[Federal Register Volume 65, Number 32 (Wednesday, February 16, 2000)]
[Rules and Regulations]
[Pages 7724-7732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3352]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

RIN 0790-AG51


Collection From Third Party Payers of Reasonable Costs of 
Healthcare Services

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

ACTION: Final rule.

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

DATES: This final rule is effective March 17, 2000. Section 220.12 is 
effective from March 17, 2000 through October 1, 2004.

FOR FURTHER INFORMATION CONTACT: Major Rose Layman, Uniform Business 
Office, Office of the Assistant Secretary of Defense (Health Affairs), 
TRICARE Management Activity, Resource Management, 5111 Leesburg Pike, 
Suite 810, Falls Church, VA 22041-3206, 703-681-8910.

SUPPLEMENTARY INFORMATION: This final rule implements several recent 
statutory changes and makes other revisions to the Third Party 
Collection Program under 10 U.S.C. 1095, as discussed below.
    This rule was published as a proposed rule March 10, 1998, 63 FR 
11635, for a 60-day comment period. We received one public comment, 
which was from an association of health insurance organizations that 
sponsor health plans under the Federal Employees Health Benefits 
Program. In general, this comment argued that portions of the proposed 
rule departed from the long-standing foundation of the Third Party 
Collection Program that payers must treat claims from medical 
facilities of the Uniformed Services no less favorably or more 
favorably than claims from non-federal providers, and would instead 
require payers to give military hospitals ``preferential treatment.''
    We strongly disagree. The proposed rule and the final rule reaffirm 
the Department's enduring interpretation of the statute and 
understanding of its purpose. The purpose is to prevent health insurers 
from gaining a windfall at the expense of the federal government and 
federal taxpayers by collecting full premiums on behalf of insured 
persons who are also eligible for military care and then avoiding 
payment for covered services provided by military facilities. This 
Congressional purpose is especially compelling when the premium 
payments also come primarily from the federal government and federal 
taxpayers, as they do in the Federal Employees Health Benefits Program 
(FEHPB). In this case, the government has paid the FEHBP plan sponsor a 
premium to cover essentially all the health care needs of the insured 
person. When that insured person receives care in a military facility, 
the government pays again in the form of the costs of providing that 
care. Practices that have the effect of denying or limiting payment 
based solely on the fact that the care is provided in a MTF is not 
permissible. This is not ``preferential treatment;'' it is what is 
required by section 1095 for all third party payers.
    We will discuss additional points made in this comment in the 
following summary of the features of the final rule.

1. Preferred Provider Organizations

    Section 713(b)(1) of the National Defense Authorization Act for 
Fiscal Year 1994, Pub. L. 103-160, amended the Third Party Collection 
Program's definition of ``insurance, medical service, or health plan'' 
to clarify that any ``preferred provider organization'' (PPO) is 
included in the definition. This amendment codified DoD's previous 
interpretation. Experience in applying the statutory authority to the 
context of preferred provider organizations has indicated a need to 
establish some special rules for plans with PPO provisions or options 
so that all parties will have a clearer understanding of their 
obligations and rights under the statute. We do this by amending 
Sec. 220.12.
    It is our interpretation of 10 U.S.C. 1095 that a plan with a PPO 
provision or option generally has an obligation to pay the United 
States the reasonable costs of health care services provided through 
any facility of the Uniformed Services to a Uniformed Services 
beneficiary who is also a beneficiary under the plan. No provision of 
any

[[Page 7725]]

