[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Rules and Regulations]
[Pages 40601-40609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19184]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN 0720-AA66


TRICARE; Civilian Health and Medical Program of the Uniformed 
Services (CHAMPUS); Eligibility and Payment Procedures for CHAMPUS 
Beneficiaries Age 65 and Over

AGENCY: Office of the Secretary, DoD.

ACTION: Interim final rule.

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SUMMARY: This interim final rule implements Section 712 of the Floyd D. 
Spence National Defense Authorization Act for Fiscal Year 2001. Section 
712 extends TRICARE eligibility to persons age 65 and over who would 
otherwise have lost their TRICARE eligibility due to attainment of 
entitlement to hospital insurance benefits under Part A of Medicare. In 
order for these individuals to retain their TRICARE eligibility, they 
must be enrolled in the supplementary medical insurance program under 
Part B of Medicare. In general, in the case of medical or dental care 
provided to these individuals for which payment may be made under both 
Medicare and TRICARE, Medicare is the primary payer and TRICARE will 
normally pay the actual out-of-pocket costs incurred by the person. 
This rule prescribes TRICARE payment procedures and makes revisions to 
TRICARE rules to accommodate Medicare-eligible CHAMPUS beneficiaries. 
The Department is publishing this rule as an interim final rule in 
order to meet the statutorily required effective date. Public comments, 
however, are invited and will be considered when the rule is published 
as a final rule.

DATES: This rule is effective October 1, 2001. Written comments will be 
accepted until October 2, 2001.

ADDRESSES: Forward comments to Medical Benefits and Reimbursement 
Systems, TRICARE Management

[[Page 40602]]

Activity, 16401 East Centretech Parkway, Aurora, CO 80011-9043.

FOR FURTHER INFORMATION CONTACT: Stephen Isaacson, Medical Benefits and 
Reimbursement Systems, TRICARE Management Activity, telephone (303) 
676-3572.

SUPPLEMENTARY INFORMATION:

A. Introduction

    On October 30, 2000, the Floyd D. Spence National Defense 
Authorization Act for Fiscal Year 2001 (Pub. L. 106-398, 114 Stat. 
1654) was signed into law. This interim final rule implements section 
712 of this Act, and is effective October 1, 2001. It extends TRICARE 
eligibility to persons age 65 and over. This beneficiary group 
previously lost TRICARE eligibility due to attaining entitlement to 
hospital insurance benefits under Part A of Medicare.
    This regulation and the statute it implements represent the most 
significant expansion of benefits in the Military Health System since 
1956, when Congress created CHAMPUS to supplement space available care 
in military treatment facilities. As an indication of this, in FY-2000, 
DoD spent an estimated $1.4 billion providing space available health 
care in military facilities to beneficiaries over age 65; in FY-2002, 
in addition to this anticipated level of military facility services, 
DoD will spend another approximately $3.9 billion as second payer to 
Medicare for civilian sector inpatient and outpatient services and 
primary payer for civilian pharmacy outpatient drugs. These new 
benefits for retirees and their eligible family members over age 65 
result in a remarkably comprehensive health care benefit with minimal 
beneficiary out-of-pocket costs.

B. Eligibility

    As specified further in the regulation, to be eligible for TRICARE, 
a person is required to be a retiree, a dependent, or survivor who is 
entitled to Medicare Part A, 65 years of age or older, and enrolled in 
Medicare Part B. Specifically the following are eligible:
     A retired uniformed service member--i.e., a former member 
of a uniformed service who is entitled to retired or retainer pay or 
equivalent pay.
     A dependent (except for parents or parents-in-law) of:
     A retired member;
     A member who died while on active duty for more than 30 
days; or
     A member who died from an injury, illness, or disease 
incurred or aggravated while the member was on active duty for less 
than 31 days, was on active duty for training, was on inactive duty 
training, or was traveling to or from a place for the performance of 
such active duty, active duty for training, or inactive-duty training.
     A former spouse who has not remarried and who does not 
have an employer-sponsored health plan and meets the criteria 
established by 10 U.S.C. 1072(2).

    Note: Although parents and parents-in-law may be considered 
eligible dependents for care in uniformed services healthcare 
facilities, and are eligible for the TRICARE Senior Pharmacy 
benefit, they have never been eligible for TRICARE, and these 
provisions do not change that in any way.

    We are also making a technical change to the regulatory eligibility 
provisions regarding changes that result in termination of TRICARE 
eligibility. Currently, the regulation states that when a beneficiary 
loses TRICARE eligibility due to attainment of entitlement to Medicare 
Part A at age 65, TRICARE eligibility is lost at 12:01 a.m. on the last 
day of the month preceding the month of attainment of age 65. This is 
incorrect. It should be 12:01 a.m. on the first day of the month in 
which the beneficiary becomes entitled to Medicare. Otherwise the 
beneficiary would have no coverage (neither TRICARE nor Medicare) for 
the last day of the month before becoming entitled to Medicare.

