[Federal Register Volume 65, Number 104 (Tuesday, May 30, 2000)]
[Proposed Rules]
[Pages 34423-34426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13406]



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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN 0720-AA58


TRICARE; Civilian Health and Medical Program of the Uniformed 
Services (CHAMPUS); Payments for Professional Services in Low-Access 
Locations

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule implements section 716 of the National 
Defense Authorization Act for Fiscal Year 2000 which allows the 
Secretary of Defense to authorize higher provider reimbursement than 
normally allowable, with certain limitations, when necessary to ensure 
an adequate TRICARE Prime network of qualified providers. This proposed 
rule also describes additional actions which may be taken under section 
731 of the National Defense Authorization Act for Fiscal Year 1996 when 
TRICARE beneficiaries face very severe limitations on access to needed 
health care services. In such instances, the Assistant Secretary of 
Defense (Health Affairs) may authorize higher TRICARE payments than 
would normally be allowable for professional services in a designated 
location.

DATES: Public comments must be received by July 31, 2000.

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

FOR FURTHER INFORMATION CONTACT: Steve Lillie, Office of the Assistant 
Secretary of Defense (Health Affairs)/TRICARE Management Activity, 
telephone (703) 681-3628.

SUPPLEMENTARY INFORMATION: Questions regarding payment of specific 
claims under the CHAMPUS allowable charge method should be addressed to 
the appropriate TRICARE/CHAMPUS contractor.

1. Background on TRICARE and CHAMPUS Payments to Providers

    The relationship of DoD payment levels to Medicare's for 
institutional and professional health care services is central to the 
ongoing success of TRICARE. Payment levels have significant effects on 
our ability to implement managed care programs, to assure beneficiary 
access to the full spectrum of health services, and to do these things 
cost-effectively. This section reviews the background of the linkage of 
TRICARE and CHAMPUS rates to Medicare.
    It is appropriate that Medicare serve as the model for 
establishment of payment rates for TRICARE and CHAMPUS. Medicare is by 
far the largest payer for health services in the country, and as such 
its payment methodologies are carefully developed by the Executive 
Branch and the Congress, and subject to intense scrutiny by the public 
and by providers of health services. When payment rate policy was 
established by the Congress and the Executive Branch in the 1980s and 
early 1990s, CHAMPUS, being structurally similar to Medicare, and a 
considerably smaller program, neither attracted nor warranted the same 
degree of attention in development of reimbursement methods. Thus, 
Congress followed the prudent course of directing DoD to adopt or adopt 
Medicare payment approaches when appropriate.
    Legislative initiatives to link DoD and Medicare payment rates for 
health care began in the early 1980s, with the initial focus on 
institutional services. DoD was directed to pay hospitals ``* * * to 
the extent practicable in accordance with the same reimbursement rules 
as apply to providers of services of the same type under Title XVIII of 
the Social Security Act'' (Department of Defense Authorization Act, 
1984 (Pub. L. 98-94, amending 10 U.S.C. 1079(j)(A)). In 1986, a 
statutory provision was enacted requiring hospitals participating in 
Medicare to also participate in CHAMPUS. On the basis of these 
authorities, a Diagnosis Related Group-Based Payment System was 
implemented for CHAMPUS in 1987, modeled largely on the Medicare 
Prospective Payment System that had been implemented in 1983.
    Similar initiatives have linked DoD's payment levels for 
professional services to Medicare. Based on General Accounting Office 
recommendations, Congress in 1988 directed that growth in CHAMPUS 
prevailing charges be limited through application of the Medicare 
Economic Index, which had been used since 1972 as a limit on growth in 
Medicare physician payments. Beginning in 1991, Congress directed that 
CHAMPUS payments be analyzed to identify overpriced procedures, and 
gradually to bring payment levels for those procedures into line with 
payments under Medicare. TRICARE payment limits are called CMACs 
(CHAMPUS Maximum Allowable Charges).
    In 1992, Medicare implemented the Medicare Fee Schedule, and began 
basing payment limits on the relative resource requirements of 
procedures, rather than on historical charges submitted by providers. 
In keeping with statutory direction, Medicare Fee Schedule amounts have 
become the target payment amounts for TRICARE. The National Defense 
Authorization Act for Fiscal Year 1996 codified the linkage to Medicare 
payment amounts. Regulatory provisions governing this and other TRICARE 
payments are at 32 CFR 199.14.
    In adapting Medicare's payment approaches to TRICARE, it has been 
vital to recognize the differences in the programs and the populations 
they serve, and to accommodate those differences in the technical 
details of the payment methodologies. To illustrate, the services of 
children's hospitals as well as care for neonates were excluded from 
the initial implementation of the CHAMPUS DRG-Based Payment System. 
This was done out of concern that the DRG classification system and 
payment levels did not adequately distinguish the more complex and 
resource-intensive children's conditions. In consultation with 
children's hospital representatives, DoD developed a special additional 
factor (the ``children's hospital differential'') to uses in the 
payment methodology so that children's hospital services were 
appropriately reimbursed. For neonatal services, DoD adopted an 
industry-developed approach to classify neonates by birthweight to more 
accurately reimburse their care. Thus, our approach was modeled on 
Medicare's but modified to reflect the special characteristics of the 
TRICARE population. Maintaining the special treatment of children's 
hospitals has required occasional policy changes. For example, recent 
changes to Medicare's payment of outlier cases have been adopted by 
TRICARE for most hospitals, but these changes have had an adverse 
impact on payments to children's hospitals for outlier cases. DoD is 
working with children's hospital representatives to fix the problem.
    For some providers, such as residential treatment centers for 
children and adolescents, there is no Medicare coverage, and in these 
cases DoD has developed its own reimbursement approaches, working 
through the legislative and regulatory processes to find reasonable, 
cost-effective approaches to payment.
    A key principle of DoD's activity in reimbursement design has been 
the protection of access to services. The statutory linkage of hospital 
participation in CHAMPUS to Medicare participation provided ample 
protection

