[Federal Register Volume 64, Number 80 (Tuesday, April 27, 1999)]
[Rules and Regulations]
[Pages 22676-22683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10373]



[[Page 22675]]

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Part II





Department of Veterans Affairs





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38 CFR Part 17



Medical Care Collection or Recovery; Final Rule and Notice

  Federal Register / Vol. 64, No. 80 / Tuesday, April 27, 1999 / Rules 
and Regulations  

[[Page 22676]]



DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 17

RIN 2900-AJ30


Medical Care Collection or Recovery

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This document amends VA's medical regulations concerning 
collection or recovery by VA for medical care or services provided or 
furnished to a veteran:

--For a non-service connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health-
plan contract;
--For a non-service connected disability incurred incident to the 
veteran's employment and covered under a worker's compensation law or 
plan that provides reimbursement or indemnification for such care and 
services; or
--For a non-service connected disability incurred as a result of a 
motor vehicle accident in a State that requires automobile accident 
reparations insurance.

    Previously, by statute VA was authorized to charge ``reasonable 
costs'' for such care or services. However, amended statutory 
provisions now authorize VA to charge ``reasonable charges.'' 
Accordingly, this document establishes methodology for charging 
``reasonable charges'' consistent with the statutory amendment. The 
charges billed using this methodology, as appropriate, consist of 
inpatient facility charges, skilled nursing facility/sub-acute 
inpatient facility charges, outpatient facility charges, physician 
charges, and non-physician provider charges. Reasonable charges for 
outpatient dental care and prescription drugs not administered during 
treatment will continue to be billed using the existing cost-based 
methodology.
    Pursuant to statutory authority, VA has the right to recover or 
collect the charges from a third party to the extent that a provider of 
the care or services would be eligible to receive payment therefore 
from that third party if the care or services had not been furnished by 
a department or agency of the United States. With respect to a third-
party payer liable under a health plan contract, consistent with the 
statutory authority, the third-party payer continues to have the option 
of paying, to the extent of its coverage, either the billed charges or 
the amount the third-party payer demonstrates it would pay for care or 
services furnished by providers other than entities of the United 
States for the same care or services in the same geographic area.
    Also, the regulations are clarified to state specifically that 
billing methodology based on costs will continue to be applied to 
establish charges for medical care furnished in error or on tentative 
eligibility, furnished in a medical emergency, furnished to certain 
beneficiaries of the Department of Defense or other Federal agencies, 
furnished to pensioners of allied nations, and furnished to military 
retirees with chronic disability.

DATES: Effective Date: September 1, 1999.

FOR FURTHER INFORMATION CONTACT: David Cleaver, VHA Office of Finance 
(174), Veterans Health Administration, Department of Veterans Affairs, 
810 Vermont Avenue, NW, Washington, DC 20420, (202) 273-8210. (This is 
not a toll free number.)

SUPPLEMENTARY INFORMATION: In a document published in the Federal 
Register on October 13, 1998 (63 FR 54756), we proposed to amend VA's 
medical regulations as set forth in the SUMMARY portion on this 
document. We provided a 60-day comment period that ended December 14, 
1998. We received comments from six commenters in response to the 
proposal. These comments are discussed below. Based on the rationale 
set forth in the proposed rule and in this document, the provisions of 
the proposed rule are adopted as a final rule with changes explained 
below.

Podiatrists, Optometrists, and Physician Assistants

    Three of the comments concerned the proposal at Sec. 17.101(f) to 
charge for services of podiatrists and optometrists at 95% and 90%, 
respectively, of the amount that would be charged if the care had been 
provided by a physician. One of the comments concerned the proposal at 
Sec. 17.101(f) to charge for services of physician assistants at 65% 
for assistance at surgery, 75% for other hospital care, and 85% for 
other non-hospital care. The commenters provided information 
establishing that under the Medicare program optometrists and 
podiatrists are paid the same as physicians for services provided and 
physician assistants are paid for all services at 85% of the amount 
that would be charged if the care had been provided by a physician. In 
this regard, the commenters asserted that we should adopt the Medicare 
payment percentages for VA charges. In the proposed rule we indicated 
that we intended to use ``the Medicare percentages when available 
because of their extensive use for billing and payment of claims'' (63 
FR 54758). Accordingly, since we now understand that the Medicare 
regulations provide for payment for optometrists and podiatrists at the 
physician rate and provide for payment for physician assistants at 85% 
of the physician rate for all billable services, we changed the final 
rule to be consistent with Medicare.

Effective Date

    We considered whether to make the final rule effective thirty days 
after publication in the Federal Register or whether to make the final 
rule effective after a longer period. After considering the comments, 
we have decided to make the final rule effective September 1, 1999 to 
allow more time for industry to prepare for the changes.
    One commenter, a representative of an association of insurance 
companies, asserted that the effective date should be delayed for 
twelve months. The commenter asserted that additional time is needed 
for them to establish computer software to process the new VA charges. 
The commenter also asserted that now is a difficult time for such 
changes since available resources should be devoted as a priority to 
``year two thousand compliance'' issues. The commenter also asserted 
that their 1999 premiums did not take into account increased payments 
and administrative costs that would occur under the new system. The 
commenter also asserted that the comment period should be extended to 
allow time for engaging outside actuarial or reimbursement consultants 
in order to provide substantive comments on the billing methodology. 
The comments were supplemented by the inclusion of examples of cost 
comparisons between current charges and charges implemented by the 
final rule.
    Initially, we note that the comments, at least in part, are based 
on an incorrect premise. Under the final rule an affected entity is not 
necessarily required to pay the full charges. The final rule provides 
that an affected entity would continue to have the option of paying to 
the extent of its coverage either the billed charges or the amount it 
would pay for care or services furnished by providers other than 
entities of the United States for the same care or services in the same 
geographic area.
    Further, we believe insurers have had ample opportunity to adjust 
premiums for 1999. Ever since the enactment of Public Law 105-33 on 
August 5, 1997, it has been general knowledge in the

[[Page 22677]]

insurance industry that VA would bill based on market pricing as soon 
as regulations could be established. Moreover, the legislative history 
from the House Conference Report (H. Rep. No. 105-217, July 30, 1997, 
at pp. 974-975) for Public Law No. 105-33 states that ``the Committee 
envisions VA would establish health care charges that would allow it to 
recover amounts needed to help preserve the viability of the health 
care system for all veterans and that also reflect the substantial 
advantages to VA patients both in having the quality services provided 
by that system available and in using them.'' We believe that any 
further delay in implementing this remedial legislation beyond the 
September 1, 1999, effective date of these final regulations would be 
unreasonable.
    Also, we believe that it is reasonable for affected entities to 
establish an appropriate mechanism to process VA's billed charges under 
this final rule by the time payments to VA become due. In this regard, 
we note that VA billing under this final rule more closely accords with 
industry practice. Therefore, this should facilitate development of 
computer software necessary to process VA charges. In addition, we 
believe that the methodology for determining our new charges is based 
on sound actuarial principles.