C. Scope of Benefit

    Under 10 U.S.C. 1086(c), retirees, authorized dependents and 
survivors are entitled to TRICARE. In general, TRICARE will pay for 
medically necessary services and supplies required in the diagnosis and 
treatment of illness or injury. Benefits include specified medical 
services and supplies from authorized civilian sources such as 
hospitals, other authorized institutional providers, physicians, other 
authorized individual professional providers, and professional 
ambulance services, prescription drugs, authorized medical supplies, 
and rental or purchase of durable medical equipment.
    Eligibility for these services now no longer expires when the 
beneficiary attains entitlement to Medicare Part A upon turning age 65, 
as long as the beneficiary enrolls in Medicare Part B. These 
beneficiaries are now entitled to both Medicare healthcare services and 
TRICARE healthcare services. Most healthcare services payable by one 
program are also payable under the other program. However, there are 
services that are payable under Medicare or TRICARE that are not 
payable under the other program. For example, certain chiropractic 
services are payable by Medicare, but are not payable under TRICARE. 
Conversely, TRICARE pays much of the cost for prescription drugs for 
Medicare entitled beneficiaries, a benefit that currently is not 
available under Medicare. In the case of a beneficiary who has other 
health insurance also, that insurance will typically pay after Medicare 
and before TRICARE.
    Using the chiropractic services example above, Medicare has the 
sole responsibility for payment of healthcare services or supplies that 
are a benefit only under Medicare. The new law extends TRICARE 
eligibility but does not expand the scope of TRICARE benefits available 
to this group of beneficiaries beyond the scope of TRICARE benefits 
available to other retirees and their families. Therefore, if a 
healthcare service or supply is a benefit payable only by Medicare, but 
not TRICARE, then Medicare has sole responsibility for payment of the 
healthcare service or supply, as defined by Medicare, and the 
beneficiary has the responsibility to pay any corresponding Medicare 
cost-share or deductible. Likewise, if a healthcare service or supply 
is a benefit payable only by TRICARE, but not Medicare, then TRICARE 
has sole responsibility for payment of the healthcare service or 
supply, and the beneficiary has the responsibility to pay any 
corresponding TRICARE cost-shares or deductibles.
    Whether a healthcare service is a benefit provided and paid for 
under Medicare only, TRICARE only, or both, will have an impact on the 
beneficiary's potential cost sharing liability. Both Medicare and 
TRICARE generally use the same coding systems for identifying the 
healthcare services or supplies provided to the beneficiary. Both 
Medicare and TRICARE use the Current Procedural Terminology (CPT) codes 
to identify the professional services provided to the beneficiary. Both 
also use the DSM-IV (Diagnostic and Statistical Manual of Mental 
Disorders, fourth edition) and ICD-9-CM (International Classification 
of Diseases, ninth revision, Clinical Modification) diagnosis codes and 
DRG (Diagnostic Related Group) payment codes for inpatient services. 
Whether a healthcare service or supply is a benefit payable under 
Medicare and TRICARE, Medicare only, or TRICARE only will normally be 
accomplished by comparing these various codes and determining whether 
payment would be made under the facts and circumstances by both 
Medicare and TRICARE, or only under one of the programs.
    Most healthcare services are a benefit provided and paid for by 
both Medicare

[[Page 40603]]

and TRICARE. However, for some healthcare services, Medicare and 
TRICARE have different requirements or prerequisites that must be met 
before the service is reimbursable under their respective programs. For 
example, Medicare will provide payment for skilled nursing facility 
(SNF) care, but currently requires as a prerequisite that a beneficiary 
must have been a hospital inpatient for at least three days before the 
SNF admission. Medicare currently requires the beneficiary to pay no 
cost share for the first 20 days of the stay, whereupon the cost share 
increases to about $100 per day thereafter. Medicare will provide 
payment for up to 100 days of SNF care in a benefit period. TRICARE on 
the other hand does not require the beneficiary to be hospitalized as 
an inpatient before admission to a SNF. TRICARE will pay for all 
medically necessary care, and does not have a 100-day limit in a 
benefit period. TRICARE's cost-share is also different, in that there 
is a $150 per individual/$300 per family deductible for healthcare 
services in a fiscal year, and a cost-share of the lesser of 25% of the 
institutional charges or a flat fee per day, up to the catastrophic cap 
limit of $3,000. As another example, TRICARE is required by law to 
require preadmission authorization before inpatient mental health 
services may be provided, except in the case of an emergency, and then 
approval for the continuation of services is required for care beyond 
72 hours. If preauthorization is not obtained, it is not a medical 
service that is payable under both programs.
    Both Medicare and TRICARE have cost-shares and deductibles 
associated with the healthcare services that they provide under their 
respective plans that the beneficiary is responsible for paying. For 
healthcare services that are payable only under one plan, and not both, 
beneficiaries will continue to be responsible for payment of their 
applicable Medicare or TRICARE cost-share and deductible. However, for 
healthcare services for which payment may be made under both Medicare 
and TRICARE, the beneficiary's liability is different. TRICARE will pay 
up to the beneficiary's legal liability the actual out-of-pocket costs 
incurred by the beneficiary over the sum of the amount paid for the 
care under Medicare and the total of all amounts paid or payable by 
third party payers other than Medicare (such as other health 
insurance).
    The most common situation will be where the healthcare provided is 
a benefit payable under both Medicare and TRICARE. The beneficiary will 
normally have no out-of-pocket expense. In these instances, TRICARE 
payment will be equal to the remaining beneficiary liability after 
Medicare processes the claim. For example, if the first claim of the 
fiscal year for a physician's services were submitted for $50, Medicare 
would apply the entire amount to the Medicare deductible, and TRICARE 
would pay the full $50 (assuming the full amount is allowable under 
TRICARE), so that the beneficiary would have no out-of-pocket expense.
    There are exceptions to the provision that the beneficiary will 
have no out-of-pocket expense. The healthcare service must not only be 
a benefit under both Medicare and TRICARE, but it must be payable by 
both Medicare and TRICARE. There are circumstances when Medicare cannot 
make any payment even though the service is generally a benefit under 
Medicare. These include services provided to a beneficiary who lives or 
travels overseas and instances when the beneficiary has exhausted his 
or her Medicare benefits (e.g., inpatient hospital care beyond 150 days 
in a benefit period). In these circumstances TRICARE will process the 
claim as a primary payer and the beneficiary will have the same cost 
sharing requirement as do retirees and their dependents under age 65. 
Beneficiary out-of-pocket expenses would be limited to $3,000 by the 
TRICARE catastrophic cap. It is important to note that in order for 
beneficiaries who live or travel overseas to retain TRICARE 
eligibility, the law requires that they still must be enrolled in Part 
B of Medicare even though Medicare will make no payment for services 
provided overseas.
    As noted above, for some healthcare services, Medicare and TRICARE 
have different requirements or prerequisites that must be met before 
the service is reimbursable under their respective programs. These give 
rise to special payment approaches. In the case of skilled nursing 
facility care that does not qualify for Medicare reimbursement (because 
the patient was not a hospital inpatient prior to the skilled nursing 
facility admission, or for days of care beyond the 100-days Medicare 
limit) TRICARE will be the primary payer, and applicable TRICARE 
beneficiary cost sharing would be charged. Beneficiary out-of-pocket 
expenses would be limited to $3,000 by the TRICARE catastrophic cap. In 
the case of a nonemergency mental health admission for which TRICARE 
preadmission authorization is not obtained, TRICARE would not provide 
payments secondary to the Medicare payments.
    There may also be some special circumstances that arise in 
connection with Medicare-eligible beneficiaries enrolled in a 
Medicare+Choice plan. TRICARE will cover the normal copayments under a 
Medicare+Choice plan, but special claims procedures will be applicable. 
Another special circumstance would arise if a Medicare+Choice enrollee 
obtains unauthorized out-of-system care that the Medicare+Choice plan 
will not cover or will only partially cover. Because Medicare already 
paid for the health care the beneficiary needs in the form of a 
capitation payment to the Medicare+Choice plan, TRICARE will not become 
primary payer for the services that would have been covered by the 
Medicare+Choice plan had the beneficiary followed applicable 
requirements. If TRICARE did become primary payer, the result would be 
double payment by the Government for the services, which is not 
supportable under the statute. In such a case, the TRICARE payment is 
limited to the amount TRICARE would have paid had the beneficiary 
received care within the structure and procedures of the 
Medicare+Choice plan. This is consistent with long-standing CHAMPUS 
payment rules pertaining to double coverage in the case of health 
maintenance organizations or other plan requirements, which we are 
codifying in section 199.8.
    It should also be noted that under the statute, if a Medicare-
eligible beneficiary also has other health insurance, the other health 
insurance pays after Medicare and before TRICARE. For this purpose, 
other health insurance includes Medicare supplemental insurance. This 
means that TRICARE is secondary to Medicare supplements. Some Medicare 
supplements are available to some beneficiaries based upon their 
spouse's past employment, or their employment after retirement from the 
uniformed services. Some Medicare supplements are available to anyone 
who is age 65 or older, regardless of past employment status. Since 
TRICARE will provide benefits that are significantly more generous than 
most Medicare supplements for Medicare entitled beneficiaries, in 
addition to requiring no premium, we expect that most beneficiaries who 
qualify for TRICARE will drop their Medicare supplements that are not 
based upon their past employment.
    In the special case of persons who continue to work after age 65, 
and have health insurance provided pursuant to their employment, 
Medicare is the secondary payer to the employer-based