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for our beneficiaries, and enabled aggressive implementation of the 
CHAMPUS DRG-Based Payment System, which saved taxpayers (and 
beneficiaries) hundreds of millions of dollars per year. Lacking 
similar protections for physician services, DoD had to proceed more 
cautiously: Payment levels have been gradually brought into harmony 
with Medicare's rates over several years, and special provisions are 
built into the process to stop reducing payments if access was 
threatened. In a 1996 Report to Congress, we reviewed acceptance of our 
payment rates, and found that 86 percent of the time, doctors accepted 
the CMAC as payment in full; 14 percent of services were subject to 
balance billing. More recently, this has increased to over 94 percent 
acceptance, with less than 6 percent of services subject to balance 
billing. For the small proportion of claims that are subject to balance 
billing, providers are prohibited from collecting more than 115 percent 
of the CMAC rate, just as in Medicare.
    As of February 1999, over 90 percent of CMAC rates are at the same 
level as Medicare, and fewer than 10 percent are higher than Medicare, 
because their gradual transition to the Medicare level is not yet 
complete. Historically, owing to the strict wording of the 
Appropriations Act provision on physician payment reform, DoD did not 
have broad discretion to raise payments for services reimbursed at 
rates below the Medicare level. Although these services (about 60 out 
of the 7,000 service types reimbursed) represent less than 0.2 percent 
of DoD spending for health services (roughly $14 million out of $10 
billion), it was important that the issue be addressed. The Department 
issued a final regulation in September 1998 to provide that in these 
few cases in which the CMAC rate was less than the Medicare rate, the 
CMAC rate would be increased to the Medicare level. Implementation was 
in the February 1, 1999 update of payment rates.
    In February 1998 the General Accounting Office issued a report, 
``Defense Health Care: Reimbursement Rates Appropriately Set; Other 
Problems Concern Physicians'' (GAO/HEHS-98-80). In conducting the study 
from March 1997 to January 1998, GAO:
     Reviewed the establishment of CMACs and contracted with 
actuaries to evaluate the methodology's compliance with statutory 
requirements;
     Compared Medicare and CMAC rates, and interviewed 
physicians and beneficiary advocacy groups in four locations; and
     Interviewed TRICARE administrators and staff from TRICARE 
contractors.
    GAO found that the CMAC methodology was sound, and that DoD saves 
about $770 million annually as a result of CMACs. Rates were found to 
be generally consistent with Medicare's rates. Physician concerns 
focused on network discounts off to CMACs, rather than on the 
acceptability of CMACs themselves. Local market factors were found to 
be the principal determinants of whether physicians would accept 
discounts off CMACs. Physicians also expressed concerns about 
administrative hassles and slow claims payments. GAO suggested that DoD 
do a better job of informing physicians about payment rates, and 
informing beneficiaries about balance billing limitations. (Payment 
rates are now available on the Internet, and the Explanation of 
Benefits for each claim describes the applicable balance billing limit. 
Revisions to claims payment timeliness requirements have addressed many 
concerns about slow payments.)
    The amounts paid for health care services in TRICARE are governed 
by either the payment rules described above or on the basis of 
discounts from those rates. each regional at-risk TRICARE contractor is 
required to establish a network of providers where the TRICARE Prime 
(HMO-type) option is offered, and the contractor attempts to negotiate 
reduced payment amounts with providers who join the network. 
Beneficiaries who enroll in TRICARE Prime use the network for most 
civilian health care services; beneficiaries who do not enroll retain 
their freedom to use any civilian provider under TRICARE Standard, but 
can take advantage of the discounted network under TRICARE Extra. DoD 
thus achieves efficiencies for itself and its beneficiaries while 
preserving freedom of choice of provider for those who do not wish to 
use the managed care options of TRICARE.
    The evolution of DoD reimbursement reforms over the past 15 years 
has complemented DoD's managed care initiatives; one could not have 
proceeded without the other. Continued attention to beneficiary access 
and satisfaction issues will enable us to continue to assure high 
quality services for our military families and retirees.