Local Markets

    In the proposed rule, we acknowledged that we have insufficient 
data for direct determination of prevailing charges for all services in 
all local markets (63 FR 54757). One commenter questioned how VA could 
determine local reasonable charges under such circumstances for charges 
other than those based on DRGs. No changes are made based on this 
comment. We believe that our methodology provides an appropriate 
remedy. For outpatient facility charges and physician charges, we 
grouped CPT codes for each local market, then compiled averages for the 
CPT code groups for each locality, and then used these averages to 
obtain estimated charges for those CPT codes for which we had 
insufficient data. Further, for skilled nursing facility/sub-acute 
inpatient facility charges, we used state-wide averages to establish 
geographic area adjustment factors.

Co-payments for Non-service Connected Outpatient Care

    One commenter appeared to assume that this rulemaking proceeding 
would affect co-payments for non-service connected outpatient care. 
This rulemaking proceeding does not address this issue. The co-payment 
for non-service connected outpatient care continues to be based on the 
VA-wide estimated average cost of an outpatient visit (see 38 U.S.C. 
1710(g)(2)).

Effective Periods

    With respect to inpatient facility charges, skilled nursing 
facility/sub-acute inpatient facility charges, outpatient facility 
charges, and physician charges, the proposed rule provided in the 
trending provisions of the charges methodology, that the effective 
period for charges after September 1999 would be from October 1 through 
September 30 of each year. We changed these effective periods to 
coincide with calendar years (January 1 through December 31) to be 
consistent with standard industry practice.
    Also, we have added provisions stating that in those cases in which 
the effective period for published charges has expired and new charges 
have not yet become effective, VA will continue to bill using the most 
recently published charges until new charges are published and become 
effective. For example, if the most recently published charges state 
that they are effective through December and new charges are not 
published and effective until February 1, then the charges set forth 
for the period through December will continue to be used through 
January 31. Although this normally would result in lower charges than 
the methodology would allow, this is necessary to ensure that VA will 
not have to suspend charging in those cases in which the effective 
period for published charges has expired and new charges have not yet 
become effective.
    The data for determining charges, published in the October 13 
Federal Register and in a companion document published in this issue of 
the Federal Register, was designed for the period August 1998 through 
September 1999. Consistent with the principles explained above, we 
intend to use these data for the period September 1, 1999 through 
December 31, 1999. This will result in lower charges than we could 
otherwise charge. Even so, we do not believe it would be cost effective 
to recalculate these data and republish them since they will be used 
for such a short period of time.

Nonsubstantive Changes

    Nonsubstantive changes are made for purposes of clarity.

Publication of Data for Calculating Actual Amounts for Inpatient 
Facility Charges, Skilled Nursing Facility/Sub-acute Inpatient 
Facility Charges, Outpatient Facility Charges, and Physician 
Charges

    In a document published in the Federal Register on October 13, 1998 
(63 FR 54766), we set forth data (derived from the methodology of the 
final rule) for calculating inpatient facility charges, skilled nursing 
facility/sub-acute inpatient facility charges, outpatient facility 
charges, and physician charges at individual VA facilities. These data 
will be used for such charges from the effective date of this final 
rule through December 1999, except for those changes (consistent with 
the methodology of the final rule) set forth in a companion document 
published in the ``Notices'' section of this issue of the Federal 
Register. As stated in the proposal, VA will update annually in the 
``Notices'' section of the Federal Register the data for calculating 
the charges at individual VA facilities.

Paperwork Reduction Act

    The collection of information contained in the notice of the 
proposed rulemaking was submitted to the Office of Management and 
Budget (OMB) for review in accordance with the Paperwork Reduction Act 
(44 U.S.C. 3504(h)).
    The information collection subject to this rulemaking concerns 
submission of evidence. Under the provisions of Sec. 17.101(a)(2), a 
third-party payer that is liable for reimbursing VA for health care VA 
provided to veterans with non-service-connected conditions continues to 
have the option of paying either the billed charges as described in 
Sec. 17.101 or the amount the health plan demonstrates it would pay to 
providers other than entities of the United States for the same care or 
services in the same geographic area. If the amount submitted for 
payment is less than the amount billed, VA will accept the submission 
as payment, subject to verification at VA's discretion. A VA employee 
having responsibility for collection of such charges may request that 
the third party payer submit evidence or information to substantiate 
the appropriateness of the payment amount (e.g., health plan policies, 
provider agreements, medical evidence, proof of payment to other 
providers demonstrating the amount paid for the same care and services 
VA provided). This information is needed to determine whether the 
third-party payer has met the test of properly demonstrating its 
equivalent private sector provider

[[Page 22678]]

payment amount for the same care or services and within the same 
geographic area as provided by VA.
    Interested parties were invited to submit comments on the 
collection of information. However, no comments were received. OMB has 
approved this information collection under control number 2900-0606.
    VA is not authorized to impose a penalty on persons for failure to 
comply with information collection requirements which do not display a 
current OMB control number, if required.

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule would not have 
a significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. This rulemaking proceeding mostly would affect large insurance 
companies. Further, the provisions of the final rule would not impose a 
significant economic impact on any entities since VA billing would not 
constitute a significant portion of an insurance company's business. 
Accordingly, pursuant to 5 U.S.C. 605(b), this final rule is exempt 
from the initial and final regulatory flexibility analyses requirements 
of Secs. 603 and 604.

OMB Review

    This document has been reviewed by OMB pursuant to Executive Order 
12866.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance Numbers for the programs 
affected by this document are 64.005, 64.007.64.008, 64,009, 64.010, 
64.011, 64.012, 64.013, 64.014, 64.015, 64.016, 64.018, 64.019, 64.022, 
and 64.025.