[[Page 40604]]

health insurance. Because TRICARE is always last payer when a 
beneficiary has Medicare and/or any other health insurance, TRICARE 
would be the tertiary payer in this special case.

D. Beneficiaries Under Age 65

    In 1992 and 1993 there were several statutory changes that extended 
TRICARE eligibility for certain beneficiaries who became eligible for 
Medicare. These beneficiaries had to be eligible for Medicare due to 
disability or end stage renal disease, had to be under age 65, and had 
to be enrolled in Part B of Medicare. Based on the congressional intent 
at that time, we have processed claims for these beneficiaries using 
the double coverage procedures applicable to all other double coverage 
situations. As a result, depending on the circumstances of the claim, 
the beneficiary could be liable for out-of-pocket expenses, even when 
the service is a benefit under both Medicare and TRICARE. These 
beneficiaries who are under age 65 and entitled to both Medicare and 
TRICARE will now have the same payment procedures applied to them as 
those used for beneficiaries who are entitled Medicare Part A because 
of age. This will be effective October 1, 2001.
    On another matter relating to Medicare-eligible beneficiaries under 
age 65, section 712 of the National Defense Authorization Act for 
Fiscal Year 2001 made a conforming amendment to title 10 United States 
Code section 1086(d). That statute requires that the administering 
Secretaries develop a mechanism to notify persons under age 65 who 
would be eligible for both Medicare and TRICARE, except that they have 
declined to enroll in Medicare Part B. We carried out a match of our 
eligibility records with Medicare records in 1998, and in 1999 sent 
letters to about 16,000 beneficiaries identified as eligible for 
Medicare Part A but not enrolled in Part B. A mechanism for ongoing 
identification and notification of such persons is being developed.

E. Appeals

    Medicare has sole responsibility for paying for healthcare services 
that are a benefit payable only by Medicare. TRICARE has sole 
responsibility for paying for healthcare services that are a benefit 
payable only by TRICARE. Medicare has primary responsibility for paying 
for healthcare services that are a benefit payable under both programs. 
Both Medicare and TRICARE offer an appeal process when a claim for 
healthcare services or supplies is denied. TRICARE beneficiaries 
entitled to Medicare Part A, who are enrolled in Medicare Part B, and/
or their providers will have the same appeal rights as other TRICARE 
beneficiaries and their providers under sections 199.10 and 199.15 of 
this Part for services or supplies that are payable by TRICARE, but not 
Medicare.
    Most healthcare services and supplies are a benefit payable under 
both Medicare and TRICARE. In these situations, Medicare is the primary 
payer, and TRICARE will pay the out-of-pocket costs of the beneficiary, 
up to the legal liability limit of the beneficiary, after any payments 
by third party insurance. In order to avoid confusion on the part of 
beneficiaries and providers and to expedite the appeal process, 
services and supplies denied payment by Medicare will not be considered 
for coverage by TRICARE if the Medicare denial of payment is appealable 
under the Medicare appeal process. If, however, a Medicare appeal 
results in some payment by Medicare, the services and supplies covered 
by Medicare will be considered for coverage by TRICARE. Services and 
supplies denied payment by Medicare will be considered for coverage by 
TRICARE, if the Medicare denial of payment is not appealable under the 
Medicare appeal process. The appeal procedures set forth in sections 
199.10 and 199.15 are applicable to initial determinations by TRICARE 
under the TRICARE program.
    As an example, if Medicare processes a claim for a healthcare 
service or supply that is a Medicare program benefit, and Medicare 
denies the claim for a patient-specific reason, the claim will be 
appealed through the Medicare appeal process. The Medicare decision 
will be final if Medicare denies the claim for a patient-specific 
reason (such as lack of medical necessity for the service), and TRICARE 
will pay nothing on the claim. However, if Medicare pays the claim, 
then the claim crosses over to TRICARE. TRICARE will either pay the 
remaining liability, or if it is a service or supply that is not a 
TRICARE benefit, the claim will be denied. The beneficiary or provider 
will than have the same appeal rights as other beneficiaries or 
providers under sections 199.10 and 199.15. When Medicare processes a 
claim and Medicare denies the claim because it is not a covered 
healthcare service or supply under Medicare, the claim will cross over 
to TRICARE. TRICARE will either pay the claim as the primary payer 
(assuming no other health insurance), or the claim will be denied if 
the healthcare service or supply is not a TRICARE benefit. The 
beneficiary or provider will have the same appeal rights as other 
beneficiaries or providers under sections 199.10 and 199.15.