PPO plan having the effect of excluding from coverage or limiting 
payment for certain care if that care is provided through a facility of 
the Uniformed Services shall operate to prevent collection under this 
part.
    10 U.S.C.1095 strikes a careful balance. On the one hand, it 
disallows third party payer rules that would have the effect of 
excluding from coverage or limiting payment because the care was 
provided in a DoD facility. The law renders inoperative numerous 
administrative procedures and payment rules of third party payers that 
would defeat the purpose of 10 U.S.C. 1095 or result in a windfall for 
a third party payer who has collected premiums but then avoided 
payments. On the other hand, the statute does not require third party 
payers to make fundamental changes in their own rules in order to 
accommodate Government providers. This final rule reflects that balance 
in our special rules for PPOs.
    Consistent with the statutory mandate that the operation of the 
Third Party Collection Program is not dependent upon a participation 
agreement or similar contractual relationship between military 
treatment facilities and third party payers, this final rule states 
that the lack of a PPO agreement or the absence of privity of contract 
is not a permissible ground for refusing or reducing payment. Based on 
this and the careful statutory balance, we believe that under the law, 
the lack of a contractual relationship between the PPO and the facility 
of the Uniformed Services may not be a basis for the plan to treat the 
DoD facility as a non-PPO provider for purposes of the PPO's payment 
amount, if the facility of the Uniformed Services accommodates the 
PPO's fundamental price and utilization management standards.
    Under this final rule, a DoD facility accommodates a PPO's 
fundamental price standards by accepting, in lieu of the normal Third 
Party Collection Program rates established under Sec. 220.8, the PPO's 
prevailing rates of payment paid to preferred providers in the same 
geographic area for the same or similar aggregate groups of services, 
if such rates are, in the aggregate, less than the DoD rates. A DoD 
facility accommodates a PPO's fundamental utilization management by 
complying with the reasonable pretreatment, concurrent, or 
retrospective review procedures that are required of all preferred 
providers under the PPO plan and by accepting denials of requested 
payment that are consistent with prevailing standards in the geographic 
area of medical necessity and proper level of care for the services 
involved. In other words, if DoD rates are not representative of what a 
PPO perceives to be an optimal efficient practice as demonstrated by 
the rates of other providers in their network, DoD will accept the 
prevailing rate as payment in full with the provision that the PPO 
furnish the required information as stated in Sec. 220.12(d). At the 
same time, if the DoD rates are lower than or equal to the prevailing 
PPO rates, then DoD will accept DoD rates as payment in full.
    By accommodating a PPO's fundamental price and utilization 
management standards, DoD does not seek to compel the third party payer 
to make fundamental changes in its PPO program in order to conform to 
the DoD facility's operations. But other rules and procedures of the 
PPO that would have the effect of denying or limiting payment are not 
allowed. This final rule includes several examples of such 
impermissible PPO requirements. Among these is any PPO requirement that 
would purport to require a facility of the Uniformed Services, in order 
to effectuate the legislative purpose of 10 U.S.C. 1095, to act in a 
manner inconsistent with the basic nature of facilities of the 
Uniformed Services.
    The comment we received objected to this portion of the proposed 
rule on the grounds that, even if the facility of the Uniformed 
Services accepts the PPO payment rate and utilization management 
requirements, it exceeds DoD authority to disallow reduced, non-PPO 
payments (based on higher beneficiary copayments for using non-PPO 
providers) unless the facility complies with all other rules of the PPO 
``to bill for services rendered using forms, codes, etc. as requested 
by the payer'' and otherwise ``to reduce administrative and benefit 
costs.'' We disagree. With Congress amending section 1095(h)(2) to 
specifically cover PPOs, section 1095(b) now clearly commands that no 
PPO requirement having the effect of limiting payment of charges shall 
operate to prevent collection under section 1095 for care provided by a 
facility of the Uniformed Services that does not have a participation 
agreement with the PPO. We do not believe this can be reasonably 
interpreted to mean that PPO requirements that would compel military 
facilities to sign participation agreements to conform to all of the 
PPO's forms, codes, and procedures shall be given effect. Rather, we 
read section 1095(a) and (b) together to strike the careful balance 
described above, accepting fundamental plan elements but dismissing 
what might be a myriad of other procedures, caveats, forms, codes, and 
administrative requirements.
    The comment also argued that the proposed rule did not adequately 
accommodate a PPO's fundamental price standards because it continued to 
base billings on DoD's cost allocation structure, rather than the PPO's 
payment methodology. Again, we disagree. The billing structure used by 
DoD, which by necessity is the point of comparison with the PPO's 
payment rates to determine whether to accept payments less than DoD's 
calculated costs, is based specifically on the authority contained in 
section 1095(f). Thus, the rule is entirely consistent with the statute 
concerning cost calculations.
    There may be a suspicion that the DoD rates, as a representative of 
reasonable costs, indicate inefficient practices. This impression might 
be created by trying to compare a DoD average all-inclusive rate with 
that of an itemized rate methodology. The wide variation in these two 
pricing methodologies leads to misunderstanding of DoD practices. The 
cost per DoD eligible is in fact far below the average national 
expenditure per person on healthcare. However, in an effort to move 
toward civilian industry practices, DoD will issue a proposed rule this 
year to implement the new rate methodology authorized by section 716 of 
the National Defense Authorization Act for Fiscal Year 2000. This 
change will allow DoD to calculate reasonable charges for both 
inpatient and outpatient services. These reasonable charges will become 
the standard DoD rates. More specifically, the new law allows Military 
Treatment Facilities to adopt the rates and rate structure such as that 
currently used under CHAMPUS/TRICARE. The CHAMPUS/TRICARE payment rates 
for professional services are essentially the same as the Medicare fee 
schedule and are equal to significantly discounted rates by procedure 
code. As such, these rates are extremely competitive with civilian 
sector pricing. Billing will conform to common methods used by the 
insurance industry, utilizing standardized procedure codes, and will 
facilitate easy rate comparisons.
    Although we believe the special rules established by Sec. 220.12 
are correct and proper interpretations of the statute, we have added in 
the final rule a sunset provision for this section of the regulation. 
It states that these special rules will no longer be in effect as of 
October 1, 2004. This sunset provision is included to permit both the 
Department of Defense and third party payers to gain experience with 
these rules and have an assured opportunity to revisit these rules in a 
subsequent rule making process. It is our intent to

[[Page 7726]]

initiate a new rule making process early in fiscal year 2004. By that 
time, the new rate methodology discussed above will be in effect, 
permitting easy rate comparisons.
    We will also have experience with other aspects of the 
implementation of this section. During the fiscal year 2004 rule making 
process, third party payers will have the opportunity to present 
evidence of any effects of this section the payers believe are unfair. 
This includes any evidence or data they may have of a cost impact of 
this section, a change in utilization by plan members, any effects in 
particular geographical areas, any litigation results, any management 
consequences, changes in beneficiary satisfaction or enrollment rates, 
or any other effects, analysis or observations concerning the 
implementation of this section. The sunset provision is a good faith 
effort by the Department of Defense to reexamine after a reasonable 
implementation period the premises and expectations presented above and 
to consider perspectives and views of all interested parties then 
informed by experience with this section.
    To recap, under the final rule, we will accommodate a PPO's 
fundamental price and utilization management standards. But we will not 
give effect to other requirements unnecessary for the achievement of 
the PPO's fundamental price and utilization management standards, such 
as requirements to accept PPO beneficiaries not eligible for military 
health care, to follow certain licensing, certification, or provider 
selection criteria, or to restrict patient referrals to providers 
specified by the PPO. Rules of this kind clearly defeat the purpose of 
section 1095 and contravene congressional policy. After considering 
attentively the comment, we conclude that the rule, including the new 
sunset provision, strikes the careful balance of the statute in the 
context of PPO implementation.

