[Federal Register Volume 67, Number 61 (Friday, March 29, 2002)]
[Proposed Rules]
[Pages 15140-15143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7539]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

[0720-AA67]


Collection From Third Party Payers of Reasonable Charges for 
Health Care Services

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule is to implement provisions of the National 
Defense Authorization Act for Fiscal Year 2000, which amended the 
statutory obligation of the third party payers to replace the 
``reasonable cost'' basis of the Third Party Collection Program with a 
``reasonable charge'' basis, and also authorized methods to be used for 
the computation of reasonable charges. We propose to adopt the 
``reasonable charge'' basis and generally to use CHAMPUS payment rates 
as the reasonable charges under the Program. This rule also implements 
the provisions added by the National Defense Authorization Act for 
Fiscal Year 2002 related to the charging of fees for care to civilians 
who are not covered beneficiaries.

DATES: Comments must be received by May 28, 2002.

ADDRESSES: Send comments to Lt. Col. 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.

FOR FURTHER INFORMATION CONTACT: Lt. Col. Rose Layman at (703) 681-
8910.

SUPPLEMENTARY INFORMATION: Our goal is to publish a final rule in early 
2002 with an effective date of April 1, 2002. In keeping with our 
intention to adopt a rate structure more consistent with the civilian 
health insurance industry practice, this rule proposes an itemized 
methodology for outpatient services. A combination of our current rate 
methodology, based on cost, and new methodology based on CHAMPUS 
payment rates will be used.
    Due to the extensive system and practices required in over 500 
facilities, a phased-in approach to our methodology will be applied. 
The current inpatient methodology of an all-inclusive DRG-based rate 
(including professional charges) will continue to be utilized for FY 
02. In FY 03, we will begin to bill separately for hospital charges 
(using a DRG-based schedule of costs) and professional charges (using 
the CPT-4 based CHAMPUS Maximum Allowable Charges (CMAC) rates). Our 
program changes in FY 02 will focus on outpatient services.
    Our analysis indicates that the transition from reasonable costs to 
reasonable charges will most likely not increase the amount of money 
collected for the services provided. We undertook an analysis comparing 
our current rate structure based on cost data with the charges based on 
the CMAC rates. An initial sample of 500 patient encounters was 
obtained from Military Treatment Facilities across all three Services 
from various regions. These patient encounters were priced with the 
National average CMAC pricing scale as well as the current all-
inclusive methodology. The average of both pricing schemes found the 
totals to be within a ten-dollar range of each other. Thus, we 
anticipate billing at approximately the same aggregate level. The 
benefit of the change in methodology is that each bill will be much 
more appropriate for the actual services provided to the patient and 
will be itemized in the manner to which the health insurance industry 
is accustomed. Therefore, although it is not based on actual DoD costs 
(because our cost accounting systems do not have patient level 
specification), we believe adoption of the CMAC rates is more 
representative of actual costs specific to the services provided to a 
patient than is our current aggregated clinic visit rate.
    The format of line-item charges will more closely resemble that 
currently used by facilities of the Department of Veteran's Affairs. 
Under this rule, DoD facilities will bill for the majority of 
outpatient care utilizing the Health Care Common Procedure Coding 
System with individual charges associated with these codes. Third party 
payers who receive claims from both entities, will now see greater 
similarity between the DoD and VA. However, the rates and business 
rules utilized by these two agencies will vary, with the VA's usual and 
customary rate based on independent calculation, and the DoD's rate 
based on the long-established CHAMPUS methodology.
    This approach is also consistent with the newly enacted 10 U.S.C. 
1079b, which reaffirms the authority of the Secretary of Defense to 
``implement procedures under which a military medical treatment 
facility may charge civilians who are not covered beneficiaries (or 
their insurers) fees representing the costs, as determined by the 
Secretary, of trauma and other

[[Page 15141]]

medical care provided to such civilians.'' It is the Secretary's 
determination that the CHAMPUS payment rates best represent the costs 
of providing care to all patients in Military Treatment Facilities.