F. Quality and Utilization Review Peer Review Organization Program

The CHAMPUS Quality and Utilization Review Peer Review

    Organization program, based on specific statutory authority, 
follows many of the quality and utilization review requirements and 
procedures in effect for the Medicare quality and utilization review 
program, subject to adaptations appropriate for the TRICARE program. In 
recognition of the similarity of purpose and design between the two 
programs to ensure coverage of quality care as medically necessary and 
appropriate, and to avoid unnecessary duplication of effort, the 
CHAMPUS Quality and Utilization Review Peer Review Organization (PRO) 
program will apply special procedures to supplies and services 
furnished to Medicare-eligible TRICARE beneficiaries. These procedures 
will enable TRICARE to rely upon Medicare determinations of medical 
necessity and appropriateness in the processing of TRICARE claims as a 
second payer to Medicare. As a general rule, only in cases involving 
Medicare-eligible TRICARE beneficiaries where Medicare payment for 
services and supplies is denied for reasons other than medical 
necessity and appropriateness will the TRICARE claim or request for 
services or supplies be subject to review for quality of care and 
appropriate utilization under the CHAMPUS PRO program. However, there 
are quality and utilization review requirements under TRICARE that by 
law are more stringent than Medicare's requirements. For example, 
inpatient mental health services may not be provided to a patient 19 
years of age or older in excess of 30 days in any year, absent a waiver 
because of medical or psychological circumstances of the patient that 
takes into account the appropriate level of care for the patient, the 
intensity of services required by the patient, and the availability of 
that care. Medicare imposes no similar requirement. In circumstances 
where TRICARE is required to perform a medical necessity review, and 
Medicare does not, TRICARE will continue to apply its rules for such 
review.

G. TRICARE Triple Option Benefit

    Currently, the TRICARE program features a triple option benefit: a 
health maintenance organization (HMO)-like option called TRICARE Prime, 
a preferred provider organization (PPO)-

[[Page 40605]]

like option called TRICARE Extra, and an indemnity insurance-like 
option (i.e., traditional CHAMPUS) called TRICARE Standard. This is 
based on 10 U.S.C. 1097, which allows DoD to contract with HMOs, PPOs, 
and insurers for ``alternate delivery of health care.''
    As required by law (section 731 of the National Defense 
Authorization Act for Fiscal Year 1994, Pub. L. 103-160), TRICARE Prime 
is ``modeled on health maintenance organization plans offered in the 
private sector and other similar Government health insurance 
programs.'' This option must offer beneficiaries ``reduced out-of-
pocket costs,'' but ``shall be administered so that the costs incurred 
by the Secretary under the TRICARE program are no greater than would 
otherwise be incurred'' without this option. TRICARE Prime was 
structured to comply with this ``cost neutrality'' requirement. In 
addition, under section 1097(c), ``the Secretary shall, as an incentive 
for enrollment,'' in TRICARE Prime ``establish reasonable preferences 
for services'' in military treatment facilities (MTFs).
    Current DoD regulations (32 CFR 199.17) implement these statutory 
provisions for TRICARE Prime. Consistent with the HMO model, enrollees 
receive reduced copayments in exchange for their agreement generally to 
``lock in'' to the designated provider network and follow the referral 
and utilization management guidance of a primary care manager. As an 
incentive for enrollment, the MTF priority access system is established 
in this order: (1) Active duty members; (2) active duty dependents 
enrolled in Prime; (3) retirees and their dependents enrolled in Prime; 
(4) active duty dependents not enrolled in Prime; and (5) retirees and 
their dependents not enrolled in Prime. There is generally no other 
rationale based on beneficiary grouping for establishing priority 
access among these five categories or within any of them.
    Beneficiaries who do not enroll in TRICARE Prime automatically 
receive TRICARE Standard coverage, and for practical purposes may be 
considered to be ``enrolled'' in TRICARE Standard. This option may be 
preferable for those who prefer freedom of choice of providers. They 
are not subject to HMO-type management requirements or network lock-in, 
but they pay standard copayments. They remain eligible for MTF care, 
but without priority access. Those who wish to use the TRICARE civilian 
provider network may do so on a visit-by-visit basis under TRICARE 
Extra. They are not locked in to anything, but obtain some reduced 
copayments and have the benefit of the TRICARE quality assurance 
program applicable to network providers.
    For several reasons, Medicare-eligible beneficiaries will not fit 
into the current structure of the triple option benefit when they 
attain TRICARE eligibility on October 1, 2001. First, they already have 
zero copayments for most services from civilian providers under their 
basic TRICARE coverage (i.e., TRICARE Standard), under which Medicare 
is primary payer and TRICARE pays the Medicare deductible and copayment 
amounts. Second, Medicare-eligible beneficiaries cannot be ``locked 
in'' to a DoD-operated HMO-like program while standard Medicare is the 
primary payer for civilian sector care. Medicare law (sections 1814(c) 
and 1835(d) of the Social Security Act) prohibits Medicare payments 
``to any Federal provider of services'' or for any service for which 
any provider ``is obligated by * * * a contract with'' a Federal agency 
``to render at public expense.'' It is well understood that this means 
that Medicare will not generally reimburse MTFs. But, in addition, 
TRICARE Prime's regulation of civilian network operations would, in the 
case of Medicare-eligible beneficiaries, risk a conflict between the 
policy of DoD's law that Medicare pay primary to TRICARE and that of 
Medicare law that Medicare not pay for services covered by another 
Federal program. Nonpayment by Medicare would conflict with the 
intended first payer/second payer relationship and also result in a 
violation of the ``cost neutrality'' requirement for TRICARE Prime. 
TRICARE Prime is based on the HMO model and there is no way to operate 
an HMO with two entities administering separate programs.
    The only way to offer an HMO involving two financial entities is 
for them to jointly sponsor the HMO. This was, of course, the rationale 
for the Medicare Subvention Program that was authorized as a joint 
demonstration program of DoD and the Department of Health and Human 
Services under a provision of the Budget Reconciliation Act of 1997. 
Under the demonstration, DoD operates ``TRICARE Senior Prime.'' This 
program must meet HHS quality standards and requirements, and Medicare 
pays for care provided to eligible Medicare beneficiaries. The National 
Defense Authorization Act for Fiscal Year 2001, section 712, extended 
the demonstration program for 1 year (through December 31, 2001) and 
directed the agencies to explore the feasibility of continuing the 
program. Consistent with that direction, DoD and HHS held discussions 
on the possibility of extending the program, with the changes that 
would be necessary to permit this to occur. It has been determined that 
continuation of the program is not feasible.
    Although a Medicare Subvention-type program will not be continued, 
the Department wants to provide beneficiaries an alternative option for 
using TRICARE providers without the need to lock in to an HMO-like 
program. In order to achieve this, the Department has taken steps to 
establish an MTF enrollment program for primary care, called TRICARE 
Plus. TRICARE Plus is not addressed in 32 CFR Part 199, because it only 
affects the operation of military medical treatment facilities, whose 
operations are not governed by the regulation. We are describing the 
program here to help the public understand this aspect of TRICARE.
    TRICARE Plus builds on another popular demonstration project, the 
MacDill-65 Demonstration. That program, which has operated at MacDill 
Air Force Base in Tampa, Florida since 1998, provided opportunity for 
about 2,000 Medicare-eligible military beneficiaries to enroll to 
obtain primary care services at the military treatment facility, 
without being ``locked in'' to an HMO type program. The MacDill 
demonstration essentially tests the impact of management of available 
primary care services for Medicare-eligible beneficiaries through a 
process of ``empanelling'' them with primary care providers at the MTF. 
For a limited number of enrollees, the MacDill model guarantees primary 
care access. For care that cannot be provided in the MTF, beneficiaries 
use their Medicare benefit.
    Under TRICARE Plus, beneficiaries eligible for care in MTFs who are 
not enrolled in TRICARE Prime will be given the opportunity to enroll 
with an MTF primary care provider, but only to the extent primary care 
capacity is available. There is no lock-in and no enrollment fee. This 
will be a way to facilitate primary care appointments when needed. The 
number of persons accommodated at an MTF will be subject to capacity 
limitations, so as to assure that their primary care needs will be met. 
For care from civilian providers, TRICARE Standard or TRICARE Extra 
rules will apply provided the TRICARE Plus beneficiary is eligible for 
TRICARE Standard or TRICARE Extra. (Beneficiaries eligible for care in 
an MTF and entitled to Medicare are not required by law to be enrolled 
in Medicare Part B in order to receive MTF care. Those beneficiaries 
entitled to Medicare, however, are encouraged to enroll in Part B when 
enrolling in TRICARE Plus. Otherwise, care received from civilian 
providers when not