2. Workers' Compensation Programs

    Section 735(b)(1) of the National Defense Authorization Act for 
Fiscal Year 1997, Pub. L. 104-201, expanded the definition of ``third 
party payer'' to include any ``workers'' compensation program or 
plan.'' The final rule adds Sec. 220.13 and a definition of the 
statutory term to implement this amendment.
    While specific statutory schemes vary from State to State, workers' 
compensation plans generally provide compensation to employees or their 
dependents for loss resulting from the injury, disablement, or death of 
a worker due to an employment related accident, casualty, or disease. 
The common characteristic of workers' compensation programs is the 
provision of compensation based upon a fixed statutory scheme without 
regard to fault. Payment for the costs and provision of medical care 
are also common elements of workers' compensation programs, whether the 
program operates on the basis of insurance, a State fund, or other 
mechanism.
    The new Sec. 220.13 states that a workers' compensation program 
generally has an obligation to pay the United States the reasonable 
costs of health care services provided in or through any facility of 
the Uniformed Services to a Uniformed Services beneficiary who is also 
a beneficiary of the workers' compensation program and whose condition 
is due to an employment related accident, casualty, or disease. We have 
added several special rules concerning lump-sum payments and compromise 
settlements. These special rules are modeled after Medicare Secondary 
Payer rules applicable to workers' compensation programs, which appear 
at 42 CFR 411.46-47.

3. Other Program Revisions and Clarifications

    This final rule makes several other program revisions and 
clarifications, including:

An amendment to Sec. 220.2(a) to conform with statutory language making 
10 U.S.C. 1095 applicable to services provided in or ``through'' a 
facility of the Uniformed Services.
An amendment to Sec. 220.2(d) to clarify the obligation of the third 
party payer to pay under the Third Party Collection Program is not only 
not dependent upon an assignment of benefits, it is also not dependent 
upon any other submission by the beneficiary to the third party payer, 
including any claim or appeal.
An addition of Sec. 220.2(e) to codify in the regulation our 
interpretation of the preemptive effect of 10 U.S.C. 1095 in relation 
to any conflicting State laws or regulations.
An addition of Sec. 220.3(c)(5) to record our interpretation of the 
applicability of 10 U.S.C. 1095 in connection with Medicare carve-out 
and Medicare secondary payer provisions of third party payer plans 
(other than Medicare supplemental plans). This is another application 
of the general rule that third party payers may not treat claims from 
facilities of the Uniformed Services less favorably than they lawfully 
treat claims from other providers (in this context, other providers to 
whom primary payment would not be made by Medicare or a Medicare HMO).
An amendment to Sec. 220.4 to clarify the permissibility of certain 
third party payer rules, including utilization review practices, and 
HMO plan restrictions.
An addition of Sec. 220.4(d) to record our requirement for payers to 
provide us plan information necessary to establish the permissibility 
of terms and conditions of third party payers' plans.
An amendment to Sec. 220.7 to clarify the United States' remedies 
concerning collections from third party payers.
An amendment to Sec. 220.8 to change and clarify DoD's actions in 
categorizing standardized amounts for the DRG-based payment method for 
inpatient care, in subdividing outpatient billings, and in replacing 
the ``same day surgery'' category of care with an expanded ``ambulatory 
procedure visit'' category.
An amendment to Sec. 220.8(h), a special rule for certain ancillary 
services ordered by outside providers and provided by a facility of the 
Uniformed Services, to lower the high cost ancillary threshold value 
from $25 to $0. For this reason, ``high cost ancillary services'' are 
now referred to as ``ancillary services ordered by an outside provider 
and provided by a facility of the Uniformed Services.''
An amendment to Sec. 220.8(j), concerning the former Public Health 
Service hospitals, to conform to the changes to that program directed 
by Congress in sections 721 to 727 of the National Defense 
Authorization Act for Fiscal Year 1997.
An amendment to Sec. 220.9(c) which elaborates on the obligations of 
beneficiaries to cooperate with facilities of the Uniformed Services in 
implementing these regulations.
Several additions and amendments to Sec. 220.14 to add and change, as 
necessary, the definitions of terms used in this part.