II. Statutory Direction and Regulations

    Title 10 U.S.C. section 1079(h) provides statutory authority for 
TRICARE payments to professional providers. Section 1079(h)(1) mandates 
that payments shall, to the extent practicable, equal Medicare payment 
amounts. Section 1079(h)(2) permits exceptions, as determined to be 
necessary to assure that covered beneficiaries retain adequate access 
to health care services. Title 10 U.S.C. section 1097b(a) provides 
statutory authority for higher reimbursement for professional providers 
than normally allowable when determined necessary to ensure an adequate 
TRICARE Prime network of qualified providers. Regulations providing for 
exceptions to normally allowed payment amounts are promulgated by the 
Secretary if Defense in consultation with the other administering 
Secretaries.
    Regulations governing TRICARE payments to providers are in 32 CFR 
199.14, with 32 CFR 199.14(h) addressing individual health care 
professional and other non-institutional health care providers.

III. Access to Care Issues.

    As measured by acceptability of payment rates, access to 
professional services in TRICARE is at its highest level in history. 
Over 94 percent of the time, providers accept the TRICARE payment 
amount as full payment, and do not balance bill the beneficiary. This 
high rate of acceptance has been achieved despite ongoing reductions in 
payment amounts over the past several years.
    We are concerned that the very high acceptance rate for TRICARE 
payments to professional providers may mask local access problems. When 
the CMAC payment approach was implemented in 1992, national payment 
levels were adjusted to reflect local economic conditions in over two 
hundred ``localities'' following the Medicare program's technique for 
recognizing local variations. (This replaced the historical approach 
taken for CHAMPUS, which based payments on statewide patterns.) Since 
that time, the number of localities has been reduced to fewer than one 
hundred, with the introduction of more and more statewide payment 
localities for Medicare, and hence for TRICARE.
    In late 1999, DoD undertook a redemption of one statewide 
locality--for Alaska--in recognition of significant differences in 
acceptability of TRICARE payment rates in Anchorage compared to the 
rest of the state. Overall, CMACs are accepted as full payment over 90 
percent of the time in Alaska, but the vast majority of services are 
provided in Anchorage, so that severe access problems elsewhere are 
hidden. In an effort to increase acceptability of payment rates outside 
of Anchorage, DoD created a new locality, including all of Alaska 
except Anchorage, and, for