[[Page 40606]]

available from the MTF will be the sole financial responsibility of the 
patient in that the patient is not eligible for TRICARE without 
enrollment in Medicare Part B.). For services payable by Medicare, 
Medicare rules will apply, with TRICARE as second payer. For non-MTF 
care from a network provider for non-Medicare covered services, the 
reduced cost shares under TRICARE Extra will apply. For non-MTF care 
from a non-network provider for non-Medicare covered services, the cost 
shares under TRICARE Standard will apply. This enrollment program is 
similar to the MacDill demonstration, and is a good potential option 
for all beneficiaries who have other primary health insurance (Medicare 
or private insurance). It allows them to take advantage of both of 
their health programs as well as enroll themselves (without lock-in) 
with military primary care providers, to the extent they are available.
    For retirees and their dependents who have been enrolled in Prime 
with an MTF primary care manager and are soon to reach age 65, TRICARE 
Plus will bring several advantages. First, they will likely be able to 
continue that relationship with their primary care provider, if they 
wish, subject to availablity. For most care provided in the civilian 
network, they will have no copayments (as compared to the $12 per visit 
fee applicable to most visits when they were in Prime). In addition, 
there will be no enrollment fee. For civilian network care not covered 
by Medicare, the TRICARE cost share will be 20% rather than the 25% 
that would be applicable for non-network care. Further, there is no 
lock-in; for most care they are free to use virtually any civilian 
provider, with the entire cost paid by Medicare and TRICARE.
    For TRICARE Prime enrollees approaching age 65 who have a civilian 
primary care manager, we expect that in most cases they will be able to 
continue their primary care relationship. The provider will receive 
primary payments from Medicare and secondary payments from TRICARE for 
most services, and the managed care rules of TRICARE Prime will no 
longer apply.
    Thus, on the whole, the transition from TRICARE Prime under 65 to 
Medicare plus TRICARE at 65 will represent an improved health care 
benefit. The inclusion of ``TRICARE Plus,'' the new MTF primary care 
enrollment program offers an additional opportunity for beneficiaries 
to establish or continue an ongoing relationship with a military health 
care provider.
    If demand for primary care assignment under TRICARE Plus greatly 
exceeds capacity in MTFs, one option would be to extend the 
availability of primary care assignment by relying on the civilian 
provider network established to support TRICARE Prime. The Department 
does not intend to implement this option unless (1) it can be 
accomplished within funding constraints, and (2) it is necessary to 
meet demand for primary care assignment. Incorporation of these 
requirements into future TRICARE procurements is likely to be more 
cost-effective than modifying existing contracts.

