[Federal Register Volume 67, Number 177 (Thursday, September 12, 2002)]
[Rules and Regulations]
[Pages 57739-57742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23244]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 220

[0720-AA67]


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

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

ACTION: Final rule.

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SUMMARY: This final rule implements provisions of the National Defense 
Authorization Act for Fiscal Year 2000, which amended the statutory 
obligation of the third 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. DoD is adopting the ``reasonable charge'' basis and 
generally will use CHAMPUS payment rates as the reasonable charges 
under the Program. This rule also implements Section 732 of the 
National Defense Authorization Act for Fiscal Year 2002. This section 
specifically addresses the charging of fees for care to civilians who 
are not covered beneficiaries.

EFFECTIVE DATE: This rule is effective October 1, 2002.

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

SUPPLEMENTARY INFORMATION: In keeping with our intention to adopt a 
rate structure more consistent with the civilian health insurance 
industry practice, this rule adopts an itemized methodology for 
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 CHAMPUS Maximum Allowable Charge (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 Veterans Affairs.
    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 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.

[[Page 57740]]

Public Comments

    This rule is based on a proposed rule published in the Federal 
Register March 29, 2002 (67 FR 15140-15143). We received two public 
comments from health insurance associations. One commenter urged that 
we accept a third party payer's ``usual, customary, and reasonable 
charges'' or, if under a Medigap plan, Medicare charges as reasonable 
charges under the Third Party Collection Program. We have not made a 
change to the rule in relation to this comment. Our regulation (Sec.  
220.8(i)) includes a process for an alternative determination of 
reasonable charges based on similar payments made by the third party 
payer. In the Medigap context, the CHAMPUS rates, which form the basis 
of our reasonable charges, are generally quite similar to Medicare 
payment rates. The other commenter recommended that DoD establish 
through the Center for Medicare and Medicaid Services an arrangement 
for Medicare contractors to produce something comparable to an 
explanation of Medicare benefits (EOMB) that Medigap carriers could 
then use to facilitate the adjudication of claims from DoD for their 
Medigap beneficiaries. This is an interesting idea, but does not 
provide a basis for any change to the regulation. A third party payer's 
obligation under the statute is not dependent upon the presentation of 
something comparable to an EOMB and there would be significant issues 
to address concerning the feasibility of creating such a system. 
Nonetheless, DoD is open to exploring this idea further.

Changes to the Proposed Rule

    We have made only minor changes to the proposed rule, such as to 
adjust the effective dates for implementing the reasonable charges 
billing rates under Sec.  220.8 in order to assure effective 
implementation.

Rulemaking Procedures

    We have reviewed this rule in accordance with the provisions of 
Executive Order of 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 a significant rule and has 
been reviewed by the Office of Management and Budget as required under 
the provisions of Executive Order 12866. It is not a significant 
regulatory action or a major rule, and it would not have a significant 
impact on a substantial number of small entities. Nor does this rule 
affect matter addressed by the Unfunded Mandates Reform Act (Pub. L. 
104-4) or Executive Order 13132 concerning Federalism. Also, this rule 
does not involve new information collection requirements under the 
Paperwork Reduction Act (44 U.S.C. chapter 35). This rule will align 
DoD closer to civilian industry practices for healthcare billing and 
collections; it will have no significant economic or regulatory impact 
on any entity.

List of Subjects in 32 CFR Part 220

    Claims, Healthcare, Health insurance.

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

PART 220--COLLECTION FROM THIRD PARTY PAYERS OF REASONABLE 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. The title of 32 CFR part 220 is revised as shown above.

    3. 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 to 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.

    4. 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.
* * * * *

    5. 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)).
* * * * *

    6. 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) 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

[[Page 57741]]

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 
1079(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 April 
1, 2003. Reasonable charges for inpatient hospital services provided on 
or after April 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 related 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. In lieu of 
the method described in this paragraph (b), the method in effect prior 
to April 1, 2003 (described in paragraph (c) of this section), may 
continue to be used for a period of time after April 1, 2003, if the 
Assistant Secretary of Defense (Health Affairs) determines that 
effective implementation requires a temporary deferral.
    (c) Inpatient hospital and inpatient professional services before 
April 1, 2003. (1) In general. Prior to April 1, 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). The 
method in effect prior to April 1, 2003 (as described in this paragraph 
(c)), may continue to be used for a period of time after April 1, 2003, 
if the Assistant Secretary of Defense (Health Affairs) determines that 
effective implementation requires a temporary deferral of the method 
described in paragraph (b) of this section.
    (2) Standard amount. The standard 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 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 Healthcare Common 
Procedure Coding System (HCPCS) methodology. This applies to outpatient 
professional charges only prior to implementation of the method 
described in paragraph (b) of this section, and to all professional 
charges, both inpatient and outpatient, thereafter.
    (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) With respect to inpatient hospital charges in the Burn Center 
at Brooke Army Medical Center, the Assistant Secretary of Defense for 
Health Affairs may establish an adjustment to the rate otherwise 
applicable under the DRG payment methodology under this section to 
reflect unique attributes of the Burn Center.
    (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 service 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

[[Page 57742]]

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, 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 aero-medical evacuation will be based on the full 
cost of the aero-medical 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.

    7. Section 220.10 is amended by revising paragraph (c)(1) 
introductory text to read as follows:


Sec.  220.10  Special rules for Medicare supplemental plans.

* * * * *
    (c) Charges for Healthcare services other than inpatient deductible 
amount. (1) The Assistant Secretary of Defense (Health Affairs) may 
establish 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:
* * * * *

    8. 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.
* * * * *

    9. 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.
* * * * *
    10. Section 220.14 is amended by revising the definitions of 
``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 of this part, 
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: August 30, 2002.
Patricia L. Toppings,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 02-23244 Filed 9-11-02; 8:45 am]
BILLING CODE 5001-08-M