    The single public comment we received objected to several of these 
provisions. Among these was the change to Sec. 220.2(d) regarding 
claims and appeals procedures, to which the comment objected on the 
grounds that this would result in preferential treatment to military 
facilities over civilian facilities which need an assignment of 
benefits from the covered beneficiary. We believe the rule is correct. 
Under section 1095, the right of the health care provider (i.e., the 
United States government) to collect is not based on a contractual 
relationship between the provider and the

[[Page 7727]]

beneficiary (i.e., assignment of benefits from the beneficiary to the 
government), but rather on the right of the United States established 
by section 1095(a) to collect from the third party payer. To condition 
this right to collect on some permission from the beneficiary would 
conflict with section 1095.
    The comment also dissented from the new Sec. 220.3(c)(5) concerning 
Medicare carve-out and Medicare secondary payer provisions because it 
purports ``to specify what benefits third party payers may or may not 
provide.'' Actually, it does no such thing. It simply provides that for 
a Medicare carve-out or Medicare secondary payer exclusion to be used 
permissibly to refuse to make primary payment to a facility of the 
Uniformed Services, it must expressly apply to all providers to whom 
payment would not be made under Medicare. This is nothing more than a 
restatement in the context of Medicare carve-out and Medicare secondary 
payer provisions of the general rules of section 1095 that a payer may 
not discriminate against federal facilities. If a payer applies 
Medicare carve-out or Medicare secondary payer provisions to avoid 
payments to a facility of the Uniformed Services similar to payments 
that it would make to non-federal facilities not reimbursed by Medicare 
Part A, Part B, a Medicare HMO, or a Medicare Plus Choice plan, then it 
is discriminating against the facility of the Uniformed Services in 
violation of section 1095.
    Finally, the comment expressed objection to the new Sec. 220.7(d), 
which disallows plans from offsetting payments, without the consent of 
an authorized government official, to a facility of the Uniformed 
Service because the payer considers itself due a refund from the 
facility of the Uniformed Services arising from earlier payments from 
that third party payer. The comment argued that this is beyond DoD's 
authority because such offsets are common industry practice. We do not 
concur. Under section 1095, the United States has a right to collect, 
consistent with the statutory terms, the reasonable costs of health 
care services provided from a third party payer. This right is not 
contingent upon a third party payer's assertions regarding previous 
alleged overpayments. Moreover, under section 1095(e)(2), the authority 
to compromise a claim rests with the government, not with the payer. 
Without the consent of the government, a third party payer cannot 
compromise a claim premised on some separate disputed transaction. A 
request for refund must be submitted and adjudicated separately.

4. Other Issues

    Under Sec. 220.10(c), we provide notice of our intention to begin, 
effective April 1, 2000, to collect from Medicare supplemental plans 
reasonable costs for inpatient and outpatient copayments, other than 
the inpatient hospital deductible amount, and other services covered by 
Medicare supplemental plans. Although this authority is currently 
established in Sec. 220.10(c), we had previously decided to defer 
implementation.

Executive Order 12866, the Unfunded Mandates Reform Act and Public 
Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    This rule has been reviewed in accordance with the provisions of 
Executive Order of 12866 and the Regulatory Flexibility Act (5 U.S.C. 
601-612), and it is not believed to meet the criteria for an 
economically significant regulatory action. Executive Order 12866 
directs agencies to assess all costs and benefits of available 
regulatory alternatives and, when rulemaking is necessary, to select 
regulatory approaches that maximize net benefits including potential 
economic, environmental, public health, safety distributive and equity 
effects. The Unfunded Mandates Reform Act, Public Law 104-4, requires 
that agencies prepare an assessment of anticipated costs and benefits 
on any rulemaking that may result in an expenditure by State, local, or 
tribal government, or by the private sector of $100 million or more in 
any given year.
    Executive Order 12866 requires that all regulations reflect 
consideration of alternatives, costs, benefits, incentives, equity, and 
available information. While 32 CFR part 220, Collection From Third 
Party Payers of Reasonable Costs of Healthcare Services, implements 
several changes to the Third Party Collection Program, we believe that 
this final rule should have no significant economic impact. The 
greatest concern expressed has been by the Office of Personnel 
Management (OPM) in regards to the addition of special rules for 
collections from PPOs and financial impact on the Federal Employees 
Health Benefits Program (FEHBP).
    A cost benefit analysis to assess the full financial impact of this 
final rule is difficult as neither OPM nor DoD have a basis for a solid 
estimate of a precise number of DoD beneficiaries who have a Preferred 
Provider Organization plan throughout the industry, or in the FEHBP 
segment of the industry. In addition, current information systems do 
not provide an exact accounting of dollars and reasons for denied 
claims for this one population of patients. Therefore, cost estimates 
for FEHBP and total PPO denials are based on a limited manual review of 
claims data from Army Military Treatment Facilities (MTFs). The Army 
reported the dollar amount billed and the dollar amount denied due to 
non-PPO status with respect to all health plans. This percentage was 
then applied to total claims data from all Services.
    A review of these results leads to an estimate of $49 million in 
annual reductions because the MTF provider was considered a non-
preferred network provider by the payers. We estimate that FEHBP plans 
represent approximately 20-25% of all military treatment facility 
claims to third party payers. This leads to an estimate of annual 
impact on the FEHBP segment of the industry of $9.8 million to $12.25 
million. These are good faith estimates based on very limited data.

Executive Order 13132, Federalism

    We have reviewed this rule under the threshold criteria of 
Executive order 13132 of August 4, 1999, Federalism, published in the 
Federal Register on August 10, 1999 (64 FR 43255). Executive Order 
13132 establishes special procedures for final regulations that have 
federalism implications. We have determined that this rule does not 
significantly affect the rights, roles, and responsibilities of States.