List of Subjects in 38 CFR Part 17

    Administrative practice and procedure, Alcohol abuse, Alcoholism, 
Claims, Day care, Dental health, Drug abuse, Foreign relations, 
Government contracts, Grant programs health, Grant programs-veterans, 
Health care, Health facilities, Health professions, Health records, 
Homeless, Medical and dental schools, Medical devices, Medical 
research, Mental health programs, Nursing homes, Philippines, Reporting 
and record-keeping requirements, Scholarships and fellowships, Travel 
and transportation expenses, Veterans.

    Approved: March 25, 1999.
Togo D. West, Jr.,
Secretary of Veterans Affairs.

    For the reasons set out in the preamble, 38 CFR part 17 is amended 
as set forth below:

PART 17--MEDICAL

    1. The authority citation for part 17 continues to read as follows:

    Authority: 38 U.S.C. 501, 1721, unless otherwise noted.


Secs. 17.101 and 17.102  [Redesignated as Secs. 17.102 and 17.101, 
respectively]

    2. Sections 17.101 and 17.102 are redesignated as Secs. 17.102 and 
17.101, respectively.
    3. Newly redesignated Sec. 17.101 is revised and a parenthetical at 
the end of the section is added to read as follows:


Sec. 17.101  Collection or recovery by VA for medical care or services 
provided or furnished to a veteran for a non-service connected 
disability.

    (a)(1) General. This section covers collection or recovery by VA, 
under 38 U.S.C. 1729, for medical care or services provided or 
furnished to a veteran:
    (i) For a non-service connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health-
plan contract;
    (ii) For a non-service connected disability incurred incident to 
the veteran's employment and covered under a worker's compensation law 
or plan that provides reimbursement or indemnification for such care 
and services; or
    (iii) For a non-service connected disability incurred as a result 
of a motor vehicle accident in a State that requires automobile 
accident reparations insurance.
    (2) Methodology. Based on the methodology set forth in this 
section, the charges billed will include, as appropriate, inpatient 
facility charges, skilled nursing facility/sub-acute inpatient facility 
charges, outpatient facility charges, physician charges, and non-
physician provider charges. In addition, the charges billed for 
prosthetic devices and durable medical equipment provided on an 
outpatient basis will be VA's actual cost and the charges billed for 
prescription drugs not administered during treatment will be a single 
nationwide average. Data for calculating actual amounts for inpatient 
facility charges, skilled nursing facility/sub-acute inpatient facility 
charges, outpatient facility charges, and physician charges will be 
published annually in the ``Notices'' section of the Federal Register. 
In those cases in which the effective period for published charges has 
expired and new charges have not yet become effective, VA will continue 
to bill using the most recently published charges until new charges are 
published and become effective (for example, if the most recently 
published charges state that they are effective through December and 
new charges are not published and effective until February 1, then the 
charges set forth for the period through December will continue to be 
used through January 31).
    (3) Amount of recovery or collection--third party liability. A 
third-party payer liable under a health-plan contract has the option of 
paying either the billed charges described in this section or the 
amount the health-plan demonstrates is the amount it would pay for care 
or services furnished by providers other than entities of the United 
States for the same care or services in the same geographic area. If 
the amount submitted by the health plan for payment is less than the 
amount billed, VA will accept the submission as payment, subject to 
verification at VA's discretion in accordance with this section. A VA 
employee having responsibility for collection of such charges may 
request that the third party health plan submit evidence or information 
to substantiate the appropriateness of the payment amount (e.g., health 
plan or insurance policies, provider agreements, medical evidence, 
proof of payment to other providers in the same geographic area for the 
same care and services VA provided).
    (4) Definitions. For purposes of this section:
    Consolidated MSA means a consolidated Metropolitan Statistical 
Area.
    CPI means Consumer Price Index.
    CPI-U means Consumer Price Index--All Urban Consumers.
    CPI-W means Consumer Price Index--Urban Wage Earners and Clerical 
Workers .
    CPT procedure code means a 5 digit-identifier for a specified 
physician service or procedure.
    DRG means diagnosis related group.
    Geographic area means Metropolitan Statistical Area (MSA) or the 
local market, if the VA facility is not located in an MSA.
    RVU means relative value unit.
    (b) Inpatient facility charges. When VA provides or furnishes 
inpatient services within the scope of care referred to in paragraph 
(a)(1) of this section, inpatient facility charges billed for such 
services will be determined in accordance with the provisions of this 
paragraph. Inpatient facility charges

[[Page 22679]]

consist of per diem charges for room and board and for ancillary 
services that vary by VA facility and by DRG. These charges are 
calculated as follows:
    (1) Formula. For each inpatient stay or portion thereof for which a 
particular DRG assignment applies, multiply the nationwide room and 
board per diem charge as set forth in paragraph (b)(2) of this section 
by the appropriate geographic area adjustment factor as set forth in 
paragraph (b)(3) of this section. The result constitutes the facility-
specific room and board per diem charge. Also, for each inpatient stay, 
multiply the nationwide ancillary per diem charge as set forth in 
paragraph (b)(2) of this section by the appropriate geographic area 
adjustment factor as set forth in paragraph (b)(3) of this section. The 
result constitutes the facility-specific ancillary per diem charge. 
Then add the facility-specific room and board per diem charge to the 
facility-specific ancillary per diem charge. This constitutes the 
facility-specific combined per diem facility charge. Finally, multiply 
the facility-specific combined per diem facility charge by the number 
of days of inpatient care to obtain the total inpatient facility 
charge.

    Note to paragraph (b)(1): If there is a change in a patient's 
condition and/or treatment during a single inpatient stay such that 
the DRG assignment changes (for example, a psychiatric patient who 
develops a medical or surgical problem), then the calculations will 
be made separately for each DRG, according to the number of days of 
care applicable for each DRG, and the total inpatient facility 
charge will be the sum of the total inpatient facility charges for 
the different DRGs.