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the new locality, waived reductions in payment amounts taken since 
inception of the CMAC payment approach in 1992. This was carried out 
under authority of 32 CFR 199.14(h)(1)(iv), which describes procedures 
for calculating CMAC levels for localities, including waiving 
reductions where access is threatened. The resulting payment levels are 
about 28 percent higher than they would be otherwise.
    There is concern that even these dramatic steps, which use the full 
extent of DoD's current regulatory authority, may be insufficient in 
some locations. Accordingly, we are publishing this notice of proposed 
rulemaking, seeking public comment on possible additional actions to 
increase access to health care providers in locations where evidence 
shows that TRICARE beneficiaries lack access to needed health services.

IV. TRICARE Prime Preferred Provider Network Adequacy Issues

    TRICARE Managed Care Support (MCS) contractors are responsible for 
providing an adequate network of qualified providers in all areas of 
TRICARE regions as designed under the terms of their contracts with the 
government. The network shall include a complement of civilian 
professional providers adequate to ensure access to care for TRICARE 
Prime and Extra beneficiaries. In determining if a network is adequate, 
it is necessary for the network to include an appropriate mix of 
primary care and specialists to satisfy demand and to meet the 
standards established for appointment/waiting time and travel distance 
for patient access to primary, specialty or emergency care.
    Today, the number of providers in the TRICARE network varies across 
the country--for example, the number of specialists per 1,000 enrollees 
ranges from as low as 16 to as high as 84. This variation may arise 
from the availability of military providers, which reduces the need for 
an extensive civilian network. It may also reflect real problems in 
network sufficiency, and regional averages may mask further problems at 
local levels.
    While TRICARE Prime Preferred Provider networks are generally 
considered adequate, there are isolated geographical areas outside 
major metropolitan areas and within states with limited population 
bases in which network development is hindered due to allowable TRICARE 
payments being lower than rates used by competitive commercial health 
care insurance or other governmental programs. Because CMACs are based 
on Medicare-prescribed payment localities, and generally are consistent 
with Medicare reimbursement rates, Congress has authorized the 
Secretary of Defense to allow higher payments, with certain 
limitations, when determined necessary to ensure adequacy of TRICARE 
networks.

V. Overview of the Rule

    The proposed rule would add a new Sec. 199.14(h)(1)(iv)(D), 
authorizing the establishing of higher payment rates for services than 
would otherwise be allowable, if it is determined that access to health 
care services is severely impaired. Payment rates could be established 
through addition of a percentage factor to an otherwise applicable 
payment amount, or by calculating a prevailing charge, or by using 
another governmental payment rate. Higher payment rates could be 
applied to all similar services performed in a locality, or a new 
locality could be defined for application of the higher payment rates.
    The proposed rule would also add a new Sec. 199.14(h)(1)(iv)(E), 
allowing the reimbursement of higher payment rates for services than 
would otherwise be allowable, if it is determined necessary to ensure 
adequate Preferred Provider networks. The amount of reimbursement for a 
health care service would be limited to the lesser of: (1) An amount 
equal to the local fee for service charge in the area where the service 
is provided; or (2) 115 per cent of the otherwise allowable TRICARE 
rate for the service. The higher rate will be authorized only if all 
reasonable efforts have been exhausted in attempting to create an 
adequate network and that it is cost-effective and appropriate to pay 
the higher rate to ensure an appropriate mix of primary care and 
specialists in the network.