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

    Information collection in compliance with this CFR, specifically 
section 220.9 `` Rights and obligations of beneficiaries'', is 
currently obtained on the DD form 2569, covered under OMB clearance 
0704-032.

List of Subjects in 32 CFR Part 220

    Claims, Health care, Health insurance.

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

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

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

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

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

[[Page 7728]]

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

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

    3. Section 220.3 is amended by adding a new paragraph (c)(5) to 
read as follows:


Sec. 220.3  Exclusions impermissible.

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

    4. Section 220.4 is amended by revising paragraphs (b)(2), (c)(2), 
and (c)(3) and by adding a new paragraph (d) to read as follows:


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

* * * * *
    (b) * * *
    (2) Except as provided by 10 U.S.C. 1095, this part, or other 
applicable law, third party payers are not required to treat claims 
arising from services provided in or through facilities of the 
Uniformed Services more favorably than they treat claims arising from 
services provided in other facilities or by other health care 
providers.
    (c) * * *
    (2) Generally applicable utilization review provisions. (i) 
Reasonable and generally applicable provisions of a third party payer's 
plan requiring pre-admission screening, second surgical opinions, 
retrospective review or other similar utilization management activities 
may be permissible grounds to refuse or reduce third party payment if 
such refusal or reduction is required by the third party payer's plan.
    (ii) Such provisions are not permissible if they are applied in a 
manner that would result in claims arising from services provided by or 
through facilities of the Uniformed Services being treated less 
favorably than claims arising from services provided by other hospitals 
or providers.
    (iii) Such provisions are not permissible if they would not affect 
a third party payer's obligation under this part. For example, 
concurrent review of an inpatient hospitalization would generally not 
affect the third party payer's obligation because of the DRG-based, 
per-admission basis for calculating reasonable costs under 
Sec. 220.8(a) (except in long stay outlier cases, noted in 
Sec. 220.8(a)(4)).
    (3) Restrictions in HMO plans. Generally applicable exclusions in 
Health Maintenance Organization (HMO) plans of non-emergency or non-
urgent services provided outside the HMO (or similar exclusions) are 
permissible. However, HMOs may not exclude claims or refuse to certify 
emergent and urgent services provided within the HMO's service area or 
otherwise covered non-emergency services provided out of the HMO's 
service area. In addition, opt-out or point-of-service options 
available under an HMO plan may not exclude services otherwise payable 
under 10 U.S.C. 1095 or this part.
    (d) Procedures for establishing reasonable terms and conditions. In 
order to establish that a term or condition of a third party payer's 
plan is permissible, the third party payer must provide appropriate 
documentation to the facility of the Uniformed Services. This includes, 
when applicable, copies of explanation of benefits (EOBs), remittance 
advice, or payment to provider forms. It also includes copies of 
policies, employee certificates, booklets, or handbooks, or other 
documentation detailing the plan's health care benefits, exclusions, 
limitations, deductibles, co-insurance, and other pertinent policy or 
plan coverage and benefit information.

    5. Section 220.7 is amended by revising the section heading and 
paragraph (c) and by adding a new paragraph (d) to read as follows:


Sec. 220.7  Remedies and procedures.

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

[[Page 7729]]

(j) as paragraph (j)(1); and by adding a new paragraph (j)(2), to read 
as follows:


Sec. 220.8  Reasonable costs.