Rulemaking Procedures

    We have reviewed this proposed rule in accordance with the 
provisions of Executive Order 12866, the Congressional Review of Agency 
Rulemaking Act (5 U.S.C. 801-808), and the Regulatory Flexibility Act 
(5 U.S.C. 601-612).
    This rule has been designated as significant rule and has been 
reviewed by the Office Management and Budget as required under the 
provisions of Executive Order 12866. It is not an economically 
significant action or a major rule, and it would not have a significant 
impact on a substantial number of small entities.
    This rule does this rule affect matter addressed by the Unfunded 
Mandates Reform Act (Pub. L. 104-4) or Executive Order 13132 concerning 
Federalism. Also, this proposed rule does not involve new information 
collection requirements under the Paperwork Reduction Act (44 U.S.C. 
chapter 35). This proposed rule will align DoD closer to civilian 
industry practices for health care billing and collections; it will 
have no significant economic or regulatory impact on any entity.
    This is a proposed rule. Public comments are invited.

List of Subjects in 32 CFR Part 220

    Claims, Health care, Health insurance.

    For reasons set forth in the preamble, the Department of Defense 
proposes to amend 32 CFR Part 220 as follows:

PART 220--COLLECTION FROM THIRD PARTY PAYERS OF REASONABLE CHARGES 
FOR HEALTHCARE 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 220.1 is revised to read as follows:


Sec. 220.1  Purpose and applicability.

    (a) This part implements the provisions of 10 U.S.C. 1095, 
1097b(b), and 1079b. In general, 10 U.S.C. 1095 establishes the 
statutory obligation of third party payers to reimburse the United 
States the reasonable charges of healthcare services provided by 
facilities of the Uniformed Services to covered beneficiaries who are 
also covered by a third party payer's plan. Section 1097b(b) elaborates 
on the methods for computation of reasonable charges. Section 1079b 
addresses charges for civilian patients who are not normally 
beneficiaries of the Military Health System. This part establishes the 
Department of Defense interpretations and requirements applicable to 
all healthcare services subject to 10 U.S.C. 1095, 1097b(b), and 1079b.
    (b) This part applies to all facilities of the Uniformed Services; 
the Department of Transportation administers this part with respect to 
facilities of the Coast Guard, not the Department of Defense.
    (c) This part applies to pathology services provided by the Armed 
Forces Institute of Pathology. However, in lieu of the rules and 
procedures otherwise applicable under this part, the Assistant 
Secretary of Defense (Health Affairs) may establish special rules and 
procedures under the authority of 10 U.S.C. 176 and 177 in relation to 
cooperative enterprises between the Armed Forces Institute of Pathology 
and the American Registry of Pathology.
    3. Section 220.2 is amended by revising paragraphs (a) and (b) to 
read as follows:


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 charges 
for healthcare services provided in or through any facility of the 
Uniformed Services to a covered 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 
or indemnification from the third party payer if the beneficiary were 
to incur the costs on the beneficiary's own behalf.
    (b) Application of cost shares. If the third party payer's plan 
includes a requirement for a deductible or copayment by the beneficiary 
of the plan, then the amount the United States may collect from the 
third party payer is the reasonable charge for the care provided less 
the appropriate deductible or copayment amount.
* * * * *
    4. Section 220.4 is amended by revising paragraph (c)(2)(iii) to 
read as follows:


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

* * * * *
    (c) * * *
    (2) * * *
    (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 charges under 
Sec. 220.8(a) (except in long stay outlier cases, noted in 
Sec. 220.8(a)(4)).
* * * * *
    5. Section 220.8 is amended by revising the section heading and 
paragraphs (a), (b), (c), (e), (f), (h), (i), and (j) and by removing 
paragraphs (k) and (l) to read as follows:


Sec. 220.8  Reasonable charges.