    (2) Per diem charges. To establish a baseline, two nationwide 
average per diem charges for each DRG are calculated for Calendar Year 
1995, one from the Medicare Standard Analytical File 5% Sample and one 
from the MedStat claim database, a claim database of nationwide 
commercial insurance. Results obtained from these two databases are 
then combined into a single weighted average per diem charge for each 
DRG. The resulting weighted average per diem charge for each DRG is 
then separated into its two components, a room and board component and 
an ancillary component, with the amount for each component calculated 
to reflect the corresponding percentage set forth in paragraph 
(b)(2)(i) of this section. The resulting amounts for room and board and 
ancillary services for each DRG are then each multiplied by the final 
ratio set forth in paragraph (b)(2)(ii) of this section to reflect the 
80th percentile charges. Finally, the resulting charges are each 
trended forward from their 1995 base to the effective time period for 
the charges, as set forth in paragraph (b)(2)(iii) of this section. The 
results constitute the room and board per diem charge and the ancillary 
per diem charge.
    (i) Charge component percentages. Using only those cases from the 
Medicare Standard Analytical File 5% Sample for which a distinction 
between room and board charges and ancillary charges can be determined, 
the percentage of the total charges for room and board compared to the 
combined total charges for room and board and ancillary services, and 
the percentage of the total charges for ancillary services compared to 
the combined total charges for room and board and ancillary services, 
are calculated by DRG.
    (ii) 80th percentile. Using the medical and surgical admissions in 
the Medicare Standard Analytical File 5% Sample, obtain for each 
consolidated MSA the ratio of the day-weighted 80th percentile semi-
private room and board per diem charge to the average semi-private room 
and board per diem charge. The consolidated MSA ratios are averaged to 
obtain a final 80th percentile ratio.
    (iii) Trending forward. For each DRG, the 80th percentile charges, 
representing calculations for calendar year 1995, are trended forward 
for the period August 1998 through September 1999, and for each 12-
month calendar year period thereafter, beginning January 1, 2000, based 
on changes to the CPI. The projected total CPI trend from 1995 to the 
midpoint of the effective charge period is calculated as the composite 
of three components. The first component trends from 1995 to January 
1997, using the Hospital Room component of the CPI-W for room and board 
charges and using the Other Hospital component of the CPI-W for 
ancillary charges. The second component trends from January 1997 to the 
latest available month, based on the Inpatient Hospital component of 
the CPI-U for room and board and ancillary charges. The third component 
trends from the latest available month to the midpoint of the effective 
charge period, based on the latest three-month average annual trend 
rate from the Inpatient Hospital component of the CPI-U. The projected 
total CPI trends are then applied to the 1995-base 80th percentile 
charges.
    (3) Geographic area adjustment factors. For each VA facility 
location, the average per diem room and board charges and ancillary 
charges from the 1995 Medicare Standard Analytical File 5% Sample are 
calculated for each DRG. The DRGs are separated into two groups, 
surgical and non-surgical. For each of these groups of DRGs, for each 
geographic area, average room and board per diem charges and ancillary 
per diem charges are calculated for 1995, weighted by FY 1997 
nationwide VA discharges and by average lengths of stay from the 
combined Medicare Standard Analytical File 5% Sample and the MedStat 
claim data base. This results in four average per diem charges for each 
geographic area: room and board for surgical DRGs, ancillary for 
surgical DRGs, room and board for non-surgical DRGs, and ancillary for 
non-surgical DRGs. Four corresponding national average per diem charges 
are obtained from the 1995 Medicare Standard Analytical File 5% Sample, 
weighted by FY 1997 nationwide VA discharges and by average lengths of 
stay from the combined Medicare Standard Analytical File 5% Sample and 
the MedStat claim data base. Four geographic area adjustment factors 
are then calculated for each geographic area by dividing each 
geographic area average per diem charge by the corresponding national 
average per diem charge.
    (c) Skilled nursing facility/sub-acute inpatient facility charges. 
When VA provides or furnishes skilled nursing/sub-acute inpatient 
services within the scope of care referred to in paragraph (a)(1) of 
this section, skilled nursing facility/sub-acute inpatient facility 
charges billed for such services will be determined in accordance with 
the provisions of this paragraph. The skilled nursing facility/sub-
acute inpatient facility charges are per diem charges that vary by VA 
facility. The facility charges cover care, including skilled 
rehabilitation services (e.g., physical therapy, occupational therapy, 
and speech therapy), that is provided in a nursing home or hospital 
inpatient setting, is provided under a physician's orders, and is 
performed by or under the general supervision of professional personnel 
such as registered nurses, licensed practical nurses, physical 
therapists, occupational therapists, speech therapists, and 
audiologists. The skilled nursing facility/sub-acute inpatient facility 
charges also incorporate charges for ancillary services associated with 
care provided in these settings. The charges are calculated as follows:
    (1) Formula. For each stay, multiply the nationwide per diem charge 
as set forth in paragraph (c)(2) of this section by the appropriate 
geographic area adjustment factor as set forth in paragraph (c)(3) of 
this section. The result constitutes the facility-specific per diem 
charge. Finally, multiply the

[[Page 22680]]