* * * * *
    (a) * * *
    (2) Standardized amount. The standardized amount shall be 
determined by dividing the total costs of all inpatient care in all 
military treatment facilities by the total number of discharges. This 
will produce a single national standardized amount. The Department of 
Defense is authorized, but not required by this part, to calculate 
three standardized amounts, one for large urban, other urban/rural, and 
overseas areas, utilizing the same distinctions in identifying the 
first two areas as is used for CHAMPUS under 32 CFR 199.14(a)(1). Using 
this applicable standardized amount, the Department of Defense may make 
adjustments for area wage rates and indirect medical education costs 
(as identified in paragraph (a)(4) of this section), producing for each 
inpatient facility of the Uniformed Services a facility-specific 
``adjusted standardized amount'' (ASA).
* * * * *
    (6) Outpatient billings. Outpatient billings (including those for 
ambulatory procedure visits) may, but are not required by this part, to 
be subdivided into two categories:
    (i) Professional charges (which refers to professional services 
provided by physicians and certain other providers); and
    (ii) Outpatient services (which refers to overhead and ancillary, 
diagnostic and treatment services, other than professional services 
provided in connection with the outpatient visit).
* * * * *
    (e) Per visit rates. (1) As authorized by 10 U.S.C. 1095(f)(2), the 
computation of reasonable costs for purposes of collections for most 
outpatient services shall be based on a per visit rate for a clinical 
specialty or subspecialty. The per visit charge shall be equal to the 
outpatient full reimbursement rate for that clinical specialty or 
subspecialty and includes all routine ancillary services. A separate 
charge will be calculated for cases that are considered ambulatory 
procedure visits. These rates shall be updated and published annually. 
As with inpatient billing categories, clinical groups representing 
selected board certified specialties/subspecialties widely accepted by 
graduate medical accrediting organizations such as the Accreditation 
Council for Graduate Medical Education (ACGME) or the American Board of 
Medical Specialties will be used for ambulatory billing categories. 
Related clinical groups may be combined for purposes of billing 
categories.
* * * * *
    (f) Ambulatory procedure visit rates. A separate charge will be 
calculated for ambulatory procedure visits (APVs). APVs are same day 
surgery visits and other outpatient visits provided by designated, 
special treatment units in facilities of the Uniformed Services. APV 
rates shall be based on the total cost of immediate (day of procedure) 
pre-procedure; procedure; and immediate post-procedure care performed 
in the ambulatory procedure unit setting for care requiring less than 
24 hours in the facility. An APV is not inpatient care. The Department 
of Defense is authorized, but not required by this part, to establish 
multiple ambulatory procedure visit reimbursement categories based on 
the clinic or subspecialty performing the ambulatory procedure. The 
average cost of APVs will be published annually.
* * * * *
    (h) Special rule for ancillary services ordered by outside 
providers and provided by a facility of the Uniformed Services. If a 
Uniformed Services facility provides certain ancillary services, 
prescription drugs or other procedures requested by a source other than 
a Uniformed Services facility and are not incident to any outpatient 
visit or inpatient services, the reasonable cost will not be based on 
the usual Diagnostic Related Group (DRG) or per visit rate. Rather, a 
separate standard rate shall be established based on the cost of the 
particular services, drugs, or procedures provided. Effective April 1, 
2000, this special rule applies to all services, drugs or procedures 
ordered by an outside provider and provided by a facility of the 
Uniformed Services. For such ancillary services provided prior to April 
1, 2000, this special rule applies only to services, drugs or 
procedures having a cost of at least $25. The reasonable cost for the 
services, drugs or procedures to which this special rule applies shall 
be calculated and made available to the public annually.
* * * * *
    (j) * * *
    (2) The special rule set forth in paragraph (j)(1) of this section 
expires September 30, 1997. Effective October 1, 1997, collections for 
health care services provided by these facilities are no longer covered 
by this part, but are covered by 32 CFR 199.8 (CHAMPUS Double 
Coverage).

    7. Section 220.9 is amended by revising paragraph (c) to read as 
follows:


Sec. 220.9.  Rights and obligations of beneficiaries.

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

    8. Section 220.12 in redesignated as Sec. 220.14 and new 
Secs. 220.12 and 220.13 are added to read as follows:


Sec. 220.12  Special rules for preferred provider organizations.

    (a) Statutory requirement. (1) Pursuant to the general duty of 
third party payers to pay under 10 U.S.C. 1095(a)(1) and the 
definitions of 10 U.S.C. 1095(h), a plan with a preferred provider 
organization (PPO) provision or option generally has an obligation to 
pay the United States the reasonable costs of health care services 
provided through any facility of the Uniformed Services to a Uniformed 
Services beneficiary who is also a beneficiary under the plan.
    (2) This section provides specific rules for applying 10 U.S.C. 
1095 and this part in the context of plans with a PPO provision or 
option.
    (b) PPO plan exclusions and limitations impermissible. Under 10 
U.S.C. 1095(b), no provision of any plan

[[Page 7730]]

with a PPO provision or option having the effect of excluding from 
coverage or limiting payment for certain care if that care is provided 
through a facility of the Uniformed Services shall operate to prevent 
collection under this part.
    (c) PPO agreement not required. The lack of a PPO agreement or the 
absence of privity of contract between a plan with a preferred provider 
organization provision or option and a facility of the Uniformed 
Services is not a permissible ground for refusing or reducing payment 
by the plan. The lack of a contractual relationship between the plan 
and the facility of the Uniformed Services may not be a basis for the 
plan to treat a facility of the Uniformed Services as a non-PPO 
provider for purposes of the plan's PPO payment amount, if the facility 
of the Uniformed Services accommodates the plan's fundamental price and 
utilization management standards for its PPO provision or option, as 
provided in this section.
    (d) Accommodation of PPO's fundamental price and utilization review 
standards. A plan's duty to pay under this section is premised on the 
accommodation by the facility of the Uniformed Services of the plan's 
fundamental price and utilization review standards for its PPO 
provision or option, as provided in this paragraph.
    (1) A facility of the Uniformed Services accommodates a plan's 
fundamental PPO price standards by accepting, in lieu of the rates 
established under Sec. 220.8, the plan's demonstrated PPO prevailing 
rates of payment paid to preferred providers in the same geographic 
area for the same or similar aggregate groups of services, if such 
rates are, in the aggregate, less than the rates established under 
Sec. 220.8. The determination of the plan's PPO prevailing rates shall 
be based on a review of all rates, including the professional and 
technical components, contained in all valid contractual arrangements 
with facilities and providers in the PPO network for the year in which 
the services were rendered. The rates for any specific ancillary 
procedure must include both professional and technical components.
    (2) A facility of the Uniformed Services accommodates a plan's 
fundamental PPO utilization review standards by complying with the 
reasonable pretreatment, concurrent, or retrospective review procedures 
that are required of all preferred providers under the plan and by 
accepting denials or reductions of requested payment that are 
consistent with prevailing standards in the geographic area for medical 
necessity and proper level of care for the services involved.
    (e) Examples of impermissible PPO requirements. PPO requirements 
unnecessary for the achievement of the PPO's fundamental price and 
utilization review standards and would have the effect of excluding or 
limiting payment to a facility of the Uniformed Services are 
impermissible. Examples of such impermissible PPO requirements follow:
    (1) A requirement that a PPO provider accept all beneficiaries of 
the PPO's plan. A facility of the Uniformed Services may provide health 
care services only to persons with eligibility established pursuant to 
10 U.S.C. Chapter 55.
    (2) A requirement that a PPO provider meet particular 
credentialing, licensing, certification, or other provider selection 
requirements intended to promote good quality of care. Facilities of 
the Uniformed Services comply with federal quality standards and a 
comprehensive system of provider credentialing and quality assurance.
    (3) A requirement that PPO providers restrict patient referrals to 
particular providers in the PPO network or order ancillary services 
only from particular providers. Facilities of the Uniformed Services 
carry out patient referrals and the ordering of ancillary services in 
accordance with applicable Department of Defense rules and procedures.
    (4) Any other PPO requirement that would purport to require a 
facility of the Uniformed Services, in order to effectuate the 
legislative purpose of 10 U.S.C. 1095, to act in a manner inconsistent 
with the basic nature of facilities of the Uniformed Services.
    (f) Sunset of section. The special rules established by this 
Sec. 220.12 shall no longer be in effect as of October 1. 2004.