    (a) In general. (1) Section 1095(f) and section 1097b(b) both 
address the issue of computation of rates. Between them, the effect is 
to authorize the calculation of all third party payer collections on 
the basis of reasonable charges and the computation of reasonable 
charges on the basis of per diem rates, all-inclusive per-visit rates, 
diagnosis related groups rates, rates used by the Civilian Health and 
Medical Program of the Uniformed Services (CHAMPUS) program to 
reimburse authorized providers, or any other method the Assistant 
Secretary of Defense (Health Affairs) considers appropriate and 
establishes in this part. Such rates, representative of costs, are also 
endorsed by section 1079b(a).
    (2) The general rule is that reasonable charges under this part are 
based on the rates used by CHAMPUS under 32 CFR 199.14 to reimburse 
authorized providers. There are some exceptions to this general rule, 
as outlined in this section.
    (b) Inpatient hospital and professional services on or after 
January 1, 2003. Reasonable charges for inpatient hospital services 
provided on or after January 1, 2003, are based on the CHAMPUS 
Diagnosis Related Group (DRG) payment system rates under 32 CFR 
199.14(a)(1). Certain adjustments are made to reflect differences 
between the CHAMPUS payment system and the Third Party Collection 
Program billing system. Among these are to include in the inpatient 
hospital service charges adjustments relating to direct medical 
education and capital costs (which in the CHAMPUS system are handled as 
annual pass through payments). Additional adjustments are made for long 
stay outlier cases. Like the CHAMPUS system, inpatient professional 
services are not included in the inpatient hospital services charges, 
but are billed separately in accordance with paragraph (e) of this 
section.
    (c) Inpatient hospital and inpatient professional services before 
January 1, 
2003.  (1) In general. Prior to January 1,

[[Page 15142]]

2003, the computation of reasonable charges for inpatient hospital and 
professional services is reasonable costs based on diagnosis related 
groups (DRGs). Costs shall be based on the inpatient full reimbursement 
rate per hospital discharge, weighted to reflect the intensity of the 
principal diagnosis involved. The average charge per case shall be 
published annually as an inpatient standardized amount. A relative 
weight for each DRG shall be the same as the DRG weights published 
annually for hospital reimbursement rates under CHAMPUS pursuant to 32 
CFR 199.14(a)(1).
    (2) Standardized amount. The standardized amount is determined by 
dividing the total costs of all inpatient care in all military 
treatment facilities by the total number of discharges. This produces 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 area, 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 (c)(4) of this section), producing for each 
inpatient facility of the Uniformed Services a facility-specific 
``adjusted standardized amount'' (ASA).
    (3) DRG relative weights. Costs for each DRG will be determined by 
multiplying the standardized amount per discharge by the DRG relative 
weight. For this purpose, the DRG relative weights used for CHAMPUS 
pursuant to 32 CFR 199.14(a)(1) shall be used.
    (4) Adjustments for outliers, area wages, and indirect medical 
education. The Department of Defense may, but is not required by this 
part, to adjust charge determinations in particular cases for length-
of-stay outliers (long stay and short stay), cost outliers, area wage 
rates, and indirect medical education. If any such adjustments are 
used, the method shall be comparable to that used for CHAMPUS hospital 
reimbursements pursuant to 32 CFR 199.14(a)(1)(iii)(E), and the 
calculation of the standardized amount under paragraph (a)(2) of this 
section will reflect that such adjustments will be used.
    (5) Identification of professional and hospital charges. For 
purposes of billing third party payers other than automobile liability 
and no-fault insurance carriers, inpatient billings are subdivided into 
two categories:
    (i) Hospital charges (which refers to routine service charges 
associated with the hospital stay and ancillary charges).
    (ii) Professional charges (which refers to professional services 
provided by physicians and certain other providers).
* * * * *
    (e) Reasonable charges for professional services. The CHAMPUS 
Maximum Allowable Charge (CMAC) rate table, established under 32 CFR 
199.14(h), is used for determining the appropriate charge for 
professional services in an itemized format, based on Health Care 
Financing Administration (HCFA) Common Procedure Coding System (HCPCS) 
methodology. This applies to outpatient professional charges only prior 
to January 1, 2003, and to all professional charges, both inpatient and 
outpatient, after January 1, 2003.
    (f) Miscellaneous Healthcare services. Some special services are 
provided by or through facilities of the Uniformed Services for which 
reasonable charges are computed based on reasonable costs. Those 
services are the following:
    (1) The charge for ambulance services is based on the full costs of 
operating the ambulance service.
    (2) Charges for care in the Burn Center at Brooke Army Medical 
Center are based on a per diem rate for the full costs of these 
services until October 1, 2002, at which time charges will move over to 
DRG basis as stated.
    (3) Charges for dental services (including oral diagnosis and 
prevention, periodontics, prosthodontics (fixed and removable), 
implantology, oral surgery, orthodontics, pediatric dentistry and 
endodontics) will be based on a full cost of the dental services.
    (4) With respect to services provided prior to January 1, 2003, 
reasonable charges for anesthesia services will be based on an average 
DoD cost of service in all Military Treatment Facilities. With respect 
to services provided on or after January 1, 2003, reasonable charges 
for anesthesia services will be based on an average cost per minute of 
service in all Military Treatment Facilities.
    (5) The charge for immunizations, allergin extracts, allergic 
condition tests, and the administration of certain medications when 
these services are provided in a separate immunizations or shot clinic, 
are based on CHAMPUS prevailing rates in cases in which such rates are 
available, and in cases in which such rates are not available, on the 
average full cost of these services, exclusive of any costs considered 
for purposes of any outpatient visit. A separate charge shall be made 
for each immunization, injection or medication administered.
    (6) The charges for pharmacy, durable medical equipment and 
supplies are based on CHAMPUS prevailing rates in cases in which such 
rates are available, and in cases in which such rates are not 
available, on the average full cost of these items, exclusive of any 
costs considered for purposes of any outpatient visit. A separate 
charge shall be made for each item provided.
    (7) Charges for aeromedical evacuation will be based on the full 
cost of the aeromedical evacuation services.
* * * * *
    (h) Special rule for TRICARE Resource Sharing Agreements. Services 
provided in facilities of the Uniformed Services in whole or in part 
through personnel or other resources supplied under a TRICARE Resource 
Sharing Agreement under 32 CFR 199.17(h) are considered for purposes of 
this part as services provided by the facility of the Uniformed 
Services. Thus, third party payers will receive a claim for such 
services in the same manner and for the same charges as any similar 
services provided by a facility of the Uniformed Services.
    (i) Alternative determination of reasonable charges. Any third 
party payer that can satisfactorily demonstrate a prevailing rate of 
payment in the same geographic area for the same or similar aggregate 
groups of services that is less than the charges prescribed under this 
section may, with the agreement of the facility of the Uniformed 
Services (or other authorized representatives of the United States), 
limit payments under 10 U.S.C. 1095 to that prevailing rate for those 
services. The determination of the third party payer's prevailing rate 
shall be based on a review of valid contractual arrangements with other 
facilities or providers constituting a majority of the services for 
which payment is made under the third party payer's plan. This 
paragraph does not apply to cases covered by Sec. 220.11.
    (j) Exception authority for extraordinary circumstances. The 
Assistant Secretary of Defense (Health Affairs) may authorize 
exceptions to this section, not inconsistent with law, based on 
extraordinary circumstances.
    6. Section 220.10 is amended by revising paragraph (c)(1) to read 
as follows:


Sec. 220.10.  Special rules for Medicare supplemental plans.

* * * * *
    (c) Charges for health care services other than inpatient 
deductible amount.

[[Page 15143]]

(1) The Assistant Secretary of Defense (Health Affairs) may establish 
special charge amounts for Medicare supplemental plans to collect 
reasonable charges for inpatient and outpatient copayments and other 
services covered by the Medicare supplemental plan. Any such schedule 
of charge amounts shall:
* * * * *
    7. Section 220.12 is amended by revising paragraph (a)(1) 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 charges for healthcare services 
provided through any facility of the Uniformed Services to a Uniformed 
Services beneficiary who is also a beneficiary under the plan.
* * * * *
    8. Section 220.13 is amended by revising paragraph (a) to read as 
follows:


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 charges for healthcare 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.
* * * * *
    9. Section 220.14 is amended by revising the definitions Covered 
beneficiaries and Third party payer to read as follows:


Sec. 220.14  Definitions.

* * * * *
    Covered beneficiaries. Covered beneficiaries are all healthcare 
beneficiaries under chapter 55 of title 10, United States Code, except 
members of the Uniformed Services on active duty (as specified in 10 
U.S.C. 1074(a)). However, for purposes of Sec. 220.11, such members of 
the Uniformed Services are included as covered beneficiaries.
* * * * *
    Third party payer. A third party payer is any 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.
    (7) Any other plan or program that is designed to provide 
compensation or coverage for expenses incurred by a beneficiary for 
healthcare services or products.
* * * * *

    Dated: March 25, 2002.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 02-7539 Filed 3-28-02; 8:45 am]
BILLING CODE 5001-08-P