facility-specific per diem charge by the number of days of care to 
obtain the total skilled nursing facility/sub-acute inpatient facility 
charge.
    (2) Per diem charge. To establish a baseline, a nationwide average 
per diem billed charge for July 1, 1998, was obtained from the 1998 
Milliman & Robertson, Inc. Health Cost Guidelines, a publication that 
includes nationwide skilled nursing facility charges (Milliman & 
Robertson, Inc., 1301 5th Ave., Suite 3800, Seattle, WA 98101-2605). 
That average per diem billed charge is then multiplied by the 80th 
percentile adjustment factor set forth in paragraph (c)(2)(i) of this 
section to obtain a nationwide 80th percentile charge level. Finally, 
the resulting charge is trended forward to the effective time period 
for the charges, as set forth in paragraph (c)(2)(ii) of this section.
    (i) 80th percentile. Using the 1995 Medicare Standard Analytical 
File 5% Sample, the median per diem accommodation charge is calculated 
for each provider. For each State, the ratio of the 80th percentile of 
provider median charges to the average statewide charges for 
accommodations is calculated. The State ratios are averaged to produce 
a nationwide 80th percentile adjustment factor.
    (ii) Trending forward. The 80th percentile charge, representing 
charge levels for July 1, 1998, is trended forward to the midpoint of 
the period August 1998 through September 1999, and to the midpoint of 
each 12-month calendar year period thereafter, beginning January 1, 
2000, based on the projected change in Medicare reimbursement from the 
Annual Report of the Board of Trustees of the Federal Hospital 
Insurance Trust Fund (this report can be found on the Health Care 
Financing Administration Internet site at http://www.hcfa.gov under the 
headings ``Publications and Forms'' and ``Professional/ Technical 
Publications'').
    (3) Geographic area adjustment factors. A ratio of the average per 
diem charge for each State to the nationwide average per diem charge is 
obtained (these ratios are set forth in the 1998 Milliman & Robertson, 
Inc. Health Cost Guidelines, a data base of nationwide commercial 
insurance charges and relative costs) (Milliman & Robertson, Inc., 1301 
5th Ave., Suite 3800, Seattle, WA 98101-2605). The geographic area 
adjustment factor for charges for each VA facility is the ratio for the 
State in which the facility is located.
    (d) Outpatient facility charges. When VA provides or furnishes 
outpatient services that are within the scope of care referred to in 
paragraph (a)(1) of this section and are not customarily performed in 
an independent clinician's office, the outpatient facility charges 
billed for such services will be determined in accordance with the 
provisions of this paragraph. Except for prosthetic devices and durable 
medical equipment, whose charges will be made separately at actual cost 
to VA, charges for outpatient facility services will vary by VA 
facility and by CPT procedure code. These charges will be calculated as 
follows:
    (1) Formula. For each outpatient facility charge CPT procedure 
code, multiply the nationwide charge as set forth in paragraph (d)(2) 
of this section by the appropriate geographic area adjustment factor as 
set forth in paragraph (d)(4) of this section. The result constitutes 
the facility-specific outpatient facility charge. When multiple 
surgical procedures are performed during the same outpatient encounter 
by a provider or provider team, the outpatient facility charges for 
such procedures will be reduced as set forth in paragraph (d)(5) of 
this section.
    (2) Nationwide 80th percentile charges by CPT procedure code. For 
each CPT procedure code for which outpatient facility charges apply, 
the 1998 practice expense RVUs (these RVU's can be found in the 1998 
St. Anthony's Complete RBRVS, Relative Value Studies, Inc., St. Anthony 
Publishing, 11410 Isaac Newton Square, Reston, VA 20190) are used as 
the outpatient facility RVUs. For each CPT procedure code, the 
outpatient facility RVU is multiplied by the charge amount for each 
incremental RVU as set forth in paragraph (d)(3) of this section. The 
resulting charge is adjusted by a fixed charge amount as also set forth 
in paragraph (d)(3) of this section to obtain the nationwide 80th 
percentile charge.
    (3) Charge factor. Using the 1995 MedStat claims database of 
nationwide commercial insurance, the median billed facility charge is 
calculated for each applicable CPT procedure code. All outpatient 
facility CPT procedure codes are then separated into one of the 37 
outpatient facility CPT procedure code groups as set forth in paragraph 
(d)(3)(i) of this section. Then, for each CPT procedure code in each 
such group, the median charge is adjusted to the 80th percentile as set 
forth in paragraph (d)(3)(ii) of this section. The resulting 80th 
percentile charge for each CPT procedure code is trended forward to the 
effective time period for the charges as set forth in paragraph 
(d)(3)(iii) of this section. Using the resulting charges and the RVUs, 
the mathematical approximation methodology of least squares is applied 
to the data for each CPT procedure code group to derive two charge 
factors. The first factor represents the charge amount for each 
incremental RVU in the CPT procedure code group and the second factor 
represents a fixed charge amount adjustment for the CPT procedure code 
group.
    (i) Outpatient facility CPT procedure code groups.
    (A) Surgery--Integumentery System--Skin, Subcutaneous & Accessory 
Structures/Nails;
    (B) Surgery--Integumentery System--Repair--Simple, Intermediate, 
Complex, Adjacent Tissue Transfer or Rearrangement;
    (C) Surgery--Integumentery System--Not Otherwise Classified;
    (D) Surgery--Musculoskeletal System--Not Otherwise Classified;
    (E) Surgery--Musculoskeletal System--Limbs--Incisions/Excisions/
    Insertion/Removal;
    (F) Surgery--Musculoskeletal System--Limbs--Shoulders/Humerus & 
Elbow/Pelvis & Hip Joint/Femur & Knee Joint--Other than Incisions/
Excisions/ Insertion/Removal;
    (G) Surgery--Musculoskeletal System--Limbs--Forearm & Wrist--Other 
than Incisions/Excisions/Insertion/Removal;
    (H) Surgery--Musculoskeletal System--Limbs--Tibia/Fibula & Ankle 
Joint--Other than Incisions/Excisions/Insertion/Removal;
    (I) Surgery--Musculoskeletal System--Limbs--Hand & Fingers/Foot & 
Toes--Other than Incisions/Excisions/Insertion/Removal;
    (J) Surgery--Musculoskeletal System Arthroscopy;
    (K) Surgery--Respiratory System;
    (L) Surgery--Cardiovascular System;
    (M) Surgery--Hemic & Lymphatic Systems;
    (N) Surgery--Digestive System--Not Otherwise Classified;
    (O) Surgery--Digestive System--Endoscopy;
    (P) Surgery--Urinary System;
    (Q) Surgery--Male Genital System;
    (R) Surgery--Laparoscopy/Hysteroscopy;
    (S) Surgery--Maternity Care & Delivery;
    (T) Surgery--Endocrine System;
    (U) Surgery--Eye/Ocular Adnexa;
    (V) Surgery--Auditory System;
    (W) Radiology--Diagnostic--Head & Neck/Chest/Spine & Pelvis;
    (X) Radiology--Diagnostic--Extremities/Abdomen/Gastrointestinal 
Tract/Urinary Tract/Gynecological & Obstetrical/Heart;
    (Y) Radiology--Diagnostic--Aorta & Arteries/Veins & Lymphatics;
    (Z) Radiology--Diagnostic Ultrasound;

[[Page 22681]]