Sec. 220.13  Special rules for workers' compensation programs.

    (a) Basic rule. Pursuant to the general duty of third party payers 
under 10 U.S.C. 1095(a)(1) and the definitions of 10 U.S.C. 1095(h), a 
workers' compensation program or plan generally has an obligation to 
pay the United States the reasonable costs of health care services 
provided in or through any facility of the Uniformed Services to a 
Uniformed Services beneficiary who is also a beneficiary under a 
workers' compensation program due to an employment related injury, 
illness, or disease. Except to the extent modified or supplemented by 
this section, all provisions of this part are applicable to any 
workers' compensation program or plan in the same manner as they are 
applicable to any other third party payer.
    (b) Special rules for lump-sum settlements. In cases in which a 
lump-sum workers' compensation settlement is made, the special rules 
established in this paragraph (b) shall apply for purposes of 
compliance with this section.
    (1) Lump-sum commutation of future benefits. If a lump-sum worker's 
compensation award stipulates that the amount paid is intended to 
compensate the individual for all future medical expenses required 
because of the work-related injury, illness, or disease, the Uniformed 
Service health care facility is entitled to reimbursement for injury, 
illness, or disease related, future health care services or items 
rendered or provided to the individual up to the amount of the lump-sum 
payment.
    (2) Lump-sum compromise settlement. (i) A lump sum compromise 
settlement, unless otherwise stipulated by an official authorized to 
take action under 10 U.S.C. 1095 and this part, is deemed to be a 
workers' compensation payment for the purpose of reimbursement to the 
facility of the Uniformed Services for services and items provided, 
even if the settlement agreement stipulates that there is no liability 
under the workers' compensation law, program, or plan.
    (ii) If a settlement appears to represent an attempt to shift to 
the facility of the Uniformed Services the responsibility of providing 
uncompensated services or items for the treatment of the work-related 
condition, the settlement will not be recognized and reimbursement to 
the uniformed health care facility will be required. For example, if 
the parties to a settlement attempt to maximize the amount of 
disability benefits paid under workers' compensation by releasing the 
employer or workers' compensation carrier from liability for medical 
expenses for a particular condition even though the facts show that the 
condition is work-related, the facility of the Uniformed Services must 
be reimbursed.
    (iii) Except as specified in paragraph (b)(2)(iv) of this section, 
if a lump-sum compromise settlement forecloses the possibility of 
future payment or workers' compensation benefits, medical expenses 
incurred by a facility of the Uniformed Services after the date of the 
settlement are not reimbursable under this section.
    (iv) As an exception to the rule of paragraph (b)(2)(iii) of this 
section, if the settlement agreement allocates certain amounts for 
specific future medical services, the facility of the Uniformed 
Services is entitled to reimbursement for those specific services and 
items provided resulting from the work-related injury, illness, or 
disease up to the amount of the lump-sum settlement allocated to future 
expenses.

[[Page 7731]]

    (3) Apportionment of a lump-sum compromise settlement of a workers' 
compensation claim. If a compromise settlement allocates a portion of 
the payment for medical expenses and also gives reasonable recognition 
to the income replacement element, that apportionment may be accepted 
as a basis for determining the payment obligation of a workers' 
compensation program or plan under this section to a facility of the 
Uniformed Services. If the settlement does not give reasonable 
recognition to both elements of a workers' compensation award or does 
not apportion the sum granted, the portion to be considered as payment 
for medical expenses is computed as follows: determine the ratio of the 
amount awarded (less the reasonable and necessary costs incurred in 
procuring the settlement) to the total amount that would have been 
payable under workers' compensation if the claim had not been 
compromised; multiply that ratio by the total medical expenses incurred 
as a result of the injury or disease up to the date of settlement. The 
product is the amount of workers' compensation settlement to be 
considered as payment or reimbursement for medical expenses.

