicare rate, the Director, TSO, may determine that the use of the 
Medicare Economic Index under paragraph (h)(1)(iii)(B) of this section 
will result in a CMAC rate below the level necessary to assure that 
beneficiaries will retain adequate access to health care services. Upon 
making such a determination, the Director, TSO, may increase the 
national CMAC to a level not greater than the Medicare rate.
    5. Section 199.15 is amended by revising paragraphs (b)(4)(iii)(B), 
(c)(2), (d)(2)(iii) and (e)(3)(i) and (ii), to read as follows:


Sec. 199.15  Quality and utilization review peer review organization 
program.

* * * * *
    (b) * * *
    (4) * * *
    (iii) * * *
    (B) In a case described in paragraph (b)(4)(iii)(A) of this 
section, reimbursement will be reduced, unless such reduction is waived 
based on special circumstances. The amount of this reduction shall be 
at least ten percent of the amount otherwise allowable for services for 
which preauthorization (including preauthorization for continued stays 
in connection with concurrent review requirements) approval should have 
been obtained, but was not obtained.
* * * * *
    (c) * * *
    (2) The physician acknowledgment required for Medicare under 42 CFR 
412.46 is also required for CHAMPUS as a condition for payment and may 
be satisfied by the same statement as required for Medicare, with 
substitution or addition of ``CHAMPUS'' when the word ``Medicare'' is 
used.
* * * * *
    (d) * * *
    (2) * * *
    (iii) Review for physician's acknowledgement of annual receipt of 
the penalty statement as contained in the Medicare regulation at 42 CFR 
412.46.
* * * * *
    (e) * * *
    (3) * * *
    (i) If the diagnostic and procedural information in the patient's 
medical

[[Page 48448]]

record is found to be inconsistent with the hospital's coding or DRG 
assignment, the hospital's coding on the CHAMPUS claim will be 
appropriately changed and payments recalculated on the basis of the 
appropriate DRG assignment.
    (ii) If the information stipulated under paragraph (d)(2) of this 
section is found not to be correct, the PRO will change the coding and 
assign the appropriate DRG on the basis of the changed coding.
* * * * *
    6. Section 199.18 is amended by revising paragraph (d)(3)(v) 
introductory text to read as follows:


Sec. 199.18  Uniform HMO Benefit.

* * * * *
    (d) * * *
    (3) * * *
    (v) For ambulatory surgery services, the per service fee is as 
follows:
* * * * *
    Dated: August 31, 1998.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 98-23842 Filed 9-9-98; 8:45 am]
BILLING CODE 5000-04-M