    (AA) Radiology--Radiation Oncology/Nuclear Medicine/Therapeutic;
    (BB) Radiology--Diagnostic--CAT Scans;
    (CC) Radiology--Diagnostic--Magnetic Resonance Imaging (MRI);
    (DD) Medicine--Global--Not Otherwise Classified;
    (EE) Medicine--Global--Dialysis;
    (FF) Medicine--Technical Component--Gastroenterology;
    (GG) Medicine--Technical Component--Cardiovascular;
    (HH) Medicine--Technical Component--Pulmonary;
    (II) Medicine--Technical Component--Neurology & Neuromuscular 
Procedures;
    (JJ) Medicine--Observation Care; and
    (KK) Medicine--Emergency.
    (ii) 80th percentile. For each of the 37 outpatient facility CPT 
procedure code groups set forth in paragraph (d)(3)(i) of this section, 
the median charge is increased by the ratio of the 80th percentile 
charge to median charge (the data for CPT procedure code groups listed 
at paragraphs (d)(3)(i)(DD), (EE), (JJ), and (KK) of this section are 
obtained from the MedStat database of nationwide charges; the data for 
the other groups are obtained from the Outpatient Facility UCR module 
of the Comprehensive Healthcare Payment System from MediCode, Inc., a 
1997 release from a nationwide database of outpatient facility charges) 
(MediCode, Inc., 5225 Wiley Post Way, Suite 500, Salt Lake, UT 84116). 
To mitigate the impact of the variation in the intensity of services by 
CPT procedure code, the percent increase from the median to the 80th 
percentile in outpatient charges is compared to the percent increase 
from the median to the 80th percentile in inpatient semi-private room 
and board charges. Any percent increase in outpatient charges in excess 
of the inpatient semi-private room and board percent increase is 
multiplied by a factor of 0.50. The 80th percentile outpatient facility 
charge is reduced accordingly.
    (iii) Trending forward. The charges for each CPT procedure code, 
representing calculations for calendar year 1995, are trended forward 
for the period August 1998 through September 1999, and for each 12-
month calendar year period thereafter, beginning January 1, 2000, based 
on changes to the Outpatient Hospital component of the CPI-U. Actual 
CPI-U changes are used through the latest available month. The three-
month average annual trend rate as of the latest available month is 
held constant to the midpoint of the effective charge period. The 
projected total CPI-U change from 1995 to this midpoint of the 
effective charge period is then applied to the 1995 80th percentile 
charges.
    (4) Geographic area adjustment factors. For each VA outpatient 
facility location, a single geographic area adjustment factor is 
calculated as the arithmetic average of the outpatient geographic area 
adjustment factor (this factor constitutes the ratio of the level of 
charges for each geographic area to the nationwide level of charges) 
published in the Milliman & Robertson, Inc. Health Cost Guidelines 
(Milliman & Robertson, Inc., 1301 5th Ave., Suite 3800, Seattle, WA 
98101-2605), and a geographic area adjustment factor developed from the 
MediCode data. The MediCode-based geographic area adjustment factors 
are calculated as the ratio of the CPT-weighted average charge level 
for each VA outpatient facility location to the nationwide CPT-weighted 
average charge level.
    (5) Multiple surgical procedures. When multiple surgical procedures 
are performed during the same outpatient encounter by a provider or 
provider team as indicated by multiple surgical CPT procedure codes, 
then the CPT procedure code with the highest facility charge will be 
billed at 100% of the charges established under this section; the CPT 
procedure code with the second highest facility charge will be billed 
at 25% of the charges established under this section; the CPT procedure 
code with the third highest facility charge will be billed at 15% of 
the charges established under this section; and no outpatient facility 
charges will be billed for any additional surgical procedures.
    (e) Physician charges. When VA provides or furnishes physician 
services within the scope of care referred to in paragraph (a)(1) of 
this section, physician charges billed for such services will be 
determined in accordance with the provisions of this paragraph. 
Physician charges consist of charges for professional services that 
vary by VA facility and by CPT procedure code. These charges are 
calculated as follows:
    (1) Formula. For each CPT procedure code except those for 
anesthesia and pathology, multiply the total facility-adjusted RVU as 
set forth in paragraph (e)(2) of this section by the applicable 
facility-adjusted conversion factor (facility-adjusted conversion 
factors are expressed in monetary amounts) set forth in paragraph 
(e)(3) of this section to obtain the physician charge for each CPT 
procedure code at a particular VA facility. For each anesthesia and 
pathology CPT procedure code, multiply the nationwide physician charge 
as set forth in paragraph (e)(4) of this section by the geographic area 
adjustment factor as set forth in paragraph (e)(3)(iii) of this section 
to obtain the physician charge for each anesthesia and pathology CPT 
procedure code at a particular VA facility.
    (2)(i) Total facility-adjusted RVUs for physician services other 
than anesthesia, pathology, and specified CPT procedure codes. The work 
expense and practice expense components of the RVUs for CPT procedure 
codes (other than anesthesia, pathology, and those CPT procedure codes 
set forth at paragraphs (e)(2)(ii) and (e)(2)(iii) of this section) are 
compiled (information concerning the RVUs and their components can be 
obtained from Veterans Health Administration, Office of Finance, 
Department of Veterans Affairs, 810 Vermont Ave., NW, Washington, DC 
20420). For radiology CPT procedure codes, these compilations do not 
include separately identified technical component RVUs. For CPT 
procedure codes that generate an outpatient facility charge, the 
facility practice expense RVU is substituted for the non-facility 
practice expense RVU (information concerning facility practice expense 
RVUs can be obtained from Veterans Health Administration, Office of 
Finance, Department of Veterans Affairs, 810 Vermont Ave., NW, 
Washington, DC 20420). For Medicine and Surgery CPT procedure codes 
with separate professional and technical components that also generate 
an outpatient facility charge, only the professional component is 
compiled. The sum of the facility-adjusted work expense RVU as set 
forth in paragraph (e)(2)(i)(A) of this section and the facility-
adjusted practice expense RVU as set forth in paragraph (e)(2)(i)(B) of 
this section equals the total facility-adjusted RVUs.
    (A) Facility-adjusted work expense RVUs. For each CPT procedure 
code for each geographic area, the 1998 work expense RVU is multiplied 
by the 1998 Medicare work adjuster (0.917) and the results are further 
multiplied by the work expense 1998 Medicare Geographic Practice Cost 
Index. The result constitutes the facility-adjusted work expense RVU.
    (B) Facility-adjusted practice expense RVUs. For each CPT procedure 
code for each geographic area, the 1998 practice expense RVU is 
multiplied by the practice expense 1998 Medicare Geographic Practice 
Cost Index. The result constitutes the facility-adjusted practice 
expense RVU.
    (ii) RVUs for specified CPT procedure codes. For the following CPT 
procedure