H. Regulatory Procedures

    This interim final rule will not impose additional information 
collection requirements on the public under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3511).
    This rule is being issued as an interim final rule, with comment 
period, as an exception to our standard practice of soliciting public 
comments prior to issuance. The Assistant Secretary of Defense (Health 
Affairs) has determined that following the standard practice in this 
case would be impracticable, unnecessary, and contrary to public 
interest. This determination is based on the fact that this change 
directly implements a statutory entitlement enacted by Congress 
expressly for this purpose, with a statutory effective date of October 
1, 2001. All public comments are invited and will be carefully 
considered. We anticipate the issuance of a final rule within six 
months of the end of the comment period.
    Executive Order 12866 requires certain regulatory assessments for 
any significant regulatory action, defined as one which would result in 
an annual effect on the economy of $100 million or more, or have other 
substantial impacts. The Regulatory Flexibility Act (RFA) requires that 
each Federal agency prepare, and make available for public comment, a 
regulatory flexibility analysis when the agency issues a regulation 
which would have a significant impact on a substantial number of small 
entities. This interim final rule is an economically significant 
regulatory action under Executive Order 12866, as it implements a 
statutory program that will add over $3 billion for DoD in annual 
healthcare benefit costs. This cost estimate is based on historical 
TRICARE costs and an assessment of potential users times average 
benefit costs per person, and excludes pharmacy benefits that were 
addressed in implementation of the TRICARE Senior Pharmacy benefit 
earlier this year. (Approximately 1.5 million persons are potential 
beneficiaries of this program, and expected benefits per person are 
about $2,000 per year.) The benefits of the interim final rule include 
an increased level of health care for Medicare-eligible beneficiaries 
of the Department of Defense military health system. It has been 
determined to be major under the Congressional Review Act. However, 
this rule does not require a regulatory flexibility analysis, as it 
would have no significant economic impact on a substantial number of 
small entities. The new benefit is estimated to cost about $3.1 billion 
per year, beginning in FY 2002. This includes health care costs 
administrative costs, mostly claims processing, of about $250 million 
per year.

List of Subjects in 32 CFR Part 199

    Claims, Handicapped, Health insurance, Military personnel.

    Accordingly, 32 CFR Part 199 is amended as follows:

PART 199--[AMENDED]

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

    Authority: 5 U.S.C. 301 and 10 U.S.C. Chapter 55.

    2. Section 199.2 is amended by adding at the appropriate place in 
alphabetical order the following definition:


Sec. 199.2  Definitions.

* * * * *
    Director, TRICARE Management Activity. This term includes the 
Director, TRICARE Management Activity, the official sometimes referred 
to in this part as the Director, Office of CHAMPUS (or OCHAMPUS), or 
any designee of the Director, TRICARE Management Activity or the 
Assistant Secretary of Defense for Health Affairs who is designated for 
purposes of an action under this part.


    3. Section 199.3 is amended by revising paragraphs (b)(2)(i)(D), 
(f)(3)(vi), and (f)(3)(vii) and the NOTE following paragraph 
(f)(3)(vii), as follows:


Sec. 199.3  Eligibility.

* * * * *
    (b) * * *
    (2) * * *
    (i) * * *
    (D) Must not be eligible for Part A of Title XVIII of the Social 
Security Act (Medicare) except as provided in paragraphs (f)(3)(vii), 
(f)(3)(viii), and (f)(3)(ix) of this section; and
* * * * *
    (f) * * *
    (3) * * *

[[Page 40607]]

    (vi) Attainment of entitlement to hospital insurance benefits (Part 
A) under Medicare except as provided in paragraphs (f)(3)(vii), 
(f)(3)(viii), and (f)(3)(ix) of this section. (This also applies to 
individuals living outside the United States where Medicare benefits 
are not paid.)
    (vii) Attainment of age 65, except for dependents of active duty 
members, beneficiaries not entitled to part A of Medicare, and 
beneficiaries entitled to Part A of Medicare who have enrolled in Part 
B of Medicare. For those who do not retain CHAMPUS, CHAMPUS eligibility 
is lost at 12:01 a.m. on the first day of the month in which the 
beneficiary becomes entitled to Medicare.

    Note: If the person is not eligible for Part A of Medicare, he 
or she must file a Social Security Administration ``Notice of 
Disallowance'' certifying to that fact with the Uniformed Service 
responsible for the issuance of his or her identification card so a 
new card showing CHAMPUS eligibility can be issued. Individuals 
entitled only to supplementary medical insurance (Part B) of 
Medicare, but not Part A, or Part A through the Premium HI 
provisions (provided for under the 1972 Amendments to the Social 
Security Act) retain eligibility under CHAMPUS (refer to Sec. 199.8 
for additional information when a double coverage situation is 
involved).

* * * * *

    4. Section 199.8 is amended by adding a new paragraph (c)(4) and by 
revising paragraph (d)(1), as follows:


Sec. 199.8  Double Coverage.