    9. Newly redesignated Sec. 220.14 is amended by removing paragraph 
designations (a) through (l), by revising the definitions of 
``insurance, medical service or health plan,'' ``Medicare supplemental 
insurance plan,'' ``third party payer,'' and ``third party payer 
plan,'' and by adding in alphabetical order new definitions of 
``ambulatory procedure visit,'' ``Assistant Secretary of Defense 
(Health Affairs),'' ``covered beneficiaries,'' ``preferred provider 
organization,'' and ``workers' compensation program or plan,'' to read 
as follows:


Sec. 220.14  Definitions.

    Ambulatory procedure visit. An ambulatory procedure visit is a type 
of outpatient visit in which immediate (day of procedure) pre-procedure 
and immediate post-procedure care require an unusual degree of 
intensity and are provided in an ambulatory procedure unit (APU) of the 
facility of the Uniformed Services. Care is required in the facility 
for less than 24 hours. An APU is specially designated and is accounted 
for separately from any outpatient clinic.
    Assistant Secretary of Defense (Health Affairs). This term includes 
any authorized designee of the Assistant Secretary of Defense (Health 
Affairs).
* * * * *
    Covered beneficiaries. Covered beneficiaries are all health care 
beneficiaries under chapter 55 of title 10, United States Code, except 
members of the Uniformed Services on active duty.
* * * * *
    Insurance, medical service or health plan. Any plan (including any 
plan, policy, program, contract, or liability arrangement) that 
provides compensation, coverage, or indemnification for expenses 
incurred by a beneficiary for health or medical services, items, 
products, and supplies. It includes but is not limited to:
    (1) Any plan offered by an insurer, re-insurer, employer, 
corporation, organization, trust, organized health care group or other 
entity.
    (2) Any plan for which the beneficiary pays a premium to an issuing 
agent as well as any plan to which the beneficiary is entitled as a 
result of employment or membership in or association with an 
organization or group.
    (3) Any Employee Retirement Income and Security Act (ERISA) plan.
    (4) Any Multiple Employer Trust (MET).
    (5) Any Multiple Employer Welfare Arrangement (MEWA).
    (6) Any Health Maintenance Organization (HMO) plan, including any 
such plan with a point-of-service provision or option.
    (7) Any individual practice association (IPA) plan.
    (8) Any exclusive provider organization (EPO) plan.
    (9) Any physician hospital organization (PHO) plan.
    (10) Any integrated delivery system (IDS) plan.
    (11) Any management service organization (MSO) plan.
    (12) Any group or individual medical services account.
    (13) Any preferred provider organization (PPO) plan or any PPO 
provision or option of any third party payer plan.
    (14) Any Medicare supplemental insurance plan.
    (15) Any automobile liability insurance plan.
    (16) Any no fault insurance plan, including any personal injury 
protection plan or medical payments benefit plan for personal injuries 
arising from the operation of a motor vehicle.
* * * * *
    Medicare supplemental insurance plan. A Medicare supplemental 
insurance plan is an insurance, medical service or health plan 
primarily for the purpose of supplementing an eligible person's benefit 
under Medicare. The term has the same meaning as ``Medicare 
supplemental policy'' in section 1882(g)(1) of the Social Security Act 
(42 U.S.C. 1395ss) and 42 CFR part 403, subpart B.
* * * * *
    Preferred provider organization. A preferred provider organization 
(PPO) is any arrangement in a third party payer plan under which 
coverage is limited to services provided by a select group of providers 
who are members of the PPO or incentives (for example, reduced 
copayments) are provided for beneficiaries under the plan to receive 
health care services from the members of the PPO rather than from other 
providers who, although authorized to be paid, are not included in the 
PPO. However, a PPO does not include any organization that is 
recognized as a health maintenance organization.
    Third party payer. A third party payer is an entity that provides 
an insurance, medical service, or health plan by contract or agreement. 
It includes but is not limited to:
    (1) State and local governments that provide such plans other than 
Medicaid.
    (2) Insurance underwriters or carriers.
    (3) Private employers or employer groups offering self-insured or 
partially self-insured medical service or health plans.
    (4) Automobile liability insurance underwriter or carrier.
    (5) No fault insurance underwriter or carrier.
    (6) Workers' compensation program or plan sponsor, underwriter, 
carrier, or self-insurer.
    Third party payer plan. A third party payer plan is any plan or 
program provided by a third party payer, but not including an income or 
wage supplemental plan.
* * * * *
    Workers' compensation program or plan. A workers' compensation 
program or plan is any program or plan that provides compensation for 
loss, to employees or their dependents, resulting from the injury, 
disablement, or death of an employee due to an employment related 
accident, casualty or disease. The common characteristic of such a plan 
or program is the provision of compensation regardless of fault, in 
accordance with a delineated schedule based upon loss or impairment of 
the worker's wage earning capacity, as well as indemnification or 
compensation for medical expenses relating to the employment related 
injury or disease. A workers' compensation program or plan includes any 
such program or plan:

[[Page 7732]]

    (1) Operated by or under the authority of any law of any State (or 
the District of Columbia, American Samoa, Guam, Puerto Rico, and the 
Virgin Islands).
    (2) Operated through an insurance arrangement or on a self-insured 
basis by an employer.
    (3) Operated under the authority of the Federal Employees 
Compensation Act or the Longshoremen's and Harbor Workers' Compensation 
Act.

    Dated: February 8, 2000.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 00-3352 Filed 2-15-00; 8:45 am]
BILLING CODE 5001-01-P