[[Page 22682]]

codes, obtain the nationwide 80th percentile billed charges from the 
nationwide commercial insurance data base compiled by the Health 
Insurance Association of America (Health Insurance Association of 
America, 555 13th Street, NW, suite 600E, Washington, DC 20004): 20930, 
20936, 22841, 48160, 48550, 54440, 79900, 80050, 80055, 80103, 80500, 
80502, 85060, 85095, 85097, 85102, 86077, 86078, 86079, 86485, 86490, 
86510, 86580, 86585, 86586, 86850, 86860, 86870, 86890, 86891, 86901, 
86910, 86911, 86915, 86920, 86921, 86922, 86927, 86930, 86931, 86932, 
86945, 86950, 86965, 86970, 86971, 86972, 86975, 86977, 86978, 86985, 
88000, 88005, 88012, 88014, 88016, 88036, 88037, 88104, 88106, 88107, 
88108, 88125, 88160, 88161, 88162, 88170, 88171, 88172, 88173, 88180, 
88182, 88300, 88302, 88304, 88305, 88307, 88309, 88311, 88312, 88313, 
88314, 88318, 88319, 88321, 88323, 88325, 88329, 88331, 88332, 88342, 
88346, 88347, 88348, 88349, 88355, 88356, 88358, 88362, 88365, 89100, 
89105, 89130, 89132, 89135, 89140, 89141, 89250, 89350, 89360, 92390, 
92391, 94642, 94772, 99024, 99071, 99078, 99080, 99082, 99100, 99116, 
99135, 99140, 99420, 99450, 99455, 99456. For the following CPT 
procedure codes, obtain the nationwide 80th percentile billed charges 
from the Medicare Standard Analytical File 5% Sample: 99070, M0076, 
M0300. Then divide the nationwide 80th percentile billed charges by the 
untrended nationwide conversion factor for the corresponding physician 
CPT procedure code group as set forth in paragraphs (e)(3) and 
(e)(3)(i). The resulting nationwide total RVUs are multiplied by the 
geographic adjustment factors as set forth in paragraph (e)(2)(iv) of 
this section to obtain the facility-specific total RVUs.
    (iii) RVUs for specified CPT procedure codes. For the following 
list of CPT procedure codes, the nationwide total RVU is calculated by 
multiplying the 1998 Medicare work adjuster (0.917) by the work expense 
RVU and adding the practice expense RVU (the work expense RVU and the 
practice expense RVU for these CPT procedure codes can be found in the 
1998 St. Anthony's Complete RBRVS, Relative Value Studies, Inc., St. 
Anthony Publishing, 11410 Isaac Newton Square, Reston, VA 20190): 
15824, 15825, 15826, 15828, 15829, 15876, 15877, 15878, 15879, 17380, 
21088, 24940, 26587, 32850, 33930, 33940, 36415, 36468, 36469, 41820, 
41821, 41850, 41870, 47133, 48554, 50300, 58974, 65760, 65765, 65767, 
65771, 69090, 69710, 75556, 76092, 76140, 76350, 78608, 78609, 90700, 
90701, 90702, 90703, 90704, 90705, 90706, 90707, 90708, 90709, 90710, 
90711, 90712, 90713, 90714, 90716, 90717, 90718, 90179, 90720, 90721, 
90724, 90725, 90726, 90727, 90728, 90730, 90732, 90733, 90735, 90737, 
90741, 90742, 90744, 90745, 90746, 90747, 90882, 90889, 90989, 90993, 
92531, 92532, 92533, 92534, 92551, 92559, 92560, 92590, 92591, 92592, 
92593, 92594, 92595, 92992, 92993, 93760, 93762, 93784, 93786, 93788, 
93790, 95120, 95125, 95130, 95131, 95132, 95133, 95134, 96110, 96545, 
97545, 97546, 99000, 99001, 99002, 99025, 99050, 99052, 99054, 99056, 
99058, 99075, 99090, 99190, 99191, 99192, 99288, 99358, 99359, 99360, 
99361, 99362, 99371, 99372, 99373. The resulting nationwide total RVUs 
are multiplied by the geographic adjustment factors as set forth in 
paragraph (e)(2)(iv) of this section to obtain the facility-specific 
total RVUs.
    (iv) RVU geographic area adjustment factors for specified CPT 
procedure codes. The geographic area adjustment factor for each 
facility location consists of the weighted average of the 1998 work 
expense and practice expense Medicare Geographic Practice Cost Indices 
for each facility location using charge data for representative CPT 
procedure codes statistically selected and weighted for work expense 
and practice expense.
    (3) Facility-adjusted 80th percentile conversion factors. CPT 
procedure codes are separated into the following 24 physician CPT 
procedure code groups: allergy immunotherapy, allergy testing, 
anesthesia, cardiovascular, chiropractor, consults, emergency room 
visits and observation care, hearing/speech exams, immunizations, 
inpatient visits, maternity/cesarean deliveries, maternity/non-
deliveries, maternity/normal deliveries, miscellaneous medical, office/
home urgent care visits, outpatient psychiatry/alcohol and drug abuse, 
pathology, physical exams, physical medicine, radiology, surgery, 
therapeutic injections, vision exams, and well baby exams. For each of 
the 24 physician CPT procedure code groups, representative CPT 
procedure codes were statistically selected and weighted so as to give 
a weighted average RVU comparable to the weighted average RVU of the 
entire physician CPT procedure code group (the selected CPT procedure 
codes are set forth in the 1998 Milliman & Robertson, Inc., Health Cost 
Guidelines fee survey) (Milliman & Robertson, Inc., 1301 5th Ave., 
suite 3800, Seattle, WA 98101-2605). The 80th percentile charge for 
each selected CPT procedure code is obtained (this is contained in the 
nationwide commercial insurance data base compiled by the Health 
Insurance Association of America, 555 13th Street NW., Suite 600E, 
Washington, DC 20004 (medical data for 5/1/96-4/30/97, including 
radiology and pathology; surgical data for 3/1/96-2/28/97; anesthesia 
data for 3/1/96-2/28/97)). A nationwide conversion factor (a monetary 
amount) is calculated for each physician CPT procedure code group as 
set forth in paragraph (e)(3)(i) of this section. The nationwide 
conversion factors for each of the 24 physician CPT procedure code 
groups are trended forward as set forth in paragraph (e)(3)(ii) of this 
section. The resulting amounts for each of the 24 groups are multiplied 
by geographic area adjustment factors as set forth in paragraph 
(e)(3)(iii) of this section, resulting in facility-adjusted 80th 
percentile conversion factors for each VA facility geographic area for 
the 24 physician CPT procedure code groups for the effective charge 
period.
    (i) Nationwide conversion factors. Using the nationwide 80th 
percentile charges for the selected CPT procedure codes from paragraph 
(e)(3) of this section, a nationwide conversion factor is calculated 
for each of the 24 physician CPT procedure code groups by dividing the 
weighted average charge by the weighted average RVU. To correspond with 
the charge data, for medicine and surgery CPT procedure codes, the 
total RVUs are used even when separate professional and technical 
components are specified.
    (ii) Trending forward. The nationwide conversion factor for each of 
the 24 physician CPT procedure code groups, representing charges for 
time periods detailed in paragraph (e)(3) of this section, are trended 
forward for the period August 1998 through September 1999, and for each 
12-month calendar year period thereafter, beginning January 1, 2000, 
based on changes to the Physician component of the CPI-U. Actual CPI-U 
changes are used through the latest available month. The three-month 
average annual trend rate as of the latest available month is held 
constant to the midpoint of the effective charge period. The projected 
total CPI-U change from the midpoint of the source data collection 
period to the midpoint of the effective charge period is then applied 
to the 24 conversion factors.
    (iii) Geographic area adjustment factors. Using the 80th percentile 
charges for the selected CPT procedure codes from paragraph (e)(3) of 
this section for each VA facility geographic area, a geographic area-
specific conversion factor is calculated for each