* * * * *
    (c) Application of double coverage provisions. * * *
    (4) Lack of payment by double coverage plan. Amounts that have been 
denied by a double coverage plan simply because a claim was not filed 
timely or because the beneficiary failed to meet some other requirement 
of coverage cannot be paid. If a statement from the double coverage 
plan as to how much that plan would have paid had the claim met the 
plan's requirements is provided to the CHAMPUS contractor, the claim 
can be processed as if the double coverage plan actually paid the 
amount shown on the statement. If no such statement is received, no 
payment from CHAMPUS is authorized.
    (d) Special considerations. (1) CHAMPUS and Medicare.--(i) General 
rule. In any case in which a beneficiary eligible for both Medicare and 
CHAMPUS receives medical or dental care for which payment may be made 
under Medicare and CHAMPUS, Medicare is always the primary payer. For 
dependents of active duty members, payment will be determined in 
accordance to paragraph (c) of this section. For all other 
beneficiaries eligible for Medicare, the amount payable by CHAMPUS 
shall be the amount of the actual out-of-pocket costs incurred by the 
beneficiary for that care over the sum of the amount paid for that care 
under Medicare and the total of all amounts paid or payable by third 
party payers other than Medicare.
    (ii) Payment limit. The total CHAMPUS amount payable for care under 
paragraph (d)(1)(i) of this section may not exceed the total amount 
that would be paid under CHAMPUS if payment for that care were made 
solely under CHAMPUS.
    (iii) Application of general rule. In applying the general rule 
under paragraph (d)(1)(i) of this section, the first determination will 
be whether payment may be made under Medicare. For this purpose, 
Medicare exclusions, conditions, and limitations will be the basis for 
the determination.
    (A) For items or services or portions or segments of items or 
services for which payment may be made under Medicare, the CHAMPUS 
payment will be the amount of the beneficiary's actual out of pocket 
liability, minus the amount payable by Medicare, also minus amount 
payable by other third party payers, subject to the limit under 
paragraph (d)(1)(ii) of this section.
    (B) For items or services or segments of items or services for 
which no payment may be made under Medicare, the CHAMPUS payment will 
be the same as it would be for a CHAMPUS eligible retiree, dependent, 
or survivor beneficiary who is not Medicare eligible.
    (iv) Examples of applications of general rule. The following 
examples are illustrative. They are not all-inclusive.
    (A) In the case of a Medicare-eligible beneficiary receiving 
typical physician office visit services, Medicare payment generally 
will be made. CHAMPUS payment will be determined consistent with 
paragraph (d)(1)(iii)(A) of this section.
    (B) In the case of a Medicare-eligible beneficiary residing and 
receiving medical care overseas, Medicare payment generally may not be 
made. CHAMPUS payment will be determined consistent with paragraph 
(d)(1)(iii)(B) of this section.
    (C) In the case of a Medicare-eligible beneficiary receiving 
skilled nursing facility services a portion of which is payable by 
Medicare (such as during the first 100 days) and a portion of which is 
not payable by Medicare (such as after 100 days), CHAMPUS payment for 
the first portion will be determined consistent with paragraph 
(d)(1)(iii)(A) of this section and for the second portion consistent 
with paragraph (d)(1)(iii)(B) of this section.
    (v) Application of catastrophic cap. Only in cases in which CHAMPUS 
payment is determined consistent with paragraph (d)(1)(iii)(B) of this 
section, actual beneficiary out of pocket liability remaining after 
CHAMPUS payments will be counted for purposes of the annual 
catastrophic loss protection, set forth under Sec. 199.4(f)(10). When a 
family has met the cap, CHAMPUS will pay allowable amounts for 
remaining covered services through the end of that fiscal year.
    (vi) Effect of enrollment in Medicare+Choice plan. In the case of a 
beneficiary enrolled in a Medicare+Choice plan who receives items or 
services for which payment may be made under both the Medicare+Choice 
plan and CHAMPUS, a claim for the beneficiary's normal out-of-pocket 
costs under the Medicare+Choice plan may be submitted for CHAMPUS 
payment. However, consistent with paragraph (c)(4) of this section, 
out-of-pocket costs do not include costs associated with unauthorized 
out-of-system care or care otherwise obtained under circumstances that 
result in a denial or limitation of coverage for care that would have 
been covered or fully covered had the beneficiary met applicable 
requirements and procedures. In such cases, the CHAMPUS amount payable 
is limited to the amount that would have been paid if the beneficiary 
had received care covered by the Medicare+Choice plan.
    (vii) Effect of other double coverage plans, including medigap 
plans. CHAMPUS is second payer to other third-party payers of health 
insurance, including Medicare supplemental plans.
    (viii) Effect of employer-provided insurance. In the case of 
individuals with health insurance due to their current employment 
status, the employer insurance plan shall be first payer, Medicare 
shall be the second payer, and CHAMPUS shall be the tertiary payer.
* * * * *

    5. Section 199.10 is amended by revising paragraph (a)(1)(ii) as 
follows:


Sec. 199.10.  Appeal and Hearing Procedures.

    (a) * * *
    (1) * * *
    (ii) Effect of initial determination.
    (A) The initial determination is final unless appealed in 
accordance with this chapter, or unless the initial determination is 
reopened by the

[[Page 40608]]

TRICARE Management Activity, the CHAMPUS contractor, or the CHAMPUS 
peer review organization.
    (B) An initial determination involving a CHAMPUS beneficiary 
entitled to Medicare Part A, who is enrolled in Medicare Part B, may be 
appealed by the beneficiary or their provider under this section of 
this Part only when the claimed services or supplies are payable by 
CHAMPUS and are not payable under Medicare. Both Medicare and CHAMPUS 
offer an appeal process when a claim for healthcare services or 
supplies is denied and most healthcare services and supplies are a 
benefit payable under both Medicare and CHAMPUS. In order to avoid 
confusion on the part of beneficiaries and providers and to expedite 
the appeal process, services and supplies denied payment by Medicare 
will not be considered for coverage by CHAMPUS if the Medicare denial 
of payment is appealable under Medicare. Because such claims are not 
considered for payment by CHAMPUS, there can be no CHAMPUS appeal. If, 
however, a Medicare claim or appeal results in some payment by 
Medicare, the services and supplies paid by Medicare will be considered 
for payment by CHAMPUS. In that situation, any decision to deny CHAMPUS 
payment will be appealable under this section. The following examples 
of CHAMPUS appealable issues involving Medicare-eligible CHAMPUS 
beneficiaries are illustrative; they are not all-inclusive:
    (1) If Medicare processes a claim for a healthcare service or 
supply that is a Medicare benefit and the claim is denied by Medicare 
for a patient-specific reason, the claim is appealable through the 
Medicare appeal process. The Medicare decision will be final if the 
claim is denied by Medicare. The claimed services or supplies will not 
be considered for CHAMPUS payment and there is no CHAMPUS appeal of the 
CHAMPUS decision denying the claim.
    (2) If Medicare processes a claim for a healthcare service or 
supply that is a Medicare benefit and the claim is paid, either on 
initial submission or as a result of a Medicare appeal decision, the 
claim will be submitted to CHAMPUS for processing as a second payer to 
Medicare. If CHAMPUS denies payment of the claim, the Medicare-eligible 
beneficiary or their provider have the same appeal rights as other 
CHAMPUS beneficiaries and their providers under this section.
    (3) If Medicare processes a claim and the claim is denied by 
Medicare because it is not a healthcare service or supply that is a 
benefit under Medicare, the claim is submitted to CHAMPUS. CHAMPUS will 
process the claim under Part 199 as primary payer (or as secondary 
payer if another double coverage plan exists). If any part of the claim 
is denied, the Medicare-eligible beneficiary and their provider will 
have the same appeal rights as other CHAMPUS beneficiaries and their 
providers under this section.
* * * * *

    6. Section 199.15 is amended by revising paragraph (a)(6), as 
follows:


Sec. 199.15  Quality and Utilization Review Peer Review Organization 
Program.