VI. Issues of particular Interest Regarding the Special Locality-
Based Exception to Applicable CMACs To Assure Adequate Beneficiary 
Access to Care

    In addition to seeking public comments on the proposed approach, we 
particularly invite comment on the following issues:
    1. Nature of the relief from current payment levels.--The proposed 
rule would authorize three approaches to increasing payment rates: (1) 
Addition of a percentage factor to the CMAC amount where access 
problems are so severe that other measures are insufficient; (2) 
reverting to the historical method of calculating the prevailing charge 
for a procedure, but using current billed charges to drive the 
calculation; or (3) using another government payment rate (such as a 
state Medicaid program rate). Other approaches are possible, including 
simply paying of billed charges in a location, as is done currently in 
many overseas locations. Declaration of a location as ``overseas'' for 
purpose of an exemption from payment rules would require a statutory 
change, but we invite comment on the issue.
    2. Extent of availability of relief from payment levels.--The 
proposed rule would make payment relief available for specific CPT 
codes in a location generally described by zip code(s). We invite 
comment on whether there are locations where access concerns are so 
pervasive that an authority to increase payment amounts for all 
services would be appropriate.
    3. Evidence needed to qualify a location for relief.--The proposed 
rule would base determinations of severe access problems on the number 
of providers in the locality who provide the affected services, the 
number of such providers who are CHAMPUS Participating Providers, the 
number of CHAMPUS beneficiaries in the locality, availability 
(including reassignment) of military providers in the location or 
nearby, and other relevant factors. We invite comment on what factors 
should be considered to constitute reasonable evidence of severe access 
problems.

VII. Regulatory Procedures

    Executive Order (EO) 12866 requires that a comprehensive regulatory 
impact analysis be performed on any economically significant regulatory 
action, defined as one which would result in an annual effect of $100 
million or more on the national economy or which would have other 
substantial impact.
    The Regulatory Flexibility Act (RFA) requires that each Federal 
agency prepare, and make available for public comment, a regulatory 
flexibility analysis when the agency issues a regulation which would 
have a significant impact on a substantial number of small entities.
    This is not a significant regulatory action under the provisions of 
Executive Order 12866, and it would not have a significant impact on a 
substantial number of small entities.
    The proposed rule will not impose additional information collection 
requirements on the public under the Paperwork Reduction Act of 1995 
(44 U.S.C. Chapter 55).
    A discussion of the major issues received by public comments will 
be included with the issuance of the final rule, anticipated 
approximately 60 days after the end of the comment period.

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List of Subjects in 32 CFR Part 199

    Claims, Fraud, Healthcare, Health insurance, Individuals with 
disabilities, Military personnel.

    Accordingly, 32 CFR Part 199 is proposed to be amended as follows:

PART 199--[AMENDED]

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

    Authority: 5 U.S.C. 301, 10 U.S.C. chapter 55.
    2. Section 199.14 is proposed to be amended by adding new 
paragraphs (h)(1)(iv)(D) and (E) to read as follows:


Sec. 199.14  Provider reimbursement methods.