[[Page 22683]]

of the 24 physician CPT procedure code groups by dividing the weighted 
average charge by the weighted average facility-adjusted RVU. The 
resulting geographic area conversion factor for each facility 
geographic area for each physician CPT procedure code group is divided 
by the corresponding nationwide conversion factor as set forth in 
paragraph (e)(3)(i). The resulting ratios are the geographic area 
adjustment factors for each of the 24 physician CPT procedure code 
groups for each facility geographic area.
    (4) Nationwide 80th percentile charges for anesthesia and pathology 
CPT procedure codes. The nationwide charges are calculated by 
multiplying the RVUs as set forth in paragraph (e)(4)(i) of this 
section for anesthesia CPT procedure codes and as set forth in 
paragraph (e)(4)(ii) of this section for pathology CPT procedure codes 
by the appropriate nationwide trended 80th percentile conversion 
factors as set forth in paragraph (e)(3) of this section.
    (i) RVUs for anesthesia. The 1998 base unit value for each 
anesthesia CPT procedure code is compiled (the base unit values can be 
found in the 1998 St. Anthony's Complete RBRVS, Relative Value Studies, 
Inc., St. Anthony Publishing, 11410 Isaac Newton Square, Reston, VA 
20190). The average time unit value for each anesthesia CPT procedure 
code is compiled from a Health Care Financing Administration study 
concerning average time unit values for anesthesia CPT procedure codes 
(these values can be obtained from Veterans Health Administration, 
Office of Finance, Department of Veterans Affairs, 810 Vermont Ave., 
NW., Washington, DC 20420). For each anesthesia CPT procedure code 
introduced since the Health Care Financing Administration study, the 
time unit value is calculated as the average time unit value for all 
other anesthesia CPT procedure codes with the same base unit value. The 
sum of the anesthesia base unit value and the anesthesia time unit 
value equals the total anesthesia RVUs.
    (ii) RVUs for pathology. For each pathology CPT procedure code, the 
1998 Medicare payment amount is used as the RVU for the corresponding 
CPT procedure code (the payment amounts can be found on the Health Care 
Financing Administration public use files Internet site at http://
www.hcfa.gov/stats/pufiles.htm under the heading ``Payment Rates/ Non-
Institutional Providers'' and the title ``Clinical Diagnostic 
Laboratory Fee Schedule.''
    (f) Other provider charges. When the following providers provide or 
furnish VA care within the scope of care referred to in paragraph 
(a)(1) of this section, charges for that care covered by a CPT 
procedure code will be determined based on the following indicated 
percentages of the amount that would be charged if the care had been 
provided by a physician under paragraph (e) of this section:
    (1) Nurse practitioner: 85%.
    (2) Clinical nurse specialist: 85%.
    (3) Physician Assistant: 85%.
    (4) Certified registered nurse anesthetist: 50% when physician 
supervised; 100% when not physician supervised.
    (5) Clinical psychologist: 80%.
    (6) Clinical social worker: 75%.
    (7) Podiatrist: 100%.
    (8) Chiropractor: 100%.
    (9) Dietitian: 75%.
    (10) Clinical pharmacist: 80%.
    (11) Optometrist: 100%.
    (g) Outpatient dental care and prescription drugs not administered 
during treatment. Notwithstanding other provisions of this section, 
when VA provides or furnishes outpatient dental care or prescription 
drugs not administered during treatment, within the scope of care 
referred to in paragraph (a)(1) of this section, charges billed 
separately for such care will be based on VA costs in accordance with 
the methodology set forth in Sec. 17.102 of this part.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number 2900-
0606.)

(Authority: 38 U.S.C. 101, 501, 1701, 1705, 1710, 1721, 1722, 1729)


Sec. 17.102  [Amended]

    4. In newly redesignated Sec. 17.102, the first sentence of the 
introductory text is amended by removing ``Charges'' and adding, in its 
place, ``Except as provided in Sec. 17.101, charges''; paragraph (h) is 
amended by removing the heading and adding, in its place, ``Computation 
of charges.''; by removing paragraphs (h)(1), (h)(2), and (h)(4) 
through (h)(6); and by removing ``(3) The method of computing the 
charges for medical care and services'' and by adding, in its place, 
``The method for computing the charges under paragraphs (a), (b), (d), 
(f), and (g), and the last sentence of paragraph (c) of this section.

[FR Doc. 99-10373 Filed 4-26-99; 8:45 am]
BILLING CODE 8320-01-P