    (a) * * *
    (6) Medicare rules used as model. The CHAMPUS Quality and 
Utilization Review Peer Review Organization program, based on specific 
statutory authority, follows many of the quality and utilization review 
requirements and procedures in effect for the Medicare Peer Review 
Organization program, subject to adaptations appropriate for the 
CHAMPUS program. In recognition of the similarity of purpose and design 
between the Medicare and CHAMPUS PRO programs, and to avoid unnecessary 
duplication of effort, the CHAMPUS Quality and Utilization Review Peer 
Review Organization program will have special procedures applicable to 
supplies and services furnished to Medicare-eligible CHAMPUS 
beneficiaries. These procedures will enable CHAMPUS normally to rely 
upon Medicare determinations of medical necessity and appropriateness 
in the processing of CHAMPUS claims as a second payer to Medicare. As a 
general rule, only in cases involving Medicare-eligible CHAMPUS 
beneficiaries where Medicare payment for services and supplies is 
denied for reasons other than medical necessity and appropriateness 
will the CHAMPUS claim be subject to review for quality of care and 
appropriate utilization under the CHAMPUS PRO program. TRICARE will 
continue to perform a medical necessity and appropriateness review for 
quality of care and appropriate utilization under the CHAMPUS PRO 
program where required by statute, such as inpatient mental health 
services in excess of 30 days in any year.

    7. Section 199.17 is amended by revising paragraphs (a) 
introductory text, (a)(6)(i), (a)(6)(ii), (b) introductory text, 
(b)(1), (c) introductory text, (c)(3), (c)(4), and (v), by deleting 
paragraphs (m)(2)(iii) and (m)(4)(iii), as follows:


Sec. 199.17  TRICARE program.

    (a) Establishment. The TRICARE program is established for the 
purpose of implementing a comprehensive managed health care program for 
the delivery and financing of health care services in the Military 
Health System.
* * * * *
    (6) Major features of the TRICARE program. The major features of 
the TRICARE program, described in this section, include the following:
    (i) Comprehensive enrollment system. Under the TRICARE program, all 
health care beneficiaries become classified into one of four enrollment 
categories:
    (A) Active duty members, all of whom are automatically enrolled in 
TRICARE Prime;
    (B) TRICARE Prime enrollees;
    (C) TRICARE Standard enrollees, who are all CHAMPUS eligible 
beneficiaries who are not enrolled in TRICARE Prime;
    (D) Non-CHAMPUS beneficiaries, who are beneficiaries eligible for 
health care services in military treatment facilities, but not eligible 
for CHAMPUS;
    (ii) Establishment of a triple option benefit. A second major 
feature of TRICARE is the establishment of three options for receiving 
health care:
    (A) ``TRICARE Prime,'' which is a health maintenance organization 
(HMO)-like program. It generally features use of military treatment 
facilities and substantially reduced out-of-pocket costs for CHAMPUS 
care. Beneficiaries generally agree to use military treatment 
facilities and designated civilian provider networks and to follow 
certain managed care rules and procedures.
    (B) ``TRICARE Extra,'' which is a preferred provider organization 
(PPO) program. It allows TRICARE Standard-enrolled beneficiaries to use 
the TRICARE provider network, including both military facilities and 
the civilian network, with reduced out-of-pocket costs. These 
beneficiaries also continue to be eligible for military medical 
treatment facility care on a space-available basis.
    (C) ``TRICARE Standard'' which is the basic CHAMPUS program. It 
preserves broad freedom of choice of civilian providers, but does not 
offer reduced out-of-pocket costs. These beneficiaries continue to be 
eligible to receive care in military medical treatment facilities on a 
space-available basis.
* * * * *
    (b) Triple option benefit in general. Where the TRICARE program is 
fully implemented, eligible beneficiaries are given the options of 
enrolling in TRICARE Prime (also referred to as ``Prime'') or TRICARE 
Standard (also referred to as ``Standard''). In the absence of an 
enrollment choice, enrollment in Standard is assumed.

[[Page 40609]]

    (1) Choice voluntary. With the exception of active duty members, 
the choice of whether to enroll in Prime or Standard is voluntary for 
all eligible beneficiaries. For dependents who are minors, the choice 
will be exercised by a parent or guardian.
* * * * *
    (c) Eligibility for enrollment. Where the TRICARE program is fully 
implemented, all CHAMPUS-eligible beneficiaries who are not Medicare 
eligible on basis of age are eligible to enroll in Prime or Standard. 
CHAMPUS beneficiaries who are eligible for Medicare on basis of age 
(and are enrolled in Medicare Part B) are automatically enrolled in 
TRICARE Standard. Further, some rules and procedures are different for 
dependents of active duty members and retirees, dependents, and 
survivors. In addition, where the TRICARE program is implemented, a 
military medical treatment facility commander or other authorized 
individual may establish priorities, consistent with paragraph (c) of 
this section, based on availability or other operational requirements, 
for when and whether to offer the enrollment opportunity.
* * * * *
    (3) Retired members, dependents of retired members, and survivors. 
(i) Where TRICARE is fully implemented, all CHAMPUS-eligible retired 
members, dependents of retired members, and survivors who are not 
eligible for Medicare on the basis of age are eligible to enroll in 
Prime. After all active duty members are enrolled and availability of 
enrollment is assured for all active duty dependents wishing to enroll, 
this category of beneficiaries will have third priority for enrollment.
    (ii) If all eligible retired members, dependents of retired 
members, and survivors within the area concerned cannot be accepted for 
enrollment in Prime at the same time, the MTF Commander (or other 
authorized individual) may allow enrollment within this beneficiary 
group category on a first come, first served basis.
    (4) Enrollment in Standard. All CHAMPUS-eligible beneficiaries who 
do not enroll in Prime will remain in Standard.
* * * * *
    (v) Administrative procedures. The Assistant Secretary of Defense 
(Health Affairs), the Director, TRICARE Management Activity, and MTF 
Commanders (or other authorized officials) are authorized to establish 
administrative requirements and procedures, consistent with this 
section, this part, and other applicable DoD Directives or 
Instructions, for the implementation and operation of the TRICARE 
program.

    Dated: July 27, 2001.
L.M. Bynum,
Alternate OSD Federal Register, Liaison Officer, Department of Defense.
[FR Doc. 01-19184 Filed 8-2-01; 8:45 am]
BILLING CODE 5001-08-P