* * * * *
    (h) * * *
    (1) * * *
    (iv) * * *
    (D) Special locality-based exception to applicable CMACs to assure 
adequate beneficiary access to care. The Director, OCHAMPUS, or 
designee, may authorize establishment of higher payment rates for 
services than would otherwise be allowable under paragraph (h)(1) of 
this section, if the Director, or designee, determines that available 
evidence shows that access to health care services is severely 
impaired. For this purpose, such evidence may include consideration of 
the number of providers in the locality who provide the affected 
services, the number of such providers who are CHAMPUS Participating 
Providers, the number of CHAMPUS beneficiaries in the locality, 
availability (including reassignment) of military providers in the 
location or nearby, and other relevant factors. Providers or 
beneficiaries in a locality may submit to the Director, OCHAMPUS, or 
designee, a petition, together with appropriate documentation regarding 
relevant factors, for a determination that adequate access to health 
care services is severely impaired. The Director, OCHAMPUS, or 
designee, will consider and respond to all petitions. A decision to 
authorize a higher payment amount is subject to review and termination 
or modification by the Director at any time if circumstances change so 
that adequate access to health care services would no longer be 
severely impaired. A decision by the Director, or designee, to 
authorize, not authorize or terminate/modify authorization of higher 
payment amounts is not subject to the appeal anbd hearing procedures of 
Sec. 199.10.
    (1) Establishing the higher payment rate(s). When the Director, 
OCHAMPUS, or designee, determines that beneficiary access to health 
care services in a locality is severely impaired, the Director or 
designee may establish the higher payment rate(s) as he or she deems 
appropriate and cost-effective through one of the following 
methodologies to assure adequate access:
    (i) A percentage factor may be added to the otherwise applicable 
payment amount allowable under paragraph (h)(1) of this section;
    (ii) A prevailing charge may be calculated, by applying the 
prevailing charge methodology of paragraph (h)(1)(ii) of this section 
to a specific locality; or
    (iii) Another governmental payment rate may be adopted, for 
example, an applicable state Medicaid rate.
    (2) Application of higher payment rates. Higher payment rates 
defined under paragraph (h)(1)(iv)(D) of this section may be applied to 
all similar services performed in a locality, or, if circumstances 
warrant, a new locality may be defined for application of the higher 
payment rates. Establishment of a new locality may be undertaken where 
access impairment is localized and not pervasive across the existing 
locality. Generally, establishment of a new locality will occur when 
the area is remote so that geographical characteristics and other 
factors (such as frequent and predominant climatic conditions, etc.) 
significantly impair egress/ingress, through normal means of civilian 
transportation, to health care services routinely available within the 
existing locality.
    (E) Special Locality-Based Exception to Applicable CMACs to Ensure 
an Adequate TRICARE Prime Preferred Provider Network of Qualified 
Professional Providers. The Director, OCHAMPUS, or designee, may 
authorize any TRICARE managed care support contractor to reimburse 
health care providers participating in TRICARE Prime Preferred Provider 
Network a rate or rate(s) higher than would otherwise be allowable 
under paragraph (h)(1) of this section, if the Director, or designee, 
determines that available evidence shows that application of the higher 
rate(s) is necessary to ensure the availability of an adequate number 
and mix of qualified health care providers in a network in a specific 
locality. This authority may only be used to ensure adequate networks 
in those localities designated by the Director, or designee, as 
requiring TRICARE Preferred Provider networks not in localities in 
which the managed care support contractor has voluntarily proposed to 
create TRICARE Preferred Provider networks. Appropriate evidence for 
this purpose, may include consideration of the number of available 
primary care and specialist providers in the network locality, 
availability (including reassignment) of military providers in the 
location or nearby, the appropriate mix of primary care and specialists 
needed to satisfy demand and meet appropriate patient access standards 
(appointment/waiting time, travel distance, etc.), what reasonable 
efforts have been made to create an adequate network, other cost-
effective alternatives, and other relevant factors. The Director, 
OCHAMPUS, or designee, may establish procedures by which exceptions to 
applicable CMACs are requested and approved or denied under paragraph 
(h)(1)(iv)(E) of this section. A decision by the Director, or designee, 
to authorize or deny an exception is not subject to the appeal and 
hearing procedures of Sec. 199.10. When the Director, OCHAMPUS, or 
designee, determines that it is necessary and cost-effective to approve 
a higher rate or rates in order to ensure the availability of an 
adequate number of qualified health care providers in a network in a 
specific locality, the higher rate may not exceed the lesser of the 
following:
    (1) The amount equal to the local fee for service charge for the 
service in the service area in which the service is provided as 
determined by the Director, OCHAMPUS, or designee, based on one or more 
of the following payment rates:
    (i) Usual, customary, and reasonable;
    (ii) The Health Care finance administration's Resource Based 
Relative Value Scale;
    (iii) Negotiated fee schedules;
    (iv) Global fees; or
    (v) Sliding scale individual fee allowances.
    (2) The amount equal to 115 percent of the otherwise allowable 
charge under paragraph (h)(1) of the section for the service.
* * * * *

    Dated: May 23, 2000.
L.M. Bynum,
Alternate Federal Register Notice Liaison Officer, Department of 
Defense.
[FR Doc. 00-13406 Filed 5-26-00; 8:45 am]
BILLING CODE 5001-10-M